Update on signing a new partner

21 Apr

In the last post I mentioned that we are working on signing a new partner in South Asia. As a part of the sign up process, the new partner Microfinance institution (MFI) needs to fill an extensive evaluation questionnaire which we then assess. We also take third party reference checks, review their financials and also assess the commitment of the MFIs’ senior management to the mission of ending poverty. We also need to find a bank that is willing to make a loan based on the guarantee. Signing up the bank is one of the toughest aspects of our guarantee model.

We have been making good progress with an organization in Sri Lanka called Berendina Microfinance Institute (GTE) Ltd. One of the most interesting aspects about this organization is that apart from providing microloans they also provide business development services to their clients and they are able to do it sustainably through the usage of coupons.We took a third party reference check about the organization and the feedback we received is that Berendina is a very progressive microfinance institution.I am told that they are very professional, have a good long term vision and have good loan products. Their challenge is access to funding.

Berendina has recently approached a few banks to see if they can lend to Berendina based on a guarantee. Berendina has never borrowed from a bank previously so this loan would be the first of its kind. At present one bank is evaluating their proposal and a decision by the bank’s lending committee is likely in the next two to three weeks. From what I understand from Berendina, if the loan gets approved this could be the first loan to an MFI in Sri Lanka from a bank. We are cautiously optimistic that the approval would come through and I will be posting an update on this over the next few weeks.

Meanwhile in India, the Reserve Bank of India which is the Central Bank and the regulator for the large for-profit MFIs has yet to publish its revised regulations for microfinance. Thus the uncertainty amongst banks and MFIs in India continues. As a result there are virtually no loans being made to MFIs from banks. It is nearly seven months since the crisis emerged in Andhra Pradesh state in India and if clarity on regulations does not emerge quickly it will be an increasingly uphill task of reviving the confidence of banks in lending to MFIs especially the smaller and more socially oriented MFIs. While banks will not be much affected if they do not lend to MFIs as microfinance constitutes only a small percentage of the total loans they make, the biggest losers are going to be millions of low income families and especially those who are poorer and in the more remote regions.

I sincerely hope that the government and the regulators in India show the urgency and determination in laying out appropriate regulations for microfinance in India. This is the absolute need of the hour.

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