Microfinance Focus, September 30, 2011: Inter- American Investment Corporation (IIC) and Grameen Creative Lab (GCL) signed a memorandum of understanding (MOU) to collaborate in the promotion of social business to tackle poverty and further development in a sustainable manner in Haiti under the YY Haiti (Yunus and You Haiti) initiative.

The IIC and GCL will explore ways in which they can work together to finance social businesses in Haiti and facilitate support measures, such as business development services, to incubate, strengthen, and expand self-sustainable social businesses in Haiti, especially in the field of education and vocational training, environment and agriculture, and nutrition.

In 2010, GCL together with SAP, its corporate partner in Haiti, launched the YY Haiti initiative. “Haiti has the wealth of creative entrepreneurs. Our initiative is dedicated to put institutional framework in place so that this creativity can be utilized for social business that is the business to solve social and economic problems” said Prof. Muhammad Yunus, Co-Founder of The Grameen Creative Lab (GCL).

YY Haiti initiative focuses on social businesses in the education & vocational training, environment & agriculture, and nutrition sectors. The Grameen Creative Lab will conduct due diligence, provide coaching and consulting to social business entrepreneurs, help create and develop social businesses, and finance these businesses through the YY Haiti Social Business Fund.

After the devastating earthquake that struck Haiti on January 12, 2010, GCL and SAP AG initiated YY Haiti with the goal to set up the infrastructure for the creation of social businesses, providing a powerful tool that unlocks economic potential, helps solve social problems and helps the country to recover sustainably.

Microfinance Focus, September 30, 2011: World Bank’s International Finance Corporation will be investing up to $75 million to establish ‘Climate Catalyst Fund’. The Fund will mobilize investments in low-carbon and climate-friendly projects and companies globally across the emerging markets.

IFC will seed the Climate Catalyst Fund. Large global institutional investors are expected to invest alongside IFC. The Climate Catalyst Fund will be managed by IFC Asset Management Company (AMC), a wholly owned subsidiary of IFC.

IFC’s investment will be 20% of total commitments made to the Climate Catalyst Fund subject to an overall cap of $75 million.

The objective of the Climate Catalyst Fund is to stimulate the development of Climate Funds and climate friendly projects and companies which are expected to play a key role in accelerating the growth of investment in renewable energy and other low-carbon solutions.

Microfinance Focus, September 30, 2011: More than 20 banks, including ICICI, HDFC, Axis and Indian Overseas Bank have acquired over 60 percent stake in Hyderabad based microfinance company Trident Microfin by converting a part of its debts into equity shares.

According to a Business Standard report, Trident’s promoter and chief executive Kishore Kumar Puli is now left with only 4.2 per cent stake and the remaining stake in the company is held by institutional investors Bellwether Microfinance Fund and India Financial Inclusion Fund.

As a part of Trident’s plan to restructure Rs 125.5-crore bank debts, banks converted around Rs 32-crore debts into equity shares, at a price of Rs 10 per share. However, the book value of the company is estimated at around Rs 18.60 per share.

Indian Overseas Bank took the largest stake – 14.13% – and will appoint a representative as Trident’s non-executive chairman who would be present in all board meetings of the company. Kishore Kumar will continue to be the company’s chief executive officer.

Besides converting 25 per cent of existing debts into equity shares, the banks also converted an additional 25 per cent of their loans to Trident into optionally-convertible preference shares.

Among the five microfinance firms that opted for a debt recast, Trident is the only MFI in which banks have acquired equity stake.

Microfinance Focus, September 30, 2011: Nationwide Microbank will launch a new mobile banking product called MiCash in West New Britain, Papau New Guinea in October 2011. MiCash is a Bank Account that is operated through a mobile phone attached to the Digicel Network. The slogan for MiCash is “If you’ve got a mobile, you’ve got a bank”.

Nationwide Microbank Limited is the first licensed financial institution in Papua New Guinea to introduce Mobile Money. MiCash builds on the concept of Mobile Money that allows financial transactions through a mobile device.  Mobile Money and MiCash provide a lot more than SMS banking. With MiCash a transaction can be anything from transferring funds to a friend or wantok’s Mobile phone, to depositing and withdrawing cash from an Agent network. MiCash also enables the account holder to check balances, purchase airtime top up, buy goods and services and pay bills. MiCash is safe, flexible and easy to manage. For rural people, no more traveling many kilometers and paying PMV fares to go to the Bank or ATM. With MiCash you will be able to deposit and withdraw cash at local agents where you see the MiCash sign.

MiCash is a unique Mobile Wallet. MiCash stands out from other models of Mobile Money, such as Post PNG’s SMK Mobile or Digicel’s celmoni wallets. MiCash is both a Bank Account and a mobile wallet. The advantages of this are that the customer receives all the security and services that they are used to receiving from a financial institution. This includes no ceiling on the wallet balance. The Bank of course will continue to make adequate enquires to meet customer identification and anti‐money laundering protocols, as it would with any other Bank account.

It is estimated that 85% of Papua New Guineans do not have a Bank account, whereas many of these ‘unbanked’ citizens do have a mobile phone. In the developing world, Mobile Money deployments are occurring at a rapid rate to provide people in poor or rural areas with access to financial services.

Microfinance Focus, September 30, 2011: Switzerland’s State Secretariat for Economic Affairs (SECO) and the World Bank announced the launch of a US$9 million joint program to strengthen the management of fiscal shocks in middle-income countries.

The program will deliver tailor-made technical assistance and capacity building in two main areas: strengthening the management of public debt and other fiscal risks and developing disaster risk financing and insurance mechanisms. The program is intended to target middle-income countries, which are home to 75 percent of the world’s poor and therefore have many competing demands for resources.

This is paramount as seen how improved public debt management over the last decade has helped many emerging market countries avoid sovereign debt distress during the recent global financial crisis. The program will help partner countries continue to reduce vulnerability to market shocks by strengthening risk management, improving institutional capacity and expanding access to a broader range of instruments and markets.

Furthermore, middle-income countries suffer the greatest financial losses from natural disasters. Natural disasters often force the government to reallocate scarce resources away from long-term development objectives, generating major fiscal shocks and negatively impacting the government’s budget planning process. The program aims to help countries reduce volatility from natural disasters on government budgets through catastrophe risk modeling, fiscal risk assessments, and sovereign disaster risk financing strategies.

The partnership between SECO and the World Bank complements each other in their experience and expertise in fiscal risk management, in particular public debt management, disaster risk financing and insurance, and financial sector reform.

Microfinance Focus, September 30, 2011: The Global Microcredit Summit has added two new associated sessions to its agenda. The two new sessions are titled ‘When Governments Attack MFIs: What Are the Legal Protections?’ and ‘Social Performance: what does the market want – Interpreting research from MIX and Moody’s Research Labs’.

The Global Microcredit Summit will be held November 14-17, 2011 in Valladolid, Spain. A total number of 32 associated sessions covering a wide range of issues will be conducted during the Summit.

Some of the dynamic speakers at the Summit include Nobel Laureate Prof. Yunus, Queen Sofía of Spain, Sir Fazle Abed of BRAC, former Mexican President Vicente Fox and Danone CEO Franck Riboud.

Microfinance Focus, September 29, 2011: Andhra Pradesh based microfinance institution Share Microfin has signed a Master Restructuring Agreement (MRA) with a consortium of banks for debt recast of Rs 1,900 crore. According to the deal, Share is given a seven-year repayment period for its loans from banks including a moratorium on repayment for one year.

The MRA is the final step of the Corporate Debt Restructuring (CDR) process which began in June 2011, reports Hindu Business Line.

“We are delighted to have signed the MRA and are thankful for the continued support of our lenders, in particular the ICICI and SIDBI,” Mr Udaia Kumar, Managing Director of SHARE said in a release on Thursday.

The promoter of SHARE, Legatum Ventures, majority shareholder of SHARE, and Aavishkar Goodwell, had also infused a fresh equity capital of Rs 4.8 crore.

“We are hopeful that with the support of the Andhra Pradesh government we will be allowed to return to our work of providing inclusive financial services to the poorest in AP,’’ Mr Udaia Kumar added.

Microfinance Focus, September 29, 2011: Dr. Ahmad Mohamed Ali, President of the Islamic Development Bank (IDB) group highlighted the potential contribution of the emerging Islamic financial industry towards enhancing stability and resilience of the global financial system at the Columbia University’s World Leaders Forum.

In his keynote address in the forum, he state “the principles of Islamic finance are capable of minimizing the severity and frequency of financial crises by introducing greater discipline into the global financial system and requiring the financier to bear or share in the risk. Islamic finance also requires the creditor to bear the risk of default by prohibiting the sale of debt, thereby creating a proper enabling environment for ensuring due diligence by those who extend credit.”

Dr. Ahmad Mohamed Ali pointed out five elements of the Islamic financial system that are indispensable for ensuring the health and stability of the global financial system.

First, in Islamic finance the share of equity in total financing needs to be increased and that of debt reduced. Second, credit needs to be confined primarily to transactions that are related to the real sector so as to ensure that credit expansion moves more or less in tandem with the growth of the real economy. Third, despite, the negative role that credit default swaps played in the present financial crisis, financial instruments can play a positive role in encouraging healthy expansion of credit and economic growth when properly regulated. Fourth, all financial institutions need to be properly regulated and supervised so that they remain healthy. Lastly, respite needs to be given to the debtors who are in distress, so as not to cause misery and agony to them by auctioning off their properties at giveaway prices.

Dr. Ahmad Mohamed Ali concluded by noting: “Let me emphasize that the essential principles of Islamic finance are not specific to the Islamic faith. They are a part of not only the divine religious but also secular paradigms. Therefore, the main message of Islamic finance, while ethical, is also universal. At a time when world leaders are calling for financial reforms, it is appropriate to have our financial systems rebuilt on widely accepted ethical and moral bases to serve the common good of humanity.”

Microfinance Focus, September 29, 2011: In its analysis of RBI’s recently released securitization guidelines, IFMR capital highlights that imposing a high MHP (Minimum Holding Period) will, in effect, prevent securitisation of lower tenor loans completely. Potentially, this could disincentivise originators from providing lower tenor loans due to lack of financing, thus increasing balance sheet risk, it says.

RBI has split the market on a 24 month tenor basis. However, according to IFMR it would be significantly better from a regulatory perspective to assess MHP requirements based on the average life of the underlying loans. This would prevent the possibility of having a 6 month MHP on a loan with weekly repayments and tenor of 12 months.

The guidelines also advise a Minimum Retention of Risk (MRR) of 5%. This is a welcome inclusion and in line with global practices, IFMR says. The concept of a dynamic cash collateral and reduction of the MRR through the transaction tenor is a good step that should bring bank originators back into the market. Further, this will force rating agencies to model and monitor asset behaviour more closely.

IFMR would consider it to be better, if the RBI allowed market forces to determine the frequency / amount of release of credit enhancement, rather than stipulate time / amount of release – given the variation in performance of different asset classes.

The draft guidelines also permit originators to invest into the equity tranche of a securitisation, unlike the existing regulation that allows originators to invest only into senior securities issued by an SPV.

The guidelines allow originators to recognise the cash profit on a limited basis on premium structure deals. Such profit is to be termed as “Cash Profit on Loan Transfer Transactions Pending Recognition” and maintained on a transaction basis. This divergence from regular accounting standards will encourage corporates to move away from amortisation to straight line basis. In a financial year, any loss on account of Mark to Market and write off will be adjusted in this account and net effect will be transferred to profit and loss account

The RBI has finally stepped in to fill the regulatory vacuum that existed with respect to bilateral assignment of assets. Bilateral assignment is now governed by guidelines similar to that of securitisation. One major difference however, is that “external” credit enhancement by the originator is banned under the assignment route. The offered justification is that subscribers to this route are sophisticated, institutional investors who should be able to assess the risk involved and take a decision on the exposure. Disallowing credit enhancement will only increase investor discomfort in this route and prevent such transactions from taking place. The sophisticated market forces that exist under the assignment route should be able to determine the need for cash collateral.

The guidelines place a greater onus on the buyer with respect to due diligence. Purchasers must carry out verification on at least 5% of the obligors. Such verification cannot be delegated to a specialized firm. The guidelines also require rigorous credit monitoring and identification of non-performing borrowers 90 days after the loans are due. Banks are required to collect information regarding default rates, prepayment rates, loans in foreclosure, collateral type and occupancy, and frequency distribution of credit scores or other measures of credit worthiness across underlying exposures, industry and geographical diversification.

It is essential that buyers are aware of the assets that they are investing in and the above requirements will ensure that quality of due diligence improves.

The revised draft guidelines are significantly more comprehensive and include features that could completely transform the market. However, the draft guidelines are also too prescriptive. This could stifle a sector that has just begun to find its feet in the Indian market. A nuanced regulatory policy that recognizes the varied and dynamic nature of the market and encourages financial innovation is necessary.

Microfinance Focus, September 29, 2011: The International Finance Corporation (IFC) partners with the central bank of Malaysia, Bank Negara Malaysia, to train government practitioners to better understand and implement credit reporting and risk-management methodologies that help expand credit for micro and small businesses.

The five-day training program involves more than 90 regulators, lenders’ associations, microfinance institutions (MFIs), credit reporting service providers, and policy makers from around the world. The program trains participants in advanced credit reporting techniques, including knowledge of legal frameworks, new systems and technologies, credit underwriting processes, and non-traditional data utilization. The workshop will also offer training in value-added services such as scoring, modeling, and risk management strategies. A series of hands-on exercises will give participants an opportunity to practice the new techniques.

Launched in 2001, IFC’s Global Credit Bureau Program has become an international leader in credit bureau development by facilitating lending to individuals and businesses in emerging markets. The program has provided credit bureau support in over 60 countries, and has held over 110 events in 70 countries. Multiple donors fund the program, including Australia, Canada, Italy, Japan, Luxembourg, the Netherlands, Norway, New Zealand, Switzerland, Omidyar Network Fund Inc., and Visa International.