University of Antwerp
Workshop:
Microfinance at Risk?
The Limits of Commercial Microfinance
and the Role of Multi- and Bilateral Agencies
The case of Nicaragua
Johan Bastiaensen
CERES SUMMERSCHOOL / ANNUAL MEETING
“Global Governance, The Crisis and Development”
New directions in Development Cooperation
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Introduction:
Claim: microfinance = successful & massive initiative of poverty reduction
 social mission + private for-profit motives
 new niche market for capitalist investment, generating inclusive growth
~ multi- & bilateral actors heavily involved in the establishment & promotion of
commercial MFI-industry
Yet ~ issues and questions:
-Tensions between commercialisation & development objectives?
- Are mainstream policies & role of multi- and bilateral actors) adequate ?
-Case-study Nicaragua = ‘investment darling’ & showcase of MFi-success
... but today = life threatening crisis
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Content
1. Mainstream policies in Nicaragua: commercialization and
the role of multi- and bilateral actors
2. The crisis of microfinance in Nicaragua
3. Analysis of the crisis: some lessons and points of debate
4. Conclusion
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1. Mainstream policies in Nicaragua
Financial system approach:
sustainable MFIs  integration into mainstream financial systems
(regularization & up scaling to MFI-banks + downscaling of some commercial banks)
= savings + (inter)national capital
 massive/cheaper funds & full range of financial products
Nicaraguan Context: CGAP CLEAR-report (2005)
-Critique of targeted donor subsidies for rural finance  fragmentation
-‘Obsession with credit’ + lack of non-credit financial services
(regulation?)
-Horror = possible return of state development bank
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 coordinated donor commitment to financial systems approach
(led by IFC/IADB)
= induce mature NGOs  regulated MFI-banks of NBFIs
~ heralds GTZ/KfW/IFC/IADB pioneering role (Confia  Procredit-bank)
 substantial support for regulating/regulated NGO-MFIs ~ Procredit;
Findesa-BANEX; Fama; …
= equity, cheaper loans, subsidies (specialized multi- & bilateral sources)
= discursive support: IFC certificate good governance Banex; Calpia-Procredit El
Salvador ~ ‘best practice’ for rural microfinance
= all MFIs: direct/indirect pressure to regulate (including some social
investors linked with government co-funding)
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Policies + institutional quality of MFIs (incl. Asomif)
 very fast growth of portfolio (less in clients), especially regulated MFIs
2004
Regulated MFIs:
Procredit, Banex, Fama
77
Non-regulated MFI's:
Asomif (FDL, et al.)
105
Other NGOs + SACCOs
Total portfolio
Total clients
MFI-portfolios in Nicaragua (mio U$)
Annual
2008
Main sources of funds
growth
Multi- en bilateral investment funds (IFC, IADB,
KfW, Bio, FMO,…), savings: Procredit = 57%;
313
+42% Banex = 27% (2008), private investors (Banex,
Fama  Blue Orchard, banks)
Social investors (Oikocredit, Triodos, Incofin, ...),
private investors (Blue Orchard, ...), multi- &
246
+24% bilateral (BCIE, IADB, DANIDA,...), int. NGOs
(Cordaid, Hivos, ...), government (only in 2000),
savings not allowed, except SACCO
n.b.
+?
Government (IDR, Magfor), NGOs
n.b.
> 184
> 559
>298,359 >503,201
+ 33%
+ 14%
-Following CLEAR: public funds (i.c. specialized actors)  regulated MFIs, while social (& private)
investors = non-regulated MFIs [‘Ligas Mayores- Ligas Menores’ ]
-Government not active in MFI, except coops (limited) ~ MFI = neo-liberal policies
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2. Microfinance crisis in Nicaragua
-Procredit, Banex, Fama, FDL = 69 % of the market
-Asomif
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Total problematic portfolio (restructed, deferred, arrears, judicial action & write-offs)
60.00%
Fuente: SIBOIF
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
PROCREDIT
BANEX
FAMA
FDL
25 februari
2010
Jan/09
5.04%
8.25%
6.74%
4.05%
• slide n° 8
Jun/09
16.88%
20.89%
16.28%
12.24%
Dec/09
22.92%
52.00%
29.09%
13.40%
Jan/10
13.96%
41.96%
18.16%
11.93%
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Total confiscated collateral (mortgages; 000 C$)
C$ 200,000.00
C$ 180,000.00
C$ 160,000.00
Fuente: SIBOIF
C$ 140,000.00
C$ 120,000.00
C$ 100,000.00
C$ 80,000.00
C$ 60,000.00
C$ 40,000.00
C$ 20,000.00
C$ 0.00
Ene-09
PROCREDIT
C$ 8,696.40
BANEX
C$ 37,968.90
FAMA
C$ 1,998.50
FDL
C$ 7,114.72
Jun-09
C$ 23,506.50
C$ 80,746.70
C$ 2,342.30
C$ 12,359.52
Dic-09
C$ 71,868.30
C$ 165,617.50
C$ 3,753.80
C$ 22,012.93
Ene-10
C$ 71,746.80
C$ 192,760.40
C$ 3,546.00
C$ 22,107.78
25 februari
2010
• slide n° 9
1 US$ ~ 20 C$
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Profit/loss (mio US$)
2009
PROCREDIT
BANEX
FAMA
FDL
- 8,1
- 15,7
- 2,6
- 2,5
(december)
112
108
25
69
Loss/active
portfolio
-7,2%
-14,5%
-10,4%
-3,6%
Loss
Active Portfolio
Severe crisis: struggle for survival ... All MFIs = ‘red alert’ ~recuperate
deliquent loans; Fama & FDL  core business; Procredit (> 2000 $); Quid
Banex?
 Paradox: non-regulated FDL outperforms regulated MFIs
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The non-regulated segment: ASOMIF
Source: CDR (2010)
Non-regulated MFIs = similar dramatic situation,
some MFIs = close to bankruptcy; others persist, some perform relatively well
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3. Analysis of the crisis: lessons and issues of debate
* Over-indebtedness crisis = also international responsibility
- uncoordinated overfunding ~ attracted by historical record only  excess
liquidity & market saturation (‘careless lending’ !)
- ‘Ligas Mayores-Ligas Menores’: unequal & excessive competition
 promotion of aggressive commercial bank-model
 deterioration of deontological values ( excessive competition = deficiency of
‘Sin Riesgos’; forcing loans on clients to meet disbursement targets +
lack of financial education  impoverishment of clients + fuel for political
backlash of ‘No Pago’ movement)
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* Regulation and dependence on outside funding
-
High % of outside funding (Asomif)  vulnerability for ‘capital golondrina’ ?
-
Emphasis on deposits/savings = OK, but lack of appropriate regulatory
framework
-
2-3% cost increase  interest rate & loan size
‘problematic’ (rural) portfolio (Fama 6% portfolio; FDL: shift towards
administered portfolio ~ > 25% of rural portfolio)  no legal space for much of
rural/agricultural microfinance
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* Commercial bank-model  fragility due to conventionalization of
financial technology
- Model Procredit & Banex = ’European/US style’ of ‘professional’ banking
 increasing reliance on contract & law  ‘proximity’ to clients & legitimacy
generated in client-MFI social interfaces
~ origin of No Pago in Nueva Segovia = large loans to local ‘personalities’, connected to
Sandinista networks  legal action ~ imprisonment + confiscation collateral;
incapacity to negotiate  rebellion & mobilization of P-C networks
~ No Pago -> ‘Banex = special case’; ‘a monster’ (slide 9)
~ performance FDL & some other non-regulated MFIs ? ~ more social embeddedness +
intense discursive struggle for the ‘harts and minds’ of clients & non-clients
(2002 study: keep away from ‘patron-client’ social fields; build upon appropriate values/social fields)
 dangerous fragility of commercial MFI-bank model in the struggle for social
legitimacy in an institutional environment with weak states & poor legal systems
~ linked to issues of mission drift ~ accusations of usury & capitalist
usurpation of microfinance
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* Commercial bankmodel: profit and social mission
-Outreach & loan size
Regulated institutions
Banex
Non-regulated
Procredit
FAMA
FDL
2004
2008
2004
2008
2004
2008
2004
2008
Number of clients
22130
35323
40725
80100
31672
37296
29313
82337
Average loansize
1507
3891
1081
1655
517
1089
666
838
(% BNP/cap)
184%
393%
132%
167%
63%
110%
81%
85%
Number of
accounts
7111
39652
5392
276088
Average savings
1301
935
3062
272
(% BNP/cap)
159%
94%
369%
27%
No licence yet
-
-
Not allowed
-
-
-Regulation = average loan size increases (Cull, et al., 2009) + average savings tend
to decrease, but little savings for the extreme poor
 banks for the (lower) middle class?
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- ‘Finance only’ & simplistic impact model
Key deficiency  too much ‘finance only’
~ social impact: neglected - taken for granted - dealt with superficially (simple SPIindicators; corporate social responsibility)
note: Banex = pioneer of SPM; 15y mortgage loan = housing for the poor
~ discursive shift: ‘poor as micro-entrepreneurs’  ‘poor as vulnerable’
 poverty alleviation rather than poverty reduction/inclusive development
 related to emphasis on non-credit financial services & downplaying role of
(micro)credit (~ evidence of little impact)
~ impact co-dependent on context and concomitant broader change 
transformative ‘Finance Plus’ approach articulated to broader institutional &
‘political’ change
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 crucial role of finance in asset and network-building for the capitalconstrained small enterprises
~ mainstream  finance = a passive actor matching ‘demand’; not an active player
in creating alternative pathways
 risk of financing social exclusion & environmental destruction;
 vulnerability of clients in value chains (i.c. cattle chains ~ -20% meat prices in
slaugtherhouse, but -50% for life cattle of 1-2 years in the countryside)
Transformative Finance Plus approach  need to articulate microfinance to
participative market-network building (‘ciudania mercantil’’ – value chains – territorial
governance structures)
~ ‘institutional externalities’ of MFIs: beyond mere contract design for finance =
social interfaces that make innovative markets works for SMEs & contribute to
changes in rural governance
~ some MFIs = perceived as political enemies by clientelistic politicians
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4. Conclusion and final observations
Outcome of current mainstream multi- & bilateral policies in Nicaragua =
- establishment of a commercial MFI-banking model ‘with little development’
~ weak & endangered outreach to the poor – agricultural & rural economy
~ institutional fragility & little transformative institutional externalities
~ breeding ground for the return of state agricultural development bank
(Produzcamos)
 ‘Iron Law of Subsidized Credit’ = inefficiency + ineffective social
targeting + fragile credit culture
 connected to state VC-approach = squandering and capturing of public &
cooperation resources & strengthening of vertical-authoritarian,
clientelistic governance structures which (re)produce dominance & exploitation
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 We might end with ‘peaceful co-existence’ of capitalist and socialist banking (even
with –albeit limited- multi/bilateral funding for state-segment)
… but little political space for transformative microfinance
 Development agenda = change in MFI-policies ~ regulatory framework; support for
transformative ‘Finance Plus’ approach (incl. subsidies, link to social movements ~change)
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THANK YOU
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