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> Posted by Panthea Lee, Principal, Reboot
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.
Citizens at the bottom of the economic pyramid in China lack even the most basic means to save for their children’s education, make purchases on credit, protect their homes through insurance, and send and receive money. Financial exclusion prevents many of them from realizing their potential and improving their livelihoods.
How can better financial services be designed to meet their needs?
With the support of the Institute of Money, Technology, and Financial Inclusion at the University of California at Irvine, Reboot undertook a study to understand the daily lives of China’s marginalized and answer this question.
We learned that the issue of financial exclusion in China has come to the fore relatively recently and that informal financial services have proliferated to meet the needs of these populations. We concluded that by understanding informality China could “get it right” in deploying market-based financial services targeting the country’s most vulnerable citizens.
Currently, 64 percent of China’s rural population is “unbanked” – i.e. they do not have an account at a formal bank. Over the last five years, China’s “Big Four” banks have closed a combined 30,000 branches in poor and rural regions, as a result of market pressures and an increasing focus on high-margin, low-risk populations. On average, rural residents have 0.36 banking outlets per 10,000 people, far below the national average of 1.34. Even in urban areas where banking outlets are numerous, services are designed for middle- and upper-middle class markets, providing low income residents little utility at best and stigmatizing them at worst.
Financial exclusion for these populations is compounded by a weakening of the social safety net. Retirement benefits, which were formerly provided by the state, have declined to a point where many need to supplement them with personal income. Workers who suddenly lose their jobs have a difficult time seeking social subsistence payments.
> Posted by Deborah Drake and Andrea Horak, Vice President/Program Manager and Program Coordinator, Investing in Inclusive Finance, 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.
With good governance a top priority for investors, donors, and regulators, it’s time to ask exactly what good governance looks like. A recent debate about the Anglo-American (shareholder) versus the European (stakeholder) models of governance set out to answer that question. The Governance Working Group (GWG), a 25-member group of microfinance professionals focused on governance, hosted by CFI, sponsored a webinar to discuss the characteristics of the two models and their implications for microfinance institutions, equity funds, and clients.
Lauren Burnhill of One Planet Ventures started off the debate by describing the model of single tier governance commonly used in the U.K. and U.S. In this model, each company has a single board that includes both executive directors, who are employed by the company or have significant ties to its corporate management, and non-executive directors who have no direct relationship with the company or its management. The company CEO may serve as chair of the corporate board, in which case a great deal of power is invested in that board position. The overarching duty of the board is to protect the interests of shareholders. In this model, particular importance is given to the protection of minority shareholder rights.
> Posted by Deborah Drake, Vice President and Program Manager, Investing in Inclusive Finance, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the intersection of investment and financial inclusion. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series will highlight what’s being done to help the industry better utilize private capital to develop commercially sustainable financial institutions.
As the head of the CFI’s Investing in Inclusive Finance program area, I spend a lot of my time focusing on how to create behavioral change at the board level – with the goal of improving the governance of microfinance institutions. I recently attended a University of Rochester Faculty Perspective Webinar given by Edward Deci called “Self-Determined: What Motivates You?” with the professional objective of better understanding what motivates board members and how that impacts behavioral change. Yet, throughout the webinar, I found myself drawing many parallels to my other job: mother to three sons.
>By Danielle Donza
My mother is a risk expert. Even now, when she walks into a room, she sees the choke-able object on the floor, the sharp corner of the coffee table, and the window open just enough for a baby to fall out. Sometimes I think she sits around all day dreaming up every risk her children could possibly face, no matter how absurd, and figuring out how she can prevent it. Some would call this paranoia, but some might call it risk management.
Whether it’s childrearing or MFI oversight, risk management is tricky business. It requires identifying plausible risk scenarios, deciding which risks are actually worth focusing on, understanding what you can do to mitigate them, and finding a balance so growth and development aren’t (too) negatively affected. And, for MFIs, it requires reaching consensus among board directors and management on an acceptable level of risk, and then complying with regulations, especially if taking deposits. Mom had a hard enough time getting Dad to agree, and comply.
In the Center’s recently released “Microfinance – A Risky Business ,” David Lascelles, senior fellow and joint founder of the Center for the Study of Financial Innovation, shares his insights about risk in a lively and provocative manner. He discusses some of the most important risks that boards should consider and highlights the importance of managing risk at all times, not just during crisis. In fact, effective board oversight of risk should help to anticipate and avert crises. Read the rest of this entry »
> Posted by Center Staff
This latest “Top Picks of the Microfinance Blogosphere” swoops in for a closer look at spurious links between energy drinks and microfinance, examines ways of opening up impact investing to the masses, maps out Lebanese microfinance, and more.
- “Why is it illegal for me to invest even $100 in the business of my choice?” asks a post by Nilima Achwal on the NextBillion blog. “SOCAP11: Breaking Down Barriers to People Powered Capital” dives deep into “the democratization of impact investing.”
- “While the microfinance sector in Lebanon is growing, it is still relatively small in respect to the unmet need throughout the country,” writes Jonathan Bloom in his post “Passport Series: Lebanon: Part 2: Microfinance” on the Kiva.org blog. He takes a look at the big picture of Islamic banking to contextualize his observations about the work taking place on the ground.
- Five young people of the African Leadership Academy (ALA) “interviewed their peers within their countries to solicit views on a number of questions about education, careers, financial services, leadership and entrepreneurship,” Reeta Roy recounts in “Managing Life Transitions” on The MasterCard Foundation blog. The post offers up the pivotal points that go with these peers’ coming of age, as part of efforts to answer the wider question: “How do we prepare young people for a lifetime of transitions?” 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 »
> Posted by Julie Shea
As investors increasingly seek out social impact investing opportunities, microfinance continues to present an attractive opportunity for achieving double bottom line goals.
However, some countries are way ahead of the pack in terms of their social impact investing efforts. Investing in microfinance has gained particular traction in certain European countries, specifically the Netherlands and Switzerland, while investors in the US and UK have been less responsive to microfinance investment opportunities.
One example of social investing in microfinance coming out of the Netherlands is the Dutch Triodos Bank, which as of December 2009 had 236 million euros under management in its four microfinance funds. Read the rest of this entry »
> Posted by Center Staff
The Council of Microfinance Equity Funds (CMEF) is proud to issue its latest paper, “Growth in Commercial Microfinance: 2005-2008.”
This work by Preetesh Kantak illustrates the significant changes in the commercial microfinance industry over the past four years. Traditionally, growth studies, such as MicroRate’s annual microfinance investment vehicles (MIVs) survey, have focused on growth in the assets of MIVs. This growth has been phenomenal, and of course strongly influences the MFIs in which they invest. The “Growth in Commercial Microfinance” series, of which this is the third publication, dissects and clarifies growth in the MFIs themselves – the actual investment opportunity-set. With this study, CMEF gauges the opportunities available to investors in MFIs.
The first study of this series, published in 2004, focused on the transformation process of NGOs and start-up MFIs into regulated, for-profit entities. A large part of this effort was the enumeration of guiding corporate governance principles and the impact that this new business model had on the sustainability of the institutions and industry. The second study, published in 2006, examined industry growth in the preceding two years, and explored the distribution of MFIs, borrowers and depositors by region.
In this latest installment, the author first analyzes the internal, “organic” growth of MFIs presented in the 2006 study. The report explores the increasing and more pervasive efforts at financial intermediation and how the growth of saving products have matched, if not exceeded, the growth of loan products. Read the rest of this entry »
> Posted by Kanika Metre
Yesterday, ACCION International announced that it will serve as the official sponsor of a new conference examining the latest microfinance investment strategies. The conference, ‘Microfinance for Institutional Investors,’ will be held in Washington, DC from September 21-23.
In addition, ACCION will be sponsoring a book-signing breakfast at the conference, on Tuesday morning, September 22, at which Elisabeth Rhyne, author and managing director of the Center for Financial Inclusion at ACCION, will highlight new case studies from her recently-published Microfinance for Bankers and Investors.
Click here, to read the official press release.
> Posted by Kelley Mesa
The next stop in Elisabeth Rhyne’s book tour will be at the Microfinance Club of New York THIS Thursday. Come hear her talk about Microfinance for Bankers and Investors…
When: Thursday, July 30, 6:30-8:00pm
Where: Deutsche Bank, 60 Wall Street, 47th Floor, New York, NY 10005
The event is free to MFCNY members, $10 for everyone else. For more information and to RSVP, click here.
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