Finance

A humbling second chance for SKS

May 14, 2012
By

News broke early Friday morning that SKS Microfinance would be shuttering 78 branches and letting go of 1,200 employees in the battered Andhra Pradesh region. After weathering the storm through 2011 and into 2012, SKS believes it is on the upswing and the markets are tending to agree, with SKS’s stock value up by 20% at one point in the last 9 months.

This timely piece of news comes shortly after the government moved one step closer to signing a bill centralizing the authority of microfinance regulation. The passage of the Micro Finance Institutions (Development and Regulation) Bill would have provided SKS the upper hand in situations like the state government crackdown in late 2010. Read more »

Microfinance Monday: Full steam ahead…for what?

March 26, 2012
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Amid a damning report from one of the industry’s heavyweights, financial activity in the microfinance world is picking up, clearing the way for more opportunity – but at what cost?

David Roodman, one of the world’s foremost thinkers on microfinance, presented his newest book in a column last week that might appear to strike a spear through the heart of microfinance champions everywhere.

On current evidence, the best estimate of the average impact of microcredit on poverty is zero. So microcredit as a whole appears neither to live up to the hype nor justify the harshest attacks against it as modern usury. Microcredit does not appear to be the financial equivalent of cigarettes.

Well that’s good to hear! At least we’re not addicted to cancerous activity. Yet, the heart of what Roodman is getting at is something secretly feared by microfinance champions for years. Does it live up to the hype? Is this truly impactful? Read more »

Why I’m bad at Kiva

March 22, 2012
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Here’s an embarrassing statement; last time I checked, my Kiva account had something like $76 on it.

If you haven’t heard of Kiva, check them out…they are one of my favorite microfinance organizations, plus the leaders of the company are people I respect and think are cool.

On Kiva you can make loans in $25 increments and then earn the money back over time.  Everyone once and a while, I put $25 more into Kiva, but I’ve yet to take money out so it keeps growing (though one loan did default) so I have maybe $150 in the system right now (not certain to be honest). Read more »

Introducing Microfinance Monday

January 30, 2012
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Today marks the last Monday of January and the first monthly Microfinance Monday on Rising Pyramid.  Each last Monday of the month, we’ll take a look at the growth and trends emerging from the microfinance industry.  We plan to offer a holistic and balanced look into an industry poised for a critical year.  Enjoy!

Time for Microfinance to Retool

As venture capitalists maintain their distance from MFIs and large for-profit organizations continue to report poor results, it is clear that now is the lull in the industry lifecycle where MFIs must go back, retool, and change the way  business is done while investors take a sideline role.

Microfinance’s reputation in the past few years alone has pushed the industry to its bounds and essentially made it too sexy too fast.  The rewards and opportunities that microfinance presented were overblown from both the investor and consumer side.  As bold MFIs drank the kool-aid, the IPOs began to trickle out, met with great surprise, trepidation, but spurred on by hopeful confidence. Read more »

Growing Pains in the Microfinance World

December 12, 2011
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The micofinance identity crisis continues.

Pressure from all ends of the value chain continues to mount, further tightening the vice on the future of microfinance. Vishal Mehta, Co-founder and Partner of Lok Capital recently summarized investor sentiment by saying that, “the sector is not at all attractive unlike a year ago.”

As Lok Capital, a venture capital firm with investments in MFIs, is raising their red flag, SKS Microfinance is raising the upper limit of Foreign Institutional Investment in orer to shore up a balance sheet that has taken a beating over the past year.

While an infusion of capital might provide shareholders with some temporary comfort, larger issues in desperate need of resolution loom in the near future.

Yaseen Anwar, Governor of the State Bank of Pakistan recently spoke at the 5th Pakistan Microfinance Country Forum about the future of microfinance in Pakistan. His speech, while in depth, seemed to highlight the needs of everything from regulation reform to alternative delivery channels to financil literacy courses.

Further, with the harsh government-imposed restrictions placed on micro loans in Andhra Pradesh, a recent report has shown that in the absense of proper micro loan availability, borrowers are turning to non-traditional methods for credit.

In 59% of the sessions, respondents unanimously said that they had taken loans from money lenders in the absence of MFI credit. Daily finance companies—informal money lending entities—were the preferred choice of borrowers in 29% of the sessions.

This sense of confusion and uncertainty from investors through to borrowers are major growing pains that will need resolution sooner rather than later. A majority of borrowers in Andhra Pradesh have even stated that they would be willing to “repay loans if MFIs can disburse fresh credit”.

Things are not all in a disarray, however. International standardized regulations appear to be heading the way of MFIs.

The International Finance Corporation (IFC), a member of the World Bank group, is working with other institutions to promote global standards for corporate governance. 30 development finance institutions (DFIs) have agreed to adopt a set of standards based in part of IFC’s Corporate Governance Methodology.

The longer that regulation and consumer protection continue to be issues that are unmet in the microfinance industry, investors will stay at bay. These growing pains, while not indicative of a troubled industry, must be addressed through a collaboration of international organizations, governmental regulators, and MFI information-sharing. While I believe the industry is on the right path, the time to act is now.

- Chris

A Microfinance Changing of the Guard

November 28, 2011
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When news broke of Vikram Akula’s resignation as Chairman of SKS Microfinance, it smacked eerily of the same style of resignation from Grameen Bank founder Muhammad Yunus.

Mr. Akula’s resignation comes at an interesting juncture for the publicly-young SKS.  After making a splash with their decision to go ahead with an IPO, they had an equal and opposite reaction for their practices in Andhra Pradesh.  The resulting effects have left SKS with a toxic portfolio and a battered image.  Losses in their latest financial reports have done nothing to alleviate these growing concerns.

Rumors of clashes with the SKS board started swirling, and Mr. P H Ravikumar, Interim non-Executive Chairman, confirmed as much in an interview with The Economic Times.  Mr. Ravikumar explains, “the board very clearly feels that we need to be a financial services inclusion company, of which microfinance will be a subset. That is an issue.” Read more »

True Change Takes Time

November 22, 2011
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A line that not only Americans heard over and over a little more than 3 years ago was, “Change We Can Believe In”.  That slogan, emboldened into voters’ and non-voters’ minds helped to propel Barack Obama to victory as the President of the United States.

Now, with re-elections around the corner, the retort that is slyly thrown around is “What Change?”  In the minds of some, things have gotten worse, not better, over the past 3 and a half years.  Was Obama’s slogan misleading?  False advertising?  Possibly.

Change at a massive scale requires innovation, concessions, and most importantly – patience.  Social Entrepreneurship is no different.  Take microfinance for example.  You’re creating a whole new financial market by opening the previously-shut gates to millions more consumers.  This sort of a massive entry of consumers to a new market will inevitably lead to pushing its boundaries. Read more »

A Microfinance Identity Crisis

November 14, 2011
By

In a recent interview with The Economic Times, Vinod Khosla, one of the early and large backers of SKS Microfinance, remarked that SKS “should present themselves as a business, and not as do-gooders.”

I fundamentally disagree at the notion that those are necessarily (or appear, in his statement) to be mutually exclusive.

For the sake of this article, let’s go ahead and assume that Mr. Khosla’s point is correct, and MFIs should operate solely as a business.  What does this actually mean? Read more »

Promises of a comprehensive microfinance impact study

October 10, 2011
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For as much of a promise that microfinance offers, it is only as valuable as what it can prove. While in theory, the concept of microfinance extends credit beyond where it normally can reach and this increased capital opportunity will allow those at the Bottom of the Pyramid to bootstrap their way out of poverty.

Much of this theory is predicated upon the fact that with increased income, the other parts of life will fall into place: adequate schooling, access (and adoption) of health care, and the financial wherewithal to manage this increased income.

To date, there has been very little, short of anecdotal evidence, to suggest that microfinance as an entire industry is continuing to drive this desired impact across the BoP. While it may be driving some impact to the BoP, what exactly is that? It might be the case where the impact created has an unintended (yet still positive) longer term impact on the people it is serving. Read more »

Microfinance at a Crossroads: Balancing Good Intentions with Critical Industry Structuring

September 29, 2011
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In the quest to reduce and eventually eliminate poverty, there exists no silver bullet. Poverty is a complex problem that requires the cooperative assistance of people from the top to the bottom of the economic pyramid. Economic stimulus through access to capital for microenterprise or personal use is one instrument that has experienced widespread accolades as well as criticism as it has grown in size and popularity.

Microcredit, or microfinance, more broadly, has taken the bottom-up approach of providing access to capital to those who previously did not have the opportunity. As microfinance has grown, its overlay between driving “real” impact using semi-traditional economic methods has made it the darling of social enterprise. Early successes and rapid growth have even inspired some Microfinance Institutions (MFIs) to go public. As access to capital became more widespread, perfect-storm-like conditions began forming in conjunction with a global recession. Repayment failure rates have started to rise, and areas like Andhra Pradesh have been saddled with accusations of corruption and abusive lending practices. Read more »

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