Microfinance Focus, Nov. 30, 2009: The Pacific Renewable Energy and Microfinance (PREM) project will train Microfinance Institutions on the important role they play in reducing Pacific fossil fuel dependence, report said. The project, funded by Renewable Energy and Energy Efficiency Partnership (REEEP), works with Microfinance Institutions in Fiji, Samoa and Vanuatu to remove barriers to renewable energy and energy efficiency uptake in the Pacific. REEEP is an international multi-stakeholder partnership aiming to accelerate the market for renewable energy and energy efficiency.

The training, undertaken by The Foundation for Development Cooperation (FDC) is just one part of the PREM project that aims to develop innovative loan products that support financing of renewable and energy efficiency technology in the Pacific. In the first phase of the PREM, FDC has identified Microfinance Institutions in the 3 island countries undertake a basic training on renewable energy and energy efficiency.

Microfinance services has grown in the Pacific within the last 8 years providing basic financial services such as credit and savings to the poor to help them set up an enterprise, expand an existing one or cater for a family need. It is a valuable tool for providing capital to poor and low income earners especially women. In the Pacific there has been only limited use of microfinance schemes to finance energy-related technologies and equipment, but there is significant potential for small-scale lending to be adapted to meet a household’s needs, for microenterprises and for affordable access to energy.

Microfinance clients are often those most vulnerable to oil price fluctuations and often reside in remote locations not serviced by the electrical utility. Despite this, their entrepreneurial nature means they are ideal to expand the outreach of renewable energy to remote locations otherwise difficult to access.
There is also a huge potential to educate communities and introduce renewable energy (RE) based and energy efficient (EE) appliances through microfinance service providers in the Pacific. Through education and information we can influence the thinking and practices of grassroots population and provide a viable funding avenue through microfinance to enable them to convert to sustainable energy. It is also of critical importance is to find out the energy needs of the clients and what renewable energy sources are available as viable options within the framework of the microfinance services that they provide.

The second phase of the project will see FDC working with the Microfinance Institutions to conduct energy needs assessments and environmental risk assessments. The results of this exercise will eventually allow the MFIs to build the best possible loan product for their clients and develop long term sustainable plans. This will run over six months and will commence after the training.

The PREM project aims help communities reduce their reliance on fossil fuels through affordable and accessible renewable energy and energy efficient technologies. There will also be the global benefit of a reduction in greenhouse gas emissions.

Updates on the progress of the PREM Project will be available at www.fdc.org.au

Microfinance Focus, Nov. 30, 2009: Citi, the leading global financial services company has donated $200,000 to the Mayor’s Fund to Advance New York City for the Department of Consumer Affairs’ Financial Empowerment Center, operated in partnership with the Bedford Stuyvesant Restoration Corporation (BSRC), according to a recent release from the Bank.

The $200,000 donation for the Financial Empowerment Center in Brooklyn is in addition to the $200,000 donation Citi gave in May to open Financial Empowerment Centers in each borough. The Financial Empowerment Centers are designed to offer free, one-on-one professional financial counseling and coaching to City residents with low and moderate incomes.

“The Financial Empowerment Centers across the City have helped thousands of New Yorkers get control of their finances in times of crisis, helping them pay down debt, create and stick to reasonable budgets and save for future goals,” said Consumer Affairs Commissioner Jonathan Mintz. “With this additional funding, the Office of Financial Empowerment can continue to provide these much-needed services to City residents. “

The Office of Financial Empowerment is one of more than 40 anti-poverty initiatives launched by the Center for Economic Opportunity (CEO). CEO was established by Mayor Bloomberg in 2006 to implement innovative ways to reduce poverty in New York City. Led by Executive Director Veronica White, the CEO works with City agencies to design and implement evidence-based initiatives aimed at poverty reduction. The CEO manages an Innovation Fund through which it provides City agencies annual funding to implement such initiatives and will oversee a rigorous evaluation of each to determine which are successful in demonstrating results towards reducing poverty and increasing self-sufficiency among New Yorkers.

Microfinance Focus, Nov. 29, 2009: Burgundy Business School`s organized Microfinance Conference will discuss on institutional and technological factors in microfinance which can contribute healthy growth and reduce costs. The conference will take place on Jan 7-8, 2009 in New Delhi.

This conference is aimed at researchers, both from academia and from the industry, who are looking at institutional and technological environmental factors which could increase outreach or reduce costs or both. Co-authors of “Portfolios of the Poor”, Jonathan Murdoch and Orlanda Ruthven expected to deliver key note addresses.

Microfinance is considered a poverty alleviation device, even if there is a lot of debate on whether there is any positive impact. However, even if there is a chance that it might be part of the solution, policy makers, entrepreneurs, technology experts and educators are rushing in to usher in a favorable environment for the growth of microfinance, the report said.

Microfinance Focus, Nov. 28,  2009: Even where 100% financial inclusion is claimed (Karnataka state in India), oftentimes it is inclusion only in a nominal sense, said RBI Governor Dr. Duvvuri Subbarao in a keynote address at the International Finance and Banking Conference organized by the Indian Merchants’ Chamber on ‘Banking – Crisis and Beyond’ on November 25, 2009 in Mumbai.

“Despite its impressive progress, commercial banking in India has not penetrated sufficiently to serve the large mass of rural, illiterate and poor people in any meaningful way. Rough estimates indicate that of the 600,000 habitation centres in the country, only about 30,000 centres are covered by commercial banks. Even this big picture, stark as it is, does not fully convey the true extent of exclusion,” he said. “Even where 100 per cent financial inclusion is claimed, oftentimes it is inclusion only in a nominal sense. Households have bank accounts that remain dormant; few conduct any banking transactions and even fewer receive any credit. What we should attempt is quality financial inclusion which aims not at chasing a target but instead focuses on giving access to at least minimal financial services to the currently excluded,” he added.

Dr Subba Rao cited several steps taken by the Reserve Bank over the last few years to further financial inclusion – encouraging ‘no frills’ accounts to allow access to basic financial services, initiating and then expanding the Business Correspondent (BC) model and the use of mobile phones for extending banking outreach etc.

“What is clear though is that it is not possible to cover a country of a billion plus people, spread over 600,000 habitations, covering vast distances, with poor infrastructure and sometimes inhospitable terrain by traditional brick and mortar branches,” he explained.

He listed measures such as harnessing technology, adopting effective dissemination practices and reaching out to all the people across the country to provide at least minimal banking services. “Financial inclusion is especially valuable as it will at once promote both growth and equity. I can hardly overemphasize how big a challenge financial inclusion is for banks, for the banking regulator and for the government,” he added.

By Matthew Fuchs,

Microfinance Focus, Nov. 28, 2009: Open Source software and SaaS are emerging as the key Management Information Systems (MIS) software for MFIs, according to Craig Chelius from the Grameen Technology Center (GTC). These products, he argues, can offer MFIs fully customisable, secure software that they can own without the need to pay expensive licensing fee.

Mr. Chelius is the Global Sales Advisor for MIFOS — an open source, web-based “SaaS” system developed by GTC which MFIs can download and modify for free. Work on MIFOS began in 2006, and GTC has worked Grameen Koota in Bangalore, India, since 2007 to develop and implement the software. MIFOS is now used by 20 MFIs in India, Nepal, the Philippines, Kenya, Senegal, Tunisia and Ghana.

MIS are the systems MFIs use to record and track financial information. It is here that loan officers record money given to clients for loans services as well as cash received from repayments. This information is then available to management and the back office for accounting and compliance purposes. As an essential part of MFI operations, MIS is an important factor to the operational efficiency of MFIs.

According to the Grameen Technology Center, the lack of flexible and cost-effective MIS infrastructure is limiting the ability of MFIs to grow. A MIX/CGAP study on MIS in microfinance found that 41% of MFIs use a manual MIS — either Excel-spreadsheets or paper-based systems to track payments. These methods are time-consuming and vulnerable to data loss, limiting the ability of MFIs to grow their client base.

Of the 59% of MFIs who utilise MIS software, only 17% use packaged software. This is because there are few choices in the market, and what is available often does not suit the needs of an MFI, argues Mr. Chelius. “Often software vendors are pushing entire banking suites and usually the MFI does not need that”, he said. Other common concerns he found were licensing costs and, for those using customised systems, ownership and control of software code. According to the MIX/CGAP data, 48% of MFIs are using customised systems built by themselves or a software company.
Open Source MIS provides a cheaper and a more flexible alternative, according to Mr. Chelius. “The desire for MFIs to own and control their own code, to customise it to fit their needs exactly without having to pay for it, goes hand in glove with open source,” he said.

The full potential of Open Source systems such as MIFOS will not be realised unless MFIs, collaborate on software development to avoid costly repetition, Mr. Chelius emphasised. “It will be a terrible waste of money if 20 or 50 MFIs build 20 or 50 separate MIS systems. They are not software companies, they are financial service providers. How are you going to keep up with growth if are writing your own software?” To encourage this, the GTC has fostered a “MIFOS community”, where experiences and software code can be shared online and via RSS feeds.

Another major limitation of traditional MIS models, Mr. Chelius stated, is that they are usually PC-based. He believes the future lies with web-based systems called SaaS, or “Software as a Service”. Clients access these services through the internet and use them to store data on a remote server, which for many MFIs offers greater security compared to storage on a local server. It was for this reason SECDEP, an NGO MFI in a remote rural district of the Philippines, chose to adopt this system when they made the transition from an Excel-based manual MIS in May 2008.

The Grameen Technology Center is not-for-profit center within the Grameen Foundation, which develops technology to improve the operational efficiency and lower costs for MFIs. Established in 1997 and based in Seattle, the Center is also developing telecommunications projects to expand financial access to the poor.

Microfinance Focus, Nov. 28, 2009:  KfW Entwicklungsbank will host its eighth Financial Sector Development Symposium on Dec. 3-4, 2009.
This year’s conference is titled “Preserving Access to Finance during the Global Crisis”. The event is being organised by the German Federal Ministry for Economic Cooperation and Development, FMO, and KfW.

The Symposium’s Thematic Sessions include:

* Crisis Vulnerability and Access to Finance – The Macro Perspective
* Preserving Access to Finance of Financial Institutions and its Clients
* Enhancing Crisis Resilience of Financial Institutions and its Management
* Enhancing Crisis Resilience of Financial Markets
* Preserving Access to Finance – Improving Development Finance Effectiveness
* Outlook.

Microfinance Focus, Nov. 28, 2009: State bank of Pakistan has liberalised microfinance rules further by allowing the MF institutions or MF banks to accept deposits by open permanent booths.

In a circular issued to all Microfinance Banks, the central bank has informed them that para-59 of Chapter-9 of its Branch Licensing Policy circulated vide BPRD circular No. 15 of October 12, 2007 has been revised  and MFBs may be granted licence to open permanent booth(s) for deposit taking/withdrawal, issue DD/TT/ MT/ Pay Order etc, receive utility bills, disbursement & recovery of micro loans.
However, MFBs will be required to apply to SBP for opening of permanent booths.
Previously MFBs were allowed to open permanent booths for receiving utility bills or for making spot payments.

Microfinance Focus, Nov. 28, 2009: National Association of Microfinance Banks of Nigeria (NAMFBIN) and the Association of Microfinance Banks in Nigeria (AMBN) will unite to form the National Association of Microfinance Banks (NAMB).
The two bodies recently signed a memorandum of understanding (MOU) to form the merged entity which will oversee microbanking in Nigera.
A five-man caretaker committee was appointed to supervise the new association until Jan. 29, 2010, when an election to appoint the new executive has been scheduled.
The meeting in Lagos to sign the MoU was coordinated by the Central Bank of Nigeria.

Microfinance Focus, Nov. 28, 2009: CARE (Credit Analysis and Research Ltd.) has assigned PR1+ rating to Commercial Paper (CP) of SKS Microfinance Ltd. (SKSML) of Rs.100 crore (INR 1,000 million) having maturity of up to one year from the date of issue. Instruments with this rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk, said a statement from Care.

SKS Microfinance is India’s leading microfinance institution, promoted by Mr. Vikram Akula. Registered as an NBFC with RBI, its operations are spread over 18 states of India with 1,354 branches with total AUM (own and managed portfolio loans) managed by SKS at Rs.2,456 crores (INR 24,560 million) and a net worth of Rs.658 crore (INR 6,580 million) as of March 31, 2009. SKS reported an income of Rs.554 crore (INR 5,540 million) and net profit of Rs.80 crore (INR 800 million) for FY2009.

By Savita Shankar and Mukul G. Asher,
Microfinance Focus, Nov. 27, 2009: There is growing interest in microfinance as one of the avenues to enable low income population to access financial services. India with a population of around 300 million poor people has emerged as a large potential opportunity for the microfinance sector. With only 48% of the population accessing financial services, expanding the microfinance sector is also important from the perspective of financial inclusion (World Bank, 2008). Since 2004, the Reserve Bank of India (RBI) has emphasised financial inclusion as an important goal.

The recent global financial crisis also underlines the desirability of financial sector growth by broadening access to financial products rather than by facilitating excessive leverage to a subset of the population or by increasing the complexity of financial products. While there have been various initiatives to promote microfinance in India since the 1970s, the sector witnessed rapid growth only in the 1990s. The RBI has since the mid 1990s helped in attracting funding for the sector by including microfinance in the “priority sector”, to which banks are mandated to allocate a percentage of their lending. However, no specific regulation was imposed on the sector as a whole primarily because it was felt that regulation may hamper the sector’s key strengths of informality and flexibility.
With the growth of the sector both in terms of size, scope and number of participants, there is however now a need for developing a more formal regulatory structure. First, regulation is needed to enable a number of large microfinance institutions (MFIs) to offer savings services, so as to address a major shortcoming of the sector. The largest MFIs in the country, which cumulatively account for 80% of the sector in terms of portfolio outstanding are non-banking finance companies (NBFCs), who are unable to accept savings deposits (Ghate, 2007). In order to do so, NBFCs need to obtain investment grade rating from a credit rating institution, which is difficult for the MFIs. As a result, most of the growth in microfinance in India has been concentrated on provision of loans or “microcredit”.

A number of studies have stressed the importance of savings for the poor (Rutherford, 2001). Many MFI members simultaneously both borrow and save. The lack of saving services results in their saving in less convenient, riskier and often lower yielding ways such as through purchase of ornaments. For the MFIs, this lack of access to deposits implies that they tend to be highly leveraged.

The introduction of savings services by the MFIs, has to be preceded by putting in place a frameworkfor their prudential regulation. Second, microfinance sector institutions are no longer solely socially motivated. Due to the growing perception that it is possible to earn high returns through microfinance lending, commercially driven entities are also being attracted to the sector. This further underlines the need for supervision and consumer protection. Third, some MFIs have started offering products such as insurance, remittances and pensions by tying up with mainstream providers. While this helps in broadening the scope of microfinance services, it also calls for coordinated regulation of the sector particularly in view of the limited financial literacy of its participants. Such increasing overlap between various financial institutions is expected to continue. Finally, while the diversity of legal forms in the sector has arisen due to its unplanned, entrepreneurial growth, a uniform regulatory framework would enable a level playing field and prevent regulatory arbitrage. While regulation is essential, avoiding over regulation that hampers innovation and unduly increases transaction costs is also equally important.

The rest of the paper is structured as follows. As any regulatory structure must be consistent with current and emerging characteristics of the sector, in Section 2, the current status and developments concerning microfinance sector in India are briefly discussed. The regulation of the micro finance sector presents unique challenges which need to be recognized and addressed.  Section 3 analyses these challenges. This is especially relevant because of the inadequate attention given to these challenges in the regulatory policy discussions in India.

This is followed by a brief overview of the current regulatory arrangements for the microfinance sector in India. The final section provides an outline of the suggested framework for regulating microfinance sector in India.

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Regulating India’s Microfinance Sector: A Suggested Framework

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