What housing start-ups in India are funded
No one other than the founder of the Grameen Bank, the Nobel Peace Prize laureate Muhammed Yunus, has shown the interaction between social action and economic growth in such a plausible manner (cf. die bank 1/2009, p. 40 ff.). In the last year and a half, however, the media have increasingly formulated criticism of microloans in the face of new profit-oriented providers of microfinance. These have perverted the model in Mexico, Bosnia-Herzegovina and India, as they do not grant group loans, but rather individual loans without close support from the borrower on usurious terms. A lack of regulation, no consideration of bad harvests and natural disasters led, for example, to serious abuse in Andhura Pradesh, India.
However, the approach taken by individual profit-hungry loan sharks cannot diminish the development policy achievements of the serious actors. The transfer of Norwegian donations by Yunus from the Grameen Bank to the housing subsidiary Grameen Kalyan led to allegations of embezzlement against Yunus. It should be noted, however, that the Norwegian government's final report on this incident fully exonerated Yunus. The pending lawsuit by a politician in Bangladesh against Yunus for defamation appears to be just as politically motivated as the current allegation of tax evasion by the Grameen Bank by Bangladesh's Prime Minister Hasina. The dismissal of Yunus from the board of directors of the Grameen-Bank because of exceeding the age limit is politically motivated.
The Grameen Bank founded by Yunus (village bank / 25 percent stake in the state of Bangladesh) turned iron banking laws upside down. The rule violation turned out to be as simple as it is ingenious. Today the bank employs 25,000 people in 2,500 branches, has 7.6 million customers (97?% Women), grants micro-credits (from 20? €, repayment rate 98%), takes micro-deposits and writes micro-insurances.
The bank employees visit customers in the most distant regions even if the way to them leads through swamps or rice fields. In weekly meetings, customers also receive advice on family planning, farming, designing market stalls, hygiene, etc. The bank has been profitable for ten years with an annual profit of around € 5 million, which is fully reinvested. The interest between 20 and 30% p. a. is cheap (loan sharks take three to four times as much) in terms of expense and inflation rates in developing countries. The philosophy of microfinance: The way out of the poverty trap does not lead through gifts. This revolution has changed the way development policy institutions of governments, the World Bank, churches and foundations think and act.
How is the situation today?
Worldwide there are currently
- 90 million micro-borrowers and micro-depositors or savers,
- US $ 65 billion in loans disbursed (from US $ 30 / average US $ 524),
- Average growth of the number of borrowers of 21%,
- 10,000 microfinance institutions,
- 1,400 real microfinance institutions in Africa, Eastern Europe, Asia, Latin America.
These offer savings products, loans, insurance (for example life and crop failure insurance as well as health insurance) and transfers. According to the UN, only one in fifty microloans fail worldwide. A value that many banks and savings banks can only dream of.
The German promotional bank KfW is the world's largest investor in microfinance institutions. KfW has been promoting start-ups all over the world for 15 years and has a portfolio of € 2.6 billion in over 100 countries. KfW is working on projects to set up “credit bureaus” in individual countries, similar to Schufa in Germany, in order to prevent debt traps through parallel loans.
In 2003 and 2007, German development cooperation received top marks in World Bank exams. Germany is one of the most important promoters of microfinance in the world. In addition to GTZ and KfW Development Bank as well as other initiatives in the banking sector, the Federal Government also supports Opportunity International Germany by transferring knowledge and helping people to help themselves. German development cooperation helps selected partner countries to build efficient micro-financial sectors with over € 120 million annually (as of 2008). All levels of the financial system (finance ministries / national banks / banking supervision) in the partner countries are involved in order to ensure holistic and sustainable development. For example through
- the Linkage Banking Program in India (one of the largest microfinance programs in the world, € 3 million),
- Cooperative banks and DED in Benin (West Africa and Kyrgyzstan, € 2.5 million),
- Microcredit schools in Ghana through Opportunity International Germany,
- Nepalese Agricultural Development Bank through BMZ and GTZ (Rural Finance Nepal Project),
- BMZ / GTZ and Sparkassenstiftung (reform and modernization of the financial sector in Uganda, € 26 million),
- KfW and BRAC (securitization of microloans in Bangladesh, US $ 84 million),
- BMZ / Sparkassenstiftung / Thomas Kurz in Nepal and Bhutan from 2011,
- Allianz / GTZ / UN offer life insurance in India, which costs only 0.20 € per month, also in Indonesia,
- KfW and BMZ through participation in the Leapfrog fund for microinsurance (€ 19 million).
In 2009 and 2010 new challenges arose for the microfinance industry. The poorest strata of the population around the world suffered as a result of the economic downturn.
Current problems and partial crises
The customers of the microfinance institutions were negatively affected. Opportunity International Germany was confronted with a doubling of the inflation rate to 25% in Ghana, whereby at the same time the value of the euro and the Ghanaian Cedi changed by 5%. Nevertheless, the good repayment rates remained almost unchanged.
DB Research states in a study: “Microfinance investments are characterized by an attractive financial risk-return profile, which is characterized by relatively stable returns, very low loan default rates at MFJs and a potentially low correlation with established credit markets and macroeconomic development in the respective developing countries. ”With an average return of 5.95% in 2008 and 3.1% in 2009, microfinance funds have proven to be an interesting asset class. It was therefore inevitable that the commercialization of microfinance in individual countries only attracted profit-oriented investors, for example in Morocco, Mexico, India and Bosnia-Herzegovina.
One of Mexico's profitable banks, Compartamos, went public in 2007. With 90% interest demand, this institute is for Yunus “the epitome of modern exploitation, hidden behind a humanitarian facade…. It was our aim to displace the usurers ... now they are coming back, disguised as benefactors ”. The largest Indian microcredit financier SKS (518 million customers) went public in 2010 and was under great pressure to grow and increase returns. The Indian central bank will decide on the future regulation of the industry in the spring of 2011 in order to combat abuse (CHART 1).
Interest rates that are around 10 percentage points above the inflation rate are customary in the market. Preliminary credit screening is essential and credit terms must take into account crop failures and natural disasters. Illiterate borrowers need support through a training program. In addition, the establishment of marketing cooperatives and a sustainable concept are of particular importance.
The KfW declaration of December 2010 that differentiation in the microfinance debate is essential and that microfinance remains a success story despite the tendency to overheat in some countries is correct. Microfinance remains the cheapest and most efficient way of development cooperation. Individual abuses cannot change that.
Dr. Thomas Kurz is a partner at Böhm-kurz-Zumbrink Capital Management GmbH, asset management company, Berlin.
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