Posts Tagged ‘international microfinance’

Day 2 Kickoff: The Intersection of U.S. and International Microfinance

posted: 2011-06-15 @ 7:49 am EDT

By Valbona Bushi, Kiva New York Lending Team

The second day of the conference started off by bringing back to the floor the leaders of the three main organizations behind the conference: Gina Harman (ACCION Network in the U.S.), Premal Shah (Kiva), and Eric Weaver (Opportunity Fund). As the discussion focused around microfinance in the US and internationally, it should be noted that it was just three years ago that this conference started to start discussions around microfinance, and develop stronger connections and learn from each others’ strategies and lessons.

Each organization has had its own setbacks and successes, but combined they have had more than $500 million in impact around the world. Each one currently operates around the globe, but didn’t start off that way. For example, Kiva had its operations for four years outside of the US before deciding to enter its market. The move was really driven by the lenders who didn’t until 2009, and with the financial crisis at hand, started to seek to help their fellow Americans.

Photo by Taylor Davidson of Narratively http://narratively.com

A lesson from Gina, and surprising at that, was that internationally people are looking to change their communities and the lives of their families for the better but lacking the resources, and, here in the US, those resources are there but the distribution channels need to be improved to reach their intended audience. There are 10 million small businesses in the US and 3 billion people in the world lacking access to financial services. In her own words “this is the time to unleash the human resolve and capacity by removing the barriers to financial services.” The beauty of microfinance is that it allows each organization to look beyond the credit score and look to learn about the individual and help them build a better credit history by reporting to the credit bureaus on loan paybacks.

The overall message, through, cautioned that microfinance has been seen as the ‘magic pill’ to fix every problem out there, so organizations must be specific in their missions and realistic with their accomplishments with the key word being ‘finance’. In Eric’s words ‘It is not about repayment rates, but about putting money in the hands of the people that really need it to use to improve their lives in the way that they choose. In addition, recent solutions to the credit crunch have focused on community, with organizations such as Kickstarter, using online and offline communities to support small loans. Who knows where the industry will go from here.

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The Way Forward for Investing in International Microfinance

posted: 2011-05-11 @ 12:50 pm EDT

By Bryan Wagner, Morgan Stanley Global Sustainable Finance

Morgan Stanley Global Sustainable Finance is excited to be sponsoring a panel at the 2011 Microfinance USA Conference entitled Investing in Microfinance: Trends, Opportunities and Challenges.  These are interesting times for the sector, and I have the privilege of leading an esteemed group of panelists to tackle this weighty topic.  Here’s a quick preview.

We should first acknowledge that there’s a lot to be excited about.  The market for investing in international microfinance has demonstrated remarkable innovation over the past decade.  Whether it’s open-ended debt funds, CLOs, IPOs or even the recent emergence of dedicated private equity funds, most major capital markets structures have been successfully applied to microfinance.  In the process, the sector has attracted significant cross border capital ($21 billion according to a recent CGAP report) from a range of institutional investors, retail investors and Development Financial Institutions.  Commercial banks have made a strong entry into microfinance, providing fresh sources of liquidity for equity investors.  And perhaps most promising is the commitment that the sector’s investors have shown: Net flows into microfinance remained positive even during the depths of the global financial crisis.

Yet there are important challenges to address.  Microfinance has proven less insulated from the formal economy than originally thought, and cases of financial distress and debt restructurings of microfinance institutions have emerged.  Recent crises in Nicaragua, India and Bangladesh, covered in the media, have illustrated the political risks that microfinance and its investors face.  And in spite of the significant underlying demand for microcredit – estimated at $250 billion versus some $65 billion outstanding today – microfinance funds are holding an increased portion of assets in cash, suggesting that access to investor capital may not be the immediate bottleneck to scaling up the sector.

But we have many reasons to remain optimistic.  Recent efforts to develop client protection principles, improve governance and develop meaningful social impact metrics promise to ensure that microfinance delivers on its double-bottom-line billing.  The industry is concertedly migrating from microcredit to microfinance, with recent fund concepts dedicated to microinsurance, housing microfinance, microfinance currency hedging and other “adjacencies” attracting significant interest.

In this discussion we’ll work from the premise that commercial capital must be tapped to ensure the poor have sustainable access to financial services.  Such an approach will allow us to dig deeper to understand how investment vehicles can be designed to meet the expectations of the highly diverse investor base that microfinance attracts.  We hope you’ll join us for the discussion.

Bryan Wagner leads microfinance coverage as part of Morgan Stanley Global Sustainable Finance (GSF).  For more about GSF, visit http://www.morganstanley.com/globalcitizen/sustainability.html

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Micro-level Stories and the Big Picture

posted: 2010-05-14 @ 12:30 pm EDT

By Patricia Wada

This probably marks me as a newbie, but my interest in microfinance began when I read Banker to the Poor by Muhammad Yunus. I was working at the Asian Development Bank Institute in Tokyo, Japan, and was interested in how microfinance could be a piece of the international development puzzle. Fast forward a few years and you find me now, a microfinance enthusiast at the tail end of an eight-month internship at Kiva.

Kiva is a website that lets you make micro-loans of as little as $25 to low-income borrowers around the world. A quick browse through the Kiva lending page offers a glimpse into the lives of these borrowers.

In Peru, Edgar is borrowing to buy seeds for his agriculture business. In Senegal, Tacko is borrowing for her mobile phone business. And right here in the United States, Ana is borrowing to improve her childcare business. It is these individual stories that originally attracted me to Kiva, and they continue to fuel my enthusiasm for microfinance.

One of the sessions I’m most looking forward to is “The Rise of P2P Lending.” Peer-to-peer lending sites like Kiva have opened up a new funding channel for microfinance. At the same time, they provide something traditional funding sources don’t: an educational opportunity for individuals who lend on the site.

I’m also excited to hear from individual micro-loan borrowers. I’ve spent a lot of time working with over 400 volunteers who edit and translate their profiles for Kiva, so I can’t wait to meet some Kiva borrowers at the “Kiva Lender-Borrower Meet-Up.”

The “Opening Session: Conversation with Maria Shriver” is likely to be a highlight for me because of the chance to hear Maria Shriver speak, along with Kiva President Premal Shah. Thursday night’s “Taste of Microentrepreneurship” event will combine two things I’m passionate about microfinance and food, as microentrepreneurs will be representing Bay Area kitchens in a “food festival”!

On the other end of the spectrum, the conference offers sessions on important big-picture questions. I’m particularly interested in “What is a Fair Price to Pay for Good Credit?” and “Is Savings Even More Important than Credit?” These have been hot topics in the Kiva office and in the microfinance world, and I’m looking forward to hearing the experts weigh in.

The conference promises a great mix of sessions for seasoned microfinance professionals and relative newbies alike. It’s not too late to register for individual sessions or for the whole conference. I hope to see you there!

Patricia Wada has just completed an eight-month internship in Kiva’s Review and Translation Team. She previously worked in the publications department of the Asian Development Bank Institute in Tokyo, Japan. A believer in the importance of microfinance for poverty alleviation, Patricia is continually inspired by the stories of microfinance clients all over the world.

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Why Are Microfinance Interest Rates So High?

posted: 2010-05-11 @ 9:51 am EDT

By Elisabeth Rhyne, “What is a Fair Price to Pay for Good Credit?” panelist

At next week’s Microfinance USA conference, I’m participating on panel about microfinance interest rates, representing The Smart Campaign.  The Smart Campaign aims to make client protection principles a hallmark of microfinance around the world, and one of our most important commitments is transparent and responsible pricing. It’s important for supporters of The Smart Campaign in the U.S. to get aligned with their counterparts in developing countries about what responsible pricing looks like. This panel is an opportunity to do just that.

Often, people whose work is U.S.-based suffer acute sticker shock when they hear about interest rates charged in international microfinance.   At rates above 20 percent, most Americans start getting uncomfortable, and when they hear that in some places interest rates rise as high as 100 percent or even more, their moral outrage beepers start to malfunction. This is unfortunate, because when we are in a state of high outrage, it’s hard to listen.

I’m hoping that at the upcoming panel we will be able to set aside moral judgment just long enough to examine the factors that determine international microfinance interest rates.  Only after we’ve established a deep understanding of the causes of high interest rates in their own contexts do we dare make judgments about morality.

Here are just two things I hope we can consider dispassionately:

  • The arithmetic of tiny loans. Interest rates are constrained by the uncompromising arithmetic of the three main elements of administrative cost, all context-specific. How big are the loans? What is the maximum loan officer caseload? How much are loan officers paid?  A lender making $1,000 loans in a dense city market with a labor market that allows modest loan officer salaries  can charge a much lower interest rate (think Bolivia, with rates in the 20s) than a lender making $100 loans in the rural parts of a middle income country where loan officers earn a lot (think Mexico with rates in the 60s).
  • The need for sustainability to ensure coverage and permanence. Do we think prices should support lender sustainability? Microfinance grew to reach 150 million clients worldwide by striving for financial sustainability as the ticket to reaching more people permanently without heavy donor dependence.  Most of today’s international microfinance providers believe the poor should be treated as clients, not recipients of charity.

This last point does involve a moral judgment.  Is it more moral to help (a few of) the poor through subsidies or to provide (many of) them with services on a business basis? There’s probably a need for each, in different circumstances; the former makes more sense in the U.S., while the latter is an unavoidable necessity in the developing world.

This is just a start. If we can agree on the above, we can start to tackle the hard practical question at the heart of the Smart Campaign: how to determine when a lender is charging too much, and what to do about it.

Elisabeth Rhyne is Managing Director of the Center for Financial Inclusion (www.centerforfinancialinclusion.org) and a founder of The Smart Campaign (www.smartcampaign.org).

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