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:
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 →
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, 13 September 2012
I have written before how tiny Zidisha Microfinance is challenging long-held assumptions by leveraging internet social media and mobile payments like M-PESA to lend to clients without the help of loan officers or local staff. Since then, Zidisha has grown from tiny to small, with a portfolio now at $200,000, over 430 active borrowers, not to mention its 1400+ lenders. And, as before, its operations remain solid, with PAR30 at a respectable 6.6%[1] (check out its stats for more).
I’ve been advising Zidisha since before its launch in 2010, and with that had the opportunity to watch the evolution of the platform’s many innovations. One feature, introduced in August 2011, allows borrowers to request to reschedule their loans, regardless of whether they are delinquent or not. 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 →
MicrofinanceFocus, 7 July 2011
It seems wherever you turn these days, politics is getting into microfinance. In Andhra Pradesh, the state government exercised its prerogative to kill off an entire industry. Next door in Bangladesh, Prime Minister Hasina decided to hound Yunus out of Grameen Bank, no matter the cost. The No Pago (No Pay) movement in Nicaragua counted on the support of the country’s president. What’s the industry to do in the face of such onslaught?
Weathering the Storm identified state intervention as one of the core risks faced by MFIs. It drew its lessons from the case of PADME in Benin, which was effectively nationalized by the government in 2008. At the time, PADME was in the process of transforming from an NGO to a for-profit entity, and the Benin government had made clear from the start that it was not in favor of such a plan. Despite this, PADME’s management and prospective investors had decided to push ahead, thinking that they would be able to parry the government’s attempts to block the process.
They were wrong. more →
MicrofinanceFocus, 8 November 2010
The crisis in Andhra Pradesh has highlighted how exposed MFIs are to mass non-payments. Industry insiders have suggested that even some of the largest MFIs simply might not survive if the crisis is not resolved soon. And if that were to happen, is the industry prepared to deal with the process of unwinding one of these giants?
The top MFIs in India are large by any standard, with assets in the multiple $100s of millions, most of which are held in the form of outstanding microcredits. Once an MFI is hobbled to the point that it cannot survive as a going concern, what happens to these assets? Experience from other MFIs suggests that prospects for recouping them are not good. 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 →
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