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> 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:
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> 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 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 Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign
This is the fourth and final blog entry in a series exploring how financial services can be leveraged to assist refugee populations. This entry will consider the future of refugee financial services and what our sector can do to ensure that the future is an inclusive one that serves genuine needs and protects refugee rights.
Syrian refugees shop at a market with their bank card given by the Turkish Red Crescent.
It is worth asking whether the financial inclusion sector is at the forefront of the movement to financially include refugees. The humanitarian sector has long struggled to determine how to provide assistance during a crisis in a way that is sustainable, effective, and accountable. Recently, humanitarian organizations such as Oxfam and the International Finance Corporation (IFC) have begun considering whether it’s possible to use payments as an on-ramp for financial inclusion of refugees. Cash transfers have historically facilitated corruption and failed to make it into the hands of the people who needed it most. In-kind donations of goods such as tents, food, sleeping material and other items undermined local merchants who made their livelihoods selling these very goods. In response, the sector has begun experimenting with digital financial payments. In Afghanistan, for example, the World Food Program (WFP) has issued e-vouchers and mobile money to cover food aid. The first e-voucher pilot was carried out on a small user base of 603 recipients in Kabul for a three-month disbursement cycle from April to June 2014. The total value of e-vouchers disbursed was US$72,360. The program proved successful and the WFP launched several follow-on pilots across the country in the subsequent year.
> Posted by Ellen Metzger, CFI
Before joining the Center for Financial Inclusion at Accion, I spent four years in rural East Africa managing an ultra-poor graduation program. At Village Enterprise, we focused on savings group creation and distributed conditional cash transfers rather than livestock (as is customary with graduation programs) in order to empower choice and facilitate ownership among our participants. Over years of traveling the bumpy back roads of Uganda and Western Kenya meeting with hundreds of savings group members, I met very few participants who went beyond their local savings groups to take loans from financial institutions such as MFIs. Those few who did created great success stories. In light of the recent article “Your Inflexible Friend” in The Economist, which offers a review of microlending’s history, I reflect on why we don’t see microlending in the rural areas of Uganda and Western Kenya and how that can change.
A good reputation is critical. In these areas, tragic stories of delinquencies and defaults travel faster and are remembered longer than stories of success. In Kenya especially, where there is more competition in rural areas among financial institutions than in Uganda, reputation precedes the products and services. These reputations can vary dramatically every 5 kilometers you travel. When groups are asked about being linked to a particular financial institution, one community will trust the organization, the next community a few kilometers away will cringe at the name. Microfinance institutions are extremely sensitive to fluctuations in trust, so it’s imperative for them to design trustworthy products and ensure adequate follow-through on their services every time.
> Posted by Jeffrey Riecke, Communications Specialist, CFI
In the Delhi area, nearly 2,000 schools experienced multiple-day closures; construction and demolition was halted; almost 10 percent of workers called in sick; the government advised individuals to stay indoors as much as possible; and shops ran out of masks. India’s capital is reportedly experiencing its worst smog pollution in 17 years. This isn’t a mere inconvenience in terms of visibility or quality of life. This is an enormous threat to the health of the nearly 22 million people who live in the Delhi metropolitan area.
Air pollution levels are currently at 30-times the acceptable level set by the World Health Organization (WHO). And in India, air pollution is the leading cause of premature death, with about 620,000 people perishing each year from pollution-related diseases. Globally, among children under five years of age, nearly one million die from pneumonia each year and roughly half of these deaths are directly linked with air pollution.
> Posted by Center Staff
“Despite its recent years of rapid growth, Islamic finance is still in its early stages of development,” the World Bank wrote last year. Today in 2016, this is still the case, but this banking segment is certainly demonstrating advances that might suggest otherwise.
Today and tomorrow in Nairobi, delegates from 35 countries are convening to attend the Global Islamic Microfinance Forum. The event, hosted by the AlHuda Centre for Islamic Banking and Economics, seeks to explore the latest developments and trends in the sector, catalyze innovation in the industry, and boost awareness on how Islamic finance can support social development and poverty alleviation. Once the forum concludes there will be a two-day workshop on how to develop, operate, and sustain Islamic microfinance institutions.
Islamic finance has grown at roughly 10-12 percent annually over the past decade. Between 2011 and 2014, Sharia-compliant financial assets rose from US$ 1 trillion to 2.1 trillion. In many Muslim countries, Islamic finance assets have been growing faster than conventional banking assets. In non-Muslim-majority counties, Islamic finance has also seen substantial progress breaking ground in new countries and growing in already-established markets, including China, Kenya, Nigeria, Tanzania, South Africa, and the U.K. It’s estimated that there are over 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries.
> Posted by Christy Stickney, Independent Consultant and CFI Fellow
After decades of directing financial services to micro-enterprise owners, many microfinance institutions are finding that some of these enterprises have grown and that they’re now serving an expanding number of small business owners. With increasing global attention being directed to small and medium-sized enterprises (SMEs), it is fitting to look more deeply at what can be learned from entrepreneurs whose businesses started as microenterprises, grew, and can now be classified as SMEs – with a substantial number of employees. More specifically: Who are these entrepreneurs? What kinds of businesses do they operate? What have been their growth patterns and hurdles? And how have they utilized financial services to further their growth aspirations?
These are the questions that guided my research fellowship for the Center for Financial Inclusion. As part of my study I gathered institutional data and conducted in-depth interviews with clients of three leading microfinance institutions in Latin America: MiBanco, Banco ADOPEM, and Banco Solidario. The clients I focused on had all experienced significant loan size growth over several years.