Microfinance Focus, 10 December 2012; microDinero (Spanish), 12 December 2012
Over the past 18 months, one of the microfinance sector’s largest and most prominent funds, Blue Orchard’s Dexia Micro-Credit Fund (recently renamed Blue Orchard Microfinance Fund), saw a major outflow of investor capital, with some $268 million or nearly 50% of the fund’s peak value having been redeemed. The scale of these outflows is unprecedented in the sector. For years, investment capital largely flowed one way: in. The exit doors were there, but rarely used. That is no longer the case. The pioneer of the microfinance investment industry has now crossed another milestone in the industry’s development.
Like Dexia, many microfinance funds (commonly referred to as Microfinance Investment Vehicles or MIVs) are subject to unscheduled redemptions. For those funds, their investors, as well as others in the sector, BlueOrchard’s experience holds important lessons, and it is those lessons that this article hopes to convey. more →
Microfinance Focus, 25 November 2012, Co-authored with Vikash Kumar
This article is part of a series aimed at understanding what’s happening in India’s affordable housing sector. It is based on interviews with residents of three low-cost housing projects: Vaishnavi Sai (outside Mumbai), Anandgram (outside Pune), and Janaadhar Shubha (outside Bangalore). The interviews were conducted during May-June 2012. Read Part 1 here.
After a long train ride – nearly two hours – the line ends. Passengers disembark at a small, but bustling community, easily covered on foot. The commerce around the station is busy, but within a few city blocks, one already spies farmland beyond the last rows of houses. Residents of all stripes live here, but the feel is decidedly working-class.
This could easily be late 19th century streetcar suburb outside Chicago or New York. Or a fin-de-siècle banlieue on the outskirts of Paris. But no, it’s Virar, one of the terminal stops on the Western Railways line heading north out of Mumbai. Read full article here.
Microfinance Focus, 16 October 2012, Co-authored with Vikash Kumar
This article is part of a series aimed at understanding what’s happening in India’s affordable housing sector. It is based on interviews with residents of three low-cost housing projects: Vaishnavi Sai (outside Mumbai), Anandgram (outside Pune), and Janaadhar Shubha (outside Bangalore). The interviews were conducted during May-June 2012. Read Part 2 here.
Something is afoot in the low cost housing market in India. Over the last two years, dozens of commercially-built projects targeted at the lower middle class have been going up in cities across the country, with tens, if not hundreds, of thousands of units being built. In the past six months, many of these projects have begun opening their doors to the new residents. We decided to pay some of them a visit. more →
MicrofinanceFocus, 28 March 2012
Last month, the headlines of the world’s papers read déjà vu. “Suicides in India linked to microfinance debt.” “SKS Microfinance implicated in farmer suicides.” The headlines may have differed, but the article was one and the same, penned by Erika Kinetz of the Associated Press. SKS was appalled, calling the report “libelous” and “scurrilous.”
For what it’s worth, the damage has been minimal. SKS stock slid 4.25% on the day of the article, but recovered within a few days of trading. The slide shows little distinction from its already volatile trading pattern (Figure 1). Of course bad news can also cause lenders and investors to take a second look, or simply slow things down. One MFI manager told me of exactly this very reaction on the part of an Indian bank in the immediate days after the AP article. But the story got relatively little press in India, and no follow-up of significance. By now it’s reasonable to say that the microfinance sector in India can breathe a sigh of relief. Seeing bad news get swept back under the carpet can be quite satisfying, even if the stink remains. more →
Financial Access Initiative, 11 January 2012; Microfinance Focus, 14 January 2012
If there’s one microfinance word that rose above all others in 2011, it’s overindebtedness. As of the time of writing, it racks up the highest count on CGAP blog’s tag cloud (not counting generic terms like “microfinance”). It seems fitting, then, to start 2012 with a blog post on this very subject.
When we talk about overindebtedness, it usually comes for the perspective of the industry’s responsibility, whether the MFI, funders, or regulators. Prevention of overindebtedness came up as the most widely evaluated client protection principle in the Smart Campaign’s survey of social rating agencies and microfinance investors.
This is, of course, all right and proper. It is the industry’s job to practice responsible lending, and avoiding overindebting clients deserves a place at the top of that agenda. But no matter the level of diligence on the part of lenders and financial education provided to clients, some borrowers will still become overindebted – be it because of bad business decisions, destabilizing macroeconomic shifts, or simply a string of bad luck. So what becomes of clients that, despite best efforts, still become overindebted? more →
MicrofinanceFocus, 27 December 2011
On October 14, 2010, the Andhra Pradesh government issued an Ordinance that effectively shut down the microfinance market in the state. That shutdown continues to this day, with collections at negligible levels. It’s clear that the AP microfinance market is dead and will not recover for years.
Important as AP has been to India microfinance, it is not everything. Despite the year-long crisis, repayment rates in other states remain strong. And though AP-oriented MFIs have been seriously or even terminally wounded, others have remained unscathed.
Despite this, in the intervening period funding for MFIs – largely dependent on a handful of Indian state and commercial banks – has persisted in a state of severe liquidity deficit. more →
Financial Access Initiative, 14 September 2011; MicrofinanceFocus, 15 September 2011
Some time ago, I had a conversation with a microfinance investor. What is the greatest challenge facing the sector? – I asked. His answer: multiple borrowing – multiple borrowing getting people into too much debt; multiple borrowing transforming micro-enterprise lending into consumer finance; multiple borrowing rewriting the traditional relationship between MFIs and their clients.
Of course, multiple borrowing is present in all of these cases. But thinking about multiple borrowing along these lines misunderstands the basic situation. Multiple borrowing isn’t a reflection of some recent or extreme developments to be ascribed to runaway growth, greed, or willing ignorance. And despite press articles to the contrary, it is neither a result of heavy market penetration, nor even saturation. No, multiple borrowing is an intrinsic part of the practice, one that has been with us for years. more →
MicrofinanceFocus, 7 July 2011
It seems wherever you turn these days, politics is getting into microfinance. In Andhra Pradesh, the state government exercised its prerogative to kill off an entire industry. Next door in Bangladesh, Prime Minister Hasina decided to hound Yunus out of Grameen Bank, no matter the cost. The No Pago (No Pay) movement in Nicaragua counted on the support of the country’s president. What’s the industry to do in the face of such onslaught?
Weathering the Storm identified state intervention as one of the core risks faced by MFIs. It drew its lessons from the case of PADME in Benin, which was effectively nationalized by the government in 2008. At the time, PADME was in the process of transforming from an NGO to a for-profit entity, and the Benin government had made clear from the start that it was not in favor of such a plan. Despite this, PADME’s management and prospective investors had decided to push ahead, thinking that they would be able to parry the government’s attempts to block the process.
They were wrong. more →
Co-authored with Karuna Krishnaswamy; MicrofinanceFocus, 25 January 2011
Hyderabad has gone missing. And it seems nobody has noticed the absence. While academics and the press were scouring the villages of Andhra Pradesh in search of over-indebted borrowers and debt-induced suicides, and while politicians in the villages and government halls were busy protecting their beloved SHGs (and the vote banks they provide), Hyderabad up and vanished, leaving apparently no trace of its prior existence.
Naturally, we are referring not to the physical city, but to its microfinance market, as well as those of other cities in Andhra Pradesh. Make no mistake – microfinance lending in urban AP has been widespread, outpacing even that of the countryside. And yet, there seems to be little recognition of its existence and how it has been affected by the current crisis. more →
Co-authored with Vinod Kothari; MicrofinanceFocus, 20 December 2010
Something strange is happening with microcredit securitizations in India. Two pre-eminent ratings companies, CRISIL (a subsidiary of Standard & Poors) and FitchRatings have taken diametrically opposing views on the credit quality of microcredit-backed securities.
Last month Fitch released a report, stating that “these transactions are unlikely to receive the highest Long- or Short-term ratings.” Meanwhile, CRISIL continues to issue high ratings to a number of microcredit securitizations, most recently rating a Rs. 54 crore ($12 million) pool issued by Asmitha Microfin as P1+(so), the highest rating that can be assigned to short-term securitizations. This rating continues to stand, despite the fact that Asmitha’s debt has been downgraded since then and continues to remain under a ratings watch for further possible downgrades. more →
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