Citi sees microfinance growth even in downturn
London, United Kingdom, December, 21 2007 -
Microfinance services for the world's very poor will likely continue to grow despite any global downturn, Citigroup says, but said the sector must diversify beyond small loans to saving and insurance schemes.
Citigroup is seen as one of the leaders in the microfinance sector amongst major global banks, working mainly through local institutions ranging from micro-lenders to small banks and other institutions in 35 developing countries.
A survey this week of 3,000 institutions providing microcredit, tiny loans at high interest to the poorest of the poor, showed the number of recipients rising from 13 million nine years ago to 133 million in 2006. Many of the clients were women and in less than a dollar a day.
"I think the microfinance sector will continue to grow rapidly, but that just doesn't mean in terms of lending," global director of Citi Microfinance Bob Annibale said on Thursday.
"I think everyone needs a place to save so if you include savings I think it will certainly continue to grow."
He would not be drawn on how large Citigroup's microfinance division was in terms of cash flow, but said it had grown exponentially.
"It is not a purely philanthropic venture," the former senior treasury risk adviser said . "Over time it will deepen our access and deepen our knowledge of the markets we are present in."
He said the microfinance field looked to be largely immune from global credit liquidity problems following the U.S. subprime mortgage crisis, and that in previous economic crises the very poorest had proved themselves surprisingly bankable.
"When Indonesia had its financial crisis in the 1990s, the microfinance sector did not experience it as strongly as the formal sector," he said.
"They (the poor and underserved) have different risk sensitivities. They're often not part of any sudden boom, such as real estate. There are more resilient to some economic cycles."
But he said the new challenge was to find savings products for the world's poorest.
"It is all very well to focus on microcredit, but micro-saving and micro-insurance are more difficult," he said. " an important challenge is how to develop such products for very low value transactions that can be delivered at much lower cost."
An increasingly popular option was to use mobile phone banking or terminals in shops, petrol stations or phone booths rather than rolling out bank branches in remote settlements, he said.
Governments were also coming to terms with the use of savings clubs or schemes such as Christmas, wedding or funeral clubs as a means of boosting savings.
"Replicating a heavy banking branch model alone as a mechanism for reaching many rural underserved area is like waiting for the landline to arrive in the village instead of jumping straight to a mobile phone," he said.
"We are skipping whole generations of technology."