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> Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

In the aftermath of the Panama Papers, the words “offshore” and “tax-haven” are often taboo rhetoric within the investment industry. Perhaps even more so in the impact investing space, where fund managers have both fiduciary and social responsibilities. The Financial Inclusion Equity Council (FIEC; of which CFI is the secretariat) recently published the report Offshore Financial Centers for Financial Inclusion: A Marriage of Convenience to better understand attitudes and practices when it comes to how equity impact investors use offshore financial centers (OFCs). To dive into this topic CFI and consultants Daniel Rozas and Sam Mendelson interviewed FIEC members from the U.S. and Europe. Conversations resulted in varying opinions on the practice of using OFCs, with three key considerations for doing so: administrative efficiency; tax liabilities; and transparency and ethics.

Among all FIEC members interviewed, administrative efficiency was unanimously a primary driver in making the decision about where to domicile funds. Fund managers cited the importance of understanding local regulatory requirements, the presence of embassies, bank relationships, management facilities, remittance corridors, and convenience of location as important considerations in their decision. The reality is many low income offshore countries lack the infrastructure and capacity for supporting the administrative requirements of investments. Additionally, there are increasingly stringent AML/KYC requirements that disproportionately affect lower-income countries creating administrative burdens. The new CFI report states: “…this is at least one of the goals of using OFCs – not to avoid the regulators, but to outsource some of the reporting burden to entities that specialize in this service that have relationships to do it efficiently.”

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> Posted by James Militzer, Editor, NextBillion Financial Innovation

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The following post, which was originally published on NextBillion, shares a conversation between Anna Kanze, COO of Grassroots Capital Management, and Daniel Rozas, Independent Consultant, on initial public offerings (IPOs) in microfinance. Both Anna and Daniel have contributed to a number of Financial Inclusion Equity Council (FIEC) publications.  Anna was the principal author of the recent FIEC report, “How to IPO Successfully and Responsibly: Lessons From Indian Financial Inclusion Institutions”. The podcast draws from the report’s findings and focuses on the effects of IPOs on Equitas Holdings, Ujjivan Financial Services, SKS Microfinance, and Compartamos.

Initial public offerings have long been a controversial topic in microfinance, and rightly so. The IPOs of Compartamos in Mexico and SKS Microfinance in India, in 2007 and 2010 respectively, made a lot of money for investors and turbocharged the sector’s growth. But they also sparked hyper commercialization and debt crises that rocked the industry, gravely harming its clients and tarnishing its public image.

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> Posted by Pablo Antón Díaz, Research Manager, CFI

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Scott Graham, Daniel Rozas, and Pablo Anton-Diaz at the “Preventing Overindebtedness in the Microfinance Sector in Mexico” panel, XV National Microfinance Summit, Mexico City, Mexico, November 2016

For the past decade, in part fueled by regulatory changes in the financial sector, there has been an explosion in the availability of credit to low-income individuals in Mexico. The Mexican microfinance sector has become increasingly concentrated and highly competitive. In 2015, the 10 largest microfinance institutions (MFIs) in the country represented 81 percent of the total market size, with more than 1,500 smaller MFIs sharing the remaining 19 percent.

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> Posted by Center Staff

Two new articles about the Smart Campaign report  “Implementing Client Protection in Microfinance – The State of the Practice, 2011” are now online:

Have you read?

IFC to Finance the Smart Campaign’s Microfinance Client Protection Initiatives in India

‘Client Protection: Are We There Yet?’ – Smart Campaign Director Isabelle Barrès Blogs at CGAP

The Only Solid Basis for Microfinance Having a Bright Future?

 

> Posted by Center Staff

Haitian vendors at work in Port-au-Prince, Jan 20, 2010

Haitian vendors at work in Port-au-Prince, Jan 20, 2010.

Besides containing a nice nod to the Smart Campaign‘s work on a process for certifying MFI client protection practices, Daniel Rozas’ post  “Rethinking Multiple Borrowing” on MF Focus offers a fresh take on a much-mulled topic.

Rozas, who recently authored the report “Weathering the Storm”  for the Center for Financial Inclusion, argues that despite press reports to the contrary, multiple borrowing is not the result of “heavy market penetration, or even saturation.”

Rozas looks at the phenomenon through the lens of Haiti, which he recently visited. (His post therefore brings to mind Alex Counts’ book project on Fonkoze, the Haitian MF pioneer.) Rozas begins his post:

Some time ago, I had a conversation with a microfinance investor.  What is the greatest challenge facing the sector? – I asked.  His answer:  multiple borrowing – multiple borrowing getting people into too much debt; multiple borrowing transforming micro-enterprise lending into consumer finance; multiple borrowing rewriting the traditional relationship between MFIs and their clients.

Of course, multiple  borrowing is present in all of these cases.  But thinking about multiple borrowing along these lines misunderstands the basic situation. Multiple borrowing isn’t a reflection of some recent or extreme developments to be ascribed to runaway growth, greed, or willing ignorance.  Nor is it some foreign element to be excised from microfinance.  No, multiple borrowing is an intrinsic part of the practice, one that has been with us for years.  Nor, despite press articles to the contrary, is it a result of heavy market penetration, or even saturation.

This is a realization I came upon during a recent trip to Haiti.  Haiti, you see, is a relatively unpenetrated market, with peak numbers on MIX showing about 120,000 borrowers, or about 1.2% of the population.  And yet the feedback from loan officers on the ground was that multiple borrowing is widespread, some suggesting that as many as 50% of their clients have loans with other MFIs.  And this wasn’t a case of saturation in one place and nothing elsewhere – I heard similar stories both in the capital and in the regions. Read the rest of this entry »

> Posted by Beatriz Marulanda, Mariana Paredes, Lizbeth Fajury, Franz Gomez –  Co-authors of “Taking the Good from the Bad in Microfinance: Lessons Learned from Failed Experiences in Latin America.”

[Editor’s note: This guest post accompanies the release of “Weathering the Storm: Hazards, Beacons, and Life Rafts,” Daniel Rozas’ examination (with extensive case studies) of lessons in microfinance crisis survival.]

First of all, we would like to thank Daniel´s mention of the work we did for Calmeadow, with support from the MIF/IDB, IAMFI, Deutsche Bank Foundation, and the Center for Financial Inclusion at ACCION International. We would also like to take the opportunity to comment that although he mentions just Beatriz Marulanda as author of “Taking the Good from the Bad in Microfinance: Lessons Learned from Failed Experiences in Latin America,” it was really a joint endeavor in which Mariana Paredes, Lizbeth Fajury, and Franz Gomez all participated and deserve equal credit.

Apart from highlighting the very entertaining style in which the paper is written, it is interesting that the author found similar causes for the crises in the 10 MFIs analyzed, despite using cases from outside of Latin America. In extension of our findings, Rozas adds two causes of crisis – financial vulnerability and macroeconomic crisis. With regard to the latter, he mentions, as we did, that these are present in many of the cases but in most cases they are just a “trigger that sets off institutional weaknesses already present” – a claim with which we completely agree. Also similar to our findings, Rozas concludes that in most of the cases, the crisis did not have a single cause but instead was a combination of elements that ended up creating great difficulties for the MFIs which were analyzed. Read the rest of this entry »

> Posted by Center Staff

The Center for Financial Inclusion today releases “Weathering the Storm: Hazards, Beacons, and Life Rafts,” which  explores the crisis-management experiences of ten MFIs in Asia, Africa, Europe, and the Americas.

The new white paper, which was written by Daniel Rozas and sponsored by Calmeadow, Deutsche Bank, and Credit Suisse, maps out  the ways in which MFIs most commonly get in trouble and offers a blueprint for sound management and crisis control.

Rozas’ new Microfinance Focus blog series, which is largely based on the white paper,  will examine the many facets of risk in microfinance. As he notes in his introduction to the series, some of the MFIs “were able to execute successful turnarounds, while others failed outright, but in the process they all left behind a set of valuable lessons for the rest of the industry.”

Today’s post, “Part 1: Bring Microfinance into Politics,” begins:

It seems wherever you turn these days, politics is getting into microfinance. In Andhra Pradesh, the state government exercised its prerogative to kill off an entire industry. Next door in Bangladesh, Prime Minister Hasina decided to hound Yunus out of Grameen Bank, no matter the cost. The No Pago (No Pay) movement in Nicaragua counted on the support of the country’s president. What’s the industry to do in the face of such onslaught? 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.