// By Mebrim Uchechukwu, Daily Champion A micro finance bank chief, Johnson Okoruwe, has been arraigned before an Abuja Chief Magistrate Court for allegedly defrauding his customer of about N300 million in a scheme designed to generate huge profits for the investments. According to the First Information Report (FIR) of the Police, Dr. Okoruwe... 

// By Tope Adepetu, Punch on the Web The National Association of Microfinance Banks, Lagos chapter, has said that its members will start having access to the Microfinance Trust Fund set up by the state chapter from the second quarter of this year. The acting Chairman, NAMB, Lagos State, Mr. Olufemi Babajide, said this in a meeting in Lagos with... 

// From Indian Express Finance Minister Pranab Mukherjee announced creation of an equity fund of Rs. 100 crore for micro finance institutions (MFIs), which will help the cash-strapped sector to continue lending to small borrowers. Mukherjee, in his 2011-12 Budget speech, announced the creation of “India Microfinance Equity Fund”, with... 

// By Sam Eyoboka, Vanguard WHEN the Central Bank of Nigeria, CBN, late last, year announced the revocation of operating licences of some 224 microfinance banks (MFBs) in the country as part of its statutory functions of regulating the banking industry, one of the names that featured was the Eagle Flight Microfinance Bank. There was panic in the... 

// By Gbola Dan Subair, Nigerian Tribune The Central Bank of Nigeria (CBN) has expressed concern over the non-performing loans in micro finance banks (MFBs) as it  directed the operators  to embrace information technology infrastructure and shared services platforms in the conduct of their operations. According to the apex bank, such infrastructural... 

// By Dimeji Kayode-Adedeji, 234next.com Following the final collapse of microfinance banks across the country, a bank known as Classic MicroFinance located in the Onikolobo area of Abeokuta has commenced the sales of its properties. Hundreds of eager and prospective buyers stormed the bank’s premises to take advantage of the giveaway prices... 

By Sanjay Vijay Kumar, mydigitalfc.com Credit risk constitutes a major threat for the global microfinance industry, which reflects the fast growing problem of over indebtedness among millions of microfinance customers, according to Microfinance Banana Skins 2011 survey. This is the third survey of the global microfinance industry by the Centre... 

By Sanjay Vijay Kumar, mydigitalfc.com

Credit risk constitutes a major threat for the global microfinance industry, which reflects the fast growing problem of over indebtedness among millions of microfinance customers, according to Microfinance Banana Skins 2011 survey.

This is the third survey of the global microfinance industry by the Centre for the Study of Financial Innovation, a non-profit think-tank, established in 1993 to look at future developments in the international financial field – particularly from the point of view of practitioners. Citi and Consultative Group to Assist the Poor funded the survey.

The survey was conducted in November and December 2010, and is based on 533 responses from 86 countries and multinational institutions. Its focus is on microfinance institutions (MFIs) with more than $5 million in assets, which are profitable and capable of commercial growth. These number about 600, according to estimates from Microfinance Information Exchange (MIX).

One of the key findings of the study was that credit risk constituted the biggest threat to the industry, which is marred by criticism in recent times. Although this result is unchanged from the previous survey in 2009, the reasons behind it have shifted sharply.

The earlier result largely explained the difficulties facing borrowers during the economic crisis, but the reasons have multiplied now. According to the survey, there is still economic stress, but also growing evidence of competitive pressures in the microfinance market, of poor credit management by MFIs, of greater cynicism among borrowers and of increasing interference in the credit process by political forces.

The credit risk is seen to reflect the fast growing problem of over indebtedness among millions of microfinance customers, who have accumulated larger debts than they will ever be able to repay, often as a result of pressure from business hungry MFIs.

// From Middle East Events Press Release Al Amal Microfinance Bank of Yemen has been awarded US$104,000 under the Islamic Microfinance Challenge 2010, a partnership launched to encourage the reach of Islamic financial services to micro-entrepreneurs. CGAP, Deutsche Bank, Grameen-Jameel Pan Arab Microfinance, and Islamic Development Bank partnered... 

// From RUFIN The FGN/IFAD assisted Rural Finance Capacity Building Programme (RUFIN) has registered over 5,000 Rural Microfinance Institutions (RMFIs) in the 12 states within its coverage area in its one year of existence, out of which it linked a total of 2,000 RMFIs to sources of finance to facilitate the provision of credit to the rural poor,... 

From The International News, Pakistan KARACHI: The microfinance sector in Pakistan failed to achieve its target of three million borrowers at the end of 2010, said the State Bank of Pakistan in a recent report. Microfinance Strategy of 2007 set a target of three million borrowers to be achieved by the end of 2010 from 0.9 million borrowers... 

From The International News, Pakistan

KARACHI: The microfinance sector in Pakistan failed to achieve its target of three million borrowers at the end of 2010, said the State Bank of Pakistan in a recent report.

Microfinance Strategy of 2007 set a target of three million borrowers to be achieved by the end of 2010 from 0.9 million borrowers at end-2006.

“The current outreach of two million borrowers is only seven percent of the potential market,” the central bank said in a report on ‘Strategic Framework for Sustainable Microfinance in Pakistan’ released recently.

It said that microfinance in Pakistan has failed to make major breakthroughs to become a dynamic participant within the overall financial sector and to reach millions of underserved people.

The sector achieved an impressive growth rate of 43 percent per annum in 2007 and 2008, but the growth decelerated in 2009 and 2010, it added.

The report said that microfinance in Pakistan has come a long way since 2000 and is gradually mainstreaming into the formal banking system. Eight microfinance banks (MFBs) have been established, three of them transformed from microfinance institutions (MFIs). Two of the world’s largest MFIs have started operations in Pakistan, reflecting private sector participation and institutional diversity.

Pakistan has one of the lowest financial penetration levels in the World with 56 percent adult population totally excluded, and another 32 percent informally served.

“Despite considerable support from the government, donors and the State Bank of Pakistan, the microfinance sector has only been able to tap a small fraction of the potential market,” the report said.

In 1999-2000, various government initiatives were undertaken to lay the foundation for a national microfinance sector. The year 2007 heralded a second phase, in which policy and strategy focus has been on accelerating growth through scalable and sustainable approaches.

In order to promote sustainability and encourage a market-driven formal system, the SBP, with broad stakeholder consultation, formulated a national strategy called “Expanding Outreach of Microfinance” (EMO), which was approved by the government in February 2007.

Traditionally, funding to microfinance in Pakistan has been supported by donors. This form of funding is limited and unsustainable. In order for the industry to grow in a financially stable manner, permanent sources of funding are crucial.

“Unfortunately, there are presently various challenges on availability of appropriate funding sources: Firstly, commercial banks are risk-averse due to, inter alia, tight liquidity conditions and less know-how of the microfinance sector. Secondly, though MFBs have the license to mobilize deposits, these have been unable to do so on a large scale.”

Even though MFB deposits registered 73 percent growth in 2009, they only contribute 40 percent of the entire funding structure.

The high growth rate was the result of lower base, and also concentrated in two leading MFBs (First MicroFinance Bank Limited and Tameer). Around 74 percent of the total deposits belong to one MFB, it added.

The report said that the country has immense potential for micro-savings but the MFBs are still largely credit driven.

MFBs have also been unable to leverage their geographic spread by offering home remittances and inland money transfers. Similarly, the MFBs’ interest in providing micro insurance is also limited.

Tapping into this market will allow MFBs to develop sustainable sources of funding, which is much cheaper than commercial credit, the central bank said.

In the initial phase of portfolio growth of MFBs, the equity/paid-up capital behaved as a temporary source of funding. Equity, however, cannot act as a major contributor to medium-to-long term loan portfolio growth. Until recently, the largest MFB, Khushhali Bank, has been funded by sponsored subsidised financing from the government and the Asian Development Bank. This source of funding has now dried up, according to the report.

The Pakistan Poverty Alleviation Fund (PPAF) is an apex funding body for meeting the needs of the sector. However, PPAF model is constrained due to restricted funding to non-regulated MFIs only.

Besides, PPAF does not have sustainable source of funding. Its exclusive source is the World Bank’s loan obtained by the government, the central bank said.

The report identified that owing to rapid growth in micro-credit until 2008, instances of multiple and over-borrowing were witnessed in certain areas.