Paris Microfinance Network

Mission Drift ?

There is a plethora of private capital continuing to enter the microfinance sector. But as microfinance moves more and more into mainstream banking, is some of its original mission getting lost in the shuffle? That's the implication of a landmark study released by Women's World Banking (WWB). The study examined what happened at 27 organisations as they morphed from non-governmental (typically not-for-profit) organizations into regulated financial institutions, and found that they often end up lending to a smaller percentage of women — the very people they often started to help.

The WWB study did find solid benefits associated with the evolution of microfinancing such as increased loan sizes and ability to offer additional demanded products. Commercialized MFIs, for instance, are able to reach more borrowers and offer important new products like savings accounts. But WWB also found evidence that such growth might be pushing institutions' interests to be more in line with those of their profit-seeking investors.

WWB studied 27 MFIs (in Latin America, Asia, and MENA) that had undergone this regulatory shift (or "transformation") and compared them with 25 that had not. Over a five-year period, MFIs that had become more traditional commercial enterprises saw active borrowers increase by 30% a year on average, compared with 15% for institutions that remained NGOs. In addition to reaching more clients with loans, the transformed MFIs were also able to significantly ramp up the number of clients with savings accounts.

However, the study also concludes a steep drop-off in the percentage of female clients in the years following transformation. Over five years, the percentage of clients who were women moved from an average of 88% to 60%. That is concerning not only because many institutions start out with the goal of serving female entrepreneurs, but also because women are more likely to pay for health care and education for their children — investments that can help further lift their families out of the cycle of poverty.

How can transformation benefits be best balanced with the original social mission of microfinance ?

Accion & EcoBank launch Microfinance Bank in Ghana

EB-ACCION Savings & Loans, a microfinance bank formed through a partnership between ACCION International and ECOBANK, the leading pan-African bank, has received its license to begin microfinance operations in Ghana.

EB-ACCION opened it's doors April 1st, delivering microcredit, savings and micro-insurance products to the Ghanaian market, thus helping small entrepreneurs to expand their businesses and improve their standard of living. EB-ACCION clients will be served by two branches in Accra, located in the marketplace neighborhoods of Tudu and Lapaz. Two more branches are scheduled to open in Accra this year. EB-ACCION expects to be the market leader serving microentrepreneurs in Ghana by 2010.

Over the next few years, the 2 partners, Accion and Ecobank, plan to open microfinance banks in at least 20 countries across Africa, thereby creating the largest regional platform for offering comprehensive financial services to the vast population of informal sector players that have been largely unbanked and underbanked. A statement by Ecobank said, when fully implemented, the plan has the potential of becoming one of the largest bank downscaling efforts in the world.

Grameen-Veolia Water deal to help Bangladesh

Nobel laureate Muhammad Yunus unveiled a deal between his Grameen bank and French group Veolia Environment to provide clean water to poor rural communities in Bangladesh.

The Bangladeshi economist also sought support from President Nicolas Sarkozy for creating more microcredit schemes to fight poverty, particularly in Africa. Sarkozy told Yunus that France would continue and step up its efforts to provide access to loans to the poor and noted that more than a third of France's African aid funding was now directed toward microfinance.

After discussions with Sarkozy, Yunus sat down with top business leaders at the Elysee including billionaire Vincent Bollore and announced the creation of the new joint company with Veolia Environment. Called Grameen-Veolia Water, the company will operate several water treatment plants in Bangladeshi villages, with the goal of bringing clean water to 100,000 people.
The project represents investments worth 500,000 euros (790,000 dollars).
Full Story from AFP

The MIX 2007 Top 100 MFIs Report

The Microfinance Information eXchange (MIX) has released the 2007 Global 100: Rankings of Microfinance Institutions report. It is a ranking of the top performing microfinance institutions (MFIs) throughout the developing world, based on data from MIX's publicly available database.
The composite rankings are based on a number of criteria and were developed in an effort to present the leading, most well-rounded institutions.

The MIX Global 100 highlights leading microfinance institutions through the lens of various aspects of performance. The MIX Global 100 by category offers a snapshot of MFI results, identifying the leading performers in each of seven categories within outreach, scale, profitability, efficiency, productivity and portfolio quality. In order to widen the lens of financial service provision, outreach and scale tables include separate rankings for deposit mobilizing institutions. This year’s rankings of efficiency also use a new measure to minimize the influence of loan size and neutralize differences across country environments in ranking MFI transaction costs.

The 2007 MIX Global 100 surveyed 820 institutions, an increase of nearly 40 percent over the 2006 sample set. Leading performers were drawn from a diverse sample of MFI that served over 53 million borrows with over USD 24 billion in loans and held USD 15 billion in deposits from 64 million microfinance clients.

Microfinance in Sudan

The recognition of microfinance as one of the priority sectors for Sudan started only in the mid-1990s. The financing regulations of the Bank of Sudan are still being revised, and lack proper identification of microfinance activities.

In microfinance, traditional Islamic financial products, such as the murabaha,
the salam, the musharaka and the mudaraba play an important role in Sudan. For example, the murabaha is a buy and resell contract, under which the bank purchases the goods ordered from the client and resells it to the customer at a marked-up price, usually on a deferred payment basis. This is the preferred product and is also the closest to standard interest-bearing financial contracts. The salam is also a buy and resell contract, but here the bank purchases the goods from the client, who then delivers the goods in the future. Mainly used for agriculture, the bank pays the farmer on the day the contract is signed and the farmer delivers the crop to the bank after harvest.

A number of banks, NGOs and social funds have been involved with microfinance in the Sudan, and more MFIs are slowly being launched. Over 100 local and foreign NGOs, in direct coordination with gov’t authorities, are active in providing microcredit, emergency loans, medical care and educational services to poor people in the Sudan. In addition, many rural development projects include components of microfinance support.

Microfinance NGOs have been much closer to grassroots operations than have the formal lending institutions. The main NGOs active in microcredit have between 15-20,000 clients and registered repayment rates on average of 85 percent. Their success is often due to being community-based; often having simpler procedures; adopting flexible collateral terms; and sometimes creatively partnering with the formal banking system; they finance a variety of activities, i.e. they are not confined to "productive activities"; and they adopt different microfinance mechanisms and approaches. NGO microfinance institutions face problems, however, in shifting from providing grants to providing credit, when credit is newly introduced to customers after a period of charity-based operations. They also face sustainability problems when moving from donors to commercial sources of funding.

Some of the MFIs making a difference in Sudan include SUMI, the Sudan Microfinance Institution, Aljawda Microfinance Bank launched in December 2007 and Five Talents International, whom have recently launched a program in Sudan. SUMI is an innovative and high-risk microfinance institution based in southern Sudan helping small borrowers eager to grow their fledging businesses. Isaac Sadik, a used clothes dealer and tailor, started his business in 2001 with $40 he had raised by selling a bicycle. “I joined SUMI in November 2003 with a loan of Ush200,000,” says Sadik. “My stock has increased to Ush350,000. In fact, my stall is now too small so I am looking for space to construct another stall.”

Working with a consortium of partners including the Episcopal Church of Sudan, Five Talents will be assisting a village banking project in Wau Diocese, which was started in September 2005, and currently has 270 members. This is one of the first projects of this type in southern Sudan.

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....

New Microfinance Lending Site: myELEN.com

Launching in November, the online portal myELEN.com will be the first institution to bring microfinance to the Czech Republic. While microfinance has become a relatively common phenomenon in the United States, the myELEN project will be unique in Europe when it launches in several weeks’ time, says Linda Hanyková, executive director of Microfinance, the company behind the My Electronic Loan Exchange Network (myELEN) project.

Loans granted through myELEN would range between 5,000 Kč and 157,000 Kč ($267–8,396). The site will also allow investors to make donations or interest-free loans. Through myELEN.com, investors can lend money to selected Mexican entrepreneurs — farmers, food venders, weavers, grocers — or associations of entrepreneurs, which are listed on the Web site along with their photos and business plans. Though it does bear an ethical streak, most investments made through the site will return annual yields between 5 percent and 10 percent, depending on the amount of money invested.

Annual rates by microfinance institutions in Mexico run between 40 percent and 110 percent. However, local banks and other lenders charge even higher rates while providing little educational and counseling assistance to borrowers. Rates charged by myELEN would depend on the individual business and amount loaned, Hanyková said.

Today, myELEN cooperates with only one microfinance partner based in Mexico, an NGO named FIPS. But the project’s idea is to work with many other reliable microfinance institutions in Mexico and elsewhere, so that investments are diversified to reduce the risk of unrecoverable loans, said Tomáš Hes, an economist and one of myELEN’s founders.

eBay launches MicroPlace.com investment site

MicroPlace, purchased in March 2007 by eBay Inc., has announced the launch of a new website that provides the first online marketplace for individuals to invest in microfinance and earn a financial and social return.

This is a very interesting and encouraging service as it allows anyone to participate in making a positive social impact thru personal investments. To date many of the microfinance funds and vehicules on the market have been investment tools for institutions, other funds, VC's or high-net worth individuals. Using the new site, investors can purchase microfinance securities with as little as $100 using eBay's PayPal service or a U.S. bank checking account, and have the option to direct their investment to a specific country and microfinance institution in the developing world.

How it works:
1) Set up an account and then purchase investments on MicroPlace.com from security issuers, who are responsible for making interest and principal payments to you.
2) The security issuers adds your funds to loans given to lending organizations (such as Microfinance Institutions), who in turn use those funds to provide loans to their end-borrowers.
3) The end-borrowers are generally self-employed poor, usually working in commercial activities, agriculture, fishing or craftspeople. They earn just enough to survive and use small loans to start or expand their businesses. The majority of them are women who in turn use earned revenues for household expenses, such as clothing, medical and education fees. As loans are repaid, security issuers are able to provide you with a financial return.

MicroPlace plans to make money by charging issuers to list. "We aspire to break-even, and if and when we reach profitability, eBay intends to reinvest any profits back into its own social initiatives," said Tracey Pettengill Turner, Founder and General Manager of MicroPlace.

MicroPlace thus far has partnered with OikoCredit USA and the Calvert Foundation to offer its first securities, which mature in two to four years and yield between 1.5% to 3% a year. Prospectuses are available online as well as financial reports of the local lending institutions, and MicroPlace is registered as a broker-dealer with the Securities and Exchange Commission (SEC). There are over 80 funds available on the market today investing in microfinance activities in developing countries. As the service grows we anticipate a growing range of securities to become available as investment options on microplace.com.

A great opportunity to invest part of your savings towards making a social impact in areas that need it most.

IBM partners with Grameen Foundation

Mifos, Grameen Foundation's open-source technology solution for microfinance institutions, received a boost today with the announcement of IBM's commitment to develop and promote the solution. The collaborative
project will build additional functionality and robustness into the Mifos application and give MFIs around the world access to new software that streamlines the lending process and significantly reduces operational and technology costs. Five MFIs are currently deploying Mifos in India, Kenya, Tunisia, and Honduras.

Many MFIs lack their desired client reach due to inefficient and limiting technology infrastructure. Mifos, designed for the microfinance industry, provides key functionality required by MFIs, including client management, loan and savings portfolio management, loan repayment tracking, fee and savings transactions, and reporting. The core technology is a user-friendly Web application running on top of a MySQL database. Being Web based, Mifos enables a centralized database so that the head office and regional offices are looking at data in real time.

Today many MFIs, (those who have made IT purchases - many are still operating manually) struggle with their IT systems for various reasons. These include either having purchased software that is limited or difficult to customise to their institution, out of reach pricing for more advanced solutions, lack of technology expertise locally or weak management commitment to IT strategy, to name a few. Using an open-source system could provide further flexibility and avoid the upgrade trap, among other benefits.

The goals of the IBM-Grameen Foundation partnership are to develop a new Mifos platform that provides (1) access to world-class software for all microfinance institutions; (2) global standards in management and reporting; and (3) sharing and scaling of technology innovation. All of these benefits will contribute to the microfinance industry’s capacity to increase its outreach to those in need.

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.