Money and International Business Table of Contents Table of Contents 2 Exercise 2 Exercise 2 4 References 9 Exercise Top 10 Microfinance Institutions Worldwide Over six hundred microfinance institutions with audited financial statements were ranked in terms of scale, which is the institution’s loan portfolio size; efficiency, for the level of operating expenses and the cost per borrower; risk, for the loan portfolio quality; and return, a combination of return on equity and return on assets (Swibel, 2011). 1. ASA, Bangladesh, Scale: 14, Efficiency: 83, Risk: 56, Returns: 40 ASA takes the lead for scale among the top ten microfinance institutions.
The firm’s position on efficiency, risk, and returns is well above par, which explains why the company is top overall. 2. Bandhan (Society and NBFC), India, Scale: 108, Efficiency: 49, Risk: 42, Returns: 1 Badhan leads in efficiency for the top ten microfinance institutions, and records the highest possible rating for returns. However, Bandhan is the second worst in terms of scale, but performs well in terms of risk. 3. Banco do Nordeste, Brazil, Scale: 46, Efficiency: 27, Risk: 213, Returns: 25 The Brazilian company ranks fairly well for scale, efficiency, and returns.
However, its risk position is quite low in comparison to top microfinance companies. 4. Fundación Mundial de la Mujer Bucaramanga, Colombia, Scale: 58, Efficiency: 72, Risk: 193, Returns: 1 The Colombian company has the best possible return rating. The riskiness of the firm is high, but the efficiency and the scale rank quite high. 5. FONDEP Micro-Crédit, Morocco, Scale: 119, Efficiency: 26, Risk: 196, Returns: 1 Of the top ten institutions, this company performs the worst for scale, although it has highest observable returns. Its efficiency is above average and the risk levels are significantly high. 6.
Amhara Credit and Savings Institution, Ethiopia, Scale: 56, Efficiency: 126, Risk: 118, Returns: 46 The Ethiopian microfinance company is the worst performer in terms of returns. The scale, efficiency, and risk remain well contained. 7. Banco Compartamos, S.A. , Institución de Banca Múltiple, Mexico, Scale: 15, Efficiency: 24, Risk: 295, Returns: 11 The microfinance establishment is the best in efficiency among the top ten institutions. Contrastingly, the company lags behind in risk performance. For scale, the company comes after the Bangladeshi company, ASA, and its returns are impressive. 8.
Association Al Amana for the Promotion of Micro-Enterprises Morocco, Morocco, Scale: 17, Efficiency: 212, Risk: 133, Returns: 1 This Moroccan company has the poorest efficiency performance, although it has the highest rating for returns. The efficiency performance is quite low, with an average risk performance. 9. Fundación Mundo Mujer Popayán, Colombia, Scale: 53, Efficiency: 181, Risk: 141, Returns: 1 This Colombian company carries top rank for its returns. Scale performance is above par, while risk and efficiency performance is average. 10. Fundación WWB Colombia – Cali, Colombia, Scale: 27, Efficiency: 206, Risk: 155, Returns: 4 The Colombian firm is faring quite well in scale and returns.
However, in terms of risk and efficiency, the company performs averagely. Conclusion Latin America contributes half of the top ten institutions, while Africa contributes three, and Asia two (Swibel, 2011). On country level, Colombia contributes three, and Morocco two while India, Mexico, Ethiopia, Brazil, and Bangladesh have one institution each. For returns, half the top ten firms got the highest rating. Generally, the top ten organizations perform well in terms of returns, scale, and efficiency. Risk performance is considerably low in comparison to other performance measures. Exercise 2 Country Risk for Middle Eastern Countries The Rating Process Country risk tier (CRT) is a measure of financial stability, strength, and performance of a country (AMB, 2011).
There are five tiers: CRT-1 to CRT-5. CRT-1 countries have stable environments with minimum risk, unlike CRT-5 countries. CRT-1 countries have transparent legal environments, stable political environments, reliable business infrastructure, and mature insurance frameworks (Coface, 2011). Contrastingly, CTR-5 countries have poor legal and political systems, unproven business infrastructure, and budding insurance frameworks. CRT measures economic risk, political risk, and financial system risk (Coface, 2011).
Political risk is the likelihood of encountering government bureaucracy, ineffective judicial systems, diplomatic ill will, unsound economic policies, labor inflexibility, and socio-political tensions. Financial system risk accounts for inefficiencies in the banking systems, asset markets, and regulatory frameworks. 1. Bahrain Bahrain is a CRT-3 country for a moderate economic and financial system risk, and a high political risk, internal and regionally. Bahrains oil exports forms 25% of its GNP and over 50% of the government revenue (AMB, 2011). Bahrain enjoys diplomatic relations with the US and the Gulf Cooperation Council (GCC) countries in form of bilateral trade agreements.
Through GCC Bahrain will enhance private sector cooperation, formulate effective regulatory frameworks, and work to a common currency in future. Bahrains has good international relations with its neighbors and a neutral political stand (AMB, 2011). The financial sector accounts for 25% of GDP (AMB, 2011). The investment climate, which is favorable to international investors, offers investment diversity in oil, gas, aluminum, financial services, and tourism. Bahrain leads in provision of financial services regionally.
Potential investment risks include depletion of the oil reserves, socio-political unrest, and heavy reliance on foreign labor. For instance, Sunnis lost in the recent elections to the Shiite faction, although they form almost 75% of the electorate, resulting sentiments of political discontent (Coface, 2011). 2. Iran Iran rating is CRT-3 (AMB, 2011). Iran is the second largest oil producing country in the OPEC region, possesses the second largest gas reserves after Russia, and has a very small foreign debt. The nuclear program soured relations with many international entities. In 2010, UN put more sanctions over the nuclear program (Coface, 2011).
The all-round dissociation of the West with Iran over the nuclear program has resulted in trade alliances with emerging economic influences like China and India, which will boost its petrochemical and hydrocarbon industry. The country suffers regular civil unrest, and political tensions remain high, especially after a controversial election. Coface (2011) predicts rise in unemployment following stifling government sanctions in the industrial and commercial sector. Iran’s expansionary fiscal policy will exacerbate budget deficit, and lower the reserve fund resulting in a dip in oil export revenues.
Iran’s financial sector is largely under local control. 3. Jordan Jordan rating is CRT-4 for high economic, political risk, and financial systems risk (AMB, 2011). The country had political protests in the middle of 2011. Jordan has disproportional high political risk because of its neighbors. Jordanian economy thrives on trade, but uncertain political dynamisms upset this endeavor. The country has business and trade deals with the US (Coface, 2011). However, poor policies, unnecessary regulations in the labor industry, and the bureaucracy remain a business challenge.
The government runs many credit institutions for agricultural and economic development. Regionally, Jordans economic environment is sound. The country also derives copious amount of its revenue from tourism, and obtains foreign funding. Jordan lacks natural energy resources, and depends on foreign aid, which results in public reserve imbalances and high public debt (Coface, 2011). The country is forging new channels for economic growth by improving tourism, transport, telecommunications, and construction industries. 4. Qatar Qatar is a CRT-3 country for low economic risk, and moderate political and financial systems risk.
Qatar has relatively liberal markets, with the government forging consistent regulatory framework and encouraging private sector cooperation (Coface, 2011). Annual GDP per capita soars well above its Middle Eastern neighbors, with the highest living standards globally. The Ministry of Business and Trade regulates the insurance industry, and the government runs the financial systems. Qatar’s 2010 economic growth was 16%; and may surpass 18% in 2011 (AMB, 2011). It has the third largest gas reserves in the world, and a diverse business climate, spreading into chemical factories, transport infrastructure, and educational centers.
Economic prospects will improve with the introduction of two gas processing mega facilities, plus its low gas production costs. However, future viability of natural gas is uncertain because of growing reliance on non-conventional gas (Coface, 2011). The foreign debt is commensurate to the value of its long-term gas export contracts. Foreign workforce dominates the labor scene. Exploitation of new oil reserves will boost the Qatari economy. Qatar also runs billions of dollars worth of holdings abroad. 5. Saudi Arabia Saudi Arabia has CRT-3 given its low economic and financial system risk, and a moderately high political risk.
Saudi Arabia is the largest exporter of petroleum (AMB, 2011). The countrys GDP per capita is low in comparison to some of its neighbors. Despite stalling economically in 2009, it enjoyed a rising growth in 2010 and 2011. The insurance sector regulation is according to international law although the government has close control of sector, greatly limiting privatization. Poor credit situation is one of the major factors hindering its growth. Furthermore, internal political unrest has resulted in higher government spending. Recommendation The above Middle Eastern countries share an overriding setback of regional political instability.
However, only Qatar lacks recent internal political wrangles. Only Qatar, Jordan, and Bahrain seem to be doing fine diplomatically. In business diversity, Qatar is the clear winner because it has taken in its stride policies that attract foreign investment in the manufacturing, mining, transport, and education sectors. Furthermore, Qatar has a proven growth potential, with double-digit economic growth in the past few years. Therefore, the best investment destination for the firm would be Qatar. References AMD. (2011). Country Risk: Europe, Middle East, and Africa. A.M Best.
Retrieved on December 26, 2011 from http: //www3.ambest. com/emea/default. asp Coface. (2011). Country Risk. Coface. com. Retrieved on December 26, 2011 from http: //www. coface. com/CofacePortal/COM_en_EN/pages/home/risks_home/country_risk Swilbel, M. (2011). The 50 Top Microfinance Institutions. Forbes. Retrieved on December 26, 2011from http: //www. forbes. com/2007/12/20/microfinance-philanthropy-credit-biz- cz_ms_1220microfinance_table_1.mht