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> Posted by Anna Kanze, Chief Operating Officer, Grassroots Capital Management, and Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
2016 has been dubbed “the year of IPOs” in India: as of September, there had been 21 initial public offerings (IPOs) worth nearly $3 billion, according to Indian news source Livemint. Among these are two high-profile IPOs for microfinance institutions (MFIs): Equitas Financial Holdings and Ujjivan Financial Services. IPOs are seen as the hallmark of commercial success, but in those industries like financial inclusion that are driven by social missions, inevitable questions arise over whether organizations can preserve their double bottom line priorities when they go public. The cases of these two Indian MFIs offer some answers to this increasingly pertinent question.
But before we get to that, let’s look at why these institutions went public in the first place.
Never waste a good crisis, right? In 2010, when the Andhra Pradesh crisis froze microlending in India, regulators and MFIs rose to the occasion and implemented measures that restored confidence in the microfinance industry and helped cement the social mission of microfinance in India. Most notably:
- Social Standards – In an effort to promote responsible lending, a group of the largest for-profit MFIs in the Indian microfinance sector formed the Microfinance Institutions Network (MFIN). MFIN developed a Code of Conduct by which members commit to client protection, ethics, and transparency, and the group began to “self-police” adherence to responsible lending principles.
- Credit Bureaus – The members of MFIN also collaborated with High Mark Credit Information Services to form the first credit bureau to track microfinance borrowing in India. All MFIN members contribute data to the microfinance credit bureau.
> Posted by Isabel Whisson, Deputy Manager, Microfinance Programme and Ultra Poor Graduation Initiative, and Onindita Islam, Management Professional Staff, Microfinance Programme
This year BRAC in Bangladesh became the largest microfinance institution, in terms of number of clients, to be Smart Certified, signifying to our country market and to the industry writ large that we treat our clients with adequate care.
As a non-profit dedicated to poverty reduction, client welfare has been central to BRAC’s mission since its inception in 1972. In Bangladesh in general, almost all microfinance institutions are non-profits, and so microfinance has always been seen as a tool for alleviating poverty in the country.
> Posted by Center Staff
Editor’s Note: A previous version of this post has been one of the CFI blog’s all-time most popular posts. We thought we’d update it with a few more books, and put it front and center once more for readers who might be stocking their bookshelves.
From time to time, we are asked what our go-to books are for understanding financial inclusion and the financial lives of the poor. If we were to list the top three classics that should be on everyone’s shelves, we would recommend the following (feel free to put these on your gift list as we approach the holidays):
- Poor Economics by Abhijit Banerjee and Esther Duflo
- Portfolios of the Poor by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven
- The Poor and Their Money by Stuart Rutherford
What we love about these titles is the insight they provide into the client perspective, a foundational element for anyone working in or supporting financial services. If financial institutions approach their engagement with customers armed with an understanding of customer needs and customer behavior, the financial services industry can be both more responsive and more responsible.
As a refresher, the first five books on the last version of our must-read list were those cited by Stuart Rutherford as his top five on the subject of “The Poor and Their Money”. Rutherford has himself published some of today’s go-to references on this topic (which is why we added his titles above). Rutherford’s favorite books were chosen by him not only for their impact on his work, but also for their ability to place the client at the center of our conceptualization of microfinance. This is important because, as Rutherford himself explains, “microfinance has to find a way to adapt itself to the enormous complexity found in the lives of poor people, and not the other way around.” We continue to appreciate this sentiment, and still think the titles on his list are worth a read:
Read the rest of this entry »
> Posted by Hatem Mahbouli, Investment Officer, FMO
If you’re an impact investor, you probably want to do more in “green”. For instance, impact investing in microfinance, which constitutes a large portion of impact investing writ large, rarely incorporates environmental sustainability. You might think, my second bottom line is to help lower-income households get better access to financial services, why don’t I combine this with access to clean energy? Adding the third bottom line for investors targeting the base of the economic pyramid (BoP), unsurprisingly, has its share of issues and challenges. But, as we’re increasingly seeing, the business case for financing clean energy is strengthening.
What is in it for the microfinance institutions (MFIs)? Over the years, many MFIs have started green pilots and haven’t followed through. Why? Because they didn’t see an attractive enough business case. Because the clean energy infrastructure was not there. Because it was not the right time, internally or in the local market. And the list could go on. There are many reasons not to offer clean energy products and instead stick to traditional mainstream loans.
> Posted by Camyla Fonseca, Knowledge Management Analyst, International Labour Organization
Remember when you were a kid, and your father lectured you about the value of money when you asked him to buy you the new videogame your friend just got for his birthday? You certainly don’t remember how much the videogame actually cost, but you can probably still hear your father’s voice saying money is hard to earn and shouldn’t be spent without caution. Your father may not know, but he used a teachable moment to transfer you some of his knowledge. These are instances when we are more likely to remember something because it was taught when we needed to use that information and hence were most likely to be engaged. A good teacher can leverage or perhaps even create teachable moments by adapting the lesson to the situation.
In the area of personal finance, teachable moments usually occur when someone is taking a financial decision or using a financial service. As a recent report published by the Center for Financial Inclusion notes, individuals are more likely to change their financial behavior or recall information if it is conveyed during these teachable moments. This insight has clear implications on the way financial education interventions are designed. Interactions that happen along precise moments in a financial service provider’s value chain may be more effective than traditional stand-alone classroom interventions. And, financial service providers, due to their repeated interactions with clients at crucial teachable moments, are in a unique position to contribute to financial capability efforts. Every customer touch point is a teachable moment.
> Posted by Sonja Kelly, Director of Research, CFI
A customer waits to collect money at the Juba Express money transfer company in Mogadishu, Somalia.
This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a literature review and conduct interviews with key players in the conversation on de-risking.
This is not a rhetorical question—I really do want to know. As we’ve put out a modest blog series about de-risking, I’ve been thinking about regulations on anti-money laundering and combating the financing of terrorism (AML/CFT). Are stringent regulations and dramatic consequences for non-compliance really necessary? Is it fair to expect the financial system to bear so large a burden? Would it be better for everyone if the onus were on law enforcement to detect and eliminate illicit activity and financial institutions just had to cooperate where necessary?
> Posted by Jayshree Venkatesan, Financial Inclusion Consultant
On November 8, 2016, the Prime Minister of India made an announcement that notes of denominations Rs. 500 and Rs. 1000 would become illegal tender overnight in a move that was termed demonetization. In turn, the government would issue a note valued at Rs. 2000, which would replace the notes taken out of circulation. According to the RBI’s most recent annual report, the total currency in circulation in India was INR 16634.63 billion (~USD 256 billion). The withdrawn notes constituted nearly 85 percent of this currency.
Phasing out old notes and replacing them with new ones is a standard practice followed by central banks globally. In the Indian context, however, there were two factors that contributed to this standard practice resulting in chaos and an economic shock on the poor.
The first was the short span of time given to react. The announcement was made on television after business hours on November 8, and the affected tender was rendered illegal by midnight of the same day. As a result there is enormous pressure on the banking system, and a frenzy of citizens trying to make the necessary adjustments. The second factor was the disproportionately small share of Rs. 2000 notes ready to replace the phased out currency. While the short span of time resulted in an instant shock to several segments of the population that predominantly operate in the cash economy, the limited Rs. 2000 notes translated into a cash crunch that has brought large parts of the economy to a grinding halt.
In its second year, Financial Inclusion Week expanded its reach and once again displayed how the financial inclusion community is engaged and working for better services for the un- and underserved.
We are excited to share an electronic magazine which captures the Week’s vibrant conversation. In this roundup e-zine, we hope to capture the energy and insights of Financial Inclusion Week 2016. Inside, we share event photos and videos, and dive into the conversations of the week’s events, while highlighting the client perspective.
We are excited to share insights on this year’s theme, keeping clients first in a digital world. The Financial Inclusion Week conversation covered a breadth of topics and geographies – from the role of digital media in financial literacy in Nepal to the client protection risks associated with nano-loans in Rwanda. As we listened to the many conversations, two words showed up again and again. Throughout all of the perspectives shared, we observed that many stakeholders are looking to new digital channels to help them understand and engage clients.
> Posted by Misha Sharma, Project Manager, IFMR LEAD
Last week was a rather challenging one for the Indian economy. On November 8, India’s Prime Minister Narendra Modi announced a dramatic demonetization exercise that rendered all Rs. 500 and Rs. 1000 notes void starting November 9, with the objective of curbing black money, corruption, counterfeit notes, and the financing of terrorism – all of which has leveraged these larger currency notes (with values equivalent to about US$7.50 and $15.00).
The next morning saw newspapers flooded with advertisements by e-wallet companies thanking the Indian Government for its visionary move and congratulating the Prime Minister on “taking the boldest decision in the financial history of Independent India.” They even claimed Indians to be the biggest beneficiaries in this exercise, indicating this was a positive step towards solving the problem of financial inclusion and encouraging more and more people to transition to the digital world. Several banks printed front page advertisements praising this move as progress towards a cashless India. A full-fledged commercial bank endorsed the move with the tag line –Who says you need cash to get by in life?
All I could think while reading these advertisements and endorsements is that we couldn’t be any more oblivious, as we are forgetting the plight of those who remain excluded from the formal economy.