20060505 microfinance challenges presentation coetzee

Download 20060505 microfinance challenges presentation   coetzee

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1. Challenges facing the microfinance industry in South Africa Gerhard Coetzee 2006 MFSA Conference 2. Outline History Present Future 3. Short history Four phases Before 1992 from struggle to financial services 1992 to 1999 growth after legislative changes 1999 to 2005 era of growth continues in a more regulated environment (MFRC) 2006 - onwards 4. Until 1992 NGO dominated market Entrepreneurial focus Origins in struggle and non-financial NGOs Difficult to make the change USAID spent $20m between 1988 - 1999on mostly NGOs Decline of the NGOs, but exception(s) Decline of the parastatal institutions Financial exclusionof majority, role ofapartheid , distortions due to Usury Act 5. 1992 to 1999 Key NGOs collapse Exemption under R6000 Micro lenders and consumer finance Consumer protection Credit bureaus Exemption lifted to R10 000 Court case / MFRC Exponential growth 6. 1999 to 2005 Khula failed in its mandate, looses intermediaries APEX concept, design and .. Land Bank failed in its small farmer finance mandate MAFISA, concept, design and . NHFC looses intermediaries investigate retail General failure in development finance Consumer Finance Growth continues 2 ndExemption Notice, MFRC:Formalizemicrolending within Exemption Consumer protection Improveinformation & understanding More detail coming 7. Market growth in Rand volume 8. Assessing MFRC Formalize microlending: ~2200 registered, % unregistered ? Black MLs, but informal township MLs (?) Consumer protection: Help for borrowers, complaints & enforcement Progress on disclosure & reckless lending (?) Information, understanding: Central role in sectoral data & analysis Efforts to inform, educate public (?) Pro-active stance: enforcement and beyond Institutional change: NLR, legal/judicial issues, National Credit Act Influencing policy through research: competition, housing, indebtedness 9. MFRC outcomes, impact Major change in microlender behavior Influx of banks: lowered reputational risk R22+ billion market, evidence of substantial use for developmental purposes (larger volume than DFIs?) Quantum leap in information, understanding Reinforce regulatory approach 10. 2006 MFRC ends NCR starts Challenges 11. Challenges Development Finance (Second economy?) Understanding of clientstownship money lenders example real market research Expansion of products, expanded options SMME finance attacking the self employed market Regulatory environment -heavy burden of red tape Registry of security interests Explicitly target productive uses of microfinance Transformation of NGO MFIs Business Development Services Commercial banks already in there, but more focus needed However, many success stories, in Africa and beyond 12. Challenges Asset accumulation Savings, insurance, investment products (ever mentioned here?) Targeted savings productsMzanzi experience encouraging Smooth consumption, raise repayment, minimize risk Is the banks making money, threat of cannibalizationSavings Targets Not Addressed in Anticipated Legislation, Charter Addressing negative real interest rates on savings instruments Need for bundling lending and saving instruments. Repayment is a combination of amortized principal, interest, forced saving Banco Sol model Accion model Village Banking Model Housing: embryonic township marketsInvestment products 13. African examples National Microfinance Bank Tanzania Amhara Credit and Savings Institution Ethiopia Banque du Caire Egypt K-Rep Kenya Equity Bank Kenya CERUDEB Uganda Novo Banco - Mozambique Novo Banco - Angola 14. Other countries BRI Unit Desa - Indonesia Banco do Nordeste Brazil Peoples Bank of Sri Lanka Banrural Guatemala Bank Pertanian Malasia Agricultural Development Kyrgyz Agricultral Finance Cooperation Kyrgyzstan Land Bank, Development Bank, National Bank Philippine BancoSol Bolivia 14 other banks in Eastern Europe Grameen Bank - Bangladesh 15. Challenge Rules and enforcement NCR Other rules Harmonisation of policy and legislation? Main challenge enforcement? 16. Challenge Information Need for even better data and information Better credit scoring and pricing models Having better information on individuals, households and firms applying for / using credit for policy development Training and capacity building Major need, no recognition, not willing to pay Short sighted need to invest in most strategic asset Consumer education Need for improved outreach Focus on lower income strata Distinct lack of innovationUse of CE as a monitoring tool Pricing issues, competition, monitoring 17. Short term price comparisons 360% 1 month R1,000 Micro-lender 6 336% 1 month R1,000 Micro-lender 2 222% 1 month R1,000 Bank 6 60-360% 30 days R750 13 lenders 360% 1 month R500 Micro-lender 5 2003 MFRC TCOC 259.2% 1 month R500 Micro-lender 1 360% 1 month R100 Micro-lender 4 360% 1 month R100 Micro-lender 3 540-1040% 25-30 days R500 Cash lender 6 360% 1 month R100 Micro-lender 9 640-780% 25-30 days R500 Cash lender 5 336% 1 month R100 Micro-lender 2 360-450% 25-30 days R500 Cash lender 4 264% 1 month R100 Micro-lender 1 360% 30 days R500 Cash lender 3 228% 1 month R100 Bank 6 540-1040% 7-25 days R100-R500 Cash lender 2 APR Term Loan amount Institutions APR Term Loan amount Institutions 2003 2000 Table 9: Comparative Table: Interest Charges by Institutions in 2000 and 2003 (Random Institutions) Cash Lenders 18. Longer term price comparisons 198/209 6 R2000 7 lenders 80/105 12 R3000 27 lenders 56/83 24 R8000 21 lenders 70/95 12 R5000 23 lenders 2003 MFRC TCOC 112 12 R5,000 Bank 2 78 6-12 R2,000-R6,000 Term lender 1 209 9 R2,000 Micro-lender 7 287 3-6 R1,500-R3,000 Cash lender 7 147 12 R2,000 Bank 4 153 3

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