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The Risk Management Graduation Model: Deriving Value through an Appropriate Approach to Microfinance Risk Management
August 12, 2015 in Center for Financial Inclusion, Client Focus, Financial Inclusion, Microfinance, Resources, Running with Risk, Social Performance | Tags: Microfinance, Risk Management, Risk Management Graduation Model, Risk Management Iniative in Microfinance | by Center for Financial Inclusion | Leave a comment
> Posted by Kevin Fryatt, Director, Risk management Initiative in Microfinance (RIM)
“We do not engage in risk management because our CEO tells us that every department should be a profit center.” “Risk management seems useful, but how can we afford to pay for it?” Such industry sentiments have been the norm, I’ve found, in my work at the Risk management Initiative in Microfinance (RIM). These statements and many others like them reflect the reality that the value of risk management and its role within microfinance institutions (MFIs) have not yet fully been realized. As the microfinance industry matures and reaching scale through growth continues to drive the strategies of inclusive financial service providers, ways to create sustained value for their clients and shareholders will be increasingly sought after and explored. Finding ways to create sustained value, however, can often be challenging.
Risk management, if carried out effectively, is one important aspect in creating sustained value. Well-executed risk management derives organizational value by ensuring decision-making is carried out within an agreed-upon acceptable level of risk, ultimately providing greater certainty about returns against double-bottom line objectives through reducing volatility of net income and strengthening its ability to meet necessary social returns. For example, decisions on the acceptable amount of credit risk to accept may impact the amount of future financial losses an institution may suffer (financial return) while potentially impacting the type of clients it is able to serve (social return). If risk management has such a high potential to create sustained value, what then has been standing in the way of MFIs effectively implementing it to date?
Many factors explain the challenges in realizing the full value risk management can provide, and much of which point back to the lack of an appropriate risk management framework. Consider the following key framework characteristics:
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June 26, 2015 in Center for Financial Inclusion, Client Focus, Financial Inclusion 2020, Microfinance, Resources, Social Performance, Technology | Tags: AMK, Cambodia, Client-centricity, FI2020, Financial Inclusion 2020, Microcredit Summit Campaign, Microfinance, Podcast, The Business of Doing Good | by Center for Financial Inclusion | Leave a comment
> Posted by Center Staff
Larry Reed, director of the Microcredit Summit Campaign, recently sat down with Susy Cheston, senior advisor to FI2020, and Anton Simanowitz, co-author of the new book The Business of Doing Good, to discuss how organizations can do good work and turn a profit, particularly in the microfinance sector.
In exploring this question, Simanowitz draws on key insights from the new book, in which he and co-author Katherine Knotts studied the success of AMK, a social enterprise which has touched the lives of millions of people living in poverty in rural Cambodia. This study revealed six powerful strategies to improve business to do good:
- Don’t just offer products; respond to client needs
- Ask good questions and have good conversations
- Do what it says on the tin
- Motivate staff to do difficult work in an excellent way
- Own the dirt road
- Adapt to the changing landscape
Find out more about the thinking behind these insights, here.
In the latter half of the book, the authors explore the disconnect between theory and practice and the resulting implications for client value. AMK’s success is largely attributed to its recognition of the distinction between client wants and client needs, which are rooted in the meaningful conversations the organization has with its clients. The authors observe, through their exploration of AMK, that vision is ensured only when it follows intent, instead of being constrained by conventional wisdom.
May 26, 2015 in Center for Financial Inclusion, Client Focus, Client Protection, Financial Inclusion, Financial Inclusion 2020, Financial Inclusion for Persons with Disabilities, Microfinance, Savings, Social Performance | Tags: Association of Microfinance Institutions in Uganda (AMFIU), Credit, Disability Inclusion, Microfinance, National Union of Disabled Persons of Uganda (NUDIPU), Persons with Disabilities, Uganda | by Center for Financial Inclusion | Leave a comment
> Posted by Debashis Sarker, Centre for European Research in Microfinance (CERMi) and University of Mons, Belgium
With estimates indicating that less than 1 percent of microfinance clients around the world are persons with disabilities (PwDs), it’s clear that sizable barriers exist to the financial inclusion of this largely unbanked population segment. One such barrier is discrimination on the part of microfinance institutions. Two features of microfinance lending make it especially hard to reach definitive statistical estimates of discrimination. One is the complex stages of the microfinance lending process. The second is the self-reinforcing cycle of exclusion that results from the legacies of discriminating microcredit organizations.
A pilot project conducted in Uganda in partnership with the Association of Microfinance Institutions in Uganda (AMFIU) and the National Union of Disabled Persons of Uganda (NUDIPU) demonstrates the discrimination that often occurs in microfinance practices. The project worked with AMFIU microfinance institutions, applying interventions to combat practices discriminatory to PwDs. Along with addressing PwD exclusion by microfinance staff, the initiatives targeted exclusion by other microfinance clients, low self-esteem, product design, and informational and physical barriers. In two years, since the sensitization and accessibility efforts began, attitudes of MFI staff towards PwDs improved and, across eight queried MFI branches, there was an average 96 percent per MFI increase in clients with disabilities. Another study, also based in Uganda with AMFIU and NUDIPU, examined biases against PwDs across different MFI staff. Surveying eight MFIs between 2008 and 2009, staff were asked questions on aspects including risk of loan default among PwD clients. The responses of credit officers indicated they were more biased against PwDs than other MFI staff.
Given these findings, what measures can be taken to combat this?
April 15, 2015 in Center for Financial Inclusion, Client Focus, Microfinance, Microfinance CEO Working Group, Social Performance, Women and Financial Inclusion | Tags: Data, Education, Freedom From Hunger, Health, Microcredit, Microcredit Summit Campaign, Microfinance, Microfinance CEO Working Group, Outcomes Indicators, Randomized Control Trials, RCTs, SEEP, Social Performance Task Force, The Microfinance Genome, Women's Empowerment | by Center for Financial Inclusion | Leave a comment
> 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.
March 26, 2015 in Center for Financial Inclusion, Client Focus, Client Protection, Microfinance, Smart Campaign, Social Performance, Women and Financial Inclusion | Tags: Client Protection Principles, Kashf Foundation, Microfinance, Pakistan, Pakistan Microfinance Network, Smart Assessments, Smart Certification, The Smart Campaign | by Center for Financial Inclusion | Leave a comment
> Posted by Khadija Ali, Social Analyst, Pakistan Microfinance Network
The Pakistan Microfinance Network (PMN) – a national association of over 50 microfinance providers (MFPs) – has supported its members in conducting third-party client protection assessments using the Smart Campaign’s Smart Assessment tool. To date, 18 assessments have been conducted, covering over 60 percent of the market in terms of overall outreach to active borrowers. These assessments have been made possible with funding support from the State Bank of Pakistan (SBP) through the UK Aid-sponsored Financial Inclusion Program (FIP). The assessments provide a unique opportunity for PMN to observe the state of practice in client protection among member MFPs. For participating MFPs, the assessments provide an opportunity to evaluate their practices in comparison with globally accepted standards of client protection, and seek recommendations for institutional improvements to better comply with the standards. They also indicate whether an institution is ready to pursue Smart Certification, a designation recognized across the global market that an institution successfully integrates the Client Protection Principles into their practices. After undergoing an assessment and acting on its results, Kashf Foundation (KF) recently became the first microfinance institution in Pakistan to achieve Smart Certification.
The Pakistan Microfinance Network, a strategic partner of the Smart Campaign, sat down with Roshaneh Zafar, Managing Director of Kashf Foundation, to talk about the certification experience.
March 20, 2015 in Center for Financial Inclusion, Client Focus, Microfinance, Microfinance CEO Working Group, Social Performance, Technology | Tags: Alex Counts, David Roorman, Grameen Foundation, Microcredit, Microfinance, Microfinance CEO Working Group, Women's World Banking | by Center for Financial Inclusion | 3 comments
> 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?
March 17, 2015 in Center for Financial Inclusion, Client Focus, Client Protection, Microfinance, Microfinance CEO Working Group, Social Performance | Tags: Accion, Client Protection, Mary Ellen Iskenderian, MFTransparency, Michael Schlein, Microfinance, Microfinance CEO Working Group, Social Performance, Transparency, Women's World Banking | by Center for Financial Inclusion | 20 comments
> 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.
February 6, 2015 in Branchless Banking, Center for Financial Inclusion, Client Focus, Financial Inclusion, Financial Inclusion for Persons with Disabilities, Mapping the Invisible Market, Microfinance, Policy, Savings, Smart Campaign, Social Performance, Technology, Youth and Financial Inclusion | Tags: Credit, Dean Karlan, Disability Inclusion, FINCA, For-Profits, Freedom From Hunger, Government Regulation, Health, Microcredit, Microfinance, Non-Profits, Policy, Rupert Scofield, Savings Groups, Self-Regulation, Smart Certification, Stanford Social Innovation Review, The Guardian, The Smart Campaign, Truelift, Universal Standards for Social Performance Management, Youth Inclusion | by Center for Financial Inclusion | 1 comment
> Posted by Bobbi Gray, Research and Evaluation Specialist, and Kathleen Stack, Vice President, Programs, Freedom from Hunger
Recently, Dean Karlan published an article in the Stanford Social Innovation Review titled “The Next Stage of Financial Inclusion.” The key points of his article are that while non-profits led the way in developing microcredit for the poor and started the movement for financial inclusion, for-profit companies have increasingly found it worth their while to offer financial services for the base of the pyramid. The entrance of new players to the market, Karlan offers, is a testament to the success of the early microfinance-focused non-profits. However, Karlan suggests that non-profits still have an important role in continuing to innovate in the financial services space. We agree. This is particularly true for extending financial services to people that banks still consider unprofitable: “the too rural, the too poor and the too young.” We would add disabled populations and the “too old.”
February 5, 2015 in Center for Financial Inclusion, Client Focus, Financial Inclusion, Microfinance, Microfinance CEO Working Group, Savings, Social Performance | Tags: Bosnia, Ethiopia, India, Insurance, Mexico, Microcredit, Microfinance CEO Working Group, Mongolia, Morocco, Poverty Reduction, Randomized Control Trials, Savings | by Center for Financial Inclusion | 1 comment
> Posted by the Microfinance CEO Working Group
The following post was originally published on the Microfinance CEO Working Group blog.
The American Economic Journal has published an issue dedicated to six new studies measuring the impact of microcredit. Through a series of randomized control trials (RCTs), researchers have identified some of the effects of expanded access to microcredit on borrowers and communities in Bosnia, Ethiopia, India, Mexico, Mongolia, and Morocco.
The researchers reported evidence of positive impacts of microcredit on occupational choice, business scale, consumption choice, female decision power, and improved risk management, but did not report clear evidence of reduction in poverty or substantial improvements in living standards. “These results,” conclude the authors, “suggest that although microcredit may not be transformative in the sense of lifting people or communities out of poverty, it does afford people more freedom in their choices… and the possibility of being self-reliant.”
Truelift’s Progress and Future in Pursuit of Transparency and Accountability in Poverty Alleviation Efforts
January 21, 2015 in Center for Financial Inclusion, Client Focus, Microfinance, Resources, Social Performance | Tags: Microcredit Summit Campaign, MIX Market, Poverty Alleviation, Pro-Poor Performance, Pro-Poor Principles, RESULTS Educational Fund, Transparency, Truelift, Truelift Indicators Tool | by Center for Financial Inclusion | Leave a comment
> Posted by the Steering Committee of Truelift
Institutions built upon a promise of poverty alleviation must be motivated and supported to make good on that promise. This continues to be the goal and promise of Truelift, even as we depend more than ever on volunteer leadership and support for Truelift’s journey toward greater transparency and accountability in pro-poor development. Before looking to the future, let’s review where we’ve been.
Among the diverse, and mostly complementary, objectives sought by financial inclusion and social enterprise efforts, poverty alleviation has been by far the most important and the most widely adopted objective, whether in the minds of practitioners, supporters, or the general public. Yet this objective challenges our collective ability to be clear about our intended destination and to show that we are on the right path toward it. It is even more difficult to show how far along this path we have come and how far we have yet to go. How do we motivate and support transparency and accountability for practitioners who claim to pursue poverty alleviation and for those who support them?