Sri Lanka Microfinance Forum - Funding

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This is the third issue of Sri Lanka Microfinance Forum, a quarterly newsletter which focuses on educating people on best practices, highlighting international standards, making awareness on new trends, highlighting the strengths and weaknesses in the sector and most importantly creating a communication platform for all the stakeholders in the sector

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<ul><li><p>Page 1 Volume 3, January 2010 </p><p>Funding for MFIs </p><p>Where to open the tap? </p><p>SPECIAL FEATURES IN THIS EDITION Exclusive Interview with NDTF 4 Microfinance Impact on Shelter 5 Market Research Product Development 6 Liquidity Risk Management for MFI 7 </p><p>Sri Lanka Microfinance Forum ISSN 2012-5666 Volume 3, January 2010 </p></li><li><p> Page 2 Sri Lanka Microfinance Forum </p><p>WORD OF THE EDITORS </p><p>In the next issue we would like to discuss about Microfinance Associa-</p><p>tions and their role. We therefore encourage all microfinance practi-</p><p>tioners, regulators, promoters or other stakeholders to send us their views, opinion and experiences </p><p>Networking has become one of the major factors for the success and </p><p>growth of the microfinance sector in a country or region. Strong regional </p><p>and country-level assocations en-</p><p>able microfinance practitioners to exchange their experiences, build </p><p>common performance standards, and influence policy makers to fa-</p><p>cilitate the growth of microfinance sector, etc. SEEP, BWTP, WWB, INAFI and </p><p>Pakistan Network are some of the success stories in the microfinance </p><p>sector. What is the situation in Sri Lanka? Do we need an association? </p><p>Does it provide a platform to Sri </p><p>Lankan MFIs to share their experi-ences? Is it a collective body of </p><p>MFIs? What is their role? These are few questions raised by stake-</p><p>holders in the sector. Therefore we would like to provide a space for you in the next issue to express </p><p>your views on this regards. Please send your comments, sug-</p><p>gestions and experience to microfinance.forum@gmail.com </p><p>IN THE NEXT SLMF ISSUE: MICROFINANCE ASSOCIATIONS WHAT IS THEIR ROLE? </p><p>LOCAL NEWS </p><p>DEAR READER </p><p>Thank you all for the comments and valuable feedback given for the first </p><p>and second editions of SLMFF, which encouraged and motivated </p><p>us to continue with this task of edu-cating, enhancing and disseminat-ing information for the betterment </p><p>of the sector. Within the last few months we were </p><p>able to bring various local and inter-national microfinance practitioners, consultants, networks, regulators, </p><p>donor agencies to a common plat-form and to discuss various issues </p><p>we had in the sector, share the ex-periences and enhance our knowl-</p><p>edge. We are very thankful to all those who shared their experience with us. </p><p>We would like to present you the third edition of the Sri Lanka Micro-</p><p>finance Forum, which will focus on the topic of funding for MFIs in Sri </p><p>Lanka. At the moment funding is one of the most important topics in the microfinance sector and there-</p><p>fore we tried to discuss about the funding for MFIs in different as-</p><p>pects and share different views. </p><p>Introduction of interest rate ceiling by NDTF is one of the major aspects </p><p>being discussed in the sector. SLMFF was able to interview Mr. </p><p>Piyadasa, the director credit of NDTF to share their views behind </p><p>this move. We take this opportu-nity to thank Mr. Silva and Mr. Piyadasa of NDTF for their support </p><p>and contribution. We would like to thank Mr. </p><p>Charitha Ratwatte from Sri Lanka Business Development Centre, Ms. Nadeera Ranabahu, Mr. Niraj </p><p>Kumar and Mr. Chandrasena for contributing with articles to this </p><p>issue. Of course we would also like to thank the board of advisors for </p><p>their valuable advice and support. In addition to that we would like to </p><p>share some views expressed through the poll conducted by </p><p>SLMFF last month. It was revealed that, 44% who have replied are </p><p>technical service providers and 33% are MFIs. 44% said that ease of ac-cess to local debit funding is good </p><p>and ease of access to international equity funding is very bad while </p><p>55% mentioned that ease of access </p><p>to international debit funding is bad. It can be highlighted that 66%, </p><p>55% and 55% pointed out that sav-ings regulation, exchange control </p><p>regulation and international cur-rency funding are three major areas </p><p>to be improved respectively. And also it can be noted that 88% ex-pressed that the interest rate ceiling </p><p>would make more difficult for MFIs to sustain. </p><p> This issues consists some of the views expressed by pioneers in the </p><p>industry as well as some case stud-ies. We hope you will enjoy reading </p><p>this issue. For subscription, queries, com-</p><p>ments, article contributions in any language, and others, please write to microfinance.forum@gmail.com </p><p>We wish you a HAPPY NEW YEAR </p><p>and wish the Microfinance Sector a prosperous and great year ahead. </p><p>Yours sincerely, Niroshani Sawanawadu and </p><p>Imran Nafeer </p><p>Niroshani Sawanawadu </p><p>ICT / Microfinance Consultant </p><p>NEWS ROUND </p><p>HNB opens its first Micro Banking unit dedicated to microfinance: The HNB micro banking units at </p><p>Kurunduwatte in Nawalapitiya Electorate fulfills the promise of </p><p>Pubuduwa by making financial services accessible to people in rural areas. The concept behind this ini-</p><p>tiative is to offer a comprehensive package of services including finan-</p><p>cial assistance, technical know-how and marketing arrangements for </p><p>rural community </p><p>Sinhala ad Tamil translations of Sri Lanka Microfinance Industry </p><p>Report 2009 now available: For the first time a comprehensive industry </p><p>report about the Sri Lankan microfi-nance sector is available in English, </p><p>Sinhala and Tamil language. The reports can be downloaded from </p><p>http ://ww w.mic rofi na nce .l k/gtzpublic.php Printed copies of the reports may be </p><p>obtained from the ProMiS office, Level 16, East Tower, World Trade </p><p>Centre, Colombo 1. </p><p>(www.microfinance.lk) </p><p>New company to cater to Micro-Finance in Sri Lanka </p><p>A new financial institution, Global Trust Financial Services Limited, </p><p>will be set up shortly in Sri Lanka to cater to a huge demand for micro-</p><p>finance, estimated to be around LKR125 billion. According to the </p><p>Managing Director Susantha Fer-nando the company is seeking ap-proval from the Central Bank (CB) </p><p>to operate as a finance company. S o u r c e : h t t p : / /</p><p>www.sunda ytimes .l k/091018/FinancialTimes/ft40.html </p><p>(Continued on page 3) </p><p>Imran Nafeer </p><p>Microfinance Consultant </p></li><li><p>Page 3 Volume 3, January 2010 </p><p>NEWS ROUND (CONTD) </p><p>Management Development Train-</p><p>ing of Trainerswas held at Co-lombo from 16th to 21st November </p><p>2009. This workshop was conducted by Centre for Microfinance Leader-</p><p>ship, WWB for selected participants from South Asian MFIs. </p><p> For the first time in Sri Lanka Social </p><p>Performance Management work-shop was conducted from 25th to </p><p>28th November 2009. This is con-</p><p>ducted by Development Facilitators with the Special support from GTZ </p><p>ProMis project and EDA Rural Sys-tems (Pvt) Ltd in India. Participants </p><p>from 8 MFIs participated for the workshop. </p><p>(Continued from page 2) </p><p>Training on; </p><p>1: Financial Analysis &amp; Accounting for MFIs (Dated: Feb 4-6, 2010, Colombo) </p><p> 2. Internal Controls &amp; Risk Based </p><p>Internal Audit (Dated: Feb 8-11, 2010, Colombo) </p><p>Contact: info@nimbusconsulting.net, </p><p>Visit: www.nimbusconsulting.net Nimbus Consulting </p><p> Training on MFI Valuations and Investments 08 Feb 2010 - 10 Feb 2010, India </p><p>Microfinance Summit Nepal 2010 14 Feb 2010 - 16 Feb 2010, Nepal </p><p> Investment Readiness Training for MFIs 10 Feb 2010 - 12 Feb 2010, India </p><p>LOCAL AND INTERNATIONAL TRAINING COURSES AND EVENTS </p><p>Grameen Phone goes to stock mar-ket. Grameenphone is 38-percent-owned by Grameen Telecom, a subsidiary of micro-finance giant Grameen Bank, which was set up by </p><p>2006 Nobel peace prize winner Muhammad Yunus. It has around </p><p>21 million of Bangladesh's fast growing 46 million cellular sub-</p><p>scriber base. It is also the country's largest private company in terms of revenue. Dhaka Stock Exchange </p><p>president Rakibur Rahman said Grameenphone's IPO was the larg-</p><p>est in the country's history, dwarf-ing the previous record set by a </p><p>private bank by more than four times. (http://www.dailymirror.lk/DM_BLOG/</p><p>Sections/frmNewsDetailView.aspx?</p><p>ARTID=63614) </p><p>SMS-based Microfinance System Unveiled: A new system has been unveiled that claims to let MFIs run </p><p>their entire operations via mobile phones and a single laptop. Frontli-neSMS: Credit system combines </p><p>SMS-aggregating software and mobile commerce offerings to let </p><p>MFIs deliver and track loans via handsets. It is based on Frontli-neSMS, a free, open source software </p><p>that turns a laptop and mobile phone into a central communica-</p><p>tions hub. Once installed, the pro-gram taps the GSM wireless tele-</p><p>phone network to enable users to send and receive text messages with groups of people through mobile </p><p>phones. </p><p>According to its Website, "FrontlineSMS:Credit aims to make </p><p>every formal financial service avail-able to the entrepreneurial poor in </p><p>160 characters or less". The new venture is building a series of free </p><p>and open source financial modules that will allow FrontlineSMS to communicate with mobile payment </p><p>systems in real time. The founder says this will turn FrontlineSMS in </p><p>to a microfinance management information system, a payroll center for SMEs, a collection and distribu-</p><p>tion center for microinsurance pre-miums and payouts, and a hub for </p><p>individual credit histories and scores. </p><p>http://www.finextra.com/fullstory.asp?id=20616 </p><p> Credit bureau for MFIs in making in India: Twenty five microfinance institutions have formed a trust </p><p>called Alpha, which will put to-gether a credit bureau called High </p><p>Mark dedicated to the microfinance sector. Alpha is headed by Vijay Mahajan, </p><p>chairman of BASIX, and P N Vasudevan managing director of </p><p>Equitas Microfinance. Source: http://www.dnaindia.com/money/</p><p>report_credit-bureau-for-mfis-in-making_1296640 </p><p> RBI against interest rate cap on loans to poor: While the Reserve Bank of India (RBI) and senior gov-ernment officials are concerned over the steep rates of interest charged </p><p>by microfinance institutions, the </p><p>central bank has ruled out any cap on rates. </p><p>The issue of high interest rates charged by microfinance institu-</p><p>tions has escalated as there have been instances of multiple lending </p><p>in some pockets of south India. There are chances that once the Microfinance Bill is passed, it may </p><p>impose restrictions on the lending rates by microfinance institutions. </p><p>"The new draft of the Bill is about to be finalised by the law ministry. The Bill may lay the power to the </p><p>government to give directions on interest rates if required," says an </p><p>official who has been involved in preparing the draft Bill. </p><p>Source: http://www.dnaindia.com/money/report_rbi-against-interest-rate-cap-</p><p>on-loans-to-poor_1298716 IMF announces project to study financial access for poor: The Inter-national Monetary Fund announced </p><p>a worldwide project to collect data on access to financial services in a bid to help policies aimed at reduc-</p><p>ing poverty. Under the project, the IMF will </p><p>collect data from countries on loans, deposits, debt securities and insur-ance on a regular basis to help de-</p><p>termine priorities for policies on broadening access to financial ser-</p><p>vices. Source: http://ae.zawya.com/</p><p>Story.cfm/sidANA20091005T095448ZFLX91/IMF%20announces%20project%</p><p>20to%20study%20financial%20access%20for%20poor </p><p>INTERNATIONAL NEWS </p></li><li><p> Page 4 Sri Lanka Microfinance Forum </p><p>DISCUSSION FORUM </p><p>The National Development Trust Fund (NDTF) was formed in 1991 as </p><p>a government body, and managed by a Board of Directors. A guaran-</p><p>tee company in the same name was incorporated in 2003 with broad </p><p>and corporate of objectives which has obtained funds from the Asian Development Bank (ADB) to on </p><p>lend to Microfinance Institutions (MFIs). It exercises autonomy in </p><p>Microfinance operations. </p><p>NDTF has been very helpful in developing the microfinance sector </p><p>in Sri Lanka by extending credit and non credit assistance. With the pro-vision of funds for Microfinance </p><p>Institutions (MFIs), the sector has been able to develop and has </p><p>reached a strong potential now. Currently NDTF is working with </p><p>250 partner organizations. How-ever, recently NDTF has introduced an interest rate ceiling of 15% </p><p>(declining balance) to on lend loans by MFIs. As this step came very </p><p>unexpected, some practitioners of the Sri Lankan microfinance sector </p><p>have expressed their concerns over this step. </p><p>As the Sri Lanka Microfinance Fo-</p><p>rum (SLMFF) wants to present a discussion platform to explore and address current needs and issues of </p><p>the sector, we talked to Mr. Pi-yadasa, Director Credit of NDTF to </p><p>get an insight about this interest rate cap. </p><p>SLMFF: What is the purpose of this interest rate cap? </p><p>NDTF: This decision was taken in early July 2009 according to the </p><p>government policy to reduce the interest rate to the end borrower. </p><p>We are serving to poorest of the country and micro enterprises. A </p><p>poor person who is doing a micro enterprise is not able to pay a large </p><p>interest rate to MFI. Partner Organi-zations charge an interest rate around 20% flat or 30% declining </p><p>balance. There is no uniformity. A small entrepreneur should earn a </p><p>net surplus of 30% just to pay back the interest. Since the return is not that enough to earn profits they face </p><p>difficulties to sustain their business. Our intention was mainly to give </p><p>compensation to the small entrepre-neurs (end user of our funds). </p><p> SLMFF: How have been the reac-tions so far of the MFIs that are </p><p>borrowing from NDTF? </p><p>NDTF: There are mixed reactions but I would like to say that the im-pact is not that severe. Specially few </p><p>large MFIs who are having different credit lines have informed us their difficulties in working with NDTF </p><p>funds at lower rate. However except a few MFIs others are continuously </p><p>obtaining refinance facilities from NDTF to on lend their beneficiaries </p><p>at less than 15% per annum. Small Partner Organizations (PO) are ok with this interest rate. Our objective </p><p>is to improve these small village level organizations. Large MFI </p><p>should not think increase of interest rate is the only solution, they can take action to reduce their opera-</p><p>tional cost and they can obtain NDTF assistance indirectly in areas </p><p>like training. </p><p>Some MFIs have already come up with initiatives to effectively utilize </p><p>our funds. They have segregated their loans such a way that they will </p><p>give the first loan using NDTF funds and the other loans from </p><p>other credit lines. </p><p>SLMFF: What is the effective date of this interest cap? </p><p>NDTF: 01st of July 2009 </p><p>SLMFF: Does it apply only to new loans or both new and existing loans? </p><p>NDTF: Only to new loans </p><p>SLMFF: Does this interest rate cap apply to the whole loan portfolio of </p><p>the borrowing MFIs or only to the part that is financed by NDTF? </p><p>NDTF: Only to funds provided by NDTF. NDTF is the only govern-</p><p>ment body working in this sector and it is a government policy to reduce the interest rate. </p><p>SLMFF: Why do you think in the circumstance given that margin of 8% is sufficient for a MFI to be sus-</p><p>tainable? </p><p>NDTF: In case of large MFIs this 8% interest spread in marginal as they extend other assistance to benefici-</p><p>aries their operational cost is high. But it is enough for small village organizations. MFIs should try to </p><p>implement their credit program in effective and efficient manner so </p><p>that they can reduce their opera-tional cost. Although the immediate impa...</p></li></ul>

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