Microfinance Focus, 10 December 2012; microDinero (Spanish), 12 December 2012
Over the past 18 months, one of the microfinance sector’s largest and most prominent funds, Blue Orchard’s Dexia Micro-Credit Fund (recently renamed Blue Orchard Microfinance Fund), saw a major outflow of investor capital, with some $268 million or nearly 50% of the fund’s peak value having been redeemed. The scale of these outflows is unprecedented in the sector. For years, investment capital largely flowed one way: in. The exit doors were there, but rarely used. That is no longer the case. The pioneer of the microfinance investment industry has now crossed another milestone in the industry’s development.
Like Dexia, many microfinance funds (commonly referred to as Microfinance Investment Vehicles or MIVs) are subject to unscheduled redemptions. For those funds, their investors, as well as others in the sector, BlueOrchard’s experience holds important lessons, and it is those lessons that this article hopes to convey. more →
Financial Access Initiative, 16 November 2012
If there’s one issue that’s most difficult for microfinance practitioners to explain to the lay public, it’s high interest rates. As Elisabeth Rhyne describes it, at some point the numbers get so high that people become outraged and stop listening altogether. Most recently, the issue was put back in the public eye through Hugh Sinclair’s Confessions of a Microfinance Heretic and the media coverage it has spurred.
With few exceptions, his critique that microfinance investors are investing in MFIs charging exorbitant interest rates has gone largely unanswered. That’s not a tenable position for the long-term. For a socially responsible fund, the case ought to be simple – if you have investments that you’d rather not have to publicly support and explain, then either those investments don’t belong in your portfolio or you should learn how to explain those investments.
Rates in excess of 100% (in APR terms) are not unknown in microfinance. more →
MicrofinanceFocus, 27 December 2011
On October 14, 2010, the Andhra Pradesh government issued an Ordinance that effectively shut down the microfinance market in the state. That shutdown continues to this day, with collections at negligible levels. It’s clear that the AP microfinance market is dead and will not recover for years.
Important as AP has been to India microfinance, it is not everything. Despite the year-long crisis, repayment rates in other states remain strong. And though AP-oriented MFIs have been seriously or even terminally wounded, others have remained unscathed.
Despite this, in the intervening period funding for MFIs – largely dependent on a handful of Indian state and commercial banks – has persisted in a state of severe liquidity deficit. more →
Financial Access Initiative, 14 September 2011; MicrofinanceFocus, 15 September 2011
Some time ago, I had a conversation with a microfinance investor. What is the greatest challenge facing the sector? – I asked. His answer: multiple borrowing – multiple borrowing getting people into too much debt; multiple borrowing transforming micro-enterprise lending into consumer finance; multiple borrowing rewriting the traditional relationship between MFIs and their clients.
Of course, multiple borrowing is present in all of these cases. But thinking about multiple borrowing along these lines misunderstands the basic situation. Multiple borrowing isn’t a reflection of some recent or extreme developments to be ascribed to runaway growth, greed, or willing ignorance. And despite press articles to the contrary, it is neither a result of heavy market penetration, nor even saturation. No, multiple borrowing is an intrinsic part of the practice, one that has been with us for years. more →
Financial Access Initiative, 5 July 2011
What does a microlending operation look like? Well, it may be a bank or an NGO (and many others in between), it probably has some branches, branch managers, loan officers. The funding of the MFI may come from deposits or from debt, whether from a local or foreign institution, including from online platforms such as Kiva. There may be variations on these themes, but that pretty much describes microlending as we know it.
What if you took all that away – the branches, the loan officers, the institutional funders? Could the lending still work? Well, one model is that of Zidisha Microfinance, an online lending platform that connects lenders in (mostly) developed countries with borrowers in developing ones. And, unlike Kiva, the connections are real – borrowers create their own online profiles, post their own loan applications, and make their own repayments. They also post their own comments, as do the lenders. There is no local MFI intermediary – it is literally the first true person-to-person (P2P) microfinance lending platform in the world. more →
Co-authored with Vinod Kothari; MicrofinanceFocus, 20 December 2010
Something strange is happening with microcredit securitizations in India. Two pre-eminent ratings companies, CRISIL (a subsidiary of Standard & Poors) and FitchRatings have taken diametrically opposing views on the credit quality of microcredit-backed securities.
Last month Fitch released a report, stating that “these transactions are unlikely to receive the highest Long- or Short-term ratings.” Meanwhile, CRISIL continues to issue high ratings to a number of microcredit securitizations, most recently rating a Rs. 54 crore ($12 million) pool issued by Asmitha Microfin as P1+(so), the highest rating that can be assigned to short-term securitizations. This rating continues to stand, despite the fact that Asmitha’s debt has been downgraded since then and continues to remain under a ratings watch for further possible downgrades. more →
Co-authored with Vinod Kothari; MicrofinanceFocus, 19 August 2010
Our earlier article on the Hidden Risks behind Microfinance Securitization raised serious concerns about the inherent and largely unrecognized risks embedded in securitizations of microcredit assets. While we believe that this article provided a useful contribution to microfinance sector, we recognize that it is sometimes easier to be a critic than an actor. As the issues we raised were serious enough to inspire action, in this follow-up we explore in greater detail some of the potential solutions that we believe could mitigate these risks. more →
Co-authored with Vinod Kothari; MicrofinanceFocus, 6 July 2010
The Reserve Bank of India (RBI) recently promulgated proposed guidelines for securitization by non-banking finance companies that if implemented, would essentially gut the widespread Indian MFI practice of selling (assigning) and securitizing portions of their portfolios. One of us has already described these consequences in detail. Not surprisingly, this proposal caused alarm in the microfinance community and has generated intensive lobbying efforts with the RBI to modify the ruling. As the RBI considers their case, it should bear in mind another distinguishing characteristic that sets microfinance securitizations apart. more →
Co-authored with Vikash Kumar; MicrofinanceFocus, 12 May 2010
SKS Microfinance, India’s biggest lender to the poor, is soon to become the nation’s first microfinance company to list on the Stock Exchange. In the past 10 years, it has evolved from an NGO to a public limited company and has set many benchmarks for the industry to follow. Microfinance Focus presents a comprehensive look at this journey, tracing it from the company’s roots in the late 90s through the final months leading up to the IPO.
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