A Practitioner's Handbook
Edited by Ranajoy Basu, a senior structured finance and capital markets lawyer who also spearheads the global social impact finance group at Reed Smith, this unique publication will provide practical, commercial and candid guidance from an array of thought leaders in the microfinance sector.
This timely book seeks to answer those questions by drawing on the views of different market participants, which will help to shape the road ahead. Specific chapters provide a broad spectrum of opinion on challenges and key issues, including the future of the microfinance sector and consideration of the sector from an investor’s perspective, while also dealing with more specific areas, including regulation of the sector, the role of innovations such as mobile banking, governance and sustainability, and the role of capital markets for financing – each of which will be critical for the growth of a sustainable microfinance sector. The book also provides a thoughtful analysis of the crisis in Indian microfinance and the lessons to be learned.
Edited by Ranajoy Basu, a senior structured finance and capital markets lawyer who also spearheads the global social impact finance group at Reed Smith, this unique publication provides practical, commercial and candid guidance from an array of thought leaders in the microfinance sector. It will serve as a useful guide to the vital issues and will assist the reader in grasping the challenges and trends that will underpin the growth of this evolving and growing sector.
Table of Contents
|Part I. Introduction and overview||7|
|An introduction to microfinance||7|
|Microfinance: hurdles and key issues||21|
|Evolving business models of microfinance||35|
|Microinsurance – the next step towards financial inclusion||47|
|From microfinance to livelihoods||87|
|Part II. Financing and commercialisation||101|
|Microfinance from an investor’s perspective||101|
|Microfinance and capital markets||119|
|Part III. Governance and regulation||133|
|Governance and sustainability of microfinance institutions||133|
|Microfinance regulation: government intervention versus self-regulation||141|
|Part IV. Impact and analysis||155|
|Microfinance and the empowerment of women||155|
|Microfinance investment vehicles and social performance||165|
|The strength of weak ties in microfinance||193|
|Part V. Developments and trends||207|
|Microfinance and the impact of mobile banking||207|
|MFIs in India in the aftermath of the crisis||215|
|The future of microfinance||227|
|About the authors||253|
Basu, a structured finance and capital markets lawyer at Reed Smith, has put together a varied and insightful compendium of expertise on microfinance, which provides an information-rich resource to practitioners, or indeed anyone professionally involved in this continually evolving and diverse area.
Philip Taylor MBE and Elizabeth Taylor
Mosleh Uddin Ahmed
Chief executive officer, Microinsurance Research Centre
Mosleh Uddin Ahmed is a microinsurance specialist. He qualified as a chartered accountant in 1970. He is founder and chief executive officer of the Microinsurance Research Centre based in the United Kingdom, with a presence in Bangladesh, India, Kenya, Nigeria and Sri Lanka. He is also a director of Microfinance without Borders.
Mr Ahmed has more than 20 years’ international experience in microinsurance, having acted as an independent consultant for the Asian Development Bank, the German Agency for International Cooperation, the International Finance Cooperation, the International Labour Organisation, the World Bank and the United Nations Development Programme in development projects in Armenia, Bangladesh, Brazil, Croatia, Georgia, India, Indonesia, Kazakhstan, Kenya, Mongolia, Moldova, Nepal, Nigeria, Pakistan, Sri Lanka, Tajikistan and Uganda.
Mr Ahmed has co-authored a book entitled Protecting the Poor – a Microinsurance Compendium. He is a member of the UK All Party Parliamentary Group on Microfinance, the Microinsurance Network and the UK Microfinance Club.
Associate, Clifford Chance LLP
Hajar Barbach is a lawyer in the banking department of Clifford Chance in London, specialising in development finance and emerging markets financing. She also runs the microfinance group at Clifford Chance and has advised on a number of microfinance transactions, acting for a wide range of participants, including international commercial banks, global development institutions, microfinance organisations and governments. Ms Barbach holds an undergraduate degree in international relations and history from the London School of Economics and master’s degrees in law and economics from Sciences Po Paris and international business law from Université Paris I Panthéon-Sorbonne. She speaks fluent French, English and Arabic and is proficient in Spanish. Ms Barbach is a visiting lecturer on microfinance at the Centre for Commercial Law Studies at Queen Mary, University of London and sits on the steering committee of the UK chapter of Women Advancing Microfinance.
Senior associate, Reed Smith LLP
Ranajoy Basu is a senior structured finance and capital markets lawyer who also spearheads Reed Smith’s global social impact finance group, which provides legal advice on structuring innovative social impact finance solutions and microfinance projects. He has worked with microfinance institutions in Asia, Africa and South America, and regularly advises arrangers, charitable institutions, funds and investors on innovative social impact finance projects, including social impact bonds, funds, renewable energy and emerging market transactions relating to social impact finance. He regularly speaks at events and writes on microfinance and impact investment. Mr Basu studied law at Calcutta University in India and has an LLM in banking and finance law from King’s College London.
Head of capital advisory services, Shorebank International, [London]
Ian Callaghan is head of the capital advisory services practice at Shorebank International and brings more than 20 years’ expertise as a business owner, consultant and banker to the areas of small and medium-sized enterprise finance, microfinance and finance for other ‘base of pyramid’ products and services.
Between 2005 and 2008 Mr Callaghan led investment bank Morgan Stanley’s efforts in the field of microfinance, latterly as head of its microfinance institutions group. During this period he arranged some $250 million in loans for some 35 microfinance institutions in 20 countries, including the two largest transactions ever completed in the sector.
During 2008 and 2009 Mr Callaghan was senior director of investments at the Omidyar Network. He began his banking career with the financing of the Eurotunnel Channel Tunnel – then the largest privately funded infrastructure project in the world.
Trainee lawyer, Paris Bar School
Juliette Chapelle is studying law at the Paris Bar School and will qualify at the end of 2013. She has a particular interest in development law, as well as social and solidarity-based economy. Ms Chapelle is also undertaking an internship at an international law firm specialising in business law. She was previously an intern at a French corporate and investment bank. She holds two master’s degrees – one in business law from the University of Paris I Panthéon-Sorbonne and one in private international law and international trade from the University of Paris II Panthéon-Assas (both cum laude) – and an LLM in banking and finance law from Queen Mary University of London (distinction). During her LLM, Ms Chapelle wrote her thesis on securitisation in microfinance.
Jean-Marie De Corte
Lecturer, Warocqué School of Business and Economics, University of Mons
Jean-Marie De Corte is a lecturer in mathematics at the Warocqué School of Business and Economics, University of Mons, Belgium. He holds a PhD in mathematics and specialises in multi-criteria decision-making support. He is a coauthor of the Measuring Attractiveness by a Categorical Based Evaluation Technique (MACBETH) multi-criteria decision analysis approach. Dr De Corte created and coded the MMACBETH software based on the MACBETH approach. The continual improvement of this software allows public and private entities to apply the MACBETH approach. In addition, numerous scientific papers have been published based on its practical applications.
Chief executive, Shivia
Olly Donnelly is chief executive and founder of Shivia, a UK charity with operations in India and Nepal. She previously worked at Accenture Strategy in London and the World Bank in Washington DC.
Ms Donnelly has worked on issues related to microfinance, HIV/AIDS, women, education and caste, and with disadvantaged children. She is involved with several charities, including Familia, a foster home in West Bengal, India, and is a trustee of UK charity Multi-Agency International Training and Support. She previously sat on the Leonard Cheshire international committee and the Moonpig Foundation board of trustees. Ms Donnelly is the UK ambassador for BASE, a leading non-governmental organisation in western Nepal. Ms Donnelly holds a first-class honours degree in geography and achieved a distinction in her master’s degree, both from Oxford University. She sits on the alumni committees of her former college, St Edmund Hall, and school, St Mary’s Ascot.
Director, International Finance Facility for Immunisation
Marcus Fedder is a former banker with more than 20 years’ experience. He is a director of the International Finance Facility for Immunisation and previously co-founded Agora Microfinance Partners in 2009. Until recently he was also a board member of Angkor Mikroheranhvatho Kampuchea, a major Cambodian microfinance institution, and of Jaghdan Finance, a Mumbaibased MFI.
Dr Fedder previously held senior positions at several financial institutions: Toronto Dominion Bank – vice chair of TD Securities, responsible for all businesses in Europe and Asia-Pacific; European Bank for Reconstruction and Development – treasurer, responsible for investment of the bank’s liquid assets, bank funding, asset and liability management and client advisory; World Bank – advised governments and central banks on debt management and asset and liability management; Canadian Imperial Bank of Commerce – executive director, responsible for derivatives in London; and Deutsche Bank – worked in capital markets. Dr Fedder holds a PhD in politics from the Freie Universitaet Berlin and postgraduate degrees in international relations from Cambridge University and the London School of Economics.
Chief operating officer, Musoni BV
Cameron Goldie-Scot is co-founder and chief operating officer of Musoni BV. In 2009 Musoni BV established the first completely cashless microfinance institution in the world, using mobile payments for all transactions. Since then, Musoni has disbursed more than 35,000 loans totalling in excess of $10 million to Kenyan micro entrepreneurs entirely through their mobile phones. Mr Goldie-Scot is responsible for the development and licensing of Musoni’s technology platform to MFIs around the world. Previously, Mr Goldie-Scot worked as an independent consultant for Triple Jump Advisory Services. From July 2008 he was responsible for facilitating the introduction of mobile payment services to microfinance clients in Kenya and Tanzania. These were the first successful partnerships of their kind and have survived to this day. During this period, when he was based permanently in East Africa, Mr Goldie-Scot gained first-hand experience of the challenges faced when implementing mobile banking services, as well as the key factors necessary for success.
Partner, Allen & Overy
Atif Hanif is a partner in the banking department of Allen & Overy’s London office and is head of the firm’s European Islamic finance practice. He advises on a wide range of banking, finance and debt capital markets transactions. He has extensive experience of acting for financiers, borrowers, issuers and project sponsors. Mr Hanif is recognised as a leading Islamic finance specialist by the International Financial Law Review (2010), Islamic Finance News (2012), Legal 500 (2012) and Chambers UK (2012).
Chairman, M-CRIL; Emeritus professor, Cranfield University
Malcolm Harper was educated at Oxford, Harvard and Nairobi universities. He initially worked in marketing in the United Kingdom and subsequently taught at the University of Nairobi and was professor of enterprise development at Cranfield School of Management (UK). Since 1995 he has worked independently – mainly in India. He has published extensively on enterprise development, microfinance and livelihoods and child protection issues.
Mr Harper was formerly chairman of Basix Finance in India for 10 years and is currently chairman of Micro-Credit Ratings International Ltd, an international microfinance and social rating company.
He is chair, trustee and board member of a number of institutions in the United Kingdom, the Netherlands and India, and has worked on poverty issues in Bangladesh, Pakistan, Africa, Latin America, the Caribbean, the Middle East, Southeast Asia, China and the United Kingdom.
Research associate, Kings College London
Cornell Jackson is a research associate in social network analysis for historical data at Kings College, London. He holds degrees in computer science and engineering from the University of Pennsylvania and has an MBA from the Ecole Nationale des Ponts et Chausées, France. Dr Jackson was awarded a PhD in microfinance and social network analysis from the University of Greenwich in 2012. His research focused on measuring the social networks of microfinance clients in India, which had microenterprises selling saris, and how such networks can be improved in order to increase business and reduce poverty. The research showed that such methods can improve other low-growth, low-entry-barrier businesses established by microfinance clients. It was funded by a threeyear grant from the Leverhulme Trust. Dr Jackson has 25 years’ experience in information technology, including nine years’ experience as a project manager in an international IT consultancy.
Associate professor, Warocqué School of Business and Economics, University of Mons
Marc Labie is an associate professor at the Warocqué School of Business and Economics, University of Mons, Belgium, where he teaches organisation studies and management. He is also a visiting professor at the Solvay Brussels School of Economics and Management. He previously lectured in various other universities, including the Université de Liège and Harvard University (Financial Institutions for Private Enterprise Development Executive Programme at the Kennedy School of Government). He is co-founder and co-director of the Centre for European Research in Microfinance based in Mons and Brussels. Dr Labie has worked in Benin, Bolivia, Burkina Faso, Colombia, the Democratic Republic of Congo, Indonesia, Kenya, Madagascar, Mexico, Morocco, and Peru. He has co-authored numerous articles on microfinance, mostly focused on corporate governance issues. In 2011 he co-edited The Handbook of Microfinance, published by World Scientific Publishing.
Senior associate, Allen & Overy LLP
Melissa Manzo is a senior associate at international law firm Allen & Overy LLP, specialising in debt finance and restructuring. She co-founded the firm’s microfinance and social investment group and has acted on a variety of microfinance-related transactions. Ms Manzo is a trustee of UK registered charity Bidna Capoeira, an organisation that uses the afro- Brazilian martial art/dance of capoeira to enhance the lives of children in conflict situations around the world.
Ms Manzo studied at Oxford University and BPP Law School, London.
Associate professor in international development economics, University of Greenwich
Ana Marr is a principal economist specialising in microfinance, development economics, enterprise promotion and social research. She holds a master’s degree from the London School of Economics and a doctorate degree from the School of Oriental and African Studies, University of London. Dr Marr has more than 15 years’ experience of working in developing countries, including long and short-term assignments in Asia, Africa and Latin America. She is director of the International Microfinance Research Group at the University of Greenwich, which has most recently been running a large research project in India, Peru and Tanzania supported by the Leverhulme Trust. She also lectures on microfinance on various master’s programmes and supervises a number of PhD students.
Dr Marr has published extensively on the subject of microfinance, covering issues related to social performance, poverty reduction and social network analysis.
Partner, Clifford Chance LLP
Emma Matebalavu is a partner at Clifford Chance, London specialising in real estate finance and all types of structured debt. Ms Matebalavu is a cosponsor of the Clifford Chance microfinance group and a trustee of Grameen Foundation Scotland.
Financial inclusion and microfinance consultant
Sam Mendelson is the current UK Department for International Development/Citi development fellow and co-author since 2009 of Microfinance Banana Skins – the gold-standard survey of industry risk. He is co-founder and director of Social Performance Advisory and leads monitoring and evaluation at Arc Finance – an energy microfinance NGO with sector-support projects in Africa, Asia and the Americas. He previously ran the research programme at the Centre for the Study of Financial Innovation.
Mr Mendelson writes regularly for Financial World, Africa Investor, Prospect and other publications on development, financial inclusion, technology and geopolitical issues. In 2011 he was nominated for a Foreign Press Association Feature of the Year award for his Prospect piece on Qatar. Mr Mendelson has undergraduate degrees in psychology and law from the University of Western Australia and an LLM in public international law from University College London.
Tara S Nair
Associate professor, Gujarat Institute of Development Research
Tara Nair is associate professor at the Gujarat Institute of Development Research, Ahmedabad, India. She holds MPhil and PhD degrees in economics from the Jawaharlal Nehru University, New Delhi. Her research interests and publications span areas such as micro and rural microfinance, financial inclusion, microenterprise development, gender and entrepreneurship and political economy of media. She has been part of largescale field studies on the impact of microfinance in India, Myanmar and Bangladesh.
Former chief executive officer, Angkor Mikroheranhvatho Kampuchea Co, Ltd
Pete Power is the outgoing chief executive officer of Angkor Mikroheranhvatho Kampuchea Co, Ltd (AMK). With more than 300,000 clients, AMK provides microfinance services to approximately 10% of households in Cambodia. Between 2010 and 2012 Mr Power led AMK’s 1,200 staff through a strategic transition, transforming the company from a rural credit organisation into a provider of a broad range of microfinance services, including savings, credit, money transfer, mobile banking and various other innovations.
Mr Power holds degrees in international relations and European integration, as well as an MBA. He has significant international experience, having worked and lived in Ireland, China, Vietnam, Cambodia and the United States. He has also completed short-term assignments in approximately 15 other countries, primarily in the developing world.
Trainee solicitor, Allen & Overy
Edana Richardson received her PhD from Trinity College Dublin in 2012 for her thesis entitled “The Integration of Islamic Finance into the Irish Legal System: Current Issues and Future Challenges”. She is a scholar of Trinity College Dublin and her doctoral research was funded by a humanities and social sciences postgraduate scholarship which she received from the Irish Research Council. In 2011 she taught Islamic finance as part of an LLM course on Islamic law at Trinity College Dublin. Dr Richardson currently works as a trainee solicitor in Allen & Overy’s London office.
Founder-director, Microfinance without Borders
Phyllis SantaMaria founded London-based social enterprise Microfinance without Borders to deliver quality education, mentoring and partnership programmes for microfinance, including microinsurance.
Dr SantaMaria holds a BA in history (Wellesley College, United States), an MA in linguistics and a PhD in education (both Exeter University, United Kingdom). She has specialised in microfinance capacity building since 2000, based on her experience in international development in Latin America, Africa and Asia, her education and training in the United Kingdom, Germany and Kenya and her involvement with professional interactive multimedia at the BBC and for various corporate and EU projects.
She has led microfinance and microinsurance projects in East and West Africa, India, Nepal and China, and was the UK coordinator for the UN International Year of Microcredit 2005. Dr SantaMaria has participated in award-winning teams for interactive multimedia titles for the BBC’s ground-breaking Domesday Project and the EU Lingua Project.
Managing director, M-CRIL
Sanjay Sinha is managing director of Micro-Credit Ratings International Limited (M-CRIL) – a company that undertakes financial and social ratings of microfinance institutions and provides research and other services designed to promote the flow of investment in microfinance and microinsurance. Mr Sinha has more than 30 years’ economic and development research experience and has worked in more than two dozen countries. In addition to microfinance, he specialises in the analysis of value chains relevant to the livelihoods of poor people and microenterprise promotion. He was involved with M-CRIL’s launch of a pioneering programme to assess the performance of private schools aimed at low-income students in developing countries. In 1983 Mr Sinha co-founded Economic Development Associates Rural Systems, a premier development consulting company in Asia. Between 2006 and 2008 he was a member of the UN advisory group on inclusive financial sectors. He has an MPhil in economics from Oxford University.
Researcher, Centre for European Research in Microfinance
Ludovic Urgeghe PhD is a permanent researcher at the Centre for European Research in Microfinance. In addition, he is a PhD student at the Warocqué School of Business and Economics, University of Mons, Belgium, where he is also a teaching assistant in management. His PhD research focuses on microfinance commercialisation and aims to explore the role of socially responsible investors in the microfinance sector.
Consultant, Value Focused Consulting SPRL
Jean-Claude Vansnick is a consultant at Value Focused Consulting SPRL. He was previously professor of quantitative methods at the Warocqué School of Business and Economics, University of Mons, Belgium, with a main interest in multi-criteria decision analysis. Dr Vansnick received his doctor of science degree in mathematics from the Université Libre de Bruxelles in 1973. He has widely published in the area of decision making and his paper “Strength of Preference: Theoretical and Practical Aspects” was selected as Belgium’s national contribution for the 10th triennal conference of the Internal Federation of Operational Research Societies. Dr Vansnick is a member of several research groups on multi-criteria analysis and has been a visiting professor at several international summer schools on multi-criteria decision-making support. He is a co-author of the Measuring Attractiveness by a Categorical Based Evaluation Technique approach and has extensive experience in applying this in real decision contexts.