For years Muhammad Yunus reigned as the public face of microfinance. It seemed only right when, in 2006, the Bangladeshi economist cum social entrepreneur and his Grameen Bank shared the Nobel peace prize for a micro-lending revolution that has helped millions to earn their own way out of poverty. Yet for the past year or so, microfinance has had another public face, one that troubles people like Mr Yunus. CompartamosBanco argues that the best way for microfinance to help the poor is for it to make a socking great profit.

Since Compartamos listed its shares for over $1 billion in April 2007, it has stirred up an increasingly fierce debate. To Mr Yunus and its other critics, the Mexican bank is no better than an old-fashioned loan shark, earning its huge profits by charging poor borrowers a usurious interest rate of at least 79% a year. Perhaps sensing opinion turning against it, the bank has belatedly sprung to its own defence, issuing a defiant justification of its business in an 11-page "letter to our peers". And it manages to make a convincing case for its strategy of fighting poverty with profits.

Continue reading.

MICROCREDIT is undoubtedly the number one image builder for Bangladesh. It has earned the most coveted Nobel (peace) prize for the initiator Dr Muhmmad Yunus and his Grameem Bank. It has earned many other international applauds for the operators, including the recent "Banking at the Bottom of the Pyramid" prize jointly awarded by the Financial Times of London and the International Investment Institute (IFC) to ASA. Mayor of London Boris Johnson formally announced the prize on June 3 selecting the Bangladesh institution from among 129 institutions of 54 countries.

Although a new conception in world economy and development programme, micro credit is gradually gaining a greater importance there. It is considered as a better way to reduce economic discrimination for world peace and security. This new Bangladesh brand is being included in development programmes of various countries in alleviating poverty across the world.

Continue reading.

New Delhi: Shyama Kumari has a new-found sense of confidence. The 20-year-old college goer taught part-time at a local school for two years and saved Rs8,000, which she has put in a bank account. Her banker? The local drug store.

Kumari isn’t the only one who banks in a shop and shops in a bank. Around 1,400 people in her neighbourhood, Uttam Nagar—a lower middle class colony in West Delhi—have, through shops that include grocers and chemists, opened accounts that now have between Rs20 and Rs 14,000.

It's already launched in Kenya, Afghanistan and Tanzania. And now a mobile money-transfer service from Vodafone is to reach 40 million customers in India. Meanwhile, Microsoft Innovation Centres in Rwanda, Nigeria, Uganda and Morocco are set to provide aspiring business people with the technology to launch new products. And in India, personalised commercial information is being texted to the mobile phones of thousands of farmers in their own language.

These three groundbreaking initiatives were among those revealed at the Business Call To Action conference in May, when CEOs from some of the world's biggest companies unveiled plans designed to both fight poverty and boost business. Hosted by DFID and UNDP, the event also featured President Paul Kagame of Rwanda and President John Kufuor of Ghana. It is the start of a co-ordinated initiative designed to engage the business community with the Millennium Development Goals (MDGs) by enabling poor people to access up-to-the-minute information, money and business expertise, as well as creating new commercial and employment opportunities. Big name companies who have already signed up to the Call for Action include Citi Group, Coca-Cola, Diageo, Microsoft, Thomson Reuters and Sumitomo Chemical. Within five years it is estimated that initiatives from these and other companies will save almost half a million lives, create thousands of jobs, and benefit millions of poor people across Africa and Asia.

Continue reading.

It's no secret in the business world - if you want to start your own business with little risk, you buy a franchise.

For decades, successful American businesses have been franchised, allowing would-be entrepreneurs a safe place to begin their business. Thanks to a team of BYU researchers and developers, the success of franchises is being used to bring people out of poverty through a new initiative called micro-franchise.

For years, economic development practitioners have used micro-finance as a tool to alleviate poverty. Micro-finance organizations give small loans, or micro-loans, to individuals otherwise unable to obtain necessary capital to start or grow a small business.

Many recipients of micro-loans, however, have struggled to get their businesses off the ground, lacking basic business skills.

"Giving micro-credit helps, but it's not the full package," said Jason Fairbourne, micro-franchise initiative director at BYU.

Continue reading.

Leading microfinance lender SKS Microfinance will join hands with Nokia and Airtel for providing cheap handsets to the poor. "This is our pilot project. We are in the process of it and the MoU is soon to be signed," Vikram Akula, CEO of SKS Microfinance said here today.

The company will launch the project in Andhra Pradesh first. "As much as 15 per cent of the customers of SKS are already having handsets. We expect 75 per cent of our customers to go for these cheap mobiles," SKS chief operating officer M R Rao said. 

The company has also approached the Reserve Bank for mobile banking, on which there are regulatory constraints, he said while announcing the performance of the company in the last fiscal.

The NBFC also has plans to venture into newer areas of microfinance and is planning to provide non-financial services like food, consumer durables, health, disaster management to the poor.  

President/Chief Executive, Crown Eagle Microfinance Bank, Mr. Ben Taiwo Ojomo has called on the Cental Bank of Nigeria (CBN) to bar universal banks from microfinance banking sector.

Speaking in an interview with Vanguard at a pre launching of the bank, Ojomo averred that it is misplaced priorities for universal banks to establish microfinance banks as they are supposed to focus on competing globally with other banks.

Speaking on the challenges confronting the microfinance banking sector, he stated, “And also we have loads of people now springing up even the big banks, the high street banks; they want to come back into microfinance. To me I don’t think it is right. It is misplaced priority.

The big banks should aspire to compete with the big banks globally like the Beckley Bank, Natwest Bank, or the Chase Manhattan Bank. But if they are dropping down to microfinance level it is misplaced priority. Because they should be loaning us money, they should be moving into the capital market doing something bigger.

A decade after founding SKS Microfinance, CEO Akula explains how to make money at the bottom tier of the economic pyramid while raising the living standards of the people who occupy it. His company, which provides many small-business loans and other financial services to poor women in India, has a customer base that has been nearly tripling each year and now numbers more than 2 million. Akula attributes his firm's success in part to heeding three principles: Adopt a profit-oriented approach in order to access commercial capital; boost capacity by standardizing products, training, and other processes; and use the latest technology to reduce costs and limit errors.

Collectively, these for-profit maxims reflect a rethinking of the conventional microfinance model, which simply aims to break even. Instead, SKS scales up to achieve growth; the margins are razor thin, but the volume is staggering--160,000 new customers every month. Numbers like that give the company great leverage with partners--insurers, telecom providers, consumer goods manufacturers, and so on--whose products SKS's clients need. Customers are indeed central to Akula's enterprise. Every SKS loan officer is required to do what's best for the client, even if it undermines the firm's short-term interests.

That means everything from traveling far and wide to meet with prospective borrowers on their schedules to scratching out repayment plans in the dirt with them. Such commitment scales up customer loyalty, which ultimately improves the fortunes of not only the clients themselves but also the company and its investors.

Banco Compartamos, the largest microfinance institution in Mexico, is the acknowledged poster child for commercial microfinance institutions (MFIs). From its inception in 1990 until 2000, Compartamos operated as a not-for-profit nongovernmental organization (NGO), receiving $4.3 million from international development agencies and private Mexican donors. In 2000, the organization was reaching 60,000 borrowers— mainly poor women in rural areas. To tap commercial funds for even faster growth, the NGO and other investors converted it to a for-profit business. By the end of 2006, the corporation was serving some 616,000 borrowers—a tenfold increase.

The corporation went public in 2007. For its initial public offering (IPO), Compartamos’ owners sold about 30 percent of their shares to new investors, raising a total of $450 million for the original investors—not bad for an initial total investment of $6 million. Following the IPO, the corporation was valued at more than $1.5 billion. That comes out to an internal rate of return to investors of roughly 100 percent a year, compounded over eight years, reports the Consultative Group to Assist the Poor (CGAP).1

Drawn by their corporate responsibility agendas and the promise of profitability, commercial banks have been entering the microfinance market, with Credit Agricole and JPMorgan among recent entrants. But when it comes to serving the 4bn people living on less than $2 a day, traditional microfinance models are not the only means of expanding access to financial services.

In Ghana, for example, Barclaysoffers deposit accounts to traditional "Susu" collectors, who form part of an ancient system of saving. Some institutions are starting to expand into insurance and savings, while some banks are delivering services through mobile phones.

The microfinance industry has been prominent in offering banking services to the poor. Microfinance hit the headlines in 2006, when the Nobel peace prize was awarded to Muhammad Yunus, a Bangladeshi banker who pioneered the idea of providing small loans to villagers.

Rafael Llosa's company has been lending money to some of the poorest people in Peru for 30 years. It used to be a fairly lonely endeavor. Giving tiny loans to impoverished women to make ceramics or to farmers to buy milk cows was hardly seen as a great business.

Except that it was.

In 1998 the organization Llosa runs, now called Mibanco, converted from a nonprofit into a bank, demonstrating what other microfinance institutions around the world knew too: that the poor are good risks who repay loans on time; get enough of them together, you can not only chip away at poverty but also turn a profit.

Citibank, NA Bangladesh and ASA yesterday signed a credit facility agreement for microfinance portfolio expansion in rural Bangladesh, says a press release.

As per the agreement, Citibank will provide US$ 10 million in equivalent local currency to ASA, one of the world's leading Micro Finance Institutions (MFIs).

Md Shafiqual Haque Choudhury, founder and president of ASA, and Mamun Rashid, managing director and Citi country officer, Bangladesh, signed the agreement on behalf of their organizations. The financing will allow ASA to diversify its funding sources and also disburse more funds to a larger number of micro entrepreneurs, reinforcing ASA's determination in helping the development of the micro-credit sector.

This transaction will mark yet another milestone in the development of micro-finance industry. ASA has also recently received the Financial Times Award for Banking at the Bottom of the Pyramid. According to Financial Times, ASA has a highly efficient delivery model, which they started in Bangladesh and refined and are now migrating it to Africa. "Given Citi's leadership in supporting MFIs globally and expertise in providing exemplary banking solution, we are pleased to tie up with Citibank," said Md Shafiqual Haque Choudhury.