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> Posted by the Smart Campaign
The Smart Campaign is thrilled to announce that a new milestone for client protection in microfinance has been reached: there are now 50 financial institutions that have been awarded Smart Certification, recognizing their commitment to fair client treatment and responsible practices. In total, these institutions serve roughly 25 million clients.
The threshold was crossed with a handful of recent certifications – Fortis Microfinance Bank and Grooming Centre in Nigeria; Banco ADOPEM in the Dominican Republic; Fundacion Paraguaya in Paraguay; Pro Mujer in Nicaragua; and AgroInvest in Serbia. Each of these institutions worked over a several month process to assess and upgrade their operations to meet every one of the indicators signifying strong consumer protection practices.
Grooming Centre and Fortis Microfinance Bank collectively reach over a half million clients. Founded in 2006, Grooming Centre operates in 22 states in Nigeria with a network of 376 branches. Grooming Centre offers a range of financial services, including savings and credit, small business loans, agricultural loans, and clean energy financing. Fortis Microfinance Bank, along with offering financial services, provides clients with business support in areas including management, marketing, and administration.
> Posted by Ben Lebeaux and Jessica L. Cassel, Senior Communications Specialist and Staff Attorney, Accion
One of the fastest, most efficient ways to promote financial inclusion is to make sure that regulators create policy that encourages innovation and collaboration. Because regulators can singlehandedly affect everything from microfinance institutions to financial technology startups to credit bureaus, helping them make the best possible decisions is one of the best ways to help the two billion financially excluded people access savings accounts, credit, checking, insurance, and more.
That’s why the Microfinance CEO Working Group’s Model Legal Framework and Commentary for Financial Consumer Protection (MLF), published in the spring of 2015, is such a valuable tool. Regulators can use the MLF as a framework to either evaluate existing regulation or to adopt new best practices. Rather than reinventing the wheel, it allows policymakers to quickly find, adapt, and use the best available legislation.
Global law firm DLA Piper and its nonprofit affiliate, New Perimeter, were instrumental in creating the MLF. The firm’s dedicated team of roughly 20 lawyers has worked with the Working Group for the last two years, contributing nearly 3,000 hours of pro bono time to draft and refine the MLF. New Perimeter continues to support the project, traveling with Accion’s lawyers and financial inclusion experts to train Latin American regulators on the MLF, and plans to update it periodically.
We spoke with Sara K. Andrews, the Assistant Director of New Perimeter, and DLA Piper Associate Erik Choisy about how they got involved with the MLF, the work they did to support it, and why they dedicated such significant time and energy to support financial inclusion.
Accion: Tell us more about New Perimeter. Why did DLA Piper commit to providing international pro bono legal assistance?
Sara K. Andrews (SA): DLA Piper created New Perimeter in 2005 to expand the firm’s extensive pro bono programs beyond the United States, and to give our lawyers opportunities to address some of the critical issues confronting underserved regions of the world. One of our first projects was in Kosovo, helping to restore the country’s judicial and prosecutorial systems. Since then we have worked on over 100 multi-year pro bono projects involving more than 800 DLA Piper lawyers from across the firm.
> Posted by Jeffrey Riecke, Senior Associate, CFI
The CFI is excited to welcome Sharlene Brown, who joins us as the Executive Director of the Microfinance CEO Working Group, where she will oversee the Working Group’s ongoing efforts to support the development of its member organizations and the microfinance industry at large. I had the opportunity to ask her about her work thus far, how she views the ever-changing inclusive finance industry, and where the Working Group fits in.
How did you first get interested in microfinance?
I was born in Jamaica and raised in Brooklyn, New York, so depending on the time of day and where I am, I might say I’m from Jamaica, or Brooklyn, or Brooklyn by way of Jamaica. Regardless, from a young age I knew I wanted to be able to give back. During an opportune economics course at Wellesley College, I came across Professor Yunus’ work and began to connect the dots between my own internal drive and burgeoning interest in investing and social responsibility, and the money management practices I had seen in my own community. ROSCAS, susus, juntas, or whatever you choose to call informal savings and credit groups, were the way that my family largely built their resources and foundation in the United States. So, early on I recognized that these types of non-traditional financial services can work well.
Where did this take you after graduating from college?
I followed an urge to challenge U.S. corporations on their bad behavior and joined Domini Social Investments, an investment firm focused on triple-bottom-line investments. Following a few years at Domini, I stayed in the socially responsible investment space and worked with the U.S. Sustainable Investment Forum, a member association for social investors. I also had an introduction to a New York-based group called Shared Interest, which supports microfinance in South Africa. There I created a social impact framework to help them balance their partners’ social results alongside financial performance.
> Posted by Center Staff
2015 was a year full of great reads (and listens). As we enter 2016, we wanted to take a look back at last year and what we were most excited to explore. Through our work writing the FI2020 Progress Report, which assesses global progress in five key areas of financial inclusion, we benefited from important research from many in the financial inclusion field. As part of this effort, we were eager to update our FI2020 Resource Library with the most informative reports and research outputs. We encourage you to check it out – and in the meantime to review the highlights listed below. The organizations responsible for these reports cover a wide array of stakeholder types, from support organizations, to telecommunication companies, to financial service providers – proof that progress in financial inclusion is being driven by many.
What Happens to Microfinance Clients Who Default? (January)
The Smart Campaign
Author: Jami Solli
This report looks in-depth at the enabling environment, the practices of providers, and customer experiences in Peru, India, and Uganda, to understand what happens when microfinance clients default on their loans. We were especially interested in the paper’s findings that demonstrate that effective credit bureaus give financial service providers the confidence to treat customers who default more humanely.
Money Resolutions: A Sketchbook (January)
CGAP
Author: Ignacio Mas
This working paper explores the underlying logic for how people make money resolutions, including how people organize their money and make decisions about financial goals and spending. The paper focuses on peoples’ approaches to making financial decisions – rather than evaluating the decisions themselves – identifying the inner conflicts they face in the process.
> Posted by Bobbi Gray, Research Director, Freedom from Hunger
Known as the “hardest interview you’ll have with a client,” the interview you have with a client who is leaving is also, however, one of the most important interviews for a microfinance institution – and likely any organization or company concerned about the costs of client acquisition and retention.
The latest debates on the success of microfinance have encouraged Freedom from Hunger to dig deeper into our repertoire of “impact stories” and critically review the reasons why microfinance clients whose lives were not improving were dropping out, particularly since critics often suggest that microfinance tends to result in negative outcomes among participants.
Since 2007, Freedom from Hunger has been developing and testing an “impact story” methodology to discover client experiences that are representative of the entire clientele of an MFI or even multiple institutions, ranging from success to failure and whatever is happening in between.
Thus far, Freedom from Hunger has collected over 700 client impact stories from 25 local partners located in ten countries throughout Latin America, South Asia, and sub-Saharan Africa. Six countries were visited a second time after an interval of three or four years to re-interview the impact story participants. This is a significant effort to take qualitative interviews and conduct them with a small random selection of clients and use the information for fairly meticulous research purposes.
With these impact stories, we wanted to answer some basic questions. Why are some clients successful and why are some not? Why do some clients drop out? Are all the reasons for drop-out negative and does the drop-out result in a client being worse off than if they stayed a client? Can we tell if microfinance is to blame for their negative status? What can we do to improve?
> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group
A few weeks ago, I attended the Global Forum on Remittances and Development sponsored by the International Fund for Agricultural Development (IFAD), the European Commission, and the World Bank. Much of the meeting was focused on two critically important questions:
- Are or could remittances be a major driver of financial inclusion?
- Is it possible (and desirable) for a greater percentage of remittances to be put to productive use as opposed to consumption once the funds arrive in the hands of the recipient?
First, a few facts to underscore why these discussions are so important:
- In 2014 there were at least 240 million international migrants. That is a BIG number – bigger than the populations of all the countries of the world except China, India, the U.S., and Indonesia.
- This year these migrants will send back to their countries of origin more than 440 billion U.S. dollars! This amount is more than three times the amount of foreign aid. It is estimated that $200 billion of this amount goes directly to rural areas in developing countries where the most poverty is.
- Remittances can constitute up to 40 percent of GDP or more in some countries, often the most fragile, most conflict-ridden countries in the world.
- Some 750 million people are estimated to receive remittances, the vast majority in developing countries. Forty percent live in rural areas.
- The global average cost of sending this money home is 8.6 percent of the amount sent, so the potential customer benefits to cost reduction are very important. (In July 2009 the G20 set a goal of reducing the average cost from 10 percent to five percent in five years. Despite failing to achieve the objective, it recently established a new goal of three percent by 2030!)
Are remittances a driver for financial inclusion? Could they be? In a moment of frustration, Fernando Jimenez-Ontiveros, the Acting General Manager of the Multilateral Investment Fund said at the conference, “We’ve been working on these issues for some 15 years, and estimates are that 60 percent of senders and recipients still don’t even have an account! We’ve got to do better!”
> Posted by Ros Grady, Senior Financial Sector Expert, the World Bank Group
The following post was originally published on the World Bank Private Sector Development blog.
The Client Protection Principles: Model Law and Commentary for Financial Consumer Protection (the “Model Law”), recently launched by the Microfinance CEO Working Group, has the potential to be a useful resource for the many developing and emerging economies that are seeking to design and implement international best practices in financial consumer protection, having recognized that consumer protection is a critical element in building and maintaining trust in the financial sector and achieving financial inclusion targets.
The Model Law was prepared on a pro-bono basis by the international law firm DLA Piper on the basis of the seven Client Protection Principles of the Smart Campaign. The project, which took place over a 15-month period and was managed by Accion on behalf of the Council of Microfinance Counsels, included consultations with financial inclusion stakeholders and legal experts, who undertook a review of existing legal frameworks in various countries. Reference was also made to international best practices and principles such as the World Bank’s Good Practices on Financial Consumer Protection and the G20 High Level Principles on Financial Consumer Protection.
The Model Law is a high-level, activities-based law that is intended to apply equally to all financial services providers. This includes “banks, credit unions, microfinance institutions, money lenders and digital financial service providers.” The apparent aim is to ensure an equal level of protection for all consumers and a level playing field. The consumers concerned may be an individual or a micro, small or medium-sized business, and so the law will apply equally to consumption and small-business facilities. Many of the provisions are framed in terms of principles, the detail of which would need to be filled out in related legislation.
> Posted by Alex Counts, President and CEO, Grameen Foundation
Account Use (Developing Economies) – Click to Enlarge
Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as defined by CFI. The Center’s new publication “By the Numbers” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.
Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”
While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent — quite a jump! — over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.
> Posted by Shameran Abed, Director, BRAC Microfinance Program
Shameran Abed, BRAC’s Director of Microfinance, joined the Microfinance CEO Working Group in January. He joins the Working Group’s efforts to support the positive development of the microfinance industry and brings tremendous insight into the discussion on pathways out of poverty.
This month, the results from six randomized control trials (RCTs), published in Science magazine highlighted a model of development that is an adaptable and exportable solution able to raise households from the worst forms of destitution and put them onto a pathway of self-reliance. The graduation approach – financial services integrated within a broader set of wrap-around services – is gaining steady recognition for its astonishing ability to transform the lives of the poorest.
These findings can be contrasted with the results of six RCTs published in January by the American Economic Journal: Applied Economics, which cited limited evidence of “microcredit” alone transforming the lives of the poor.
> Posted by Alex Counts, President and CEO of Grameen Foundation, and Co-Chair of the Microfinance CEO Working Group
The Microfinance CEO Working Group, as part of its commitment to client protection in microfinance and financial inclusion, set out in early 2014 to develop a model law that could be adapted, in whole or in part, into different national contexts. The Working Group’s partners were the global law firm DLA Piper and its “Council of Microfinance Counsels” which is composed of the in-house counsels of all Working Group members. After 15 months of effort, the first version of this law has now been completed and released. The blog below describes this tool and how it can be used.
Those who set policy for consumer protection in financial inclusion have a powerful new tool at their disposal, one that financial inclusion practitioners, legal experts, and regulators have had a hand in creating.
Over recent months, the law firm DLA Piper/New Perimeter has been working with the Microfinance CEO Working Group and a subgroup of the Council of Microfinance Counsels to prepare the Model Law and Commentary for Financial Consumer Protection. This is a framework of suggested legislation on financial consumer protection based on the Client Protection Principles as promoted by the Smart Campaign. The seven Client Protection Principles set standards that clients should expect to receive when doing business with a microfinance institution, and cover such critical areas as transparency, fair and respectful treatment, privacy, and prevention of over-indebtedness. The team that developed this studied multiple countries that had the most progressive and effective laws related to client protection in financial services, and in other areas.
The Model Law can be used in a variety of ways.
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