Week of February 7, 2010

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2/9: The Regulator’s Dilemma: Navigating Competition Policy http://shar.es/mn2lq via#microfinance

2/9: Cell-phone banking offers financial help to Third World - http://bit.ly/5DF7fH#microfinance

2/9: Forbes.com: "How to protect the world's most vulnerable banking clients" http://bit.ly/aMKwNu #microfinance
  
2/8: RT@poverty_action: IPA research that's good for your heart (literally!) http://www.newsweek.com/id/233006

2/8: MICROCAPITAL PAPER WRAP-UP: Behavioral Foundations of Microcredit http://bit.ly/aUu5dB #microfinance

2/8: FAI invites you to an event with Muhammand Yunus at NYU on March 5th. RSVP at http://bit.ly/apyrMl #microfinance

Smart subsidies for microfinance

In a recent column, Nicolas Kristof of the New York Times advocated donating to BRAC, one of Bangladesh’s oldest microfinance organizations. But at a recent U.S. Committee on House Financial Services hearing, Damian von Stauffenberg, chairman of MicroRate, argued against putting donor money into the microfinance sector, saying that donations dilute the MFI’s entrepreneurial drive, lead to inefficiency and lower the quality of operations.

Von Stauffenberg’s fears aren’t unreasonable. Much of the excitement around microfinance stems from the possibility of achieving massive scale through highly efficient operations. And as microfinance moves toward a model of increasing commercialization and focus on sustainability, profitability has become one benchmark by which to measure institutions. But there is a time and a place for donor money, provided it comes in the form of “smart subsidies.”

The idea behind a smart subsidy is that subsidies are neither inherently useful nor inherently flawed. Rather, their effectiveness depends on how they are designed and deployed. There are several concrete ways in which subsidies can help increase the scale of microfinance, and open access to commercial funds and outreach.

First, they can help multiply scale by “crowding in” additional capital. . . 

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Week of January 31, 2010

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2/4: FAI research from "Half the World is Unbanked" cited in Susy Cheston's Congressional testimony on #microfinance. http://bit.ly/di2KfN

2/3: New version of the FAI paper "Microfinance Games" available at http://bit.ly/9cH7I4. #microfinance

2/3: New version of the FAI paper "Behavioral Foundations of Microcredit" released at http://bit.ly/bOSd15. #microfinance

2/2: Microfinance requires no donor money, says MicroRate's Stauffenberg http://bit.ly/cun4Ej What about "Smart Subsidies"? http://bit.ly/9TmsrC

2/1: RT @poverty_action An "anti-nudge" on the way to Mexico...http://poverty-action.org/node/2570

2/1: Great video of Sendhil Mullainathan alking at TEDIndia: "Solving social problems with a nudge". http://bit.ly/cplO1A

2/1: New microinsurance journal launched at http://micro-risk.com/. #microfinance

The future of securitization in microfinance

Pulling off this securitization was no small feat.  Two of the elements of this deal that make it so important are the experience and rigor of the participants.  That experience translates into hard-thinking about the details of the contract.  For that reason, it's especially worth drawing out the key details that make the deal work.

The fact that IFMR Capital is putting their some of their own money on the line is a big deal.   It does two things.  1) It reduces risk for other investors directly by absorbing losses beyond the "first losses" absorbed by the microfinance institutions themselves. 2) It means that IFMR Capital should have an ongoing interest in trouble-shooting problems that might arise with the micro-lenders.  If I were an investor, those 2 facts would help me sleep much better at night.

Alex at India Development Blog has a really nice post in which she addresses the concern that "Diversification doesn't help in the case of economy wide problems."  She writes:

"It is certainly true that diversification doesn't help in situations where the entire economy is affected. However, given the short tenure of these loans it would require a sudden large shock to the economy to lead to high defaults . . ."

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How peer pressure can help you save

What do you think would make you more likely to save—being paid a higher interest rate or the social pressure of making a public commitment to save more and then having your peers monitor your progress?  A new paper from Felipe Kast and Dina Pomeranz (hat tip to the CMF folks for blogging it first) finds that while both strategies help to increase savings, the peer commitment mechanism comes out on top...

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Week of January 24, 2010

1/28: Reading @IFMRTrust's response (http://bit.ly/d8eEgB) to our post (http://bit.ly/80FNV2) on their first multi-originator securitization.

1/27: "The Economics of #Microfinance" is on Stuart Rutherford's Top 5 list of books on the poor and their money. http://bit.ly/cZNOoP

1/27: From Princess Maxima: Microfinance needs to come as part of a rounded policy aimed at fighting poverty effectively. http://bit.ly/8uXp1g

1/25: Jonathan Morduch tells stories from the financial diaries on CBC: http://bit.ly/I8qo(use CTRL+F to search for Morduch) #microfinance

Topics: Big Picture, Commercialization, Portfolios of the Poor and Poverty

Securitizations: a tale of promise and caution

Have the lessons from the financial crisis been fully absorbed by the microfinance sector? 

IFMR Capital recently announced its first multi-originator securitization, the first such securitization in microfinance (that I know of).  As compared to previous securitization transactions, which involved loans from only one microfinance institution, this transaction combined 42,000 loans from four microfinance institutions.  This securitization was highly rated by Crisil, one of India's leading ratings firms for microfinance...

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Is there a role for moneylenders in microfinance?

In catching up on my blog reading after the holidays, I lingered over Rich Rosenberg’s post on whether microcredit is squeezing out moneylenders. In it, he refers to a Wall Street Journal article on the rapid expansion of moneylending in India, and returns to the nagging question of whether this new availability of credit is leading to overindebtedness...

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When does insurance make sense?

In his useful assessment of microinsurance schemes, Paul Mosley proposes the idea of “quasi-insurance” – the provision of risk-protection through non-insurance routes such as loans and savings in markets where microinsurance is lacking or insufficient. Mosley purports that “in every case where a choice has to be made concerning choice of risk management strategies it is desirable to assess whether such non-insurance options may offer a lower-cost or more effective method of protective the poor than microinsurance.” 

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Week of December 6, 2009

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12/7: Nice review of the book Portfolios of the Poor: How the World's Poor Live on $2 a Day. http://bit.ly/3UznuO #microfinance

12/7: Portfolios of the Poor = "must read" and "new bible" for social entrepreneurs combating poverty: http://tinyurl.com/ydt6gan #microfinance

12/7: Jonathan Morduch on Changing Microcredit on WBUR.org: http://bit.ly/7yhB4U#microfinance

12/8: RT @socialedge Portfolios of the Poor “How World’s Poor Live on $2 a Day” book:"myth exploding..about price points & market realities" http://bit.ly/6EhZLB

12/8: RT @davidroodman Nice anonymous @AidWatch post on pros and cons of RCTs http://bit.ly/7a3Gkl

12/9: They're talking about David Rooman's Kiva blog post--and former FAI intern Abby Gray's response to it. http://bit.ly/8sOsW3 #microfinance

12/11: Pour les francophones: "Le microcrédit attire les financiers" http://bit.ly/5KwCqD#microfinance
 

Week of November 29, 2009

Tweets of the Week: follow us on Twitter @financialaccess

11/30: An ongoing FAI impact study with Compartamos makes the news in Mexico: http://bit.ly/6NMZkQ #microfinance

12/2: Jonathan Morduch takes stock of microfinance: http://bit.ly/5yXpia#microfinance

12/2: Just met with the Presidential Committee for the 2010 G-20 Summit in Korea--they want to put financial inclusion on the agenda.#microfinance

12/2: @RachelStrohm Thanks for your post on Banks and Microbanks. Glad it piqued your interest. http://bit.ly/5F3JlP #microfinance

12/3: At the US Treasury today speaking at the first meeting of the G-20 Financial Inclusion Experts Group.

12/4: Stuart Rutherford on BBC: Pioneering money management in Bangladesh's slums. http://bit.ly/6KYOoL #microfinance

The continuing saga of the microfinance bubble

A recent article by Daniel Rozas pondered the existence of a microfinance bubble in South India. Rozas crunched the numbers and concluded that, in some areas, microfinance borrowing has overreached capacity. Rozas’s doesn’t have data on household finances, so he’s extrapolated from regional aggregates. The story is worrying, but he doesn’t nail it.

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Paying to improve health

The organizers of this year’s 5th International Microinsurance Conference, held last week in Dakar, wisely included “Providing health insurance to the poor” as one of the main themes. Health events - whether they are unanticipated emergencies, or even foreseeable events like giving birth - are among the main financing challenges for poor households. When you’re living on $1 or $2 a day, better health financing mechanisms have the potential to make a huge difference. Too often, they’re literally life and death issues. 

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