John V. Owens 2009 RBAP-MABS NATIONAL ROUNDTABLE CONFERENCE Hyatt Hotel and Casino May 12-13, 2009 Microenterprise Access to Banking Services Program

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

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

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

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)

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

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

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

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

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

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

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