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Findings & Conclusions

Conference : “Microfinance and its Dual Objective:

Financial-Social Inclusion and Sustainable Business Development “

Cristina TrullolsMarch 22nd, 2011

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STRENGTHS• Microfinance has come long way, after 4 decades of existence, Prof. Chu

mentioned, proving that it has prevailed through time.

• The different microfinance models have adapted to the realities of their own country. Guadalupe de la Mata pointed out how LATAM has the largest portfolio, focusing more on entrepreneurs while E. Europe and Central Asia has largest average loan amount per GDP per capita having the smallest number of clients compared to all the regions, focusing on small enterprises.

• Heightened Competition and Technology will continue to influence MF´s success factors.– Ex. Bolivia´s decreasing interest rates moving alongside increasing competition

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STRENGTHS• One of the distinguishable features of Microfinance Success,

as Ms. Canalda mentioned, is that the client does not go to the bank, but the bank goes to the client (mobile banking).

• As proved by the Agora and Gawa Funds, MIV´s help MFIs to improve their corporate governance, develop best practices, and expand their outreach (Fedder)

• MF stretches, expands and increases income

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STRENGTHSFinancial returns:

– Low-correlated returns (MF is shielded from the crisis.

– Fast growth and profitable industry characterized by:• High margins and strong asset quality• Microfinance Institutions are for the most part

profitable with an average ROA of more than 1%

Social returns:– Outreach– Downreach– Customer and employee satisfaction– Transparency & client protection principles by

the Smart Campaign Initiative– Governance

DOUBLE BOTTOM

LINEOBJECTIVE

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STRENGTHS1. Luca Torre mentioned that strong social performance is

closely aligned with strong financial performance:

2. Laura Muñoz added the need for: – Responsible financial returns and responsible exits– Full range of appropriate products & services – Having a methodology that fits the client

3. Marcus Fedder included the Social Performance Task Force (SPTF) as a tool for measuring social impact and pointed out that:

“If you focus on the social returns, you will get decent financial returns”

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WEAKNESSGuadalupe de la Mata mentioned, E. Europe and Central Asian Model has the following weaknesses (which have occurred in other regions as well):

• Overindebtedness• Lack of regulatory framework• Portfolio quality deterioration• Refinancing risk• Currency risk- Most funding in hard currency and most lending in

local currencies • Credit Risk- Increasing PAR• Mission Drift (Ms. Canalda)

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WEAKNESS• Marcus Fedder detailed the Smart Campaign principles,

however he pointed out that these still occur:

– Overindebtedness– Transparent and Responsible pricing– Appropriate collections practices– Ethical staff behavior– Mechanisms for redress of grievances– Privacy of client data

• Prof. Chu mentioned that large commercial institutions are deriving profits from serving the poor.

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THREATSOverall Risks in Microfinance• Prof. Chu mentioned, there exists:

– Positive regulation: MF thrives to the benefit of all parties, especially the clients

– Negative regulation: Can push MF back to 1st and 2nd decades in MF history

• Andhra Pradesh crisis in India has caused the following, and ramifications need to be observed given it could cause a contagion in the rest of the world (according to Prof. Chu and Marcus Fedder):

– Multiple lending to the same clients; (Marcus)– Over-indebtedness by many clients– High and not always transparent interest rates– Coercive collection methods– Leading to borrowers defaulting and some committing suicide – Mission Drift– Fast growth– Inadequate state intervention

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OPPORTUNITIES

• Large, untapped growing market (2-3 billion people do not have access to financial services)

• Still unpenetrated market with much potential (namely Africa)• High margins and strong asset quality • 70% of MFIs are considered profitable and have Return On

Assets >1• Microfinance is relatively more insulated from economic

downturns compared to most asset classes• With the growing number of MIV´s, access to capital markets

further spurs innovation and reduces costs

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OPPORTUNITIES

Factors expected to drive profitability in MF:• Technology/ alternative delivery channels (will improve

portfolio quality, lower operational costs)• Consolidation & Product diversification (Answer to

lower growth rates and reduction in operating costs)• Deposit mobilization (to help in currency and

refinancing risk)• Access to Capital Markets (more reliable source of cost

of funding and improvement of corporate governance.• Competition