20060505microfinancechallengespresentationcoetzee.ppt

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1. Challenges facing the microfinance
“industry” in South Africa
Gerhard Coetzee
2006 MFSA Conference

2. Outline
•History
•Present
•Future

3. 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 regulated
environment (MFRC)
–2006 -onwards

4. 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 due
to Usury Act

5. 1992 to 1999
•Key NGO’s collapse
•Exemption under R6000
•Micro lenders and consumer finance
•Consumer protection
•Credit bureaus
•Exemption lifted to R10 000
•Court case / MFRC
•Exponential growth

6. 1999 to 2005
•Khula failed in it’s mandate, looses intermediaries
•APEX concept, design and …..
•Land Bank failed in it’s small farmer finance mandate
•MAFISA, concept, design and ….
•NHFC looses intermediaries –investigate retail
•General failure in development finance
•Consumer Finance Growth continues
•2
nd
Exemption Notice, MFRC:
–Formalizemicrolending within Exemption
–Consumer protection
–Improve information & understanding
•More detail coming

7. Market ‘growth’ in Rand volume0
5
10
15
20
25
199219931995200020042006
Total (Rb)
Enterpr. ?
Leakage
Development

8. 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 Credit
Act
•Influencing policy through research: competition, housing,
indebtedness

9. MFRC outcomes, impact
•Major change in microlender behavior
•Influx of banks: lowered reputational risk
•R22+ billion market, evidence of substantial use for
developmental purposes (larger volume than DFIs?)
•Quantum leap in information, understanding
•Reinforce regulatory approach

10. 2006
•MFRC ends
•NCR starts
•Challenges

11. Challenges –Development 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

12. Challenges –Asset 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

13. 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 

14. Other countries 
•BRI Unit Desa -Indonesia
•Banco do Nordeste –Brazil
•People’s 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

15. Challenge –Rules and enforcement
•NCR
•Other rules
•Harmonisation of policy and legislation?
•Main challenge –enforcement?

16. Challenge –Information
•Need for even better data and information
–Better credit scoring and pricing models
•Having better information on individuals, households and firms
applying 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

17. 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%
Cash lender 5 R500 25-30 days 640-780% Micro-lender 9 R100 1 month 360%
Cash lender 6 R500 25-30 days 540-1040% Micro-lender 3 R100 1 month 360%
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%

18. Longer term price comparisons
Table 10:Comparative Table: Interest Charges by Institutions in 2000 and 2003 (Random Institutions) –Term
Lenders
2000 2003
Institutions Loan amount
Term
(months)
APR (%) Institutions
Loan
amount
Term
(months)
APR (%)
Term lender 3 >R2,000 12 45-88 Bank 5 R5,000 12 83
Cash lender 8 <R10,000 18-24 242 Micro-lender 8 R2,000 12 155
Term lender 2 <R9,000 24 57 Bank 1 R1,000 12 98
Cash lender 9 <R6,000 3 153 Bank 4 R2,000 12 147
Cash lender 7 R1,500-R3,000 3-6 287 Micro-lender 7 R2,000 9 209
Term lender 1 R2,000-R6,000 6-12 78 Bank 2 R5,000 12 112
MFRC TCOC 2003
23 lenders R5000 12 70/95
21 lenders R8000 24 56/83
27 lenders R3000 12 80/105
7 lenders R2000 6 198/209