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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.”
> Posted by Tyler Owens, CFI Staff
The current era of financial services for the poor is marked by the growth of high-tech delivery mechanisms, innovative start-ups, new socially responsible investing models, and more traditional banks growing their portfolios of base-of-the-pyramid clients. Different players in increasingly crowded markets often collide in trying to win over more clients. Just one recent example is the newly public Alibaba, which has issued more than $16 billion in small loans over the last three years through its SME loan company AliFinance. The result of all this can lead one to question the role that traditional MFIs will play in the years and decades ahead. What will be their unique value proposition and how will they earn and maintain market share and the loyalty of their clients?
There is evidence that microfinance industry practitioners and stakeholders are not prioritizing questions of relevance and long-term customer retention. All too often, thinking strategically about the place of an MFI in a rapidly changing financial services landscape takes a back seat to the daily crush of competition and loan book performance. The 2014 Microfinance Banana Skins report—which is built on surveys of industry practitioners and insiders—concluded that the most urgent risks the industry faces are those of day-to-day business operations, such as credit control, competition, and management quality. The report went on to say that “longer term risks associated with the survival and evolution of the industry such as technological change, product development and funding are considered to be less urgent – and are less well defined.” It concluded that paying scant attention to long-term risks in the industry—at a crucial point in its development—may be a serious risk in itself.
> Posted by Anne Hastings and Tyler Owens, Microfinance CEO Working Group
The following post was originally published on the Microcredit Summit Campaign’s blog, 100millionideas.org.
Since its inception in the spring of 2011, the Microfinance CEO Working Group has worked diligently and collaboratively to define the concept of Responsible Microfinance around the globe and lead by example to try to fulfill this vision. It has focused on three key pillars on which Responsible Microfinance is built: client protection, pricing transparency, and social performance management. A responsible microfinance institution (MFI) is one that, at a minimum:
- Does all in its power to protect its clients from harm;
- Is transparent about fees and interest rates; and
- Implements best practices in social performance management including monitoring effectiveness in achieving desired client level outcomes.
An MFI can achieve this by complying with the industry-developed standards of the Smart Campaign, MicroFinance Transparency, and the Social Performance Task Force, known as the Universal Standards for Social Performance Management.
The Working Group is a collaborative effort of the CEOs of Accion International, FINCA International, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund, and Women’s World Banking. At the Microcredit Summit in Manila in October 2013, the Working Group publicly encouraged its collective 224 affiliated MFIs around the globe to embrace Responsible Microfinance by sharing a list of commitments. Since making those commitments, the group has made significant headway toward strengthening each one of the pillars of Responsible Microfinance.
> Posted by Maura Hart, Communications Manager, Microfinance CEO Working Group
In conjunction with the release of two new publications on over-indebtedness, the MCWG has launched the Over-Indebtedness Transparency Discussion Forum as a platform for discussion and encourage readers to join in. We invite you to share your thoughts and questions with other microfinance practitioners.
Understanding the causes and potential remedies for over-indebtedness is critical to socially responsible lending. The fallout from over-indebtedness can be extensive, not only to the clients whose inability to repay loans can lead to social, economic, and personal problems with long-lasting repercussions, but if over-indebtedness is widespread, it can create adverse economic impact on the community and ultimately cause a significant economic crisis in that region. We have seen tragic examples of this in Bolivia and India just in the last 15 years.
Recognizing the ongoing urgency of this issue, the Microfinance CEO Working Group – a collaborative effort by the leaders of eight pioneering microfinance organizations – Accion, FINCA International, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking – commissioned two new studies:
The Working Group and our colleagues in the socially responsible lending community are anxious to avoid a debt crisis in Mexico, similar to those that have caused major upheavals in other countries. The Working Group commissioned Over-Indebtedness in Mexico: Its Effect on Borrowers to learn of the causes of over-indebtedness in Mexico directly from borrowers and those who are on the frontlines of the loan application and approval process.
Over-Indebtedness: A Risk Management Approach is designed to help other microfinance institutions (MFIs) identify the leading indicators of the trend toward over-indebtedness and mitigate the risks—and ultimately reduce the likelihood that over-indebtedness will happen. The study examines the leading indicators of over-indebtedness and suggests steps MFIs can take to avoid over-indebting their clients. It also identifies the risk mitigants and controls that will reduce the likelihood of MFIs being affected should over-indebtedness hit the wider market.
We hope these two papers will be the catalyst for an open dialogue among practitioners and thought leaders in the microfinance sector so that we might collaborate to develop preventive solutions. As these initiatives become established, the Working Group will share these resources with other MFIs and the microfinance sector. We also plan to provide additional platforms to continue the fruitful discussion of over-indebtedness remedies.
> Posted by Elisabeth Rhyne, Managing Director, CFI
I was recently asked to give a talk at the University of Pennsylvania’s 8th (!) annual Microfinance Conference. This year’s theme, “Microfinance Beyond Its Roots” set me in search of ways in which the microfinance industry is moving into areas beyond its original microcredit core. Of course, this process has been going on for a long time, and so there are many topics to choose from.
I decided to look at health care, partly because, as every staff member of a microfinance institution knows, health setbacks are one of the most frequent sources of repayment problems among low income clients. As they learned about the health vulnerabilities of their clients, microfinance organizations began to invest in experiments, bringing their businesslike approach to bear on a challenge that is often dealt with in heavily subsidized, non-market ways. Today, many of these programs have matured and grown, even as new ideas are being tested.
I looked among the organizations belonging to the Microfinance CEO Working Group, and I found that nearly all have something exciting going on in health care. Approaches include some combination of direct health care service provision, health insurance coverage, and education. Many are using technology as a means of reaching people at scale and low cost.
The meetings associated with group lending provide a convenient and cost-effective platform for health services, and adding a health component to group microcredit is probably the earliest and most widespread model. Health education was perhaps the starting point, as pioneered by Freedom from Hunger and also implemented by Opportunity International. Today the services often reach farther (while health education continues to be important). ProMujer, for example, directly employs nurses and other health practitioners to staff fixed and mobile clinics available to ProMujer members. They focus on maternal and reproductive health, as well as screening for the chronic diseases that are increasingly major health issues in Latin America. Hundreds of thousands of women get access to health care through ProMujer’s efforts.
> Posted by Alex Counts, President and CEO, Grameen Foundation
The following post was originally published on the Grameen Foundation Insights Blog. It’s the first part of Counts’ two-part post on scarcity and its implications for microfinance and poverty alleviation. Part two can be found here.
The field of behavioral economics – the intersection of psychology and economics – is fairly new. This is a partial explanation of why its lessons have not yet been applied much to microfinance and anti-poverty programs generally. But this is clearly changing, and none-too-soon, as microfinance in particular is in need of reinvention and rebranding.
In fact, I am coming to believe that thoughtful applications of behavioral economics can be a central part of defining and realizing the idea of “responsible microfinance” that the Microfinance CEO Working Group and others are championing and also “full financial inclusion” that moves the dial on poverty.
An excellent new book titled Scarcity: Why Having Too Little Means So Much, by Sendhil Mullainathan and Eldar Shafir (Times Books, 2013), will make this process of leveraging the insights of behavioral economics into microfinance much easier. Drawing on decades of research, it focuses on an analysis of the phenomenon of scarcity – having too little of anything important to the human experience – and the implications of that analysis for policy and practice.
A note of caution. Lest behavioral economics becomes a new fad in international development and microfinance, or worse yet that I receive part of the blame for that, let me say something clearly. I see behavioral economics as an important lens, which is to say a powerful vantage point to look at efforts to reduce poverty and improve the human condition. Gender is another powerful lens. Race, political economy, biology, mental health, and asset building are also potentially useful lenses.
Now, let me explore a bit what the world looks like when viewed through this lens.
Understanding Poverty through the Psychology and Economics of Scarcity
The study of scarcity through the discipline of behavioral economics tells us something profoundly important. When the human mind perceives scarcity of anything important – money, time, or human contact, to cite three examples – it starts behaving in fundamentally different ways. It focuses on managing and alleviating the short-term scarcity, and in general it does that very effectively. The authors call this the “focus dividend.” Research cited in the book shows, for example, that many dimensions of performance are improved in a situation of scarcity.
> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group
Global Forum Venue: The Lancaster London
As I traveled to London to attend the FI2020 Global Forum, my mind was filled with many thoughts. First was excitement that I had been invited to attend when I was still very much a microfinance practitioner. I was still in the process of adjusting after 17 years living in Haiti struggling to build an institution that would be a model of a client-centric, double bottom line microfinance institution (MFI) committed first and foremost to reaching the very poorest people in Haiti and providing them a pathway to a better life. For me, this meant providing them with a full range of financial and social services. My commitment to these clients had been solidified through my years in Haiti but also by my service on the Smart Campaign Steering Committee and the Board of the Social Performance Task Force and more recently by my role as a practitioner advisor to Truelift.
But now that I was in the plane and on my way, I had taken on a new role: Manager of the Microfinance CEO Working Group, a collaborative effort of the CEOs of eight pioneering global microfinance networks – Accion, FINCA, Freedom From Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking – all dedicated to advocating for more responsible microfinance practices and to instituting the highest standards of performance within their own MFIs. These eight CEOs represent 250 MFIs in 70 countries, serving some 40 million families. Suddenly I had been boosted from deep concerns about the future of poverty in one tiny country of 9.5 million to a preoccupation with the future of MFIs worldwide.
The Forum was a beautiful reflection of the often chaotic financial services marketplace of today where traditional banks, telecoms, retail stores, donors, investors, policymakers, regulators, and MFIs often collide in seeking to capture new markets. In attendance were the CEOs of institutions like Citi and MasterCard, along with several former Governors of Central Banks, technology innovators like the CEO of bKash, executives of insurance companies like MetLife and Swiss Re, Managing Directors of investment companies like Wolfensohn Fund Management, experts in alternative data systems like Cignifi. There were times when I thought maybe I had actually entered the wrong conference! Who were all these people, and what did they have to do with the future of microfinance?
> Posted by Alex Counts, President and CEO, Grameen Foundation
The Financial Inclusion 2020 Global Forum was a remarkable and historic convening. I was honored to have been invited to attend and co-facilitate an “ideas to action” roundtable about one of the five parts of the Roadmap to Financial Inclusion .
Immediately after the event I reached out to Elisabeth Rhyne to understand how I could help build on the groundwork laid at the conference. She suggested I write a blog post about my experience. My immediate reaction was that commenting on such a wide-ranging and successful effort was a bit daunting. But I felt it was worth a try.
Dissecting the Term “Financial Inclusion”
I will admit that I have warmed slowly to the language of financial inclusion and financial capability. Are these just new buzzwords for time-tested concepts? (And if so, why use them?) Let’s assume they are new concepts. If so, financial inclusion feels like more of a means than an end. For me, the end is the reduction of poverty and the empowerment of low-income women – so why not focus on those? If having a poor or even middle-class person simply open their first “no frills” bank account is considered a step towards financial inclusion, regardless of how useful or helpful that bank account is, is this banner a lackluster one to rally under? Further, it is not clear to me that the provision of quality financial services through informal financial institutions (however defined) is being properly valued in the financial inclusion agenda. Finally, does making “financial capability” something of a prerequisite for people accessing formal financial services effectively let financial institutions off the hook for meeting clients where they are and designing appropriate products for them?
While my apprehension about these concepts has not entirely dissipated, I emerged from the Global Forum feeling that this campaign for full financial inclusion, at least as defined by CFI, is evolving as a powerful rallying point for a diverse coalition of providers, regulators, technologists, researchers, and activists. The notion of full inclusion is essential. I now see financial capability as a concept that defines the end state when financial education (through whatever means) is done effectively. The Forum probably had a similar impact on many others – helping them travel from a place of confusion or even wariness towards strong alignment and shared purpose.
> Posted by Center Staff
The Financial Inclusion 2020 Global Forum is a few days away! Kicking off with side sessions this Sunday the 27th on persons with disabilities and the Microfinance CEO Working Group, the landmark event for expanding global financial inclusion is almost here.
Taking place on October 28-30 in London, the event will convene approximately 300 leaders in financial inclusion, spanning sectors and industries, in a collaborative environment where they can map the action agenda for achieving financial inclusion by the year 2020. Participants include key players from the financial sector, technology providers and the corporate sector, international non-profits, and public policymakers. For the full list of attendees, click here.
The Forum agenda includes an assortment of session types, with a number of opportunities for participant engagement. In one roundtable breakout session, participants will discuss how to take the Roadmap recommendations from ideas to action, identifying priorities for implementation. Other sessions include a Forum-opening discussion on factors that put financial inclusion by 2020 within reach, a plenary on mobile money and spurring innovation, a presentation on the forthcoming CFI report Opportunities & Obstacles in Peru, and a fireside chat and Q&A with Ajay Banga and Michael Schlein, CEO’s of MasterCard and Accion. For the full agenda, click here.
Along with Banga and Schlein, Forum speakers include Cherie Blair, Founder of the Cherie Blair Foundation for Women, Aigboje Aig-Imoukhuede, CEO of Access Bank, Nick Hughes, Founder of M-PESA and M-KOPA, Duvvuri Subbarao, former Governor of the Reserve Bank of India, and Bindu Ananth, President of IMFR Trust. For the full speakers list, which includes a handful of newly confirmed speakers, click here.
> Posted by Anne Hastings, Manager, Microfinance CEO Working Group
The CEOs of eight leading global microfinance networks – Accion, FINCA, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking – made six significant commitments at the Microcredit Summit Campaign’s Partnerships Against Poverty Summit last week in Manila. These eight CEOs make up the Microfinance CEO Working Group. Together they represent more than 250 retail microfinance institutions in 70 countries globally and provide financial and often non-financial services to more than 40 million families.
Here are the commitments:
1. Client Protection: Encourage all affiliates to progress toward Smart Campaign certification and be on a pathway toward certification by the end of 2014.
2. Pricing Transparency: Motivate our affiliates to commit to pricing transparency and integrity by agreeing to publish their pricing data using standard methodologies, such as those developed by MicroFinance Transparency, in order to allow investors and clients to make informed decisions.
3. Social Performance: Promote the Social Performance Task Force’s Universal Standards for Social Performance Management among our affiliates and commit to supporting their compliance.
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