Micro Finance Focus May 11

c

c Credit ratings and research agency CRISIL recently said in
a statement that growth prospects for microfinance institutions (MFIs) in India will remain
subdued over the medium term.
³Operating challenges arising from the Reserve Bank of India¶s (RBI¶s) recently issued
guidelines for MFIs, coupled with expected difficulty in raising capital, are likely to trigger
consolidation in the sector,´ said the ratings agency adding, ³However, RBI¶s guidelines should
ease pressure on MFIs¶ profitability, as it has relaxed some onerous recommendations of the
Malegam committee.´
Furthermore, the continuation of priority-sector status and steps to enhance transparency and
governance should improve stakeholder confidence and enable resumption of bank funding said
CRISIL. Clarity on regulatory jurisdiction for MFIs is also a critical next step for long-term
sustainability of the sector.
Rupali Shanker, Head of CRISIL Ratings said, ³The MFI sector¶s growth is likely to remain
subdued over the medium term, especially in regions with high microfinance penetration,
because of proposed regulatory restrictions on multiple lending, loan size, and end-usage of
loans. This will provide an impetus for consolidation in the sector.´
According to CRISIL in order to comply with the new regulations, MFIs will have to enhance
the robustness of their internal systems and processes, strengthen their monitoring mechanisms,
and invest in training their employees.
Shanker also added, ³CRISIL also expects RBI¶s recent guidelines to provide cushion to MFIs¶
profitability, and enable resumption of bank funding to MFIs.´
According to CRISIL, RBI¶s guidelines are largely based on the Malegam committee
recommendations, with some modifications: RBI has allowed a higher cap on interest rates and
margin (of 26 per cent and 12 per cent respectively) and has clearly defined the manner of
computation for these caps. RBI has also increased the limits on annual income of borrower
households, enhanced the maximum ticket size of loans, allowed a higher limit on indebtedness
of borrowers, and reduced the minimum threshold to qualify as an MFI. Moreover, RBI has
retained the priority-sector status for bank loans to MFIs, a critical enabler of resource flows to
the sector.
Further CRISIL also stated that financial risk profiles of MFIs with significant operations in
Andhra Pradesh are likely to remain under considerable stress because of continued low
collection rates, liquidity pressures, and expectation of substantially high credit costs over the
medium term. Substantial improvement in recovery rates and timely restructuring of these MFIs¶
bank loans will be critical for their survival.
CRISIL will continue to monitor developments in the MFI sector and their impact on the credit
risk profiles of the entities rated by it.
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Bank lending to Microfinance companies: A question of priority
Submitted by admin on Sun, 05/08/2011 - 23:25
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possibly write a new chapter in the history of Indian microfinance. Most significantly, it is a kind
of a reassurance that banks will continue to lend to microfinance institutions (MFIs), and subject
to conditions, such lending will qualify as priority sector lending.
However, as in case of most RBI guidelines, these guidelines too leave lot of scope for
ambiguity, uncertainty and debate.
The guidelines set rules about MFIs, loans to whom would qualify for priority sector treatment.
Note that these guidelines are not by itself mandatory for the MFIs. MFIs may choose not to
comply with the same, and banks may still lend to such MFIs ± the implication is that lending by
such banks will not qualify as priority sector lending. This may obviously have implications on
the rates of interest that banks charge from the borrowing MFIs. One has to wait and see the
legislation or regulation that will follow the Malegam Committee regulations.

The composition of the business of an MFI will have to be as follows:
At least 85% of total assets of the MFI are ³qualifying assets´. In computing ³total assets´,
cash and bank balances, investments in government securities and money market instruments
will not be counted. This stipulation leaves lots of unanswered questions:
a. Is the limit of 85% applicable to new business done post 1st April 2011, or applicable to all
existing business too? The language of the RBI circular is quite clear ± that the limits are to be
tested with reference to the total assets of the MFI, and the total ³qualifying assets´. However,
including existing portfolio of MFIs would be lead to most impractical results, as it will apply
the lending criteria retroactively. For example, one cannot go back in the past and ensure that the
margin cap of 12% is observed, and so on. Therefore, it is almost imperative that a clarification
to this effect has to come ± that the criteria will apply to portfolio created on or after 1st April
2011. But that, also, would be impractical to apply since the balances of ³qualifying assets´ are
to be compared to total assets.
b. Assuming that the RBI does not come with any clarification, what are the options MFIs have?
It would take quite some time for them to bring down the volume of ³non-qualifying assets´ in
regular course, more so, if they are unable to get new loans from banks. It may make sense for
MFIs to create new vehicles ± say a subsidiary company, back it up with the guarantee of the
parent, and park new, qualifying business in the new vehicle.
c. A very important question is, at what stage does the bank seek compliance of the new
guidelines? The circular says that the bank will seek, at the end of each quarter, a certificate from
a chartered accountant regarding the compliance with the conditions. This would certainly mean
that the compliance with the new requirement is post-facto, and not a prior compliance. That is to
say, a bank may give a sanction on the condition that the conditions will be complied with and
the certificate as expected therein will be given ± if the conditions are not satisfied, the bank may
retrospectively revise the interest rate, and/or withdraw the loan. As regards the quarterly
certification, it is notable that there is no time limit within which the certificate would be given,
but one would expect at least 60 days time to be allowed, as MFIs will need to be able to produce
quarterly accounts to get the certificate from a chartered accountant.
d. Lots of questions of detail arise about meaning of ³total assets´. Though the RBI itself
excludes cash and bank balances, government securities and money market instruments, would
items like deferred tax assets, advance tax, TDS, etc be counted as assets? The idea of fixing the
85% ³qualifying asset´ criteria is that not more than 15% of the portfolio is of assets that do not
qualify. An investment in fixed assets is not a part of the portfolio of the MFI. Office furniture,
or computers, are not assets in the sense of being a part of the portfolio. So, properly speaking,
the 85% limit should only be applied with reference to ³assets´, rather than adjustable
accounting entries such as deferred tax assets, advance tax, TDS, etc. On extension, even
investments in assets which are not part of business of the MFI ±such as office assets, should
also be excluded. Investments in subsidiaries or other NBFCs is deducted from the net owned
funds of the MFIs for consideration of capital adequacy ± on ground of parity, this investment
should also be excluded while counting the 85% limit. In short, there may be lot of gray areas in
computing ³total assets´ to apply the 85% rule.
There is almost an overlapping, unclear rule that says: ³aggregate amount of loan, extended for
income generating activity, is not less than 75% of the total loans.´ First of all, one must note the
bad English ± as it should be ³aggregate amount of loans´. But then, it is difficult to understand
the need for this addition, almost overlapping requirement. Perhaps the only meaning of this
criteria can be ± the loans that the MFI extends should be primarily for income-earning activities,
and should not be intended for promoting consumption ± for example, for buying a TV or
funding a marriage, etc. It is a different story that it is impossible to monitor the utilization of the
loan.
This criteria, along with the limits on the amount of loans, have the effect of making housing
microfinance loans as non-qualifying. Housing microfinance is an extremely important extension
of the idea of microfinance, and there is no reason why the RBI should have frowned upon these
loans.

There are 2 significant norms for the borrower ± the borrower¶s household income, and the
borrower¶s indebtedness. The entire microfinance industry is confused as to how the second
criteria will be satisfied ± how does a lender know what is the indebtedness of the borrower is,
and what controls does the lender anyway have on whether the borrower takes a further loan
after borrowing from one lender, or simply does not disclose the loans he already has. In fact,
both the criteria about income and indebtedness are purely perfunctory guidelines, and are
simply a lipservice to concern that microfinance is promoting a debt trap. There is no way the
lender can test the annual income of the household, nor is there anyway, at least in the current
scenario, whereby the lender may verify the indebtedness of the borrower. Hence, both will have
to depend on self-declaration given by the borrower at the time of taking the loan. Obvious
enough, there is no question of monitoring the indebtedness of the borrower having given the
loan. Also, the income criteria is applicable at the time of giving the loan: if microfinance has
any usefulness, the loan itself may step up the income of the borrower.

The criteria about the terms of the loan are several ± (a) loan size; (b) loan tenure; (c) loan
security, and (d) mode of repayment.
The loan size shall not exceed Rs 35000 in first cycle and Rs 50000 in subsequent cycles.
Though most MFIs consistently lend to one (mostly female) member in the family, an optimist
may like to circumvent the loan size requirement by giving a loan to two members of the same
family, though that is clearly not the intent.
The loan tenure shall be at least 24 months. In addition, the borrower has the right to prepay,
and prepay without penalty. Many MFIs would argue and say that they do not charge a penalty
on prepayment ± they rather give a rebate. That is, they charge less than the nominal value of
future instalments, and therefore, there is no question of a prepayment penalty. However, the
implication of not charging a prepayment penalty are that on prepayment, the MFI will exactly
charge the-then outstanding principal, or, alternatively, charge the discounted value of future
receivables, discounting the same at the effective interest rate. Most MFIs at their branch level
may not even have the system to compute the outstanding principal. Most MFIs and MFI
borrowers understand flat interest rates ± for them, 15% interest is 15%, not 28%. Declining
balances interest is difficult to explain to this segment, as the segment works on simple addition
of interest and division of interest + principal by the number of instalments. This is not to favour
the flat interest rate, which is surely illusory, but the question is one of understandability at
borrower level.
The third condition says, the loan shall not have any collateral. Once again, this rules out
housing microfinance loans.
The 4th condition rather unclearly talks of payment mode ± weekly, fortnightly or monthly at
the preference of the borrower, leaving it unclear whether the choice is open choice, or made
once at the time of the agreement. However, it should be obvious that this is the choice made by
the lender and the borrower at the time of the agreement ± it is, therefore, not unilateral choice.
Besides, a lender may also insist that a choice once made will not be changed.
!!

Perhaps the most daunting move on the part of the RBI is the pricing guidelines. Once again, as
things stand, the RBI circular does not amount to a rate regulation. A lender may not comply
with the pricing guidelines at all, the only consequence of which that the lender will not qualify
to receive bank loans at priority sector rates. Two, even if a lender wishes to so qualify for
priority sector loans, upto 15% of the total assets may still be in non-qualifying loans.
While the margin cap and cap on rates of interest have been widely talked about, the important
prescription is that MFIs will not charge any penal rate for delayed payment. The correct
implication of this must be understood ± it is not that for a delayed payment, there will be no
implication for the borrower at all. The borrower may be charged interest for delayed payments ±
but only upto the interest rate fixed for the original loan. For instance, if the IRR of a loan is
26%, the borrower may be charged the same interest rate for delayed payments too. The idea of
not charging a penal rate is that the borrower must not be having to pay a higher rate for
defaulted payments, than for payments made in time.
Yet another prescription is that there not be any security deposit or margin. The word ³margin´
here means cash margin only ± it cannot mean borrower participation in the asset or capital
expenditure that the borrower incurs. For example, if the borrower wants to buy a sewing
machine of Rs 50000, nothing stops the MFI from insisting on the borrower putting up a cash
contribution of Rs 10000, so that the loan size is limited to Rs 40000. The idea of ³no margin/ no
security deposit´ is that the IRR of the MFI should not stand to increase due to margin or
security deposit.
Currently, this is a fluid state of regulation for MFIs, as reportedly, more regulations are due to
come. Until that happens, MFIs will have to quickly readjust to the new bank lending norms.
---
"#
"
Mr. Vinod Kothari, based in Kolkata, India is internationally recognised as
an author, trainer and expert on securitization, asset-based finance, credit derivatives and
derivatives accounting. He offers about 20 training courses every year on credit risk,
securitisation and credit derivatives all over the World. For more information Visit Author`s
website: http://www.vinodkothari.com .
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Debt Restructuring in Microfinance: Discussion with Morgan Stanley, IAMFI
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c This year the
International Association of Microfinance Investors (IAMFI) released a paper entitled O
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public distribution. O
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VOVseeks to promote best practices for the workout among
co-creditors of MFI debt. The study was sponsored by Morgan Stanley ± an IAMFI board
member ± and focused on lessons learned from difficult times. IAMFI¶s research equips micro-
creditors with the tools and practices they need to grow while avoiding bankruptcy in order reach
the more than three billion people living on less than U.S. $2.50 per day.
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the-phone and answer some questions about debt restructuring and the value of O
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O to the microfinance industry. As our phone interview began, Trant and Wagner
introduced themselves and their organization's respective roles in the research process.
IAMFI is a non-profit research group as well as ³a global membership organization dedicated to

helping current and potential commercially oriented microfinance investors achieve their
financial and social goals,´ Trant explained. Eligible members include financial institutions,
foundations, asset managers and service providers who are interested in market-driven
microfinance investment to list only a few examples. Members benefit from IAMFI's objective
research, educational events, and facilitation services.
Although IAMFI is forming a 501(c) (3) public charity ³to spearhead a comprehensive research
program focused on building industry infrastructure, to increase the sustainability of
microfinance,´ the 2011 paper on debt restructuring, O
V
VO would have been
impossible without financial support from Morgan Stanley.
In order to avoid financial crisis in the microfinance sector, a relatively new industry built on
human need, IAMFI enlisted the support of researchers, investors, industry leaders, and
understandably, one of the oldest financial service providers in the United States. O
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OVinterested Morgan Stanley¶s socially conscious investors. ³This report is a response to
strong interest from our clients to understand the impact of the global financial crisis on the
microfinance sector as well as the ways in which the microfinance community is collaborating to
address any financial difficulties,´ said Bryan Wagner representing Morgan Stanley¶s ·lobal
Financial ·roup.
The ·lobal Financial ·roup at Morgan Stanley focuses on sustainability and economic
opportunity. It ³leverages Morgan Stanley¶s capital markets expertise to support business models
that generate commercial, social and/or environmental returns,´ Wagner said.
When the financial crisis occurred in 2008, many microfinance experts believed that the industry
would have difficulty repaying their debts. IAMFI wanted to provide the industry with best
practices in debt restructuring in order to ³strengthen the commercial attractiveness and social
impact of the industry,´ reads the introduction to O
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VO
IAMFI and Morgan Stanley worked together to convene the IAMFI Microfinance Lenders
Working ·roup (IMFLW·) in order to find out more about MFI defaults and create an orderly
process to work through restructuring. Trant explained, ³The IMFLW·¶s activities over the
course of 2010 culminated in the paper, O
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The study, which was released in February of 2011, claims that although sixteen MFIs were
engaged in or recently completed restructuring, the industry as a whole has emerged from the
financial crisis stronger than ever. The report states, ³The global financial crisis has made
microfinance a better industry by offering proactive and corrective measures that will facilitate
orderly debt workouts, help viable MFIs continue to serve the socioeconomically excluded in a
financially responsible manner and lessen risks to microfinance investment.´ Even though the
industry was not loosing investors (in 2009 U.S. investors allocated over $1 billion to the
microfinance industry) IAMFI¶s study found that defaults were occurring more frequently due to
fast-paced growth without effective business strategies. Causes of defaults include ³faulty
business strategy, weak management, and poor governance,´ Trant continued, ³these can cause
overlending to clients, among other strategic errors.´
Some of the most significant findings in this paper came from the experiences of Microfinance
Investment Intermediaries (MIIs) who successfully completed a workout process. The paper lists
out changes made during the process such as improvements to the areas of due diligence, loan
documentation, staff composition and loan provisioning. In interviews with (MIIs) there was
consensus that open communication, transparency, and leadership of the MFI were all necessary
in a successful workout.
From these interviews, as well as case studies, legal, financial and statistical research, Charting
the Course developed ten best practices for debt restructuring including using local legal counsel,
immediate responses to material breaches, and ensuring that the preservation of the MFI is an
ongoing concern. In addition to best practices, the IMFLW· developed four industry tools
located at the end of the paper. ³Those tools are largely geared towards creditors, but they also
help the MFIs by describing the restructuring process,´ Trant added.
One of the lessons from voluntary debt restructurings presented in the paper is, ³social intent
matters, but fiduciary responsibility comes first.´ As Trant told Microfinance Focus, ³this
specific report acknowledges the reality that defaults happen...the microfinance industry should
not be taken by surprise, so that it may continue to serve its target populations.´
Trant explained that the paper's findings are equally important for commercial and non-profit
lenders. The study found that when debt restructuring occurred in non-profit MFIs it presented a
larger challenge to creditors, because of the ³absence of shareholders to recapitalize the
institution.´ The for-profit model, according to this study, may be a less risky option for larger
MFIs, because of the difficulty that nonprofits have in raising capital; ³they don¶t have
shareholders that can commit fresh capital in a crisis,´ Trant added. However, since the
microcredit-related suicides in the Indian state of Andhra Pradesh criticism surrounding
commercialization has become more common.
For Morgan Stanley, this research presented a chance to give back to the financial community.
³A study like this was the perfect opportunity for us to support timely research that explored the
extent to which microfinance was impacted by the financial crisis,´ said Wager.
Debt restructuring is a complicated process that, if done correctly, allows microfinance

institutions (MFIs) to avoid bankruptcy and continue operations. The microfinance industry
needs to understand the global reality of debt restructuring in order to remain viable during a
time of economic uncertainty. Additionally, debt restructuring is in the best interests of
employees and stockholders, because it preserves jobs and investments.
However, the best interests of employees and stockholders became an issue in the U.S. financial
crisis, during which O
V
VO¶s primary sponsor, Morgan Stanley, went from an
investment bank to a bank holding company, and as a result underwent stringent federal
regulations on the amount of debt they could take on. Corporate investment in social issues like
microfinance is a poignant show of cooperation and a crucial part of modern humanitarianism.
Even so, as sponsors of IAMFI¶s research Morgan Stanley¶s recent history is an important
consideration.
The microfinance industry is similar to the commercial banking industry in many ways, but
O
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VOVmakes clear that it is also very different. Trant said that the research process
evaluated ³common practices in the commercial banking world and adapt[ed] them to the unique
characteristics of microfinance.´ Liquidation of an MFI will have a negative impact on
communities already marginalized by commercial banks. Similarly, if a faulty MFI is able to
continue financially due to successful restructuring but continues to have problems on the
humanitarian side of its operations, it will cyclically hurt people who this industry aims to help.
If applied correctly, IAMFI's research can help improve both the social and financial abilities of
MFIs.
When asked who the ultimate beneficiaries of this research are, both Wagner and Trant agreed
that the goal of restructuring is to improve the quality of life for borrowers. O
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VO
provides best practices for debt restructuring in order to keep viable MFIs going and ³to make
sure that creditors [do] not take actions that...jeopardize the MFI, because our ultimate clients are
the entrepreneurs we seek to serve,´ Trant said.
Backed by Morgan Stanley, IAMFI was able to generate new research that will help MFIs
improve internal processes as well as make debt restructuring a more feasible option for failing
microfinance organizations. Trant would like to see O
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VOVcirculated ³among
entire organizations, shareholders and lenders,´ she continued, ³It is a blueprint for what we need
to work on as an industry to develop better skills and processes.´
O
VVO is available to read and print on the IAMFI website. If used in the best
interests of the working-poor, debt restructuring can help struggling MFIs continue to provide
impoverished people with the capital they need to survive and perhaps escape poverty. As Trant
told Microfinance Focus, ³our hope is that the industry is as prepared as possible.´
V
Exclusive Interview with Director of K·FS: Inclusive Banking, No place, that far
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c
c Kshetriya ·ramin Financial Services (K·FS), according to
its promoter K·FS Capital is a new class of entities in the Indian financial system with the aim
of providing a complete suite of financial products and services to ensure the financial wellbeing
of households and enterprises in remote rural locations across the country.
In an exclusive interview with c

" *' * shared his
experiences and learning lessons gained. Here are the excerpts:
c
,

# *
-
" * Kshetriya ·ramin Financial Services (K·FS) is a class of entities, conceptualized by
IFMR Rural Finance, whose mandate is to maximise the financial wellbeing of every individual
and every enterprise in remote rural India by providing complete financial services.
Each K·FS serves around 3.5 million rural populations (an average of 2 districts) through
branches set up in remote rural areas. A branch serves 2,000 households on average within a
radius of 4-5 km and is staffed by locally hired individuals with a minimum qualification of XII
standard called Wealth Managers.
A fundamental premise of the K·FS model is that a complete set of solutions is required to
enable a household to plan for the future, enhance income, diversify its portfolio, protect against
shocks and achieve its financial goals. Hence, K·FS branches offer a wide range of financial
services, in partnership with regulated financial institutions. Currently, the services offered
include secured and unsecured loans, remittance, insurance (life, accident, livestock), pension,
savings and investments. While some of the products have scaled, some are in the pilot phase.
K·FS branches have real time connectivity to enable online transaction processing and data
capture and therefore ensure minimal redundancy. A one-of-its-kind Customer Management
System (CMS) acts as an online centralized warehouse to provide a unified view of the customer.
A Core Banking Solution is used to capture and update transactions.
It is our belief that India would need roughly 300 fully scaled up K·FS¶ or K·FS-like entities
serving remote rural locations. Replicability and scalability is a central consideration in the
development of K·FS model.
c
+ ! * &-
" * A ·ood product design is key to address the complex requirements of low-income and
rural clients. Rather than resort to simplicity that does not meet customer needs, our product
development efforts aim to transfer more and more risk and complexity from the household to
the K·FS, which can then be managed. In times when product structures have been difficult for
the customer to understand, for example a Mutual Fund product with variable returns, staff
training and communication have played a key role in gaining acceptance. We have observed
how a household changes the way it manages its finances when the right products are available.
For example, through our livestock loan product, households are buying better quality cows
where they initially relied on small-ticket JL· loans for the same. We have learnt how having a
physical branch proximate to the customer transforms the trust and reliability equation with the
customer. This lets us serve segments like small businesses that have been extremely challenging
for remote lenders.
c
#
#-
" * Absolutely, it is. We think replication of multiple geographically focussed entities is
the way forward, rather than national monoliths.
Offering a wide range of services to clients in a defined service area helps build economies of
scope, reducing costs for each unit service delivered. Aggressive use of technology helps reduce
the variable costs, making transactions of even Re. 1 viable. The branches are breaking even
faster than we had hoped ; at the operational level in the eighth month and full break-even, where
they even recover capital costs, by the fourteenth in most of the cases. We are currently
operational in three different geographies. The first of these entities, Pudhuaaru K·FS, started
operations in Thanjavur district of Tamil Nadu in June 2008. Two other K·FS entities,
Sahastradhara K·FS of Uttarakhand and Dhanei K·FS in Orissa will be completing almost two
years of operations now.
c
'
. &#

-
" * The present channels of delivery of banking services are reasonably high on reliability
and continuity, but have not been able to offer convenience and flexibility to smaller value
customers. Due to high transaction costs, it is difficult for traditional banks to ensure
convenience and flexibility for these clients. There are also information problems in lending
because most traditional mechanisms of risk management (eg. collateral, scoring) usually do not
work for rural and low-income clients. Informal channels such as moneylenders and community-
based insurance schemes, while typically scoring high on convenience fail the test of reliability
and continuity. The K·FS model combines the local nature and branch-based service delivery of
cooperative and regional rural banks at cost structures much lower than those of banks and MFIs
± roughly, operating costs of 3±5 per cent in steady state at full scale. Models like K·FS that
combine the risk management capability of large well-capitalised entities with the outreach
capability of flexible and convenient local channel partners will be the way forward.
c
+
-
" *The K·FS model goes far beyond the scope of micro finance institutions (MFIs),
which have made inroads in remote locations in many regions of India with a single product (the
joint liability loan). The growth of micro finance in India has been unambiguously important for
millions of poor households. MFIs enable low-income households to take a loan when there is
not enough money to meet some critical needs. This allows households to manage cash
mismatches in ways that are superior to taking usurious loans from moneylenders, selling assets
like gold or buffaloes, or pulling kids out of school. However much more can and should be
done. Just like their middle-income counterparts, low-income households need to have the ability
to move their resources across time and space, in such a manner that their needs for finance are
met smoothly over a lifetime. To be able to do this, low-income households require the full suite
of financial services, including savings, credit, risk mitigation and insurance and remittances.
c
+% * &-
" * Our immediate goal at K·FS is to deploy the Wealth Management concept in all our
branches which entails that we complete our suite of products, train our Wealth Managers in the
branches and fine-tune our processes.
Also, currently we have 105 branches across the three operational K·FS entities. Our intention
behind choosing three geographies that are very different demographically and culturally was to
demonstrate the viability of this model of delivery in varied external environmental conditions.
Over the next 2-3 years, we expect to complete the branch roll out across these geographies, and
start few more K·FS entities across various regions through a combination of owned and
licensed entities.
c
%
!-
" * At the core of our approach is wealth management. Put briefly, this entails offering a
customised set of financial services to each household depending on their needs. K·FS Wealth
Managers (WMs) at branches are trained to offer financial propositions that match the
customer¶s current and future finance requirements. The process is initiated at the time of
customer enrolment in village-level branches, when WMs record data which is stored in the
K·FS Customer Management System (CMS). After a household enrols with a K·FS branch,
the wealth manager meets the household again and through a guided conversation, takes it
through the four building blocks of financial wellbeing: Plan, ·row, Protect and Diversify.
³Plan´ is a diagnostic process that helps the household to recollect and plan for all its current and
planned expenditures against current and planned income. In other words, Plan helps the
household to assess their current reality and their financial goals. ³·row´ part of the
conversation with the household tries to deal with the question - ³Is the household making best
use of all its available resources´. ³Protect´ is with the Safety Objective to ensure that sudden
and unexpected extreme shocks don¶t result in the household having to reduce basic essential
expenditures and growth-related expenditures. And ³Diversity´ relates to what household should
do with respect to the current assets and the surplus income to ensure optimal returns. To
facilitate this discussion IFMR Rural Finance has designed a tool called Financial Well-being
Report (FWR) that helps wealth managers suggest suitable financial products to our customers.
This set of tools is currently being piloted in the three K·FSs. We expect this to change the way
in which financial services are delivered, with a focus on provider accountability for a
household¶s financial well-being. We are developing a financial well-being index that will be the
basis of all performance management and rewards in the K·FS environment.
Interviewed Person Name:

Anil S·
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M-CRIL welcomes RBI's approach to microfinance
Submitted by admin on Fri, 05/06/2011 - 16:38
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c
c/ In its Monetary Policy Statement for 2011-12, the &
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0#.!

#1c!2, 3. In view of the uncertainty prevailing since 14
October 2010 in the microfinance sub-sector of the financial system, M-CRIL welcomes this
acceptance. It will help to provide a framework of operations for the microfinance sector and a
basis for the MFIs¶ relationship with microfinance clients, state governments, commercial/
development banks, rating agencies, capacity building/training organisations and other
stakeholders.
The . #on many of the pricing and market conduct rules
recommended by the Malegam Committee
The other recommendations of the Malegam Committee in relation to capital requirements and
some market conduct issues (including disbursements and collections at a centralized place) have
not been mentioned in the policy statement.
)#.4

! ! !
# #
& .
& !
. ·iven the concerns of various state governments
about the functioning of the microfinance sector, they would expect the RBI to do no less. While
#.
# !&
!& & at least the RBI¶s more
liberal approach than the Malegam Committee will facilitate the achievement of sustainable
operations by many (but not all) MFIs.
There is one concern, however. "

c!, 4 !5 ,
c 6The purpose of this separation is to provide recognition to microfinance as a legitimate
and important part of the financial system. The microfinance portfolio (however defined) may
account for a minuscule proportion (less than 1%) of the financial system but the fact that it
covers upwards of 30 million low income borrowers (affecting the lives of over 150 million
people living on near or below poverty line incomes) means that it is important for economic
welfare. In the Pareto-economic sense, if as a society we attach significantly greater weight to
improvements in the welfare of low income families than to similar improvements in the welfare
of the better off, then the importance we should attach to the smooth functioning of the
microfinance system increases substantially. The RBI has accepted this in the matter of financial
inclusion through the banking system; in deciding ³to regulate microfinance sector«as a
separate category´ the central bank has now extended this logic to microfinance to make
financial service provision even more inclusive.
The policy statement (and the subsequent circular) does not mention the issue of regulation and
supervision beyond accepting the principle of separate regulation by the Reserve Bank.
Perhaps the regulatory guidelines being framed on the other recommendations of the Malegam
Committee will clarify this matter, but the

%07
!3 ! # 6 While this
will have some impact on the functioning of MFIs, it

!

!with appropriate specifications of minimum capital, provisioning norms,
governance requirements, consumer protection principles and the creation of a supervisory
division with specialized knowledge of microfinance.
)
.! 5 ,!

!

&!
#
!6[A similar framework to facilitate the smooth functioning
of N·O MFIs would also be helpful and the ·overnment of India is reported to be making a
renewed effort to draft and introduce a new legal framework for them.] The creation of a
specialized supervisory team is especially important for this purpose. The lack of current
supervisory experience in this field cannot be a reason for avoiding this important measure; it is
only engagement with this essential task that will generate the experience necessary for
supervision to become effective. c,
! . &
!
#
!
# !.6
V
Two Steps Backward for Innovation to End Poverty
Submitted by admin on Thu, 05/05/2011 - 23:32
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*'8
Microfinance Focus, May 5, 2011: The deed is done. On May 5th the appellate division of the
Bangladesh Supreme Court agreed that the Bangladesh Bank, the nation¶s central bank, was
justified in firing Nobel Peace Prize Laureate Muhammad Yunus from his post as Managing
Director of ·rameen Bank, the institution he founded more than three decades ago. Prof. Yunus¶
lead lawyer, Dr. Kamal Hossain, one of Bangladesh¶s most distinguished attorneys and a drafter
of the nation¶s constitution, was scarcely able to hide his disgust at the Appellate Division order,
when he said: ³I [apparently] have to take admission to university again to newly learn the
constitutional laws of the 21st century.´
The dismissal is not the lone action of one government institution but is part of a premeditated
campaign that starts at the highest level with Prime Minister Sheikh Hasina. Their reason for
sacking Prof. Yunus? He¶s ³too old.´ Never mind that the 70-year-old Yunus maintains a
rigorous schedule or that the Finance Minister, another key player in the sacking, at 77 is
somehow not ³too old´ for that post. Their excuse would be laughable if it were not for the
calamitous impact it portends. What makes the decision to remove Prof. Yunus so disgraceful is
not that he would be out of a job ± any university in the world would welcome him with open
arms as a visiting professor. No, the atrocity here is the fact that the independence and integrity
of one of the world¶s premier poverty fighting institutions is now at grave risk. ·rameen Bank,
an extraordinary institution with more than 8 million microcredit borrowers that took 35 years to
build, could be destroyed in a matter of months by incompetent government action.
The government¶s action cannot honestly be in response to accusations by a Danish documentary
maker about an improper transfer of Norwegian aid funds more than a dozen years ago, because
both the Norwegian government and Bangladesh¶s own review committee have found that
·rameen did nothing wrong. It cannot be due to the documentary maker¶s charge of excessive
interest rates, because Microfinance Transparency and the government¶s own review committee
found ·rameen has the lowest interest rates in the country. Instead, most observers see this as an
inexcusable political vendetta by the Prime Minister against Prof. Yunus, stemming from his
short-lived attempt to start a political party in 2007.
Consider these groundbreaking innovations that Prof. Yunus¶ poverty-fighting laboratory has
brought to the world and what could be lost in the future from his unwarranted ouster:
In 1976 he made loans of less than US$1 each to 42 desperately poor Bangladeshis to start or
build tiny businesses ± and the microcredit revolution was born. It has made its way all around
the world. While others have seen microfinance as a way to make big money for investors, Prof.
Yunus has never once diverted from his original intent to empower the poor.
In 1997 ·rameen Phone Ladies started bringing cell phone technology to remote villagers
throughout Bangladesh²providing the dual benefit of creating jobs and increasing
communications, which enhanced others¶ work.
·rameen Shakti, an energy firm, has installed more than a half-million solar home systems and
sold more than a quarter-million improved cooking stoves.
In a joint venture with Danone, the yogurt maker headquartered in France, ·rameen Danone is
bringing low-cost fortified yogurt to malnourished children throughout the country ± and
creating a business opportunity for the poor women who sell it.
College scholarships and loans have gone to 180,000 students. Most remarkably, in almost all
of the cases, these are the children of illiterate parents who have had the help of ·rameen Bank
in breaking the bonds of intergenerational illiteracy.
A government that so rashly and ruthlessly ousts this innovative and transformational leader
cannot likely be trusted to continue his revolutionary work.
But the deed is done. Here is a sample of the visionary voice that Bangladesh has likely lost in
this despicable government act. Reflecting on the 1997 Microcredit Summit Prof. Yunus wrote:
³In teaching economics I learned about money, and now as head of a bank I lend money. The
success of our venture lies in how many crumpled bank bills our once starving members now
have in their hands. But the microcredit movement, which is built around, and for, and with
money, ironically, is at its heart, at its deepest root not about money at all. It is about helping
each person to achieve his or her fullest potential. It is not about cash capital, it is about human
capital. Money is merely a tool that unlocks human dreams and helps even the poorest and most
unfortunate people on this planet achieve dignity, respect, and meaning in their lives.´
---
"#

Sam Daley-Harris is Founder of the Microcredit Summit Campaign which seeks to reach 175
million poorest families with microloans www.microcreditsummit.org and of RESULTS which
seeks to create the political will to end poverty www.results.org.
V
Regulation of microfinance ± at last
Submitted by admin on Wed, 05/04/2011 - 00:26
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By N.Srinivasan,Author, State of the Sector ± Microfinance India 2008,2009 and 2010.
c
c9 The much awaited RBI¶s stance on regulation of MFIs was
made public as part of the monetary policy statement issued on 3 May by the ·overnor. A
notification giving effect to the announcements in the policy document has also been issued
( .). The policy document had the following to say about regulation of microfinance.
to accept the broad framework of regulations recommended by the Committee;
that bank loans to all MFIs, including NBFCs working as MFIs on or after April 1, 2011, will
be eligible for classification as priority sector loans under respective category of indirect finance
only if the prescribed percentage of their total assets are in the nature of "qualifying assets" and
they adhere to the "pricing of interest" guidelines to be issued in this regard;
that a ³qualifying asset¶¶ is required to satisfy the criteria of (i) loan disbursed by an MFI to a
borrower with a rural household annual income not exceeding ` 60,000 or urban and semi-urban
household income not exceeding ` 1,20,000; (ii) loan amount not to exceed ` 35,000 in the first
cycle and ` 50,000 in subsequent cycles; (iii) total indebtedness of the borrower not to exceed `
50,000; (iv) tenure of loan not to be less than 24 months for loan amount in excess of ` 15,000
without prepayment penalty; (iv) loan to be extended without collateral; (v) aggregate amount of
loan, given for income generation, not to be less than 75 per cent of the total loans given by the
MFIs; and (vi) loan to be repayable by weekly, fortnightly or monthly instalments at the choice
of the borrower;
that banks should ensure a margin cap of 12 per cent and an interest rate cap of 26 per cent for
their lending to be eligible to be classified as priority sector loans;
that loans by MFIs can also be extended to individuals outside the self-help group (SH·)/joint
liability group (JL·) mechanism; and
that bank loans to other NBFCs would not be reckoned as priority sector loans with effect from
April 1, 2011.
The significant pronouncement relates to the acceptance of the broad framework that
Microfinance is a separate category of financial services activity and has to have certain defining
characteristics. If NBFCs offer financial services that have the defining characteristics then they
would be regulated differently from the other NBFCs. The characteristics (µqualifying asset¶)
that define microfinance according to the announced regulations are
a.The credit services should be offered to small income households (Rs 60000 ± USD1350 per
annum in Rural centres and Rs 120000 ± USD 2700 in urban and semi-urban centres)
b.The loans amounts should be small (not exceeding Rs 35000 ± USD 790 in the first cycle of
loans and Rs 50000 ± USD 1125 in the second and subsequent cycle of loans) and without
collateral
c.MFIs should be concerned about excessive debt at the borrowers hands ( the absolute ceiling
level of debt per borrower fixed at Rs 50000 ± USD 1125)
d.Loan service should be reasonably within the capacity of the borrower (with large loans
exceeding Rs 15000 having a minimum repayment period of 24 months)
e.Not less than 75% of the total amount of loans given should be for the purpose of income
generation
f. Not less than 85% of total assets of the NBFC should be in the nature of qualifying assets and
g. The repayment intervals ± weekly, fortnightly or monthly ± would be at the choice of the
borrower
)5 ,c & !# !
1. The microfinance loans having the characteristics described above should not be less than a
prescribed percentage ± the percentage itself is not specified and is likely to be announced as part
of the detailed guidelines to be issued
2. Ensure that the loans are not priced above 26% and the margin does not exceed 12%.
3. Determine that the indebtedness of the borrower does not exceed Rs 50000.
4. ·et their books and operations audited for a certification that (i) 85% of total assets of the MFI
are in the nature of ³qualifying assets¶¶, (ii) the aggregate amount of loan, extended for income
generation activity, is not less than 75% of the total loans given by the MFIs, and (iii) pricing
guidelines are followed.
5 ,c !

! &##.
#
. * !6
While the broad framework of the Malegam Committee has been accepted, there have been
several departures that had perhaps become necessary as a result of valid issues brought forward
in several consultations. The table provides a comparison of the recommendations of the
Malegam Committee and the decisions taken thereon.
R

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The changes would not significantly alter the client acquisition policies as the household income
range is sufficiently large. For the first time in about 15 years, RBI has come out with interest
rate restrictions, which were gradually dismantled post ±reforms of the financial sector. The
interest cap in absolute terms is bound introduce rigidities; with the interest rates in the market
for other financial instruments being free and changing in response to demand, supply and
relative risks, MFIs would be unable to pass on increased finance costs to their borrowers. RBI
has specified in the detailed guidelines that the interest rate of cap of 26% is to be calculated on a
reducing balance basis to ensure that the variability in installments do not increase the real rates.
The margin cap on the other hand is dynamic, and the clarity on how it is to be calculated is
useful. The ceiling of loans at Rs 50000 provides space for MFIs to operate and retain customers
for a few years. The ceiling is also in line with the limits proposed in the previous version of
Microfinance Bill. The service charge will impede transparency in pricing and introduce a
tendency on the part of MFIs to offer very short term loans of less than a year and improve
revenues through multiple service charge collection within a year.
MFIs would be hard put to assess the indebtedness level as the same is not defined. If loans from
non-MFI sources is to be reckoned it is likely to be a herculean task, given the prevalence of high
levels of informal debt. NBFCs bulk-lending to MFIs will suffer as a result of the denial of
priority sector benefits to banks for their loans to such NBFCs. Their cost of funds is likely to
increase as a result. With a ceiling of 26% on their loans, MFIs are unlikely to borrow at high
costs from bulk lenders.
,

The enforcement and monitoring of compliance for the present is left to the Chartered
Accountants, who would certify three key aspects as to the nature of loans provided by MFIs.
But the detailed guidelines to follow would possibly outline the regulatory practice. The
modifications to Malegam recommendations reflect a large measure of pragmatism in dealing
with the issues on the part of RBI. The detailed guidelines will be eagerly awaited to examine
whether those aspects on which there is no comment in the monetary policy, have been dealt
with. There could also be some apprehensions about the µdevils in the detail¶. These
regulations would still be irrelevant to those MFIs not in the company form. As they would
continue to be unregulated, banks may not be interested to provide them funds. Even if the
banks want to provide loans to such MFIs, the same might not be eligible for priority sector
benefits.
The proposed guidelines mark for the first time customer protection is taken as a basis for
regulation of credit-only institutions. There is almost no prudential aspect of MFIs covered in
the policy. The AP microfinance legislation helped in easing the process of acceptance of the
responsibility for customer protection based regulation of microfinance by RBI. To a significant
extent these guidelines are likely to be adopted by the proposed central legislation. The
legitimacy now afforded to the sector will hopefully keep other state governments from
introducing legislation to regulate MFIs. The MFIs have to start performing socially and make
full use of the opportunity given now. The pity is that the acceptance of regulatory responsibility
for borrowing customers comes from the graveyard of some MFIs that are unlikely to survive.
The situation in AP has perhaps gone beyond redemption and this regulatory effort comes a bit
late in the day for microfinance sector in AP. With recoveries at around 10 to 15%, MFIs with
significant exposures in AP are unlikely to survive. Even the restructured debt of such
institutions will only soften the blow on banks, which now will be in a position to write off the
NPAs over a longer period. With declining recovery rates from the SH·s and the resultant
reluctance of banks to expand the exposure, the poor households of AP will take much longer to
rediscover the easy access to credit that they enjoyed prior to October 2010. The learning curve
thus far has been steep. The sector will continue to pay a price for both delayed appropriate
regulation and precipitate inappropriate regulation.
àV
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V
Can adequate corporate governance increase access to financial services?
Submitted by admin on Sat, 04/16/2011 - 02:11
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c
" : A study titled µCorporate ·overnance and Access to
Finance¶ released by the World Savings Banks Institute in collaboration with the consultancy
AFI (Analistas Financieros Internacionales) concludes that countries with better standards of
corporate governance tend to have higher levels of access to finance.
The study focuses on the impact of the corporate governance model of WSBI member banks on
their customer outreach. WSBI members cater to the interests of a wide group of stakeholders:
customers, employees, suppliers, local communities, etc.
³In countries with a better corporate governance environment and a relatively higher presence of
institutions with an access to finance mission, financial outreach tends to be greater. As the
quality of a country¶s corporate governance improves, the average deposit size decreases, which
indicates deeper banking market penetration,´ says the study.
The study also concludes that corporate governance elements controlled by the company have far
greater positive influence on access to finance efforts than do corporate governance elements that
are external to the company, as is the case, for example, with national legal frameworks or the
degree of financial development of the national market.
The study further confirms that the long term orientation of their business strategies implies that
WSBI members tend to make a significant contribution to the stability of the financial system,
and at the same time support the efforts towards greater access to finance.
Corporate governance comprises the mechanisms that connect the interests of a company¶s
owners and other stakeholders to how its board of directors and management carry out their
functions.
WSBI (World Savings Banks Institute) is a global representative of savings and retail banking,
representing savings and socially committed retail banks or associations in 92 countries. WSBI
works with international financial institutions and represents its members¶ interests at an
international level.
*
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Can adequate corporate governance increase access to financial services?
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c
" : A study titled µCorporate ·overnance and Access to
Finance¶ released by the World Savings Banks Institute in collaboration with the consultancy
AFI (Analistas Financieros Internacionales) concludes that countries with better standards of
corporate governance tend to have higher levels of access to finance.
The study focuses on the impact of the corporate governance model of WSBI member banks on
their customer outreach. WSBI members cater to the interests of a wide group of stakeholders:
customers, employees, suppliers, local communities, etc.
³In countries with a better corporate governance environment and a relatively higher presence of
institutions with an access to finance mission, financial outreach tends to be greater. As the
quality of a country¶s corporate governance improves, the average deposit size decreases, which
indicates deeper banking market penetration,´ says the study.
The study also concludes that corporate governance elements controlled by the company have far
greater positive influence on access to finance efforts than do corporate governance elements that
are external to the company, as is the case, for example, with national legal frameworks or the
degree of financial development of the national market.
The study further confirms that the long term orientation of their business strategies implies that
WSBI members tend to make a significant contribution to the stability of the financial system,
and at the same time support the efforts towards greater access to finance.
Corporate governance comprises the mechanisms that connect the interests of a company¶s
owners and other stakeholders to how its board of directors and management carry out their
functions.
WSBI (World Savings Banks Institute) is a global representative of savings and retail banking,
representing savings and socially committed retail banks or associations in 92 countries. WSBI
works with international financial institutions and represents its members¶ interests at an
international level.
*
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V
V
Microfinance: reading the signs and putting the message right
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#
Over the last two-three years we have witnessed the
force of banking throughout the world. Or rather, we have seen how bad policies, regulations and
supervision have caused havoc in the financial sector throughout the western world that, in turn,
caused one of history¶s gravest and global economic crisis.
The ³Sub-prime Mortgage´ lending hype was the single biggest cause of the crisis. Western
government bodies, banks and institutional investors put loads of money in the social housing
finance programs in the United States of America. They could not care less of the common sense
that credit risks and the market value of the collateral could not be assessed. ³Piggy-banking´ on
the people¶s focus being fixed on regular high returns, a bank (Ice-Save) in one of the world¶s
smallest economies, Iceland, attracted billions in deposits from private savers in ·reat Britain
and the Netherlands just by promising a high fixed interest rate on its website. And the New
York ³darling of charities´ Bernie Madoff attracted some 57 billion US$ from all kinds of people
on the basis of no other information than again a promised fixed rate of return. So-called experts
bet huge loads of money on myths that any citizen in the street could have serious doubts about.
And so we now witness what some call is the worst crisis in Micro-Finance, one that could
damage its reputation so badly that it will finally disappear as the development aid¶s ³flavor of
the month´. We can all read this in CSFI¶s recently published ³Microfinance Banana-skins´.
Could we have seen this crisis coming? I would say yes, and since the start of the debate in the
late 1990-ies on the title of the United Nations¶ YearofMicrocredit that took place in 2005, I did.
Then Professor Yunus, Sam Daley of the MicroCredit Summit and Jeffrey Sachs of the Harvard
University (now the UN¶s Secretary ·eneral¶s closest advisor on the Millennium Development
·oals), started developing and spreading the Microdebt Myths: that the poor can borrow their
way out of poverty, that the poor can easily pay back interest rates that are astronomically high
compared with those banks ask and that Micro-lending is a profitable business opportunity for
institutional lenders and investors throughout the world.
Over the last three years, the above CSFI showed in its ³banana-skins´ that credit risk shot up to
the top of the risks identified by Microlenders from all regions on the globe. From all the popular
Micro-debt countries, Bolivia, Peru, Bangladesh, recently in Nicaragua and in India, strong
protests have come since the first popular micro-borrower revolt in Bolivia already over a decade
ago, that poor people, including fast-moving traders, do face problems in paying high interest
rates and that they have other priorities than to remain faithful to micro-lenders.
And since the Comportamos (Mexico) debate that started in 2009 on the internet debate
³DevFinance´ organized by the Ohio State University (OSU), repeated by the debate on Indian
SKS, we see that making a profitable business on the backs of poor borrowers has its moral
boundaries.
As some have argued since the 19th century, what poor people need more than the rich is to
manage their money safely, quickly, flexibly, prudently in a structural and affordable manner.
Only ten years ago Microfinance researchers dared to report centuries¶ old common sense that
the little money, on which the survival of poor people often depends, is at grave risk of theft, loss
or unnecessary expense. No wonder that in all countries throughout the world, visionary leaders
in those times created postal banks, (state and municipality ± owned) savings banks, and they
developed principles on how poor people could themselves create such deposit-led autonomous
financial institutions, as cooperative societies for instance. As a matter of fact, only the world¶s
most stable and truly social democracies (with the lowest murder as well as prisoner rates and the
rarest of food aid programs for its own citizens) have succeeded to, with these models, build
nearly fully inclusive financial sectors, where nearly every citizen, from cradle to grave, has a
savings or a basic transaction account with a commercial bank and where they all have public
health and house insurance. The state-owned banks and cooperative financial services societies
have all transformed into financially sustainable, profitable banks that compete with other banks
whose owners, managers and clients only desire rapid maximum income gain.
Current ³bravados´, surfing high on political, economic, financial and mineral waves, but who
are still confronted with massive poverty challenges, including Brazil, Russia, India and China,
should be aware of at the same time calling themselves ³developing´ countries requiring trade
law exemptions and massive financial aid from the ³wealthy donors´ in North America and
Western Europe. CSFI and the Microlenders it interviewed now consistently put credit risk,
political risk and reputational risk on the highest level. It seems naïve to just entitle the 2011
Banana Skins ³Losing its fairy dust´ and to not see a risk regarding the flow of ³socially
responsible´ lending and investing of the likes of World Bank (including IFC and C·AP),
United Nations Organisations, regional development banks whose trustfunds also depend on the
generous donors, next to the national ³development finance institutions´ (DFIs) such as KfW
(·ermany), FMO (Netherlands), AFD (France), DFID (UK). They are also convinced of the
continuing growth of below market rate funds of socially motivated private lenders and investors
such as Accion, Alterfin, Blue Orchard, Calvert, Citibank, Deutsche Bank, Dexia, HSBC,
Morgan-Stanley, Oikocredit Triodosbank/Doen Foundation. It seems to me quite logical to say
that high credit risk, reputational risk and political risk is a deadly combination for banks, but
especially for microfinance institutions that strongly depend on local political support and
foreign financial support. Last year two US-based organizations suddenly stopped their once
large microfinance activities in silence: Unitus and Southshore Bank. If Microfinance will
continue to witness widely publicized criticism, especially regarding its social impact, then other
socially motivated donors will follow.
With this message I want to provoke the world¶s largest magazine that focuses on Microfinance
and is established in a country and managed by citizens of a country with massive and
unrelenting absolute poverty. Please stop for a moment in reporting what others say. You have
also been a tool in creating and strengthening the myths of Microfinance, in particular of the
benefits of micro-loans, microfinance institutions and their supporters. Become the Message,
develop a common sense message. Building inclusive financial sectors is what poor people
desire from Microfinance as its particular and potential, meaning still to be realized, strength.
Microfinance is not lending only, in fact it might come last, but what is more important, it needs
to be separated from enterprise development, job creation, agricultural development and from
developing social safety nets. Furthermore, Microfinance needs to be recognized as a LOCAL
process in which foreign organizations and consultants might have a role, but only when they
integrate into such process. And it needs to be recognized that as any local process that aims at
building and protecting its people, it needs to be based on a national strategy, a national policy,
transformed into a coherent and consistent legal framework whose compliance by all parties is
ensured.
Indeed areas such as SUSTAINED job creation, enterprise development and food production are
equally if not more urgent priorities in national development, but if anything, the popular uproar
in Tunisia and in Egypt also demonstrates the total failure of their political micro-credit
programs1 to support the development of the above areas. Financial sector development,
integrating so far unbanked people and areas in legally protected activities of professional money
management, is a specific technical skill in a context of strong commitment towards sustained
nation-building.
It has been said before over the last months, a crisis represents an ideal opportunity for change
but in the case of Microfinance, it may benefit a lot from a confident and loud message from
your magazine and its readership to once and for all ³bust microfinance myths´ and to define
what this sector is all about.
About the Author:

Peter van Dijk is a lawyer by training with 16 years of experience in Microfinance and Financial
Sector Development. As an independent consultant he advises governments, central banks and
development agencies on policy, regulation, supervision and capacity building. He worked in
Central Europe, Africa and Asia and lives in Indonesia. If you want to get in touch with the
Author, His email id : petrusvandijk@yahoo.com
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How can technology co-create value for Microfinance investors?
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By Arvind Ashta, Burgundy School of Business (·roupe ESC Dijon-Bourgogne)
Microfinance Focus, February 11,2011: V

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It is often considered that a country is poor because it is poor and that exogenous capital is
required to break the vicious circle of poverty. Within a country, the poor may need this
exogenous capital: ³Nobody gives the poor the first dollar,´ says Muhammad Yunus, the Nobel
Peace Prize winner. Part of the reason lies in their lack of human capital and the inability to use
technology, part of the reason lies in asymmetric information keeping banks from lending to
them, and part of the reason lies in the small transaction size leading to high transaction costs.
Yunus foresaw that the poor could get together in groups and thus allow MFIs to overcome
asymmetric information without actually getting the information (the poor know who amongst
them are bad risks and therefore do not include them in groups). Similarly, technology
companies are realizing that if the poor can use telephones, then that is sufficient for them to get
into the field and provide them micro-services which make it possible to lower transactions costs
in dealing with them. One such service is mobile payments which has grown exponentially and
has features of mobile banking.
The boom of microfinance and its high profits as attested by Compartamos in Mexico and SKS
in India has indeed raised investor interest in this sector. For many years, most of the private
investment capital was limited to the top 150 to 200 tier 1 MFIs. However, now there is evidence
that many of the tier 2 companies do become profitable with time and scale, if they are well
governed. Some private equity is therefore now searching for such MFIs.
The problem with tier 3 and tier 4 funds is like that of the poor borrower: "nobody gives the
small MFI the first ten thousand dollars". Yet, if it can be seen that many of these tier 3 MFIs
will be young turks who will move up quickly to tier 2 and eventually to tier one, then patient
venture capital could be attracted.
A host of private equity and venture capital funds are coming up to invest in this sector to serve
tier 2 and tier 3 MFIs. To understand why, it is best to resume how private equity works. In
general, the first consideration of these funds is to find mispriced firms and to buy cheap, add
value and sell out. To do this, they invariably select high growth industries. They leverage debt,
focus on cash flows and not on earnings, they reduce costs, they focus on core businesses where
the target can outperform its rivals and they have a good exit strategy. In addition, they usually
align managers¶ incentives and make quick decisions since they are privately owned. In recent
years, the guidance role of nurturing the small business to scale is being stressed.
What does this mean for microfinance? First, since microfinance sector is growing at the rate of
30% per year, private equity funds in general and venture capital funds in particular would like
to enter this segment.
Their main questions are
· Selection: In which MFIs should they invest, out of the 10,000 exiting MFIs?
· ·overnance: How are these MFIs governed?
· How will this MFI scale its business and profits?
· Will the private equity manager be able to provide the right technical guidance?
The selection of MFIs requires partnering with a firm which already knows the local
microfinance sector well and can diligence investments in order to direct the funds to well
governed MFIs. This already lowers the risk of the investment fund.
The main question remaining, then, is how to ensure that the selected companies grow.
Evidently, in this age of dynamic interconnectivity, any business offer becomes competitive if it
uses the strengths of a large number of complimentary actors to get together to provide a rich
experience to the final consumer or to the business manager. In this case, a group of
organizations needs to come together to ensure that investors¶ money is going to the right MFIs
and that the MFI would get the necessary advice to sustainably scale its operations. This is called
co-creation by C.K. Prahalad and Venkat Ramaswamy.
Increasing the profits of the MFI requires better management, new delivery channels and new
products. The single most important technology for scaling is considered to be good MIS. The
single most important delivery channel for the poor is using mobile telephone for payments. The
new products for microfinance are microinsurance and micro-transfers of money. Any
investment fund manager who wants to invest in this sector needs the capacity to bring together a
team of technical advisors to simultaneously provide these different inputs to the MFI and
transform it from a 10,000 client single-product company to a 100,000 client, multiple product,
multiple channel company.
One fund who understand all this is Riskebiz which just launched its fundraising. Before this
launch, it brought together a team of players who have the technology and the interest to develop
the market for the poor. The figure below shows how the team of players will co-create value for
the poor, for the MFIs and, eventually, for the investors. The thin arrows indicate movement of
funds, the blue arrows indicate information flow between partners and the thick green arrows
indicate impact on the system from the partners.
Riskebiz has partnered with Planis (on February 2, 2010), who is now merging with
ResponsAbility, and who knows the microfinance sector very well, being associated with the
PlaNet finance group, who are probably the second largest private multi-service provider to the
microfinance sector. PlaNIS has been able to link private and institutional financial market
players to the local microfinance sector. It aims at meeting the growing needs of developing and
promising microfinance institutions, providing them with tools usually used by and reserved to
other markets. PlaNIS can be viewed as a bridge between international funds and microfinance
institutions. Its major fields of expertise include sourcing promising and leading microfinance
institutions by geographical area; providing a high quality investment and credit risk analysis
leading to professional advice; and monitoring investments through adequate financial tools.
PlaNIS' projects include the development of structured financing activities through the
syndication or arrangement of mandates and through more sophisticated structured transactions,
such as collateralized loan obligations. PlaNis will help Riskebiz select the right institutions as
well as monitor their performance.
To help the MFI scale up, to increase its efficiency and to reduce cost, attention is being focused
on Software-as-a-Service . This is a model where one software solution is hosted online and
provided to MFIs on a pay-as-you-go basis. This removes the burden of MIS and hardware
management from the MFI and increases external trust & transparency into the MFI. Riskebis
has selected Mambu as the online software application for its microfinance organizations. It is an
easy way for organizations to manage their portfolio and enable their growth and success in
providing financial services to the poor. The MFIs will access the Mambu software on the
Internet using a web browser. Each microfinance institution will have a private, secure login
access with all their information which they can access and extract at anytime. MFIs won't need
to install anything or manage the technology behind the application. They don't need to worry
about maintenance, backups, server hardware, databases, security or upgrades; the only thing
MFIs require is an Internet connection. The use of this information system could offer investors
real-time access to reports. Mambu indicates that using the SaaS model is a first for the MFI
sector, which means greater transparency, quicker sharing of information and ability to react
quicker to any changes within the MFI market.
The use of the mobile payment delivery channel will be facilitated by Riskebiz's partner, Kopo
Kopo, who will provide the software link between MFIs and the telephone operator, also on a
SaaS basis. Kopo Kopo facilitates the expansion of mobile financial services to the µlast mile¶.
They leverage leading internet and mobile technology to lower institutional barriers to entry,
increase efficiencies, and empower both the MFI's customers and the people they serve. Kopo
Kopo offers a software-as-a-service platform that enables microfinance institutions to easily
integrate their enterprise software with one or multiple mobile money systems. The service is
available on a tiered subscription basis and allows enterprises to access the functionality they
need without paying licensing, installation, and professional services fees to software vendors.
Several microinsurance products are being developed by Avana, which will be offered by
Riskebiz's MFIs to their custsomers, thereby reducing risk in the MFIs¶ loan portfolios,
diversifying their revenue base, and enhancing their social impact within the community. Avana
Microinsurance is a social enterprise that seeks to expand access to insurance among the world¶s
poor by developing and managing affordable, demandÈdriven products to low income clients
using risk capital of established insurance and reinsurance companies.
To make this microinsurance less risky, the health of the poor will be checked and monitored by
advanced technology developed by Fio Corporation. Fio is converging smartphone technology,
biotechnology, and nanotechnology to create portable, digital diagnostics for infectious diseases
at point of care in developed and developing countries alike. Designed to work with a droplet of
blood and to be operated by minimally trained users in a broad range of minimal infrastructure
settings, this technology supports a novel business model capable of altering how the world
manages its leading cause of death, disease, and economic disruption. Fio successfully
demonstrated its prototype in December, 2010 and has begun initial field tests in early 2011. The
constant checks may help raise health consciousness and increase the productivity of these
micro-entrepreneurs and reduce the risk of the MFI.
Thus, a multi-pronged strategy will lead to co-creation of value by combining Finance and
Technology to enable the poor to get out of poverty. It¶s about lowering Risk and increasing
Business, says Kevin Day, the president of Riskebiz.
---
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Arvind Ashta holds the Microfinance Chair of the Burgundy School of Business. He has
authored a number of papers for Microfinance Focus. He has edited a book on Advanced
Technologies for Microfinance: Solutions and Challenges, published by I·I ·lobal.
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Innovation in low cost technologies for rural masses needed- Vilasrao Deshmukh
Submitted by rubeka on Thu, 03/31/2011 - 17:53
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c Indian Union Minister for Rural Development and
Panchayati Raj, Vilasrao Deshmukh recently addressed the 55th Executive committee meeting of
Council for Advancement of People¶s Action and Rural Technology (CAPART) on the need to
work for innovation in low cost technologies for the welfare of rural masses.
Deshmukh said that the focus should be on reaching out to the people in rural areas with models
which are locally appropriate and that CAPART should strive hard to ensure people¶s
participation and partnership with N·Os for effective implementation of ·overnment¶s
programs.
³The need of the hour is to strengthen the Regional committees of CAPART so that region
specific and local issues can be addressed,´ he said.
The Rural Development Minister also highlighted the need to have a convergence of different
rural development schemes so that the development works in the villages are sustainable and
environment friendly.
The meeting was attended by the likes of Secretary Rural Development, B.K.Sinha, Secretary
Drinking Water Supply and Sanitation, Arun Kumar Mishra, D· CAPART, Mohammad Haleem
Khan along with the other Senior Officials from CAPART and the M/o Rural Development.
Mihir Shah, Member Planning Commission was the Special invitee in the meeting.
CAPART was formed in 1986 through the amalgamation of two agencies namely the µCouncil
for Advancement of Rural Technology¶ (CART) and People¶s Action for Development India
(PADI). It is a promoter of rural development in India, assisting over 12,000 voluntary
organizations across the country in implementing development initiatives.
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Alleviating Poverty through Internet Microfinance: Interview with Kiva President
Submitted by admin on Tue, 03/29/2011 - 11:30
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c
c; : This past January, I attended a presentation on Kiva, a
web-based microfinance lending N·O and one of America¶s most recognized microfinance
brands. The presentation, which took place at The College of William and Mary in
Williamsburg, Virginia included an informal meeting between Austin Choi, Kiva¶s general
counsel and aspiring professionals at William and Mary¶s law school, followed by a presentation
on Kiva¶s mission and methods. Kiva strives to ³connect people and help people,´ said Choi
during the presentation. Inspired by Kiva¶s creative use of technology and modern business
practices, I contacted Kiva President Premal Shah to discuss the story of Kiva¶s success.
Kiva.org, based in San Francisco, California, addresses global poverty by enabling members of
the online Kiva community to provide loans to potential small business owners in developing
countries. On the main page of the Kiva website, the quote ³Empower people with a $25 loan,´
reads in large white letters against a green background. The Kiva network is user friendly,
aesthetically pleasing and an impressive example of how the Internet can make the world a better
place.
In an online poll, Kiva lenders said that they choose to loan through Kiva because ³I can make a
difference in someone¶s life without spending a lot of money.´ Kiva members can lend any
amount between $25 and the total amount of the loan request of any borrower profiled on the
network. The first seven Kiva loans were funded in 2005, for a total of $3,500. Today, there are
over 565,079 Kiva lenders and the organization has raised nearly 200 million dollars for people
wishing to start a business and strengthen their community.
The Kiva lending model is innovative, interactive, and allows a large number of loans to be
funded without much overhead cost. First, Kiva partners with a microfinance institution (MFI),
then Kiva¶s field partners disburse loans and upload pictures and stories to the Kiva website.
Online lenders browse stories and decide which loans they would like to donate to. According to
the Kiva website, the last step in the process occurs when ³the field partner uses the funds to
replenish the loan they've already made to the entrepreneur.´ Through the Kiva system, MFIs
can afford to make more loans and people are connected for a cause.
Kiva met some controversy a few years ago when it was revealed that Kiva¶s MFI partners were
dispersing loans before loan requests were fully funded online. It was explained at the William
and Mary presentation that Kiva¶s field partners want to fund a loan request as quickly as
possible, especially since borrowers cannot afford to wait. However, members believed their
sponsorships determined whether or not a loan request would be funded and complained to Kiva
management about the lack of transparency between Kiva and the Kiva community.
Kiva says it did not intend to mislead its lenders, but was just taking the casual lender into
account when creating KIVA¶s ³About´ page. The correct information was located elsewhere on
the website. When this controversy arose, Kiva quickly changed its ³About Us´ page to more
accurately convey the Kiva lending process (see flow-chart below).
During this time of controversy and change, the microfinance industry can learn from Kiva¶s
ability to partner with the public, respond quickly to criticism and provide a transparent lending
model.i Matt Flannery responded in an article that Kiva could ³do better´ and that ³Although the
µMake a Loan¶ pages contained the disbursal date, the µHow Kiva Works¶ page was over-
simplified to a fault. To address this, in the short term, we updated the page last week. It now
contains more detail with regard to pre-disbursals.´
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³By connecting people we can create relationships beyond financial transactions, and build a
global community expressing support and encouragement of one another,´ says Premal Shah,
President of Kiva. Shah and Kiva¶s two founders, Matt Flannery and Jessica Jackley, were
employed by online companies (Paypal, Tivo and Amazon respectively) before they entered the
field of microfinance. Shah took leave from Paypal to test Internet microfinance in India. When
he returned to Silicon Valley, he quit his job to work at Kiva.org with Flannery and Jackley, who
had already resigned from their for-profit companies to pursue their interest in social
entrepreneurship.
As President of Kiva.org, Shah applied his knowledge of Silicon Valley breakthroughs to the
world of microfinance to help the organization become an industry leader. In 2009, Shah was
named a ³Young ·lobal Leader´ by the World Economic Forum, and placed on Fortune
Magazine¶s ³Top 40 under 40´ list. During our interview, Shah shared his thoughts on
technology, social good, and the future of microfinance.

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Premal Shah: In 1996, I stumbled upon the field of microfinance as a college sophomore
studying economics at Stanford University. My family is from ·ujarat, India and after several
trips back to India, I had developed a sense by the age of 20 that I wanted to "do something" in
my life that would help bring more justice to the world. Hearing about microfinance (at the time,
focus was much more on microcredit) made me so excited!
It appeared to blend what I was studying (economics and business) with what I cared about
deeply (poverty alleviation). I did everything I could over the next few years to learn about
microfinance. At that time, the Internet as a research tool was just starting to take hold on
campus. Ultimately, I received a grant from Stanford to research the Self Employed Women's
Association (SEWA), an MFI in ·ujarat, India.
Seeing SEWA provide low-income women credit, support and a variety of other services made
me a believer in the power of MFIs, and especially their frontline credit officers. The potential
for our generation to help nurture sustainable platforms for financial inclusion and other services
valued by the working poor is something that excited me back then, and continues to excite me
now.

c
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#! & ! -
Premal Shah: Around the same time that Matt Flannery and Jessica Jackley launched Kiva, I was
taking a sabbatical from my job (at PayPal at that time) and working at a microfinance institution
in India. During that time, I started wondering what would happen if you posted microborrowers
on Ebay. I tried it, but the loan applications were quickly removed by Ebay¶s compliance
department.
Essentially, Matt, Jessica and I were experimenting with the same idea on two different
continents: how could we use the Internet to help alleviate poverty through micro-lending? Once
I saw the website they had built, I knew I wanted to join their team.
c
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% &

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Premal Shah: Kiva¶s mission is to connect people, through lending, in an effort to alleviate
poverty. Being born in India, and having gone back to visit as an adult, I¶ve seen a lot of poverty
and the harsh conditions many people live in around the world. I¶ve also seen that these people
are highly motivated and can be very successful when given an opportunity. I feel strongly that
Kiva can make a big difference in alleviating global poverty.

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Premal Shah: It¶s an important distinction for us that Kiva borrowers are not receiving donations
± they are receiving loans that they are responsible for repaying. Lenders are not giving money to
people through Kiva ± they are lending it.
If you lend money to Tarek in Lebanon to purchase seeds for his farms, he becomes directly
responsible for repaying you. Lenders and recipients have a one-to-one link and a common
interest in their success. Additionally, lenders do not collect interest on their loans. They only
receive principle back, as repaid by the borrower.

c
8 ! -8

! -
Premal Shah: The Internet makes it possible for Kiva to facilitate loans quickly, efficiently, and
on a large scale. It¶s changed microfinance by helping it grow and reach corners of the world that
were previously untapped.
Additionally, the Internet has brought microfinance into the mainstream. It has made it so that
anyone can get involved ± all they need is an Internet connection and $25. That incredibly low
barrier to entry has helped raise awareness and get more people involved.
I think the Internet will continue to change microfinance quite significantly as mobile payments
become more sophisticated. Currently, Kiva works with local field partners to disperse loans to
entrepreneurs on the ground. We hope to someday facilitate loans directly from entrepreneur to
lender via mobile payments.

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68

!! ! = ##
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Premal Shah: I think the responsible players in microfinance are focused on sustainability. If an
innovative and responsible MFI cannot cover its own expenses, then it cannot continue to offer
vital products and services to unbanked people.
Commercialization is not in itself the problem. Many not-for-profit MFIs opt to transform into
formal, for-profit institutions in order to offer additional services such as savings that are more
tightly regulated. The experts agree that savings and credit are both necessary to truly impact
poverty.
Investors like Kiva play an important role in promoting both the social mission and the
sustainability of the MFIs they support. Demanding high bars and supporting partner MFIs to
reach them will ensure that responsible microfinance wins out.
c
8 &4 -
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=
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Premal Shah: Kiva currently works with over 120 Field Partners and, of those, about 20 percent
are registered as for-profit companies. While the majority of Kiva¶s Field Partners are not-for-
profit, we do not have specific guidelines to prevent for-profit institutions from being included,
so long as they are socially-driven.
In some countries, such as Cambodia, microfinance institutions are not permitted to register as
not-for-profit entities; they have to register as for-profit companies.
Also, a for-profit legal structure does not necessarily mean that the MFI is not socially-driven.
All Kiva Field Partners are carefully vetted and selected for their strong social mission and
closely monitored to make sure they lend responsibly.
c
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6+ -
Premal Shah: Some country regulatory environments can be very challenging. In China and
India, the regulatory structure has not been favorable to Kiva¶s lending model. Kiva lends in US
dollars and is repaid in US dollars. In India, there are strict laws about repatriation of funds that
would require Kiva Lenders to wait for three years to be repaid. We are currently exploring
alternate ways to get into these and other countries.
c
& &

#

! 6,

% &

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Premal Shah: Kiva is a grass-roots organization, and our amazing team of volunteers is crucial to
our mission of alleviating global poverty. We currently have a team of around 400 volunteers
that includes an intern team at Kiva Headquarters in San Francisco, the current Kiva Fellows
class, and a huge team of volunteer translators and editors around the world.
HQ intern opportunities are based on particular assignments as they come up and generally run
for 4-8 months. Kiva Editors volunteer from their own homes to review and edit the loan profiles
posted on Kiva¶s website, while Kiva Translators work to translate the loan profiles. Kiva
Fellows travel to and live in the host country of one of our partner microfinance institutions for a
minimum of 12 weeks. By journaling on the behalf of our MFI partner, Kiva Fellows are able to
convey the impact of a Kiva loan on an entrepreneur. We¶re incredibly grateful for the work our
volunteers do, and Kiva wouldn¶t be what it is without them.
c
8 &

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#-
Premal Shah: Borrowers are at the heart of our mission and, therefore, drive a lot of our
processes. In 2010, Kiva made a bold commitment to collect social performance data on all of its
active partners. These social audits are conducted by Kiva staff and fellows and are designed to
explore many areas of responsible microfinance, including collection practices, to ensure that
Kiva Field Partners are performing in ways that are generally beneficial to the social well being
of their borrowers.
Kiva also encourages all of its Field Partners to endorse the Smart Campaign of client protection
principles. Three of the six principles revolve around the relationship between MFI staff and the
borrower.
c
&! & > *6

! &-'
% !-
Premal Shah: In June 2009, Kiva expanded its microfinance presence to reach U.S. entrepreneurs
and has since helped facilitate nearly $1.5 million in loans to U.S. businesses. We started in New
York and the Bay Area with our partners ACCION USA and Opportunity Fund. In October of
last year, we partnered with Visa to further expand our reach in the U.S., specifically on the ·ulf
Coast, with our Field Partner ACCION Texas-Louisiana.
Our U.S. expansion is still in pilot mode, as we continue to evaluate payback rate and success of
the program. We are constantly working to expand our partnerships to all regions across the
globe at a pace that is healthy for both our current partners and for Kiva.
c
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& > *
! ! = . !& & 6+

.
& !-
Premal Shah: The modern microfinance movement arguably began in the ·lobal South.
Innovators like Mohammed Yunus and the ·rameen Bank built robust systems that served large
numbers of poor people and that group-lending model has been mimicked in many countries of
the world. While there are relatively few large-scale microfinance institutions in the United
States, there are many, many small-scale MFIs making a big difference in their communities.
Kiva is excited to be working with ACCION USA, ACCION Texas-Louisiana, and Opportunity
Fund to support borrowers in the United States. Keep an eye on our website over the next few
months for an exciting development in Kiva¶s support for U.S. microfinance as well.
c
&! ! &

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#

!-
Premal Shah: Many institutions in the microfinance industry have the mission of reducing
poverty in the area where they work. Another group of institutions are focused on a broader goal
of bringing financial services to unbanked people. These are just two of many social missions
that drive microfinance institutions to create positive opportunities for individuals all over the
world.
Other social missions could be empowerment of women, economic growth of a particular

geographic region, or providing holistic development and non-financial services (in addition to
loans).
While we aren¶t in a position to speak on behalf of the industry at large, we believe that we have
been successful in leveraging the fact that people are by nature generous, and will help others if
given the opportunity to do so in a transparent, accountable way.
--
i.http://www.casefoundation.org/blog/kiva-illusion-person-person-giving
ii.http://www.kiva.org/about/how
Interviewed Person Name:

Premal Shah
Microfinance Tech firm Kredits receives USD$4.5m investment
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Microfinance Focus, March 16, 2011: Kredits, a technology solutions provider for microfinance
institutions (³MFIs´), announced it has received a USD $4.5 million investment from Sophia
ApS, a Danish investment vehicle. Kredits will use the investment to accelerate delivery of new
technologies and expand its global client services presence.
³We are excited about our partnership with Shailendra Robin Patel, Founder of Sophia ApS, who
helped build Saxo Bank into one of the world¶s leading online financial institutions,´ Mr. Eggert
added. ³Robin¶s experience in building successful, scalable financial services will strengthen our
ability to meet growing demand for business driven solutions. Our commitment is to help MFIs
accelerate their outreach in providing financial services to the world¶s poor on an affordable
basis.´
Kredits is internationally recognized for the outstanding scalability and reliability of its
technology solutions, and its ability to conform to any MFI¶s unique set of operating
requirements. An acknowledged industry leader, Kredits was one of the first solution providers
to support the ·rameen models and all principal forms of microcredit, savings, insurance and
livelihood financing.
Kredits will present its solutions at the Microfinance Centre Annual Conference in Prague on
May 18-20, 2011.
Mobile Microfinance creates significant impact on increasing financial inclusion: Study
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c PlaNet Finance, an International microfinance support
groups and Oliver Wyman, a management consulting firm has published a joint report ³Beyond
payments ± Next generation Mobile Banking for the Masses´ today. This work, sponsored by the
Bill and Melinda ·ates Foundation, aimed to look at distribution strategies and second
generation mobile microfinance products via pilots in West Africa and South-East Asia.
Drawing on their on-site experiences in pilots conducted in West Africa and in South-East Asia
in the course of 2010, the study explains the challenges in deploying mobile microfinance and
offer strategic and operational solutions.
Two distinct innovative models have been explored through the pilots:
The distribution of microfinance through mobile money via existing microfinance banks
The distribution of microfinance through a virtual microfinance bank, operating as a pure
mobile player.
³The study outlines that the benefits of these models include a more than twofold increase in
access to banking, 20-50% lower operational costs for the microfinance institution and revenue
or market share benefits for the Mobile Network Operator´, say Arnaud Ventura, co-founder and
Vice President of PlaNet Finance ·roup.
)

Mobile Microfinance can have a significant impact on increasing financial services access for
unbanked subscribers by eliminating all the disadvantages of physical bank branches. The
benefits of this service are both social and economic.
It is a cost-effective way for banks and MFIs to reach the masses by capitalizing on the
widespread penetration of telecom distribution networks.
Sierra Leone¶s Microfinance inst Hope Micro to offer mobile money services
Submitted by admin on Mon, 02/28/2011 - 17:58
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Hope Micro, a microfinance institution based in Sierra
Leone has partnered with Kopo Kopo and Splash Mobile Money to bring mobile financial
services to their 16000 microfinance customers.
Hope Micro plans to scale the service in order to offer both loan disbursement and repayment
through Splash Mobile Money to all of its 16,000 customers. Hope Micro is the first
microfinance institution in Sierra Leone and one of the first in West Africa to offer mobile
financial services.
Hope Micro customers may now repay their loans using Splash Mobile Money, a service
allowing users of the top three mobile networks to load cash to their phones, send money, pay
bills, withdraw cash, and buy goods.
SD Kanu, the Executive Director of Hope Micro said, ³Making payments at our office takes the
client away from their business. We partnered with Splash and Kopo Kopo in order to make our
services as convenient as possible and put more money into the pockets of our customers.´
Kopo Kopo, a US-based organization offers a software-as-a-service platform that enables

microfinance institutions to integrate one or multiple mobile money systems with their core
banking software on a pay-as-you-go basis.
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Nuru Int¶l, M-PESA to promote Microfinance Mobile Banking in rural Kenya
in
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Microfinance Focus, February 25, 2011: US based social venture firm, Nuru International, is
promoting innovative new technologies for mobile banking to increase access of basic financial
services for rural households living in extreme poverty in Kuria, Kenya. The organization will
work with Mifos cloud-based MIS and M-PESA mobile money transfer services to create a
viable solution to some of the issues that persist in providing financial services in rural areas.
Community Economic Development Program Manager, Vivian Lu said, ³One of the biggest
problems we face when it comes to finance and banking for the extreme rural poor is how to
disburse loans and payments to our farmers, we don¶t want to give large amounts of cash to them
because they have to cover long distances on foot, have no secure place to keep the cash, and
robbery and theft are real concerns.´
The combined technologies of Mifos and M-PESA have helped create a branchless banking
structure, allowing Nuru members in remote areas of Kenya access some of the basic financial
services that traditional banks offer.
M-PESA, a mobile phone based money transfer service offered through Safaricom, allows users
to transfer money to other users, pay bills, and purchase air time. The service has great potential
to be leveraged in mobile banking, allowing people to complete basic financial transactions
without needing to visit a physical bank. Mifos is developing integration with M-PESA and
allows Nuru an affordable way to scale. Due to it being a cloud-based application, Nuru can
access it from mobile phones and netbooks, improving its reach in rural areas.

Micro Finance Focus May 11

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Micro Finance Focus May 11

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