The Hidden Risks behind Microfinance Securitization

Co-authored with Vinod Kothari; MicrofinanceFocus, 6 July 2010

The Reserve Bank of India (RBI) recently promulgated proposed guidelines for securitization by non-banking finance companies that if implemented, would essentially gut the widespread Indian MFI practice of selling (assigning) and securitizing portions of their portfolios.  One of us has already described these consequences in detail.  Not surprisingly, this proposal caused alarm in the microfinance community and has generated intensive lobbying efforts with the RBI to modify the ruling.  As the RBI considers their case, it should bear in mind another distinguishing characteristic that sets microfinance securitizations apart. more →

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Categories: Microfinance Focus

Savings Banks: Rediscovering a Well-Trod Path to Financial Inclusion

MicrofinanceFocus, 7 June 2010

Savings is a hot topic in the microfinance policy circles these days.  The CGAP blog regularly features one or another posting on savings programs.  The influential blogger David Roodman recently recommended deemphasizing cross-border MFI debt funding in favor of support for savings services.   Meanwhile, the Gates Foundation has been channeling its millions towards expanding savings, in many cases bypassing the traditional microfinance sector altogether.  more →

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Categories: Microfinance Focus

SKS Microfinance journey to IPO: An inside story

Co-authored with Vikash Kumar; MicrofinanceFocus, 12 May 2010

SKS Microfinance, India’s biggest lender to the poor, is soon to become the nation’s first microfinance company to list on the Stock Exchange. In the past 10 years, it has evolved from an NGO to a public limited company and has set many benchmarks for the industry to follow. Microfinance Focus presents a comprehensive look at this journey, tracing it from the company’s roots in the late 90s through the final months leading up to the IPO.

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Avoiding a Microfinance Bubble in India: Is Self-Regulation the Answer?

Co-authored with Sanjay Sinha;  MicrofinanceFocus, 10 Jan 2010

We live in a time of object lessons.  The economic crisis continues to buffet many countries, including the US, where the unemployment rate has now breached 10% for only the second time in the last 70 years, taking only 18 months to get there – the largest and steepest increase since World War II.  Three years after the first rumblings in the US subprime mortgage market, many banks around the world are still ailing.

The microfinance industry has not been immune either – MFIs in countries as diverse as Nicaragua, Bosnia, and Morocco are under severe stress, while many others have seen their portfolio numbers deteriorate significantly.  For the first time in its 11-year history, the industry’s flagship private investment vehicle – Blue Orchard’s Dexia Micro-Credit Fund – reported a net monthly loss.

The sector in India has thus far successfully avoided this fate.  more →

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Categories: Microfinance Focus

Is There a Microfinance Bubble in South India?

MicrofinanceFocus, 17 Nov 2009

By most standards, microfinance is a young sector, and in many countries it can be said to still be in its infancy.   Yet its continuing spectacular growth, especially in India, should give one pause – every time promoters celebrate another multi-million-client threshold, I wonder – how many more such thresholds are left?  How do we know when we’ve arrived?

This is not a philosophical question – normally, markets send signals.  New customer demand drops.  Prices fall.  Margins decrease.  However, credit markets are funny animals – the hopeful, exuberant part of our human nature dictates that, when presented with the opportunity, we tend to overestimate our repayment capacities and borrow beyond our means.  And when we can borrow from one lender to repay another, we can stretch the cycle out even further.  The market signal gets delayed, while a bubble builds – when the signal does come, it is in the form of the bubble bursting.  more →

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