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> Posted by Elisabeth Rhyne
On Boxing Day, New York Times personal finance columnist Ron Lieber probed the promises and actual workings of make-your-own-microloan sites Kiva and MicroPlace, as well as of online philanthropic services that channel participants’ dollars to individuals whose needs are featured on the site. While focused largely on the senses in which donors’ and lenders’ dollars do or do not go directly toward individuals with affecting stories featured on the sites, Lieber also raised a more fundamental question in his conclusion:
If this way of giving is appealing, you may wonder whether it’s just a bit self-centered. Plenty of worthy organizations build roads and finance research and can’t draw a direct connection between your small
donation and their net results.
While there’s nothing wrong with forging (or imagining) a personal relationship through a philanthropic transaction, donors should look beyond the simple paradigm of the single transformative gift, the magic pot that keeps a single virtuous heroine from starvation. Givers and lenders should use their heads as well as their hearts and recognize that their gifts and loans might be multiplied if they give to organizations that are creating lasting value–by building institutions that will keep on serving their target population for a long time.
Last week, responding to David Roodman’s post about the intricacies of measuring microfinance results, I wrote that microfinance outcomes should not be assessed by seeking a one-to-one correspondence between a loan and a client’s subsequent economic status. Rather, the microfinance mission should be Read the rest of this entry »
> Posted by Elisabeth Rhyne
Many thanks to David Roodman for bringing people’s attention to an argument that I have been making for years: that measuring microfinance’s impact is far more complex than finding a one-to-one correspondence between a given loan and a client’s subsequent economic status.
I’d like to take the discussion a step further and consider why this message has been so hard to get across to donors and investors, researchers, and the general public. First, let’s look briefly at the main points.(If you disagree with any of them, I hope you’ll read the longer excerpt on David’s blog, or the chapter available here of The New World of Microenterprise Finance, on which it’s based.) Here they are:
- The causal links between receipt of financial services by individual borrowers and their subsequent economic growth are affected by many factors, finance being but one part of a complex process of decision making by enterprises and households. Clients use finance for a variety of purposes: protection against bad times, facilitation of efficient business operations (liquidity), and financing of investments. And they face a wide range of external forces, like competition, markets, health, weather, security, etc. The effect of finance is not likely to be as clear-cut as the effect of these other factors. Evaluations tend to strip out the richness of these dimensions.
- The service-client relationship is best measured by a market test of demand, or the willingness of clients to pay. If people pay full cost for a service on an ongoing basis, then evaluators can be sure that the service is valued at least as highly as its price.
- Microfinance has been all about building institutions, and Read the rest of this entry »
> Posted by Bill Harrington
“Gee, if I had realized a few months ago that investors worked that way, it would have really helped.”
That response from one participant summed up a four-day workshop sponsored by the MicroFinance Center (MFC) and the Center for Financial Inclusion in Warsaw, Poland, in early December. I, together with the Center’s Deborah Drake, led the investment-readiness training for the Microfinance Centre.
As MFIs seek to grow in scale and outreach, they increasingly require access to broader, commercial sources of funding. These MFIs may have some experience in accessing the capital markets, but still struggle with transitioning from donor to commercial capital and navigating the challenges that arise. Enter the Center. These trainings offer a crash course in how to make a pitch to potential investors, manage investor relations, build back office capacity to manage liability, and evaluate, structure, and close financings.
In Poland, about 16 attendees—representing mid-level and growing MFIs from Georgia, Romania, Macedonia, Armenia and Central Asia—participated in hands-on training that tested their understanding of debt and equity, negotiation techniques, and valuation. In addition, they learned about the importance of non-financial factors to investors, such as the quality of governance and the regulatory environment. Read the rest of this entry »
>Posted by Cara Forster
How well do MFIs implement client protection principles? Are there identifiable performance trends relating to MFI characteristics (e.g. size, age, or type)?
Beyond Codes, the research arm of The Smart Campaign, is helping to make sense of these and other questions through the systematic assessment and analysis of MFIs’ performance in implementing consumer protection practices. During the first year of Beyond Codes the team conducted structured assessments at ten institutions within five countries—Bosnia and Herzegovina, Kenya, Mexico, Philippines, and India. The MFI sample contained both regulated and unregulated institutions of various sizes.
The Beyond Codes team has identified some clear trends as a result of their preliminary assessments:
- MFIs were strongest on appropriate collections practices (100% of sample had good practices in this area) and avoiding client over-indebtedness (at least 80% of sample MFIs’ practices were adequate or better). Regulated MFIs generally showed stronger performance on both principles than unregulated ones, although MFI size was not a factor influencing performance.
- Performance on transparent pricing and ethical staff behavior was mixed, with 50% of sample MFIs demonstrating strong or good practices on each respective measure and the remaining 50% scoring fair or inadequate on each.
- MFI’s performed weakest overall on mechanisms for redress of client grievances with 60% of the sample demonstrating weak practices. More mature MFIs had stronger practices than newer institutions, but MFI size was not a relevant factor. Read the rest of this entry »
> Posted by Victoria White
Reputable microfinance practitioners would never have claimed as Ketaki Gokhale asserts in the Dec. 15 Wall Street Journal article “As Microfinance Grows in India, So Do Its Rivals”—that microcredit was “…supposed to help drive traditional village moneylenders from rural India.” But they would say that their services are designed to integrate otherwise ignored people into the financial sector.
This article shines light on two fundamental issues facing the microfinance industry around the world: the challenges of detecting and forestalling client over-indebtedness—with which the Indian microfinance community is struggling vigorously to cope—and the acute need for responsible financial inclusion.
As the article states, “the overall rotation of money in society has been increased…” by the advent of microfinance and government lending programs. In other words, microfinance is helping to foster more inclusive financial systems in India. That is, an appreciable percentage of India’s hundreds of millions of low-income individuals previously excluded from the formal economy now have access to borrowing longer term at lower rates under clearer rules than they can get from informal lenders—and without the risk of intimidation in the event of difficulty paying back the loan.
That said, the entire microfinance industry in India is aware of the problems raised by the rapid upsurge in microlending and the risk of over-indebtedness facing some clients. Read the rest of this entry »
> Posted by David Levai
Asif Dowla, a microfinance expert and professor of economics at St Mary’s college of Maryland, has a great idea: engage the microfinance industry to adapt to climate change. He posted a call to action on CGAP’s blog yesterday after releasing a report that he wrote for Grameen Foundation and Oxfam America and interviewing with Paul Rippey, another microfinance and climate change specialist. His piece is a reminder to us all—during the last days of the Copenhagen Summit—that microfinance has not been paying close enough attention to the threat of climate change, despite the fact that it will affect the world’s poor first—the very ones whom MF aims to help.
In recent years, the microfinance industry, maybe more than the rest of the development community, has failed to provide scalable and replicable solutions to address the rising climate threats. No surprise here, as in the last decade, microfinance institutions have proven reluctant to disrupt a highly successful credit-based business model growing at exponential rates.
Asif Dowla calls for a “climate proofing” of microfinance products and institutions in order to adapt to the new environmental conditions that have already started to impact the poor (recurrent droughts, rising water levels, diseases and pests expansion). He recommends institutionalizing a change of model allowing flexibility of repayment schedules and installments for clients struck by natural disasters. His argument: MFIs need to incorporate these climate-related threats in their strategic plan for fear of being hurt.
> Posted by Amanda Powell
Paul Rippey gives us another podcast in his interview with Asif Dowla, the author of a new paper on climate change and microfinance, sponsored by Grameen Foundation and Oxfam USA. Professor Dowla discusses how MFIs can “climate proof” their financial products and of the importance of remittances and savings in a changing climate.
To listen to the podcast, click here >
To download the paper, click here >
> Posted by Amitabh Saxena
I was in the Philippines last week at the Mobile Money Transfer conference, participating on a panel on “Making Mobile Money work for Microfinance.” Many people who follow microfinance know that one of the obstacles of reaching the “unbanked” or underbanked for MFIs is linked to a branch infrastructure: they are extremely costly to set up and maintain, and it rarely makes economic sense to do so in sparsely populated areas. The excitement of MFI’s using alternative channels such as mobile phone banking but also ATMs, cards, and banking agents is based on the hypothesis that financial services outreach can be extended at a fraction of the cost.
Yet thus far, it seems that retail banks, big mobile operators, and innovative start-ups are playing in this space, not MFIs. In the Philippines, for example, I counted only a handful of MFIs in attendance. Why does that appear to be? I’ve recently written an InSight, titled “Accelerating Financial Inclusion through Innovative Channels” (download here) that discusses ten things currently holding MFIs back from implementing a multi-channel strategy and what the broader industry can do to help MFIs surmount those obstacles. Some, like regulatory frameworks and technology infrastructure, come quickly to mind, but others, such as making the channel economics work and the difficulty of managing third parties, are less obvious. I also add a number of advantages that MFIs carry, such as the ability to quickly set up a banking agent network, and a deep knowledge of the low-income customer.
If done properly, an MFI’s alternative channels have enormous potential at transforming its business model and bringing a range of financial services to the poor. We’re hoping this paper kickstarts a discussion on what can be done to remove the roadblocks in developing these channels. If you have any comments or ideas, feel free to post on this blog, or write to me at
> Posted by Amanda Powell
In his 13th episode, Paul Rippey interviews Jacob Moss of the EPA. Jacob led the effort to create the Partnership for Clean Indoor Air. He and Paul talk about stoves, including some breakthrough models that might change everything!
Listen to the podcast here >
Check out the Partnership for Clean Indoor Air and watch a video on clean cooking at www.pciaonline.org >
> Posted by Kelley Mesa
ACCION Frontier Investments manager Monica Brand poses something of a conundrum in her CGAP Technology Blog post. Many microfinance institutions around the world realize they need updated management information systems, but few cost-effective and appropriate solutions exist for them. However, because few MFIs are actually making the investment in the systems, suppliers can’t justify the investments they would have to make to produce systems that would fit the bill. What to do?
Read comments from readers and add your own here >
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