Launch in Sri Lanka – new loans online

5 Dec

We are delighted to announce that we have partnered with Berendina Microfinance Institute in Sri Lanka and we have new loans online. It has been a long wait, and the wait is over.

Berendina  was originally started as a Trust named Berendina Stitching in 1987 by Mrs. Berendina Borst of Netherlands.  Over time the activities grew and Berendina Microfinance Institute (BMI) was setup in 2007.

There are several reasons why we decided to choose BMI as a partner:

BMI works directly with the borrowers rather than adopt a community based approach that is common in Sri Lanka. Thus they are able to reach the most vulnerable sections who are often neglected by the community based approach.

BMI works in difficult areas that are further away from densely populated towns.  During the floods of 2011 in Sri Lanka, in some areas they had to visit their clients by boat.

BMI works closely with Berendina Development Services in creating livelihood opportunities, health, sanitation and other areas.

They work with 280 private sector companies to create employment opportunities for the youth.

BMI has also been an innovator in several areas and has pioneered interesting approaches such as ‘enterprise and technical training’ for clients who take the enterprise loan.

The launch in Sri Lanka is an important step forward. We have survived the tough microfinance crisis in India and were able to successfully return 100% of the money loaned by lenders.

We are back on our feet now  and we  plan to grow UnitedProsperity.org with your continued support. Let us start by lending one loan guarantee at a time.

Upcoming launch in Sri Lanka

7 May

We are pleased to announce that we have started putting together the paperwork  for the launch in Sri Lanka. While the structure of the agreement with the bank is in place, there are still some clarifications needed on specific documentation requirements.

We will be updating the blog on the progress over the next few weeks. Thanks again for your patience and we look forward to  have entrepreneurs online soon.

Update on the legal agreement with the bank in Sri Lanka

13 Nov

In my  previous post, I had written that we were expecting to hear from the bank in Sri Lanka on the legal agreement. While we were expecting to hear back in 10 days from my previous post, we heard back only last week. It has taken longer than what we expected, but fortunately things are moving forward. For now, I will not make a prediction on how soon we will be able to move to the next step, but I promise to update the blog by the middle of December. Thanks for your patience.

Loan processing delays

17 Oct

In my last post, I had written that the loan to BMI had been approved. However there have been some unanticipated delays in getting the legal agreement finalized. We are expecting to hear from the bank over the next 10 days. Hopefully we will start seeing progress soon.

Thanks for your patience.

Loan to Berendina Microfinance, Sri Lanka is approved

16 Aug

We are delighted to announce that a bank in Sri Lanka has approved a loan of $100,000 with a 50% guarantee to Berendina Microfinance, Sri Lanka. This will be the first ever bank loan to Berendina.

While the bank’s credit and risk committees have approved the loan, the bank’s legal department is reviewing the guarantee agreement we have shared with them. We hope to get their feedback in the next few days. Once the legal agreement is approved and we complete the necessary paperwork we will have new loans on the website.

We are really excited about this development and we are keeping our fingers crossed that we do not run into any unexpected obstacles. Watch out for more posts on this subject in the next few days.

Update on new loans

8 Jul

Previously I had written about signing up a partner in Sri Lanka. At this stage we have learned that a proposal to approve the loan to Berendina Microfinance Institution backed by our guarantee is being reviewed by the bank’s risk and credit committees. We have been informed that the reviews should be complete by the end of July. We are cautiously optimistic that this process should go through smoothly and we hope to have loans online soon.

As I had mentioned in my previous post we are also getting a positive response from South and Central America. We have been able to make considerable progress with an MFI in Honduras. We hope to report on further developments over the next few weeks.

In India, the Ministry of Finance proposed a new bill for regulating microfinance in India. After receiving feedback from the public the bill will be presented in Parliament to be made into law. At this stage it is definitely a step forward. While some have commented on the bill, it is still a bit early to say how the final law and regulations will take shape and the impact they will have.

We are eagerly looking forward to report on new loans! Please do visit again for further updates.

Microfinance in India – solving the Gordian Knot

19 May

The Reserve Bank of India, the regulator for microfinance broadly accepted the recommendations of the Malegam committee and proposed some guidelines recently. Banks in India have been traditionally mandated to lend a certain percentage of their total lending to priority sectors such as microfinance, small business, agriculture and so on. Previously all loans to microfinance institutions (MFIs) came under priority sector lending and that encouraged banks to lend to MFIs especially since the defaults were extremely low as compared to other priority sector areas.

The new guidelines are more specific on what constitutes priority sector lending under microfinance. The overall objective for the new guidelines seems to be to protect MFI clients (borrowers) while holding banks indirectly accountable for client protection through the priority sector guidelines. The guidelines try to achieve client protection by putting several restrictions (caps) on the way microlending can done and these include:

1) Interest rate caps on loans made by microfinance institutions (MFIs)

2) Margin cap for MFIs

3) Loan size caps based on rural/urban area

4) Loan size caps based on loan cycle

5) Minimum prescribed loan tenors (duration) based on loan size

6) Portfolio mix caps ( what percentage of a loan portfolio of a MFI should be income generating )

The guidelines are however silent on specific client protection practices the MFIs should have in place. In many ways the approach seems convoluted and noted industry commentators N Srinivasan and M S Sriram seem to indicate that the microfinance sector will continue to pay a heavy price for the lack of appropriate regulation. To my knowledge, bank lending is yet to resume in India even after these new guidelines have been released. Hopefully the reasons are just procedural and banks will start lending soon.

In my opinion the regulations need to be a lot simpler. The RBI should have intervened in just two broad areas without getting unduly involved in specifying how the loan product should be structured. They should:

a) Allow sustainability of MFIs but put restrictions on profiteering: The RBI could have specified reasonable dividend cap and a bonus share issue cap (i.e. no stock splits) for MFIs that want to avail of priority sector lending from banks. Additional related caps would be on compensation to key executives of the MFI. Thus MFIs can operate sustainably without resorting to profiteering and the right kind of investors would get involved with microfinance. See Ramesh Arunachalam’s blog for a more elaborate note on this subject.

b) Hold MFIs directly accountable for client protection: The RBI should have mandated specific and strong client protection guidelines and the responsibility should be directly on MFIs and not indirectly on banks that are far removed from the actual practices on the ground.

The RBI is expected to come up with more detailed guidelines. I hope that they will take the opportunity to solve the Gordian Knot of Indian microfinance. India has more poor people than the whole of Africa put together and this requires the government’s and the regulator’s utmost attention. A crisis should never be wasted.

Meanwhile we have also been introduced to the bank in Sri Lanka. Being the first loan to a microfinance institution in Sri Lanka, the bank is moving cautiously and we will have more updates soon.

Over the last few weeks we have also contacted several microfinance institutions in South and Central America. The response we have got has been a bit overwhelming and nearly a dozen MFIs out of the forty MFIs we contacted are interested in partnering with us. In hind sight we should have approached MFIs in South and Central America much earlier, but we did not take it up because we wanted to build some more organizational capacity before we expanded operations to multiple countries.

While we have one volunteer who knows Spanish and is helping us connect with MFIs in South and Central America, we need the help of a few more volunteers who know Spanish. If anyone is interested in volunteering, please write to me at bhalchander(at)unitedprosperity(dot)org. Thanks again for stopping by.