Pakistan’s financial sector is due for some client-centric changes. Over the past decade there has been rapid growth in consumer lending as well as an increase in the number of households that have taken on risks and obligations that they do not fully understand due to unfair and deceptive practices coupled with low levels of general and financial literacy.

These trends make the World Bank’s recently released industry-wide diagnostic review of the state of consumer protection and financial literacy in the country all the more relevant, and its recommendations targeting irresponsible practices, such as inadequate price disclosure, gender-based discriminatory lending practices, and lack of dispute resolution mechanisms, increasingly important. Offering key findings, recommendations, and comparisons against World Bank-developed best practices, the review is the first to cover the country’s legal, institutional, and regulatory framework from the consumer protection angle.

The review, co-financed by USAID and released in April in Islamabad, covers the microfinance, insurance, securities, and banking sectors.

The financial industry in Pakistan is dominated by the banking sector, which holds approximately 74 percent of the financial system’s capital assets. Insurance and other non-bank financial services hold less than 10 percent of the financial system’s assets. Overall literacy levels in the country are low, at 55 percent of the total population. Financial literacy is dismal, according to the Access to Finance Survey 2008, for example, only 47 percent of adults are aware of the term “bank accounts.”

One of the most important gaps highlighted in the diagnostic is that the institutional framework for financial consumer protection is fragmented. The fragmented legal environment in terms of consumer protection does not provide a sound basis for the microfinance industry’s long term sustainability, and it puts at risk progress achieved so far under what is considered one of the world’s most enabling regulatory regimes for microfinance.

In terms of business practices, while comprehensive guidelines and directives on lending practices and debt collection exist for microfinance banks (not for unregulated MFIs), systematic oversight of these from a consumer protection perspective is absent, contributing to poor practices. While the regulators have issued directives to financial institutions to enhance transparency and disclosure of their terms and conditions, practices are still significantly opaque with no standards for disclosure prescribed for sector-wide adoption. The lack of effective disclosure impedes healthy competition in the sector. The absence of dispute resolution mechanisms for microfinance clients is another core weakness, which is influenced by the lack of regulatory requirements for institutions to set up internal complaints handling mechanisms or any stipulated standards for complaints handling. There are few channels for microfinance clients to lodge complaints, and they are generally unaware of the channels that do exist.

The widely practiced gender-biased discriminatory loan application criteria pose consumer protection issues for female microfinance clients.

Moreover, current laws and regulation leave NGO-MFIs largely uncovered. This presents a major risk given that the majority of microfinance loans are from these institutions at present.

Financial literacy initiatives are also fragmented and not part of a comprehensive country-level strategy.

While some of these findings pose serious concerns for the microfinance as well as broader financial sector in Pakistan, a number of steps can be taken to help mitigate their adverse effects, as the study outlines. These include enforcing adequate disclosure and responsible sales practices, dispute resolution mechanisms, and other safeguards for client wellbeing. The review’s recommendations are ranked in terms of their estimated completion timeframe and priority levels.

Already, as evidenced by the diagnostic review launch event in Islamabad, stakeholders from each of the financial sector specialists, including microfinance practitioners, are engaging with many of the review’s recommendations. As for next steps, mechanisms include inter-stakeholder cooperation and taskforces to ensure that these recommendations see fruition.

Part one of the review covering findings and recommendations can be viewed here, and part two comparing Pakistan’s to industry best practices here.

Image credit: Bloomberg/ Getty Images

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The following post was originally published on USAID’s microlinks.

Elisabeth Rhyne joined USAID shortly after the seminal PISCES (Program of Investment in the Small Capital Enterprise Sector) studies were completed in the 1980s. From 1994 to 1998, she was the Director of USAID’s Office of Microenterprise Development, where she developed and led USAID’s Microenterprise Initiative.

The breakthrough innovations that sparked the birth of microenterprise credit in Latin America occurred in the early 1980s, and USAID was very much the driving force. Through PISCES, the Program for Investment in the Small Capital Enterprise Sector, operational from 1979 to 1985, USAID and its partner organizations began to discover the principles of success for lending to the poor, opening the way for the microfinance industry.

To understand the origins of this microfinance strategy, it helps to visualize PISCES at a time when three streams of thought came together. First was the “Spring Review” on directed agricultural credit carried out by the rural finance gurus of Ohio State University, Dale Adams and Claudio Gonzalez Vega, with J.D. von Pischke of the World Bank. Their work revealed the waste and dysfunction of subsidized agricultural credit doled out by bankrupt government credit banks. These banks were swallowing hundreds of millions of development dollars annually. The Ohio State team’s manifesto was that financial institutions must make credit decisions based on risk assessments, not politics, and charge interest rates that would allow operations to be sustainable. That review launched a gradual shift by USAID, the World Bank, and other aid agencies away from public development banks. But, if public development banks were sidelined, who would serve the poor?

At the same time research mainly by the International Labor Organization (ILO) revealed the importance of the “informal sector,” small-scale businesses operated by low-income households. These were especially important in urban areas as a source of livelihood for a vast portion, and sometimes even the majority, of the poor in developing countries. (Why this was a revelation was a mystery to me – one has only to stroll through the poor areas of a developing country to see the scale of the informal sector.) The ILO’s work excited the interest of USAID’s Office of Urban Development. Michael Farbman and his colleagues there wanted to figure out how development organizations could assist the proprietors of small and microenterprises to improve their businesses and work their way out of poverty.

Finally, with the election of Ronald Reagan to the White House in 1981, USAID adopted a pro-private sector stance. Although the businesses of the informal sector were small, interest in them received a political boost from the Reagan Administration’s new team, as did experiments in supporting vehicles other than government to deliver services.

With all those ideas fermenting among the staff and partners of the Office of Urban Development, it was only natural to design an action research project to push insights toward practice. USAID charged three organizations to go forth and search the world for entities that were doing a good job in supporting the enterprise credit needs of the poor, and to identify success factors. Accion, the overall lead, was assigned to investigate organizations working in Latin America, the Development Group for Alternative Policies in Africa, and Partnership for Productivity in Asia.

This work bore fruit in Latin America, because it was through the work of PISCES that Accion began to learn what it needed to know to build successful microfinance institutions across the region. Jeff Ashe, Accion’s lead researcher, made the following fundamental observation, which set the stage:

Once it is recognized that business owners are the best qualified to decide how to use the credit provided and that business advice will be provided informally by other business owners in the community, the process of designing programs to assist existing micro-enterprises translates largely into how to provide the right amount of credit to the small business owners quickly and economically while ensuring that the loans are paid back promptly*.

With this perspective, Ashe identified organizations in several countries that made loans quickly and economically and that had high repayment rates. In El Salvador, FEDECCREDITO, a local NGO, made very small loans to solidarity groups of five to eight people. Using that methodology, it offered credit to 2,735 businesses in 18 months, vastly more than the usual few hundred beneficiaries of most programs – and with much higher repayment rates.

While writing up the results for the PISCES report, Ashe was busy inside Accion arguing for the solidarity group approach and urging the program to test the methodology on the ground. In PISCES II, he got the chance.

To read the rest of this post, visit microlinks.

*“The Pisces Studies: Assisting the Smallest Economic Activities of the Urban Poor”, Michael Farbman, editor, USAID, 1981, p. 29.

Note: This blog post title was inspired by Galen Hull in Experiments in Small and Microenterprise Development.

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The following post was originally published on Democracy in Development, Coleman’s CFR blog.

Imagine life without a bank account. Completing a simple financial transaction can require traveling a distance, incurring expenses, and losing precious income. Savings are more difficult to track and certainly don’t earn interest. Theft or loss of the proverbial “cookie jar” is a constant worry. Indeed, studies show that informal savers lose as much as 25 percent of their hard-earned cash each year due to theft and loss. Yet for over 2.5 billion people globally, this inconvenient, inefficient, and expensive reality is the case.

There are many reasons to believe that the number of unbanked people will shrink significantly in years to come, with important positive implications for economic growth and poverty reduction. First, grassroots and country-level efforts, both nonprofit and for-profit, are already showing how “unbanked” doesn’t have to be the status quo—and these efforts are greatly facilitated by mobile phones. Kenya is well-known for the widespread use of its mobile money system M-Pesa, which allows people to pay for goods and services through cell phones instead of with cash. Started in 2007, M-Pesa has already been used by the vast majority of Kenya’s adults.

Second, major financial institutions are supporting efforts to give more of the world’s population access to bank accounts and standard financial tools. Last summer, I wrote about Visa’s purchase of the mobile payments system Fundamo and the collaboration between USAID and Citi to expand financial inclusion, a promising instance of big financial institutions bringing their resources to bear on closing the financial inclusion gap.

Third, governments–recognizing the value of getting citizens into the financial system–are driving change by increasingly moving to electronic payments. A USAID-backed program in Afghanistan, for instance, has enabled the government to pay civil servants directly through mobile money. Graft was so reduced that some police officers mistakenly believed that they had received a 30 percent raise. Some countries are beginning to migrate their large cash-transfer programs and other socioeconomic support for the poor onto electronic benefit cards and mobile systems. Mexico and Brazil have moved aggressively in this direction. India’s emerging efforts in this area could be a game changer for that country. As of this year, it is now depositing pensions and scholarship money directly into bank accounts for 245,000 people. The real shift could come if and when it is able to achieve its goal of replacing its hugely inefficient subsidy programs with direct cash transfers to the poor distributed electronically through mobile phones and benefit cards. Nonprofits such as GiveDirectly are also experimenting with direct cash transfers through mobile technology.

At a meeting on financial inclusion that I hosted yesterday at the Council on Foreign Relations with Bob Annibale, global director of microfinance at Citigroup, and Shamshad Akhtar, assistant secretary-general for economic development at the UN’s Department of Economic and Social Affairs, we discussed many of these points. You can access the audio here. The speakers noted that the microfinance revolution began the drive for financial inclusion of the world’s poorest some forty years ago. The focus was on credit because extending small, non-collateralized loans was an innovation the nonprofits behind the movement were able to do. Today, due to changes in regulation and technology, microfinance institutions are now able to provide a range of financial services—including savings, insurance and electronic payments—to the very poor, which should speed up the pace of change in financial inclusion around the world. In some sub-Saharan African countries, still upwards of 70 percent of the population has no access to financial services. As Bob Annibale pointed out, even in Mexico, an OECD country with a growing middle class, some 50 percent of the population is still unbanked.

The Center for Financial Inclusion notes that as more developing countries move through their demographic transitions, with larger working-age and smaller dependent populations, greater financial inclusion is critical for realizing the benefits of this “demographic dividend.” Its Financial Inclusion 2020 Campaign aims to help bring about total financial inclusion “using the year 2020 as a focal point to galvanize action.” With partners such as Visa, Citi, MasterCard Worldwide, and the Gates Foundation, it should make great progress in expanding financial services globally. Stay tuned for more about FI2020 in the run-up to their Global Forum in London at the end of October.

Image credit: Noor Khamis/Courtesy Reuters/CFR

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It’s hard to imagine a more explosive, transformative, and empowering trend than the growth of the mobile phone sector in Africa. In 1998 there were fewer than 4 million phones on the continent; today there are around 800 million—a whopping 80 percent penetration. Compare this to the meager 24 percent of African adults with bank accounts. Experts expect there will be around 1.1 billion mobile phone subscribers by 2017.

Women likely will be at the forefront of this future growth in mobile access in Africa (and elsewhere), globally accounting for two-thirds of new subscribers. According to the Cherie Blair Foundation, the gender gap in Africa alone is a $2 billion business opportunity.

At the same time, the potential for mobile money is indeed dazzling. The Kenya example continues to dazzle us, with 21 million active users, more than 60,000 agents (many of whom are women), and mobile money deposits of KSh 226 billion, surpassing the deposit base of the country’s largest commercial bank, Kenya Commercial Bank.

With all this promise, the potential is unrealized outside of a few countries. Why? The answer is complex, but fundamentally it’s because mobile money operators systematically underinvest in two things: understanding the market and building the agent network.

As it turns out, both of these things are critical for connecting women with mobile financial services. Once we crack the problem of women’s access to financial services, their households and communities will follow shortly thereafter.

Market. What are the real pain points for women? Why is mobile money better than what they are doing now? Better than cash? These questions have not received the attention they deserve. Recently, a study by Bankable Frontier Associates for the GSMA’s mWomen program shed some light on women’s financial inclusion issues that are relevant for mobile money. Here’s what we know about women according to the study:

• Women are multitasking money managers. They are often in charge of very large numbers of small, regular transactions like shopping, receiving remittances, paying bills, and school expenses.
• Women are really stretched for time. Because they have so many different jobs within and outside of the household, making all these payments is a real hassle.
• Women are more likely to have erratic income sources. They tend to work more frequently in the informal sector where income comes in fits and starts—although they are also receivers of remittances and payments from government agencies, which can be more regular.
• Women are conservative. They do not want to take risks with the family’s money, and trust is their number one concern in choosing a provider. They prefer cash and informal systems such as savings groups.
• Women can be loyal evangelists. If they trust the source, winning women over to mobile money can create ripple effects throughout the community.

Overall, women value four things when it comes to financial services: convenience, reliability, security, and privacy. Mobile money has the potential to deliver on all four fronts.

Agents. As a corollary to the above, a high-quality, convenient agent network is crucial for building trust and loyalty. Too often, operators build out the agent network quickly, ahead of growth in customers and transactions. The agents don’t see transactions, they don’t bother to buy the electronic money, and forget their training. Yet these agents are the “face” of any mobile money operation. An early bad experience can turn women off for good.

At the same time, a growing agent network poses an enormous business opportunity for women. The Cherie Blair Foundation, the U.S. Agency for International Development, and Tigo (Millicom) have recently launched a program that will support more than 4,000 women agents in Tanzania, Ghana, and Rwanda. It will be important to follow that experiment closely to see what lessons can be learned.

Implications for building a business case around women

Five key messages stand out for operators keen on tapping the opportunity presented by women:

Make it easy to buy phones. Despite impressive penetration figures, 34 percent of women in Tanzania and 13 percent in Kenya reported they wanted to use mobile money but didn’t have a phone. On the other hand, one of the most commonly cited reasons for not having a phone (after cost) is that women don’t see the value. There’s an opportunity here—as women see the value in mobile money, they will buy phones.

Tailor marketing to women. Many mobile money marketing campaigns feature men and fail to address the specific pain points felt by women. But even the term “women” is too broad a market segment—a sophisticated consumer insights study would identify a few key segments and then focus messages on them.

Build awareness below the line. Trust and confidence is based on the personal touch. Safaricom estimates that it spent at least 10-15 minutes face-to-face with each customer for the first year or so. For women, this high-touch approach is particularly important, hence the need to invest in agent network quality.

Emphasize “show how” rather than “know how.” When women see that they can instantly pay family, business partners, and suppliers, they will build trust quickly. Getting women to try the service is critical. Analysis of the customer journey shows that women are just as likely as men to try mobile money once they become aware and understand it.

Streamline and clarify documentation. Some women shy away from mobile money—and banking in general—because they assume they lack the right documentation. Often this is not the case. Help women see that they are eligible.

Women are likely the entry point to mobile financial services adoption at scale. Those who ignore this important market segment may lose out entirely.

Brigit Helms of DAI is the Director of the USAID-funded SPEED project in Mozambique. Brigit brings more than 25 years of private and financial sector development experience, finding innovative business solutions to development problems in over 30 countries in Africa, Asia, and Latin America. Prior to joining DAI and the SPEED team, Brigit was Senior Expert for Financial Inclusion at McKinsey and Company where she worked with banks and telecommunications companies to build new business models to reach low income clients. Before that, she was CEO of Unitus, Inc., a global non-profit dedicated to financial services in East Africa and India. She spent four years in Asia with the International Finance Corporation where she led the organization’s Advisory Services work in Indonesia, on issues ranging from agriculture development, sustainable forestry, infrastructure, business environment, and financial services. Brigit was a founding leadership team member of CGAP, a global center of excellence for financial services. 

Image credit: Cherie Blair Foundation

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The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”

Last week, I participated in a Youth Financial Inclusion workshop for the Middle East/North Africa (MENA) region, organized by Silatech and CGAP. Financial institutions in the MENA region are unfortunately the least inclusive in the world. Global Findex Data indicates that only 18 percent of the population has accounts at formal financial institutions, compared to a developing economy average of 41 percent, and among youth ages 15-24, the rate is even lower, reaching only 13 percent when the developing country average is 31 percent. The youth statistics are particularly distressing, considering that the Middle East’s youth bulge is quickly becoming a liability, rather than a demographic dividend.*

During the conference, participants debated how to respond. To what degree should the focus be on credit or savings, the policy environment or product delivery, and financial or non-financial services? In particular though, they wondered whether they should even make specific (and perhaps expensive) efforts to expand youth access. After all, microfinance institutions were already serving youth at a higher level than banks, why not just continue to grow broadly, and to use an economics metaphor – let the tide lift all boats?

Back in the office, I thought about how the youth-inclusive financial services field has been discussing these issues over the past few years, and I wanted to share some of the emerging recommendations that respond to these questions:

1. Start with savings. USAID and other research indicates that teens and young adults in developing countries are already economically active, have financial resources, and demand tools to manage their money. Although credit is one of these tools, and is appropriate for young adults with entrepreneurial aspirations, savings should be the entry point for the vast majority. Besides encouraging asset accumulation and serving as an appropriate entry point for a relatively vulnerable population, savings has been linked to the development of critical long-term planning and goal setting skills in youth.
2. Remove legal impediments to access. Many youth are left out of the financial system by laws that prevent them from opening accounts on their own and identification requirements that are difficult to fulfill. Revising these laws to reduce the age of majority or working with central banks to provide flexibility for proof of identification would improve youth access to financial services. For example, in Zambia, Natsave Bank, working with Making Cents, received a waiver from the Bank of Zambia to allow co-signers to help establish the legal identity of account holders under the age of 19.
3. Increase competition. Making Cents’ experience with microfinance institutions and banks demonstrates that serving youth for Corporate Social Responsibility (CSR) or general welfare reasons is generally insufficient to motivate the focus and changes necessary to serve youth effectively. Competitive pressure however, can provide the extra ingredient to push an institution to serve this population, as in the case of Kenya, where banks are now more actively targeting youth and in response to competition for adults. In response, and especially in the less dynamic MENA financial sector, regulators should make steps to increase competition in traditional markets through regulatory reform and allowing new deposit-taking institutions (formal or non) to enter and forward youth-inclusion goals.
4. Build the business case. While directly targeting youth with financial services appears to be a marginal business on its own, due to high transaction costs associated with low savings balances and small credit demands, it can reap rewards as part of a more comprehensive household financing strategy, yielding greater customer loyalty, cross-selling, and larger volumes of services. Although anecdotal information supports this case, research and data collection efforts need to be accelerated to make the case more convincing and thus to encourage additional entrants into this sector.
5. Provide financial institutions with the right approaches. Serving youth effectively requires adapted approaches: market research that explicitly includes youth and family perspectives, delivery models that provide more supportive spaces for younger clients unfamiliar with financial institutions, and links made, when possible, to financial literacy or enterprise development services. Sharing lessons learned and developing local youth-inclusive technical assistance capacity will provide financial institutions with the tools to understand the real constraints to serving youth, but also how to overcome them.
6. Improve financial literacy. Younger populations are unfamiliar with financial products and need additional information to demand and use them effectively. Financial institutions can play a role in providing these services, but in the end, greater financial literacy will only be achieved by embedding training in educational institutions, supplemented by other community level activities. For example, in the West Bank, Making Cents developed a supplementary financial and enterprise development curriculum that improved the 11th grade management and business curriculum at no extra cost to the Ministry of Education, which now serves 55,000 students a year.

Once implemented, these recommendations promise to make a substantial impact on youth financial inclusion.

In regards to the larger question as to whether special efforts should be made to target youth or to serve them through general efforts, I believe that this is a false choice, since a focus on youth will improve both their access to financial services, but also accelerate general inclusion efforts, especially in the future as younger populations mature. For example, regulatory changes designed to improve access for youth will have similar effects for other excluded populations, and developing improved market research tools and specialized product delivery approaches will help financial institutions serve rural and other hard-to-serve populations. This result will be especially significant in MENA, where demographic windows will soon begin to close.

For more information on Financial Inclusion 2020, sign up for campaign updates.

* The demographic dividend is the accelerated economic growth that may result from a decline in a country’s birth and death rates and the subsequent change in the age structure of the population. With fewer births each year, a country’s young dependent population declines in relation to the working-age population. These potential benefits are conceptualized as “demographic windows” in the recent report from the Mapping the Invisible Market project of the Financial Inclusion 2020 campaign, Looking Through the Demographic Window: Implications for Financial Inclusion.

Making Cents International is working to develop best practices for youth inclusive financial services through its collaborative learning activities and putting them into action through technical assistance projects throughout the world. Timothy Nourse is President of Making Cents and leads their Inclusive Financial Services practice area.  Learn more about youth inclusive financial services at Youth Economic Opportunities. 

Image Credit: World Bank

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On February 5, the Microcredit Summit Campaign released Vulnerability: The State of the Microcredit Summit Campaign Report, 2013 by announcing that in 2011, 13 million fewer of the world’s poorest families received access to microcredit and other financial services than in 2010. This is the first time since 1998, when the Campaign began tracking this data, that the total number of clients and the number of poorest families reached have declined. We found in our data that the total number of clients fell from 205 million to 195 million and the sub-set of families living in extreme poverty, defined as less than $1.25 a day, fell from 137 million to 124 million. (Visit the report website to learn more.)

I presented the report at a launch event at Busboys and Poets in Washington, D.C., and Susy Cheston (Senior Advisor at the Center for Financial Inclusion at Accion) moderated a lively discussion with my co-panelists Wendy Abt (Deputy Assistant Administrator, USAID), David Roodman (Senior Fellow, Center for Global Development), and Alexia Latortue (Deputy CEO, CGAP). Not surprisingly, the most salient exchange of the panel arose with David in the role of provocateur.

Challenging the Campaign, he contrasted simple but powerful messages that communicate well to the mass public—“microcredit can help people lift themselves out of poverty”—to more nuanced messages that better communicate reality but are harder to condense into a soundbite. Many of us are trying to figure out how to convey the nuanced message that “a range of financial services, when combined with other important development services, may provide tools that people can use to move away from poverty.” David asked whether, after seeing the results of unchecked growth in Andhra Pradesh, the Campaign wanted to rethink its goal-setting role.

Wendy spoke up in favor of facing difficult realities—even when this caused problems in communicating to the public. In her experience, asking the hard questions has led to a much richer set of answers, and then to real progress on the problems we seek to address. She said that this is the approach that USAID is now taking as it examines the results its programs achieve over time.

My own response to David’s question was that the Campaign has been shifting priorities from an emphasis on total numbers (our first goal of reaching 175 million clients) to outcomes (our second goal of helping 100 million clients and their families lift themselves out of severe poverty). We find that those microfinance providers that track their clients’ poverty levels over time soon develop a robust set of products and services that help clients address the vulnerabilities they face, and we highlight some of these in the report.

David prodded one more time. He noted our report’s discussion of the promise of mobile technology to reduce the costs of financial transactions for the poor, as well as our coverage of Fonkoze in Haiti and Bandhan in India, two of the programs in the CGAP-Ford Graduation Program research on working with the ultra poor. He posed these two examples as alternative ways of reaching the goals of the Campaign and thought he detected a subtle bias in the report in favor of the graduation programs. He argued in favor of mobile technology being the true heir to microfinance and the means by which we realize the vision of microfinance’s founders. (David recently wrote a blog post on the report, here.)

Alexia quickly jumped in to challenge what she saw as a completely false dichotomy. Graduation programs and mobile technology are simply two very different things that cannot be usefully compared. She thought that if governments were to take and scale up graduation programs, spending more up front than they are presently with social protection programs, maybe some of the most difficult to reach 5-8 percent of the population would actually graduate from extreme poverty and no longer need permanent government transfer payments. At the same time, mobile phones could help lower the costs of these programs if people could, for example, save using the mobile phone. There is no reason that we cannot not use both methods together to accomplish our goals.

The conversation served as a reminder of where we stand now as an industry: acknowledging the limits and dangers of growing too far and too fast with traditional products but anticipating breakthroughs with new technologies and targeted products that help those in poverty to build resilience against the vulnerabilities they face.

The Microcredit Summit Campaign will continue this dialogue about resiliency with a webinar February 27, 2013 on vulnerability and social capital, organized with the Sustainable Microenterprise and Development Program, a professional training program at the University of New Hampshire. Click here to learn more about the webinar, or contact Sabina Rogers (rogers@microcreditsummit.org).

Larry Reed is the director of the Microcredit Summit Campaign. He has worked for more than 25 years in designing, supporting and leading activities and organizations that empower poor people to transform their lives and their communities. For most of that time Reed worked with Opportunity International, including five years as their Africa Regional Director and eight years as the first CEO of the Opportunity International Network. Reed has taught at the Boulder Institute of Microfinance for 15 years, served as the chair of the SEEP Network, and consulted with industry-wide initiatives like the Smart Campaign for Client Protection and MicroFinance Transparency.

Image credit: Microcredit Summit Campaign

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Last week, the world celebrated World AIDS Day. Since its inception in 1988, it has bolstered action towards ending the AIDS epidemic, generated support for those affected by the disease, and commemorated the lives of those that have been lost to it. Although the last few decades have brought progress that at one time looked impossible, there remains much to be done in the fight against the disease. Roughly 34 million people around the world are living with HIV, and 2.5 million people were newly infected with the virus last year. More can be done to protect people from infection. More can be done to improve our understanding of the disease and how to treat it. And more can be done to support the lives of those that are already affected.

When it comes to financial services and money management, those living with HIV/AIDS are different from others in terms of their personal and economic vulnerability. Living with HIV/AIDS can constrain the work one can conduct, disrupt one’s income stream, and increase one’s dependency on others. Financial services have a role to play here. Initiatives supporting how individuals earn and save money could help prevent their sliding into deeper economic vulnerability, improve their health and welfare, and reduce their risk of spreading the disease.

The recently released Guidance for Orphans and Vulnerable Children Programming from the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) stresses household economic strengthening. The Guidance outlines a number of financially supportive interventions, along with evidence-based insights on the contexts in which they will likely be most successful. The interventions are divided into the categories of consumption support, money management, and income promotion. The Guidance states that PEPFAR programs should prioritize the following:

• Money management interventions for savings, access to consumer credit, and fostering knowledge and behaviors for better family financial management.
• Income promotion using low-risk activities, such as formal employment or casual labor, to diversify and stimulate growth in household income.
• Integration of household economic strengthening activities with complementary interventions, such as parenting skills.

As an example of the third recommendation, you may wish to learn about the Urwaruka Rushasha project in Burundi. Funded by USAID’s Displaced Children and Orphans Fund, the project targets vulnerable boys and girls in two rural provinces through the combination of family-based discussion groups and a savings and loans program. To learn more about the Urwaruka Rushasha project, you can find the report on its mid-term impact evaluation, here.

Image Credit: UNAIDS

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This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.

There is a wonderful Dr. Seuss book that I used to read to my daughter when she was little. I think the spirit of the book captures the critical place that microfinance finds itself in right now. It’s called Yertle the Turtle and other Stories.

When I was CEO of the Calvert Foundation, I began to read the book as a metaphor for my own work, and I see that even more strongly now from my vantage point as Director of the Office of Microenterprise Development at USAID.

In the book, Yertle plays an eponymous king whose kingdom is the size of a small pond.  He convinces the turtles in his pond to stack themselves underneath him so that he can see further and expand his kingdom. At each height, Yertle looks around and declares, “I’m ruler of all that I see.” His world continues to expand, and his vision for his kingdom grows to fit that world.

It is Yertle’s expanding vision that most inspires me. Each of us sets our sights on the world we seek to impact. The microfinance industry has been very effective at concentrating on developing profitable, local MFIs. This has allowed us to provide financial services to millions of the world’s poor while attracting private financing to meet capital needs. This has been no small accomplishment.

But our world is growing larger. We are coming to recognize that there are many types of institutions and partners we should engage to realize our development objectives. Mobile network operators have a role to play, as do insurance companies, international banks, large corporations, credit card companies and the like. Many of these partners are essential to realize our inclusive finance goals – and our pond needs to expand to include these new and different partners.

Further, I have been recognizing that microfinance is no longer its own corner of development. An important lesson of microfinance was to forge enterprise-based models that can deliver development assistance in a way that is both sustainable and scalable. This approach is now applicable to many facets of development – health, agriculture, energy, national resource management, etc. The world I see considers the diverse development challenges facing disadvantaged communities. I see links between microfinance and health, microfinance and energy, social enterprise and water, social enterprise and sanitation. As we look upon the broader terrain of the development field the microfinance community has considerable capacity and experience to share.

As I reflect on the Financial Inclusion Roundtable discussion sponsored by the Center for Financial Inclusion at ACCION International, I am struck by how much of our conversation resembles this lesson. I feel fortunate to expand my horizons and adopt a broader, inclusive agenda … where we all become kings of all that we see!

For more information, sign up for updates from the Financial Inclusion 2020 campaign.

Shari currently serves as Director of USAID’s Microenterprise Development (MD) office, the lead division within the U.S. government for microfinance and inclusive market development around the world overseeing a total portfolio of $265 million a year.  Ms. Berenbach advances USAID’s vision of strengthening economic opportunities for poorer households to enable families to build assets, cope with the risks and vulnerability that accompany poverty, and contribute to key sectors of local, national, and regional economies. She has also championed efforts to leverage mobile financial services to extend the reach of microfinance to rural and other poor and vulnerable populations.

Have you read?

You Are Here: Finding our Place on the Roadmap to Inclusion

Accessing the Future: Beyond the Traditional Microfinance Space

It’s Time to Expand the Circle

During periods of transition at MFIs – whether it be transformations, mergers, or acquisitions – institutional stakeholders often encounter challenges with organizational governance and the alignment (or misalignment) of interests among founders, management, board members, staff, donors, and investors. Such issues not only complicate an already-difficult transition, but also sometimes delay or even derail the entire process.

The Center’s Elisabeth Rhyne and Deborah Drake will be hosting a USAID Speakers Corner online discussion from April 13-15 to explore the challenges presented by transitions. Participants are encouraged to share their own experiences, questions, and comments.

To learn more and register for the discussion, click here »

To read learn more about aligning interests during MFI transformations, check out the Center’s recent paper »