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> Posted by Alexandra Rizzi and Alyssa Passarelli, Deputy Director and Communications and Operations Assistant, the Smart Campaign

The Smart Campaign has worked tirelessly for over five years to embed the Client Protection Principles into the microfinance sector, and increasingly, the broader financial inclusion community. Yet until now, the Campaign has had minimal input from the very clients whose well-being drives the entire movement.

In order to better understand the concerns and experiences of the individuals who use microfinance, the Campaign has launched a client voice research and learning project. Through listening directly to clients, market stakeholders can raise awareness, dialogue with each other to identify potential issues, and in turn integrate this learning into their work. The Smart Campaign has a unique role in shining a light on potentially harmful or negative experiences that low-income users of financial services have had and bringing those experiences to the attention of those who can do something about them.

To conduct this project, the Campaign will be working with Daryl Collins and her team at Bankable Frontier Associates (BFA). BFA has conducted extensive global research with low-income households, including projects with an explicit focus on consumer protection. The client voice project will be conducted in four markets – Pakistan, Benin, and two others to be chosen this summer. The markets are selected based on geographic diversity as well as engagement by local stakeholders with the Smart Campaign. In Pakistan and Benin for example, the project is working closely with the Pakistan Microfinance Network and the Alafia Consortium, who have helped convene local stakeholders to give feedback on project design, research locations, and results. This ensures that the research has input and support at all stages from local expertise and will be used by those who are best placed to take action in response to the findings.

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> Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

“Know your client” is a popular phrase in conversations about financial inclusion and business in general. But where does such knowledge come from? Does it end with your client’s expressed needs and desires? Can it also incorporate behavioral research insights or consumer protections that the client may not even demand?

Shawn Cole of Harvard Business School opened the second day of “Rethinking Financial Inclusion” – a one-week program offered by Harvard Kennedy School Executive Education – with a question all providers might ask themselves when modifying existing products or developing new ones: “If you were the customer, would you go for that deal?”

Cole pointed out that products meant to “bank the unbanked” (i.e., first-time users) must be designed differently from products meant to tempt new customers away from competitors. He described the experience of First National Bank of South Africa in responding to government calls to encourage savings among the poor and draw black South Africans into the predominantly white formal banking sector. First National Bank decided to offer a lottery with large prizes to new depositors.

In debating whether a lottery would attract customers, participants cited examples from their own work, such as a mobile money account offering free insurance to savers who maintain a sufficient balance in their accounts. Recognizing that the poor are already saving, informally, the challenge is to develop products that draw them into the formal sector safely and responsibly. Another provider warned against complicated offers. “Structured products can be very esoteric.”

The concerns participants voiced fell into two categories: ones that apply to anyone (e.g. for nearly everyone a flashy new product loses its luster after the third page of terms and conditions), and ones that are specific to the poor (e.g. how do you draw people into banking, when even walking into the building itself is intimidating?). Both sets of concerns underline the need for financial capability development and customer-centered product innovation. The potential interest in formal financial products may be there, but uptake is obstructed by consumers’ lack of confidence, or poor understanding of the products’ components, or inability to surmount intimidating “barriers to entry” such as small print. Read the rest of this entry »

> Posted by Elisabeth Rhyne, Managing Director, CFI

I was recently asked to give a talk at the University of Pennsylvania’s 8th (!) annual Microfinance Conference. This year’s theme, “Microfinance Beyond Its Roots” set me in search of ways in which the microfinance industry is moving into areas beyond its original microcredit core. Of course, this process has been going on for a long time, and so there are many topics to choose from.

I decided to look at health care, partly because, as every staff member of a microfinance institution knows, health setbacks are one of the most frequent sources of repayment problems among low income clients. As they learned about the health vulnerabilities of their clients, microfinance organizations began to invest in experiments, bringing their businesslike approach to bear on a challenge that is often dealt with in heavily subsidized, non-market ways. Today, many of these programs have matured and grown, even as new ideas are being tested.

I looked among the organizations belonging to the Microfinance CEO Working Group, and I found that nearly all have something exciting going on in health care. Approaches include some combination of direct health care service provision, health insurance coverage, and education. Many are using technology as a means of reaching people at scale and low cost.

The meetings associated with group lending provide a convenient and cost-effective platform for health services, and adding a health component to group microcredit is probably the earliest and most widespread model. Health education was perhaps the starting point, as pioneered by Freedom from Hunger and also implemented by Opportunity International. Today the services often reach farther (while health education continues to be important). ProMujer, for example, directly employs nurses and other health practitioners to staff fixed and mobile clinics available to ProMujer members. They focus on maternal and reproductive health, as well as screening for the chronic diseases that are increasingly major health issues in Latin America. Hundreds of thousands of women get access to health care through ProMujer’s efforts.

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> Posted by Danielle Piskadlo and Jeffrey Riecke, Senior Program Specialist and Communications Associate, CFI

In Iraq and Afghanistan, about 23 and 35 percent of people live below the poverty line. Both countries have microfinance industries, though they’re small and financial inclusion rates are low. In the effort to combat these low levels of inclusion, an unlikely financial service player, the U.S. military, is using the principles of microfinance to optimize fund dispersal by local ground commanders in order to strengthen communities in conflict areas.

Charkh, Afghanistan

We recently become aware of this military effort when contacted by a group of West Point cadets interested in learning more about microfinance. In the conversation we learned that U.S. military ground commanders in Iraq and Afghanistan each receive about five thousand dollars a month to allocate as they see fit toward development projects in the local communities where they are posted. The money can go towards public roads, schools, medical clinics – projects contributing to community rebuilding and reconstruction. These allotments from ground commanders are part of the Commander’s Emergency Response Program (CERP) developed in 2008. Currently, ground commanders don’t have specific guidance on how they should allocate these funds so they often rely on suggestions from village elders, who the cadets recognized are sometimes biased and self-interested in the projects they recommend.

The cadets are therefore working to develop a portfolio optimization template – based on the principles of microfinance – to guide ground commanders on how to allocate their CERP funds as microgrants to help raise the standard of living within local communities. The project objective is to enable ground commanders to allocate their funds as loans to small-businesses, entrepreneurs, and individuals, facilitating income growth, economic development, and community strengthening. The template is modeled after microfinance practices because of similarities in distribution methods found between microcredit loans and the financial aid provided by ground commanders through CERP funds.

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> Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

On February 23, Rohini Pande opened classroom sessions of  “Rethinking Financial Inclusion” – a one-week program offered by Harvard Kennedy School Executive Education – by drawing a distinction between two models of change: the magic bullet and penicillin. The magic bullet is an unstoppable cure-all. It takes down whatever problem you set your sights on. Penicillin is the product of many cycles of experimentation, refinement, and the occasional stroke of luck. (Researchers found the best strand of the penicillin fungus on a moldy cantaloupe from an Illinois market.) Magic bullets solve problems in German folk tales, penicillin in the real world.

Pande spoke to a group of 45 participants – leaders of government ministries, MFIs, banks, and NGOs from 29 countries (click here for a breakdown). She said that the hope that microcredit could, by itself, lift very different poor populations out of poverty – a hope initially bolstered by quick spread and high repayment rates – appears to have included some magical thinking. Given microcredit’s disappointing performance according to metrics such as new business creation and development indicators, the challenge now is to put it through a penicillin-style process of trial, error, and re-trial – including testing its effects in combination with a broader range of products.

The penicillin metaphor allowed Pande to place early emphasis on the value of evidence-driven (re)design in policy, a theme that would be frequently revisited throughout the week. By citing the rising use of rigorous evaluations as a policy instrument, she turned the moral of the cautionary tale from a statement about microcredit specifically to a much more general maxim: “Don’t trust the quick and easy result.”

The other products that the “Rethinking Financial Inclusion” program promised to focus on, such as savings and insurance facilities and new payments mechanisms, must also be put through the same process of experimentation and evaluation, Pande said.

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> Posted by Sonja E. Kelly, Fellow, CFI

We live in an age of cash flow unpredictability. Here at CFI we’ve championed work like Portfolios of the Poor, which focuses on those at the base of the pyramid. But what about those who aren’t poor? Who is paying attention to the wealthy? Are they fully included?

A new product is now addressing an oft-neglected gap in the market. The product is a microfinance loan for those at the top of the pyramid who need credit while they wait for their yearly bonus to be approved by their company’s board or while they wait for a deal to go through in order to receive their golden parachute.

“I’m waiting for my $80 million golden parachute,” says CEO Robert McMillion, CEO of Lime Werner Cable since January 1 of this year. “In the meantime, I find that I don’t have the $700 for the weekly allowance that I give my daughter and son.” McMillion stands to receive $80 million if the company’s purchase by Cobcast Cable goes through and he steps down as CEO.

“I really am in a pinch,” says McMillion. “My daughter’s prom is coming up, and without money in her checking account, how can she go shopping? Similarly, my son was hoping to buy a new sports car, and without the cash, he will have to finance it at high interest rates. If I can avoid him having to do that, I will.”

McMillion does have a great deal of stock and has saved for retirement—one might say that he doesn’t have a problem on his hands. But his stock isn’t liquid, and if he were to take out the retirement money before he actually retires, he would have to pay high taxes on it.

McMillion is not alone. U.S.-based CEOs used to be able to count on their golden parachutes and high year-end bonuses. Now, under the Dodd-Frank Act, CEOs have to wait for full board approval in order to receive the money, and even then the amounts are slightly lower than in the past. Golden parachutes have gone from $30.2 million in 2011 to $29.9 million today (we are not making this up), and executives are under increasing PR pressure to reject or only take a portion of their bonuses when companies don’t do well.

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> Posted by Laurence Dare and Stephanie Hanson, East Africa Policy Manager and Director of Policy and Outreach, One Acre Fund

Expanding access to finance isn’t enough. Clients need access to financial products that they will actually adopt. That’s why addressing customer needs, one of the pillars of the Financial Inclusion 2020 Roadmap to Inclusion, is so critical for making finance more inclusive. For smallholder farmers in rural Africa, where inclusion rates are 19 percent compared to the urban rate of 34 percent, the financial services provided don’t come close to meeting the demand. Asset-based financing and loan products with flexible repayment schedules can help close this gap.

Among other financial services, smallholders desperately need access to financing for basic inputs—improved seed and fertilizer—that could dramatically increase their agriculture productivity. Properly designed, this financing could make an important contribution to growth and poverty reduction in Africa.

Unfortunately, microfinance products created for Africa’s poor do not necessarily meet such needs. Most microfinance institutions are concentrated in urban and peri-urban areas and primarily offer cash loan products on strict repayment schedules. These products meet the needs of the urban and suburban poor, most of whom receive small but frequent income from businesses or jobs. Smallholder farmers have different challenges.

Unlike urban clients, smallholder farmers receive the majority of their income all at once after harvesting. As small jobs come in, such as day labor on a neighbor’s farm or a local construction project, farmers can earn some extra income, but this is incremental and unpredictable. A cash loan product on a strict repayment schedule does not meet these financing needs.

How should a loan product be structured to meet the needs of smallholder farmers? At One Acre Fund, we designed a product pairing asset-based financing and a flexible repayment schedule that is working for 180,000 smallholder farmers in Kenya, Rwanda, Burundi, and Tanzania.

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> Posted by Annalisa Bianchessi, Microinsurance Network

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.

Although Africa has 17 percent of the world’s pastures and arable land, the value of premiums for agricultural insurance in Africa represents less than 0.7 percent of the world’s total. This remarkably low figure is deplorable when one considers that about 60 percent of the active population in Africa is working in the agricultural sector and that with the advent of climate change the risks in agricultural activities are becoming even more frequent and severe. The agriculture insurance sector in Africa is also unevenly distributed, with sector development in West Africa restricted to a handful of countries such as Nigeria, Benin, Senegal, Burkina Faso, Mali, and Ghana. Should governments intervene to support the development of the agricultural insurance sector in Africa?

For smallholder farmers, agriculture insurance offsets risks associated with weather fluctuations. This risk reduction can make it more likely that a farmer will qualify for credit and thus invest in the tools and resources (e.g. seed, fertilizer, labor) needed prior to harvest that would potentially increase crop yields. Furthermore, it also provides farmers with the peace of mind required to invest savings into businesses and increases their confidence to engage in contracts with buyers and processors.

According to Ismaïla Diakité, President of COPROCUMA, a farmer cooperative in Mali, and spokesperson for a network of 500 cooperatives representing over 500,000 Malian farmers, “Microinsurance is an avenue for the people of Mali to develop our country.” Ismaïla recalls that a few years back, COPROCUMA had taken out a loan to sow 10,000 hectares of sesame seed. However due to bad weather the crop failed, and the cooperative and farmers ended up in debt. It was then that they realized the value of insurance. While very lucky (the lending institution cancelled their debt), the farmers embarked on an agriculture insurance scheme, which today is compulsory for all members of their cooperative. Ismaïla says, “Our main objective is to ensure the survival of our farmers, their life and their livelihood.” To this end, he believes that insurance is an essential part of the benefits that the cooperative needs to offer the farmers. When asked whether all farmers are happy with the compulsory insurance scheme he says, “A farmer cannot see the importance of microinsurance until he can see the bigger picture. In the sector I work in there will never be unanimous agreement on anything. However a few years into the insurance scheme, 80 percent of farmers in Mali are now convinced of the importance of agriculture microinsurance.” Read the rest of this entry »

> Posted by Sonja E. Kelly and Veronica Trujillo, Fellow and Consultant, CFI and MIF/IDB

Where can you find up-to-date and comparable information on the state of microfinance and financial inclusion? Which are the most trusted sources? These issues were recently explored in a research effort designed to lay the groundwork for broadening the scope of the EIU Global Microscope on the Business Environment for Microfinance from an emphasis on microfinance to financial inclusion. As part of this process, Fusion Research conducted a detailed assessment on the relevance of the Microscope.

As sponsors of the Microscope, what we found through the study was a pleasant surprise. Seventy-nine percent of people surveyed (more than 500 microfinance sector stakeholders from different countries around the world, with a high proportion of participants coming from Latin America and the Caribbean) were at least aware of the Microscope, and most of these people have used or consulted it. Closely trailing the Microscope, 76 percent of people surveyed were aware of the MIX Country and MFI Benchmark Reports.

Market Analysis of Microfinance Resources

In terms of actual use of the tools, the MIX leads the way, almost tied with the Microscope. When we look at use of the tools by stakeholder type, we see a greater diversity in which tools different kinds of people use.

Investors are most and equally likely to use the EIU Country Reports and the Microscope. Their need to know the country microfinance context and level of market development to make better decisions is likely to explain such preference. Those who work for financial services entities seem to like the detail and competition data that the MIX provides. Their second most used source is the Microscope, revealing the importance for them of country regulatory and operative environment. Foundations appear to use the Microscope and MIX data in tandem. The Global Findex (The World Bank Global Financial Inclusion Index) is most used by regulators/policymakers and DFIs/foundations, while academics, think tanks, and those working in business or consulting are most likely to use the Global Microscope.

Respondents to the survey, on average, reported using between three and four resources in their work. In terms of usefulness, MIX reports and the Global Microscope on Microfinance were rated as very useful for more than 55 percent of the people interviewed.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Nearly every industry requires infrastructure to thrive, and this goes for the microfinance industry too. But the infrastructure that the global microfinance industry has constructed over the past two decades is looking a bit shaky today. Infrastructure investments are urgently needed to keep the industry sound and prepare it for the future.

One could argue what exactly constitutes the microfinance industry’s infrastructure, and there are a range of organizations to choose from, but for this conversation, let’s look at several key organizations dedicated to setting standards and providing information for microfinance globally: the Microfinance Information Exchange (MIX), the four specialized microfinance rating agencies, the Social Performance Task Force (SPTF), Smart Campaign, and Microfinance Transparency (MFT). These organizations, which perform vital functions for the industry, arose during two different phases of microfinance industry development.

The first generation of organizations – MIX and the rating agencies – were created to provide financial transparency and standards, primarily so that investors could identify well-performing institutions, and also so microfinance institutions could evaluate their own performance against common standards. It took a lot of work to create these organizations. MIX had to find ways to incentivize MFIs to report and to devise a system for data quality assurance. The founders of the rating agencies – Microrate, Planet Rating, Microfinanza Ratings, and M-CRIL – took substantial personal risk in devoting their careers to promoting financial transparency in microfinance.  Together, these organizations have helped spread financial standards throughout the microfinance industry and contributed to improving the financial performance of MFIs, enabling the entry of private social investors who now contribute very importantly to the funding of microfinance. We sometimes now take financial transparency for granted, but if these organizations were to stop playing their role in upholding it, adherence to standards across the industry would undoubtedly drop, with consequences for investor interest, which up to now has remained strong.

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