October 3 2006 Issue #4

MicroCapital Monitor The Candid Voice for Investment

MICROCAPITAL BRIEFS

Full articles available on-line at microcapital.org, search by date

Top Stories October:

TIAA-CREF Buys $43m in Frontrunner ProCredit Holding TIAA-CREF, a financial service provider with $380 billion under management, announced the creation of the Global Microfinance Investment Program (GMIP), which “is expected to invest $100 million over the next four years in a range of investment structures, asset classes and risk levels through microfinance institutions (MFI’s)”. GMIP’s first investment is with INSIDE THIS ISSUE ProCredit Holding AG, buying a $43m equity stake, which amounts to a 10% share. This is the largest equity investment in microfinance by a major US-based asset management 1 MicroCapital Briefs: Track microfinance company to date and largest single equity in a micro-bank in the history of the emerging investment and other industry news. 35 news microfinance industry. ProCredit Holding AG, based in Frankfurt am Main, Germany, is the items are covered this month. parent company of 19 micro-banks that operate in , and Eastern Europe. Reuters reports that “at the end of July 2006, the banks had a 1.9 billion euro loan

portfolio that was comprised of 670,000 loans, of which 95 percent were 10,000 euro or 6 Paper Wrap Up: Track research and smaller”. With this transaction, ProCredit continues to distance itself from the pack, recommendations. securing for another year the title of “best in class”. September 21, 2006. Upcoming Events: Track industry events Standard Chartered Commits $500m Partnered with 7 8 Who’s Who: Know the individuals behind the Standard Chartered, the British bank with investments across the developing world, organizations. Featured organization: announced at the Clinton Global Initiative (CGI), that it will invest $500 million in microfinance. 90% of the bank’s profits come from , Africa, and the . The Grameen Foundation, USA commitment, which was one of 3 that the bank made at the 2006 CGI, involves investing $100 million annually for 5 years. The bank will invest the funds in several "multilaterals, 9 Subscription Form: The Monitor will not be bilaterals, NGOs and MFIs, mainly in Africa in Asia” and “is partnered with ACCION free for much longer! Subscribe now before International to drive the initiative." In addition, the bank will offer "training and thought November 15 for a 20% discount. leadership programs" to the partner organizations. Further information is unavailable. In 2005, the bank formalized its approach to the microfinance sector. October 2, 2006. Citigroup Commits $100m Backed by OPIC Citigroup announced at the Clinton Global Initiative (CGI) that it will lend $100 million to microfinance institutions (MFIs). $70 million of the loans will be guaranteed by the US government's Overseas Private Investment Corporation (OPIC). Citigroup has compiled an initial list of 132 microfinance institutions in 39 countries to which it will loan up to $5m. It will make loans in local currencies and focus its attention on smaller institutions which previously had not received much funding. Expansion into “the second tier” of micro- banks beyond the several hundred top performers currently being chased by the buy side MicroCapital would like to recognize the would indeed represent an important milestone. The bank will "leverage its global individuals at CGAP, theMIX.org, and franchise and businesses to extend needed funding and establish banking relationships with a wide range of MFIs." OPIC is a US government agency which provides financing and microfinancegateway.org for their outstanding political risk insurance to US businesses investing overseas. It worked with Citigroup last work disseminating information on microfinance. year to provide $30 million to the ProCredit Holding. September 26, 2006. Thank you!

Top Story September: Price Soars in Equity Bank’s Listing In the first 30 minutes of trading, Kenya’s Equity Bank share prices had increased 47%, The MicroCapital Monitor is owned and published reaching Sh158 (equivalent US$2.29). Many potential buyers were disappointed that the 90 by MicroCapital.org, a division of Prisma million shares were not made available to the general the public. The micro-bank may be Microfinance, Inc., and is led by Chief Editor listed on the Ugandan and Exchanges in the future. The AFRICAP investment David Satterthwaite. For questions, comments or fund and Britak Insurance Firm are among the top shareholders with 5.52% and 10.93%, suggestions, please write to [email protected] respectively. Another 5.52% is held by staff in an Employee Share Ownership Plan (ESOP). or call 617.648.0043, Boston, USA. The rest is held primarily by small-scale Kenyan farmers. Half-year results for 2006 reported total assets of $188 million returning 5.5%. August 9, 2006. microcapital.org page 1 October 3 2006 Opportunity International Nets $50m Grant Issue #4 the ETC Non-Bank MFI Framework to assist MFIs in , , Philanthropists John and Jacque Weberg pledged to donate $50 million , Kygyz Republic, Moldova, , and Uzbekistan. The total to Opportunity International. The money, which Business Week called the “largest microfinance pledge ever”, will be distributed over a ten amount lent out the project will eventually come to $10 million. Prior to this loan, the project had lent to 4 banks in Central Asia. CredAgro is one year period. The Webergs became philanthropists in 1996 after selling of the largest MFIs in Azerbaijan, founded in 1997 by ACDI/VOCA, an their furniture business empire. John Weberg noted that until now, “the big donations were $5 million…[but] a large donation [like ours] brings international non-profit organization. As of the end of 2005 it had assets totaling $5.48 million, a gross loan portfolio of $5.24 million, and a return new attention to the field.” In addition, a researcher from the on assets of 3.19%. October 2, 2006. Consultative Group to Assist the Poor was supportive of the pledge: “[Opportunity] can put [this] towards things that are very high-risk…to push the frontier of what can be done – not just growing what already Participants Sought to Study Securitization works.” Mr. Weberg lives in Phoenix with his wife, Jacque. Opportunity The Center for the Development of Social Finance (CDSF) is launching a International is a US non-profit that provides funding and related project for the development of securitization style static pool analysis to technical services to microfinance institutions. It has 41 regional and the portfolio of Microfinance Institutions (MFIs). This project has received local microfinance partners, in 25 countries. According to its Annual funding support from the Omidyar Network and Taylor Donor Report from 2005, its partners’ loans totaled $345 million, with the Advised Fund of the Rudolf Steiner Global Community Fund. Static pool Philippines at $105 million, followed by Russia ($59 million) and analysis involves the performance tracking of a pool of investments with Montenegro ($41 million). Its assets stood at $63 million, at year end similar risk-return profiles, typically loans that have similar vintages and 2005. October 3, 2006 underwriting criteria. Thus static pool analysis shows a financial institution’s true return on a pool by keeping it static. This allows the Microcredit Summit Campaign and disaggregation of the overall loan portfolio into loan pools whose returns Microfinance Opportunities Make can be more accurately predicted and priced. Static pool analysis has normally not been carried out for MFI portfolios, the constraints being the Commitments at the Clinton Global Initiative need for training of MFI personnel and the expense associated with the Microfinance Opportunities and Freedom from Hunger officially process. CDSF is currently evaluating MFI candidates for the project. announced at the Clinton Global Initiative that they will invest over $3 September 29, 2006. million over the next 3 years in developing a financial education curriculum for the poor in developing countries. The project will be partially financed by Citigroup. The curriculum will be developed ICICI Settles with Indian State Government specifically for low income populations in Latin America, Asia, and ICICI bank has reached an agreement with the provincial government of Africa, and will focus especially on electronic banking. Several Andhra Pradesh, India to cap interest rates at 15% and charge a alternative channels will be used, including classroom learning and diminishing interest rate on the loans disbursed through microfinance public billboards. Microfinance Opportunities is a non-profit institutions (MFIs) in the Krishna district of the state. The revised interest organization established in 2002 which provides research and training rates will be charged retrospectively from April 2006. The state for microfinance organizations. Its activities focus on financial education, government, in turn, has lifted the ban on MFIs loan collections at the microinsurance, and client assessment. Its partner in the program, agreed upon interest rates. The government specifically charged the Freedom from Hunger, is a charity established in 1946 to fight hunger in following MFIs – Spandana, Asmita, Umduma Poddu Pedatha and Share the developing world using self-help programs. The Microcredit Summit Microfin of extortionate practices and subsequently, the Krishna district Campaign (MSC) also made a commitment during the CGI. It will train administration enforced temporary closure of 50 branches of these MFIs, MFIs to use poverty measurement tools with the goal of learning the seizure and destruction of loan records and encouraged non-payment of proportion of people living on less than $1 a day. The program is loans. The Krishna district case is significant given the players involved. expected to cost $922,000 over 6 years and will help the recipients learn ICICI bank is the second largest bank in India based on asset size. In 2005, which of their products are most effective in reducing poverty. MSC is an it reported a net income of about $500 million, operated over 600 branches annual meeting of microfinance actors which provides best-practice and has retail assets of $21.4 billion. Through about 100 rural partnerships, learning opportunities (see events calendar below). October 2, 2006. its portfolio of microfinance investments stood at $227 million and 1.2 million clients at the end of year 2005. The bank had recently announced Microfinance Bill to Indian Parliament plans to add 200-250 new MFIs to its partner base. Two of the MFIs involved, Share Microfin and Spandana, are the largest MFIs in India. A draft of microfinance legislation is ready to be put before the Indian September 29, 2006 Parliament within the next three months. The legislation will focus on regulating and developing the growing microfinance sector in India. The bill aims to nurture the microfinance movement in India, replacing MicroCredit Enterprises Lends $1.9m informal local moneylending, as well as expanding and enforcing MicroCredit Enterprises loaned $800,000 to the Lift Above Poverty regulation within the sector. Vinod Rai, special secretary for banking in Organisation (LAPO), $500,000 to International Micro-Loan Fund (IMON), the finance ministry, announced this news at a seminar organized by the and $300,000 each to Associacion Benefica PRISMA and EDPYME Confederation of Indian Industry (CII). October 2, 2006. Confianza. Davis, California-based MicroCredit Enterprises is a non- profit organization that was established in 2005. MicroCredit transfers the EBRD Invests $1 Million in Azeri MFI CredAgro credit risk to (usually high net-worth) guarantors. The current $1.9 The European Bank for Reconstruction and Development (EBRD) million bundle of guaranteed loans brings MicroCredit’s total outstanding recently announced that will be loaning $1 million to the Azeri loans to $3.6 million. First, established in 1991, LAPO is a Nigerian non- microfinance institution (MFI), CredAgro. $250,000 of the loan will be profit organization which had 54,460 clients, assets worth $5.3 million, and financed by Taiwan International Cooperation and Development Fund a total loan portfolio of $3.4 million at year end 2005. As well, its debt to (TaiwanICDF), a government run technical cooperation agency. The equity ratio stood at 138% and return on assets was 12%. Second, investment is part of the EBRD’s Non-bank Microfinance Institutions Tajikistan-based IMON began in 1999 and currently serves 12,821 clients. Framework for Early Transition Countries project. The EBRD was It had assets worth $4.3 million and a loan portfolio of $3.7 million at year founded in 1991 and is owned by 60 countries. It invests in the private end 2005. In addition, its debt to equity ratio stood at 685% while return sectors of East European and Central Asian economies. In 2005 it started on assets was 7.45%. Third, Associacion Benefica PRISMA was microcapital.org page 2 October 3 2006 established in 1986 provide micoloans to the rural poor in Peru. It now Issue #4 has 15,500 clients and assets worth $4 million. At year end 2005, it had a

loan portfolio value of $4 million, return on assets of -14.7%, and a 54% from its portfolio of loans and other activities amounted to $1.4 billion. In debt to equity ratio. Fourth, founded in 1994, EDPYME Confianza is 2005, the ADB made loans totaling $5.8 billion to 64 projects. The countries based in Peru and serves 26,000 clients. It reported assets worth $28.5 with the largest total loans included China ($1.4 billion), Indonesia ($1.1 million and a loan portfolio of $22.1m. Additionally, it had a debt to billion), ($776 million), and Vietnam ($577 million). As of June equity ratio of 477% and a 3.7% return on assets. September 29. 2006. 2006, the ADB's microfinance portfolio totaled $670.21 million, from which $180 million was allocated to the Philippines. The Bank helped launch the Philippines’ Microfinance Development Program in 2005 with its $150 AIG and ACCION Announce Partnership million loan. September 25, 2006

American International Group, Inc. (AIG) and ACCION International announced a $5.25 million, three-year partnership at the Clinton Global Initiative. AIG will work with ACCION to develop products. Examples South African's Microcredit Fund Expands include remittances and savings products, micro-insurance, and housing After the launch of operations in the northwest city of Atteridgeville, the loans. According to its website, AIG is the leading international South African Micro-Finance Apex Fund (SAMAF) has established a presence in each of the country's nine provinces. The fund was set up in insurance organization with operations in more than 130 countries and jurisdictions. Its total assets amount to $853 billion; it has a return on 2005. As of September 1, 2006, it has invested USD3.2 million in 18 such equity (ROE) of 12.34% and a total shareholder equity of $86 billion. organizations. The ultimate goal is for SAMAF to become a completely ACCION International is a private, nonprofit organization that provides autonomous institution. Planned expansion totals investment of $8.8 million microenterprise loans, business training, and other financial services. by March 2007. September 24, 2006. ACCION was founded in 1961 and now provides loans in 22 countries across the globe. In 2005 the total loan portfolio for all of its partners was Lok Raises $12m from “Super-nationals” $1.34 billion. At the end of 2005, its total assets amounted to $45 million. Lok Capital LLC, a microfinance venture capital fund, based out of Delhi, September 28, 2006 India, has raised US$ 12m towards seed capital and equity investments in start up microfinance institutions. The investors in this fund include four quasi-public institutional investors. Commonwealth Development Women's World Banking Hires new CEO Corporation (CDC) is a UK government owned fund of funds with net assets Women's World Banking, (WWB) the global of network of 55 micro- of US$2.9bn. The $4m investment in Lok Capital is part of CDC’s overall lenders, announced Mary Ellen Iskenderian as its new President and commitment of $104m to three private equity funds in India. The Chief Executive Officer. She replaced Nancy Barry who had been on the International Finance Corporation (IFC) is a “super-national” institution board of trustees of the organization since 1981 and acted as its president headquartered in Washington DC with assets over US$ 21.6bn. FMO is the since 1990. WWB was founded in 1979. 70% of its funding comes from international development bank of the Netherlands which invests its public grants, 20% from private donations, and 10% from investment portfolio of EUR 2.4 billion in developing countries. Last year, KfW income. Total annual 2005 budget was over $10 million. Previously, Ms. Entwicklungsbank committed EUR 1.9 billion for projects in developing and Iskenderian was Director of Partnership Development, Director of Global transition countries on behalf of the German government. September 22, Financial Markets Portfolio, and Director of the South Asia Regional 2006 Department at the International Financial Corporation (IFC). Ms. Barry was ranked #98 on Forbes Magazine's list of the World's Most Powerful responsAbility Invests $3m Women for 2004 and 2005. September 27, 2006 responsAbility Global Microfinance Fund loaned $2,902,000 to 5 microfinance institutions. responsAbility, established in 2003 under Poupança e Crédito to Receive $10m in Grants Luxembourg law, is classified as a private investor and open-ended investment fund, with a total fund volume of $70.2m. First, the Foundation Banco de Poupança e Crédito (BPC) is negotiating to receive Angolan for International Community Assistance (FINCA) of Azerbajian, founded in government grants worth $10 million. Paixão Júnior, chairman of the 1998, received a $1 million loan. The non-bank financial institution reported government-owned bank, stated that the funds were needed to continue a gross loan portfolio of $7.3 million, total assets of $8.1 million, total equity microlending operations into 2007. At the beginning of 2006, the bank of $4.9 million, return on assets of 9.8%, with a $313 average loan balance per received grants of $10 million. Nine months into the year, $5 million was borrower. Second, Vision Fund Credo Foundation of Georgia, a non-bank depleted. BPC began in 1956 as a conventional commercial bank. The financial institution established in 1997, received a $500,000 loan. At the end bank was headquartered in Lisbon, Portugal until 1975. In that year, the of 2005, it reported a gross loan portfolio of $2.2 million, total assets of $2.8 Angolan government took control of the bank, and it has operated out of million, with an average loan balance per borrower of $2,093. Third, capital city Luanda since then. BPC had a loan portfolio of $323 million Constanta Foundation of Georgia, a non-profit established in 1997, received as of 2004, the most recent reporting year. In addition, it had a return on two $500,000 loans. Constanta possesses a gross loan portfolio of $7.7 assets of 3% and return on equity of 33%. The bank has a policy of million, total assets of $8.8 million on which it returned 0.49% with an distributing 10% of net income to a “social fund”, to which it gave $2.1 average loan balance per borrower of $462. Fourth, MicroInvest of Moldova, million in 2004. September 26, 2006 a non-bank financial institution, founded in 2004, received USD $252,000 loan. For 2005, it lists a gross loan portfolio of $2.6 million, total assets of $3.8 Philippines Borrows $80m ADB million, a return on assets of -10.04%. Fifth, Finance for Development (FinDev) of Azerbaijan, founded in 1997, received a $150,000 loan. Last year, Philippines’ Department of Finance said it would borrow $80 million it reported a gross loan portfolio of $840 thousand, total assets of $852 from the Asian Development Bank (ADB). The funds will benefit the thousand, return on assets of 13.44%, with an average loan balance per country’s Microfinance Development Program, which received a $150 borrower of $292. September 22, 2006 million ADB loan in 2005. Founded in 1966, the Asian Development Bank finances and oversees projects that improve the economic health of member countries. The ADB currently has 66 members across Asia, as well as in Oceania, Europe and North America. It had capitalization (contributed by member countries) of $50.2 billion in 2005, and revenues

microcapital.org page 3 October 3 2006 Issue #4

FINCA Capital Fund Receives $30m from KfW Incofin Purchases Shares in FIE Grand Poder Concluding a deal signed with KFW in November 2005, FINCA Capital Incofin is a Belgian co-operative founded in 1992. As of year end 2005, Fund received the second $15 million tranche of a $30 million loan. The Incofin reported fund assets of $5.6 million with $4.5 million allocated to loan benefits FINCA network affiliates in , Latin America, and microfinance investments. Incofin’s recent purchase of shares worth 1 Africa. FINCA Capital Fund, a wholly-owned subsidiary of FINCA million Argentine Pesos (equivalent to US$325,400) from FIE Grand Poder International (a US non-profit), is a limited liability company providing follows another recent purchase from Peru’s Edpyme Confianza. FIE Grand loans and credit security to FINCA affiliates. The microfinance network, Poder is a microfinance institution in Argentina. At present, it does not founded in 1984, operates in 22 nations. KfW, a German development report to the MIX Market, the standard in reporting in microfinance. No bank established in 1948, supports small and medium enterprises and other financial information is publicly available. September 18. 2006 environmental protection. The German federal government currently owns a 80% stake in the bank, which reported fund assets of $85.4 million EBRD Lends $5m to XacBank of Mongolia at the end of 2005. MicroCapital recently reported on KfW’s contribution In its first project ever in Mongolia, the European Bank for Reconstruction to a $180 million securitization deal with the Bangladesh Rural and Development (EBRD) committed a $5 million loan to XacBank of Advancement Committee (BRAC). September 21. 2006 Mongolia. XacBank runs 55 branches formed from a merger of the two largest non-bank financial institutions’ (NBFI) in Mongolia, Goviin Ekhlel to Cap Interest Rates LLC and X.A.C LLC, in late 2001. At the end of 2005 XacBank returned 2.59% The Ugandan government capped the interest rate that microfinance on assets that totaled $48 million. The EBRD, owned by 60 countries and two institutions may charge. The new rule sets rates at or below inflation, intergovernmental institutions, was established in 1991 to aid in the which stood at 8.1% in 2005. Microfinance institutions in Uganda development of the private sector in Central and Eastern Europe. Their scope currently lend at rates of 18 to 100 percent. In August, Uganda’s President now includes Central Asia, most recently Mongolia. September 18. 2006 stated that “the aim of microfinance is to boost the productivity of the rural poor rather than turn a profit” and criticized “high interest rates”. In Ghana Creates $50m Fund with IMF Loans 1999, the government of Uganda recognized microfinance “as a line of The Ghanaian government launched a microcredit fund thanks to a loan business”, reports CGAP, with interest rates “set at market levels”. The arrangement with the International Monetary Fund (IMF). In May 2003, the recognition followed the failure of its 1998 subsidized microloan scheme, IMF made available $273 million at a 0.5% interest rate through its program Entendikwa, in which $193,000 was repaid out of loans totaling $5.1 called the Poverty Reduction and Growth Facility. From this, $50 million was million. September 20. 2006 drawn to finance the microcredit fund. To date, the only organization to be named as a recipient is the Women’s Development Fund which began in IDB Head Anticipates Tripling of Microfinance 2001 and has donated to Ghanaian women’s groups 43 grants, almost all Luis Alberto Moreno, president of the Interamerican Development Bank, between $2,000 and $10,000. The organization is supported solely by suggested that the sector should grow to have annual operations of US$15 institutional and private donors. September 15. 2006 billion by 2011, citing the fact that "microfinance institutions in Latin America currently only serve about 8% of estimated demand." Mr. and Zenith Bank Team Up Moreno became president of the bank in 2005, after heading up The Nigerian government announced $940,000 in microcredit loans to Columbia's privatization program in the nineties. The comments were citizens and small business groups. The loans were financed jointly by the part of his opening speech to the Ninth Annual Inter-American Forum on government’s National Poverty Eradication Programme (NAPEP) and Microenterprise in Quito,, which was attended by 1200 attendees. Zenith Bank. . Zenith Bank began in 1990, had assets of $474 million and net The bank's involvement in the microfinance sector has focused around income of $92 million for the year ended June 2006. September 15. 2006 two main projects. The Multilateral Investment Fund, founded in 1993, invests in microfinance institutions directly and through private sector funds, it had lent out US$100 million as of the end of 2004. The second AIM Granted $28m by Malaysian State program is the The Building Opportunity for the Majority Initiative has Amanah Ikhtiar Malaysia (AIM) received a $28 million grant from the worked with commercial banks to help them scale down and promoted Malaysian government. AIM began in 1987 and has grown its portfolio of pro-microfinance regulatory frameworks. September 19. 2006 loans to $462 million spread over 157,000 clients. It lends between $270 and $2,700 for no longer than three years to maturity. September 14. 2006 Triodos Group Invests $3m in 3 Micro-banks The Triodos-Doen Foundation and Triodos Fair Share Fund invested over $3 million. Both are under management of Triodos International Fund Uganda Sets Up Cooperatives Management, part of the Triodos Bank Group of the Netherlands. Triodos- A government project began training rural chiefs to give them the skills to Doen loaned USD $500,000 and 1 billion Mongolian tugrik ($892,000) to start and manage savings and credit cooperatives (SACCOs). The cost to the XacBank. XacBank is the product of a 2001 merger between Goviin Ekhlel Ugandan Microfinance Ministry is estimated to be $1.8 million. In addition, and X.A.C., Mongolia’s two largest non-bank financial institutions. the government budgeted $42 million for making loans to newly-formed Microloans comprise 63.3% of the bank’s total loan portfolio. At the end of SACCOs emerging from the project. September 14. 2006 2005, it reported a gross loan portfolio of $30 million, total assets of $48.1m, return on assets was 2.59%. Triodos Fair Share Fund and Triodos- Doen issued a syndicated loan of EUR 1 million (USD $1.26 million) to Mikrofin, a non-bank financial institution established in 1997 in Bosnia & Herzegovina. At the end of 2005, Mikrofin reported a gross loan portfolio of $35.6 million, total assets of $38.3 million, return on assets of 6.29%. MicroInvest of Moldova, a non-bank financial institution, received a EUR 500,000 (USD $630,050) loan from Triodos-Doen. Please see above responsibility story for more on MicroInvest. September 19. 2006

microcapital.org page 4 October 3 2006 Issue #4 EBRD Lends $10m to MIKROFIN Promotion Bank’s internal processes like accounting and risk management. The loans have maturities of 24 and 32 years, respectively, at 1% annual MIKROFIN received a $10.2 million convertible loan from the European interest for the first eight years and 1.5% thereafter. These are consistent Bank for Reconstruction and Development (EBRD). The funds are being with historical loan terms from the ADB. Founded in 1966, the Asian used to expand MIKROFIN’s lending activities, and to help structure it Development Bank (ADB) serves the governments of its member countries. into a shareholding company. The loan includes a option to convert to It currently has 66 members across Asia, as well as in Oceania, Europe and equity. Bosnia-based MIKROFIN was established in 1997. It makes North America. In 2005, the Bank made loans totaling $5.8 billion to 64 agriculture, entrepreneur and housing loans of less than $18,500 for up to projects. The Agriculture Promotion Bank serves 40,000 clients, but, three years. MIKROFIN had a loan portfolio of $35.5 million and debt to according to the network Banking With the Poor, an association of 20 Asian equity ratio of 216% at year end 2005. As well, it returned 6.3% on assets policy institutions, 88% of its loans in 2002 were non-performing. of $38.3 million. September 13. 2006 September 11. 2006. Indian Insurers Begin Offering Micro-Insurance ACCION Extends $1m Guarantee to Fundusz Life Insurance Corporation, New India Assurance, United India Insurance, and Oriental Insurance will begin offering microinsurance. All four Mikro insurers will use microfinance and nongovernmental organizations to act Fundusz Mikro, the Polish microfinance institution, will apply a loan as agents for their services. SEWA and SKS MicroFinance are notable guarantee from ACCION International towards a $1.5 million credit line among the forty institutions that have met with the insurers. The four negotiated with commercial bank Fortis. The ACCION Global Bridge Fund insurance providers are government owned. Life Insurance Corporation started as an offshoot of ACCION Latin America Bridge Fund in 2005. It has the widest reach with 2048 branches and 10.1 million insurance provides short-term debt guarantees of 18-60 months to microfinance policies written in 2005. SEWA, or Self Employed Women’s Association, institutions worldwide. The cost of guarantees ranges from 1.625% to began in 1972 as a labor co-operative. In 1993, the Association created 2.875%. The Global Bridge Fund had capitalization at mid-year 2006 of $2.89 SEWA Bank to provide micro-loans to its co-operative members. The million, while the Latin America Bridge Fund stood at $4.35 million. SEWA Bank posted a profit of $111,000, total deposits of $13.7 million, and ACCION International was founded in 1961. Fundusz Mikro, established in 50,849 loans outstanding in 2003, the most recent year it reported results. 1994 as a nonprofit microfinance institution now operates 34 branches in Established in 1997, SKS MicroFinance has grown its loan portfolio to Poland. Loan portfolio stands at $22.6 million. Netherlands-based Fortis $20.6 million at year end 2005. In addition, it returned -3.15% on assets of was founded in 1991 and has roles in retail-, commercial-, and investment- $27.8 million, and had a debt to equity ratio of 640%. September 13. 2006 banking, as well as insurance. First and second quarter net income for 2006 were $1.80 and 1.85 billion euros, respectively. September 8. 2006. Ugandan Minister Says “No” to Donations In a parliamentary meeting recently, Microfinance State Minister Salim Indian Banks ICICI, Andhra, and Canara Seek Saleh voiced concern over donations to microfinance institutions. Takeover of United Western Bank According to him, donors have been giving heavily to Uganda’s Commercial banks ICICI, Andhra, and Canara made separate takeover microfinance sector. But rather than increasing access to capital for the proposals of United Western Bank. The action comes at a time of rising poor, “the donors have invested at the policy level as well as seminars and interest in Indian microfinance from commercial banks. According to Indian workshops”. September 12. 2006 news service Moneycontrol, “ICICI Bank had been planning a major foray into agricultural and rural lending, [and] the branch network of UWB will Unitus Equity Fund Puts $1m in Credex come in handy in achieving that target in this sector.” September 8. 2006 The Unitus Equity Fund invested $1 million in Credex. The for-profit ™ microfinance institution began in 2002 as a financial services provider for Mexico’s poor. According to a Credex press release, it has fifteen branches serving 12,000 clients, and manages a $5 million loan portfolio. The Fund is the equity arm of the U.S. nonprofit microfinance support network Unitus, which was founded in 2001, and had assets at year end 2005 of $9.5 million. 92% of its investments were debt, 5% equity, and 3% guarantees. Its largest investments at year end 2005 were in India ($4.6 million), Mexico ($1.9 million, excluding the current investment), and Kenya ($1.2 million). September 12. 2006

Bank of Warns Unlicensed Micro-banks The Bank of Zambia announced it would start taking action against microfinance institutions operating in the country without a license. To be eligible, the minimum capital required for deposit-taking microfinance institutions is $64,350 and non-deposit-taking $6,435 (commercial banks in Zambia are required to have capital of $426,817). Microfinance institutions in Zambia are small; existing customers total approximately 60,000 out of a population of 10.5 million. The country introduced new microfinance regulations on January 1, 2006. September 11. 2006

ADB Loans $10m to Laos Laos received two loans worth $10 million from the Asian Development Bank (ADB). The first loan of $7.684 million has been allocated to improving microfinance regulation in the country. A further $2.316 million loan will help strengthen the government-owned Agriculture

microcapital.org page 5 October 3 2006 Issue #4 PAPER WRAP UP

Track Research and Recommendations

Franchising Microfinance Financially Viable Business Training for Micro- Amit Bubna and Bhagwan Chowdhry, Draft Publication, April 2006, 25 entrepreneurs: The Business Model of ACCION’s pages, download here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=890667 ABCs of Business Diego Guzman, Published by ACCION International, September 2006, 10 This academic argument basically functions as a “work-around” pages, download here: http://www.accion.org/insight/ solution for big banks to enter the microfinance field in the face of poor information about micro-borrower default. The authors propose that ACCION keeps its eye on the prize! As the philosophy of market viability banks lend under a franchise agreement to “local capitalists” or local has begun to guide microfinance, some donors have shifted their attention micro-bankers who then in turn “on-lend” (re-lend) to micro-borrowers. to subsidizing business training programs for micro-business owners In this way, banks take advantage of local actor’s better information instead of subsidizing micro-banks. In this way, business training in about local populations. However, if banks increase the number of microfinance often suffers from the same inefficiencies, nepotism, and local micro-lenders in an environment where information about client paternalism characteristic of the micro-lending legacy. Therefore, this is a default is not shared (through credit bureaus or otherwise), the bank very important paper describing a business training model driven by increases the risk of “strategic default” by borrowers who decide to consumer choice and “sustainability”. The model is a franchise default because they can go elsewhere for credit. Therefore, the seminal arrangement where entities such as micro-banks or schools buy a non- idea offered by the authors is that the bank’s franchise agreement exclusive license from ACCION for $10,000 for a three year period stipulates that franchisees share information about client default with (managed from the ACCION Bogotá Columbia office, so Spanish only). one another facilitated by the bank franchisor. Of course, as the authors Both ACCION and its partner licensees are able to make the program pay. recognize, if multiple banks undertake this franchise strategy in the The main source of income derives from the course workbooks purchased same area without coordination, then the likelihood of strategic default by the micro-business owners in training. Course books cost .50 cents a is once again increased. This paper offers greatest utility for piece and ACCION has sold on average about 80,000 units annually since economists (mathematical equations abound) and those new to business the programs inception in 1999. In order to cover costs, the local licensee- in emerging economies. The challenge of operating in the poor world is trainer needs to charge $8 per customer with 2,000 customers per year the dearth of “market intermediaries” such as credit bureaus which over 2 years. Refreshingly, ACCION maintains that training organizations facilitate business. (Accordingly, the central quandary confronting should NOT makes courses mandatory for their clients (a common responsible donors is how to foster these intermediaries without obligation forced on poor business owners), but rather market the distorting competition.) The proposal that banks act as their own program, thus upholding the fundamental microfinance principles of market intermediary via a franchise agreement, while somewhat autonomy and commerce. Incidentally, please find a pithy and insightful theoretical and academic, nonetheless serves as a useful inroad to table on page 7 entitled “Identifying Institutions that Want to Achieve understand the obstacles faced by micro-bank managers. Sustainability”.

Effective Donor Strategies to Support Financial Performance and Outreach: A Global Analysis of Leading Microbanks Microfinance Associations Sharyn Tenn, Published by The SEEP Network, May 2006, 8 pages, Cull, R., Demirgüç-Kunt, A. & Morduch, J. Feb 2006, Published by the download here: http://www.seepnetwork.org/content/article/detail/3493 World Bank, download here: http://microfinancegateway.com/content/article/detail/31219 The pamphlet is not just for donors, but rather an excellent and concise overview of micro-bank trade associations in general. Trade The paper summery posted on the microfinancegateway.org reads as associations are one leading alternative vehicle for far-sighted donors follows: “Why have high repayment rates not translated into profits for focused on supporting “market intermediaries” without distorting microbanks? This paper examines the promise of microfinance that it can competition by actually subsiding one micro-bank over another, either deliver poverty reduction without relying on ongoing subsidy. It argues directly or indirectly. 50 trade associations are currently operating that this requires translating high repayment rates into profits, a challenge globally with an average age of five years, so these are relatively young that remains for most micro-banks. The study: Uses a data set with organizations. The associations are categorized into three levels of financial information on 214 institutions in 49 countries; examines claims microfinance market maturity depending on the country or region that in a large comparative survey; explores the patterns of profitability, loan they represent. SEEP recommends that associations in an immature repayment and cost reduction…The study finds that: Most of the market focus on disseminating “best practices” among members and institutions surveyed were profitable or approaching profitability; there alert policy markets to key issues. In maturing markets, associations was little evidence of agency problems, outreach-profit trade-offs, or should facilitate the implementation of best practices, develop a code of mission drift; it is possible to raise interest rates without undermining conduct, collect/publish aggregate industry performance indicators, repayment rates, achieving both profit and outreach; institution design and advocate policy. In relatively mature markets, associations should and orientation matter substantially; lenders that do not use group-based “become specialized and commercial in nature”. This paper is full of methods to overcome incentive problems experience weaker portfolio interesting and practical examples of associations’ budgets and quality and lower profit rates when interest rates are raised. The paper activities as well as recommendations for donor support. Regretfully, concludes that for individual-based lenders, one key to achieving the pamphlet does emphasize the best advice to donors: don’t re-invent profitability is investing more heavily in staff costs – a finding contrary to the wheel! Swallow our pride like Warren Buffet! Throw our resources the conventional wisdom that profitability is largely a function of behind sister bank-rollers with an existing expertise in building trade minimizing costs.” associations. ™

microcapital.org page 6 October 3 2006 Issue #4 UPCOMING EVENTS

Book Signing and Reception for “Transforming Microcredit Summit Campaign, 440 First Street, NW, Suite 460, Washington, DC 20001 USA, TEL: 1 202 637 9600, E-MAIL: Microfinance Institutions” [email protected], globalmicrocreditsummit2006.org. October 4, 2006, 6:00—9:00pm, 15th Floor, International Affairs Building, 420 W. 118th St., Columbia University, NY, USA Triple Bottom Line Investment Conference The event is a book launch of the new World Bank book, Transforming Nov 16, 2006, Paris, France Microfinance Institutions: Providing Full Financial Services to the Poor, authored by Joanna Ledgerwood and Victoria White, presented by the “Brooklyn Bridge will be organising the Triple Bottom Line Investing Microfinance Working Group at SIPA. The author, Victoria White, (TBLI)….[which has] has grown into the largest international networking contributing authors, Monica Brand (ACCION International) and Deborah and learning event, dealing with all forms of sustainable investment. As Burand (Grameen Foundation) and industry experts, Lloyd Stevens the TBLI Conference enters its eighth year,…there are significant (Deutsche Bank) and Frank Abate (Women's World Banking), “will developments around the issues of climate change, private equity, long discuss current trends and future challenges in transformation of term value investing, micro financing, sme financing, quality of life microfinance institutions” into full-fledged banks. Reception sponsored choices and faith-based investments…we expect over 500 guests from the by Deutsche Bank to follow. Contact: Alexandra Fiorillo financial community, attending the two conferences this year.” For more [email protected], no phone available. information, contact Brooklyn Bridge, Watteaustraat 36, 1077 ZM Amsterdam, The Netherlands, Tel: 31-(0)204286752, email: [email protected]. SEEP Network and Omidyar Network Host nd Microfinance Investor Roundtable 2 Microinsurance Conference 2006 November 21-23, 2006, Cape Town, South Africa October 23-27 in Washington D.C, USA The Conference is jointly hosted by CGAP, Munich Re Foundation, and The SEEP Network will host its annual conference this year. This year’s Finmark Trust. Around 120 experts from international organisations, non- conference, “Investing in the Majority”, will draw attention to innovative government organisations, development-aid organisations and the practices and current issues in microfinance. The event is an opportunity insurance industry will discuss insuring people with low incomes. for microfinance and microenterprise development practitioners to Conference fee: US$290, contact Dirk Reinhard, Vice Chairman of the exchange knowledge and experiences. According to the SEEP Network, Munich Re Foundation, Phone: +49 (0) 89/38 91-59 09, last year’s conference drew over 1,100 participants from over 101 [email protected]. countries. Alongside the conference, SEEP and partner Omidyar Network will host a two-day Microfinance Investor Roundtable. The aim is to determine the future of commercial investment in microfinance. The Luxembourg Microfinance Week roundtable seeks to bring investors and stakeholders in the microfinance November 29-30, 2006, Luxembourg industry together to discuss sector growth through traditional capital markets. Topics to be discussed include how to “establish investor best To officially launch the European Microfinance Platform and European practices for optimizing the allocation of capital to microfinance Microfinance Award Ceremony. For more information contact Anne institutions” as well as addressing aspects of the sector such as “secondary Bastin at +352- 295858 Ext 234 at the Luxembourg Agency for markets for microfinance investment mergers and acquisitions, and Development Cooperation. foreign exchange in microfinance investments”. The Microfinance th Investor Roundtable will take place in Washington D.C. October 24-25, 5 European MF Network Exchange Visit 2006. For more information contact Johanna Somers October 9, 2006, Barcelona, Spain telephone: 202-884-8392 [email protected] ”European Microfinance Network organises regular exchange visits in partnership with its members…as practical way to learn!” Exchange 1st Central American Conference on visits, which usually last for several days, enable participants to have Remittances and Microfinance contact with established microcredit professionals in other European November 15-17, 2006, City countries. For more information call Maria Franco at EMN at +33 (0)1 56 03 59 68, or see www.european-microfinance.org. Non-member cost is 360 The conference is organized by Guatemala’s Banker’s Association (ABG), Euros. and is sponsored by the Latin American Federation of Banks, the Guatemala Superintendent of Banks and the Multilateral Investment Fund of the Interamerican Development Bank. Contact ABG at (502) 2382-7200 MicroCredit Enterprises Fact-Finding Mission or [email protected]. January 13-20, 2007, Guatemala Hosted by MicroCredit Enterprises, LLC, the Fact-Finding Study Mission Global Microcredit Summit 2006 to Guatemala aims at: Learning about microcredit self-help programs for November 12-15, Halifax, Nova Scotia impoverished families; visiting operational village banks run by women struggling against poverty; meeting local micro-entrepreneurs. Cost of For those of you outside the microfinance industry, please know this is the Mission (per person double occupancy) is $2,700 (with an optional Single Big One. It happens every 5 years. Although the location choice of Room Supplement for another $895) not including airfare (prices available Halifax Canada in November is perplexing since micro-bankers live in on request). Contact Destinations and Adventures International for more warm climes, expect all the big guns to be in attendance. The hallway information, see www.daitravel.com, email [email protected], or call networking will be the place to be when the dignitaries and the heads of at (323) 650-7267 or (800) 659-4599. state bestow the requisite niceties at this extremely important event. Please go the extra mile to support this gathering! More information: ™

microcapital.org page 7 October 3 2006 Issue #4

International Financial Institution Caucus of RESULTS International. WHO’S WHO IN MICROCAPITAL Robert Ottenhoff has operated his own international management consulting practice and has served PBS as COO and Chairman of the Grameen Foundation Board. Lucy Billingsley has more than 25 years of experience in real estate with expertise in development property management. Peter US Non-profit, Washington, DC, USA Cowhey presently serves as the Head of Policy Studies for the Alex Counts founded Grameen Foundation USA (GFUSA) and now California Institute on Telecommunications and Information serves as GFUSA’s President and CEO. He previously worked for Technology and is also the Qualcomm Chair in Communications and CARE Bangladesh and serves on the Board of Directors of Project Technology Policy at the University of California, San Diego. He also Enterprise in New York City, Fonkoze USA, the PLAN Fund, the serves as Director of the Institute on Global Conflict and Cooperation, is Katalysis Bootstrap Fund. He is a graduate of Cornell University and Dean of the Graduate School of International Relations and Pacific a Fulbright Scholar. John Anderson is GFUSA’s present Chief Studies (IR/PS) at the University of California, San Diego, and holds a Operating Officer. Craig Sarsony currently serves GFUSA as Vice B.A. from Georgetown University and a M.A. and Ph.D. in Political President of Finance and Administration. He has previously served Science from the University of California, Berkeley. John Doerr is as the VP for Finance and Administration at the Eurasia Foundation presently a partner at Kleiner Perkins Caufield & Byers and has and as Director for Finance at Save the Children. Mr. Sarsony holds previously served Intel in a multitude of positions. Mr. Doerr is a an M.B.A. from Columbia University. Lou Roberts is GFUSA’s graduate of Rice University and Harvard Business School. Jennifer present Director of Human Resources and Administration. She holds Drogula is presently a partner with international law firm Wilmer, a B.S. degree in Elementary Education from James Madison Cutler and Pickering. She received her B.A. from the University of University. Nancy Nelson presently serves GFUSA as Vice President Texas and her J.D./LL.M. from Duke University School of Law. Robert of Development. Ms. Nelson has led capital campaigns at Stanford Eichfeld has served Citigroup in a variety of positions around the Business School, the UCLA Anderson School of Management and the globe. Since his work with Citigroup, Mr. Eichfeld has advised a capital University of Michigan Business School. She is a graduate of the fund in Dubai, helped to set up a new Islamic bank in Bahrain, and University of Michigan Business School and holds a B.F.A. from the advised Harvard Business School when it established its executive University of Delaware. Jennifer W. Meehan is currently the training program for the Middle East. James L. Greenberg presently Director of Capital Markets for Grameen Foundation, USA and is serves on GFUSA’s India Advisory Council , and is founding partner, also a founder of Aavishkaar. Ms. Meehan began her career with JP Chairman and CEO of DevCorp International E.C. Richard S. Gunther Morgan Chase in New York and Singapore, and has worked with presently serves as a member of the State of California Commission on poverty-focused MFI’s in Asia through the CASHPOR Network, as Aging and is a member of the Board and Executive Committee of well as with the Microcredit Summit Campaign, Calvert Social Americans for Peace Now. Paul Maritz was previously a member of the Investment Foundation and the Japan Bank for International Executive Management Team at Microsoft Corporation and has also Cooperation. Deborah Burand is the current Executive Vice served Intel. Mr. Maritz attended the Universities of Cape Town and President of Programs. She has held senior positions at the US Natal in South Africa. Lynn McMullen was previously Executive Federal Reserve Board and the US Treasury Department and has also Director of RESULTS. Christopher Pascucci is presently the President worked with the global law firm, Shearman & Sterling in New York. of Duck Pond Corp, Vice President of WLNY-TV, a New York Ms. Burund is responsible for the launch of FINCA International’s television station, and is the Vice Trustee of Fund for the Poor. Mr. Capital Markets Department, is a co-founder and the first President Pascucci is a graduate of Harvard University and Columbia University. of Women Advancing Microfinance (WAM), is a Director of Rosanna Ramos-Velita is the CFO of Marketing and Advertising for Microfinance Opportunities and is a member of the Investment the Global Consumer Group at Citigroup. She has served AT&T Committee of the Global Commercial Microfinance Consortium. She Microelectronics as a Designer Engineer, and UBS Warburg as Director holds a joint graduate degree from Georgetown University of Latin America Mergers and Acquisitions and Corporate Finance. Ms. (JD/MSFS), and received her B.A. from DePauw University. Dr. Ramos-Velita holds an M.B.A. from the Wharton School at the Mike Getubig, Jr. currently serves GFUSA as a Senior Program University of Pennsylvania, an M.A. in International Business from the Advisor in the Program Department. He has been a Professor of University of Pennsylvania, an M.S. in Electrical Engineering from Agricultural Economics at Xavier University, Philippines, and was a Lehigh University and a B.S. in Electrical Engineering from the member of the Asian and Pacific Development Centre (APDC) as a University of North Dakota. Steven C. Rockefeller, Jr. is the President coordinator of the Poverty Alleviation and Employment Program. of Educational Adventures. Has served Deutsche Bank Private Wealth Dr. Getubig was instrumental in the set-up of CASHPOR, organized Management as a Managing Director, and also serves on the Board of Bank Poor ’96 and has published many works on poverty alleviation. Directors of the Soros Economic Development Fund and the Deutsche He holds a M.A. from Virginia Tech in Blacksburg, Virginia and a Bank Microcredit Development Fund. Mr. Rockefeller holds a M.A. of Ph.D. in Agricultural Economics from the University of Hawaii Public and Private Management from Yale University and a B.A. from where he was a Fulbright scholar. Fairfield University. D. Wayne Silby is a Founding Co-Chair of Calvert Foundation’s Board of Directors. He also serves as the President of Calvert Social Investment Fund, co-founded both the Social Venture Grameen Foundation USA’s Board of Directors include: Susan Network and the Emerging Europe Fund for Sustainable Development, Davis is the present Chair of GFUSA’s Board of Directors, and is the and is Chair o the China Committee of Grameen Foundation, USA. Mr. Vice President and Director of the Global Academy for Social Silby holds a B.S.E from the Wharton School of Finance and a J.D. from Entrepreneurship. She is an advisor to the International Labor Georgetown University. Janet Thompson has held a variety of Organization and Environmental Defense, is a member of the positions within Citibank and now serves as the Corporate Community Positive Futures Network, serves on the Human Rights Advisory Reinvestment Director. Ms. Thompson has served on the board of a Council of the Ethical Globalization Initiative and serves on the number of organizations, including Nonprofit Finance Fund, Accion boards of Project Enterprise and Aid to Artisans. Ms. Davis was New York, Corporation for Enterprise Development an the Community educated at Georgetown, Harvard and Oxford Universities. Yvette Service Society. She has a graduate of Radcliffe College/Harvard Neier founded Maya Hands, Inc., and also served Monsanto University and the Columbia University School of Business. Company as Marketing Director. Paul Kane is President of the Muhammad Yunus is the founder and Managing Director of the KANE Property Company. Mr. Kane also serves as Chairman of the Grameen Bank in Bangladesh. ™ microcapital.org page 8 FAX # is 617.648.0043, USA

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