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					 Transparency in
Funding Flows in
the Microfinance
    Industry




 Microfinance
  Information
Exchange (MIX)

Ralitsa Sapundzhieva,
 Regional Manager
Outline



       • Debt Financing of Retail MFIs: funding structure of MFIs,
  1.     landscape on lenders and assessing associated risks



       • MIX Funding Structure: data collection and analysis
  2.


       • MIX Funding Structure Tool: assessing market conditions of debt
  3.     funding directly on MIX Market



       • Resources: on-going research, online learning tutorial
  4.
Funding Structure of Microfinance Institution




 Understand better the overall funding structure of MFIs in order
to understand associated risk

 Know the landscape of investors – different investors have
different incentives and constraints, which determines the types of
risks for the MFI
      1. Origin of funding – cross-border vs. local
      2. Funding sources incentives- developmental/social vs.
      commercial

 Know your market- who is lending, at what rates and terms to
devise a better funding strategy
Funding Structure of Microfinance Institution


               Global Microfinance is Leveraged, 2009 total results
100%                                                                        25000




                                                                                    Millions
 90%                                                                        22500
 80%                                                                        20000
 70%                                                                        17500
 60%                                                                        15000
 50%                                                                        12500
 40%                                                                        10000
 30%                                                                        7500
 20%                                                                        5000
 10%                                                                        2500
  0%                                                                        0
       Grand      LAC       ECA   South Asia    Africa     EAP      MENA
       Total
                   Total Equtiy      Total Debt          Amount USD (mln)




                 Debt to Equtiy Ratio, median
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
       2003     2004      2005    2006         2007      2008     2009
        Debt Financing of Microfinance Institution


                     Structure of Liabilities, 2009
100%                                                                                 Structure of Liabilities for
90%                                                                                       NBFIs and NGOs
                                                                                       Sub.
                                                                                       Debt
80%                                                                                     1%
70%                                                                                             Other
                                                                                                 9%
60%
50%
40%                                                                                  Deposits
                                                                                       31%              Borrowings
30%                                                                                                        59%
20%
10%
 0%
          Africa         EAP         ECA         LAC           MENA     South Asia
                   Borrowings   Deposits   Subordinated Debt    Other




       • Borrowings and subordinated debt represent almost 40% of
       all liabilities and for NBFIs and NGOs close to 2/3rds
       • in EAP, MENA and South Asia, borrowings are the main
       component of financing
    Non-Deposit Debt Financing of Microfinance Institution: Who is lending?

1. Origin of funds:
     Public vs. Private sources
     Cross border vs. local investment
2. Incentives of funding sources
     Developmental/Social vs. commercial


                                            Financial
       DFI            Government           Institution
                                                          Funds/MIVs             Other

• Fin. Institution   • Bi/Multilateral   • Commercial    • Blended Value    • Corporations
  owned by             Aid Agency          Bank          • Commercial       • Individuals
  foreign            • Development       • Cooperative     Fixed Income     • NGO
  governments          Program           • Public Bank   • Holding          • Foundation
• Apex inst.         • National          • MFI             Company
                       Government                        • Mutual Fund
                     • Central Bank                      • NGO/Foundati
                                                           on Fund
                                                         • Private Equity
                                                         • Structured MF
                                                           Vehicle
Origin and Landscape of Debt Investments

                Origin of Non-Deposit Debt, 2009
100%
 90%
 80%
 70%
 60%
 50%
 40%
 30%
 20%
 10%
  0%
       Africa         EAP          ECA         LAC             MENA   South Asia
                       Local Investment   Foreign Investment


           Landscape of Lenderes, 2009                                             • Cross-border in USD, EUR funding
                                                                                   passes all forex risks to MFIs
                           Other              DFI
                  Government 7%               19%                                  • But is local commercial money
                     13%
                                                                                   patient enough?
       Fund
       20%                                    Financial                            • Importance of investors’ alignment
                                             Institution                           with an MFIs social mission?
                                                41%
Cost and Maturity of Debt

         Stated Interest Rate of Cross Border DFI and
             Funds vs. Local Financial Inst., 2009

South Asia

    Africa

      ECA

      LAC
                                                                                      • Local commercial debt costs
    MENA
                                                                                      more and is short-term in some
      EAP
                                                                                      regions but MFIs must assess the
             -         2.00     4.00     6.00    8.00      10.00     12.00    14.00   true cost of funding
                 Cross Border DFI and Funds     Local Financial Institution

                        Local Financial Inst.      Cross Border DFI and Funds

       Africa                      40                                46

        EAP                        31                                64

        ECA                        58                                59

        LAC                        29                                53

       MENA                        76                                63

    South Asia                     37                               174
External Crises: Assumptions and Conventional Wisdom



Deposit-      • MFI deposits decreased in volume or relative to assets
 taking       • MFIs switched from retail to institutional depositors. Asia financial crisis showed
                importance of retail depositors.
  MFIs
              • Foreign liquidity dried up or switched from MIVs to DFIs and other non-market
Foreign-        priced debt.
funded        • Increasing foreign exchange costs drove up financial expenses, impacting
                profitability.
 MFIs         • MFIs turned to local bank funding to replace foreign funds.


 Bank-
              • Bank deposits have dried up, creating liquidity problems for on-lending to MFIs.
funded        • Bank funding has increased in overall MFI funding as foreign funds dry up.
 MFIs

 Donor-
 funded       • The reduction in donor funding has slowed as natural replacement funding dried up.

   MFI
  Bosnia and Herzegovina


                                                                        Rapid expansion in borrowings
              Loan Portfolio and Borrowings Growth, 2003-              in 2007-2008 allowed for very
           900                    2010                                 high growth rates
Millions




           800
                                                                       Loans from MIVs increased by
           700
           600                                                         280% in 2007
           500                                                          The sector benefitted from
           400
                                                                       access to both local and foreign
           300
           200
                                                                       funding and stable currency
           100                                                          Competition among lenders
             0                                                         resulted in cheap and long-term
                                                                       debt
                                                                        By2009, negative growth rates
                 Gross Loan Portfolio (USD)   Total Borrowings (USD)   and high PAR resulted in net
                                                                       decrease in borrowings by 9%
Bosnia and Herzegovina

           Composition of Lenders 2008

                6%   10%
     10%                             DFI
                           20%       Financial Institution
                                     Fund                     Commercial local banks were
                                     Government              first to withdraw from financing
      54%
                                     Other
                                                             for Bosnian MFIs – funding down
                                                             by 40% or 45 mln. USD in 2009

      Composition of Lenders 2009                             In 2009 MFIs attracted new
                                                             loans primarily from government
                3%
                     12%
                                                             (bi/multilateral agencies)
    14%
                                     DFI
                           14%
                                     Financial Institution
                                     Fund
                                     Government
          57%                        Other
India

                    Composition of Local Lenders in India, 2009


                              Local DFI
                                23%

        Regulator                                           Commercial Bank
           4%                                                   45%



                      Public Bank
                         23%




                                          Fund Foundation
                                           3%     2%




• Importance of funding diversification: 70% of Indian MFI’s local debt is
from banks and it represent 40% of total debt
• If microfinance is no longer considered a “priority sector”, how will the
funding structure of Indian MFIs change?
  The MIX Funding Structure Data

    The MIX Funding Structure Data contains detailed information on the individual borrowings
    of microfinance institutions. While each MFI’s information is confidential, MIX creates
    aggregate analysis on the types of lenders, cost and maturity of debt in the microfinance
    industry. This is the only source in the industry to-date that provides stakeholders with this
    kind of analysis on a country, sub-regional and regional level and thereby brings
    transparency in the funding side of the microfinance sector.




 In many cases data on the individual borrowings of MFIs are disclosed
in the notes of the audited financial statements
 Verified sources such as audits or ratings are MIX’s primary source for
these data when available
     How is MIX Funding Structure Data Collected?




 Each MFI provides data on individual transaction: lender name, liability type, orig.
currency of loan, amount outstanding, maturity and rate
 MIX and the MFX’s LPT require the same parameters (except for repayment schedule)
How is representative is MIX Funding Structure Data?


  100%

   90%

   80%

   70%

   60%

   50%

   40%

   30%

   20%

   10%

    0%
         Africa       EAP          ECA          LAC        MENA       South Asia        Global

          Percentage of total borrowers served by MFIs reporting on funding structure




   Globally, MFIs that serve 90% of all borrowers on MIX Market
  provided funding structure data
The MIX Funding Structure Tool


                       • MFIs Region
                                                                         • Debt Type
                       • MFIs Country
                                                                         • Rate Type
                       • MFIs Legal Status
    1. Filtering by:                                                     • Lender type/subtype
                       • Lender Region
                                                       2. Grouping by:   • Lender region or country
                       • Lender Type (Fin. Inst.)
                                                                         • MFI region, country, legal or profit
                       • Lender Subtype (Comm. Bank)
                                                                           status
                                                                         • Origination currency of loan




                                                             3. Long-term goal-
                                                             funding structure • Financial performance data
                                                              data will interact • Benchmarks functions
                                                                   with:
           Using MIX Funding Structure Tool: What is the Funding
           Landscape for Non-bank MFIs in Tajikistan?



                                                    1. Select Funding Structure
                                                                                       Ability to download
                                                                                       the results




2. Select the year
                                                                            4. Further narrow
                                                                            down the data set
3. Narrow down the                                                          by choosing
data set- choose                                                            lenders’ geography,
country and/or                                                              type and subtype
legal status
                                                           5. Hit next
Using MIX Funding Structure Tool: What is the Funding
Landscape for Non-bank MFIs in Tajikistan?

                                   6. Group data by
                                   variable of choice
                                   •Lender region




                                                        7. Results are
                                                        displayed
                                                        according to
                                                        filters and
                                                        groupings
                                                        selected
Using MIX Funding Structure Tool: What is the Composition of
Local Lenders in India?
Getting more details: What Types of Financial Institutions are
Funding Indian MFIs?
 Resources


MIX Market Funding Structure Tool
http://www.mixmarket.org/mfi/funding-structure

MIX Data Brief 6: Microfinance Funders Profiles - A Short Guide for Young and Small
    Institutions Still Looking for a Match
http://www.themix.org/publications/microfinance-funders profiles

MIX E-Learning Module: online free tutorial on how to use the MIX Funding Structure Tool
http://mixmarket.na5.acrobat.com/mfi_funding_structure_tool/
    MICROFINANCE INFORMATION EXCHANGE, INC.
The leading provider of business information and data services for the microfinance
                                      industry.


                                    Web:
                                www.themix.org
                               www.mixmarket.org

                             Email: info@themix.org

                                  Headquarters:
                      1901 Pennsylvania Ave., NW, Suite 307
                          Washington, D.C. 20006 USA


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