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> Posted by Paul DiLeo, Todd A. Watkins, and Anna Kanze

Most foundations and development finance institutions have moved on from microfinance, in search of the leading edge of innovation and impact. They have concluded that their work is done now that leading microfinance institutions (MFIs) have definitively cracked the capital markets with healthy balance sheets and two large, heavily oversubscribed Indian IPOs just in the last year. Meanwhile, impact investors, particularly in the U.S., are divided on whether microfinance is, or ever was, an impact investment. In any case, they prefer to focus their attention on new “disruptive” business models. In impact industry publications, conferences and even terminology, microfinance is dead; yesterday’s solution at best.

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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 Elissa McCarter-LaBorde, CEO, Vitas Group

Alex Silva and Jeffrey Riecke’s recent blog post entitled “What’s ‘Responsible’ about Impact Investing Exits?” hits squarely on the head a critical issue facing our industry. But it doesn’t go far enough. They ask “What if responsible investors sell their stake to an investor that doesn’t place priority on the social mission?” They argue for investors to take a “pragmatic” course and find “a buyer in the middle,” meaning something in between the “high-priced but questionable offer” and the “capital-starved social investors.” This left me wondering, who exactly is in the middle?

In the past, the NGO founders of what are today profitable microfinance banks were expected to be the keepers of a social mission, if not through ownership then through some form of continuing sponsorship or governance role. Compared to five years ago, today we see term sheets that force NGO shareholders out in the name of successful exits. In fact, even the large open-ended funds, presumably more socially-responsible leaning ones, and the development finance institutions (DFIs) that technically don’t require tighter exits of 5-7 years, are coming with term sheets that require a put option (an option contract giving the owner the right to sell assets at an agreed price) in 5-7 years back to the NGO founder or the company, or that include a drag-along right that forces a majority sale to a future “strategic buyer.” In other words, if the minority investor finds a strategic buyer who wishes to buy a majority stake or to acquire the whole company, the investor can drag other shares along to constitute a majority sale.

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> Posted by Allyse McGrath, Specialist, CFI 

Join us in accelerating financial inclusion conversations globally!

We are excited to announce the third annual Financial Inclusion Week, an initiative to drive the global conversation around financial inclusion. In 2015 and 2016, over 70 partner organizations brought together thousands of people worldwide to discuss the most pressing actions needed to advance financial inclusion globally. In 2017, from October 30 to November 3, we will continue the conversations from last year and engage an even wider community of stakeholders to explore this year’s theme: New Products, New Partnerships, New Potential.

Around the world, digital channels are revolutionizing the way that customers access financial products and transforming the landscape of the financial inclusion industry. Financial service providers are harnessing an array of new technologies, data, and schools of thought to re-configure their products and how they offer them. New providers, including fintech startups, are entering the inclusive finance fold and legacy providers are increasingly partnering with them to expand service offerings and reach previously under-served customer segments. These new products and new partnerships bring great potential for creating a more inclusive global financial ecosystem. However, they may also bring new problems – such as issues surrounding data security, transparency on mobile platforms, and discrimination in alternative credit scoring. During Financial Inclusion Week 2017, partner organizations around the globe will hold conversations focused on how new products and partnerships are advancing financial inclusion.

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> Posted by Alix Lebec, Director of Business Development & Investor Relations at WaterEquity, and Hannah Kovich, Investor Relations Manager at WaterEquity

The following post was originally published on NextBillion.

Consumer demand is a force that changes the world. With each purchase, we shape and sometimes even revolutionize the world we live in. A great example of this is the smart phone. The iPhone has changed consumer behavior and unleashed possibilities unimaginable to us 15 years ago. As consumers, we use our dollars as a proxy for our voice, affirming products and brands that best align with our needs and values, propelling them to scale and expand. What if we could tap into this intrinsic power of the consumer to end one of the greatest challenges facing the world today – the global water crisis? What if those in need of safe water and sanitation were empowered to purchase their own solutions?

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> Posted by Alex Silva, Executive Director, Calmeadow, and Jeffrey Riecke, Senior Communications Specialist, CFI

Impact investors, social investors, responsible investors…regardless of name, they claim to serve the greater good. In the world of financial inclusion, impact investors are supporting the development of financial markets that have inadequately served the base of the economic pyramid.

What happens when social investors exit from their financial inclusion investments?

Some exits are non-controversial, but what if responsible investors sell their stake to an investor that doesn’t place priority on the social mission? The risk of mission drift or abandonment is real, and responsible investors must consider it as they make their exit decisions. With financial inclusion sector trends suggesting that impact investing exits are going to become more frequent, it’s worth examining the topic in greater detail.

Investors exit for many reasons

It’s important, especially for critics of impact investors, to recognize that a decision to exit may arise from any number of factors, including factors internal to the investor.
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> Posted by Ram Narayanan, Market Research Analyst, Symbiotics

Microfinance, a lead sector within the larger impact investing spectrum, has gained prominence from development-minded investors over the past decades. Initially, international funding in microfinance was generated largely from donor organizations, including public development agencies and private foundations. As the market gained traction, the role of private capital grew in importance as not only a means for microfinance institutions (MFIs) to reach scale, but also to increase their social outreach beyond what was possible with donor money.

Private investors and donor agencies thus joined efforts in creating microfinance investment vehicles, better known in the industry jargon as “MIVs” or more simply “microfinance funds.” MIVs act as the main link between MFIs and the capital markets and usually provide debt financing, equity financing or a combination of both to MFIs located in emerging and frontier markets.

The Consultative Group to Assist the Poor (CGAP) began to take interest in MIVs in 2003, a time where several of these vehicles saw the light, and before the investment boom which was witnessed by the sector with the announcement of the United Nations “2005 International Year of Microcredit.” However, the industry was still lacking common definitions, terminology and performance standards. In order to bring forward improved transparency on MIVs’ financial and social performances, a first market report on microfinance funds was produced in 2007 by CGAP, in collaboration with Symbiotics. The inaugural MIV benchmarking tool was thus born – based on a market survey containing a common set of definitions and reporting standards – a landmark that set the stage for regular, annual surveys carried out every year since then.

Fast forward 10 years, Symbiotics and CGAP have yet again partnered to develop a new extensive report (white paper) reflecting back on a decade of MIV operations, shedding light on their progress during the period 2006-2015. The recently released white paper co-authored by both organizations and entitled “Microfinance Funds: 10 Years of Research & Practice” carefully details major market trends.

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> Posted by Alex Counts

During my final years as President of Grameen Foundation and Co-Chair of the Microfinance CEO Working Group (MCWG), I advocated that two papers be written that I had neither the time nor the expertise to do justice to myself.

The first paper was a distillation of lessons for practice from recent studies on the impact of microcredit and microfinance. Many papers that set out to determine whether microfinance worked stumbled on important insights about how it could work better. Unfortunately, those discoveries were buried in papers that people barely read beyond summaries and extracts. A paper that presented these “lessons for practice” in a form that was accessible to busy practitioners could make a big impact, by removing friction from the maddeningly difficult process of using research to positively influence policy and practice.

The second paper I advocated for was one that made the case for how philanthropy and social/impact investing, and more broadly, subsidy, could play a positive role in the microfinance industry today. Such a paper would need to start with making the case that such social investments had any role to play, as the conventional wisdom was settling on the idea that it did not have any.

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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.

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

#Allinforimpact was the hashtag at “Investing for Impact”, a socially responsible investing (SRI) conference in Boston. Maybe not “all” quite yet but certainly “more” investors are going in for impact, as indicated by the growth in attendance at the conference over the years. Investing for Impact was sponsored by socially responsible investors, such as Calvert Investment and Trillium Asset Management, who not only screen potential investee companies in terms of meeting certain environmental, social, and governance (ESG) criteria – but also serve as watchdogs for the sector and advocates for impactful companies.

A Few Top SRI Trends (from the conference)

Allowing Sinners to Repent: Some companies with bad names in the 1970’s such as General Electric and Ford have changed enough internally to now qualify within some investors’ ESG criteria. As one speaker put it, “What kind of church would we be if we didn’t allow sinners to repent?”

Shades of Grey: Tobacco, firearms, and carbon were across the board clear divestments. But the jury was still out on some companies and business models. For instance, Nestlé, which in the 1970’s came under fire for promoting baby formula in developing countries, has since done a lot to accelerate research on diabetes. Peapod, and other grocery delivery services, are making a pitch to be included as impact investments because the energy saved by not storing food, and the associated reduction in food waste, are positive externalities to consider.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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