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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 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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> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI

Tomorrow, people around the world will celebrate International Women’s Day. In honor of the day, and the tremendous impact that financial services can have for women, we’d like to highlight some of the top resources from the past year that focus on financial inclusion of women. Though there are many great resources out there, below are a few that have caught our attention.

1. Findex Notes: Women and Financial Inclusion

Drawing from the Global Findex Database, the World Bank and the Bill and Melinda Gates Foundation created a briefing on the state of women’s access to and use of financial services globally. It’s a concise snapshot of financial inclusion data on women. It highlights gaps that persist for women, as compared to men, globally and across regions. It looks at variations in account ownership for savings and credit, as well as barriers to usage identified by women. And if you’re looking for more, I suggest exploring the Findex database or the CFI Data Explorer and conducting your own analyses!

2. Promoting Women’s Financial Inclusion: A Toolkit

DFID and GIZ on behalf of the German Federal Ministry for Economic Cooperation and Development prepared a toolkit aimed at policymakers, donors, and NGOs who want to learn how to design and implement programs to enhance the financial inclusion of women. It provides insight into factors that contribute to financial exclusion of women and offers recommendations to address access barriers. In addition, the toolkit provides methods for client segmentation as well as several illustrative case studies. Rather than suggesting focusing on women exclusively, the toolkit also recommends understanding the distinct needs of men.

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> 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.

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> 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.

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> 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.

Need help? (Braille translation)

Need help? (Braille translation)

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!

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> 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.

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> Posted by Jaclyn Berfond, Senior Associate, Network Engagement, Women’s World Banking

Women have long been the face of microfinance, a fact reflected by the mission and goals of the institutions that serve them. According to the Microfinance Information Exchange (MIX), most microfinance institutions (MFIs) claim to target women (74 percent) and just over half declare women’s empowerment or gender equality as an objective.

Big commitments are all well and good, but if we are going to espouse the importance of serving low-income women, we must be able to hold ourselves accountable. How do we do that?

For many years now, the microfinance industry has focused on financial performance, with sustainability and later profitability driving outreach. In the wake of crisis – often the consequence of rapid growth – the industry has re-focused on social performance, getting back to the basics of ensuring that financial institutions adhere to their mission of serving low-income clients. We strongly believe that there must be a balance between financial and social performance, and that in order to achieve either, the industry must take a good look at their clients – still predominantly women. By truly analyzing this client base, MFIs can both build the business case for serving women, and ensure that they are serving these women well. This is gender performance.

In 2011, Women’s World Banking launched the Gender Performance Initiative (GPI) to develop a framework that defines what it means to serve women and measures how effectively MFIs do so. We wanted to establish a set of indicators that would enable MFIs to consider not only how many women they serve, but how they can enhance their understanding of customers to tailor products, marketing strategies and delivery channels to meet women’s needs. The initiative also set out to demonstrate the benefits of financial inclusion for women and their households, as well as the benefits of gender diversity among staff, management, and board.

Developing the indicators. There is no easy place to start when it comes to measuring performance, and we wanted to be sure that the metrics we chose would truly tell us whether an institution was serving women well. First and foremost, we needed to start with the right questions, in the areas that matter most to women. Beyond outreach, we looked at product design and diversity, service quality, and client protection, as women have specific life-cycle needs and goals that must be considered. For example, women may need a convenient and confidential way to save for children’s education expenses, or an insurance product that offers cash benefits for hospitalization to cover lost income from time away from their business (and includes maternal health coverage). We also looked at the diversity of staff and management, because we believe that in order to be the best place for women customers, a microfinance institution should be a place that welcomes women employees and women leaders. Finally, we wanted to understand how serving women clients contributes to institutional financial sustainability, as well as outcomes for clients.

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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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