Microfinance moves mainstream

Citi discusses the outlook for microfinance at a conference in Hanoi.
Last week in Hanoi, more than 500 delegates from 50 countries attended the Asia Microfinance Forum 2008, which addressed key issues facing the microfinance industry. With Citi as its lead sponsor, the event was organised by the Banking With The Poor Network and the Foundation for Development Corporation.

FinanceAsia asked Citi's Southeast Asia Pacific CEO Piyush Gupta, who spoke at the conference, his thoughts about microfinance in Asia, and CitiÆs approach to the sector.

What were the main issues that were addressed at the conference?
The Asia Microfinance Forum 2008 in Vietnam focused on the challenges and innovations that will have the greatest impact on microfinance in Asia in the coming decades.

Microfinance plays a crucial role in reducing poverty and promoting wider financial inclusion, and there are thousands of microfinance institutions already operating in Asia. But around 200 million low-income households in the region still have no access to basic financial services. ItÆs very important that both public and private sector stakeholders understand how to support the microfinance industryÆs future development.

Key themes covered at the conference included opportunities to increase finance and investment in the sector, and the need for the poor to build savings and assets because they often need more than just access to credit. We also explored the expanding role of microfinance networks, some of the new technologies available to help achieve greater financial inclusion, and how microfinance can contribute to environmental sustainable development.

What was the general view for the outlook of the microfinance industry during the event?
There was a lot of discussion about private sector financing and investment. At our first Asia Microfinance Forum in Beijing in 2006, it was more about balancing the social mission of microfinance with increasing interest in the commercialisation of the industry. In Hanoi last week, the agenda had clearly moved on û commercialisation is now generally accepted as both desirable and necessary, though it's probably fair to say that there are still some noteworthy dissenters.

The other issues of the day were the growing importance of partnerships and strategic alliances in the sector, the ongoing need for a supportive regulatory environment, and a re-emphasis on measuring social performance alongside financial performance and sustainability.

The conference also reinforced the need for truly inclusive forums for AsiaÆs microfinance sector and the important roles that regional networks, such as the Banking With The Poor Network, and national microfinance networks can play.

What role are you playing as a bank in the development of microfinance globally and specifically in Asia?
In order to strengthen the industry, we believe that a combination of philanthropic and commercial initiatives is the best way that we can help support the development of the microfinance sector.

In Asia, CitiÆs support for the microfinance sector began in India over 10 years ago and expanded during the Asian financial crisis in the late 1990s. During this time, Citi gave over $4 million in grants to start or scale up 16 MFIs (microfinance institutions) across the region. As of today, the Citi Foundation has given $18 million in funding for microfinance-related programmes in Asia û with each involving the active support of our management and employees.

Citi also has a microfinance business group that works across the Citi businesses and product groups and with employees to establish commercial relationships with the microfinance sector. Through Citi Microfinance, we have already established commercial relationships with more than 70 MFIs in over 35 countries in Latin America, Africa, Asia, Eastern Europe and the Middle East. ItÆs a very innovative group leveraging CitiÆs emerging markets financial structuring experience and local presence to help MFIs build scale.

Give us an example.
One of our early Asian deals was the worldÆs first Triple A-rated securitisation of microcredit receivables for BRAC (Bangladesh Rural Advancement Committee), which helped bring the global financial markets to the doorsteps of nearly 1.2 million households in Bangladesh in 2006. A couple of months ago, we provided a $10 million loan facility in Bangladeshi taka to ASA, another of the worldÆs leading MFIs, to help diversify its funding sources and disburse more funds to a larger number of microentrepreneurs.

How does Citi view microfinance, is the focus philanthropic or on the increased business opportunities?
ItÆs not an either-or scenario for Citi û they are complementary. Both have different roles in supporting industry growth and working with different sizes of microfinance institutions.

The business opportunity will probably be small relative to our overall scale of operations but itÆs an important way to help more established MFIs to build scale, lower costs and introduce new products. At the same time, the Citi Foundation grants mainly support the development of a broad range of MFIs so they can provide more poor households with greater access to financial services, and evolve into commercially self-sustaining organisations.

We also fund programmes such as the Citi Microentrepreneurship Awards that build awareness for microfinance as an effective poverty alleviation tool. We hold these awards annually in 26 countries, including Bangladesh, China, India, Indonesia, the Philippines and Vietnam in Asia. The winners of these awards are among some of the smartest and most enterprising people you will ever meet.

How would you respond to those critics who say banks are now looking to cash in on the growth in microfinance?
First, it is never possible for a bank to build a successful sustainable business by ôcashing inö or profiteering. Sustainability demands that there be mutual benefits, that the terms to both the borrower and the lender make sense. If this does not happen, one or the other side will leave the market.

Second, CitiÆs support stretches back over 25 years. This is not something that we are coming to late in the day. We have been an active partner for the microfinance sector for decades, and we understand its importance to the global economy.

ItÆs clear that commercial investing and financing is playing a vital role in the development of a more sustainable and robust microfinance industry. There is still a huge funding gap and commercial sources of funds are critical to filling it.

Moreover, commercial investors require more disclosure and information on prospective investments and this encourages greater transparency, which will in turn strengthen the industry and attract further sources of funding.

The event was held in Vietnam. What role can microfinance play in Vietnam?
Vietnam has an emerging microfinance industry, which is attracting interest from around the world, and the State Bank of Vietnam has made some important regulatory changes that will help the development of microfinance. We have received some encouraging feedback that last weekÆs Asia Microfinance Forum in Hanoi provided a unique opportunity to promote the sector in Vietnam and some positive impetus for the expansion of the industry.

For CitiÆs own experience in Vietnam, microfinance is already transforming peopleÆs lives there. We established our first microfinance partnership in Vietnam in 2001 with a grant to Save the Children to support its programme in Thanh Hoa, one of the poorest provinces. Over the years, our funding has helped more than 10,000 women from low-income households in Thanh Hoa to start their own micro-enterprises.

We are equally pleased that this is one of the few examples of a microfinance programme in Vietnam that has become financially sustainable and external funding was no longer required to support it. This is how we hope the entire microfinance industry will evolve over time and we are committed to providing the kind of support that will make this happen.
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