Microfinance Regulation
Arnaud Ventura
Co-founder, Vice President
Founder, President & CEO
28 June 2016
PlaNet Finance
MicroCred
Content
I. An Introduction to PlaNet Finance
II. An Introduction to MicroCred
III. A few concrete cases: Regulation & microfinance investments
1.
2.
3.
4.
5.
2
Mexico
Madagascar
China
Senegal
Algeria
Introduction to
PlaNet Finance
3
I. Introduction to PlaNet Finance Group
PlaNet Finance is an International Non Profit Organization that
contributes to the improvement of human condition by ensuring each
person’s dignity through the development of microfinance worldwide.
PlaNet Finance focuses on
– Strengthening the capacity of the microfinance sector (Microfinance
Institutions, Governments, Banks & Financial Institutions, etc.)
– Increasing the transparency of the microfinance sector
– Increasing the funding available to Microfinance Institutions
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I. Introduction to PlaNet Finance Group
I.1. Services
1. Consulting, Technical Assistance & Training services to :
•
•
•
•
•
Microfinance Institutions (NGOs, Cooperatives, Regulated financial institutions),
National Microfinance Network
Governments (defining strategies, setting up regulations)
Banks interested in downscaling or supporting the sector
Microentrepreneurs (Business Development Services)
2. Investment Management & Advisory Services for microfinance investors:
•
•
PlaNet MicroFund a 1 M€ fund managed by PlaNet Finance
responsAbility Global & responsAbility Leader Fund:
2 funds with cumulated assets of 200M€ advised by PlaNet Finance
3. Rating Services to MFIs through an independant affiliate
4. Equity Investment through MicroCred, a Microfinance Holding Company
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I. Introduction to PlaNet Finance Group
I.2. Network
 Operations &
Programs in 60
countries
 Permanent
Country presence
in 36 countries
 More than 400 staff
 100 experts
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I. Introduction to PlaNet Finance Group
I.3 Resources and Partners
2006: 9.188 M€
PF: 7.2 M€
PRating: 0.7 M€
MicroCred: 1.3 M€
2005: 8.167 M€
PF: 7 M€
PRating: 0,5 M€
MicroCred: 0,6 M€
A few partners:
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Introduction to
MicroCred
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II. Introduction to MicroCred
II.1Mission and Objectives
1
1
To become one of the
leading group
specialized in
providing financial
services to low
income microentrepreneurs in
emerging countries
MicroCred’s mission is to provide financial services to
microentrepreneurs excluded from the traditional financial
sector by building a group of leading microfinance banks and
finance companies in at least 15 countries by 2011.
Distribution of MFIs in 2010
1
2
To have a global
presence with a
diversified investment
strategy involving
investments in at
least 15 different
countries before 2011.
13%
27%
Sub- saharan Africa
MENA
1
3
9
To offer a diversified
range of products for
a segmented clientele
including credit &
savings, but also
insurances and
remittances and other
target-group oriented
financial services.
Latin America
33%
Asia
27%
II. Introduction to MicroCred
II.2. Competitive Advantages
1
To have a Diversified
investment strategy
mitigating country /
currency risks by a
diversified exposure
1
To focus on markets
where access to
financial services is
still underdeveloped.
1
2
1
3
1
4
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To take advantage of
the global presence
and the local
expertise of PlaNet
Finance, the technical
partner of MicroCred
to access more easily
to these markets.
Use a standardized
model to leverage
economies of scale
and accelerate the
development of each
new institution
A. A diversified International Strategy:
Existing Investments 2006: Mexico,
Madagascar
Planned Investments 2007-2008 : Argentina,
Brazil, China, Senegal, Algeria, Nigeria etc.
B. A unique Business Model
MicroCred will adapt a unique business model by leveraging
worldwide common tools, procedures & methodologies :
• A strong brand and marketing strategy;
• A common Management Information System (MIS);
• A consistent product offering within the Group;
• A comprehensive methodology of staff training;
• Strict governance and internal control policies;
• Human Resources Management in order to create a strong “corporate culture”;
C. The support of PlaNet Finance
MicroCred will use PlaNet Finance’s network to increase its
development
II. Introduction to MicroCred
II.3. Shareholders
An initial capital of 25 Millions USD with strong shareholders support :
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A few Concrete
Cases:
Mexico
Madagascar
China
Sénégal
Algeria
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MEXICO
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III. Case of Mexico
Greenfield institution started in Veracruz region
• One of the largest country in Latin America with a high market potential:
1. 75% of the 106 million inhabitants do not have access to financial services
2. Veracruz State with a population of 7 million people is underserved by MFI
Total Investment : 4,2 M€ of equity, 15 M€ of quasi equity & debt
in MicroCred SA, a Mexican Sociedad Anonyma
Creation Date : January 2006
Shareholding Structure
in €
MicroCred S.A
IFC
MIF
CAF
Protama
FideiComiso
TOTAL
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2007
March 1st 2007
1 610 000
57,5%
400 000
14,3%
0,0%
400 000
14,3%
290 000
10,4%
100 000
3,6%
2 800 000
100%
2007
December 31st 2007
2 138 000
50,3%
630 000
14,8%
400 000
9,4%
400 000
9,4%
532 000
12,5%
150 000
3,5%
4 250 000
100%
2008
December 31st 2008
2 138 000
50,3%
630 000
14,8%
400 000
9,4%
400 000
9,4%
532 000
12,5%
150 000
3,5%
4 250 000
100%
III. Case of Mexico
No specific regulation for microfinance in Mexico but regulation concerning financial
institutions & Credit & Saving Cooperatives applying to the target group of microfinance.
“Ley de Institutiociones de Credito” for banks & financial institutions & “Ley de Credito y
Ahorro Popular” published on June 4th 2001 regulating credit & savings cooperatives.
Some issues linked to this regulatory framework:
1.
2.
designed considering the need of cooperatives structures
no specific considerations for other type of structures : NGOs, Private Company
Consequences:
As a Private company operating in Microfinance in Mexico MicroCred
can not benefit from the advantages of the ley de credito y ahorro
popular, specifically it can not offer savings services
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MADAGASCAR
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III. Case of Madagascar
Context :
Greenfield institution in a country where less than 7% of the population has access
1. 68% of micro-entrepreneurs surveyed are in needs of microfinance services.
2. Only 7% of the population have access to financial services.
Total Investment : 3 M€ of equity, 10 M€ of quasi equity & debt
in MicroCred Madagascar, a Malagasy NBFI
Creation Date : August 2006
Shareholders * :
in €
MicroCred SA
BOA
IFC
BIO
Total Equity
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*
Currently being finalized
March 1st 2007
879 976
62%
550 000
38%
0%
0%
1 429 976
100%
30/04/2007
1 534 881
50%
760 104
25%
449 120
15%
296 288
10%
3 040 393
100%
31/12/2007
1 534 881
760 104
449 120
296 288
3 040 393
50%
25%
15%
10%
100%
31/12/2008
1 534 881
760 104
449 120
296 288
3 040 393
5
2
1
1
10
III. Case of Madagascar
Madagascar, has issues a specific microfinance law “loi n°- 2005 - 016 du 29 septembre 2005 “
in 2005. but at the date, no implementation rules have been adopted.
The law mentions 3 types of MFI : Category 1, 2 and 3 including both cooperatives and
non cooperatives institutions.
Some issues linked to this regulatory framework:
1.
not finalized yet (no “decret d’application” yet)
Consequences:
As a Private company operating in Microfinance in Madagascar
MicroCred was started as Non bank financial institution and is now
considering transforming into a full fledge bank
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CHINA
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III. Case of China
Context:
• Extremely promising market
• Underdevelopped financial and microfinance sector
• One of the four first licenses for commercials MicroFinance being offered in China
• Nanchong Municipality: more than 108,000 MPME among 94,000 individual enterprises.
• Support of Local Authorities in the creation of a Commercial Institution.
Total Investment : 5 M€ of equity, 20 M€ of quasi equity & debt
in MicroCred China, a Chinese WFOE
Creation Date : April 2007
Shareholders :
The following investors have agreed to take an equity participation into MicroCred China:
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III. Case of China
A specific microfinance framework has been issued under PBOC initiative, the
microfinance pilot framework allows for private investors to invest in the development of
microfinance companies serving the rural areas and offering credit services.
No specific law but rather a loose regulation issued by PBOC
Some issues linked to this regulatory framework:
1.
2.
3.
a pilot program, so the sustainability is not yet clear
Very limited scope of activities allowed
Limitation of financing sources (the approved companies can not mobilize savings
neither can they access bank loans)…
Consequences:
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As a Private company operating in Microfinance in China MicroCred is starting in
a very unsecured position, but trust that the regulation will be formalized in
the coming years.
SENEGAL
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III. Case of Senegal
Context :
• There is no Microfinance institution under the legal form S.A. (Société Anonyme)
• A new legislation concerning the MFI is being developped
Total Investment : 5 M€ of equity, 20 M€ of quasi equity & debt
in MicroCred Senegal, a Senegal Société Anonyme
Creation Date : April 2007
Potential Shareholders :
SONAM
50%
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35 %
15 %
III. Case of Senegal
A specific regulation for microfinance exist in West Africa under the CBWAS (Central Bank
of West African States) Senegal “ Loi PARMEC”. The regulation has been designed for
Cooperatives rather than for microfinance institutions.
The regulation is currently being revised.
Some issues linked to this regulatory framework:
1.
Designed for Cooperatives structures, does not facilitate NGOs, nor private
company
2. Different fiscal treatment for each legal form
3. Specific approval with 5 years license for Private Companies
Consequences:
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As a Private company operating in Microfinance in Sénégal MicroCred is starting
in a very unsecured position, but trust that the regulation will be formalized in
the coming months.
ALGERIA
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III. Case of Algeria
• Strong economic growth (7% growth of GDP in 2005)
• Lowest banking coverage rate in the Arab world
• No microfinance sector developed in Algeria
• Strong potential market (73% of interviewed microentrepreneurs interested in a loan)
Total Investment : 5 M€ of equity, 20 M€ of quasi equity & debt
in MicroCred Algeria, a Non Bank Financial Institution
Creation Date : 2007 /2008, depending on the aproval process
Potential Shareholders :
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III. Case of Algeria
No specific regulation for microfinance exist in Algeria.
Only a very strict banking regulation allowing for Banks & NBFI (minimum equity for NBFI
6 M€)
Some issues linked to this regulatory framework:
1.
2.
3.
4.
Minimum equity to create a Microfinance Company very high 6 M€ as NBFI
Limited scope of services (credit only)
Long and very difficult approval process
Approval to be sought for each branch opening.
Consequences:
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As a Private company operating in Microfinance in Algeria MicroCred is making a
huge investment only to fill the un-adpated conditions of the “Banque
d’Algérie”.
MicroCred is treated as a bank and not as a Microfinance Institution.
CONCLUSIONS
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Conclusions
Bad Regulatory Framework can limit Microfinance development.
Main obstacles are :
1. No regulation for Microfinance (Algeria, China)
2. Regulation targeting a limited legal form of MFIs (Mexico, West Africa)
3. Regulations not allowing deposit taking MFI (China, Mexico)
4. Bureaucratic Obstacles : long approval process, etc.. (Algeria)
Solution :
In the same way the financial & banking sector is adopting international
regulations (Basle I, Basle II) to improve efficiency, Microfinance
development could be foster with international regulations or at least
international guidelines helping local regulatory body facilitate the
development of microfinance.
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