> Posted by Center Staff

Over the past year, financial inclusion leaders and advocates have bolstered airtime for banking the unbanked. In August, The Guardian launched a hub for financial inclusion content. In recent months, The New York Times produced an extensive reporting series on the consumer ills of the U.S. subprime auto loan market. In January, U.S. President Obama publicly commended and partnered with India in its robust inclusion efforts. Also in January, Bill Gates spoke about mobile money on The Tonight Show Starring Jimmy Fallon. Today, The Wall Street Journal added its considerable weight with the launch of Multipliers of Prosperity, a micro-site sponsored by MetLife Foundation that explores the challenges faced in advancing financial inclusion.

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> 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.

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> Posted by Jami Solli, Independent Consultant and Founder of the Global Alliance for Legal Aid

As we acknowledge World Consumer Rights Day, celebrated on March 15th each year, recent news from South Africa on over-indebtedness reminded us of the findings from the What Happens to Microfinance Clients Who Default? project. The South African Human Rights Commission (SAHRC) just reported that 50 percent of the country’s credit-active population is debt-impaired (meaning they are more than three months behind on bills and/or have a debt-related judgment), and another 15 percent of the population is debt-stressed (one to two months behind on bills). Essentially, more than half of South Africa’s population is over-indebted.

In reacting to this situation, the SAHRC has taken an approach drawn from a human rights-based framework. They have recognized freedom from oppressive, unsustainable debt levels is a human right. Similarly, in Greece, the birthplace of democracy, the government determined that under particular financial circumstances a fresh start is a human right. To address Greece’s growing problem of over-indebtedness, in 2010, Parliament passed a law which gives individuals the right to personal bankruptcy. The implementation of this legislation was also an attempt to harmonize the law with Article 5 of the Greek Constitution which protects citizens’ social and economic well-being. According to the new law, over-indebted individuals now have the possibility to restructure their debts, reducing both interest rates and total amounts owed. The prerequisite is that the individual’s inability to repay needs to be considered a permanent condition.

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> Posted by Center Staff

In over 100 countries around the world, central banks, stock markets, finance providers, NGOs, and others are coming together en masse this week and next to target the financial inclusion of one of the most underserved client segments: children and youth. Global Money Week (GMW), now in its fourth year, is an ambitious movement to raise awareness on the importance of youth inclusion and to empower our rising generation. Indeed, around the world only 38 percent of youth (ages 15-25) have some sort of account at a formal financial institution.

The theme of this year’s GMW is “Save today. Safe tomorrow.” Globally, savings rates among young people are dismally low. In high income countries, 42 percent of youth save in formal institutions. The next highest regions are East Asia and Pacific and sub-Saharan Africa, where youth savings rates are 19 and 9 percent, respectively. Why is this the case? On the consumer side, when asked, youth most often cite the same reasons adults most often cite: a lack of money and high account fees.

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

Often, we hold out hope that innovation will happen through the great leap forward, the stroke of luck, the miracle cure – and when one candidate fails, we go off in search of another.

There is justifiable concern that this yes-or-no approach hampers international development. A recent article in the New Republic listed “big ideas” in international development that failed – not because they were bad, but because they were big. The article describes a $15 million-plus project to install thousands of water pumps attached to merry-go-rounds in sub-Saharan Africa, as well as Jeffrey Sachs’s Millennium Villages which sought to overhaul entire villages by building housing, schools, clinics, roads, and other key infrastructure. In these and the article’s other cases, with expectations high and money and attention flowing in, the projects sank, often because they outgrew the scale at which they had proven to work. Yet some of a project’s apparent lack of success may simply come down to the measurement you’re using. Many of the world’s most successful development efforts – deworming campaigns, for example – only improve the average life in tiny increments.

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> Posted by Amitabh Brar and Paul DiLeo, Investment Manager and President, Grassroots Capital Management

A rare, behind-the-scenes look

Performance data on private equity funds is not easy to collect, and privately-held microfinance investment vehicles (MIVs) are no exception. Much less is known about the investment process within these MIVs, and how the three main elements of their governance — board, investment committee, and fund manager — interact to create value within these funds. A new Calmeadow study written by Grassroots Capital Management shines light on the elusive subject of governance inside a pioneer equity fund, AfriCap. The study, sponsored by a group of AfriCap investors, evaluates strategy setting and resetting, investment decisions, and portfolio management from the standpoint of the prime movers governing the fund: the board and its committees.

About AfriCap

After three years of planning, AfriCap was launched in 2001 with $13 million to invest in support of commercial microfinance in Africa. The sponsors were inspired by the accomplishments of Latin America’s Profund, then in its sixth year, and indeed many of AfriCap’s investors had collaborated earlier on Profund. Fund investments were complemented with a $3 million technical assistance (TA) grant facility to strengthen investees’ capacity. AfriCap saw some spectacular early successes. Some of its investees are today well-recognized financial institutions, including Equity Bank (Kenya) and Socremo (Mozambique), among others. These early results led to increased investor interest and in 2007 new investors joined, tripling AfriCap’s capital to $42 million. The TA pool was boosted to $11 million. In addition, the decision was taken to transform the closed-end fund into a permanent investment company, and the manager into an African-owned and run management company with the ability to manage multiple funds

Yet, notwithstanding AfriCap’s early successes, the fund failed to recover investment costs in 12 out of 21 investments, and there were several write-offs. The fund ended up delivering only modest financial returns to its investors, and the results were especially disappointing for new investors who joined at the time of recapitalization. In 2013 the board approved a plan to liquidate the fund and return unused capital to the investors, reversing an earlier decision to run AfriCap as a permanent company.

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> Posted by Anton Simanowitz and Katherine E. Knotts

“Customer centricity” is the new buzz in the microfinance industry. More and more financial service providers are recognizing that their success is built on the success of their clients. Customer centricity certainly means recognizing that financial inclusion is not just about more services – it’s about better services. To achieve this, financial service providers need to grapple with the complexity of clients’ financial lives, understand what appropriate design looks like, and empower clients to use those services effectively.

But is it always a “win-win”? What if clients express preferences and make choices that are not in their long-term best interests – that is, what happens when what clients need isn’t what they might want or demand? And what if responding to client needs in the most appropriate way appears to be a riskier decision from the point of view of institutional financial performance?

These tension points (and some quite radical decisions in the face of them) can be seen in the work of AMK Cambodia, highlighted in a new book The Business of Doing Good. Witness a conversation we had with a senior manager. “We will never be a leader in client service,” he proudly announced. In the competitive Cambodian market, rapid disbursement of loans that meet customer demand is an important competitive advantage. Yet AMK accepts that its own loan disbursement is slower and more time-consuming for clients, and its loan sizes are much smaller than those of its competitors. Coming from an organization that is proudly “client focused”, this statement struck an odd note.

AMK, serving more than 360,000 people, is now the largest Cambodian MFI in terms of outreach. How can an MFI that invests heavily in understanding and responding to the needs of its clients be “less customer friendly” than others? The simple answer is that a market-led solution (responding to what clients want and are prepared to pay for) might look different from responding to what clients need in order to address the underlying complexities of their lives (i.e. poverty and vulnerability).

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> Posted by Center Staff

Happy International Women’s Day! We hope you were able to partake in the worldwide celebration yesterday. If you missed out on the action, not to fear. Plenty of activities are still underway. And of course, acknowledging the achievements of women and advancing the movement for gender equality are practices best executed every day.

To spotlight the importance of financial inclusion for women, here’s a snapshot of recent research in this area. To follow are ways that you can join groups, including the United Nations and Grameen Foundation in getting involved.

In honor of International Women’s Day, last week Gallup shared global statistics on how women view their lives – graded on a 10-point scale from suffering to struggling to thriving. About a quarter of all women questioned view themselves as thriving, while the rest chose either struggling or suffering. The two areas cited most often as important for improving their lives were jobs and personal safety. While the latter is a shocking finding, this post starts with jobs, though ultimately we will see connections to personal safety as well. Global estimates pin men as almost twice as likely as women to be in full-time formal employment. In Mexico, for example, less than 50 percent of women are part of the labor force, compared to 85 percent of men.

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> Posted by Sonja Kelly, Fellow, CFI

When I started my doctoral research on financial inclusion policy and regulation, I was secretly thinking, “Surely this cannot be too complicated—it’s just the regulator directing financial institutions to make services available for excluded people.” Now, five years into my PhD, I’ve finally admitted what I should have known from the beginning: regulation of financial services providers is almost impossibly complex, and making sense of financial inclusion policy and regulation requires a great deal of creativity, especially given all of the different factors that supervisors have to consider beyond prudential supervision.

Prudential banking supervisor’s responsibilities beyond prudential supervision (percent of respondents)

A new publication on the range of regulatory issues that affect financial inclusion confirms this. Supervised by the Basel Consultative Group and researched by CGAP (in full disclosure, I was a part of the team), the publication describes the regulatory approaches to financial inclusion in 59 jurisdictions from all world regions.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

Coinciding with this week’s Mobile World Congress in Barcelona, GSMA’s Mobile Money for the Unbanked (MMU) program released its fourth annual ‘State of the Industry Report on Mobile Financial Services.’ I talked with Jennifer Frydrych, Insights Coordinator for the MMU program and one of the authors on the report, about the project’s findings. The conversation touched on new markets, shifts in the mobile payments mix, successes with products beyond payments, the main hurdles facing mobile money ecosystems, and more.

1. The mobile money industry has grown rapidly in recent years. Can you bring us up to date with some of the growth figures and dynamics?

In the past five years, mobile money services have spread across much of Africa, Asia, Latin America, and the Middle East. At the end of 2014, there were 255 live mobile money services across 89 markets, 36 more than in 2013. Mobile money is now available in 61 percent of developing markets globally. In terms of adoption and usage growth, 75 million additional mobile money accounts were opened globally in 2014, bringing the total number of registered accounts to 299 million. Importantly, account activity increased faster than account registration in 2014, and the total number of active mobile money accounts is now 103 million (up from 73 million in 2013). An increasing number of services are reaching scale: 21 services now have more than one million active accounts.

2. As of the last State of the Industry report, half of all live mobile money deployments were in sub-Saharan Africa. How has this distribution changed? What were some new or emerging markets of the past year?

There were 22 new services launches in 2014, of which half occurred in sub-Saharan Africa. The mobile money industry in sub-Saharan Africa continues to grow, and the region still accounts for just over half of all live services globally, and 60 percent of all active accounts. Much of this success can be attributed to East Africa; however we are now seeing exciting growth in mobile money uptake and active usage in West Africa.

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