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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

The Smart Campaign secretariat does a lot of things – manage a Certification program, provide technical assistance, develop and promote industry standards, and conduct research. Our small team is always putting on different hats, and we joke about trying to explain our jobs to friends. At the end of the day, the one thing many of our friends can understand is that we are an industry-facing organization offering a “public good.” The Smart Campaign’s public good is not a road or a lighthouse. It just happens to be standards and guidance on protecting clients. These standards are a public good because they belong to everyone, and one individual or institution’s use does not reduce the availability of the resources for others.

Some of our ever-thoughtful friends then ask if this means that we contend with other classic public goods challenges.

The answer is yes, absolutely. One of the biggest issues we struggle with is the lack of a market feedback mechanism. Industry stakeholders can use Smart Campaign tools and resources without paying and thus without providing feedback on their experience. Without a price signal, it can be difficult for the staff to assess demand and user experience. This makes it hard to know how to tailor, expand, or improve offerings. We are curious to hear examples from readers about how other similar organizations consistently improve their offerings without market feedback.

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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP

It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.

The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?

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> Posted by Jeffrey Riecke, Communications Associate, CFI

Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.

The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.

The results?

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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

Serve clients with suitable products. Prevent over-indebtedness. Be transparent and price products reasonably. Treat clients respectfully, listen to their grievances, and protect their privacy.

The seven client protection principles make undisputedly good sense on paper. It’s hard to argue against any one of these practices, either normatively or from the perspective of the financial bottom line. We assume that well-treated, well-understood clients using appropriate products through the right delivery channels are more loyal, satisfied, and likely to refer their friends and family, provide useful feedback, and repay loans. Right?

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This post was originally posted on the Grameen Foundation blog by Alex Counts, President and CEO of Grameen Foundation and a member of CFI’s Advisory Council.

Alok PrasadAs a result of a complex combination of unwarranted attacks and self-inflicted wounds, the microfinance sector in India experienced a crisis starting in late 2010 after many years of strong growth and recognition for its contribution to poverty alleviation and financial inclusion.  When I was asked to give a keynote address at a microfinance conference in India in 2012, I said that it was important to leverage the sector’s strengths and accomplishments, while also addressing its failures and shortcomings.

I visited India in May and July and found that these things were finally happening and leading to on-the-ground progress as well as tangible support from both the outgoing and the newly elected Indian governments.  And as this blog went to press, there was another promising development: the government published draft guidelines on creating a pathway for NBFC-MFIs to become specialized or “differentiated” banks, which would enable them to take deposits directly for the first time legally.  (Though not all NBFC-MFIs would likely be eligible unless the “stringent norms” proposed are made more flexible.)  

My May visit to Mumbai was centered around Grameen Foundation’s workshop “Designing for Adoption and Scale” (click here for highlights and here for my closing address).  

One of the highlights of the second trip was speaking with Alok Prasad, the CEO of theMicrofinance Institutions Network (MFIN), a respected microfinance industry association.  He spoke eloquently about the progress the industry has made recently and the reasons behind it.  Below are excerpts from our conversation. 

Alex Counts (AC): I sense a new optimism related to Indian microfinance after some difficult years.  Would you agree?  How would you characterize the last 12 months in terms of how the Indian microfinance sector has developed? What were some of the key contributions of MFIN?

Alok Prasad (AP): Clearly the mood is buoyant, but not in an irrational way! Looking at the last fiscal year (April 1, 2013 to March 31, 2014), much has gone well for the industry. Growth, both in terms of gross loan portfolio and clients, has been strong. Portfolio performance stays at levels which commercial banks can only dream of (for unsecured lending). Branch networks have expanded, and new geographies have been covered. Funding (both debt and equity) has improved markedly. The regulatory environment remains broadly positive, notwithstanding the Microfinance Bill falling by the wayside.

In specific terms, the aggregate gross loan portfolio of MFIN’s member institutions (Non Banking Financial Company-Microfinance Institutions or NBFC-MFIs) stood at Rs. 279.31 billion (US$4.63 billion), an increase of 35%, over the prior fiscal year. Clients covered stood at 28 million, representing growth of 20% over the previous year. Debt funding grew by 46%, along with a definite revival of investor interest.

MFIN, I believe, has played a key role in bringing stability to the sector. Deep and sustained dialogue with the government and the Reserve Bank of India (RBI) has resulted in regulatory changes that are conducive to growth; a much greater appreciation of our industry’s role in promoting financial inclusion; and, the recognition that the industry is an essential component of the national financial architecture. From a systemic standpoint, the development of the credit bureau ecosystem had been a big win. As of this date, more than 150 million client records are present on the databases of two national bureaus. These records are updated on a weekly cycle; and, all lending is only after a bureau check. This has given remarkable results in controlling multiple lending and over-borrowing by clients. Our recognition by the RBI as the self-regulatory organization (SRO) for NBFC-MFIs is a sign of both a certain maturing of the industry and the regulator’s acceptance of that reality. A nice ‘new normal’ for an industry which just 18 months ago appeared deep in the throes of a crisis!

AC: MFIs outside of Andhra Pradesh have begun growing again.  Can you give us a sense of this growth and how it compared to other parts of the financial sector?  What are the main reasons?  Are there risks?

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> Posted by Hema Bansal, India Director, the Smart Campaign

As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

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.

You may have noticed an uptick in headlines over the past few months announcing the selling of microfinance equity shares. Here are a few examples:  Accion sells 15 percent stake in Paraguay’s El Comercio to Incofin’s Rural Impulse Fund; Grupo ACP sells its 60.68 percent stake in Peru’s MiBanco to Edyficar; Triodos sells stake in Cambodia’s ACLEDA Bank to ORIX Corporation.

Expect to see more such headlines, as the number of exits from microfinance equity investments is anticipated to accelerate in the next couple of years as a result of a combination of different factors:

  1. Equity funds are maturing. Many funds were created around the same time and while some have no official time horizon, even patient capital reaches a point when it is time to consider moving on.
  2. Microfinance institutions (MFIs) are also maturing. Thanks to the patient capital and expertise of many initial microfinance investors, some MFIs are now so large and sophisticated that they need new investors with deeper pockets and different expertise to further their growth and development.
  3. Social investors are moving into new frontiers. Some social investors are reevaluating where their equity funding and participation can have the biggest impact, for example by moving into more rural or poorer countries. In a number of countries, regulatory environments are becoming friendlier to foreign microfinance investors now that they have a more proven track record.

Given that many social investors are seeking to pass the baton, what does it mean to exit an investment responsibly?

The freshly released paper, The Art of the Responsible Exit in Microfinance Equity Sales, dissects exactly this question. The paper, a joint effort of the Center for Financial Inclusion at Accion (CFI) and the Consultative Group to Assist the Poor (CGAP), shares the thoughts and experiences of 50 investors and industry stakeholders on the topic of exiting an investment in a “responsible” manner.

What did we uncover?

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> Posted by Alexandra Rizzi and Alyssa Passarelli, Deputy Director and Communications and Operations Assistant, the Smart Campaign

The Smart Campaign has worked tirelessly for over five years to embed the Client Protection Principles into the microfinance sector, and increasingly, the broader financial inclusion community. Yet until now, the Campaign has had minimal input from the very clients whose well-being drives the entire movement.

In order to better understand the concerns and experiences of the individuals who use microfinance, the Campaign has launched a client voice research and learning project. Through listening directly to clients, market stakeholders can raise awareness, dialogue with each other to identify potential issues, and in turn integrate this learning into their work. The Smart Campaign has a unique role in shining a light on potentially harmful or negative experiences that low-income users of financial services have had and bringing those experiences to the attention of those who can do something about them.

To conduct this project, the Campaign will be working with Daryl Collins and her team at Bankable Frontier Associates (BFA). BFA has conducted extensive global research with low-income households, including projects with an explicit focus on consumer protection. The client voice project will be conducted in four markets – Pakistan, Benin, and two others to be chosen this summer. The markets are selected based on geographic diversity as well as engagement by local stakeholders with the Smart Campaign. In Pakistan and Benin for example, the project is working closely with the Pakistan Microfinance Network and the Alafia Consortium, who have helped convene local stakeholders to give feedback on project design, research locations, and results. This ensures that the research has input and support at all stages from local expertise and will be used by those who are best placed to take action in response to the findings.

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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 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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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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