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> Posted by Andrew Fixler, Associate, CFI

“Cautious optimism” was the overriding sentiment towards the Indian financial inclusion investment space at the fall 2014 Financial Inclusion Equity Council (FIEC) meeting in Zurich. Four years after the Andhra Pradesh crisis, in financial year 2014 the regulated microfinance market in India saw its loan portfolio grow by 35 percent and client outreach increase by 4.7 million individuals, achieving a record 28 million clients. Although, as FIEC member Christian Etzensperger of responsAbility Investments AG noted, this is “catch-up growth” for India, where only 35 percent of the adult population has a bank account. On an institutional level, the remarkable growth of Bandhan Bank, India’s largest microfinance institution, illustrates the successful scaling up of MFIs. While Etzensperger noted the “dynamic revival of the microfinance sector…partly due to the inertia of the Indian banks”, he also alluded to the significant role played by the policies of the newly elected Prime Minister, Narendra Modi, as well as those of the recently appointed Raghuram Rajan, Governor of the Reserve Bank of India. Indian investor sentiment in general soared on the news of these leaders taking the helm, a trend that clearly resonates in the Indian financial inclusion equity community.

What have these leaders done to inspire confidence in the trajectory of microfinance?

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The following post was originally published on the Microfinance Gateway.

As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks.

The Center for Financial Inclusion at Accion has recently announced a partnership with The MasterCard Foundation to launch the Accion Africa Board Fellowship program. The new program will promote peer-to-peer learning on governance and risk management practices at financial institutions that serve low-income clients in sub-Saharan Africa, a region with more than 6.6 million microfinance clients.

We spoke with Beth Rhyne (left), Managing Director of the Center for Financial Inclusion at Accion, and Ann Miles (right), the Director of Financial Inclusion at The MasterCard Foundation, to learn more about their vision for the program.

Good governance helps an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. Why do you think the microfinance industry in Africa needs such a program at this time?

Miles: Good governance begins at the top of any organization. The policies that are set, and the signals that are sent, by board members and CEOs permeate throughout an organization. They are a major component, perhaps the major component, in determining how an organization succeeds in its given mission. So, how a board does its work is critically important, and it’s something that we at The MasterCard Foundation care about a lot.

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> Posted by Center Staff

The microfinance industry in sub-Saharan Africa, boasting roughly 6.6 million clients, is growing fast. This expansion of financial services to the base of the pyramid, bolstered by an increasingly diverse array of providers and products, is enabling many lower-income individuals, entrepreneurs, and households to access and use essential tools like loans and savings accounts for the first time. To ensure the stability and success of the institutions that provide services, however, strong institutional governance and risk management needs to be a core priority. A new CFI initiative, generously supported by The MasterCard Foundation, sets out to address this.

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> Posted by Michiel Sallaets, Communications Manager, Incofin Investment Management

To continue Sri Lanka’s development in its post-war, post-tsunami era, it’s essential that greater investments be made in the country’s agriculture sector and in its financial services for the base of the pyramid.

In Sri Lanka, about 80 percent of the population lives in rural areas. Agriculture is the main source of income for these people and many of them work at the smallholder level. Loans are necessary for farmers to adequately invest in seeds, fertilizers, tools, and other productive inputs. Loans can also prove instrumental in compensating for the occasional inadequate harvest. Yet, the proportion of people who have taken out loans in Sri Lanka in the past year is a dismal 9 percent. Only 22 percent of the population in the past year has saved in a financial institution.

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This is our first in a series of responses to the provocative post last week from Ignacio Mas. Ignacio asks why the “current innovation frenzy in digital financial services in the U.S.” does not translate into action in BoP markets across the world, and puts forth a number of hypotheses.

“There are three things none of these digital players want to deal with – and never will. They do not want to get a banking license that embroils them in onerous regulation. They do not want to conduct primary identity checks on their customers (Know Your Customer, or KYC), which require physical customer contact. And they do not want to touch their customers’ cash.”

What follows is a response from Tahira Dosani and Vikas Raj of Accion’s Venture Lab, which invests in new fintech start-ups.

While it is true that much of the current innovation in digital financial services has been focused on higher-end consumer segments and less on financial inclusion, in our view this has not been a result only of digital players’ intentions. In fact, mainstream digital financial service companies’ difficulties in serving the financially excluded arise primarily from three key factors – cost, connectivity, and capability. Simply put, these customers are more expensive to acquire, harder to access, and require targeted products, pricing, and distribution. Customers that are banked, connected, and well-understood are the low-hanging fruit today, and that is why they are targeted by large players.

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> Posted by Rishabh Khosla, Tahira Dosani, and Vikas Raj, Accion Venture Lab

Small businesses are the engine of employment, contributing up to 85 percent of new full-time jobs in low-income countries, and two out of three new jobs in countries like the U.S. The IFC finds a strong correlation between the health of the small business community, economic growth, and poverty alleviation.

Despite these Herculean responsibilities, micro, small, and medium enterprises (MSMEs) the world over struggle to access the financing they need to maintain cash flow, hire new employees, purchase new inventory or equipment, and grow their businesses. The IFC estimates that the unmet demand for MSME finance in emerging markets is $2.1-2.6 trillion (around 1/3 of outstanding loan balances to this segment). Unlike larger firms that can access capital markets, MSMEs must seek financing from banks or non-bank finance companies (NBFCs). Yet traditional lending approaches often fail to address this “missing middle” because the cost of diligence and underwriting is too high relative to the potential revenues from the smaller loans that MSMEs need. This situation is worse in emerging markets because of a lack of reliable financial data and high levels of informality. According to the Harvard Business Review, the financial crisis only exacerbated the situation: borrower balance sheets are still recovering, and banks, faced with new regulatory requirements, have reduced the share of lending to MSMEs in 9 out of 13 OECD countries.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI


Last year, before I was a parent, my colleague Deborah Drake wrote a blog post asking “What do Governance and Parenting Have in Common?” Now that I am a parent, I would like to draw another commonality between governance and parenting: both are easier said than done!

There is plenty of literature out there on the best practices of parenting but in reality, it is really hard work, full of uncertain information and mixed advice. You may know the importance of letting them cry it out, feeding veggies, limiting screen time, or talking to your kids about risky behavior. However, we also know how hard these things can be to do in practice, and how often they get avoided, explained away, or ignored. It is often hard as a parent to take a long-term view or to experience the short-term pain needed for long-term gain. You just have to pick your battles, hope for the best outcome, and know there will be unforeseen challenges and crises along the way.

Same goes for governance. It is tricky to bring up the difficult conversations at board meetings, hard to think strategically about the long-term when you are busy putting out today’s fires. It is challenging to adhere to all the recognized best practices, and often difficult even to decipher which practices are important to adhere to.

In both parenting and governing, it is helpful to have advice and benchmarks to sort through all the noise. Googling teething or breastfeeding may provide some help, as will reading up on risk management or strategic alignment. But too often, these searches will leave you wondering where you actually stand between “nothing to worry about” and “oh boy, do we have a problem.” This is because these topics are harder to learn from literature and easier to learn from people who have been there.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

The impact investing space is growing and benefitting an increasingly diverse array of areas including financial services, agriculture, healthcare, housing, energy, and more. Expanding too is the number of impact investing organizations incorporating impact measurement as part of their investment activities. As more players enter and the industry matures it’s even more important that the industry embraces the capture of impact data and assessment of progress against stated goals. This information validates the industry, helps investors manage investee companies, and improves investor and investee strategic decision-making. It also positions the industry to convince funders, especially new ones, to mobilize additional capital.

Last year the G8 created the Impact Measurement Working Group as part of its Social Impact Investing Taskforce. A few weeks ago the group released its “Measuring Impact” report, which includes seven guidelines for impact measurement and five case studies of how investing organizations have put the guidelines to good use. The initiative by the G8 reflects an elevated priority and the development of the industry.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Growing up, my father fixed cars in exchange for payment in whatever form his customers could afford – granite tables, sheep skin rugs, and so on. In our town, he was the king of barter. Unfortunately, it was rather difficult for my mother to re-barter these items for things our family actually needed, like food and clothes. The system was limited in participants and so in utility. But thanks to the internet, the art of barter is back.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

I have written in the past about some of the advantages of having women on boards, including research correlating women on boards with better bottom lines. I recently came across a fantastic piece published by the IFC, Women on Boards: A Conversation with (Male) Directors, which does a wonderful job of explaining more precisely how women add value to boards. Here are a few quotes from the male directors that contributed their thoughts to the publication.

  • “When women are at the table, there is less joking around and more objective discussion. I’ve also found that women tend to be more sensible and more thoughtful. I think they care much more about how decisions made in the boardroom will impact people.”
  • “Diversity brings more energy to the boardroom.”
  • “Women provide good balance. The dynamics change because women are more willing to give the other side a chance than men.”
  • “Women are more strategy oriented. They tend to look at where the company is heading, whether things are on the right track, and why the company might be diverging from its strategic goals.”
  • “Women are more likely to be conservative and more attuned to good risk management. I don’t think they are more risk adverse but they have more of a long-term and sustainable approach to issues and less short-termism.”

So, how do we get more women on boards? All hands on deck.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.
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