Social Microfinance Foundation annual report 2011

Annual report 2011

Annual Report 2011

Socia l Microf inance Foundat ion

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Social Microf inance Foundat ion

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Annual report 2011

Table of contents

Content

Abbreviations - 3

Message by the Chairman of the Board - 4

About Social Microfinance Foundation - 6

Incubation Challenge - 9

Technical Assistance in 2011 - 12

Country operations - India - 15

Country operations - The Philippines - 19

Country operations - Uganda - 23

Country operations - Ghana - 27

Representation - 29

Annual Accounts 2011 -

Independent Auditor’s Report -

Colophon -

Abbreviations

AGM - Annual General Meeting

BOD - Board of Directors

CEO - Chief Executive Officer

GNI - Gross National Income

MBA - Mutual Benefit Association

NBFC - Non-Bank Financial Company

NGO - Non-Governmental Organisation

MFI - Microfinance Institution

PHP - Philippine Peso

SACCO - Savings and Credit Co-operative

SHG - Self-Help Group

SMART - Specific, Measurable, Agreed, Realistic, Time-Bound (indicators)

SME - Small and Medium Enterprise

SMF - Social Microfinance Foundation

TA - Technical Assistance

UGX - Uganda Shilling

USD - United States Dollar

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The Year of the Incubation Challenge

By Mr. Tony Fernandes

2011 was an enervating year. In November 2010, the Promotors from Asia and Africa met with the Board

of SMF where it chose to build on the experiences of the previous year and launch the Incubation Chal-

lenge. The specifics of the Incubation Challenge were in keeping with the original

objective of the Social Microfinance Foundation to be a Technical Assistance Fa-

cility with a difference. The difference was to stimulate innovation with a visible

and tangible impact in the livelihoods of the communities of the poor in a multi-

stakeholder’s approach. The difference was in going beyond the microfinance

standardised methodology of focussing on on-lending programmes and on

growth and outreach.

This approach was indeed a Challenge that set the partnering organisations to

reflect on their approaches and come up with incubation challenges that SMF

was willing to support. This also set the Board and its two member staff on a path of working in a different

manner than it had done till now.

2011 in this sense was a year of transition. Transition from the manner in which it began to call for techni-

cal assistance proposals and the manner in which it was appraised through needs assessments and even-

tually negotiating the technical assistance to be provided from professional and well experienced TA Pro-

viders.

Implementing Incubation Challenge also triggered off a process of transition in terms of developing new

policy guidelines. It was transitioning from the process that was already in implementation to the new

process where supporting incubation challenge would be central to SMF. This generated a process of lev-

elling off in the Board and the Staff which unfortunately did not get sufficient time to round off by the end

of the year.

In this process of transitioning, one of the crucial factors was the availability of financial resources for the

coming year. SMF had made a fine start in diversifying its financial resources. Besides the major financial

contributor Cordaid, SMF was able to negotiate a collaboration with FMO which committed

€ 225.000. Oikokredit International came on board, be it with an initial modest amount of € 50.000. Two

of the Promotors, one in India, Microsave and one in the Philippines, Card made a commitment to con-

tribute modest amounts of € 15.000 each.

The levelling off process in the Board and the Staff gave a new impulse and manner of working. Part of

this process led to the search for certainties in terms of financial resources for the coming years and

thereafter. This search was not so successful since the availability of financial resources was limited.

2011 which began in an enervating manner and the launch of the Incubation Challenge ended with little

or no perspectives for the future in terms of financial resource availability.

Message by the Cha irperson

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Annual report 2011

Message by the Cha irperson

Intensive consultations between the Board members led to the conclusion that there was no future per-

spective for SMF, however much it had to offer. A great initiative built on trust and validated by a sizeable

number of Promotors from Asia and Africa needed to be closed.

The process for closing down the Social Microfinance Foundation is now in progress and save for a mira-

cle, the decision to do so will be taken in the Board Meeting at the end of March in keeping with the Stat-

utes of the Foundation. A Transfer Agreement has been drawn up between SMF and Cordaid, that has

been kind enough to take over the roles and responsibilities of SMF that it had undergone with its part-

ners and has handed over the remaining unused amounts.

Social Microfinance Foundation in its present form will cease to exist by the middle of 2012. The experi-

ence, the lessons learnt, the incubation challenge and the determination and the will to make a difference

will continue to live.

Special thanks to all Board Members and the Staff of SMF for their time, involvement , contribution and

collaboration. Also special thanks to all the Promoting Organisations from Asia and Africa that validated

this worthwhile initiative.

Tony Fernandes,

March 2012

6


Origin

The global microfinance sector has provided access

to financial services for millions of the poor and low-

income people.

The prospect of interesting financial returns, has

attracted social and institutional investors, keen in

supporting Microfinance Institutions. A search for

“winners” started. Well managed, profitable micro-

finance institutions were supported: MFis became

an asset class.

In March 2009, 13 international organisations, all

supporting microfinance, participated in a workshop

in Bangkok, Thailand, and analyzed their concerns

over the way the sector was evolving.

In midst of a global financial crisis taking place, they

concluded that, while advocating for a market-

driven approach to microfinance, the sector lost

focus of their main stakeholder: the poorest families

and their living context. Very high interest rates

were maintained to satisfy investors’ return require-

ments, loan products offered were inflexible and

were not addressing the needs of the poorest cli-

ents. Overindebtedness of clients had become a

serious problem in some microfinance markets. And

last but not least: environmental awareness and

biodiversity protection was absent in most microfi-

nance development strategies.

Vision and Mission

Socially –oriented Microfinance addresses access to

finance from a different perspective. It promotes

microfinance initiatives that take the social-

environmental context of clients as a starting point.

Design and delivery of financial services explicitly

integrate the social, environmental and financial

dimensions of livelihood improvement.

Socially –oriented microfinance institutions stimu-

late the active involvement and participation of cli-

ents (groups and communities). In this way they are

integrating and balancing financial and social re-

turns.

About Socia l Microf inance Foundat ion

Promotors of SMF

- Ayani

- Asian Confederation of Credit Unions (ACCU)

- AMFIU

- CARD MRI

- Cordaid

- EDA Rural Systems

- Friends of Women`s World Banking India

- MAIN Ethiopia

- Microsave Africa

- Microsave India

- Micra Indonesia

- Oikocredit

- Peace and Equity Foundation

‘Social Microfinance Foundation supports

microfinance institutions with tailor -

made technical assistance. Through a

unique approach we co-design technical

assistance projects, strengthening MFI`s

capacities through our vast network of

local consultants and experts.’

‘Social Microfinance Foundation aspires

to improve financial intermediation capa-

bilities of banks, savings and credit insti-

tutions and microfinance institutions. We

dream of an improved global financial

system, continuously seeking to provide

the poorest households with access to

savings, credit and insurance.’

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Annual report 2011


Organisation

Board of Directors

The highest level of governance of SMF is an inter-

national Board of Directors put together in consulta-

tion with the SMF Partner Organisations. The Board

is responsible for the Foundation’s overall strategy

and Technical Assistance policy.

In 2011, the Board was composed of six persons:

Mr. Aris Alip (CARD), Mr. David Baguma (AMFIU),

Mr. Frans Goossens (Cordaid), Mr. Tony Fernandes

(Chairperson/Treasurer), Mr. Herman Mulder

(Independent) and Mr. Ben Simmes (Secretary,

Oikocredit).

The Board has met four times, of which one meet-

ing was organised through a conference call.

Fund Management

Operations of Social Microfinance Foundation are

delegated to a Fund Manager, appointed by the

Board. He is supported by a Programme Officer. The

Fund Management team operates on the basis of

annual plans and budgets approved by the Board. It

identifies and screens eligible microfinance initia-

tives, designs and implements technical assistance

projects, and takes responsibility for financial ad-

ministration and monitoring of projects and ac-

counts.

By September 2011, the Fund Manager Jos van der

Sterren announced his resignation as per January

1st 2012. The Board of SMF decided not to hire a

new fund manager immediately.

During the year 2011, the SMF office was based in

Breda. As of January 1st 2012, the office is shifted to

Leiden.

Organisational chart

Promotor Organisations

Social Microfinance Foundation is founded by and

supported through a strong network of 13 Promotor

Organisations. These are Investors, Microfinance

Networks, international donors and consulting

companies. Their contribution to SMF is invaluable,

since they provide access to a vast local and global

network of professionals, institutions and organisa-

tions. They support the identification, orientation of

eligible projects, and provide valuable country infor-

mation.

Board of Directors

Promotor Organisations

Fund Management

Uganda

needs assessors

India

needs assessors

Ghana

needs assessors

Philippines

needs assessors

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Partnership model

Partners and Associates

Social Microfinance Foundation is a multi-

stakeholder initiative, that builds upon experience

and networks of participating organisations. Though

it is not an Association, it has many characteristics

of the same. The model is based on a partnership

with like-minded institutions that have experience

in the field of triple-bottom line finance. The SMF

statutes make a distinction between Partners and

Associates.

Partners of SMF themselves are insitutios directly

supporting microfinance initiatives who target

poorer clients and take into account the client con-

text for delivering financial services. Associates are

those that help promote the initiative, spread the

word and bring useful connections to other sectors

and initiatives (like GRI, sustainable development

discussions, responsible banking etc.).

Cooperation in 2011

In 2010, SMF network was build out of 13 official

Partner Organisations. Next to this, initial coopera-

tion started with Belgian TRIAS, in Ghana, focusing

on 15 Rural Community Banks in the Northern prov-

inces.

Rabobank Foundation India and Royal Bank of Scot-

land India both expressed its intention to collabo-

rate in exchange of information concerning India. In

due course, this could lead to actual cooperation on

project level.

With the Belgian Investor Incofin, SMF is building a

co-financed project in the Philippines. The contract

will be signed mid January 2012.

Founding Partners Acronym

Association of Microfinance

Institutions of Uganda

AMFIU

AYANI Inclusive Financial

Services Consultants

AYANI

CARD MRI CARD

EDA Rural Systems Pvt Ltd EDA

Friends of Women’s World

Banking India

FWWB

MICRA MICRA

Microfinance African

Institutions Network

MAIN

MicroSave Africa MSA

MicroSave India MSI

Oikocredit Oikocredit

Asian Confederation of

Credit Unions

ACCU

Peace and Equity Foundation PEF

Catholic Organisation of

Relief and Development Aid

CORDAID

Type of institution Based in

MFI network Uganda

TA Consulting Company Netherlands

MFI Group of service

providers

Phillippines

Specialised TA provider India

MFI Apex institution India

Specialised TA provider Indonesia

MFI network Ethiopia

Specialised TA provider Kenya and Uganda

Specialised TA provider India

Social investor The Netherlands

Confederation of

cooperatives

Thailand

MFI support institution Philippines

Intern. Private Donor

Organisation

The Netherlands

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Annual report 2011

Changing Microfinance Sector

During the year 2011, amidst a deepening global

recession that followed the financial crisis, the

search for socially-oriented microfinance solutions

gained momentum. Globally, major microfinance

investment funds recognize the urgency of under-

standing issues like overindebtedness and more

flexible financial instruments, tailored to liveli-

hoodincome streams. Most funds also have institu-

tionalized social environmental selection and

screening policies for their investments, and recog-

nize the importance of supplying a mix of financial

and non-financial instruments to assure their invest-

ments are well spent and to avoid overindebtedness

and inappropriate targeting of clients.

Similarly, in the four countries of operation of SMF,

national governments have created facilities that

enable microfinance institutions to access local

sources of funds for technical assistance tailored to

their needs. This challenged SMF to reconsider the

added value of its operational structure, with an

international Secretariat, small project budgets,

without local presence.

While analysing this movement, the partner meet-

ing of SMF end November ‘10 decided to reposition

the TA facility, zooming into innovative approaches

to livelihood finance, and not only focusing on tech-

nical assistance to microfinance institutions, but

broadening support to incubation of new ap-

proaches in financial intermediation. As a result,

the number of interventions SMF would be support-

ing would be limited, but the role SMF would play

would be more substantial and based on long-term

partnerships with different stakeholders.

Repositioning SMF

The ‘incubation challenge’ was put into practice dur-

ing 2011, initially through the network of 13 partner

institutions. A call for proposals was issued in the

first quarter of 2011, resulting in a total of 12 pro-

posals from a diverse set of organizations India,

Zambia, Ghana and the Philippines. The content of

the proposed incubation varied: from establishing

forward and backward market linkages in agricul-

tural value chains, support of domestic fish value

chains (India), support of market outlets for micro-

entrepreneurs (Philippines), support of an innova-

tive scheme of wholesale micro-insurance systems

(Egypt) and support to the production and distribu-

tion of solar light and cooking stoves (India).

All of these proposals were discussed and reviewed

by the Board in June and September 2011 , who de-

cided to support the incubation of two initiatives: a

multi stakeholder initiative to install 200.000 solar

cookstoves in collaboration with SEWA Bank in In-

dia, and a project for establishing forward and back-

ward linkages to poor rural farmers in collaboration

with Nirantara in India.

Three other initiatives in India (floriculture produc-

tion and sales), Ghana (solar energy production and

sales) and Zambia (small scale fish production and

market linkage), where seen as promising. It was

decided that the Fund management team needed to

assess the quality of proposals and partnerships in

order to define the innovative strength and long

term sustainability of the actions. It can be stated

that the mechanism of the incubation challenge,

through a call for proposals, has lead to an encour-

aging and promising response of SMF partners in

some of the countries. However, considering the

premature stage of the two incubation initiatives,

approved at the end of 2011, it is too soon to ana-

lyze if the revised SMF strategy could be successful

in the future to push innovation and triple bottom

line finance initiatives.

Incubat ion Chal lenge

10


Thematic focus

The main goal of the revised strategy of SMF was

twofold:

1. to stimulate innovation in triple bottom line

microfinance initiatives through incubation of

innovative approaches

2. To activate cooperation with the 13 SMF part-

ners and their valuable networks

The call for proposals issued to all the partner insti-

tutions has lead to an encouraging set of incubation

challenge initiatives:

The board has taken a pragmatic approach in receiv-

ing proposals and allowing initiatives to be pre-

sented, since it was the first time to issue the incu-

bation challenge call.

However, based on the response, during a follow up

strategic session in September, the board decided

that it would be best, with current partners, to

zoom into two thematic lines of work which could

be most relevant to SMF in the future:

1. Rural livelihood enhancement

2. Renewable energy production and distribution

Incubation project 1:

Solar cookstoves and solar lighting energy in

India (SEWA Bank)

Tällberg Foundation led the project, Rework the

World. Tällberg Foundation jointly with SEWA, IFC,

and a wider group of partners have developed an

innovative project structure to allow commercial

capital (US$22,5m in a first transaction) to be used

to finance large scale distribution and sale of

200.000 efficient stoves and 200.000 solar lanterns

to poor women in India through the SEWA mem-

bership network. To keep interest rates to the end

customers at a manageable level, the commercial

investments are backed by public guarantee capital.

This in turn is linked to social indicators so that the

guarantee is only valid if social objectives are met.

This structure thereby aligns incentives between

banks, donors, and implementing organisations,

ensuring that the best qualities from each sector are

used in a complementary way.

SMF was explicitly requested to collaborate and

bring in its expertise in the design and implementa-

tion of a social and environmental indicator matrix.

This should then be used to measure the impact of

this innovative project setup, and to convince public

and private partners to support the model, in which

private and public partners share risks and costs of

the operation.

Amount approved by board of € 25.000 in 2011 for

support in:

Design of social impact scheme;

Design of impact measurement methodology;

Incubat io n Chal lenge

Egypt National micro– insurance platform

Zambia Fishing production

India Solar cookstove production and distribution

India Jasmine flower value chain

India Forward and backward linkages in agriculture

Philippines Self governed market linkages for handicraft and micro– enterprise

Ghana Solar energy through rural banks

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Annual report 2011

Incubation project 1I:

Forward and Backward linkages in agricul-

ture (Nirantara)

Nirantara (meaning: forever, sustainable) is a group

of Sevas (Social Enterprises for Value Added Ser-

vices), operating in Karnataka. The group consists of

both for-profit and not-for-profit legal entities

started to create triple bottom-line social impact.

Founded during 2006, the group is currently en-

gaged with more than 10,000 socio-economically

disadvantaged families in the backward districts of

Karnataka. The project, called iSAMS (an acronym

for Integrated Sustainable Agriculture Management

Solutions), drives farm solution integration to a one-

stop-shop, at the farm-gate level. It is an approach

to catalyse and incubate producer’s collectives

which provide critical services that make agriculture

on small land holdings a sustainable livelihood

proposition. This is a market-led farm-livelihood

project envisaged to provide key services in a pro-

fessional way using best of the technologies at low

cost to farmers.

Amount approved by board of € 60.000 in 2011 for

support in:

Design of linkages model

Pilot testing;

Incubat ion Chal lenge

12


Applications

In 2011, the second year of operations for SMF, a

diverse group of microfinance initiatives contacted

the TA facility. Through the website, via e-mail or

after a personal introduction, around 30 organisa-

tions approached SMF for more information on TA

support.

Of this group of producers organisations, MFIs, co-

operatives and NGOs, 13 did actually send an official

application to SMF for TA support. For two of those

applications, SMF decided that the request did not

align with the approach of SMF. They were not fur-

ther considered for TA support. For the other 11

organisations, SMF organised a TA needs assess-

ment.

A needs assessment takes around six days and is

implemented by an independent, local and experi-

enced individual consultant. For three days, the con-

sultant talks with clients, branch staff and field staff

about the current issues they are facing. In the fol-

lowing three days, ideally the consultant speaks

with both senior management (SM) and Board of

Directors (BoD), to discuss the outcomes of the talks

in the field and with branch staff. When issues rec-

ognized in the field can be aligned with the plans

and ambitions of the SM and BoD, a draft TA plan

can be included in TA needs assessment report.

Based on this TA needs assessment report, with ob-

servations of the consultant and outcomes of the

discussions, SMF decides to continue or not with the

applying microfinance initiative. In 2011, this re-

sulted into seven approved TA trajectories by the

Board of SMF.

* 3 contracts to be signed in 2012

Ongoing projects

An overview of the projects running in 2011 shows

that SMF works together with a varying group of

organisations and Technical Assistance providers in

three different countries in 2011. The table below

presents a list of current TA projects within SMF.

In 2011, SMF has been working on establishing new

contacts in Ghana. Nevertheless, this did not yet

result in the start of new TA trajectories. The first

country chapter of this Annual Report, describes the

progress on identifying partners and consultants in

Ghana.

Applications received

Needs assessment implemented

Approved by the Board

Contract signed

Ghana 2 2 - -

India 5 4 4 2

Philppines 5 4 3 - *

Uganda 1 1 - -

Organisation Country Project # TA provider Contract

Nirantara CS India 1002 Microsave 18-10-2010

CDOT India 1004 A EDA RS 18-3-2011

CDOT India 1004 B EDA RS 18-3-2011

Svasti Found. India 1010 Microsave 2-11-2010

IDF FSPL India 1011 A Indus 22-10-2010

IDF FSPL India 1011 B EDA RS -

IDF FSPL India 1011 C MicroSave -

Care MBA Philippines 1012 A BMS 24-2-2011

Care MBA Philippines 1012 B Rimansi 9-5-2011

QPI MBA Philippines 1013 Rimansi 9-5-2011

ASKI MBA Philippines 1015 A Rimansi 31-5-2011

ASKI MBA Philippines 1015 B ASKI Inc 9-5-2011

MCDT SACCO Uganda 1022 A Microsave 19-11-2010

MCDT SACCO Uganda 1022 B MACO 3-2-2011

MED-Net Uganda 1025 A Ayani 23-2-2011

MED-Net Uganda 1025 B Ayani 23-2-2011

Technica l Ass istance in 2011

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Annual report 2011

Technica l Ass istance in 2011

First year evaluation survey

In April 2010, Social Microfinance Foundation (SMF)

started operations as a Technical Assistance (TA)

facility for microfinance initiatives in India, The Phil-

ippines and Uganda.

For every organization, but perhaps even more for

young start-up organizations, it is of vital impor-

tance to evaluate and adjust operations where nec-

essary. In order to smoothen and fine-tune its ser-

vices, SMF consulted its TA clients. Through a survey

with both

qualitative and

quantitative

questions,

SMF’s TA cli-

ents were able

to express their

points of con-

cern, ideas and

comments. In

total, 20 applicants from the first year of operations

were approached in April 2011, of which 16 did re-

spond with a completed survey. Applicants from

whom the process was put on hold in 2010 were not

approached. Of the 16 completed surveys, six were

received from rejected applicants and ten from ac-

tual TA clients.

The 25 quantitative statements could be given a

mark from 1 (negative) to 5 (good) and scored on

average 4,8. For the five sets of questions, the aver-

age score ranged from 4,7 to 4,9.

Application & TA needs assessment

Many respondents indicated that the timeline and

progress of this process should be strongly im-

proved. It simply takes too much time from applica-

tion until the outcome of the needs assessment.

SMF sees room from improvement in terms of plan-

ning and follow up. To realize this improvement, the

availability of needs assessors is of vital importance.

The needs assessment itself in terms of plan-

ning, communication and outcome is evaluated

positively. SMF attaches great importance to de-

ploying independent and professional needs asses-

sors and is planning to expand the base of assessors

for the coming two years. The improved availability

of assessors will streamline and speed up the appli-

cation process.

Design TA package & TA providers

SMF actively promotes some level of competition in

the consultancy sector and intents to ask two or

three TA providers for technical and financial pro-

posals per request. Respondents of the survey did

not mention any striking or short comings of the

followed approach. In fact, many respondents ex-

pressed their satisfaction on the possibility to

choose between different proposals and noticed an

added value in the guidance and services offered by

SMF during this process.

Recommendations

Current microfinance partners, with whom a TA tra-

jectory is actually started, express a need for follow

up. A substantial share of the partners indicates that

they wish for a subsequent TA trajectory once the

current phase is ended.

Some respondents mention the need for a local

structure. A local coordinator would be useful in

order to organize more face-to-face contact and

guarantee a faster follow up in the application proc-

ess.

A last recommendation concerns the linkage to

funding institutions. As many microfinance partners

need funds besides the requested TA, it would be

useful if SMF could link up with providers of fund-

ing. This will help some organizations in implement-

ing the TA and maintaining a long term operational

and financial sustainability.

0

2

4

6

8

10

12

India Philippines Uganda

Rejected Approved

14


Countr y Operat ions

15

Annual report 2011

2011: Rise of the Phoenix

The capitulation and resurgence of microfinance

sector in India

By Mr. Manoj Sharma, MicroSave India

2011 was undoubtedly the most difficult year for

Indian Microfinance. The regu-

latory back-lash in Andhra

Pradesh derailed the sector

and expectations of an early

turn-around were belied. In

fact, the repercussions of the

‘AP Crisis’ were felt beyond

Indian shores in Bangladesh,

Sri Lanka and elsewhere. We cannot deny that the

crisis had been building up for a while. The Social

Microfinance Foundation (SMF) was in fact estab-

lished because the stakeholders realised as early as

2006 that at least in some geographic pockets such

as India, the sector had gone off the track. The de-

sire to underline the social credentials of microfi-

nance and to support client focussed microfinance

was in a way, the motivation for SMF. Unfortu-

nately, the crash was too severe and happened too

soon for any meaningful initiative to have taken

root and to have cushioned the impact.

The lessons from 2011 have been that while the

sector in general was going through a very difficult

phase, clients, especially in Andhra Pradesh, were

also going through difficult times. A MicroSave field

research study provided very interesting insights on

clients in AP and the manner in which they were

managing their financial lives. The research study

was based on 76 sessions using participatory meth-

ods like focus group discussions, relative preference

ranking and financial sector trend analysis during

July – August, 2011 in three regions of Andhra

Pradesh (Telangana, Rayalaseema and Coastal An-

dhra) covering a total of four districts (Anantapur,

Krishna, Nizamabad and Adilabad).

Findings of the Study Client Related

• Credit sources in the absence of MFIs: In 59% ses-

sions, respondents said that they have taken loans

from moneylenders in the absence of MFIs. The

next most accessed source of credit was the Self

Help Groups (SHGs) (37%) and “daily finance com-

panies” – another form of money lenders - (29%).

• Pain points in accessing credit from alternate

sources: In 66% of the sessions, the exorbitant inter-

est rates charged by sources such as moneylenders

and daily finance corporations featured as the most

significant pain point. In as many as 41% of the ses-

sions, respondents said that loans taken from SHGs

and/or banks are often inadequate, and do not

serve the purpose. Respondents said that for loans

taken from SHGs and banks the processing time was

very high (24%). It took a minimum of one month

and maximum of six months for processing a loan.

• Coping mechanism in the absence of MFI loans:

24% of respondents who had plans for business ex-

pansion have postponed them as access to credit

had become difficult. 32% respondents had reduced

the scale of their business because of lack of access

to alternate sources of credit. In 12% of the sessions

respondents said that they sold their assets such as

house, vehicle, cattle, jewellery etc., to meet their

productive (agriculture related expenses) as well as

essential non-productive expenditure (school fees,

marriage etc.).

Findings – Service Provider Related

• SHGs: The SHG bank linkage programme, despite

its large presence, has some shortcomings, such as

delay in loan sanctioning (more than 2-3 months in

most cases), inadequate loan amounts, and no short

term credit products.

• MFIs: The repayment rate for MFI loans was very

low ranging between 6%-12%. Most of the clients

stopped repaying as other members of the group

had stopped repaying.

Country Operat ions - India

16


2011: Rise of the Phoenix

(continuation)

Media, local activists and influential members of the

community also played a major role in encouraging

the borrowers to default.

• Willingness to repay MFI loans: Most of the re-

spondents denied any harassment from the MFIs,

but have heard about suicide deaths attributed to

harassment by MFI staff through various media

channels. Almost 90% of the respondents said that

they were willing to repay their loans if MFIs start

disbursing fresh loans and if other members in the

community also start repaying.

• Respondents said that they liked some of features

of MFIs: Because they deliver timely loans (80%);

with the convenience of repaying principal along

with the interest (46%). In 29% of the sessions, re-

spondents said that they like the door step delivery

model of MFIs. On the other hand, MFIs’ group re-

sponsibility (46%) came out to be one of the major

dislikes for these loans. They also did not like the

inflexibility in loan repayments (39%) as they are

not given even a single day grace period when mak-

ing repayments.

The microfinance sector in India is trying to recover

from a crisis; the recovery is very slow as is to be

expected. However, some positive movement has

started and it appears that the sector may have put

the worst behind it. The silver lining is that the Mi-

crofinance Bill is expected to be enacted soon, giv-

ing a more robust regulatory framework for the sec-

tor. Indian microfinance was largely driven by bulk

lending from commercial banks to meet their statu-

tory lending targets; bank lending had dried up al-

most completely during 2011. On a positive note,

banks have once again started making bulk loans to

MFIs, albeit in smaller amounts.

The take-away from the AP crisis is that rampant

growth chasing profit and higher equity valuations is

unlikely to be sustainable. Clients cannot be forgot-

ten in pursuit of numbers and credit alone does not

fulfil the needs of the poor. Operating risks in micro-

finance can morph into regulatory / political or stra-

tegic risks and while it is relatively easy to deal with

operating level risks, once they grow, risk mitigation

becomes well nigh impossible. Also, for good or for

bad, welfare of the poor is perceived by govern-

ments as their domain; any perception of wrong

practices can bring about regulatory backlash which

is very difficult to manage.

The Indian microfinance sector will rise as the pro-

verbial phoenix and hopefully, the mistakes that

were made in India will not be repeated anywhere

else in the World. Microfinance is an important tool

to serve the poor and this overarching mission

should never be forgotten.

* Source (download at): http://www.microsave.org/sites/

default/files/research_papers What_are_Clients_doing_Post_the_AP_MFI_Crisis.pdf


http://www.microsave.org/sites/default/files/research_papers/What_are_Clients_doing_Post_the_AP_MFI_Crisis.pdf



17

Annual report 2011

Technical Assistance Projects

CDOT

Consultant: EDA RS

Total value contract: € 45.209,70

Centre for Development Orientation and Training

(CDOT) was registered as a society in 2000 under

the Societies Registration Act (1860) with the mis-

sion to uplift the economic status of the poor in Bi-

har. For the initial five years it focussed on a range

of development activities. It started microfinance

operations in 2005 by organizing 50 SHGs under the

Poorest Area Civil Society Programme (PACS) of

DFID. It adopted the JLG model for its microfinance

operations in 2007.

CDOT works in one of the poorest states in India

and provides financial as well as non-financial ser-

vices to its clients. By end-March 2011 its portfolio

had grown to over Rs6 crore (~€1 million) out-

standing with over 10,000 clients.

TA focus - Phase 1 (until November 2011)

- Human Resources

- Operational Efficiency

- Management Information System (MIS)

- Accounting Policy

TA focus - Phase 2 (until May 2012)

- HR – Learning & Development

- Strategic Management

- Market intelligence for Product Adaptation and

Development

- Livelihoods support

Outlook

After the finalization of the financial part of the first

phase of TA, SMF will continue with EDA and CDOT

in the second phase of TA. SMF has the strong focus

to continue and follow up with the implemented TA

up to now.

Nirantara CS

Consultant: MicroSave

Total value contract: € 43.405,-

Nirantara Community Services was established in

December 2006 with a mission to serve the under

privileged through the provision of socio-economic

services and to help them come out of poverty and

live a dignified life. Nirantara supports the liveli-

hoods of poor families through the provision of mi-

crofinance services. Currently, Nirantara is providing

micro-credit and micro-insurance products and ser-

vices.

MicroSave followed a field based approach to Tech-

nical Assistance (TA) delivery. The TA involves work-

ing with Nirantara teams and building the capacities

of the staff in the process.

TA focus

- Aligning HR management to Nirantara’s mission

and vision

- Market Survey for Customer Service & satisfaction

- Product development and implementation

Outlook

Nirantara, like most microfinance institutions in In-

dia, is facing difficult times for a longer period now

(more than a year). Where banks have been very

eager to lend to MFIs until half 2010, the situation

has dramatically changed now, with Banks being

very reluctant to finance even well positioned MFIs.

Nirantara has lost some client base but is lucky to

have a loyal group of clients and has managed to

survive.


18



Svasti Foundation



SVASTI Foundation was conceptualized and started

by two professionals from the banking background

in January 2008 and the organization got its regis-

tration as a Section 25 Company and started its op-

erations October 2008.

SVASTI Foundation has recently acquired a Chennai

based Non Banking Finance Company (NBFC) and

intend to raise equity and transfer the entire portfo-

lio by June 2010. The entire team of SVASTI Founda-

tion would shift to the new NBFC, and SVASTI Foun-

dation will concentrate on launching the Banking

Correspondent Model as well as look at providing

health insurance and related services through the

foundation for the clients.

The institution has expressed its concern for this

institutional conversion in the middle of a strong

commercialization of the microfinance sector in In-

dia and is willing to redesign its operations towards

a more client-focused approach. The period of TA

runs from January 2011 until October 2011.

TA focus

- Governance issues related to social mission and

future strategies;

- Systems of portfolio monitoring and management;

- Systems of Human Resource Management;

- Social Performance Management systems

Outlook

Start of implementation of the TA project was de-

layed for several months, due to the microfinance

crisis that struck the capital raising process. How-

ever, when starting, the process was taken up suc-

cessfully and to satisfaction of all parties.

IDF FSPL

Consultant: Indus

Total value contract: € 73.724

IDF FSPL is an institution in which communities

through Federations of Self Help Groups take major-

ity of shares (60%) of the NBFC that was acquired in

2009. The byelaws of these SHG have been adjusted

to enable them to take shares in the NBFC. This am-

bition at the same time presents a huge challenge

for IDF governance, as the members are not always

capable of taking responsibility in governance. As

the SHG members are still not yet capable to do so,

for the moment the regional managers of districts

are chairmans of SHG federations.

IDF FSPL is operating in 10 districts of Karnataka,

serving 175.000 clients. Though Karnataka is one of

the States with most highest density in terms of mi-

crofinance actors, IDF operates with clients that are

still to large extent excluded: scheduled Caste mem-

bers count around 15% and Minority Muslim com-

munities compoese some 20% of the client base.

TA focus

- Processes of SHG Federations

- Processes of company

- Business Plans Macro and Micro level

- Review of Operational procedures, Financial Ser-

vice Delivery and Products

- Valuation of company shares

Outlook

IDF has seen its portfolio shrink due to lack of fund-

ing. Nevertheless, TA has been implemented with

INDUS according to schedule. One more trajectories

will start related to SHGs. At this moment IDF is dis-

cussion with SMF the general terms of continued

partnership.


19

Annual report 2011

Highlights of the Philippine Microfi-

nance Sector in 2011

By Ms. Asuncion Sebastian, Independent Consultant

The year 2011 was characterized by portfolio-at-risk

(PAR) rate higher than the previ-

ous years and tapering growth

rate. The increasing competition

in the sector has been cited an-

ecdotally to cause such trend;

however, recent studies show

that the level of competition is

not as crucial as the spread and reach of the players.

The key question now is this: are the MFIs reaching

the target poor market? There remain significant

poor areas in the country that remain underserved

and/or unreached despite the growing MFIs.

The Microfinance Council of the Philippines is at the

forefront of promoting social performance manage-

ment (SPM) in the sector, ensuring that the MFIs do

not suffer from mission drift. In 2011, 18 MFIs are

actively pursing SPM, higher than 2009’s four MFIs

reporting their SP standing to the MIX market. How-

ever, the state of SPM in the sector has yet to be

documented.

With the central bank raising the cap for microfi-

nance loans from Php150,000 to Php300,000 per

borrowers this year, more banks and commercial

players are anticipated to penetrate the microfi-

nance market. Although these players are likely to

attract microfinance clients from higher level of

poverty or the less poor segment, such move is also

projected to give the non-bank players—whose

maximum loan amount is still pegged at the old

value—some challenge in keeping their clients.

On the other hand, as a spillover effect of the 2009

Andhra Pradesh crisis, the microfinance sector in

the country also continues to take proactive stance

in preventing the occurrence of similar events.

Hence, microfinance institutions, networks, and

support organizations do active promotion of client

protection as well as research and advocacy con-

cerning over-indebtedness.

In line with the thrust, five of the biggest MFIs in the

country—Taytay sa Kauswagan Incorporated (TSKI),

Center for Agriculture and Rural Development

(CARD), Negros Women for Tomorrow Foundation

(NWTF), Ahon sa Hirap Foundation (ASHI), and ASA

Philippines—have also taken the lead in establishing

a microfinance credit bureau through Microfinance

Data Sharing System (MiDAS). The participating in-

stitutions voluntarily submit data to MiDAS, which

can be used for assessing a prospective borrower's

creditworthiness. The system is not intended to ex-

clude the defaulting microfinance clients; data on

the borrowers-at-risk at the village level (the small-

est organizational unit in the country) may be used

instead in determining a more appropriate service

or intervention to help this type of clients. Pilot runs

have been completed and the national rollout is all

set for 2012.

Consequently, related themes such as peer account-

ability, review of effectiveness of group lending as a

methodology, and areas that could possibly work

against the welfare of the microfinance clients also

gained attention in the annual sectoral conference.

Major efforts have also been devoted to advance

pricing transparency for client protection; among

them is the central bank’s Circular No. 730. This new

rule, which will take full effect in 2012, requires all

banks to charge interest based on the outstanding

balance of a loan at the beginning of an interest pe-

riod and to quote the effective interest rates of loan

products in their loan documents and marketing

materials. While the new policy aims to protect con-

sumers and promote healthy competition among

the institutions under the watch of the central bank,

it will inevitably affect the non-bank microfinance

institutions such as non-government organizations

(NGOs) and cooperatives, exerting on them pres-

sure to likewise be transparent with their rates for

them to remain competitive in the market.

Country Operat ions - The Phi l ipp ines

20



CARE MBA

CARE MBA, is a mutual benefit trust, that was or-

ganized in 2009 by ten (10) cooperatives in the

province of Quezon, Philippines. The main services

of CARE MBA is to provide life insurance indemnify-

ing in case of death or permanent disability, of

members of these savings- and credit cooperatives.

The Mutual Benefit Association is an interesting le-

gal form for Micro-Insurance, but most MBA's face

institutional challenges: They are mostly depending

on microfinance institutions for their growth. In-

creasing and diversifying their client base is not

easy, also because MBA's have limited legal options

to develop products and achieve efficient opera-

tions. Next to this, most MBAs have weak boards

and governance structures, as they are membership

based institutions.

Project A

Consultant: BMS


TA focus

The insurance business only may be successful if

information is accurate and timely. CARE MBA has

not yet put in place a robust information system

that captures membership data, financial and social

performance information. Also, SPM indicators for

the MBA need to be developed.

Outlook

The delivery of the program as proposed by BMS

has been religiously implemented starting with

Phase 1 known as Planning and Scoping. Phase 2

(Development), has completed the Members Infor-

mation or Profile extracted from the old system to

the new system. Reports regarding membership

can now be easily generated. Premium payments

and daily transaction reports are completed.

Project B

Consultant: Rimansi


TA focus

- Advocacy to cooperatives on Mutual approach to

include micro insurance

- Client education and financial literacy on micro

insurance

Outlook

The following TA results are achieved up to Decem-

ber 2011:

- Market development and member mobilization

- Basic Life Insurance Plan product enhancement

- Health Micro-insurance feasibility study/approval

of CARE MBA board

- Development of HR Manual

- Market Awareness: educate members on micro-

insurance literacy

- Training of trainers

- Member-level micro-insurance literacy sessions


21

Annual report 2011


Quidan Pag-Inupdanay (QPI) MBA

Consultant: Rimansi


(QPI MBA) was given license to operate in January

2010. It is related to Pag-inupdanay, Inc-- an MFI

operating in Negros Occidental, with particular bias

toward serving the hard-to-reach areas of the prov-

ince. This focus allows for the MBA to reach the

lower segment of the population with insurance

services. Given this, QPI MBA has great potential to

create a significant social impact in an agrarian soci-

ety where huge number of households live in pov-

erty. For QPI, improved governance and automatiz-

ing their MIS system is the main challenge.

TA focus

- Institutional Capacity Building and Strengthening

with focus on Governance and member mobiliza

tion and marketing.

- Organizational development with focus on auto

mation of operations.

Outlook

The project is relevant and important for the institu-

tional strengthening of the MBA, but the institution

is still young. Though TA works positively, member-

ship based organizations like these will have to build

in processes of continued learning, in order to man-

age the insurance funds allocated by their members

in a professional way.

ASKI MBA

ASKI MBA, was licensed to operate by the Insurance

Commission in 2006 and was organized by ASKI Inc.-

an MFI operating in Central and North Luzon . The

MFI was founded in 1986 and is a major player in

the microfinance market in The Philippines. In 2006,

ASKI Inc. decided to formalize its inhouse insurance

scheme and thus the idea of organizing an MBA was

born. However, to manage the roll out and the re-

sulting change, ASKI took a deliberate effort of a

calibrated conversion of its branches’ clients into

ASKI MBA members. This process has not been com-

pleted after almost 4 years of operation. Roughly,

ASKI MBA has covered about 40% of the current

membership base of the MFI. As the MFI grows,

ASKI MBA is given opportunity to tap larger mem-

bership base. Since its organization, however, the

conversion of ASKI Inc. members into MBA mem-

bers has been deliberately slow and the roll out has

been well managed. At the present situation there is

a need for more fast conversion of MFI members

into MBA members. The TA covers the period from

May 2011 until October 2011. A second phase will

follow under the full responsibility of SMF until May

2012.

Project A

Consultant: Rimansi


TA focus

- Market research

- Actuarial studies and product development

- Business planning

- Operations training and planning

- Product licensing with the Insurance Commission

- Training of key officers and staff

- Upgrading of Operating Systems


22



ASKI MBA (continuation)

Outlook

RIMANSI with ASKI MBA has conducted the demand

research for a new micro-insurance product for ASKI

MBA specifically the Credit Life Insurance Plan

(CLIP). ASKI decided to expand the study to other

branches and areas where they operate, to have a

better grasp of clients’ attitude and effective de-

mand of CLIP. Series of FGDs were conducted

among 8 groups with 174 clients participated. RI-

MANSI actuary has developed the CLIP product de-

sign for ASKI MBA. Rimansi and ASKI will continue

the processes for the design and development of

micro-insurance literacy materials.

Project B

Consultant: ASKI Inc


TA focus

Managing information systems such as capturing

comprehensive member information, effective re-

cording and monitoring of member contributions

and generating relevant reports for the BOT and

regulators remain to be a challenge. There is a need

to upgrade its ability to effective and efficient tech-

nology on MIS solutions to better serve its mem-

bers. With the growing number of membership, effi-

cient back-up system will be also an issue. More-

over, the introduction of a new product will require

a system that will support multiple products. There

is a need for upgrading the current hardware in sup-

port of the program that is to be developed and also

to secure data.

The objective is to acquire a fully-automated MIS by

the end of June 2011, that will help ASKI MBA com-

ply with regulatory requirements, manage its per-

formance, and better claims settlement.


23

Annual report 2011

Updates on the Uganda Microfinance

Sector

By Mr. Dennis Kiyimba, Ayani BV

Most Ugandans (62%) still have no access to finan-

cial services. The number of the population holding

accounts in banks is four million or

33% of the 12 million who are

bankable. Uganda’s financial sys-

tem comprises formal, semi-

formal and informal institu-

tions. The formal institutions in-

clude banks, Microfinance Deposit-taking institu-

tions (MDIs), Credit Institutions, Insurance compa-

nies, Development Banks, Pension Funds and Capi-

tal Markets. The semi informal institutions include

SACCOS and other Microfinance institutions (MFIs),

whereas the informal ones are mostly village sav-

ings and loans associations. Formal institutions are

less prominent in rural areas than urban areas and

they only serve 14% of the rural popula-

tion. Informal institutions play an important role in

the rural service provisions and serve approximately

12% of the rural population*.

Microfinance in Uganda has continued to expand

rapidly over the years and there is increasing com-

mercialization where the bigger MFIs are gradually

upgrading. Majority of the MDIs (Tier3) have sought

to become credit institutions (tier2) and still looking

at converting to commercial banks in future.

A lot more technical innovations have been pushed

into the sector including mobile banking, branchless

banking, with the biggest break through being mo-

bile money banking in scaling up microfinance.

While there is enormous achievement in the sector

there is need to be cautious about effects of the

new innovations and renewed efforts on the per-

formance of the sector also notwithstanding the

past challenges the sectors has been facing. The

areas that need to be watched closely include:

Impact of high Inflation rate on the access to

financial services and loan repayment :

The high level of inflation since second quarter 2011

(Headline inflation rate of 30.4% October,2011 and

25.4% by February 2012)** pushed the cost of

providing financial services very high. Due prices

surge for most essential commodities including fuel.

In effect this resulted into increased interest rates

throughout the financial sector (for some banks

changed from 23.5% to 28.5% by October 2011).

This is likely to have direct impact on the repay-

ments of the loans. Also there are signs of slow-

down in the lending due to scepticism by the bor-

rowers with sectors like agriculture and other pro-

duction sectors due to increased prices of input and

transportation of raw materials and finished goods/

produce as revealed by MED-Net end of year (2011)

statistics where some of good repeat borrowers

decided to take leave/rest from borrowing.

Product diversification;

While most big MFIs continue to improve their

product line-up, including savings, micro insurance

and payment services, the medium to small MFIs

continue to be affected by cost of doing business as

some are too small to benefit from the economies

scale that could accrue from investing into product

development. This has kept the small/medium MFIs

being shunned by the potential customers due to

MFI’s stagnant/limited product line-up. Hence im-

pact on the rural outreach is also limited, since most

of these customers are better attracted by more

products, like savings products other than credit.

Regulatory issues for mobile money and in-

ternal control surrounding the transactions:

Mobile money as an emerging payment system is

showing a lot success especially in the areas of loan

repayment, payments of bills, general business

transactions. This is still working well with limited

amounts of money as there is maximum limit one

can transfer or be paid (USD. 850) using mobile

money.

Country Operat ions - Uganda

24


Updates on the Uganda Microfinance

Sector (continuation)

But as transaction amounts grow by size, there is

likely to be challenges related to high level techno-

logical fraud, and even compromised capacity for

MFIs to manage internal controls surrounding field

collections/loan repayments transactions. An exam-

ple of which could be diversion of loan repayment

to credit officer’s personal mobile phone line in-

stead of customers using the MFI’s repayment mo-

bile line.

Despite all this and with the continued focus on im-

proved policy environment, the Ugandan microfi-

nance sector continue to present great opportuni-

ties for the enhancement of improved livelihood

while supporting economic growth and develop-

ment of Uganda.

* Source: BOU statement by the Deputy Governor; while

opening of the Banking, Finance and Insurance Expo 2011

** Source: BOU inflation statistics of January-February ‘12


25

Annual report 2011


MCDT SACCO

The Micro Credit for Development and Transforma-

tion Cooperative Savings and Credit Society Ltd

(MCDT SACCO) exists with the vision to provide the

poor in Uganda with opportunities for accessing

financial services. Micro Credit Development Trust

(MCDT) the founding NGO of MCDT SACCO was

founded in 1996 by Save the Children Norway

(formerly known as Redd Barna), together with a

group of 19 Ugandan of various professionals disci-

plines. In 2007 a decision was taken by the organiza-

tion’s Annual General Meeting to hand over the

ownership of the organization to its beneficiaries.

This commenced MCDT’s transformation path from

an NGO to a regulated cooperative society which

was concluded in January 2008 when it was finally

re-registered as a Savings And Credit Cooperative

Organization (SACCO). During the transformation

period, MCDT faced a number of challenges includ-

ing a declining portfolio, contracting operations, and

a high staff turnover. Hence, the immediate task of

the organization in the post-transformation period

is to build a sustainable institution with strong gov-

ernance structures, sound financial status and high

quality operations.

Project A



TA focus

- Updating procedures manual and process mapping

both front and back office operations.

- Staff training/sensitization on needs for/working of

savings

- Curriculum development for client trainings

Training staff on training modules for members

Outlook

Documentation of the following processes under

the major themes of (i) Group Loan Lending Pro

cedures (ii) Operations Procedures (covering back

office operations) and Finance Procedures are now

complete after the review process by MCDT. With

the training materials complete, MicroSave is cur-

rently providing support to the Field Officers as part

of the final TA item. The MicroSave consultant will

directly mentor the staff in savings training delivery

while in the field. He will also provide a detailed re-

port, showing competence levels of the Field Staff, a

catalogue of field observations and changes that will

be used to make final adjustments to the training

materials and delivery.

Project B

Consultant: MACO


TA Focus

- To train the current board on the strategic and

operational roles of board of directors.

- To mentor potential board members in order to

create a pool of suitable Board members.

- To update and gear the existing board manual and

procedures.

Outlook

There have been lots of challenges related to own-

ership and governance of Savings and Credit Coop-

erative Organisations (SACCOS) in Uganda. As SAC-

COs grow in their outreach, increase their assets,

increasing numbers and savings deposits, they re-

quire clear articulation of how their boards will en-

sure effective governance. Many organisations look

at governance as the board. Governance goes be-

yond the board itself.


26


MCDT SACCO (continuation)

Governance is a process by which a board or com-

mittee through management, guides an institution

in the fulfilment of its mission. The challenge for

many SACCOs in Uganda is whether Board members

have been effectively guiding management for SAC-

COs to achieve their objectives. MCDT faced the

same challenge and this Technical Assistance has

gone a long way in addressing this problem it is our

hope as the providers of this Technical Assistance

that MCDT board shall be strong and provide proper

guidance to management regarding the strategic

direction for MCDT and over see management’s ef-

fort to move in this direction.

MED Net

Consultant: Ayani BV


The Micro Enterprise Development Network (MED-

Net), a microfinance institution operating in

Uganda, was founded in October 1996 but begun

credit operations in June 1997. It was founded by

and is affiliated to World Vision Uganda. MED-Net

exists “To provide sustainable, gender sensitive mi-

cro finance services to the economically active poor

in Uganda for the enhancement of socio economic

development.” MED-Net has a head-office at Mak-

erere-Kavule in Kampala, and currently serves her

customers through a network of 12 branches coun-

try-wide.

TA focus

- On the lower levels in the organization, staff

should be more involved in decision making and

more aware of clients needs.

- Implementation of the newly developed manuals

across the institution

Outlook

Key results to date confirm that the TA support

funded by SMF has helped MED-Net to appreciate

microfinance best practice which in turn is assisting

the institution to address the acceptance of change

being brought about by the main TA objectives/

goals.

The TA has been very instrumental in building busi-

ness minded and compliant MED-Net work force in

preparation for the upcoming transformation to be

a regulated institution.

The TA has also assisted MED-Net to improve effi-

ciency levels of the field staff that directly impact on

the improved reaching out as the institution strives

serve more economically active poor.


27

Annual report 2011

Country Operat ions - Ghana

Ghana’s new regulation for the

microfinance sector

By Mrs. Clara Fosu-Quaye, Independent Consultant

Ghana has a peculiar microfinance terrain. It com-

prised of formal institutions the 1st tier which are

Rural & Community Banks and Savings and Loans

Companies. The semi-formal 2nd tier was repre-

sented by Credit Unions and the financial NGOs. The

Informal institutions which was the 3rd tier com-

prised of the so called money lenders , the SuSu col-

lectors and the susu companies. Almost all institu-

tions have their own APEX Associations which are

self regulated . They had their own sets of code of

conducts and also provided support in various ways

such as capacity building to their member institu-

tions.

The only institutional types that didn’t seem to have

an apex institution were the money lenders and the

susu companies also known as the Microfinance

companies . The money lenders under the law were

to register at the Police Station. The Microfinance

companies were operating illegally . They were op-

erating under the pretext of being individual susu

collectors but in an organized form. The central

bank rejected this, because they were registered as

limited liability companies and were collecting de-

posits from the public without a license from the

central bank. Except for a few disturbing incidents

there were others that seemed to serve their com-

munities very well. The number of these Microfi-

nance Companies has increased in the last five to

ten years, about more than 300 Microfinance com-

panies operate as to this date. Due to this high num-

ber, the central bank realized the need to maintain

sanity amongst this group and that their activities

needed to be reviewed and monitored. The other

issue was the fact that the financial NGOs could not

easily transform into a Savings and Loans Compa-

nies because of the capital requirement set by the

central bank and this it made it difficult for an ordi-

nary FNGO to grow beyond its NGO status.

New regulations and guidelines

The proliferation of the Microfinance companies /

Financial NGOs in the country, coupled with ineffec-

tive supervision, demanded that the financial activi-

ties should be streamlined. This considering the

important role the institutions played in bridging

the gap created by the exclusion of the less privi-

leged in mainstream financial transactions.

This precipitated the advent of the new operating

rules and guidelines for the microfinance institu-

tions announced in July 2011. In short, the new law

required that the grouping of the Non-bank financial

institutions has increased from a single tier to four

tiers. The 1st tiers are the Rural Banks and the Sav-

ings and Loans companies. The Microfinance com-

panies and credit unions now fall under the 2nd tier.

The 3rd tier comprises of money lenders and non –

deposit taking financial companies. Whereby susu

collectors, susu enterprises, individual money lend-

ers and money lending enterprises come under tier

four. The guideline mandates that Individual MFIs

are required to be a member of the umbrella body

of their kind, to merit being issued with a license

from the central bank. No equity stake will be al-

lowed for foreign partnership in the second tier or-

ganisations except for debt instruments.

Conclusion

Even though the introduction of the new law is to

bring some sanity into the sector to sieve out the

ineffective organisations. The question arises how

the central bank is going to supervise all these insti-

tutions, as the regulation and its monitoring system

is already overstretched. The apex associations who

are in the position to support the central bank are

considered as weak and will need resources in the

form of capacity building programs to equip them

for this role. However most of the microfinance in-

stitutions with very scanty documentations and no

systems, are still able to provide access to the poor.

28


2011: SMF in Ghana

Early 2011, SMF started to work on building a net-

work in Ghana with socially oriented microfinance

initiatives, TA providers and other various organiza-

tions active in the Ghanaian microfinance sector.

During a visit in February 2011, several organiza-

tions and individuals have been met and current

issues in the Ghanaian microfinance sector were

analyzed as well as opportunities to cooperate with

socially oriented microfinance initiatives.

From the sector analysis, it became clear that main

issues in the microfinance sector in Ghana relate to

quality of management and outreach. The sector is

very diversified and can almost be called ‘divided’,

with many small microfinance providers, the sector

goes through various developmental stages. More

recently, government realizes that more supervision

of informal types of microfinance providers is re-

quired, mainly as a consequence of weak quality of

management.

Role of SMF

AS a consequence of the above, issues of overin-

debtedness and client poaching, though perceived

as serious problems, are not tackled in a systematic

way. Institutions are more busy with managing

regular business and trying to achieve and maintain

positive returns and good quality of their portfolio

assets.

The role of SMF in this challenging context is very

much needed, but the services of technical assis-

tance requested are very much related to the regu-

lar management issues of microfinance. A redefini-

tion of the role SMF could play would be needed,

moreover because there are existing local financial

resources available for capacity building and institu-

tional strengthening of microfinance providers. MFIs

in Ghana could benefit from management oriented

technical assistance, which focuses on improving

Human Resources, credit management and field

operations.

Within the context of the incubation challenge,

some interesting initiatives have been identified,

mainly related to renewable energy and value

chains. Preferably SMF should play a distinguished

role in supporting innovative energy and pro-poor

focused projects.

Technical Assistance in 2011

A study among a group of four rural banks in North-

ern Ghana was commissioned to analyze there in-

terest in receiving TA support from SMF. All were

partners of the Belgium organization TRIAS, how-

ever limited interest was shown or either manage-

ment capacities were too limited to create a basis

for partnerships

SMF received three other proposals for technical

assistance, of which one was planned to be pre-

sented to the Board in 2012. This project focused on

the development of a Solar Energy Loan, where in-

frastructure of this product was to be developed by

TA through SMF. Unfortunately, due to the organ-

izational changes within SMF earlier discussed, this

proposal could not be put forward to the SMF

Board.

Country Operat ions - Ghana

29

Annual report 2011

Conferences

On January 27, SMF attended the Second Responsi-

ble Finance Forum, organized by the Dutch Ministry

of Foreign Affairs, the German Federal Ministry for

Economic Cooperation and Development, CGAP and

IFC. During this one-day conference, a first group of

worldwide investors signed the Principles for Inves-

tors in Inclusive Finance .

The day after the Responsible Finance Forum,

Microfinance Transparency organized the Transpar-

ent Pricing Training. During this training day, the

following points were touched upon:

- Why microfinance has been trapped into the prac

tice of non-transparent pricing

- Implications that non-transparency is having on

reputations in microfinance

- Mechanics of calculating Annual Percentage

Rates, Effective Interest Rates, and knowing the

difference between the two

- Alternative methods for transparent pricing and

helping clients make better informed decisions

- Current efforts underway to quickly shift the

microfinance industry to pricing transparency.

The Second European Research Conference on Mi-

crofinance took place in Groningen from 16th until

18th of June 2011. During this conference, PhD

students, researchers and policymakers presented

scientific and more practice based research propo-

sals and results. Empirical research focused on a

broad range of themes such as microinsurance, sa-

vings, innovative products, etc.

MicroNed, the network of Dutch Development Fi-

nance Organisations working on Microfinance, orga-

nised its Annual Meeting focusing on Impact Eviden-

ce for Microfinance. Although not a member of Mi-

croNed, SMF was present during this meeting. Both

policy makers and reserachers, renowed in the mi-

crofinance sector, gave their views on the measure-

ment and evidence of microfinance impact on po-

verty alleviation.

Just like 2010, SMF attended the Social Perfor-

mance Task Force (SPTF) Annual Meeting 2011.

This year’s meeting was held in Den Bosch and

mainly focused on drawing the Universal Social Per-

formance indicators. Plenary sessions and working

groups were organized to examine the main issues

in setting up the indicators.

For the first time, SMF attended the FAST Global

Forum, organized in Utrecht this year. The theme of

the conference was: “Pioneering Sustainable Value

Chain Finance: From Metrics to Markets”.

The forum is addressed to all those interested in

developing the effectiveness of ‘impact investment’

strategies worldwide, and those looking to explore

the important role that SME finance plays in the

success and growth of sustainable markets.

Representat ion

30


Annual Accounts 2011

31

Annual report 2011

Annual Accounts 2011

.


Social Microf inance Foundation

Schipholweg 105

2316 XC Leiden

The Netherlands

T: +31 71 2020308

E: [email protected]

Chamber of Commerce: 20170416

www.socialmicrofinance .org

twitter.com/TAmicrofinance

http://www.socialmicrofinance.org

http://twitter.com/TAmicrofinance

Social Microfinance Foundation annual report 2011

Documents

Transcript of Social Microfinance Foundation annual report 2011