Download - 20060505 microfinance challenges presentation coetzee

Challenges facing the microfinance “industry” in South Africa

Gerhard Coetzee

2006 MFSA Conference

Outline

• History

• Present

• Future

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

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 exclusion of majority, role of apartheid, distortions due to Usury Act

1992 to 1999

• Key NGO’s collapse

• Exemption under R6000

• Micro lenders and consumer finance

• Consumer protection

• Credit bureaus

• Exemption lifted to R10 000

• Court case / MFRC

• Exponential growth

1999 to 2005

• Khula failed in it’s mandate, looses intermediaries

• APEX concept, design and …..

• Land Bank failed in it’s small farmer finance mandate

• MAFISA, concept, design and ….

• NHFC looses intermediaries – investigate retail

• General failure in development finance

• Consumer Finance Growth continues

• 2nd Exemption Notice, MFRC: – Formalize microlending within Exemption

– Consumer protection

– Improve information & understanding

• More detail coming

Market ‘growth’ in Rand volume

0

5

10

15

20

25

1992 1993 1995 2000 2004 2006

Total (Rb)

Enterpr. ?

LeakageDevelopment

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

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

2006

• MFRC ends

• NCR starts

• Challenges

Challenges – Development Finance(“Second economy?”)

• Understanding of clients

– township 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

Challenges – Asset accumulation• Savings, insurance, investment products (ever mentioned here?)

• Targeted savings products

– Mzanzi experience encouraging

– Smooth consumption, raise repayment, minimize risk

– Is the banks making money, threat of cannibalization

– Savings 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 markets

• Investment products

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

Other countries

• BRI Unit Desa - Indonesia

• Banco do Nordeste – Brazil

• People’s 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

Challenge – Rules and enforcement

• NCR

• Other rules

• Harmonisation of policy and legislation?

• Main challenge – enforcement?

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 innovation

– Use of CE as a monitoring tool

• Pricing issues, competition, monitoring

Short term price comparisons

360%1 monthR1,000Micro-lender 6

336%1 monthR1,000Micro-lender 2

222%1 monthR1,000Bank 660-360%30 daysR75013 lenders

360%1 monthR500Micro-lender 52003MFRC TCOC

259.2%1 monthR500Micro-lender 1

360%1 monthR100Micro-lender 4

360%1 monthR100Micro-lender 3540-1040%25-30 daysR500Cash lender 6



264%1 monthR100Micro-lender 1360%30 daysR500Cash lender 3

228%1 monthR100Bank 6540-1040%7-25 daysR100-R500Cash lender 2

APRTermLoan amountInstitutionsAPRTermLoan amountInstitutions

20032000

Table 9: Comparative Table: Interest Charges by Institutions in 2000 and 2003 (Random Institutions) – Cash Lenders

Longer term price comparisons

198/2096R20007 lenders

80/10512R300027 lenders

56/8324R800021 lenders

70/9512R500023 lenders

2003MFRC TCOC

11212R5,000Bank 2786-12R2,000-R6,000Term lender 1

2099R2,000Micro-lender 72873-6R1,500-R3,000Cash lender 7

14712R2,000Bank 41533<R6,000Cash lender 9

9812R1,000Bank 15724<R9,000Term lender 2

15512R2,000Micro-lender 824218-24<R10,000Cash lender 8

8312R5,000Bank 545-8812>R2,000Term lender 3

APR (%)Term

(months)Loan

amountInstitutionsAPR (%)

Term (months)

Loan amountInstitutions

20032000

Table 10: Comparative Table: Interest Charges by Institutions in 2000 and 2003 (Random Institutions) – Term Lenders

Download - 20060505 microfinance challenges presentation coetzee

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