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....

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.

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.

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.

MicroInsurance On The Rise

Microfinance Institutions (MFIs) provide credit and savings products that help low income households earn income or build savings that in turn can help reduce the risk of natural or medical catastrophes. However, many catastrophes can cause significant hardship and deplete any economic gains made thru Microfinance programs - furthering the poverty cycle.

Enter Microinsurance. Microinsurers are providing different forms of insurance for life, health, property, disability, agriculture, etc. Traditionally, poor households couldn't afford standard insurance programs - even if they actually had local access to this service. But with microinsurance products, they can pay a small premium for limited coverage in the event of losses and better manage their risk. There are many players offering microinsurance such as MFIs, NGOs, local community organisations, mutuals (all linked to regulated insurance companies) and increasing activity from large commercial providers. Swiss Re just announced an initiative to offer African farmers coverage against droughts ruining their crop harvests. The program aims to provide protection against adverse weather conditions for up to 400,000 people in Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Rwanda, Senegal, Tanzania and Uganda.

GIMI, the Global Information on MicroInsurance organisation recently published an interesting report outlining how microinsurance works entitled "The Landscape of Microinsurance in the World's 100 Poorest Countries." Some good news that emerges from the landscape survey is that microinsurance for the world's poor is growing fast, with most of its recent growth coming from the private sector. The microinsurers surveyed predicted at least 10% growth over the following year and 100% growth over five years. The report is also for download at the MicroInsurance Centre website - they provide an interesting synopsis of findings.

Co-Operative Bank Creates US$50m Microfinance Fund

The Co-operative Bank has recently announced a special US$50m (GBP25m) microfinance fund in order to support the development of small businesses in some of the world's poorest countries. The Bank has created an innovative line of credit in association with several major international banks that will be used to provide microfinance, or small loans, to the working poor around the world.

The Co-operative Bank will distribute these funds through the Global Commercial Microfinance Consortium (GCMC), of which they are a member. The Consortium, launched by Deutsche Bank, brings together institutional investors and development agencies in order to provide finance to poor people and is now looking to build on that commitment with other similar organisations. At its launch, the Consortium represented the largest public-private microfinance partnership. The Consortium lends to MFIs either directly or in partnership with commercial banks (such as Banco Solidaro), subject to a maximum loan size of US$3million. The fund has provided loans having committed to MFIs across the globe in places such as Russia, Kosovo, Peru, Nicaragua, Colombia, Pakistan, Mozambique, Mongolia and Azerbaijan.

This is one of several recent efforts in Co-Operative Bank's history of microfinance activities; in 2005, The Co-operative Bank committed US$5million (GBP2.6 million) to the US$80 million GCMC. In May 2007, the Bank committed US$5m (GBP2.6m) to the US$108m 'BOLD' fund launched by Morgan Stanley - a fund which comprises of 21 loans to MFIs in 13 countries with the largest country exposure being Bosnia.

Harvard Business Review MF Investment Article

Harvard Business Review posted an article highlighting the importance of stringent due diligence for donors and philanthropic organizations interested in making microfinance investments. For many folks rigorous due-diligence is an obvious point, any CSR or social investment activity should conduct serious analysis before making a final investment decision in any sector project. The more nascent the sector, the more demanding your process should be. One of the best ways to learn about a microfinance institution that you may be interested in supporting, is to look at or commission a rating report that the leading firms produce utilizing their lengthy due-diligence process conducted to develop the ratings. These rating reports are used by many folks in the sector, primarily the investment funds focused on offering debt and equity to MFIs. See our Ratings section for more info.

The social performance of microfinance institutions is becoming increasingly recognized as a major necessity of measurement by all practitioners in order to assess the achievement of the double bottom line. Many of the rating firms have added social impact analysis to their due diligence process often in conjunction with firms that have specialised in this area such as CERISE and the Ford Foundation. CGAP also offers an excellent resource center supported by it's Social Performance Task Force charged with defining social performance and addressing questions about measuring and managing social performance.

In the HBR article however, the most important point for us is that the authors stress the importance for investors to seriously consider investments that improve access to technology that lowers the cost of lending and borrowing - we believe this is how the microfinance sector can best achieve scale and sustainability.

ICT needs for Africa

Although Africa has realized tremendous growth in mobile phone use, e-banking services and e-commerce there remains significant ICT challenges. 'The Herald' in Zimbabwe recently published an article highlighting the African stats of a recent World Economic Forum ICT report describing the bleak performance of ICT in Africa. Sub-Saharan African countries rank very low on the top 120 country ranking in the report.

The WEF report was first launched in 2001 and has become a valuable and unique benchmarking tool to determine national ICT strengths and weaknesses, and to evaluate progress. It also highlights the continuing importance of ICT application and development for economic growth.

The WEF Report uses three component indexes which assess:
- environment for ICT offered by a country or community
- readiness of the community's key stakeholders (individuals, business and governments)
- usage of ICT among these stakeholders

Some of the challenges identified by African ICT experts include:
- Inadequate communications infrastructure;
- Lack of ICT facilities;
- Lack of ICT skills;
- Inadequate financial resources;
- Limited public-private sector partnerships;
- Lack of political commitment; and
- Lack of school ICT development programmes.