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> Posted by Mary Ellen Iskenderian, President and CEO of Women’s World Banking, and Michael Schlein, President and CEO of Accion, who are Co-Chair and Founding Member, respectively, of the Microfinance CEO Working Group
The following post was originally published on the Microfinance CEO Working Group blog.
As leaders of international organizations dedicated to financial inclusion, we welcome and support initiatives that hold the microfinance industry to the highest standards of client protection, social performance, and pricing transparency. This is the principal reason why the members of the Microfinance CEO Working Group came together – a shared commitment to these principles as well as a shared recognition that enforcing them takes work that none of us can do alone.
When our group first formed in 2011, we scanned the landscape of actors and initiatives working to enforce high quality microfinance industry standards. Chuck Waterfield and MFTransparency (MFT) stood out. Pricing transparency is widely considered the most challenging standard to uphold in our industry, and there was no denying that Chuck and his small but dynamic team had created something unprecedented with MFT.
Publicly reporting pricing information is extremely complicated, which is why all industries struggle with it. The microfinance industry, however, is actually further along than most, and that is largely due to MFT’s efforts. Chuck and his staff developed a methodology to present credit pricing information in a clear and consistent way, so all stakeholders can learn the true price of credit products for clients. As a direct result of MFT’s methodology, microfinance institutions in many countries now report their pricing data. Multiple institutions also reduced their prices after publishing data and determining that they were out of line with other institutions in their market. Since MFT has been operating, many governments have also started to require pricing transparency in their regulation of the microfinance industry.
> Posted by Ana Ruth Medina, Lead Specialist, Accion
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It is not a secret that, in Latin America, we are behind in terms of savings culture. Too few microfinance institutions offer savings. Among the savings accounts that do exist, dormancy is widespread. Compared to other regions, the average deposit in Latin America is quite large¹, illustrating that the institutions that do offer savings aren’t necessarily serving the underserved client segment. For the last four years, Accion partnered with financial institutions in Latin America, in a project funded by the Bill & Melinda Gates Foundation, in order to mobilize savings at the base of the pyramid (BoP). The objective of this project, beyond impacting the lives of thousands of clients, of course, was to strengthen the institutional capacity within Accion’s partner organizations to expand beyond their focus on lending. How successful were we?
Some overarching results of the project included: four new savings products (one received the 2013 Accenture Prize for Innovation); implementation of institution-wide communication, education and brand models; and creation of distribution channels for deposits (including ATM’s, non-banking correspondents, and branches specialized in savings). Best of all: enrollment of more than 700,000 new and active savings clients.
The following post was originally published on the Microfinance Gateway.
As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks.
The Center for Financial Inclusion at Accion has recently announced a partnership with The MasterCard Foundation to launch the Accion Africa Board Fellowship program. The new program will promote peer-to-peer learning on governance and risk management practices at financial institutions that serve low-income clients in sub-Saharan Africa, a region with more than 6.6 million microfinance clients.
We spoke with Beth Rhyne (left), Managing Director of the Center for Financial Inclusion at Accion, and Ann Miles (right), the Director of Financial Inclusion at The MasterCard Foundation, to learn more about their vision for the program.
Good governance helps an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. Why do you think the microfinance industry in Africa needs such a program at this time?
Miles: Good governance begins at the top of any organization. The policies that are set, and the signals that are sent, by board members and CEOs permeate throughout an organization. They are a major component, perhaps the major component, in determining how an organization succeeds in its given mission. So, how a board does its work is critically important, and it’s something that we at The MasterCard Foundation care about a lot.
> Posted by Rishabh Khosla, Tahira Dosani, and Vikas Raj, Accion Venture Lab
Small businesses are the engine of employment, contributing up to 85 percent of new full-time jobs in low-income countries, and two out of three new jobs in countries like the U.S. The IFC finds a strong correlation between the health of the small business community, economic growth, and poverty alleviation.
Despite these Herculean responsibilities, micro, small, and medium enterprises (MSMEs) the world over struggle to access the financing they need to maintain cash flow, hire new employees, purchase new inventory or equipment, and grow their businesses. The IFC estimates that the unmet demand for MSME finance in emerging markets is $2.1-2.6 trillion (around 1/3 of outstanding loan balances to this segment). Unlike larger firms that can access capital markets, MSMEs must seek financing from banks or non-bank finance companies (NBFCs). Yet traditional lending approaches often fail to address this “missing middle” because the cost of diligence and underwriting is too high relative to the potential revenues from the smaller loans that MSMEs need. This situation is worse in emerging markets because of a lack of reliable financial data and high levels of informality. According to the Harvard Business Review, the financial crisis only exacerbated the situation: borrower balance sheets are still recovering, and banks, faced with new regulatory requirements, have reduced the share of lending to MSMEs in 9 out of 13 OECD countries.
> Posted by Carol Caruso, Senior Vice President, Channels and Technology, Accion
Guatemala presents great potential to advance financial inclusion through the adoption of digital financial services (DFS). Only 22 percent of the population has a bank account with a formal financial institution – in most cases one of the three largest commercial banks – while almost every Guatemalan household has a mobile phone (8.8 million unique subscribers among a total population of 15.5 million). Yet most financial transactions are still conducted at bank branches. The logistics challenge of reaching isolated rural communities results in high distribution costs for the banking sector, hence it is no surprise that in 2012 Fitch Rating described the banking system as highly inefficient.
Some innovation in delivering financial services has taken place in the last few years. A few banks have implemented agent networks and the three mobile network operators now offer mobile financial services. But the results achieved are far from what the players and the supervisory authority were expecting in terms of usage and increased financial inclusion. For example, the leading mobile money service, Tigo Cash, is being used by MFIs in a limited way. Instead of empowering clients to use the available mobile wallet, clients primarily use Tigo agents for cash-in/cash-out transactions. While this over-the-counter (OTC) service through an expanded distribution channel has benefits and works in nascent environments, it is far below the potential of DFS in Guatemala.
> Posted by Abhishek Agrawal, India Country Director, Accion
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Over the past two years, CFI’s three MFI partners in India have included over 13,000 persons with disabilities (PWD) as clients in mainstream financial services, helping them become economically active. Almost all of these clients were first-time borrowers.
CFI and Accion, with our knowledge partner v-shesh and MFI implementation partners – Annapurna based in Odisha, Equitas based in Tamil Nadu, and ESAF from Kerala – have been working on the financial inclusion of persons with disabilities over the past two years. This working group created tools and an operating model for MFIs to incorporate PWD as staff and clients. The recommendations, which include policy changes in non-discrimination and other areas, are being piloted at the MFIs. Disability awareness trainings have been conducted for over 100 MFI staff across the country. Over the next several months these staff will train another 6,000 frontline MFI staff.
> Posted by Alexandra Rizzi and Sonia Arenaza, Deputy Director of the Smart Campaign and Director of Accion Channels and Technology
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This is the first of two blog posts about responsible digital financial services, on the occasion of the Responsible Finance Forum in Perth, Australia.
The Smart Campaign has watched with excitement as new forms of digital financial services (DFS) stand poised to bring financial access to millions of lower-income households previously excluded from the financial system. The potential benefits of this new ecosystem are enormous and include an array of positive outcomes ranging from lowered transaction costs to consumption-smoothing, among many others. Nevertheless, the excitement over new possibilities must not obscure the need to evaluate and respond to new risks to clients.
In an ongoing mapping exercise conducted by the Smart Campaign and Accion’s Channels and Technology team, we identified various things that can go wrong for clients of DFS, such as:
- Clients lose their funds after an agent fails to take proper security measures or after a service outage
- Agents charge unauthorized fees for transactions under guise of complicated pricing and fees
- Clients lack or are not offered adequate customer care channels
- Lack of data privacy due to clients not being informed or misinformed on how their data and history is being used or shared
- Agents lacking liquidity serve only their favored clients
While these risks are grounded in anecdotes from the field, there is still much more evidence needed on the consumer harms that actually happen, including where they happen and how often. The Responsible Finance Forum in Perth will host several sessions that present demand-side evidence to help identify high priority risks.
But, what then? Once risks are known, how best to try to minimize them?
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on The WorldPost blog of The Huffington Post.
In a recent retrospective, Rich Rosenberg called Pancho Otero, the founding leader of Bolivia’s Prodem and BancoSol, a genius. With Pancho’s sudden death last month, I find myself surprised to speak with many people who work in microfinance or financial inclusion today but do not know about Pancho’s genius. And so, I would like to take this moment to tell the story of who Pancho was and what he accomplished.
Genius can be applied in many spheres, from art to action. But all notions of genius share the idea that a genius sees beyond the things ordinary people see and works in some extraordinary way to bring that vision into being, disregarding conventional boundaries. I think Pancho would have enjoyed this thought about genius, by seventeenth century English author Jonathan Swift, “When a great genius appears in the world you may know him by this sign; that the dunces are all in confederacy against him.” But that is the end of the story, not the beginning.
In 1986 Pancho was hired by Accion to start a microenterprise lending organization in Bolivia. His signal accomplishment was to create an organization that was so good at what it did that it gave rise to the idea – and then the reality – that a microfinance operation lending exclusively to the poor could become a full fledged commercial bank. And when Prodem launched BancoSol, Pancho became President of the first private commercial bank in Latin America dedicated to the microenterprises of the poor. BancoSol, in turn gave impulse to the transformation of microfinance NGOs into financial institutions all over the world and set the ball rolling for the widespread commercialization of microfinance.
> Posted by Elisabeth Rhyne, with input from Liza Guzman and Leonardo Tibaquira of Accion
Accion has made a concerted effort over the past few years to promote savings among its partners and affiliates around the world, and those organizations have racked up some impressive statistics. There are 2.9 million savers using the 17 financial institutions associated with Accion that have savings operations, and the total amount on deposit is nearly $4 billion (data as of September 2013). The average savings amount, at $1,376, is uncannily similar to the average loan, $1,460.
But behind these numbers lies a very different story that reflects deep-seated cultural differences in the approach to savings among Latin American and African microfinance institutions – and their customers.
Several of Accion’s Latin American partners are mature commercial banks or finance companies that started with a strong microcredit orientation and subsequently gained the approval to accept deposits. At this point, several have somewhat more savers than borrowers, and loan portfolios mainly funded by deposits. As would be expected, average loan sizes are several times the size of average savings.
On the surface, Accion’s four newer and smaller partners in Africa look similar, though the ratio of savers to borrowers is higher (5-10 times as many savers as borrowers), and average savings balances are a smaller fraction of average loan sizes. The loan portfolios of two of the four are fully savings-financed; the other two require some outside funding.
Looking more closely at the Latin American institutions, one might at first think that they have reached the elusive goal of offering a balanced set of savings and credit services to their base-of-the-pyramid clients. However, a large portion of the accounts included in the total above are dormant, with balances less than $1. In half the institutions, over 70 percent of the accounts are dormant. Dormancy is prevalent among savings accounts in banks everywhere, but in these institutions the level is higher because many of the accounts were created as loan disbursement and repayment accounts. They were not regarded by either provider or customer as saving vehicles. Despite the large number of accounts, most of the actual savings comes from a relatively small number of term deposits, including large deposits from institutions.
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