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Opportunities in Microfinance Amidst the Financial Crisis. John V. Owens Chief of Party, MABS. 2009 RBAP-MABS National Roundtable Conference May 12-13, 2009 Hyatt Hotel and Casino Manila. Microfinance Still Hums, Despite Global Financial Crisis. - PowerPoint PPT Presentation
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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