Microfinance Focus, Aug 31, 2010: Suryoday Microfinance Pvt. Ltd, a Pune-based microfinance institution has successfully closed its Series B equity financing for a primary infusion of INR 175 million (Approx. $3.7m) together by Lok Capital and Aavishkaar Goodwell, as told to Microfinance Focus.
As part of the current transaction, Lok has agreed to make a further infusion of INR 35 million ($0.74 million), resulting in a total primary issuance of INR 210 million (Approx. $4.4 million) by Suryoday. Previously Aavishkaar Goodwell had invested INR 60 million ($ 1.2 million) as part of the company’s Series A capital raise in March 2009.
Suryoday is led by a team of three ex-bankers – Baskar Babu, Ganesh Rao and V. L. Ramakrishnan. It is present in the states of Maharashtra, Tamil Nadu, Odisha and Andhra Pradesh and has a reach of more than 50, 000 borrowers through a network of 28 branches.
On the Series B investment by Lok and Aavishkaar in Suryoday, R Baskar Babu, Co-Founder & CEO, said “We are pleased to partner with our existing investor Aavishkaar again and Lok Capital for the first time. These partnerships will help us achieve our dream of creating a world class financial services company for the economically challenged women. We want to grow this venture with continuous focus on making a very positive economic and social impact on our customers’ households.”
“As an early stage investor, Aavishkaar Goodwell has always prided itself in working with the dynamic leadership team at Suryoday. Our continued participation in the current round signifies our belief in this team ability to deliver exceptional social and financial outcomes to economically excluded disadvantaged communities in India” said Vineet Rai, Managing Partner, Aavishkaar Goodwell. Aavishkaar Goodwell, a specialized equity fund dedicated to Indian MFIs, also made an equity investment Rs 45 million ($0.95 million) to Suryoday in July 2009. Earlier this year, it has also made an equity investment in a Varanasi based MFI – Shre Pathrakali (Utkarsh) microfinance.
Venky Natarajan, Managing Director of Lok Capital, a venture fund manager added “Lok is very pleased to be a partner of Suryoday, one of the best managed MFIs in India, with a robust business model and unique innovations in audit and customer service, and looks forward to working with the company to achieve the next level of scale and impact.” In September last year, Lok Capital has invested $1.5 million (INR 70 million approx.) to pick up a 24% stake in the Chennai-based Asirvad Microfinance.
Microfinance Focus, Aug 31, 2010: For the rehabilitation and reconstruction of flood affected communities in Pakistan, Kashf Foundation which is a microfinance institution will be setting up a $ 29 million Reconstruction Fund, as told to Microfinance Focus.
The primary focus of this 2 year fund will be to rebuild the livelihoods of households along with supporting investments in education through the reconstruction and/or rehabilitation of a school in some communities, and the setting up of a clean drinking water plant in other communities.
The initial scope of the fund will be to target 10 severely affected communities (5 in Southern Punjab and 5 in Khyber Pakhtoonkhwa). The average size of the communities would be around 1,500 households or 7,500 individuals. The overall project will therefore cater to 15,000 households or 75,000 individuals.
Kashf Foundation will be the primary implementing agency for the fund. Kashf Foundation (KF) will establish a separate unit for overseeing the management and implementation of the reconstruction fund.
The fund will be capitalized by donations from the Pakistani diaspora and local Pakistani businesses, along with international government aid agencies, DFIs, charities, foundations, multinationals, high networth individuals etc. The total outlay of the fund will be around $29 million and each beneficiary family will be getting a $ 1200 loan along with $690 grant per family including school construction.
Kashf Foundation has already started a relief drive wherein relief packages will be distributed 10,000 households in the most affected areas in Khyber Pakhtoonkhwa and South Punjab including Nowshera, Khushab, Bhera, Rahim Yar Khan and Bahawalpur. In total, the relief drive will cost US$ 750,000. Kashf Foundation has appealed for generous donations for the drive.
Microfinance Focus, August 30, 2010: Grameen Foundation , a global non-profit organization working mainly in the development and promotion of of microfinance , today was announced as a winner of $200,000 in funding from the Members Project by American Express and Take Part. During the 12-week contest, which ended Aug. 22, members of the public voted weekly for their charity of choice. Grameen Foundation led the voting in its “Community Development” category for most of the campaign.
According to company website, Grameen Foundation will use this fund to help local microfinance institutions provide tiny loans to ultra poor as well as promoting access to practical farming and health information to people in poor communities through mobile phones.
Chosen by the public through online voting, four other charitable organizations have also received $200,000 each from American Express to advance their missions of serving communities around the world. The other four charitable organizations are StoryCorp, Jumpstart for Young Children, National Audubon Society and American Cancer Society.
Members Project, a joint effort of American Express and TakePart, an online initiative that provides opportunities to earn Membership Rewards® bonus points, voting for their favorite charities to receive support from American Express or contributing themselves to causes they care about.
Microfinance Focus, Aug 30. 2010: In an Exclusive Interview with Microfinance Focus, MFX’s President Mr. Brian Cox discussed the susceptibility of microfinance institutions and funders to currency risk and how MFX is working towards reducing the risk. Excerpts:
Microfinance Focus: Tell us something about MFX Solutions, how it came into being and what it works for?
Brian Cox
Brian Cox: MFX really started way back in 2005 when a group of microfinance institutions which included MIVs (Microfinance Investment Vehicles), Foundations, ratings agencies and people who have been into microfinance for a long period of time came together to think of the currency risk in microfinance. MFX is essentially a cooperative of microfinance organizations. We have 22 investors most of which are MIVs. Our largest investors are Foundations who want to support this service
Currency risk is quite written into the DNA of microfinance as lot of it has been funded in dollar or euro based funds, lending in hard currency to microfinance institutions (MFIs) in developing countries. This needed to be changed in the industry and this was before the crisis and there could potentially be a big problem as a lot of MFIs are not managing their risk well. So this group came together to think of what kind of solution can the industry come up with for this problem, trying to turn things around and shift toward more local currency models for international lenders.
One of the problems is that commercial hedging options are really not available to most people in the industry. There were no commercial hedging markets in a lot of high risk developing countries where microfinance was happening. The amount of international microfinance lending has gone primarily to Eastern Europe and Latin America and only about 8% of it goes to Africa. One of the reasons is that currency risk is a very big problem in these high risk markets of Africa. You couldn’t lend in hard currency because it would put too much risk on the MFI and even MIVs don’t want to take the risk. If you could solve this problem you can open up a lot many high risk markets which actually need microfinance.
Microfinance Focus: How is MFX assisting microfinance institutions in mitigating currency risks?
Brian Cox: We provide currency hedging tools primarily Swaps and Forward contracts and we are able to provide them in a much broader range of markets than what banks do because we can provide hedging in most of Africa, Asia or wherever there is a tradable benchmark we can hedge. We don’t charge collaterals so we have US government guarantee that allows us to operate without collateral so we can make it much more affordable for microfinance funds and MFIs to hedge with us. We also do small transactions sizes which are more attuned to microfinance market. These are two of our main activities.
The other activity is education which is primarily directed towards MFIs. One of the key conclusions of this original group was that it is not just a problem that they don’t get to hedge the risk, the problem is that MFIs don’t really understand the risk they are taking by borrowing in hard risk. They don’t have a way to understand that if someone is lending them a dollar at 8% but they can borrow locally at 15% so which one of those is better and how to understand that trade off.
We worked with a company which does act of liability management software for banks and we created a tool directed at MFIs’ Treasurers and CFOs which allows them to essentially do stress testing on their balance sheet and liabilities planning. You can basically model your balance sheet and try different lending strategies and can run them in different economic scenarios. It is a good way for MFIs to understand the risk they are chasing and the idea is that then they can take better decision and we hope that those decisions would shift towards more local currency borrowing.
Microfinance Focus: Can you tell us how currency risk affected MFIs during financial crisis?
Brian Cox: The 2008 financial crisis brought a change in the perception of currency risk as a lot of MFIs got hurt. We had a client which was a fund and they wanted to lend to an MFI in Indonesia. The Indonesia rupiah got devalued by 20 percent and all of a sudden their hard currency debt to equity ratio went from 2 times to 5 times and now they are not even credit worthy anymore and even though we would like to lend with them we cannot lend them. It shows that an MFI which seemed to be in good shape ran into a vicious circle where they are not creditworthy because of valuation and a lot of MFIs got hurt this way.
Microfinance Focus: MFX has also closed its second round of investment. Can you give some details on that?
Brian Cox: We started out with 14 investors which were a mix of funds and MFIs. We have now added 10 new clients all of which are microfinance funds like BlueOrchard, Symbiotics, Triple Jump and others. We function like a cooperative. So to become a client of MFX, if you are a fund, you put in small investment then you can trade as much as you want with us and it is just a way for us to finance our working capital.
Microfinance Focus: Do Hedging facilities provide risk free solutions?
Brian Cox: When you hedge a loan you are obviously not eliminating every kind of risk that you are taking. You are essentially doing two things. MIVs can potentially lend MFIs in hard currency and in this way they are lending to someone who acts in a different currency and if the currency devalues then the borrower is at a credit risk. When they provide a local currency loan they eliminate the potential credit risk which comes from the devaluation.
Microfinance Focus: Do you have any Indian MFIs as your clients?
Brian Cox: We don’t and there are two reasons to that. One is that there is very little international lending in India because of various kinds of restrictions. Mostly the way we operate is that we do the hedge with the lender rather than the borrower. If we have a fund in Europe that can lend Indian rupees to an MFI in India that gives the MFI what they need. We can also do it where an Indian MFI borrows in Euros. We can do swaps for them as well. But there are not a lot of Indian MFIs borrowings from international lenders.
Microfinance Focus: What are some of the efforts to educate your MIVs and MFIs?
Brian Cox: Periodically we do workshops on hedging for both MFIs and MIVs. We will be doing a training in Washington in November. We are also piloting a different training program where we actually go and spend a week with an MFI, so that is our next one in Africa.
Microfinance Focus: What are some of the emerging needs of MFIs and MIVs that you have come across?
Brian Cox: The need to respond to the demand of loans in local currency is coming from MFIs and it is something we are here to address. They need better plans to move into more regulated environment. More and more MFIs want to track deposits and become regulated banks and want to grow. This is the emerging trend and a good one also. At the same time after the 2008 crisis regulations all around the world is becoming tighter which is driving more demand for local currency.
In our trainings with MFIs we do address how to understand their capital adequacy and how to form strategies. But I think there is a need for broader programs to help MFIs make that transition. MFIs are already in the process of transforming themselves into regulated banks but many of them don’t have the idea of what it is or be in a position of planning for it. You need to prepare your balance sheet years in advance in order to do that.
We certainly realize that this transition from international lending being primarily in hard currency to ones in local currency is the key to the maturation of microfinance industry
Ultimately the goal should be that microfinance is funded by local funds generated in the local market and India is one market where it is happening predominantly. But there is a long transition to that and a part of that transition is to first get international lending to shape into local currency and we are here to help more and more people get down to local currency.
Microfinance Focus, Aug 30, 2010: MV Microfin Pvt Ltd, a Bangalore based Non-Banking Financial Company (NBFC) has recently announced the disbursement of an INR 35M loan to Suryoday Microfinance Pvt. Ltd. MV Microfin provides financial services for MicroVentures India.
Suryoday is a start-up non-banking financial company based in Pune and operating in the State of Maharastra, Andhra Pradesh, Tamil Nadu and Odisha. On Feb 2010, after 9 months of operation, Suryoday was serving about 21k active borrowers with a gross portfolio equivalent to USD 3M.
In July last year, Aavishkaar Goodwell, a specialized equity fund dedicated to Indian MFIs, made an equity investment commitment of Rs 45 million to Suryoday. It was the first MFI in India to secure equity funding from an institutional investor prior to commencement of operations.
MicroVentures India is specialized in the provision of debt financing to promising, well-managed and well-performing Indian Microfinance Institutions (MFIs), to fuel their growth and outreach plans. Its financial services are provided by MV Microfin Private Limited. Earlier in July MicroVentures also lent INR 50M loan to SMILE Microfinance Ltd, an MFI operating in the southern State of Tamil Nadu.
MicroVentures India is part of the MicroVentures Network, specialized in the development of financial partnerships with MFIs in selected emerging countries of Asia and Latin America. The MicroVentures Network provides financial resources to partner institutions through direct participation into equity, debt financing or hybrid instruments.
Microfinance Focus, Aug 30, 2010: Ujjivan Financial Services, a Bangalore-based Microfinance Institution working in primarily urban and semi-urban areas of the country, has expanded in the North Eastern Corridor by opening 6 branches in Guwahati and 2 in Shillong.
Ujjivan Customer, Meghalaya
With this expansion, Ujjivan’s Eastern Region now has 115 Branches in the states of West Bengal, Jharkhand, Orissa, Bihar, Assam, and Meghalaya. The organisation also has plans to introduce a Financial Literacy program for its customers in this underserved region. As of August 2010, Ujjivan has 315 branches.
Microfinance lending has greater significance in North-Eastern Region given the fact that financial inclusion has been dismal in North-East due to poor penetration of commercial banks. Only 0.02% of all microfinance loans were disbursed in the North East in 2008-09 (NABARD figures).
Ujjivan Financial Services, has recorded its first year of profitable operations with a post-tax profit of Rs.9.63 Crores in the financial year 2009-10. The Ujjivan also reduced loan interest rates from July 1, 2010. The reduction in interest rates ranges from 2.9 – 1.9% p.a. for all new loans or renewals
Loans are provided to economically active poor women at 1.03% flat interest per month. Their diverse product range includes loans for business, family needs, festivals, emergency, and education. Ujjivan has also launched Individual Products ranging from Business Loans to Livestock and Short Term Loans for customers who required larger loans to expand their growing business.
Microfinance Focus, Aug 30, 2010: Triple Jump’s partner the NOTS Foundation and the Dutch government’s International Development Bank FMO have today signed an agreement for the EUR 12 million facility as part of the NOTS Microfinance Fund. Triple Jump is the investment manager of the fund, thereby responsible for portfolio management, asset selection and deal execution.
The NOTS Foundation is raising money from retail investors through long term bonds. The EUR 12 million facility from the Dutch government and its international development bank FMO will be subordinated to senior bondholders in the NOTS Microfinance Fund. For each euro invested in NOTS bonds, the Dutch Ministry of Foreign Affairs and FMO co-invest 43 euro cents. This co-investment of 43 euro cents per bond is subordinated to the investment of the bondholders. NOTS aims to raise a total of EUR 40 million for the fund.
NOTS is a Dutch NGO focusing on international development and entrepreneurship. The NOTS fund is a semi-open ended fund that targets investments in TIER 3 financial institutions. Launched in late 2009, it has invested in 2 in MFIs, both in Latin America. Investments are financed by senior bondholders. The NOTS Microfinance Fund targets lower tier microfinance institutions in developing countries.
Microfinance Focus, Aug 30, 2010: To expand its delivery of remittances in the Philippines, and for strengthening mobile international payment infrastructure in major remittance corridors, Washington based Microfinance International Corporation (MFIC) has recently entered into a partnership with Smart Communications, Inc. (SMART), a mobile network operator in the country.
SMART will pay-out the remittances sent through ARIAS, MFIC’s money transfer solution, originated by financial service providers in the US, Japan and Europe. Remittances to SMART Money account may be received through the various encashment channels of Smart Money—over 100 Smart Wireless Centers, over 7,000 Philippine ATMs, and thousands of Smart Money Centers and agents all over the Philippines.
Through this partnership, MFIC will develop mobile international payment infrastructures in the major remittance corridors, making money transfer more convenient for remittance senders and recipients.
“We are very pleased to partner with SMART, a global leader in mobile payments. We are confident that our transparent and competitive remittance services will bring tremendous benefits to Filipino communities globally,” said Atsumasa Tochisako, President and CEO of MFIC.
“ARIAS has advantage in its adaptability to various interfaces, making it easy for us to partner with a company like SMART whose role is increasingly important in the payment sector. It is our commitment to expand the delivery of affordable and secure money transfer services in a wider geographic area, and mobile phone will play the key role to make it happen” he added.
“Our partnership with MFIC underscores our strategy to collaborate with international and domestic partners to rollout our mobile commerce solutions to a wider customer base at home and overseas,” said Napoleon L. Nazareno, President and CEO of SMART. “Together with MFIC, we renew our commitment to provide affordable, relevant and accessible remittance services to benefit our overseas Filipinos and their loved ones back home.”
ARIAS provides “Account-to-Receiver” service of the FEDGlobal ACH payment and facilitates “Fair Value Remittances” among member banks of World Savings Banks Institute. MFIC also offers compliance consulting to financial institutions under the brand name of Ascella Compliance, and operates Alante Financial, a network of financial service centers targeted to unbanked immigrants to helps remittance senders and their families back home to enhance their economic well-being.
Microfinance Focus, Aug 30, 2010: Vinod Kothari, based in Calcutta, India is internationally recognised as an author, trainer and expert on securitisation, asset-based finance, credit derivatives and derivatives accounting. He is an accomplished trainer on securitization and offers about 20 training courses every year on credit risk, securitisation and credit derivatives all over the World.
In an interview with Microfinance Focus, Mr. Kothari spoke about the regulatory attention and intervention that microfinance securitization in India requires. Edited excerpts:
Microfinance Focus: Despite the risks of securitisation for microfinance institutions, it remains a popular route for MFIs to raise funds. What are the reasons behind this?
Vinod Kothari: The reasons are quite obvious. The way microfinance in India is it is expanding at a fast pace, both by lending more to the existing borrowers as also by expanding the customer base. This fast pace cannot be sustained without increasing liability base. Banks have limitations. Hence, MFIs have to explore non-traditional methods of financing. Securitisation is the obvious choice.
Securitization in India is mostly nothing but a loan limit – the so-called bilateral transactions have no discipline of securitisation transactions. Even those that promise to be securitisations have not gone into the basic question of originator failure.
Microfinance Focus: Do you think microfinance institutions fail to understand the hidden risks of securitization and there is a need to educate them through trainings, workshops etc?
Vinod Kothari: They are realizing the need to understand securitization better. In the past couple of years or so, we are getting increasing number of participants who are microfinance practitioners or are concerned with microfinance securitisation. They have enjoyed the trainings provided by us and felt that several of the ideas propounded in our training workshop would be interesting to apply. Well, the real impulse to apply any creative method does not come until there is regulatory need.
Microfinance Focus: What are some of your efforts in this direction?
Vinod Kothari:Securitisation School is our regular feature and we will be organizing the 13th School from 6-11th of September in Kolkata this year. Besides covering general securitisation methodology, we surely cover microfinance securitisation at length. We are not including a full-scale cashflow model of a revolving securitisation transaction as a part of our cashflow modelling. Revolving method has not been used in India as yet and is aptly suited to microfinance securitisation.
Microfinance Focus: What role can microfinance regulators play in mitigating some of the risks of securitization? Have they taken any such measures so far?
Vinod Kothari: Regulatory attention to liquidation of microfinance entities is needed. Of course, this has to be a part of a comprehensive regulatory design for microfinance entities. The regulators in India have envisaged microfinance regulation for quite some time. Microfinance has become a massive phenomenon. So, if at all it is realised that regulatory intervention is required, it would be a day too late if it is not now.
Microfinance Focus: Do you feel RBI might make amendments in its proposed guidelines for securitization considering the fact that it will have a negative impact on MFIs?
Vinod Kothari: I am personally almost sure that the draft of the Guidelines that came in May would not be applied to microfinance entities as it is. If it is applied as is, microfinance entities cannot securitize at all.
Microfinance Focus, August 29, 2010: Editorial staff at Microfinance Focus has picked out the most relevant and informative posts on mobile Banking and microfinance. Here is the list:-
