Nigeria: Microfinance banks may receive N4.7tr ($30 billion) grant from nine investors

NIGERIAN microfinance banks may soon be recapitalised to the tune of $30 billion about (N4.7 trillion), as nine investors have announced their willingness to inject more fund into the sector.

The $30 billion fund that may come in the form of grants to the banks would be provided by Blue Orchard; Alietheia Capital, Bank of Agriculture (BOA); Patners for Development, Nigeria Capital Development fund, French Development Agency; Proparco; PlaNet Finance, and African Development Bank (AfDB).

The Representative of Blue Orchard Microfinance Investment Managers, Maxime Bouan who spoke to journalist at the on-going first Nigeria International Microfinance Investors Conference yesterday in Abuja, said his company alone was ready to invest $5 million in the sector.

He said, with a population of 160 million people, Nigeria MFB market was the most important sector given the number of people that needs funding.

According to him, the company has already approved $3 million, which would be disbursed to MFBs in a couple of months, adding that the company was planning to double its investment in the banks because of its ability to raise more funds.

The President National Association of Microfinance Bank (NAMB) Jethro Akun in his address disclosed that a Nigerian Microfinance Private Fund institution would be established to collect funds from foreign investors to invests in MFB, which will in turn grant credit facilities to the people.

He maintained that the conference was aimed at bringing foreign investors, who are already investing in MFBs into an organised system to ensure coordinated and organised service delivery in the sector.

Akum noted that the establishment of MFB private fund institution would help in stabilising the sector by alleviating the challenges of liquidity and available refinancing funds for MFB and MFI in the country.

The MFB private fund institution, he said, would also provide the rural dwellers easy access to soft loans, and fast track the attainment of food security.

The Country Representative, International Fund for Agricultural Development (IFAD), Ms. Atsuko Toda, believed that access to finance could play a crucial role in the agricultural transformation agenda, because farmers have always been looking for credit for the adoption of technologies.

She also emphasised the importance of finance, saying it was necessary to fuel the growth of value chains and creation of job opportunities for the unemployed youths, adding that access to micro finance was crucial for smallholder farmers.

By Joke Akanmu, The Guardian

Kenya: Low financing costs shield MFI customers

By George Ngigi, Business Daily Africa

Borrowers from micro-finance institutions (MFIs) have escaped the recent surge in lending rates that have seen the cost of loans from commercial banks jump to over 24 per cent.

The MFIs—which are generally funded through concessionary loans from international development institutions— have been spared the high cost of funds that banks have suffered following successive interest rate increases by the Central Bank of Kenya.

This has enabled the MFIs to hold their lending rates at just below 20 per cent, affording their customers lower cost of loans than what the commercial banks are charging.

“We have not changed our interest rates,” said Mr Peter Muthendi, CEO of Kadet Microfinance whose lending rate averages about 19.5 per cent.

Unlike commercial banks which are dependent on customer deposits to grow their loan book, MFIs rely on concessionary lending, mainly from international financiers, for funds to lend to customers.

Banks have in the last six months raised their minimum lending rates from around 14 per cent to 24 per cent, taking cue from Central Bank’s benchmark rate increases.

Mr Muthendi said microfinance institutions had partnered with many wholesale financiers that lend to MFIs in dollar or euros, with an agreement on how to hedge against forex risk and protect the micro lenders from interest rate volatility in the local market.

Common lenders to the MFIs include Stromme foundation, Oikocredit, and Proparco.

Partnerships with social investors who are mostly interested in changing the welfare of the communities and not financial returns have also seen borrowers with the microfinance institutions continue servicing their loans at unchanged rates.

The Association of Microfinance Institutions states that the lenders have six million customers and a loan book of Sh66 billion.
Faulu Kenya MD, John Mwara, said his firm, a deposit taking MFI, had not reviewed its lending rate.

“We also want to protect our customers from default. Their ability to repay loans has greatly reduced and their current minimal margins from their engagements cannot take extra cash commitment,” said Mr Mwara.

CBK’s interest rate increases have been aimed at stabilising the shilling and taming the inflation rate.

The shilling slumped to an all-time-low of 107 units to the dollar in October, while the inflation rate stood at 19.7 per cent as at the end of November.

Microfinance institutions mainly serve low income earners, who have borne the brunt of the recent surge in the cost of living.

Belgian MFI Investor Closes Second Fund At $103M

From VCCircle

Rural Impulse Fund II, a microfinance fund of Belgian investment management company Incofin has raised $15.7 million in second and the final closing for its fund-  Rural Impulse Fund II. The microfinance focused investment firm has raised money from two institutional investors – PROPARCO, a French development financial institution and Storebrand- Nordic long-term savings and pension insurance specialist. The fund held a first close at $88 million, thereby meeting its targetted corpus of $103 million.

Successor to Rural Impulse Fund I, Rural Impulse Fund II was created in June 2010 with EUR 86 million to invest in microfinance institutions targeting rural areas. Incofin has six microfinance funds under its management totalling EUR 300 million.

PROPARCO which invests EUR 5 million in RIF II is a French development financial institution. Its investors include the French Development Agency (l’Agence Française de Développement) and private investors in France and abroad.

Storebrand is a Nordic long-term savings and pension insurance specialist. It has invested through two of its subsidiaries: Storebrand Livsforsikring AS located in Norway and SPP Livforsäkring AB from Sweden, each investing EUR 3 million.

RIF II is already backed by leading public and private financial institutions and investors, including DFIs (European Investment Bank, IFC, KfW Entwicklungsbank, NMI, FMO and BIO) and a range of private banks and investors; among others BNP Paribas Fortis, VDK spaarbank, Bank fuer Kirche und Caritas and Belgian trade union ACV-CSC Metea.

In 2010, it has invested Rs 4.5 crore in Fusion Microfinance, a Delhi based microfinance startup operating in the north-central states of India.  In 2009, it was part of the consortium which invested $5.88 million in Bangalore-based microfinance firm Grameen Koota. It co-invested wuth Luxembourg’s MicroVentures Investments, Italy’s MicroVentures SPA and existing investor Aavishkar Goodwell.

“Rural Impulse Fund II aims to become the worldwide reference for rural microfinance,” it said in a statement. The fund invests in a range of microfinance intermediaries, including NGOs, credit unions, microfinance banks and institutions targeting small businesses.

Rural microfinance activities are challenged by seasonality, high administration costs of small loans and limited resources. Since the fund’s inception more than EUR 25 million has been invested in 16 microfinance institutions (MFIs) across 10 countries (Bolivia, Cambodia, Colombia, India, Kazakhstan, Kosovo, Kyrgyzstan, Peru, Tajikistan and Zambia). Through the MFIs in its portfolio RIF II reaches 592,131 clients. On average 71% of the clients of the MFIs RIF II has invested in, are living and working in rural regions, it added.

Micro-lenders turn to external financiers for cash

By George Ngigi, Business Daily Africa -

Newly licensed deposit-taking micro-finance institutions (MFIs) are turning to development financiers for funds since customer deposits have failed to measure up to the demand for loans.

The Kenya Women Finance Trust (KWFT), which was early this year licensed to collect deposits, last week signed a Sh535 million seven-year loan with Proparco, an investment fund owned by the French government, and Sh215 million with Grameen Credit Agricole Microfinance Foundation.

It also received a Sh500 million loan from Oikocredit last month.

Managing director Mwangi Githaiga said the micro-financier wanted to bridge a widening gap between demand for loans and new deposits from customers.

He said loan applications have been on the rise since the lender got a deposit-taking licence from the Central Bank of Kenya (CBK).

“The credit appetite is still higher than the savings rate,” he said.

KWFT had 415,965 customer accounts and held total deposits of Sh5.6 billion at the end of October, while the loan portfolio stood at Sh11.6 billion.

Faulu Kenya, the other licensed deposit-taking micro-finance lender, also has in its books a Sh450 million credit line from Standard Chartered Bank and the International Finance Corporation.

The reliance on external funds has made micro-lenders charge relatively higher interest rates than conventional commercial banks since they are forced to factor in higher profit margins to repay the debts.

Carol Mulwa, the country manager of Oikocredit Kenya, a development finance institution, said the interest rate on loans to MFIs and NGOs is determined by risk analysis conducted on borrowers.

“We load a certain risk rate, dependant on the customer, to our base rate. Averagely, the rate lies between 10 per cent and 14 per cent,” said Ms Mulwa.

CBK data shows the current average interest rate paid by banks on deposits is 1.47 per cent, making customer deposits a cheaper source of funds as it yields a wider interest spread for the lenders.

KWFT’s current lending rate is 1.4 per cent per month (pegged monthly as some loans mature in less that a year), which translates to an annual rate of approximately 16.8 per cent.

Faulu Kenya lends at an average yearly rate of 18 per cent.

The cost of mobilising deposits is high as institutions have to put in place measures to ensure they adhere to the set regulations that seek to protect public savings.

They also have to bear increased construction costs while rolling out branches.

“Transforming into a deposit-taking institution had significant cost elements for us. We had to upgrade our IT system so as to cope with the increased business and also meet the new regulatory reporting requirements. We have been opening one deposit-taking branch at a time and currently we are at seven branches,” said Mr Githaiga.

Faulu Kenya reported an after-tax loss of Sh49 million last year, a reverse from profits of Sh11 million in the previous year.

The management attributed the decline in performance to the transformation process.

MFIs yet to be licensed as deposit-taking institutions have to seek external funding so as to meet customer needs. Last week, Oikocredit disbursed loans to micro-lenders.

The money was given to Pamoja Women Development Programme (Sh120 million), Small Medium Enterprise Programme (Sh100 million), AAR Credit Limited (Sh50 Million) and Molyn Credit Limited (Sh50 Million).

The loans are intended to expand the loan portfolios of these institutions.

“We mainly support SMEs and they usually have seasonal businesses that push them to seek simple funding. The demand now is being pushed by the festive season, which will be closely followed by the schools’ reopening before the agricultural season sets in,” said Lydia Anyangu, the CEO of Molyn Credit Limited, which has 19,000 clients with a loan book of Sh180 million.

gngigi@ke.nationmedia.com