Asia: StanChart, ADB to support microfinance across Asia

Standard Chartered Bank has announced a collaboration with the Asian Development Bank (ADB) to support the growth of the microfinance sector in Asia.

This region-wide collaboration aims to improve access to financial services for the poor in ADB’s developing member countries (DMC’s).

Under this programme, Standard Chartered aims to originate and service a US$150 million portfolio of microfinance institutional loans across Asia. ADB will share the risk via a Risk Participation and Guarantee programme on this portfolio for up to US$75 million. This regional programme is intended to run till December 2018.

ADB’s support will enable Standard Chartered to extend additional credit to microfinance institutions that will in turn reach more unbanked individuals and finance additional micro enterprises and livelihoods.

Commenting on this innovative initiative, Peter Heidinger, Global Head, Financial Institutions Group at Standard Chartered, said, “Increasing access to financial services is core to the Bank’s approach to sustainable financing. This partnership with ADB will unlock more funding for microfinance and extend support to the sector when it is re-emerging from a difficult economic cycle. We expect this programme to benefit approximately 30 microfinance institutions in Asia.”

Philip Erquiaga, Director General of ADB’s Private Sector Operations Department said, “Our commitment to development and poverty alleviation takes centre stage in our long-term Strategy 2020. Microfinance is a key element, and this collaboration highlights our commitment of providing access to finance for the unbanked poor in ADB’s DMCs.”

Standard Chartered has been supporting the microfinance sector across Asia, Africa and the Middle East since 2005. As of December 2012, the Bank has financed US$970 million to 73 microfinance institution partners across 17 countries, impacting the lives of 6.4 million people, the majority of whom are women. Standard Chartered believes that increasing access to financial services is key to building sustainable businesses and that microfinance is a commercial opportunity that has the potential to broaden financial and social inclusion.

Across its markets, the Bank provides a variety of product offerings, which includes credit, transaction banking, risk management products and access to debt capital markets to all stakeholders in the microfinance industry.

The Bank also invests in technical assistance initiatives to build the capacity of microfinance institutions and influence thought leadership for positive regulatory change in the sector.

SOURCE: The Financial Express

Kenya: SME Lending Attracts More Financiers, Including Banks

By Winfred Kagwe, Nairobi Star

It has been repeated over and over that the biggest hindrance to growth of indigenous businesses is lack of access to financing.

The survival rate of up to two to three years presumed for the small and medium enterprises (SMEs) has been because despite having very innovative ideas, funds to fully commercialise have not been readily available, especially with little to show as security.

But there could be some hope for small businesses as more and more sources of finances continue to emerge, from private equity to more banks showing willingness to lend them money. Microfinance lenders and co-operative societies may have been the main source of hope for financing for new entrepreneurs, but suddenly funds may be coming from different-and unexpected sources. Banks that had been concentrating on corporate banking, asset, investment banking or big trade financing suddenly have increased interest in small and medium -even micro – enterprises.

Earlier in the last decade, Equity Bank focused on giving out microloans. This may have attracted the industry’s attention but other financiers stood by and watched. It took some years for other big banks to go the SME way, but for the last few years saw other big ones like Kenya Commercial Bank, Barclays Bank, Standard Chartered establish their own SME segments to grow their loan books.

And now, the mid-tier banks, aspiring to join the big league are banking on the micro, small and medium sized enterprises to grow bigger. Last week, CFC Stanbic Bank, a subsidiary of South Africa’s Standard Bank Group, put venturing to SME banking top of its immediate future strategy. CfC Stanbic, which has been majorly offering corporate products, now plans to grow its lending to SMEs to constitute up to 40 per cent of its retail banking.

Diamond Trust Bank, one of the fastest growing banks in the region, now has 90 per cent of the accounts held by SMEs. With its regional reach, DTB has been targeting SMEs in east Africa. In effect up to 58 per cent of its loan book is to this group. ” This will not only help DTB position itself as premier SME banking institution, but also promote job creation,” said DTB Chief Financial Officer, Alkarim Jiwa while acknowledging receipt of $450 million(Sh38.25 billion)from International Finance Corporation since 2008 which has been extended to SMEs.

Bank of Africa has also been notably visible in reaching out to micro investment groups, popularly known as ‘chamas’ in a bid to reach to the startups at their earliest stages. BOA says it has grown its SME segment to account to account for up to 25 per cent of its loan book. McKinsey & Company, a research company, has over the last six months conducted a research on Micro, Small, Medium Enterprises (MSMEs) in emerging markets. The report, titled ‘how banks can grasp a $350 billion opportunity’ was based on interviews with 30 leading banks across the emerging markets (Asia, Latin America, Middle East, Africa, and Eastern Europe), sizing of the opportunity overall and by sector.

The survey found that the emerging market MSME banking opportunity is large and growing fast, it is set to grow to USD350 billion+(Sh29.75 trillion) by 2015, which is approximately USD 220 billion(Sh18.70 trillion) larger than in 2010. This growth is larger than the growth over the same period of the global investment banking and asset management revenue pools combined, of approximately USD 180 billion(Sh15.30 trillion).

The emerging market MSME banking opportunity appears profitable, of the 30 banks interviewed, a large majority are earning a return on equity (RoE) in excess of 25 per cent. “We estimate that banks can increase RoE from the MSME segment from approximately 15 per cent to 35 per cent by applying five leading practices,” says Mutsa Chironga ,an Associate Principal at McKinsey & Company.

Such practices include, seeking granular understanding of clients which can enable banks capture 70 per cent of the revenue pool by focusing on specific MSME sectors, such as retail, agriculture, manufacturing, hospitality. But there is still a risk, and the lenders have to employ new tactics to reduce the possibilities of defaults by SMEs. CfC Stanbic, for instance, has now employed a new way of make a distinction between viable borrowers and getting rid of those with a higher risk of default risk.

According to Elly Odhong’, the bank’s Head of Personal and Business Banking, it is now employing a psychometric test to vet potential clients. This is a computer tool that gives score depending on how the potential borrower answers the questions. This is already being used in CfC Gikomba branch, one of the most lucrative hub for business people. “Knowing the risk will significantly reduce the cost of issuing loans to small businesses, so that we can be able to offer competitive rates in the market,” Odhong’ said.

Chironga says by lowering operating costs can be done for example lowering distribution costs by 30-40 per cent by use of agents or mobile money, already in use by Kenyan banks. Another way is by innovatively managing risk, for example lowering credit losses by 30-40 per cent using innovative techniques such as psychometric testing and qualitative credit assessment (QCA).

Most banks agree that by empowering clients by building their financial and business literacy can help capture more of the SME pie. For instance, Equity Bank has been carrying out its Financial Literacy programme for the past few years now. Chironga proposes another way is by engaging government through risk sharing, where the government could share up to 50 per cent of the risk of lending, or by establishing credit bureaus which can help reduce risk costs by 40 per cent, the latter is already in place in Kenya. But there are points of caution: Before moving to action, banks should consider whether the MSME segment is sufficiently part of the bank’s strategy and whether the bank is ready to execute at scale against the opportunity.

Indonesia: British bank provides loans for microfinance

From The Jakarta Post

JAKARTA: London-based Standard Chartered Bank (SCB) granted loans worth Rp 30 billion (US$3.3 million) on Friday to Bank Andara, Indonesia’s only wholesale bank prioritizing assistance to microfinancial agencies such as secondary banks.

SCB Indonesia chief executive officer Tom Aaker said that the loans were proof of the bank’s full commitment to supporting microfinance economics.

“At least 50 million Indonesians still do not have bank access. Many of them even live with an income of less than $2 per day. Only 13 percent of the total population have financial access. We can reach these people through Bank Andara, which cooperates with microfinancial agencies,” Tom said during a press conference
in Jakarta.

Bank Andara business director Don Johnston said that the loan from SCB would allow the bank to distribute loans to 15 to 20 cooperatives and rural banks, which would then channel them to micro-entrepreneurs and street vendors. “Cooperatives and rural banks would each receive a loan worth Rp 1 billion to Rp 2 billion and channel it to at least 100 micro-entrepreneurs and street vendors. A micro-entrepreneur would receive Rp 10 million and a street vendor Rp 2 million to Rp 5 million,” Don said.

Largest ever bilateral Micro Finance Credit Guarantee Facility provided by Standard Chartered Bank (Pakistan)

From One Pakistan News

Karachi: Standard Chartered Bank (Pakistan) Limited successfully closed a PKR 600 million, two year finance facility Tameer Micro Finance Bank Limited (TMFB) under State Bank of Pakistan’s (SBP) Micro Finance Credit Guarantee Facility (MCGF) launched under DFID Funded Financial Inclusion Program.

It is largest ever bilateral facility to any Micro Finance Institution/ Bank under MCGF scheme. The signing ceremony held at Standard Chartered Pakistan Head Office in Karachi was graced by Governor, State Bank of Pakistan, Shahid H. Kardar. Also present were Mohsin A. Nathani, Chief Executive Standard Chartered Bank (Pakistan) Ltd., Nadeem Hussain, CEO Tameer Micro Finance Bank Limited, senior representatives of SBP, Standard Chartered Pakistan & TMFB.

A press release Monday said this facility is partially covered by MCGF designed by SBP keeping in view important role of Micro Finance Institutions/Banks in Pakistan. According to Access to Finance Survey, more than 68 million adults do not have access to formal financial services in Pakistan. Majority of these excluded households are poor and are financially served by microfinance providers. MCGF’s purpose is to facilitate banks/ DFIs to play a leading role in easing credit constraints of Micro Finance Institutions/Banks, in their efforts to maximize outreach by extending credit facilities to them. Shahid Kardar said this is perhaps best partnership. “On one hand we have Tameer Micro Finance Bank Limited, which is pioneer in branchless banking, and on the other we have Standard Chartered Bank (Pakistan) Limited with their creditability, standing in the market and their commitment to Pakistan.

I genuinely believe a partnership like this sets precedence for outreach to un-banked population and enhance one of SBP’s main objectives which is financial inclusion. It successfully mobilized Rs. 2.375 billion for three large Microfinance Providers.” He said SBP will soon launch Financial Innovation Challenge Fund (FICF), a GBP 10 million grant facility, as part of larger DFID funded Financial Inclusion Program and target innovations to test new markets, lower cost of delivery, making systems, procedures more efficient and provide new ways of meeting unmet demand for financial services. Mohsin Nathani said this transaction demonstrates Standard Chartered’s commitment to Pakistan and support SBP’s initiative and agenda of providing credit to small business. He thanked SBP for extending guarantee and SBP team for working on successful close of the deal. “Our relationship with TMFB will facilitate in easing credit constraints for Micro Finance sector.” Nadeem Hussain said SCBPL’s funding will allow TMFB to continue its mission of empowering the unbanked. One of challenges facing this fast growing segment of financial industry is long term committed funding. He hoped this transaction will set a precedent for other commercial banks to increase their exposure to eligible borrowers.

StanChart’s risk management toolkit for microloans

From The Daily Star, Bangladesh -

Standard Chartered Bank and MicroSave have launched a risk management toolkit for micro-finance institutions in partnership with Credit and Development Forum (CDF).

The toolkit aims to sup-port microfinance in Bangladesh and strengthen relationship with stakeholders, StanChart said in a statement yesterday.

The toolkit will be gradually disseminated to MFIs across the globe and cover the management of credit, operational, financial and strategic risks. It comprises ‘ready-to-use’ training material.

Rozina Razzak, director and head of development organisations for StanChart, and Mosharrof Hossain, chairman of CDF, emphasised the importance of the toolkit and the reasons for supporting such activity.

Shafiqual Haque Choudhury, president of ASA, was present as the chief guest and formally declared the launch of the toolkit, followed by a panel discussion. Joseph Silvanus, regional head for development organisations in Southern Asia of StanChart, moderated the discussion.

“We have spent a lot of time and resources and engaged MicroSave, a leading technical assistance agency to develop this toolkit,” said Tanveer Ahmed, associate director of Standard Chartered.

This is part of a series of efforts that have been made by StanChart to strengthen the development organisations sector globally, he 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

StanChart turns the tables on Equity to bag top bank award

By Johnstone Ole Turana, Business Daily Africa –

Standard Chartered Bank has been declared the best bank in Kenya in Banking Survey 2010, dislodging Equity which emerged the winner last year.

Barclays Bank maintained its second position with Equity Bank dropping to position three.

“Our aim is to encourage prudence and stability in the banking sector by recognising, awarding and celebrating exemplary performers and successes of the sector, consequently encouraging competition,” said Wilfred Nyangena, the chief judge.

The awards are won on a combination of merits, including financial soundness, opinion polls, market research and professional assessments.

Standard Chartered Bank was the only bank to post a double digit growth in a soft economy where banks took a hard knock on the back of subdued consumer demand for credit.

Similarly, banks had to pay higher interest rates to attract deposits, which raised their operating costs.

Bank of Baroda was declared the Best Bank in Tier II, a category for banks with total assets between Sh10 billion and Sh40 billion. In second place was Bank of India while Family Bank was third.

The strategic decision by StanChart not to join the rush for retail expansion to net more customers, choosing instead to focus on its core market, paid off with the bank recording a 43 per cent pre-tax profit growth of Sh6.7 billion from Sh4.7 billion in 2008.

“Our sterling growth confirms our business strategy of focusing on key market segment, engaging in prudent expansion and leveraging on our information technology to drive business growth”, said Richard Etemesi the bank chief executive officer while releasing the results.

For other banks the growth was largely subdued with Barclays Bank reporting a four per cent growth while Equity Bank recorded a seven per cent growth.

With the economy on a recovery path, commercial banks are returning back to the profit making territory.

The latest results for the first quarter shows that banks are turning over the leaf and are expected to post healthy returns this year.

The Banking Survey, which has different categories, recognised other achievers in the various categories.

Equity Bank was voted the best microfinance bank, KCB Bank won in the retail banking category while Barclays Bank was declared the best bank for corporate banking.

Other winners were CFC Stanbic Bank for the investment banking award, KCB Bank scooped the best bank in mortgage finance and Chase Bank was voted the fastest growing bank.

Early this year, KCB absorbed its mortgage subsidiary Savings and Loan into the mainstream allowing it to leverage on its huge balance sheet to grow its mortgage portfolio.

During the ceremony, Rueben Marambii, the managing director of National Bank of Kenya (NBK), was awarded a lifetime achievement award for his 37 years of service.

Mr Marambii has been instrumental in turning around NBK from a loss making institution to profit making bank.

Other individual feted were Alfetta Koome of CFC Stanbic Bank as the investment banker of the year and Nick Mbuvi of Barclays Bank – corporate banker award.