Prospects for Investment in South Asian Microfinance (2009)

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The microfinance sector in South Asia has experienced exceptional growth inrecent years with notable progress in quality and diversity of products as wellas outreach. Nevertheless, with approximately 50% of global demand in SouthAsia, the outreach of microfinance in the region remains very low, estimatedat less than 10% of the market, including less than 3% in Pakistan and 2% inAfghanistan. In India alone, more than 300 million potential clients still lack accessto financial services. It is clear that in order to continue, and even accelerate, theexpansion of access to financial services for the poor, new sources of fundingmust be developed for growing MFIs in the region. While the global financialcrisis presents very real risks of reduced levels of investment in the sector, it evenfurther strengthens the need for clear facilities for investment as well as robustMFIs who can present commercially sustainable operations to investors.Developed through the Financing Development project funded by the EuropeanCommissions Asia Invest grant line, the South Asian Microfinance Network(SAMN) seeks to foster increased investment in regional MFIs through capacitybuilding and networking with local and European investors, researchers, consultants,and other practitioners. The network is initially being set up by ACTED, and itspartners, in Afghanistan, India, Pakistan, and Sri Lanka and currently represents 18MFI partners in the region.

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SAMN South Asian Microfinance Network

Prospects For Investment In South Asian MicrofinancePresented at the Second Annual Convergences 2015 Forum on Microfinance Paris, April 30th, 2009

A g e n c y f o r t e c h n i c a l c o o p e ra t i o n a n d d e v e l o p m e n t .

Development Services

access

RSPN

2015

This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of ACTED and can in no way be taken to reflect the views of the European Union.

Country Investment Guidelines

contents

Foreword Acknowledgement Abbrevations Afghanistan Country Investment Guidelines Economic and Financial Background The Microfinance Sector Framework for Investment in Microfinance Sector in the Country Pitchbooks AFS CFA Madrac mofad OXUS Afghanistan Parwaz India Country Investment Guidelines Economic and Financial Background The Microfinance Sector Framework for Investment in Microfinance Sector in the Country Pitchbooks CMPL Gram Utthan Mahashakti Sonata VFSPL Pakistan Country Investment Guidelines Economic and Financial Background The Microfinance Sector Framework for Investment in Microfinance Sector in the Country Pitchbooks ASASAH DAMEN SAFWCO SRSP UPAP Sri Lanka Country Investment Guidelines Economic and Financial Background The Microfinance Sector Framework for Investment in Microfinance Sector in the Country Pitchbooks AMF LMCL Annexure Reference

2 3 4 9 9 10 12 15 18-28 18 20 22 24 26 28 30 30 31 34 37 42-50 42 44 46 48 50 52 52 53 55 59 62-70 62 64 66 68 70 72 72 73 76 80 82-84 82 84 86 891

ForewordThe microfinance sector in South Asia has experienced exceptional growth in recent years with notable progress in quality and diversity of products as well as outreach. Nevertheless, with approximately 50% of global demand in South Asia, the outreach of microfinance in the region remains very low, estimated at less than 10% of the market, including less than 3% in Pakistan and 2% in Afghanistan. In India alone, more than 300 million potential clients still lack access to financial services. It is clear that in order to continue, and even accelerate, the expansion of access to financial services for the poor, new sources of funding must be developed for growing MFIs in the region. While the global financial crisis presents very real risks of reduced levels of investment in the sector, it even further strengthens the need for clear facilities for investment as well as robust MFIs who can present commercially sustainable operations to investors. Developed through the Financing Development project funded by the European Commissions Asia Invest grant line, the South Asian Microfinance Network (SAMN) seeks to foster increased investment in regional MFIs through capacity building and networking with local and European investors, researchers, consultants, and other practitioners. The network is initially being set up by ACTED, and its partners, in Afghanistan, India, Pakistan, and Sri Lanka and currently represents 18 MFI partners in the region. Presented at Second Annual Convergences 2015 Forum, the report Prospects for Investment in South Asian Microfinance serves as an introduction to our network, partners, and the investment landscape in the region. We would like to thank our partners, ACCESS Development Services and Rural Support Program Network (RSPN), along with our associates, Standard Chartered Bank, Microfinance Investment Support Facility for Afghanistan (MISFA), OXUS Development Network and Tiare Group, for their support in developing this report, and setting up the South Asian Microfinance Network. Finally, we would like to thank the European Commission for funding the Financing Development project. We expect that this report will be useful in introducing the investment climate in the region and attracting attention to our network partners. For more information about SAMN please visit our website at www.samn.eu. SAMN Paris, 2009

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Country Investment Guidelines

AcknowledgementThis publication is a concerted effort of the SAMN team with active support from OXUS Development Network and ACTED in Paris. The publication is developed in close cooperation with SAMN Program Managers. We would like to thank Pratul Ahuja, ACCESS Development Services India, Dinesh Kanagratnam, ACTED Sri Lanka, Syed Ali, RSPN, Pakistan and Narendra Nayak, ACTED Afghanistan for their efforts in collecting and verifying the information included in the publication. We would also like to thank Dale Lampe, Director Operations and Katrin Fakiri, Managing Director of MISFA in Afghanistan, Shashi Srivastava, Vice President, Grameen Capital India, Deepak Alok, Founder and Partner M2i Consulting in India, Shakila Wijerwardeua, CEO of SEEDS, CP Abewickrama, Deputy General Manager - Personal Banking & Network Management Hatton National Bank Ltd and Ravi Tissera, Chief Executive Officer, LOLC in Sri Lanka, for reviewing the document and providing valuable inputs. We also thank David Bartocha, Microfinance and Monitoring Specialist, GTZ Sri Lanka for sharing the latest data on MFIs in Sri Lanka. Finally we are grateful to the European Commission for the funding support that allowed us to bring out this publication.

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ABBREVATIONSADB AFN AFS AISA AKAM AKRSP AMA ANDS BAB BASIX BOI CAGR CBOs CBSL CDC CFIs CGAP CRBs CRR CSO DAB DFID DMFI ECB EIU EPF EU FDI FEMA FIPB FMFB-A FMO GDP GoA GoI GoP GTZ HDI IFAD IFC IMF INR IRDA IRDP JLG KfW LCB LIBOR4

: Asian Development Bank : Afghani : Ariana Financial Services : Afghanistan Investment Support Agency : Aga Khan Agency for Microfinance : Aga Khan Rural Support Program : Afghanistan Microfinance Association : Afghanistan National Development Strategy : BRAC Afghanistan Bank : Bhartiya Samruddhi Investments and Consulting Services : Board of Investment : Compounded Annual Growth Rate : Community Based Organizations : Central Bank of Sri Lanka : Capital for Development : Commercial Finance Institutions : Consultative Group to Assist the Poor : Co-operative Rural Banks : Cash Reserve Ratio : Central Statistical Organization : Da Afghanistan Bank : Department for International Development : Deposit taking Microfinance Institutions : External Commercial Borrowing : Economist Intelligence Unit : Employee Provident Fund : European Union : Foreign Direct Investment : Foreign Exchange Management Act : Foreign Investment Promotion Board : First Microfinance Bank Afghanistan : Financierings-Maatschappij voor Onvikkelingslande (Netherlands Development Finance Company ) : Gross Domestic Product : Government of Afghanistan : Governement of India : Government of Pakistan : Gesellschaft fr Technische Zusammenarbeit : Human Development Indicator : International Fund for Agriculture Development : International Finance Cooperation : International Monetary Fund : Indian Ruppe : Insurance Regulatory Development Authority : Integrated Rural Development Program : Joint Liability Group : Kreditanstalt fur Wiederaufbau : License Commercial Bank : London Interbank Offered Rate

Country Investment Guidelines

LMPA LOLC LSB MF MFB MFI MIGA MISFA MIX MoF MRRD NABARD NBFCs NBFIs NDTF NGO OSS PAR PKR PMN PPAF PRISM PSB RBI RDBs ROA ROE RRB RRDBs RSPN RSPs SBLP SBP SBS SHGs SIDA SIDBI SLR TCCS UAE UK UPAP US USAID VAT WB WCCU

: Lanka Microfinance Practitioners Association : Lanka Orix and Leasing Company : License Specialized Bank : Microfinance : Microfinance Bank : Microfinance Institution : Multilateral Investment Guarantee Facility : Microfinance Investment Support Facility for Afghanistan : Microfinance Information Exchange : Ministry of Finance : Ministry of Rehabilitation and Rural Development : National Bank for Agriculture & Rural Development : Non Banking Financial Company : Non Banking Finance Institutions : National Development Trust Fund : Non Governmental Organization : Operational Self Sufficiency : Portfolio at Risk : Pakistan Rupee : Pakistan Microfinance Network : Pakistan Poverty Alleviation Fund : Program for Increasing Sustainable Microfinance : Public Sector Bank : Reserve Bank of India : Regional Development Banks : Return of Asset : Return on Equity : Regional Rural Bank : Regional Rural Development Banks : Rural Support Program Network : Rural Support Programs : (SHP) Bank Linkage Program : State Bank of Pakistan : Samrudhi Bank Societies : Self Help Groups : Swedish International Development Cooperation Agency : Small Scale Industrial Development Bank of India : Statutory Liquidity Ratio : Thrift and Credit Co-operative Societies : United Arab Emirates : United Kingdom : Urban Poverty Alleviation Program : United States : United States Agency for International Development : Value Added Tax : World Bank : World Council of Credit Unions

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Project IntroductionINTRODUCTIONThe South Asian Microfinance Network (SAMN) is an initiative launched in mid-2008 by ACTED alongside a number of South Asian and European Microfinance stakeholders to promote economic development by facilitating investment into tier-II MFIs in South Asia. SAMN is among the first initiatives of this kind, providing a regional platform to facilitate coordination and cooperation between the European financial sector and the microfinance sector in South Asia. As the global economic crisis reduces the access by MFIs to sources of financing, with significant impact on their operations, SAMN plays a key role in enhancing new linkages between potential investors and MFIs. In addition, the network serves as a knowledge base to its members, providing a comprehensive source for microfinance and investment related research, news, issues and opportunities. SAMN is formed under ACTEDs Financing Development project funded by the European Unions Asia-Invest budget line. Asia-Invest is an initiative by the European Commission to promote and support the co-operation between EU and Asian companies by facilitating mutually beneficial partnerships in order to increase trade and investment flow between the EU and Asia. The network will become a link for international investors interested in the region offering comprehensive information on regional investment regulation as well as detailed assessments of, and contacts to, investmentready MFIs. The network has already established partnerships with 3 international investors, Standard Chartered Bank, Oxus Development Network, and Tiare Group, and is actively pursuing links with other interested investors. To continue facilitating the development of our partners and the sector, members of the network will also include a variety of MF experts, including top researchers and research institutes, MF-related NGOs, and an international roster of consultants with expertise in South Asian MF, which will include a consultant rating system. We have also developed linkages with other important MF stakeholders including apex organizations (such as project associate MISFA), national MF networks, donor organizations, and other service providers.

NETWORK COMPONENTSTo help develop the regional MF sector and increase international investment, SAMN offers its members 4 types of services: - Facilitation of Investment: SAMN is a point of entry for international investors interested in South Asia, with regularly updated and distributed guidelines on regional investment regulations and procedures, tailored advice and consultancy to investors, provision of detailed assessments, business plans, and other information on SAMN MFI partners, and regional investment events to introduce investors to our partners. - Capacity Building: Focusing on increasing investment readiness and absorption capacity, SAMN offers partner MFIs expert trainings through our roster of consultants and network associates, exposure visits to leading regional MFIs as well as European banks, and access to our online MF resource center. - Resource Center: The network is a focal point for information on regional MF providing a regularly updated website (www.samn.eu) with news, events, original MF research, info on partners, and links to other resources, a monthly newsletter including interviews with sector leaders and reviews of important MF events and issues, sponsorship of regional MF and investment conferences and events, and links to MF think-tanks and research institutes. - Related Initiatives: SAMN members is also eligible for participation in related MF initiatives being implemented by ACTED and our associates, including Babyloan, an internet lending platform linking individuals in Europe to specific MFI clients seeking loans, and Octopus, a

NETWORK PARTNERSSAMN provides a platform for linking South Asian MFIs with regional and European investors, consultants, researchers, donors, and other practitioners. The network initially focuses its work in Afghanistan, India, Pakistan, and Sri Lanka, partnering with 18 regional MFIs under the Financing Development project. In the near future, SAMN will expand across the region into Nepal, Bangladesh, and Myanmar, opening membership to other qualified MFIs and MF stakeholders in order to become a comprehensive resource and networking center for microfinance across South Asia. As the networks principal objective is to facilitate increased foreign investment in regional MFIs, SAMN has targeted strong tier-II MFIs for membership, as these organizations can most effectively capitalize on the networks services to increase their access to commercial investment. At this stage, we still do not include the many very innovative, community-based tier-III MFIs in the region, as these organizations often lack the operational foundations and growth plans required for attracting commercial investment in the near term. SAMN excludes the small group of commercialized tier-I MFIs, which already have access to abundant capital from commercial sources. SAMN will also bring together a variety of other important MF stakeholders in South Asia and Europe.6

Country Investment Guidelines

free open source loan tracking software.

OBJECTIVE OF THE REPORTThis report serves as an introduction to SAMN and the Financing Development project. It is particularly

targeted to potential investors in South Asian microfinance, with an overview of investment conditions, regulations and procedures in each project country as well as a brief look at each of our MFI partners.

Network Partners and AssociatesPROJECT MANAGEMENTACTED is a French-based international relief and development agency founded in 1993 and operating in more than 23 countries. SAMN is one of the various global initiatives by ACTED to contribute to the development of the Microfinance sector.

IMPLEMENTING PARTNERACCESS is an Indian non-profit company, initially promoted by Care India, specializing in technical assistance in microfinance and rural livelihoods. ACCESS provides technical assistance, capacity building and incubation serv...

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