Microfinance Simulcast -2010 Class Two€¦ · Campus Coordinator Call Cool things are happening • Univof Denver –Partner w/ Deutsche Bank, due diligence and field visit on DB

Microfinance Simulcast - 2010

Class Two

10/31/2010 1SVMN Microfinance 2010 Class Two - Sean Foote

Today

Recap of last week

Industry structure

Group lending

Gender

Kendall Mau, CEO Prisma Microfinance

Next week

10/31/2010 2SVMN Microfinance 2010 Class Two - Sean Foote

Campus Coordinator Call

Cool things are happening

• Univ of Denver – Partner w/ Deutsche

Bank, due diligence and field visit on DB

investments

• Emory – Bring in local MFI to apply

learnings

• Bowling Green – Facebook Blog

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 3

Last Week’s Three Big Questions

Why doesn’t money flow to the poor?

What does history tell us about the poor and

financial products?

Should MFIs make money or not?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 4

Last Week’s Big Discussionon MFIConnect

Sam Daley-Harris and I sharing thoughts on

“microfinance for redemption”

http://www.mficonnect.com/group/berkeleymi

crofinancesimulcastgroup/forum/topics/week-

1sam-daleyharris

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 5

Today

Recap of last week

Industry structure

Group lending

Gender

Kendall Mau, CEO Prisma Microfinance

Next week

10/31/2010 6SVMN Microfinance 2010 Class Two - Sean Foote

7

US$17B

US$263B

Microfinance

Latent Microfinance Demand Total Investment

Current supply

Potential demand

100% =

~$17B

___________________________1. Source: McKinsey’s “Optimizing Capital Supply in Support of Microfinance Industry Growth” presented October 2006. Study drew upon 2004 data.2. Commercially-oriented capital - has clearly stated financial objectives, but is largely funded by private donors, development agencies, and other such actors in the microfinance industry. 3. Development capital – aims to make capital available to MFIs through sustainable mechanisms to support their development and their growth without necessarily achieving financial return.

The Size of the Pie

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 8

Geography Differences

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 9

Source: The Mix Market, 2006 and 2009 reported data

Assets

$ million

22% CAGR22% CAGR

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 10

Ecosystem

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MFIs ClientsSources of capitalMFI funds

Sources of capitalFunds of funds

MFI fundsSources of capital

1 Billion poor

Foreign exchange

SKS

ASA

Non-mfi providers

Gray Ghost

Elevar

Specialized funds

(Creation)

SaronaOmidyar

Gray Ghost

Foundations

“For profits”

Guarantee

Measurements

OS systems, mobile

A Few More Names to Know

Grameen Bank

ASA

BRAC

ICICI

SKS

Compartamos

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 12

Kiva.org

MicroPlace

Freedom From Hunger

Opportunity Fund

Unitus

A Few Organizations and Sources

of Data

CGAP

SEEP

The Mix

Market

IAMFI

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 13

www.cgap.org

www.seepnetwork.org

www.mixmarket.org

www.iamfi.com

Connecting microenterprise

practitioners in a global learning

community

The source for data on the

global microfinance sector

Advancing financial access for

the world’s poor

Helping microfinance

professionals achieve their goals

Today

Recap of last week

Industry structure

Group lending

Gender

Kendall Mau, CEO Prisma Microfinance

Next week

10/31/2010 14SVMN Microfinance 2010 Class Two - Sean Foote

Group Lending

Self selected team

� Local knowledge of people

Joint liability

� Social collateral

Meetings with public payment

Small loans which escalate

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Why Group Structure?

What is advantage to lender?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 16

If you are reading this during the

simulcast…

Why bother flipping ahead? It spoils all the fun.

Wait until I start talking about the answer. I

know, it feels very non-technology, instant

access methodology for the non-twitter set,

but it can be fun

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 17

Still trying to read ahead?

Solve this puzzle,

then, if you are

impatient with

where the

conversation is

headed.

Or just back up.

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 18

Bank Economics

Origination

Underwriting

Administration

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More clients per “loan”

Assortative risk matching =

Lower default rates

3 villages/day instead of one

Less/no paperwork

Reduced moral hazard

Why Group Structure?

What is advantage to lender?

What are challenges for borrower?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 20

Why Group Structure?

What is advantage to lender?

What are challenges for borrower?

When will social collateral fail?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 21

Why Group Structure?

What is advantage to lender?

What are challenges for borrower?

When will social collateral fail?

Why public repayment?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 22

Why Group Structure?

What is advantage to lender?

What are challenges for borrower?

When will social collateral fail?

Why public repayment?

What are alternatives to group lending?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 23

Alternatives to Groups

Just prevent access to loans

Progressive loans

Change frequency of loan repayment

Collateral

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 24

Why Group Structure?

What is advantage to lender?

What are challenges for borrower?

When will social collateral fail?

Why public repayment?

What are alternatives to group lending?

Are groups respectful of individuals?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 25

Problems with Group Lending

Heavy burden on clients

People prefer solo

Loan officer pressure

Punishment cuts off all people

More credit available = less pain of cut-off

Social sanctions with families, urban areas

Government interference

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 26

Today

Recap of last week

Industry structure

Group lending

Gender

Kendall Mau, CEO Prisma Microfinance

Next week

10/31/2010 27SVMN Microfinance 2010 Class Two - Sean Foote

Gender

Why do women make better clients than men?

� 1.3% of women struggle to pay versus

15.3% of men (Grameen, 1991)

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 28

Are you reading ahead?

What’s the fun of that?

Scroll back if so, why read what I have to say

about it before you get to think about it?

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 29

Seriously,

Are you the person that watches the last 5 minutes of the movie first?

Let me help you, then, with some classic movie endings

• She’s really a man

• He’s already dead

• The whole village is in a wilderness preserve. The adults are the “monsters”

So, back up already

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 30

Gender - Possible Business ReasonsDoes Not Hold True in All Geographies

70% of the poor are women

Women have less access to loans and work

alternatives

� Costs of loans for clients (time) can be lower

Peer pressure and loan officer pressure are

different by gender

Social gains? Data is mixed

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 31

Intermission

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 32

Today

Recap of last week

Industry structure

Group lending

Gender

Kendall Mau, CEO Prisma Microfinance

Next week

10/31/2010 33SVMN Microfinance 2010 Class Two - Sean Foote

Kendall Mau

CEO, Prisma Microfinance, Honduras and Nicaragua

Silicon Valley Federal Credit Union, Vice President

International banking consultant

Castle & Cooke

Peace Corps

10/31/2010 SVMN Microfinance 2010 Class Two - Sean Foote 34

Today

Recap of last week

Industry structure

Group lending

Gender

Kendall Mau, CEO Prisma Microfinance

Next week

10/31/2010 35SVMN Microfinance 2010 Class Two - Sean Foote

10/31/2010 36

Class 3: Managing and Working at

an MFI November 9, 2009

Topics:

� Management challenges – compensation and budget

� What can go wrong

� Scalability, strategy drift

Guest Speaker: Monica Brand, Direct, Frontier Investments, ACCION

Case study: “Controlling Growth at a Mexican Microfinance Start-Up,” Cases for Management Education. (4 pages) http://emdapcasebook.iie.org/pdfs/4.3%20Controlling%20Growth%20MFI%20Startup-Mexico.pdf

Readings:

� Article: “Designing Staff Incentive Schemes,” Martin Holtmann,

MicroSave Briefing Note #15. (2 pages)

http://www.microfinancegateway.org/p/site/m//template.rc/1.9.29659

� Website: ACCION, www.accion.org

SVMN Microfinance 2010 Class Two - Sean Foote

Questions

10/31/2010 37SVMN Microfinance 2010 Class Two - Sean Foote

Microfinance Simulcast - 2010

Class Two

10/31/2010 38SVMN Microfinance 2010 Class Two - Sean Foote