Opportunities In Microfinance Amidst the Financial Crisis


Published on

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Opportunities In Microfinance Amidst the Financial Crisis

  1. 1. 2009 RBAP-MABS National Roundtable Conference May 12-13, 2009 Hyatt Hotel and Casino Manila John V. Owens Chief of Party, MABS
  2. 2. Microfinance Still Hums, Despite Global Financial Crisis <ul><li>Microfinance operates differently from US subprime lending </li></ul><ul><li>Sector is more resilient </li></ul><ul><li>Methodology – Cash-flow & Character-Based rather than Asset-Based </li></ul><ul><li>Loan Characteristics – small & short-term </li></ul><ul><li>Innovative risk-management techniques </li></ul>
  3. 3. Optimism Amid the Anxiety <ul><li>Dominoes of the crisis are hitting microfinance in very different ways worldwide </li></ul><ul><ul><li>C redit crunch </li></ul></ul><ul><ul><li>Inflation </li></ul></ul><ul><ul><li>Currency Devaluation </li></ul></ul><ul><ul><li>Global Recession </li></ul></ul><ul><ul><li>Drop in Remittances </li></ul></ul><ul><ul><li>Higher Unemployment </li></ul></ul><ul><li>Nimble clients are actually benefiting from hard times adapting strategies to meet frugal customer demands </li></ul>
  4. 4. Challenge for the Philippines – Remittances?
  5. 5. Stability of Deposits <ul><li>Rural banks, with a broad base of deposits, are less exposed to refinancing and global crisis risks </li></ul><ul><li>Challenges: </li></ul><ul><li>Note that some deposits are more stable than others </li></ul><ul><li>In a world where SMS allows communication in seconds, bank failures and closures can lead to a loss of confidence in banks </li></ul><ul><li>Opportunities: </li></ul><ul><li>Higher deposit insurance coverage could lead to more confidence and higher deposits in rural banks </li></ul>
  6. 6. MABS Participating Banks <ul><li>So far, banks are stable, growing & report little or no direct impact from the crisis. Still, there are some troubling signs: </li></ul><ul><li>Slight deterioration in portfolio quality </li></ul><ul><ul><li>Slight increase in portfolio at risk over the past 12 months </li></ul></ul><ul><ul><li>Causes - primarily due to bank issues rather than global crisis </li></ul></ul><ul><li>Slower growth rate of microfinance portfolio, especially compared to past growth rates </li></ul><ul><ul><li>Banks more hesitant to extend credit </li></ul></ul><ul><ul><li>Tightening up due to PAR & focus on collections </li></ul></ul><ul><li>Deposit mobilization is stable (Legacy issue is in the past) </li></ul>
  7. 7. Microfinance – Opportunity for Rural Banks during the Crisis <ul><li>Banks looking at MF as a sound strategic investment decision </li></ul><ul><li>Loans are short-term, small, diversified </li></ul><ul><li>Solid cash generation potential </li></ul><ul><li>Solid track record of profitability </li></ul><ul><li>Sound risk assessment: methodology based on capacity to repay and character-based </li></ul>
  8. 8. Strategies being recommended for Banks <ul><li>Shore up financial position by increasing equity </li></ul><ul><ul><li>Retain more earnings; pay out lower dividends </li></ul></ul><ul><li>Diversify funding sources & secure additional funds </li></ul><ul><ul><li>Focus on deposits (low income savers vs. institutional savers) </li></ul></ul><ul><ul><li>Negotiate credit lines </li></ul></ul><ul><li>Rationalize operations but diversify </li></ul><ul><ul><li>Reduce operating costs (to address decreasing profit margins) </li></ul></ul><ul><ul><li>Tighten risk management controls (to maintain healthy portfolios) </li></ul></ul><ul><ul><li>Manage portfolio growth: emphasis on those products that are short term, have smaller loan sizes and are more profitable </li></ul></ul><ul><ul><li>Diversify products and services </li></ul></ul>
  9. 9. Strategies being recommended for Banks <ul><li>Marketing/Increase Public Confidence </li></ul><ul><ul><li>Marketing campaign to focus on the importance of savings </li></ul></ul><ul><ul><li>Improve your image - Publish financial statements – MixMarket.org </li></ul></ul><ul><ul><li>Ratings – Get rated & publish reports </li></ul></ul><ul><ul><li>Maintain an image of safety </li></ul></ul><ul><ul><li>Follow improved transparency & fairness in dealing with clients </li></ul></ul>
  10. 10. Broader Range of Services to their Microfinance Clients…
  11. 11. MABS IV – MEETING THE OPPORTUNITIES & CHALLENGES <ul><li>Offering the MABS Approach to new banks – “GO BACK TO BASICS” </li></ul><ul><li>Product Diversification: </li></ul><ul><ul><li>Expansion of Micro Agri Loans </li></ul></ul><ul><ul><li>Housing Microfinance Loans </li></ul></ul><ul><ul><li>Microinsurance </li></ul></ul>
  12. 12. MABS IV – MEETING THE OPPORTUNITIES & CHALLENGES <ul><li>Improve Efficiency & Collections </li></ul><ul><ul><li>Mobile Phone Banking Services </li></ul></ul><ul><ul><li>Support RB access to the Credit Bureau System </li></ul></ul><ul><ul><li>Small Claims Court Initiative </li></ul></ul><ul><li>Training & Capacity Building </li></ul><ul><ul><li>– MABSTeRS </li></ul></ul><ul><ul><li>Distance Learning </li></ul></ul>
  13. 13. Crisis as Opportunity? <ul><li>Financial crisis could actually produce long-term benefits, even if they are painful – CGAP </li></ul><ul><li>Slower but stable growth </li></ul><ul><li>Stronger credit policies & procedures </li></ul><ul><li>Support for credit bureau </li></ul><ul><li>Better products </li></ul><ul><li>Consolidation of weaker banks into stronger ones </li></ul><ul><li>Boost to implement appropriate client protection policies & practices </li></ul><ul><li>Value of deposit-led approach </li></ul>
  14. 14. Be savings-led and inspire your clients to save, match savings with loans, avoid funding mismatch, develop an array of savings and deposit products, be market driven…lend short and lend small, … race up on savings mobilization C.J. Agwu, Agric Banking FMFB