Monthly Archives: January 2014

Creation Investments to invest Rs. 1.68 b in Commercial Credit for 25% stake – Financial Times

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Commercial Credit and Finance (COCR) yesterday announced that the Board of Directors has approved the investment of Rs. 1.68 billion in the company by way of a private placement of shares at Rs. 21 per ordinary voting share.

US Delaware incorporated Creation Investments Sri Lanka LLC will be the company to which shares are to be allotted. The move has been approved by the Central Bank and the Securities and Exchange Commission but subject to shareholder consent.

The purpose of the issue is to meet the future capital adequacy requirements and for its future investment activities.

The maximum number of shares to be issued is 80 million voting shares (25% stake eventually) via two tranches. The first will be 48 million shares for a consideration of Rs. 1.008 billion and the second tranche will amount to 32 million shares for a value of Rs. 672 million, before March 2015.
Major shareholder of Commercial Credit and Finance is BG Investments Ltd with a 78% stake whilst Mrs. Vagdevi Fernando holds 7%.  Company has 238 million shares in issue at present. Share price closed at Rs. 16.10.

Tiny Loans Are Big Business Again –

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January 28, 2014, 11:46 AM

Sam Panthaky/Agence France-Presse
Officials from SKS Microfinance Ltd. received a weekly installment from a borrower in a village near Ahmedabad, Gujarat, Jan. 6, 2011.

Lending to India’s poor is a good business once again.

Just two years ago some of India’s microfinance companies–which give tiny loans to the poor–were struggling to stay afloat as they grappled with bad loans, a lack of funding and allegations their lending practices were pushing some borrowers to suicide.

The Reserve Bank of India stepped up in 2011 to help avoid an implosion in the industry and implemented new rules, bringing microloan companies under its purview for the first time.

Confident the central bank controls have fixed the lenders, India’s large banks have again started lending to microfinance firms, breathing new life into the industry.

“A lot of good has happened,” said Dilli Raj, chief financial officer of SKS MicrofinanceLtd.533228.BY +4.04%, one of India’s largest microlenders.  “We have a lot more regulatory clarity with Reserve bank of India asserting itself as the sole regulator of the sector. There is more funding certainty.”

SKS Microfinance, one of the innovators in the industry in India, reported its highest quarterly profit in three years on Friday. Net profit for the Hyderabad-based company for the October to December period was 210.4 million rupees–close to 20 times its profit a year earlier–as loan disbursements jumped 79%. The company’s shares have shot up in recent months to more than double last year’s low.

The return of microfinance comes even as India wrestles with slowing economic expansion. India’s gross domestic product growth is expected to slow to an 11-year low of less than 5% in the fiscal year ending March.

While India’s paralyzing regulations are often blamed for the country’s troubles, the resurrection of microfinance is a telling example of how sometimes the right rules can save an industry.

The Reserve Bank of India has long stressed the need for microfinance in India, where a majority of the 1.2 billion-population lack access to basic banking services. Microfinance companies in India usually borrow from mainstream banks and provide loans as small as $200 to poor borrowers, mostly women, for starting small businesses such as buying livestock.

The microloan companies operate in areas where there are no bank branches and people traditionally have relied on loan sharks who charge exorbitant rates.  As the microfinance industry was taking off over the last decade, the initial thinking in the RBI was to allow the small lenders to evolve on their own without many central bank restrictions.

In 2010, SKS Microfinance had millions of borrowers and became the first microfinance company to list its stocks. It raised $350 million backed by global investors like George Soros‘s fund Quantum (M) Ltd. and Sequoia Capital. The listing raised hopes microfinance could be a profitable way to bring millions into the financial mainstream.

But by the end of 2010, the industry went into a tailspin.

The shakeout started in the state of Andhra Pradesh, then the largest market for microfinance companies.  After a spate of suicides by farmers who had microloans, local politicians alleged the borrowers had been fooled into taking on too much debt. The industry denied it was responsible for the suicides.

The state slapped new restrictions on what the lenders could charge and required them to get government approval before giving new loans. Politicians told borrowers they didn’t have to pay back their microloans.

The new rules made it near-impossible for SKS and others to continue to give out microloans. Mainstream banks–fearing other states might take similar actions–cut back on their lending to the industry. Growth at the companies, which had been growing at double digit rates for years, hit a wall. Smaller firms went out of business.

SKS cut costs by shutting branches and trimming its work force, while other micro-lenders, like Spandana Sphoorty Financial and Asmitha Microfinance, restructured their debt.

In 2011, the Reserve Bank of India decided to step in and help. It came up with a regulatory framework for microfinance companies that included capping the interest rate as 26%. The steps bought uniformity to the industry and more importantly they signaled the RBI still considered microfinance a legitimate industry despite what some politicians were saying.

“The intense engagement of the government and the Reserve Bank of India have helped change risk perceptions,” said Alok Prasad, the chief executive of the Microfinance Institutions Network, an industry group.

The RBI’s backing renewed India’s banks confidence in these companies and they resumed lending to them. Funding from banks in the July to September period last year jumped nearly fourfold from the previous quarter to around 38 billion rupees.

More bank loans freed up the microfinance companies to give more microloans. Total lending by microfinance institutions grew by 30% in the quarter ended September 30 compared to a contraction of 15% a year earlier, according to Microfinance Institutions Network.

The new funds have helped people like Madhuri Saini, a 37-year-old mother of two. Ms. Saini is doing a brisk business, as a seamstress out of her small shop in Jaipur in western India. Late last year she got a $680 loan from Bandhan Financial Services to expand her business.

“The big banks would never lend me such as small amount,” she said.

While many of the smaller micro-lenders are still struggling and some of the country’s biggest micro-lenders— including Bhartiya Samruddhi Finance Ltd. and Trident Microfin Pvt.– are still restructuring their debt, analysts say the industry is in much better shape than it was a year ago.

The resurgent microlending sector has a new profile. With microlenders in Andhra Pradesh still wrestling with suspicious government regulators, the eastern state of West Bengal and southern state of Tamil Nadu are now the biggest microloan markets.

The biggest companies in the industry have also changed. Bandhan Financial of Kolkata in West Bengal, has overtaken SKS to become the biggest lender by number of loans disbursed.

Three Myths on the World’s Poor – Gates Letter –

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Three Myths on the World’s Poor

Bill and Melinda Gates call foreign aid a phenomenal investment that’s transforming the world.


Jan. 17, 2014 7:50 p.m. ET
By almost any measure, the world is better off now than it has ever been before. Extreme poverty has been cut in half over the past 25 years, child mortality is plunging, and many countries that had long relied on foreign aid are now self-sufficient.

So why do so many people seem to think things are getting worse? Much of the reason is that all too many people are in the grip of three deeply damaging myths about global poverty and development. Don’t get taken in by them.

MYTH ONE: Poor countries are doomed to stay poor.

They’re really not. Incomes and other measures of human welfare are rising almost everywhere—including Africa.

Take Mexico City, for instance. In 1987, when we first visited, most homes lacked running water, and we often saw people trekking on foot to fill up water jugs. It reminded us of rural Africa. The guy who ran Microsoft‘s Mexico City office would send his kids back to the U.S. for checkups to make sure the smog wasn’t making them sick.

Today, Mexico City is mind-blowingly different, boasting high-rise buildings, cleaner air, new roads and modern bridges. You still find pockets of poverty, but when we visit now, we think, “Wow—most people here are middle-class. What a miracle.” You can see a similar transformation in Nairobi, New Delhi, Shanghai and many more cities around the world.

In our lifetimes, the global picture of poverty has been completely redrawn. Per-person incomes in Turkey and Chile are where the U.S. was in 1960. Malaysia is nearly there. So is Gabon. Since 1960, China’s real income per person has gone up eightfold. India’s has quadrupled, Brazil’s has almost quintupled, and tiny Botswana, with shrewd management of its mineral resources, has seen a 30-fold increase. A new class of middle-income nations that barely existed 50 years ago now includes more than half the world’s population.

And yes, this holds true even in Africa. Income per person in Africa has climbed by two-thirds since 1998—from just over $1,300 then to nearly $2,200 today. Seven of the 10 fastest-growing economies of the past half-decade are in Africa.

Here’s our prediction: By 2035, there will be almost no poor countries left in the world. Yes, a few unhappy countries will be held back by war, political realities (such as North Korea) or geography (such as landlocked states in central Africa). But every country in South America, Asia and Central America (except perhaps Haiti) and most in coastal Africa will have become middle-income nations. More than 70% of countries will have a higher per-person income than China does today.

MYTH TWO: Foreign aid is a big waste.

Actually, it is a phenomenal investment. Foreign aid doesn’t just save lives; it also lays the groundwork for lasting, long-term economic progress.

Many people think that foreign aid is a large part of the budgets of rich countries. When pollsters ask Americans what share of the budget goes to aid, the most common response is “25%.” In fact, it is less than 1%. (Even Norway, the most generous nation in the world, spends less than 3%.) The U.S. government spends more than twice as much on farm subsidies as on international health aid. It spends more than 60 times as much on the military.

One common complaint about foreign aid is that some of it gets wasted on corruption—and of course, some of it does. But the horror stories you hear—where aid just helps a dictator build new palaces—mostly come from a time when aid was designed to win allies for the Cold War rather than to improve people’s lives.

The problem today is much smaller. Small-scale corruption, like a government official who puts in for phony travel expenses, is an inefficiency that amounts to a tax on aid. We should try to reduce it, but we can’t eliminate it, any more than we can eliminate waste from every government program—or from every business, for that matter. Suppose small-scale corruption amounts to a 2% tax on the cost of saving a life. We should try to cut that. But if we can’t, should we stop trying to save those lives?

We’ve heard plenty of people calling to shut down aid programs if one dollar of corruption is found. But four of the past seven governors of Illinois went to prison for corruption, and no one is demanding that Illinois’s schools be shut down or its highways closed.

We also hear critics complain that aid keeps countries dependent on outsiders’ generosity. But this argument focuses only on the most difficult remaining cases still struggling to be self-sufficient. Here is a quick list of former major aid recipients that have grown so much that they receive hardly any aid today: Brazil, Mexico, Chile, Costa Rica, Peru, Thailand, Mauritius, Botswana, Morocco, Singapore and Malaysia.

Aid also drives improvements in health, agriculture and infrastructure that correlate strongly with long-run growth. A baby born in 1960 had an 18% chance of dying before her fifth birthday. For a child born today, it is less than 5%. In 2035, it will be 1.6%. We can’t think of any other 75-year improvement in human welfare that would even come close. A waste? Hardly.

MYTH THREE: Saving lives leads to overpopulation.

Going back at least to Thomas Malthus in 1798, people have worried about doomsday scenarios in which food supply can’t keep up with population growth. This kind of thinking has gotten the world in a lot of trouble. Anxiety about the size of the world population has a dangerous tendency to override concern for the human beings who make up that population.

Letting children die now so they don’t starve later isn’t just heartless. It also doesn’t work, thank goodness.

It may be counterintuitive, but the countries with the most death have among the fastest-growing populations in the world. This is because the women in these countries tend to have the most births too.

When more children survive, parents decide to have smaller families. Consider Thailand. Around 1960, child mortality started going down. Then around 1970, after the government invested in a strong family planning program, birthrates started to drop. In the course of just two decades, Thai women went from having six children on average to having just two. Today, child mortality in Thailand is almost as low as it is in the U.S., and Thai women have an average of 1.6 children. This pattern of falling death rates followed by falling birthrates applies for the vast majority the world.

Saving lives doesn’t lead to overpopulation. Just the opposite. Creating societies where people enjoy basic health, relative prosperity, fundamental equality and access to contraceptives is the only way to a sustainable world.

More people, especially political leaders, need to know about the misconceptions behind these myths. The fact is, whether you look at the issue as an individual or a government, contributions to promote international health and development offer an astonishing return. We all have the chance to create a world where extreme poverty is the exception rather than the rule.

—This piece is adapted from the forthcoming annual letter of the Bill & Melinda Gates Foundation, of which the authors are co-chairs. Mr. Gates is the chairman of Microsoft.