TC-I Fundwatch: Madura Micro Finance to get $4.52 million from Unitus

Madura Micro Finance has received an investment by Unitus Equity Fund to ramp up their offerings to women self help groups (SHGs) in rural India.

Madura Micro Finance will use UEF’s funding to increase its management bandwidth and institutional capacity as well as continue to expand its customer base, which is comprised primarily of women.  The firm’s central financing product is a group loan to self help groups (SHGs) which are formed and trained through its partner organization, Microcredit Foundation of India. These SHGs undergo training in good financial practice and business skills before being considered eligible for MMFLs loans. Madura does not post to the MIX database. It reported USD 35 million in disbursements in 2007, and an SHG member base of 500,000.

[Source: Microcapital.org]

To Profit or Not to Profit

According to Mr Chu, “to roll back poverty rather than to merely alleviate it”, any solution needs to be able to reach massive numbers, deliver permanent results that can help many generations, provide continuous effort so it gets better and better at what it does, and provide continuous efficiency so it also becomes cheaper and cheaper. Mr Chu believes the only state that can offer all these four requirements is business.

From a review of a debate between the father of microfinance Mohammad Yunus and Michael Chu, former President and CEO of ACCION. Given that today’s Blog Action Day is focused on poverty, it seemed fitting to highlight this issue. 

Can we truly reach microfinance’s potential without the efficiency and scalability gains that business and for-profit models provide? Is profiting off of the poor unethical, and as Yunus argues, should we only be looking to sustain the model at the lowest possible point of surplus?

You can read the rest of the recount by Amy Rennison here at Microcapital.org.

A (micro)creditable partnership

India Post has inked an agreement with National Bank of Agriculture and Rural Development (NABARD) to facilitate micro-credit to women-run Self Help Groups (SHG) in eight states and north eastern states.

In this strategic partnership, India Post will lend the unparalleled reach it has gained into India’s remote villages and the credibility as a reliable family insurer through its various life insurance schemes to provide a big boost to NABARD for achieving its purpose of “facilitating credit flow for promotion and development of agriculture and integrated rural development.”

The latest agreement is inked after the resounding success of the pilot project that was implemented in Tamil Nadu as highlighted in Microcapital.org

This project was first implemented in 2006 as a pilot project in a number of post offices in two districts of Tamil Nadu…It was extended to three additional districts and all post offices in these five districts are currently participSo far, 165 SHGs have received these loans, for a total loan disbursement of Rs 1.35 million (USD 29 thousand). Additionally, 2,900 SHGs have been formed to create credit linkages with 2000 post offices in nine divisions of the state.

A presentation in India Rural Business Summit organized by Federation of Indian Chambers of Commerce and Industry (FICCI) provides finer details on the pilot’s working model, and metrics.

On the whole, India Post’s credibility among the rural and urban poor as one of the least corrupt, and hence the most reliable government organization, extensive reach, and success on a smaller  scale implementation seems to leave only the possible problems due to scaling up to worry about in this initiative.

Just in case you didn’t believe me

The global credit crunch has led to a significant drop in fund flow to the microfinance sector. Banks, which are required to provide 32-40 percent of their loans to the priority sector (which includes rural credit), are the largest providers of funds to MFIs.

They lend to microfinanciers, who then on lend to the poor at a higher rate. But with banks’ lending rates rising more than 200 basis points over the last quarter, microfinanciers are finding it tough to get enough funds to sustain business.

This is an excerpt from an article on Microcapital.org.

News in Microfinance

Here are two stories from Microcapital.org:

And then there were a few

So, it looks as though many smaller MFIs will now become absorbed by the larger players as the microfinance sector is expected to enter into period of substantial consolidation within India. According to Microcapital.org,

The sector, which has lent close to USD 221.9 Million (Rs 10,000 crore), is moving aggressively to expand its operations. With tighter capital adequacy norms expected to come into place in 2009 and 2010, a whole lot of smaller Microfinance Institutions (MFI), are expected to be acquired by larger players.

These larger funds are getting help from outside investors for potential targets to accelerate their growth trajectory and hasten potential exits.

Venture capital funds which specialise investing in MFIs are aggressively scouting for targets in India and according to industry information around USD 100 million is expected to be invested during 2008 into MFIs. MFIs like Grameen Koota which during April raised close to USD 2.2 Million (Rs 10 crore) is looking at raising a further USD 4.4 Million (Rs 20 crore) in the near future.

Such flux is likely to create criticisms as massive consolidation may lead to MFIs moving further upstream and choosing to forgo their original client bases in the BoP for higher income customers. This is definitely a trend that needs to be watched closely.

Mobile Banking asked to take a breather by RBI

So yesterday the Reserve Bank of India called for banks to halt mobile banking services until it can release its operative guidelines. A significant number of Indian banks have already begun offering such services to its clients in an effort to expand their user base and to provide previously untapped populations access to banking.

But A P Hota, chief general manager at the RBI, advises banks to put plans for mobile payments on hold and to “dissociate themselves from any mobile based money transfer service which has not received explicit approval of RBI or not covered by any of the guidelines issued”. [Microcapital.org]

Hopefully such standards will come out sooner than later, as we have seen how poorly India performs with regard to financial inclusion.