Hi everyone, this is Jeff Rutt with some interesting news on microfinance. Thursday January 5, marked the beginning of the 3rd annual Institutional and Technical Environment for Microfinance conference. The conference, held in New Delhi India has brought together microfinance researchers and experts from around the world to discuss current issues in microfinance. This year’s conference is focused on cost management and social performance. The article below provides a thorough overview of some of the research and issues discussed at the conference. Although the article is a bit lengthy if you are interested in microfinance I think you will find it very informative.
Many Blessings, Jeff Rutt

Experts weigh in on key elements of microfinance at ITEM-3 Conference

The 3rd International Conference on Institutional and Technological Environment for Microfinance (ITEM3) opened in New Delhi on Thursday. The inaugural day saw experts from across the globe participating in discussions on crucial issues facing the microfinance industry.

Organized by the Burgundy School of Business at the International Habitat, the conference is themed ‘Cost Management & Social Performance in Microfinance’.

The conference was inaugurated by Dr. StéphanBourcieu, dean of the Burgundy School of Business in France; Mr.Paul Sharman, editor of Cost Management, Mr. M. Gopalakrishnan, President of ICWAI; Mr. N.V. Krishna, an IT specialist and a social entrepreneur and Dr. ArvindAshta who holds the BanquePopulaire Chair in Microfinance at the Burgundy School of Business.

In his inaugural address, Dr. StéphanBourcieu, Dean of the Burgundy School of Business, France, said, “We are interested in microfinance because we want to train students to be not only managers but also entrepreneurial managers. Our education mission is to not only to train entrepreneurs for business but also entrepreneurs for community development. This community development is important not only for developing and emerging countries but also for developed countries”.

“We have collaboration with BanquePopulaire which allows us to finance the Microfinance Chair to interact with industry, to research and to transfer this knowledge to students in France as well as all over the world”, he said.

Mr. M. Gopalakrishnan, President of ICWAI said that the ICWAI is happy that the microfinance conference is focused on Cost Management. “We are happy to see that NABARD is involved because without government the development cannot proceed”, he added.

Speaking about the Indian microfinance crisis, Mr. Gopalkrishnan said, “Today, Microfinance in India is going through a crisis, partly owing to political factors but largely because of a lack of a viable business model. There are both controllable and non-controllable issues. Any risk management process should have looked at these factors and warned the management to take appropriate action”.

He emphasized on ‘Simple Costing’ models for microenterprises and said that Costing models need to look at the business models of the MFI also. “We need to see what the numbers (outreach), relationships (how to get the SHGs together), along with technology partners (mobile, ATMs, Voice recognition) and governments”, he said.

The international federation of accountants has worked on how cost management has evolved over time starting with book-keeping, lean accounting, standard costing, ABC, Customer profitable reporting etc. to the demand driven planning, and simulation. This simulation requires assessing risks and simulating possible outcomes.

Mr. Paul Sharman, Editor-in-Chief of Cost Management believes that for microfinance, this becomes even more interesting because there are altruistic goals and complications such as unsophisticated customers and their social development
“In Canada, 80% of businesses are small entrepreneurs and this is probably true of the rest of the world. Strategic formulation leads to resource allocation decisions. Therefore we need all kinds of effective cost management solutions for successful microfinance. But at the same time, we get into questions of ethics and communal choices: why lend money to someone who cannot use it? How do we support the growth of our borrower? This means we look at not the economic perspective but a balanced perspective of customers, processes and employees also. Today we can integrate very sophisticated simulation modeling because computers have become very sophisticated”, he said.

Mr. Krishna Nyapati talked about the TIDE, a social enterprise started by the Indian Institute of Science (IIS). “Scientists of IIS come up with many inventions and now the idea is to diffuse these innovations. TIDE tries to diffuse these innovations, especially energy efficiency using bio-mass. We however found that scientists are not effective in promoting the diffusion of innovations. It requires business skill”, he said.

One major problem in his opinion was consumer finance, because the amounts involved were high. “The main problem is that banks are hesitant to give the loan to unbanked people. We have talked to Microfinance Institutions because it improves productivity and quality of life immediately. Finally, we decided to give on micro-hire purchase, with monthly payments or micro-leasing. Property transfers when the last payment is made. We have found that there is a willingness to pay. We are still looking at microfinance institutions that would look at the financing part”, he said.

Dr. Sameer Prasad of the University of Wisconsin-Whitewater, presented an initiative on hybrid bamboo fencing requiring carbon credits. This project is being funded by India Development Service (IDSUSA.ORG) and is being implemented in rural Andhra Pradesh by Lions Family Welfare Planning Trust (LFWPT) to provide security for a hostel/orphanage and micro-ventures in 10 hamlets in the surrounding area.

The analysis demonstrates that for the hostel with 256 linear m boundary wall the hybrid boundary wall would provide an immediate savings of Rupees 2.66 lakhs and in 10 years provide a net return of 6.9 lakhs if the hybrid wall is irrigated with “grey” water or 3.9 lakhs for a non-irrigated stand. If the NGO can sell carbon credits the net returns increase to 10 lakhs and 6 lakhs respectively. In a similar fashion, the hamlet project is also expected to provide dramatic returns on investment (3700%) over a 10 year period.

Given such large returns provides buffer for pessimistic scenarios in case of drought, disease or other sources of uncertainty. Future research involves populating the model with parameters derived from the field experiments being conducted by LFWPT. The model can also be tied to a simulation to assess the interactions of multiple parameter distributions and its impact on risk. Finally, such a methodology of capturing both the net sequestration and economic outcomes into a single metric can be applied to other social enterprises such as fisheries and animal husbandry to aggregate multiple value streams and risk scenarios. Excel can be used for simulations.

Dr. DjamchidAssadi of the Burgundy School of Business presented his research on featuring loans with social collaterals. He presented a literature review on demand side as well as supply side factors of financial exclusion.

“Two major factors are cost of small transactions and absence of financial collateral. Mobile banking can take over the cost of small transactions. Social collateral takes the place of financial collateral. Social collateral is the guarantee relying on direct recommendations of group member backed by a threat to the whole group. Social collateral is based on trust. It reduces moral hazard. First, the proximity reduces the time of finding the problem. They are consciously monitoring commitments. They can detect possibility of failure and find appropriate solutions. We know that ex-ante social groups function. The question is whether ex-post social groups created on online lending sites can work as well? Research methodology is based on literature review and case studies. Sociology gives you’re the reasons why people join groups”.

Further Dr. Assadi added that Economic analysis also provides public choice theory and collective goods. Economics requires observable actions, articulated punishment and small size of groups. Case studies show many microfinance groups. The question is how to replicate this online. The public discussion posed questions on creating costs for entrance and exit from these costs and the ability to create hostages. In online groups, these costs do not exist perhaps.

Mr. Krishna Nyapati, Microsense Software, presented his paper on diffusion of social innovation and technology. He took the case of Software as a Service as the technological innovation. It is a disruptive method rather than an incremental innovation. He explained the basics of cloud computing and SaaS.
Innovations do not succeed only because it is rational, he said. Diffusion theory of innovations has three sets of factors: attributes of innovations, the diffusion process and the organizations which are adopting the innovation. The attributes of the innovation are based on Rogers model: relative advantage, compatibility, complexity, observability, and trialability. To this he has added reinvention.

Sofia Altafi of the Stockholm School of Economics presented a paper on microfinance ratings.” It has become increasingly popular for MFIs to go for financial Ratings and more recent social ratings. Ratings organizations are highly respected in India”, she said.

The research is framed within New Institutional Theory and more specifically institutionally Work. This says that Institutions will decide how organizations work. Institutions are rooted in culture. But institutions change. Institution Work is more interested in the Agency and what the agents/actors can do within institutions and can also impact institutions.

“In India, there were major MFI rating M-CRIL and CRISIL which is a more general rating company. The process and method are similar. Their reports are treated seriously by MFIs and their stakeholders (donors, investors, banks, governments). MFIs adjust to the requirements of rating agency. Media also plays on rating changes”, she said.

ArvindAshta presented a paper co-authored with Laurence Attuel-Mendes who is also from the Burgundy School of Business. “Both microcredit and sub-prime loans are loans to poor consumers, often in small amounts leading to high interest rates. These high interest rates charged by banks have raised the question whether the poor, often illiterate or with limited literacy, understand the true cost of interest they are going to pay. For this many countries have enacted truth in lending laws”, he said.

A five country survey finds that the whole truth, the Effective Annual rate based on the actuarial method, is never revealed on the plea that it would be too complicated and that banks are never able to instantly reinvest the money reimbursed. There remain excluded areas which seem to be uncovered and approximations which could amount to white lies. But the degree of truth is evolving in each country in order to move to greater truth, while penalties for not complying with the truth standards are different and consequently not always compelling to banks.
The discussant, Paul Sharman, felt that the paper was well written and oriented to the issues in Cost Manangement. However, he felt that the degree of transparency should be better defined as also the choice of countries studied.

Knar Khachatryan of SKEMA Business School presented her research on Efficiency and outreach of MFIs and service diversification. The main purpose of the paper is to investigate whether the current trend towards microfinance service diversification and multi-service approach (joint-lending combining loans with savings, insurance or remittances) can contribute to the enhanced financial efficiency and poverty outreach. This is tested on Eastern Europe and Central Asia. These MFIs are young but their performance is higher. There are different indicators of financial efficiency and of social efficiency. A number of studies show that product diversification lowers the risk of the MFI and promotes its self-sufficiency. The study will look at 216 MFIs form the ECA. It will use Data Envelopment Analysis.

Shagufta Sheikh of the Indian Institute of Management, Indore presented her study of determinants of success in am MFI in India. She focused on two models SBL and SHG. MFIs are growing faster in India than Bank linked model. Therefore MFIs need to be efficient. Her paper reviews a literature of such factors. Example of factors includes location, loan size, etc. She finds that outreach, scale of operations, operational sustainability and target market are the significant factors for success of MFIs.

ArunaBalammal of IIT Madras, Chennai presented the field officers’ intention to engage in social performance. “If sales force gets incentives based on financial ratios, they will not bother about social ratios. Although sales people are aware of the social responsibilities, they work for monetary rewards. If MFIs hire field officers from within the MFI, there is some positive response. The paper is a deliberate attempt to tackle the issue of field officers’ unethical behavior and tendency to move away from the social functions of MFI. Recent events regarding field officers indulging in unethical lending and recovery practices have highlighted the importance of managing the social performance and adherence to client protection principles. Managing the social performance requires a system to measure and assess in a regular way and many rating agencies have attempted to come up with comprehensive rating instruments to measure at the MFI level”, she explained.
NadiyaMarakkath of National Institute of Technology, Calicut presented a Data Envelopment Analysis for assessing the efficient and sustainable performance of Indian MFIs. “This paper aims to identify a set of efficient and sustainable Indian Microfinance Institutions (MFIs), whose best practices can be emulated by other MFIs operating in the industry. Seven such efficient and sustainable peer MFIs, are identified using Data Envelopment Analysis model and Sustainability Diamond model from a sample of fifty Indian MFIs”, Nadiya said.
The DEA analysis depicts the extent of input minimization to be achieved by each of the lesser efficient MFIs with respect to their cost per borrower, total assets and number of credit officers, so as to trim-off their operational inefficiencies. Such optimized performance is expected to facilitate Indian microfinance market to strike a fair and reasonable interest rate, which is affordable to the poor and cost-covering for the MFIs. Thus this work serves as first step in the direction of performance management of Indian MFIs by undertaking a benchmarking process, she explained.

VitalieBumacov of the Burgundy school of business presented his paper on “Management Information Systems” co-authored with DinosConstatinou and MikailCherkas of Microfinance Strategy. He said, “The concept is supposed to help microfinance institutions (MFIs) scale, however important deficiencies are observed. We investigate the state of the art of the MIS industry for micro and small lending and come with a set of principles that should help financial institution in buying, developing or renting the appropriate system”.
“Since buying remains the preferred option of MFIs, we propose a restrained list of characteristics, in the spirit of the 80-20 rule, that should be assessed in order to predict if the MIS has the majority of functionalities required for a successful implementation and use. This procedure should help MFIs save time and effort in selecting one or few systems that will be analyzed in detail and weighted against the cost”, he said.
Mr. D.K. Mishra, NABARD closed the day by a history of two decades of SHG expansion. “After two decades, the program has caught the attention of NGOs. Every SHG has to distribute some amount: either as credit to members or deposit the money with banks. Over 80% of the groups are exclusively women. 73% of SHGS have no subsidized credit. The critical problems are that 46% of SHGs are from 4 Southern Indian states. Most of the loans are going for consumption loans. But not many members are having their own bank accounts. So need to graduate them from community banking to individual banking”, he concluded.

Posted on http://www.microfinancefocus.com/experts-weigh-key-elements-microfinance-item-3-conference
Thanks again for reading, stay tuned for more articles and comments- Jeff Rutt

Hi everyone, this is Jeff Rutt- I want to take a few moments to share with you another story about the transformative potential microfinance can have for men and women across the globe. Too often, we all seem to become consumed by the details, logistics, and operations behind what we’re doing, and perhaps lose sight of why we do what we do. Let’s all remember that in every technical and intricate aspect of operating microfinance, we should ultimately always return to focusing on our clients- men, women and children created and loved by God. I hope you enjoy this testimony from the Grameen Foundation.

Many blessings, Jeff Rutt

Charity Kulola, Kenya

http://www.grameenfoundation.org/our-impact/charity

When Charity Kulola was sixteen, her father married her off to a man, already husband to two women, in exchange for money for land. During their marriage, Charity bore seven daughters. Furious that she never bore a son, her husband expelled her and their daughters from his home. When Charity’s brother took her in, his wife told her about Yehu Microfinance Trust, Grameen Foundation’s partner in Kenya.

Yehu Microfinance Trust is a microfinance institution in Kenya and a recipient of financing from The Pioneer Fund. Grameen Foundation established this special fund to make sure that well-run local groups reaching the very poorest have access to the money they need to make loans and increase the number of women they serve.

Charity received her first loan of $64 in Kenyan Shillings and opened a stall selling coconuts in the rural coastal village of Chakareli.  With her second loan of $128, she started selling vegetables, too.  Charity recently took out a loan of $102 to invest in a retail shop and diversify her business.

Microfinance has opened up a world of opportunity for Charity and her daughters.  All seven are receiving a formal education, and the second eldest daughter is studying to be a nurse at a local medical school.

Thanks again for taking the time to read, please stay posted for more information

-Jeff Rutt

Hi everyone, this is Jeff Rutt- today I’ve got a fascinating article written by Killian Fox at The Guardian about the effect of mobile telephones in Africa. While it may seem disconnected to microfinance, together, communications, developments in infrastructure, education, and of course financial services, pave the way for a brighter tomorrow. It’s a great read that I’d really recommend.

Many blessings, Jeff Rutt

Africa’s Mobile Economic Revolution

By Killian Fox- http://www.guardian.co.uk/technology/2011/jul/24/mobile-phones-africa-microfinance-farming

Earlier this month, on a short bus ride through the centre of Kampala, I decided to carry out an informal survey. Passing through the Ugandan capital’s colourful and chaotic streets, I would attempt to count the signs of the use of mobile phones in evidence around me. These included phone shops and kiosks, street-corner airtime vendors and giant billboard ads, as well as people actually using their mobile phones: a girl in school uniform writing a text message as she hurried along the street, a businessman calmly making a call from the back of a motorcycle taxi swerving through heavy rush-hour traffic. Not only were half of the passengers on my bus occupied with their handsets, our driver was too, thumbing at his keypad as he ferried us to our final destination. After five minutes, I lost count and retired with a sore neck. There was more evidence here than I could put a number on.

My survey underlined a simple fact: Africa has experienced an incredible boom in mobile phone use over the past decade. In 1998, there were fewer than four million mobiles on the continent. Today, there are more than 500 million. In Uganda alone, 10 million people, or about 30% of the population, own a mobile phone, and that number is growing rapidly every year. For Ugandans, these ubiquitous devices are more than just a handy way of communicating on the fly: they are a way of life.

It may seem unlikely, given its track record in technological development, but Africa is at the centre of a mobile revolution. In the west, we have been adapting mobile phones to be more like our computers: the smartphone could be described as a PC for your pocket. In Africa, where a billion people use only 4% of the world’s electricity, many cannot afford to charge a computer, let alone buy one. This has led phone users and developers to be more resourceful, and African mobiles are being used to do things that the developed world is only now beginning to pick up on.

The most dramatic example of this is mobile banking. Four years ago, in neighbouring Kenya, the mobile network Safaricom introduced a service called M-Pesa which allows users to store money on their mobiles. If you want to pay a utilities bill or send money to a friend, you simply dispatch the amount by text and the recipient converts it into cash at their local M-Pesa office. It is cheap, easy to use and, for millions of Africans unable to access a bank account or afford the hefty charges of using one, nothing short of revolutionary.

Safaricom didn’t invent mobile banking: it existed previously in countries such as Norway and Japan, but on a small scale and with nothing like the seismic effect it had in Kenya. The established banks weren’t happy at first – they tried to shut down M-Pesa soon after it started – but now they are getting in on the game, and it is estimated that by 2015 global mobile transactions will exceed one trillion dollars. According to California-based mobile-banking innovator Carol Realini, executive chairman of Obopay: “Africa is the Silicon Valley of banking. The future of banking is being defined here… It’s going to change the world.”

The mobile banking phenomenon spread quickly to other countries in the developing world. Uganda’s largest telecom company, MTN Uganda, created its own version, MobileMoney, in March 2009. Within a year, 600,000 Ugandans had signed up. Now, thanks to aggressive recruitment drives to win more subscribers – MTN agents trolling the streets for new customers are known as “foot soldiers” – the service has more than 1.6 million users.

MobileMoney outlets are everywhere in 2011: the distinctive canary-yellow buildings and kiosks that house them are dotted around not just Kampala but the greater part of the country. The MTN network reaches 85% of Uganda, and MobileMoney is available everywhere MTN has coverage. Many of the villages I travelled through, however minor or remote, had at least one tell-tale splash of yellow.

Mobile phones carry huge economic potential in undeveloped parts of Africa. A 2005 London Business School study found that for every additional 10 mobile phones per 100 people in a developing country, GDP rises by 0.5%. As well as enabling communication and the movement of money, mobile networks can also be used to spread vital information about farming and healthcare to isolated rural areas vulnerable to the effects of drought and disease.

Despite the proliferation of phones in Uganda, however, a digital divide persists. How can information be understood and properly implemented when more than a third of the country’s adult population cannot read or write? And can complex and detailed information be managed by anything less than a smartphone, which is beyond the means of most Ugandans?

One intriguing solution to these problems is being tried out by the microfinance organisation Grameen Foundation. Seeking to establish a reliable means of interacting with farming communities in the Ugandan countryside, Grameen has started to lease smartphones to local farmers so that they can receive information – seasonal weather reports, planting advice, disease diagnostics, market prices – and pass it on to their neighbours. They also gather information from the farmers they register and feed it back to Grameen in Kampala, which passes it on to agricultural organisations and food programmes.

These intermediaries, known as community knowledge workers (or CKWs), are chosen for their command of English, community standing and entrepreneurial spirit as well as their technological know-how. After training CKWs to use smartphones, Grameen pays them a performance-based wage averaging at about $20 per month – via MobileMoney, obviously. Deductions are made to cover the lease arrangement and high-performing farmers can expect to fully own their phone, and the charging solution that comes with it, within two years.

So far, Grameen has trained 500 CKWs in 32 Ugandan districts, reaching more than 20,000 households, or 100,000 people. “We’re aiming for a million,” says Sean Krepp, Grameen’s Uganda director, “and we’re looking at scaling this to several other countries.”

Before that can properly happen, the technological side of the programme needs to be developed and refined. At present, most information arrives in text form. Reports from a variety of sources, including Uganda’s Department of Meteorology and its National Agricultural Advisory Services, are rewritten in clear English before being dispatched to the CKWs. Grameen has started sending images to its representatives so that, for example, a coffee plant disease can be diagnosed by visual means. The next step, according to Krepp, is video. The economist Philip Parker, in collaboration with Grameen, is currently developing a series of educational videos, presented in the style of a gameshow, to be played on CKW smartphones during village get-togethers.

There are other, more fundamental challenges. Unreliable network coverage in remote areas of Uganda is a significant problem. Keeping smartphones charged in villages that don’t have electricity is another. Some ingenious solutions have been devised (see below), but low battery power remains a constant headache.

In spite of these obstacles, the programme appears to be working – and its potential for expansion, not just beyond Uganda’s borders, but also into other areas, such as healthcare and education, is becoming clear. If the digital divide is being bridged in some of Africa’s poorest communities, and the information is getting through, why stop at farming?

The small fishing village of Kasensero on the shores of Lake Victoria is a 200km drive from Kampala, heading south-west towards the border with Tanzania. The final 40km takes you down a bumpy red-clay road, which on rainy days becomes a muddy assault course. When you finally reach the village, a road barrier blocks your way until an elderly guard deems you fit to enter and raises it up.

At the end of the main street is Africa’s largest lake and the main source of the town’s industry. Here, lined up along the shore, are hundreds of long, narrow fishing boats piled high with nets. The morning’s catch is in when I arrive in Kasensero and the last of the giant Nile perch are being carted away towards the factory further down the beach, where they will be processed, packed and sent to Kampala for export.

At the end of the row of buildings overlooking the shore is a distinctive yellow facade: one of two MobileMoney agents in this village of 5,000 people. Inside, Ben Nsubuga, a fisherman, is depositing his weekly earnings.

He hands a wad of cash to the woman behind the desk who logs the deposit in a book and gives him a code, which he enters into his phone. A small fee is charged and within a couple of minutes the transaction is complete.

“Before this service came here, I was keeping all my cash with me,” he says. There are no banks nearby and in the past whenever Nsubuga travelled to bring money to his family, he feared being robbed on the long road out of Kasensero. “Now I just send the money this way,” he says, gesturing with his phone. The money is transferred via text and the person at the far end can cash it in at any MobileMoney agent.

The biggest problem, he says, is the network, which is patchy in these parts and often leaves customers without ready access to their hard-earned cash.

Next in line is Allan Mukasa, a boat owner and the village’s vice-chairman. “Somehow, it has made life here better,” he says. As well as sending money long-distance, Kasensero residents bank money on their phone and transfer it among themselves, creating a kind of micro-economy in this isolated town. “We also use it to pay water and electricity bills and school fees,” Mukasa adds. But he sees plenty of room for improvement. “Before, we didn’t know how to bank. Now, we want to have a proper banking system, with the possibility of making interest.”

It is only after I leave Kasensero that I learn about its troubled recent history. In the early 1980s, the town was the site of the world’s first community-wide Aids epidemic: a fifth of its population had died of the disease by 1986. Nearly a decade later, several thousand bodies from the Rwandan genocide washed up on its shores, carried to the lake down the nearby Kagera river. A mass graveyard a few kilometres away recalls the horror.

Today, the town is putting its traumatic past behind it and, if the queues outside the yellow-fronted offices are any indication, it is prospering. Only now, Kasensero’s money doesn’t end up under the mattress: it hovers about in the airwaves, to be accessed or dispatched with the touch of a button and a small charge from MTN. Signal permitting, of course.

Thanks again for reading, stay tuned for more articles and comments

-Jeff Rutt

Hi everyone, this is Jeff Rutt with an article that is a wonderful testimony to Microfinance in the Philippines- one of the countries in which HOPE operates! What an encouragement and reminder for us all about the transformative possibilities inherent in microfinance- hope you all enjoy reading.

Many blessings, Jeff Rutt

Microfinance changed their lives

BY JIMMY C. CALAPATI

CEBU CITY—Ten years ago, Marcosa Igot and Carina Gonato were just plain housewives of factory workers. Now, together with their husbands and families, they are running their own business, earning hundreds of thousands of pesos a month.

Both are recipients of microfinance loans.

From a small industry a decade ago, there are now about 202 local banks who have granted over P7.3 billion in microfinance loans to more than 1 million microentrepreneurs, latest data from the Bangko Sentral ng Pilipinas (BSP) said.

These microentrepreneurs, in turn, have generated employment in their local communities and saved about P3.6 billion in bank deposits.

Pia Roman-Tayag, head for Financial Inclusion Department of the BSP, said the central bank recognizes that microinsurance is a worthy policy objective, something that can be pursued alongside the promotion of stability and efficiency in the financial system.

An inclusive financial system is one where there is greater access to much-needed financial services by more people, especially those that are traditionally unserved or underserved.

“This makes sense especially in an archipelagic country where 37 percent of our municipalities are still unbanked and many are left wanting for much-needed financial services,” BSP deputy governor Nestor Espenilla said.

IGOT’S HANDICRAFTS

The boom of the export business during the 80s and the 90s created many jobs in Mactan Island in Cebu as the Mactan Export Processing Zone (MEPZ) was opened. MEPZ not only employ people but also have job-outs to small sub-contractors.

Marcosa Igot, a native of Lapulapu City, was one of those who availed of the job-out contracts with MEPZ.

“We started in 1991 without any capital. As they say in Cebuano, laway ray puhunan,” Igot said.

Marcosa and husband Celso have five children and all went to school with this kind of business. She experienced handling as much as fifty workers in the 1990s when work was plenty.

But the handicrafts industry also suffered a beating in the late 1990s.

But Marcosa was able to maintain good relationship with her partners at MEPZ and until now, even with the slowdown of the export business, she continues to have contracts.

In 20016, she decided that she needs extra capital for her business to grow. This was when she started her relationship with Fairbank, a rural bank in Cebu.

She was able to get the contract of making and supplying box frames during this time and all proceeds of her loan was used for this.

MEPZ gives them design for jewelry boxes and baskets for export. She then makes and supplies the box frames. These boxes are the woven with a kind of nylon. When all the trimmings and accessories are done, the finished products are beautifully made boxes and baskets for export.

Igot is paid per box including labor. From this she was able to put up and maintain a shop for her box frames with 12 workers including their families.

She started this contract at a capital of P50,000.00 and now is running at P200,000.00.

In addition to the twelve workers at the shop, she has eight workers at the handicraft area doing the weaving and finishing touches of the baskets.

Her workers earn from P300.00 to P600.00 a day.

From a makeshift area in late 1990s, Marcosa now owns a shop with several equipments for wooden box frames, made improvements of their handicraft area and provided a place for her workers and their families.

Marcosa is also in the process of slowly expanding her small house and bought a pick up for their business needs.

Celso, Marcosa’s husband, also maintained a sub-contracting business of stone craft in a separate place in Mactan.

NATECK’S CHICKEN LUMPIA

“Natecks” used to be just a nickname but now is a growing food business in Cebu.

Carina Gonato, and her husband Renato, are young entrepreneurs from Consolacion, Cebu who founded the Natecks Chicken Lumpia in 2009. Natecks is the nickname of Carina’s husband.

After her husband retired as an ordinary San Miguel worker, Carina experienced hard times.

“I have to earn something. (I must) have an income to be able to survive,” Carina said.

She tried selling chicken lumpia which she got on consignments basis from Mandau around her neighborhood.

Some neighbors told her why not make her own, a challenge she soon accepted.

Since she didn’t have any knowledge of how to do chicken lumpia, she started asking and observing.

For three months she made and sold chicken lumpia in the neighborhood and asked them about the taste, each time listing down feedbacks and adjusting how she made the lumpia.

Then when her “tasters” said she had it, she made the lumpia accordingly.

Next problem is the chicken source. It was easy at first with 3-5 kilos but as her orders grew, it was time to get a bigger source.

From January 2009 with a start of 5 kilos, Natecks now makes chicken lumpia with 500-700 kilos of chicken meat per day.

Carina and Renato said that it was also in 2009 when they started with Pamilya loan, also from FAIRBANK.

In 2009, they started with 50,000.00 loan and at present they are in the 4th cycle with P80,000.00 loan at 100 percent on time payment.

In 2010, Carina opened her doors with Department of Science and Technology (DOST). With DOST she was able to improve her work area, trained her workers on the basics of food processing.

In 2009, Carina’s chicken lumpia was sold not only in the neighborhood. Now there are orders from neighboring provinces including Manila, Masbate, Negros, Samar, Surigao, Zamboanga and Dipolog.

From a P1,000.00 to P2,000.00 capital of 5 kilos chicken, Carina now runs her business on a P150,000.00 capitalization per day on a 95 percent cash on delivery (COD) basis.

And from just a couple tandem in 2009, they now employ 33 regular workers.

WIDE RANGE OF ISSUANCES

Carina and Marcosa are not the only ones benefitting from microfinance.

Roman-Tayag said that there are now 1 million Filipinos enjoying thebenefits of microfinance, and they hope to increase this number by 20 percent every year.

As a tool for an inclusive financial system, BSP governor Amando Tetangco said that microfinance has liberated millions of Filipinos from poverty.

In 2000, the BSP was mandated by the General Banking Law to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector.

In the same year, the BSP declared microfinance as an advocacy and flagship program for poverty alleviation.

“Ten years hence, microfinance has become a mainstream activity in the banking sector, and microfinance supervision has been institutionalized within the BSP,” Tetangco said.

Because of these regulations, the country’s microfinance industry was cited as the world’s best in terms of regulatory framework and second best performing in terms of overall business environment recently by the Economist Intelligence Unit (EIU) through its “Global Microscope on the Microfinance Business Environment”.

This is an upward ranking compared to the 2009 survey wherein the Philippines landed number three in overall business environment while retaining its number one position in the regulatory framework category.

“This recognition affirms the good work that all microfinance industry players are doing. It indicates that each stakeholder ably and ardently performs its roles and responsibilities in order to make the Philippine microfinance market what it is today: viable, sustainable, sound, safe and strong,” Espenilla said.

Tetangco said many banks have demonstrated success in serving microfinance clients.

“Already the world’s leading microfinance rating agencies have set up offices in the Philippines and have demonstrated their interest in being recognized by the BSP,” Tetangco said.

Moving forward, Tetangco said that the central bank will continue to work on creating a sound and stable banking system that can cater to the needs of all markets, including the underserved and unserved leading to a truly inclusive financial system.

http://www.malaya.com.ph/july25/bank1.html#

Thanks again for reading, stay tuned for more articles and comments

-Jeff Rutt

Hi everyone, Jeff Rutt here with another article for all of you interested in Microfinance- to those of you familiar with the industry, this article (written by N Srinivasan for CGAP.com) should come as a great encouragement and opportunity for thanksgiving. The Indian government released a draft of the microfinance bill in late July, a bill which is designed to strengthen both microfinance firms and much more importantly, the rights of the clients they serve. HOPE operates in India through savings circles- while different from traditional loan products, the same goal of serving the poor exists. I’d encourage you to investigate our savings products to see how they are practically restoring dignity to our clients and catalyzing economic development all across the globe.

Many blessings, Jeff Rutt

India’s Microfinance Bill Answers Most Questions

by N Srinivasan: Sunday, July 24, 2011

India’s Ministry of Finance released the much awaited draft microfinance bill which is to be introduced in the country’s parliament shortly. This post is the next in a short series of commentary on the bill by a variety of experts from the region on what the bill means for India and the global microfinance industry.

The Government of India promised a new draft microfinance legislation, and it has delivered.  The consultative process adopted, the work done by the Malegam Committee, and the regulations issued by the Reserve Bank of India (RBI) and the participation of the lenders, practitioners and others have made the draft comprehensive and well-rounded.  The Andhra Pradesh statute, despite its debilitating impact on the sector, seems to have triggered this comprehensive response from the Union government.  The need to regulate the microfinance sector in customers’ interest and also the need to avoid a multitude of microfinance legislation in different states has led to this bill which keeps registered microfinance institutions (MFIs) out of the ambit of money lending laws.

The chief features of the bill are that every institution in microfinance should register with the regulator, transform into a company when they attain a significant size, be subject to a variety of prudential and operational guidelines that are introduced by the regulator, provide periodic information to the regulator and face penal action for violation of law or any rules framed. The bill provides flexibility of RBI to apply different measures, vary the same and delegate the powers to regulate to NABARD.

The grievance redressal procedures, mandatory enrollment to credit bureaus and code of conduct enforcement through industry associations will improve customer protection. The creation of national and state councils should provide wider sector participation in policy making.  The proposed microfinance fund that would not only provide grants but also bulk finance to MFIs is a very welcome proposition.

Requiring all institutions, regardless of form, to register as an MFI is a critical and necessary step toward effective regulation.  The reason for excluding cooperative societies accepting deposits from members only from the definition of an MFI is not clear.  There are MFIs which are cooperative in form that deal with members only.  That does not make the members any better protected.  If the cornerstone of the bill is customer protection, it should be extended to cooperative MFIs as well.

National versus state level supervision
While the proposal to set up a strong advisory council at the national level is welcome, the council should be vested with a role in regulation and supervision.  It should be asked to consider periodic reports prepared by the regulator on the state of practice in the sector and compliance with regulation by the institutions.  In addition to other functions described in the bill, the council could perform the functions that Board of Supervision¹  performs in respect of banks.  The State councils are a good way of involving the state governments.  But the councils should be linked to the national council and given a role with content rather than just creating them.  Without a significant role and participation in some manner in the activities of the national council, the state councils will become either defunct or deviant.  The proposal for appointment of an ombudsman is a welcome measure and will boost the industry’s own effort to handle grievances better.

The step of keeping MFIs outside the purview of money lending is a forward looking step that would improve availability of financial services in the hinterland.  Officials in AP have taken exception to a particular provision in the draft bill that seeks to keep MFIs outside money lending law.  This is nothing new, as banks regulated by the Banking Regulation Act are kept outside the purview of state jurisdiction.  Only when the institutions are unregulated and the practice is exploitative and coercive that the States’ powers under money lending Act become enforceable.  The bill introduces regulation relating to form, business, processes, products, pricing and provides a high degree of flexibility to RBI to adopt measures to enforce customer protection practices of a kind not seen in banking regulation.

The requirement of systemically important MFIs to become companies should be strengthened by taking away the option to transform in to a not for profit company under section 25 of companies Act.  The existing regulatory framework of RBI is lenient towards section 25 companies; in fact there is no regulatory effort spent on such companies.  When MFIs become systemically important they should be actively regulated.

Pricing and interest rates
Sections 23 and 24 of the proposed bill contain the substance of RBI’s regulatory powers.  The powers of RBI to issue directions under section 24 are comprehensive and cover almost all aspects of functioning of the MFIs.  For the first time the concept of APR is used in the industry to demystify the pricing of loans. While there seems to be a provision for recognition of  Self-Regulatory Organization of MFIs, the process of recognition has not been spelt out.  The industry associations have a critical role to play in assisting the regulators.  In section 25, the bill has chosen to implement margin caps rather than interest rate caps.  Absolute interest rate caps are anti-market and introduce rigidities.  However RBI has been given the powers to impose an APR cap.  The specific mention of margin cap under section 25 leads one to believe that the margin cap will be imposed across the sector and the APR cap will be used only in exigencies.

An interesting insertion is the possibility of RBI refinance to MFIs.  The proposed Microfinance Development Fund is intended to provide loans, refinance, grants, capital and any other form of financial assistance.  The size of the fund and the RBIs stance on financing microfinance sector will be eagerly awaited.  The refinance facility (whether offered by RBI or arranged through financial institutions) would be a significant step forward for the resource starved sector.

Penalties
The bill proposes penalties for MFIs of a maximum of Rs 5 lakhs (almost $11,000) which seem paltry in comparison with the size of  MFIs and the damage potential of ill-advised actions.  There is a need to raise the maximum penalty and relate the same with the nature of violation of law or regulatory advice, and possibly made proportional to the size of the MFI.  Section 38(1) facilitates RBI to delegate powers under the Act to NABARD.  The wording is carefully done to offer flexibility to RBI to delegate powers in respect of select class of MFIs.  This will ensure that regulatory load can be distributed between RBI and NABARD.  SIDBI could have been brought on board and offered space in regulation.  Perhaps the high level of its financial support to MF sector has restrained the government from including SIDBI on account of the potential for conflict of interest.

Post Andhra Pradesh
Section 42 should provide a sense of relief to the sector reeling from the aftermath of the State legislation on MFIs in Andhra Pradesh.  The registration with RBI effectively protects MFIs from State Government action under money lending laws.  This is a long overdue requirement for conduct of business in microfinance.  States with competing microfinance programs kept themselves above law and influenced the governments to take action against other MFIs.  The sector had been reduced to a state where microfinance became a hazardous business that had to be controlled to the point of extinction.  The proposed bill restores the freedom of enterprises to run a business in financing vulnerable people, subject to reasonable regulations.

MFIs and deposits
The bill, without overtly saying so, hints at the possibility that MFIs will be permitted to mobilize thrift (small illiquid savings).  If the regulations are introduced for this and MFIs permitted to mobilize thrift it would be an exciting development as it makes meaningful financial inclusion possible.  The tough task of ensuring depositor protection remains unexplained.  Whether the bill could have gone a step further and mandated coverage of MFI mobilized thrift under deposit insurance as is the case in some other countries?

The strong customer protection content reflects a significant change in stance on part of the government – that even borrowers are entitled to protection.  The actual measures indicated in the proposed legislation mostly take in to account potential abuses in pricing, competition, and irresponsibility on the part of lender.  The bill requires implementation and enforcement in some cases.  The regulatory capacity has to be ramped up and the small and medium MFIs capacity to comply with regulation would also need to be beefed up. The bill is an important first step; several more steps in translating the bill to action are required before we reach a stage that restores the vitality of the sector.

http://microfinance.cgap.org/2011/07/24/india%E2%80%99s-microfinance-bill-answers-most-questions/

Thanks again for reading, stay tuned for more articles and comments

-Jeff Rutt

Hi everyone, this is Jeff Rutt- I want to take a few moments to share with you another story about the transformative potential microfinance can have for men and women across the globe. Too often, we all seem to become consumed by the details, logistics, and operations behind what we’re doing, and perhaps lose sight of why we do what we do. Let’s all remember that in every technical and intricate aspect of operating microfinance, we should ultimately always return to focusing on our clients- men, women and children created and loved by God. I hope you enjoy this testimony from the Grameen Foundation.

Many blessings, Jeff Rutt

Charity Kulola, Kenya

http://www.grameenfoundation.org/our-impact/charity

When Charity Kulola was sixteen, her father married her off to a man, already husband to two women, in exchange for money for land. During their marriage, Charity bore seven daughters. Furious that she never bore a son, her husband expelled her and their daughters from his home. When Charity’s brother took her in, his wife told her about Yehu Microfinance Trust, Grameen Foundation’s partner in Kenya.

Yehu Microfinance Trust is a microfinance institution in Kenya and a recipient of financing from The Pioneer Fund. Grameen Foundation established this special fund to make sure that well-run local groups reaching the very poorest have access to the money they need to make loans and increase the number of women they serve.

Charity received her first loan of $64 in Kenyan Shillings and opened a stall selling coconuts in the rural coastal village of Chakareli.  With her second loan of $128, she started selling vegetables, too.  Charity recently took out a loan of $102 to invest in a retail shop and diversify her business.

Microfinance has opened up a world of opportunity for Charity and her daughters.  All seven are receiving a formal education, and the second eldest daughter is studying to be a nurse at a local medical school.

Thanks again for taking the time to read, please stay posted for more information

-Jeff Rutt

Hi everyone, this is Jeff Rutt with great news that I hope you’ll find encouraging. The African Development Bank has launched a microfinance fund with the intention of increasing transparency and effectiveness. This article, written by Ekow Quandzie at Ghana Business News, fills in the details.

Many blessings, Jeff Rutt

African Development Bank launches microfinance fund, calls for proposals from Ghana, others

The African Development Bank (AfDB), in partnership with the Government of Spain has launched the Microfinance Capacity Building Fund (MCBF) for Africa which will provide technical assistance to microfinance companies.

The AfDB says, the MCBF which was launched on July 19, 2011, will help increase transparency within the microfinance sector and deepen outreach to rural areas.

The Bank is therefore calling for proposals from countries such a Ghana, Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and other countries within the West African Economic Monetary Union and ECOWAS.

“The fund will provide awards through three separate Calls for Proposals, occurring annually over the course of 2011 – 2013.  Each call will focus on a specific area(s) of intervention and a specific set(s) of African countries,” the AfDB noted.

The timelines for the MCBF project are as follows:

• July 19, 2011: First Call for Proposals opens

• September 19, 2011: Deadline to submit proposals for first phase

• October 2011: Grantees notified

• November 2011: Funds disbursed

• May 2012: Launch of Second Call for Proposals

• May 2013: Launch of Third Call for Proposals

The award amounts will range from approximately €200,000 to €500,000 per project, depending on the activity, and will be given to a total of approximately eight to 10 awardees.

http://www.ghanabusinessnews.com/2011/07/25/african-development-bank-launches-microfinance-fund-calls-for-proposals-from-ghana-others/

Thanks again for reading, stay tuned for more articles and comments. Follow me on Twitter or check out my Livejournal.

-Jeff Rutt

Do you have a business and would like become involved in a wonderful non-profit charity? HOPE International has many ways you can help and create an event to host or attend. Check out the link below and contact us to get involved!

Here are some great events that are coming up!

EVENTS

Tips from pro builder Ralph Liebing

A builder may pour the foundation and raise the roof, but only you can make your new house a home. A seasoned architect offers tips to help you avoid costly and heartbreaking mistakes.

Your new house is an exciting, and mind-boggling experience for you; it is routine for the builder (“been there- done that”). These attitudes often tend to clash. Building your new house should not (and cannot) be a passive exercise. A myriad of decisions have to be made, by you. Where you are unable, or unwilling to make decisions, you will force the builder to make them. To make sure your new home fulfills your own vision, follow these guidelines:

Understand Your Contract

• You will party to a contract involving a massive amount of money when you sign on the dotted line for the construction of your new house. By so doing, you abdicate NONE of your basic legal rights; therefore, know them, and exercise them!
• Start by reading the contract and understanding it. You are paying (or will pay over the next 25-30 years) for the knowledge of the builders — their experience and ability. PLUS you are paying your builders a profit above their expenses. What do you expect in return? How do ensure that you get what you expect?
• COMMUNICATE – WRITE IT DOWN – COMMUNICATE- WRITE IT DOWN – COMMUNICATE – WRITE IT DOWN. Anything you add to the house after the contract is signed, the builder will keep track of — assiduously! Anything you delete or reduce, YOU keep track of — assiduously!

Save on Building Costs

• Keep costs in perspective; $10 a thousand more for brick you like better translates into only $100 more when 10,000 bricks (a typical amount) are involved.
• The average house contains approximately 1,500 to 2,000 square feet; do you need more? Why? How much more?
• Take care that glitz and gadgets (suggested by friends, the builder, or magazines) do not overwhelm good basic construction– don’t trade them for lesser construction. Bouncy floors (where joists are stretched to the maximum) are not remedied by a hot tub, flocked wall covering, skylights, or jazzy door hardware.
• You pay for each and every square foot of space in your house, be it occupied, usable, or otherwise. If the cost is $50, $85, or $110 per square foot, “extra”, unused, vacant and unnecessary area is provided at the very same cost.

Check Building Codes

• Don’t expect to control the number of nails used. Do expect a substantially built house, free of defects, and in accord with all applicable codes and regulations. Require proof of such compliance (many jurisdictions issue Certificates of Occupancy) at the closing of your mortgage. This indicates accord with the MINIMUM code and safety standards.
• Realize that some things are virtually unchangeable; they should be done properly, first off. This includes a properly sized and constructed foundation system, a properly designed and installed structural system, etc. Changeable items such as finishes, coverings, etc., should not distract you from watching for and requiring good basic construction.
• Watch for things that are not necessarily what you want and that you will not be able to change easily or cheaply. Question things that just don’t look or seem right. Most of the time they are NOT right!
• Seek some reliable outside, impartial advice — other than your father (even if he is a builder!).

Be Flexible

• Be ready and prepared to resolve situations and problems by compromising. Be aware, however, of what you may be giving up in this process — examine and understand both sides. IS the situation worth what you are losing?
• The builder is fully capable of doing anything (or can find someone who can) you wish; BUT, this all will come with a price — so be careful and wary of unique, inordinate, or far-out requests, new technology, and untested materials and equipment.
• Understand that construction is an imperfect science. This combined with natural elements (site conditions, weather, wood members, human foibles) means that things could change, must be changed, or simply exceed capabilities.
• Flat-out errors do happen. Absolute perfection or your idea of perfection may not (and more than likely, will not) be achieved. Drastic imperfections, however, can be corrected, and they should be. It is within your rights to require this.

Keep Records

• Things not clearly and specifically noted, written, described, or shown will be interpreted, by both sides; there must be a meeting of minds where interpretations are fully understood and resolved. When this does not happen, expect dispute, confrontation, pique, anger, frustration, and perhaps even litigation.
• Be redundant; leave nothing to chance. Follow up verbal discussions and instructions with written verification. Keep records, receipts, record of phone call, all correspondence, samples you approve, sales slips, model/type/style numbers, and the like.
• Don’t allow yourself to be reduced to buying any aspect of “a pig in a poke.”
• The more time and effort spent up-front in programming, planning, designing, and understanding, as well as in establishing specifics of the project, the better the chance for a smoother construction period and a satisfactory result.

Be Businesslike

• Be pragmatic, and absolutely businesslike in all of your dealings with the builders. They are working FOR you; you are not seeking them as new friends.
• If a friend or relative performs part of the work, treat them in exactly the same manner — have a contract, demand adherence to your schedule, etc.
• Don’t let a gift or a good price disrupt the project overall.

Questions to Ask

Before you hire a builder for your new house, be sure that you can answer each of these important questions.

• What is a good design for our needs?
• What is a building code? Does it effect us? How does it work? What doesn’t it do?
• Who is responsible, overall, for my building project?
• What are good sizes and proportions for rooms? What style do I want?
• What am I really getting from the builder?
• What problems do I have in my current house that I don’t want to repeat?
• Where can I find answers and help? How do I make my desires known?
• What does that line on the drawing mean?
• What is a dispute; a lien?
• What are specifications? Does the builder write and provide them?
• What if my builder does something in a way I don’t like? Is the house going to be complete; will something be left out?
• When will the house be finished?
• What is a contract? How do I play a part in it? What does it say?
• What is “an extra”?
• Is that a good material, I’ve never heard of it?
• Can I change things?
• Who picks the color of the paint, wall coverings, etc.?
• Is landscaping included? Sod? Seed? mud and rocks? Slopes? Are landscape features guaranteed?
• What if I disagree with the builder? Can I stop the work?
• Am I allowed on the job site? Can I inspect the work as it goes up? Can I bring someone with me?
• I really want this ________________in the house — how do I get exactly that?
• I can buy the light fixtures from my brother– but who will hang them? What do I do?
• Should I close on the mortgage and pay the builder in full? I have several items that I don’t like – must I still close?
• Why do we have to make all these trips to pick things out?

From Builder Magazine: