MICROFINANCE NEWZ...

As Microfinance Grows in India, So Do Its Rivals : A report from WSJ

2009-12-15T14:01:00.003+05:30

A report form KETAKI GOKHALE (WSJ) says that Small Credit Lines Were Supposed to Trim the Practice of High-Interest Loans in Rural Areas, but Moneylenders Flourish.

The practice of making tiny loans to poor people, or microfinance, was supposed to help drive traditional village moneylenders from rural India.
Instead, traditional moneylenders, who typically charge high interest rates, are thriving, even in areas most heavily targeted by microfinance, which was begun as a way to help combat poverty by granting the poor access to capital to start businesses. Muhammad Yunus, the Bangladeshi founder of microfinance, won a Nobel Peace Prize.
Even as the government and nonprofit organizations came together to create the Indian microfinance market in the 1990s, traditional moneylenders' share of total rural Indian household debt grew to 29.6% from 17.5%, according to a government survey. Another recent survey by the Reserve Bank of India found that between 1995 and 2006, the number of registered traditional moneylenders increased 56% to 19,627 from 12,601. Though much harder to quantify, unlicensed lenders are believed to have made similar gains, the survey says.

One potential reason for their growth: Some microfinance borrowers say they need village moneylenders to help them pay their debts on time. Some academic researchers believe the moneylenders are keeping afloat many microfinance groups.
Peer pressure to pay back microfinance loans is intense, because microlenders almost always require borrowers to join small, tightknit groups. If one member defaults, none can get another loan. Microloans have a stellar repayment rate -- close to 100% -- and some analysts believe a hidden reason is the stopgap provided by moneylenders.
Microfinancing has boomed in recent years. Though founded as nonprofits, the Indian microfinance industry has been turbocharged by private-equity firms, nearly doubling in the year ended March 31, delivering $2.5 billion in loans. Many microfinance lenders have recently registered as for-profit finance firms with the Reserve Bank of India, the Indian central bank, giving them wider access to funds but limiting them to "reasonable" interest rates. Those rates are still high -- between 20% and 40% annually, according to the Consultative Group to Assist the Poor, or CGAP, hosted at the World Bank.
But the rates are still lower than those offered by the traditional Indian moneylending industry, a chaotic jumble of pawn brokers, gold merchants and other private moneylenders -- some licensed, most not. For centuries they have monopolized rural Indian credit markets but have been accused of fleecing people who don't have access to formal banking by charging exorbitant rates and seizing all their belongings as collateral. They typically charge between 24% and 120% annually, according to CGAP.
Proponents of microfinance say people deeply in debt to moneylenders can now refinance their loans with a lower interest rate offered by microlenders. They also say it has boosted health and education levels among the world's poorest and has empowered women.
A new study from the Abdul Latif Jameel Poverty Action Lab at the Massachusetts Institute of Technology shows that households with existing small businesses or a high propensity to start one benefit from microfinance -- they use the loans as investments. The study also found that these households cut back on "frivolous consumption," such as alcohol and tobacco, in order to divert more funds for investment purposes.
Here in Mahabubnagar, a city of migrant workers that has one of the highest concentrations of microfinance in Andhra Pradesh -- and one of the highest concentrations of moneylenders -- M. Murlidhar owns a traditional moneylending business. He says people are "repaying their loans faster," and that the "overall rotation of money in society has been increased" by the advent of microfinance and government lending programs.
The city has 50 registered moneylenders, and an unknown number of unregistered lenders. On the town's main drag stand prominent offices for virtually every kind of lender from moneylenders and microfinance companies to chit funds, a sort of savings club that auctions its funds to the highest bidder. Locals say lending is so frothy that it is possible to get day loans in the vegetable market that provide 100 rupees in the morning that have to be repaid with 10 rupees interest by dusk. More than 80% of registered moneylenders in Jadcherla, the nearby lending center for the district, launched their businesses after 2000, when the number of microfinance lenders began to skyrocket.
One lender, who wished to remain anonymous because his business is unregistered, gives borrowers short-term, collateral-free loans "as quickly as an ATM gives money," he boasts. Interest sometimes has to be paid on a daily basis and works out to an annual rate of 48%.
The poor use his loans as a stopgap when they can't make their weekly microfinance repayments because their income was less than expected, he says.
In Hanuman Nagar, a slum nestled under a highway, the moneylenders are virtually indistinguishable from the microlenders. They distribute knock-off versions of the microlenders' passbooks. Some use the same weekly repayment structure and door-to-door service as the microlenders do.
The difference, however, is that the moneylenders give loans faster, without asking the women to form groups and serve as each other's guarantors, as microfinance lenders do in order to ensure a higher repayment rate. They also charge significantly more than the four microlenders serving the neighborhood.
Baleshwari, 23 years old, and her sister Balamani, 40, started taking microcredit two years ago when their father, the sole breadwinner, died. Between the two of them, they have taken loans from four different microlenders and owe payments totaling 4,430 rupees, about $95, each month. During the monsoons, when their combined monthly income, drawn from selling bamboo baskets and catering food, dips to about $65, they turn to the local pawn broker for short-term loans to cover their microfinance debt. The interest rates she pays to pawn brokers range from 36% to 48%, she says, and she had to put up gold jewelry as collateral. Her microfinance loans have interest rates of 18% and 24%.
"Group pressure makes us go to moneylenders" to cover their microfinance loans, says Baleshwari, who goes by only one name, as does her sister. "We get small loans for 15 days to fill the gaps when we can't pay. If you lag behind, the rest of the group members can't get new loans."
This dynamic is why some analysts believe the village moneylenders are actually floating the microfinance lenders.
Microlenders disagree. They say the boom in traditional moneylending has been fueled by an increase in demand for credit, and that the share of debt owed to moneylenders is up because microfinance has yet to hit maximum penetration. Some doubt that microfinance is spurring moneylender growth. Although "microfinance institutions and moneylenders offer different products, and it would be quite possible for them to work side-by-side," it doesn't imply a causal relationship, says Rachel Glennerster, executive director of the Poverty Action Lab. She suggested some borrowers may not be paying one loan with another, but using additional funds to expand businesses.
Microfinance has "introduced the concept of income generation to poor women," and also encouraged them to spend on their children's education and health, adds Padmaja Reddy, managing director of Spandana, one of the largest microlenders in India. This has "increased the overall demand for credit."
But here in Mahabubnagar, few women have started their own businesses. Some of those in business have to rely on moneylenders. Microloan repayments begin the week after the loan is disbursed and continue with weekly payments. Most businesses don't produce instant profits, and many are seasonal, so moneylenders can help when funds are tight.
Where microlenders, relative newcomers to rural India, rely on peer pressure for repayment, private moneylenders have historically been conservative in their practices: extending loans based on an intimate knowledge of people's finances, and building their client bases over many years, says Sridhar Tadepally of Villages in Partnership, a Mahabubnagar-based development organization.
But since microfinance took off in Mahabubnagar, he has seen moneylenders start to "adopt the methods of microfinance" -- small loans, large volumes and regular repayments -- "to scale up their business."

http://online.wsj.com/article/SB126055117322287513.html?mod=WSJ_hpp_LEFTTopStories

TOI Says: MFIs offer home loans

2009-12-02T00:35:00.001+05:30

With the lending rates falling, it's not just the urban home buyers who are benefiting. Micro finance institutions (MFIs) are now rolling out home loan products to the poor in rural India. And they are finding takers too. For their part, MFIs are lending to those having a good repayment track record. Most people in villages own plots and they construct the house on a low-cost model with indigenous materials, says Tara Thiagarajan, chairman of Madura Micro Finance. This low-cost construction model is what is prompting MFIs to dole out home loans. SKS Microfinance is planning to launch a home loan product next fiscal. It would start as a pilot in rural Andhra Pradesh. "We are still finalising the interest rates," says Suresh Gurumani, CEO and managing director of SKS Microfinance. The rural home loan products are structured pretty much the same way as in the cities. The difference being the average loan amount. For MFIs, it ranges between Rs 50,000 and Rs 2 lakh with repayments being in equated monthly instalments (EMIs). Some like Madura Micro Finance also provide a payment holiday of four months for construction. The real action on the rural home front is loans for home improvements and extension - converting the thatched roof into a tiled one, adding bathrooms or other additional rooms. SKS and Grama Vidiyal, which is also planning to launch a home loan product soon, are concentrating on the home improvement and addition space.

http://timesofindia.indiatimes.com/biz/india-business/MFIs-offer-home-loans/articleshow/4331728.cms

SAIJA: Technically the first commercial MFI of Bihar origin

2009-12-02T00:17:00.004+05:30

Saija Finance Private Limited is a Non Banking Finance Company (NBFC) formed in April 2008 with a focus on providing microfinance services for the urban and rural poor, as well as micro and small businessmen in the underserved geographies of Northern India – Bihar, Jharkhand, Delhi, Rajasthan, Chhattisgarh and parts of Uttar Pradesh and Madhya Pradesh. SAIJA has an aggressive expansion plan aiming to reach over 60,000 clients by year three and around 2.50 lakhs by year five. The geographic regions served by SAIJA are amongst the poorest areas of India and also are grossly underserved by formal financial institutions. As such, SAIJA is uniquely positioned to bring organized financial services to a large number of poor clients who otherwise would not have access to credit and other financial services on attractive terms. This also presents an appealing business opportunity.SAIJA started with a small portfolio of micro loans, taken over from its associate non-profit entity, Saija Vikas, which was registered as a society in July 2007 under the Societies Registration Act No. 21 of 1860. The company started in July 2007 with a market research survey interviewing 1500 clients in the Patna slums regarding their socio-economic conditions, prevailing economic activities and current access to financial products. The name Saija has been coined from “Sai” of Sai Baba of Shiridi, an Indian saint, while “Ja” has been taken from the holy shrine of Ajmer Sharif which is the tomb of Hazrat Mu'inuddin Chishti, the founder of the Sufi order. The companies and businesses set up by them earlier were also named Saija. Mr. Sinha, the founder, has a hugely successful track record and a wealth of experience in banking, housing finance and insurance while Mrs. Sinha, the co-founder, has over 25 years experience in the human resources field. Saija is a young MFI having begun operations in its pilot branch in November 2007. It is looking to build robust systems and processes for the remainder of this fiscal year before its projected exponential growth next year.

Saija Microfinance recieves investment from Accion International

2009-12-02T00:08:00.001+05:30

Accion has acquired a 49.5 % equity stake in Saija Microfinance for Rs 2.5 Crore(US $500,000).
Saija Finance Private Limited is a Non Banking Finance Company (NBFC) formed in April 2008 with a focus on providing microfinance services for the urban and rural poor, as well as micro and small businessmen in the underserved geographies of Northern India – Bihar, Jharkhand, Delhi, Rajasthan, Chhattisgarh and parts of Uttar Pradesh and Madhya Pradesh.
SAIJA has an aggressive expansion plan aiming to reach over 60,000 clients by year three and around 2.50 lakhs by year five.

INDIAN MFI UPDATE

2009-12-01T00:27:00.001+05:30

Furthering Financial Inclusion through Financial Literacy and Credit Counselling

2009-11-30T22:33:00.001+05:30

(Address by Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of India at the launch of Federal Ashwas Trust on November 30, 2009 in Kochi, Kerala.)
I am happy to be here this morning and feel privileged to launch the Federal Ashwas Trust for running the Financial Literacy and Credit Counselling Centres (FLCC) of Federal Bank. At the outset, let me warmly congratulate my old friend and colleague Shri M. Venugopalan, MD and CEO, Federal Bank, and his team for bringing the FLCC of Federal Bank to fruition. Even though Kerala has the highest literacy rate amongst all States in the country, I am sure that centres such as these have a vital role to play in providing valuable services to the people in the district.

2. As our Hon’ble Finance Minister emphasized in his Budget speech, our approach to banking and financial sector has been to ensure robust oversight and regulation while expanding financial access and deepening markets. The merit of this balanced approach has been borne out in the recent experience as the turbulence in the world financial markets has left the Indian banking and financial sector relatively unaffected. The recent turmoil which engulfed the western world and its financial sector brought to even sharper focus the pressing need to protect the vulnerable from Ponzi schemes through safety nets of financial education, counselling and timely advice.
3. The establishment of FLCCs is an important milestone in furthering financial inclusion. As I have emphasised time and again, opening a no frills account is by itself not financial inclusion. That is just the beginning. Financial inclusion is a much broader term which can be construed as the process of ensuring fair, timely and adequate access to financial services, namely, saving, credit, payment and remittance facilities, and insurance services at an affordable cost in a fair and transparent manner by the mainstream institutional players. Educating people and making them financially literate thus becomes integral to achieving financial inclusion, which is why centres such as these are needed.
4. With the above perspective, I organize the rest of my remarks under the following sections. In Section 1, I propose to talk about the importance of financial education. In Section 2, I would briefly touch upon the need for credit counselling. Section 3 discusses the specific objectives of setting up the FLCCs. Section 4 covers the role of RBI and, finally, I shall share some of my thoughts on issues and challenges that we need to address.
I. Financial Education
5. Financial education can broadly be defined as the capacity to have familiarity with and understanding of the financial market products, especially rewards and risks in order to make informed choices. Viewed from this standpoint, financial education primarily relates to personal financial education to enable individuals to take effective actions to improve overall well-being and avoid distress in financial matters.
6. The financial markets offer a variety of both simple and complex financial products. It is difficult for the common person to grasp the downside risks associated with financial products especially if he or she is confronted by a blitz of clever advertising. Making wrong choices while choosing financial products becomes one of buying in haste and repenting at leisure. The focus of any discussion on financial education is thus primarily on the individual, who usually has limited resources and skills to appreciate the complexities of financial dealings with financial intermediaries on matters relating to personal finances on a day-today basis.
7. Lack of literacy in general and financial literacy in particular, are the main hurdles in expanding the coverage of financial services to the poorer segments of society. Notwithstanding the initiatives taken so far, given the large magnitude of the problem, concerted efforts need to be made in this direction. Banks should, therefore, come forward to set up literacy centres and guide their clients about the features, benefits and risk of various financial products. With no well established banking relationships, the un-banked poor are pushed towards expensive alternatives. These centres can educate the people about proper financial management tools, inculcate saving habits and generate demand for financial products and services which in turn will boost financial inclusion. This process of education could benefit the banks as the centres while interacting with customers would be in a much better position to understand their specific requirements, which could then be a critical input in appropriate product design.
8. Financial education is also an integral component of customer protection. Despiteconcerted efforts, the current levels of transparency coupled with the difficulty of consumers in identifying and understanding the fine print from the large volume of information, leads to an information asymmetry between the financial intermediary and the customer. For example, customers are often penalised for minor violations in repayments, although they have limited redressal mechanisms to rectify deficiencies in service by banks. In this context, financial education can greatly help the consumers.
II. Credit Counselling
9. Credit Counselling can be defined as 'counselling that explores the possibility of repaying debts outside bankruptcy and educates the debtor about credit, budgeting, and financial management’. It serves three purposes. First, it examines the ways to solve current financial problems. Second, by educating about the costs of misusing a credit, it improves financial management. Third, it encourages the distressed people to access the formal financial system.
10. As per the All India Debt and Investment Survey, 2003, nearly a fourth of the households were indebted in 2002. The per cent of indebtedness households in rural areas increased sharply from 23 in 1991 to 27 in 2003; the corresponding figures for urban areas during the same period were 19 and 18, respectively. As per the NSSO survey (2003), out of 89.35 million farmer households, 43.42 million (48.6%) were reported to be indebted. Farmer’s indebtedness was highest in Andhra Pradesh followed by Tamil Nadu and Punjab. The average outstanding loan per farmer household was highest in Punjab, followed by Kerala, Haryana, Andhra Pradesh and Tamil Nadu.
11. The report on the Situational Assessment of Farmers (NSS 59th round-2003) estimated that 64.4% farmer households are indebted in Kerala as against the national average of 48.6%. The major reasons for arrears in repayment reported include high cost of cultivation, fall in prices of agricultural produce and crop failures. Opening of credit counselling centres such as these can certainly benefit the people.
12. Earlier, there were reports of farmers committing suicides in some parts of the country due to their financial liabilities. Through the provision of timely and professional advice, common people can be helped to manage their debt, improve money management skills and gain access to the structured financial system. Counselling can help solve current financial problems, create awareness about the costs of misusing a credit, can improve financial management and help develop realistic spending plans. Debt counselling/credit counselling can be both preventive and curative. In case of preventive counselling, the centres could provide awareness regarding cost of credit, availability of backward and forward linkages, where warranted, etc. The clients could be encouraged to avail of credit on the basis of their repaying capacity. Preventive counselling can be through the media, workshops and seminars. In the case of curative counselling, the clients may approach the counselling centres to work out individual debt management plans for resolving their unmanageable debt portfolio. Here, the centres could work out effective debt restructuring plans that could include repayment of debt to informal sources, if necessary, in consultation with the bank branch.
III. Specific Objectives of FLCCs
13. With the above background, let me remark on the specific objectives of setting up FLCC. As you are aware, while the broad objective of the FLCCs will be to provide free financial literacy/education and credit counselling, the specific objectives of the FLCCs would be:
To provide financial counselling services through face-to-face interaction as well as through other available media like e-mail, fax, mobile, etc. as per convenience of the interested persons, including education on responsible borrowing, proactive and early savings, and offering debt counselling to individuals who are indebted to formal and/or informal financial sectors;
To educate the people in rural and urban areas with regard to various financial products and services available from the formal financial sector ;
To make the people aware of the advantages of being connected with the formal financial sector ;
To formulate debt restructuring plans for borrowers in distress and recommend the same to formal financial institutions, including cooperatives, for consideration ;
To take up any such activity that promotes financial literacy, awareness of the banking services, financial planning and amelioration of debt-related distress of an individual;
14. FLCCs are not expected to act as investment advice centres /marketing centres for products of any particular bank/banks. Counsellors may refrain from marketing / providing advice regarding investment in insurance policies, investment in securities, value of securities, purchase/ sale of securities, etc., or promoting investments only in bank’s own products.
IV. Role of the RBI
15. We, at the RBI, actively encourage these initiatives and one of the main reasons for my coming here to launch the trust is to demonstrate our commitment to this cause. RBI has completed 75 years and in our platinum jubilee year, we are making concerted efforts to expand the reach of formal finance through outreach initiatives. All the stakeholders are being encouraged to push aggressively for greater financial inclusion. The Banking Codes and Standards Board of India (BCSBI) has recently brought out an updated code to ensure that the banks formulate and adhere to their own comprehensive code of conduct for minimum standards of banking services, which individual customers can legitimately expect. And finally, the Banking Ombudsman Scheme has been instituted for redressal of grievances against deficient banking services, covering all the States and Union Territories.
V. Issues and Challenges
16. Since promoting awareness is one of the primary objectives, the FLCCs should give due emphasis to customers' rights under fair practices code and act as watch dogs. Our institutions must provide high quality public services to all citizens with transparency and accountability. To achieve this, there are several issues and challenges that come to my mind:
The first issue is that of treating the customers fairly. Transparent pricing, terms and conditions of financial products including interest charges, premia, fees and user friendly products made available in a form which is intelligible to borrowers would go a long way in reducing the need for having financial education centres in the first place. There is a need to sensitise the bank staff to engineer an attitudinal shift with empathy for the poor, strengthen and streamline systems to improve the efficiency of our distribution and delivery mechanisms.
The second issue for banks is to expand the range and reach of counselling and advisory services to vulnerable sections. For this a large number of such centres would be required. Up to end June 2009, banks have reported setting up 154 credit counselling centres in various States of the country. Obviously, there are many districts which still do not have such centres and we need to strive towards setting up more centres.
Third, banks need to facilitate the empowerment of credit counselling centres for them to be effectively liaising and negotiating on behalf of their customers. It must be understood that FLCCs are to facilitate responsible behaviour among financial institutions serving customers at the base-of-pyramid as part of their focus on equity and efficiency.
The fourth issue is that of enlisting committed and well trained personnel to man these centres. As quality of service is an important aspect, it is desirable to have appropriately bench-marked quality standards for credit counsellors and counselling agencies. A related issue is that whether there should be accreditation of credit counselors? If so, who should do it, industry associations or individual banks? These could be considered in due course.
The fifth issue that faces agencies is that of following a segmented approach vis-a-vis a broad-based generalized one. It is clear that banks may have to adopt a segmented approach specific to different categories of borrowers and different credit segments. Similarly, in respect of urban and rural areas, different approaches would be required. For instance, the centres in rural and semi urban areas could concentrate on financial literacy and counselling for farming communities and those engaged in allied activities. The centres in metro/urban areas could focus on individuals with overdues in credit cards, personal loans, housing loans, etc. Thus, the challenge is to tailor differential literacy and counselling mechanisms depending upon the need.
Sixth, an important issue from the financial literacy perspective is that of content design and appropriate delivery medium and mechanism suitable to the particular target group.
Lastly, as lack of awareness is major stumbling block in such initiatives, it is necessary to give wide publicity to the concept of credit counselling and the free availability of such services. Effectively utilizing the various mass communication channels and leveraging information technology would assume importance in this context.
VI. Conclusion
17. I hope the FLCC of Federal Bank would bring ‘Ashwas’ or relief to the common person. The bank, based on the experience gained, may like to consider opening more such centres in other districts of the State in due course as the benefits of such initiatives flow back to the banks. We need to collectively strive to deepen and broaden the agenda for inclusive development; and to ensure that no individual, community or region is denied the opportunity to participate in, and benefit from the development process.
I wish the Trust all the success.

http://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=450

DUBAI CRISIS: WHAT AILS DUBAI? AND WHY SHOULD WE CARE?

2009-11-29T12:39:00.001+05:30

In order to transform its economy as a major tourist and financial hub, Dubai borrowed US$80bn. However, it suffered a massive property slump in last year’s credit crisis. Now, it is not able to repay its liabilities, and asking borrowers to postpone repayments. There were 53 lakh Indians in the Gulf, of which 31% were in the UAE, mostly employed by construction sector for Dubai’s real estate boom. The Gulf region accounts for over half the total inward remittances worth over USD 25 billion annually from expatriate Indians, out of which 10% of overall remittances to India could be from construction workers. If Dubai were to default, there would be repercussion in other parts of world, where banking would take a hit from lending to Dubai. Though the overall size of the liabilities are not very big compared to US banking problems, this could be a taken as an excuse for the markets to correct at lower levels.

The biggest debate on Indian Microfinance Sector: Why There's No Credit Crisis in Microfinance

2009-11-29T12:30:00.001+05:30

by Vikram Akula
A recent article in the Wall Street Journal would have you believe there is a credit crisis brewing in Indian microfinance — that microfinance institutions are indiscriminately over-lending as they seek to maximize profits. But the article's assertion was based on a small sample of data that's not representative of the larger industry. An overload of debt among a few individuals, in one slum, in one city, in one state of India hardly constitutes a bubble. It also misrepresents the nature of microfinance in India today.
Here are just a few of the facts:
Repayment rates in India remain solid. Microfinance institutions in India, which serve 22 million clients, have consistent repayments rates of 95% and above — payments that clients could not make if they were not generating regular income, given the weekly collection schedules most microfinance institutions follow. The Microfinance Information Exchange (MIX), a Washington-based nonprofit, reports that the average repayment rate of leading MFIs in India — which have the largest share of clients — is 98%. My own institution, SKS, which serves more than five million clients spread across 70,000 villages and slums of India, has a 99% repayment rate. In tens of thousands of villages and slums across India, millions of microfinance customers are thriving and climbing steadily out of poverty — as shown by a number of independent studies. One in particular, by Karuna Krishnaswamy, suggests that borrowers from multiple microfinance organizations have an equal or lower arrears rate than single-borrowing peers in the same branches. The slum in Karnataka that the Journal article focused on is an aberration in the industry.
Microfinance borrowers go through a rigorous approval process. The process of approving microfinance loans is completely different from the lax system in the U.S. for approving the mortgages that led to the subprime crisis. Leading microfinance institutions like SKS follow a strict procedure to ensure loans can be comfortably repaid. We require potential members to take three hours of financial literacy training and pass a test indicating they understand interest rates, loan installments, and other product features. We also make small loans exclusively for income-generating activities, not for consumption. We lend only to women, who are known to be more careful with their use of loans than men, and who borrow in interdependent groups of five. Yes, some microfinance institutions — particularly new entrants — may violate these norms. But to extrapolate from the exceptions a sweeping generalization about the entire sector is at best unbalanced; at worst, irresponsible.
In lieu of credit scores, borrowers prove their reliability over time. The Journal article cites, as cause for concern, that the "average Indian household debt from microfinance lenders almost quintupled between 2004 and 2009, to about $135 from $27." But the piece failed to point out the underlying reason for this number surge: microfinance institutions deliberately start with small loan sizes and increase them year-on-year as a borrower demonstrates credit worthiness. This gradual increase in loans is a substitute for the lack of a credit score among the poor — something that this neglected and largely undocumented segment of the population does not have. It is a standard practice in the microfinance model pioneered by Nobel Prize winner Muhammad Yunus. Moreover, even at $135, microfinance institutions are still lending well below the typical credit need of a poor household in India, which is $400 (based on survey data from an independent study commissioned by the government's Small Industries Development Bank of India). These data suggest that, on average, there is no over-lending issue for the sector.
Microfinance isn't perfect, and like any fledgling, high-growth sector it's going to experience growing pains. But we're taking steps to ease those pains while upholding ethical and transparent lending practices. About 220 microfinance institutions that are members of the industry association Sa-Dhan have signed a voluntary code of conduct. The leading MFIs are also working to create a microfinance credit bureau that would help mitigate credit risk.
The sector's rapid growth has been fueled in part by commercial interests. But there's a lot of merit to the commercial approach. In a decade, SKS has reached millions of poor people at a pace unimaginable not long ago, and we're now pioneering other ways to use our extensive network to give people access to other products and services they need, such as water filters, solar lamps, and mobile phones. Such scale would have taken far longer if the industry were funded solely by more limited philanthropic funds and grants — and in the meantime, another generation would have slipped into the grinding cycle of poverty.
http://blogs.harvardbusiness.org/cs/

The biggest debate of Indian Microfinance Sector: Microfinance in India - In Stable Orbit

2009-11-29T12:24:00.002+05:30

Original article published in Microfinance Insights
When the Wall Street Journal (WSJ) starts publishing poorly researched, sensationalized articles about Indian microfinance institutions (MFIs) and senior analysts from major investment banks begin to call Indian microfinance assets “sub-prime,” it is time to put things in perspective. In Hindi, there is a proverb, “Doodh ka jala chhach bhi phook phook kar peeta hai.” (“A person who has burnt his mouth drinking hot milk, tends to blow even at buttermilk,” or simply, “Once bitten, twice shy.”) Granted, the WSJ and investment banks have just emerged from an unprecedented financial meltdown. They are entitled to be cautious, even dark in their forecasts. In this case, however, they're jumping on the wrong bandwagon.
An August 13, 2009 WSJ article claimed that the growth rate of MFIs is abnormally high. However, when compared with other sectors in the Indian economy, microfinance is one of many industries that are growing at a searing pace. In a decade, the number of mobile phones has grown from zero to 400 million. The Indian mobile phone market continues to add more than 10 million new connections a month. The insurance sector has grown at 37% annually since doors were opened to private insurance companies. The microfinance sector's high rate of growth represents supply catching up with decades of unmet demand.
All big MFIs—the ones that are driving these strong growth rates—have mastered their methodology. Their systems in the areas of hiring and training staff, customer acquisition, portfolio tracking and fund mobilization are now managed by professionals with experience in the financial sector. Product diversification is becoming the norm, although most MFIs are still offering variants of the basic Grameen Bank weekly-repayment loan model. Most MFIs have started offering life insurance linked to loans while some also offer stand-alone life and health insurance products. These products protect borrowers, and in turn, MFIs.
Additionally, most big MFIs have now transformed into non-banking finance companies (NBFCs), registered with the Reserve Bank of India (RBI). They are subject to norms that include capital adequacy (10% at present, slated to go up to 12% in April 2010 and 15% in April 2011). As MFIs have had to raise capital from diverse sources, they now have boards quite involved with operational oversight— yet another check on MFIs and the sector at large.
Although some regions have seen mass default by a class of borrowers, such as the Kolar district in Karnataka, overall portfolio quality has remained strong, with only about 1% to 2% of loans overdue beyond 90 days. This number is now much more reliable, because almost all major MFIs have a computerized portfolio tracking system audited by reputed firms. The MFIs are also watched closely by banks since some of the MFIs’ portfolios are assigned to these banks.
What is partly true is that poor households are borrowing beyond their means because loans are easily available. This has been a cause for concern, mainly because most Indian MFIs (with some exceptions) use the Grameen Bank weekly repayment model. However, MFIs are learning quickly and, apart from changing internal policies and incentive structures for field staff, they’re also getting together to establish credit-information sharing forums.
Having said this, there are several actions stakeholders within the microfinance ecosystem need to take to move forward. It will take efforts by MFIs, investors, bankers, regulators and apex bodies, nationally and internationally to steer the sector in the right direction.
At the household level, there should be a push to build greater financial literacy, so customers know the consequences of overborrowing and the benefits of savings and insurance in adversity.
MFIs also need to review their staff incentive systems and attempt to prevent irresponsible lending.
The onus does not fall only on the MFIs. Lending banks also need to exercise discipline by insisting that MFIs incentivize staff to do responsible lending and follow consumer protection norms. Banks also need to strengthen their monitoring mechanisms.
As investors become more familiar with the sector, they are becoming more realistic in their return-on-investment(ROI) expectations. Investors on the boards of MFIs must play an institution-building role for their own long-term benefit.
On the regulatory front, the RBI has enhanced its supervision of larger microfinance NBFCs by seeking monthly returns from the “systemically important” ones and by conducting on-site inspections. The RBI needs to simultaneously enhance the protection of regulated microfinance NBFCs from arbitrary action by district and state government authorities.
Attention must also be focused on MFIs that have not yet transformed into NBFCs. The Micro Finance Bill drafted in 2007 covers only NGOs and needs to be redrafted. Loan waivers and interest subsidies tend to cause credit indiscipline and distort the market. Instead, the Indian government could offer support to MFIs working in the 300 districts with low financial inclusion.
To close where we began, CGAP and other organizations should educate the likes of the WSJ and the investment banks to stop sensationalizing small incidents and get on board with the one part of the financial sector that is working – microfinance in India.

The Biggest Debate on Indian Microfinance Sector: WSJ - A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum

2009-11-29T12:19:00.002+05:30

By KETAKI GOKHALE
RAMANAGARAM, India -- A credit crisis is brewing in "microfinance," the business of making the tiniest loans in the world.
Microlending fights poverty by helping poor people finance small businesses -- snack stalls, fruit trees, milk-producing buffaloes -- in slums and other places where it's tough to get a normal loan. But what began as a social experiment to aid the world's poorest has also shown it can turn a profit.
That has attracted private-equity funds and other foreign investors, who've poured billions of dollars over the past few years into microfinance world-wide.
As WSJ's Ketaki Gokhale reports, India's booming micro-loan industry could be headed for trouble as more people seek the loans just to pay the bills -- not start businesses.
The result: Today in India, some poor neighborhoods are being "carpet-bombed" with loans, says Rajalaxmi Kamath, a researcher at the Indian Institute of Management Bangalore who studies the issue. In India, microloans outstanding grew 72% in the year ended March 31, 2008, totaling $1.24 billion, according to Sa-Dhan, an industry association in New Delhi.
"We fear a bubble," says Jacques Grivel of the Luxembourg-based Finethic, a $100 million investment fund that focuses on Latin America, Eastern Europe and Asia, though it has no exposure to India. "Too much money is chasing too few good candidates."
Here in Ramanagaram, a silk-making city in southern India, Zahreen Taj noticed the change. Suddenly, in the shantytown where she lives, lots of people wanted to loan her money. She borrowed $125 to invest in her husband's vegetable cart. Then she borrowed more.
"I took from one bank to pay the previous one. And I did it again," says Ms. Taj, 46 years old. In four years, she took a total of four loans from two microlenders in progressively larger amounts -- two for
At the height of her borrowing binge, she says, she bought a television set. The arrival of microfinance "increased our desires for things we didn't have," Ms. Taj says. "We all have dreams."
Today her house is bare except for a floor mat and a pile of kitchen utensils. By selling her TV, appliances and jewelry, she cut her debt to $94. That's equal to about a fourth of her annual income.
Around Ramanagaram, the silk-making city where Ms. Taj lives, the debt overload is stirring up social tension. Many borrowers complain that the loans' effective interest rates -- which can vary from 24% to 39% annually -- fuel a cycle of indebtedness.
In July, town authorities asked India's central bank to either cap those rates or revoke lenders' licenses. "Otherwise, the present situation may lead to a law-and-order problem in the district," wrote K.G. Jagdeesh, deputy commissioner for the city of Ramanagaram, in a letter to the central bank.
Alpana Killawala, a spokeswoman for the Reserve Bank of India, said in an email that the central bank doesn't as a practice cap interest rates for microlenders but does press them not to charge "excessive" rates.
Meanwhile, local mosque leaders have started telling people in the predominantly Muslim community to stop paying their loans. Borrowers have complied en masse.
The mosque leaders are also demanding that lenders give them an accounting of their finances. The lenders say they're not about to comply with that.
The repayment revolt has spread to other communities, including the nearby city of Channapatna, and could reach further across India, observers say.
"We are very worried about this," says Vijayalakshmi Das of FWWB India, a company that connects microlenders with financing from mainstream banks. "Risk management is not a strong point for the majority" of local microfinance providers, she adds. "Microfinance needs to learn a lesson."
Nationwide, average Indian household debt from microfinance lenders almost quintupled between 2004 and 2009, to about $135 from $27 or so, according to a survey by Sa-Dhan, the industry association. These sums are obviously tiny by global standards. But in rural India, the poorest often subsist on just a few dollars a week.
Some observers blame a fundamental shift in the microfinance business for feeding the problem. Traditionally, microlenders were nonprofits focused on community service. In recent years, however, many of the larger microlending firms have registered with the Indian central bank as a type of for-profit finance company. That places them under greater regulatory scrutiny, but also gives them wider access to funding.
This change opened the door to more private-equity money. Of the 54 private-equity deals (totaling $1.19 billion) in India's banking and finance sector in the past 18 months, microfinance accounted for 16 deals worth at least $245 million, according to Venture Intelligence, a Chennai-based private-equity research service.
The influx of private-equity cash is the latest sign of the global rise of microfinance, pioneered by Bangladeshi economist Muhammad Yunus decades ago. On Wednesday, Mr. Yunus, a 2006 Nobel Peace Prize winner, was one of 16 people honored by President Barack Obama with the Medal of Freedom.
"We've seen a major mission drift in microfinance, from being a social agency first," says Arnab Mukherji, a researcher at the Indian Institute of Management in Bangalore, to being "primarily a lending agency that wants to maximize its profit."
Making loans in poorest India sounds inherently risky. But investors argue that the rural developing world has remained largely insulated from the global economic slump.
International private-equity funds started taking notice of Indian microfinance in March 2007. That's when Sequoia Capital, a venture-capital firm in Silicon Valley, participated in a $11.5 million share offering by SKS Microfinance Ltd. of Hyderabad, India, one of the world's largest microlenders.
"SKS showed the industry how to tap private equity to scale up," said Arun Natarajan of Venture Intelligence.
Numerous deals followed with investors including Boston-based Sandstone Capital, San Francisco-based Valiant Capital, and SVB India Capital Partners, an affiliate of Silicon Valley Bank.
As of last December, there were over 100 microfinance-investment funds globally with total estimated assets under management of $6.5 billion, according to the Consultative Group to Assist the Poor, or CGAP, a research institute hosted at the World Bank.
Over the past year, investors have poured more than $1 billion into the largest microfinance funds managed by companies, a 30% increase. The extra financing will allow the industry to loan out 20% more this year than last, much of it to countries such as the Ukraine, Cambodia and Bosnia, CGAP says.
Here in Ramanagaram, Lalitha Sharma recalls when the first microfinance firm arrived seven years ago. Those were heady times for her fellow slum-dwellers: Money flowed freely. Field agents offered loans to people earning as little as $9 a month.
Lalitha Sharma, top, racked up 10 loans from the many microlenders who have set up shop in her slum over the past few years. Here she helps with her husband's snack stand. Like many of her neighbors in Ramanagaram, India, she can earn about $8 a week, on average, working in the city's silk factories, one of which is shown above.
They came to Ms. Sharma's door, too. She borrowed $126. Under the loan's terms, she said she would use it to finance a small business -- a snack stand she runs with her husband. Many microfinance providers require loans to be used to fund a business.
But Ms. Sharma, a 29-year-old mother of three, acknowledges she lied. "You have to mention a business to get a loan," she says. "There was no other way to get the money." She used it to pay overdue bills and to buy food for her family. Ms. Sharma earns $8 a week, on average, in a factory where she extracts silk thread from cocoons.
Over the next four years, she took nine more loans from three different lenders, in progressively larger sums of $209, $272, $335 and $390, according to lending records reviewed by The Wall Street Journal. A spokesman for BSS Microfinance Private Ltd. of Bangalore, another of her lenders, declined to comment on her borrowing history, citing central-bank privacy rules.
This year, she took another $314 loan to pay for her brother-in-law's wedding, again saying the money would be used for business purposes. She also juggled loans from two other microlenders -- $115, $167 and $251 from the Bangalore lender Ujjivan, and $230 from Asmitha Microfin Ltd.
Ujjivan confirmed it issued three loans. An Asmitha official said he had a record of a loan to a Ramanagaram resident named Lalitha, but at a different address.
"I understand that it is credit, that you have to pay interest, and your debt grows," Ms. Sharma says. "But sometimes the problems we have seem like they can only be solved by taking another loan. One problem solved, another created."
Many of the problems in Indian microlending might sound familiar to students of the U.S. mortgage crisis, which was worsened by so-called "no-documentation" loans and by commission-paid brokers. Similarly in India, microlenders' field officers are often paid on commission, giving them financial incentive to issue more loans, according to Ms. Kamath.
Lenders are aware that applicants often lie on their paperwork, says Ujjivan's founder, Samit Ghosh. In fact, he says, Ujjivan's field staffers often know the real story. But his organization maintained a policy of "relying on the information from the customer, rather than our own market intelligence."
He says that policy will now change because of the trouble in Ramanagaram. The lender will "learn from the situation, so it won't happen again," he says.
It's tough to monitor how borrowers spend their money. Ujjivan used to perform regular "loan utilization checks," but stopped because it was so costly. Now it only checks in with people borrowing more than $310, Mr. Ghosh says.
BSS checks how loans are being spent a week after disbursing the money, and makes random house visits, according to S. Panchakshari, its operations manager. The company doesn't have the power to insist that borrowers not take loans from multiple lenders, he said in an email.
Lenders also tend to set up shop where others have already paved the way, causing saturation. There is a "follow-the-herd mentality," says Mr. Ghosh at Ujjivan. Microlenders "often go into towns where they see one or two others operating. That leaves vast chunks of India underserved, "and then a huge concentration of microfinance in a few areas."
In Ramanagaram district, seven microfinance lenders serve 22,500 women (most microloans go to women because lenders consider them less likely to default than men). Loans outstanding here total $4.4 million, according to the Association of Karnataka Microfinance Institutions, a group of lenders.
Lenders in Ramanagaram say the loan-repayment revolt was instigated in part by Muslim clerics who oppose the empowerment of women through microfinance. Most lenders are still servicing loans to Hindu borrowers, but have stopped issuing fresh loans to Muslims. "We can't do business with Muslims there right now," says Mr. Ghosh. "Nobody wants to take that kind of risk."
The irony is that, for years, Indian microlenders have touted themselves as bankers to the nation's impoverished minority Muslim community, which has long been excluded from the formal banking sector.
A 2006 report commissioned by India's prime minister found that while Muslims represented 13% of India's population, they accounted for only 4.6% of total loans outstanding from public-sector banks.
Islam prohibits the paying of interest, but mosque officials don't cite that as the reason for the loan-payment strike. They stressed the overindebtedness of the community, and the strains it's putting on family life.
Ramanagaram's period of wild borrowing irks some residents, both Hindu and Muslim. Alamelamma, a 28-year-old vegetable seller, says that she has benefited from microfinancing and that the profligate borrowers "have ruined it for the rest of us."
One gully away, Ms. Sharma, the heavy debtor, has a different view: She would like to see the microlenders kicked out of the community entirely. "Not just for now, but forever," she says.
http://online.wsj.com/article/SB125012112518027581.html

How SBI tracks the Rural Fingerprint

2009-04-02T11:37:00.000+05:30

Coursey: Mint, Mumbai

A report from India - debating responsible finance – not if, but how?

2009-04-02T11:35:00.004+05:30

by Kate McKee: Sunday, November 1, 2009
Are the products, practices and policies of the leading Indian microfinance providers responsible? Or might the unprecedented growth of the sector (particularly the top-tier for-profit NBFCs of the likes of SKS, SHARE, Spandana, Bandhan, and BASIX) leading some providers to cut corners, such as over-selling loans with little analysis of clients’ repayment capacities and other debts?
Those questions featured prominently both on the stage and in the hallway chatter here at the 6th Annual Microfinance India Summit, which took place earlier this week in Delhi. The speakers list read like a “Who’s Who” of the booming Indian microfinance sector, along with an estimated 800 practitioners, policy makers, researchers and funders. Themed “Doing Good and Doing Well: The Need for Balance,” people here debated strongly whether the right kinds of balances are being struck lately in the race to expand access, double client rolls and loan portfolios annually, and attract massive amounts of debt and equity. Though there were sessions on “business correspondents” in India (branchless banking), as well as a day on livelihoods, the primary focus was on the rapid growth of the sector.
Brij Mohan, ACCESS Board Chair (and one of the grand old men of the Indian microfinance scene) voiced concerns that the rapid growth and new business models might be distancing providers from their clients and institutions from their original mission. Princess Maxima, Her Royal Highness and Special Advocate for Inclusive Finance for Development, urged those assembled to stay focused on client needs. That means avoiding over-indebtedness, ensuring transparency, and that clients are fully informed about the pricing, terms and all relevant conditions of their loans. She voiced hope that the just-launched SMART Campaign will help create norms and practical tools for providers and regulators.
There was serious data to be had, too. In highlighting key findings from the annual state-of-the-sector report, N. Srinivasan raised concerns that expansion and profits might be prioritized over consolidation of operations and customer service; he also noted that although efficiency is up at most MFIs, interest rates are not coming down for customers. In the introduction to the just-released M-CRIL report on the sector’s financial condition, Sanjay Sinha echoed similar worries.
Some said that these problems are predictable with a microfinance sector that is unable to offer more than one product. Shubhankar Sengupta of Arohan agreed that when products cannot be tailored to a client’s actual repayment ability and preferences, tendencies towards over-lending, lack of transparency, and aggressive collections practices are not surprising, especially in such a go-go environment. He also challenged the sector to back off from an insistence on 99-100% repayment – this target was neither realistic nor appropriate, and drove some of the distasteful practices.
Suresh Gurumani, CEO of SKS stressed recent steps taken by leading MFIs to form Alpha, an entity that will improve information-sharing, including investment in a credit bureau, and be “an SRO [self-regulating organization] with teeth.” This may have been a reference to the fact that meaningful compliance with the government’s fair practices code for MFIs – which addresses price transparency, collections and recourse — is far from universal.
Lurking among the talk: the political risks of not being proactive on responsible finance Gurumani was perhaps speaking for many in the room when he summed up: “I don’t see responsible lending as an option. It is a must.”

http://microfinance.cgap.org/2009/11/01/a-report-from-india-debating-responsible-finance-not-if-but-how/

Banking System should lend to poor

2009-04-02T11:35:00.000+05:30

Courtsey: Asian Age, New Delhi

SKS MICROFINANCE INKED DEAL WITH ICICI BANK VIA SECURITISATION ROUTE

2009-03-05T16:32:00.003+05:30

SKS MICROFINANCE, LEADING MICROFINANCE ORGANIZATION IN INDIA HAD CLOSED THE DEAL WITH ICICI BANK OF 200 CRORES THROGH SECURITISATION ROUTE.

Microfinance firms set to overtake IT as VC favourite

2009-02-11T09:58:00.002+05:30

Clearly the article published in Financial Chronicle reiterates that Microfinance is the hot favorite of Venture Capitalist. The IT sector is facing the heat of Slowdown and financing in future.

Call for refinancing window for NBFCs

2009-02-10T14:47:00.000+05:30

SIDBI inaugurates seven Microfinance Branches

2009-02-10T14:44:00.000+05:30

Share Microfinance portfolio Crosses Rs 1000 Crore

2009-02-09T18:10:00.000+05:30

Business Standard Says

2009-02-09T17:53:00.001+05:30

MFIs in India- A comparative study

2009-01-29T18:43:00.005+05:30

With a combined client base of 1,40,68645 & total outstanding of Rs 61,241,156,410 (Upto 31st March 2008) MFIs in India have really entered into a transition phase, wherein they are running their shoulders with the best in industry round the globe. This has been proved in MIX and Forbes study of "Best MFIs" ranking which were based on different parameters ranging from transparency to operational efficiency. This transition however needs a focused study to fully acknowledge the form,outreach and the very impact it has on the microfinance sector and the possibilities that lies ahead. Starting with the form of these institutes which is of interest not only to the promoters or the incubators of such microfinance institutes but also to the funders and the regulators alike. The study provides a deeper insight on as to how the transition for MFIs from a nascent pahse to their existing forms has shaped their agenda and resources. According to a market study NBFCs accounts for 59.7% ,Society 18.8%, Sec. 25 companies 11.6%, Trust 6.8% and others 3.1% of the total microfinance market based on total loan portfolio.
(Source: Microfinance Sector Report 2008)

The growth story of MFIs in India not only contradicts the so called BPL sticked image of microfinance but also questions the very viability of the very principle, as to whether it reaches those who needs it the most. The growth of microfinance industry states a story of success in the southern region, which is often referred to as the "Cradle of Microfinance industry in India" while it sings a contrary tune when it comes to the BIMARU states of our country having high BPL population and a poor growth rate. Southern region lies way ahead with 66% of the total MFIs client base and 75% of the total loan portfolio followed by Eastern region with 21% & 15%,Western region 9% & 4% and Northern region with a meagre share of 4% & 6% of the total pie (Source: Microfinance Sector Report 2008)

A detailed state wise study will throw a better light on the true picture of the cracks hidden behind the stupendous growth of MFIs in India and asks questions which needs answers as early as possible. So that those who have been a part of this transition could relish the fruits of their effort and wherein all the tantrums being backed by sound logic and a true feeling of accomplishment round across the country gives this transition a push to transform into a much needed revolution for our country.

Important points-

- 80% of the MFIs clients were women.
->75% of the MFIs clients have received less than Rs 10000.
-10% of the total no. of MFIs (Which were the largest) accounted for 76% of all clients.

- 82% of the MFIs clients and the total outstanding is accounted by six states only i.e AP, Karnatka,Tamil Nadu, Orissa, Maharashtra & W. Bengal(SA -DHAN study of 223 MFIs).

- Out of 47 MFIs present in more than 1 state
6 MFIs- Presence in more than 5 states
19 MFIs- Presence in 3-5 states
22 MFIs- Presence in 2 states

Microfinance Forum 2009 to Take Place in Vienna

2009-01-21T11:07:00.001+05:30

NewswireToday - /newswire/ - Vienna, Austria, 01/07/2009 - Uniglobal Research today announced that this year's Microfinance Forum will take place in Hotel Intercontinental Vienna on 19-20 March. Following the huge success of last year's forum in Budapest the event promises to be the major industry meeting point.

Banks have started to consider a closer link between their micro-finance-oriented products and their "normal" business. There is increasing commitment to microfinance, greater variety in microfinance products and a closer focus on the market.

The upcoming premier World Private Banking conference in Vienna organized by Uniglobal Research will bring together top representatives of the microfinance and banking environment as well as microfinance networks from all around the world. This is the place to learn from and share strategies with other professionals as well as to extend your network.

Last years event allowed for a unique networking opportunity with leading experts from financial institutions across the globe discussing key strategies.

Key issues to be addressed:

• How global trends & imbalances are affecting Microfinance;
• Successful business models in low income markets;
• Including the world's poor as investors, producers, sellers and buyers;
• Common standards for the Microfinance industry?;
• Mobile Banking for the Poor;
• Retail Microfinance;
• Micro (life) insurance.

The forum will include contributions from leading institutions such as:

• Deutsche Bank, Germany
• Finca International, Ukraine
• Habitat for Humanity, Slovakia
• IFC (International Finance Corporation), Turkey
• IPC (Internationale Projekt Consult GmbH), China
• International Labour Organization, Switzerland
• KfW (Kreditananstalt fuer Wiederaufbau), Germany
• MFC (Microfinance Center for CEE and CIS), Poland
• Microdevelopment Fund, Serbia
• Planet Guarantee, France
• Planis, France
• Turkish Grameen Microcredit Project, Turkey
• Zurich Insurance, Switzerland

Who should attend:
• MFI's

• NGO's
• Commercial Banks
• Educational and Research Institutions
• Public Sector Leaders
• Donor Agency Executives
• Civil Society Organization Representatives
• Development Agencies
• Microfinance Technology Providers
• Charities

Your takeaway:

• Learn about the current activities and future plans of international commercial banks with regard to microfinance;
• Capture lessons from relevant project experience;
• Gain a unique perspective on how to align social issues with corporate strategy.

About Uniglobal Research

Prague-based Business Intelligence Provider Uniglobal Reseach is at the forefront of linking business with information. All its events are research driven and highly targeted towards senior level professionals, designed to help you make informed decisions and remain at the cutting edge of business information. Uniglobal Resarch events focus on knowledge expansion, networking but most importantly maximizing deal-making opportunities for all our executive clients.

HOT Microfinance Jobs - III

2009-01-18T14:36:00.002+05:30

(10 Jan - 16 Jan 2009 )

East Asia and Pacific
Loan Officer, AustraliaBrotherhood of St LaurencePosted: 14 Jan 2009 Closing Date: 27 Jan 2009
Europe and Central Asia
Administrator, United KingdomThe Microfinance Club UKPosted: 12 Jan 2009 Closing Date: 2 Feb 2009
North America
Capital Markets Analyst, United StatesThe Foundation for International Community Assistance (FINCA International)Posted: 12 Jan 2009 Closing Date: 28 Feb 2009
Capital Markets Senior Investment Advisor, United StatesThe Foundation for International Community Assistance (FINCA International)Posted: 12 Jan 2009 Closing Date: 28 Feb 2009
Finance & Research Specialist, United StatesAZMJPosted: 15 Jan 2009 Closing Date: 7 Jul 2009
Financial Services Manager, United StatesSeedco Financial Services (SFS)Posted: 14 Jan 2009 Closing Date: 14 Feb 2009
Program Associate - Housing/Asset Building, United StatesStructured Employment Economic Development Corporation (SEEDCO)Posted: 14 Jan 2009 Closing Date: 14 Feb 2009
Regional CEO, United StatesGrameen FoundationPosted: 15 Jan 2009 Closing Date: 15 Feb 2009
South Asia
Chief Financial Officer (CFO), IndiaMimo FinancePosted: 14 Jan 2009 Closing Date: 31 Jan 2009
Financial Systems Analyst (Northern Zone), IndiaMicroSavePosted: 15 Jan 2009 Closing Date: 15 Feb 2009
Financial Systems Analyst (Southern Zone), IndiaMicroSavePosted: 15 Jan 2009 Closing Date: 15 Feb 2009
Microfinance Operations Consultant, IndiaMicroSavePosted: 15 Jan 2009 Closing Date: 15 Feb 2009
Social Enterpreneurs, IndiaMimo FinancePosted: 14 Jan 2009 Closing Date: 28 Feb 2009
Vice President - Financial Systems (Northern Zone), IndiaMicroSavePosted: 15 Jan 2009 Closing Date: 15 Feb 2009
Vice President - Financial Systems (Southern Zone), IndiaMicroSavePosted: 15 Jan 2009 Closing Date: 15 Feb 2009
Sub-Saharan Africa
Advisor - Livelihoods, EthiopiaSave the ChildrenPosted: 14 Jan 2009 Closing Date: 14 Feb 2009
Chief Executive Officer, GhanaAdehyeman Savings and Loans LimitedPosted: 12 Jan 2009 Closing Date: 28 Feb 2009
Finance and Administration Manager, TanzaniaSero Lease and Finance Limited (SELFINA)Posted: 13 Jan 2009 Closing Date: 31 Jan 2009
HR Manager, UgandaThe Foundation for International Community Assistance (FINCA International)Posted: 12 Jan 2009 Closing Date: 31 Jan 2009
Microleasing Manager, KenyaK-Rep Development AgencyPosted: 14 Jan 2009 Closing Date: 30 Jan 2009
Regional CEO, AfricaGrameen FoundationPosted: 15 Jan 2009 Closing Date: 15 May 2009

The Right to Information Act 2005

2009-01-18T14:19:00.002+05:30

National Campaign for People’s Right to Information

The RTI Act 2005 - Coverage

Comes into effect from October 2005.
Covers Central, State and Local governments, and
- all bodies owned, controlled or substantially financed;
- non-government organisation substantially financed, directly or indirectly by funds provided by the appropriate Government (2(h))
Covers executive, judiciary and legislature (2(e))
Covers central, state and local governments.
Includes information relating to private bodies which can be accessed under any other law for the time being in force (2(f))

The RTI Act 2005 – Some Definitions
"Information" includes any material in any form, opinions, advices, and samples.
"Right to Information" includes inspection of work, records; taking certified samples of material

The RTI Act 2005 - Processes
Application with fee, to Public Information Officer (PIO).
PIO in each office/PA. Assistant PIO at sub-district levels
Information within 30 days. 48 hours where life or liberty is involved.
No action on application for 30 days is a deemed refusal.
No fee for delayed response

Exempt information:
Affecting sovereignty, integrity, security, strategic, scientific or economic, or other interests of the State, relation with foreign state or leading to incitement of an offence;
Forbidden by courts;
Affecting privilege of Parliament or Legislature;
Commercial confidence, trade secrets or intellectual property, unless larger public interest so warrants;
received in confidence from foreign government;
endangers life or physical safety or identifies confidential source of information or assistance
impedes the process of investigation or apprehension
cabinet papers, till after the decision has been taken, and the matter is complete, or over:
personal information which would cause invasion of the privacy unless larger public interest justifies it.

RTI Act 2005-Exemptions contd.
Infringes copyright, except of the state.
Intelligence and security agencies exempt – except for corruption and human rights violation charges
Notice to third party
Most exempt information released after 20 years.
Notwithstanding anything a public authority may allow access to information, if public interests in disclosure outweighs the harm to the protected interests.

RTI Act 2005 - Appeals
Appeals
First appeal with senior in the department
Second appeal with Information Commission
Appeals to be settled in 30-45 days
Onus of proof on refuser/public authority
Envisages an independent Information Commission at the Central and State level.
To be appointed by a committee of PM/CM, leader of opposition and one minister.

RTI Act 2005 - Penalties
Penalties
Imposable by Information Commission on PIO or officer asked to assist PIO
For unreasonable delay – Rs 250 per day up to Rs 25,000
For illegitimate refusal to accept application, malafide denial, knowingly providing false information, destruction of information, etc. – up to Rs. 25,000 fine
Recommendation for departmental action for persistent or serious violations

RTI Act 2005 - Access
Universal Access – especially to the Poor
Fee at a reasonable level. No fee for BPL.
APIOs at sub-district levels.
No need to specify reason for seeking information or other personal details
Provision to reduce oral requests into writing
Provision to provide all required assistance, including to sensorily disabled persons.
Information to be provided in local languages
Provision for damages

RTI Act 2005–Responsibilities of Public Authorities

Publishing all relevant facts while formulating important policies or announcing the decisions which affect public (4(1)(c)).
Providing reasons for its administrative or quasi judicial decisions to affected persons (4(1)(d)).
Providing a large amount of information suo moto (4(2)).
Providing information to Information Commission (25(2)).

Microcredit lenders urged to improve transparency

2009-01-18T14:03:00.000+05:30

JAKARTA, July 28 (Reuters) - Lenders to the world's poor should disclose how much they charge their borrowers, a global network of microcredit agencies said on Monday, urging more transparency and greater protection of the poor.
The proposal is backed by Nobel Peace Prize winner Muhammad Yunus, who set up Bangladesh's Grameen Bank and is regarded as the founder of the microcredit movement.
More and more commercial banks have gone into microcredit in pursuit of new customers and higher returns. In some countries, such institutions are poorly regulated and free to charge above-market annual interest rates -- of as much as 90 percent, in some extreme cases.
Microcredit Summit Campaign urged lenders to disclose their charges to a new, U.S.-based independent microfinance organisation. The Washington DC-based network of microfinance institutions kicked off its annual meeting on Monday on the Indonesian resort island of Bali.
"Investors, donors, policymakers, researchers and practitioners will immensely benefit from" having access to the interest rate data, Yunus was quoted as saying in a statement by the network.
The new global scheme, called MicroFinance Transparency, was launched following controversy over high lending rates to the poor who often lack information or financial expertise.
"In the past few years, hundreds of for-profit companies have begun financing and marketing loans to the poor in developing nations," the global network of microfinance firms said.
It added that the companies have been "attracted by near-monopoly lending environments and misleading pricing systems compounded by borrowers' frequent lack of understanding of the financial details of credit transactions."
The global network said participation in the scheme was voluntary but added that investors, donors and practitioners would be able to benefit from public information on lending rates charged by microcredit lenders around the world.
The information, published on the Web site www.mftransparency.org, will disclose repayment schedules for each product that participating microfinance institutions offer and will calculate the prices of those products in annual percentage rate terms. (Writing by Gde Anugrah Arka; editing by Sara Webb; Editing by Jon Boyle)

A Role for Microfinance in Obama Administration?

2009-01-17T16:40:00.001+05:30

Hillary Clinton Includes Microfinance in Opening Remarks at Senate Confirmation Hearing
Originally published: January 13, 2009 Source: Real Clear Politics

In the confirmation hearings for her nomination as U.S. Secretary of State, Senator Hillary Rodham Clinton mentioned the virtues of microfinance during her opening remarks. Clinton praised the work of Ann Dunham, Barack Obama's late mother, as a pioneer of microfinance in Indonesia.
Clinton said, "In my own work on microfinance around the world - from Bangladesh to Chile to Vietnam to South Africa and many other countries - I've seen first-hand how small loans given to poor women to start small businesses can raise standards of living and transform local economies."
"President-elect Obama's mother had planned to attend a microfinance forum at the Beijing women's conference in 1995 that I participated in. Unfortunately, she was very ill and couldn't travel and sadly passed away a few months later. But I think it's fair to say that her work in international development, the care and concern she showed for women and for poor people around the world, mattered greatly to her son, and certainly has informed his views and his vision. We will be honored to carry on Ann Dunham's work in the months and years ahead."
Read full article

Slumdog Millionaire sweeps all the 4 nominated Golden Globe Award

2009-01-13T10:58:00.004+05:30

I could not resist putting this post on the blog. We will forever remember the 66th annual Golden Globes as the ceremony that pushed Indian cinema over the top, albeit indirectly. Majority the movie has been shot in the Slums of Mumbai.

Best Motion Picture (Drama) - Slumdog Millionaire - Fox Searchlight Pictures and Warner Bros.; Fox Searchlight Pictures and Warner Bros.
Best Director (Motion Picture) - Danny Boyle – Slumdog Millionaire
Best Screenplay (Motion Picture) - Slumdog Millionaire - Written by Simon Beaufoy
Best Original Score (Motion Picture) - Slumdog Millionaire - Composed by A. R. Rahman

Hot Microfinance Job - II

2009-01-12T10:53:00.003+05:30

East Asia and Pacific

Chief Operating Officer, Papua New Guinea
PNG Microfinance Ltd.
Posted: 28 Dec 2008 Closing Date: 20 Jan 2009

Europe and Central Asia

International Long-Term Senior Advisor/Team Leader, Armenia
Business & Finance Consulting (BFC) GmbH
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Latin America and the Caribbean

Chief Executive Officer (CEO), El Salvador
The Foundation for International Community Assistance (FINCA International)
Posted: 29 Dec 2008 Closing Date: 28 Feb 2009

South Asia

Assistant Manager - Microfinance, India
Drishtee Development and Communication Ltd.
Posted: 2 Jan 2009 Closing Date: 30 Jan 2009

Credit Officer, India
Fullerton India Credit Company Ltd.
Posted: 31 Dec 2008 Closing Date: 23 Jan 2009

Internal Auditor, Afghanistan
Microfinance Agency for Development and Rehabilitation of Afghan Communities (MADRAC)
Posted: 2 Jan 2009 Closing Date: 15 Jan 2009

Microfinance Banking Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Insurance Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Lending Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Policy Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Saving Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Monitoring Officer, Afghanistan
Microfinance Agency for Development and Rehabilitation of Afghan Communities (MADRAC)
Posted: 2 Jan 2009 Closing Date: 15 Jan 2009

SME Credit Officer, Afghanistan
Afghanistan International Bank (AIB)
Posted: 30 Dec 2008 Closing Date: 8 Jan 2009

Sub-Saharan Africa

Credit Manager, Tanzania
Horus Development Finance
Posted: 2 Jan 2009 Closing Date: 2 Feb 2009

Statement from Satyam Interim CEO to Employees

2009-01-10T08:38:00.004+05:30

The following letter has been issued to Satyam management and staff by Ram Mynampati, Interim CEO of Satyam. Satyam is an IT/ITES Company, which is a part of Services sector and employs approximately 53,000 employees. The letter becomes a must read for all the people related top Services Sector in India. I will come up with my analysis on Satyam Computer Services, very soon. Till then enjoy the motivational letter.
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Dear colleagues

I write this mail to update you on some critical Board and Leadership level changes in our company, effective immediately. A series of extremely unfortunate events led to this, which I am sure you have seen covered in the media over the past few hours.

A SWAT team consisting of senior leaders has been formed. Many of them are Satyam veterans with a minimum of ten years experience in our company and more than twenty years in the industry. I have been requested to play the role of an Interim CEO and this team will support me, as we steer Satyam through this challenging phase. These are the leaders on the ground and have always had the final call on most customer and associate related matters in the company, so far. This team has committed to work together, to make it happen. The SWAT team represents all Customer Facing units, key Horizontal Competency Units and critical Support Units.

Over the past twenty one years, with your passion and commitment we have built significant customer assets, formidable service offerings, excellent delivery processes and scalable support systems. Satyam has been consistently acknowledged for our leadership bandwidth and has a demonstrated reputation for collaborative functioning. Our renowned Full Life Cycle (FLC) model encouraged ‘Distributed and Empowered’ leadership and prepared us for all situations. This is the time when we have to apply it in real life. What we have been trained for, we will now put to work. Let us continue to handle our respective areas with total autonomy, freedom and control. This is as good a time, as any, to remind ourselves that we have been acknowledged as being amongst the top three Best Employers in India by Hewitt and Mercer in independent surveys in 2007 and American Society of Training & Development (ASTD) named us as the best globally, for our Learning practices - the first company outside USA to be ever awarded this honor. Satyam continues to have everything that is fundamentally required for its success - a strong customer base and a committed universe of approx 53,000 associates.

What we are confronted with is the challenge of continuing our business operations, seamlessly. We will need your involvement and ideas to make it happen. This might involve even more effort at every level, in the near term. This is the time to prove to the world that we are united and will succeed in overcoming the challenges.

This quarter will be tumultuous for us. Rumors will abound and it would be fair to assume that competition will try and leverage it to their advantage. As a proactive measure, we have formed fully empowered Cross Functional Teams, headed by seasoned leaders in the respective areas, to address pan-organizational issues like Delivery Excellence, Customer & Associate Retention, Pipeline Management, Cost Controls, Collections etc. You have helped to build Satyam to be what it is today - and we believe that this cannot be allowed to fail, at any cost. I am confident that I can count on your continued support as I commit to our customers that we will ensure deliverables and commitments are serviced.

On behalf of our new leadership team, I apologize to you for the uncertainty and inconvenience that this incident has caused to you and your families. I assure you that we will emerge stronger, because of this. Increased focus on transparency at all levels, integrity and ethical functioning will be ensured. I want you to stand confidently in front of your families and friends and say that we will now be a better company and that we shall soon be a successful case study of how organizations have turned over a new leaf.

We will be conducting “U Speak” (our Meet-the-Leadership sessions) in each city in India starting next week and will have numerous Webinars to address associates in various countries. We will be meeting many of our customers in person over the next two weeks and will meet those of you onsite, at that time. In these sessions, we will explain to you what happened and articulate the actions that are being taken to retain your confidence in our company.

Let us fight this battle together. I am confident that we will emerge stronger, TOGETHER.

Ram Mynampati
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Read the letter written by Ramalinga Raju to SEBI. Download the PDF document here.

MICROCAPITAL STORY: The Global Financial Crisis And Microfinance

2009-01-07T15:40:00.002+05:30

Wednesday, October 8, 2008

Posted by Scott Everett on microcapital

As financial markets struggle internationally, some microfinance institutions (MFIs) have begun to see downstream effects in the form of rising lending rates. Royston Braganza, chief executive officer of Grameen Capital India observed “the demand for funds is high because microfinanciers have drawn up aggressive growth plans” and “the cost of funds remains a concern due to the 2 percent increase in just the last quarter.” These factors could make fundraising very difficult for microfinance institutions in cases where they have not built up proper reserves according to K. Vinod Kumar, Assistant Vice-President of member services at SKS Microfinance.

Despite these calls for concern, some key microfinance practitioners and advocates are publicly voicing their support for microfinance as a stable alternative investment. Muhammad Yunus of the Grameen Foundation said, “The financial crisis has not hit the microfinance system” and that “in the middle of all these bad news: microfinance still works.” Bill Clinton said last week that investors should “consider the poor of developing nations as viable investment alternatives to today’s turbulent markets.”

If history serves as any lesson, one might look back to the late 1990s when a recession hit Southeast Asia and Latin America. Although the current crisis is substantially larger and affects markets globally, there are some similarities in their effects; declining investor and consumer confidence can create a lack of funding. In Indonesia, the center of the 1990s financial crisis, the currency collapsed and the economy decreased 13 percent in 1998, impoverishing much of the middle class. But the country’s network of People’s Credit Banks -2,200 institutions serving the low end of the microfinance market with loans averaging US$77-held their collective loan portfolio more or less steady throughout the crisis.

David Roodman, a research fellow for The Center for Global Development (CGD), noted that a factor worth considering is that most foreign investment in microcredit still comes from people and institutions motivated by charity and already primed to accept great risk. Yet even if foreign investment decreases and delays a shift some had foreseen toward commercialization in microfinance, it is just one source of funding. Grameen Bank, which used to borrow heavily from foreign sources, was experiencing excess liquidity from client deposits as recently as 2007 and in many African countries the predominant microfinance model is savings-led financial cooperatives that do not even take foreign investment.

Benjamin Kahn and Tor Jansson of The Inter-American Development Bank (IDB), argue “the fate of an MFI, like that of any firm, will hinge on countless factors both internal and external, some predictable and some not. But all else being equal, there is little doubt that MFIs will benefit from close ties with their local communities, from knowing their borrowers well, from having an ownership structure that includes shareholders with a strong interest in their well-being, from conforming to local financial regulations and from making good use of local savings.”

In spite of these arguments that microfinance will remain stable, the likelihood is that MFIs in their early stages (that depend on government donor agencies, foundations, NGOs, or apex institutions for funding) are more likely to be negatively affected. Laura MacInnis of Reuters observed “Charitable giving and foreign aid flows are likely to dry up as the global economy sours.” Steve Radelet, a senior fellow at CGD, said “Washington in particular would be under severe pressure to pare its international aid spending after agreeing a $700 billion financial rescue package.”

The Inter-American Development Bank, founded in 1959, is a multilateral institution with 47 provides research and consultations in addition to hosting conferences. A list of donors to the IDB can be found in the organization’s 2007 annual report. member countries. Although the main focus of the organization is to provide funding to development initiatives, the IDB also

SKS Microfinance was established in 1997 is the largest and fastest growing microlender in India. In 2007 SKS grew by nearly 300 percent, expanding its loan portfolio to USD 64 million, all while maintaining a 99.97 percent on-time repayment rate. As of March 2007, SKS held total assets of USD 78.8 million, had a debt-to-equity ratio of 379.22 percent and return on assets of 1.75 percent.

Grameen Capital is a collaboration between Grameen Foundation, IFMR Trust and Citicorp Finance India Limited, created in January of 2008 to increase the outreach of MFIs and number of livelihood finance providers in India by integrating them into the formal financial markets.

CGD is an independent, not-for-profit think tank that works to reduce global poverty and inequality by encouraging policy change in the U.S. and other rich countries through research and engagement with the policy community.

India: Micro-finance Needs Regulated Growth

2009-01-07T14:00:00.003+05:30

With MFIs in India registering three figure growth and cut throat competition between MFIs, will it require regulated growth in the days to come?

Chennai, India, January 03, 2009 - These are exciting times for microfinance. While competition bodes well for efficiency of the sector as a whole, unregulated and mindless competition could well end up hurting the entire industry and cause irreparable damage to the vulnerable segments of society that it seeks to serve, says P. N. Vasudevan.

With about 180 million poor households in India, poverty alleviation commands a significant portion of our policy-makers’ attention. Financial inclusion is widely accepted as a crucial step in this direction. In the past few years, the RBI has mandated that banks open many more no-frills accounts for the poorer sections. In parallel, the profusion of microfinance has brought a wide range of poorer people (especially women) into the formal financial services fold.

However, the over 100 per cent y-o-y growth rate of microfinance institutions (MFIs) has triggered comparisons with the rapid rise of sub-prime mortgages in the US. In both cases, loans are provided to the less affluent sections of the society with few credible credit appraisal mechanisms. The credit appraisal of individuals with no prior relationship with formal financial services sector is almost impossible.

This was the precise problem creatively addressed by Dr Mohammad Yunus’ Grameen model. By requiring community members to cross-guarantee each other’s loans, the model leveraged the knowledge and peer pressure embedded in the members’ social network in ensuring prompt repayment among members. The credit appraisal is, in effect, out-sourced to the members themselves!

Pioneering this model, Grameen Bank has been serving the poor in Bangladesh for a few decades now without giving rise to any sub-prime crisis. And the global success of microfinance players following the Grameen model is a mark of its robustness.

The usefulness of the model, coupled with the vast untapped demand, has led MFIs to move from an NGO model to a for-profit corporate format and, in parallel, elicited the interest of private equity players. Ironically, the success of the Grameen model could prove its undoing.

A large majority of customers may not have the skill-sets to scale up their businesses substantially to absorb the additional loans available. This may result in consumption-led loans than income-generating loans, with its natural consequences.

While the competition between new and existing MFIs bodes well for efficiency of the microfinance sector as a whole, unregulated and mindless competition could well end up damaging the entire industry. More importantly, it could cause irreparable damage to the vulnerable segments of society this industry seeks to serve.

Competition not always good

The fall of the small-ticket personal loans (STPL) segment in India provides vital clues on how not to run a lending business. Initially, a couple of players provided STPLs successfully over many years.

However, in 2006, with the entry of as many as eight new players into this segment, the supply-demand equation dramatically shifted. The massive growth of STPL portfolios of all lenders was facilitated by their tendency to find a competitor’s customer and provide an additional loan to the individual — instead of finding a new credit-worthy customer.

Credit appraisal was limited to verifying that the individual had repaid his loan from other STPL players promptly. This led to a ballooning of an individual customer’s indebtedness and, with time, a sufficiently large number of customers defaulted to bring the entire STPL industry to its knees.

NPAs increased four-fold to 20-30 per cent. Almost all STPL players found such poisoned portfolios unsustainable and exited the segment. Thus, a segment that had only a couple of years ago proved profitable for a few players sank with the entry of too many new players.

Gearing up for challenge

Over the past year, MFIs and their partner banks have recognised that there is a clear danger of the rapid infusion of finance exposing members to unsustainable levels of debt.

However, with concerted action, MFIs could still deliver on the dream of financial inclusion for the masses, without exposing the most vulnerable in society to hard times.

MFIs in Tamil Nadu and Karnataka have formed associations to formulate a concerted plan to tackle these problems.

Such associations play a vital role in enabling sharing of information among MFIs. We also urgently need coordination amongst the various MFI practitioners so that a focus on too few customers and consequent over-burdening of clients is prevented.

MFIs are in the process of designing a mutually agreeable code of conduct that would include, among other aspects, a commitment to prevent multiple lending.

A comprehensive communication campaign has also been proposed to help members understand the perils of over-borrowing. This campaign would work in tandem with rigorous training to customers and skill-building exercises. Coordination among MFIs is a must to build sustainability into this sector. Many of the institutions have also built portfolios of allied products to induce prompt repayment.

Through these initiatives, MFIs provide their members access to financial as well as non-financial products and services. This carrot-stick approach is expected to keep the repayment rates at acceptable levels.

Most MFIs are, however, constrained from expanding their suite of financial services under the prevailing regulatory framework.

The Raghuram Rajan Committee had proposed the establishment of small finance banks as a crucial step towards financial inclusion. Regulatory intervention to enable MFIs to grow into such banks would strongly empower the microfinance industry.

Huge potential

Microfinance has the potential to positively impact millions of poor Indians. Dr Mohammad Yunus and Grameen Bank richly deserved the Nobel Prize for conceptualising and implementing such a creative framework to deliver credit to the poor.

To scale this model for it to be able to address the large potential in India, MFIs will need to collaborate in building a sustainable and successful industry. They have made an impressive start in this direction.

Regulatory intervention for transforming MFIs into small finance banks and for leveraging m-banking as a tool for expanding financial inclusion would help nurture the microfinance industry.

These are exciting times for the microfinance segment. The next few decades could truly transform the nation through the largest financial inclusion programme in the history of mankind, duly supported by the Government, policymakers, regulators, bankers, investors and MFIs, and with the active involvement of client groups.

By integrating 180 million poor households into the India growth story, the slogans of ‘Garibi Hatao’ and ‘India Shining’ can truly become a reality.

ACCION Invests $4.2m in New Microinsurance Initiatives to Help Move Microfinance Beyond Credit…

2009-01-07T11:52:00.000+05:30

Washington D.C., United States, December 23, 2008 - ACCION invests $4.2m in new microinsurance initiatives to help move microfinance beyond credit.

ACCION(R) International, a pioneer and leader in global microfinance, today announced that it plans to expand its investments to support the development and marketing of microinsurance services to the poor. ACCION has taken a $1.2 million equity share in ParaLife a Swiss microinsurance holding company offering financial protection to low-income populations and people with disabilities. ACCION, drawing on its microinsurance experience, institutional relationships and strong market presence in Latin America , will contribute to ParaLife's regional rollout of low-cost insurance products tailored to the needs of those at the base of the pyramid. ParaLife launched its operations in Mexico late in 2007, and ACCION is supporting the company's expansion in Colombia , where its Latin American hub office is based. ACCION has also announced a $3 million investment in Leapfrog Investments, a $100 million microinsurance investment fund headquartered in Mauritius. The fund, with an expected close in the first quarter of 2009, will build and replicate a sustainable model for developing and marketing microinsurance services to the poor, and will conduct early pilots in Africa and Asia. Leapfrog positions itself as the first global investment firm focused exclusively on businesses that meet the insurance and related financial needs of low-income people in developing countries. "The future of financial inclusion lies in moving microfinance beyond credit, offering the working poor the basic suite of financial tools that we take for granted," said ACCION's Monica Brand, principal director of ACCION's Gateway Microfinance Innovation Fund. "We believe that both ParaLife and LeapFrog will prove bellwethers for the industry, developing flexible, responsive insurance products that meet the needs of a broad range of low-income clients."

ACCION's Global Investments group invests directly in emerging market financial institutions, as well as in technology and information services, through a range of guarantee and equity funds. The group provides early-stage capital to social entrepreneurs to support them in developing innovative products and scaling services that promote financial inclusion at the base of the pyramid.

Hot Jobs

2009-01-05T12:02:00.000+05:30


Jobs Bulletin	27 Dec 2008 - 2 Jan 2009

East Asia and Pacifics

Chief Operating Officer, Papua New Guinea
PNG Microfinance Ltd.
Posted: 28 Dec 2008 Closing Date: 20 Jan 2009

Europe and Central Asia

International Long-Term Senior Advisor/Team Leader, Armenia
Business & Finance Consulting (BFC) GmbH
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Latin America and the Caribbean

Chief Executive Officer (CEO), El Salvador
The Foundation for International Community Assistance (FINCA International)
Posted: 29 Dec 2008 Closing Date: 28 Feb 2009

South Asia

Assistant Manager - Microfinance, India
Drishtee Development and Communication Ltd.
Posted: 2 Jan 2009 Closing Date: 30 Jan 2009

Credit Officer, India
Fullerton India Credit Company Ltd.
Posted: 31 Dec 2008 Closing Date: 23 Jan 2009

Internal Auditor, Afghanistan
Microfinance Agency for Development and Rehabilitation of Afghan Communities (MADRAC)
Posted: 2 Jan 2009 Closing Date: 15 Jan 2009

Microfinance Banking Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Insurance Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Lending Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Policy Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Microfinance Saving Expert, Pakistan
FINCON Services Inc.
Posted: 30 Dec 2008 Closing Date: 30 Jan 2009

Monitoring Officer, Afghanistan
Microfinance Agency for Development and Rehabilitation of Afghan Communities (MADRAC)
Posted: 2 Jan 2009 Closing Date: 15 Jan 2009

SME Credit Officer, Afghanistan
Afghanistan International Bank (AIB)
Posted: 30 Dec 2008 Closing Date: 8 Jan 2009

Sub-Saharan Africa

Credit Manager, Tanzania
Horus Development Finance
Posted: 2 Jan 2009 Closing Date: 2 Feb 2009

Grameen Bank At A Glance

2009-01-03T15:25:00.002+05:30

* The data is as on October, 2008

Nobel Peace Prize, 2006

October 13, 2006 was the happiest day for Bangladesh. It was a great moment for the whole nation. Announcement came on that day that Grameen Bank and I received the Nobel Peace Prize, 2006. It was a sudden explosion of pride and joy for every Bangladeshi. All Bangladeshi's felt as if each of them received the Nobel Peace Prize. We were happy that the world has given recognition through this prize, that poverty is a threat to peace. Grameen Bank, and the concept and methodology of micro-credit that it has elaborated through its 30 years of work, have contributed to enhancing the chances of peace by reducing poverty. Bangladesh is happy that it could contribute to the world a concept and an institution which can help bring peace to the world.

Following is a brief introduction to Grameen Bank.

Owned by the Poor

Grameen Bank Project was born in the village of Jobra, Bangladesh, in 1976. In 1983 it was transformed into a formal bank under a special law passed for its creation. It is owned by the poor borrowers of the bank who are mostly women. It works exclusively for them. Borrowers of Grameen Bank at present own 95 per cent of the total equity of the bank. Remaining 5 per cent is owned by the government.

No Collateral, No Legal Instrument,No Group-Guarantee or Joint Liability

Grameen Bank does not require any collateral against its micro-loans. Since the bank does not wish to take any borrower to the court of law in case of non-repayment, it does not require the borrowers to sign any legal instrument.
Although each borrower must belong to a five-member group, the group is not required to give any guarantee for a loan to its member. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem. There is no form of joint liability, i.e. group members are not responsible to pay on behalf of a defaulting member.

97 per cent Women

Total number of borrowers is 7.61 million, 97 per cent of them are women.

Branches

Grameen Bank has 2,535 branches. It works in 83,343 villages. Total staff is 24,325.

Over Tk 407 billion Disbursed

Total amount of loan disbursed by Grameen Bank, since inception, is Tk 407.68 billion (US $ 7.43 billion). Out of this, Tk 365.39 billion (US $ 6.63 billion) has been repaid. Current amount of outstanding loans stands at TK 42.29 billion (US $ 617.25 million). During the past 12 months (from November’07 to October'08) Grameen Bank disbursed Tk. 59.93 billion (US $ 874.05 million). Monthly average loan disbursement over the past 12 month was Tk 4.99 billion (US $ 72.83 million).

Projected disbursement for year 2008 is Tk 60.00 billion (US $ 874 million), i.e. monthly disbursement of Tk 5.00 billion (US $ 72.87 million). End of the year outstanding loan is projected to be at Tk. 42.00 billion (US $ 612 million).

Recovery Rate 98 per cent

Loan recovery rate is 98.24 per cent.

100 per cent Loans Financed From Bank’s Deposits Grameen Bank finances 100 per cent of its outstanding loan from its deposits. Over 54 per cent of its deposits come from bank’s own borrowers. Deposits amount to 137 per cent of the outstanding loans. If we combine both deposits and own resources it becomes 151 per cent of loans outstanding.

No Donor Money, No Loans

In 1995, GB decided not to receive any more donor funds. Since then, it has not requested any fresh funds from donors. Last installment of donor fund, which was in the pipeline, was received in 1998. GB does not see any need to take any donor money or even take loans from local or external sources in future. GB's growing amount of deposits will be more than enough to run and expand its credit programme and repay its existing loans.

Earns Profit

Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992. It has published its audited balance-sheet every year, audited by two internationally reputed audit firms of the country. All these reports are available on CD, and some on our web-site : www.grameen.com. 11.0 Revenue and Expenditure Total revenue generated by Grameen Bank in 2007 was Tk 10.64 billion (US $ 155.05 million). Total expenditure was Tk 10.53 billion (US $ 153.49 million). Interest payment on deposits of Tk 4.57 billion (US $ 65.67 million) was the largest component of expenditure (43 per cent). Expenditure on salary, allowances, pension benefits amounted to Tk 2.47 billion (US $ 36.03 million), which was the second largest component of the total expenditure (23 per cent). Grameen Bank made a profit of Tk 106.91 million (US $ 1.56 million) in 2007.

20% Dividend for 2007

Grameen bank has declared 20% dividend for the year 2007. It also has created a Dividend Equalization Fund to ensure distribution of dividends at attractive rates in the coming years.

Distribution of dividends generated great enthusiasm among the Bank's shareholders, i.e., the borrowers.

Low Interest Rates

Government of Bangladesh has fixed interest rate for government-run microcredit programmes at 11 per cent at flat rate. It amounts to about 22 per cent at declining basis. Grameen Bank's interest rate is lower than government rate.

There are four interest rates for loans from Grameen Bank : 20% (declining basis) for income generating loans, 8% for housing loans, 5% for student loans, and 0% (interest-free) loans for Struggling Members (beggars). All interests are simple interest, calculated on declining balance method. This means, if a borrower takes an income-generating loan of say, Tk 1,000, and pays back the entire amount within a year in weekly instalments, she'll pay a total amount of Tk 1,100, i.e. Tk 1,000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate.

Deposit Rates

Grameen Bank offers very attractive rates for deposits. Minimum interest offered is 8.5 per cent. Maximum rate is 12 per cent.

Beggars As Members

Begging is the last resort for survival for a poor person, unless he/she turns into crime or other forms of illegal activities. Among the beggars there are disabled, blind, and retarded people, as well as old people with ill health. Grameen Bank has taken up a special programme, called Struggling Members Programme, to reach out to the beggars. About 105,507 beggars have already joined the programme. Total amount disbursed stands at Tk. 122.04 million. Of that amount of Tk. 88.80 million has already been paid off.

Basic features of the programme are:

1)	Existing rules of Grameen Bank do not apply to beggar members; they make up their own rules.

2)	All loans are interest-free. Loans can be for very long term, to make repayment instalments very small. For example, for a loan to buy a quilt or a mosquito-net, or an umbrella, many borrowers are paying Tk 2.00 (3.4 cents US) per week.

3)	Beggar members are covered under life insurance and loan insurance programmes without paying any cost.

4)	Groups and centres are encouraged to become patrons of the beggar members.

5)	Each member receives an identity badge with Grameen Bank logo. She can display this as she goes about her daily life, to let everybody know that she is a Grameen Bank member and this national institution stands behind her.

6)	Members are not required to give up begging, but are encouraged to take up an additional income-generating activity like selling popular consumer items door to door, or at the place of begging.

Objective of the programme is to provide financial services to the beggars to help them find a dignified livelihood, send their children to school and graduate into becoming regular Grameen Bank members. We wish to make sure that no one in the Grameen Bank villages has to beg for survival.

Housing For the Poor

Grameen Bank introduced housing loan in 1984. It became a very attractive programme for the borrowers. This programme was awarded Aga Khan International Award for Architecture in 1989. Maximum amount given for housing loan is Tk 15,000 (US $ 218) to be repaid over a period of 5 years in weekly instalments. Interest rate is 8 per cent. 661,945 houses have been constructed with the housing loans averaging Tk 13,104 (US $ 191). A total amount of Tk 8.67 billion (US $ 206.35 million) has been disbursed for housing loans. During the past 12 months (from November'07 to October’08) 12,171 houses have been built with housing loans amounting to Tk 115.41 million (US $ 1.68 million).

Micro-enterprise Loans

Many borrowers are moving ahead in businesses faster than others for many favourable reasons, such as, proximity to the market, presence of experienced male members in the family, etc. Grameen Bank provides larger loans, called micro-enterprise loans, for these fast moving members. There is no restriction on the loan size. So far 1,579308 members took micro-enterprise loans. A total of Tk 37.19 billion (US $ 565.66 million) has been disbursed under this category of loans. Average loan size is Tk 23,553 (US $ 343.74), maximum loan taken so far is Tk 1.2 million (US $ 17,500). This was used in purchasing a truck which is operated by the husband of the borrower. Power-tiller, irrigation pump, transport vehicle, and river-craft for transportation and fishing are popular items for micro-enterprise loans. 18.0 Scholarships Scholarships are given, every year, to the high performing children of Grameen borrowers, with priority on girl children, to encourage them to stay ahead to their classes. Upto to October'08, scholarships amounting to US$ 1,209,446 have been awarded to 69,990 children. During 2008, US$ 700,000 will be awarded to about 26,000 children, at various levels of school and college education.

Education Loans

Students who succeed in reaching the tertiary level of education are given higher education loans, covering tuition, maintenance, and other school expenses. By October’08, 29,365 students received higher education loans, of them 27,756 students are studying at various universities; 330 are studying in medical schools, 544 are studying to become engineers, 735 are studying in other professional institutions.

Grameen Network

Grameen Bank does not own any share of the following companies in the Grameen network. Nor has it given any loan or received any loan from any of these companies. They are all independent companies, registered under Companies Act of Bangladesh, with obligation to pay all taxes and duties, just like any other company in the country.

1) Grameen Phone Ltd.
2) Grameen Telecom
3) Grameen Communications
4) Grameen Cybernet Ltd.
5) Grameen Solutions Ltd.
6) Grameen IT Park
7) Grameen Information Highways Ltd.
8) Grameen Star Education Ltd.
9) Grameen Bitek Ltd.
10) Grameen Uddog (Enterprise)
11) Grameen Shamogree (Products)
12) Grameen Knitwear Ltd.
13) Gonoshasthaya Grameen Textile Mills Ltd.
14) Grameen Shikkha (Education)
15) Grameen Capital Management Ltd.
16) Grameen Byabosa Bikash (Business Promotion )
17) Grameen Trust
18) Grameen Health Care Trust
19) Grameen Health care Service Ltd.
20) Grameen Danone Food Ltd.
21) Grameen Veolia Water Ltd.

Grameen Bank-Created Companies

The following companies in the Grameen network were created by Grameen Bank, as separate legal entities, to spin off some projects within Grameen Bank funded by donors. Donor funds transferred to Grameen Fund were given as a loan from Grameen Bank. These companies have the following loan liability to Grameen Bank :

Grameen Fund : Tk 373.2 million (US $ 6.38 million)
Grameen Krishi Foundation: Tk 19 million (US $ 0.33 million)
Grameen Motsho (Fisheries) Foundation: Tk 15 million (US $ 0.26 million)

Grameen Bank provided guarantees in favour of the following organizations while they were receiving loans from the government and the financial organizations. These guarantees are still in effect.

Grameen Shakti : Tk 9 million (US $ 0.12 million)
Grameen Motsho (Fisheries) Foundation : Tk 8 million (US $ 0.11 million)

Grameen Kalyan

Grameen Kalyan (well-being) is a spin off company created by Grameen Bank. Grameen Bank created an internal fund called Social Advancement Fund (SAF) by imputing interest on all the grant money it received from various donors. SAF has been converted into a separate company to carry out its mandate to undertake social advance activities among the Grameen borrowers, such as, education, health, technology, etc.

Loans Paid Off At Death

In case of death of a borrower, all outstanding loans are paid off under Loan Insurance Programme. Under this programme, an insurance fund is created by the interest generated in a savings account created by deposits of the borrowers made for loan insurance purpose, at the time of receiving loans. Each time an amount equal to 3 per cent of the loan amount is deposited in this account. This amount is transferred from the Special Savings account. If the current balance in the insurance savings account is equal or more than the 3 per cent of the loan amount, the borrower does not need to add any more money in this account. If it is less than 3 per cent of the loan amount, she has to deposit enough money to make it equal.

Coverage of the loan insurance programme has also been extended to the husbands with additional deposits in the loan insurance deposit account. A borrower can get the outstanding amount of loan paid off by insurance if her husband dies. She can continue to borrow as if she has paid off the loan.

Total deposits in the loan insurance savings account stood at Tk 4,125.40 million (US$ 60.21 million) as on October 31, 2008. Up to that date 109,154 insured borrowers and insured husbands died and a total outstanding loans and interest of Tk 779.81 million (US $ 11.89 million) left behind was paid off by the bank under the programme. The families of the deceased borrowers are not be required to pay off their debt burden any more, because the insured borrowers or their insured husbands do not leave behind any debt burden to take care of.

Life Insurance

Each year families of deceased borrowers of Grameen Bank receive a total of Tk 8 to 10 million (US $ 0.12 million to 0.15 million) in life insurance benefits. Each family receives Tk 1,500. A total of 108,813 borrowers died so far in Grameen Bank. Their families collectively received a total amount of Tk 198.32 million (US$ 4.12 million). Borrowers are not required to pay any premium for this life insurance. Borrowers come under this insurance coverage by being a shareholder of the bank. 24.0 Deposits By the end of October, 2008 total deposit in Grameen Bank stood at Tk. 57.83 billion (US$ 844.13 million). Member deposit constituted 54 per cent of the total deposits. Balance of member deposits has increased at a monthly average rate of 1.18 percent during the last 12 months.

Pension Fund for Borrowers

As borrowers grow older they worry about what will happen to them when they cannot work and earn any more. Grameen Bank addressed that issue by introducing the programme of creating a Pension Fund for old age. It immediately became a very popular programme.

Under this programme a borrower is required to save a small amount, such as Tk 50 (US $ 0.73), each month over a period of 10 years. The depositor gets almost twice the amount of money she saved, at the end of the period. The borrowers find it very attractive. By the end of October 2008 the balance under this account comes to a total of Tk 18.91 billion (US $ 276.00 million). Tk 4.34 billion (US $ 63.29 million) was added during the past 12 months (November ’07 - October, 2008). We expect the balance in this account to grow by Tk 2.25 billion (US $ 32.79 million) in 2008 making the balance to reach Tk 19.60 billion (US $ 285.63 million).

Loan Loss Reserve

Grameen Bank has a very rigourous policy on bad debt provisioning. If a loan does not get paid back on time it is converted into a special type of loan called "Flexible Loan", and 50 per cent provisioning is done on the last day of each month. Hundred per cent provisioning is done when flexible loan completes the second year. At its third year, the outstanding amount is completely written off even if the loan repayment still continues.

Balance in the loan loss reserve stood at Tk 4.66 billion (US $ 67.98 million) at the end of 2007 after writing off an amount of Tk 0.74 billion (US $ 10.78 million) during 2007. Out of the total amount written off in the past an amount of Tk 0.74 billion (US $ 10.85 million) has been recovered during 2007.

Retirement Benefits Paid

Grameen Bank has an attractive retirement policy. Any staff can retire after completing ten years or more of service. At the time of retirement he receives a retirement benefit in cash. It is usually paid out within a month after retirement. Since this benefit was introduced 7,239 staff members retired and received a total amount of Tk 4.42 billion (US $ 76.10 million) in cash. This amounts to Tk 0.61 million (US $ 10,513) per retiring staff. During the past 12 months 619 staff went on retirement collecting a retirement benefit of Tk 613.10 million (US $ 8.94 million). Average retirement benefit per staff was Tk 0.99 million (US $ 14,443 ).

Telephone-Ladies

To-date Grameen Bank has provided loans to 348,733 borrowers to buy mobile phones and offer telecommunication services in nearly half of the villages of Bangladesh where this service never existed before. Telephone-ladies run a very profitable business with these phones.

Telephone-ladies play an important role in the telecommunication sector of the country, and also in generating revenue for Grameen Phone, the largest telephone company in the country. Telephone ladies use 2.22 percent of the total air-time of the company, while their number is only 1.64 per cent of the total number of telephone subscribers of the company.

Getting Elected in Local Bodies

Grameen system makes the borrowers familiar with election process. They routinely go through electing group chairmen and secretaries, centre-chiefs and deputy centre-chiefs every year. They elect board members for running Grameen Bank every three years. This experience has prepared them to run for public offices. They are contesting and getting elected in the local governments. In 2003 local government (Union Porishad) election 7,442 Grameen members contested in the reserved seats for women, 3,059 members got elected. They constitute 24 per cent of the total members elected in the seats reserved for women members in the Union Porishad local government. During 1997 local government election 1,753 members got elected to these reserved seats.

Computerised MIS and Accounting System

Accounting and information management of nearly all the branches (2,524 out of 2,535) has computerised. This has freed the branch staff to devote more time to the borrowers rather than spend it in paper-work. Branch staffs are provided with pre-printed repayment figures for each weekly meeting. If every borrower pays according to the repayment schedule, the staff has nothing to write on the document except for putting the signature. Only the deviations are recorded. Paper work that remains to be done at the village level is to enter figures in the borrowers' passbooks.

All zones (40) are connected with the head office, and with each other, through intra-net. This has made data transfer and communications very easy.

Policy For Opening New Branches

New branches are required to fund themselves entirely with the deposits they moblise. No fund from head office or any other office is lent to them. A new branch is expected to break-even within the first year of its operation.

Crossing the Poverty-Line

According to a recent internal survey, 65 per cent of Grameen borrowers' families of Grameen borrowers have crossed the poverty line. The remaining families are moving steadily towards the poverty line from below.

'Stars' for Achievements

Grameen Bank provides colour-coded stars to branches and staff for 100 percent achievement of a specific task. A branch (or a staff) having five-stars indicate the highest level of performance. At the end of June 2008, branches showed the following result.

1,872 branches, out of total 2,517 branches, received stars (green) for maintaining 100 per cent repayment record.

2,049 branches received stars (blue) for earning profit. (Grameen Bank as a whole earns profit because the total profit of the profit-earning branches exceeds the total loss of the loss-incurring branches.)

1,757 branches earned stars (violet) by meeting all their financing out of their earned income and deposits. These branches not only carry out their business with their own funds, but also contribute their surpluses to meet the fund requirement of deficit branches.

346 branches have applied for stars (brown) for ensuring education for 100% of the children of Grameen families. After the completion of the verification processes their stars will be confirmed. 57 branches have applied for stars (red) indicating branches those have succeeded in taking all its borrowers' families (usually 3,000 families per branch) over the poverty line.

The star will be confirmed only after the verification procedure is completed. Each month branches are coming closer to achieving new stars. Grameen staff look forward to transforming all the branches of Grameen Bank into five star branches.

How Legal Steps Can Help Pave the Way to Ending Poverty

2009-01-03T14:23:00.001+05:30

Source: http://www.grameen-info.org/

by Muhammad Yunus

There is no better time for a serious discussion of how the law and lawyers can enable the poor to help themselves—throughout the world, and especially in the United States.

Right now, highly regulated banks in the developed world (many of them in the United States) are having trouble pricing and trading complex mortgage-backed securities. At the same time, however, trust-based microfinance banks like Bangladesh’s Grameen Bank continue to do well, unaffected by the financial uncertainty in the rest of the world.

How the Trust-Based Grameen Bank Works

The Grameen Bank issues loans using very simple trust-based financial arrangements; no legal documents are involved because, in part, Grameen’s borrowers are poor and have no collateral. So, Grameen relies on trust and the positive incentives of continued access to credit and other support to ensure repayments—and Grameen’s repayment rates have averaged better than 98 percent. Because Grameen’s loans are based on trust and positive incentives and no legal documents, Grameen has never used lawyers or courts to collect any of its loans. Grameen has about 7.5 million borrowers in Bangladesh, and has loaned approximately $7 billion since its inception, with an average loan size of about $150.

When a potential borrower wants a loan, she has to form a group of five or join such a group of borrowers from her neighborhood and agree to meet with that group once a week. Each loan is made to an individual in the group and is the responsibility of that one individual, but others in the group cannot get their next loans if any member of the group is late in her payments.

Grameen’s borrowers are also required to maintain a regular savings plan, and today its borrowers and their nonborrowing neighbors as a group have $150 in savings for every $100 in loans outstanding. Today, the Grameen Bank is funded by the savings deposits of the poor. It has been profitable for all but three of the last twenty-five years.

Grameen’s interest rates for loans and savings are clearly available to all at www.grameen.com. All loans are intended for income-producing activities, housing, or education, not for consumption. The basic interest rate for most business loans is 20 percent. In addition, Grameen has issued more than 600,000 housing loans at 8 percent and about 20,000 educational loans at 5 percent.

Grameen also has arranged loans for about 100,000 beggars, whom it calls “struggling members.” These loans are interest-free and offered without time limits. The goal is to encourage these members to cease begging and to become regular savers and borrowers. To date, 10 percent of these borrowers have left begging behind completely.

The Grameen bank is 96 percent owned by the borrowers, 97 percent of whom are women. Nine of its twelve directors are women.

Its bankers, using bicycles or motorcycles, go to a borrower’s neighborhood for the weekly meetings. Typically, ten or so groups of five borrowers (sixty individual borrowers total) meet every week for about an hour to pay back existing loans, to receive new loans, and to exchange ideas in an open and transparent way in front of the whole group of fellow borrowers. The approach is practical also because Grameen’s borrowers typically cannot read financial statements.

Grameen’s borrowers have established some of their own rules. Known as the Sixteen Decisions, many of these rules have to do with the health of the family and the care and education of children (aee www.grameen.com for details).

Complex Isn’t Always Better

In view of the general financial uncertainty in the world, one wonders how helpful complex legal contracts have proven to be for the subprime borrowers or for the lenders who are currently experiencing difficulties. How useful are these contracts if the transactions are not ultimately based on trust between bankers and borrowers who know each other? In 50 percent of the current housing foreclosures in the United States, no direct communication exists between the borrower and the lender. Grameen’s bankers and borrowers meet and look each other in the eye each and every week during the group meetings.

One must also ask how successful all of the disclosure statements are if they are buried in a large pile of documents that are so long and complex that no one, including the bankers, seems to fully understand the implications of the interest rate adjustments in the documentation. So many of the more complex mortgages and mortgage-based securities in the United States are faltering or failing. But Grameen’s much simpler trust-based loans to poor women with no collateral seem to be doing well.

A similar situation occurred in 1997, when microfinance continued to grow steadily despite the financial instability that accompanied the Asian currency crisis. The macroeconomies in a number of Asian countries declined steeply when a bubble of speculative lending burst, but the microfinance organizations in those countries continued to thrive. During a financial crisis, microfinance organizations can be an island of stability.

In a recent meeting, U.S. Federal Reserve Chairman Ben Bernanke commented that the United States has less of an informal or unregulated sector than developing countries do. The discussion turned to the importance of a culture of thrift, hard work, savings, and mutual aid, and to whether those qualities remained important in the United States. Federal Reserve Board governor Randall Kroszner, who was also in attendance, cited the book From Mutual Aid to the Welfare State by David T. Beito. Beito’s book documents the importance of thrift, hard work, and savings in the growth of the United States, where local community-based voluntary mutual aid societies provided bottom-up delivery of health care and financial services and promoted a culture of thrift and work for the poor.

What makes the trust-based Grameen bottom-up model so valuable is that it builds human, family, and social capital by helping the poor (poor women in particular) to help each other in a voluntary and businesslike fashion that builds respect and self-esteem. Grameen has learned that the poor can take care of themselves, and that they can support each other and make important contributions to society. The resulting knowledge, experience, confidence, pride, and self-respect have become the basis on which Grameen has successfully built its lending program.

Where the Legal Profession Can Help

Lawyers can provide vital help to encourage and enable lower-income people to take care of themselves in the United States and internationally. The needs are universal, but laws differ among countries, so perhaps lawyers can form groups in each country to develop or revise laws that ultimately help the poor to help themselves. Perhaps one group of lawyers can be formed for each of these or similar objectives in every country where such changes are needed. Here are some areas to focus on:

Simpler laws for microfinance programs. Everywhere in the world, simpler laws are needed to allow microfinance programs to receive savings deposits and re-lend that money. The right regulations should allow a microfinance organization to expand through savings deposits. Expansion of lending through savings deposits would be the single most important step in expanding microfinance globally. In the United States, credit union regulations might work for microfinance organizations, and Grameen America is studying that option. The best option would be to create a new law exclusively for establishing microfinance banks for low-income people and people on welfare.
Laws focused on individual borrowers. In the United States in particular, low-income borrowers find that starting and managing a small business can be difficult because laws and regulations either are intended for larger businesses or simply are not essential. For example, in the state of Louisiana, a person cannot arrange and sell more than one variety of flowers in a vase for resale without taking a test to get a state license. This regulation discourages new entrepreneurs, reduces competition, and keeps the cost of flower arrangements high. The license could be voluntary and optional, allowing the end purchaser of that flower arrangement to decide if he wants flowers arranged by a licensed or unlicensed businessperson.
Waiver medallions for the poor. Very poor people should be entitled to sort of waiver medallion that enables them to take care of themselves through self-employment opportunities with minimal or no interference from laws that weren’t designed with them in mind. Such a medallion would entitle the very poor to do what they need to do in search of earning their own legal livelihood, and no law should be allowed to interfere with that initiative. Free trade and special enterprise zones are common. Let’s work to give the poor the individual right to operate in a legal interference–free zone to make a living for themselves.
Welfare and Medicaid laws designed to encourage independence. Welfare and Medicaid laws often too steeply limit how much a low-income person can save or earn. These laws should be designed to help people gain self-respect and independence by taking care of themselves through income-producing activities. Instead, the welfare laws seem designed to keep people on welfare longer than necessary. Creative policy changes should be put in place to help people help themselves and to lose these subsidies gradually rather than all at once.
Simpler laws for the poor. Laws should be kept as simple as possible for low-income people in particular, to motivate them to take the next steps to help themselves.
Non-governmental loan programs. Governments should create an enabling environment for microcredit programs without getting directly involved in lending money to the poor. It’s extremely difficult for a political entity to recover money that it has loaned to poor people. Some people look at government as an agency that is required to take care of them. Thus, the important discipline of paying back a loan is lost in a government program. Politicians by necessity are more focused on awarding loans and securing votes than in making sure loans are repaid. For all these reasons, loan programs should be left to the non-governmental, private sector, and social businesses.
Tax laws that encourage social businesses. Social businesses are designed exclusively to maximize benefits to customers, rather than maximizing profits. Social businesses serve social needs in a businesslike manner. Such a business is sustainable and makes a profit, and the investor gets back the capital he invested, over time. Profits in a social business are entirely reinvested to expand the existing social business or start new ones. A charity dollar can be used only once, but a social business investment dollar is recycled indefinitely. Current tax laws offer tax benefits to charitable organizations. New tax laws are needed that put social businesses on at least an equal footing with charities.
Simpler visa, immigration, and passport systems. The current visa, immigration, and passport systems worldwide are a great source of frustration and wasted time and resources. So many countries want some of Grameen’s 27,000 experienced microfinance employees to come and build programs, but those same countries have complicated and expensive visa procedures. The children of developed countries want to come to Bangladesh to study microfinance. The children of Bangladesh’s poor borrowers want to travel and go to international schools. Simple programs that allow people to travel more easily to share what they know should be devised. The goal should be a world where people can travel freely without the need for passports and visas.
Tariffs and trade barriers that favor the less powerful. Tariffs and trade barriers seem to favor the powerful over the less powerful. The relatively poor country of Bangladesh has to pay one of the highest tariffs on its textile exports to the United States. The goal should be to help poor countries to do more business with rich countries, rather than letting them depend on their foreign aid.

We must all believe in people and their ability to change their own lives. All people, including the poor, have enormous capacity to help themselves. Despite appearances, deep inside every human being exists a precious treasure of initiative and creativity waiting to be discovered, to be unleashed, to change life for the better. If we look at each and every poor person from this perspective, we will find enormous possibilities for this world.

Dr. Muhammad Yunus is founder and managing director of Grameen Bank in Dhaka, Bangladesh. He is the 2006 Nobel Peace Laureate (shared with Grameen Bank).

Transformation of MFI s and other risks in microfinance

2009-01-03T14:20:00.004+05:30

Source: Raimar Dieckmann, Senior Economist, Deutsche Bank AG

Currently, an increasing number of MFIs are transforming themselves into regulated MFIs or even niche banks. While this process allows MFIs to improve their access to funding by taking deposits and to expand their client base, incorporation as a regulated entity also entails risks of inappropriate management and governance systems. In practice, internal control systems of MFIs are often not well equipped for this transformation and enhanced regulatory requirements often pose additional challenges. In rare cases, MFIs even drift away from their original target, which is the low-income customer base. Other MFIs have moved upmarket, serving the growing financial needs of middle-income clients. By doing so, they often enter into direct competition with traditional retail or commercial banks. A recent survey conducted by CSFI and sponsored by CGAP and Citi confirmed these conclusions and ranked poor management and corporate governance structures as the greatest current risks in microfinance. The strong rise in private-sector investments also entails some risks, as foreign investments are concentrated on the 200 largest MFIs. In addition, they focus on the well developed microfinance markets in Latin America and South Asia, leaving African and other Asian markets underdeveloped. This situation leads to risks for investors as some MFIs expand their client base too rapidly, potentially impairing the quality of their loan portfolios as a result. In addition, strong competition amongst leading MFIs drives down not only interest rates for MFIs but also those charged by MFIs to micro-borrowers. While this is at first glance good news it might also impede MFIs’ profitability and, thus, ultimately their ability to repay loans to foreign investors. Consequently, risk-adjusted returns become less attractive in some countries and the increased leverage ratios of MFIs point to limits on further borrowing in certain markets. This situation will ease in the medium term when a broader range of will become capable of absorbing foreign debt finance.

India: Microfinance Institutions Emerge as Next Asset Class…

2009-01-03T12:59:00.002+05:30

Source: Economic Times

Recently, three micro finance institutions (MFIs) of varying sizes collectively received private equity (PE) investments of around Rs 550 crore (USD 115.5 ml). So, what is making the micro finance sector more attractive, especially at a time when marque names among corporates are struggling to keep their heads above water? Recently, three micro finance institutions (MFIs) of varying sizes collectively received private equity (PE) investments of around Rs 550 crore. While SKS, the country’s largest, tied up Rs 336 crore worth investments, two-year-old Ujjivan Financial Services got Rs 94 crore, compared with Rs 75 crore that it originally set out for. Spandana, the second largest by assets, has seen an infusion of Rs 100 crore. It is the kind of money that could potentially bailout quite a few companies across sectors hit by the ongoing financial crisis. Till recently, such investments went into retail or real estate. So, what is making the micro finance sector more attractive, especially at a time when marque names among corporates are struggling to keep their heads above water? Private equity is not new to MFIs. Ever since the sector adopted a for-profit approach a couple of years ago, small but significant amounts of private equity have been trickling in. Typically, high net worth individuals who identified with the larger cause of removing poverty like Vinod Khosla or Michael and Susan Dell, or social capitalists like Lok Capital or dedicated micro finance funds like Unitus or Bellwether Microfinance put in their money. What’s noteworthy now is the arrival of pure-play venture capital funds that are sensing opportunity at the bottom of the pyramid. Sequoia Capital, Sandstone and JM Financial are among those that have bet on this sector. This shift in the nature of the investor has been driven by scorching growth in the micro finance sector over the last two years. MFIs, especially the larger ones, most of whom operate as non-banking finance companies (NBFCs), have been consistently growing at 200%-plus. SKS and Spandana would both fall in this category. Some like Bandhan in West Bengal have grown at an astounding rate of 600% per annum. However, Bandhan is yet to open itself to PE players. In fact, this fiscal, a cluster of large and mature micro finance entities appears set for over 100% growth as inflationary trends have triggered higher working capital needs for micro loanees. In the first quarter of FY09, these MFIs have bettered their half-yearly disbursals of FY08. In other words, the demand for working capital needs by MFIs has outstripped the quantum that small PE investments or SIDBI could so far provide. Hence the bid to woo mainstream PE players. Going forward, if there is one thing the sector is assured of is growth. Back of the envelope calculations show that the poorer sections of urban and rural India have a combined credit appetite of over Rs 2.5 lakh crore and barely 10% of this is serviced currenlty. PE players clearly recognise the immense business potential this unfulfilled demand holds. On the supply side, this high cash business surely promises high returns, if not huge. “From an investment perspective, it is very attractive,” says Venky Natarajan, Investments Director of Lok Advisory Services. “If you have put in your money last year or two years ago, you could expect a rate of return upwards of 70%. Currently, the average returns stand at around 35%,” he adds. Lok Capital is an investor in Spandana and has recently picked up stake in Bangalore-based fledgling MFI-NBFC Ujjivan which works with the urban poor. Though the for-profit MFI-NBFCs are not controlled by any single entity, their businesses are being shaped by a regulatory environment which forces them to maintain a stipulated capital adequacy ratio. Additionally, the sector is counter-cyclical and to that extent insulated from the global meltdown.

This means that in terms of the risk-return profile, MFIs are emerging as the next asset class for PE funds where the risk levels are moderate to high and the returns are always high. However, the money is not flowing into the sector as a whole. PE players are hand-picking MFIs that they believe can turn into profitable corporate entities. Not only are they looking for the MFIs’ ability and preparedness to service the growing demand, they are also keeping an eye on profitable exit options in the medium-term. This explains why the same set of MFIs are continuing to attract capital. Market observers believe that both SKS and Spandana would be ready to hit the IPO market sooner than later. Says Mohit Bhatnagar, operating partner with Sequoia Capital: “What we are seeing now is a flight of capital to quality within the priority sector.”

According to him, an investment-worthy company is defined by “a 24 carat gold plated team, a market that allows you to grow and products that you can offer to that growing market.” Clearly, those MFIs that have strong leadership teams, are scalable and process driven are coming up trumps. Interestingly, most pure-play PE funds are investing in only one MFI. Other than Sequoia Capital, which has invested in both SKS and Ujjivan, others have stayed with just one investment. JM Financials, for example, has not invested in another MFI after Spandana. For Sandstone, its recent investment in SKS is its first. So what does this mean for the highly competitive MFI environment? “With the entry of PE players, there is a sharper focus on growth because that would give them better returns,” says Mr Natarajan. As Mr Bhatnagar puts it: “Anybody who puts in money cannot allow the quality of the portfolio to fall. PE funds would not typically come in short-sighted. They see the potential to grow the market.” They have thus helped initiate the process of transforming individual-run institutions to professionally-run companies. Pros will ensure the rigours of the lending business, they believe, while the founders would ensure mission fulfilment. This would improve service quality, enable higher growth rates and improve the quality of competition, they say. It could perhaps also lead to lower interest rates through lower transaction costs. As the big grow bigger, consolidation is inevitable where the smaller micro finance players will have to either sellout or create a niche for themselves. “In this rush to grow, MFIs may soon start servicing a different class of poor leaving the poorest of the poor out in the process,” says Mr Natarajan.

Microfinance in India has grown fast. But has it also grown right?

2009-01-03T11:41:00.002+05:30

Source: Business Today

Poverty has become big business in India. So much so that a slew of storied venture capital outfits and wealthy techies—such as Sequoia Capital, eBay Founder Pierre Omidyar and Michael Dell—who are more at home analysing enterprise software or semiconductor makers’ business models, have now decided to park some of their capital with some of India’s poorest people using microfinance institutions as intermediaries. These investors—and their MFI outfits— hope that handing out small loans that average 5,000 rupees at a 28 percent interest rate to India’s impoverished, will not just help their for-profit microfinance portfolio companies such as SKS turn a tidy profit, but will also help reduce poverty in the country. Billions of dollars have poured into poverty alleviation in India over the past decades—but with little effect. State sponsored initiatives in delivering social inputs like health care and education have proven to be profoundly inefficient. Today, literacy levels and health conditions in rural India are appalling.Infant mortality rates are high and malnutrition is rife. Consequently, average incomes in rural India have lagged severely behind urban ones during India’s last seven years of galloping growth, adding to increasing inequity between both segments of the population. Microfinance institutions say they want to fix this problem and are in a heated race to scarf up poor clients. Industry veterans, like David Gibbons, Chariman of MFI Cashpor and Nancy Barry, ex-Head of Women’s World Banking, are aghast at the nature of their activities. Microfinance institutions come in all sorts of shapes and sizes, but the main ones plying their trade in rural India are Self-Help Groups (SHGs) and for-profit MFIs. SHGs—numbering 3.4 million and servicing 45 million poor—are groups of up to 20 women who borrow directly from banks at a 12 per cent rate and then lend the money internally to members with additional percentage points tacked on. Interest income earned on each loan goes into a savings pool. In about five years, each individual from the group has a nice little nest egg of around Rs 25,000 to spend as they like. Forprofit MFIs like SKS and Spandana—only 25 of which serve 14 million people, but are the fastest growing outfits today in microfinance—have a different approach. They loan out money using the Grameen model, within groups of five women or so—but the loans are to individuals. The group exists as a collective guarantee for the loan and if someone defaults, the rest of the members have to come up with the cash. A staggering 800 million of India’s poor are starved of formal credit and MFIs can be a godsend to their poor clients who use this cash injection to try and transform themselves into successful minientrepreneurs by rearing buffalos or selling vegetables and thereby improving the quality of their lives. Without them, the only alternative is to sell one’s pound of flesh to the money lender, who is only too happy to give out funds that command interest rates that range from 100 per cent to a mind-boggling 5,000 per cent, depending on the nature of the loan. By contrast, the 28 per cent interest rate that most Indian MFIs charge looks modest. Loans to the rural poor necessitate knocking on the doors of every potential client in the hinterland— not cheap, and requiring both a mammoth staff and the coordination skills of an army General. Consequently, operating margins are a hefty 12 per cent, in addition to the 12 per cent cost of borrowing and 2 percent float for outstanding loans. All that’s left is a slim 2 percent profit margin. It means that large for-profit MFIs in India are forced to compete with each other in a desperate race to grab as many clients as possible—an economies-of-scale approach— in order to make profits and keep their private equity backers happy. SKS, for instance, is growing at a stellar 200 per cent. But playing this numbers game means that “the most vulnerable are not clients of choice,” according to this year’s state of the sector repor on microfinance, authored by N. Srinivasan, a former NABARD executive. Poverty audits carried out for the report revealed just how wary MFIs were in dealing with the abject poor. “In five MFIs out of eight, the proportion of non-poor clients were more than the poor,” says the report. In other words, with a focus on the bottom line, MFIs have abandoned those below the poverty line and gone after the wealthier segments of poor, who can afford to take out bigger loans, which in turn generate heftier profits for the firm. Ultimately, “this strategy is more about financial inclusion and less about poverty reduction,” says Cashpor’s David Gibbons, who works in rural Uttar Pradesh and Bihar amongst the most impoverished segments of the poor. Instead of offering existing clients a much needed savings programme or health insurance, many MFIs have simply continued doling out 5,000-rupees loans to as many new clients as possible. MFIs say that current laws do not allow them to act like a bank and take in savings, which would help them access and give out cheaper credit. But Srinivasan has a point to counter. “Have you used the best possible business model for each client or have you just caught hold of a fellow, put Rs 5,000 in his pocket and moved on,”wonders Srinivasan. It makes sense that reasonably priced credit can be a lifesaver for the desperately poor, especially women. With the purchase of an inexpensive buffalo, a poor mother can generate a little moren cash income and send her children to school. However, is everyone borrowing for entrepreneurial purposes? “An increase in lending to people to pump numbers up has resulted in many borrowing to pay for marriages,”says Jayshree Vyas, Managing Director of SEWA, an organisation of poor, self-employed women workers in Gujarat. Pigeonholing the poor as wise, frugal spenders, who are impervious to consumerism is naive. “I’ve even seen people spending huge amounts on DJ parties in remote villages,” says Vyas. Also,many industry observers point out that often a poor person takes out one loan to pay for another, and, in effect climbs on to a “debt treadmill”. In fact, double counting clients is a widespread if under-reported phenomena amongst MFIs. Issues of scaling aside, the larger question that haunts the microfinance industry today is, how effective are these small loans in alleviating poverty in India? Not very effective, thinks Aneel Karnani, who teaches strategy at the University of Michigan’s Ross School of Business. First, if you have too many grocery sellers in a village—the most common of microfinance activities—fierce competition ensues and the person doesn’t eke out enough of a living to get out of poverty, says Karnani. The small sizes of these loans “do not enable most borrowers to do much except to ease liquidity problems,” concurs Srinivasan. Moreover, the possibility of everyone becoming an entrepreneur is a romantic notion—it results in an inefficient and fragmented economy, says Karnani. The real effort, he feels, should be on investing in small to mid-size enterprises, which are the real engines of job creation. If that’s the case, how does one tackle endemic poverty? Every nation that is wealthy today with high levels of literacy and social welfare transitioned from being mainly a rural economy to an industrialised, urban one. A small percentage of highly productive farmers emerged to grow food for a country that prior to the shift had a large farm sector which employed a majority of the population. Industries hired workers and paid them far superior wages to what they would have made as farmers. India cannot sustain itself as a largely agrarian nation in its current form—most of the rural population consists of either agricultural labourers living in wretched conditions or “2-acre” farmers who struggle to keep their tiny plots financially afloat. Microfinance, while often proving to be the key in increasing the quality of life for its poor, rural clients, can only be a temporary, stop-gap measure, argue many economists. Moreover, MFIs in India are hardly paragons of virtue. Irresponsible lending behaviour in the country is already rife, says Chuck Waterfield, who started Microfinance Transparency along with Grameen godfather Muhammad Yunus. Waterfield points out that today, almost every MFI in India routinely tries to understate its interest rates to its clients and markets its loans as costing just 15 per cent— which is actually 15 per cent “flat”, a loan where the principal amount never declines, and, therefore, is closer to an annualised 27 per cent rate. Many simply emphasise the weekly payments instead of highlighting the interest rate being charged. In the final analysis, for-profit MFIs are simply small cogs in the overall machinery tackling poverty alleviation in India. Firms like SKS and Share Microfin have succeeded in conceptualising a whole new model for poverty alleviation— a model that is transparent and sustainable—compared to the billions of dollars squandered over past decades through inept, state-spearheaded rural credit initiatives. Whether these firms have made the poor better off or not is something for a neutral impact study to determine. Most industry observers feel that they have, but not by much. Reality is, the trade-off between scale and quality of coverage for an MFI will always exist in a for-profit model, at least in the initial stages of growth. Nervous about ceding ground to a client-hungry competitor, an MFI wants to grab as much market share as possible in order to secure a large client base for future products. However, without significant state intervention in areas like health and education—underwhelming to date—the mission of poverty alleviation in India will be a distant dream, regardless of the MFIs. Plus, concerns about MFI’s profit motives aren’t trite. Private equity investors of an MFI expect both consistent and growing profit numbers, as well as the capital appreciation of its stock. Fact is, when consistent profit and an increasing share price for a firm is fundamentally linked to handing out as many loans as possible to the most vulnerable segment of India’s population, it seems unlikely that the social good will play a major role in an MFI’s activities.

10 Indiactors of Alleviating Poverty

2009-01-02T18:22:00.000+05:30

According to Md. Yunnus, Founder of Grameen Bank,

A client/member is considered to have moved out of poverty if her family fulfills the following criteria:

1.		The family lives in a house worth at least Tk. 25,000 (twenty five thousand) or a house with a tin roof, and each member of the family is able to sleep on bed instead of on the floor.
2.		Family members drink pure water of tube-wells, boiled water or water purified by using alum, arsenic-free, purifying tablets or pitcher filters.
3.		All children in the family over six years of age are all going to school or finished primary school.
4.		Minimum weekly loan installment of the borrower is Tk. 200 or more.
5.		Family uses sanitary latrine.
6.		Family members have adequate clothing for every day use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes.
7.		Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc, so that they are able to fall back on these sources of income when they need additional money.
8.		The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.
9.		Family experiences no difficulty in having three square meals a day throughout the year, i. e. no member of the family goes hungry any time of the year.
10.		Family can take care of the health. If any member of the family falls ill, family can afford to take all necessary steps to seek adequate healthcare.

A New Book by Muhammad Yunus

2009-01-02T18:15:00.001+05:30

What if you could harness the power of the free market to solve the problems of poverty, hunger, and inequality? To some, it sounds impossible. But Nobel Peace Prize winner Muhammad Yunus is doing exactly that. As founder of Grameen Bank, Yunus pioneered microcredit, the innovative banking program that provides poor people––mainly women––with small loans they use to launch businesses and lift their families out of poverty.

In the past thirty years, microcredit has spread to every continent and benefited over 100 million families. But Yunus remained unsatisfied. Much more could be done, he believed, if the dynamics of capitalism could be applied to humanity’s greatest challenges.

Now, in Creating a World Without Poverty, Yunus goes beyond microcredit to pioneer the idea of social business––a completely new way to use the creative vibrancy of business to tackle social problems from poverty and pollution to inadequate health care and lack of education. This book describes how Yunus––in partnership with some of the world’s most visionary business leaders––has launched the world’s first purposely designed social businesses. From collaborating with Danone to produce affordable, nutritious yogurt for malnourished children in Bangladesh to building eyecare hospitals that will save thousands of poor people from blindness, Creating a World Without Poverty offers a glimpse of the amazing future Yunus forecasts for a planet transformed by thousands of social businesses. Yunus’s “Next Big Idea” offers a pioneering model for nothing less than a new, more humane form of capitalism.

“ By giving poor people the power to help themselves, Dr. Yunus has offered them something far more valuable than a plate of food––security in its most fundamental form.”

––Former President Jimmy Carter

“ Muhammad Yunus is a practical visionary who has improved the lives of millions of people in his native Bangladesh and elsewhere in the world.”

––Los Angeles Times

“ [Yunus’s] ideas have already had a great impact on the Third World, and...hearing his appeal for a ‘poverty-free world’ from the source itself can be as stirring as that all-American myth of bootstrap success.”

––The Washington Post

Published by Public Affairs visit www.publicaffairs.com

Available at http://www.amazon.com/ and http://www.barnesandnoble.com

A study on microfinance: Deustche Bank Report

2009-01-02T16:15:00.005+05:30

Deutsche Bank announced the results of an in-depth study that examines the attractiveness of microfinance for private sector investors. Dr. Norbert Walter, Chief Economist at Deutsche Bank presented the key findings at a luncheon in New York on December 19,2007.

The report, entitled "Microfinance: An emerging investment opportunity," represents the first formal research paper on microfinance investments produced by a major financial institution. The study suggests that microfinance will evolve into a niche investment product that will increasingly attract both retail and institutional investors. Microfinance is also said to benefit from a further strong rise in socially responsible investments and to increasingly appeal to a wider range of commercial investors. As a result, the study forecasts individual and institutional investments to rise to USD 20 billion by 2015.

"Microfinance has undergone a significant transformation in recent years," said Walter. "This study has demonstrated that the steadily growing popularity of microfinance has reached a global audience and continues to be a key facilitator in helping to fight poverty in both developing and developed countries."

"Private sector investors have already invested around USD 2 billion, but they have barely started to explore the full potential of microfinance investments," said Raimar Dieckmann, Deutsche Bank analyst and author of the study.

Data from the report shows that although the microfinance sector currently has an estimated total loan volume of USD 25 billion outstanding, there is still a tremendous funding gap estimated at USD 250 billion. To scale up microfinance, an increasing involvement of private sector investors is a key priority.

Other key findings:
• The volume of total microfinance loans has risen sharply in recent years from an estimated USD 4 billion in 2001 to around 25 billion in 2006
• Since 2004, both international public and private sector investors have doubled their investments which together have reached over USD 4.4 billion
• Total foreign funding is expected to increase to roughly USD 25 billion by 2015, 80% of which is expected to come from institutional and individual investments. The remaining USD 5 billion will be provided by International Financial Institutions.

In addition to the study, the Microfinance Information Exchange (MIX) announced its second annual rankings of the top microfinance institutions. Peter Wall, Executive Director of MIX, made the presentation of the Global Top 100 Composite, a ranking based on several indicators including number of borrowers, gross loan portfolio and profitability. Zakoura in Morocco, Sabaragamuwa from Sri Lanka, Al Amana, also of Morocco, GV in India and ProCredit Bank in Serbia rounded out the top five.

The study is available for download at http://www.dbresearch.com/

Credit Lending Models

2009-01-01T16:56:00.000+05:30

Microfinance institutions are using various Credit Lending Models throughout the world. Some of the models are listed below.

Associations :
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This is where the target community forms an 'association' through which various microfinance (and other) activities are initiated. Such activities may include savings. Associations or groups can be composed of youth, or women; they can form around political/religious/cultural issues; can create support structures for microenterprises and other work-based issues.
In some countries, an 'association' can be a legal body that has certain advantages such as collection of fees, insurance, tax breaks and other protective measures. Distinction is made between associations, community groups, peoples organizations, etc. on one hand (which are mass, community based) and NGOs, etc. which are essentially external organizations.

Bank Guarantees :
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As the name suggests, a bank guarantee is used to obtain a loan from a commercial bank. This guarantee may be arranged externally (through a donor/donation, government agency etc.) or internally (using member savings). Loans obtained may be given directly to an individual, or they may be given to a self-formed group.
Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be used for various purposes, including loan recovery and insurance claims. Several international and UN organizations have been creating international guarantee funds that banks and NGOs can subscribe to, to onlend or start microcredit programmes.

Community Banking :
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The Community Banking model essentially treats the whole community as one unit, and establishes semi-formal or formal institutions through which microfinance is dispensed. Such institutions are usually formed by extensive help from NGOs and other organizations, who also train the community members in various financial activities of the community bank. These institutions may have savings components and other income-generating projects included in their structure. In many cases, community banks are also part of larger community development programmes which use finance as an inducement for action.

Cooperatives :
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A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Some cooperatives include member-financing and savings activities in their mandate.

Credit Unions :
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A credit union is a unique member-driven, self-help financial institution. It is organized by and comprised of members of a particular group or organization, who agree to save their money together and to make loans to each other at reasonable rates of interest.
The members are people of some common bond: working for the same employer; belonging to the same church, labor union, social fraternity, etc.; or living/working in the same community. A credit union's membership is open to all who belong to the group, regardless of race, religion, color or creed.

A credit union is a democratic, not-for-profit financial cooperative. Each is owned and governed by its members, with members having a vote in the election of directors and committee representatives.

Grameen :
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The Grameen model emerged from the poor-focussed grassroots institution, Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. It essentially adopts the following methodology:
A bank unit is set up with a Field Manager and a number of bank workers, covering an area of about 15 to 22 villages. The manager and workers start by visiting villages to familiarise themselves with the local milieu in which they will be operating and identify prospective clientele, as well as explain the purpose, functions, and mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to rules of the bank. Only if the first two borrowers repay the principal plus interest over a period of fifty weeks do other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense , collective responsibility of the group serves as collateral on the loan.

Group :
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The Group Model's basic philosophy lies in the fact that shortcomings and weaknesses at the individual level are overcome by the collective responsibility and security afforded by the formation of a group of such individuals.
The collective coming together of individual members is used for a number of purposes: educating and awareness building, collective bargaining power, peer pressure etc.

Individual :
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This is a straight forward credit lending model where micro loans are given directly to the borrower. It does not include the formation of groups, or generating peer pressures to ensure repayment. The individual model is, in many cases, a part of a larger 'credit plus' programme, where other socio-economic services such as skill development, education, and other outreach services are provided.

Intermediatories :
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Intermediary model of credit lending position is a 'go-between' organization between the lenders and borrowers. The intermediary plays a critical role of generating credit awareness and education among the borrowers (including, in some cases, starting savings programmes. These activities are geared towards raising the 'credit worthiness' of the borrowers to a level sufficient enough to make them attractive to the lenders.
The links developed by the intermediaries could cover funding, programme links, training and education, and research. Such activities can take place at various levels from international and national to regional, local and individual levels.

Intermediaries could be individual lenders, NGOs, microenterprise/microcredit programmes, and commercial banks (for government financed programmes). Lenders could be government agencies, commercial banks, international donors, etc.

Non-Governmental Organizations :
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NGOs have emerged as a key player in the field of microcredit. They have played the role of intermediary in various dimensions. NGOs have been active in starting and participating in microcredit programmes. This includes creating awareness of the importance of microcredit within the community, as well as various national and international donor agencies. They have developed resources and tools for communities and microcredit organizations to monitor progress and identify good practices. They have also created opportunities to learn about the principles and practice of microcredit. This includes publications, workshops and seminars, and training programmes.

Peer Pressure :
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Peer pressure uses moral and other linkages between borrowers and project participants to ensure participation and repayment in microcredit programmes. Peers could be other members in a borrowers group (where, unless the initial borrowers in a group repay, the other members do not receive loans. Hence pressure is put on the initial members to repay); community leaders (usually idetified, nurtured and trained by external NGOs); NGOs themselves and their field officers; banks etc. The 'pressure' applied can be in the form of frequent visits to the defaulter, community meetings where they are identified and requested to comply etc.

Rotating Savings and Credit Associations :
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Rotating Savings and Credit Associations (ROSCAs) are essentially a group of individuals who come together and make regular cyclical contributions to a common fund, which is then given as a lump sum to one member in each cycle. For example, a group of 12 persons may contribute Rs. 100 (US$33) per month for 12 months. The Rs. 1,200 collected each month is given to one member. Thus, a member will 'lend' money to other members through his regular monthly contributions. After having received the lump sum amount when it is his turn (i.e. 'borrow' from the group), he then pays back the amount in regular/further monthly contributions. Deciding who receives the lump sum is done by consensus, by lottery, by bidding or other agreed methods.

Small Business :
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The prevailing vision of the 'informal sector' is one of survival, low productivity and very little value added. But this has been changing, as more and more importance is placed on small and medium enterprises (SMEs) - for generating employment, for increasing income and providing services which are lacking.
Policies have generally focussed on direct interventions in the form of supporting systems such as training, technical advice, management principles etc.; and indirect interventions in the form of an enabling policy and market environment.

A key component that is always incorporated as a sort of common denominator has been finance, specifically microcredit - in different forms and for different uses. Microcredit has been provided to SMEs directly, or as a part of a larger enterprise development programme, along with other inputs.

Village Banking :
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Village banks are community-based credit and savings associations. They typically consist of 25 to 50 low-income individuals who are seeking to improve their lives through self-employment activities. Initial loan capital for the village bank may come from an external source, but the members themselves run the bank: they choose their members, elect their own officers, establish their own by-laws, distribute loans to individuals, collect payments and savings. Their loans are backed, not by goods or property, but by moral collateral: the promise that the group stands behind each individual loan.

BASIX

2009-01-01T14:12:00.003+05:30

Bandhan

2009-01-01T14:11:00.000+05:30

A snapshot of MFI in India

Ujjivan

2009-01-01T14:05:00.001+05:30

Business Standard Says

Spandana

2009-01-01T14:04:00.000+05:30

The Economic Times Says

Bihar Development Trust

2009-01-01T13:53:00.002+05:30

SKS Microfinance

2009-01-01T13:42:00.002+05:30

HCL Tech, SKS Micro among world's top emerging cos

2009-01-01T13:33:00.003+05:30

Source: Business Week

Two Indian companies – HCL Technologies and SKS Microfinance – have been named among the world's most influential emerging companies along with social networking site Facebook and online community for classified ads Craigslist, according to BusinessWeek magazine.

On the list of the world's most influential companies, the Indian companies have found a place under the segment of five 'Up and Comers', which are the most influential emerging companies.
Meanwhile, the US publication has giants like Apple, JPMorgan Chase and Wal-Mart on the list of the world's ten most influential companies. The list also includes Unilever, News Corp, Toyota Motors, Saudi Aramco, Monsanto, Huawei and Google.

"The companies on this year's list of The World's Most Influential Companies have devised winning strategies and are the ones with game-changing ideas, the greatest impact on consumers, and the bold tactics rivals emulate," the magazine said.

While describing the emerging companies segment, the magazine said many are up-and-coming stars still expanding their global reach, building brand recognition or trying to beat their industry's dominant player.

About HCL Technologies, info-tech services provider, the magazine said that Vineet Nayar, CEO of the firm, has adopted a novel philosophy that the management should be accountable to employees and has put it into practice as well.

On financial services provider SKS Microfinance, the magazine said the firm could have had more impact than Grameen Bank, the organisation founded by Nobel Prize winner Muhammad Yunus.

"SKS has 14,000 employees and 3.5 million customers (1 million = 10 lakh) in India, and is adding 300,000 new customers each month," BusinessWeek said.
The emerging influential companies also include Facebook, which has more than 160 million members. The magazine said as Facebook seeks to expand into international markets, its influence would continue to soar.
The emerging segment also includes supply chain management services firm Li & Fung and Craigslist.
Apple appears on the most influential companies list with annual sales of $24 billion.

"It's the epitome of coola company that has gained a cultlike following because it somehow manages to breathe new life into every category it touches," the magazine quoted.
Consumer products manufacturer Unilever, with annual sales of $52 billion, also appears on the list. The publication further quoted its Chief Executive Patrick Cescau as saying: "It's not about doing good but about tapping new markets."

JPMorgan, which recently acquired Washington Mutual and Bear Stearns, found a place on the list with annual sales of $64.5 billion. The magazine said about CEO Jamie Dimon: "It is a testament to the times that CEO Jamie Dimon has become a towering figure in finance."
Retail giant Wal-Mart, which forayed into India with a joint venture with private telecom firm Bharti Airtel, made it to the list with annual sales of $379 billion. "It became the world's largest retailer by cutting costs to deliver rock-bottom prices," the magazine added.

The Global Financial Crisis: What does it mean for microfinance?

2009-01-01T13:24:00.001+05:30

Source: CGAP Resources
Financial Crisis Resources Center

In most past financial crises – like those of the 1990s in Asia, Mexico, and Russia – financial services for poor people have been remarkably resilient. In fact, the quality of the loan portfolios of microfinance institutions (MFIs) during the Asian crisis and in Latin America during various banking crises barely quivered, while corporate portfolios collapsed. Those banking or currency crises had little relevance to subsistence-based economies in closed ecosystem markets.

“Our present crisis is like no other,” says CGAP CEO Elizabeth Littlefield. “Microfinance is far more connected now. While it still has deeply shock-resistant roots, and many places seem unaffected today, there is little doubt that there will be impact.” Integrating microfinance into the mainstream has many benefits but it also has some costs. MFIs that depend on foreign capital investments are suffering, and the medium and longer term effects of a global recession are likely to be hard on microfinance clients in some countries.

On the bright side: Microfinance has solid fundamentals

Microfinance operates very differently from U.S. subprime markets in ethos, purpose, methodology, and loan characteristics. The microfinance sector has also developed innovative risk-management techniques, prided itself on knowing customers, been scrupulous about ensuring repayment ability, and kept an eagle eye on delinquency.

“Many basic success factors of microfinance in developing countries could in fact serve as useful examples for the U.S. and others during the current financial crisis – stick to basics, offer good customer value, require transparency, and focus more attention on ensuring that clients understand their rights and obligations, to name a few,” says CGAP expert Kate McKee. “And low-income microfinance clients have proven over decades that they will go to extraordinary lengths to maintain a good repayment record because they so value the ongoing financial relationship.”

Reports from the field – Some optimism amid the anxiety
As global challenges evolve, there is evidence that microfinance is currently withstanding the heat. In late November, CGAP held a virtual conference on the financial crisis that included more than 600 MFI managers, central bankers, investors, and advisers from 34 countries. The news from around the globe reflected serious fears, but not of widespread impact – yet.

“The dominos of the crisis – credit crunch, inflation, currency dislocations, and global recession – are hitting microfinance in very different ways and to varying degrees, if at all, depending on location, funding structure, financial state, and the economic health of their clients,” says Littlefield. But there are specters looming. In the short term, microfinance faces very real credit, refinancing, and regulatory risks.

Short-term dangers
• Credit risk
• Clients already struggling with high food and fuel prices:
• Although some commodity prices have receded from record levels, poor people in many countries or regions – especially low-income urban households – are still reeling from high food and fuel prices. MFI managers from places like India, Mongolia, Pakistan, Mali, and Rwanda report that clients are hurt by inflation and the early signals of economic downturn. A recent CGAP field survey shows that poor clients hit by these shocks are coping by withdrawing savings and cutting back on nonfood expenses. In some cases, they are having trouble with repayment. Of course, stresses on customers usually translate into higher portfolio at risk for MFIs.

What’s more, the International Monetary Fund (IMF) has scaled back growth projections for the developing world from even a month ago. IMF recently issued a warning that the credit crisis will further hit the growth of sub-Saharan Africa, for example, this year and next.

Fall-off in remittances:

Making matters worse, remittances from the United States and Europe have been dwindling already. Mexicans living in the United States sent home 12 percent fewer dollars in August than a year earlier. And monthly remittances in West Africa have dropped by 10 percent in the past few months.

On the upside, lessons from previous financial crises show how some nimble clients might actually benefit from hard times if, for example, they can adapt their inventory to meet newly frugal customer demands.

Refinancing risk: The primary concern

Refinancing risk is the principal concern for microfinance during this crisis in many places. The most immediate worry reported during CGAP’s virtual conference was how global liquidity contraction will affect the cost and availability of funding to nondeposit-taking MFIs. Market conditions have led to a freeze in interbank market lending, with credit lines being cut or delayed and rates raised. Money from both domestic and international banks is tighter, slower, and more conservative. And there have been steep increases in the cost of financing – from 250 basis points (bps) in Eastern Europe, to 450 bps for top-tier institutions in South Asia. Anecdotal evidence also indicates rate increases from 1 to 4 percent in Latin America and South and Central Asia, with some banks pulling out altogether. Fortunately, a few development finance institutions, such as the Inter-American Development Bank, IFC, and KfW, are putting together emerging liquidity facilities. This will help.

Foreign exchange risk?:
MFIs are anxious about meeting refinancing needs when loans from foreign banks and microfinance investment vehicles (MIVs) come due in 2009. Those borrowing in foreign currency fear the double hit of both increased interest rates and the costs of having to pay in hard currency with recently weakened local currencies. Recent declines in MFIs’ net income from foreign exchange losses were cited in the 7 to 43 percent range, with one Latin MFI reporting a loss of 75 percent in a single year. On top of all this, inflation in some countries means operating costs are rising, and these costs can’t (or shouldn’t) always be passed on to clients.

Stability of deposits?:
“As in previous crises, we’re seeing strong consensus from the microfinance industry that deposit-taking MFIs are better insulated from refinancing risks,” says CGAP’s Xavier Reille. “The many savings-led African and Asian institutions, for example, are not suffering from a liquidity squeeze. And this is good news.”

It should be noted, however, that some deposit-taking MFIs also mobilize larger deposits from nonpoor customers, and these may be more sensitive to the economic downturn. “In a world where communications are global and news travels fast and far, there is also a fear that bank failures in the U.S. and Europe could lead to a loss of confidence in local banks and a run on deposits,” says Reille. “Large-scale savings withdrawals have occurred in only a few isolated cases, as a result of a crisis of confidence in the banking system as a whole, but the potential still worries us.”

Danger of Overreaction from Regulators and Politicians

The case for “light-touch” policy responses:
Some in the field are concerned that pressure to take action could lead politicians and policy makers to adopt measures that unintentionally impede access to “responsible finance” in the long run. “We worry that policy makers may want to pursue activist policies in the wake of the crisis, which could undermine the longer term healthy growth of competitive and inclusive financial sectors,” says Littlefield. Sometimes well-meaning programs that may appear to support vulnerable citizens in the short run can harm them in the long run. These might include such interventions as subsidized credit schemes or debt forgiveness programs designed as quick fixes to help out the poor.

There is also a real concern that some policy makers will see access as threatening stability where responsible finance can actually reinforce it. For example, there may be a tendency to clamp down or over-regulate in ways that thwart access. “We worry that governments might overreact by imposing politically attractive but commercially unviable interest rate caps without understanding the business necessities of providing access via very small transactions,” says Littlefield.

A better action might be to invest in financial education programs at the point of service; consumer protection measures, such as transparent pricing disclosure, as we have in the U.S.; and rules about the use of simple language in product descriptions. Overall, regulators and policy makers should be looking for “light-touch” solutions that strike a careful balance between promoting access and protecting consumers.

Looking ahead: Crisis as opportunity?
In the end, the financial crisis could actually produce some long-term benefits for access to finance, even if they are painful to come by. Some markets had become overheated, with sensational growth rates, softening underwriting standards, and deteriorating risk-return trade-offs. Slower growth, stronger credit policies and procedures, better products, and even consolidation of weaker institutions into stronger ones may be beneficial in the long run. The crisis may be a booster to implement appropriate client protection policies and practices. And at the very least, the crisis has clearly illustrated the value of adopting a deposit-led approach that aims to build access to domestic, local currency financing.

As one microfinance group, ProCredit, puts it: “Let us hope that if nothing else, the global banking crisis has served as something of a wake-up call for the banking community regarding what a good banker’s core values should be and microfinance has long held as core values: understand your risks, be transparent with your customers, and focus on long-term value rather than short-term profits."

Happy New Year 2009

2008-12-31T18:54:00.004+05:30

Every journey is an enlightening experience, an Ithaca in itself. These are but our sentiments as we reflect back on our brief association with you all for the blog http://microfinancenewz.blogspot.com/

In our endless pursuit to learn, understand, and suitably contribute to the blog, we have tried to comprehend and analyse things (within our limitations) as well as we could to make this blog as the most read on microfinance.

In the process we were helped by many without whose contributions it would have been difficult to get things in its right perspective. We are thankful to them (Amit, Prabhash, Vaibhav, Praveen, Shravan, & Rahul) and shall remain indebted to them.

The role of important and relevant postings is sine-qua-non for any blog to successfully prosper. We would like to thank all the contributors for faring so well in this respect. We would like to mention special gratitude towards all the visitors(Special thanks to Deepak, Nikhil, & Kalpana) for the huge response they have shown in the brief period of association in this regard.

Bihar Development Trust: A noble Initiative

2008-12-31T18:46:00.005+05:30

Bihar Development Trust (BDT) follows Grameen model. BDT forms 5 women joint liability groups and federate it in center of 4-8 groups. These women save Rs.10 every BDTek. These women are eligible for loan up to Rs.8000 @18% per annum. have formed 400 women groups this year. BDT have disbursed Rs.43, 00,000 and outstanding of Rs.25, 00,000. BDT has disbursed loans to 600 women borrowers. Last year, BDT had disbursed Rs.85, 000 to 17 women. Our Microfinance programme has been supported by

Friends of Women World Banking, Ahmedabad

Rashtriya Gramin Vikas Nidhi, Patna

BASICS, Hyderabad

Trust Microfin Network, Lucknow

Indian Bank

SIDBI

SBI, Union Bank of India, AXIS Bank, Bank of India, UCO Bank, Corporation Bank, HDFC Bank, and MSDF will be our new partners in 2009 probably.

BDT plans to disburse to Rs. 50,000,000 to 5000 women borroBDTrs in 2009 calendar year with an outreach of 10000 members.

TUSSER SILK BDTAVERS LIVELIHOOD

BDT has organized 50 BDTavers of Lodipur Village in Nathnagar, Bhagalpur in producer company model. They have elected a director for the board of company. The producer company has been formed under unique partnership arrangement betBDTen BDTavers, BDT and Community Friendly Movement.

BDT has supplied Rs.300, 000 worth silk stoles to Community Friendly Movement, Delhi.
BDT has supplied 250 conference bags to IIMA.
BDT has supplied 10 silk sarees with madhubani and manjusha painting on it to Kamdhenu Trust.
BDT will be developing a production facilitation center which has dying, calendaring, ironing and packaging facilities at Lodipur village.

BDT will be targeting high end premium market of Delhi. Our Sarees are handmade and have customized folk painting depicting Ramayana and Mahabharata episodes. They are BDTaved to order only. It takes around 15 days to BDTave a saree. They cost in range of Rs.10000 and above.

FORD Foundation, Sir Dorab Ji Tata Trust and BASICS have shown interest in supporting this initiative. BDT hope to support 1000 BDTavers' livelihood in next two years.

FLOOD RELIEF

BDT did the flood relief work in Kharik Block, Naugachiya in Sep 2008. Around 11000 people BDTre supported with food grains and clothes with the support of CARE TODAY and concerned individuals. Our work was covered in INDIAN TODAY and AAJTAK.

DAIRY

It will be our new initiative in year 2009. BDT plan to supply milk to Kolkata market to institutional players. BDT will be creating a producer company. BDT will be setting up procurement centers and chilling plant. BDT will be financing 1000 buffalos with help of local cooperative banks and SBI.

BDT hopes to repeat what certain AMUL did 60 years ago linking Anand to Bombay Market. BDT will be linking Bhagalpur to Kolkata. BDT are planning to win over all possible obstacles and do it. BDT plan to link Patna and Bhagalpur under a milk route.

MANAGEMENT

BDT has been formed by two guys from IRMA and one guy from IMI New Delhi. BDT is now two year old in Bihar. Currently, BDT has a team of 22 people and volunteers. BDT has streamlined Microfinance operations and planning to scale it up in 2009. BDT is reaching around 3000 families with our initiatives.

SUPPORT US

In 2007 and 2008, more than 60 individuals have supported us with Rs.630, 000 in donations and BDT has returned Rs.40000 back to individuals. BDT need funds .Your funds will be returned to you after using it for 1-2 years. BDT need your BDTll wishes to make Bihar the most developed state of India. Please contact us on 9431609939 and 9470017752. All news are updated on http://www.bihardev.pbwiki.com/

BDT need networking support as BDTll as introduction to managers in public sectors banks in Bihar as BDTll as in all metros of India. BDT need phone numbers of DGM rank officers handling rural business on India in banks like SBI, UCO Bank, Corporation Bank, Bank of India, Indian Bank, Union Bank of India, Central Bank of India, IDBI Bank, HDFC Bank, Punjab National Bank etc.

BDT is thankful to people all over India and world who have supported this noble initiative for economic development of BIHAR. Without individual support from people all across Bihar, India and world, Bihar Development Trust cannot succeed. BDT will make you proud of your role in growing Bihar Development Trust. BDT need lot of mentoring and guidance to emerge as the most successful community based BDTalth creating organisation like AMUL.

India Needs Game Changer in Microfinance

2008-12-31T17:41:00.002+05:30

SOURCE: BUSINESS TODAY

NANCY BARRY IS THE EX-HEAD OF THE WORLD Bank’s Global Industry Development Group and former President of Women’s World Banking. Over the last two years, Barry has built Enterprise Solutions to Poverty (ESP), which engages industry leaders and entrepreneurs in building inclusive growth strategies, both in India and other emerging markets. Forbes magazine has recognized her as one of the world’s most powerful women and U.S. News & World Report has dubbed her as one of America’s top 20 leaders. Here, Nancy shares her concerns about the evolution of the microfinance industry in India: The outreach that the Indian microfinance industry has achieved, through both the microfinance institutions (MFIs) and the Bank-Self Help Group (Bank-SHG) linkage model over the last 10 years, is impressive. Today, over 50 million poor women have access to very small loans. I believe this is the main accomplishment of the Indian microfinance sector over the last 10 years. However, there are issues that underly this accomplishment. First, both India and Bangladesh have problems rooted in the near exclusive reliance on group lending. The structures built are yielding tiny loans to millions of poor women and are not being leveraged to provide other financial products that build income and assets. Group lending is very powerful as a “startup” product, particularly for poor women, because it has built into it an empowerment component, a community component and a social component. The problem is that the SHG and Grameen-type group lending models have been used only to make very small loans. These groups involving 50 million poor women in India are organs that could be used to provide vital savings services, insurance services and housing finance. None of this has been done. The focus on microcredit—not microfinance— has been a very limited, superficial use of national grassroots outreach structures. Today, most Indian microfinance institutions are becoming loan dispensers, rather than financial intermediaries for the poor. Part of the problem lies with the group lending model in which group organisers are not comfortable making growth oriented loans or providing a range of savings, insurance and other financial products. Part of the problem also rests with the NBFC legal structure that many microfinance institutions have chosen, which does not enable MFIs to mobilise broad-based savings as a service or as a source of funds. As a result, MFIs have relied increasingly on foreign equity sources to fuel growth. Most of the foreign equity sources have no interest or capabilities in supporting MFIs in diversifying their product offerings to poor clients; rather, these sources increase the pressure on MFIs to make short term profits by focusing on dispensing more small loans. So, group lending business models keep the loans small, and legislation, MFI capabilities and the short-term profit push keep the
focus on microcredit. Also, some of the leading MFIs have moved the focus on building livelihoods to a mentality of a consumer lender, asking how much of the poor family’s purse or wallet they can gain by providing loans and consumer goods. What India needs are some game changers in microfinance, not more or bigger loan dispensers, fuelled by external funding. These game
changers will learn from SEWA Bank and BASIX and scale up some of the positive lessons of these grounded organisations. Enterprise Solutions to Poverty has engaged leading companies in India—including Tata, Reliance, ITC and Mahindra—as well as some emerging entrepreneurs— such as FabIndia, ICICI Foundation and SELCO. These companies are paving the way in mobilising large numbers of poor people as suppliers, distributors and consumers of asset building products. ESP has mobilised over 150 of the leading companies and emerging entrepreneurs of India, China, Mexico, Colombia, and most recently, in Brazil and Kenya. We are supporting these companies in building profitable and inclusive growth strategies geared to doubling the income and assets of over 50 million poor people by 2012.

Sa-Dhan’s Voluntary Mutual Code of Conduct for its Member MFIs

2008-12-31T16:25:00.002+05:30

Source: Sa-Dhan, 2007. Core Values and Voluntary Mutual Code of Conduct for Micro Finance Institutions

In January 2007, Sa-Dhan issued a voluntary mutual code of conduct applicable to all the categories of member microfinance institutions.
Objectives

The member institutions agree to promote and strengthen the micro finance movement in the country by bringing the low income clients to the mainstream financial sector. They also agree to build progressive, sustainable and client centric micro finance institutions in the country to provide integrated financial services to the clients. Their aim should be to promote co-operation and co-ordination among micro finance institutions and other agencies to achieve higher operating standards and avoid unethical competition in order to serve the clients better.

Integrity

The member institutions agree to:

i) Act honestly, fairly and reasonably in conducting micro finance activities.
ii) Conduct micro finance activities by means of fair competition, not seeking competitive advantages through illegal or unethical micro finance practices. No officer, employee, agent or other person acting on their behalf shall take unfair advantage of anyone by manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair practice.
iii) Prominently display the core values and code of conduct on the notice board of head office and all branches and put systems in place to ensure compliance.
iv) Ensure that their staff and all persons acting for them or on their behalf, are trained or oriented to put these values into practice.

Transparency

The member institutions agree to:

i) Disclose to clients all the terms and conditions of the financial services offered in the language understood by the client.
ii) Disclose the source of funds, costs of funds and use of surpluses to provide truthful information to clients.
iii) Provide information to clients on the rate of interest levied on the loan, calculation of interest (monthly/ quarterly/half-yearly), terms of repayment and any other information related to interest rates and other charges.
iv) Provide information to clients on the rate of interest offered on the thrift services provided.
v) Provide information to clients related to the premium and other fees being charged on insurance and pension services offered as intermediaries.
vi) Provide periodical statements of the MFI’s accounts to the clients.
Fair Practices

Member institutions are committed to follow fair practices built on dignity, respect, fair treatment, persuasion and courtesy to clients. Member institutions agreed to:

i) Provide micro finance services to low income clients irrespective of gender, race, caste, religion or language.
ii) Ensure that the services are provided using the most efficient methods possible to enable access to financial services by low income households at reasonable cost.
iii) Recognise their responsibility to provide financial services to clients based upon their needs and repayment capacity.
iv) Promise that, in case of loans to individual clients below Rs. 25,000, the clients shall not be asked to hand over original land titles, house pattas, ration cards, etc., as collateral security for loans, except when obtaining copies of these for fulfilling “know your customers” norms of the Reserve Bank. Only in case of loan to individual clients of Rs 25,000 and above can obtain land titles, house pattas, vehicle RC books, as collateral security.
v) Interact with the clients in an acceptable language and dignified manner and spare no efforts in fostering clients’ confidence and long-term relationship.
vi) Maintain decency and decorum during the visit to the clients’ place for collection of dues.
vii) Avoid inappropriate occasions such as bereavement in the family or such other calamitous occasions for making calls/visits to collect dues.
viii) Avoid any demeanour that would suggest any kind of threat or violence.
ix) Emphasise using social collateral which includes various forms of peer assurance such as lending through groups and group guarantees at the village, hamlet or neighbourhood level, or guarantees by relatives, friends, neighbours or business associates; and explain clearly to clients what the obligations of social collateral are.

Governance

i) Observe high standards of governance, ensuring fairness, integrity and transparency by inducting persons with good and sound reputation, as members of board of directors. The MFI should ensure that the majority of the directors are independent directors and/or duly elected representatives of the community served, and that the board would be involved in all policy formulation and other important decisions.
ii) Ensure transparency in the maintenance of books of accounts and reporting/ presentation and disclosure of financial statements by qualified auditor/s.
iii) Put in the best efforts to follow the Audit and Assurance Standards issued by the Institute of Chartered Accountants of India (ICAI).
iv) Place before the board of directors, a compliance report indicating the extent of compliance with this voluntary mutual code of conduct, specifically indicating any deviations and reasons therefore, at the end of every half financial year.

Feedback/ Grievance Mechanisms

i) Establish effective and efficient feedback mechanism.
ii) Take steps to correct any errors and handle complaints speedily and efficiently. Wherever a complainant is not satisfied with the outcome of the investigation into her complaint, she should be notified of her right to refer the matter to the Ethics and Grievance Redressal Committee constituted by Sa-Dhan.

Change in regulatory focus in respect of NBFC

2008-12-31T15:55:00.004+05:30

Source: Report on trend and progress of Banking in India 2007-08

Reserve Bank of India has brought up changes in the regulatory focus in respect of protecting the interests of the depositors.

Basics of Microfinance

2008-12-31T14:10:00.003+05:30

What is microfinance?

Microfinance began as a financial system to provide poor families with very small loans (micro-credit) to help members sustain income-generating activities. Micro-credit came to fore-front in the 1970s, through the efforts of Mohammad Yunus, a microfinance pioneer and founder of the Grameen Bank of Bangladesh.
The definition of microfinance has since broadened, and includes savings, insurance, and money transfer vehicles; the industry has realized that those who do not have access to traditional formal financial institutions actually require and desire a variety of financial products.
Micro-credit has largely been directed by the non-profit sector, but recently we see, the emergence of “for-profit” MFIs. In India, these ‘for-profit’ MFIs are referred to as Non-Banking Financial Companies (NBFCs).

What is a Microfinance Institution (MFI)?

A microfinance institution is an organization that offers financial services to low income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. Various types of institutions offer microfinance: NBFCs, NGOs, cooperatives, private commercial banks and sectors of government banks.
Some NGOs offer micro-credit as one slice amongst a host of non-financial development activities. MFIs opted instead to focus solely on microfinance, to develop the most efficient and effective mechanisms to deliver finance strength to the poor.
How does microfinance help the poor?

Microfinance plays an important role in fighting the multi-dimensional aspects of poverty. Microfinance increases household income, which leads to attendant benefits: increased food security, the building of assets, and an increased likelihood of educating one’s children.
Microfinance is also a means for self-empowerment. It enables the poor, especially women, to become economic agents of change - they increase income, become business-owners and reduce their vulnerability to external dependence.

When is microfinance not an appropriate tool?

Micro-credit is best-suited to those with entrepreneurial capability and opportunity. This translates to those poor who work in growing economies, and who can undertake activities that generate weekly stable incomes. Microfinance is inclusive of a much larger range of clients.
However, many poor do not fit within the current structure of microfinance. One reason for this is extremely poor people (destitute and homeless) lack a stable income. Without a stable income, it is difficult to make the weekly repayments that micro-credit requires. Credit requires a 98% “hit” rate to be successful, as high default rates undermine the very principles of lending.

Why do MFIs charge such high interest rates to poor people?

Micro Finance Industry is different in the sense, it meets the Customer in the Door step itself and serve them. The Training, on-site collection and weekly meetings are all cost to the Micro Finance institutions which adds up to the operations cost. Banks charge anywhere from 12 to 13.50 % interest and with this direct service costs to companies, Micro Finance institutions are forced to charge from 20 to 25 % to customers.

How do you know microfinance is making an impact?

Microfinance has gained popularity for several reasons. One, it is a much better alternative than the informal financial sector. In India for example, moneylenders charge rates of 36-72%. Secondly, members realize the value of assured long-term access to credit.
This access to finance allows women to increase income, which benefits the entire household. How do we know this? Our return on investment (ROI) calculations demonstrate that most borrowers earn anywhere from 25%-200% more than the interest rate charged, due to low infrastructure costs, no tax or legal costs, and the overall capital cost that is just a small percentage of the total cost.

Why doesn’t NBFC based MFI allow members to save?

Majority of the MFI being a Category “B” registered NBFC, RBI does not allow Category “B” companies to invite Deposits.

Why do you only lend to women?

Social development studies have demonstrated that women are much more likely to reinvest income into the household, for the benefit of the entire family.
Can microfinance be profitable?

Yes it can, as the report demonstrates.

Data from the Micro-Banking Bulletin reports that 63 of the world's top MFIs had an average rate of return, after adjusting for inflation and after taking out subsidies programs might have received, of about 2.5% of total assets. This lends to the hope that microfinance can be sufficiently attractive for investors, as well as the mainstream into the retail banking sector.

Reserve Bank Survey on MFI

2008-12-31T13:46:00.002+05:30

In order to have a better understanding of the working of MFIs, regional offices of the Reserve Bank carried out a survey of MFIs operating in their areas of jurisdiction in November-December 2007. The objective of the study was to gain an insight into the activities of MFIs, especially in rural areas, to assess the financial services needs of the rural households and the informal products and processes that currently meet these needs. The study was aimed at gaining a better understanding of the operations of the MFIs and explore the possibility of linkages with banks resulting in extending banking outreach to the poor. In all, 77 MFIs were surveyed in the States of Karnataka, Orissa, Andhra Pradesh, Madhya Pradesh, Bihar, West Bengal, Kerala, Maharashtra, Rajasthan and Tamil Nadu. The survey was carried out through the lead district officers (LDOs) who held discussions with officials of district administration, branch managers, borrowers and MFIs.

The survey revealed that MFIs were adopting various models for micro finance such as through the SHGs, Grameen model/joint liability groups (JLGs) model, individuals as well as through cluster associations of the SHGs. The loan range varied widely across MFIs and across states. The loan range also varied across individuals and across SHGs. For individuals the loans ranged from as low as Rs.1,000 to Rs.20,000. For the SHGs, the range was between Rs.30,000 to Rs.2 lakh. The number of clients served by the MFIs varied significantly across the States and ranged from as low as 79 to more than 100,000. The average loan range per client was between Rs.4,000 to Rs.5,000 for individuals and between Rs.60,000 to Rs. 1.3 lakh for the SHGs. Majority of the loans given by the MFIs in the surveyed States were for work or occupation related purposes.

Occupation related loans ranged from 46 to 100 per cent of the total loans in most of the states. This was followed by other purposes like consumption, social events, health, travel and education. The duration of the loans ranged from 6 to 20 months. The interest rates charged by the MFIs were not uniform and varied widely across MFIs and across states. While some MFIs charged flat rates of interest, others charged diminishing rates. The flat rates ranged between 10-14 percent and the diminishing rates ranged between 10-27 percent. Besides, many MFIs charged flat processing fee in the rage of 1 to 1.5 per cent. Apart from the loans, some of the MFIs offered other services such as health insurance and life insurance. In many cases, asset insurance was compulsory, especially when it related to loans for animal husbandry. Almost all the MFIs reported good recovery percentage of the loans, i.e., more than 90 per cent. Most of the borrowers also reported that the MFIs adopted fair practices for recovery. The MFIs have a close monitoring system which ensures that there are minimum defaults. Only a few MFIs were providing performance related incentives to their staff.

Some of the parameters used for providing the incentives were:
(i) business turnover;
(ii) maintenance of clientele (low customer drop out rate);
(iii) reaching the annual target about number of customers;
(iv) recovery performance;
(v) percentage of insurance coverage; and
(vi) loan utilisation.

Only in the States of Karnataka and Andhra Pradesh, MFIs reported that the money lending legislations were applicable to them. In other States the MFIs reported that they were not bound by the money lending legislations. Almost in all States surveyed, the enforceability of money lending legislation was very poor. Commercial banks remained the most important source of funds for almost all the MFIs. Some of the MFIs also received funds from other financial and developmental institutions and donor agencies. The survey attempted to find out what additional support the MFIs expected from banks.
Some of the suggestions and expectations were:

(i) low interest loans;
(ii) loans for operational and infrastructure expenses;
(iii) flexible banking products;
(iv) continuous lending support;
(v) better customer service;
(vi) simplified access;
(vii) capacity building by banks;
(viii) IT and EDP support;
(ix) sharing establishment costs; and
(x) training.

Almost all the MFIs were willing to work as business correspondents (BC) of banks. One MFI however suggested that it was unwilling to work as a BC because it would lose focus on its core activity. Another MFI was unwilling to work as a BC because of the stringent conditions stipulated by banks for their BCs. In most of the States surveyed, district administration was not maintaining the details of MFIs in the district as it was not compulsory. Furthermore, there were only very few complaints against the MFIs received by the district administration. In Krishna district in Andhra Pradesh there were complaints against MFIs for charging high rates of interest and forcible loan recovery. In Madhya Pradesh also there were some complaints pertaining to high interest rates. The survey also attempted to obtain the response of clients with respect to the ease of availing loans from MFIs. Most of the borrowers surveyed reported that it was easy or a easy to get a loan from MFIs. Almost all the bank branch managers opined that MFIs were good customers of banks and they could be used as business facilitators or correspondents.

Recommendations of Rangarajan Committee on Micro Insurance

2008-12-31T13:25:00.001+05:30

The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan), which submitted its report in January 2008, observed in its report that micro insurance should provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster. Micro insurance in conjunction with micro savings and micro credit could go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion.

The Committee suggested that in order to economise on costs and to increase the outreach of micro insurance to the poor, the insurers need to utilise existing Government organisations and NGOs, having greater acceptability among the financially excluded. In the opinion of the Committee, there is a need to emphasise linking of micro credit with micro insurance. Further, as it helps in bringing down the inherent risk cost of lending, NABARD should be regularly involved in issues relating to rural and micro insurance to leverage on its experience of being a catalyst in the field of micro credit. The Committee suggested that the technology platforms being envisaged to facilitate financial inclusion should enable micro insurance transactions also.
Towards this end, according to the Committee, there is a need to integrate the various modules - savings, credit, insurance, etc. - into the technology framework so that holistic inclusive efforts are possible in the rural areas.

The Committee observed that there are a large number of group life and health insurance schemes which are run by various central ministries and State Governments. The level of actual coverage in terms of claims preferred and settled in such schemes is disturbingly low. These schemes should be reviewed by an expert group set up by the Insurance Regulatory and Development Authority (IRDA).

Making specific recommendations about various insurance schemes available, the Committee observed that a wide range of products are available in life insurance category but penetration is really limited in rural areas. The procedural requirements at the time of entry and in case of claims settlement are cumbersome. The commission structure for agents is also heavily weighed in favour of getting new policies with very little incentive to service existing policies. In this regard, Micro Insurance
Guidelines (MIG) 2005 issued by IRDA has provided for equal commission throughout the life of a policy and this will now remove the disincentive in servicing existing policy holders.

As far as health insurance is concerned, the Committee observed that its penetration level was even much lower than life insurance. The two categories viz., critical illness and hospitalisation are the main product segments. Some State Governments have developed health insurance schemes which are still in very early stages. The Committee has recommended mutual health insurance models as a better alternative to the take care of existing situation. As regards crop insurance, the committee recommended that policies be evolved to make crop insurance universal, viz., applicable to all crops/regions and pricing actuarial. About asset insurance the Committee again recommended that involving local NGOs, MFIs and SHGs, among others, as distribution channels as well as facilitators of claims settlements would be quite useful.

Big Microfinance Players taking over clients of smaller players

2008-12-30T17:05:00.004+05:30

Source: Live Mint

Mumbai: SKS Microfinance Pvt. Ltd, a non-banking finance company (NBFC) that operates in the microfinance space, is acquiring customers of smaller firms in the business that are finding it difficult to lend as they have no money.Microfinance refers to the business of lending money to poor or low-income clients. SKS founder and chief executive officer Vikram Akula sees consolidation in the industry as the liquidity crunch intensifies. Early this month, SKS raised $75 million (more than Rs375 crore today) from Sandstone Capital Llc.—the largest private equity investment in microfinance, globally. According to Akula, small and medium microfinance institutions (MFIs) are finding it difficult to raise funds. “In the current environment, capital is flowing to quality and this is affecting the small and medium MFIs,” he said. However, Mint could not independently verify this. “Banks are lending only to large MFIs. We are in a strong position. We are holding discussions with MFIs who are facing strain and helping them by taking over their clients,” said Akula. According to him, many small players may have to close shop as they have no money to lend. “In the next one year, we would see lesser number of MFIs,” Akula said. There are about 1,000 MFIs in India and close to 90% of these serve less than 10,000 clients each, according to a recent industry study. SKS caters to the needs of 3.4 million consumers through its 1,500 branches. Currently, microcredit extended by MFIs in India stands at $5 billion while the demand for microcredit in the country is $55 billion, said a recent World Bank report Maturing of Indian Microfinance. Akula said that the Reserve Bank of India (RBI) should permit NBFCs to act as business correspondents to enable credit penetration. RBI’s guidelines on business correspondents allow banks to use MFIs to market their deposit and loan products, but NBFCs are not allowed to do so. “The business correspondent restriction should be applied to NBFCs owned by banks and not for MFI-NBFCs. The loan ticket size can also be restricted to Rs25,000,” Akula said.

Bihar Development Trust: A noble Initiative

2008-12-30T17:01:00.002+05:30

· Friends of Women World Banking, Ahmedabad

· Rashtriya Gramin Vikas Nidhi, Patna

· BASICS, Hyderabad

· Trust Microfin Network, Lucknow

· Indian Bank

· SIDBI

SBI, Union Bank of India, AXIS Bank, Bank of India, UCO Bank, Corporation Bank, HDFC Bank, and MSDF will be our new partners in 2009 probably.

BDT plans to disburse to Rs. 50,000,000 to 5000 women borroBDTrs in 2009 calendar year with an outreach of 10000 members.

TUSSER SILK BDTAVERS LIVELIHOOD

· BDT has supplied Rs.300, 000 worth silk stoles to Community Friendly Movement, Delhi.

· BDT has supplied 250 conference bags to IIMA.

· BDT has supplied 10 silk sarees with madhubani and manjusha painting on it to Kamdhenu Trust.

BDT will be developing a production facilitation center which has dying, calendaring, ironing and packaging facilities at Lodipur village.

FORD Foundation, Sir Dorab Ji Tata Trust and BASICS have shown interest in supporting this initiative. BDT hope to support 1000 BDTavers' livelihood in next two years.

FLOOD RELIEF

DAIRY

MANAGEMENT

SUPPORT US

What led to financial crisis?

2008-12-30T10:50:00.003+05:30

Unitus, the world leading PE player, describes what led to financial crisis. It describes the role of different palyers like central banks, investment banks, rating agencies etc.

Business Standard Says..

2008-12-29T19:35:00.002+05:30

I always believe that as in Urban market, their is a scope for multiple micro credit institution to co-exist in Rural India. Rural India might not start shining, by initiatives like Pragati Bandhus, but in a state like Karnataka, where Farmer suicide is happening all the time, will certainly benefit from this.