Paris Microfinance Network

Microfinance in Madagascar

The 'Free Press of Namibia' posted an article on the early stage effects commercial microfinance is having in Madagascar. In the capital city of Antananarivo there are several foreign commercial microfinance instiutions such as AccesBanque (funded by Access Holding in Germany), french based MicroCred (see previous article)and the Agh Khan Foundation.

It certainly is an interesting investment to set up shop offering microfinance services in Madagascar because the traditional banks usually do not demand higher interest rates than microfinance institutions. The main difference lies in the amount of the loan.

Microcred clients can take out as little US$50 at a time while the minimum loan in mainstream banks is generally 20 times that amount. Petty entrepreneurs who are not considered "bankable" due to a lack of steady income or collateral have pounced on such microloans, in spite of interest rates fetching around 24 per cent over a year.

In barely six months, some 2,000 people have taken out loans with Microcred and around the same number with AccesBanque.

Establishing Global Rating Standards

Rating reports are indispensible, as they allow investors to make accurate decisions on which MFIs to support. Additionally, these reports provide insight for practitioners, management and consultants to the business functions that are in need of development. There are several leading companies, specialized in the Microfinance sector, providing these services (see 'Ratings') all deploying their own methodology and assessment tools. However, the industry, especially investment firms and MFIs, could certainly benefit from consistent metrics & a standard approach, analysis & reporting.

Earlier in 2007, Standard & Poors established a 'Microfinance Rating Methodology Working Group' inviting industry leaders to join S&P analysts aiming to examine the state of the microfinance industry in relation to investment needs & rating methods. S&P delivered it's first rating in the Microfinance sector for the Blue Orchard CLO deal in May (see article) and realized the need to create a standard method for mainstream investors to make better informed decisions.

Today S&P announced the release of a publication produced by the working group called "Microfinance: Taking Root In The Global Capital Markets." The report provides recommendations for a rating methodology that can be used globally and consistently to rate MFIs within countries, across borders, and across asset classes. The report provides the context for the rating methodology by summarizing the current state of MFI funding, reviewing the key issues in developing MFI rating methodology, and outlining the minimum information recommended for producing a rating.

The report is available in two parts on RatingsDirect (Free Trial offered). "Report Of The Microfinance Rating Methodology Working Group" provides the contextual summary. "MFI Rating Methodology" provides the Working Group's recommendations.

The African Enterprise Challenge Fund Launches

The 17th World Economic Forum (WEF) on Africa kicked off Wednesday with the leader of the House of Lords in the United Kingdom announcing one of the first donations to a new fund aimed at supporting businesses in Africa.

Baroness Amos told reporters at WEF-Africa that Britain would be contributing US$20 million (approx R140 million) over three years to the recently announced Africa Enterprise Development Fund, set up to encourage entrepreneurship on the continent.

The UKs contribution is a significant boost to the Africa Enterprise Challenge Fund which aims to stimulate private sector entrepreneurs in Africa. This is the right approach because encouraging small, independant businesses and entrepreneurial ideas helps developing countries reduce poverty and create sustainable business growth. The fund will look to support businesses which innovate and find profitable ways of improving access to markets and the way markets function for the poor, particularly in rural areas.

It will do this by offering grants, matched by private sector contributions, to innovative business ideas which encourage greater participation of poor people in markets – as consumers, workers or entrepreneurs. It will become operational in early 2008 and will have a minimum capitalisation of $50m when fund commences. It will be hosted in a multilateral institution or a private foundation based in Africa and operate across Africa and primarily aimed at established companies capable of implementing and co-funding relevant projects.

Linking Remittances and Microfinance

- Submitted by Julia Blue

To highlight the growing opportunities for MFIs to tap into the roughly $200 billion per year sent by international migrant workers to their home countries, USAID's Microfinance After Hours Seminar series hosted the session "Linking Remittances and Access to Microfinance: Opportunities and Challenges" on May 17th in Washington, DC.

Speakers included David Grace of WOCCU , Manuel Orozco of Inter-American Dialogue , and Kai Schmitz of Microfinance International Corporation

According to Manuel Orozco, a typical bank in a major recipient country now derives around 20% of its income from remittances. The resulting linkages with international financial institutions are modernizing the money transfer system and regulatory environment in recipient countries, and demand for financial intermediation is increasing as remittance recipients generally have a higher propensity to save than non-recipients. MFIs are often better placed than banks to offer money transfer services to remittance recipients, especially for clients in rural areas.

Mr. Orozco described several business models adopted by MFIs that offer remittance services:

proprietary models, in which an MFI opens a bank account in a remitting country to collect and transfer remittance payments to its clients;

Continue Reading......

New Enterprise Targeting Arab Microfinance

Grameen Foundation & Abdul Latif Jameel Group today announced the launch of the first social business enterprise targeting microfinance in the arab world. Building on their four-year partnership to expand access to microfinance amongst the Arab World’s poor, Grameen Foundation & Abdul Latif Jameel Group (ALJ) have formed Grameen-Jameel Pan-Arab Microfinance Limited, a new joint venture company that will focus on alleviating poverty in the Arab world through microfinance. Modeled after the social business enterprise concept developed by 2006 Nobel Peace Laureate Dr. Muhammad Yunus, the company will work to maximize social impact and will reinvest all of its profits in the business rather than distribute dividends. The new entity is a for-profit company with a social purpose.

The company, incorporated in Cyprus, is the first of its kind to target microfinance in the Arab World and shows how two very different organizations, a Western non-profit organization and a for-profit, privately-held Saudi company, can come together for a common social good – poverty alleviation. The launching of this company represents an important new phase of their collaboration to address poverty and unemployment through microfinance.

Heather Henyon, Grameen Foundation’s regional director for the Middle East/North Africa (MENA) region, has been appointed as the joint venture’s founding managing director. “Under Heather’s dynamic leadership, Grameen Foundation through its Grameen-Abdul Latif Jameel Initiative has made an impact on poverty-focused microfinance institutions (MFIs) in Egypt, Lebanon, Morocco, Tunisia, and Yemen. Among other things, we have secured $17 million in debt financing for five MFIs through our loan guarantee facility,” said Alex Counts, president of Grameen Foundation. “Now our partnership with the Jameel Group and with the Arab microfinance sector is going to a new level of impact and achievement. Particularly with the $50 million in loan guarantees pledge by Mohammad Jameel, this joint venture is poised to impact millions of people and be a model for partnerships between organizations with complementary strengths and common values.”

Counts, together with Grameen Foundation board member James Greenberg and COO Salvatore Pappalardo, will represent the foundation on the board of the joint venture. Zaher Al Munajjed, an advisor to Mohammad Jameel, will serve as the company’s chairman. Fady Jameel, the son of Mohammad Jameel, will also serve on the Board, which will be evenly divided between GF and ALJ appointees.