Archive for Microfinance

This story originally appeared in our June 16th, 2011 e-magazine. Click here to subscribe.

Kiva stands the borrowing model of microfinance on its head by providing a platform for group microlending, by allowing individuals to form a group to lend specifically to those with disabilities.

Since its launch in early 2004, Kiva has redefined the term micro-lending by allowing individuals to loan small amounts money globally, often as little as $25, solely through an online network. Today, Kiva members have loaned close to $220 million (INR 9.4 billion) to more than 560,000 entrepreneurs in 60 countries. But is Kiva inclusive?

Through the Kiva Friends portal, where lenders can form groups based on interests, individuals have come together to focus on loans to entrepreneurs with disabilities and whose ventures affect those with disabilities.

One such group is KivaFriends – Disabled Persons. The 113-member group has loaned $30,900 (INR 1.3 million) through 1,208 loans since the group started in August 2007. Each member has made an average of 10.7 loans, while the average loan size is about $25.6. The group is made up of people who are “interested in making a difference for entrepreneurs and families who are affected by illness or physical, intellectual, or psychiatric disability.” » Continue reading “Kiva Loans for the Disabled”

Five leading microfinance institutions (MFIs) have been approved by Indian banks for restructuring debt collectively amounting to about INR 5,000 crore ($1.1bn), the Mint business daily reported on June 4.

The four most recent CDR approvals were for Trident Microfinance Pvt Ltd, Share Microfin Ltd, Asmitha Microfin Ltd, and Spandana Sphoorty Financial ltd. Future Financial Services Ltd’s debt recast plan had been approved earlier.

The move is expected to bring a measure of relief to the embattled Indian microfinance industry that has been reeling from a systemic freeze after the stage government of Andhra Pradesh – where most MFIs have the bulk of their business operations – cracked down on recoveries and multiple lending, prompting banks to stop all lending to MFIs.

The recast of INR 2,000 crore of debt will help Spandana restore business back to the “normal business cycle,” the company’s managing director Padmaja Reddy was quoted as saying in the report. » Continue reading “Banks approve INR 5000 crore debt recast for five MFIS”

Dear Reader,

We have come some way from a time when microfinance was touted as the panacea for global poverty. That was until late last year, when the Indian microfinance industry blew up in rather spectacular fashion over allegations of coercive collection measures, usurious interest rates, multiple lending to the poor that resulted in debt traps and farmers suicides, all leading up to punitive regulatory intervention that all but froze the industry and led to global questions about the nature and efficacy of microfinance.

The lessons from that crash-and-burn episode are yet to be digested, and increasingly a new buzz phrase is in vogue – financial inclusion.  Now, many argue that financial inclusion – which goes beyond simple microfinance to include a range of financial services and enjoins commercial banks to also get into the act – could be the umbrella solution to meeting the financial needs of the global poor. » Continue reading “The New Microfinance”

This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

Family Farm, Panchgani, India by Imran Oomer
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This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

The Indian microfinance sector is making strides in recovering from the crisis last fall. What lessons can the global community learn from what happened in Andhra Pradesh?

Late last year, the Indian microfinance industry, which had seemed like an unstoppable juggernaut, came to a grinding halt after the state of Andhra Pradesh passed an ordinance to prevent coercive collective measures. As collections slumped, microfinance companies failed to settle their own borrowings, leading to a lending freeze from commercial banks.

The chain of events has now all but derailed microfinance in the country. After several years of growth, Sanjay Sinha, the Managing Director of Micro-Credit Ratings International Limited (M-CRIL), estimates that the industry has likely shrunk by 30% in the financial year ended March 2011.

In January 2011, the Malegam Committee, charged with investigation into the crisis, released its recommendations, and last month, the Reserve Bank of India (RBI) released its guidelines—largely accepting those of the Malegam Committee but with some ease of operations for MFIs. » Continue reading “Learning from the Microfinance Fallout”

This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

There are many claims for and against microfinance. Beyond Profit looks at five key misunderstandings and puts them into perspective.

1. Exorbitant Interest Rates

Claims of prohibitively high interest rates have been blamed for everything from bankruptcy to farmer suicides. Are microfinance institutions (MFIs) charging interest rates to the ruin of poor borrowers? One of the biggest arguments for microfinance is that a poor person would only have access to credit via a local moneylender who typically charges much higher rates and pushes the poor further into a debt trap. » Continue reading “Microfinance Misunderstandings”

This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

Bart Edes, Director of Poverty Reduction, Gender and Social Development at the Asian Development Bank, shares his thoughts on the importance of the private sector and the role of private equity.

You mentioned at the Sankalp Forum 2011 that ADB is moving half of its resources to the private sector. Why is that?

To be clear, our long-term strategic framework, which we call “Strategy 2020,” indicates that 50% of our operations will be private sector operations or private sector development. That will include investing with private sector partners or working with governments to nurture the environment for the private sector. The reason that we are moving in this direction is that, as we have seen in the last many years in the Asia Pacific region, the private sector has been the engine that has driven the high growth rates you’ve seen in many countries, including here in India. That this is where growth is going to come from is clear and we need to do a bit of rebalancing in the years ahead to promote this great engine of growth. » Continue reading “The Private Sector Financial Push”

This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

Aida Patricia took her first microfinance loan of $100 when she was just 20 years old. Fifteen years later, she employs 45 people at her clothing company.

In 1996, Aida Patricia, then a young woman of 20, turned to a small sewing machine in a corner of the house her in-laws owned. To earn extra money to support her family, Patricia began a small clothing enterprise she called Oscaritos. Banks wouldn’t loan her money because she had no assets with which to secure her loan.

A microfinance institution (MFI) based in Masaya, Nicaragua, gave Patricia a loan of 2,000 córdobas—the equivalent of $100. She invested the money in fabrics and materials, and continued to take loans from MFIs to grow her business.

“These loans also allowed us to obtain loans from other institutions, giving us the opportunity to diversify our financial risks,” Patricia recalls. » Continue reading “Making Microfinance Work”

This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

In a new report, the World Economic Forum looks at what defines financial inclusion and how mobile financial services can make all the difference.

When it comes to access to personal or business financing for the bottom of the pyramid (BoP), mobile technology has expanded the boundaries of financial inclusion. Mobile technology has changed the way people access basic financial services. Today, a large section of the global population has a mobile phone, and this unlocks a huge opportunity to bring many at the BoP into the formal economy.

In May 2011, the World Economic Forum, in collaboration with the Boston Consulting Group, published The Mobile Financial Services Development Report 2011. Based on research that looked at mobile financial systems in 20 countries, the report is meant to aid decision-makers to identify strengths and weaknesses in their respective markets, and find opportunities to scale. The key drivers of mobile financial services development are outlined across seven pillars: regulatory proportionality, consumer protection, market competitiveness, market catalysts, end-user empowerment and access, distribution and agent network, and adoption and availability. » Continue reading “Redefining Financial Inclusion”

This story originally appeared in our June 2nd, 2011 e-magazine. Click here to subscribe.

Using data analysis, David Roodman, senior fellow at the Center for Global Development, tries to pinpoint which countries might see the next microfinance crisis.

Given the microfinance crises in various countries in the last few years, I’ve been wondering which place might be next. Partly inspired by the format of Daniel Rozas’s analysis of Andhra Pradesh a couple of years ago, I made scatter plots of some indicators of potential danger, such as number of microloans outstanding per adult and the rate of growth in number of loans. I was curious whether crisis countries could be characterized statistically, and which seemingly tranquil countries they resembled.

To various indicators on the level and growth of lending, I added one on the financing structure of microfinance institutions (MFIs): the share of assets funded by deposits as opposed to borrowings from foreign investors or equity.

One big limitation of this exercise is that the nation may be the wrong unit of analysis. India’s difficulties have mostly been in Andhra Pradesh; Pakistan’s in Punjab; and Bosnia and Herzegovina’s in Tuzla. National averages can obscure local and regional developments. Having data on Andhra Pradesh at my fingertips, I added it in. » Continue reading “Crisis Watch: Signs of Trouble”