March 9th, 2010
by Noah Simpson
Mobile banking is defining modern microfinance. Within the space of a few short years it has exploded to become a hot-button issue in the microfinance community, especially because of its potential to reach the unbanked. CGAP’s Technology Blog has covered the emergence of branchless banking extensively, and several of its recent posts have been written on the topic. In view of mobile banking’s extensive influence, it seems fitting to reflect upon the benefits and challenges it holds for consumer protection in general and for transparency in particular.
On many levels, mobile banking is great for consumers. It is allowing many traditionally unbanked people to have remote access to banking services and puts some power in the hands of the consumer. Additionally, when middlemen are taken out of the picture there is less fraud and mishandling of money. Finally, and perhaps most importantly, mobile banking tends to be cheaper than traditional banking. Some barriers exist, such as obtaining a phone in the first place, but banking-capable phones are rapidly dropping in price (e.g. Vodafone’s new phone under $15US, featured in a Technology Blog post). Despite the barriers, the declining costs of mobile banking is allowing greater financial inclusion.
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March 5th, 2010
by Tim Langeman
In a previous blog post, I described how to use a spreadsheet like Microsoft Excel to calculate interest rates. Again, interest rate calculations are at the core of MFTransparency’s ability to provide accurate data that can be compared across various products offered by numerous MFIs. In the last post we looked at Excel’s IRR and XIRR functions and concluded that XIRR is more accurate because it takes into account the actual payment dates of the loan and thus allows us to calculate annualized interest rates even with irregular repayment schedules.
But for the more technical among us, I realize that even this may not be sufficient. Today I’m going to demonstrate how to write a computer program that is as accurate as Excel 2007’s XIRR function. This article is likely to be of less broad interest, but it provides transparency into how we will calculate interest rates for future data collection trips; and it may be useful for MFIs that wish to automate interest rate calculations for a larger data set than can be handled with Excel.
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Tags: eir, excel, irr, math, xirr
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February 26th, 2010
by Michael Tucci
Just wanted to share a quick note with our blog readers that MFTransparency has added an RSS feature to this blog. Check it out here, or look for the link in the bar to the right of these blog posts! By adding our RSS feed to your personal blog feed, RSS reader, or your website, you can receive automatic updates about MFTransparency’s most recent blog posts. To subscribe to this (or any other) RSS feed, simply click on the link and choose to follow us with your favorite RSS reader, via e-mail, or select the XML feed. To unsubscribe, simply remove our feed from your RSS reader list.
Enjoy!
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February 24th, 2010
by Tim Langeman
Chuck Waterfield and Alexandra Fiorillo, MFTransparency’s CEO and VP respectively, have been doing many presentations about how interest rates can be calculated using our excel tool, but we haven’t yet featured a story on our blog about our data collection process and our corresponding excel tool. Although technical, interest rate calculations are really at the heart of MFTransparency’s mission and calculating accurate interest rates is vital to providing transparent pricing data. So today, I would like to give you a brief demonstration of the IRR and XIRR Excel functions, as a way to provide background for the techniques we’ve used to automate interest rate calculations on our web site.
For those of you less familiar with excel, this spreadsheet software offers numerous formulas allowing quick and easy calculations within each spreadsheet. As it is particularly geared towards financial use, there are ready made formulas specifically meant for calculating interest rates. The most basic (but still powerful) calculation is the internal rate of return.
Tags: eir, excel, irr, xirr
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February 19th, 2010
by Noah Simpson
According to a recent report by MicroCapital, a new bill introduced in the Indian parliament would remove the existing cap on microloan interest rates. This has important implications for transparency, and provides a unique opportunity to examine the effects of rate caps on microfinance.
Setting an interest rate cap has been advocated as a means of client protection, but often it can end up harming those it seeks to protect. Due to the higher interest rates that are traditionally associated with smaller loans, the poorest clients who seek these loans often are left without access to credit when interest rate caps are implemented. This is because the smallest microloans become less appealing to MFIs seeking financial sustainability. In other words, MFIs have trouble affording smaller loans when the cap on rates is set below the interest rate needed to make those loan products sustainable. Efficiency and market penetration have been shown to decrease in the presence of loan rate caps (see a presentation by CGAP’s Richard Rosenberg on this topic here), and the poorest people bare the brunt of this problem. In addition, pricing often becomes less transparent in the presence of these caps because MFIs often add-on additional fees and charges to attempt to achieve sustainable products. Thus, despite noble intentions interest rate caps contribute to unhealthy microfinance markets.
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Tags: India, interest rate cap, regulation
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February 17th, 2010
by Michael Tucci
At the end of last year, the MIX (Microfinance Information Exchange) relaunched their website with the help of the MasterCard Foundation (click here for their official press release). For those familiar with the MIX, you’ll know that they have implemented some major changes in the last few months culminating in this relaunch. All in all, I’m very impressed with the new look and more importantly, the increased functionality of the website.
The data from the MIX has been an invaluable resource for us here at MicroFinance Transparency. Before tackling in-country operations, background research is essential, and the MIX market offers a great platform from which to gain a broad swath of information about MFIs and other microfinance stakeholders. I tend to use the MIX mainly for gathering information on MFIs, so with this in mind I’ll offer a brief review of some of my favorite features:
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Tags: MCF, MIX
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February 15th, 2010
by Jessica Haeussler
In my last post, I examined data for Russia, Mexico and India, three large microfinance markets in different regions. We looked at the correlation between portfolio yield and loan size and discussed interest rates and profitability for MFIs with different focuses in terms of rural/urban populations and share of female clients. Comparing these markets, we observed a much broader range of yields in the Russian and Mexican market as compared to the Indian market.
How about operating expenses? It may be interesting to note that operating expenses are particularly high in Mexico, given that the cost of transportation, communication as well as salaries are higher than in many other countries and among the highest in Latin America. This is reflected in the median operating expense ratio reported by the MIX, which is 61.45% in Mexico, 16.21% in Russia and 11.12% in India. Looking at the median for only those MFIs with an ROA > 0 (sustainable), the median for the Mexican market is 48%, while it is 15% for Russia and 11% for India. From these numbers we can conclude that the median operating expense ratio for Mexican MFIs in considerably higher than for Indian MFIs, which could explain the higher market curve (yield) for Mexico. We might expect Mexican MFIs to be less profitable due to their higher operating costs, yet the analysis suggests pretty high ROEs. Could this be the result of an opaque pricing environment? What other factors could explain these findings? Will enhanced pricing transparency have an impact on this, as it promotes healthy consumer choice and competition among institutions?
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Tags: Data Analysis, India, Mexico, MIX, Russia
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February 10th, 2010
by Chuck Waterfield
All around the world, our thoughts are with the Haitian people, as they work together to overcome yet another tragic situation. The Haitian proverb – beyond mountains, more mountains – has been so poignantly true for them.
I know Haiti. I lived in Haiti for three years, and though that was a long time ago, I still find myself slipping into Haitian Creole on occasion. The language — like the country and people – stays with you.
Twenty-five years ago, in 1985, I took a job to start up a microfinance program in Haiti. Actually, the word microfinance didn’t yet exist. This was the pioneering days, when we were exploring ways to help the self-employed poor to increase their incomes and create jobs. We found that business loans were an excellent vehicle to do just that. We were inspired at the resourcefulness and appreciation shown by our clients. We were humbled by the conscientiousness with which they paid back their loans.
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Tags: Field Work, Haiti
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February 9th, 2010
by Alexandra Fiorillo
We are proud to announce that our very own Jessica Haeussler has an article on pricing transparency published in the most recent MicroBanking Bulletin. Please go here to read it. The MicroBanking Bulletin (MBB) is the “premier benchmarking source for the microfinance industry. The industry commentary, analysis and benchmarks are widely used by investors, donors, MFI managers, and service providers to facilitate greater standardization and a better understanding of developments in the microfinance sector.”
Here is a taste of her article, but please follow this link to see the full text in the Bulletin. You won’t be disappointed:
After decades of innovation and experimentation, microfinance sectors worldwide have achieved impressive successes. The microfinance community has joined efforts to achieve worldwide public recognition of microfinance as an effective and sustainable bottom-up approach to economic empowerment and consumption smoothing. The past years have seen equally strong efforts to provide a business case for microfinance, attract investors and access the global capital markets. As a result, the global microfinance industry has achieved a considerable record of transparency on financial performance. The true price of microcredit products, however, has never been accurately reported. As a double-bottom line industry that emerged to provide a low-cost alternative to the moneylenders, microfinance today is an industry where non-transparent pricing is common. Yet pricing transparency is critical in the market- based economy, as it promotes efficiency, healthy competition, innovation and affordable prices for millions of clients. For financial markets to develop sustainably and prosper, transparency is indispensable.
Tags: Data Analysis, MIX, Research
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February 4th, 2010
by Jessica Haeussler
We have looked at the correlation between loan size and portfolio yield on several occasions and noticed that the shape of the curve closely follows that of loan size and operating expenses. For several markets, these country graphs suggest that a number of MFIs are making yields above the market average in a given loan-size category. Are these MFIs also more profitable than MFIs with yields closer to the market curve? We would expect operating expenses to be higher in rural areas. Do MFIs serving rural areas have higher yields than those operating in urban areas so as to cover these higher cost? Are they less profitable in terms of ROE? And are MFIs less profitable in those markets with relatively higher operating expenses as compared to other markets? Let’s look at three relatively large microfinance sectors in different regions: Russia, Mexico and India.
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Tags: Data Analysis, India, Mexico, MIX, Russia
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February 8th, 2010
by Jordan Filko
Jambo! I would like to share a bit in this post about recent work in Kenya, where I spent three weeks in January with Alexandra Fiorillo (Vice President, MFTransparency) continuing the data collection process for MFTransparency’s Transparent Pricing Initiative in Kenya. Kenya is the first African country where we have implemented the Initiative and we’ve been continuing the work we began in October, when we hosted a training session in Nairobi during the Social Performance Task Force workshop. This trip has been hugely successful! I’m excited to report back and share some of the highlights of our time in Kenya.
We focused our first week in Kenya having meetings with organizations that support the local microfinance industry. The Association of Microfinance Institutions of Kenya (AMFI) has supported our work from the beginning of the Kenya project and we were happy to visit their offices to update them on our progress. As hosts of the 2010 Africa/Middle East Regional Microcredit Summit, AMFI invited us to host a session at the Summit where we will officially announce the results of the MFTransparency Kenya Initiative. Our partnership with AMFI has helped us to access the leading MFIs, communicate our message throughout the industry and ensure that there is support for our work from within the Kenyan microfinance market. We are very excited about the Microcredit Summit and sharing the results of our project there!
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Tags: AMFI, Field Work, FSDK, KENYA
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February 5th, 2010
by Noah Simpson
January’s 7.0 magnitude earthquake that decimated the Haitian capital of Port-au-Prince and surrounding areas has been a hard trial for one of the world’s poorest nations. Amid reports that the death toll has surpassed 200,000, aid continues to arrive in Port-au-Prince. The Haitian infrastructure is severely damaged, and homes, businesses, and many other structures have collapsed or become unusable. In the face of such conditions, relief and rebuilding will clearly be a long process with no clear-cut solution. However, microfinance in Haiti may just provide an important part of recovery. Microfinance Focus reports that Grameen Foundation USA has announced plans to create a short-term and long-term recovery plan in Haiti based on their previous experiences in Haiti and Indonesia, and those of Grameen Bank in Bangladesh. Provision of loans after crises such as this is essential to economic rebuilding of any nation, and increased access to microcredit will be essential as the country looks forward. In the short-term, Haiti’s largest MFI, Fonkoze, reports they “cannot reopen without cash liquidity, security and employees. Also needed are internet connectivity, fuel, transportation for employees, etc.” As Fonkoze and other large organizations in Haiti are supported in the coming weeks and months, they will be able to assist the disaster-stricken nation in its move toward rebuilding by assisting its microentrepreneurs. This support will be essential for the years of rebuilding and development ahead.
Tags: Grameen Bank, Grameen Foundation, Haiti
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