Standard Chartered, ACCION Call for Greater Capital-Market Engagement to Fund South Asian Microfinance
Delhi Conference Highlights Regional Microfinance Milestones, Investment Trends and Conditions for Industry Success
Delhi, May 1, 2008 — Microfinance institutions (MFIs) in South Asia urgently need access to capital markets to expand their outreach, said Jaspal Bindra, CEO, Asia, Standard Chartered Bank, in opening comments at the ACCION International and Standard Chartered-hosted conference, ‘Microfinance Cracking the Capital Markets South Asia,’ held April 29-30 in Delhi. According to Bindra, South Asia serves more microfinance borrowers than any other geographic region — 51 percent of the global demand base and 20 of the top 50 fastest-growing MFIs in the world are located in South Asia. MFIs, he noted, “no longer have marginal, but mainstream, financial requirements ― they need to be equipped to offer all the products that formal financial institutions provide."
‘MCCM South Asia’ has brought together more than 200 institutional and private investors, leading microfinance institutions in Asia, international and regional banks, emerging markets specialists and rating agencies, to analyze the successes, challenges and emerging trends in South Asian microfinance. The conference is being held at the Taj Mahal Hotel in Delhi, with supporting sponsorship by IFC, SIDBI and Unitus.
“The private sector is waking up to the needs of the four billion people at the base of the pyramid,” said María Otero, ACCION president and CEO. While citing investments that were ‘unprecedented’ in the microfinance industry, such as those made in Indian MFIs SKS and SHARE, Otero reported that demand for financial inclusion in India and South Asia remains largely unmet.
Key issues include developing quality financial services; developing greater transparency of MFIs; balancing profit and social mission; and addressing issues of regulation. Nonetheless, Otero remains optimistic: “We’ll see a marriage between microfinance and the private sector, and that marriage will prevail,” she asserted. The conference marks a period of explosive growth – and significant growing pains – for microfinance in India, where hundreds of millions of rural and urban poor lack access to financial services. While neighbor Bangladesh has long been one of the world’s most developed microfinance markets, fewer than one million Indians were clients of microfinance organizations (MFIs) as recently as 2003. By the end of 2007, however, according to Sa-Dhan, an association of community development finance institutions in India, Indian MFIs were serving 10.5 million clients. In 2006-2007 alone, the Indian MFI market approximately tripled.
At the same time, according to development consultancy Intellecap, fewer than 10 percent of India’s 75 million poor families currently have access to microcredit. Based on demand and current growth rates, Intellecap forecasts a client base of 50 million by 2012. To get there, the country’s aggregate outstanding loan portfolio would have to rise from approximately $769 million today to $6 billion in 2012.
Such growth requires a vast expansion of private, for-profit investment, which in turn requires a rapid increase in the number of MFIs that meet the high standards of governance, operational efficiency and transparency required to attract investment capital. Progress on this front has also been rapid in recent years. According to Sa-Dhan, average operating costs for the 129 MFIs included in the association’s 2007 survey dropped from 15.05% in 2005 to 11.76% in 2007.
Conference discussions returned frequently to governance, regulation and the future role of the donor community in microfinance. Good governance, the panelists concurred, will prove an essential ingredient for success as MFIs seek to tap the capital markets.
Regulation remains equally critical, playing a seminal role in how well the sector responds to growth in each South Asian country. The topic prompted the head of one leading Indian MFI to declare, “There is financial apartheid in our country, and the financial regulators uphold this apartheid.”
Finally, the donor community underscored the need for the industry to revisit its general approach and strategy, suggesting a move away from direct funding of MFIs, to instead one of providing risk capital for piloting new products and reaching new segments.
“It’s exciting times,” observed Elizabeth Littlefield, CEO of CGAP, “and the poor clients have the potential to be the real winners in all of this.”
Additional conference information and the full program can be viewed at: http://southasia.crackingthecapitalmarkets.com
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