I am about to leave Hanoi tomorrow morning to head back to Beijing. The Asia Microfinance Forum and being in Vietnam with microfinancers from all over the world was exciting on a lot of levels.
The most inspiring area that I learned about during the conference is the current innovations in green and renewable technologies. While we are planning on promoting green microentrepreneurs by highlighting them on our website, I hope that we can move a step further by allowing contributors to invest in clean technology for borrowers. One example would be biogas technology, which is basically a receptacle and processor of animal feces that turns it into methane gas to fire a stove. A contributor could go on, support the loans of a borrower who would like to take out a loan for biogas equipment, and then watch the borrower’s repayment over time. It would be similar to the idea of a green consumer loan. One of the MFIs that both Courtney and I have visited, Ningxia CEPA, has been providing biogas loans and equipment set-up for the past few years.
So, to get off my tangent, here are some of the most interesting new areas and organizations that I learned about during the conference:
There are quite a few new organizations popping up that are promoting the adoption of sustainable energy technology for microentrepreneurs. This may take the form of biogas, as I mentioned above, solar technology, bio-fuel (plant produced gas), cleaner alternatives to coal, and hydro-electricity. A few interesting organizations to check out are SEEDS, a Sri Lanka based organization providing loans for solar and hydro-electric equipment, Green Microfinance, a US based organization innovating with new approaches to promoting environmentally sustainable solutions for development, Arc Finance, an organization linking microfinance and the energy sector, and Sigma Global, an organization on the forefront of integrating clean tech and carbon credits with microfinance.
So, after about three hours worth of explanations, I finally understand cell phone technology applications for microfinance. I knew that borrowers would go to local grocery stores or small vendors to make cash repayments and take out loans, and then use their cell phones to do the transaction, but the piece that I had been missing was that this doesn’t mean that the loan officer is out of the equation. As Ryk from B2Bpricenow.com explained, the loan officer still goes to the borrower's village every week for borrower meetings, but the loan officer’s role changes from being the cashier to being a support, training and information resource, and enforcer in case the borrower does not repay. This increases efficiency because the loan officer doesn’t have to return to the branch as often to deposit funds, reduces the risk of fraud by the laon officer and danger that funds could be stolen from the loan officer in transit, and ensures that the MFI receives on-time, accurate information. The storeowner that is collecting and disbursing cash may herself be a borrower from the MFI and receive a fraction of the margin on each transaction. To learn more about interesting organizations on the cutting edge of microfinance technology, check out B2Bpricenow.com, Green Bank, IBM Global Services, and MICRA.
Microfinance investment has traditionally been isolated to funds providing loans to first tier MFIs. It’s great to see how this model is evolving.
Adam Smith Ventures is the first large fund to introduce the private equity model into microfinance investment. They are launching this year and I can’t wait to see their model implemented.
Another new approach is that introduced by Catalyst Microfinance Investors. CMI is being launched by ASA, the world’s top microfinance institution, according to Forbes. CMI will use the MFI model developed at ASA to create new greenfield MFIs in countries including Sri Lanka, India, Ghana, Nigeria, and China. In China, they plan to have two branches and 400 clients by the end of this year. CMI aims to have a total portfolio of $500 million by 2014.
The final trend I learned of is debt-based funds moving farther down the microfinance pyramid. An example is Incofin, a Belgium based fund, which is investing in second tier MFIs that before would not be considered as a potential investment options. Up until now, almost all microfinance investment was limited to about seventy first tier MFIs. This meant that 99% of MFIs could only access funding in the form of grants or subsidized loans, which are obviously unsustainable funding sources. The only way that funds can promote the movement of MFIs up the pyramid is to start investing in MFIs that are lower down the pyramid. It is therefore exciting to see this evolution in microfinance debt investment.