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> Posted by Jeffrey Riecke, Communications Assistant, CFI
Accessible savings services make countries more resilient during times of financial crisis, a new report from Rui Han and Martin Melecky of the World Bank finds. It’s been established that access to savings leads to increased financial stability at the individual and household level, but this report is the first empirical evidence of this relationship at the financial systems scale.
As the current banking crisis in Cyprus reminds us, during times of financial uncertainty and crisis, the potent threat of widespread bank withdrawals (bank runs) emerges. In 2009, the volume of global deposits shrank by about 12 percent in a ratio compared to GDP.
The report investigated the effect of bank deposit service accessibility on the stability of bank funds in 113 countries during the 2008 global financial crisis. It found that a 10 percent increase in savings service accessibility mitigates a country’s deposit withdrawal rates by about 4 percent, with this link spanning nations of all income levels and strongest in middle income countries. One reason for this increased readiness of clients in middle income countries to withdraw funds is low familiarity and trust of banks.
> Posted by Holly Padgett
Since I started working with the Center for Financial Inclusion this fall, I’ve been inspired to observe the client-centered nature of the microfinance industry. For example, I recently read a report by MicroSave, an organization that focuses on market-led microfinance in Africa and Asia, which confirmed this client-centered trait. The report examines client experiences in the wake of the microfinance crisis in Andhra Pradesh.
Below are some of the findings of the report that I found most striking:
- With MFIs in Andhra Pradesh drastically reducing new lending, borrowers have been forced to seek out alternative sources for lending. In 66 percent of the research sessions MicroSave conducted, clients described the major burden of these alternative loans as the “exorbitant” interest rates. Read the rest of this entry »
> Posted by Beth Rhyne
As leaders of the microfinance industry in India assemble in Delhi this week for the ACCESS Microfinance India Summit, India-watchers outside the country can follow events in the sector by taking a look at the latest report from M-CRIL: “M-CRIL Microfinance Review 2011: Anatomy of a Crisis.” The executive summary is available as a stand-alone document, and it provides instructions for purchasing the entire data-drenched report.
For me, the best parts of the report are the numbers that help dimension the sector and its crisis, as well as its no-holds-barred approach to stating conclusions. Here is a small sampling:
On the role of microfinance in India: “Microfinance is now established as a significant component of the financial system in the country and its contribution to financial inclusion continues to rival, if not exceed, that of the rural banking system.” “With 31.8 million borrower accounts the size of the microfinance sector more than matches significant parts of the Indian financial system in terms of the number of citizens affected. This number is more than three times the number of micro‐credit accounts serviced by the Regional Rural Banks and is greater even than the total number of such micro‐accounts held by the commercial banks.” Read the rest of this entry »
> Posted by Siddhartha Chowdri
The Reserve Bank of India (RBI) on Tuesday declared in both its Annual Monetary Policy Statement and its statement on “Bank loans to Micro Finance Institutions (MFIs) – Priority Sector status” that it has decided to “to accept the broad framework of regulations recommended by the [Malegam] Committee”.
Although more details on the regulation are to be released later this week, the RBI did make some significant and welcome changes in the regulations, including:
- Repayment frequency of loans can be at the discretion of the client. The earlier recommendation had mandated monthly collections, whereas most Indian MFIs collect loans on a weekly basis.
- Individual loans to be considered as microfinance. The earlier recommendation was only limited to group lending.
- Making a distinction between rural and non-rural in the income qualification for loans to be considered microfinance.
- Increased the proposed interest rate cap from to 26% up from 24%. This is still extremely restrictive for small institutions, but will make a major difference to some of the larger players, who already operating around these rates.
The regulations, although they have been eased, will pose significant challenges to smaller MFIs and still do not address the continuing repayment crisis in Andhra Pradesh. Read the rest of this entry »
> Posted by Center Staff
One of the more profound reflections on the crisis in Indian microfinance comes to us from Vijay Mahajan, who is undertaking Shodh Yatra, an “extended grassroots enquiry into the lives and livelihoods of poor people.”
His journey comes in the form of a “walk while in a village or a town, stopping by every once in a while to have a dialogue; and drive between habitations.”
Mahajan, who makes Gandhi a spiritual touchstone as he blogs about his experiences, is a trailblazer in Indian microfinance who was listed by BusinessWeek’s Asia edition as being among the country’s 50 most powerful people.
“I intend to do this [Shodh Yatra] for 60 days over a period of Jan 30, 2011 (today) till April 18, 2011,” he writes. “The beginning date and place are significant to me – today is Gandhiji’s martyrdom day and I am starting from his Ashram in Sevagram, Wardha; near Nagpur in Central India.” Read the rest of this entry »
> Posted by Sergio Guzmán
In November of 2009, we reported that the microfinance industry in Nicaragua is under siege by a politically motivated group of borrowers. Calling themselves “No Payment Movement,” they pressured the government to lower their interest rates, suspend debt recovery trials, and grant grace periods on repayment. On February 24th, 87 out of 92 members of the National Assembly voted to order microfinance companies to sit down with their delinquent borrowers and renegotiate all loans past due since June 30, 2009; microfinance companies were also ordered to suspend asset seizures and trials. Furthermore, the assembly has instituted interest rate caps of 16% per annum on all renegotiated loans. President Ortega has not yet signed the bill, which is a requirement before it becomes into Law, however it is expected that he will.
The Microfinance Association of Nicaragua, ASOMIF, had, in numerous occasions, voiced its opposition to the law, saying that it would institute a culture of non-payment that is bad for both the country and for individual borrowers. Such a culture could make foreign investors wary of Nicaraguan deals, withholding financing for MFIs serving as many as 450,000 clients in good standing. Read the rest of this entry »
> Posted by Elisabeth Rhyne
CGAP has just come out with an important new Focus Note analyzing recent microfinance repayment crises in Nicaragua, Morocco, Bosnia, and Pakistan—“Growth and Vulnerabilities in Microfinance.” Reading it set me thinking back to the Bolivian repayment crisis of 1999-2000 and to the lessons that came out of it.
The Bolivian crisis had all the same hallmarks as recent crises. New entrants, in this case consumer lenders, came in with very aggressive growth strategies, as second movers behind the more established MFIs. They tolerated and even welcomed multiple borrowing. Borrower difficulties were triggered by a recession, which in turn triggered a virulent—and politically motivated—debt protest movement. At one point protestors piled all the computers of MFI branches into the street and set fire to them. At the height of the crisis, the outlook for Bolivian microfinance was bad. But today, Bolivian microfinance is thriving, and that includes all of the leading microfinance institutions who experienced the crisis.
A number of key short- and longer-term actions made it possible for Bolivian microfinance to survive, recover, and move to a more stable footing. Read the rest of this entry »
> Posted by Sergio Guzmán
Credit: El Nuevo Diario, http://impreso.elnuevodiario.com.ni/2009/09/ 08/nacionales/109207
The microfinance industry in Nicaragua is under siege by a politically motivated group of borrowers who call themselves the No Payment Movement (Moviemiento No Pago). The Movimiento No Pago includes from 3,000 to 5,000 producers, merchants and microentrepreneurs who are led by the former mayor of Jalapa Omar Vílchez. The movement commenced in Jalapa in the summer of 2008, with the takeover of an MFI and a riot incited by a protest speech.
Recently, the leaders of the movement have demanded that the Congress approve a Moratorium Law to give debtors a 10 year amortization period with interest rates that do not exceed 8 percent APR as a condition to stop harassment of the microfinance industry. The leaders of the Movimiento No Pago from the North and Caribbean regions of Nicaragua have threatened to burn the buildings of MFIs, take hostage MFI personnel and escalate their violence if their demands for a moratorium law are not met.
Credit: El Observador Económico http://www.elobservadoreconomico.com/ articulo/933
There has been important opposition to this moratorium law from many sectors. Several newspaper editorials and articles speak against the moratorium bill, which has not yet moved toward legislative action. The law was sent back to the economic committee of the National Assembly and Awaits review.
According to one journalist, “Before erasing two decades of investment and progress with a vote, the National Assembly should investigate how microfinance operates and the reasons for its high costs as well as its social and economic impact as well as its clients’ satisfaction. A law that rewards clientele without willingness to pay and punishes honest and punctual clients, will incentivize a non-payment culture at a loss for all of the social stakeholders involved, including the banking system.” Read the rest of this entry »
> Posted by Kimberly Williams Weinrick and Meghan Gallagher
While the New York spring rain outside was slowing down, inside at the May 7 evening dicussion “Macro to Micro: Performance of Investments in Microfinance in the Current Financial Crisis” there were energetic and insightful attendees from many different backgrounds, professions, and perspectives, adding to the buzz in the room resonating with dynamic conversations.
The evening included a lively and broad-ranging panel that examined the story of how a sector whose chief purpose is to supply small loans to those without collateral or access to traditional financial services is at once maturing and reshaping itself during this time of turmoil. And the panel did not disappoint.
Beginning with an after-work networking reception in Midtown Manhattan, the microfinance program enjoyed a big crowd. Once the panel was introduced, it was clear that the exceptional participants would bring illumination and understanding to this evolving landscape. These panelists were: Roland Dominicé, Executive Director, Symbiotics; Ann Miles, Managing Director, BlueOrchard Finance, S.A.; Camilla Nestor, Director, Grameen Foundation; Susanna K. Tisa, Managing Director, FINCA International; and Mitchell Strauss, Special Advisor SME Finance & Director of Credit Policy, Overseas Private Investment Corporation (OPIC).
The insightful discussions focused on how microfinance institutions Read the rest of this entry »
> Posted by Elisabeth Rhyne
I’m blogging today from the annual meeting of the ACCION Network taking place in Buenos Aires, hosted by Columbia Microcredito of Banco Columbia. We spent a very interesting morning talking about the effect of the financial crisis on microfinance institutions and their clients in Latin America. We’ve heard from Michel Burbano of Banco Solidario in Ecuador, Carlos Viteri of Financiera Apoyo Integral in El Salvador and Kurt Koenigsgfest of BancoSol in Bolivia. Some of the points that really hit me this morning are:
- The severity of the crisis differs by country. It is hitting El Salvador much harder than Bolivia because El Salvador is more integrated into the US economy. What for MFIs in Bolivia is so far a somewhat challenging time is for MFIs in El Salvador a very serious situation.
- The crisis is still unfolding, but these MFIs have had time to think about how to respond and are already implementing their responses. Their most important message is: stick to your knitting. Do what you do best. The biggest concern is the rise of delinquency as clients’ businesses suffer. The MFIs are responding in many ways. The most important is focusing on their credit methodology, especially assessing client ability and willingness to repay.
- Some adjustments are necessary, including changing staff incentives. When general delinquency rises Read the rest of this entry »
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