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> 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 Jeffrey Riecke, Communications Associate, CFI
Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.
The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.
The results?
> Posted by Anne Gachoka, Research Supervisor, Digital Divide Data
#166894513 / gettyimages.com
Thanks to mobile and agent channels, formal financial services in Kenya now reach millions of previously unbanked customers with new and innovative products. Just look at M-Shwari, the new banking product offered to M-Pesa customers enabling them to move beyond money transfer and epay to small, short-term loans with eligibility based on data about their savings, mobile usage, and debt repayment history. Globally, this is all very exciting and represents an important breakthrough in providing financial services to the poor.
But, after studying the interactions between the poor and the financial sector through the Kenya Financial Diaries, a joint-research initiative between Digital Divide Data and Bankable Frontier Associates, I have come to the conclusion that banking will fail to deliver on the promise of improving the lives of the poor unless providers do more to improve pricing transparency and communication on terms and conditions. The Diaries study tracked the cash flows of 300 Kenyan households over the period of one year.
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
On June 18 and 19, I attended the “African Microfinance Pricing Transparency Leadership Forum“ in Nairobi, Kenya on behalf of the Smart Campaign. The conference convened key African microfinance market actors, including regulators, policymakers, and technical assistance providers, to discuss policies in support of pricing disclosure and client protection. It was hosted by MFTransparency (MFT), Planet Rating, and the Agence Française de Développement. Participants came from all over the continent, ranging from Ghana to Mozambique. As a new member of the Smart Campaign team, I took away a few thoughts for our own work.
The concept of transparency from MFIs is gaining ground. No longer can an MFI withhold pricing data without censure from peers. Participants voiced the need for greater intervention from their governments in the form of reporting standardization, regulatory oversight, and financial education programs so that clients can better interpret pricing information.
We should capitalize on this momentum and seek out partners who are truly committed to transparency and to improving the market environment. We should also encourage discussions among on-the-ground actors regarding difficult subjects such as pricing caps, improving small MFIs’ operating efficiency, and proper fee disclosure. And as MFIs commit to sharing more information, the industry should work to ensure that clients can understand and use pricing information to make good choices.
But many actors are reluctant to take on the responsibility and costs of bringing transparency to the market. Participants voiced concern about taking on greater costs and duties regarding regulation and providing recourse. Further, in some countries, confusion remains over how regulatory and oversight responsibility is allocated among government agencies.
Those working in microfinance can help lay the groundwork for sector transparency in Africa. We in the Smart Campaign should focus on forcefully communicating the incentives for transparency and the mid-to-long-term benefits to MFIs and their associations. We should support collaboration and knowledge-sharing among market actors and support the development of strong truth-in-lending legislation that protects borrowers. Actions must reflect the national regulatory context and engage local partners who understand specific local issues. Even with stronger legislation and increased regulation, there are many non-regulated actors slipping between cracks (e.g. very small, non-deposit taking organizations) and the Smart Campaign and others need to find ways to protect the clients of these institutions as well.
Populist policies are not always the most effective policies for client protection. MFT presented empirical evidence that, despite their recent popularity, pricing caps are not more effective than a client protection agency or strong client protection legislation. MFT’s evidence shows that if price caps are introduced, they must be comprehensive (i.e., address all fees and additional charges) and will result in the smallest borrowers and lenders being forced out of market. It is key to encourage legislative steps and the creation of a regulatory body rather than laws directly focused on interest rates and caps. At the same time, the lengthy timelines for legislation processes to introduce such protections can discourage people from taking action. Meanwhile, the thorough collection and effective communication of data being done by organizations such as MFT and MIX is an important part of improving the microfinance environment.
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