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   |
||  
        
ELISABETH RHYNE, ACCION INTERNATIONAL; LARRY REED, OPPORTUNITY INTERNATIONAL; MARY
MILLER, DEVELOPMENT ALTERNATIVES, INC.

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I. Why don¶t private commercial banks lend to poor

people?

II. How can the obstacles to bank lending to the poor

be overcome?

III. ACCION¶s experience working with mainstream

banks
      
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V Poor people won¶t repay. Too risky.
V Poor people lack security. We can¶t recover if loan defaults.
V We don¶t want our banking halls clogged with poor people.
V This will damage our business with better-off clients.
V Too hard and expensive ± compared with total profit.
V High spread will make us look inefficient.
V We don¶t know how to work with these people.
V We can¶t charge the interest rates required without damaging
our image.
 p

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V Bank staff don¶t know how to work with informal sector.
V Microfinance will be looked down upon by bank staff and
won¶t get the attention. Last in line for IT changes.
V Bank staff is too expensive and not productive enough.
V Bank will abandon microfinance if it finds other profit
opportunities.
V Because it doesn¶t understand microfinance, banks will
make bad management decisions.
V Banks will cream the top ± won¶t serve the poor.
 u  %  

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Bank advantages over other MFIs:

o That¶s where the money is.

o Low cost of funds.
o Infrastructure ± branch network. If suitable, can reduce cost, speed
expansion.
o Skills ± IT, automation, marketing, etc. Use existing rather than build new.
o Banks are known in the marketplace ± brand image.
o |
 
 

   
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o Create new revenue stream
o Build up the client base
o Deepen the retail strategy
o Use excess liquidity
o Contribute to national economic development
o Good community image
o Sustainable profit: some microfinance banks are more profitable
than banking sector average. Examples: BancoSol, Bolivia (ROE
15% vs. 4%) & Mibanco, Peru (ROE 26% vs. 7%)

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1. Business/strategic reason for doing microfinance .
2. Don¶t ³bribe´ an uninterested bank: decades of
examples and billions of donor dollars proves this does
not work. Kenya RPE Project.
3. Solid, reputable, solvent, ethical.
4. Infrastructure. Locations near centers of informal
activity. Credife example.
5. Key champions inside bank. Sogesol.
6. Government policy can increase bank interest:
Colombia, India, Nigeria.
  'p  
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Sogesol (Sogebank), Haiti 7,931 5,759 $726 11%
Credife (Pichincha), 50,142 79,702 $1,590 58%
Ecuador
Real Microcredito 8,238 5,205 $632 n/a
(ABN/AMRO) Brazil
MicroKing (Kingdom Bank), 5,532 988 $179 35%
Zimbabwe (2004)
Banco Caja Social, n/a n/a n/a n/a
Colombia
CrediAmigo (Banco do 195,378 65,608 $336 60%
Nordeste) Brazil
 p  
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 á$ &

Banks won¶t value or Separate governance and management:

understand microfinance distinct legal entities

Staff too costly and not Separate staff

productive Monetary incentive systems

Banks won¶t go downmarket Select right bank: internal champion

Monitor client poverty

Perception of risk Share risk with other investors

Remove loans from balance sheet (subsidiary)
Align incentives (service company)
Proven methods; know-how (TA)
 á$ &
Higher-end customers will be
put off
Bank doesn¶t know how to
serve poor
Interest rates too high
Clients afraid of bank
Clogged banking halls
Distinct branding; separate attendance areas
and procedures
Proven MF methods; Bring know-how
Train and re-train staff
Usually only an initial problem
Competition will reduce rates
Distinct branding (linked); special marketing
methods
Train staff to be welcoming, respectful
Separate attendance areas; queue
management; assisted ATMs
Y



  





9%-8%"/!|9-9)'!"8)('$%"/!

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Y Y
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â Global coalition of:
â 42 microfinance institutions in 29 countries in
Africa, Asia, Europe and Latin America
â Five support organizations in the US,
Australia, UK, Canada, Germany
â Governed by an international board from 10
countries
â Committed to Triple Bottom Line
1. Large Scale Outreach to Poor Clients
2. Financial Sustainability
3. Transformational Impact

â 10 Microfinance Banks
â 5 Greenfield Start-ups
â 5 NGO Conversions

Y Y
?
Y

    



')''()#

Mexico China
Philippines

Ghana
Rwanda Kenya

Mozambique

South Africa

Y Y
?
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Y Y
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Y
   

(),(-%( &')!/'
!)C95!"#+ |-%'"+ 0 +2 (!"  
OIBM, Malawi 45,335 $2,250 $384 -64.1%
BOM, Mozambique 1,866 $491 $217 -31.0%
OMB, Philippines 24,289 $3,161 $298 -33.5%
OBM, Montenegro 12,337 $43,280 $4,826 16.5%
OI Serbia 3,162 $9,051 $4,159 9.4%
 |("&')+%("+
OISASL, Ghana 28,505 $5,365 $337 4.6%
KB/TSKI, Philippines 175,275 $12,825 $121 27.7%
PSHM, Albania 8,247 $16,028 $2,725 8.8%
OMRO, Romania 1,520 $5,391 $3,212 16.8%
FORA/FORUS, Russia 17,747 $29,258 $2,461 34.6%

All data as of 31 March 2006; KB/TSKI and FORA/FORUS combine NGO and bank
activities.
Y Y
?
Y



ù Access to large amounts of capital

ù National branch network

ù Team of professionals focused on the very

poor

Y Y
?
Y






 

ù Six Key Roles ù Considerations

â CEO âAt least half should
â COO come with previous
â CFO Opportunity
experience
â HR
âHighly competitive
â IT positions
â Internal Audit âRegionalizing IT,
HR, Audit

Y Y
?
Y


  
 


ù Opportunity Equity provided by private

donors
ù Other equity from those that share our
mission
ù Savings
â Financial service for the poor
â Source of lending capital
ù Borrowing
â Access local financial system
â International loan guarantees where
necessary
Y Y
?
Y
 
  



ù Mergers and
acquisitions
ù Using technology to
replace bricks and
mortar
ù Piggybacking on
existing infrastructure
ù Building low cost
branches

Y Y
?
Y
  
    


ù Advantages ù Disadvantages
âBuilds culture focused â Higher start-up costs
on the poor from the start â Longer start-up time
âProvides broad range of â Smaller base to cover
financial services core costs
âLinks in to national
payment system
âStimulates innovation
âProvides for
accountability to mission
âEncourages private
support

Y Y
?
Y

   



Y

ù Biomoetric readers and

Smart Cards
ù Point of Sale Devices
ù Branch offices out of
shipping containers
ù Education savings
accounts for HIV
positive parents
ù Crop insurance for
small scale farmers

Y Y
?
Y
  





ù We measure success by the number of poor

people whose lives are transformed
ù We want to make sure that the institutions we
support remain focused on the poor over the long
term
ù This focus leads to innovation in products for the
poor
ù Our equity position gives us the ability to
continue to influence the mission
ù Our accreditation system measures performance
against best practices and our values
ù As a Network we can take best practices and
innovations to multiple institutions

Y Y
?
Y
 |

|
 
   
DAI¶S EXPERIENCE IN RESTRUCTURING
STATE-OWNED BANKS

MARY MILLER
PRINCIPAL DEVELOPMENT SPECIALIST
  |    C  


Prerequisites:

Bank Characteristics:

V Branch Network
V Base of Deposit / Loan Customers

- - Good Fundamentals
  |    C  


Other Requirements:

V Capitalization to restore capital position to zero

V Management team
V Commitment of government
  |    C  


 

Results ± Khan Bank, Mongolia

Total Assets: $9.6 million July 2000

$205.3 million December 2005

Number of Branches: 269 as of July 2000

403 as of December 2005
  |    C  



 

Dec 31 2002 2003 2004 2005

Branches 300 370 385 403
Assets $42,695 $75,227 $124,804 $174,272
000
Deposits $38,792 $64,625 $110,996 $151,527
000
Loans net $20,922 $43,455 $66,477 $109,805
000
Number of 84,598 108,960 130,695 177,581
Loans
Average $247 $399 $509 $618
  |    C  


 

Loans, Number Amount 000 Average

31 Dec 2005 Omitted
Business 19,352 $52,731 $2,725
m

     
m
m 

    
Consumer 124,989 $33,179 $265
m
     
m

     
Agricultural 33,240 $28,144 $847
m
 !     
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Selected Lns, Number Amount 000 Average

31 Aug 2005 Omitted
Salaried 149,367 $54,529 $365
MSE:
$45 - $2,702 27,542 $19,865 $721
SME:
Up to 16 $162 $10,126
$27,027
Agricultural 2,092 $1,637 $783
Business Lns 3 $3,008 n/a
Total Loans 181,391 $81,207
  |  |  |D  

V How do we ensure our work meaningfully contributes to the lives of

the poor?
V How do we help link the poor into economic growth opportunities in
this era of globalization?
V What is the current and potential role of private sector investment?
V How do we serve difficult-to-reach populations such as those affected
by conflict, natural disaster, and HIV/AIDS?
V How do we define ³success´? How do we achieve it? What else needs
to be done, and by whom?
V How can we, as individuals and as organizations, leverage our
comparative advantage and maximize opportunities through close
partnerships and strategic alliances?
Elisabeth Rhyne, erhyne@accion.org
Larry Reed, lreed@opportunity.net
Mary Miller, mary_miller@dai.com
Stephanie Montgomery, smontgomery@opportunity.org