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> Posted by James Militzer, Editor, NextBillion Financial Innovation

The following post was originally published on NextBillion, in two parts, here and here

The Smart Campaign was born in the midst of extraordinary upheaval in the microfinance sector. Its launch in 2009 was sandwiched between the 2008 global financial crisis, repayment crises in several microfinance markets, and the 2010 debtor suicides in Andhra Pradesh. Yet the turmoil served to amplify the campaign’s main point: that microfinance needs to focus on customer protection. In the succeeding years, it has labored to unite microfinance leaders and practitioners around this goal – most notably through its efforts to convince microfinance institutions (MFIs) to undergo the process of Smart Certification, in which independent evaluators verify that they are “doing everything [they] can to treat [their] clients well and protect them from harm.”

Over time, these efforts have started to gain traction. The campaign – which is steered by a group of prominent leaders in the industry and housed at Accion’s Center for Financial Inclusion – has certified 39 microfinance institutions. (Note: Accion is a NextBillion Content Partner.) Certified institutions include a number of leading MFIs in markets around the world, from Equitas in India to Kompanion in Kyrgyzstan. And the campaign calculates that certified MFIs now serve slightly more than 20 million clients. In a recent interview with NextBillion, its director, Isabelle Barrès, called the 20 million client mark “an exciting milestone, recognition of the fact that there is momentum growing in the industry for client protection –  not just paying lip service to it, but actually working hard to improve practices.”

But achieving this momentum hasn’t been an easy task for the campaign – or for the industry whose practices it’s trying to improve. Barrès discusses the challenges it has faced – and the controversy it has sparked – in this two-part Q&A.

James Militzer: Do you have any data on which markets have the highest percentage of Smart Campaign-certified MFIs?

Isabelle Barrès: I think Kyrgyzstan probably is the one where we currently have the most right now – 60 percent of microfinance clients are served by organizations that have been certified. This shows that when there are some substantial efforts that are put towards improving client protection – whether it’s at the market level or at the regulatory level, or through market infrastructure, such as supporting a good credit bureau – it can make a difference for the entire industry.

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> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group

A few weeks ago, I attended the Global Forum on Remittances and Development sponsored by the International Fund for Agricultural Development (IFAD), the European Commission, and the World Bank. Much of the meeting was focused on two critically important questions:

  1. Are or could remittances be a major driver of financial inclusion?
  2. Is it possible (and desirable) for a greater percentage of remittances to be put to productive use as opposed to consumption once the funds arrive in the hands of the recipient?

First, a few facts to underscore why these discussions are so important:

  • In 2014 there were at least 240 million international migrants. That is a BIG number – bigger than the populations of all the countries of the world except China, India, the U.S., and Indonesia.
  • This year these migrants will send back to their countries of origin more than 440 billion U.S. dollars! This amount is more than three times the amount of foreign aid. It is estimated that $200 billion of this amount goes directly to rural areas in developing countries where the most poverty is.
  • Remittances can constitute up to 40 percent of GDP or more in some countries, often the most fragile, most conflict-ridden countries in the world.
  • Some 750 million people are estimated to receive remittances, the vast majority in developing countries. Forty percent live in rural areas.
  • The global average cost of sending this money home is 8.6 percent of the amount sent, so the potential customer benefits to cost reduction are very important. (In July 2009 the G20 set a goal of reducing the average cost from 10 percent to five percent in five years. Despite failing to achieve the objective, it recently established a new goal of three percent by 2030!)

Are remittances a driver for financial inclusion? Could they be? In a moment of frustration, Fernando Jimenez-Ontiveros, the Acting General Manager of the Multilateral Investment Fund said at the conference, “We’ve been working on these issues for some 15 years, and estimates are that 60 percent of senders and recipients still don’t even have an account! We’ve got to do better!”

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> Posted by Ros Grady, Senior Financial Sector Expert, the World Bank Group

The following post was originally published on the World Bank Private Sector Development blog.

The Client Protection Principles: Model Law and Commentary for Financial Consumer Protection (the “Model Law”), recently launched by the Microfinance CEO Working Group, has the potential to be a useful resource for the many developing and emerging economies that are seeking to design and implement international best practices in financial consumer protection, having recognized that consumer protection is a critical element in building and maintaining trust in the financial sector and achieving financial inclusion targets.

The Model Law was prepared on a pro-bono basis by the international law firm DLA Piper on the basis of the seven Client Protection Principles of the Smart Campaign. The project, which took place over a 15-month period and was managed by Accion on behalf of the Council of Microfinance Counsels, included consultations with financial inclusion stakeholders and legal experts, who undertook a review of existing legal frameworks in various countries. Reference was also made to international best practices and principles such as the World Bank’s Good Practices on Financial Consumer Protection and the G20 High Level Principles on Financial Consumer Protection.

The Model Law is a high-level, activities-based law that is intended to apply equally to all financial services providers. This includes “banks, credit unions, microfinance institutions, money lenders and digital financial service providers.” The apparent aim is to ensure an equal level of protection for all consumers and a level playing field. The consumers concerned may be an individual or a micro, small or medium-sized business, and so the law will apply equally to consumption and small-business facilities. Many of the provisions are framed in terms of principles, the detail of which would need to be filled out in related legislation.

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> Posted by Alex Counts, President and CEO, Grameen Foundation

Account Use (Developing Economies) - Click to Enlarge

Account Use (Developing Economies) – Click to Enlarge

Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as defined by CFI. The Center’s new publication “By the Numbers” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.

Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”

While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent — quite a jump! — over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.

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> Posted by Shameran Abed, Director, BRAC Microfinance Program

Shameran Abed, BRAC’s Director of Microfinance, joined the Microfinance CEO Working Group in January. He joins the Working Group’s efforts to support the positive development of the microfinance industry and brings tremendous insight into the discussion on pathways out of poverty.

This month, the results from six randomized control trials (RCTs), published in Science magazine highlighted a model of development that is an adaptable and exportable solution able to raise households from the worst forms of destitution and put them onto a pathway of self-reliance. The graduation approach – financial services integrated within a broader set of wrap-around services – is gaining steady recognition for its astonishing ability to transform the lives of the poorest.

These findings can be contrasted with the results of six RCTs published in January by the American Economic Journal: Applied Economics, which cited limited evidence of “microcredit” alone transforming the lives of the poor.

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> Posted by Alex Counts, President and CEO of Grameen Foundation, and Co-Chair of the Microfinance CEO Working Group

The Microfinance CEO Working Group, as part of its commitment to client protection in microfinance and financial inclusion, set out in early 2014 to develop a model law that could be adapted, in whole or in part, into different national contexts. The Working Group’s partners were the global law firm DLA Piper and its “Council of Microfinance Counsels” which is composed of the in-house counsels of all Working Group members. After 15 months of effort, the first version of this law has now been completed and released. The blog below describes this tool and how it can be used.

Those who set policy for consumer protection in financial inclusion have a powerful new tool at their disposal, one that financial inclusion practitioners, legal experts, and regulators have had a hand in creating.

Over recent months, the law firm DLA Piper/New Perimeter has been working with the Microfinance CEO Working Group and a subgroup of the Council of Microfinance Counsels to prepare the Model Law and Commentary for Financial Consumer Protection. This is a framework of suggested legislation on financial consumer protection based on the Client Protection Principles as promoted by the Smart Campaign. The seven Client Protection Principles set standards that clients should expect to receive when doing business with a microfinance institution, and cover such critical areas as transparency, fair and respectful treatment, privacy, and prevention of over-indebtedness. The team that developed this studied multiple countries that had the most progressive and effective laws related to client protection in financial services, and in other areas.

The Model Law can be used in a variety of ways.

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Jim Yong Kim, President of the World Bank Group

> Posted by Center Staff

Among the excitement of the World Bank Spring Meetings last week, key players in financial inclusion declared actionable commitments toward the goal of universal financial access by 2020 in a standout session. Those committing included banks, associations, payment companies, and telcos. The message of the commitments, and of the session’s panel discussion, was that we’ve achieved remarkable progress in the past few years, the goal of universal access by 2020 is very much in reach, and both of these are due in no small part to the aligning of stakeholder incentives and powerful partnerships. The panel highlighted that in three short years, the number of unbanked adults around the world dropped from 2.5 billion to 2.0 billion, according to the 2014 Global Findex.

The focus of the panel was mobilizing the public and private sectors to achieve the goal of universal financial access. Although achieving access is just the first step toward inclusion, it is a bridge to effective services usage, as well as to other development objectives like adequate housing, education, clean water, and healthcare. During the session, panelist Jim Yong Kim, President of the World Bank Group said, “If we reach universal financial access by 2020, we’re going to have a much better chance of getting to the end of poverty by 2030.” One particularly promising avenue to expanding access is digitizing government payments. Ajay Banga, CEO of MasterCard shared that 30 percent of the money that flows into the hands of the under-banked comes from governments. Delivering these payments into a mobile phone, card, or cloud-based account that can be accessed using biometric technology or other non-limiting customer-identification methods brings tremendous benefits. In this way, by migrating their social benefits from cash to electronic, Pakistan opened 3 million debit accounts in six months. Countries with national financial inclusion strategies achieve twice the increase in the number of account-holders compared to countries that don’t have strategies in place.

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> Posted by Bobbi Gray, Research Director, Freedom from Hunger

While recent research indicates that access to and use of microcredit alone is not transformative for the average client served (see “Where Credit Is Due”), there has been very little discussion about the types of indicators being used to measure “transformation” in the ongoing debates. In fact, it seems that we all have accepted the general findings that microcredit has only had modest impacts on, along with other indicators of poverty and well-being, education, health, and social capital because the randomized controlled trials (RCTs) have said so. There needs to be greater thought and debate about the choices of indicators used to support these conclusions.

Freedom from Hunger over the past 20-plus years has integrated health with microfinance and helped build a body of knowledge indicating that microfinance plus health services can enhance health outcomes. In an ongoing partnership with the Microcredit Summit Campaign, supported by Johnson and Johnson, we have pilot-tested a series of health indicators that financial service providers (FSPs) can use to track client health outcomes. This pilot test was built on years of experience of evaluating health outcomes with our FSP partners, as well as on similar experiences of developing common tracking indicators in the health sector. We created a list of criteria to assess the types of indicators we felt would be meaningful to track—for individuals with and without health services – which included dimensions of feasibility, usability, and reliability. Initial results have been shared in several webinars with SEEP and the Social Performance Task Force.

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> Posted by Alex Counts, President and CEO, Grameen Foundation

The following post was originally published on the Grameen Foundation blog and presented at the ‘Financial Services for the Poor: Lessons and Implications of the Latest Research on Credit’ event hosted by CGAP, IPA, J-PAL, and The World Bank on February 27, 2015.

I would like to start by congratulating the researchers involved in these six new studies, as they add to the body of knowledge about microcredit and microfinance that has been accumulating for several decades, and has made us a stronger industry as a result. I would also like to congratulate the organizers of this event, and thank them for inviting me to share my views, as a representative of Grameen Foundation and the Microfinance CEO Working Group, which I co-chair with Mary Ellen Iskendarian of Women’s World Banking.

I actually find these studies encouraging. The frame I use to digest them is this: what do they tell us about what microcredit is accomplishing, and about what it can accomplish. Somehow, the main frame people seem to be using to interpret these results is what microcredit does not do. I don’t think that frame is appropriate, nor helpful.

I think that we can all agree that while microcredit has been “transformative” for individual clients, it is not today “transformative” for the average client, especially in the time frames that are being studied. I presume we can all also agree that microcredit has not cured cancer, nor the common cold. But why use unrealistic standards to frame the discussion?

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> Posted by Mary Ellen Iskenderian, President and CEO of Women’s World Banking, and Michael Schlein, President and CEO of Accion, who are Co-Chair and Founding Member, respectively, of the Microfinance CEO Working Group

The following post was originally published on the Microfinance CEO Working Group blog.

As leaders of international organizations dedicated to financial inclusion, we welcome and support initiatives that hold the microfinance industry to the highest standards of client protection, social performance, and pricing transparency. This is the principal reason why the members of the Microfinance CEO Working Group came together – a shared commitment to these principles as well as a shared recognition that enforcing them takes work that none of us can do alone.

When our group first formed in 2011, we scanned the landscape of actors and initiatives working to enforce high quality microfinance industry standards. Chuck Waterfield and MFTransparency (MFT) stood out. Pricing transparency is widely considered the most challenging standard to uphold in our industry, and there was no denying that Chuck and his small but dynamic team had created something unprecedented with MFT.

Publicly reporting pricing information is extremely complicated, which is why all industries struggle with it. The microfinance industry, however, is actually further along than most, and that is largely due to MFT’s efforts. Chuck and his staff developed a methodology to present credit pricing information in a clear and consistent way, so all stakeholders can learn the true price of credit products for clients. As a direct result of MFT’s methodology, microfinance institutions in many countries now report their pricing data. Multiple institutions also reduced their prices after publishing data and determining that they were out of line with other institutions in their market. Since MFT has been operating, many governments have also started to require pricing transparency in their regulation of the microfinance industry.

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