// By Shilpy Sinha, Business Standard - Looking at re-engineering business models to reduce expenditure. Small and mid-sized microfinance institutions (MFIs) are likely to seek more time to comply with the recommendations of the Malegam Committee report. The institutions plan make a representation to the regulator through the Micro Finance Institution... 

Press Release - New Delhi, Delhi, India, Monday, January 31, 2011 — (Business Wire India) Ingenico (Euronext : FR0000125346 – ING), leading worldwide provider of payment solutions, joined hands with Financial Inclusion Network & Operations (FINO) in India to help them deliver Micro finance & NREGS (National Rural Employment Guarantee... 

By John Samuel Raja, Economic Times India - NEW DELHI: Even as microfinance institutions (MFIs) battle a raging controversy over their lending practices to the poor in Andhra Pradesh, new revelations suggest poor shareholders have been deprived of wealth that should have rightfully been theirs. An ET investigation shows 45,000 women who were... 

By John Samuel Raja, Economic Times India -

NEW DELHI: Even as microfinance institutions (MFIs) battle a raging controversy over their lending practices to the poor in Andhra Pradesh, new revelations suggest poor shareholders have been deprived of wealth that should have rightfully been theirs. An ET investigation shows 45,000 women who were shareholders in the country’s top three microfinance companies have missed out on the benefits of wealth creation—some due to transactions engineered by promoters, some due to the structure used to house shares owned by the poor.

The promoters of Spandana Sphoorty and Share Microfin, for example, paid 6 crore to buy out poor shareholders. At their PE )ak valuation, these shares would later have been worth at least 1,900 crore. “The women shareholders were paid a pittance and somebody else benefited from it,” says Sanjay Sinha , Managing Director of MCril , which does credit rating of MFIs.

In the early part of the decade, the promoters of SKS Microfinance, Spandana and Share made at least 45,000 of their women borrowers owners of their respective businesses. Except, these women, most of whom were poor and uneducated, were titular owners. For all practical purposes, control and decisionmaking lay with the promoters; the women were mere rubber stamps, and they neither had knowledge nor a voice.

Our investigation—done over two months, and based on public and private data, and conversations with key players and insiders—shows many decisions taken by the promoters did not maximise the interests of these women. Jarringly, several decisions in which the poor women and promoters are counter-parties have delivered a windfall to the latter.

MS Sriram, an adjunct professor at the Indian Institute of Management , Ahmedabad, was the first to throw critical light on this issue. His March 2010 paper, titled ‘Commercialisation of Microfinance in India: A Discussion on the Emperor’s Apparel’, traced the use—and abuse—of an ingenious shareholding vehicle called mutual benefit trust (MBT) that was central to this lopsided promoter-poor women relationship.

The story goes back to around 1999, when MFIs were doing micro-lending as charitable organisations or NGO .. The promoters saw increasing business potential, but their non-corporate identity discouraged growth. Commercial investors were not interested in buying equity because profits cannot be taken out of an NGO. Banks were not keen to lend money because an NGO’s assets cannot be attached easily. So, MFIs decided to morph into for-profit entities.

Of all the options before them, the most suited to their objectives was to become a non-banking finance company ( NBFC .. But there was one problem: the minimum capital requirement was Rs 2 crore. The promoters, most of whom came from a developmental background, did not have that sum.

Poor women shortchanged

Those days, I was working with SKS through a fellowship amount, and I did not have Rs 2 crore to invest,” says Vikram Akula, founder and Chairman of SKS.

They could have roped in external investors, but that would have meant giving up equity—and sharing the value the business would create. They couldn’t raise free money in their name, but they could in the name of the poor borrowers they were lending to.

Around 2002-03, MFIs raised money from several sources. SKS mobilised grants from friends, family and philanthropic institutions. Spandana dipped into its NGO’s coffers.

// By Collins Nweze, The Nation - The Nigerian Deposit Insurance Corporation (NDIC) has commenced payment to the first set of depositors whose funds were trapped in microfinance banks (MFBs) it shut down last September. The verification and payment to the depositors started on January 17 to depositors of Adif Microfinance Bank, Birnin Kudu Microfinance... 

By Mushtak Parker, Arab News - The banking sector in Nigeria, Africa’s most populous country, has hardly had time to digest the “Guidelines on Shariah Governance for Non-interest Financial Institutions in Nigeria” and the “Framework for the Regulation and Supervision of Institutions Offering Non-interest Financial Services in... 

The company reported a third quarter profit of Rs38.15 crore, down 38% from a year ago, as it had to increase provisioning some six-and-a-half times By Ravi Krishnan, Livemint - The glory days are over for micro lenders in India. Nowhere is it clearer than the December quarter results of SKS Microfinance Ltd. The company reported a third quarter... 

The company reported a third quarter profit of Rs38.15 crore, down 38% from a year ago, as it had to increase provisioning some six-and-a-half times

By Ravi Krishnan, Livemint -

The glory days are over for micro lenders in India. Nowhere is it clearer than the December quarter results of SKS Microfinance Ltd. The company reported a third quarter profit of Rs38.15 crore, down 38% from a year ago, as it had to increase provisioning some six-and-a-half times.

More than a quarter of its Rs5,000 crore loans are given to customers in Andhra Pradesh, which passed an act to stop micro lenders collecting dues from a weekly basis to once a month and seek state approval for fresh advances.

As a result, SKS’ collection rates have declined to 43.6% in Andhra compared with at least 95% in other states. The lender had to spend Rs58.74 crore in provisioning just for its Andhra Pradesh portfolio. What’s more, its loan book has shrunk by 7.5% from the September quarter, adding to woes.

True, the company has pre-emptively provided Rs27 crore provisioning based on the recommendations of the Malegam committee on the microfinance sector, which are yet to become law.

But even adjusting for that, its profit growth would have come in at just 10%. That’s a 36% decline sequentially and a far cry from the threefold jump in net profit seen in the past.

In the December 2009 quarter, SKS has returned a yield of 6.5% on its average asset books and had return on equity (RoE) rates of close to 23%. But in the third quarter of the current fiscal, its return on average assets declined to 2.4% and RoE to 7.5%.

These are signs of things to come. The Malegam panel has recommended that micro-lenders cap margins at 10% and proposed an interest rate ceiling of 24%, among other things.

An illustration provided by SKS in its website says that return on its average gross loans will fall to 4.3% if these recommendations are implemented. Also, interest rates are rising and many rating agencies are sharpening their knives.

In other words, financial costs will go up. Moreover, leverage also is falling and could further squeeze margins and profit growth.

The SKS scrip has reflected these developments, falling 45% since mid-October when the Andhra Pradesh rule came into force. Now it is trading at 2.8 times current book value.

But the book value itself remains suspect. How confident is the company of recovering its dues of nearly Rs1,500 crore from Andhra Pradesh? Will future earnings be sufficient to cover provisioning for these loans? The fact remains that these new norms cap revenue growth, profit gains and margins. These will continue to weigh on the stock.

We welcome your comments at marktomarket@livemint.com

From Banking With The Poor Network - The Year 2010 was marked by a wide range of BSP issuances that aim to build an inclusive financial system in the country. This system is one where there is greater access to much needed financial services by more Filipinos, especially those that are traditionally unserved or underserved. The BSP recognizes that... 

// By Chinazor Megbolu, This Day - The Enugu State government has engaged a leading microfinance bank in the state, Umuchinemere Pro-credit Micro Finance Bank (UPMFB), to manage its small and medium credit funds. In a press statement signed by the Head, Public/Media Relations Unit of the bank, Sir Abuchi Anueyiagu, this was disclosed during the... 

From Daily Times - KARACHI: The State Bank of Pakistan has advised banks, development finance institutions (DFIs) and microfinance banks (MFBs) to submit claims for second installment of mark-up rate subsidy with respect to Fiscal Relief Package of the Government of Pakistan for the beneficiaries of eligible sectors other than textiles in Khyber... 

From Daily Times -

KARACHI: The State Bank of Pakistan has advised banks, development finance institutions (DFIs) and microfinance banks (MFBs) to submit claims for second installment of mark-up rate subsidy with respect to Fiscal Relief Package of the Government of Pakistan for the beneficiaries of eligible sectors other than textiles in Khyber Pakhtunkhwa, Federally and Provincially Administered Tribal Areas.

According to a Circular (SMEFD Circular Letter No. 3) issued Friday, the Ministry of Finance has advised to release 2nd installment of the subsidy under the Scheme for the period from 01-07-2010 to 31-12-2010 to the beneficiaries of other eligible sectors.

It may be mentioned here that the State Bank of Pakistan had already advised banks/DFIs to submit their claims for second installment for the beneficiaries of textile sector through a circular on January 15, 2011.

According to the Circular, under the modus operandi of the Scheme the rate of mark up differential for 2nd installment, for six months ending on 31st December 2010, has been worked out at 5.32%. Banks/DFIs have been advised to submit duly completed claims at SBP-BSC (Bank), Peshawar for reimbursement for the period 01-07-2010 to 31-12-2010 latest by February 28, 2011.

However, MFBs may claim markup rate differential to the extent of 22.5% p.a. i.e. differential between 7.5% p.a. and Weighted Average Lending Rates of MFBs i.e. 30% p.a. or actual rate whichever is lower, the Circular added. staff report

Press release - In response to a strongly recognized need to assure safe and responsible treatment of microfinance clients, the microfinance industry has created the Smart Campaign to establish core Client Protection Principles and to assist in implementing those six principles around the world. The Smart Campaign’s vision is that the Client... 

Press release -

In response to a strongly recognized need to assure safe and responsible treatment of microfinance clients, the microfinance industry has created the Smart Campaign to establish core Client Protection Principles and to assist in implementing those six principles around the world. The Smart Campaign’s vision is that the Client Protection Principles will become part of the DNA of microfinance. To make that vision a reality, the Campaign aims not simply to win endorsers to the principles, but to disseminate tools, training, and a certification process to ensure that the principles are implemented and verified.

Full Press Release