Microfinance Focus, April 30, 2010: World Bank’s financial arm, International Finance Corporation (IFC) in partnership with the National Bank of Tajikistan and the Swiss government, launched Tajikistan’s first private credit bureau yesterday, according to a press release. Six microfinance institutions, four commercial banks, and the Association of Microfinance Organizations of Tajikistan became shareholders of Credit Information Bureau in Tajikistan, which is considered as a long-awaited component of the financial infrastructure and a crucial mechanism for expanding credit for people and small business.
With the bureau in place, Tajik financial institutions and other potential participants such as mobile operators and utility companies will have timely access to accountable and objective information on borrowers, which could allow them to reduce loan processing time and credit defaults and lend to more small and medium enterprises. As the next step, IFC will help Credit Information Bureau Tajikistan select a technical partner and support its further development. This initiative is part of the Azerbaijan-Central Asia Financial Markets Infrastructure Advisory Services Project, funded by government of Switzerland.
“The National Bank of Tajikistan is interested in improving the borrowers’ assessment mechanisms and developing a credit information sharing system. We intend to establish transparent and reliable credit relations between the creditors and the borrowers,” said Jamshed Yusufiyon, Deputy Chairman of the National Bank of Tajikistan. “We hope to continue our fruitful collaboration with IFC in improving internal regulations to stimulate financial institutions to become active members of Credit Information Bureau Tajikistan.”
Nicolas Guigas, Deputy Country Director, Swiss Cooperation Office in Tajikistan, said, “Supporting the development of small enterprises by providing long-term and sustainable access to finance is a priority for the Swiss government in Tajikistan. Credit Information Bureau Tajikistan is a proper mechanism for credit information sharing to facilitate expansion of access to credit in the country.”
IFC has been supporting the financial sector’s desire to create an appropriate environment for a private credit bureau since 2007. Initiated by an IFC working group with representatives from financial institutions and commercial banks, National Bank of Tajikistan, Banking Association of Tajikistan, Association of Microfinance Organizations of Tajikistan, and other international organizations held extensive consultations during 2009–2010. As a result of this activity, Tajikistan adopted new legislation that encouraged 98 percent of Tajik financial institutions to become part of a credit information-sharing process.
Microfinance Focus, April 29, 2010: Citi, a global financial services company, has released its 10th annual Global Citizenship Report, underscoring the bank’s strategic focus on citizenship and commitment to the economic development of the communities it serves in more than 140 countries. Citi vowed to keep its commitment for supporting economic growth through specific attention in leading Environmental Goals, Continued Innovation in Microfinance and a Renewed Focus on Financial Capability and Community Development.
Citi Microfinance works across Citi’s businesses and geographies to serve more than 100 microfinance institutions (MFIs), networks and investors as clients and partners in over 40 countries, providing funding, access to capital markets, savings, remittances and insurance products.
“Citi is committed to being a global and local supporter of the microfinance sector and to focusing the resources of our business to expand financial inclusion and economic growth. Our strategy has been to work closely with microfinance institutions in local markets connecting institutions with access to commercial financing and to their own local capital markets,” said Bob Annibale, Global Director of Citi Microfinance and Community Development.
Microfinance Focus, April 29, 2010: J.P Morgan, a multinational financial services agency planning to invest heavily to leapFrog, the world’s first microinsurance fund, according to an official statement. The amount of investment and other details will be disclosed on May 6, 2010.
The fund targets both strong financial returns for investors and reaching 25 million vulnerable people in Africa and Asia with quality insurance – protecting their lives, families, property, and businesses.
Microfinance Focus April 28, 2010: Luxembourg Fund Labelling Agency, LuxFLAG, has recently announced the first labels for the 2010 edition of the LuxFlag microfinance labels for Microfinance Investment Vehicles (MIV). A total of 9 MIVs, with total assets of approximately EUR 1.67 billion now hold the LuxFLAG label. This year it has issued one new label, that to BlueOrchard Fund which is a feeder fund of the Dexia Micro-Credit Fund.
LuxFLAG’s goal in granting the microfinance label is to make it easier for international investors to add new collective savings to the sector and thereby help to do more to alleviate poverty A number of new MIVs created in 2009 have also expressed strong interest, and expect to apply for the label as soon as they are invested and fulfil LuxFLAG’s eligibility criteria.
Advans SA, Dexia Micro-Credit Fund – BlueOrchard Debt Sub-Fund, Dual Return Fund SICAV – Vision Microfinance Sub-Fund, European Fund for Southeast Europe, responsAbility Global Microfinance Fund, responsAbility SICAV (Lux) Microfinance Leaders, responsAbility SICAV (Lux) Mikrofi nanz-Fonds SICAV Rural Impulse Fund, are the other MIVs who were successfully able to renew their label this year.
Microfinance Focus, April 27, 2010: Hyderabad based SHARE Microfin Limited (SHARE), one of the largest microfinance institutions in India, has raised Rs 50 crore through a private placement of 2‐year non‐convertible debentures (NCD). The issue, assigned an LBBB+ rating by ICRA on its long‐term rating scale and placed with institutional investors, will be traded on the Bombay Stock Exchange.
“The listing of the issue on the stock exchange will not only provide SHARE greater capital market exposure but also ensure further assurance of the company’s transparency and governance standards,” said Mr. Udaia Kumar, the Managing Director of SHARE. “The funds raised will also help further the company’s expansion plans.”
Standard Chartered Bank is the sole book runner and lead arranger of the issue. Complimenting SHARE on closing the transaction successfully, Mr. Joseph Silvanus, Head, Development Organizations, Southern Asia, Standard Chartered Bank, said the transaction was in line with the Bank’s agenda of helping MFIs diversify their funding sources by facilitating access to the capital markets.
As on 31 March 2010, SHARE has its presence in 206 districts across 18 states in India and, since its inception, the institution has cumulatively disbursed loans aggregating to Rs 89.44 billion. It currently serves 2.79 million members and has crossed a portfolio of Rs 22.16 billion. In the next 3 years, SHARE has plans to reach out to more than 13 million clients in 20 states and cross the total portfolio of Rs 125 billion.
Microfinance Focus, April 27, 2010: Mr. Sam Daley-Harris, CEO of Microcredit Summit, shared frank and candid opinion on the issue of rapid commercialization in the microfinance sector in an exclusive interview with Microfinance Focus. Responding to the question of whether rapid growth in microfinance has caused recent problems like multiple borrowing and mission drift, He said “BRAC (An International NGO) has high rapid growth, but it remembered its mission. Grameen Bank had high rapid growth, but it remembered its mission. So it’s not about slow growth or rapid growth, it’s about remembering your mission. So if I pursue rapid growth for rapid growth sake, which may end up meaning, I got big, but my clients are still in poverty. So it’s really what your mission is”.
He raised several questions on real intention of IPOs (Initial Public offerings) in the wake of recent IPO stunt by SKS Microfinance , He said, “Did Grameen Bank raise money from the market? How much of the Compartamos IPOs went to fund the loan portfolio? Of their $400 million profit, how much of it went into the portfolio? Zero. How much of the SKS IPO will be going into the loan portfolio? It seems like it’s a lie. Well I assume you’re saying, well the investment firm comes in with its investment money that went into the portfolio, and then when the IPO came out, they got the profits. I’m just wondering, the investors who came in – to what extent are they committed to the eradication of poverty and transformation in personal lives? It remains a question”.
He emphasized that the leader of the Microfinance institutions will have to be crystal clear about its mission. If MFIs stick to the mission, they can engage with investors or other stakeholders in a right direction of poverty alleviation programme. In the context of his statement, he added an example,” There was a deal, 3 years ago, of $180 million with BRAC and Citibank – I don’t think BRAC’S mission changed, I think they just had the resources they needed to expand their mission.”
Finally, he was bit apprehensive and on the rapid commercialization in the microfinance sector, he said, “I assert that if we go too far down that road there’ll be a day where you, and I and others will be ashamed that we’re in microfinance.
Microfinance Focus, April 27, 2010: Recalling the discussions around the Compartamos public offering in 2007 at a time when there is a forthcoming IPO of SKS, financial services providers, MicroSave, has recently announced the release of a thought provoking podcast, ‘The Compartamos Experience’ in partnership with Moving Planet. The podcast comprises of interviews with Rich Rosenberg of CGAP and Carlos Danel of Compartamos. Issues like, rates of interest being charged, use of USAID and other grant money to develop the organisation, and the ethics of selling it at significant profit thereafter, the role of Accion and the IMF, and appropriateness of selling the shares of existing share-holders without expansion of the capital etc. are highlighted in the podcast.
It has also released a podcast on m-banking, ‘M-Banking for Sustainable Financial Inclusion’, showcasing MicroSave’s perspective on m-banking and the importance of this alternative channel of financial services delivery. It features interviews with Graham A.N.Wright, Programme Director MicroSave and Abhishek Sinha, CEO Eko Financial Services Pvt. Ltd. India, which is an Action Research Partner (ARP) of MicroSave.
MicroSave’s work with m-banking promoting MFIs, to pilot test electronic options, which are totally market-led solutions for financial services and are available in MicroSave’s M-Banking OPE Series. It focuses on understanding the client’s priorities in terms of client interface with the electronic option and the value proposition that clients look for in these alternative channels of delivery.
Microfinance Focus, April 26, 2010: In a move to meet the growing demand for credit from micro and small enterprises, The Asian Development Bank has approved a $50 million loan and a $600,000 grant to help three Uzbekistan banks to expand financial services to micro and small businesses, according to an official release.
Chosen for their financial soundness, significant rural and/or urban retail network, proven track record in microfinance intermediation, prudent exchange risk management, and transparent corporate, financial, and management practices, bank Hamkorbank and Agrobank will have allocations of $20 million each, while Ipak Yuli (IYB) will have an allocation of $10 million.
The participating banks will match ADB’s loan funding with equal co-funding from their own resources. The commercial banks will lend funds to MSEs at market-based rates and give them the option to draw down loan funds in cash. These features avoid subsidized direct credits or a premium to cash over noncash funds. The MSEs can use the money for production and trade in goods and services, and for investment and working capital purposes.
Under the loan agreement, at least 25% of the new microfinance accounts opened will be for women, and at least 1,000 women borrowers will be trained. “The project will generate 30,000 additional jobs which will increase economic growth, improve living standards, and reduce poverty,” said Radhakrishna Narasimham, principal financial management specialist of ADB’s Central and West Asia Department. The technical assistance will help banks with credit appraisal and microfinance accounting and reporting standards, as well with lending to women and microcredit organizations. It will also coach end-borrowers, especially women, in business plan preparation and credit applications.
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Microfinance Focus, April 21, 2010: Microfinance Institutions Network (MFIN) is a self-regulated network organization created by 35 NBFC –Microfinance institutions in India, who share the common interest of protecting and building the integrity of the sector. This was in response to the attack that the sector has been subjected to regarding several controversies such as multiple lending and lack of transparency by MFIs. MFIN believes that by coming together as a body, they will be able to more significantly support the Government’s initiative of promoting financial inclusion on a transparent and sustainable basis.
A Centre meeting in Progress
Being a relatively small industry, there have been concerns regarding the possibility of a clash of conflict between MFIN and Sa-Dhan, a lobby group of 300 members that includes not just MFIs but NGOs and people doing capacity-building and research as well. However, such concerns have been duly dismissed by Vijay Mahajan, who sees MFIN as a subset of Sa-Dhan, and represents a select group of organizations, namely NBFC-MFIs. Setting up an independent SRO was necessary, because Sa-Dhan functions more as a conferencing and networking forum and such an arrangement was insufficient to adequately represent and regulate NBFC-MFIs.
MFIN is presided by Vijay Mahajan, who is also the Chairman of Hyderabad-based BASIX. MFIN consists of 35 NBFC-MFIs in India, which account for more than 80% of the Indian market. All of the top 10 MFIs are members, and MFIN also has as on its board prominent leaders of the industry such as Suresh Gurumani, CEO, SKS Microfinance; Chandrasekar Ghosh, CEO, Bandhan; Rekam Jayasurya, CEO, Asmitha; Shubhankar Sen Gupta, CEO, Arohan; Ajay Verma, MD & CEO , Sahayata Microfinance; H P Singh, CMD, Satin Creditcare Network; Samit Ghosh, CEO, Ujjivan; and P N Vasudevan, MD, Equitas Microfinance.
One of the first tasks taken up by MFIN since its formation was to conduct a study with Microfinance Transparency (MFTransparency), an international initiative by Chuck Waterfield, who is himself an active promoter of transparency in microfinance. The study also recommended steps that can be taken to improve transparency in the sector. The next agenda on the list was to invest in Alpha Micro Finance Consultants Private Limited, whose role is that of a special-purpose vehicle (SPV). In early March, it invested Rs 2 crore in creating a credit bureau that specially serves to improve credit risk management within the sector and ensure that multiple borrowing and over-indebtedness is checked. Another aim of Alpha is to eventually be appointed as one of the registrars by the Unique Identification Authority of India (UIDAI) and to help with 100 million registrations under the Government of India programme through identification of its clients and their family members.
This makes the drawing up of the Code of Conduct the most important task undertaken by MFIN so far. The Code was formally adopted on 2nd and 3rd March during an MFIN meeting in Hyderabad, and officially launched to the media on 9th March. It plays a central role in regulating the practices and promoting the integrity of the NBFC-MFIs.
As the Reserve Bank of India (RBI) serves as the regulator of all MFIN members, they are already require to comply with certain rules and regulations laid down by the RBI. The Code of Conduct further ensures that all MFIN members abide by these rules both “in letter and in spirit”, on top of a few other regulatory measures. The issues covered by the Code of Conduct include transparency in fair practices
with borrowers, multiple lending and lending limits, data and incident sharing, staff recruitment, whistle-blowing, enforcement mechanism and the Ombudsperson mechanism.
To protect the rights of the borrowers, the Code insists on clear communication of a minimum list of charges to them, such as the fine print of the loan agreement and the declining rate of interest, via one of their stipulated means. It is also adamant that the nature and amount of charges be covered in the clause to ensure transparency on the part of the MFI. The Code also covers methods for recovery of payment that are in keeping with RBI’s guidelines.
Regarding multiple lending and lending limits per borrower, the Code states that a person should be allowed loans from a maximum of 3 MFIs, and a cap of Rs 50,000 on the total loan at any given point of time. Such a specific regulation requires for a systematic database which can be accessed and contributed to by all members, and regulated by Credit Bureaus CIBIL and High Mark. It is a logistically daunting task, but MFIN has ensured that all data contributed by the MFIs to the Credit Bureaus will be consolidated and standardized by an IT Firm appointed by Alpha.
Regulations regarding the recruitment of staff by MFIs have also been laid down. These regulations have been put in place to ensure that the MFIs and its staff are of the highest integrity, and to reduce complications in relations between MFIs, especially when it is essential that all MFIs work together for the protection of the integrity of the sector.
To encourage responsible practices in microfinance, a whistle-blowing policy has been drawn up that allows anyone, whether borrower or regulator, to call attention to any evidence of a breach of the code. The complaints will go directly to the Code of Conduct Enforcement Committee (CCEC), which consists of the board-approved members Mr Srinivasan of Janalakshmi Financial Services (Bangalore), Mr Ajit Kumar Maity of Village Financial Services Ltd (Kolkata), and Mr Govind Singh of Utkarsh Micro Finance Private Limited (Varanasi). Once a complaint is received, the CCEC will decide whether steps need to be taken. If so, a field investigation will first be conducted by the Secretariat of the Association within an agreed time frame. The field investigation report will be the basis upon which further action is decided, as per the discernment of the CCEC. The findings of the CCEC will be brought before the MFIN board, who will take action if an offence is judged to be committed. Reprimands will be the mildest form of action, following which a letter will be written to the offending MFI, informing it of its breach of the Code. If the warnings are ignored, letters will be written to its stakeholders – first the lenders, then the equity investors, and even the regulators. Following incessant inaction, the board of the MFI, or even specific members of its board, will be informed, that they may take action to keep the MFI in line. If MFIN’s warnings are still being ignored, the offence of the MFI will be made publicly known to the microfinance community, by means of the press. Meanwhile, the MFI’s membership with MFI will be suspended, or even terminated in extreme cases.
The decisions of the CCEC will be further subjected to a neutral agent, an appointed Ombudsperson. He will deal with appeals against the decisions of the CCEC and terminations of membership with MFIN.
With the formalization of the Code of Conduct, Vijay Mahajan tells Microfinance Focus of his hopes that MFIN will become “the engine of inclusive growth in India,” and emphasizes the need for unity within the sector.
MFIN is supported by Omidyar Network, a philanthropic investment firm, and the International Finance Corporation (IFC), a member of the World Bank Group. Omidyar Network funds MFIN in support of its efforts. IFC provides advisory services and technical consultancy to Alpha in its bid to make credit bureau services available to the MFI sector.
