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> Posted by Danielle Piskadlo, Director, Investing in Inclusive Finance, CFI

Where were you in 2006? I was living with friends in a “beach house” in San Diego. Since then, I lived in China, went to grad school, shifted careers, married, and had two kids. So much has changed in my life over the past decade. The same cannot be said on the topic of valuing socially-focused financial institutions.

In 2006, Clay O’Brien wrote the first-of-its-kind paper on “Valuing Microfinance Institutions.” This paper surveyed members of the Financial Inclusion Equity Council (FIEC) – which was then called the Council of Microfinance Equity Funds (CMEF) – and concluded that:

  • There was not enough transparency in terms of methodologies and benchmark data;
  • There was a need for a more robust, standardized valuation methodology; and
  • The social value of double-bottom line investments was not accounted for – or was accounted for negatively – in the valuation.

FIEC recently revisited the topic of valuing double-bottom line investments with its valuation working group to better understand how the topic has evolved over the past decade. What was found? Despite changes in the broader industry (new players, adjacent sector investments, etc.), very little has changed in terms of valuing financial inclusion investments. Our findings are compiled in a brief paper, Valuing Microfinance Institutions: Where Are We Now.

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> Posted by Sonja Kelly, Director of Research, CFI

WeBank started piloting facial recognition for KYC (“know your customer”—verifying that a customer is who they say they are) last year—we heard about it when we talked with Jared Shu, a partner with McKinsey, as part of our deep dive about the different ways banks pursue financial inclusion. At that point, the technology was mere possibility, with some question about whether the regulator would allow it. Now, it seems, facial recognition is indeed serving as a form of identity in China. With the help of technology, customers can quite literally authorize a transaction using their face.

Alipay, a mobile payment app launched by Alibaba in 2004 and used by 120 million people in China, is partnering with Face++ (pronounced “face plus plus”) to allow people to use their face as a credential to make payments. The technology is a natural extension of using a fingerprint to verify a person’s identity, and it is far more secure than just comparing a signature on the back of a credit card to a signature on a receipt.

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> Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

In the aftermath of the Panama Papers, the words “offshore” and “tax-haven” are often taboo rhetoric within the investment industry. Perhaps even more so in the impact investing space, where fund managers have both fiduciary and social responsibilities. The Financial Inclusion Equity Council (FIEC; of which CFI is the secretariat) recently published the report Offshore Financial Centers for Financial Inclusion: A Marriage of Convenience to better understand attitudes and practices when it comes to how equity impact investors use offshore financial centers (OFCs). To dive into this topic CFI and consultants Daniel Rozas and Sam Mendelson interviewed FIEC members from the U.S. and Europe. Conversations resulted in varying opinions on the practice of using OFCs, with three key considerations for doing so: administrative efficiency; tax liabilities; and transparency and ethics.

Among all FIEC members interviewed, administrative efficiency was unanimously a primary driver in making the decision about where to domicile funds. Fund managers cited the importance of understanding local regulatory requirements, the presence of embassies, bank relationships, management facilities, remittance corridors, and convenience of location as important considerations in their decision. The reality is many low income offshore countries lack the infrastructure and capacity for supporting the administrative requirements of investments. Additionally, there are increasingly stringent AML/KYC requirements that disproportionately affect lower-income countries creating administrative burdens. The new CFI report states: “…this is at least one of the goals of using OFCs – not to avoid the regulators, but to outsource some of the reporting burden to entities that specialize in this service that have relationships to do it efficiently.”

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> Posted by Kettianne Cadet, Lead Analyst, Investing in Inclusive Finance, CFI

“Evolve or die, it is that simple!” remarked Kelvin Twissa, Board Member of FINCA Tanzania. His comments came during a session on Disruption at the recent Africa Board Fellowship (ABF) seminar in Cape Town.  In an era where business is definitely not usual, many incumbent financial institutions and their operating models are being threatened by disruptors, and the ability to continuously innovate and evolve has become an increasingly important ingredient for survival.

Graphic harvesting image from May 2017 Africa Board Fellowship Seminar

Graphic harvesting image from May 2017 Africa Board Fellowship Seminar

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> Posted by Carmen Paraison, Senior Program Associate, Africa, the Smart Campaign

Smart Campaign Uganda convening participants

Smart Campaign Uganda convening participants

Earlier this year, the Smart Campaign co-hosted a financial inclusion and consumer protection event in collaboration with the Microfinance CEO Working Group and the Association of Microfinance Institutions of Uganda in Kampala, Uganda. With more than 100 people in attendance representing diverse stakeholder groups, the event served as a platform to exchange ideas and commit to greater partnership to progress financial inclusion policies and practices, and consumer protection in Uganda.

The goal of the event was to provide an opportunity to obtain clear commitments in support of the key themes and objectives of Uganda’s developing national financial inclusion strategy, and to place consumer protection at the heart of its roll out. The convening brought a variety of stakeholders together, including financial service providers, donors, researchers, government ministries, and the Bank of Uganda, to support the country’s consumer protection goals and facilitate better collaboration.

After hearing the perspectives and inputs of the key sector stakeholders in attendance, we took stock of our three-year strategy for the country. Going forward, the Campaign’s approach will focus on the following:
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> Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

How does a microfinance institution know what transformation will be like from an NGO to a formal financial institution? In an increasingly complex industry with competition from commercial banks and the entrance of fintechs, many microfinance NGOs are considering transformation to realize their growth potential and help attract investment. However, the road to transformation can often be bumpy, as noted in the Center for Financial Inclusion’s publication Aligning Interests: Addressing Management and Stakeholder Incentives During Microfinance Institution Transformations.  Regulatory compliance issues, information technology hurdles, and aligning with the needs of the NGO and investors can often complicate the process. For Enda Tamweel, the largest and oldest microfinance organization in Tunisia, the decision to transform has come with external pressures, operational challenges, and a focus on maintaining their mission. Read the rest of this entry »

> Posted by Todd A. Watkins, Paul DiLeo, Anna Kanze, and Ira Lieberman

Fintech is a shiny attractor for impact investors. Emerging financial technologies shimmer with disruptive potential for the delivery of a wide array of financial, educational, health, and social services for the poor. While microfinance still makes up a major share of impact investing portfolios, many investors appear to have moved on to fintech, the next wave of creative destruction. Rather than be toppled by it, microfinance institutions (MFIs) look to ride that wave too, to extend reach, reduce costs and prices, improve and deepen client services, and improve risk management.

Fintech, whether new digital services or proprietary software used to evaluate and underwrite credit, brings glittery potential for MFIs, no question. But in fairy tales unicorns glitter too. Are MFIs chasing something equally illusory? Microfinance has decades of success growing and strengthening a high-touch business model. As growth slows, should MFIs now abandon that approach and use high-tech to go low-touch for cost efficiency? If MFIs stay their course, will they be overtaken by new entrants with new models, like Chinese online peer-to-peer lender Yirendai, which went IPO on the New York Stock Exchange last year? Or instead, will MFIs find innovative high-tech ways to further leverage their deep relationships with clients and understanding of client needs?

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> Posted by Carmen Paraison, Project Associate, the Smart Campaign

The views expressed in this post don’t necessarily reflect those of CFI.

The Development Bank of Nigeria (DBN) was conceived in 2014 and this year it has come into fruition with the green light from the Federal Executive Council on April 5th. The only step standing in the way of disbursement of funds is the required approval from the National Assembly. With $1.3 billion in its coffers, the new development bank aims to spur economic development by increasing access to finance for micro, small and medium-sized enterprises (MSMEs) through relatively lower interest rates compared to commercial banks, and relatively longer loan repayment periods.

The DBN will serve as a wholesale bank to microfinance banks (MfBs) which will in turn provide medium and long-term loans to MSMEs. It will provide loans to all sectors of the economy including manufacturing, the services sector, and other industries not currently served by existing development banks, thereby filling an important gap in the provision of finance to MSMEs.

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> Posted by Sabine Spohn, Senior Investment Specialist, Private Sector Operations Department, Asian Development Bank

The following post was originally published on the Asian Development Bank blog.

In late 2016, many presumed Indian microfinance institutions would be adversely affected by India’s sudden demonetization law. Surprisingly, events unfolded quite differently to expectations.

On November 8, Prime Minister Narendra Modi announced the withdrawal from circulation of all Rs500 and Rs1,000 bank notes in a bid to combat black money and curtail the use of counterfeit cash. The objective was also to slowly introduce the country’s population to a digital economy. The action was driven by good intentions, although it initially caused many disruptions in the economy.

In India, where ADB’s Private Sector Operations Department has been carrying out the Microfinance Risk Participation and Guarantee Program since 2012, many of our partner microfinance institutions temporarily stopped lending to low-income people as they were not clear how those loans would get repaid – in particular in rural areas. In the first few days and weeks, collection rates dropped to as little as 10-20 percent.

Five months after demonetization, the uncertainty has started to fade.

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> Posted by Ira W. Lieberman, Todd A. Watkins, and Anna Kanze

We’ve identified the problem: Microfinance is no longer sexy. It’s old news. It can’t deliver “impact,” and its effect on alleviating poverty was oversold and has underwhelmed. It’s well and good to offer working capital loans, but at the end of the day, the poor need education, health care, water for drinking and irrigation, roofs, and electricity together with a wide variety of financial services. It’s time for investors seeking real innovation to move on to the next big thing that will transform the lives of poor people and save our planet. Never mind microfinance’s decades-long track record of listening to the poor and underserved clients and effectively developing products and services based on their needs.

Of course, we issue these statements with considerable sarcasm. But, all joking aside, industry trends and shifting sentiments are presenting investors with a real question: Should they abandon the reliable and successful platforms and infrastructure that microfinance institutions (MFIs) have built? In turn, MFIs are saddled with the question of whether to stick to what they know best, or instead, to use their platforms to deliver expanded product offerings that increase access to other essential services.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.