CGAP, 7 August 2013, co-authored with Emmanuelle Javoy
When you hear the word “Mimosa,” you might immediately think of the refreshing champagne cocktail. But now the MIMOSA - the Microfinance Index of Market Outreach and Saturation - also has relevance to financial inclusion. In brief, the MIMOSA is a simple way of measuring microfinance market capacity, an important complement to the approach described in a recent blog in this series by Annette Krauss and her colleagues from the University of Zurich. The key difference in the two approaches is that they work from entirely opposite starting points. more →
Financial Access Initiative, 5 June 2013
My last two posts described the high risk of a repayment crisis in Chiapas, Mexico, and its potentially devastating consequences to the microfinance sector around the world. But here is the good news: thus far there is no crisis, and one could still be avoided.
I have argued before that DFIs and other funders could leverage Smart Certification to enforce client protection practices and thus avoid the kind of overlending that’s happening in Chiapas. However, that prescription alone would not work in Mexico, mainly because a large number of Mexican MFIs are independent of foreign funding, and there are many other lenders active in the same space, including consumer finance companies and large retailers that provide credit.
The answer to avoiding a repayment crisis in Mexico will thus require government action, most likely new legislation that would bring all lenders under a common set of regulatory standards. Specifically, there are two key areas that must be addressed:
Financial Access Initiative, 27 March 2013
A month ago I wrote a post singling out the Mexican state of Chiapas as a potential site of a coming repayment crisis. No, this is not a follow-up announcing that it has begun, nor am I rooting for one to start. In my next post, I will review the options that the Mexican microfinance sector has to avoid it, and what the global microfinance community can do to help. But for now, let’s dig a bit deeper into what a Chiapas crisis might mean, and why I continue to focus on Mexico, as opposed to the broader issue of excessive credit and over-indebtedness.
Let’s be blunt: not all countries are created equal. Some remember my warning three years ago about the danger of a credit crisis in Andhra Pradesh. Back then I compared a possible crisis in India to the crisis in Bolivia a decade before: “India is no Bolivia – if the bubble bursts there, the entire global microfinance sector will find itself reeling.” Well, Mexico is no India.
A full-blown crisis in Mexico would be unlike anything we’ve seen, easily surpassing the negative impact of Andhra Pradesh. more →
My collaboration with Planet Rating has just yielded its first publication: the Microfinance Index of Market Outreach and Saturation (MIMOSA). Here’s an excerpt from the introduction:
Outreach. Competition. Access. Over-indebtedness. Hardly any discussion of microfinance goes by without hearing one or more of these words. At heart, they are different facets of the same question: what is the potential market for loans from Microfinance Institutions (MFIs) in a given country?
This is a question that has not yet been fully answered, nor is this the first attempt at answering it. Perhaps the best-done study thus far was a recent paper by a team at the University of Zurich, and there are several others that preceded it. However, none of these studies have been able to propose a methodology that would simultaneously be simple to use, show reasonably accurate results, and be easily applied to nearly all developing countries. That is the objective we have set for MIMOSA.
The release in April 2012 of the Global Findex database, created by the World Bank, provides a unique opportunity to accomplish this. The Global Findex is a dataset on the use of formal and informal financial services (bank accounts, savings, credit, payments, etc.), based on surveys of at least 1,000 individuals in each of the 148 countries covered, all conducted in 2011. Both the initial analysis by the survey authors, as well as most of the subsequent analysis of this extraordinary dataset has focused on the question of insufficient access to financial services. This paper zooms in on one component of financial access – credit – and asks the opposite question: when is there too much access?
Read the full study here.
Financial Access Initiative, 14 February 2013
It’s been over two years since the start of the great India insolvency. Four years since the Bosnia blight and No Pago Nicaragua. And nearly six years since the Morocco microfinance meltdown.
At this point, it’s reasonable to say that the first global crisis in microfinance has passed. Life is on the mend.
In a recent email, Alok Prasad, head of the Microfinance Institutions Network in India (MFIN) described its most recent quarterly report as “green shoots in evidence.” The numbers certainly bear him out. Elsewhere, investors speak of tightening their exposure to countries with overheating markets, pay attention to issues of overindebtedness, and are wary of the sort of runaway growth that was being posted by Indian MFIs back in 2008-10. more →
Co-authored with Karuna Krishnaswamy; MicrofinanceFocus, 25 January 2011
Hyderabad has gone missing. And it seems nobody has noticed the absence. While academics and the press were scouring the villages of Andhra Pradesh in search of over-indebted borrowers and debt-induced suicides, and while politicians in the villages and government halls were busy protecting their beloved SHGs (and the vote banks they provide), Hyderabad up and vanished, leaving apparently no trace of its prior existence.
Naturally, we are referring not to the physical city, but to its microfinance market, as well as those of other cities in Andhra Pradesh. Make no mistake – microfinance lending in urban AP has been widespread, outpacing even that of the countryside. And yet, there seems to be little recognition of its existence and how it has been affected by the current crisis. more →
Co-authored with Sanjay Sinha; MicrofinanceFocus, 10 Jan 2010
We live in a time of object lessons. The economic crisis continues to buffet many countries, including the US, where the unemployment rate has now breached 10% for only the second time in the last 70 years, taking only 18 months to get there – the largest and steepest increase since World War II. Three years after the first rumblings in the US subprime mortgage market, many banks around the world are still ailing.
The microfinance industry has not been immune either – MFIs in countries as diverse as Nicaragua, Bosnia, and Morocco are under severe stress, while many others have seen their portfolio numbers deteriorate significantly. For the first time in its 11-year history, the industry’s flagship private investment vehicle – Blue Orchard’s Dexia Micro-Credit Fund – reported a net monthly loss.
The sector in India has thus far successfully avoided this fate. more →
MicrofinanceFocus, 17 Nov 2009
By most standards, microfinance is a young sector, and in many countries it can be said to still be in its infancy. Yet its continuing spectacular growth, especially in India, should give one pause – every time promoters celebrate another multi-million-client threshold, I wonder – how many more such thresholds are left? How do we know when we’ve arrived?
This is not a philosophical question – normally, markets send signals. New customer demand drops. Prices fall. Margins decrease. However, credit markets are funny animals – the hopeful, exuberant part of our human nature dictates that, when presented with the opportunity, we tend to overestimate our repayment capacities and borrow beyond our means. And when we can borrow from one lender to repay another, we can stretch the cycle out even further. The market signal gets delayed, while a bubble builds – when the signal does come, it is in the form of the bubble bursting. more →