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> Posted by Miranda Beshara, Arabic Microfinance Gateway

Alex Silva, Executive Director, Calmeadow

Governance is a business imperative, and investors are willing to pay a premium for effective corporate governance. This was one of the key takeaways from the Middle East and North Africa (MENA) Governance and Strategic Leadership Seminar, held recently in Amman, Jordan. We’ve seen this stated priority of governance in the MENA microfinance market exhibited elsewhere, too. A joint IFC-Sanabel report assessing the top perceived risks facing the microfinance industry in the Arab world uncovered that the market’s stakeholders viewed weak corporate governance structures as one of the more threatening risks out of roughly 30 risk categories. Financial service providers in particular perceive this risk to be rising.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Those who work in the financial inclusion space need a deep understanding of how low income people manage their money, and there is no better guide to develop this understanding than Ignacio Mas, who recently spoke at the Africa Board Fellows seminar in Cape Town. Here are some of his insights.

Unused money is vulnerable if you are poor. You have to protect it from a lot of things – theft, friends and family, and, also, your future self… (Let’s not underestimate the threat of the future you as someone who has the most access to, and authority over, those funds.) And there is no saying how resolved you will stay toward your savings goals. One way to protect any unused money against these threats is to make it less liquid. For example, you could convert your savings into a goat. In many countries, a goat can be sold if an emergency should arise, but you certainly wouldn’t sell or trade it to make an impulse purchase. Or as the vendor I just bought holiday jam from put it: “Making jam is like forced savings for me. I spend it in the summer on jars and sugar and fruit and get it back in December for Christmas shopping money!” These are examples of self-nudges that enable clients to better stick to their goals – one of the seven behaviorally-informed practices for financial capability. These approaches create behavioral roadblocks, so that individuals are able to save with less effort.

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> Posted by Philip Brown, CFI Advisory Council Member and Managing Director Risk, Citi Inclusive Finance

As new opportunities for inclusive financial services continue to grow, they are accompanied by an array of risks, many of which are not fully evident today. Since 2008, the Banana Skins surveys have charted both known risks and those that have previously been overlooked or underrated. The recently released report “It’s all about strategy” is no exception — it surveys a spectrum of participants and gathers their perceptions of the risk in the provision of inclusive financial services.

What does this year’s survey tell us?

Continuous progressive change in service provider business models is not new. But the accelerated pace and diversity of change, coupled with extent of the redesign and transformation process across all aspects of the business model, are shifting inclusive financial service provision. There are changes across the creation and delivery of services, business economics and processes, delivery infrastructure, such as payment systems, mobile networks and agent networks, and strategies for customer acquisition and the targeted customer base. The inclusive finance sector is no longer defined around segment-specific institutions but around the end clients, services provided and the now diverse and growing universe of service providers.

Digital transformation is a pervasive theme in this year’s Banana Skins report, which is a call to recognise the risk of not thinking strategically about all aspects of financial service provision. Across the globe, mobile applications are adding millions of clients versus thousands for established models. Both non-credit products and new forms of credit such as instant nano-credit for pre-paid mobile phone users continue to grow. Rather than viewing disrupters as a threat, one cited respondent positively describes new competitors as facilitators of market development, improving the quality of services and creating pressure to reduce interest rates.

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> Posted by Center Staff

banana.skins.coverWhat do industry leaders feel is the biggest risk facing their institutions in 2016? This question is the focus of the latest Banana Skins report for the financial inclusion sector, Financial Services for All: It’s All about Strategy. The report ranks the top perceived risks facing those providing financial services to un/under-served people in emerging markets. Produced by the Centre for the Study of Financial Innovation (CSFI), and sponsored by Citi and CFI, the study examines the rapidly changing and expanding financial inclusion landscape to better understand how providers view challenges like new technologies, new market entrants, client repayment capacity, and macro-economic risks.

This year’s report, the sixth in the series surveying risks facing the inclusive finance industry, embraces a broader scope than previous editions, which focused exclusively on microfinance institutions. The new report reflects the advances in the provision of financial services to the base of the economic pyramid and encompasses both established providers and newer entrants like commercial banks, technology companies, and telephone and communication companies. A survey with respondents spanning practitioners, investors, regulators, and other industry stakeholders comprise the report’s findings. It’s important to note that in addition to the Banana Skins report series on inclusive finance, there is also a Banana skins report series on insurance and on banking.

So, what were the results?

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With under 40 days to go, the 17th Microcredit Summit is rapidly approaching. CFI’s Josh Goldstein will be speaking during a plenary session focused on new innovations for microfinance and other financial inclusion interventions to more effectively reach the excluded. With the theme “Generation Next: Innovations in Microfinance,” this should be a great opportunity to explore what is on the horizon to achieve full financial inclusion. In this post, Josh discusses industry context surrounding the Summit, and what he hopes he and those in attendance will be able to take away from the event.

I am a sometime skeptic about the proliferation of microfinance conferences, but the upcoming Microcredit Summit in Merida, Mexico seems particularly important and timely. Personally, I am very excited about it. (In the spirit of full disclosure, I should add that I will be a speaker, and of course piqued vanity can certainly lead to bias, but I don’t suspect this is the case here.)

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> Posted by Center Staff

Today, the Centre for the Study of Financial Innovation (CSFI), Citi Foundation, and CFI released the latest Microfinance Banana Skins Report, Facing Reality. The first Microfinance Banana Skins was published in 2008, launching a regular series on risks facing the microfinance industry. This fifth iteration in the series reflects the growing complexity of microfinance as newer players such as technology companies, payment platforms, commercial banks, and others begin to serve those at the base of the pyramid. The new report outlines the risks and opportunities facing microfinance in a fast-changing environment.

Despite these challenges, the number one concern is still an old favorite: overindebtedness, which was also the number one concern in the previous report in 2012.

The report presents the risk perceptions of more than 300 practitioners and close industry observers from 70 countries, gathered through a survey. The report provides a commentary on each of the 19 risks that are identified in the survey and breaks down responses by type and region. It also includes a detailed analysis of the condition and prospects for microfinance by industry experts Sam Mendelson and Daniel Rozas.

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> Posted by Hema Bansal, India Director, the Smart Campaign

As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

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> Posted by Philip M. Brown and Deborah Drake, Citi Microfinance and 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.

What will this year’s Microfinance Banana Skins Survey top message be? We are eagerly awaiting the responses to the recently launched 2014 Microfinance Banana Skins Survey from practitioners, investors, regulators, and other industry stakeholders around the world. These responses will provide insights into the greatest perceived risks facing the sector over the next few years and reveal the risks to be avoided on the path ahead.

The titles of the past four Microfinance Banana Skins surveys paint the picture of continuous sector evolution since the first publication in 2008. If previous titles are any indication, the new headline will set the tone and raise a debate around key risk issues.

Entitled “Risk in a Booming Industry“, the 2008 report highlighted concerns of microfinance institutions about “how to scale” in a healthy way. With changed economic realities, the external environment became the area of focus with “Confronting Crisis and Change” in 2009, and “Losing Its Fairy Dust” in 2011. The most recent survey in 2012, “Staying Relevant,” highlighted the changed setting for microfinance brought on by new entrants and new technologies. The titles and changing risk rankings reflect the increasing integration of microfinance into the broader financial ecosystem, and the challenges that microfinance clients and service providers encounter as the sector evolves.

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> Posted by Andrea Horak, Program Coordinator, 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.

A business can be profitable without strong governance, but can this be sustained? The past has taught us that weak governance practices are often critically detrimental for an institution (see Weathering the Storm and Failures in Microfinance: Lessons Learned). Have businesses and institutions accepted that good governance is positively correlated with profitability? If they haven’t, they should.

The Microfinance Information Exchange (MIX) ran a pilot project in 2011 testing a new set of governance indicators among a sample of 162 MFIs across 57 countries. From the initial findings, the MIX reported that the indicators showed a positive correlation among factors such as the presence of risk management functions, internal auditing, and board committees, suggesting that good governance practices do not exist in isolation.

In “Performance and Corporate Governance in Microfinance Institutions,” Roy Mersland and Reidar Oystein Strom examine the relationship between corporate governance in MFIs and firm performance on social and financial dimensions. In their study, the effects of various board characteristics, ownership types, and the external conditions of competition and regulation on an institution’s client outreach and financial performance are considered. As they analyze each of these relationships, the authors establish that the presence of internal auditors and local directors positively influence the financial performance of MFIs. The MIX data also found a strong correlation between MFIs with executive, risk, and audit committees, and the existence of risk management functions. Of course, as MFIs vary greatly in size, structure, and maturity, it’s also important to recognize that when it comes to governance, one size does not fit all.

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> Posted by Jeffrey Riecke, Communications Assistant, CFI

There are endless ways to measure the successes of a given year. Number of clients reached. Total new stakeholder endorsement. Amount of capital invested… Though when assessing almost anything, it’s important to think holistically and not be biased by the numbers. That said, I think I can speak for most of the Center in saying that we are excited to share that several CFI-affiliated publications were among the Microfinance Gateway’s Most Popular Publications of 2012. No small feat considering 546 new resources were added to the Gateway this past year. Here’s a brief listing of the CFI pubs that made this top cut:

Over-Indebtedness in Microfinance: An Empirical Analysis of Related Factors on the Borrower Level

This paper by Jessica Schicks analyses the over-indebtedness of microborrowers in Ghana, examining its relationship with poverty, adverse shocks, loan returns, and financial literacy. In defining over-indebtedness, the paper adopts a client perspective, taking into account clients’ repayment struggles and the sacrifices they make to fulfill payment obligations. Some of the paper’s findings are the following: Read the rest of this entry »

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.