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> Posted by Center Staff
What 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?
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
Organizational change doesn’t always start from the top, but if it originates elsewhere, and the change is to last, it’s essential that leadership and management eventually get on board. For years, most of us in financial inclusion have advocated client centricity. If previously unserved client segments are to take up and use products and services for the first time, it’s essential that these products and services meet their needs. But how do institution leaders look at client centricity? I attended the recent Africa Board Fellowship (ABF) seminars in Cape Town, South Africa and joined discussions among financial inclusion CEOs and board members on this topic.
The CEOs and board members participating in the ABF program are from financial service providers offering a range of products and services in countries ranging from Kenya to Burundi to Tunisia and Uganda. On our first day, we discussed client centricity, a trending topic and one of interest to me as a manager of the Smart Campaign. The fellows’ varied experiences and ideas led us to some takeaways:
- Board members and CEOs see a clear business case for client centricity. Participating leaders viewed actively listening to their clients and mapping customer preferences and journeys as imperative for designing better products, building customer loyalty, fostering referrals, and developing competitive advantages.
> Posted by Bruce MacDonald, Vice President, Communications and Operations, CFI
We go to a lot of conferences in this business – some good, some less so. AFSIC, the Africa Financial Services Investment Conference, definitely falls into the former category.
The 3-year-old brainchild of former Botswana Stock Exchange boss Rupert McCammon, the London event draws a mix of debt and equity investors, insurers, quants, fintech angels, consumer lenders, policy mavens, IFIs, MFIs, and other NGOs of various stripe. If your appetite runs to Africa, it’s a generous smorgasbord.
McCammon framed the challenge neatly in his opening remarks: Africa suffers from investment shortfalls of $110 billion annually. He was followed at the podium by Mohamed Kalif, head of financial intermediation at the African Development Bank, who pitched an appealing prospect. Showing images of a drab and undeveloped Shanghai and Dubai in 1990 and comparing them with photos taken last year, each chock-a-block with glittering skyscrapers, he posed the question, “Why not Africa?”
> Posted by Jeffrey Riecke, Communications Specialist, CFI
If you’re plugged into the world of online marketplace lending then you heard this week’s news about Lending Club’s internal scandal which culminated in the resignation of its founder, chairman, and chief executive, Renaud Laplanche. Lending Club, a U.S.-based company, is the first billion dollar online lending marketplace, and Laplanche was viewed by many as the industry’s biggest advocate and one of its pioneers. Accordingly, industry participants and followers are wondering what Lending Club’s news means for the future of the company and the industry. Is this a sign that the promise of marketplace lending is too good to be true?
For dramatic pause, and context, a few facts on what happened. On Monday, after an internal review, Lending Club announced that $22 million in subprime loans sold in March and April of this year to a single investor went against the investor’s expressed terms. Furthermore, certain staff members, including Laplanche, were aware that the loans did not meet the investor’s criteria, and during the review process there was less than full disclosure by staff including Laplanche, which the board deemed unacceptable.
> Posted by Lizzy Bolze, CFI Analyst
Africa Board Fellows at the HBS-Accion Program on Strategic Leadership in Inclusive Finance. Pictured left to right: Felix Achibiri, Fortis Microfinance Bank, Nigeria; Titos Macie, Socremo, Mozambique; Elijah Chol, South Sudan Microfinance Development Facility; Charles Njuguna, Faulu Microfinance Bank, Kenya
It seems almost commonplace for financial institutions across sub-Saharan Africa to be confronted with currency devaluation, interest rate caps, political conflicts, increasing capital requirements, and disruptive technologies – not to mention the impact of wars, disease, climate change, and natural disasters. With all these complications and risks, I am left to wonder how can boards of financial institutions in Africa focus on anything other than constantly extinguishing crises?
In March, alumni of the Africa Board Fellowship (ABF) attended the HBS-Accion Program on Strategic Leadership in Inclusive Finance. During the weeklong executive education program, CFI staff had the opportunity to sit down with the four fellows pictured above to discuss some of the challenges they are facing.
A common challenge was the hardship caused by currency devaluations. MFIs often receive loans in U.S. dollars, and so as the value of local currency diminishes, squaring their balance sheets becomes increasingly tough. Elijah Chol of South Sudan reported that the Minister for Finance and Economic Planning announced a 500 percent devaluation of the South Sudanese Pound last December. At the South Sudan Microfinance Development Facility’s annual meeting a day later, the board was unable to take immediate action because the devaluation was so unexpected. Though prices in South Sudan’s market have since improved slightly, the impact of such extreme devaluation has posed great challenges across the microfinance sector.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
In recent months several prominent banks in Kenya have collapsed, with Chase Bank (no relation to JPMorgan Chase) most recently placed under receivership by the Central Bank of Kenya (CBK) earlier this month. Additionally, this month it was announced that three majority government owned banks will be consolidated, and that voluntary mergers and acquisitions in the banking industry will be encouraged as a way to strengthen institutions. To better understand what this all means, I sat down with John Lwande, Director of the Africa Board Fellowship (ABF) program.
DP: From your perspective, can you update us on what is happening?
JL: It appears that following an extended audit tussle last month, Chase Bank, which had established itself as the jewel among small and medium-sized enterprise (SME) lenders in the market, and attracted funding from big name international investors, collapsed on the 7th of April. While Chase pushed the blame towards the accounting surrounding the bank’s Islamic banking assets, more serious implications point towards governance problems. To illustrate the severity of these governance issues, for instance, we are told that the bank made a staggeringly large amount of loans to its directors, an average of KES 1.35 billion per director (USD 13.5 million). This is not a routine staff and associate loan. Actually, Chase had a loan program for staff. Its average loan size was KES 1.9 million (USD 19,000). How could an SME bank, a financial inclusion flag bearer, allow its directors to lend tens of millions of dollars to themselves?! In a recent interview, three leading Kenya bank executives decried the lack of governance and fiduciary responsibility of bank directors in the country and called upon auditors to be firm in their opinions to mitigate the risk of bank failures and avoid panic.
> Posted by Lizzy Bolze, CFI Analyst, with contributions from Alex Silva, Calmeadow Foundation
Are you a microfinance institution in the Middle East or North Africa (MENA) region? Would you like to improve your bottom-line and attract more investors? Here is one simple trick: improve your governance! A recent International Finance Corporation (IFC) paper focusing on MENA, Corporate Governance Success Stories, concludes that “good corporate governance can help companies improve their [financial] performance and gain access to capital,” and various stakeholders, such as institutes and regulators have been actively promoting strong corporate governance in the MENA region. As a result many MFIs in MENA have experienced an increase in access to finance, higher profitability, a reduction in organizational inefficiencies, and an increase in impact on sustainability, among other important growth factors.
One such MFI is the Pakistan-based NRSP Microfinance Bank, which went through a rigorous transformation in 2007 and set goals to improve corporate governance. NRSP focused on restructuring board and management roles, establishing board committees and governance policies, and developing a risk management framework with internal audit functions. Within two years of implementing these governance changes, NRSP saw a $1.7 million profit in the first year, a credit rating improvement from “stable” to “positive”, and an increase in board effectiveness with the inclusion of women and independent directors. At the same time its ability to leverage equity increased. Access to finance grew to four times equity.
> Posted by Center Staff
Are you a senior leader at a financial institution serving lower-income clients in sub-Saharan Africa? The Africa Board Fellowship (ABF) program might be for you!
The six-month program was launched late last year to foster peer-to-peer learning and exchange on governance practices among board members and CEOs at African microfinance institutions. The fellowship begins and ends with multi-day in-person seminars; in between seminars, fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.
The first cohort of ABF fellows convened in early June in Cape Town. Guided by the program’s seasoned faculty, advisors, and subject experts, fellows examined a wide range of topics, from board dynamics and managing sustainable growth to technology trends and risk management. A blog post on the inaugural seminar can be found here.
The above video shares highlight footage from the inaugural seminar, as well as remarks from ABF fellows and staff on the program.
For more information on the Africa Board Fellowship, including details on how to apply, click here.
> Posted by Kettianne Cadet, Program Coordinator, CFI
It’s been a few weeks now since our return from Cape Town and the kick-off seminar of the inaugural Africa Board Fellowship, a six-month program launched this year to foster peer-to-peer learning and exchange on governance practices among board members and CEOs at financial institutions serving low-income clients in sub-Saharan Africa. The fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.
In early June, CFI’s Investing in Inclusive Finance (IIF) team and the fellowship’s seasoned faculty, advisors, subject experts, and inaugural class of fellows all came together in South Africa for the in-person kick-off seminar. This first seminar was very well received by both fellows and staff and here are some of the reasons I believe it went well.
Participant Diversity: The first cohort of fellows connects 30 board members and CEOs from 13 institutions throughout 11 countries, all with diverse backgrounds and experience. Each participating institution is required to send their CEO along with one or two board members. Having this mix of participants throughout the seminar led to numerous engaged, candid, and rich discussions about roles, board dynamics, and responsibilities. Had we only brought together one fellow from each institution, these conversations would have been far more one dimensional.
Structured Accountability: Having both CEOs and board members present supports accountability within each institution – to participate in each session and to take action afterwards. If only one member from each institution attended, would they be able to transfer their takeaways to their organization or actually implement any of the lessons learned? Additionally, given that the fellows either came from a different geographical location, offered differing products, or perhaps targeted a different niche market, it seemed that everyone got enormous value from their exchanges with one another.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
There is nothing like a corruption scandal to highlight the importance of good governance. FIFA, the governing body of world football, is currently in the midst of such a scandal which has indicted 14 people, so far, for an alleged scheme involving more than $150 million in kickbacks and bribes, forcing the resignation of long-time FIFA President, Sepp Blatter. FIFA has a unique governing structure. Its supreme legislative body is a congress of 209 members, each with one vote, and there are more than 27 committees and judicial bodies. However, regardless of the structure itself, FIFA’s recent corruption scandal and change of leadership still very much highlight important governance principles applicable for other organizations, including financial inclusion institutions, to take into account.
The old adage that “power corrupts” is especially true when leaders who lack integrity are left essentially unchecked over an extended period. As a recent Forbes article on FIFA observes, “Over the years, leaders who lack integrity gradually take control of the various levers of power, they surround themselves with acolytes, and they reduce the strength of the mechanisms designed to hold them in check.”
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