India towards more stringent and clear regulations in the microfinance sector ?

The Reserve Bank of India (RBI) has published few days ago on its website the Report of the study on the microfinance sector made by the
Sub-Committee of the Central Board of Directors. The RBI panel chaired by Mr. Yedzi H. Malegam was established in response to the Andhra Pradesh rules, which severely curtailed microfinance activities in the state, curbed collections and hurt new businesses.
The stock of SKS Microfinance, the main microfinance institution in India, which is based in Hyderabad, the capital of Andhra Pradesh, has fallen about 30 percent since October when the state's new microfinance rules came into effect.
The Panel has made a number of recommendations to mitigate the problems of multiple-lending, over borrowing, ghost borrowers and coercive methods of recovery. It seems financial authorities in India are in line with Yunus's article on the future development of the sector. Some of the main recommendations are listed hereafter:

- 1. Creation of a separete category of microfinance institutiones classified as Non-Banking Financial Company (NBFC-MFI). These institutes will hold not less than 90% of its total assets (other than cash and bank balances and money market instruments) in the form of qualifying assets.


- 2. There are limits of an annual family income of Rs.50,000 and an individual ceiling on loans to a  single borrower of Rs.25,000.

- 3. Not less than 75% of the loans given by the MFI should be for income-generating purposes.

- 4. There is a restriction on the other services to be provided by the MFI which has to be in accordance with the type of service and the maximum percentage of total income as may be prescribed.

- 5. With regard to the interest chargeable to the borrower, the Sub-Committee has recommended an average “margin cap” of 10 per cent for MFIs having a loan portfolio of Rs. 100 crore and of 12 per cent for smaller MFIs and a cap of 24% for interest on individual loans. It has also proposed that, in the interest of transparency, an MFI can levy only three charges, namely, (a) processing fee (b) interest and (c) insurance charge.

- 6. A borrower can be a member of only one Self-Help Group (SHG) or a  Joint Liability Group (JLG).

- 7. Not more than two MFIs can lend to a single borrower.

- 8. There should be a minimum period of moratorium between the disbursement of loan and the commencement of recovery.

- 9.The tenure of the loan must vary with its amount.

- 10. A Credit Information Bureau has to be established.

-11. The primary responsibility for avoidance of coercive methods of recovery must lie with the MFI and its management.

-12. The Reserve Bank must prepare a draft Customer Protection Code to be adopted by all MFIs.

- 13. There must be grievance redressal procedures and establishment of ombudsmen.

- 14. All MFIs must observe a specified Code of Corporate Governance.

SKS Microfinance Chief Financial Officer S. Dilliraj  said "The panel's recommendations "clears the regulatory ambiguity that existed in the microfinance sector since the promulgation of the Andhra Pradesh Microfinance Ordinance". The fast-growing Indian microfinance sector suffered a setback late last year when the state of Andhra Pradesh, which had the largest microfinance market in India, approved legislation to regulate the industry following complaints about high interest rates, aggressive recovery practices and overextended borrowers.

Some links with further information:

• Y. H. Malegam. Limit on annual income can be changed
• Malegam Committee Microfinance Report – Summary of Reactions from MFI Sector
• Malegam Committee Report – Summary of Key Recommendations
• Interview with Y H Malegam on his report on Indian Microfinance Institutions
• Notional loss due to Andhra ordinance: SKS Microfinance

Books available on Amazon:

Challenges for second generation microfinance: Regulation, supervision, and resource mobilization

Getting the framework right. Policy and regulation for microfinance in Asia

Too good to be true: the remarkable resilience of microfinance.(PERSPECTIVES)(microfinance institutions): An article from: Harvard International Review

Let's bring microcredit back on track - Muhammad Yunus

"Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying “mission drift” in the motivation of those lending to the poor. Poverty should be eradicated, not seen as a money-making opportunity."
This little excerpt from the article written by Muhammad Yunus 

 "Sacrificing microcredit for megaprofit", on the New York Times, summarizes the problems suffered by the sector in the last years. 
Many borrowers found themselves struggling with high interest rates, dealing with aggressive marketing and loan collection practices.
To go back to its origin and mission, microcredit needs to be more strictly regulated. The creation of an ad hoc regulatory authority would better ensure transparency in the sector, prevents the application of excessive interest rates and distorted loan collection practices.

Our changing world...

published the Fedex Experience website collecting several maps, elaborated using the map morphing technology, showing the statistical data of popular indexes and indicators measuring economic conditions, social and cultural aspects characterizing both developed and developing countries.

Microfinance resources on the Internet - Information on institutions and regulatory measures for some countries

Clicking on the picture below you could access a mindmap providing information and links on the legal and institutional framework established in some developing countries to regulate the activities of microfinance institutions. The map has been developed using Mindmeister, one of the most popular web 2.0 site for publishing these diagrams on the Web.
Do the examined countries have a specific law to regulate the sector or request a particular legal status for these institutions to operate in the market? at the institutional level, there are ad hoc agencies or simply  ministerial departments administering the industry?

Hope you could find at least some of the answers there...

Geocoding, further step towards effective development finance

Institutions participating in the AidData project developed in collaboration with the World Bank a new service to gather more precise information on aid projects implemented worldwide. Through this new search option, users can not only find the details of a particular project or check the amount of resources allocated in a certain country in a specific field, but also locate the areas of intervention and measure with more accuracy effectiveness, results and ratio of projects.
The project involved for a period of 6 weeks, a team of 13 people who geo-referenced the documentation of  the 1,216 active World Bank projects, made publicly available through the Open Data Initiative archive.
 The complete list of maps is accessible on the Mapping for results page. Further details on this geo-coding project  are on the AidData blog The First Trance. The dataset used in this project was built using the ArcGIS API for Microsoft Silverlight/WPF and the ArcGIS Server technology from Esri (information found on the apps for development blog)

Map displaying the number of aid projects and
poverty conditions in Kenya's provinces

Another interesting project is the Haiti Aid Map initiative developed by InterAction, in partnership with the U.S. Chamber of Commerce’s Business Civic Leadership Center with funding from FedEx. The map provides detailed project-level information on the work being done by NGOs in Haiti.

Haiti Aid Map homepage

Geo-referencing for its capacities to ensure better information accessibility, coordination and accountability of donors and participation of recipient institutions is becoming a valuable knowledge organization tool to support the implementation of coherent policies for development.

The 60 kilometers paved roads country

Today is the last day of the Southern Sudan week long independence referendum which involved 3.9 milion Sudanese citizens. The predictable results will lead to the creation of a new country in July 2011, the Republic of Southern Sudan. Expectations of the locals are very high and this event represents for the overall region an important proof of maturity. 

Flag of Southern Sudan

The days of the civil war in Nigeria when the eastern regions of the country proclaimed the independence of Biafra seem very far. The cold war is more a fact of history books and the International community seems unite, supportive and respectful towards the final results of the votation. For sure there will be a lot to do for aid agencies, NGOs and the United Nations already working in the area

Pakistan floods...It never rains but it pours

Pakistan, last summer have been striken by severe floods and almost 20m of Pakistani had to evacuate their houses. An article recently published on the Financial Times website talks about the return of the farmers in Thatta a city in Sindh province at just 130 km from Karachi. Only 3 months after the flooding the victims are receiving with regularity food and assistance. A lot of problems affect the population and also slow down donors'interventions...first of all the risk of corruption and bribery. One of the main problems resides in the recognition of tenants and farmers rights. The establishment of a computerized cadastrial system registering not only properties but also the land contracts and tenancy agreements among land owners and farmers would be a crucial element to suppport the rights of farmers and ensure for these the access to sudsidies and compensative measures helping them recovering from this natural disaster.
To have an idea of the dimensions of this natural disaster it worths consult the gallery from the Disaster Charter the network of national space agencies collecting togheter data and satellite images gathered by the member agencies

Successful trade between European Union and developing countries

COLEAP network promotes sustainable horticultural trade solutions, gathering together producers and exporters from the ACP countries and EU importers of fruit, vegetables, flowers and ornamental plants and other partners and companies operating in the horticultural industry. The cooperation programme PIP managed by COLEAP, financed by the European Development Fund is active in a number of  ACP countries. Information on the local directory of  exporters is available on the PIP site hyperlinked in the following map:

Grace Mueni Nyaa, from Kenya, founder of the Kyome Fresh Company Limited participated to the programme and talked about her experience at the European Development Days 2010. The Kenyan company grew from the initial capital base of €2600 to €140.000 in seven years down the line with an average annual sales turnover of €1.6 million! This sample highlights the importance of the private sector as one of the  main drivers for economic growth in developing countries and in particular small and medium enterprises.
More info:

Success stories from a dynamic continent - Yes Africa Can

Happy New Year!!!!