Page 12 NEWHORIZONS January 2009

Hot topics

Rising competition is the biggest fear formicrofinance insiders because it could hitprofit margins and cause standards to slip,an industry survey has found.

The biggest fear is that commercial bankswill move into microfinance, according tothe London-based Centre for the Study ofFinancial Innovation. A related worry is thatin a saturated market, clients will get morefickle and repayment morale will worsen.

As part of the study, some 304 microfinanceinsiders from 74 countries ranked 29 risks forthe industry. Microfinance insiders reportedmanagement issues as the biggest risks nowbut judged them largely well controlled.

Inappropriate regulation and political interferenceare seen as very real risks too; in some countriesred tape stops MFIs from transforming intocommercial institutions while elsewhere MFIshave to go commercial when they wouldrather not.

Market challenges such as pressure to lowerloan interest rates, and foreign exchange losseswhen being funded in overseas currency alsocame up as minor issues. lower interest ratesare deemed a good thing in the long run andexchange losses are expected to diminish asMFIs receive more funding in local currencies.

The survey also points to a concern aboutunrealistic expectations on microfinance toreduce poverty causing disappointment andtarnishing the sector’s reputation.

Respondents ranked too much funding asa big risk for MFIs that aren’t yet ready toabsorb and deploy capital. Gaps in systems,technology and staff capabilities may conspirewith easy money to weaken financial discipline,industry insiders said.

Given these risks, two in three microfinanceinsiders said they were optimistic that mostbig players will tackle the challenges. One infour insiders judged MFIs as well prepared.

Microfinance Banana Skins 2008 – Risk in abooming industry can be downloaded fromthe CGAP website:www.cgap.org/p/site/c/template.rc/1.9.2956

Fears for 2009: banks muscling in

Banks moving into microfinance could hit profit margins andstandards, insider survey reveals

Biggest risks now

1. management quality

2. corporate governance

3. Inappropriate regulation

4. Cost control

5. Staffing

Biggest future risks

1. Competition

2. Staffing

3. Political interference

4. Too much funding

5. Credit risk

Top concerns1. Competition

2. Cost control

3. Inappropriate regulation

4. Interest rates

5. Credit risk

Ranking microfinance risks

January 2009 NEWHORIZONS Page 13

Hot topics

Audits of microfinance institutions often givetoo rosy a picture of the health of their loanportfolios, because auditors are often lookingin the wrong places. The CGAP handbook‘External audits of microfinance institutions’,may have been going 10 years, but it’s still atopical read for ECLOF NEC staff.

The guide points out to auditors and theirclients how microfinance differs fromregulated, commercial banking. For example,when clients cannot pay back on time, theirloans are often rescheduled. Unless suchloans are flagged as such, such at-riskrepayments can look as though they havealways been on time.

“Audits often do a reasonable job of trackingthe uses of donor funds,” says the handbook’sforeword. “But [audits] far less often producea meaningful picture of the health of an MFI’sfinancial service business.”

The handbook explains how to detectdeficiencies in loan portfolios – since this iswhere alarming information often lurks. Butthe handbook also touches on issues crucialto long term financial health: how to set asideenough funds to pay for loan losses and whento write off loans.

The first volume of the handbook is for partnersor microfinance boards who commissionexternal audits. The second volume guidesexternal auditors on how to audit a microfinanceinstitution.

‘External audits of microfinanceinstitutions’ – A Handbook, publishedby CGAP, Technical Tools Series No. 3,December 1998, it can be downloaded at:www.microfinancegateway.org/content/article/detail/1617

Picture of health?

A CGAP guide for auditors explains how to spot telltale flawsin a seemingly healthy microfinance loan portfolio

“You will soon come to love living in Geneva,”a distinguished church leader told me overlunch. I was surprised. He was the first personwith such an optimistic view since I had arrivedfrom Zambia CHECK three months ago.

Most people had moaned to me aboutSwitzerland’s unbearably high cost of living.So why was he so upbeat about life here?He explained that it’s much easier to planyour budget because you don’t have relativesturning up on your doorstep out of the blue.

Africa has a beautifully inclusive sense ofcommunity. We arrive at each other’s housesunannounced and can stay as long as we like.This works very well in rural areas. But not asfamilies move to the city to earn, such customsneed reviewing.

“Irene, when you are here in Geneva, you canpredict when the next visitor is coming andyou can adjust your budget accordingly,” mycolleague explained. “That is impossible athome.” Indeed, flights to Switzerland costtoo much for the average African, and thenthe Swiss Consulates abroad would need aninvitation letter from me before they wouldgrant my relative a visa. Voilà – my ample notice.

My first three months in Switzerland is thelongest I’ve gone without one demand oranother on my finances from my extendedfamily. At this rate, I might even be able tostart saving up!

So this piece kicks off a new series on whatcultural factors deter impoverished people,especially women, from doing well forthemselves. We’ll also be looking at culturaltriggers for wealth creation.

Send your thoughts and stories tooffice@eclof.org and we will incorporatethem into the mix.

Irene Banda Mutalima, Executive Director

Culture clashWhen does culture get in theway of wealth creation? Andconversely when does it helpyou get a leg up? Share yourthoughts and stories here

Page 14 NEWHORIZONS January 2009

Partnerships

ECLOF Sri Lanka staff are getting upskilled ininstitutional development, internal control andfraud prevention as part of a three-year projectwith Norwegian development body theStromme Foundation.

The Foundation’s Asian branch is also helpingECLOF Sri Lanka build capacity, developbusiness plans and write a microfinanceoperations manual. Stromme MicrofinanceAsia has lent the NEC $US 90,000 for loan

capital in 2007-2008. How much Strommelends the NEC in the next tranches dependson what is needed under the business plan.

Gamini Samarasinghe, ECLOF Sri Lanka’sProgramme Manager says such assured loancapital and technical support are vital in acompetitive market.

“The partnership has instilled in our staffconfidence and strength,” she CHECK said.

Kenya ECLOF has received high praisefrom a strategic partner for being openand trustworthy in its relationships.

The local branch of Heifer ProjectInternational (HPI) was united to takepart in the nitty gritty running of KenyaECLOF (KECLOF).

HPI Kenya’s finance chief DouglasMwendwa who straddles the KECLOFboard and its Finance, Audit andAdministration Committee, says he

has more confidence in the NEC sincehe’s been given first-hand access tooperational figures.

“Inviting partners to sit on criticalcommittees is a clear testimony ofKECLOF’s openness,” says Douglas.

Douglas was invited to join the boardtwo years ago. His employer HPI isa US-based charity that focuses onlivestock and sustainable agricultureto relieve hunger and poverty.

HPI praises KECLOF for financial ‘openness’

ECLOF Sri Lanka stranger thanks to Stromme

Training gives ECLOF Sri Lanka staff more confidence

January 2009 NEWHORIZONS Page 15

Out and about: courses and conferences

ECLOF Philippines’ Eugene Balway with Nobel laureateMuhammad Yunus

Two ECLOF employees attended the Asia-Pacific RegionalMicrocredit Summit, held last July in Bali, Indonesia.Feraz Legita, Vice-Chairperson of ECLOF Philippinesand Eugene B. Balway, manager of its Benguet branchboth went to workgroup sessions on governance,microinsurance and doing microfinance in saturatedversus low density, underserved markets.

An online comparison shopper was launched at theconference. The website MicroFinance Transparencyhelps people find the best loan interest rates for them

More than 900 people from 50 countries attendedthe summit, which included keynote speechesfrom the Indonesian President the former PeruvianPresident Alejandro.

Ben Laseko, Director of ECLOF Tanzania, hasattended a summer school in micro bankingrun by the Frankfurt School of Finance andManagement. The week-long course coveredchange management, risk management, profitand profitability as well as regulation andsupervision. Ben says the course has helpedhim keep up with the dynamic microfinancesector including the trend for commercialisation.

The Armenian delegation with the president of Mongolia(in the middle)

A delegation from ECLOF Armenia took part in amicrofinance conference in Mongolia last May. TheMicrofinance Centre for Central and Eastern Europeand the New Independent States ran the conferencefor its membership. Over 90 institutions includingECLOF Armenia belong to the centre.

The 11th Annual Conference, in Ulaanbaatar, Mongolia,gave microfinance practitioners the chance to exchangeideas and experiences with each other and meet fundingcompanies such as the Swiss company Blue Orchardand the Washington-based Microfinance InformationExchange (MIX).

Juan Forero and Barbara Doswell from thesecretariat’s operations department have beenlearning about opportunities in China. At the2008 World Microfinance Forum, Juan andBarbara heard how to unleash the potential ofmicrofinance This year’s forum was held inGeneva on 1 and 2 October 2008. The WorldMicrofinance Forum is a private-public partnershipthat promotes inclusive financial markets.

ECLOF news & people

Summer School for Ben Lending in China

Page 16 NEWHORIZONS January 2009

ECLOF news & people

Board members of national ECLOFs fromLatin America and the Caribbean got to swapstories and ideas in July 2008 in a meeting inthe Peruvian Andes.

The meeting, which runs every four years,was a chance for national ECLOF members toget their views heard by staff from the inter-national secretariat in Geneva and representa-tives from three partner agencies.

Participants met at an altitude of almost 4000metres on the shores of lake Titicaca in thePeruvian Andes.

In the little village of Chucuito, close tothe town of Puno, participants discussedmicrofinance trends, governance issues andfundraising. Regional issues raised included

• Strong competition in most of Latin America.

• Government policies: in some countriesNECs have to become regulated entities,

elsewhere populist governments force "social"business practices on microfinance institutionsor rival them with their own subsidisedmicrofinance ventures (both of which damagefinancial performance).

At the workshop, former Executive DirectorMuhungi Kanyoro handed over to his successorIrene Banda Mutalima. Participants paid tributeto ECLOF’s transformation during Muhungi’s16-year tenure including giving NationalECLOFs a bigger say in international decisions.

Irene Mutalima and Martin Kyndt – who hadchaired ECLOF since January 2008 – gavethe participants a glimpse into the forthcominground of strategic planning (see also the articleon the Board meeting, page XX). Martinstressed the need to build ECLOF’s identity,service, alliances, support and coordination.Irene reflected on the role of the internationalsecretariat.

National ECLOFs from Latin America andthe Caribbean talk shop in Peru

Reaching new heights: workshop participants in Peru.

January 2009 NEWHORIZONS Page 17

ECLOF news & people

Doing business in the Andes

Workshop participants got to meet clients from ECLOF Peru’s officesin Puno and the nearby town of Juliaca

Luz Melissa Quispe Quispe, 19, runs a brick factory

Members of various client groups in Juliacaare organising a little fair for workshopparticipants to present their products– handicrafts, textiles made from alpacaor sheep, cheese, sweets and more

Juana Nina de Lipa withMartin Kyndt, ECLOFInternational’s chairperson.Juana weaves rusticlooms with natural andindustrial wool. Her mainproducts are ponchos,bed spreads, walldecorations, and puppets

Page 18 NEWHORIZONS January 2009

ECLOF news & people

“My family and I have beenso blessed. One way tobe grateful is by servingthe underprivileged. I'mhonored to serve onECLOF's Board.”

Represents: Latin American and CaribbeanNational ECLOFs

Other positions: Executive Director ofmicrofinance and capacity building foundationFondación Dominicana de Desaralllo(Dominican Foundation for Development, FDD).ECLOF Dominican Republic board-member.

Ada Wiscovitch is a trained political scientistand economist, She has many years experiencein finance and not-for-profit work, both as amanager and board-member.

Quote here????

Represents: Churches

Other positions: President and CEO of SanFrancisco-based Women’s Funding Network.(WFN)

Chris has led not-for-profit organisations, inthe United States and elsewhere. Before shejoined WFN, she was Executive Director of theChicago Foundation for Women and before thatas Deputy General Secretary of the LutheranWorld Federation in Geneva.

"I will derive unmatchedgratification from knowingthat my advice can imme-diately impact the lives ofmany small farmers in themost sustainable way."

Represents: North American partner agencies

Other positions: Executive Vice President ofFinance and Administration and Chief FinancialOfficer of Heifer International in Little Rock,Arkansas

James Neal joined Heifer in 2005 and isleading its finance, human relations, legal,facilities and IT efforts. Holding degrees inbusiness administration, finance, accountingand international economics, James has over25 years in corporate finance under his belt.

“Im very proud of beenelected to be a part ofECLOF family! Its agreat honor and anenormous responsibility.“

Represents: Latin American and CaribbeanNational ECLOFs

Other positions: Board member of FundaciónEcuménica de Desarrollo del Uruguay FEDU(ECLOF Uruguay). Director of the Centro deNegocios de la Mujer (center for women’sbusinesses) of the Uruguayan Chamberof Industry

Maria – who has a degree in law – previouslyworked on promoting fair trade and developingsmall and medium enterprises.

People moves

New Board members

Ada Wiscovitch

Christine Grumm

James Neal

Maria de los Angeles Torres

ECLOF news & people

People moves

New Treasurer

"Geneva is becoming a centreof excellence for responsiblefinance and sustainabledevelopment – this is proofthat ECLOF is in the right place."

Represents: Swiss constituency

Other positions: New Treasurer of ECLOF International.Partner of asset management and corporate financefirm de Pury Pictet Turrettini & Co. Founding memberand treasurer of not-for-profit body Sustainable FinanceGeneva.

Guillaume’s company is a founding shareholder ofBlueOrchard Finance and fund manager of the DexiaMicro-Credit Fund.

New people at NECs

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Represents: ???????????

Other positions: Succeeding Atty Floyd Lalwet asPresident of ECLOF Philippines. Executive Secretary ofthe Methodist Evangelical Church of the Philippines andits Minister of Finance and Administration; sits on theMembership Committee of the National Council ofChurches

Lingkod was trained as an engineer and has worked formany years in the life assurance industry.

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Represents:???????

Other positions: succeeds Eduardo Gutierrez as theExecutive Director of Asociación Nacional Ecuménicade Desarrollo ANED (ECLOF Bolivia).

Gerardo has been with ECLOF since 2007 as a NationalManager of Business Operations. Before joining ANED,Gerardo – who is trained in business and finance – hasmost recently been a National Controller at Banco LosAndes-Procredit Bank in La Paz.

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Represents: ??????????

Other positions: Head of Finance and Operations atAsociación Nacional Ecuménica de Desarrollo ANED(ECLOF Bolivia

Trained economist Waldo started in banking and soonspecialised in microfinance.

January 2009 NEWHORIZONS Page 19

Guillaume Taylor

Lingkod Maducdoc

Gerardo Mendieta

Waldo Claros

Caption??

ECLOF InternationalP.O. Box 21001211 Geneva 2Switzerland

Telephone: +41 22 791 63 12Fax: +41 22 710 20 05Website: www.eclof.orgE-mail: office@eclof.org