Nederlandse particulieren, bedrijven en instellingen spelen een belangrijke rol in microfinanciering. Er gaat wereldwijd naar schatting tachtig miljard dollar om in deze sector die naar verwachting in 2012 met 4% groeit. Hiervan wordt 25 miljard dollar verstrekt door buitenlandse investeerders. Het Nederlandse aandeel bedraagt 2,1 miljard dollar wat resulteert in een marktaandeel van 8,4%. Naast financiële steun leveren de Nederlanders ook kennis en lopen zij voorop bij de implementatie van initiatieven die transparantie en het maatschappelijk rendement van de sector vergroten. Het rapport werd op 6 maart door Nick Jue aangeboden aan Hare Koninklijke Hoogheid Prinses Máxima der Nederlanden in het Tropen Instituut in Amsterdam. Op het congres sprak ING’s hoofdeconoom Mark Cliffe over de manier waarop de sector zich opnieuw uitvindt. De leden van het Nederlands Platform voor Microfinanciering spelen een leidende rol in deze transitie. Door slimmer te werken verhogen zij hun inzet met minder middelen.

1. Microfinance reinvents itself
The Dutch are in the driving seat
Mark Cliffe
Chief Economist ING
Microfinance Event
Amsterdam
6th March 2012
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2. Contents
• Microfinance soars...but there is more to be done
• Financial crisis – a challenge to foreign funding?
• Commercialisation and its discontents
• Reinventing microfinance
• Transparency and responsibility initiatives
• Exploiting new technology
• Developing savings and other services
• SME financing – focus on the employers
• Welcome to Holland – the unique role of Dutch microfinance
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3. Microfinance soars...but there is more to be done
• Globally, 2.7 billion people are excluded from
People reached by Microfinance (millions) formal financial services…
2.000 2.000
1.800 1.800
1.600 1.600 • …of which 1.2 billion people are living under
1.400 1.400 $1.25 a day.
1.200 1.200
1.000 1.000 • Declining poverty reflects
800 800
• China’s development
600 600
• …and to a lesser extent India
400 400
200 200 • but poverty in Africa is on the rise
0 0
1990
1995
2000
2005
2011
• Microfinance has grown rapidly, reaching 145
million clients living on less than $ 1.25 per day
People on less than $1.25 per day, China included
People on less than $1.25 per day, China excluded • While this reaches perhaps 600 million
Microfinance clients on less than $1,25 per day
people…
People on $1,25 reached by microfinance (household = 4) • …there is still a gap, which still requires $ 250-
Source: ING Economics Department based on Worldbank and MIX 300 billion to close.
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4. Domestic funding dominates…
…but foreign funders also bring crucial expertise
Domestic vs foreign funding ($ bln, 2010)
Sources of foreign funding
100% Investors
25
26%
80%
5% Foundations and NGOs
60%
42% Development Financial
Institutions
40%
55 Bilateral agencies
7%
20%
20%
Foreign funding Domestic funding Multilateral and UN agencies
0%
Source: ING Economics Department based on CGAP
• Microfinance sector totals $ 80 bn globally… • DFIs dominate the market (42%)
• …over 2/3 comes from domestic sources • Investors provide 26% of foreign funding.
• Of the $25 bn provided by foreign funders, • Dutch investors have a high market share (25%)
the Dutch account for $ 2.1 bln. (8,4%)
• Foreigners provide money and knowledge
3

5. Developed world recovers slowly from the crisis…
…while the emerging world powers ahead
Emerging world output surges ahead of developed
Index Fo recasts
1Q08=100
170 170
C hina
160 160
India
B razil
150 P o land 150
US
140 R ussia 140
Euro zo ne
130 130
120 120
110 110
100 100
90 90
08 09 10 11 12 13
4

6. Developed world faces painful deleveraging
Sovereign and bank debt solvency intertwined  The sovereign debt crisis resulted from the fall-out
of the financial crisis:
ASSET
 Banking Bail-outs
PRICES
 ‘Great Recession’
 Some banks are still dependent on state/ECB
BANK
support, and most are looking for more capital
FISCAL
SOLVENCY SOLVENCY  Weak bank lending may hurt economic growth and
public finances
 BUT banks are also big buyers of public debt…
ECONOMIC  …and policy-makers want them to continue…
GROWTH
 The fiscal squeeze designed to improved fiscal
solvency will mean monetary policy will have to
remain loose
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7. Foreign microfinance funding keeps growing…
…albeit more slowly
Index EM MSCI Index and Portfolio flow s tn $ Foreign funding
1400 15
60% 30
50%
50% 25
1200 10
40% 20
1000 5
30% 15
23%
c
20% 10
800 0
12%
10% 7% 5
5% 4%
MSCI EM US$ Index (lhs )
600 -5
0% 0
Portfolio flows for EM external
and local debt m arkets (rhs ) 2007* 2008 2009 2010 2011F 2012F
Growth in foreign funding (lhs, %) Foreign funding (rhs, $ billion)
400 -10
* 2007 based on estimated average annual growth rate for 2005-2007
07 08 09 10 11 12
Source: ING Economics Department based on CGAP
• The financial crisis led to a dramatic drop in world • Banks’ and institutional investors’ balance sheets are under
trade and capital flows in 2009 - emerging markets pressure, but they also want to deliver corporate responsibility
suffered disproportionately
• Retail investors are increasing sustainable investments, but
• Developed market investors withdrew capital from face wealth losses and, in some countries, less favourable tax
emerging markets to cover losses back home regimes…
• Despite this, foreign funding for microfinance has • Government funding is squeezed by austerity measures
continued to grow, although more slowly
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8. Dutch fiscal austerity bites
into Development Aid
Dutch ODA budget 2011-2014
5.000 25%
4.000 20%
3.000 15%
2.000 10%
1.000 5%
0 0%
2011 2012 2013 2014
Total ODA (€ mln, lhs) Cut ODA budget (€ mln, lhs)
Cut ODA budget (%, rhs)
Source: Ministry of Foreign Affairs.
Dutch tax incentive sustainable investments
3%
2%
1,3%
1,0%
0,7%
0,4%
• Fiscal austerity is not confined to Europe’s periphery… 1%
• …the Netherlands is also tightening… 1,2% 1,2% 1,2% 1,2% 1,2%
• …with cuts to development aid and tax breaks for 0%
sustainable investments 2010 2011 2012 2013 2014
Box III ("vermogensrendementsheffing") Box I ("heffingskorting")
Source: Ministry of Finance
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9. …but it remains twice the international average
Development aid DAC countries (% of GNI) 1988 2009
1,2
1,0
0,8 2012 UN target 0.7
0,6
Gap 0.39
0,4
0,2
..
Greece
Luxembourg
Sweden
France
DAC total
Denmark
Norway
Germany
Belgium
United Kingdom
Austria
Portugal
Japan
Spain
Canada
Netherlands
United States
Italy
Ireland
Switzerland
New Zealand
Finland
Australia
Source: Worldbank
• The Dutch cut back on Development Aid to 0.7% in 2012…
• …but still meet the UN target…
• …and the budget is twice the average of DAC countries.
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10. Is commercialisation the answer?
Gross Loan portfolio ($ billion)
60 • With limited resources available, can
Profit
Non‐profit commercialisation lead to more sustainable
40 growth in microfinance?
• Growth in profit-driven MFIs has exceeded
20 growth in nonprofits
• After all, people respond to incentives and
0 seek profit...
1995 2000 2005 2010
Number of active borrowers (millions)
80 BUT there have been problems and criticisms:
Profit
Non‐profit
1. Focus on microcredit caused over-lending
60
2. Excessive interest rates
40
3. Credit for consumption vs income
20 generation
4. Neglect of the poor
0
Source: MIX
1995 2000 2005 2010
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11. Reinventing microfinance (1)
Becoming more transparent and responsible
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12. Reinventing microfinance (2)
Exploiting new technology
Mobile banking
• Increases outreach (rural areas)
• Reduces operational costs
Biometric devices
• Reliable client identification
• Helps in preventing multiple loans
• Clients take out smaller loans knowing they will be
identified in the future
Administration systems
• Digital contracts
• Better risk management: monitoring loan- and
portfolio performance, establishing credit ratings
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13. Reinventing microfinance (3)
Developing savings and other services
Households with deposit account in a formal
100% institution
91%
80%
60%
50%
42% 42%
40%
40%
22%
20%
12%
0%
High Europe East Asia Middle East Latin South Asia Sub-
income and & Pacific % North America & Saharan
countries Central Africa Caribbean Africa
Asia
Source: CGAP & The World Bank Group
• Developing countries have huge potential for domestic savings
• Provides a safer and more efficient alternative than savings in gold and cattle
• Provides an alternative for redistribution of wealth to the poor
• But challenges remain:
• banking system often not mature enough to redistribute money
• legal framework does not always allow non bank institutions to take deposits
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14. Reinventing microfinance (4)
SME financing – focus on the employers
Some critics say the very poor need jobs, not loans – not everyone is able or willing to become an entrepreneur
…supporting SMEs may be a less direct, but more effective way of reaching out to the poor.
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15. Reinventing microfinance (4)
SME-funding…a growth opportunity for the Dutch
SME financing by The Netherlands
• SME financing supports entrepreneurs and their
3%
employees…
4%
3% 5%
5% 4%
• …SMEs are critical for sustainable economic growth.
50% • Employers may be less poor but they do provide jobs
52%
59% to the community
• The Dutch currently provide limited SME financing…
• …this could be an opportunity to improve outreach but
43% 40% requires a different view on depth and breadth of
30%
outreach…
• …and it does carry risks:
Donors MIVs Investors
• MFIs have lack of knowledge of SME financing
Low end Broad end
• Danger of “mission drift”
High end Small business
• Increased exposure per investment
Source: ING Economics Department based on CGAP
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16. Dutch microfinance is unique in many ways
Direct vs indirect funding (% of $ committed)
9% • Dutch microfinance is not just impressive in
21%
terms of scale…
53%
• …it is based on a long tradition in development
aid and microfinance
79% • Use of direct funding: being on top of your
investments to have maximum impact
37%
• High private sector involvement: making
microfinance cost effective
Dutch Offer The Rest of the World
Direct Indirect Unspecified
Source: ING Economics Department based on CGAP
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17. Serving 94 countries…both low and middle income
Top 5 countries ($ million)
250
226
200
152
150
117
100
77
65
50
0
India Peru Cambodia Bolivia Azerbaijan
Dutch Offer
The Rest of the World
Source: ING Economics Department based on CGAP
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18. Conclusion - The Dutch are in the driving seat
Breadth of outreach (% of MFIs funded)
24% # of a cti ve borrowers
32%
43% > 30,000 • Many different type of actors: donors,
25% investors and MIVs with unique profiles
25%
# of a cti ve borrowers
31% between 10,000 to
30,000 • High cooperation to create synergies
51%
43%
26%
# of a cti ve borrowers • Thought-leader and frontrunner on
< 10,000
Donors Investors MIVs transparency and responsibility initiatives…
Financial return Dutch funders
8% 7% • …addressing questions raised by recent
6%
6% challenges
4% • More effective measurement…
2%
2% 1%
1%
• …will help us to become smarter with limited
0%
0% resources.
Donors Investors MIVs
Return on Equity (ROE) Return on Assets (ROA)
Source: ING Economics Department based on CGAP
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