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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.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Accurately assessing financial inclusion levels is fundamental for guiding inclusion efforts, but doing so on a large scale remains an issue, in spite of a growing supply of data and resources. A new composite index from the International Monetary Fund aims to change this. The new tool incorporates multiple inclusion dimensions and advanced methodologies, creating the ability to generate easily comparable inclusion calculations at the country, region, income, or even operational level.
The new index addresses criticisms of previous financial inclusion indices, particularly the inability to accurately incorporate multiple financial inclusion dimensions into one tool. The index was built using data from IMF’s Financial Access Survey and from the World Bank’s World Development Indicators dataset. Released late last month, along with the tool, the IMF published the results of running the index using the country information included in IMF’s dataset for 2009 to 2012.
The index is based on a definition of financial inclusion that incorporates the dimensions of outreach, usage, and quality of financial services. To capture outreach, the index employs the variables of number of ATMs and financial institutions per landmass or adult population. According to the World Bank Global Findex, out of the 2.5 billion people who are excluded from formal financial services, 20 percent cite physical distance from the point of service as the main reason for not having an account. For usage, the index incorporates the variables of percentage of adults with at least one type of regulated deposit account, and percentage of adults with at least one type of regulated loan account. Although the IMF recognizes services quality as cornerstone to inclusion, they indicate there is not yet ample data to enable its incorporation in the index. However, expanding the index in future iterations to include quality is indicated as a possibility.
> 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.
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.
> Posted by Jeffrey Riecke, Communications Associate, CFI
In South Africa, where fewer than 20 percent of people have medical insurance, the alternative product of hospital cash plans (HCPs) is becoming increasingly popular, but it remains to be seen where within the country’s shifting healthcare landscape HCPs will settle, and what HCP products will look like as they mature. There are currently 2.4 million people covered by HCPs in South Africa and this number is growing by 50,000 each month.
As their name might suggest, hospital cash plans don’t offer comprehensive healthcare, but instead offer cash payouts at the time of hospitalization. Payouts depend on the premiums customers pay, which means that not all medical treatment can be fully covered. However, with HCPs rising popularity and the poor state of South Africa’s health system (the country was ranked 175 out of 191 in a WHO assessment of country-level health system performance), this product area deserves thorough attention, and a few recent reports from Finmark Trust offer just that.
But first, a few basics on HCPs. Premiums paid for HCPs are determined by the individual’s age and desired level of coverage. Their cash payout at the time of hospitalization is determined by the level of coverage and the number of days spent in the hospital. In some cases the type of medical treatment received affects payout, too. Though as payout is most often determined just by days in the hospital, not the cost of care, insurers typically don’t monitor how the financial support is spent. This allows policyholders to use the money for other expenses that come up during illnesses, like getting to hospital, and to substitute for income lost due to missed work. HCPs are aimed mainly at users of public health services. Only the wealthiest 20 percent of South Africans use private services, and they are more likely to be the users of traditional medical insurance. There are currently between 30 and 40 insurers offering HCPs and about 100 offering traditional healthcare.
> Posted by Daniel Rozas, Independent Consultant
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.
When you think about responsible investing, what comes to mind? Finding investment prospects that can deliver social returns? Perhaps diligent monitoring, with an eye to effective governance? How about when you sell an investment? How can investors remain committed to balanced social and financial goals when passing the baton to someone else?
This last question is the focus of a joint project by the Center for Financial Inclusion and CGAP. With several microfinance equity funds approaching maturity, the issue of equity sales is becoming more relevant, and as part of the project, the team has been interviewing many equity investors to understand how they perceive the question of what, exactly, is a responsible exit? A paper detailing the findings of these interviews, The Art of the Responsible Exit in Microfinance Equity Sales, will be released in the coming weeks.
In the course of these interviews, many respondents used the analogy of children growing up. As early-stage or founding investors, they reach a certain point where they have fulfilled their “parental” mission and are no longer best-positioned to provide the MFI what it needs, be it capital, expertise, or market access. From the investor’s perspective, the analogy works. But selling an MFI is less an act of entrusting your child’s future to his or her own good sense, along with whatever wisdom you’ve been able to impart – you are handing the MFI over to somebody else.
> Posted by Fernando Botelho, Founder, F123 Consulting
Microfinance institutions (MFIs) may not be aware of tools and resources at their disposal that can make it easier for them to work with persons with disabilities (PWDs) as clients or staff. A new tool launched a few weeks ago attempts to close this gap, “Inclusion of Persons with Disabilities in Microfinance through Organizational Learning and the Strategic Use of Low-Cost Technologies.” This tool is part of the Framework for Disability Inclusion toolkit produced by CFI through work with Fundación Paraguaya and others.
The new tool provides concrete guidance for selecting appropriate technologies, forming partnerships with disability-related organizations, and incorporating disability inclusion throughout an organization. It was developed by myself and my organization, F123 Consulting, inspired by our work with the staff of Fundación Paraguaya, to make their organization more disability inclusive.
For example, free and open source assistive technologies can be used by organizations that have an interest in ensuring that operational and financial viability are maintained. In that regard, it’s important to take advantage of the many available low-cost, high performing technologies, and to adapt instead of replace existing processes whenever possible. Managers don’t have to roll their eyes and fret about cost. Small modifications to already existing systems can often make MFIs accessible to staff and clients with disabilities. And the best part is that some of these modifications are free!
> Posted by Jeffrey Riecke, Communications Assistant, CFI
What’s the state of funding for financial inclusion initiatives? CGAP’s survey of international funders found that total contributions globally are increasing, more money is coming from public not private funders, funding is extending beyond microfinance to other areas of financial inclusion, and Sub-Saharan Africa (SSA) is increasingly a priority region.
The 2012 CGAP Cross-Border Funder Survey, an annual effort since 2008, surveyed 22 international funders representing 86 percent of the financial inclusion commitments reported for 2012 (a full list of the funders can be found here). The survey, supplemented by data from Symbiotics MIV Surveys, revealed that funders committed $29 billion in 2012, a 12 percent increase over 2011. CGAP indicates that this change stems largely from an improved global economy. This increase might also result from changes to this year’s survey methodology, which, to align with the changing financial services landscape, captures funding activity in a number of additional financial inclusion areas. These areas include financing for small-enterprises and client-level projects, such as financial capability projects.
As was the case in recent years, most funding for financial inclusion initiatives goes toward portfolio financing for retail financial service providers (FSPs). This figure reached $14.8 billion in 2012, representing 78 percent of the year’s commitments. The remaining commitments are in the following areas, all in roughly equal volume: designing suitable products and services, institutional operations, management and governance, and responsible practices. Small levels of support go to policy and market infrastructure. Survey responses indicate that funders identify lack of a suitable range of products and services and limited institutional capacity of FSPs as the major roadblocks to inclusion. In 2012, 10 percent of total funding went towards strengthening FSPs’ institutional capacity.