Microfinance Banana Skins 2008 - Citigroup

C S F I / New York CSFIAll this All this taking is taking place place against against a a background in which in which credit credit assessment and and portfolio portfoliomanagement skills skills may may be be inadequate, where where credit credit bureaux bureaux are lacking, are lacking, and and where wherelegal legal systems systems may may not aid not the aid recovery the recovery of bad of bad debts. debts.But But improvement may may be on be the on way. the way. Eduardo Eduardo Carlos Carlos Ferreira, Ferreira, executive executive manager managerof of Microinvest in Brazil, in Brazil, said said that that “international best best practices, practices, microcredit tools tools and andtechniques have have only only been been very very recently recently and and partially partially applied, applied, and and could could improve improveand and stabilize stabilize loan loan quality.” quality.”Leaders and and LudditesThe The adoption adoption of change of change is one is one of the of biggest the biggest risks risks for any for industry, any industry, and and microfinancecannot cannot be insulated be insulated from from that. that. Will the Will current the current senior senior management react react positively positively or ornegatively negatively to the to change the change required required to manage to manage a business, a business, and and one one that that is ten is times ten times its itscurrent current size? size? There There will be will those be those who who react react brilliantly, brilliantly, and and those those who who adopt adopt Luddite Ludditeattitudes. attitudes. Either Either way way there there will be will stresses, be stresses, successes successes and and failures. failures.Colin Colin Howard HowardMFDAQ, MFDAQ, The The microfinance capital capital market, market, UK UK11. 11. TransparencyMFIs MFIs need need to to“dispel suspicion”The The risks risks associated associated with with poor poor transparency in MFIs in MFIs are high are high because because it drives it drives away awayinvestors investors and and customers, and and attracts attracts unwelcome political political attention. attention. A A practitioner in inColombia Colombia described described this this as “the as “the great great challenge” and and Indian Indian investor investor said said MFIs MFIsshould should act to act dispel to dispel “suspicion about about the sector”. the sector”.Several Several respondents from from the investor the investor side side singled singled out out transparency as a as key a key risk, risk,particularly the lack the lack of of standardised reporting reporting structures structures and and measurement tools. tools. A Adirector director of a of rating a rating agency agency said said “The “The sector sector needs needs more more transparency and and instrumentsto help to help investors investors assess assess risk”. risk”. Tracey Tracey Pettengill Pettengill Turner, Turner, general general manager manager of ofMicroPlace in the in US, the US, felt felt that that transparency should should be more be more widely widely cast cast to include to includefinancial financial performance, social social metrics metrics and and mission mission statements to aid to aid borrowers borrowers as aswell well as investors. as investors. An African An African bank bank regulator regulator said said transparency should should be extended be extendedto the to pricing the pricing of products of products and and services. services.However, However, the the risks risks of poor of poor transparency are are widely widely recognized, and and many manyrespondents said said there there had had been been a marked a marked improvement in recent in recent years, years, even even if it if had it hadbeen been uneven. uneven. Credit Credit for for this this was was given given to investor investor pressure pressure as well as well as to as tointernational accounting and and governance initiatives, and and to the to growing the growing role role of rating of ratingagencies. agencies. An investor An investor India in India said said that that “the “the involvement of various of various stakeholders is isleading leading to an to an improvement in in transparency”, and and analyst analyst in Mexico in Mexico said said that that“accountability is rising rising as more as more international funds funds are used are used by various by various MFIs”. MFIs”.12. 12. Foreign exchangeAn An increasing increasing number number of MFIs of MFIs face face foreign foreign exchange exchange risk risk because because they they fund fundthemselves in a in a non-domestic currency. currency. Many Many of them of them do not do have not have the means the means to toprotect protect themselves against against currency currency volatility, volatility, notably notably against against the US the dollar US dollar in which in whichmost most foreign foreign funding funding comes. comes.22 CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk