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> Posted by Christy Stickney, Independent Consultant and CFI Fellow
After decades of directing financial services to owners of micro-enterprises, many microfinance institutions are now finding themselves serving a growing population of small business owners. Thus, with increasing global attention directed to small and medium enterprises (SMEs) and their potential contribution to economic growth, it seems fitting to look more deeply into microfinance portfolios, and discover what can be learned from entrepreneurs whose businesses have arisen out of poverty and marginalization into what can be classified as emerging SMEs. My recent research as a CFI Research Fellow led me to delve deeply into the stories of entrepreneurs who have grown their businesses from micro-enterprises into SMEs.
As someone who has focused much of her career on pushing microfinance downward, towards smaller enterprises and those earning lower incomes, this focus on emerging SMEs both inspired and taught me a great deal. While the analysis of these stories is the focus of my report coming out next month, I’d like to share here two stories that inform our understanding of the nature, growth trajectories, and financial service usage of SMEs arising from within microfinance portfolios. They describe the experiences of two clients of Banco ADOPEM in the Dominican Republic – one of three microfinance banks I visited as part of this study. (All names have been changed to protect identities.) While these two stories may resemble the classic “client story” in that they show how people have moved up the economic ladder, pay attention to the markers of success – both financial and non-financial – that distinguish these clients from those that may have not grown.
> Posted by Center Staff
What do industry leaders feel is the biggest risk facing their institutions in 2016? This question is the focus of the latest Banana Skins report for the financial inclusion sector, Financial Services for All: It’s All about Strategy. The report ranks the top perceived risks facing those providing financial services to un/under-served people in emerging markets. Produced by the Centre for the Study of Financial Innovation (CSFI), and sponsored by Citi and CFI, the study examines the rapidly changing and expanding financial inclusion landscape to better understand how providers view challenges like new technologies, new market entrants, client repayment capacity, and macro-economic risks.
This year’s report, the sixth in the series surveying risks facing the inclusive finance industry, embraces a broader scope than previous editions, which focused exclusively on microfinance institutions. The new report reflects the advances in the provision of financial services to the base of the economic pyramid and encompasses both established providers and newer entrants like commercial banks, technology companies, and telephone and communication companies. A survey with respondents spanning practitioners, investors, regulators, and other industry stakeholders comprise the report’s findings. It’s important to note that in addition to the Banana Skins report series on inclusive finance, there is also a Banana skins report series on insurance and on banking.
So, what were the results?
> Posted by Hannah Sherman, Project Associate, CFI
In a world of rapid change, few organizations have all the capabilities needed to accomplish every aspect of their business. This is true for commercial banks, which often find success in adapting to new opportunities through partnering. CFI’s most recent publication, The Business of Financial Inclusion: Insights from Banks in Emerging Markets, a joint publication with the Institute of International Finance (IIF), illustrates how banks use partners to adopt new technologies and reach previously underserved markets.
The report, based on interviews with the financial inclusion leads at 24 banks, shines a spotlight on the role of banks as leaders in financial inclusion and discusses their specific strategies related to technology, data, financial capability, partnerships, and other issues.
The report found that banks create a variety of partnerships. The banks in our survey partner with telcos, payments companies, insurance companies, microfinance institutions, retailers, and consumer-goods companies. They work closely with governments for G2P payments and with international development agencies and donors that provide start-up capital for new financial inclusion initiatives. They also contract with digital technology providers such as data analytics companies, back-office systems providers, digital channel providers, financial capability providers, and other fintech firms.
Among many other areas, banks often use partnerships to improve on the following:
Read the rest of this entry »
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
#Allinforimpact was the hashtag at “Investing for Impact”, a socially responsible investing (SRI) conference in Boston. Maybe not “all” quite yet but certainly “more” investors are going in for impact, as indicated by the growth in attendance at the conference over the years. Investing for Impact was sponsored by socially responsible investors, such as Calvert Investment and Trillium Asset Management, who not only screen potential investee companies in terms of meeting certain environmental, social, and governance (ESG) criteria – but also serve as watchdogs for the sector and advocates for impactful companies.
A Few Top SRI Trends (from the conference)
Allowing Sinners to Repent: Some companies with bad names in the 1970’s such as General Electric and Ford have changed enough internally to now qualify within some investors’ ESG criteria. As one speaker put it, “What kind of church would we be if we didn’t allow sinners to repent?”
Shades of Grey: Tobacco, firearms, and carbon were across the board clear divestments. But the jury was still out on some companies and business models. For instance, Nestlé, which in the 1970’s came under fire for promoting baby formula in developing countries, has since done a lot to accelerate research on diabetes. Peapod, and other grocery delivery services, are making a pitch to be included as impact investments because the energy saved by not storing food, and the associated reduction in food waste, are positive externalities to consider.
> Posted by Deborah Drake, Vice President, Investing in Inclusive Finance, CFI
Declare victory and go home. How often do you get to say that? But that’s exactly what we did a few weeks ago when we celebrated the closing down of the Accion Bridge Fund. Why a celebration? As the first guarantee fund to support the growth of microfinance institutions, it achieved its objective which was to open doors to private bank funding. This was 1984; microfinance was in its early days and was the purview of small NGOs which had little to no experience with banks. What they did have was deep experience with microlending and bold ambitions to scale this lending. Funding above and beyond grants would be needed.
The Bridge Fund – originally called the Latin America Bridge Fund – was a pioneering breakthrough for Accion and for the industry. By providing a partial guarantee in the form of a letter of credit to local financial institutions, Accion’s network partners were able to grow their portfolios and establish relationships with the formal financial sector of their respective countries. As they gained experience and credibility, MFIs were able to leverage the guarantees to achieve funding multiple times the nominal amount of the guarantee.
Such well known leaders in financial inclusion as Bancosol and Mibanco received early support from the Bridge Fund. Accion’s partners in Paraguay and Chile were able to grow and thrive because Bridge Fund guarantees facilitated funding that they could not obtain from multilateral sources due to their political regimes. Over time the Bridge Fund grew to approximately US $6 million and provided guarantees to 40 MFIs in 15 countries around the world.
> Posted by Christy Stickney, Independent Consultant
“Como tengo ya 57 años, ya no quiero más fuerte.” (Since I’m already 57, I don’t want [to work] any harder.) – A market vendor in Lima, commenting on her vision for her business’ growth.
“Tengo tantos planes, pero ya me siento cansado.” (I have so many plans, but I already feel tired.) — A 42-year-old owner of a bakery in Guayaquil.
“Después de pagar todo y sacar las hijas de la escuela puedo descansar.” (After paying off everything and getting my daughters through school I can rest.) — A 37-year-old paint store owner in Lima.
Entrepreneurs work hard—and when it comes to envisioning their older age they want to be able to have the luxury of slowing down. The above were common themes expressed by entrepreneurs in the three countries where I conducted my research as part of a CFI fellowship. “I’m tired.” “I never rest.” “We don’t take time off.” These are sacrifices associated with running one’s own business, especially among those who have grown their firms from a truly micro size, rising up from poverty and informality into what could be labeled as a “small enterprise” or SME (typically classified as those employing between 5 and 250 workers).
Throughout the developing world, active saving for retirement and participation in formal financial services for older age, like pensions, are minimal. Entrepreneurs of micro-businesses and SMEs face even fewer options than the formally employed, as they tend to operate outside the scope of either private or state-sponsored pension plans. The intention of my research was to learn about the nature of the micro-to-SME entrepreneurs and their businesses, as well as their experiences in growing their enterprises, overcoming hurdles, and utilizing available resources to their benefit. The goal of the research is to inform how to tailor financial services, which are key to enterprise growth, to this client niche. However, in studying these entrepreneurs and their businesses, I also encountered a pervasive alternative being pursued for the financing of one’s later years…
> Posted by Amelia Kuklewicz, Bobbi Gray, Gabriela Salvador, Freedom from Hunger
It’s a scene many can identify with: rushing to an emergency room at 1 a.m. with a young child whose fever has spiked and cannot be controlled with over-the-counter medicine. We generally feel helpless and our mind leaps into worst-case scenarios.
While we’re considering the financial implications, they are secondary to ensuring our loved one receives immediate medical attention.
For many of us with health insurance, we already know what the visit is likely to cost us but we’re still mentally considering what financial resources we’re going to draw on to cover the emergency room co-pay.
Now imagine you are a mother that lives in Ecuador. Since neither you nor your spouse has formal employment with a consistent salary, you are ineligible for state health insurance. Private health insurance is out of the question with monthly premiums in the hundreds of dollars. To top it off, the first question you receive from the attending nurse in reception isn’t about your child’s condition but rather, “Cash or credit?” Many people are known to die during triage, simply from the requirement of having to show payment up front.
> Posted by the Smart Campaign
When most microfinance clients start out they’re first-timers at a formal financial institution. Like anything unfamiliar, a first foray with banks can be intimidating. You don’t want to be duped or make a mistake and lose precious savings. Peace of mind was granted to clients of two microfinance institutions, one in Paraguay and the other in the Dominican Republic recently as the first Smart Certifications in those countries were awarded. Fundacion Paraguaya and Banco ADOPEM were certified as meeting all the standards needed to treat their clients with adequate care. This certification demonstrates to prospective clients as well as investors and other industry stakeholders that their institutions are operating responsibly.
Fundacion Paraguaya and Banco ADOPEM are both market leaders in their own right. Banco ADOPEM is one of the largest microfinance institutions in the Dominican Republic. According to the MIX, 351,000 depositors in the Dominican Republic bank with Banco ADOPEM. When Banco ADOPEM pursues and achieves Smart Certification, that sends a message to MFIs and other stakeholders in the country that client protection is a key priority. In 2014 ADOPEM was named “Most Innovative Microfinance Institution of the Year” by Citi, in part because of ATA-Movil, a portable electronic application that allows credit advisers to assess customers in their businesses or in their homes. The mobile information system also allows for convenient and direct communication with clients.
> Posted by MFIN
In 2013, the Reserve Bank of India (RBI) announced a significant policy move in the form of Self Regulatory Organization (SRO) guidelines for the microfinance industry. An SRO is an organization that has been authorized by a regulator to exercise control and regulation on its behalf over certain aspects of an industry. In the case of Indian microfinance, an SRO supports the RBI in ensuring compliance with statutory regulations and the Industry Code of Conduct, while also taking up research, training, data analytics, and capacity building of the sector. The SRO architecture has dramatically altered the landscape of the Indian industry, providing stability to the industry, with more robust market discipline and customer protection.
MFIN, whose membership consists of 52 NBFC-MFIs which account for over 90 percent of India’s microfinance business, was recognized as an SRO by the RBI in June, 2014. Since then, MFIN has worked towards putting in place an effective SRO framework, with borrower protection as the focal point. One of the important obligations of the SRO in line with the RBI guidelines is to have an independent redressal mechanism for addressing the grievances of microfinance clients. In order to standardize the grievance redressal mechanism and to ensure a common minimum benchmark, MFIN drew on the existing grievance redressal mechanisms (GRMs) of 45 MFIs and worked in partnership with the Smart Campaign to cull out the good practice from these models. The idea was to put in place a three tier mechanism based on the capacity of the MFI concerned, and the Smart Campaign was asked to work on such a model whose aim was to standardize and ultimately strengthen the practices of the member institutions.
> Posted by Bruce MacDonald, Vice President, Communications and Operations, CFI
The following post was originally published on NextBillion.
As 2016 New Year’s resolutions went, few matched the enthusiasm, ambition and fragility of the commitment made by the Association of Southeast Asian Nations (ASEAN). On Jan. 1, its 10-member countries – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – inaugurated the ASEAN Economic Community, a common market whose goal is to forge a prominent regional bloc to rival China and Japan, and bring economic well-being to its 625 million citizens.
Some 13 years in the making, the Community promises an increasingly free flow of services, investment, skilled labor and capital to a market that is now larger in terms of population than either North America or the European Union. Such a single market, its creators envision, will increase intra-ASEAN trade and justify greater spending on infrastructure. Currently, the six leading nations in the group (Indonesia, Malaysia, Thailand, Singapore, the Philippines and Vietnam, a.k.a., ASEAN-6) allocate an average of 26 percent of their GDP to investment, which any recent visitor to Manila or Jakarta might argue is nowhere nearly enough.