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Opportunities In Microfinance Amidst the Financial Crisis
 

Opportunities In Microfinance Amidst the Financial Crisis

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    Opportunities In Microfinance Amidst the Financial Crisis Opportunities In Microfinance Amidst the Financial Crisis Presentation Transcript

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