News: Major world banks join microfinance revolution
(GM 23/11/2006) Halifax - In the district of Kanchipuram in southern India, groups of silk weavers are using small loans to diversify into new designs of scarves. Repayment rates are high, but a new challenge has emerged -- some of the impoverished borrowers are defaulting because of poor health.
The solution? Micro-insurance.
The Kanchipuram project is part of a new trend in financial services that is bridging the gap between world's biggest banks and the world's poorest people. Citigroup Inc., the largest U.S. bank, is forming local partnerships in the microfinance sector, and not just because of altruism.
"There's an enormous need and a tremendous opportunity to provide services to people -- credit, but also insurance and savings," said Robert Annibale, global director of Citigroup's microfinance group. "I hope one day we'll reach as clients many of today's unbanked people." Citigroup may be just the tip of the iceberg. Barclays Bank and Goldman Sachs are getting involved, and so are large institutional investors.
Other financial companies, such as Visa International and the big insurers, are climbing aboard. Foreign funding for microfinance is expected to soar sixfold over the next several years as the likes of Bill Gates, Warren Buffett, e-Bay founder Pierre Omidyar and, Vinod Khosla, a pioneer at Sun Microsystems Inc., allocate money to the sector. At the other end, as many as 10,000 microfinance institutions have sprouted to reach the estimated three billion people globally who are "unbanked."
In September, U.S. pension plan giant TIAA-CREF announced a $100-million (U.S.) global microfinance investment program and Citigroup said it's jointly launching a $100-million program.
Scores of retail investors are also piling in, keen to put their money into a feel-good place where it can also generate small returns.
The idea of giving a hand, rather than a handout, is prompting droves of entrepreneurs and bankers -- plenty of whom turned up at the Global Microfinance Summit in Halifax last week -- to leave their day jobs and work exclusively in the sector.
Officials from Deutsche Bank, Citigroup and ING Bank say they are inundated with applications for jobs in the field. Deutsche is using about 100 volunteers -- some of them managing directors from its own bank -- to help review loans.
Marco Coppoolse is one of many entrepreneurs enamoured with the concept.
He was formally chief financial officer of the world's No. 4 car leasing company in the Netherlands, where he oversaw a $17-billion portfolio. Now, he hopes to use his business smarts to raise equity for microfinance institutions.
Expansion plans are also transforming microfinance organizations. Many began life by helping people with health care or education, but soon realized they would be more effective if they could grant loans and offer savings accounts and insurance.
Kenya's Jamii Bora Trust is one. It plans to convert to a full-fledged financial institution to better assist its clients and widen its scope.
Ingrid Munro founded Jamii Bora by offering loans to 50 beggars in the slums of Nairobi in 1999. It's now a celebrated microfinance institution, having kept its focus on the poorest people while becoming self-sufficient and growing to 130,000 clients.
Ms. Munro's biggest concern isn't growth so much as "mission drift" -- a fear that all this money won't get to the poorest of the poor, who by definition are harder and more time-consuming to reach.
"If you get investors in whose interest it is to earn money, then they are likely to pull us away from our mission," she says.
The other problem, she says, is that all this money isn't reaching smaller institutions that are innovative and successful, but don't have a high profile. Studies show that most funding goes to just 250 microfinance groups.
Some see a risk that pots of capital are set to move to a sector that's not ready.
Peter Wall, head of the Microfinance Information Exchange Inc., has seen some financial bubbles in his times and worries one may emerge from microfinance, as programs grow too fast, and defaults and losses mount.
Mr. Wall, a former capital markets specialist at the International Finance Corp. in Washington has crunched numbers on everything from profitability to the number of clients at microfinance institutions.
By his measure, about $1-billion has flowed into the sector from international banks, pension funds, government agencies and individual investors. He figures that number will swell to $6-billion in the next five years.
"If it had the opportunity to grow more slowly, it would work better," Mr. Wall said in an interview at last week's Halifax summit.
He likens the situation to a bottleneck, where capital is set to move even though many microfinance institutions aren't yet tracking their financial performance, nor quantifying whether they're helping the poor, he added.
"It's something microfinance institutions really need to guard against," Mr. Wall said. "Is it really possible to grow at 100 per cent a year in terms of clients and not have defaults?"
The problem could have wider implications.
Russia and China are two vast untapped markets for microcredit, but any sudden jump in the number of borrowers will likely correspond with a rising number of defaults -- and potentially rattle the economies.
Foreign-exchange is another risk. It's unclear who's left on the hook if a country's currency suddenly moves -- the investor, the microfinance institution, or the individual borrower.
Mr. Wall, for his part, is trying to make the sector more transparent, so that institutions can better demonstrate their progress to investors. And he hopes microfinance will surmount its growing pains.
"I've seen good ideas pushed beyond all reasonable limits before," he notes.
The solution? Micro-insurance.
The Kanchipuram project is part of a new trend in financial services that is bridging the gap between world's biggest banks and the world's poorest people. Citigroup Inc., the largest U.S. bank, is forming local partnerships in the microfinance sector, and not just because of altruism.
"There's an enormous need and a tremendous opportunity to provide services to people -- credit, but also insurance and savings," said Robert Annibale, global director of Citigroup's microfinance group. "I hope one day we'll reach as clients many of today's unbanked people." Citigroup may be just the tip of the iceberg. Barclays Bank and Goldman Sachs are getting involved, and so are large institutional investors.
Other financial companies, such as Visa International and the big insurers, are climbing aboard. Foreign funding for microfinance is expected to soar sixfold over the next several years as the likes of Bill Gates, Warren Buffett, e-Bay founder Pierre Omidyar and, Vinod Khosla, a pioneer at Sun Microsystems Inc., allocate money to the sector. At the other end, as many as 10,000 microfinance institutions have sprouted to reach the estimated three billion people globally who are "unbanked."
In September, U.S. pension plan giant TIAA-CREF announced a $100-million (U.S.) global microfinance investment program and Citigroup said it's jointly launching a $100-million program.
Scores of retail investors are also piling in, keen to put their money into a feel-good place where it can also generate small returns.
The idea of giving a hand, rather than a handout, is prompting droves of entrepreneurs and bankers -- plenty of whom turned up at the Global Microfinance Summit in Halifax last week -- to leave their day jobs and work exclusively in the sector.
Officials from Deutsche Bank, Citigroup and ING Bank say they are inundated with applications for jobs in the field. Deutsche is using about 100 volunteers -- some of them managing directors from its own bank -- to help review loans.
Marco Coppoolse is one of many entrepreneurs enamoured with the concept.
He was formally chief financial officer of the world's No. 4 car leasing company in the Netherlands, where he oversaw a $17-billion portfolio. Now, he hopes to use his business smarts to raise equity for microfinance institutions.
Expansion plans are also transforming microfinance organizations. Many began life by helping people with health care or education, but soon realized they would be more effective if they could grant loans and offer savings accounts and insurance.
Kenya's Jamii Bora Trust is one. It plans to convert to a full-fledged financial institution to better assist its clients and widen its scope.
Ingrid Munro founded Jamii Bora by offering loans to 50 beggars in the slums of Nairobi in 1999. It's now a celebrated microfinance institution, having kept its focus on the poorest people while becoming self-sufficient and growing to 130,000 clients.
Ms. Munro's biggest concern isn't growth so much as "mission drift" -- a fear that all this money won't get to the poorest of the poor, who by definition are harder and more time-consuming to reach.
"If you get investors in whose interest it is to earn money, then they are likely to pull us away from our mission," she says.
The other problem, she says, is that all this money isn't reaching smaller institutions that are innovative and successful, but don't have a high profile. Studies show that most funding goes to just 250 microfinance groups.
Some see a risk that pots of capital are set to move to a sector that's not ready.
Peter Wall, head of the Microfinance Information Exchange Inc., has seen some financial bubbles in his times and worries one may emerge from microfinance, as programs grow too fast, and defaults and losses mount.
Mr. Wall, a former capital markets specialist at the International Finance Corp. in Washington has crunched numbers on everything from profitability to the number of clients at microfinance institutions.
By his measure, about $1-billion has flowed into the sector from international banks, pension funds, government agencies and individual investors. He figures that number will swell to $6-billion in the next five years.
"If it had the opportunity to grow more slowly, it would work better," Mr. Wall said in an interview at last week's Halifax summit.
He likens the situation to a bottleneck, where capital is set to move even though many microfinance institutions aren't yet tracking their financial performance, nor quantifying whether they're helping the poor, he added.
"It's something microfinance institutions really need to guard against," Mr. Wall said. "Is it really possible to grow at 100 per cent a year in terms of clients and not have defaults?"
The problem could have wider implications.
Russia and China are two vast untapped markets for microcredit, but any sudden jump in the number of borrowers will likely correspond with a rising number of defaults -- and potentially rattle the economies.
Foreign-exchange is another risk. It's unclear who's left on the hook if a country's currency suddenly moves -- the investor, the microfinance institution, or the individual borrower.
Mr. Wall, for his part, is trying to make the sector more transparent, so that institutions can better demonstrate their progress to investors. And he hopes microfinance will surmount its growing pains.
"I've seen good ideas pushed beyond all reasonable limits before," he notes.
posted by InCar Group Press Room at 13:43
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