20060505 micro finance challenges presentation - coetzee

8/3/2019 20060505 Micro Finance Challenges Presentation - Coetzee

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Challenges facing the microfinance

industry in South Africa

Gerhard Coetzee2006 MFSA Conference


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Outline

History

Present

Future


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Short history

Four phases

Before 1992 from struggle to financial services

1992 to 1999 growth after legislative changes

1999 to 2005 era of growth continues in a more regulatedenvironment (MFRC)

2006 - onwards


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Until 1992

NGO dominated market

Entrepreneurial focus

Origins in struggle and non-financial NGOs

Difficult to make the change USAID spent $20m between 1988 - 1999on mostly NGOs

Decline of the NGOs, but exception(s)

Decline of the parastatal institutions

Financial exclusionof majority, role of apartheid, distortions dueto Usury Act


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1992 to 1999

Key NGOs collapse Exemption under R6000

Micro lenders and consumer finance

Consumer protection

Credit bureaus Exemption lifted to R10 000

Court case / MFRC

Exponential growth


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1999 to 2005

Khula failed in its mandate, looses intermediaries

APEX concept, design and ..

Land Bank failed in its small farmer finance mandate

MAFISA, concept, design and .

NHFC looses intermediaries investigate retail

General failure in development finance

Consumer Finance Growth continues

2nd Exemption Notice, MFRC: Formalizemicrolending within Exemption

Consumer protection

Improve information & understanding

More detail coming


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Market growth in Rand volume

0

5

10

15

20

25

1992 1993 1995 2000 2004 2006

Total (Rb)

Enterpr. ?

Leakage

Development


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Assessing MFRC

Formalize microlending:

~2200 registered, % unregistered ? Black MLs, but informal township MLs (?)

Consumer protection: Help for borrowers, complaints & enforcement

Progress on disclosure & reckless lending (?)

Information, understanding: Central role in sectoral data & analysis

Efforts to inform, educate public (?)

Pro-active stance: enforcement and beyond

Institutional change: NLR, legal/judicial issues, National CreditAct

Influencing policy through research: competition, housing,indebtedness


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MFRC outcomes, impact

Major change in microlender behavior

Influx of banks: lowered reputational risk

R22+ billion market, evidence of substantial use fordevelopmental purposes (larger volume than DFIs?)

Quantum leap in information, understanding

Reinforce regulatory approach


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2006

MFRC ends

NCR starts

Challenges


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ChallengesDevelopment Finance

(Second economy?)

Understanding of clients township money lenders example

real market research

Expansion of products, expanded options

SMME finance attacking the self employed market Regulatory environment - heavy burden of red tape

Registry of security interests

Explicitly target productive uses of microfinance

Transformation of NGO MFIs

Business Development Services

Commercial banks already in there, but more focus needed

However, many success stories, in Africa and beyond


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ChallengesAsset accumulation

Savings, insurance, investment products (ever mentioned here?)

Targeted savings products Mzanzi experience encouraging

Smooth consumption, raise repayment, minimize risk

Is the banks making money, threat of cannibalization

Savings Targets Not Addressed in Anticipated Legislation, Charter Addressing negative real interest rates on savings instruments

Need for bundling lending and saving instruments. Repayment is a combination of amortized principal, interest, forced saving

Banco Sol model

Accion model Village Banking Model

Housing: embryonic township markets

Investment products


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African examples

National Microfinance Bank Tanzania Amhara Credit and Savings Institution Ethiopia Banque du Caire Egypt

K-Rep Kenya

Equity Bank Kenya CERUDEB Uganda Novo Banco - Mozambique Novo Banco - Angola


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Other countries

BRI Unit Desa - Indonesia Banco do Nordeste Brazil

Peoples Bank of Sri Lanka

Banrural Guatemala

Bank Pertanian Malasia Agricultural Development

Kyrgyz Agricultral Finance Cooperation Kyrgyzstan

Land Bank, Development Bank, National Bank Philippine

BancoSol Bolivia

14 other banks in Eastern Europe

Grameen Bank - Bangladesh


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ChallengeRules and enforcement

NCR

Other rules

Harmonisation of policy and legislation?

Main challenge enforcement?


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ChallengeInformation

Need for even better data and information Better credit scoring and pricing models

Having better information on individuals, households and firmsapplying for / using credit for policy development

Training and capacity building Major need, no recognition, not willing to pay

Short sighted need to invest in most strategic asset

Consumer education Need for improved outreach

Focus on lower income strata

Distinct lack of innovation

Use of CE as a monitoring tool

Pricing issues, competition, monitoring


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Short term price comparisons

Table 9: Comparative Table: Interest Charges by Institutions in 2000 and 2003 (Random Institutions) Cash Lenders

2000 2003

Institutions Loan amount Term APR Institutions Loan amount Term APR

Cash lender 2 R100-R500 7-25 days 540-1040% Bank 6 R100 1 month 228%

Cash lender 3 R500 30 days 360% Micro-lender 1 R100 1 month 264%

Cash lender 4 R500 25-30 days 360-450% Micro-lender 2 R100 1 month 336%



Micro-lender 4 R100 1 month 360%

Micro-lender 1 R500 1 month 259.2%

MFRC TCOC 2003 Micro-lender 5 R500 1 month 360%

13 lenders R750 30 days 60-360% Bank 6 R1,000 1 month 222%

Micro-lender 2 R1,000 1 month 336%

Micro-lender 6 R1,000 1 month 360%


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Longer term price comparisonsTable 10: Comparative Table: Interest Charges by Institutions in 2000 and 2003 (Random Institutions) TermLenders

2000 2003

Institutions Loan amountTerm

(months)APR (%) Institutions

Loanamount

Term(months)

APR (%)

Term lender 3 >R2,000 12 45-88 Bank 5 R5,000 12 83

Cash lender 8

20060505 micro finance challenges presentation - coetzee

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