You are currently browsing the tag archive for the ‘Microfinance’ tag.

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

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

“Know your client” is a popular phrase in conversations about financial inclusion and business in general. But where does such knowledge come from? Does it end with your client’s expressed needs and desires? Can it also incorporate behavioral research insights or consumer protections that the client may not even demand?

Shawn Cole of Harvard Business School opened the second day of “Rethinking Financial Inclusion” – a one-week program offered by Harvard Kennedy School Executive Education – with a question all providers might ask themselves when modifying existing products or developing new ones: “If you were the customer, would you go for that deal?”

Cole pointed out that products meant to “bank the unbanked” (i.e., first-time users) must be designed differently from products meant to tempt new customers away from competitors. He described the experience of First National Bank of South Africa in responding to government calls to encourage savings among the poor and draw black South Africans into the predominantly white formal banking sector. First National Bank decided to offer a lottery with large prizes to new depositors.

In debating whether a lottery would attract customers, participants cited examples from their own work, such as a mobile money account offering free insurance to savers who maintain a sufficient balance in their accounts. Recognizing that the poor are already saving, informally, the challenge is to develop products that draw them into the formal sector safely and responsibly. Another provider warned against complicated offers. “Structured products can be very esoteric.”

The concerns participants voiced fell into two categories: ones that apply to anyone (e.g. for nearly everyone a flashy new product loses its luster after the third page of terms and conditions), and ones that are specific to the poor (e.g. how do you draw people into banking, when even walking into the building itself is intimidating?). Both sets of concerns underline the need for financial capability development and customer-centered product innovation. The potential interest in formal financial products may be there, but uptake is obstructed by consumers’ lack of confidence, or poor understanding of the products’ components, or inability to surmount intimidating “barriers to entry” such as small print. Read the rest of this entry »

> Posted by Elisabeth Rhyne, Managing Director, CFI

I was recently asked to give a talk at the University of Pennsylvania’s 8th (!) annual Microfinance Conference. This year’s theme, “Microfinance Beyond Its Roots” set me in search of ways in which the microfinance industry is moving into areas beyond its original microcredit core. Of course, this process has been going on for a long time, and so there are many topics to choose from.

I decided to look at health care, partly because, as every staff member of a microfinance institution knows, health setbacks are one of the most frequent sources of repayment problems among low income clients. As they learned about the health vulnerabilities of their clients, microfinance organizations began to invest in experiments, bringing their businesslike approach to bear on a challenge that is often dealt with in heavily subsidized, non-market ways. Today, many of these programs have matured and grown, even as new ideas are being tested.

I looked among the organizations belonging to the Microfinance CEO Working Group, and I found that nearly all have something exciting going on in health care. Approaches include some combination of direct health care service provision, health insurance coverage, and education. Many are using technology as a means of reaching people at scale and low cost.

The meetings associated with group lending provide a convenient and cost-effective platform for health services, and adding a health component to group microcredit is probably the earliest and most widespread model. Health education was perhaps the starting point, as pioneered by Freedom from Hunger and also implemented by Opportunity International. Today the services often reach farther (while health education continues to be important). ProMujer, for example, directly employs nurses and other health practitioners to staff fixed and mobile clinics available to ProMujer members. They focus on maternal and reproductive health, as well as screening for the chronic diseases that are increasingly major health issues in Latin America. Hundreds of thousands of women get access to health care through ProMujer’s efforts.

Read the rest of this entry »

> Posted by Danielle Piskadlo and Jeffrey Riecke, Senior Program Specialist and Communications Associate, CFI

In Iraq and Afghanistan, about 23 and 35 percent of people live below the poverty line. Both countries have microfinance industries, though they’re small and financial inclusion rates are low. In the effort to combat these low levels of inclusion, an unlikely financial service player, the U.S. military, is using the principles of microfinance to optimize fund dispersal by local ground commanders in order to strengthen communities in conflict areas.

Charkh, Afghanistan

We recently become aware of this military effort when contacted by a group of West Point cadets interested in learning more about microfinance. In the conversation we learned that U.S. military ground commanders in Iraq and Afghanistan each receive about five thousand dollars a month to allocate as they see fit toward development projects in the local communities where they are posted. The money can go towards public roads, schools, medical clinics – projects contributing to community rebuilding and reconstruction. These allotments from ground commanders are part of the Commander’s Emergency Response Program (CERP) developed in 2008. Currently, ground commanders don’t have specific guidance on how they should allocate these funds so they often rely on suggestions from village elders, who the cadets recognized are sometimes biased and self-interested in the projects they recommend.

The cadets are therefore working to develop a portfolio optimization template – based on the principles of microfinance – to guide ground commanders on how to allocate their CERP funds as microgrants to help raise the standard of living within local communities. The project objective is to enable ground commanders to allocate their funds as loans to small-businesses, entrepreneurs, and individuals, facilitating income growth, economic development, and community strengthening. The template is modeled after microfinance practices because of similarities in distribution methods found between microcredit loans and the financial aid provided by ground commanders through CERP funds.

Read the rest of this entry »

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

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

On February 23, Rohini Pande opened classroom sessions of  “Rethinking Financial Inclusion” – a one-week program offered by Harvard Kennedy School Executive Education – by drawing a distinction between two models of change: the magic bullet and penicillin. The magic bullet is an unstoppable cure-all. It takes down whatever problem you set your sights on. Penicillin is the product of many cycles of experimentation, refinement, and the occasional stroke of luck. (Researchers found the best strand of the penicillin fungus on a moldy cantaloupe from an Illinois market.) Magic bullets solve problems in German folk tales, penicillin in the real world.

Pande spoke to a group of 45 participants – leaders of government ministries, MFIs, banks, and NGOs from 29 countries (click here for a breakdown). She said that the hope that microcredit could, by itself, lift very different poor populations out of poverty – a hope initially bolstered by quick spread and high repayment rates – appears to have included some magical thinking. Given microcredit’s disappointing performance according to metrics such as new business creation and development indicators, the challenge now is to put it through a penicillin-style process of trial, error, and re-trial – including testing its effects in combination with a broader range of products.

The penicillin metaphor allowed Pande to place early emphasis on the value of evidence-driven (re)design in policy, a theme that would be frequently revisited throughout the week. By citing the rising use of rigorous evaluations as a policy instrument, she turned the moral of the cautionary tale from a statement about microcredit specifically to a much more general maxim: “Don’t trust the quick and easy result.”

The other products that the “Rethinking Financial Inclusion” program promised to focus on, such as savings and insurance facilities and new payments mechanisms, must also be put through the same process of experimentation and evaluation, Pande said.

Read the rest of this entry »

> Posted by Sonja E. Kelly, Fellow, CFI

We live in an age of cash flow unpredictability. Here at CFI we’ve championed work like Portfolios of the Poor, which focuses on those at the base of the pyramid. But what about those who aren’t poor? Who is paying attention to the wealthy? Are they fully included?

A new product is now addressing an oft-neglected gap in the market. The product is a microfinance loan for those at the top of the pyramid who need credit while they wait for their yearly bonus to be approved by their company’s board or while they wait for a deal to go through in order to receive their golden parachute.

“I’m waiting for my $80 million golden parachute,” says CEO Robert McMillion, CEO of Lime Werner Cable since January 1 of this year. “In the meantime, I find that I don’t have the $700 for the weekly allowance that I give my daughter and son.” McMillion stands to receive $80 million if the company’s purchase by Cobcast Cable goes through and he steps down as CEO.

“I really am in a pinch,” says McMillion. “My daughter’s prom is coming up, and without money in her checking account, how can she go shopping? Similarly, my son was hoping to buy a new sports car, and without the cash, he will have to finance it at high interest rates. If I can avoid him having to do that, I will.”

McMillion does have a great deal of stock and has saved for retirement—one might say that he doesn’t have a problem on his hands. But his stock isn’t liquid, and if he were to take out the retirement money before he actually retires, he would have to pay high taxes on it.

McMillion is not alone. U.S.-based CEOs used to be able to count on their golden parachutes and high year-end bonuses. Now, under the Dodd-Frank Act, CEOs have to wait for full board approval in order to receive the money, and even then the amounts are slightly lower than in the past. Golden parachutes have gone from $30.2 million in 2011 to $29.9 million today (we are not making this up), and executives are under increasing PR pressure to reject or only take a portion of their bonuses when companies don’t do well.

Read the rest of this entry »

> 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.

Read the rest of this entry »

> Posted by Daniel Rozas, e-MFP

The following post was originally published on the e-MFP Blog.

For years, credit was the driving force behind microfinance. But times have changed. Instead of credit, we now speak of financial inclusion and expanding access to savings stands as one of the topmost objectives for the sector.

We also live in the age where it’s no longer acceptable to claim success without reliable metrics to back it. And on that front, the metrics applied to savings are woefully inadequate. According to a paper recently published by e-MFP, 50-75 percent of the savings accounts reported by MFIs stand empty. Like shadows cast by an evening light, the majority of savings clients are but illusions that obscure the real savers. We are thus doubly tricked – led to believe that more clients are saving than is the case, and that the clients who save are poorer than they really are.

This is both a problem and a symptom of a larger challenge. The problem is simply that we know surprisingly little about real savings outreach. Reporting the gross number of bank accounts and total deposits, whether for a single institution or an entire market, is a poor reflection of reality. As Elisabeth Rhyne put it succinctly: “possession of a bank account … should not be confused with genuine inclusion.” Yet that assumption lies behind most of the metrics used to report savings outreach.

In 2008, the microfinance sector in Bolivia, one of the case studies in our paper, reported 1.4 million savings accounts, with an average balance of $309. Bolivia is often regarded as one of the most mature microfinance markets, and the success of its savings outreach is one of the reasons why. However, our analysis shows that after excluding empty accounts, the actual outreach drops to some 366,000 active savers, with an average balance of $1,225. Instead of reaching millions of poor savers, Bolivian MFIs are serving a substantially smaller number of individuals, many of whom probably earn more than the MFIs’ traditional clients. Similar patterns show up at banks and credit unions. That’s the problematic outcome of how savings outreach is currently reported. Read the rest of this entry »

> 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.

Read the rest of this entry »

> 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.

Read the rest of this entry »

> Posted by Julie Fawn Earne, Senior Microfinance Specialist, IFC

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.

A good number of greenfield MFIs in Sub-Saharan Africa now have sufficient track records to enable an analysis of their institutional performance and role in the market. A stocktaking of their experiences to date can help inform decisions that will shape the coming generation of investment in African microfinance. Could this business model play a central role in increasing financial inclusion on the continent, where currently only about a quarter of adults have access to formal financial services?

But first, let’s start with the context. Financial services in Sub-Saharan Africa (SSA) are provided by a disparate group of relatively small providers. At one end of the spectrum are indigenous NGOs and informal microfinance providers. On the other end are commercial banks, which offer a full range of banking products and services but generally exclude the vast majority of the population. Between these two poles are cooperatives, government institutions, such as postal banks, and other non-bank financial institutions, which fill some of the gaps but have failed to reach widespread sustainability and outreach. According to the MIX Market, in 2009 less than half of the MFIs in SSA (of all institutional types) demonstrated financial sustainability. As a result, few of these institutions are likely to grow to meet the needs of large numbers of unbanked households and enterprises.

In light of this, a number of global holding companies and investors, largely comprised of development finance institutions (DFIs) set out around the turn of the Millennium to develop a group of well-managed, sustainable, and commercially-oriented formal financial institutions that offer a range of financial products through a scalable operating model. Today, there are more than 30 greenfield MFIs spread over at least 12 African countries, including frontier markets such as the Democratic Republic of Congo, Cote d’Ivoire, and Liberia. While many greenfield MFIs are still young, the analysis in Greenfield MFIs in Sub-Saharan Africa: A Business Model for Advancing Access to Finance, published last month by IFC, CGAP, and The MasterCard Foundation, shows signs of solid institution building for the longer term. While there is a range of microfinance providers in SSA, the proliferation of greenfield MFIs expands the commercial end of the spectrum with regulated, mostly deposit-taking institutions, focused on low-income individuals, microenterprises, and small businesses. At the end of 2012, 31 greenfield MFIs had more than 700,000 loan accounts, an aggregate loan portfolio of $527 million, and close to 2 million deposit accounts with an aggregate balance of $445 million. At the end of 2012, collectively they employed more than 11,000 local staff and had 700 branches.

Read the rest of this entry »

Enter your email

Join 994 other followers

Visit the CFI Website

Twitter Updates

Archives

Founding Sponsor


Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

Note

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.
Follow

Get every new post delivered to your Inbox.

Join 994 other followers