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  • 1. 8 Development Returns • Financial ReturnsWomen entrepreneursAccessing market opportunitiesBehind the veilFinance for Muslim women in South AsiaWinning strategiesLending at INECO Bank .................................... Ela Bhatt, Founder of SEWA, Role Model for Financial Leadership
  • 2. ColophonUPsides is a magazine about finance and devel- Letters to the Editor: Upsides is pleased to announce the inclusion of a ‘Letters to theopment. As the name suggests, it focuses on editor’ section. You may contribute by simply sending an email to These can be successes as well We look forward to hearing from learning opportunities. Whichever they are, theyare all considered in terms of development returnsand financial returns. These stories are not just aboutinvestment. They are about the inspiring people andorganizations behind an investment. They are aboutthe impact that development banking has on theclient, the business, the economy and society as awhole. micro- and small-scale entrepreneurs andother local private sector firms, regional and inter-national banks and development finance institutions Column: Give the new financial sector the best possible start!...............will all be sharing their views and perspectives.chief editor: Nicholas molodyko Cover story: Women entrepreneurs: Accessing market opportunities. . . . . . . . . . The eighth UPsides editorial board: marilou van Golstein brouwers Nanno Kleiterp Welcome to the eighth issue of Upsides - a magazine about finance and develop- Laurie J. spengler ment. december 2008editorial committee: Willemijn van beers 1 Region special: Behind the veil ............................... . . . . . . . . . . . . Upsides is a quarterly publication intended for entrepreneurs and stakeholders in erik van dijk developing and emerging markets. While Upsides is an FmO (Netherlands devel- brigitte stolk Gera van Wijk opment Finance company) initiative, it is supported by a widening body of part- 3 Henk Nijland ners and entrepreneurs. 2 Case 1: Invest in modern energy so women can breathe easily.............. Upsides Arno de Vette paul Wolff The ‘Up’ reflects an optimistic tone: The private sector is a driving force behind economic development, from micro and small-scale entrepreneurs to bigger firms.contributing authors: Nicoline van slingelandt- Asselbergs, sonya bearden, Upsides will share how the private sector and its financiers are making a 2 Case 2: MyC: The explosive power of entrepreneurship ....... . . . . . . . . . . . . difference. matthijs egelie, Nico mensink, donna Nails, manuel sia, brigitte stolk, The ‘side’ reflects stories from many perspectives: development finance institutions Kirsten c. Weiss and banks, local clients, other international development and business partners 2 Case 3: Realizing dreams through access to finance........................ will be telling the story. The magazine will be based on their cases, experiences,published learning and projections.quarterly by: Huddles bv ‘s-Hertogenbosch The Netherlands The ‘s’ on the end reflects two types of returns: development returns and financial 30 Sector special: Winning strategies for small business lending at INECO Bank ... returns. This is our market. it’s not just a story about an investment, but it is about the impact of that investment on the client, the business, the sector and theproduction manager: daphne madec economy.Art direction: co de Gooyer 3 Banking special: The potential onus of hard currency debt ................Website: www.upsides.nlFor address changes and to subscribe pleasevisit 20:20 vision: Mary Houghton ............................................For questions, comments or information aboutpartnership or advertising in Upsides please contactWillemijn van beers at info@upsides.nlNo part of this publication may be reproduced in anyform without the express permission of the publisher.
  • 3. .................................................... Column: Nanno Kleiterp Give the new financial sector the best possible start! This issue of UPsides marks the end of hits very close to home. many women we should look at women entrepre- our second year in publication. We still face a glass ceiling and the number neurs as a huge market.” take this milestone to honor the accom- of women in top positions is disap- plishments and challenges, but also pointing. but the call for change grows To enhance female entrepreneurship the concerns, of entrepreneurial louder. recently, two very public worldwide means changing systems, women. in doing so, we enter the notices – one from dutch female mindsets and even cultures. What can highly debated arena of gender leaders and one from dutch male we do as a development bank to inequality. leaders – were sent to the dutch contribute to this? dr. chen explains in minister of Finance stating that “now is the cover story that, if we want to For those of you who think that gender the time for women in the boardroom”. change this situation, we need a betterdecember 2008 december 2008 issues may only be relevant in the The dutch summonses demand: “Give understanding of the markets women developing and emerging world, i can the new financial sector the best operate in. At FmO, knowing markets Financial sector development in Asia, tell you that for dutch people, this issue possible start! A reform of the finan- cial system that is now glaringly neces- is our business and we’d like to invite you to jointly explore the opportunities Africa, Eastern Europe and Latin America sary should therefore be carried out in this market.Upsides Upsides by the best teams of managers and leaders. diversity will greatly increase UPsides 8 brings to you the experi- the chances of success.” ences of our clients and other institu- tions who successfully support women S ince 1994 Triodos Bank has contributed its Triodos Renewable Energy for Development Fund This reform should, of course, extend entrepreneurs. solutions they offer unique expertise as a socially responsible bank focuses on to the expansion of clean energy services in far beyond the boardrooms in the range from providing business devel- to the micro finance sector in Asia, Africa, developing countries. The fund is a source of finance Netherlands – creating diversity opment services and working with Eastern Europe and Latin America. for new and existing local financial intermediaries that throughout the whole financial system women’s groups to offering banking provide financial services to projects and small and worldwide, be it on micro, meso or products specifically designed for Triodos manages three specialised funds: Triodos- medium enterprises in the clean energy sector. macro level. realizing this diversity, of women. Doen, Hivos-Triodos Fund and Triodos Fair Share which gender is just one, but a very Fund. The funds invest in financial institutions Triodos Bank is a fully licensed independent Bank with important aspect, means that we have We at UPsides send our own “public specialised in the provision of microfinance and branch offices in The Netherlands, Belgium, United to take an extra step to include women notice” to successfully tap into the sme finance. With the provision of loans and equity Kingdom and Spain. The bank is a pioneering force in in the financial sector. As a develop- female entrepreneur market and combined with our banking experience we aim to the world of sustainable and transparant banking. ment bank, we at FmO are very leverage female capital. pioneers such contribute to sustainable economic development in conscious about the fact that women as ela bhatt and the female business developing countries and Eastern Europe. are often excluded and that this is a owners highlighted in this issue are Utrechtseweg 60, Zeist missed opportunity. As highlighted by role models whose vision, commitment Triodos Sustainable Trade Fund provides trade finance The Netherlands mary Houghton in the 20:20 vision: “it and drive can bring out the entrepre- to certified organic and Fair Trade producers. 0031 (0)30 693 65 00 feels like there’s more than adequate neurial spirit in each of us. proof that the market of women who can be successful entrepreneurs is as Nanno Kleiterp, CEO, FMO Triodos-Doen is a joint initiative of doen Foundation and Triodos Bank and started in 1994. Hivos-Triodos Fund is a joint initiative of the Hivos Foundation and Triodos Bank and also started in 1994. Triodos Fair Share Fund, a closed mutual fund, is open TLB least as large as the market of men, so to Dutch private investors and was launched in 2002. Where more than money counts
  • 4. Women entrepreneurs: Accessing market opportunities ............................. Women borrowers are frequently exploring these solutions, we will first trotted out as the great success story of take a closer look at the statistics and development finance, particularly in some of the barriers that female entre- the realm of microcredit. They’re the preneurs face. “new entrepreneurs” of the developingdecember 2008 december 2008 world, the backbone of family and What the numbers tell us culture. While few are willing to Global statistics on female-owned debate the latter point (how politically businesses are hard to come by. it’s incorrect!), the former should perhaps estimated that between 25 to 30% of bear greater scrutiny. Why is it seem- enterprises in the formal sector areUpsides Upsides ingly so easy to find female microbor- owned and operated by women. rowers, but so difficult to lend to female According to Zouera Youssoufou, sme owners? if microfinance is so manager of international Finance successful, one would think that more corporation’s (iFc’s) Gender entrepre- female borrowers would be able to neurship markets (Gem) unit, empir- increase their business size into the ical evidence suggests that female small or medium enterprise realm. sme owners have decidedly less Entrepreneurial woman at work access to finance than men. in Uganda, Yet lenders lament that there just aren’t for example, 39% of registered smes many female sme owners to go are owned by women, and on average around. is it true? Or are financial only 9% have access to credit. institutions falling short in their outreach efforts? The answer, perhaps, The percentage of informal businesses is a bit of both, and therein lays some owned by women, however, is signifi- intriguing solutions. cantly larger than that of formal busi- ness owners. microfinance institutions Two general approaches have devel- (mFis) target these informal business oped to address the difficulties of owners. According to survey data from finding women with larger businesses the 2007 microfinance mix, mFis the ratio of female to male borrowers This issue is particularly striking in director of the microfinance invest- cant trend yet of them engaging in to lend to: providing business develop- making group loans with an average falls to 49:51 – admittedly respectable countries with strict conservative reli- ment support Facility for Afghanistan small and medium enterprises,” says ment services (bds) to help women balance under $200 report over 90% given the proportion of formal female gious traditions. Few know the difficul- (misFA), a leading microfinance ms. Fakiri. “but it is important to grow their businesses, and/or of these loans go to women. but as loan business owners. Nonetheless, there ties of finding female borrowers as umbrella institution. “Women comprise emphasize here that in the context of improving the marketing of loans to sizes pass the $1,000 mark for mFis appears to be a trend: as loan sizes well as Katrin Fakiri, founder of the the majority of microfinance clients [in Afghanistan, the fact that more than a women with larger-sized firms. before solely engaged in “individual” lending, increase, loans to women decrease. Afghan mFi, parwaz, and now Afghanistan] and there is no signifi- quarter-of-a-million Afghan women
  • 5. Women entrepreneurs: Accessing market opportunities .............................................................................................. Women entrepreneurs: Accessing market opportunities are engaged in micro enterprises is a What’s stopping expansion? Al Amana, a leading moroccan micro- order for a microentrepreneur to grow female business owners, but for interaction with men in the market monumental feat. even if women are While access to finance is a key finance institution, was the subject of a her business, she must possess both women, both desire and capacity can (reducing access and capacity for acting merely as a channel for loans, constraint for women entrepreneurs, study in 2005 exploring just this issue. the desire and the capacity to expand. be affected by traditional gender roles growth). Today, interviews with two Al their participation in microfinance development finance institutions (dFis) While the barriers cited by its female capacity can include financing, time and mores. For example, a society Amana clients exemplify this programs has improved their socio- can and should tackle other road- clients varied, they boiled down to availability, market (access and may have stigmas against women dynamic. economic standing.” blocks to growth. so just what are some combination of lack of capacity demand), business acumen, etc. These working (dampening desire to grow these barriers? and/or lack of desire for growth. in are issues that affect both male and one’s business) or barriers to women’s rabia Helali trained as a seamstress in saudi Arabia. When she returned to morocco and married, she fell back upon what she knew – sewing tradi- Ela Bhatt, the Gentle Revolutionary tional women’s clothing – and set up a shop for herself. Two years ago, she ela bhatt is widely recognized as one of the At every stage we have a mantra that every such trading is presently being done by borrow and when to save. in their business tives. We need on-going organizing across received a loan from Al Amana, and world’s most remarkable pioneers and entre- asset has to be owned by the woman because seWA economic initiatives. These joint enter- and life cycles there are many financial gaps, issues, across activities, and across locations feels confident that her business will preneurial forces in grassroots development. those who have assets are better able to prises are developing strong supply chains, so when there is an opportunity which is to increase women’s work visibility, validity grow. Though she still works out of her Known as the ‘gentle revolutionary’ she has combat poverty. For land that was mort- providing access to larger finance to upscale, going to be productive, like purchasing and voice. Our union wages battles related home, she has a plot of land and only dedicated her life to improving the lives of gaged and then recovered from the big land- assisting in promoting brand design and working capital, then they have to know to to major issues and our cooperatives take up needs money to build a shop on it, buydecember 2008 december 2008 india’s poorest and most oppressed women holders, i’m very strict that the land should be market strategy, and hiring trained profes- borrow. but they also have to think of the life development programs for women to more machines, and hire additional workers, with Gandhian thinking as her put under the title of the woman first and if sionals who are committed to the poor. cycle events that are coming, e.g. a daugh- increase their bargaining power, and thus be workers. she’s a woman with vision, source of guidance. she so chooses, in the name of the husband ter’s wedding, and for that they must save financially self-sufficient. in the case of the skills, and an education. “To succeed, ela bhatt is the founder of india’s self- second. it’s a struggle because men aren’t What can MFIs do to expand outreach to instead. poor gaining power, numbers are crucial. a woman needs experience, money, employed Women’s Association (or seWA) ready to give up assets to women. He’ll say, female entrepreneurs with larger We have to be large and fast to bring change and education. What’s stopping meUpsides Upsides and one of the founders of Women’s World ”it will never happen in my lifetime that my businesses? How has SEWA integrated microfinance in favor of the poor. That is a constant chal- now is lack of money,” she says. With banking. seWA, which began as a trade wife becomes the owner of the land.” but we it is a matter of a holistic approach to banking and subsector development services to help lenge for seWA’s union and cooperatives, both the desire to expand her business union, continues to organize women workers say that she’s our member and we know her, for the poor, i.e. financial services that include its clients expand? and for other mFis, today. and the capacity (if the loans keep in addition to providing financial services and so we can take a risk for her and not for not only credit but also savings, insurance, seWA has organized the poor female self- coming), rabia has a shot at achieving through seWA bank and other integrated you. in fact, later sometimes the men say it’s housing, pensions, and financial literacy employed into trade unions and coopera- her dreams. services for women. good we put the land in her name, or they counseling. When an organization provides would have mortgaged it off again! integrated financial services, it increases rabia’s neighbor, Fatma Amar, is also SEWA Bank reports that about 43% of clients’ savings and assets, as well as a seamstress, and she has her own borrowers graduate to small loans from How does globalization affect small increasing their capacity to absorb credit. shop thanks to a loan from Al Amana. petty loans. That number is above the businesses in developing countries? This is particularly important when the state but her vision of the future is cloudier. average. Why? Globalization results in outsourcing through does not provide social security as an entitle- she says she’d like to improve her ela bhatt: i’ll tell you what i’ve seen. At the long subcontracting chains and in informal ment to all its citizens. in our case, seWA is business, but doesn’t have a clear initial stage, most borrowers are burdened low-wage work in developing nations. The an umbrella organization, a trade union, idea how. When asked about the by debt from money lenders who charge demand for such work is neither steady nor and seWA bank provides financial services barriers women face, she says, around 10% per day. Other borrowers are reliable. small producers trying to compete to its members. “money is a big constraint, though landless laborers and marginal farmers with in global markets can’t get fair prices. They now we have mFis like Al Amana to mortgaged land. Our first aim is to redeem are unorganized and therefore unprotected Can you tell me more about SEWA’s financial help us. Husbands can be a problem old debts. The next stage is to make them the in global trade. i think it’s necessary to orga- literacy training? though, sometimes preventing women owners of their own production tools, because nize the working poor across borders, partic- For the women, this is the first time they’ve from being active.” Fortunately for their pushcarts or spinning wheel or tools are ularly when capital can fly across the border dealt with a formal financial institution. They Fatma, her husband supports her all rented. Then the third stage comes when so quickly and technology changes so start saving and have good discipline, but business. she admits her greatest they borrow for working capital. This is where rapidly. We need a forum for women that they need to learn how that money can be limitation is time – she has to balance the growth comes from. links producers directly to the global market. more productive and particularly when to the demands of her family with those Ela Bhatt of her business, and her family must
  • 6. Women entrepreneurs: Accessing market opportunities .............................................................................................. Women entrepreneurs: Accessing market opportunities take precedence. When speaking entrepreneurial and make that leap [to time, knowledge, or entrepreneurial have neither the interest nor the The left hand path: business 35% of respondents cited financial with Fatma she leaves the impression smes] is really asking too much,” says skills to even consider ratcheting up capacity, women like rabia, who do development literacy training. she’s comfortable with her small busi- dr. marty chen, a lecturer in public their business. They’re often just trying have the potential to stretch into the To address the barriers faced by ness as it is. it brings in an income; policy at Harvard’s Kennedy school of to find two or three activities to do to sme level (or who are already there) women-owned firms, one frequently seWA is a leading women’s organiza- they’re getting by. Government and the author of Beyond mitigate risk. it’s frequently not even in have little chance of accessing credit. touted solution is training and other tion in india which offers a range of Credit: A Subsector Approach to their mindset to grow.” How do we support these entrepre- business development services (bds). integrated services to assist its it’s estimated that only around 10-30% Promoting Women’s Enterprises. “The neurial women and their dreams of in an on-line survey conducted for this borrowers in developing their busi- of microfinance borrowers “graduate” way they run their business is frequently Not everyone is cut out to be an growth? Two paths have emerged in article, 65% of respondents stated nesses. We use an integrated to larger sized loans. “To expect all just enough to get cash flow into the entrepreneur. However, when dFi answer to this question. business training was the best way to approach we call ‘beyond microfi- women [microborrowers] to become household. They often don’t have the loan officers assume that women promote women’s business expansion. nance,’ says ms. reema Nanavaty, The Tanzanian Association of Women Entrepreneurs (TAWE) Joyce, Jane, and Magreth numerous other traditional handicraft items. edge offered by TAWe has made a differ- Joyce iriya credits participation in a three- of the networking, sharing of experiences their businesses, with training and mentoring six years ago, Joyce iriya started a catering “The training on developing a business plan ence to their ability to succeed in business. week Heartland international training and training we receive through TAWe for in business management skills, informationdecember 2008 december 2008 business out of her home. iriya reflects, and accounting through TAWe has really program in chicago for ten TAWe members our individual businesses.” on current business trends, financial and “Then i found out that people really liked my helped me improve my business,” says Chicago, USA to Tanzania with “giving me the courage to go back and legal advice and access to financial credit. cooking and i began to expand.” Today, banura. Her long-term plans include The TAWe story began in 1999 as the vision pursue the University of dar es salaam TAWe’s mission is ‘to build strong women-10 iriya has 25 employees and last year won opening a cultural center where visitors can of a small group of Tanzanian women in contract”. owned businesses that lift up communities, Economic empowerment 11 the bid for a five-year contract to run the see how the items for sale are made and chicago attending a training program families and hence our national economy as TAWe’s National president, Jovita bubele, isUpsides Upsides student canteen for the school of education more young people can be trained to make conducted by Heartland international “Though there are many benefits to being a we believe that a woman is an engine of proud of the group’s accomplishments in at the University of dar es salaam. the items. assisted by a grant from UsAid. “This group member of TAWe,” magreth Koyi says with development.’ TAWe provides its members encouraging women’s economic empower- of women decided to go back to Tanzania great passion, “we have all seen the benefits with the opportunity to network and promote ment. “it is inspiring to see the confidence Two years ago Jane banura owned one magreth Koyi started out with her husband and create a business association. And they women gain by working together and small souvenir shop selling traditional craft in shinyanga selling office supplies and did just that,” says Karen egerer, president finding out that they share similar problems. items in mwanza. Now she owns three expanded into fixing and selling used emeritus of Heartland international. “One We have seen our members gain economic shops selling beaded necklaces and scarves, computers. in 2006, they started a private year later, they were registered as a non- independence and improve the lives of their traditional woven purses, clothes and secondary school with 200 students and profit organization in Tanzania.” TAWe is families and communities. it proves that eight teachers. Today, just two years later, one of a very small number of organizations TAWe has a strong role to play as a leader they have almost doubled enrollment and in Tanzania dedicated to representing indi- in giving women an effective voice in the have 15 teachers on a small campus with vidual women entrepreneurs in any type of business community.” two dormitories for each sex to house business. boarding students, several classroom build- As the world’s nations continue their shift to ings, a cafeteria, a library and a science TAWe has continued to grow as an organi- a global economy, Heartland international building with labs for chemistry and zation. Headquartered in mwanza, also believes it is important to support the biology. Tanzania, they now have seven chapters efforts of hardworking, intelligent women and over 200 members. With assistance like the members of TAWe to promote the What do these women have in common? provided by Heartland international, TAWe development of their economy through the They are all small businesswomen in has provided training to members on a small businesses that make their own lives, Tanzania and all are members of the Tanza- variety of business topics, including the lives of their family members, and the nian Association of Women entrepreneurs accounting, marketing, proposal writing, lives of their community better. (TAWe). All three women say that the moral business plan development, selling skills, TAWE Day Meeting in Dodoma in September 200 support, networking and business knowl- using computer technology and mentoring. TAWE Chicago Program December 200
  • 7. Women entrepreneurs: Accessing market opportunities .............................................................................................. Women entrepreneurs: Accessing market opportunities “There’s a lot of training available for sme owners out there,” says iFc’s ms. “We do need to continue searching for ways for our Youssoufou. “What we’ve found mFis to design loan products that are ‘female- lacking is something that addresses the actual issues women have told us friendly’, to increase business awareness courses and they have, e.g. how do you go about to eventually reach a point in the sector where we developing a relationship with a bank? can assist female clients with market linkages locally We’ve developed modules to deal with and internationally.” Katrin Fakiri, director misFA just this idea of how to develop confi- dence in dealing with banks.” exam- ples include training in organizing identifying potential economic activi- donors or government officials they financials, articulating the business, ties, strengthening the backward and don’t just talk about problems dFis and selling oneself as a borrower. The forward linkages, and turning them face in the policy and regulatory envi- program partners with NGOs, busi- into viable enterprises owned and ronment.” iFc’s Gem program recog- ness schools, and enterprise develop- managed by women themselves”,” nizes this issue, addressing regulatory ment centers to develop the training says seWA’s ms. Nanavaty. ””We obstacles in addition to access to and ensure it is self-perpetuating and have several business organizations finance.december 2008 december 2008 sustainable. and over 31,000 producer groups or collectives, so the production base is The right hand path: …and other capacity very scattered. The production targeted marketing12 building issues happens in thousands of villages and business development services repre- 13 The provision of finance is only one hundreds of thousands of homes sent an added cost to dFis, discour-Upsides Upsides element in business growth; there are where women are working, whether aging many from delivering them. it’s environmental barriers as well. While they’re artisans, weavers, farmers, etc. unrealistic to ask dFis wedded to the dFis may not be able to address these To be successful, it’s necessary to work “finance only” approach to provide factors, they should recognize them, on the backwards linkages, sourcing bds to help their microborrowers as should donors and local govern- of products, and capacity building transform to sme owners. For those Katrin Fakiri ments. “i’m a true believer in sub- that’s needed, then work out a form of dFi managers who want to reach into sector development,” says dr. chen. organization that balances between the sme market and retain a focus on “if you’re producing honey and there’s decentralized production and yet women, there is, however, an alterna- no one to help you turn it into a good centralized quality control and tive: targeted marketing to existing grade of honey and process and label marketing.” seWA’s livelihood finance female sme owners. it and get the export licensing… these also provides social services to seWA’s director for economic and producers and the quality of the This sort of integration between are huge barriers. in addition to members, such as social protection or dr. chen says that a better under- rural Organizing. “Our experience is product and building the market read- finance and bds is also being used to finance there’s really a need to think insurance or day-care for children, standing of the markets women that microfinance alone does not iness. We’re constantly working on promote lending to female sme through which groups are going to be addressing other barriers to women’s operate in is a critical first step. she address the issue of poverty.”” pricing, costing, and how to use market owners. iFc provides financing for on- out there to help build all the back- work.” also argues that dFis should do more intelligence as well as strengthening lending to female entrepreneurs and ward and forward linkages. Where market segmentation work. “i think “in microfinance you just identify the the supply chain and determining the uses best practices from the Global are these groups concentrated?” The legal environment also has an one of the mindsets dFis have to shift is credit needs and provide the credit financial services needed.” seWA’s banking Alliance for Women – the impact on business growth. “dFis away from looking at borrowers all as input. but at seWA, along with credit, capacity building assists its clients to secretariat of which is housed at iFc. seWA takes just this market chain worry a lot about how the regulatory individual clients, when they’re groups we use organizing to increase our systematically develop their enter- Taking a two-pronged approach, the approach, and now has five different environment affects them,” says doing the same thing and facing clients’ collective bargaining power. prises, for example in terms of program trains clients’ employees and for-profit companies and two national dr. chen, “but the policy environment similar bottlenecks. dFis can at least Alongside that we provide capacity accounting, inventory tracking or legal female borrowers after having brands, one for textiles and the second affects their clients too. dFis should be figure out who the clients are and what building – both technical and mana- compliance with municipal tax analyzed the local women’s market. for agricultural commodities. “We conscious of the constraints faced by they’re doing.” gerial –” upgrading the skills of codes.” have three decades of experience their clients so when they meet with
  • 8. Women entrepreneurs: Accessing market opportunities .............................................................................................. Women entrepreneurs: Accessing market opportunities This also includes developing better proposition for the bank that is profit- approaches in marketing, such as able and promotes a social good. product development, sales, and iFc’s advisory services and investment research of the female market. For will only be sustainable if the women’s example, female “mystery shoppers” banking program is grounded in how may visit the banks as “clients” and the bank operates, otherwise it won’t then relate their experiences - often an work.” eye opening exercise as to how women are treated by loan officers and other Another lesson: don’t assume. When staff. “banks need to have gender asked about the female clientele’s sensitive loan officers and staff,” ms. needs and barriers to growth, survey Youssoufou continues, “who are not respondents for this article cited widely patronizing and who ensure that their varying regional issues. What female marketing material speaks to women, entrepreneurs need in mexico may with products that address what not be the same in monrovia. The SEWA women’s lending group women care about. When working women’s market differs across culture with the banks, we examine what is and is frequently distinct from men’s.december 2008 december 2008 being required from their borrowers For this reason, the standardized dFis are making great strides in Over and over, as loan sizes get larger and whether the bank is able to approach to financial products may providing women with access to i’ve heard the argument that there become more flexible when it comes not be appropriate across gender or finance. but in order to truly fire up the simply aren’t enough women in the to collateral requirements – an area cultural lines. entrepreneurial capacity of the female sme sector to bother with. At the same1 1 that is a typical stumbling block for half of the world’s population, we need time, i witnessed focus on lending toUpsides Upsides Why women? Rabia Helali women entrepreneurs. For example, to go beyond being satisfied with the traders, a market sector women are women may not be able to produce According to ms. Youssoufou, statistics statistic: “number of women served.” barred from in many developing coun- property titles or document land argue for women’s role in economic We need to keep questioning the tries. i wondered if perhaps this was ownership, but cash-flow based development. “We know that women “hows” and “whys” of women’s lazy marketing on the part of dFis. lending, leasing, or other innovative are typically better than men at repaying lending. Two trails have been blazed Were dFis looking at the wrong collateral requirements, such as their loans. And research shows that a in the quest to expand women’s busi- sectors? Using the wrong loan offi- According to misFA’s Katrin Fakiri, a females clients with market linkages jewelry, may be an option for the bank dollar in a woman’s hand has a higher nesses: targeted marketing by dFis cers?” recent study found that most of locally and internationally.” to better reach out to the women’s impact on the family’s welfare than an and the provision of capacity building Afghanistan’s female borrowers market.” extra dollar in a man’s hand. When services. Are there more direct paths both the left hand path of bds and the operate in “women’s” industries, such iFc’s Gem program also works with focusing on the women’s market still waiting to be discovered? right hand path of targeted marketing as sewing, handicrafts, and small busi- banks on the “4 p’s” of marketing: However, a key lesson learned when segment, the ‘one-size-fits-all’ approach address these and other questions. nesses run from home. To reach these price, product, place and promotion. marketing to female entrepreneurs seldom applies. it requires women- Kirsten Weiss, senior consultant for One thing however is clear: Female businesses, ms. Fakiri says, “some of “We partner with our colleagues in falls on the dFi’s organizational side. tailored approaches and sometimes shorebank international, has worked business owners represent too big a the methods employed by mFis, such financial markets who put in place “banks need to have support for this at even different products for women.” in msme development for many years. market to ignore! as employing female loan officers and lines of credit with commercial banks the highest level,” says ms. Youssoufou she states: “Admittedly, my personal promoters and offering business in developing countries with the objec- of iFc. “The ceO needs to be is the women’s market worth it? “if bias is to look at gender through a development trainings at a smaller tive of getting the money into the committed and understand the busi- you’re interested in having a signifi- marketing lens,” Kirsten writes. scale have helped increase outreach hands of women entrepreneurs,” says ness case and financial opportunities cant development impact,” continues “Women represent a large demo- to women. We do need to continue ms. Youssoufou. “We supplant this for the bank. That is the top thing. iFc’s ms. Youssoufou, “which most graphic of business owners, and they searching for ways for our mFis to with training to the banks - helping Thus, lending to women becomes part dFis are, you have to take women into frequently have distinct wants and design loan products that are ‘female- them to reach out to the women’s of the bank’s strategic plan itself and is consideration. You can’t be successful needs. it only makes sense for dFis to friendly,’ to increase business aware- market and to provide training to accepted by staff throughout the insti- without including women. And if you research how best to serve them, and ness trainings and to eventually reach women entrepreneurs that would help tution. Leveraging the women’s market don’t make a specific effort, it won’t refine their products and delivery a point in the sector that we can assist make them more bankable.” is not philanthropy – it is a business happen by itself.” systems accordingly.
  • 9. ............................................................ A glimpse into access to finance for Muslim women in South Asia ........... Behind the veil A glimpse into access to finance for muslim women in south Asiadecember 2008 december 2008 Az Zahra Bank, Malaysia women which includes private “Women are increasingly at the banking in luxurious surroundings - forefront of our civilization. All over ladies lounges equipped with bloom-1 1 the world and at every stage, women berg terminals, internet and mediaUpsides Upsides are at the helm of every crucial role. displays. She is the nurturer, the administrator, the leader. She is the decision maker, The remarkable thing about this the contributor; she adds strengths, campaign is that it is offering services color and creativity to the world. which didn’t exist a decade ago. muslim women, albeit affluent To celebrate and acknowledge this individuals, are able to utilize banking fact, we are proud to present Az Zahra services in comfort; enjoying services Privilege Ladies Banking – the first and which are tailored to their beliefs and only Privilege Ladies Banking in day to day considerations – respect, Malaysia. Our Az Zahra customers privacy and standards of decorum. have the privilege of performing their regardless of whether the customer is country, and even from bank to bank. that regulate islamic finance and of caring for the less fortunate with part of Hsbc, announced the launch financial transactions in an environment muslim, let alone a woman, the prin- in malaysia, where much of the finan- capital markets. However, even in microfinance’s power to provide of a pilot project for islamic microfi- that is both private and comfortable. ciples which guide this approach are cial sector is shariah-compliant and malaysia, a precedent has not been financial access to the poor. Unlocking nance in rawalpindi, pakistan in Our dedicated Ladies Relationship universally relevant. sukuk (financial certificates) account set for women heading islamic this potential could be the key to cooperation with islamic relief. Managers are always on hand to for an estimated 48 per cent of banks. providing financial access to millions Hsbc will provide the shariah advi- serve your every need.” While Az Zahra bank and other government bonds, the central bank of muslim poor who currently reject sory and product structuring banks in the Gulf states are offering governor is a woman. The first Islamic Microfinance micro-finance products that do not services and islamic relief will truly islamic financial services, micro- shariah-compliant fund for women islamic microfinance represents the comply with islamic law. screen beneficiaries and administer The preceding are excerpts from a finance has also made inroads into was launched in 1998. in many confluence of two rapidly growing the program. marketing campaign for Az Zahra providing access to finance for muslim respects, malaysian women have set industries: microfinance and islamic islamic microfinance is still in its bank in malaysia, which offers a women. Thus the state of affairs with the pace for islamic finance in the finance. it has the potential not only infancy, and business models are islamic microfinance is very concen- customized set of shariah-based regard to financial services for muslim eastern part of the region. For to respond to unmet demand but also just emerging. earlier this year, trated in a few countries, with the top products and services for muslim women varies greatly from country to example, women head the authorities to combine the islamic social principle Hsbc Amanah, the islamic finance three countries (indonesia, bangla-
  • 10. Behind the veil A glimpse into access to finance for muslim women in south Asia ................................................................................. A glimpse into access to finance for Muslim women in South Asia desh, and Afghanistan) accounting muslim-majority countries do not use law. in recent years, some microfi- Islamic Microfinance and mFi clients are women (59 percent on tional microfinance products (65.7 for 80 percent of global outreach. formal financial services. even when nance institutions (mFis) have stepped Women average, but up to 90 percent in percent globally, and 65.4 percent in Nevertheless, demand for islamic financial services are available, in to service low-income muslim Like conventional microfinance, bangladesh). Overall, the percentage the Arab world). microfinance products is strong. some people view conventional clients who are demanding products islamic microfinance tends to focus on of female clients using islamic microfi- A 2008 cGAp publication estimated products as incompatible with the consistent with islamic financial prin- female clients — according to the nance products (59 percent) is that 72 percent of people living in financial principles set forth in islamic ciples. cGAp survey, a majority of islamic comparable to those using conven- Islamic Finance islamic finance has and continues to experi- a product as shariah-compliant, the institu- This resembles some of the rent-to-own deals bank and the borrower receive the proceeds sive interest in microfinance is consistent ence rapid global growth. According to tion offering the product takes fatawa, or in the American market. in this way, the from an auction based on the current equity. with the islamic prohibition of usury (riba). Forbes, at least Usd 500 billion in assets religious rulings, from its shariah supervi- lender does not receive a profit, per se. in This method allows for floating rates around the world are managed in accor- sory board that often consists of three or the same vein, the lender is not allowed to according to current market rates such as microfinance is a key concern for muslim dance with shariah, or islamic law, and the more religious scholars. Although shariah seek additional profit through fees, such as the bLr (base lending rate), especially in a states and recently islamic banks too. islamic sector is growing at more than 10% per rulings may vary somewhat across firms for late payments. in order to protect itself dual-banking system such as that in microfinance tools can enhance security ofdecember 2008 december 2008 year. and countries, institutions such as the islamic against default, the bank asks for strict malaysia. tenure and contribute to the transformation Fiqh Academy and the Accounting and collateral which is registered to the name of of lives of the poor. As islamic finance islamic finance, based on the principles Auditing board for islamic Financial institu- the buyer from the start of the transaction. There are several other approaches used in continues to undergo rapid growth and outlined within the Quran, the holy book of tions (AAOiFi) are helping to bring consis- This arrangement is called murabaha. business deals. islamic banks lend their innovation, it faces a number of challenges1 1 islam, seeks to further the Quran’s message tency to these rulings. Another approach is eIjara wa eIqtina, money to companies by issuing floating rate as a result. These include achieving consis-Upsides Upsides of social justice. it does so by eliminating which is similar to real-estate leasing. islamic interest loans. The floating rate of interest is tency in recognized shariah authenticity what the Quran refers to as exploitative islamic finance complies with the principles banks handle loans for vehicles in a similar pegged to the company’s individual rate of across firms and countries, fulfilling the practices, mainly usury. These transactions outlined in shariah law. These include prohi- way – selling the vehicle at a higher-than- return. This means that the bank’s profit on needs met by conventional products and might further be referred to as ‘hilal’, as bitions on riba (interest on monetary loans), market price to the debtor and then retaining the loan is equal to a certain percentage of services without blurring the lines between funds cannot be used directly or indirectly gharrar (preventable ambiguity in contract ownership of the vehicle until the loan is the company’s profits. Once the principal islamic and conventional finance and for pornography, gambling or pork. essentials such as price), maysir (gambling paid. amount of the loan is repaid, the profit- without compromising competitiveness, and and pure games of chance), alcohol, pig sharing arrangement is concluded. This securing an adequate supply of scholars The roots of modern islamic financial institu- products, and pornography. in contrast to An innovative approach applied by some practice is called musharaka. and practitioners well-versed in islamic tions are often traced back to the 1970s conventional financing, which can rely banks for home loans is called musyaraka finance. when the first islamic commercial bank and heavily on monetary loans, islamic finance al-mutanaqisa that allows for a floating rate Microfinance, not true Islamic later the islamic development bank were promotes the trading of real assets and risk- in the form of rent. The bank and borrower banking? formed. Today, islamic financial services are reward sharing, encourages entrepreneur- form a partnership, both providing capital islamic banks have grown recently in the being offered by islamic as well as conven- ship, discourages speculative behavior, and at an agreed-upon percentage to purchase muslim world but signify a very small share Jama Masjid mosque in Delhi, India tional financial institutions. emphasizes the sanctity of contracts. the property. The partnership then rents out of the global banking system. microfinance the property to the borrower and charges institutions founded by muslims, notably Shariah and prohibitions Shariah-compliant mortgages rent. The bank and the borrower will then Grameen bank, use conventional lending Shariah consists of ibadah, relating to and home loans share proceeds from this rent based on the practices and are popular in some muslim worship, and muamlat, relating to day to in an islamic mortgage transaction, instead current equity share of the partnership. At nations, especially bangladesh, but are not day practical matters. commerce, banking, of lending the buyer money to purchase the the same time, the borrower in the partner- considered to offer islamic financing. and finance are addressed by muamlat. item, a bank might buy the item itself from ship entity also buys the bank’s share of the However, muhammad Yunus, the founder of the seller, and re-sell it to the buyer at a property in agreed installments until the full Grameen bank and microfinance banking, What determines whether a product is higher agreed-upon price, while allowing equity is transferred to the borrower and the and other supporters of microfinance, argue shariah-compliant? by and large, to certify the buyer to pay the bank in installments. partnership ends. if default occurs, both the that the lack of collateral and lack of exces-
  • 11. Behind the veil A glimpse into access to finance for muslim women in south Asia ................................................................................. A glimpse into access to finance for Muslim women in South Asia in launching programs aimed at in saudi Arabia took off in 2005 when services, but only to a small niche families prohibit. pakistan’s First women, microfinance and develop- banque saudi Fransi launched a high- market. banque saudi Fransi’s initiative Women’s bank Limited, set up in 1989, ment banks in many countries are profile ad campaign to market its opened up the market, allowing women offers credit to companies only if they following in the footsteps of retail women’s banking services. Other banks to use banks without mixing with men, have a woman as managing director, if banks. For example, ‘Ladies banking’ had already begun to provide similar which some religious authorities and they are more than 50 per cent owned by women or if more than 50 per cent of their staff are female. These programs The Muslim world of South Asia don’t present such a radical change as ladies-only banking, which has enabled in an effort to provide context to our groups, have the lowest levels of educa- discount the fact that within the other strictly religiously-observant women to regional spotlight on muslim women in tion, and have above average fertility countries there are very influential use banking services for the first time. south Asia, the following is a snapshot rates. pockets of majority muslim popula- rather, they’re essentially a marketing of the region’s muslim world. tions. moreover, these groups have initiative, forming part of a wider trend south Asia, which includes Afghani- greatly defined the direction of the of market segmentation in the retail The muslim world or the worldwide stan, india, pakistan, bangladesh, region. With the exception of Afghani- banking sector, particularly for credit community of muslims, adherents of burma, Nepal, bhutan and sri Lanka, stan, and now increasingly pakistan, cards. in the UAe, for instance, AbN islam, numbers about 1.3-1.5 billion by percentage, claims some of the islam in south Asia has existed more AmrO launched a credit card aimeddecember 2008 december 2008 people, roughly one-fifth of the world’s largest muslim populations in the world. on a micro level, coming into play in at women back in 2004, and First Gulf population. This community is spread Not only does the region’s practice of ceremonies, religious practice and in bank launched a ladies-only Visa card across many different nations and islam vary greatly from that of other socialization, yet there has always last year. ethnic groups connected only by reli- regions, but within the region, there are been a large influence from muslim20 21 gion. wide variations. minority groups within the political and The 2008 cGAp publication ‘islamicUpsides Upsides economic contexts. microfinance: An emerging market For the past several decades, islam has in large part, south Asia has come to Niche, Focus Note 49’ describes the been the world’s fastest growing reli- be defined by its religious diversity and With the muslim population and influ- increasingly women-centric marketing gion. currently, the growth rates of the differences in beliefs about how the ence increasing, and as the practice of services provided by many islamic islamic countries exceed 1.9%, while state and religion should interact and islam in south Asian countries is retail banks. The ability of microfi- that of the general population is only the extent to which a religion needs to increasingly influenced by its middle nance institutions to deliver financial 1.2%. be intertwined with daily life. eastern counterparts, there is sure to be services to rural women is of partic- a shift in the region’s dynamic, with ular relevance in gender-segregated The map to the right shows the concen- despite the fact that only Afghanistan, islam permeating more and more societies. At the same time, working trations of the world’s muslim popula- pakistan and bangladesh have majority aspects of life. with muslim women is a sensitive Targeting the female entrepreneur market: An advertisement for Az Zahra tion by country. muslim populations, this should not issue, sometimes raising accusations Bank’s exclusive women’s services of meddling with social codes. most of muslim majority countries are located in North Africa, Asia and the Bangladesh out to muslim women in bangladesh. India middle east, yet within these regions, Grameen ceO mohammad Yunus membership of the bank leads to an Although the majority of india’s citi- islam is very dynamic – with varying has been a huge proponent of expansion of assets for many women, zens are Hindu, the country has one of sects, practices and guidelines all being women’s liberation, empowerment including home improvements, the the largest muslim populations in the shaped by cultural contexts. Given and education, and not just in bangla- provision of services and the purchase world, representing about 15% of the these differences, it is almost impossible desh, as the ever-increasing expan- of land for building houses or agricul- country’s billion-plus population. sKs to make widespread claims about sion of his formula to all corners of ture. Although it is not consciously microfinance is an indian non-govern- muslims around the world; however, the world attests. organized on islamic financial princi- mental organization specializing in most statistics prove that around the ples, the beneficiaries who are muslim microfinance, founded in 1998 by world, muslims are among the poorest The Grameen bank is largely a success have no qualms about the authenticity Vikram Akula in Hyderabad, to World Muslim Population (population by percentage (%)) story, particularly in terms of reaching of its products. provide small loans to poor women in
  • 12. Behind the veil A glimpse into access to finance for muslim women in south Asia ................................................................................. A glimpse into access to finance for Muslim women in South Asia rural areas. At some of its branches, The Abodana mandali is one of the members to open a savings account market. Today some of these women Women are at the forefront women are finding financial services of which there are over 1200 in 15 many mandalis set up by seWA in and purchase insurance policies. are producing trendy and marketable in South Asia in south Asia. While there may be a states across india, one can witness india – see cover story - and began Vocational training and skill upgra- clothes for up-market stores. The From mandalis at seWA to plush disparity in the economic status of Hindu and muslim women borrowing islamic lending several years ago dation workshops were organized to shantipath centers are still active and ladies’ lounges equipped with customers, a growing number of in the same microfinance circles and with 200 muslim women as its help the women develop skills in many illiterate muslim women bloomberg terminals, internet and women previously underserved are co-guaranteeing one another’s loans. members. seWA helps mandali accordance with the demands of the continue to benefit from them. media displays at Az Zahra, muslim accessing financial services in envi- ronments where their culture, reli- gion, and day to day practices are respected. FINCA’s experience: Murabaha practice is better for business islamic microfinance is succeeding in Afghanistan. it is comprised of ten women award for its microfinance project targeting an Afghan, i would never have had an Finca client Afghanistan where non-profits like FiNcA who own shops that sell everything from women, ethnic minorities, and returning opportunity like this,” she says. offer shariah-compliant microfinance. Two baked goods and eggs to clothing and refugees. The program plans to reach years after it began operations FiNcA home wares. These women are among the 90,000 clients by 2009. sharif is one of thousands of Afghans who switched its products to the Murabaha prac- over 50,000 clients in Afghanistan who are refuse to take interest-bearing loans. tice – see “islamic Finance” on page 18 –, not only improving their own standard of Shooperi Sharif seeking to cater to potential clients such as under which clients can receive access to living, but also helping their government shooperi sharif is one of the women who sharif, in 2006, FiNcA became the firstdecember 2008 december 2008 credit while complying with shariah, or rebuild Afghanistan’s damaged financial benefits from the program. After spending microfinance institution (mFi) in Afghanistan islamic, law. infrastructure. several years in iran as a refugee struggling to offer non-interest bearing Murabaha to make a living working in a beauty parlor, islamic loans. Following the guidelines of because FiNcA Afghanistan has tailored its FiNcA began operations in war-torn shooperi sharif never imagined that one Murabaha lending, she went along with her22 23 products specifically for muslim clients, the Afghanistan in 2004. despite the continuing day she would have a business of her very loan officer to buy items such as tables,Upsides Upsides women of the Aadil Village bank are able to challenges of regional instabilities and secu- own. sharif and her family fled Afghanistan mirrors and chairs for the parlor. The goods access financial services for the first time. rity issues, it is one of FiNcA’s fastest during the Taliban regime in 1996. in 2002, were sold to sharif at a two per cent mark The Aadil Village bank meets in Khair growing programs, and recently won a shortly after their downfall, the family up which she is paying back in monthly Khana, one of the major bazaars in Kabul, prestigious pro-poor innovation challenge returned to Kabul. With war-shattered installments. Afghanistan lacking basic infrastructure and institutions, including schools, sharif began Better for business Women in Kabul, Afghanistan teaching school-aged children in her home. paul robinson, FiNcA’s country director in was one of FiNcA’s first clients in 2004, Last year, the 34-year old mother of three Afghanistan, says not only are the products using the money to open a bakery in Kabul. remember, “Women are increasingly took a microfinance loan from the FiNcA to better received than conventional forms of “Now that all the money i am borrowing at the forefront of our civilization. All expand her school. lending, the Murabaha practice is also goes into business supplies, i earn more. over the world and at every stage, better for business. “The advantage of before, when i would receive cash directly, women are at the helm of every After successfully paying off her loan, shar- Murabaha loans is that 100 per cent of the there was always some of the money that i crucial role. she is the nurturer, the if’s loan officer encouraged her to use the money goes into the business. When you do would use to purchase other things not administrator, the leader. she is the skills she learned in iran to open a beauty small business lending at bank of America relating to my business,” she explains. decision maker, the contributor; she parlor in her neighborhood, something for instance and you are a small business, adds strengths, color and creativity to which would have been inconceivable under as a banker, i would give you a cheque with There is little doubt that as the financial the world.” the Taliban. sharif immediately saw it as a the name of the store, rather than giving the sector expands in Afghanistan, both good opportunity. While many schools have borrower cash to make sure all the money commercial banks and mFis will have to reopened in her neighborhood, there were goes into the business,” robinson says. follow the lead of FiNcA and provide more not so many beauty parlors. “i had never shariah-compliant lending products. As the taken a loan before; it gave me a lot of One borrower, Gul Khana, has felt the pioneer organization in providing such confidence to see that i could borrow money benefits of a Murabaha loan first hand. A services, FiNcA has proved that such a task in my own name and pay it back. in iran, as widowed mother of four, the 37-year old is not so daunting.
  • 13. case 1 ............................................................................ Invest in modern energy so women can breathe easily ............ Invest in modern energy so women can breathe easily Access to modern energy has a strong combines its investments with business to public health globally. Women impact on women’s quality of life, both development services. often carry a great part of the burden in terms of health and business oppor- associated with this lack of modern tunities. e+co,, is an Why is access to modern energy so energy. in most developing countries, investment company aimed at empow- important especially for women? it is women who collect fuel and carrydecember 2008 december 2008 ering local small and medium enter- Worldwide, more than three billion out household tasks. Women are prises that supply clean, modern and people depend on solid fuels, including therefore particularly affected by affordable energy to households, busi- biomass and coal, for cooking and indoor smoke and the time lost due to nesses and communities in developing heating. cooking and heating with simple fuel use.2 2 countries. by investing in modern biomass fuels and coal produces high Sobre La RocaUpsides Upsides energy, e+co improves the lives of levels of indoor air pollution. exposure Access to modern energy thus has millions of women in Africa, Asia and to indoor air pollution has been linked disproportionate effects in terms of Latin America. e+co’s over 200 invest- to many different diseases. According improving women’s lives. The reality is ments since 1998 have included more to the World Health Organization, that poor households often do not than 100 businesses owned or co- reliance on solid fuels has emerged as have the resources to obtain cleaner, owned by women. The company one of the ten most important threats more efficient fuels and appliances. bolivia is one of the countries where in basic bookkeeping and accounting. ture and creating a five year business agreement with mOp, which gives many women spend their days chop- e+co also invested Usd 20,000 in plan. subsequently, it made a Usd these people a guaranteed income. ping, collecting and cooking with fire- sobre La roca to increase the scale of 100,000 investment in the business to mOp also subcontracts the fruit drying Solar cooker wood. The introduction of solar its operations and to fund micro loans increase its processing capabilities to farmers. cookers by a company named sobre to the prospective buyers of solar and provide working capital. la roca is making a change. sobre La cookers. The solar dryer is low cost technology roca manufactures and sells solar The use of solar energy reduces the that empowers the local rural economy. cookers and efficient stoves in the investing in modern energy not only need to utilize non-renewable forms of This equipment enables farmers to remote mountain villages of bolivia. To has an impact on women’s health, it energy, or those with a negative envi- supplement their own food consump- date, the company has sold 1,225 solar also creates business opportunities for ronmental impact, to dry fruits, vege- tion with a healthy alternative and cookers and educated more than them. tables and other products. mOp also gives them an opportunity to start 2,400 women on the benefits of solar trains farmers in organic farmer tech- micro enterprises, creating economic energy. masaka Organic producers (mOp) is niques and every year, around 25 benefits at the lower end of the socio- a woman-owned business in Uganda farms convert to organic farming. As economic scale. The farmers sell some sobre La roca is one of the women- producing organically grown, solar an incentive, mOp covers the cost of of the dried fruits to mOp, but they can owned businesses supported by e+co. dried fruits for local and international certification. currently, mOp works also sell their products themselves, e+co assisted the company in its busi- consumption. e+co assisted mOp in with 85 farms that are certified which boosts the local micro industry. ness registration and provided training reorganizing its management struc- organic. The farmers have a purchase
  • 14. case 2 .................................................................................. MyC: The explosive power of entrepreneurship .......... MyC4: empowerment of women. On August 26, 2008, the danish minister for development coopera- The explosive power tion, Ulla Tørnæs, handed over an mdG3 Torch to myc4. in accepting the Torch for myc4, mads Kjær of entrepreneurship made a deep commitment “to expand mYc4’s marketplace with more African partners with a myc4 joins platforms like Kiva and from something or someone you acceptable rate online from myc4 specific focus on women to ensure microplace that match investors to ‘care for’ to a plastic explosive investors, funds are transferred that women have access to capital entrepreneurs. The model is simple. called c4. mads Kjær from from investors’ accounts to a locally and competences on fair and trans- An African entrepreneur needs denmark, ceO and co-founder of registered partner financial institu- parent terms.” Kjær plans to do this your investment to help develop his myc4, explains: “Like money, a tion that disburses the funds to the in two ways: by introducing myc4 or her business. Your investment plastic explosive will not create any entrepreneurs in accordance with as an investment vehicle to large could be funds, advice, knowledge value if there is no detonator and if the terms agreed online. From that potential institutional investors like Catherine Akwir, who sells vehicle parts at Uganda’s biggest market for spare parts or inspiration. it uses a bidding no one activates it. The myc4 deto- moment on, all cash flows are development banks, foundationsdecember 2008 december 2008 process that is based on a ’dutch nator is the internet and stake- handled by this financial institution, and pension funds so that they can advice and provide acute financial Africa and my firm belief in the auction’ which basically means the holders can engage and activate while overall entrepreneur follow- pave the way globally for other support. This is a women-only power of entrepreneurship, i imme- more people who are interested in the money for business purposes in up is maintained by the provider. smaller investors like private indi- group that calls itself ‘Women diately agreed,” says Lantinga. she2 investing, the more favorable the Africa. it is time for private business viduals and by introducing more development’. catherine is setting continues: “in sub saharan Africa 2 terms (e.g. interest rate) become for to step up and take opportunities in Mads Kjær, Co-founder and providers to those myc4 investors an example to other women by men have been calling the shots forUpsides Upsides the African business. Africa seriously.” CEO of MyC who have a specific focus on being open-minded about investing ages. What you see now is that in september 2008, more than Loans are identified and screened The vast majority of those receiving investing in women-owned busi- and engaging in businesses domi- women in Africa are making major 7000 investors from 72 countries by local partner organizations, microcredit worldwide are women.* nesses. nated by men. progress in defining their own had invested in excess of eUr called ‘providers’, who also submit myc4 sees the support of gender An example of one of the many future, because of internet and 4.5 million in 2,700 African busi- a profile of each loan request and equality and women’s economic female entrepreneurs who has myc4 is currently mobilizing advi- mobile phones. The only thing is nesses through myc4. entrepreneur online to www.myc4. empowerment as crucial elements received loans through myc4 is sory boards in iceland, sweden, that there are still too few women in The name myc4 refers to different com. Once the entrepreneur has in the ongoing development initia- catherine Akwir, who sells vehicle The Netherlands, Uganda and high ranking positions, which makes aspects of the platform, ranging secured the desired capital at an tive in Africa. One of myc4’s goals parts at Uganda’s biggest market Kenya as part of the company’s it difficult to really make that shift to is to provide the best possible for spare parts. in 2007 she ongoing development. These independence. What is so great means for African women to lift received her first loan of eUr 250, boards are to advise myc4 on the about myc4 is that those who want themselves out of poverty and enabling her to improve the quality roll-out in the above-mentioned to invest and those who wish to create healthy economic growth of the spare parts and increase her countries and to set up contacts. All expand their businesses find each through micro and small businesses. stock to meet customers’ demands. of these advisory boards are to be other through this platform. it is therefore no surprise that after by doing so, she increased her chaired by women. mads Kjaer: Whereas other initiatives are often myc4’s first year of operation, 67% monthly income by 30% making it “Why? Well, just because we have supply-driven, this one truly helps of its portfolio is women-owned possible to support her household designed the Advisory boards this to build equal relationships. Africa businesses. and send her children to school. in way and because there are some deserves that.” in march 2008, the Global mdG3 spring 2008, catherine received fantastic leading women out there champion Torch campaign was her second loan of eUr 700 to who we can learn from.” The dutch launched in copenhagen, denmark: expand and develop her business. board will be headed by Anne- more than 100 mdG3 Torches will An important part of catherine’s marie e. Th. Lantinga-Hammes, a travel around the world to promote business is her membership of a project finance consultant who was the third millennium development group of six women who help each asked to chair this board in June * Source: ”State of the Microcredit Goal for gender equality and other do business, give each other 2008. “because of my love for Summit Campaign Report 2007” Mads Kjær, CEO and co-founder of MyC
  • 15. case 3 ..................................................................................... Realizing dreams through access to finance ......... Realizing dreams through access to finance women represent 52% of loans recipi- Nicaragua is a country where more FiNde (Nicaraguan development objectives to serve micro, small and ents and women account for 52% of than 50% of its population is consid- institute Fund) began operations in medium-sized entrepreneurs. savings accounts as well. ered poor. small and micro enter- 1993 as an organization specialized prises have become the hope of its in financial services. in April of 2002, bANeX, the largest microfinance insti- bANeX has developed a special population to improve their living it became a financial institution, regu- tution in Nicaragua, has long main- product, mi Tarjeta pinolera empre- conditions. in spite of this, the possi- lated by the bank superintendence, tained that women can be successful sarial (my pinolera business card) bilities of access to credit by this with a new legal name, FiNdesA. entrepreneurs. bANeX invests in specifically for small business owners portion of the population are scarce in women who want to realize their which is a revolving credit line in a Nicaragua. private banks tend to the in 2008 FiNdesA received its banking dreams and supports women who smart card – a combination of a needs of clients who have economic licence under the new name bANeX want to set up or expand successful conventional credit line – a combi-december 2008 december 2008 resources, while there is no govern- (banco del Éxito or “The bank of businesses with finance and business nation of a conventional credit line income. Angeles recognizes the years ago. That was when only the mental banking system. in this context, success”) which will maintain the same development services. At bANeX, and a credit card. Notably, this tension between business and family governmental bank operated at product is mainly used by women. responsibilities: “many women make a Ometepe island and the answer was About 2,366 women use this busi- big and common mistake: they acquire negative. Norma says they denied the2 2 ness credit card, as opposed to only a Usd 10,000 loan for a business for loan alleging she didn’t have a recordUpsides Upsides 669 men. example but only spend Usd 2,000 as a business owner. but Norma didn’t on the business; the majority of the let that negative answer put her off. Angeles rodriguez is one of the money goes to buy things for the she persisted. The opportunity came women who expanded her business family. That’s when the problems start for Norma when she got her first loan with support from bANeX. she is an – when you don’t use the money for from banex that supported her busi- entrepreneur in masaya, Nicaragua. the business”. ness plans. Norma has now received she owns five drug stores and a loans for Usd 5,000 from banex to medical center. Her life as a business Another woman who succeeded in improve her business. “it’s not easy to woman started ten years ago, when transforming her small business into a have a successful business in one of she bought a small pharmacy with her medium-sized business is Norma cruz. the poorest towns of Nicaragua,” says savings and some support from her she started her business 15 years ago Norma. “but i achieved it by grasping husband. she started her business when she used to sell fritanga (a opportunities, hard work and using with Usd 14,000. Later, she asked variety of fried Nicaraguan food) at the money efficiently.” bANeX for a bank loan to buy another an improvised 4-square-meter spot in pharmacy at masaya market. Today, front of her house. Now Norma owns Angeles and Norma are two of over this drug store is one of the biggest at a small cluster of businesses that 87,000 non-traditional clients that masaya market – it has a second include a restaurant, a hostel and a receive business loans from bANeX. floor. services have expanded to transportation service for tourists. The For most of these people it is difficult include physician care and tests such road Norma had to take to become and sometimes impossible to access as ultrasound. When Angeles owned one of the small number of successful traditional means of credit. As the two only one pharmacy, her husband and woman-owned small businesses of women explain, running a successful another employee worked in the busi- Ometepe island was full of obstacles. business is about hard work and good ness. Today, she has 18 employees, Norma remembers the first time she management; however, in the end it whose families benefit from a steady applied for a loan from a bank twelve all comes down to access to finance. Angeles Rodriguez in one of her five drugstores
  • 16. ................................................................... Winning strategies for small business lending at INECO Bank ........ Winning strategies for small business lending at iNecO bank .............................december 2008 december 2008 Building a profitable small magazine listed inecobank as one of30 business portfolio the top 20 fastest-growing banks in 31 earlier this year, a report entitled, central europe and inecobank ranksUpsides Upsides ‘Winning strategies for small business number one among Armenian banks lending’ was released by shorecap participating in the analysis. The bank exchange, The report is characterized by a dynamic growth studied seven financial institutions and rate, flexible management, creativity key strategies adopted by a group of and skilled personnel. successful small business lenders that have enabled them to build a profit- inecobank was established in 1996 as able and sizeable small business port- a private bank and maintains strong folio. ranking in the Armenian banking market. 10% of its capital belongs to Inecobank The successful small business institu- iFc, with another 13.5% owned by tions reviewed have all attained signif- deG, a member of KfW banking icant market coverage, continuous group. inecobank has developed volume growth, low default ratios, and good experience in sme lending adequate operating margins. under credit lines provided by such institutions as the World bank, eurasia period. experiences of the financial sound credit judgment. The financial have a strong marketing orientation, volumes are more often a function of One of the institutions, inecobank in foundation, UsAid financed programs, institutions reviewed reveal some char- institutions interviewed for the understand basic business nuances the number of accounts than the size the republic of Armenia, was listed KfW (Germany), ebrd and Adb. acteristics and trends common to shorecap exchange report demon- and be adequately equipped to of loans, simplifying product offerings this year in the Forbes 50 Top Micro- successful small business lending insti- strate that it is feasible to actively solicit perform credit risk analyses. and operating processes and proce- finance Institutions. inecobank is also inecobank and the other six financial tutions. accounts to build a sizable volume of dures without neglecting essential ranked as one of the ten largest banks institutions were chosen because of loans while simultaneously upholding Efficiency control mechanisms will allow an insti- in Armenia by return on assets and their success in building sizeable port- Sustainability basic credit principles to maintain improving efficiency levels in all tution to substantially increase its loan capital and is the leader in credit sales folios of small business loans with rela- sustainable portfolio growth depends acceptable portfolio quality. small aspects of the loan underwriting volume. financing. in addition, The Banker tively low default ratios within a short on both proactive marketing and business loan officers should therefore process is critical. because rising loan
  • 17. Winning strategies ............................................................................................................ for small business lending at iNecO bank Winning strategies for small business lending at INECO Bank Technology larly in remote areas resulted from other spheres of the country’s economy, inecobank has its own system designed an installment basis. We were not parameters for different groups of The use of technological improvements effectively harnessing technological says Garnik Tadevosyan, iT executive by inecobank iT specialists. satisfied with the programs in the local loans. particularly in the area of transaction advances in communications. of inecobank. However, if one market that existed in 1998. Utilizing processing involving repetitive steps is compares banking automation in “Our bank is the biggest consumer our own automation system has given The five major components a characteristic of a winning strategy. Armenia’s banking system applies iT Armenia and abroad, the country is creditor in Armenia. We work with a us flexibility and speed in responding of a winning strategy streamlining service delivery particu- products much more actively than the lagging far behind. large number of physical entities on to local iT developments.” in the World bank’s ‘World business environment survey’ (Wbes) of more According to Tadevosyan, commercial than 10,000 firms in 80 countries, banks are duty-bound to supply infor- small and medium-sized businesses Successes at Inecobank mation to the credit register of the worldwide, on average, named central bank of Armenia to insure financing constraints as the second Pandukth Manukyan peasants was seen as a privilege. each Hovhannes Chuljyan Khachatryan had a bakery located beside against risky deals. “Our data is sent most severe obstacle to their growth, in 2006, pandukht manukyan, the director peasant was able to purchase between 20 Hovhannes chuljyan has been a customer his house where he baked mainly Armenian automatically. And as far as i know, while large firms, on average, placed of the Vayoc dzor Frukt Ltd. cheese factory and 60 goats. of inecobank since 2004. prior to applying Lavash bread. in October 2004, Khacha- there are only two other banks in finance only fourth. The demand for in Yeghegnadzor, Armenia asked ineco- for a loan, chuljyan was renting a six square tryan applied to inecobank for an initial Armenia with this capacity,” says financing the various needs of small bank to provide several peasants with a The peasants began paying off the loans meter area at Gyumry’s central trade house loan in order to extend his business. Khach- Tadevosyan. businesses is considerable and is loan for raising goats in the village. after the sixth month to accommodate the for cloth trading. atryan believed that the credit would enable expected to continue to expanddecember 2008 december 2008 manukyan needed goat’s milk for a certain time necessary for the goats to mature and him to obtain and reserve large amounts of Technology is a priority at inecobank; further, particularly in growing econ- type of cheese production, but due to the begin producing milk. After that the peas- chuljyan wanted to invest in the growth of flour at cheaper wholesale prices and at the one which they choose to improve and omies. However, certain inherent small number of goats in the village, mr. ants were able sell to milk to manukyan and current assets, which would help him to same time reduce the cost of flour transpor- expand. recently, inecobank and characteristics make this sector very manukyan had problems collecting an have enough money to pay off their loans. extend the variety of goods for sale to attract tation. The bank reviewed Khachatryan’s United payment system Arca have different from both the traditional32 33 adequate amount of milk. And so manukyan more customers and increase his profit. request for credit and granted him a loan. installed a virtual accounts system microfinance and corporate sectors,Upsides Upsides asked inecobank to provide eight peasants The loans were highly successful. Not only chuljyan applied for and received credit which allows for the payment of and prevent loan officers from seri- with loans in order to raise goats to provide did the peasants pay off their loans, but they with inecobank. since his first loan four years ago, Khacha- consumer credit debts via internet – ously investing resources and milk for his factory. accumulated enough savings to renovate tryan has now had five loans from ineco- installments can be paid on ineco- expanding in this sector to be able to and furnish their houses and send their chil- in four years chuljyan has had five loans bank for the total amount of Usd 6,400 bank’s website. in November 2006, inecobank provided the dren to college. Additionally, the savings from ineco of a total amount of Usd 20,500. primarily for increasing current and fixed eight peasants with loans varying from Usd augmented their daily living expenses and before receiving the first loan chuljyan’s assets. before receiving the first loan his Credit Scoring Ineco client 1,000 to Usd 3,000 each for purchasing provided for investments to further develop investments in assets was Usd 6,800, but investments in current assets were Usd 700, Another characteristic of good strategy and raising goats. The credit provided to the their business. today they amount to Usd 28,000. The and these have now increased to Usd is to utilize credit scoring to deliver growth in the current assets is associated 11,000. The increase can be attributed to a faster results. some banks are using with the precise use of the loans. Noticeable precise use of the credit. The loans helped modified credit scoring systems as a improvements have appeared in chuljyan’s Khachatryan to diversify his business. He means of addressing the shortcomings family’s living conditions over the last four now rents another property where he sells of conventional risk analysis methods. years. Additionally, chuljyan has enlarged shoes. Khachatryan’s sales volume increased A successful credit scoring model does his trading area by four times its original and he hired more employees. As a result of need an extensive database of past size. This helped chuljyan to better display increased profits Khachatryan started a loans including significant data on his products for sale. new business (the shoe shop), augmented each loan. Financial institutions that his daily living expenses, and bought home are new to the small business lending Armen Khachatryan appliances. Further savings helped him to market may not initially have the data Armen Khachatryan has been a customer renovate his house, purchase a new car and needed to develop a sound credit Ineco client of the inecobank Gyumry branch since finally finance his wedding ceremony. scoring system. more often, financial 2002. institutions tend to use modified scoring systems where they use the experience gained on the ground to develop a quick and dirty set of loan assessment
  • 18. Winning strategies ............................................................................................................ for small business lending at iNecO bank Winning strategies for small business lending at INECO Bank take advantage of these opportuni- address market and other constraints. tage of the profit opportunities in defaulting loans. several financial general terms, the key elements of the 2) creating a suitable organization in ties. As we saw in this publication, As the financing gap in the sector financing small businesses can learn institutions in our study achieved this winning strategies employed by terms of structure and adequately some institutions in various countries becomes more obvious and develop- from these and adapt them to their through a judicious combination of successful small business loan officers trained manpower to effectively deliver have managed to overcome these ment finance focuses on the impor- own situation. marketing and operational strategies include: the product to the market; impediments and become successful. tance of small businesses in gener- premised fundamentally on their 3) Formulating the appropriate accom- Their experiences provide valuable ating livelihoods and alleviating successful small business lending comprehensive understanding of the 1) designing the appropriate lending panying marketing and credit strate- insights into the specific strategies poverty, other prospective small busi- means having a growing portfolio of needs, wants, characteristics and product, taking specific market needs gies and action plans to ensure market they formulated and implemented to ness lenders that wish to take advan- loans with a manageable level of nuances of their target market. in and characteristics into consideration; acceptance; Understanding SME finance in 1971, a young banker, Jesus p. Tambun- poverty alleviation mechanism and an lopment assistance. However, in the last few ability to navigate the continuum of inclusive ting, ventured into rural philippines with a instrument for graduation to sme. micro years improved information and communi- finance and its understanding of the require- plan to build a profitable commercial bank. enterprises are a nursery for the incubation cations technology have made the process ments of sme. This plan soon changed and now, planters- of future smes,” said Ambassador Tambun- easier and cheaper. As technology anddecember 2008 december 2008 bank is the largest privately-owned and ting, expressing confidence in microfinance information sharing continue to improve, the in the end, size matters. The Ambassador managed development bank in the country as a part of the strategy for poverty allevia- approach could become significantly more remarks, “Historically, we have repeatedly geared towards smes. tion. cost-effective. gone down-market. Of course, it is easier to go with larger smes, but if we go in that3 3 “it’s a challenging segment to lend to “in the shadow of microfinance there is so Among its bds services, plantersbank offers direction, we will no longer lend to smes.Upsides Upsides because you’re handling so many accounts much about smes that goes unsaid. sme a membership program through its internet We focus on the “s” rather than the “m” borrowing small amounts — you have to finance is a phenomenon! i would like to affiliate,, created to establish and reach out to rural areas. That size fits spend a lot of time with each borrower, anti- think that smes makes the greatest impact. an e-community for smes in the philippines. us best. cipating their needs, getting to know poten- A winner of the 2001 Asian banking Awards tial problems, but getting through these When we say that we at plantersbank offer for ecommerce service, also “it has never been a better time for smes,” obstacles on a day-to-day basis is what sme lending, it is important to know that we offers bds to design and manage websites said the Ambassador. At present, smes makes it so fulfilling,” remarked Tambunting, are ultimately talking more about capacity for sme clients, sets up accounting and comprise 90 percent of all registered busi- the chairman and chief executive Officer of building. capacity building enables finan- payroll management systems for clients and nesses in the philippines and employ over plantersbank, and the former philippines cial resources for smes to be brought into provides an online social forum, the biZsTer. 40% of the country’s workforce. but the Ambassador to the United Kingdom. the mainstream. investments without capa-, for building networks and peer current sme landscape has also prompted city building or business development learning. Just last year, plantersbank laun- an oversupply of funds, a tendency that Tambunting describes working with smes services (bds) are destined to remain small ched the country’s first sme business park. Ambassador Tambunting warns about. as ‘difficult, risky and costly’: three words and peripheral and dependent on donor “Once a tiny enterprise becomes successful, that might not attract the kind of investment funding.” responding to the popularity of microfinance, banks tend to shower it with more loans, or celebrity endorsement let alone positive the Ambassador comments, “There is no way they over-fund, so the entrepreneurs stretch attention that microfinance enjoys. “To since this approach relates specifically to a around it, capacity building is not sexy! themselves and then they get into trouble. understand smes, you really have to be a customer’s business, the aim is to provide Nonetheless, at plantersbank it is the central Their size also makes them vulnerable to Jesus P. Tambunting banker.” better bds to reduce risk and increase pillar of our overall approach. in fact, the changes in economic conditions. returns. in the past, a significant obstacle to number of clients per account officer was The Ambassador underscores that microfi- applying this approach in less developed reduced so that the officers could spend more “The size of the sme sector has grown nance, on the other hand, is straightforward countries was that of getting the information time with individual clients.” While this economically and deserves more private and much easier to understand. “At plan- required to assess viability plus the costs of demonstrates the strong commitment planters- sector support and attention,” according to tersbank, we consider microfinance to be a transferring and providing business deve- bank has to its clients, it further emphasizes its Ambassador Tambunting.
  • 19. Winning strategies ............................................. for small business lending at iNecO bank that lending to small businesses is highly risky, the experiences of a number of financial institutions show that small business lending can be a viable and profitable undertaking. The approaches, strategies, and lessons learned from financial institutions that have successful small business portfo- lios, provide useful and meaningful insights to others who may likewise Inecobank Armenia wish to profit from their experiences. making small business lending a prof- itable undertaking is challenging. Financial institutions are generally disinclined to increase their small busi- ness lending activities because of thedecember 2008 december 2008 4) streamlining and standardizing comprehensive framework that covers perceived higher risk profile of the procedures to enhance efficiencies in important if not crucial aspects of sector as a whole. This reluctance on service delivery; and small business lending. The underlying the part of financial institutions to lend 5) Adopting an effective and pro- presumption in adopting these is a to small businesses creates a vicious3 3 active account monitoring system to well-grounded, thorough, and compre- cycle. since credit history or proof ofUpsides Upsides prevent rather than cure problem hensive understanding of the specific repayment of a previous loan is often accounts. market niche being targeted. a requirement for most small busi- misreading it can be fatal. it is likewise nesses to obtain a loan, the lack of These strategies cannot be viewed (or incorrect to assume that successful willingness to lend to the small busi- Taking risks implemented) in isolation. instead, strategies in one country will automat- nesses prevents them from developing they form part of a broader and ically be effective everywhere else. the credit track record they need. FMO is the international development bank of the Netherlands. With an investment portfolio of €3.4 The experiences of several successful billion, FMO is one of the largest bilateral development banks worldwide. We specialize in high-risk lenders prove that small business lending can be a profitable under- products and services, including equity, mezzanine and long-term credit in local currency. FMO also taking. There is a growing demand for offers environmental and social management support, as well as advice on corporate governance. these products and services and signif- Thanks in part to its relationship with the Dutch government, FMO is able to take risks which icant profitable opportunities exist. commercial financiers are not – or not yet – prepared to take. properly harnessed, these can be transformed into a sustainable and profitable undertaking. Conclusion A scarcity of available financing for The entrepreneurial development bank small businesses in developing econo- Ineco client mies presents a window of opportu- nity for financial institutions, especially those that are committed to delivering a social mission. contrary to the view
  • 20. .............................. Foreign exchange risk: The potential onus of hard currency debtdecember 2008 december 2008 “Risks come from not knowing what potential unmet global demand for you are doing” (Warren Buffet) microfinance is estimated at 1-1.5 bn clients, i.e. poor people without access According to the microcredit summit to finance, the ‘unbanked poor.’ micro-3 3 campaign report 2007, ‘microcredit finance markets are particularlyUpsides Upsides is no longer micro in its reach’ with an underdeveloped in india, china and estimated 133 million clients as of Africa. development banks such as december 2006, combined with a FmO aim to catalyze sizeable private growth rate of approximately 20 capital flows towards these markets in Matthijs Egelie and Nico Mensink percent per year. The maturation of order to achieve serious poverty the industry is illustrated by a number reduction. Typically, private capital of large microfinance institutions (mFis) only flows to financially sustainable which have been able to transform mFis. becoming financially stable into banking institutions and tap inter- depends not only on profitability, but national capital markets. compartamos also on risk management practices (mexico), nearly a household name by and the implementation of an Asset now, was the first mFi with an interna- and Liability management (ALm) tional bond issue (in 2002), and has framework. Although donor funds been listed on the mexican stock remain necessary for institution exchange since April 2007. Further- building (in particular in the start-up more, complex investment vehicles (for phase), they are not sufficient to exchange risk (FXrisk), due to their Leverage and FXrisk current capital levels has not yet been transparency, and shareholder struc- example blueOrchard Finance, finance the growth necessary to make dollar-denominated foreign debt and The average leverage (Total Assets/ realized: with the same level of capital, ture) contribute to high risk perception, LocFund in Latin America), and the a serious effort to narrow the gap their local currency assets (i.e. a equity) of the mFi industry is very low more clients could be reached. One of this article focuses on FX risk. sector’s first securitization (brAc, between current supply and estimated FXmismatch). This risk has increased (approximately 2), when compared to the underlying reasons for this bangladesh) demonstrate what is potential demand. over the last few years, and has the banking industry (8-10). This low phenomenon seems to be the high risk The FX risk associated with mFis is a possible: top mFis have the ability to become a key concern for investors leverage suggests that the capital in perception of mFis, which leads to a result of their assets being held in a become financially sustainable institu- With the acceptance of hard currency (see also microfinance banana skins, the industry seems to be underutilized. higher required solvency. While local currency, while part of their tions which combine social missions funding, mFis often are exposed to 2008 survey). Accordingly, the full potential of several factors (such as management, liabilities are denominated in ‘hard’ and financial returns. one particular type of risk: foreign
  • 21. Foreign exchange risk: The potential onus of hard currency debt ................................................................... Foreign exchange risk: The potential onus of hard currency debt depreciations. For example, the becomes dependent on FXmovements, calculations have shown that average depreciation of the bric and hence falls outside the span of avoiding the FXmismatch on the countries (brazil, russia, india, control of mFis. in other words: market balance sheet can reduce the credit china) was 12 percent per annum risk (i.e. FXvolatility) has an impact on risk of the underlying institution in the period from 1995-2001 both the profit and loss and the substantially, and hence reduce the (strong dollar period), while in the balance sheet of mFis, and hence their cost of funding. period 2002-2007 (weak dollar credit risk. The solvency ratio is widely period) an average appreciation regarded as the main risk variable of The ultimate impact of an FXmismatch of 1 percent took place. This a financial institution (Fi), and is there- on an mFi can differ, but are all sub- suggests that the stabilization/ fore closely monitored by supervisors, optimal: appreciation of emerging markets’ and investors. As a result the financial • mFis need a much higher level of currencies in the last few years is sustainability of an Fi depends on a capital (i.e. underutilization of at least partially related to dollar mismatch indicator (for example Usd- capital) in order to maintain a weakness (in combination with debt/equity), the level of solvency, and minimum level of solvency; improved fundamentals). Further- the volatility of the underlying currency. • mFis’ risk profiles become too high more, from an investors’ perspec- it can be easily demonstrated that to attract international or other tive, one should not be interested under certain assumptions an Fi can funding, and to grow sustainable;december 2008 december 2008 in the returns of mFis’ currency become very fragile due to this • mFis impose self-constraints on speculation, but more interested in FXrisk. their foreign funding. For example, the returns of their core business: Women’s World banking advises providing profitable services A simplified calculation can illustrate their network members to cap Usd0 1 (credits, deposits, payments, insur- the potential impact. Assume an mFi lending at 15 percent of theirUpsides Upsides ance, remittances) to their client has a portfolio of 100% assets in local equity. This implies an effective groups. currency loans to its micro clients that is growth constraint. 20 percent funded with equity in local An FXmismatch is considered a serious currency (2 m) and 80 percent Usd Solutions: Local Capital risk for financial institutions in debt (8 m). A 20 percent depreciation Market Development Local currencies (mainly Usd). A consulta- funding, or related hedging prod- rates above the higher local emerging markets, as is also observed of the local currency will lead to direct Currency Loans Swaps tive Group to the poor (cGAp) survey ucts; interest rates. However, in the in a bis-report on the sustainability of loss of Usd 1.6 m. The equity The optimal solution for mFis with shows that 50 percent of mFis have • Lack of awareness of FXrisks by longrun, higher interest rates imply financial systems in emerging markets. decreases directly with the revaluation local currency assets only is to attract hard currency liabilities. Of the mFis mFis; an expected depreciation of the This is due to the underdeveloped of the Usd liabilities. The solvency local currency funding. The long-term with hard currency liabilities, 50 • Lack of supervision. Whereas local currency. in the last few years character of those financial systems, ratio measured as equity/total goal is to develop local capital percent leave the currency position commercial banks are regulated (with significant pressure on the and the high volatility of emerging assets, decreases from 20 percent to 4 markets, which offers the full range of fully unhedged, while another 25 by a supervisor, which monitors Usd), the higher local interest markets’ currencies. The currency percent only. This level is substantially financial products (long-term loans, percent of them have a partial hedge and controls the risk-taking rates have not been translated into crises of the last few decades (Asia below the minimum bis-level of eight derivatives, access to deposits, all for in place. These survey results illustrate behavior of financial institutions depreciations in many emerging crisis, Turkey, russia, Argentina) more percent, and creates a direct threat to a ”fair” price and for the tenors that FX has became a major risk factor (including FXrisks), mFis are typi- markets. so, open FXpositions can or less all took place in countries with the mFi’s financial sustainability. in required). One of the problems with for mFis. Of the total foreign funding, cally not regulated, and hence face be a profitable policy in specific underdeveloped financial systems in other words, the perceived low cost of emerging markets is that these markets 95 percent is provided in hard curren- no external checks and balances periods. However, this seems to be combination with an unsustainable hard currency funding at the time of are underdeveloped and/or illiquid, in cies (Usd). with regards to their FXrisk partially linked to a period of policy mix. contracting can turn out to be very particular for longer tenors. Therefore, management framework; dollar weakness since 2002. in the high when a substantial depreciation development Finance institutions (dFis) The increased FXrisk of mFis is caused • speculative behavior of mFis: by late 1990s when the dollar appre- As a consequence of the open FXmis- of the local currency occurs, which is in general, and FmO in particular, by a combination of: preferring to finance local currency ciated (vis-à-vis almost all curren- match (i.e. local currency assets not very unlikely given the experiences support different initiatives to develop • Lack of availability/access to long assets with hard currency loans, cies), many emerging markets financed with Usd debt), the solvency of the last decade. local capital markets (brAc securiti- or short-term local currency mFis prefer the lower Usd-interest were confronted with sizable ratio (equity/risk Weighted Assets) zation, bOLd microcredit cLO,
  • 22. Foreign exchange risk: The potential onus of hard currency debt ................................................................... Foreign exchange risk: The potential onus of hard currency debt Long-term local currency funding to FXswap is an agreement to simultane- There are some imperfections in the Launch TCX Fund different mFis including prodem, Finca, ously exchange an amount of foreign market for these instruments. many of bancosol, and the first FXswap in currency now and resell that currency the financial markets in which most Albania (see box)). in the future. swaps are mostly used mFis operate do not support these for tenors from one to ten years. due instruments. The duration of the foreign A solution in the near term is to provide to the cross currency swap, the Usd loans often exceeds that of the hedging local currency funding and/or FX funding is changed into local funding products available in the local finan- ‘swaps,’ which enable mFis to manage with local interest rates. in the end, cial markets. And creditworthiness their FX exposure adequately. This economically, the mFi is paying local issues may make it difficult for an mFi results in lower risk profiles for mFis, interest on a loan in local currency. to purchase these instruments. and hence improves their access to The price of local capital is the best other commercial funding sources in indicator for the funding of local Enabling Role of FMO order to finance the future growth of currency assets. Accordingly, this FmO is becoming an important player local mFiportfolios. reflects the appropriate cost of funding in the local currency market. due to for small loans in local currencies to the TcX fund, an FmO initiative that in the developed world, a cross- local micro-entrepreneurs (i.e. the core was introduced into the market in currency swap is the most used product business of mFis). 2007, FmO can offer local currencydecember 2008 december 2008 to hedge open currency positions. An loans in more than 50 countries.2 3Upsides Upsides Albania Case: Financial Innovation supports Access to Finance Opportunity Albania is an mFi in nian Lek, known in the markets as ALL). to hope for a better business result. Albania that provides credit to entrepre- FmO offered Opportunity Albania a management automatically has better Through the TcX fund FmO is also aware of the FX risks they face and the neurs who are unable to access credit local cross currency swap (eUr-ALL). insight into the real cost of funds in a able to offer cross-currency swaps in implications FX risk has on their risk through traditional means. Like other As far as we know from public sources, local perspective, which should become all these markets. These can be based profile and their access to interna- mFis, it started its activities with grants, this was the first time such a product has a basis for its own lending activities. on both floating interest as well as tional capital markets. The aim of this which have been gradually replaced by ever been used in Albania. The eUr leg fixed interest. With both instruments article is to provide a brief outline of funding from international development of the swap perfectly matches the With the development of these innova- (local currency loans and FXswaps) the FX risks in relation to mFis, to banks. The bank has a head office in funding prepayment profile of Opportu- tive risk management tools, local mFis FmO intends to support the sustain- provide possible solutions, and to Tirana and 19 branches throughout nity Albania. On every repayment date are able to reduce their risk profile. This able growth of local mFis. increase the mFis’ awareness of FX Albania and is growing rapidly. To of funding, Opportunity Albania reduction contributes to a lower cost of risks. by avoiding FX mismatches, mFis further professionalize its operations, receives eUr from FmO that exactly funding and more possibilities to Concluding Remarks can improve their risk profile, and the bank is aiming for a banking mirrors its own position. At the same leverage its own capital, which ulti- The FX risk for mFis stems from funding facilitate their access to additional license. time, opportunity Albania pays the mately leads to better access to finance their local currency assets with Usd capital in order to finance long-term Local currency at a set rate. This way, for local micro-entrepreneurs. debt. With the improved access to growth. We strongly believe in the One of the issues raised by the central profit and loss will be more stable and international capital markets during relation between the financial sustain- bank was its ‘currency mismatch”. predictable and management can focus the few years, this risk has increased ability of mFis, and the growth ambi- Almost all Opportunity Albania’s on core business (lending and credit significantly. Unfortunately, the cGAp- tions of the industry. funding is in eUr while almost all of management). There is no need to spec- survey results cited in this article their assets are in local currency (Alba- ulate on favorable currency movements suggest that not all mFis are fully Matthijs Egelie and Nico Mensink
  • 23. Foreign exchange risk: The potential onus of hard currency debt ... TCX: The proof of the pudding is in the eating TcX, the Local currency exchange Fund, businesses through micro credits and to provide loans in LcY to its clients, in Crafting was launched in september 2007 by a have a safe haven for deposits. which case FmO swaps this exposure to group of development finance institu- TcX. clients only have to contact FmO.” tions and commercial banks. The TcX since its inception in 1984, the micro The transaction in local currency ensures concept was developed over several lending bank has pursued a high growth that the FX-risk is transferred from the global opportunity years, with the objective to help path. despite deteriorating market client to the investors, in this case eFp emerging market borrowers to over- conditions, equity bank still grows fast and FmO. The hedge with TcX ensures come existing local currency funding and has ambitious targets, which the that the local currency risk on principal constraints. borrowers in emerging bank has consistently been able to and base rate is transferred to TcX. The market economies all too often lack exceed. in 2007, equity bank set itself remaining risk is for eFp and FmO, affordable access to long term debt in the target to capture the high growth which remains unhedged in local their home currency due to the lack of potential in Kenya, simultaneously currency. The International Companies of ShoreBank appropriate credit terms offered in the moving into housing finance and Corporation are dedicated to expanding domestic markets and the inability of expanding into east Africa. To realize The current global financial crisis high-december 2008 december 2008 international investors to assume these ambitions and to reach out to the lights the importance of local currency global access to capital for small businesses, currency risks. but, how did the fund bottom of the pyramid on a large scale, financing. With the devaluation of the entrepreneurs and households through perform in its first year? the bank was looking for investors that Kenyan shilling, equity bank would could provide long term local currency have faced much higher principal and inclusive finance. indeed, the fund completed a successful finance. No party, however, seemed to interest payments in Kenyan shilling if ShoreBank InternationalUpsides Upsides year of operations, comfortably be able to structure and tailor the solu- they had received the eFp and FmO ShoreBank International (SBI) advises financial institutions in emerging economies around exceeding its targets for transactions tion equity bank was looking for. The loans in Us dollars. the world in its core communities of practice: small business finance, microfinance and executed. As of mid-October 2008, the TcX fund proved to be instrumental in housing finance. SBI delivers services and innovative solutions for its financial institution portfolio spread across 13 currencies. fulfilling the bank’s need. For FmO the transaction with equity FmO, a founder of TcX, was involved bank was the first large syndicated TcX clients to advance entrepreneurial and housing investments. from the very beginning. As an active FmO and the european Financing part- transaction. edgard creemers, invest- ShoreCap International player in Local currency financing (LcY), ners (eFp), a cooperation of the euro- ment officer at FmO, explains: “ invest- ShoreCap International invests capital in local financial institutions that provide loans to FmO already had a well diversified pean development institutions, jointly ment officers had to learn on the job. micro and small businesses in developing and transitional economies. Managed by ShoreCap portfolio in LcY at the start of TcX in provided the funding equity bank For example, the two tranches resulted Management, the fund acts as a catalyst for increased economic activity that will lead 2007. FmO transferred these existing needed. FmO arranged a total amount in FX differences prior to the hedge. A to stronger, more equitable local economies. deals to TcX during 2008. As of today, of Usd 53 million. FmO provided its lesson learned learned is to structure FmO has over 20 deals with TcX, worth part of Usd 25 million in december future transactions as one single ShoreCap Exchange in excess of Usd 200 million. 2007 and eFp provided a second tranche that can be hedged with TcX ShoreCap Exchange (Exchange) strengthens ShoreCap International investees through onsite tranche of Usd 28 million in march immediately, thus avoiding FX differ- capacity-building services, peer learning and knowledge exchange programs. equity bank, the largest micro financier 2008. both transactions were in local ences and keeping it easier for the in Kenya, recently experienced the currency and the tranches were hedged administrative systems. Furthermore, benefits of this fund. The bank focuses with TcX. we noticed that it requires attention to on the unserved lower end of the market have all systems aligned, especially in and is driving the financial services While equity bank received the funding a syndicated facility like with equity industry to go even further down market. in local currency, there is no direct rela- bank.” TcX and FmO will continue to currently, only 3 out of 17 million bank- tionship with the bank and TcX. As work closely to price new deals for able Kenyans are served. improved explained by Job van ‘t Veer, senior FmO’s clients, to ensure market pricing access to finance allows Kenyans to start treasury officer at FmO: “FmO can and fast execution.
  • 24. 20:20 vision mary Houghton ........................................................ Mary Houghton has been a member ourselves, if this works, what could we had equal if not superior repayment of the senior management of do that would be even more ambitious capacity to men. so that was a fact ShoreBank Corporation since she co- and meaningful? We liked the idea of that wasn’t known then and which founded the company in 1973, and is using the bank as an instrument of certainly startled a lot of people. but currently president of the holding change, and came up with the idea of as we can see from the current U.s. company. Shortly after she first came acquiring an existing bank for that presidential election, there are still an to ShoreBank, Mary was the senior purpose. infinite number of stereotypes left. lender and senior operating officer of the Chicago Bank. Mary is also chair Which vision are you sharing Which barriers do you see to of ShoreBank International and with others? women entrepreneurs – espe- ShoreCap International. Using a bank holding company as a cially small business owners? permanent base on which to achieve The barriers are having the right advi-december 2008 december 2008 mary Houghton was named American economic and environmental goals for sors, especially in terms of accountants Banker’s community banker of the the benefit of low to moderate income and perhaps board members or Year for 2004, and one of America’s people is a very powerful platform mentors. Other barriers are having best Leaders 2007 by U.S. News and and that is the main message that we accurate information about markets, World Report. try to send. it requires a twofold and having access to enough money.Upsides Upsides strategy: first, pick a serious institu- but there is another issue: how do you What inspired you to start tional base with which you can truly supplement the skills of the individual ShoreBank? scale up. Next, realize that many person, particularly when that person At some level, shorebank, like are. They’re somehow more comfort- When it comes to gender and it was the period after the rioting in the things are needed in addition to bank has a small business and before she everyone else, has had more success able with peer support as a method of development, what would you Us, in the late 60s and early 70s, and credit which can be the business of has adequate experience? in running credit businesses than it has support. like to see more clearly? i had walked into a summer job with affiliated non-bank subsidiaries and in running advisory businesses or One issue seems to be to get more some people who were setting up a NGOs. So how do you? trade groups or cluster strategies. How should we look at gender, women into senior decision-making minority small business program at the i guess that jumps us into what sort of Those are harder to execute on a particularly as regards lending positions in all the helping institutions. Hyde park bank. There, i bumped into How has your perception of business development services work. sustainable basis and they’re harder to and economic development? it does seem like in all the lending and a team of people i really enjoyed women’s entrepreneurship For a small business person, probably convert from an idea to something it feels like there’s more than adequate investing and consulting frameworks, working with and we appreciated changed, if at all? entrepreneurial trade associations are that really works. proof that the market of women who women need to get to the top in order each other so much that we ended up The world is very different today than the most affordable source of informa- can be successful entrepreneurs is as for there to be a woman’s perspective creating shorebank. That was a group it was before we started shorebank. tion but they don’t exist in many places. What should DFIs consider least as large as the market of men, on how to support women. i’m on the of four people: two whites – myself Then, women were just coming into And then if i look at it from the point of when targeting women so we should look at women entre- board of Women’s World banking and ron Grzywinski – and two African the work force and corporate careers view of shorebank, it seems like being borrowers? preneurs as a huge market. The ques- and i’ve always been struck by how Americans, milton davis and Jim and into entrepreneurship. but i’m not able to run programs in which you can Well it’s probable that if they’re targeting tion after that is: how do we help the decision making of the Women’s Fletcher, who were both in their 30s so sure that our vision of what was specialize in a specific type of business, women they have to be prepared to women, who are likely to be entrepre- World banking board and manage- and active in civil rights and social possible then wasn’t right, and has like rehabbing in chicago or organic finance younger and smaller busi- neurs running younger and smaller ment is very female in style and in the change. been proven now. When we started, dairy somewhere else, that helps the nesses. They may also have to target businesses? How do they really issues that get raised. The women’s We had had success running a small the microfinance movement had not advisors to be much more helpful to the specific sectors or categories of busi- succeed at growing their small busi- perspective provides a different lens. business lending program for African yet begun and the world had not yet small business person because they ness: for instance, in the Us, women nesses into a medium-sized business? Americans in the city [chicago] and seen this phenomenon where women totally understand the industry. Those tend to start service businesses. i don’t have an answer but that is a there was so much demand and it were the majority of customers of are the strategies that make the most i think women are also more accept- huge question. seemed so valuable that we asked large microfinance institutions and sense but they are hard to find. able of working in groups than men