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> Posted by Véronique Faber, Executive Director, Microinsurance Network
Three months ago, Jeremy Leach from Bankable Frontier Associates rightly asked in this same forum: “Microinsurance: Can the Cinderella of Financial Inclusion Join the Global Ball?” This question rang a bell with many practitioners and advocates in this field. Microinsurance is often the last service listed when talking about financial inclusion tools. However, credit, savings, and insurance work more effectively in combination rather than in sequence. In stimulating and maintaining financial inclusion, it is crucial that those with a limited income have a safety net preventing them from falling into poverty when hit by a crisis, catastrophic or lifecycle related, and become more resilient against future risks.
Since Leach’s blog post, the sector has been granted three wishes (by its fairy godmother or perhaps as a result of good common sense). If these wishes are used well, insurance for low-income people will be an integral part of any global financial inclusion strategy from now on.
The first wish came in the form of visibility and awareness raising. The opening panel at the Financial Inclusion 2020 Global Forum had representatives from MetLife and Swiss Re debating how financial inclusion factors like income growth, new technologies, and government prioritization play out in the context of insurance. For the rest of the conference, insurance was on every participant’s mind when thinking about the possibilities of what can be achieved in the next seven years. This is important because insurance is essential for sustainable development and financial inclusion.
> Posted by Aparna Dalal and Craig Churchill, International Consultant and Team Leader, Microinsurance Innovation Facility, International Labour Organization
New impact evidence shows that microinsurance products can provide financial protection, reduce vulnerability, and improve access to critical services for low-income households. And with innovations in product and delivery, more people now have access to microinsurance. The sector grew from an estimated 78 million clients in 2007 to 135 million in 2009, to 500 million in 2012. Does this mean that microinsurance has finally arrived?
The answer depends on where you look. While we have seen breakthroughs in certain countries (such as India, the Philippines, South Africa, and Colombia), glaring geographic disparities in coverage persist, with vast deserts without coverage amid oases of success. Common challenges facing countries with low coverage include inappropriate regulation, lack of capacity within the insurance industry, lack of infrastructure for distribution, limited data, and insufficient knowledge of insurance among low-income households.
These challenges vary with market maturity. For instance, insurers in a country in the nascent stage of development might have limited capacity to offer mass products beyond credit-life and they often have to develop marketing strategies and distribution infrastructure from the ground-up. They must find ways to reach persons who are unfamiliar with insurance. In contrast, insurers in growing markets are looking for new distribution partners and developing more customized products to address specific client needs.
A systematic approach is needed for countries to address these challenges and accelerate the development of insurance markets. This approach includes two core elements: 1) catalyzing stakeholders and 2) evolving products.
> Posted by Bob Bragar, Principal, Strategies for Impact Investors
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
Baku, Azerbaijan doesn’t look like a place that needs microfinance, at least not at first glance. Oil money is coursing through the streets. The shops include Tiffany’s, Cartier, Baccarat crystal, and every expensive fashion designer that New York and Paris have to offer. New apartment buildings line the road. This post-Soviet republic is transforming very fast.
But this is not the whole story. There is still a need to expand financial inclusion, despite the government’s efforts to do this. According to MicroRate’s report, “The State of Microfinance Investment 2013”, Azerbaijan is one of the largest microfinance markets for international investors. The 45 percent annual growth in Azeri microfinance is one of the fastest in the world. The Azerbaijan Microfinance Association (AMFA) reports that Azerbaijan’s microfinance portfolio, including via banks, is approaching USD 1 billion.
One group that is doing very important work, however, seems to be excluded from the party. These are the rural credit unions that are supporting agricultural finance.
By every measure, these credit unions are doing exactly what Western social investors want. They are committed to agriculture, and helping small farmers keep their holdings. Client protection is deep in their DNA, even if they are not familiar with the Smart Campaign. Rather than clients, they have members. Their governance is a cooperative structure, designed to serve the needs of these members. Interest rates are relatively low, aimed at sustainability rather than large profits. Loan amounts are small, designed to meet the farmers’ business needs.
Last month, I was invited to meet the Azeri credit unions at the invitation of Credit Implementing Agency, which is an umbrella institution that provides loan capital and support. Starting early in the morning, we drove for hours away from Baku to meet the credit unions on their own turf and have them explain their situation in their own words. We met in the simple structure that serves as the headquarters of one of the larger credit unions.
> Posted by Dave Grace, Managing Partner, Dave Grace & Associates
This week I received my self-addressed postcard from the Financial Inclusion 2020 Global Forum reminding me of my personal commitment to help ensure the safety of consumers’ savings and rights as they join the financial system. My first reaction was how slow the post is, but on deeper reflection I recognized that the postcard arrived just at a time when I needed a reminder of my commitment.
In addition to the new connections made at the Global Forum, two comments stood out for me; one was rooted in the past and the other in the future.
Remembering the Past
When Michel Khalaf from MetLife described the company’s roots as an insurer for the working class and the legions of agents who went door-to-door collecting weekly premiums of $.05 or $.10 and dispensing financial advice, I instantly understood something important about my grandfather. Until then, I had just thought of him as a MetLife agent in the steel belt towns of the northeastern U.S. in the 1920s and 1930s. He left school at age nine to help the family make ends meet when his own father prematurely passed away. He first worked shoulder-to-shoulder in the coal mines with many other immigrants. His math skills and ability to work across ethnic groups enabled him to leave the mines and become a top agent for MetLife. He knew firsthand how dangerous the mining work was and how a temporary or permanent injury could be a huge setback for these vulnerable families. Once the Great Depression hit and people could not access their deposits in banks, many of his clients turned to my grandfather for financial help. He had some liquidity and became a de facto deposit insurer, paying people what he could and in the process becoming a larger creditor of the illiquid banks.
Anticipating the Future
While Michel Khalaf’s comments helped me piece together my own family history, what stood out more was the collective prediction by attendees in London that the most important story in the next five years will be the presence of a “bank run” on mobile money.
> Posted by Calum Scott, Program Impact Director, Opportunity International
As a network of 40 microfinance institutions in 22 countries, Opportunity International is well positioned to play a powerful role in supporting the positive development of the microfinance industry. For client protection, we believe that the Smart Campaign’s Client Protection Certification represents the highest standard of assurance that an institution’s practices are responsible.
To promote client protection and certification among our network, we’ve engaged the support of MicroFinanza Rating – a specialized microfinance rating agency and one of the Smart Campaign’s licensed certifiers.
The agreement with MicroFinanza will facilitate our network partners to undergo certification missions, and promote the sharing of lessons learned from certification experiences across our network of institutions. This agreement also demonstrates our confidence in the quality of the work that MicroFinanza does.
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
Over 165 investors and donors have endorsed the Smart Campaign and the Client Protection Principles. But our Campaign staff wanted to dig deeper: what does this support mean in practice? Are investors using the Client Protection Principles in their everyday work? How? Earlier this year, we embarked on a project to find out.
The Campaign worked with three Virtual Volunteers from Credit Suisse - Lloyd Yetton, Meha Jain, and Nicolas Vucekovic – to create a short survey aimed at understanding how investors incorporate client protection into their due diligence, post-investment monitoring, and reporting. The virtual volunteers spoke with representatives from 12 of the leading microfinance investors.¹ The findings, highlighted below, will help the Campaign shape its engagement with this pivotal stakeholder group.
Client Protection Universally Important But Not Uniformly Applied
All the investors interviewed stated that client protection was important to them from both a social perspective and for their bottom line. Most had seen first-hand the positive influence from strong client protection practices as well as the problems and instability that sprang up in their absence. Such universal recognition is an encouraging step forward from earlier days of the Campaign. In addition to understanding the importance of client protection, nearly all respondents said that client protection was already explicitly incorporated into due diligence. Investors are indeed scrutinizing a microfinance institution’s client protection practices before investing in it.
> Posted by Center Staff
After eight programs spanning over 500 participants from roughly 100 countries, we are proud to announce that the annual executive education program jointly run by Harvard Business School (HBS) and Accion is now accepting applications for 2014. The program will take place April 21-26, 2014 at the HBS campus in Cambridge, Massachusetts.
This year, the program has a new name. It is now the HBS-Accion Program on Strategic Leadership in Inclusive Finance. This name change confirms a shift in course focus and approach that has been underway for some time, from an exclusive focus on microfinance to a broader financial inclusion scope.
Today’s financial inclusion landscape is changing rapidly, as new entrants, disruptive business models, and deeper understanding of client needs all challenge conventional wisdom. It is an exciting time, with new possibilities for reaching more people with an increasing array of financial services. For leaders steering their organizations through this landscape, the pace and magnitude of change may look overwhelming. In this program senior financial service providers will benefit from the guidance of some of the world’s best business minds to better understand the possibilities and the pitfalls of a more complex financial services marketplace. Policymakers, regulators, and investors will find it valuable to get a closer look at how the industry is evolving in countries around the world.
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
The findings in the Study of Client Protection Practices in Latin America and the Caribbean (LAC), a new report from the Smart Campaign, are intended to help microfinance stakeholders reflect on the current state of practice among institutions in LAC and on how performance gaps can be addressed.
Over the past two years, the Smart Campaign conducted a study on the client protection practices of twelve Latin American microfinance institutions, examining their implementation of the Client Protection Principles. The study looked at an assortment of organizations such as NGOs, banks, and credit unions in different countries, analyzing their client protection performance from the point of view of practitioners, and offering recommendations to improve their client protection practices.
Overall, the MFIs studied in the report performed well in the principles of Preventing Over-Indebtedness, Responsible Pricing, and Ethical Staff Behavior, but there was (sometimes significant) room for improvement in the principles of Transparency, Appropriate Collections, and Mechanisms for Complaint Resolution. The report revealed that client protection performance is not easily generalized, and that it’s often essential that particular client protection areas be improved if clients are to be served responsibly.
Bob Annibale, Global Director, Citi Community Development and Microfinance, shares his views on the lead up to the FI2020 Global Forum, as well as reflecting upon the panel discussion ‘Global Trends & Emerging Markets’.
Please share with us Citi’s perspective on the lead up to this Global Forum
What led us to this point is a convergence of a number of organizations that have been working together originally on traditional microfinance. As that grew, some of the original microfinance institutions became banks, cooperatives, credit unions, and other players that were trying to work on some similar issues with the same communities. In other words, it was a bigger discussion.
We then found other players like mobile operators and the card companies becoming interested in financial inclusion, or becoming interested in businesses that will probably expand financial inclusion. They didn’t come at it with a goal of financial inclusion necessarily, but the work that they’re doing is leading towards that.
So, we realized we needed to convene a wider range of organizations than we had before. And that was the discussion that led us with Accion and CFI to come up with a goal for financial inclusion. With the goal of 2020, it’s hopefully far enough off for us to do something, but it’s not so far off that it seems a pipedream. With the belief that there can be exponential growth using new technology and a much wider range of institutions, it has become an ambitious target for financial inclusion.
Emerging markets and banks
I don’t think that many of the banks that are not already in emerging economy/developing countries are suddenly going to become active. We don’t see new banks or international banks in Dhaka or Chittagong or in Hanoi or Kinshasa. And it is an awareness among local banks too that there is probably another way other than the old model of the bricks and mortars branches to expand access. Read the rest of this entry »