Microfinance
Microfinance refers to the provision of financial services to low-income customers, including consumers and the self-employed. The term also refers to the practice of sustainably delivering those services to help poor people out of poverty. More broadly, microfinance activities are aimed at establishing “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.”
Traditionally, banks have not provided financial services to clients with little or no cash income. The reason for this being that banks must incur substantial costs to manage a client account, regardless of how small the sums of money involved. In addition, most poor people have few assets that can be secured by a bank as collateral. Because of these difficulties, when poor people borrow they often rely on relatives or a local moneylender, whose interest rates can be very high.
Access to financial services contributes to economic development. Through microfinance, the underprivileged are able to invest in their own businesses, build up income and take care of their families. Although much progress has been made, the problem has not been solved yet, and the overwhelming majority of people who earn less than USD 1 a day, especially in the rural areas, continue to have no practical access to formal sector finance.
In certain markets, ING supports the development of microfinance initiatives through the offering of dedicated products and services.
Retail business in India
In 2002, ING bought the Vysya network, an Indian retail network for banking and insurance services. One of the bank’s departments, the ‘Agri and Rural Banking Unit’, offers savings and loan products to people in rural areas. This includes microfinance for individuals and for Self Help Groups. In general, Self-help groups comprise of women who together take out a loan from microfinance institutions. As of 31 March 2009, ING Vysya had a total loan portfolio of EUR 11.18 million outstanding to 9,290 of these groups, reaching 80,000 individuals.
ING Vysya Life provides micro-insurance policies to groups of people in rural communities. In 2008 Vysya has covered 30,000 lives through its micro insurance group policy.
In India all banks and insurance companies are encouraged by the government to include microfinance in their product range. By promoting microfinance the government wants to stimulate economic development, especially in the vast rural areas of the country where poverty is the biggest.
For more information on ING Vysya Bank and Life please visit www.ingvysyabank.com and www.ingvysyalife.com
Wholesale banking
ING Vysya also provides wholesale loans to microfinance institutions (MFIs) in India. As of 31 March 2009, ING Vysya’s total value of wholesale loans outstanding to 21 MFIs amounted to EUR 59.5 million reaching 506,250 individuals.
Another ING department, ING Green Finance in the Netherlands, also provides wholesale loans to MFIs in developing countries. As of 31 March 2009, ING Green Finance had a total value of wholesale loans of EUR 22.4 million outstanding to 12 MFIs in eight countries all over the world. Indirectly, ING Green Finance reaches more than 85,000 micro-entrepreneurs with these loans.
Next to providing wholesale loans, Vysya bought the credit portfolio of two MFIs worth EUR 9.410 million. Through these buyouts, ING Vysya lends money directly to 95,000 micro-entrepreneurs.
Study ‘A Billion to Gain?’
Commercial banks double loans in microfinance
In March 2008, ING published the research report ‘A Billion to Gain? The Next Phase’. One of the main conclusions of the research was that by the end of 2007, international banks’ total amount of outstanding wholesale loans to MFIs had more than doubled from USD 0.5 billion in 2006 to approximately USD 1.4 billion.
'A Billion to Gain? The Next Phase' is the third study to chart the current activities and future plans of international financial institutions with respect to microfinance. The first ‘A Billion to Gain?’ report was published in 2005 and the second came out in November 2006.
