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> Posted by the Microfinance CEO Working Group
The following post was originally published on the Microfinance CEO Working Group blog.
The American Economic Journal has published an issue dedicated to six new studies measuring the impact of microcredit. Through a series of randomized control trials (RCTs), researchers have identified some of the effects of expanded access to microcredit on borrowers and communities in Bosnia, Ethiopia, India, Mexico, Mongolia, and Morocco.
The researchers reported evidence of positive impacts of microcredit on occupational choice, business scale, consumption choice, female decision power, and improved risk management, but did not report clear evidence of reduction in poverty or substantial improvements in living standards. “These results,” conclude the authors, “suggest that although microcredit may not be transformative in the sense of lifting people or communities out of poverty, it does afford people more freedom in their choices… and the possibility of being self-reliant.”
The most exciting trends and startups in inclusive finance this year
> Posted by Vikas Raj, Director of Investments, Accion Venture Lab
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There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a high-profile IPO, several more apparently on the way, and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility – just this month, Australian Wealth Index (AWI) listed the 50 Best FinTech Innovators, and CFI’s Elisabeth Rhyne conveniently categorized the list so it’s easy to see at a glance where the innovations are.
At Venture Lab, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed.
> Posted by Jeffrey Riecke, Communications Associate, CFI
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Last week the Bangko Sentral ng Pilipinas (BSP) announced substantial increases throughout the country’s microfinance market: growth in the volume of loans dispersed to microentrepreneurs, in the number of microcredit institutions offering savings services, and in the return on equity of rural banks with microfinance operations. Concerning regulation and institutional support, the recently released 2014 Global Microscope found that the Philippines has the best environment in Asia for financial inclusion.
In 2014, loans extended to microentrepreneurs in the Philippines totaled P9.3 billion (US$209 million) as of June, according to figures reported by BSP Governor Amando M. Tetangco Jr. at the recent Citi Microentrepreneurship Awards in Manila – a roughly 7 percent increase over last year’s figure. On savings, in early 2012 only 22 banks in the country offered micro-deposit accounts. Now, 69 of the Philippines’ 183 banks with microcredit operations take deposits, with a total of 1.7 million micro-deposit accounts. Beyond credit and savings, 86 of the country’s institutions offering microcredit also provide microinsurance and 26 provide electronic banking services.
> Posted by Sonja Kelly, Fellow, CFI
Last week in Mexico City, tens of thousands of people took to the streets to voice their hope for a better Mexico. In a hotel that overlooked the demonstration, members of the World Savings Bank Institute met to talk about how to make a safer and more effective financial system for those at the base of the pyramid. In terms of inclusive finance, in recent months we’ve seen significant progress. During the meeting, Vice President of the National Banking and Securities Commission (CNBV) in Mexico, Bernardo Gonzalez, opened his remarks by putting up a list of the top 10 countries in this year’s Global Microscope. Modestly, he pointed out that five of the 10 were from Latin America. Perhaps more emphatically, he highlighted Mexico’s place—fifth on the list.
As a regulator, he should be proud. Mexico’s score this year is in part a reflection of the regulatory reforms that the country has been moving forward, with attention to customers at the base of the economic pyramid. While Mexico’s microfinance sector has been under scrutiny in recent years because of notoriously high interest rates, concerns of over-indebtedness, and commercial banks hesitant to go “down-market”, a new set of microfinance regulations attempts to change things.
> Posted by Sonja Kelly, Fellow, CFI
If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the Global Microscope 2014: The Enabling Environment for Financial Inclusion. The Microscope is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The Microscope evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?
We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the Microscope is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.
This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten. Read the rest of this entry »
> Posted by Center Staff
This edition of top picks features posts highlighting discussions at the 17th Microcredit Summit, how the Ebola crisis is affecting microfinance in West Africa, and new statistics on the continued growth of the mobile money industry worldwide.
The 17th Microcredit Summit, this year’s iteration of the Microcredit Summit Campaign’s annual conference, is underway this week in Merida, Mexico. For those of us not in attendance, the Campaign is live streaming the sessions online. NextBillion is also sharing the experience through blog posts, including one published yesterday providing a report-back on day one of the event. The post offers insights from the day, including notable quotes from keynote speeches and panel presentations, and themes that emerged across sessions.
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.)
> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
In Latin America and the Caribbean, approximately 40 percent of families live in houses to which they have no title or that lack sewage systems, water, electricity, or proper building materials, according to the Inter-American Development Bank (IDB). However, current annual investments in living solutions by the base of the pyramid in LAC total $56.7 billion, confirming the increasing buying power of this segment and the growing opportunity in developing housing finance business models.
A few weeks ago I attended an event hosted by the IDB to launch the report Many Paths to a Home: Emerging Business Models for Latin America and the Caribbean’s Base of the Pyramid. The report was written by Christy Stickney for the Opportunities for the Majority Initiative (OMJ), a part of the Private Sector Group of the Inter-American Development Bank. OMJ provides finance to small, medium-sized, and large companies, as well as financial institutions and funds to support the development and expansion of business models that serve BoP markets.
The report analyses cases within OMJ’s housing portfolio in countries such as Colombia, Mexico, Nicaragua, Paraguay, and Peru. Stickney found two main housing solutions for the BoP, a “complete” housing solution and an “incremental” housing solution.
> Posted by Sonja E. Kelly, Fellow, CFI
We are in full World Cup fervor in the Accion offices around the world, with jerseys making appearances at global staff meetings, water cooler conversations centering on surprise advancements (and eliminations), and a high incidence of lingering trips to the conference room screen to check scores in between meetings and deadlines. You could say things are getting a little heated as the group of teams still in the running gets smaller.
There have been a few attempts to use this global competition as an opportunity to better understand our world. The Wall Street Journal published a “World Cup of Everything Else,” where countries can be matched up on categories from the hottest weather to the biggest eaters of seafood, and Dean Karlan produced a set of predictions based on population, poverty level, and interest in soccer to assess which country would experience the greatest increase in happiness with a World Cup victory (spoiler: Nigeria would have had the most aggregate happiness if it had won the tournament).
But what if the World Cup were a competition based on financial inclusion indicators? If we were to create a bracket where the country with the highest level of financial inclusion advanced, the European countries would all advance, which in my opinion wouldn’t be very interesting.
What if, however, we use the World Cup system to see where the highest number of financially excluded people are? We crunched the numbers to show you, of the countries that made it to Brazil for the competition, who would “win” the title of “highest number of financially excluded people.” Basing winners on the countries with the largest number of people without a formal bank account, we noticed a few surprises.
Read the rest of this entry »
> Posted by Sonja E. Kelly and Ruben Marquez, CFI and Bancomer
“What’s in a name? That which we call a rose by any other name would smell as sweet.” – Shakespeare
While Juliet’s musings on the essence of her Romeo might be poetic, she is quite wrong. Words determine a great deal about how we think about things—and one word change could change hundreds of thousands of people’s use of financial products.
Percent of People Who Report Saving in the Past Year
In Mexico, if you were to ask those at the base of the pyramid whether they save, they would likely tell you no. CFI’s Country Profiles show the Global Findex Data in the figure at right.
When asked whether they had saved any money in the past year, roughly 14 percent of people in the bottom 40 percent of the economy in Mexico answered yes. This same group of people in all upper middle income economies (of which Mexico was a part at the time of the survey) were about twice as likely to say yes to this question.
Does this mean that the poor in Mexico just don’t prioritize savings? Probably not.
In Mexico, there is a difference between the word for “saving” (ahorrar) and the word for “keeping” (guardar). When you ask people at the base of the pyramid whether they “keep” money for the future, they are much more likely to answer yes.
The Findex survey (the source of the above data) may have inadvertently run into this problem in Mexico. The difference between two words could explain the low incidence of saving reported at the base of the pyramid compared to countries with a similar income level.
When we take this language difference into account, there are implications for institutional knowledge, financial education, and product marketing.
On this front, Bancomer in Mexico has found that there is a reorientation to be done within the bank itself—while Bancomer is listening to clients, for listening to be effective it must be listening for the right language. Within the bank, integrating the vernacular of low-income clients has led to new views on this income segment. Past market research has included the question of whether potential clients are saving—with dismal results. With the recognition that this population is saving, but just calling it something else, there is a different perception of the kinds of products that customers might be interested in.
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