You are currently browsing the tag archive for the ‘Microcredit’ tag.
> Posted by Tyler Owens, Management Intern, CFI
The Holy Grail of research for the global microfinance sector is incontrovertible proof that the provision of small loans generates real and lasting impact for borrowers. While Holy Grails are never found, new research from the World Bank offers more than two decades worth of evidence examining the impact of microfinance on households in Bangladesh. The question of whether it provides this incontestable proof of effectiveness warrants more than a yes or no answer.
There are different ways to define what works. Proof of positive impact encompasses a host of definitions, from general ones such as rising levels of GDP per capita or other measures of progress out of poverty, to narrower ones such as growing investment in education or certain health outcomes. Regardless, to those who practice microfinance or study the sector, there is consensus that impact means real and lasting benefits to people, society, and economy. For example, a growing number of people who have transcended the national poverty line and stayed above it for some years implies real and lasting impact.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on USAID’s microlinks.
Elisabeth Rhyne joined USAID shortly after the seminal PISCES (Program of Investment in the Small Capital Enterprise Sector) studies were completed in the 1980s. From 1994 to 1998, she was the Director of USAID’s Office of Microenterprise Development, where she developed and led USAID’s Microenterprise Initiative.
The breakthrough innovations that sparked the birth of microenterprise credit in Latin America occurred in the early 1980s, and USAID was very much the driving force. Through PISCES, the Program for Investment in the Small Capital Enterprise Sector, operational from 1979 to 1985, USAID and its partner organizations began to discover the principles of success for lending to the poor, opening the way for the microfinance industry.
To understand the origins of this microfinance strategy, it helps to visualize PISCES at a time when three streams of thought came together. First was the “Spring Review” on directed agricultural credit carried out by the rural finance gurus of Ohio State University, Dale Adams and Claudio Gonzalez Vega, with J.D. von Pischke of the World Bank. Their work revealed the waste and dysfunction of subsidized agricultural credit doled out by bankrupt government credit banks. These banks were swallowing hundreds of millions of development dollars annually. The Ohio State team’s manifesto was that financial institutions must make credit decisions based on risk assessments, not politics, and charge interest rates that would allow operations to be sustainable. That review launched a gradual shift by USAID, the World Bank, and other aid agencies away from public development banks. But, if public development banks were sidelined, who would serve the poor?
At the same time research mainly by the International Labor Organization (ILO) revealed the importance of the “informal sector,” small-scale businesses operated by low-income households. These were especially important in urban areas as a source of livelihood for a vast portion, and sometimes even the majority, of the poor in developing countries. (Why this was a revelation was a mystery to me – one has only to stroll through the poor areas of a developing country to see the scale of the informal sector.) The ILO’s work excited the interest of USAID’s Office of Urban Development. Michael Farbman and his colleagues there wanted to figure out how development organizations could assist the proprietors of small and microenterprises to improve their businesses and work their way out of poverty.
> Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”
On February 23, Rohini Pande opened classroom sessions of “Rethinking Financial Inclusion” – a one-week program offered by Harvard Kennedy School Executive Education – by drawing a distinction between two models of change: the magic bullet and penicillin. The magic bullet is an unstoppable cure-all. It takes down whatever problem you set your sights on. Penicillin is the product of many cycles of experimentation, refinement, and the occasional stroke of luck. (Researchers found the best strand of the penicillin fungus on a moldy cantaloupe from an Illinois market.) Magic bullets solve problems in German folk tales, penicillin in the real world.
Pande spoke to a group of 45 participants – leaders of government ministries, MFIs, banks, and NGOs from 29 countries (click here for a breakdown). She said that the hope that microcredit could, by itself, lift very different poor populations out of poverty – a hope initially bolstered by quick spread and high repayment rates – appears to have included some magical thinking. Given microcredit’s disappointing performance according to metrics such as new business creation and development indicators, the challenge now is to put it through a penicillin-style process of trial, error, and re-trial – including testing its effects in combination with a broader range of products.
The penicillin metaphor allowed Pande to place early emphasis on the value of evidence-driven (re)design in policy, a theme that would be frequently revisited throughout the week. By citing the rising use of rigorous evaluations as a policy instrument, she turned the moral of the cautionary tale from a statement about microcredit specifically to a much more general maxim: “Don’t trust the quick and easy result.”
The other products that the “Rethinking Financial Inclusion” program promised to focus on, such as savings and insurance facilities and new payments mechanisms, must also be put through the same process of experimentation and evaluation, Pande said.
> Posted by Elisabeth Rhyne, Managing Director, CFI
Kim Wilson, of the Fletcher School of Law and Diplomacy, is a consummate educator who knows that drama leads to learning. That’s why she staged a competitive debate to kick off her Extreme Inclusion conference.
The Proposition: Financial inclusion means formal inclusion.
On the Pro side were myself and my esteemed colleagues Marguerite Robinson, emerita extraordinaire, Lauren Hendricks, of Care’s Access Africa conference, with coaching from Ahmed Dermish of Bankable Frontier Associates.
Taking the Con side were Ahmed’s colleague from BFA, Daryl Collins, together with Ignacio Mas, unaffiliated innovative thinker, and Jenny Aker of Fletcher, coached by Nick Sullivan, author of Money Real Quick: The Story of M-PESA.
Peter Walker of Tufts wielded the gavel with wit and a tiny hint of malice. He symbolized the Pro side with a green spike heeled shoe, and the Con side with a pink flip flop.
Unaccustomed as I am to public speaking, I took up the last position on the Pro side, with three minutes to make my points. Here’s what I said:
1. Development is about building societies that offer opportunity and connection to everyone. The important word is building. Let’s look where we are going. While many low income people today use and possibly even prefer informal financial services, one cannot consider this the path to the future. If we want to see the bottom 20 percent of the population become economically successful, there must be a path to success. We need only look to the accomplishments of microfinance in bringing microcredit to hundreds of millions in the past two decades to be confident about the prospects for major change in the future.
> Posted by Barbara Magnoni, President, EA Consultants and Client Value Project Manager, MicroInsurance Centre MicroInsurance Learning and Knowledge (MILK) Project
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
Is there a business case for microinsurance? Does it provide value for clients?
We began the MILK Project by mapping existing research on these two questions. We were surprised to see that very few studies were on life microinsurance, particularly because life products are the most commonly sold type of microinsurance. A well-known study also suggests that the poor are very concerned about the financial risks of death, nearly as much as they are about health events.
Given that life microinsurance is both common and potentially greatly needed, why was there so little research on this topic? Life insurance is difficult to study because in any group, only a few deaths will occur in a given span of time, making it a very infrequent and random event. The policy world has also, perhaps, been skeptical about its value. Life microinsurance lacks the glamour of the promise of microcredit and the clear social good of savings. While health and agricultural microinsurance products are often developed with donor support as part of larger investments in health services, infrastructure, or agricultural inputs, life microinsurance is more often commercially driven.
We too began our research on the value for clients of life microinsurance with healthy skepticism, asking whether there really is financial value for clients from these products and if so, whether clients perceive them as valuable. Two years into our project, our results are promising, and even to ourselves, surprising. Read the rest of this entry »
> Posted by Larry Reed, Director, Microcredit Summit Campaign
On February 5, the Microcredit Summit Campaign released Vulnerability: The State of the Microcredit Summit Campaign Report, 2013 by announcing that in 2011, 13 million fewer of the world’s poorest families received access to microcredit and other financial services than in 2010. This is the first time since 1998, when the Campaign began tracking this data, that the total number of clients and the number of poorest families reached have declined. We found in our data that the total number of clients fell from 205 million to 195 million and the sub-set of families living in extreme poverty, defined as less than $1.25 a day, fell from 137 million to 124 million. (Visit the report website to learn more.)
I presented the report at a launch event at Busboys and Poets in Washington, D.C., and Susy Cheston (Senior Advisor at the Center for Financial Inclusion at Accion) moderated a lively discussion with my co-panelists Wendy Abt (Deputy Assistant Administrator, USAID), David Roodman (Senior Fellow, Center for Global Development), and Alexia Latortue (Deputy CEO, CGAP). Not surprisingly, the most salient exchange of the panel arose with David in the role of provocateur.
Challenging the Campaign, he contrasted simple but powerful messages that communicate well to the mass public—“microcredit can help people lift themselves out of poverty”—to more nuanced messages that better communicate reality but are harder to condense into a soundbite. Many of us are trying to figure out how to convey the nuanced message that “a range of financial services, when combined with other important development services, may provide tools that people can use to move away from poverty.” David asked whether, after seeing the results of unchecked growth in Andhra Pradesh, the Campaign wanted to rethink its goal-setting role.
> Posted by Josh Goldstein aka Mr. Provocative
The elephant in the room of vulnerable minorities that continue to be excluded in large numbers from microfinance services is the globe’s second largest population after women: men. The vulnerability of men is often overlooked, due to their historic domination of women and their control of wealth in most societies throughout recorded history. Of course for every wealthy landowner or merchant, there were many slaves, landless laborers, and indentured servants, who controlled none of the world’s wealth and were lucky if they scratched out a living.
When microcredit first gained traction and credibility as a poverty alleviation strategy in the seventies, creating self-employment opportunities for women in the informal sector was central to its mission. Organizations like Women’s World Banking (birthed at the UN’s World Conference on Women in 1975) and Pro Mujer (1990) embodied this outreach strategy. There were very sound reasons to focus on women, who are and remain the poorest of the poor. And this emphasis reflected the zeitgeist of the time, as many of the early leaders of microfinance came of age in the women’s movement. Theirs was a struggle for equal rights and equal pay in societies that were patriarchal and discriminatory. It was a logical next step to bring this message of women’s rights to international development work.
> Posted by Marcella Corsi and Annika Cayrol, EMN Research Working Group
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
We are increasingly aware of the aging global population thanks to the findings from the Center’s Mapping the Invisible Market project, and yet we have been hard-pressed to find many people looking at the changing needs for financial services as people age. We were therefore delighted to learn that the Research Working Group of the European Microfinance Network (EMN) conducted a debate on “Microfinance as a Tool of Active Aging“ and are pleased to have Marcella Corsi and Annika Cayrol share some of their examples.
> Posted by Merene Botsio, Financial Inclusion 2020 Project Coordinator, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Huddled in the crowded lobby of the Sheraton Arlington hotel at the annual SEEP Network Conference, we listened intently to Syed Mohsin Ahmed as he elaborated on Pakistan’s new Microfinance Credit Information Bureau (MF-CIB). We scribbled in our notebooks, taking down points for the Financial Inclusion 2020 Credit Reporting and Client Information Analytics Experts’ Working Group, of which he is a member.
> Posted by Vanesa Sanchez, Senior Analyst, Economist Intelligence Unit
The Economist Intelligence Unit’s 2012 “Microscope on Microfinance” benchmarking study – the sixth of the EIU’s annual microfinance markets assessments – features new indicators on responsible finance and client protection that cover two of the seven Smart Campaign Client Protection Principles. Transparency in pricing looks at the laws, regulations, and practices in place for interest-rate transparency among MFIs. And Dispute resolution evaluates whether a country has mechanisms for the timely resolution of disagreements, at a reasonable cost, between microfinance lenders and borrowers. These indicators were incorporated to recognize the growing importance of client protection and financial responsibility for the sustainable growth of the microfinance industry.
An empirical analysis of the Microscope by the World Bank’s research department found that after controlling for other potentially influencing factors, both of these indicators were positively correlated with market penetration measures, for example microcredit borrowers as a percentage of the country’s population or of the poor population. These indicators also correlate positively with the average loan portfolio size of MFIs at the country level. In other words, larger and more developed microfinance markets are also more likely to have consumer protections in place.
Facebook
Twitter
Recent Comments