Define microloans and determine how microloans can be utilized effectively ?, assignment help

Alicia Girón is the 2015 James Street Scholar. She is a professor and researcher in the Economic Resear ch Institute at the National Autonomous University of Mexico (UNAM) . This paper is part of the project “Global and Regional Financial Competition: Post-Crisis Financing Models and Employment, Gender and Migration: Between Aust erity and Uncertainty from the Dirección General de Asuntos d e Personal Académico (DGAPA)” of UNAM. She thanks M iguel Ángel Jiménez, Libertad Figueroa (UNAM), and Andrea Reyes (CONACYT’s scholarship) for their support. 373 ©2015, Journal of Economic Issues / Association for Evolut ionary Economics JOURNAL OF ECONOMIC ISSUES Vol. XLIX No. 2 June 2015 DOI 10.1080/00213624.2015.1042738 Women and Financialization:

Microcredit, Institutional Investors, and MFIs Alicia Girón Abstract: My aim in this paper is to show the way in which mi crofinance acquires the face of women. While micro-finance institutions (MFIs) act under the flag of “serving the common good,” there are still the inte rests of institutional investors behind them, who are looking to profit through inte rnational financial circuits. On one hand, microfinance is part of financial innovat ion in the global financial circuits. On the other hand, women’s bancarization inserts them into the labor market, hence into the financial circuits. MFIs bec ome part of the shadow financial system. When debating microcredit’s profitability f rom a gender perspective, I note both the financial effectiveness of microcredits an d the role of women as highly profitable economic agents. Is there a relation bet ween financialization and microcredit? Is microcredit an achievement that wil l improve the economic, political, and social environment for women? Why is it that women’s bancarization has been a priority of international financial orga nizations? Microcredit with a woman’s face confirms the suggested hypotheses. The ir empowerment through microcredit is a new way for financial investors to obtain higher profits through MFIs. The highest interest rates that MFIs charges are an expression of financialization by institutional investors. Keywords: financialization, institutional investors, microfi nance institutions, women JEL Classification Codes: D0, G15, G20, J16, O12 As part of the financialization process, the shadow financial system has emerged around the world in different ways. It is not only part of the official dialogue within the macroeconomic field, but also within the microc redit sphere. Micro-finance Ȗ 374 Alicia Girón institutions (MFIs) are part of the financial proce ss, especially when it comes to addressing the poor in developing countries. Most m icrocredits are given to women who need to improve their income, and they have bee n portrayed by the dominant ideology as a mechanism for women’s empowerment. 1 Microcredit with a woman’s face is one of the most important metamorphoses tha t has come from the structural changes in financial and labor-market circuits sinc e the late 1970s. Microcredit not only empowers women, but also leads them to becomin g economically profitable subjects in microfinance services. At the same time , the profit obtained by MFIs is part of the financialization in international finan cial circuits. Many MFIs depend on, or are part of, big banks. Small Loans with a Woman’s Face When focusing on the analysis of microcredit, the h igh profitability of small loans, granted by MFIs at an international level, becomes noticeable (Rosenberg et al. 2013).

Reducing poverty and improving the conditions of fa milies are two elements of the normative discourse that highlights the role of wom en as economic agents through the access to funding granted by MFIs (Bateman and Ha-Jong 2012). Therefore, microcredit is the ideal way to obtain funding for starting small businesses. It is ideal to such an extent that even in the UN Millennium De velopment Goals the concepts of empowerment, women entrepreneurs, and microcredi t are used to refer to women as economic agents. Hence, there is a close relatio n between empowerment, women entrepreneurs, and microcredit within the economic sphere of macro-economy, despite the fact that a great amount of microcredit is not created to generate new businesses, but to power daily consumption.

There has been a transition, during the last four d ecades, from regulated to deregulated financial systems. This change has brou ght forth the integration of financial institutions into global circuits. The ra pacious quest for profit and stock price appreciation indicative of “money manager cap italism” (Minsky [1986] 2008) has drawn money-center banks, giant pension funds, and other institutions into the microcredit sphere. As the relative importance of s tate and development banks has waned, microcredit operations are increasingly subj ect to the logic and imperatives of rentier capitalism (Keynes [1936] 1964).

In most Latin American and Asian countries, institu tional financial intermediaries have obtained great profits from MFI s (Girón 2012a). Through international financial markets, MFIs channeled liq uidity toward funding small subsidiary loans from banking corporations that are classified as “too big to fail, too big to rescue.” These corporations have been favore d by financial regulation from the state and from international financial agencies, su ch as the International Monetary 1 Empowerment, from a gender perspective, consists of transforming women into economic agents — capable beings with “freedom to choose” not only ho w to use credit, but also to engage in productive projects as entrepreneurs in administrative, social , and political decision-making position. ȕ Women and Financialization 375 Fund (IMF), the World Bank, the Bank for Internatio nal Settlements (BIS 2013), 2 and the central banks. According to the latter, the empowerment of women as entrepreneurs through microcredit is untenable. In a world of “money manager capitalism,” 3 in which Minsky (Wray 2011) discerned the greed of financial institutions and in which financialization has beco me the norm, it can hardly be said that microcredit is the path to empowering women wh o live in an austere environment.

Women are candidates for microcredit since it is th e simplest way to include them in both labor markets and financial circuits, by making use of the important commitment they have to their families and their jo bs. Therefore, the need for women to be income providers to their families brin gs about the transformation of societies by breaking traditional gender norms not only in managing money, but also in combatting gender discrimination both within the family and the workplace.

NGOs, having recently emerged as a shadow of the st ate, offer credit and employment, as well as shape the production system in many societies (Karim 2011).

The development of credit systems by NGOs started w ith the weakening of the state in the spheres of production and circulation. It wa s during the 1980s and 1990s that this model became surprisingly preeminent and influ ential when it came to making decisions related to economic policy. Under this pr essure, patriarchal society began to break and the prerogative of development acquired g reat importance. In the 1960s, development was transformed into an organic process that aimed to raise the quality of life in a developing project to combat poverty o n a global level. Microcredit, as referred to in the official discourse, assists this new model in eradicating poverty.

Therefore, MFI regulation demands a new legal struc ture aimed at regulating credit relations between creditors and debtors, domestical ly as well as internationally.

Profit Margins and Microcredit Profitability Using the World Bank’s data, I analyzed the profita bility levels of fifteen MFIs with a large margin of profit at a global level by regions 4 during 2012. I took into account those MFIs that, as borrowers, are located above 60 percent since, during that year, they reflect a profit margin above 65 percent (Tabl e 1). However, there is the case of MEC le Sine with a profit margin of 209 percent. On average, the profit margin of the main, most profitable MFIs is 75 percent. 2 BIS is located in Basilea, Switzerland. 3 “Money manager capitalism” is defined as the chang es that occur in the banking structure and the return to instability due to a characterization of capitalism based on securitization, globalization, financialization, deregulation, and liberalization (Tymoigne and Wray 2014, 72).

4 The regions taken into account for this analysis a re Latin America and the Caribbean, Southern Asia, Eastern Asia and the Pacific, Central Asia an d Eastern Europe. Ȗ 376 Alicia Girón Table 1. Main MFIs by Profit Margin, 2012 Source: Mixmarket (2012). Notes: ROA: Return on Assets (Net Operating Income, l ess Taxes)/Assets, average; ROE: Return on Capital (Net Operating Income, less Taxes)/Capital; Profit Margi n: Net Operating Income/ Financial Revenue.

Taking into account the available data, I made a re gional analysis according to the World Bank’s classification. Latin America and the Caribbean Latin America and the Caribbean involve seventeen c ountries, 5 of which Mexico had the highest number of MFIs in this area with a total of sixty in 2012. For Mexico, this number is equivalent to 16 percent of the tota l MFIs established within the region, followed by Peru and Ecuador with 15 and 12 percent of the total, respectively (Figure 1). The distribution of assets within the r egion differs. Peru had the highest amount of assets with 32 percent of the total, foll owed by Colombia and Mexico with 21 and 12 percent, respectively (Figure 2).

Name Country Women borrowers % Assets (thousands of $) ROA % ROE % Profit margin % MEC le Sine Senegal 547,773 23 101 209 Hope Russia Russia 79 449,951 11 11 88 MF Nadejda Russia 79 449,951 11 11 88 Inam Azerbaijan 33 13,415 6.0 6.0 87 Alcaravan Colombia 61 7,573,055 26 43 86 CCC Ecuador 42 3,319,228 10 13 84 Rishenglong China 15 22,994,732 8.0 11 78 Ochir -Undraa OMZ Mongolia 41 4,872,000 6.0 9.0 72 Fundación Paraguaya Paraguay 86 30,510,006 20 76 67 TEDC Iraq 6,589,490 16 16 67 JSJRMCC China 95,782,744 8 12 67 Amalkom Iraq 7,606,743 41 48 67 UCEC -G Chad 3,010,413 7.0 19 66 BTV Vietnam 87 311,757 12 12 66 Guarantee Agency of Nizhniy Novgorod Russia 20 17,383,426 5.0 6.0 65 5 For this region and because of the existent MFIs, Mixmarket only takes into account the following countries: Argentina, Bolivia, Brazil, Chile, Colom bia, Costa Rica, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua , Panama, Paraguay, Peru, Dominican Republic, Santa Lucia, Suriname and Trinity, and Tobago. ȕ Women and Financialization 377 Figure 1. MFIs’ Distribution by Country, Latin America and the Caribbean, 2012 Source: Mixmarket (2012). Figure 2. MFIs’ Asset Concentration by Country, Latin America and the Caribbean, 2012 Source: Mixmarket (2012). Mexico 16% Peru 15% Ecuador 12% Colombia 7% Brazil 7% Honduras 6% Nicaragua 6% Bolivia 5% Guatemala 5% Dominican Republic 4% Argentina 3% Costa Rica 3% El Salvador 3% Paraguay 2%Haiti 1% Panama 1% Others 3% Peru 32% Colombia 21% Mexico 12% Bolivia 11% Ecuador 7% Chile 4% Paraguay 4%Dominican Republic 2% El Salvador 1% Others 6% 378 Alicia Girón Of the fifteen MFIs, whose profit margin in Latin A merica and the Caribbean was highest, seven granted more than 50 percent of their credit to women and showed a profit margin above 50 percent (Table 2). Three o f the fifteen MFIs are located in Colombia, alongside the MFI with the largest profit margin — Alcaravan (this MFI granted six out of every ten loans to women). Thirt een out of the fifteen main MFIs granted over 60 percent of their credit to women. T he case of FIACG, in Guatemala, stands out since 100 percent of its loans were gran ted to women, generating a profit margin of 34 percent, a ROA of 13 percent, and a re turn on equity (ROE) of 14 percent. On average, the indicator for the fifteen MFIs is 17 percent ROA and 34 percent ROE. The MFIs with the highest percentage o f credit granted to women were Compartamos Banco and Invirtiendo, both Mexican, wi th 94 and 93 percent, respectively. Table 2. Main MFIs in Latin America and the Caribbea n, 2012 Profit Margin Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % Alcaravan Colombia 61 7,573,055 26 86 CCC Ecuador 42 3,319,228 10 84 Fundación Paraguaya Paraguay 86 30,510,006 20 67 FUNDEVI Honduras 46 100,802,289 6.0 59 LICU Belize 19,835,918 6.0 55 Invirtiendo Mexico 93 32,012,269 19 52 FOVIDA Peru 2,507,512 11 50 APACOOP Costa Rica 26 4,162,935 7.0 46 Fundación Mundo Mujer Colombia 64 480,471,143 17 45 FUNDESCAT Colombia 56 3,632,513 9.0 43 IPED Guyana Guyana 34 13,959,317 8.0 42 Financia Credit Panamá 2 3,571,088 7.0 41 MCN Haiti 64 24,121,586 17 40 CREDIOESTE Brazil 24 2,830,603 17 38 MUDE Guatemala 91 1,981,227 9.0 37 ROA Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % ACCESS Jamaica 57 9,527,859 29 36 Alcaravan Colombia 61 7,573,055 26 86 Fundación Paraguaya Paraguay 86 30,510,006 20 67 Invirtiendo Mexico 93 32,012,269 19 52 Fundación Mundo Mujer Colombia 64 480,471,143 17 45 CEAPE MA Brazil 67 22,912,912 17 33 CREDIOESTE Brazil 24 2,830,603 17 38 MCN Haiti 64 24,121,586 17 40 ASEI El Salvador 83 3,617,474 15 33 Compartamos Banco Mexico 94 1,333,796,296 13 31 FIACG Guatemala 100 3,495,906 13 34 Fundación Adelante Honduras 99 1,460,022 13 22 Women and Financialization 379 Table 2 continued Source: Mixmarket (2012). Notes: ROA: Return on Assets (Net Operating Income, l ess Taxes)/Assets, average; ROE: Return on Capital (Net Operating Income, less Taxes)/Capital average; Prof it Margin: Net Operating Income/ Financial Revenue. Southern Asia Southern Asia comprises seven countries: 6 India involved 93 MFIs, the highest number in this region; Bangladesh 28; Nepal 24; and Pakistan 23. The distribution by number of institutions is as follows: India 51 perc ent, Bangladesh 15 percent, Nepal 13 percent, and Pakistan 13 percent. Together, the last three countries represent 41 percent, while the other MFIs are located in Sri La nka, Afghanistan, and Bhutan (Figure 3).

In relation to the concentration of assets, India s tands out with 45 percent (4,524 million dollars) of the total for that regio n. It is followed by Bangladesh with 35 percent (3,513 million dollars). Together, these countries represented 80 percent of the total assets during 2012 (Figure 4). 6 For this region and because of the existent MFIs, Mixmarket only takes into account the following countries: Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka.

FIACG Guatemala 100 3,495,906 13 34 Fundación Adelante Honduras 99 1,460,022 13 22 ECLOF - DOM Dominican R. 80 6,578,954 13 30 Avanzar Argentina 65 352,080 12 15 Financiera CIA Mexico 82 2,759,949 12 25 ROE Name Country Women borrowers % Assets (thousands of $) ROE % Profit margin % FUNDESER Nicaragua 50 20,267,041 115 86 Fundación Paraguaya Paraguay 86 30,510,006 76 84 ECLOF - DOM Dominican R. 80 6,578,954 71 67 ACCESS Jamaica 57 9,527,859 44 59 Alcaravan Colombia 61 7,573,055 43 55 Apoyo Económico Mexico 56 103,648,367 39 52 Financiera Edyficar Peru 1,064,706,594 38 20 Santander Microcrédito Brazil 69 11,398,537 36 46 CRAC Los Andes Peru 50,960,794 35 45 MCN Haiti 64 24,121,586 34 43 Fundación Mundo Mujer Colombia 64 480,471,143 33 42 Fundación Alternativa Ecuador 55 18,542,773 32 41 Compartamos Banco Mexico 94 1,333,796,296 31 40 Invirtiendo Mexico 93 32,012,269 30 38 CREDIOESTE Brazil 24 2,830,603 30 37 Ȗ 380 Alicia Girón Figure 3. MFIs’ Distribution by Country, Southern Asia, 2012 Source: Mixmarket (2012). Figure 4. MFIs’ Asset Concentration by Country, Souther n Asia, 2012 Source: Mixmarket (2012). India 51% Bangladesh 15% Nepal 13% Pakistan 13% Sri Lanka 4% Afghanistan 3% Bhutan 1% Afghanistan 2% Bangladesh 35% Bhutan 1% India 45% Nepal 24% Pakistan 7% Sri Lanka 8% ¸ Women and Financialization 381 The fifteen MFIs with the highest profit margin in this region had relatively high percentages of loans granted to women (Table 3). Ei ght out of the fifteen MFIs granted the total of their credit to women. The fif teen showed a profit margin above 20 and 60 percent. The case of India stands out since this co untry had four of the fifteen MFIs presented in Table 3. These four enter prises also granted 100 percent of their credit to women. The same table shows that fi fteen MFIs with higher ROA granted more than the 80 percent of their credit to women. In eight of them, the percentage reaches 100, which also happened among t he main MFIs by ROE, since fourteen out of fifteen MFIs granted more than 80 percent of their credit to women.

Out of these, nine had a credit portfolio dominated by women. These are established in India, Bangladesh, and Nepal. Table 3. Main MFIs in Southern Asia, 2012 Profit Margin Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % Jagaran MF India 100 8,079,211 10 61 Nilkhantha SACCOS Nepal 100 285,241 7.0 44 VERC Bangladesh 98 13,478,720 9.0 41 ASA Pakistan Pakistan 100 16,190,580 9.0 40 Muthoot India 100 59,924,357 10 38 Bandhan India 100 982,599,687 5.0 34 Muktinath Bikas Bank Limited Nepal 100 6,774,990 7.0 33 VYCCU Nepal 24 4,627,715 4.0 33 BDBL Bhutan 38 140,276,781 4.0 33 BMSCCSL Nepal 401,509 6.0 33 TMSS Bangladesh 98 119,083,892 7.0 32 Sarala India 100 7,364,865 6.0 31 RCDS Pakistan 92 7,647,750 8.0 30 Sahara Mahila Nepal 100 503,667 4.0 30 NRSP Pakistan 79 73,671,819 7.0 29 ROA Name Country Women borrowers % Assets (thousands $) ROA % Profit margin % Muthoot India 100 59,924,357 10 38 Jagaran MF India 100 8,079,211 10 61 ASA Pakistan Pakistan 100 16,190,580 9.0 40 VERC Bangladesh 98 13,478,720 9.0 41 Lak Jaya Sri Lanka 100 3,658,843 8.0 27 RCDS Pakistan 92 7,647,750 8.0 30 Nilkhantha SACCOS Nepal 100 285,241 7.0 44 NRSP Pakistan 79 73,671,819 7.0 29 Muktinath Bikas Bank Limited Nepal 100 6,774,990 7.0 33 TMSS Bangladesh 98 119,083,892 7.0 32 382 Alicia Girón Table 3 continued Source: Mixmarket (2012). Notes: ROA: Return on Assets (Net Operating Income, l ess Taxes)/Assets, average; ROE: Return on Capital (Net Operating Income, less Taxes)/Capital average; Prof it Margin: Net Operating Income/ Financial Revenue. Sarala India 100 7,364,865 6.0 31 RCDS Pakistan 92 7,647,750 8.0 30 Sahara Mahila Nepal 100 503,667 4.0 30 NRSP Pakistan 79 73,671,819 7.0 29 ROA Name Country Women borrowers % Assets (thousands $) ROA % Profit margin % Muthoot India 100 59,924,357 10 38 Jagaran MF India 100 8,079,211 10 61 ASA Pakistan Pakistan 100 16,190,580 9.0 40 VERC Bangladesh 98 13,478,720 9.0 41 Lak Jaya Sri Lanka 100 3,658,843 8.0 27 RCDS Pakistan 92 7,647,750 8.0 30 Nilkhantha SACCOS Nepal 100 285,241 7.0 44 NRSP Pakistan 79 73,671,819 7.0 29 Muktinath Bikas Bank Limited Nepal 100 6,774,990 7.0 33 TMSS Bangladesh 98 119,083,892 7.0 32 Manushi Nepal 100 2,212,828 6.0 24 BRAC Bangladesh 96 788,944,880 6.0 23 GJUS Bangladesh 90 3,375,898 6.0 26 Sarala India 100 7,364,865 6.0 31 BMSCCSL Nepal 401,509 6.0 33 ROE Name Country Women borrowers % Assets (thousands of $) ROE % Profit margin % Kashf Foundation Pakistan 100 46,058,595 767 7.0 GMF India 100 440,256 130 3.0 Muthoot India 100 59,924,357 93 38 SOLVE Nepal 100 1,133,988 72 20 SKDRDP India 62 446,615,297 70 17 Muktinath Bikas Bank Limited Nepal 100 6,774,990 69 33 Manushi Nepal 100 2,212,828 57 24 GMSSS India 100 1,001,582 44 27 DAMEN Pakistan 100 9,336,549 36 17 MMFL India 100 33,565,674 35 25 VERC Bangladesh 98 13,478,720 34 41 TMSS Bangladesh 98 119,083,892 34 32 SKS Foundation, Bangladesh Bangladesh 97 12,717,506 33 15 BURO Bangladesh Bangladesh 87 187,056,662 32 15 Annapurna Mahila Credit Co -op Society India 96 7,006,557 32 9.0 Women and Financialization 383 Eastern Asia and the Pacific Eastern Asia and the Pacific region comprises ten c ountries. 7 China was the country with the highest number of established MFIs and a total of forty financial intermediaries, which is equivalent to 28 percent of the total MFIs within the region in 2012. By comparison, during the same year, Vietn am was represented by twenty- four MFIs. In Figure 5, MFIs’ distribution among th e countries of that region is observed. In what refers to the distribution of ass ets, China had the highest number — 81 percent of the total within the region, followed by Vietnam with the 12 percent (Figure 6). Figure 5. MFIs’ Distribution by Country, Eastern Asia and the Pacific, 2012 Source: Mixmarket (2012). 7 For this region, Mixmarket only takes into account the following countries: Cambodia, the Philippines, Indonesia, Laos, Papua New Guinea, Chi na, Samoa, East Timor, Tongues, and Vietnam. People's Republic of China 28% Vietnam 24% Philippines 16% Cambodia 11% Laos 11% Indonesia 5% East Timor 2% Others 3% Ȗ 384 Alicia Girón Figure 6. MFIs’ Asset Concentration by Country, Easte rn Asia and the Pacific, 2012 Source: Mixmarket (2012).

Table 4 shows the fifteen MFIs with the highest pro fit margin within Eastern Asia and the Pacific. Out of these, eight granted m ore than 70 percent of their credit to women. Two cases are worth mentioning: (i) China had six of the fifteen MFIs in this region, and (i) Vietnam gathered eight out of fifteen. Together, these countries concentrated fourteen out of fifteen MFIs within th eir territories, with the largest margins of profit in the Eastern Asia and the Pacif ic region. Table 4 also shows the fifteen MFIs with higher ROA, and in eleven of them , the credit portfolio comprised 70 percent women; among the MFIs with higher ROE, six granted the total of their credit to women. Central Asia and Eastern Europe Central Asia and Eastern Europe comprise twenty-one countries, 8 and most of the region’s MFIs were established in Tajikistan du ring 2012 (Figure 7). This country People's Republic of China 81% Vietnam 12% Cambodia 5% Philippines 1% Others 1% 8 For this region and because of the existent MFIs, Mixmarket only takes into account the following countries: Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Georgia, Kazakhstan, Kosovo , Kirgizstan, Macedonia, Moldavia, Mongolia, Monteneg ro, Poland, Romania, Russia, Serbia, Tajikistan, Turkey, Ukraine, and Uzbekistan. ȕ Women and Financialization 385 concentrated thirty-two of the MFIs, which is equiv alent to 17 percent of the total.

However, assets were concentrated in Azerbaijan and Mongolia, representing 21 and 19 percent of the total, respectively (Figure 8). The other countries of this region showed a number that was below 10 percent.

Table 5 contains the fifteen MFIs with the highest profit margin in Central Asia and Eastern Europe. Six of these granted more than the 50 percent of their credit to women and had a profit margin above 53 percent. In terms of ROA, eight of the main fifteen MFIs granted less than 60 percent of their credit to women and only three granted more than 80 percent to women. Asian Credit Fund (ACF), establis hed in Kazakhstan, granted 100 percent of their credit to women, and their ROE represented a value near 100 percent as well.

In conclusion, the Central Asia and Eastern Europe region granted less credit to women. South Asia was the region with the highest p ercentage of credit granted to women, within which India stands out since, accordi ng to the available data about this country, it had the highest amount of MFIs tha t granted 100 percent of their credit to women. In Latin America and the Caribbean region, several countries did not presented any data, but, under these restrictio ns Mexico stands out since many of its MFIs granted a 100 percent of their credit to women in 2012. The MFIs established in Eastern Asia and the Pacific region granted over 70 percent of their credit to women. Table 4. Main MFIs in Eastern Asia and the Pacific, 2012 Profit Margin Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % Rishenglong China 15 22,994,732 8.0 78 JSJRMCC China 95,782,744 8.0 67 BTV Vietnam 87 311,757 13 66 Credit & Savings Project- Women Union Vietnam 100 427,687 9.0 60 Guangxi Longlin China 29 324,204 3.0 54 IPR Cambodia 41 6,470,428 13 53 Sichuan Xinfu MCC China 185,181,446 5.0 51 Women Economic Development Fund -HCM Vietnam 100 2,164,539 7.0 49 ChildFund Hoa Binh Vietnam 100 732,428 47 Dariu Vietnam 100 2,853,812 12 47 SEDA Vietnam 100 1,193,867 9.0 47 HanHua China 119,950,010 9.0 47 PNN Soc Son Vietnam 100 416,644 27 46 CAFPE BR-VT Vietnam 70 1,976,935 10 45 MicroCred -Nanchong China 25 40,561,634 7.0 42 386 Alicia Girón Table 4 continued Source: Mixmarket (2012). Notes: ROA: Return on Assets (Net Operating Income, l ess Taxes)/Assets, average; ROE: Return on Capital (Net Operating Income, less Taxes)/Capital average; Prof it Margin: Net Operating Income/ Financial Revenue. MicroCred -Nanchong China 25 40,561,634 7.0 42 ROA Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % PNN Soc Son Vietnam 100 416,644 27 46 SCU Luang Prabang Laos 61 271,702 14 40 IPR Cambodia 41 6,470,428 13 53 Dariu Vietnam 100 2,853,812 12 47 BTV Vietnam 87 311,757 12 66 WFDF Laos 100 1,108,359 11 34 ASKI Philippines 73 47,141,013 11 27 M7 DB District Vietnam 100 329,741 10 41 CAFPE BR-VT Vietnam 70 1,976,935 10 45 SEDA Vietnam 100 1,193,867 9.0 47 Credit & Savings Project- Women Union Vietnam 100 427,687 9.0 60 M7 Ninh Phuoc Vietnam 100 478,788 9.0 40 M7 DBP City Vietnam 85 663,537 9.0 33 HanHua China 119,950,010 9.0 47 BMT Sanama Indonesia 34 723,738 9.0 31 ROE Name Country Women borrowers % Assets (thousands of $) ROE % Profit margin % PATRA Hunchun China 100 618,973 138 26 ASKI Philippines 73 47,141,013 65 27 BMT Sanama Indonesia 34 723,738 60 31 Credit & Savings Project- Women Union Vietnam 100 427,687 47 60 PNN Soc Son Vietnam 100 416,644 44 46 SCU Luang Prabang Laos 61 271,702 35 40 ASA Philippines Philippines 100 52,853,533 33 11 CARD Bank Philippines 97 100,378,696 32 24 SPBD Tonga Tonga 100 2,128,683 31 20 M7 Uong bi Vietnam 90 1,476,514 30 29 ACLEDA Cambodia 1,908,178,016 30 37 EMI Laos 83 2,892,433 30 11 CEP Vietnam 75 59,345,980 29 40 PRASAC Cambodia 77 251,259,169 28 33 MBK Ventura Indonesia 100 39,360,395 28 14 Women and Financialization 387 Figure 7. MFIs’ Distribution by Country, Central Asia and Eastern Europe, 2012 Source: Mixmarket (2012). Figure 8. MFIs’ Asset Concentration by Country, Centr al Asia and Eastern Europe, 2012 Source: Mixmarket (2012). Tajikistan 17% Azerbaijan 14% Russia 13% Kazakhstan 7% Kyrgyzstan 6% Georgia 6% Armenia 5% Bosnia and Herzegovina 5% Bulgaria 5% Kosovo 4% Mongolia 3% Albania 3% Uzbekistan 3% Others 9% Azerbaijan 21% Mongolia 19% Kosovo 7% Georgia 7% Serbia 6% Tajikistan 6% Uzbekistan 4% Bosnia and Herzegovina 4% Kyrgyzstan 4%Others 22% 388 Alicia Girón Table 5. Main MFIs in Central Asia and Eastern Europ e, 2012 Profit Margin Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % Hope Russia Russia 79 449,951 11 88 MF Nadejda Russia 79 449,951 11 88 Inam Azerbaijan 33 13,415 6.0 87 Ochir -Undraa OMZ Mongolia 41 4,872,000 6.0 72 Garantee Agency of Nizhniy Novgorod Russia 20 17,383,426 5.0 65 Netcapital Mongolia 50 5,264,205 32 63 Maximum Kazakhstan 0 75,468,120 5.0 63 BID NBFI Mongolia 59 6,925,016 19 61 Transcapital Mongolia 5,752,496 17 60 Ehyoi kuhiston Tajikistan 499,975 60 AREGAK UCO Armenia 76 32,033,555 13 59 Avrasiya-Kredit Azerbaijan 51 2,406,728 18 53 Regional MC Russia 4,911,595 4.0 52 Caucasus Credit Azerbaijan 29 924,499 18 52 Easycred Georgia 47 5,574,113 15 51 ROA Name Country Women borrowers % Assets (thousands of $) ROA % Profit margin % Netcapital Mongolia 50 5,264,205 32 63 ACF Kazakhstan 100 7,965,149 29 49 BID NBFI Mongolia 59 6,925,016 19 61 Caucasus Credit Azerbaijan 29 924,499 18 52 Avrasiya -Kredit Azerbaijan 51 2,406,728 18 53 MLF ZAR Tajikistan 533,508 17 42 Transcapital Mongolia 5,752,496 17 60 Barakat Uzbekistan 63 266,445 16 47 Easycred Georgia 47 5,574,113 15 51 Salym Finance Kyrgyzstan 49 3,725,717 14 46 Tadbirkor Invest Uzbekistan 88 209,754 13 25 AREGAK UCO Armenia 76 32,033,555 13 59 Mikro ALDI Bosnia and Herzegovina 49 2,574,492 12 46 Bereke Kazakhstan 89 8,443,893 12 37 Viator Azerbaijan 39 18,224,113 11 33 ROE Name Country Women borrowers % Assets (thousands of $) ROE % Profit margin % ACF Kazakhstan 100 7,965,149 410 49 Regional MC Russia 4,911,595 90 52 Bank Eskhata Tajikistan 36 149,691,597 59 31 Netcapital Mongolia 50 5,264,205 56 63 BID NBFI Mongolia 59 6,925,016 54 61 Bank of Baku Azerbaijan 623,308,974 49 41 CREDO Georgia 41 108,659,036 46 27 Women and Financialization 389 Table 5 continued Source: Mixmarket (2012).

Notes: ROA: Return on Assets (Net Operating Income, l ess Taxes)/Assets, average; ROE: Return on Capital (Net Operating Income, less Taxes)/Capital average; Prof it Margin: Net Operating Income/ Financial Revenue. A Successful Model to Obtain Profits During August 2010, SKS Microfinance Limited, an en terprise located in Hyderabad, India, granted small loans to poor women and collec ted 350 million dollars at an initial public auctioned. The impressive debut on t he stock market seemed to confirm that microfinance — loaning money to the poor who d o not have enough access to formal loans from banks — might transform into some thing profitable and sufficiently attractive for investors. Other MFIs from India wou ld follow the path of SKS and its rapid profitable growth (Kazmin 2011). In an articl e, “Microfinance Poor Service:

Tiny Loans are Getting More Expensive,” The Economist referred to the fact that, during the last several years, small loans have had a very high cost. For 1,500 MFIs around the world, the interest rates for small loan s of 150 dollars or lower had increased from an average of 30 percent in 2004 to 35 percent in 2011 ( Economist 2014).

Criticism of this micro-financing model has increas ed. Milford Bateman (2010) points out that microcredit as employment generator , aimed at alleviating poverty, actually increases risks, although it promotes deve lopment from below, empowers the poor, and increases communal solidarity, all elemen ts of a tenable project. The central criticism is that microfinance has the opposite eff ect of reducing poverty since microcredit does not work when trying to generate a sustainable dignified environment for a community. The right to water, fa mily, healthcare, and education, do not get satisfied by microfinance alone. That is , microfinance does not suffice for creating the infrastructure of services that commun ities need. The benefits through microcredit to the poor are few, many communities r emain structurally fragile, and poverty is still increasing. Bateman’s study (2013) , in short, questions the conventional wisdom of the usefulness of microcredi t.

The benefits of microcredit have been widely overso ld, so that the financing-for- development discourse on the part of financial inst itutions has encouraged financial Bank of Baku Azerbaijan 623,308,974 49 41 CREDO Georgia 41 108,659,036 46 27 Azercredit Azerbaijan 34 65,123,744 45 25 ICA Azerbaijan 37 19,981,806 44 6 MLO HUMO Tajikistan 45 19,409,472 39 29 FINCA-AZE Azerbaijan 32 166,600,000 38 28 LTD MFO Capital Credit Georgia 38 808,896 38 14 LOK Microcredit Foundation Bosnia and Herzegovina 33 44,300,676 37 14 FINCA-GEO Georgia 39 59,904,184 35 26 Parabank Azerbaijan 31 133,233,333 35 22 390 Alicia Girón inclusion as the axis of economic development in so ciety. The “bancarization” imperative implies that society should make an ever -increasing use of financial services offered by institutions near their location. It is believed that by guaranteeing a higher financial inclusion, a country will be most prosper ous, which does not seem to be the case, especially when pointing out the cost of loan s 9 and the high interest for loans granted to those clients from the bottom of the pop ulation’s pyramid. Between 2005 and 2006, the interest rates for personal loans wit hin the microfinance sector in Mexico fluctuated between 23 and 103 percent on average. At the same time, credit institutions for consumption charged a 77 percent interest, while the interest on credit cards of the main banks ranged between 27 and 75 percent, with the average national level resting at 48 percent (Rosenberg 2007). Beyond the presumed benevolence of these microfinance institutions, the re is an increased charge when it comes to interest. 10 It is worth observing that the development of human itarian organizations, such as CARE, 11 transformed into MFIs, which defends human dignity and fights poverty.

CARE started in Peru in 1997 with an initial invest ment of 3.5 million U.S. dollars, and was later bought by the Bank of Credit for 96 m illion dollars.

The microfinance industry represents over sixty bil lion dollars. NGOs serve 35 percent of all clients, while credit unions and rur al banks serve only 5.0 percent.

Compartamos, 12 which started as an NGO and generated 458 million dollars during a public auction in 2007, is one of the largest insti tutions in the western hemisphere, with 2.2 million active clients. This MFI charged 8 2 percent for management and interest during 2008. Nigeria’s Lift Above Poverty Organization (LABO) 13 also charges excessive interest, and grants most of its credit t o women. 9 The average interbank interest rate in Mexico was relatively low, almost 8.0 percent in 2008. The fundamental cause is the administrative, rather tha n funding cost. Another Mexican group that plays an important role in the expansion of transparency thr ough financial education is Prodesarrollo, a network of forty-six subsidiaries of IMFs, NGOs, and banks whi ch, together, served more than 1.3 million low-income clients during 2007. The network uses financial edu cation campaigns, employer incentives, and consumer s satisfaction evaluations to promote financial educa tion (Centro para la Inclusión Financiera 2009, 32) 10 An example is Te Creemos, with annual average rate of 125 percent (Macfarquhar 2010). 11 CARE receives support from various financial institutions for its pioneering work in microfinance.

For example, Barclays, CARE International, and Plan International (USA), have joined in an initiative to enhance the quality of life of the poor through wid ening and developing their access to basic financial services. The initiative brought together the resou rces of each organization in Africa, Asia, and Sout h America (CARE 2014).

12 Compartamos was born as an MFI and later transform ed into a bank in Mexico. 13 Lift Above Poverty Organization (LAPO) is an institution that grants microcredit. Its activities started in 1987 and it registered as a NGO in 1993. In Nigeria, it is related to the Grameen Bank. Its funding comes mainly from the Evangelischer Entwick lungsdientes (EED) — a German service for the development of evangelical churches, USAID, and the Grameen Foundation. LAPO is an MFI funded by the Deutsche Bank and the Calvert Foundation. ȕ Women and Financialization 391 MFIs’ interest rates vary around the world, generat ing substantial profits for loan providing entities. The United States House Committ ee on Financial Services 14 has been concerned with the substantial profits of thes e ventures. Rates vary from one country to another. It is very important to take in to account the cases of Nigeria and Mexico since the credit offers and interest rates M FIs from these countries charge are very high and above the formal financial systems’ a verage. An example of the latter may be the average interest rate charged by microfi nance institutions of — at least, in Mexico — 70 percent or more as compared to the global average o f 37 percent (U.S.

Committee on Financial Services 2010). Institutional Investors and MFIs One of the questions to be delved into when investi gating MFIs and microcredit is:

Where do the funds to finance those who do not meet the credit requirements within formal financial circuits come from? Banks and inst itutional investors dominate loans and their profits exceed 100 percent. Muhammad Yunus himself stated that “we created microcredit to fight the loan sharks; we di dn’t create microcredit to encourage new loan sharks … Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opp ortunity to make money out of poor people” (United Nations News Centre 2006).

JP Morgan Chase invested money in CARE to grant loa ns to those families that were devastated by the 2004 tsunami in India, Indon esia, Sri Lanka, and Thailand.

The purpose of the project was for MFIs to help fam ilies and communities in rebuilding their infrastructure through entrepreneu rial development. At an institutional level, CARE has supported the creatio n, development, and strengthening of many MFIs throughout Latin America, Asia, and Af rica. Its goal is to develop and improve the ability of MFIs to obtain financial and non-financial services, intended to impact the poor in an effective, long-term, and ten able manner. MFIs provide loans for machinery and work capital to small and micro-b usinesses that are frequently larger and more formal than those groups that recei ve savings and loan services. One of these is the Development Entity of Small and Mic ro Enterprises (known as EDYFICAR, in Spanish), created by CARE in Peru in 1 998. EDYFICAR offers a variety of financial products, including personal a nd group loans to the poor.

EDYFICAR has been so successful that it has become a leading microfinance institution in Peru with a loan portfolio of around $200 million and with 1,170 employees serving over 195,000 clients across thirt een Peruvian regions. The Inter- American Development Bank ranked this institution n inth among all MFIs in Latin America. 14 The United States House Committee on Financial Ser vices (referred to as House Banking Committee) is the committee of the United States Ho use of Representatives that supervises the financial industry, including values, insurances, banks, and the mortgage industry. The committee also supervise s the Federal Reserve, the Treasury Department, the Secur ities, the Exchange Commission, and other regulators of financial services. Ȗ 392 Alicia Girón At a global level, and since the lack of access to commercial sources of capital is still a grave obstacle to the development of many M FIs, CARE helped in the creation of MicroVest — an investment fund that specializes in gathering and providing capital to smaller and growing MFIs. MicroVest has invested over eighty million dollars in thirty-seven MFIs across sixteen countries since it began its operation in 2003.

It is important to mention that as the Multilateral Investment Fund (MIF) of the Inter-American Development Bank, the Inter-American Investment Corporation (IIC), the Andean Development Corporation (CAF), an d private investors, are participating in funding the Microfinance Growth Fu nd (MiGroF), 15 a new credit mechanism for MFIs in Latin America and the Caribbe an. Among the main partners in this initiative is Banamex, a major commercial b ank of Mexico, which joined the MiGroF for Latin America and the Caribbean. This in stitution would provide 250 million U.S. dollars in loans to medium and long-te rm MFIs throughout the region, offering funding in local currencies as well as in U.S. dollars. The Overseas Private Investment Corporation (OPIC) committed to providin g 125 million U.S. dollars.

Banamex, a subsidiary of Citibank, joined MiGroF as investor and partner, but it is also expected to participate in its corporate gover nance. When creating this MFI, it was announced that OPIC, Multilateral Investment Fu n (MIF), member of the Interamerican Development Bank (IDB), and IIC, woul d work together to launch a new source of funding for Latin American MFIs, whic h had had to reduce their portfolios and credit availability as a consequence of the global financial crisis of 2008. MIF would provide ten million dollars to the new mechanism, IIC would contribute up to five million dollars, and CAF woul d give ten million dollars. The private investor partners of MiGroF, besides Baname x, are the Norwegian Microfinance Initiative (NMI), ACCION International , and BlueOrchard (Rozas 2012).

MIF and IIC had a very active role in structuring t he MiGroF, as well as in defining its credit strategy. They also engineered the process through which the management of MiGroF passed on to the Swiss investm ents’ manager BlueOrchard Finance A.S. As the president of both the IDB and I IC directory, Luis Alberto Moreno, put it, “this new source of funding is not only going to help MFIs to recover the credit availability they had before suffering t he effects of the global financial crisis, but will also help in what refers to the growth of the microenterprise sector, which is the key for economic growth and a source of employm ent in many countries of the region” (BID 2010). 15 The objective of the MiGroF is to supply funds to MFIs, so that they are able to widen their loan portfolios, and to facilitate a sustained growth of the micro- and small enterprises level. When the U .S.

presidency announced MiGroF in April 2009, during i ts participation in the Fifth Summit of the Americas, in the Port of Spain, Trinidad and Tobago, the U.S. government saw this fund as a necessity to close possible gaps that had resulted from the global fin ancial crisis. ȕ Women and Financialization 393 Institutional investors, such as pension and hedge funds, have permeated MFIs.

Dutch pension funds like Algemeen Burgerlijk Pensio enfonds (ABP) 16 and Pension Fund for Care and Wellbeing (PGGM) 17 invested in Dexia 18 in order to channel their investments through BlueOrchard and Microfinance In vestment Managers. 19 The strategy was apparently a very successful one, sinc e there was BlueOrchard — the second major MFI — on one side, and PGGM that inves ted forty-one million U.S.

dollars and 12 percent of their assets, on the other. There was al so ABP, which invested forty million U.S. dollars. The total inve sted by the two pension funds was 20 percent of the total assets of Dexia, a very strong institution with high potential profitability. But the whole venture began to break in 2010/2011 with the collapse of the MFIs in Andhra, Pradesh, of which Dexia owned a very important part. It was, in fact, a drop of 1.85 percent in the MFIs located in Andhra, which had pu shed it to bankruptcy by 2011.

Was the fund excessively exposed in Andhra? Not rea lly. At the beginning of the crisis, in October 2010, 4.7 percent of the portfolio of Dexia was invested in M FIs operating in the region. However, a more rational e valuation was needed for a location of eighty-four million inhabitants and a p ortfolio of outstanding loans of around one billion U.S. dollars. Andhra was one of the major markets for MFIs in the world, attracting extremely high investments, and n ot only from Dexia. Its portfolio was reduced, but this still did not decrease the in vestment of capital by those who were looking to obtain profits. Investors and holde rs of mortgage assets or certificates from European Union countries were still betting on the profitability of MFIs.

The yield of Dexia should be observed in the contex t of an increasing pressure on European institutional investors. Insurance comp anies and banks were hit by high-risk capital requirements, and microfinance tr ansformed into a higher-risk activity. Meanwhile, pension funds faced more rigor ous stress factors in unclassified or non-liquid assets, such as microfinance. The mos t urgent matter of all was the low yields offered in financial markets, and within the context of pension funds, Dexia deserved a closer look. In the middle of all this, BlueOrchard looked to reform its two sibling enterprises, BlueOrchard Finance (bond fund s) and BlueOrchard Investments (private capital). 16 Algemeen Burgerlijk Pensioenfonds (ABP) is a pens ion fund of government employees and education in Netherlands. In 2012, ABP had 2.8 mill ion participants and assets worth 362.5 billion dollars.

It is the largest pension fund in this area, and th e third on a global level. It was established in 1922. 17 Voor eenn waardevolle toekomst in Dutch, PGGM, man ages pension funds amounting to about 153 billion dollars.

18 Dexia makes investments in Greece, but mainly in I ndia, and it was one of the first to fall into bankruptcy. Dexia got out of the Dexia Group in ord er to become Belfius (all the non-performing loans went to this bank).

19 BlueOrchard, also known as Microfinance Investment Managers, boasts as having some of the most knowledgeable professionals of finance and ded icated entrepreneurs on a global level (see www.blueorchard.com/our-investment-process). Ȗ 394 Alicia Girón It is important to mention that it was major banks that introduced MFIs. That is how HSBC organized itself as an NGO for productive projects in education and leadership training. An example of such project is Future First-Investing in Our Children, which was created in 2006, with an initia l investment of ten million dollars (HSBC through Society to Heal, Aid, Restore and Edu cate, SHARE; and Sophia College Ex–Students Association, SCESA, within the Raigad district for economic activities). A self-help group (SHG) 20 program for women was established with the objective of providing economic independence for wo men and generating a dignified household existence. HSBC created a program to fund MFIs and encourage f inancial inclusion through microcredit. There were many cases when maj or banks, “too big to fail, too big to rescue,” managed to build a niche for themse lves by investing into MFIs. The Bank of Tokyo-Mitsubishi, for example, is related t o MFIs in Pakistan and Santander in Latin America. The evaluation of microcredit is the percentage of the credit geared to productive projects. Foundation for Internationa l Community Assistance (FINCA) accepted that around 90 percent of microcredit is used for consumption (Bat eman 2011). Thus, most microcredit loans have to be refi nanced with new loans since the budget of many marginalized families already does n ot allow for repayment of microcredit, plus interest.

Microcredit loans are made through a joint alliance of NGOs and institutional investors (Karim 2011). These hybrid entities, howe ver, need to realize profit, while also helping the poor. To this end, there are arra ngements between NGOs and multinational corporations, resulting in businesses called social business enterprises (SBEs), 21 which implement and export the Grameen model. This model occurred when the Grameen Bank, the Building Resources Acros s Communities (BRAC), and the Association for Social Advancement (ASA) 22 emerged as NGOs and have since become exemplary MFIs, providing financial services to the poor on a global level, with high profitability (Karim 2011).

MFIs that start as NGOs are an important and consti tutive part of the shadow state. They manage large investments through granti ng small credits to small businesses. In Bangladesh alone, there are eighty-s ix MFIs controlled by NGOs, and most of their credit is intended for rural women. T he privatization of many state activities are now controlled by NGOs, which consti tute a quasi-sovereign state in themselves and promote economic policies that are c onsistent with the national plans for development. NGOs have become determining facto rs in managing investment funding. 20 SHG stands for a small voluntary association, pref erably of people belonging to the same socio- economic group. They get together looking to solve common problems through self-help and cooperation.

The SHG encourages it members to have savings held in banks. The members of the group are usually in their twenties.

21 The Nobel Prize winner, Muhammad Yunus, coined thi s term to indicate social businesses combining profit and social provisioning. These bus inesses are presented as a win-win situation for both corporations and consumers of microcredit.

22 The largest MFIs are located in Bangladesh: the Gr ameen Bank, BRAC, ASA. ȕ Women and Financialization 395 Those behind such NGOs, acting as MFIs and are undo ubtedly financial banking and non-banking investors, as well as pensi on and hedge-fund investors. It is not surprising that major banks often act through M FIs, granting funds for specific objectives or special projects and profiting from m arginalized sectors in societies across the globe. These investors constitute a shad ow (or parallel) financial system in economies globally (Girón 2012b). Reflection Nowadays, MFIs have a close relationship with banks and institutional investors. They are part of structured finance and guarantee profit ability from collateral. They are mildly regulated entities because they began — and many of them remain — as NGOs, and their objective has transformed into granting l oans to those who have no access to formal funding. Thus, their evaluation will requ ire further discussion. In the present paper, I only argued that there is a relati onship between MFIs, based microcredit, and that they make profits from loanin g money to marginalized people.

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