You are currently browsing the monthly archive for October 2010.
> Posted by Michelle Romeu
A lot of great people in many great organizations are thinking about financial inclusion. We believe there is hidden value in having so many minds thinking about a single issue, and that by sharing the ideas of others, we can find synergies that will make us all think bigger and better.
With this in mind, we’re launching “Top Picks of the Microfinance Blogosphere,” a new Center blog series that shares with you the most interesting recent blogs and articles about microfinance, financial inclusion, and client protection. We hope you enjoy it!
- The up-and-coming market for the Peruvian goldenberry provides a “golden” opportunity for farmers in rural Peru: learn more about it at the NextBillion blog.
- Microfinance: more than just business loans? In “The real revolution in microfinance,” Reuters explores how the industry is on its way to providing more, and finding out what clients really want and need.
- Branchless banking has earned much attention in 2010, and the CGAP Technology blog researches whether the hype is justified.
- How does one live on $2 a day? Kiva’s blog takes a look into the day-to-day lives of villagers and slum-dwellers in India and South Africa.
- We use the term every day, but do we ever look deeply into what it means? David Roodman explores the meaning of “microfinance” in his Open Book Blog, and invites us to share our insights as well.
- How do IPOs like that of SKS affect other innovative, cutting-edge MFIs? The CGAP Microfinance blog ponders questions and answers.
> Posted by Anita Gardeva
Word of the Week – Continually Excluded: Individuals who remain financially excluded despite progress to date toward financial inclusion.
The continually excluded represent groups of people that are most difficult to reach with financial services, such as people with disabilities, rural and remote populations, and extremely poor populations. As financial inclusion pushes out the viability frontier the continually excluded segment will shrink but will continue to represent the populations which require the most innovation in order to serve.
Spotlight Fact: A recent paper by the Center— “A New Financial Access Frontier: People with Disabilities”—summarizes expert estimates that there are 650 million disabled people in the world and 520 million (80 percent) live in developing countries. At the same time, less than half of one percent of all microfinance clients are disabled people. Although financial services are not appropriate for all disabled people, they nevertheless constitute an important segment of the continually excluded.
Suggested Resources:
To learn more about financial inclusion for disabled people, read: Josh Goldstein, “A New Financial Access Frontier: People with Disabilities,” Concept Paper, Center for Financial Inclusion, June 2010.
To read more about other types of continually excluded populations such as the “ultra poor” and innovative programs to bring appropriate financial services to them, we recommend: Syed Hashemi and Richard Rosenberg, “Graduating the Poorest into Microfinance: Linking Safety Nets and Financial Services” CGAP Focus Note No. 34, February 2006.
For an example of how understanding the continuously excluded can help improve national financial inclusion strategies, see: “Mexico’s Prospects for Full Financial Inclusion,” White Paper, Center for Financial Inclusion, September 2009.
For more financial inclusion terms, please visit the Financial Inclusion Glossary.
For more information on CFI’s Financial Inclusion 2020 campaign, sign up for updates here.
Flickr credit: khrawlings
> Posted by Jon Pattee
Are you involved in leading an MFI that is experiencing critical changes? Don’t let it fall into the resource gap that stands between you and good decision-making.
Two challenges associated with MFI transformations are rarely discussed: governance and aligning Interests. While TA and numerous handbooks already address operating, technology, and staffing challenges during the process, few resources provide insight on navigating issues associated with corporate governance, new (or shared) ownership, and the alignment of stakeholder interests.
On November 4 – 5 (all day), at this year’s SEEP Conference, the Center for Financial Inclusion at ACCION International and Calmeadow are offering a training to raise awareness and discussion of these topics through publications, cases studies, roundtables, and trainings. Registration closes October 22 and will reopen for on-site registration Monday, November 1, 2010.
By examining case studies and practices within and beyond microfinance, the course will provide a forum for conversation and learning about these “forgotten” challenges of transformation.
Participants will benefit most if they are MFI CEOs, members of senior management, or board members that have been involved in their institution’s transformation; investors and donors involved in transformations would also benefit. While the training would seem most beneficial for those involved in the transformation process, transformed MFIs often continue to struggle with governance and alignment issues and any MFIs and/or investors considering mergers or acquisitions could also benefit.
We look forward to seeing you there. To register, click here.
> Posted by Michelle Romeu
Could starting life with a $100 deposit put newborns on the path to a brighter future? The Financial Access at Birth (FAB) campaign is working to demonstrate just that. On Monday morning, FAB founder Bhagwan Chowdhry was interviewed on CNN’s “The Ali Velshi Show” to discuss the monumental strides that could be made through this campaign.
GRIFFIN: […] There’s a new campaign that says if every child born in the world is given an initial deposit of $100 in an online banking account that would guarantee everyone in the world would have access to financial services in just a few decades.
Well, this is the brain child of Bhagwan Chowdhry. He is the finance professor and faculty director of the Master of Financial Engineering program at UCLA’s Anderson school of Management [and] joins us now live from Los Angeles.
Professor, thank you so much for joining us. …You’re talking to a very skeptical guy now. Is this just a theory of a professor sitting in his office who thought this would be a great idea, or has this been tried anywhere?
BHAGWAN CHOWDHRY, FACULTY DIRECTOR, MASTER OF FINANCIAL ENGINEERING PROGRAM, UCLA ANDERSON: Well, this is not just a theory, because there are many people behind it. If you go to our website, you will see that professors, social entrepreneurs, simple people — many people have, in fact, joined the campaign. So, that is my test that there is something more to this theory. And you will see that the various parts of this idea, in fact, have been tried at other places. We are hoping to integrate it in one place.
GRIFFIN: And how — what is the idea behind it? We have had stimulus. It’s not just giving somebody $100, right? Because if you give somebody $100, they’ll blow it, and that will be the end of it. What is the idea here?
CHOWDHRY: So, $100 is just the incentive. We know incentives work. Half the world population has no access to financial services, simple things that you and I take for granted. Like [the] ability to save small amounts of money in an effective way.
So, what we are saying is that let’s start at birth and integrate [a] $100 deposit with the birth certification. On top of that, we are going to make it an electronic bank account, so that other services can be delivered inexpensively. So, this is just a catalyst that will make a lot of things possible.
For the full interview, read CNN’s full transcript of the show. The interview is towards the bottom of the page.
Flickr credit: River Beach
> Posted by Michelle Romeu
In her most recent Huffington Post blog, Elisabeth Rhyne writes to Elizabeth Warren, sharing insights on consumer protection from the microfinance industry—and specifically on how regulators can deal with three different groups of financial service providers (the good girls and boys, the opportunists, and the bad apples) to promote healthy consumer protection practices.
“The industry is trying to fix itself right now”
Elizabeth Warren, speaking on “In Business with Margaret Brennan“
Dear Ms.Warren,
What an important challenge you face in bringing the new Consumer Financial Protection Bureau into being! Although you’re reputed to be a woman not easily daunted, it might still be comforting to know that you are not alone. At the recent Alliance for Financial Inclusion meeting of banking authorities from more than 60 developing countries, I had the opportunity to talk with regulators from countries as diverse as Peru, Malaysia and South Africa struggling with some of the same choices that confront you.
All around the globe, bank regulators are acknowledging the importance of ensuring that financial services providers treat the less powerful members of society well. They are even recognizing that protecting consumers is a prerequisite to a stable financial system. But the tools and resources regulators wield just can’t compare to the vast number of client-provider interactions taking place every minute of every day. Regulators can never sit in on every transaction (nor would anyone want them to), so they have to act strategically. One sometimes undervalued way to be strategic is to encourage the industry to, as you say, fix itself.
Listening to regulators give their takes on client protection, I found them preoccupied with three different groups, each requiring different regulatory tools. Let’s call them the good girls and boys, the opportunists and the bad apples. The good girls and boys are providers that actively seek to employ good client protection practices. They may be motivated by reputation, by social aims, or by the business case in favor of treating clients right. I am hopeful that across the world most of the microfinance institutions I deal with are good girls and boys, and am convinced that in the United States there are mainstream banks, community banks and especially credit unions in this category. The great thing about such institutions is that they and the regulators are basically on the same side. A regulator from the banking superintendency of Peru stated, “In our consumer protection efforts, the banks are out greatest partners.” Wow. A statement like that would be jeered in most places in the U.S. In fact, an American consumer advocate I spoke with recently said, “What we’ve learned is that banks are the enemy.” How sad, and what a missed opportunity. Read more >
> Posted by Jon Pattee
Bullish on the future of microfinance? The Economist Intelligence Unit seems to be like-minded.
Microfinance is quickly shifting from a niche product to a globally recognized form of finance, according to the unit’s researchers, who recently released the report “Global Microscope on the Microfinance Business Environment 2010.”
In this process of transformation, hi-tech is allowing the industry to lend and offer financial services to low-income populations and entrepreneurs around the globe, say the report’s authors.
The industry still faces some rough patches, however. While both providers and investors increasingly consider microfinance commercially viable in developing countries, regulatory and market gaps keep microfinance from operating as well as it should.
The report offers an in-depth analysis of the microfinance business environment in 54 countries for a second consecutive year. It is also the fourth yearly index to track conditions in the 21 countries of the Latin American and Caribbean region.
Latin America and the Caribbean has the largest range of scores among the six regions: half of the 10 top-ranked countries were from the region as well as four of the 10 lowest-ranked countries.
Peru, the Philippines, and Bolivia ranked highest for a second consecutive year. Peru held fast to its position as the global leader, scoring 74.3 out of 100, much as it did last year.
The remaining top 10 nations are located in Latin America (Ecuador, El Salvador, and Colombia), South and East Asia (India and Pakistan) and Sub-Saharan Africa (Ghana and Kenya).
Of the 54 countries included in the 2010 index, 29 boosted their scores, 21 slipped in the ranking, and four stayed unchanged.
> Posted by Anita Gardeva
Access to financial services creates calmer waters by smoothing consumption
Word of the Week – Consumption Smoothing: Reduction in the variability in consumption by households, often through the use of financial services.
Consumption smoothing is often cited as a benefit of access to financial services. For many financially excluded households, income and consumption are volatile. As explained in Portfolios of the Poor, “One of the least remarked-on problems of living on two dollars a day is that you don’t literally get that amount each day…you make more on some days, less on others, and often get no income at all.” Savings and loans allow people to tap into past income (through savings) or future income (through loans), helping them smooth consumption. Consumption smoothing can refer to short, medium, or life-cycle time horizons.
Spotlight Fact: Research has shown that access to financial services can reduce a household’s consumption variability by about 50 percent. In other words, when faced with income shocks, households with access to microfinance experience the shock with half the severity of those without access.
Suggested Resources:
For a look at how poor families manage risk through income and consumption smoothing, and what the associated costs are, a good place to start is with Jonathan Morduch’s “Income and Consumption Smoothing,” The Journal of Economic Perspectives, Vol. 9 No. 3 (summer, 1995).
For a study that demonstrates the long-term effects on consumption smoothing of financial access: Nidhiya Menon, “Consumption Smoothing in Microcredit Programs,” (Manuscript, Brandeis University, August 2003).
For a detailed account of how the poor manage their resources and why they need formal financial services: Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven, Portfolios of the Poor, (Princeton: Princeton University Press, 2009).
For more financial inclusion terms, please visit the Financial Inclusion Glossary.
For more information on CFI’s Financial Inclusion 2020 campaign, sign up for updates here.
Flickr credit: richardefreedman
> Posted by Charlene Bachman
Contrary to popular belief, MicroBike is not a miniature bicycle and I did not spend last Sunday in a mini-bike race. MicroBike is actually an event for (normal-sized) bicycles presented by ACCION International to raise funds and awareness for microfinance and ACCION’s initiatives to expand financial inclusion.
It took some time and effort to recruit our 30-member team and fundraise. But that’s the beauty of it, right? Spreading the word about microfinance by tapping other passions we have in common, like biking. Who doesn’t want to bike around the nation’s capital on a beautiful fall morning with family and friends, while simultaneously fighting poverty? 2 birds, 1 bike.
On October 3rd, our team of colleagues, friends, and family set off on our MicroBike route just like the ‘Original Microbikers’ did back in 2008. Unlike those pioneers, we didn’t climb the Appalachians, traverse the Great Plains, overcome the Rockies or beat the heat in the deserts of Utah and Nevada before finally meeting the Pacific in California two months later. But we did spend 2+ hours biking 15 miles up and down the Potomac and around some of the most important monuments in America. It took a little longer than expected, but only because we were enjoying the sights and great company. A cross-country MicroBike is definitely on my bucket list, but until I build up that endurance, 15 miles is plenty!
Our MicroBike team was lucky and thankful that our sponsor, District Hardware – The Bike Shop, helped our non-bikers get geared up and offered team discounts to support our cause. We also thank the Red Lion for the burgers and beverages that refueled us post-ride.
As one of the newer, young staff in the DC office, I didn’t know what I was getting into when I agreed to co-captain the ACCION DC team this year. But it was so easy, anyone could do it. And indeed, anyone can organize a MicroBike event, anywhere in the world! You just set up a team page on the MicroBike site and invite all of your friends and family to join. The page is designed to facilitate asking donors to support your ride and the microfinance cause — and you even get a very fashionable (and socially responsible) MicroBike t-shirt! Last year, MicroBike raised over $41,000 for ACCION initiatives in Latin America, Africa, and Asia. This year, our goal was $50,000, and with the help of 18 teams around the world, we’re almost there! If you missed out before and want to learn more about MicroBike in preparation for next year, or would like to show your support though a contribution today, you can visit http://www.microbike.org/.
I had so much fun planning this year’s DC MicroBike, but to be honest, I’m more of a runner than a biker…I can’t wait for the Micromarathon!
> Posted by Anita Gardeva
Last week the Alliance for Financial Inclusion (AFI) held its second Global Policy Forum in Bali. AFI is a network of central banks and other financial regulatory bodies from nearly 60 developing countries who exchange knowledge on financial inclusion policies. The Center for Financial Inclusion’s managing director, Beth Rhyne, was a guest speaker at the event and we asked her to tell us what regulators are talking about.
AG: How does AFI affect financial inclusion?
BR: What AFI is doing is unprecedented. By bringing together this many policymakers interested in financial inclusion, AFI creates a stronger voice for financial inclusion all around the world. Until now financial regulators have tended to place top priority on financial stability and have often perceived inclusion as a threat to stability. AFI’s work helps to get financial inclusion high on the agenda in a way that it has not been before.
And the philosophy behind AFI was inspired. AFI believes in peer-to-peer exchange. And it works! It’s much more convincing to regulators to hear from a fellow regulator than to be told what to do by an “expert.” I could see this happening as I watched conversations between regulators. For example, everyone wanted to know about the regulations that led to Kenya’s success in mobile banking (M-Pesa). The Kenyans became celebrities: everyone wants the same kind of success.
AG: I understand that your focus was consumer protection. What were the concerns regarding this issue?
BR: Client protection is a deep concern among regulators. It popped up everywhere, not just in the client protection discussions. It’s very much on regulators’ minds.
In client protection, the best practices for regulators are all over the place. Countries have many different ways to respond to client protection needs. For example, in Malaysia the client protection system is focused on high-income people, and the Malaysian regulators were thinking about how to adapt its system for low-income people. Other countries are starting fresh. They’re trying to answer questions such as: “Who will be in charge of client protection—the central bank or a new entity?”
AG: What’s your message to AFI members about client protection?
BR: I would advise regulators to treat the industry as partners rather than enemies, and to work with industry groups to increase their capabilities—using tools such as the Smart Campaign that build capacity through proven practices that have been implemented by players around the world. Regulators can’t be everywhere. One lesson that came up repeatedly from South Africa was that regulators need to focus on protecting against the truly bad offenders. There is a lot of goodwill by industry players to implement good practices. Regulators can tap this goodwill to get the industry to do part of the necessary work.
For more information on CFI’s Financial Inclusion 2020 campaign, sign up for updates here.
> Posted by Anita Gardeva
Word of the Week – Consumer Credit – Credit allowing an individual to purchase and/or use a consumer good or service while paying for it over a set repayment period.
Consumer credit is in many countries the fastest-growing financial service, but it doesn’t always receive the most attention in terms of financial inclusion. Consumer credit may be offered by retailers who finance purchases of their merchandise. Financial institutions may offer it in the form of personal loans or credit cards.
Spotlight Fact: Although consumer and micro-loans can look alike in size and be distributed to the same groups of borrowers, they generally differ in several ways:
- Micro-credit is intended for income-generating entrepreneurial purposes, while consumer credit is meant to aid in purchasing goods. (Despite this, both forms of credit can often be used for different purposes; micro-entrepreneurs may use consumer credit to fuel their business or take out a micro-loan to buy a consumer good. Tracking the end-use of loans is difficult.)
- Consumer credit is more often given to salaried workers, while traditionally microcredit is extended to households operating in the informal sector.
- Consumer loans are generally made against collateral. Microloans are not collateralized and require a more hands-on and costly assessment by loan officers to be distributed. (This can explain why consumer credit sometimes tends to grow at a faster rate than micro-credit.)
Although consumer credit is not intended to help develop micro-enterprises, it can play an important role in helping smooth low-income people’s consumption. At the same time, when consumer credit competes with microfinance (especially in environments where institutions are growing rapidly and credit bureaus do not exist), it can contribute to client over-indebtedness and saddle them with other problems.
Suggested Resource: For a great summary of the dynamics between micro-credit and consumer credit, as well as the risks that arise when blending the two credit types, we recommend: “Consumer Credits for the Poor – Risk or Opportunity?” by responsAbility.
For more financial inclusion terms, please visit the Financial Inclusion Glossary.
For more information on CFI’s Financial Inclusion 2020 campaign, sign up for updates here.
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