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> Posted by Antonique Koning and Kate McKee, Microfinance Specialist and Senior Adviser, CGAP
The following post was originally published on the CGAP Blog.
Microfinance investors are now openly discussing responsible investment, including balancing returns and how to reduce risks of market saturation and over-indebtedness, more than ever before. Investors agree it’s time for action. At the mid-year Social Investor Roundtable, convening of the Sangam Group (CEOs of the ten largest MIVs) and annual Development Finance Institutions (DFI) consultation on responsible finance last month they agreed on a “to-do” list of six concrete actions:
1. Join the discussion on balanced returns: Many participating investors had signed the Principles for Investors in Inclusive Finance (PIIF). Most agree that the balanced returns principle is the most difficult to pin down. The topic came up frequently: How much is too much, when it comes to prices and profits in the sector? Several MIV CEOs asserted that their commercial business model was the most effective way to drive responsible financial inclusion at scale. Eyebrows around the room shot up when one fund manager stated the target return of his fund: 20 percent. Other fund managers disagreed with the philosophy that such returns are consistent with responsible practice and desirable client outcomes. “We’re fooling ourselves” to suggest that there are few trade-offs between the financial and social bottom lines, they said. By policy some funds agree to take a lower return in the short run if it translates into better rural outreach or services like deposits that clients need and want. Sangam MIVs formed a working group on balanced returns and will feed their perspectives into related discussions led by the PIIF and Social Performance Task Force (SPTF). If you’re an investor, you should join one of these processes and help the search for a pragmatic but meaningful understanding on balanced returns.
2. Use the new Lender Guidelines on avoiding over-indebtedness. Market saturation was another hot topic: What can and should investors do about risks of market saturation and over-indebtedness? Investors in the AvOID Working Group have developed a Lender Code of Practice, which outlines steps investors should take in market analysis, due diligence, monitoring, and governance engagement. The Code has now been finalized and integrated in the PIIFs. Your investment organization can benefit by integrating the guidelines into your processes.
3. Support country-level research on market saturation and over-indebtedness: In addition to guidance that individual investors can use to rein in over-indebtedness, investors are also working together on analyzing such risks at the country or market level. DFIs and MIVs have supported this work in countries such as Azerbaijan, Bosnia-Herzegovina, Kosovo, the Kyrgysz Republic. Most recently, Blue Orchard, Incofin, and Oikocredit stepped up to jointly fund an innovative methodology in Cambodia that combined country-level proxies for market penetration, indicators of MFI lending practices, and surveys and qualitative research on borrower indebtedness and related factors. Findings were presented at the Social Investor Roundtable and will be formally released later this month. Sangam members committed funding to replicate the study elsewhere. Other investors can join and support expansion of this important work in additional markets.
> Posted by Sonja E. Kelly, Fellow, CFI
There’s a lot of data out there. And some of us are brave enough to use it (including you, my friend).
Recently we released an interactive Data Explorer tool and individual Country Profiles, allowing users to visually explore financial inclusion data in comparison with other development indicators in one central location. You can see our analysis of some of the data, but more importantly, we would like to invite you to explore the data for yourself.
For those interested in financial inclusion figures in specific countries, regions, or income groups of interest, visit Country Profiles. There we display data from the Global Findex along with demographic data relevant to understanding financial inclusion across the lifecycle. As we continue our own analysis of global trends, we will add figures on income, urbanization, technology, and more for each country.
Click on the financial inclusion bars to see a breakdown of the data by client segment, and use the tool to understand why or how people use financial services in particular countries. At the bottom of the page, you can interact with the demographic data by scrolling through the years to see past and projected population trends from 1950 to 2100. (This is very cool.)
> Posted by Timothy Nourse, President, Making Cents International
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.”
Last week, I participated in a Youth Financial Inclusion workshop for the Middle East/North Africa (MENA) region, organized by Silatech and CGAP. Financial institutions in the MENA region are unfortunately the least inclusive in the world. Global Findex Data indicates that only 18 percent of the population has accounts at formal financial institutions, compared to a developing economy average of 41 percent, and among youth ages 15-24, the rate is even lower, reaching only 13 percent when the developing country average is 31 percent. The youth statistics are particularly distressing, considering that the Middle East’s youth bulge is quickly becoming a liability, rather than a demographic dividend.*
During the conference, participants debated how to respond. To what degree should the focus be on credit or savings, the policy environment or product delivery, and financial or non-financial services? In particular though, they wondered whether they should even make specific (and perhaps expensive) efforts to expand youth access. After all, microfinance institutions were already serving youth at a higher level than banks, why not just continue to grow broadly, and to use an economics metaphor – let the tide lift all boats?
Back in the office, I thought about how the youth-inclusive financial services field has been discussing these issues over the past few years, and I wanted to share some of the emerging recommendations that respond to these questions:
- Start with savings. USAID and other research indicates that teens and young adults in developing countries are already economically active, have financial resources, and demand tools to manage their money. Although credit is one of these tools, and is appropriate for young adults with entrepreneurial aspirations, savings should be the entry point for the vast majority. Besides encouraging asset accumulation and serving as an appropriate entry point for a relatively vulnerable population, savings has been linked to the development of critical long-term planning and goal setting skills in youth.
- Remove legal impediments to access. Many youth are left out of the financial system by laws that prevent them from opening accounts on their own and identification requirements that are difficult to fulfill. Revising these laws to reduce the age of majority or working with central banks to provide flexibility for proof of identification would improve youth access to financial services. For example, in Zambia, Natsave Bank, working with Making Cents, received a waiver from the Bank of Zambia to allow co-signers to help establish the legal identity of account holders under the age of 19. Read the rest of this entry »
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
Many retirement plans in the United States ask, “What is your number?” Meaning, at which age do you wish to retire? It’s a question that implies it will be up to you – that you will decide when the time has come for you to leave the workforce. However, according to recent reports on National Public Radio (NPR), many older workers, especially in the United States, are being pushed out of the workforce and finding it increasingly hard to find employment. Perhaps retirement plans need to start asking, “At which age will you be forced to retire?”
The Center recently published Looking Through the Demographic Window, which highlights that in many middle income countries a demographic window is opening where there will be more workers than dependents, creating an opportunity for economic growth. One of the reasons there will be more people in the workforce is because people are living longer, and therefore, it is expected, working longer.
A recent blog post by Yuwa Hedrick-Wong of MasterCard points out that countries cannot always take advantage of demographic opportunities. He comments that in sub-Saharan Africa, where youth are the dominant demographic group, “without adequate investment in educating and providing health care for the young…all that a society can expect are demographic burdens of mounting youth unemployment and underemployment.”
Arguably, the same thing is true when the elderly become the dominant demographic group, especially in developed countries where jobs are becoming more and more specialized and technology focused. People are living longer and therefore are willing and able to work longer, but will they actually be a valued and welcomed segment of the workforce?
It seems that a few other trends may need to be considered when talking about an aging population and workforce, and chief among them are the rapidly increasing pace of technological changes, and the possible “ageism” that might accompany those rapid changes in technology.
> Posted by John Gitau, CEO, Kenya Financial Education Centre
If the Financial Inclusion 2020 campaign asked me how I can accelerate financial capability to meet full inclusion by 2020, I would start looking for already established systems with wide consumer outreach that I can leverage with ease. One such system is religion. I would seek the help of religions to spread financial literacy and invigorate financial capability for the world’s excluded majority.
Why do I believe that religious orders systems hold the key to faster capability building and inclusion? Here are a few reasons to support my belief:
- The religious orders’ outreach infrastructure to the intended beneficiaries of formal financial services is wide and deep, cutting across all demographic and geographical regions in the world. The infrastructure is more elaborate among the poor since spiritual seeds are better received in the fertile poverty seedbeds. You may miss everything else in the poor neighborhoods but you will find a house of prayer of some kind.
- Religious orders have perhaps the most frequent touch points with their followers other than perhaps schools. Most religious orders have at least four days of contact in a month. Christian denominations, for example, have frequent contacts going by different names such as worship, mass, fellowship, and others. Fortunately, the consumers of spiritual products are also consumers of financial services. In fact, religious organizations reach the intended financial inclusion target almost effortlessly with permanent co-existence among them.
- Religious orders, in addition to their spiritual roles, are strong stakeholders in the financial system as they derive their incomes from their customers. They invest in schools, hospitals, and real estate, and create businesses that generate further incomes.
- They can be good collaborators and champions in financial capability because their adherents look up to them for guidance.
- The religious orders enjoy a privileged position of undivided attention in spiritual moments during service and worship. Perhaps a monologue such as a sermon or homily can snatch some moments for financial literacy messages. The moment after offertory can be a great touch point for financial literacy messages. This is the moment when a congregation feels the joy of giving which triggers humility and submissiveness conducive to mental/emotional learning. Short financial literacy messages can be offered at such moments.
> Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger
Listening to the poor without preconceptions has generated remarkable insights about their desires, challenges, and capabilities, with significant implications for designing programs that more effectively meet their needs. What about listening to those who talk to clients every day – the front line staff of microfinance institutions?
To complement direct client surveys, Freedom from Hunger undertook a study called Voices from the Frontlines: A Research Project Focused on Listening to Microfinance Credit Officers in order to listen to the frontline workers of financial service providers who use the village-banking model to provide financial and non-financial services to groups of poor women. Freedom from Hunger worked with five microfinance institutions to conduct this research: CRECER in Bolivia; Confianza, PRISMA, and Finca in Peru; and Alsol in Mexico. Almost 200 interviews and focus-group discussions were conducted with credit officers, clients, and supervisors. We wanted to answer five questions:
- What motivates credit officers?
- What is the state of the relationship between the credit officer and the client?
- What can we learn from credit officers about the people they serve?
- How can we better support credit officers?
- How faithfully are programs, policies, and procedures carried out by credit officers?
We found credit officers of these five institutions to be primarily socially motivated; they work for these organizations “to help people.” Their relationships with clients are crucial for client as well as organizational success. For example, the relationship creates both mutual satisfaction of clients and credit officers; on the other hand, the relationship can create huge risks of dissatisfaction and drop-out when the relationship is weak or falters for any reason. Therefore, these relationships can make or break client recruitment and retention. Product attributes and relationships with credit officers are intertwined. For example, a strong relationship between the client and the credit officer can overshadow poorly designed or less competitive products and services; however, poorly designed products and services also strain the relationship between the client and the credit officer. Products and services that respond to the clients’ needs better are an aid to building a stronger relationship between the client and the credit officer. The client’s relationship with the credit officer therefore deserves more attention than it normally receives when evaluating client satisfaction and outcomes.
> Posted by Olivia Caverly, Microinsurance Network
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.”
The microinsurance sector has grown rapidly over the past 10 years and is expected to double by 2020, producing coverage for over 1 billion people. With it, this significant growth brings new and exciting innovations in products addressing health, agricultural, and property insurance, as well as new business models that find unique delivery methods to be sustainable.
Endowment Products Assist People to Finance Their Old Age
As life expectancy continues to rise globally, endowment products, which pay a lump sum upon maturity or death, are becoming more relevant. People need to find ways of financing their old age. Historically, standard endowment products have had limited uptake because of their lack of value compared to other saving options, mainly due to the high commissions that agents are paid. However, a new wave of products combining savings and insurance are becoming popular.
These new endowment products are more appealing to low-income clients because they counter the notion that investing the money is in “vain” when the insured event doesn’t happen. They do this by combining insurance with savings over time. Grameen Shakti, SBI Life Insurance’s product, for example, bundles a term life product that is the same price regardless of the age or gender of the policy holder, with a cash benefit on survival of the pre-determined policy term. The simple terms of the product, which include limited choices of term and of death benefit, help it reach a wider audience by allowing people who might be less familiar with insurance to better understand what they are paying for. Grameen Shakti is now offered throughout India (Rusconi).
Technology Plays a Key Role
Technology has proven to be a huge enabler for microinsurance distribution, especially through mobile telephones. This is particularly true for those microinsurance target customers who reside in rural and semi-urban areas of developing countries with limited access to traditional sales and management methods.
> Posted by Elisabeth Rhyne, Managing Director, CFI
Impact investing as a sector is still very, very young, according to Sean Foote, Managing Director of Labrador Ventures (a venture capital firm), syndicated lecturer on microfinance at the University of California Haas School of Business, and member of the Center for Financial Inclusion’s Faculty Council. I recently heard Foote make the following assessment of the sector, speaking, as he noted, with his venture capitalist’s hat on.
First challenge: Impact investing is not yet mobilizing much funding from the true private sector. By far the majority of the funds currently counted as impact investing are coming from development finance institutions and major foundations – very much like microfinance investing 15 years ago.
Second, and related challenge: Foote noted that the size of most funds is often too small for mainstream investors to be able to handle. While the average impact investing fund is perhaps near $40 million, and the median is smaller, the average venture capital fund is closer to $200 million. Not only are the sizes of impact funds not commensurate with the scale of the social challenges they target, at this scale the cost of fund management takes a relatively big bite out of returns to investors.
Third challenge: Impact investing does not yet have the kind of “ecosystem” needed to support companies as they move from initial idea testing through to scale-up. The venture capital world involves multiple funds that specialize in specific slices of the business growth process, from pre-commercial angel investors to later stage funds that can invest and then supply expansion capital. In addition to the money, such an ecosystem provides tailored mentorship to entrepreneurs, contributing to the rate of business success.
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
Biogas toilet made possible through WaterCredit
An estimated 2.6 billion people in the world lack access to basic sanitation. This reality is a root cause of much sickness and disease throughout the developing world. Like many things, water and sanitation problems disproportionately affect women and children. According to data from WHO/UNICEF, women globally spend an estimated 200 million hours each day collecting water, a child dies every 20 seconds from a water-related illness, and girls often do not attend school during menstruation, or drop out at puberty, due to the lack of clean and private sanitation facilities.
I had never thought much about how toilets might relate to microfinance but lately water, sanitation, and toilets seem to be all I read about.
I was vaguely aware of the efforts of WaterCredit.org to put microfinance tools to work in the water and sanitation sector by connecting MFIs with communities in need of clean water and toilets. I also knew a little bit about Peepoople, the makers of Peepoo, a personal, single-use, self-sanitizing, fully biodegradable toilet that after use, turns into fertilizer that can improve livelihoods and increase food security. This product is not only improving health and livelihood but has also created a series of work opportunities, both formal and informal. Read the rest of this entry »
> Posted by Sonja E. Kelly, Fellow, CFI
Courses featuring microfinance can be found in most colleges or universities, and the development of the syllabi for these courses has begun to create a sort of “microfinance canon.” As the next generation of microfinance professionals enters the market, there are a few things that many of them have read, and a few questions that many of them have been required to consider.
I took 10 syllabi (a small sample size, admittedly) and looked for trends in what is being taught, what is being read, and what is being assigned. Here are a few things I found:
- Students are reading Collins et al., Armendariz and Morduch, and Rhyne more than any other authors (Helms was a close fourth). These three authors represent a nice diversity of method and emphasis. Collins et al.’s Portfolios takes more of a client perspective, Armendariz and Morduch explain the more technical nuances, and Rhyne offers a more practical business approach.
- Guest speakers are a major part of class time. Given that microfinance is still very much practitioner (rather than academic) oriented, it is no surprise that guest speakers are used quite frequently in class time. Most, if not all, of these speakers are in top positions at well-known microfinance institutions.
- Assignments range from case study examples, to policy briefs, business plans, and product designs. In a few of the syllabi, students were required to make presentations, including one that assigned an investor pitch in lieu of a final exam.
Beyond these content-related observations, I noticed that microfinance classes don’t seem to have an agreed-upon disciplinary “home” in academia. Classes are typically hosted in business, economics, public policy, and international relations departments. In addition (and this is probably related), professors tend to not be tenure-track academics. Often, they are involved in microfinance as practitioners in some way.
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