2009 RBAP-MABS National Roundtable ConferenceMay 12-13, 2009

Hyatt Hotel and CasinoManila

John V. OwensChief of Party, MABS

Microfinance Still Hums, Despite Global Financial CrisisMicrofinance operates differently from US subprime lending

Sector is more resilientMethodology – Cash-flow & Character-Based rather than Asset-Based

Loan Characteristics – small & short-term

Innovative risk-management techniques

Optimism Amid the AnxietyDominoes of the crisis are hitting microfinance in very different ways worldwideCredit crunchInflationCurrency DevaluationGlobal RecessionDrop in RemittancesHigher Unemployment

Nimble clients are actually benefiting from hard times adapting strategies to meet frugal customer demands

Challenge for the Philippines – Remittances?

Stability of DepositsRural banks, with a broad base of deposits, are less exposed to refinancing and global crisis risks

Challenges:Note that some deposits are more stable than othersIn a world where SMS allows communication in seconds, bank failures and closures can lead to a loss of confidence in banks

Opportunities:

•Higher deposit insurance coverage could lead to more confidence and higher deposits in rural banks

MABS Participating BanksSo far, banks are stable, growing & report little or no direct impact from the crisis. Still, there are some troubling signs:

Slight deterioration in portfolio quality

Slight increase in portfolio at risk over the past 12 months

Causes - primarily due to bank issues rather than global crisis

Slower growth rate of microfinance portfolio, especially compared to past growth rates

Banks more hesitant to extend credit

Tightening up due to PAR & focus on collections

Deposit mobilization is stable (Legacy issue is in the past)

Microfinance – Opportunity for Rural Banks during the CrisisBanks looking at MF as a sound strategic investment decision

Loans are short-term, small, diversified

Solid cash generation potential

Solid track record of profitability

Sound risk assessment: methodology based on capacity to repay and character-based

Strategies being recommended for Banks

Shore up financial position by increasing equity Retain more earnings; pay out lower dividends

Diversify funding sources & secure additional funds Focus on deposits (low income savers vs. institutional savers)

Negotiate credit lines

Rationalize operations but diversify Reduce operating costs (to address decreasing profit margins)

Tighten risk management controls (to maintain healthy portfolios)

Manage portfolio growth: emphasis on those products that are short term, have smaller loan sizes and are more profitable

Diversify products and services

Strategies being recommended for BanksMarketing/Increase Public Confidence

Marketing campaign to focus on the importance of savings

Improve your image - Publish financial statements – MixMarket.org

Ratings – Get rated & publish reports Maintain an image of safetyFollow improved transparency & fairness in dealing with clients

Broader Range of Services to their Microfinance Clients…

MABS IV – MEETING THE OPPORTUNITIES & MABS IV – MEETING THE OPPORTUNITIES & CHALLENGESCHALLENGES

Offering the MABS Approach to new banks – “GO BACK TO BASICS”

Product Diversification:Expansion of Micro Agri LoansHousing Microfinance Loans Microinsurance

MABS IV – MEETING THE OPPORTUNITIES & MABS IV – MEETING THE OPPORTUNITIES & CHALLENGESCHALLENGES

Improve Efficiency & CollectionsMobile Phone Banking ServicesSupport RB access to the Credit Bureau System

Small Claims Court InitiativeTraining & Capacity Building – MABSTeRS-Distance Learning

Crisis as Opportunity?Financial crisis could actually produce long-term benefits, even if they are painful – CGAP

• Slower but stable growth• Stronger credit policies & procedures• Support for credit bureau• Better products• Consolidation of weaker banks into stronger ones

• Boost to implement appropriate client protection policies & practices

• Value of deposit-led approach

Be savings-led and inspire your clients to save, match savings with loans, avoid funding mismatch, develop an array of savings and deposit products, be market driven…lend short and lend small, … race up on savings mobilization

C.J. Agwu, Agric Banking FMFB