Microfinance Focus, August 31, 2011: According to a recent report “Microfinance Market Tendencies for Latin America and the Caribbean 2005 – 2010” released by MIX and the Multilateral Investment Fund, the microfinance institutions of Latin America and the Caribbean continued their growth in 2010 by adding 15.9% to portfolio and 23.3% to deposits.

The number of clients in terms of borrowers grew by 12.2% and depositors grew by 17.4% Growth in portfolio of credits and deposits slowed in 2010 advancing 15.9% and 23.3% respectively.

The report is based on information collected from 47 MFIs during the period from 2005 – 2010. These institutions represent a majority of the market in terms of portfolio and borrowers in 11 countries, constituting coverage of 57% of clients.

The growth is attributed to the improvements in the level of loan recuperation, due in turn to a gradual recovery in the economic activity throughout the region after the effects of the international financial crisis in 2009.

At the sub regional level, Mexico had the most activity (including borrowers), followed by South America and finally, Central America continued its recovery.

At the product level, loans to microenterprises had growth and performance was clearly better than the others. With respect to deposits the situation was very similar, although in Mexico the number of depositors fell.

The level of risk fell in part due to an improvement in the levels of loan recovery and because of a series of portfolio penalties. As a result of this, the level of profitability increased slightly.

Microfinance Focus, August 31, 2011: CALMEADOW in collaboration with the Andean Development Bank (CAF), and MIF/IADB has released a paper ‘Estudio ―Microfinanzas en México’ on the current state of microfinance in Mexico.

Prepared by Beatriz Marulanda (Colombia) and DAI Mexico, the paper highlights the immense potential of microfinance in the country but calls for action that points out the many weaknesses and deficiencies that need to be corrected before healthy growth can happen.

Some of the shortcomings identified include concentration in one methodology (village banking), lack of transparency at the MFI level, too much “easy” funding from the government coupled with little regulation and a proliferation of too many participants.

The paper is currently available in Spanish and will be officially released at the FOROMIC on the 12th of October 2011.

Managed by Financial Consulting Firm Omtrix, Calmeadow focuses on improving the microfinance industry by identifying and addressing industry bottlenecks and investing in funds which provide catalytic capital to help the industry grow.

By Vinod Kothari,

Microfinance Focus, August 30, 2011: The report of the Working Group (WG) headed by Smt. Usha Thorat has done a wonderful job and put together a remarkable report which, if accepted, would make NBFC regulation sensible in the country. It is not for the first time that an attempt for a complete overhaul of the regulatory regime has been attempted. In 2003, the Finance Committee of the Parliament had made recommendations on a Financial Companies Regulation Bill¹ which has since never been acted upon. The Parliamentary Committee had also made sweeping suggestions – including the point that investment companies should be completely excluded from the regulatory ambit of NBFCs.

In fact, India is one of the few countries which are regulating investment companies and financial companies under the same regulatory regime, whereas the nature and business of investment companies may be totally different. It is for this reason that we have a mass of more than 12000 NBFCs registered and being regulated by the RBI. At the point when NBFC registration regime was first implemented, there were well over 37000 companies registered as NBFCs, since, going by the way the definition is laid down, even a husband-and-wife company investing self-owned funds into stock markets will be said to be an NBFC, where the RBI must step in to protect the shareholders from the shareholders.

De-registration based on size:

The WG has not gone into the question of what an NBFC is, and what business would make a company an NBFC. However, the WG has recommended de-registration of all non-depository companies with asset size of Rs 50 crores or below. This would prima facie be a great relief for smaller investment companies. But then, there are fall-out problems. For instance, the Motor Vehicles authorities in several Southern states have come up with rules that registration of a motor vehicle with endorsement of a hypothecation in the name of an NBFC will not be allowed, unless the NBFC is RBI-registered. So, as RBI de-registers NBFCs of less than Rs 50 crores in assets, smaller companies would practically be forced out of vehicles finance business.

There is a welcome measure introduced – to regulate NBFCs with asset size of less than Rs 1000 crores only if they have “public funds”, including funds from banking channels.

Principality definition:

There is yet another significant change proposed – changing the definition of “principal” business for NBFC registration. We have commented on several occasions earlier that the administrative definition of the RBI capturing 50% of income and assets for NBFC definition is at best an issue of administrative convenience, and cannot be applied mechanically. The WG suggests that this threshold should  be moved up to 75%, which is quite a welcome step. If 50% were the criteria, an entity formed as NBFC may effectively carry substantial amount of non-financial business, and still retain NBFC classification.

It is notable that the Dodd Frank Act in the USA has put a threshold limit of 85% for a company to be regarded as non-bank financial company.

Pre-empting Basle III

The WG brings in a new concept of liquidity ratio – which is a part of Basel III recommendations. Basel III is still a few years away for banks in the world, but the WG has already introduced a liquidity ratio based on 30 days’ cashflows. In principle, the stipulation is prudentially important, as it helps to maintain better asset liability management.

There is quite an important point that the WG makes – tax deduction for provisions made by NBFCs. Currently, NBFCs make provisions for NPAs as required by RBI directions, but they do not get any tax deduction for the same. A Supreme Court ruling had also declined such tax benefits. The WG suggests parity between banks and NBFCs in terms of tax deductibility – something that would require amendment of the Income-tax law.

Corporate governance:

Corporate governance has become the buzzword these days, and the WG report is also full of references to application of corporate governance and disclosure norms to NBFCs whether they are listed or not.  This measure is also welcome.

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Microfinance Focus, August 30, 2011: According to a study by Vision Economica, a local business research group, microcredit grew at a steady rate of 15 percent between 2007 and 2010 in Colombia. Due to microfinance, there are more than 1.2 million microenterprises operating in Colombia responsible for around 50 percent of total employment.

The National Department of Statistics testifies that microenterprises and small businesses represent 96 percent of all companies in Columbia, while medium-sized companies make up 3.6 percent and large companies 0.4 percent. Microenterprises employ an average of 2.6 people in Colombia, according to the Visión Económica report, published in July.

In Colombia, the microfinance sector complements small businesses because “they generally do not meet the requirements set by commercial banks, which do not lend money to people with limited economic resources either, due to the risk of default,” Jorge Varón, the manager of the development credit fund of the Colombians Supporting Colombians (CAC) program.

The CAC lends to people of all ages and educational levels. Currently, women hold 69 percent of their loans. CAC credit fund grants loans between 28 and 14,300 dollars, at a monthly interest of 2.1 percent, with repayment periods of one month for ‘emergency’ loans and between three and 36 months for other kinds.

Interest rates for microloans in Colombia are regulated by national law and by decree 919, modified in 2008 to facilitate the expansion of microfinance and distinguish micro lending from consumption lending. Microcredit beneficiaries are usually clothing and shoe vendors, tailor shops, ice cream stands, bakeries, taxi, bus and truck drivers, hardware stores and food vendors.

The Visión Económica study concludes, “A positive relationship has been identified between access to financial services and poverty reduction, because (microfinance) helps people weather difficult situations that reduce the incomes of low-income populations.” This is crucial for a country like Colombia where poverty affects 46 percent of the population of 46 million, according to official figures.

Microfinance Focus, August 29, 2011: Global payment services provider Western Union has today created a new Unit – Western Union Ventures for three key strategic growth areas of Consumer Money Transfer, Business-to-Business Payments, and new products and services.

The unit will leverage the Company’s existing assets to increase consumer loyalty and retention, attract new consumers, and obtain a higher share of wallet. Westernunion.com, prepaid / stored value, and mobile money transfer will be within the Western Union Ventures business unit.

“Western Union Ventures will allow us to build deeper relationships with existing and new consumers and to expand our portfolio with new services. Our third business unit, Business-to-Business Payments, represents an additional large global growth opportunity, as cross-border global payments is an area where we can gain significant market share”, said Western Union President and CEO Hikmet Ersek.

Microfinance Focus, August 29, 2011: RBI’s Working Group on the Issues and Concerns in the NBFC Sector have suggested that NBFCs with assets of Rs. 1000 crore and above should be inspected comprehensively on an annual basis with an annual stress test carried out to ascertain their vulnerability.

The Working group recommends that any transfer of shareholding, direct or indirect, of 25 per cent and above, change in control, merger or acquisition of any registered NBFC should have prior approval of the Reserve Bank.

The Reserve Bank of India today released the Report of the Working Group on the Issues and Concerns in the NBFC (Non-Banking Financial Company) Sector, chaired by Ms. Usha Thorat.

The report proposes that disclosure for NBFCs with assets over Rs 100 crore may include provision coverage ratio, liquidity ratio, asset liability profile, extent of financing of parent company products, movement of non-performing assets (NPAs), off-balance sheet exposures, structured products and securitisations/assignments.

Moreover, it recommends liquidity ratio to be introduced for all registered NBFCs such that cash, bank balances and holdings of government securities fully cover any gaps between cumulative outflows and cumulative inflows for the first 30 days.

NBFCs may be given the benefit under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

Microfinance Focus, August 29, 2011: United Bank of India on Friday introduced ‘United Mobile Banking’ for extending mobile banking services to the unbanked segment of the society.

Leveraging the wide coverage of mobile phone networks in the country, the Bank will be offering services like balance enquiry, mini statement, cheque status, intra bank fund transfer (Mobile to Mobile and Mobile to Account), inter bank fund transfer through NEFT, stop cheque facility and ATM/Branch locater on the mobile phones of customers.

The beneficiaries can also get instant confirmation of their transactions on their handsets on real time basis without depending upon Business correspondent / hand held device etc.

Speaking at the launch, Bhaskar Sen,CMD of United Bank said, “The mobile banking service shall also  help the bank to reach out to the unbanked segments of the society under Financial Inclusion Plan,  wherein the unbanked segment of the society can easily perform their banking activities through  their own mobile handsets”.

In the near future, United Bank intends to introduce Inter Bank fund transfer through IMPS (Inter Bank Mobile Payment Service), Request based services (cheque book ,demand draft, account opening etc) and M-Commerce and Bill Payment.

Customers can do a maximum of 50 financial transactions per day using ‘United Mobile Banking’ and can transfer funds up to 2.5 lakhs per month. As of now, there shall be no registration charges for availing United Mobile Banking.

United Bank of India is a Public Sector Bank and has a presence in 28 states of India with a widespread network of 1600 branches.

Microfinance Focus, August 29, 2011: The Reserve bank of India (RBI) has today released ‘Draft Guidelines for Licensing of New Banks in Private Sector’ which says that existing NBFCs, if considered eligible, may be permitted to either promote a new bank or convert themselves into banks.

RBI wants the new banks to open at least 25 per cent of their branches in unbanked rural centres (population upto 9,999 as per 2001 census).

The guidelines require new banks to be set up only through a wholly owned Non-Operative Holding Company (NOHC) to be registered with the RBI as a non-banking finance company (NBFC) which will hold the bank as well as all the other financial companies in the promoter group.

One of the mandates say that the exposure of bank to any entity in the promoter group shall not exceed 10 per cent and the aggregate exposure to all the entities in the group shall not exceed 20 per cent of the paid-up capital and reserves of the bank.

At least 50 per cent of the directors of the NOHC should be independent directors and the bank shall get its shares listed on the stock exchanges within two years of licensing, it says.

The guidelines have also barred entities from entering the banking sphere which have 10 per cent or more income or assets or both from real estate construction and / or broking activities individually or taken together in the last three years.

The Reserve Bank has sought views/comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large. Final guidelines will be issued after receiving feedbacks and amendments to Banking Regulation Act, 1949

Microfinance Focus, August 29, 2011: PRASAC, Cambodia’s national Microfinance Institution (MFI) and MARUHAN Japan Bank, Cambodia’s only Japanese-owned commercial bank announced a business alliance. This business alliance aims to work on the core competencies of both institutions in order to successfully deliver financial services to the rural communities in Cambodia.

PRASAC a former credit component, funded by the European Union, was implemented with the support of the Royal Government of Cambodia. To ensure access to financial services for rural communities and micro-enterprises, PRASAC’s Project Steering Committee made a strategic decision to transform its credit component into a licensed MFI. In March 2002, the transformation was started by creating PRASAC Credit Association as credit operator registered with the National Bank of Cambodia (NBC).

MARUHAN Japan Bank has been operating since 2008 providing employment to over 12,670 people across Asia. In the July 2010 issue of the Fortune Global 500 magazine, MARUHAN Group ranked 51 among the top largest corporations in Japan and 376th among the largest corporations world wide in terms of revenue.

PRASAC operates throughout Cambodia and focuses on serving rural communities and SMEs. MARUHAN Japan Bank was formed with the aim of establishing strong bilateral ties between Cambodia and Japan. Through its financial services, it aims to contribute to the growth and development of Cambodia.

Mr. Sim Senacheert, President and CEO of PRASAC says, “ Partnering with MARUHAN Japan Bank, for instance, can provide us with a portal to a global network, giving us access to financing locally instead of having to rely, as most of our counterparts do, on offshore funding. This initiative will also strengthen, and build trust within, the local market. The partnership will allow us to be significantly more flexible and responsive to the needs of our customers than our competitors are…We selected MARUHAN Japan Bank as our partner of choice for this alliance because they share PRASAC’s commitment to only the highest professional and moral standards, total transparency and good governance”.

Mr Onishi Shizuo, General Manager of MARUHAN Japan Bank comments, “ In turn, MARUHAN Japan Bank benefits by being able to offer its customers the wealth of experience in delivering financial services to rural communities that PRASAC is well known for, and is able to tap into the infrastructure they have built to do this. Having these national networks in place will make MARUHAN Japan bank even more attractive to regional partners than it has proved to be already.”

Microfinance Focus, August 29, 2011: India’s Mobile Service Operator, Loop Mobile has recently announced the launch of Mobile Money service in partnership with electronic payment service provider ZipCash, according to Telcom Talk report.

Using this service, subscribers of Loop mobile can use their mobile phones to pay for mobile and utility service like electricity bill payments, prepaid recharges, digital TV recharge, online shopping and more.

Loop Mobile subscribers can register for the Mobile Money service and load cash into their Mobile Wallets. Subscribers can avail this service by SMS commands with no additional costs and no replacement of SIM card.

In addition, subscribers can also book movie tickets, travel tickets, avail gift vouchers or local deals & offers, all directly via the convenience of their mobile phone.

Mumbai based Loop Mobile, earlier known as BPL Mobile has over 3 million subscribers. Its services include Loop Mobile Videos, Loop Mobile Mail, Loop Mobile M-News, Reply-All, Multimedia Messaging Service (MMS), Mobile Karaoke and Live Trading and more.