Paris Microfinance Network

BRAC Reassures Borrowers After Cyclone Sidr Devastation

BRAC, one of the largest microcredit programmes in Bangladesh, has been reassuring borrowers caught up in the aftermath of Cyclone SIDR that they will help them every step of the way to rebuild their business and livelihoods.
BRAC is the largest NGO in the world and was founded in Bangladesh in 1972 by Fazle Hasan Abed, BRAC Chairman. It has programmes in Asia and Africa as well as the UK and USA and is largely self-financing.

BRAC estimates that more than 150,000 homes belonging to BRAC borrowers were completely destroyed in the cyclone and a further 270,000 borrowers have been seriously affected. 80% of these people had outstanding loans with an average loan of 7000 Taka (US$102).

BRAC has suspended loan repayments for at least two weeks and will take a few weeks to restart normal loan repayment meetings.

“Those borrowers who can’t pay, will not be forced to pay. There is no compulsion. Inevitably BRAC will have to absorb some losses. Out of about 300 crore loans (approx US$44 million) outstanding in that region, there may have to be some write offs. We are constantly reviewing the situation.” said Fazle Abed, Chairman and Founder of BRAC.

BRAC has also suffered fatalities and reports that 281 village organisation members tragically lost their lives on the night of the cyclone. Their families qualify for BRAC’s death payment of 5,000 Taka (US$73) and the immediate cancellation of any outstanding loans.

Read more on the BRAC Blog....

Indian gov't considers rural ATM program

In order to take economic development and technology to the rural masses, the Indian government today announced that it is contemplating to install specially designed Gramtells (rural ATMs) at post offices.

Gramtellers are rural ATM machines developed by the Indian Institute of Technology (IIT), in Madras. They operate by using smart cards and fingerprints in place of conventional personal identification numbers and magnetic cards. Fortunately, the interest and volume of projects developing rural-based banking technology, and especially Biometric solutions, is growing rapidly in India - this can solidly help bank the unbank, especially the illiterate. (See our previous story.)

The suggestion to set up Gramtells at post offices formed part of the recommendations of the Steering Committee on Micro Finance and Poverty Alleviation, which is being considered by the Planning Commission for incorporation in the Eleventh Plan (2007-12).

"The post office network in the country should be used to deliver banking services, especially in the rural areas. They should further be encouraged to work as business facilitators and banking correspondents in accordance with Reserve Bank guidelines.," the Committee suggested.

The Common Service Centres (CSC), developed by the Information Technology Department to take electronic services to villages, may also be linked to post Offices to synergise the technology to handle financial products, the Steering Committee proposed.

It recommended that multi-purpose, unique ID-based smart card system should also be utilised for effective delivery of micro-credit.

RFID Technology for Rural Banking

Using newly developed RFID enabled phones, banks in India can now work more efficiently when performing microfinance activities in rural areas.

Thanks to NXP, a semi-conductor company recently spun out of Philips, and A Little World, a technology development company, this next generation solution will let over 45,000 people in rural India access full featured banking services in their village.

NXP has designed a mobile that encloses an RFID card, which will work with A Little World’s micro banking platform, ZERO. Radio frequency identification, or RFID, is a technology that uses radio waves to automatically identify people or objects. There are several methods of identification, but the most common is to store a serial number that identifies a person or object onto a microchip that is attached to an antenna. The antenna enables the chip to transmit the identification information to a reader, the mobile in this case. The reader converts the radio waves reflected back from the RFID tag into digital information that can then be transmitted to computers for processing, in this case A little World's ZERO Platform.

The mobile acts as a branch of the bank by storing the entire database of customers in the village and neighbouring areas within the phone’s memory, protected by a high security chip built into the phone. The mobile encloses a smartcard, which biometrically stores the identity of the customer such as name, address, photograph, fingerprint templates and relevant details of the savings or loan accounts held by the issuing bank.

The pilot project brought customer service points equipped with new generation NFC (Near Field Communication) enabled mobile phones, contactless RFID smart cards and integrated biometrics. Seven banks were involved in the pilot in over 450 villages across four states in India - Uttarakhand, Mizoram, Meghalaya and Andhra Pradesh.

For participating banks, it is an important step that will eliminate the cost and effort to set up physical branches in rural areas, while providing full services for cash deposits, cash withdrawals, utility payments, money transfers, micro-insurance, and cashless payments.

SHARE MicroFin gets landmark $27m investment

Legatum and Aavishkaar Goodwell have announced an equity investment of US$27Mln in SHARE Microfin Limited, India's leading microfinance institution. Legatum, a private firm that invests in capital markets and in initiatives that support human and social development, has agreed to invest US$25Mln (INR 100 Crore) to acquire a majority interest in SHARE.

The investment represents the largest equity investment to date in the global microfinance sector, and will enable SHARE to reach an additional five million customers over the next five years. SHARE is one of the largest MFI’s in India with over one million clients and US$95 million in outstanding loans. SHARE operates in 5 Indian states, across more than 8000 villages with 2300-plus staff. Share was founded in 1989 as a non-profit organization to improve the quality of life of the poor by providing access to financial and support services. In 2000 SHARE converted into a for-profit Non Banking Finance Company (NBFC), and it has grown from 2000 members then into the leading MFI in India today. In the last three years it has achieved growth of 90% in customer numbers.

Udaia Kumar, Chairman and Managing Director of SHARE Microfin Ltd. said, that the transaction exemplifies the important role that experienced global investors will play in helping to develop the microfinance industry. According to Mr. Kumar, SHARE is now ready for the next stage in its growth.

Mobile Battle to Win India's Rural Customers

The race continues for mobile phone manufacturer's to obtain market share of the virtually un-touched rural community in India. In the past 6 months there have been many news articles, stories & announcements by handset manufacturer's about new services & offerings to attract rural customers.
For example Nokia launched a mobile handset costing the equivalent of about US$44, its lowest price globally for the handset, in partnership with Reliance Communication, one of India's largest, and publically held, telephone service providers. (Reliance has already been offering GrameenPhone services in it's effort to offer lower cost phone usage.) Smart partnering move by Nokia, since Reliance has been forging it's way into rural villages, recently rolling out telephone connections to 40,000 villages.

According to industry estimates in India, the rural markets contribute about 5% of the national GSM handset sales. But this is expected to rise to 25-30% by 2009. Though 70% of the population resides in rural markets, penetration of the mobile handset is under 3% against 40% in urban regions. The 1.2 billion population of the country is split 70:30 between rural and urban areas and industry analysts maintain that 60% of growth henceforth would come from rural markets. There are 423 large towns in the country, 4,728 small towns and 6,00,000 villages. No surprise then that handset players like Nokia, Motorola, Samsung & LG have already identified Indian villages as future growth targets. Besides distribution partnerships, like Motorola's deal with e-choupal, many of these companies are also investigating microfinancing models to boost their reach in rural areas. These schemes could include partnering with Banks and/or Telco providers...many of whom already have rural presence or at least advanced plans in reaching rural markets.

Is it clear however, to the end-consumer paying for the service, what they could benefit from the service to improve their business or livelihood? Who reaps the largest benefit of mobile proliferation?

Microfinance and Remittances

The Philippines, often considered the birthplace of Mbanking, have several wireless services that provide much needed support to the Bottom of the Pyramid (BOP) & the microfinance sector. The general public is quite SMS savvy which lends itself well to driving mobile commerce. Smart Communications and GlobeTelecom are the leaders in providing a wide variety of convenient wireless services, many of them quite innovative. Recently, Smart announced a partnership (1 of 7 with Philippine banks) supplying it's mobile banking technology platform to LandBank of the Philippines, which has a strong rural outreach and supports many poor communities. Through this partnership LandBank can start offering a reliable and efficient system for people to send remittances to their families back home. Remittances is an important service, making up almost 20% of the GDP in the Philippines. Smart offers their own remittance service called Smart Padala allowing customers both internationally & domestically to send money.

Mobile remittances are gaining popularity due to their proven security, speed and convenience. There are a variety of programs such as UAE's Exchange Wallet running sucessfully since 2005 allowing foreigners to send money from the middle east, a common demand from Indians, Pakistanis, Mexicans, Philippinos and many others working abroad. Virtual bank WIZZIT in africa offers person-to-person payments, transfers and airtime puchases. They have a solid blend of technology expertise & customer needs recognition - a company to keep your eye on. The LA times wrote a good article in 2006 analysing some global examples of the financial importance of remittances, it's worth a read.

Smart marked its 25-million-subscriber-milestone this year & has been actively promoting mobile commerce services since 2000. For example, in 2000 Smart launched a sort-of re-loadable electronic wallet with it's ‘Smart Money’ program allowing customers to make transfers from bank accounts to SmartMoney accounts. Once 'charged 'up', a customer uses their phone like a debit card at retail outlets or to send money via SMS to pay for fast food, lottery shops or even taxis. But Smart Money was geared more towards middle/upper market customers. Hence in 2003, Smart launched a service aimed at the 'unbanked' called ‘SmartLoad’ which offers electronic airtime transfer; subscribers buy prepaid packages from resellers without a physical card or bank account and use the credit for purchases or services. Some of these local neighborhood resellers even offer customers credit to buy the telco packages - microfinance at it’s core!

HSBC Microfinance activities in India

There has been a flurry of activity thus far in 2007 by commercial banks cementing their interest in the Microfinance sector. Much of this is due to the fact that many MFIs are seeing double digit returns & commercial banks now see this as a viable market. However, it's crucial that commercial banks develop simple enough products and services based on micro-borrower's needs, that minimize operational costs and are easily understood by customers. Just last week HSBC India announced their plans to set up 30 new branch offices across India, adding to their 47 already existing branches thoughout the country. Their main goal is to continue reaching the largely untapped market of the 'unbanked' and micro-borrower's market.

Although not as active as ICICI, HSBC has nonetheless supported at least 10 MFIs with major loan funding to help reach the poor in many rural areas, especially in the south of India. These new branches should further expand HSBC's microfinance efforts by supporting MFIs in other areas of the country, such as the Northern states. Additionally, HSBC is lending directly to micro-borrowers thru a program launched in November 2006 called 'Pragati Finance' requiring no collateral for loan applications. Interestingly however, these loans are more likened to personal loans as opposed to traditional micro loans for micro-entrepreneurial activities, creating some market competition, since terms are similar.

Water and Microfinance

In many developed countries, easily available items are often taken for granted, such as water. But in developing countries safe water is a rare commodity, over a billion people suffer from lack of access to safe water. Approximately 5-7 million people (primarily in Sub-Saharan Africa and countries like India & Bangladesh) are dying annually - mainly children - due to water-born diseases. Furthermore, the costs incurred for rural communities to access safe water can be 10-15 times higher than costs for urban dwellers connected to cleaner water systems. These issues affect the health & economic productivity of rural communities.

An interesting approach, applying microfinance principles, was launched by the organization 'Water Partners international' with an initiative called the WaterCredit Initiative that we believe provides a hopeful unique model. By making small loans to communities and individuals who do not have access to traditional credit markets, WaterCredit helps finance the upfront cost of water and sanitation systems. Giving people the credit tools they need and allowing them to repay the loans over time empowers them to solve their own water supply needs now instead of having to wait for years for a grant that might never come.

A working example: in India, WaterPartners provided $105K in loans for safe drinking water and household toilet facilities for urban slum residents. Loans were disbursed by WaterPartners’ local implementing partner in India, Gramalaya. Gramalaya teamed up with BASIX, a local micro-finance institution, in order to develop the infrastructure they needed to make the loan distributions. BASIX educated Gramalaya on the qualifications for loan eligibility and helped them to develop financial systems to process the loans. Check out this interesting & successful case & another in Kenya.

Another promising water initiative was announced yesterday; the U.S. Agency for International Development (USAID) & The Coca-Cola Company announced a $7 million joint investment in 9 new water projects in Africa. It's pleasing to hear this news because these much needed collaborations between private sector & NGO-development organizations, beneficially team private funding & business best practices with local developing country knowledge & expertise.

The projects will be located in Angola, Ethiopia, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Ghana/Ivory Coast. These new projects (Coca Cola & USAID have been working together since November 2005, with activities in Bolivia, Mali, Indonesia, Malawi, Egypt, Thailand, Uganda and South Africa.) provide locally-driven solutions to address the global water crisis, growing the global partnership’s investments from $3 million to $10 million.

SKS secures $11.5m from Sequoia VC

Times sure are changing in Microfinance. Sequoia, a Silicon Valley-based venture capital fund, has just made an $11.5m investment in SKS Microfinance, India's leading microfinance institution, making it the first pure for-profit private equity investment in Microfinance. Many top Microfinance investment firms, primarily focused on debt-offerings, have lately been shifting activities towards equity investments. But this is surely a major market shift when a VC, traditionally focused on big-profit plays, launches into the Microfinance sector. This is a very significant move which will no-doubt encourage more commercial capital to enter the microfinance sector globally.

This surge of funding makes SKS the largest for-profit microfinance institution in the world. Hence it's activities & market impact will be watched now more than ever. This investment is good news for the Indian microfinance sector especially if this type of funding helps reduce end consumer interest rates & allows SKS to further reduce poverty. SKS was selected by Sequoia because it has a 99% on-time repayment rate from its roughly 600K borrowers and provides an ROE of 23%. Furthermore, in the last year alone, SKS grew by nearly 160%, they have a well-structured organization focused on bottom line profitability & growth and it's all supported by a well deployed technology infrastructure.

Sequoia, like many of SKS's previous investors, (Unitus Equity Fund, Vinod Khosla, Ravi Reddy, Odyssey Capital, and SIDBI) of course hope to make a good return on their investment, and whilst doing so, help the poor in India. The funds will provide the stimulus that SKS needs to achieve its ambitious goal to provide financial services to over 5 million poor families by 2010. But this move also hints of IPO probability - it follows up public & private debt financing & comes with conditions. The Sequoia deal has an exit clause stating that within the next 3-5 years, SKS will either have an IPO or be acquired.

FINO gets $5mil IFC investment

The IFC just announced an investment of $5million in Financial Information Network & Operations Limited(FINO) India, a technology service provider offering end-to-end IT solutions that help banks reach underserved rural banking markets in India. This surge of capital will help FINO with their technology research & development efforts which extend the rural outreach of microfinance.

The IFC investment consists of common equity of up to $2.5 million equivalent and convertible preferred shares of up to $2.5 million equivalent. FINO’s target market is the urban and rural poor in India, who have limited financial literacy or poor access to financial services. FINO offers a variety of technology products & services for banks, such as banking systems, smart cards, ATM technologies & biometrics.

For example, one project recently announced by FINO is a smart card project in Bangalore enabling food traders who have taken loans from Janalakshmi MFI to participate in fruit and vegetable auctions at Safal outlets. With these smart cards, traders will have anytime access to the trading floor without having to carry cash and/or resort to expensive loan arrangements through money-lenders. The technology backbone will enable Janalakshmi to better cater to the needs of its growing customer base covering self-help groups and small-medium enterprises and other individuals who do not have access to formal mainstream banking or financial services. The technology solution was designed by IBM & FINO to facilitate online and offline transactions at affordable cost while reducing paperwork in the bidding process for traders at Safal outlets.