Lecture Micro financing and micro leasing - An Introduction - Lecture 24

The following will be discussed in this chapter: The microagent model: barefoot agents, models of financing inclusive finance, supply and demand, insurance companies face the channels challenge, direct sales, the partner-agent model.

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PARTNERS AT THE LAST MILE:

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Summary of the Last Lecture

- Insurance Companies Face the Channels Challenge

- Direct Sales

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The Microagent Model: Barefoot Agents

[he next model seeks to get even closer to clients by turning selected clients into

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Due to the Indian government

requirements to issue policies in the low- Income market, many insurance

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- Since most Indian MFIs offer loans but not Savings accounts, the insurance policies were in effect only as long as the

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Customers who were “resting” from credit received no coverage The Tata- AIG staff believed that life insurance coverage

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Tafa-AlG then began experimenting with a “barefoot agent” business model Ina

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- Tata-AlG trained local women to become

Salaried representatives, selling and servicing policies to their village

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The product designers found that the

barefoot agent model worked best If the representatives grouped themselves into Small brokerages they termed “community

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lafa-AlG works with local NGOSs to help recruit representatives This program

achieved moderate scale, covering 21,000 rural, low-income, and landless people

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- Costs in this model are higher than with the partner-agent model; however, the

microagent model may be a good solution In areas without institutions that can

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There are myriad variations of

microinsurance distribution models

Seguros Mapfre, a Spanish insurance

company, built upon the consumer lending operation of Colombia’s electric utility and sells directly through utility bills sent in the

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-_ Azfeca'S Insurance company works

through all Banco Azteca outlets New microinsurance initiatives in Venezuela (Cruz Salud) and Mexico (Paralife) have recently been created Cruz Salud

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Clients can buy health coverage the same way a U.S customer might buy a

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* Opportunity International, a global

Microfinance organization, has established the Micro Insurance Agency to assist

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MODELS OF FINANCING INCLUSIVE FINANCE

- If you are not a bank, an insurer, or a retailer, how can you participate In

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* Investing In microfinance has become

something of a fashion in recent years, but not long ago it was nearly impossible to

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* Until quite recently, almost all investors In microfinance were social or public-sector Investors Now Wall Street actors, both

mainstream and specialized, have decided that microfinance Is worth taking more

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MODELS OF FINANCING

INCLUSIVE FINANCE

* J.P Morgan, Citigroup, TIAA-CREF, and Standard & Poor’s are just a few of the

names that appear in the following pages Landmark deals by mainstream

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- We chronicle many “firsts”: the first

International securitization of microloans,

the first mainstream venture capital

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- While the financial crisis slowed

Investment In microfinance, there is

confidence that It will pick up again as

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- After comparing the performance of microfinance institutions against small

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* “MEIs will certainly be affected by the financial crisis ricocheting across the globe, but we believe that the sector Is

fundamentally sound Valuations may change, but we believe the long-term

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* The evolution of private investment in microfinance institutions reminds me of the way children learn to swim Children Step into shallow water holding their

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- The funny thing about this analogy Is that it works both ways It describes the

gingerly advance of investors into the microfinance industry, and it also

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- Both headed for the deep water but needed support (often from the public sector) to gain the knowledge and

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- These advances were very slow until they accelerated in the early part of this

decade The first deals, in the late 1980s —mainly bank loans to MFls—were rarely

more than $1 or $2 million, and heavily

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- Today, the top deals are in the hundreds of millions, with far less support Foreign

capital investment in microfinance debt and equity grew rapidly in the years

leading up to 2007, where it reached $5.4

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* We will look closely at the path from

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Supply and Demand

- The growth and commercialization of

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Supply and Demand

* According to the Microfinance Information Exchange, a microfinance industry

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Supply and Demand

- Among some 890 MEIs tracked In the

Microfinance Information Exchange (MIX) industry benchmarks series, there are

over 60 million borrowers and a combined

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Supply and Demand

- These numbers were unimaginable 10 years ago The MIX reports a 23 percent

median annual growth of borrowers

through 2007 By that year there were 55

MFIs with loan portfolios of $100 million or

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Supply and Demand

- In some cases microfinance institutions

are more profitable than mainstream

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Supply and Demand

- If MFIs resume their annual growth rates at 15 to 30 percent, Morgan Stanley

calculates that there will be a need for

$2.5 to $5.0 billion in portfolio capital each

year through the near future, and $300 to

$400 million in additional equity to support

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Supply and Demand

* International investors have grown

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Supply and Demand

- As of 2004, foreign public and private

investors had set aside $1 billion for

microfinance and had actually committed

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Supply and Demand

- Most of this Investment was

quasicommercial, made by development banks (Known as international finance

Institutions, or IFls) and by socially motivated private investment funds

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Summary

- The Microagent Model: Barefoot Agents * MODELS OF FINANCING INCLUSIVE

FINANCE

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