MICROFINANCE SECTOR AN OVERVIEW

Transcription

1 MICROFINANCE SECTOR AN OVERVIEW March 2013

2 WHAT WHY WHO of micro-finance Means of providing financial services to poor Average transaction size is very small Services offered by profit and non-profit organizations Microcredit, micro savings, micro insurance, and other transactional products What :Why : Who of Microfinance

3 Micro-Finance Finance for poor Social cause Business case

4 WHAT WHY WHO of micro-finance Poor Income level of below 1 US$1.25 per day

5 Country Gross Loan Portfolio (US$ in mln) 2 % GDP 1 Bolivia 3, % 2 Kenya 1, % 3 Peru 8, % 4 Vietnam 5, % 5 Bangladesh 2, % 6 Colombia 5, % 7 South Africa 2, % 8 India 4, % 9 China 13, % 10 Mexico 1, % % Type Institutions as on Dec-11 No. of MFPs % No. of Offices/Branches % NGO % 20,040 38% NBFI % 18,138 34% Bank % 9,991 19% Credit Union / Cooperative % 3,554 7% Rural Bank 54 4% 875 2% Other 36 3% 453 1% Total* 1,391 53,051 *There is slight variation in reported number of regionwise and legalstatuswise MFIs in MIX market data

6 mln mln World # of micro borrowers mln World Microcredit Pie Middle East and North Africa Africa South Asia 9% 1% 10% mln mln Latin America and The Caribbean 32% East Asia and the Pacific 36% Eastern Europe and Central Asia 12%

7 System Share as on Dec-11 Assets Gross Loan Portfolio (GLP) Deposits Equity Bank 67% 63% 77% 49% Credit Union / Cooperative 18% 21% 12% 26% NBFI 7% 9% 2% 16% NGO 4% 5% 5% 5% Other 4% 3% 5% 2% Rural Bank 0% 0% 0% 1% Total (US$ in mln) 118,780 87,650 67,202 17,674

8 140,000 World Gross Loan Portdolio 120,000 US $ in mln 100, ,000 60,000 40, , Total Assets 47,122 55,189 92,661 98, ,780 Gross Loan Portfolio 38,279 44,871 75,336 90,113 87,650

9 According to different estimates and surveys, around 23% 3 of the world s population (~1.6bln people) is poor (Less than US$1.25 per day) with ~66% residing in Asia. Microfinance Pentration Microborrowers as % of world poor population 2011 % World Population ~ 7.0 bln Poor Poulation 1.6bln Micro-borrowers 95mln Penetration 6%

10 Demand Side Population expected to use financial services Employed Labor Force Nos. in mln Total % Working Age % Labor Force % Employed Labor Force Rural % % % % Urban % % % % % Source: Economic Survey of ( ), Chapter 12, Table 12.9 Financially Served Involuntarily Excluded Voluntarily Excluded Formally Included Inf. Informally Served Served (Organized ) (unorg- sector) Financially Excluded 0% 14.3% 45.5% 50.5% 81.4% 100% * Bringing Finance to s Poor, Page 9, worldbank.org

11 Demand Side Number of Borrowers and Depostors in At end Jun-12 Total Banks/DFIs MFB/MFIs Number of Depsoitors * No of Borrowers * Main Source: Inuagural Address by Deputy Govrener, SBP, 6th Microfinance Country Forum, Dec-2012 * Microwatch Potential Microfinance Market Active Borrowers Penetration Rate Province No. in mln No. in mln % Balochistan KP Punjab Sindh AJK GB ICT * Source: Microwatch, Issue 26 (Oct-Dec2012) Microfinance Pentration and others>> * Country % Bangladesh 39.7 Peru 39.6 India World Average (55 countries) 19.0 >>Number of borrowers as % of poor poulation * Source: Microscope on Microfinance 2012: Index, EIU

12 Side End Feb13 Microfinance Banks Microfinance Institutions Rural Support Programs Others Total Source: Microwatch Microfinance Banks in Timeline with ownership # Year License Date Name Ownership Aug-00 Khushhali Bank Ltd. UBL:67.4% Jan-02 The First Microfinance Bank Ltd. Agha Khan Development Agency:100% 3 1-Jan-05 Apna Microfinance Bank Ltd* GOI: 91% Aug-05 Tameer Microfinance Bank Ltd. Telenor: 51% Apr-06 Pak Oman Microfinance Bank Ltd. Govt. of Oman: 67% Feb-09 NRSP Microfinance Bank Ltd. NRSP: 52% 1-Jun-08 Kashf Microfinance Bank Ltd. Kashf Holding Private Limited: 51% Feb-09 NRSP Microfinance Bank Ltd. NRSP: 52% Sep-11 Waseela Microfinance Bank Ltd. Orascom Telecom; 100% Nov-12 Advans Microfinance Bank Ltd.** Advans SA:70%; FMO:30% Feb-13 U Microfinance Bank Ltd. PTCL: 100% * District license ** Province license

13 Microfinance Frame Licensing No. Authority MFI Ordinance 2001 SBP 10 The Voluntary Social Welfare Agencies Provincial 2 Ordinance, 1961 [ORDINANCE No. XLVI] Government Societies Registration ti Act [1860 Act XXI] Provincial i 10 (The Societies Act ) Government The Companies Ordinance 1984 : Section 42 SECP 12 The Trust Act 1882 Provincial 1 Government Total 35

14 Microfinance Frame MFI Ordinance 2001 Establishment and Winding up Allowed Function of MFB Restrictions [Creating of Floating Charge on assets without t SBP permission] Specified Area of operations District Regions (up to 5 adjacent districts) Province Whole of Capitalization Minimum capital of the bank At least 51% of Paid-up Capital to be subscribed by sponsor Licensing Requirem ent Conversi on of existing MFIs into MFBs New MFBs Ongoing Regulation and Supervision Management and Administration Accounts and Audit Filing of Returns Liquidity and Reserves Depositors Protection Fund Inspection Powers to give directions ; to remove BoD; to supersede BoD

15 Microfinance Frame India & Bangladesh Andhra Pradesh Crises Rethink Various Bodies [NGO-MFIs MRA] [Banks BB] [Grameen Bank GBO, 1983] Funding Mix Poor [Need to establish core funding mix] India Bangladesh Microfinance Bill approved May-12 RBI Authority for NBFC-MFI and informal SHG (>20 members) Restriction on mobilization of deposits except GB Cap of 27% on interest rates

16 Performance Penetration & Asset Growth PKR in mln 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Microfinance Industry Asset Growth 80% 70% 60% 50% 40% 30% 20% 10% PKR in mln 45,000 40,000 35,000 30, ,000 20,000 15,000 Gross Loan Portfolio Growth Trend 70% 60% 50% 40% 30% 20% 10% - 0% 10,000 0% (10,000) (20,000) Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 (P) Total Assets 33,194 30,473 35,826 48,623 70,152-10% -20% 5,000 - Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 GLP 20,001 16,758 20,296 24,903 38,238-10% -20% Growth 45% -8% 18% 36% 44% Growth 57% -16% 21% 23% 54%

17 Performance GLP Market Share GLP Market Share At end Dec-12 18% 5% Market Share Active Borrowers At end Dec-12 7% 24% 39% 56% 22% 30% MFBs MFIs RSPs Others MFBs MFIs RSPs Others

18 Funding Structure 25,000 Savings Growth Trend 75% Funding Structure 20,000 60% Depsoits 22% Equity 17% PKR in mln 15,000 10,000 45% 30% 5,000 15% Commerci al Liabilities - 0% 20% Debt Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 41% Savings 5,384 8,554 11,863 15,508 24,974 Growth 35% 59% 39% 31% 61%

19 Performance 120% Industry Business Profile 100% 80% 60% 40% 20% 0% Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 OSS 89% 81% 105% 100% 108% FSS 74% 71% 87% 82% 101% Yield on GLP (%) MFIs MFBs RSPs Weighted Average Nominal Real Expenses as % GLP Overall performance of the industry improved during CY11 as it booked consolidated profitability of PKR 665mln (CY10: Loss of PKR 16mln). This was mainly generated by RSPs (74%), followed by MFBs (14%), and MFIs (12%).

20 Credit Microfinance industry entails different business models, each of them exposing the industry to credit risk with varied level of vulnerability. The borrowers of the industry are low-income individuals male (42%), and females (58%). With 56% of total borrowers residing in rural areas, macro-economic factors - economic growth, inflation trends, natural calamities, and to some extend political environment - play a key role in repayment ability and willingness Types of Collateral used by 25 Microfinance Providers in Microfinance Credit Management Category MFBs MFIs RSPs Others # Group Asset Personal Post Dated Promisory Compulsory Asset Live Guarent Gold Ownership Guarentee Cheks Note Savings Leasing Stock ee

21 Credit Lending Methodology Concentration 100% 90% GLP Lending Methodology 30% 31% 30% 32% GLP wise Expsoure at end Dec-12 80% 70% 60% 50% 70% 69% 70% 68% Housing, 0 % Services, 8 % Others, 15 % Trade, 30% 40% 30% 20% Manufactu ring/produ ction, 9% 10% 0% Mar-12 Jun-12 Sep-12 Dec-12 Livestock/P oultry, 16% Agriculture, 22% Group Individual

22 Credit Asset Quality Asset Quality Comparison with World at end Dec-11 Africa LAC* World ECA** EAP* Asia MENA**** PAR > 30% Write-off to GLP * Latin America and the Caribbean ** Eastern Europe and Central Asia *** East Asia and the Pacific **** Middle East and North Africa

23 % GLP PAR Credit PAR trend An analysis of last eight quarters Portfolio at Quarterly Trend reveal that :: 8.0 PAR follows a seasonal trend 7.0 with highest level of PAR at the 6.0 beginning of the years, gradually 5.0 reducing to a low level towards the end of year. 4.0 MFB s on average maintained a 3.0 higher PAR. During 4QCY12, PAR 2.0 has reduced to a very low level. 1.0 Although detailed data for PAR is 0.0 not available, this decline in 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 ratios can be attributed to any of the following two reasons i) all portfolio greater than 90 days crossing one month age; thus invoking write-offs, or ii) high recoveries. Industry MFBs MFIs RSP Other MFPs

24 Credit Punjab Delinquency Case [08-09] Groups : Refusal to repay loans Groups: Connections with local politicians Result: Intentional defaults PAR Increased from 1% to 10% Highlights Gaps in business models, internal controls and management

25 Credit Industry Practices that lead to bad Asset Quality MFPs following herd behavior; clustering of MPs in same areas Extra focus on growth; compromise on internal controls Pressure on LOs to meet targets; incentive systems non aligned Same LOs working for multiple MFPs Delegation of responsibilities [client selection] to Group Leaders Manipulation of other MPs clientele to shift to own MFPs through Group leaders Dependence of potential customers on Group leaders [commission agents] Multiple Borrowing; Use of credit bureaus (X)

26 Credit What to analyze? To assess the quality of loan book: i) credit approval process, ii) credit verification, disbursements, and monitoring of credit process, iii) Internal controls and MIS generated by MFP, iv) loan to value ratios (if secured against physical security), v) proportion of repeat and roll-over loans, vi) MFPs client assessment frequency and analysis of clients repayment behavior

27 Financial Minimum Liquidity Requirement:: Maintain i) maintain at least 5% cash, ii) 10% liquid reserves against deposits of less than one years. Deposit Protection Fund :: Credit 5% of profits to Depositor Protection Fund (DPF). The amount is allowed to be invested in government securities or to be deposited with SBP. Protection of up to PKR10,000 per depositors in case of liquidation. Currently all banks maintain strong liquidity positions owing to initial roll-out of business operations and fresh capital. Minimum i capital (PKR 300mln PKR 1,000mln) and capital adequacy requirements (15%) are also laid by SBP. Currently one bank is non-compliant with minimum capital and CAR requirements.

28 Conclusion Opportunities & Challenges Young & Growing Supportive Role CY12 Launch of nationwide MF specific CIB Microfinance The hottest Trend Untapped potential Conversion of MFIs in MFBs

29 Conclusion Opportunities & Challenges Ownership & Governance Requires attention MFBs are better placed Need to bring Professional Board & Management framework Business & Financial Profile Requires improvement in Credit risk management Yet to achieve sustainable profitability: BB an additional revenue stream Funding Constraints Need to establish Retail Deposit base

30 Bibliography 1. PovcalNet an analytical tool for measuring poverty developed by worldbank 2. Worldbank 3. Human Development Report Sustainability and Equity: A Better Future for All, HDR_2011_Statistical Tables 4. State Bank of (SBP) website, Microfinance Institutions Ordinance 2001, Last Updated on 1st July 2007, Viewed on 2nd February 2013, pk/1 pdf 5. Microfinance Connect 6. Economic Survey of State of microcredit Summit Campaign Report 2012, Note 45, Further referenced to : org/povcalnet/povduplic html) 8. MIX market data, cross market analysis report : 2011, last viewed in Mar US Department of State, last viewed in Mar Bringing i Finance to s poor, worldbank.org 11. Microwatch Oct-Dec Global microscope on the microfinance business environment 2012, Economic Intelligence Unit, The Economist 13. Regulating s Nonbank Microfinance Institutions, i Micronote Dec11, PMN with ihfurther reference to The Microfinance Crisis in Andhra Pradesh, India: A Window on Rural Distress? By Marcus Taylor)

31 Analysts Rana Muhammad Nadeem Contact number: Samiya Mukhtar Naureen Hyat Humza Hussain DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided d the source is dl duly acknowledged. d The presentation tti should not be relied upon as professional advice.