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> Posted by Anne Hastings, Manager, Microfinance CEO Working Group
The CEOs of eight leading global microfinance networks – Accion, FINCA, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking – made six significant commitments at the Microcredit Summit Campaign’s Partnerships Against Poverty Summit last week in Manila. These eight CEOs make up the Microfinance CEO Working Group. Together they represent more than 250 retail microfinance institutions in 70 countries globally and provide financial and often non-financial services to more than 40 million families.
Here are the commitments:
1. Client Protection: Encourage all affiliates to progress toward Smart Campaign certification and be on a pathway toward certification by the end of 2014.
2. Pricing Transparency: Motivate our affiliates to commit to pricing transparency and integrity by agreeing to publish their pricing data using standard methodologies, such as those developed by MicroFinance Transparency, in order to allow investors and clients to make informed decisions.
3. Social Performance: Promote the Social Performance Task Force’s Universal Standards for Social Performance Management among our affiliates and commit to supporting their compliance.
> Posted by Sonja E. Kelly, Fellow, CFI
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Since Sendhil Mullainathan is speaking at our Financial Inclusion 2020 Global Forum in two weeks, we ordered a few copies of his new book with Eldar Shafir to pass around the office. As a result, the hypotheses of Scarcity are informing our thinking both on our own habits and on financial inclusion.
The title of the session in which Mullainathan, a Professor of Economics at Harvard University, is speaking is “Why Financial Inclusion Means More Than We Ever Knew.” A mouthful, yes, and a bit mysterious. To unravel the mystery, one has to start with Mullainathan’s hypothesis that scarcity of some kind of resource—money, time, even social relationships—brings about an intense focus on the scarce resource, a focus that has negative effects on the way we think and act in areas of our lives outside that of the scarce resource. If this is true, financial inclusion is a game-changer that both prevents scarcity and alleviates its effects.
On first reading, Mullainathan and Shafir’s book seems to apply immediately to my own life. In my case, a scarcity of time means that I often adopt a focus on time and resulting tunnel vision for the task at hand. This focus has some positive effects—I produce work much faster than I would if I had more time. And it has some negative effects—I forget special events like my closest friend’s birthday (I’m sorry, Sarah! Does mentioning you in this blog post make up for it?). In essence, the authors contend that the single-minded focus that severe scarcity creates absorbs so much psychic energy, mindspace, bandwith, or whatever you may call it, that rational decision-making suffers.
This tunneling—devoting a great deal of bandwidth to a single resource—produces intense focus on the scarce resource, but also catastrophic failure on the things that get neglected to make “space” for such a focus.
> Posted by Luis Fernando Sanabria, Gerente General, Fundación Paraguaya
Imagine a school in a developing country where… Students get a high-quality, practical education while learning to run competitive small-scale enterprises. Students learn by doing, earning, and saving. Students graduate with the entrepreneurial and life skills they need to make a decent living and overcome poverty. And school enterprises generate the resources needed to ensure their school’s long-term financial sustainability.
This school is not a dream. It is called the San Francisco Agricultural School, and it is located in the town of Cerrito, Paraguay.
In 2003, the San Francisco Agricultural School adopted a unique approach to education: it set its sights on becoming a financially self-sufficient agricultural school. This model, developed by Fundación Paraguaya, gives low-income students primarily from rural areas the opportunity to get a high-quality, relevant secondary education while learning practical technical and business skills. To achieve these goals, financially self-sufficient schools teach students to operate real businesses, with the goal of generating enough income for schools to become financially self-sustaining.
Schools following the financially self-sufficient school model use a “learning by doing, selling, and earning” methodology, through which students get hands-on experience running their school’s microenterprises, marketing the goods and services produced, and saving in student cooperatives. Students spend half their time in the classroom and half in practical activities in school enterprises, learning not only how to produce efficiently but also how to package, sell, and market their products to meet demand. The schools are generally managed by principals with business backgrounds who coach subject teachers in entrepreneurship and business management.
> Posted by Center Staff
Today at the World Bank annual meetings, Jim Yong Kim stated, “We will use our knowledge to become a bolder institution. Let me give you one example. We’re launching today an initiative to provide universal financial access to all working-age adults by 2020. Globally, 2.5 billion adults have no mechanisms to save money, let alone pay bills through a savings account or a mobile phone. We believe we can chart a path toward universal financial access by bringing together multiple approaches and technologies. This is exactly the type of ambitious project that can help lift many people, especially women, out of poverty.”
We at Financial Inclusion 2020 are excited and heartened that the World Bank is willing to join us in the call for full financial inclusion by 2020.
Stand by for more on what this means for the World Bank and the world’s financially excluded next week.
> Posted by Jami Hubbard Solli, Senior Policy Advisor, Consumers International UK
We originally published “D” Is for Default a few weeks ago in English. We’re pleased to now share the post in French and Spanish, made possible by the Smart Campaign’s Nadia van de Walle and Laura Galindo, respectively. Read the post in French here, and in Spanish here.
What really happens to microfinance clients who do not repay their obligations?
As a late-comer to microfinance in 2005, I bustled from the Boulder training, to the Blue Book conferences, to the MicroCredit Summits (and back), trying to understand the dynamics of microcredit. At all these events, I heard proclamations of very high repayment rates, which sparked curiosity about what happened to that small percentage of borrowers who couldn’t (or wouldn’t) repay their microloans. This topic wasn’t presented at any conference I attended.
There has been industry research done on why clients default, as well as interesting work highlighting the gap between providers’ and borrowers’ perceptions and experiences related to over-indebtedness.¹ However, there is very little work done that details the actions taken by practitioners when a borrower doesn’t repay, nor on the experience for defaulting clients in the short-term, or over time.
The knowledge gaps on default management include what providers actually do, as well as what influence (if any) legal and regulatory frameworks have on industry practices. For example, what guidelines or boundaries does a country’s legal framework offer on debt collection? Is there a prescribed manner in which MFIs can collect a past due debt, including how to go about the seizure, valuation, and the sale of collaterals? Is there a limit to the length of time which a borrower is legally responsible for a debt? What are MFI practices regarding collection post write-off? Are there any insolvency or personal bankruptcy provisions available to debtors, either by law, or through voluntary debt counseling centers? More importantly, if the legal framework does exist, is it enforced? Are MFIs aware and in compliance with requirements? And, lastly, there does not appear to have been any industry research on the consequences of default from the client perspective.
> Posted by Center Staff
After months of planning, the Financial Inclusion 2020 Global Forum, October 28-30 in London, is coming into view. We’ve shared a few rounds of Forum updates here on the blog over the past weeks (see here and here), and we’re happy to report that more exciting new speakers have been confirmed, and more side sessions have cropped up. Here are the new speakers:
- Luis Gallegos, Permanent Representative of Ecuador to the U.N. Office at Geneva
- Bill Sheedy, Global Executive, Corporate Strategy, M&A, Government Relations and Europe, Visa, Inc.
- Edward Effah, Managing Director, Fidelity Bank
- Alexia Latortue, Assistant Deputy Secretary for International Development Policy, U.S. Treasury
- Carlos Lopez Moctezuma, Global Director for Financial Inclusion, BBVA
- Jean-Claude Masangu, Former Governor, Banque Centrale du Congo
- Bindu Ananth, President, IMFR Trust
- Nachiket Mor, Chair, Reserve Bank of India Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households
- Tony Goland, Director, McKinsey & Company
- Isaac Awuondo, Group Managing Director, CBA
- Gino Picasso, CEO, GloboKasNet
Complimenting the core agenda, there are a number of side sessions convening before and after the Forum. As we’ve mentioned, there will be two special side meetings on financial inclusion for persons with disabilities held before the Forum, the evening of October 27 and the morning of October 28. The event of the 28th, which is open to Forum participants and the public, is a panel of international experts that includes Luis Gallegos.
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
Pro Mujer Mexico delegation at certification award ceremony held last week in conjunction with 2013 Foromic conference in Guadalajara
The Smart Campaign is pleased to announce that three Latin American institutions became Client Protection Certified at the close of September 2013. These three institutions are Crezcamos and FMM Popayán, both from Colombia, and Pro Mujer Mexico. These are the first institutions in the Latin America and Caribbean region to receive certification. We congratulate each of these institutions for their hard work and exceptional commitment to the fair treatment of their clients, as demonstrated in meeting the standards needed for certification.
The Smart Campaign launched Client Protection Certification in January 2013. The three new certified institutions bring the number of certified organizations to nine. The institutions that were certified earlier this year are:
- Cashpor, India
- Grameen Koota, India
- Ujjivan, India
- Partner Microcredit Foundation, Bosnia & Herzegovina
- Mi-Bospo, Bosnia & Herzegovina
- EKI, Bosnia & Herzegovina
When undergoing a certification mission, an institution is evaluated by one of the four licensed certifying agencies: M-CRIL, MicroFinanza Rating, MicroRate, or Planet Rating. To become Client Protection Certified, an institution must meet the 30 standards of care for client protection based on the seven Client Protection Principles.
> Posted by Solana Cozzo, LAC Prepaid Head, Senior Business Leader, MasterCard Worldwide
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Promoting the delivery of solutions that boost the financial inclusion agenda, especially in Latin America and the Caribbean (LAC), is a shared goal that I am truly passionate about. Thankfully, advancing financial inclusion is a key driver at MasterCard, and through my affiliation with organizations such as Accion and the FI2020 movement, I am a firsthand witness to many effective programs that are moving our region, and our world, closer to being financially inclusive.
Notable work has been done recently in the government-to-person (G2P) payments space in LAC. Through efforts in this region, as well as elsewhere, there is now little doubt that in countries where financial payments infrastructure is underdeveloped the introduction of government electronic disbursement schemes via public-private partnerships helps spark the growth of broader payments and financial services ecosystems that benefit many.
In Brazil, for example, switching to electronic benefits cards helped reduce the administrative costs of Bolsa Familia (Brazil’s social welfare program) nearly seven-fold, from 14.7 percent to 2.6 percent of grant value disbursed. Overall, CGAP estimated that switching from cash to electronic delivery via agent networks generates roughly 40 percent in savings per transaction – cost savings that can be used to serve the poor.
In Argentina, the integration of electronic disbursements not only facilitates greater scope and convenience, but also provides a sense of dignity and security. The percentage of social benefits recipients who said they paid a bribe to local officials to access their benefit dropped from about 4 percent to less than 0.5 percent after the Ministry of Social Development moved to an electronic benefits card. An estimated additional US$11 million now gets into the hands of intended recipients.
Another notable electronic social payments initiative in LAC, which demonstrates the integral role of industry players alongside government, is from Davivienda, a local bank in Colombia. Davivienda is integrating their Daviplata mobile banking service into social benefits disbursements. The use of mobile money in social benefits programs has gained significant popularity in Colombia. In fact, about a third of all disbursements of Familias en Accion, the biggest conditional cash transfer program in Colombia, are now utilizing mobile technology.
> Posted by Nora Dowd Eisenhower and Naomi Karp, Assistant Director of the Office for Older Americans and Policy Advisor, CFPB
The following post was originally published on the Consumer Financial Protection Bureau Blog.
An older Oklahoma resident began receiving sweepstakes offers in the mail after her 90-year-old husband moved into a nursing home. Just send $50, $100, $2000, even $5000 to claim your prize, they promised. When she asked a bank employee to help her send a large amount of cash in the mail, the bank investigated. It turned out the older customer had been writing as many as 90 checks a month to collect promised prizes that never materialized. The bank contacted the Postal Inspection Service to investigate and the authorities intervened.
A 98-year-old lawyer was scammed by a purported friend who loaned him office space and then accessed financial records stored there. When the older man was hospitalized for hip surgery, the 76-year-old friend drained $330,000 from bank accounts and used the money to pay for a trip to Puerto Rico and purchases at a variety of stores. Ultimately, the victim’s banks alerted authorities because of concerns about unusual activity on the accounts.
As we travel the country, we hear more stories of banks, credit unions, money transmitters, and other financial services providers spotting financial abuse targeted at older adults. Some of these are success stories like the ones we just shared: the financial institution makes a timely report, and authorities can prevent the theft, prosecute the perpetrator, and help the victim.
But sometimes financial institution personnel are confused. They want to help protect the consumer, but are unsure whether privacy laws allow them to share a consumer’s personal information with law enforcement and other authorities that can take action.
> Posted by Madeleine Dy and Danielle Piskadlo, Program Specialist and Senior Program Specialist, 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.
It’s heating up—maybe not in terms of the weather but certainly in terms of growth and competition for many microfinance institutions (MFIs). And as growth and competition rapidly increase in many countries, there are many potentially serious risks and impacts that MFIs need to take into account. As we have seen in the crises in Andhra Pradesh, Nicaragua, and Morocco – to name a few – microfinance is risky business, and it can be argued that many industry failings result from poor risk management and oversight. It might also be fair to say that risk management didn’t garner much attention before because times were good, but now, as more markets heat up, it is important that we learn from past mistakes, and focus the necessary resources to implement preventative risk management measures.
To provide MFIs with the risk management resources needed to help tackle this challenge, we are excited to announce that Risk Management was recently added as a “Hot Topic” on the Microfinance Gateway! The risk management resources now available through the Microfinance Gateway were compiled by a dedicated team of Credit Suisse Virtual Volunteers¹ in coordination with the newly established Risk management Initiative in Microfinance (RIM)², which was created to raise awareness as well as develop best practices and appropriate standards for risk management in microfinance globally.
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