Microfinance & Socially Responsible Investing How Do the Two Intersect? Socially Responsible...
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Transcript of Microfinance & Socially Responsible Investing How Do the Two Intersect? Socially Responsible...
Microfinance & Socially Responsible Investing
How Do the Two Intersect?
Socially Responsible Investing – Here & AbroadSanjay Sinha, Microcredit EnterprisesJune 26, 2009
Agenda
• World of Poverty
• What is Microfinance
• SRI as a Funding Model for Microfinance
• Microcredit Enterprises Business Model
• Concluding Remarks
Multidimensional Face of Poverty
P O V E R T YP O V E R T Y
Material Deprivation(Low Food Consumption/Poor Housing)
Low Human Develop.
Acute Vulnerability to Adverse Shocks(Illness, Economic Crisis, Natural Disaster
Lack of Voice
Our Global Village
If there were only 100 peoplein the entire world…
Our Village has Neighborhoods
• One neighborhood has 61 Asians
• Another has 13 Africans
• 12 Europeans are in towns
• 8 Hispanics live in a barrio
• 5 Americans in the suburbs
63 of Us Have Jobs; 37 Do Not
33 People in our Village Live in Poor Housing
18 Villagers Do Not Have Safe, Clean Water in their Homes
10 People Earn 54% of the Village’s Total Income
70 of Us are Hungry Every Day Some of Us are Not
One Year in Our Village
• 3,000 people died at the World Trade Center in New York (2001)
• 300,000 people died from a tsunami in the Indian Ocean (2004)
• 11 million children died from starvation (every year)
World Population
6.7 Billion
Access to Financial Services by Annual Income
>$20
<$20,000
<$1,500
<$730
<$360
4 Billion People With Little to No
Access
Full Access- 100 Million
Some Access -1.7 Billion
Maybe Banked
Unbanked
Destitute
Microfinance - Introduction
Evolution of the Market
With $27 and 42 Families
Financing Options - Microfinance• Charitable contribution: The individual donates to a non-profit
microfinance organization and then claims a tax deduction, which reduces the net cost of the donation.
• Socially Responsible Investment (SRI): An investment, usually in the form of a loan, is made in a fund or other investment vehicle which, in turn, makes loans to overseas microfinance institutions. Typically, the loan has a term of three years and includes a fixed interest rate that is almost always below the rate on standard marketplace investments.
• Guarantee Risk Pool Model : A pledge of collateral assets and/or a personal guarantee secures a line of credit which, in turn, is used to make loans to overseas microfinance institutions. In the event of an overseas financial loss, for at least an 18 month period a Guarantor has promised to bear the tax-deductible loss on an equitable, pro rata basis with all other Guarantors. Guarantors maintain complete control of their assets, and therefore receive all investment returns from their portfolios.
Microfinance - Growth
Who are the Funders?
$11.6 Billion
53% Donors
47% Investors
63% Debt
Microfinance
Microfinance - Why is Repayment High?
Many Reasons
Dynamic Lending
Social Standing
Progressive Lending
Frequent Repaymt.
Peer Monitoring
Group Lending
High Repayment
Microfinance – Number of Borrowers
How Many Are Borrowing?
Microfinance – Growth Phase
How Many More Can Borrow?
3.5 – 4 Billion People
What is the Relationship between Poverty and Microfinance?
Access to financial servicesAccess to financial services Access to financial servicesAccess to financial services
Increase & diversify incomesIncrease & diversify incomes Build assetsBuild assets Increase & diversify incomesIncrease & diversify incomes Build assetsBuild assets
Mitigate riskMitigate risk Plan for the futurePlan for the future Make choicesMake choices
Mitigate riskMitigate risk Plan for the futurePlan for the future Make choicesMake choices
Increase food consumptionIncrease food consumption Invest in education & healthInvest in education & health Invest in housing, water, sanitationInvest in housing, water, sanitation
Increase food consumptionIncrease food consumption Invest in education & healthInvest in education & health Invest in housing, water, sanitationInvest in housing, water, sanitation
Microfinance - Growth
$25 Billion Industry
The Microcredit Guarantor Enterprises Model
The Microcredit Enterprises Model
Guarantors($1 million units)
The Microcredit Enterprises Model
Lender/Bank
Line of Credit
Guarantors($1 million units)
4% - 5% Interest
The Microcredit Enterprises Model
Microfinance
Institution (MFI)
Lender/Bank
Line of Credit
Guarantors($1 million units)
4% - 5% Interest
8% - 10% Interest
The Microcredit Enterprises Model
Microfinance
Institution (MFI)
Lender/Bank
Line of Credit
Guarantors($1 million units)
4% - 5% Interest
8% - 10% Interest
25% - 35% Interest
25% - 35% Interest
The Microcredit Enterprises Impact
514,000 Reached
45 Loans/25 MFIs
89% Female
38 Guarantors
15 Countries
$25 Million Loans
MCE
Microfinance - Challenges
A Few…..
Inflation
Transparency
Exchange Rate
Liquidity
Microfinance
Microfinance – Self Regulation
What Can Be Done?…..
Best Practices
Funding Diversity
Close to Customer
Financial Discipline Self Regulation
Stay
Microfinance – Self Regulation
What Has Been Done?…..
Non-Abusive Collection Method
Restructure Loans
25 Industry Leaders Avoid Reckless Lending
Transparent Pricing
4/08 Pocantico
Microfinance - Silver Lining
• Relatively Reliable Business– Could continue to attract socially responsible
investors looking to diversify
• Credit Crunch Could Slow Down the Pace of Growth Allowing MFIs to Focus On:– Back to the Basics– Borrower Protection– Transparency– Governance
Microfinance - Summary
“Character Not Collateral”
• It Has Made a Difference• It is not the Answer to Solving Poverty• Attempts at Self Regulation and Transparency
Should Maintain Strong Industry Metrics– Minimize Predatory Lending – Provide More Funding of Second and Third
Tier MFIs
If You Keep Your Food in a Refrigerator
Your Clothes in a ClosetHave a Roof Over Your Head
Bed to Sleep InYou are richer than 75% of the
world’s population.You are richer than 75% of the world’s population.
There is an Opportunity Cost
What Can You Do?
• Become a Guarantor
• Donate to the Permanent Fund to Alleviate Extreme Poverty
• Invest in an Interest-Bearing Note
• Educate Your Community
For Your Attention…….