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by Manuel Méndez del Río Piovich, Isabel Cruz Hernandez, Christopher Dunford, Anne Hastings, John de Wit and Frances Sinha
This concept paper reflects the vision of microfinance to be the sustainable provision of financial services to poor and low income households, as a key element of an effective poverty reduction strategy. The vision assumes a double bottom line approach: that a microfinance institution is a business that is financially sustainable (generates the revenue to cover its costs) and simultaneously creates social value.
At a time when the microfinance sector is under fire for mission drift and faces headline risk, a number of initiatives have emerged to address these challenges. These initiatives focus on various aspects: values of responsibility (for example the Smart Campaign on client protection and MicroFinance Transparency on transparent pricing), corporate ethics, and social performance management.
The Microcredit Summit Campaign intends to build on and complement these initiatives by introducing a Seal of Excellence for Poverty Outreach and Transformation in Microfinance. This Seal will serve as a tool to both recognize microfinance institutions with significant outreach to poor and excluded households, and develop a clear strategic approach to support the transformation of these clients.
The concept paper covers the rationale for the Seal, reviews related experiences in developing certifications in other fields (such as NGOs, fair trade, impact investing and sustainable agriculture), profiles other initiatives around financial and social performance in microfinance, shows what this Seal adds, and maps out a process for taking this initiative forward.
by Jochen Bloss, Wendy Bauman, Luc Haegemans, Corrado Ferretti and Maria Nowak
Session 1: Changing the Mindset and Strengthening the Capacity of Financial Institutions, Governments, MFIs and Other Stakeholders for Carrying Out Microfinance Programs through Effective Partnerships
Implementing effective partnerships between MFIs and financial institutions: Changing the mindset and strengthening the capacity of financial institutions, governments, the MFIs and other stakeholders for carrying out effective microfinance programs.
A first part of the paper will describe the experience of Adie in France. Created in 1988 by three volunteers without capital, with the support of the French Association of Banks, Adie obtained an amendment to the Banking Law that allows associations to borrow and on-lend. This amendment enabled Adie to develop partnerships with almost all French banks.
The second part will describe the experience of two European microfinance networks and the way in which microcredit was introduced in the European Commission, the European Parliament and the European Investment Bank.
The third part will draw lessons from these experiences and identify remaining obstacles to the development of microcredit in Europe.
by Maricruz LaCalle Calderón, Stéphanie Kpenou, Jason Adkins, Daniel Sorosall, Mikhail Mamuta and Maria Doiciu
Improving the Framework for Microcredit and Microenterprises: How Regulatory Changes Can Advance or Hinder the Microcredit and Microenterprise Industry.
by Gauthier Dieudonne, Nathaniel Goldberg, Muhammad Yunus, C.S. Ghosh, Aude de Montesquiou, Santa de Euceda and Ingrid Munro
Ultra poor Graduation pilots modeled after BRAC's Targeting the Ultra Poor program are currently being replicated and evaluated in eight countries. By offering a holistic set of services designed to help families meet basic consumption and health needs, adopt new livelihood activities, and engage in financial services, the graduation model has the potential to move families out of extreme poverty. Graduation pilots require grant-based expenditures to reach households generally not reached by traditional microfinance. Eight of the pilots are undergoing rigorous evaluations to measure the impact of the programs on ultra-poor households and communities. Early results suggest the graduation model has the potential to increase long-term household welfare, though impacts vary by program.
by Dr. Muhammad Amjad Saqib, Ranya Abdel-Baki, Mohammed S. Al-Lai, Farida Tariq, Mohammed Khaled, Mohamed Yasin, Dr. Shafiq Dhanani and Md. Enamul Haque
While it is estimated that roughly two thirds of the Moslem poor either insist on or prefer financial products that comply with Islamic law (Sharia), the outreach of microfinance banks and institutions providing such products has been very limited, and does not exceed 1% of the outreach of conventional microfinance. The author believes that this is mainly because a majority of institutions try to replicate conventional microfinance business models and tweak them to conform to Sharia, instead of thinking “outside the box” and developing innovative models. To build upon the conviction that Islamic microfinance can offer an alternative paradigm for millions of poor people who are currently not served by conventional microfinance, CGAP, Deutsche Bank, Islamic Development Bank, and Grameen-Jameel launched the Islamic Microfinance Challenge 2010. The objective of this challenge was to canvass the industry for ideas for sustainable, scalable, and authentic Islamic microfinance business models to meet the financial needs of the Muslim poor.
As an introduction, this paper will provide background on this competition. It will then explore reasons why microfinance has not succeeded in reaching as many clients as conventional microfinance. The paper will conclude with proposed elements for a good business model. It will also suggest pre-requisites for successful implementation of a scalable and market-driven business model
by Kamal Budhabhatti, Daouda Sawadogo, David Edelstein, Alvaro Martin, Carol Caruso, Camilla Nestor, Murray Gardiner and Godfrey Supka
Examples of How Technology has Worked for the Clients and for MFIs, Especially for Those Living and Working in the Hardest to Reach Areas
There are more than five billion mobile phones in the world: nearly four billion of these are in the hands of people in developing countries. Increasingly within reach of the poor, mobile phones provide an unparalleled channel to deliver information and services that benefit the poor directly and through MFIs. In addition, mobile phones can help MFIs streamline operations, remove costs from existing processes and offer new products when combined with mobile money platforms. However, people as well as MFIs are just beginning to realize these benefits. This paper will examine cases in which clear successes have been achieved, analyze factors that have limited the potential of mobile phones, outline the conditions necessary to harness opportunities, and will conclude with a vision of what the world could look like three years from now if we successfully capture the potential of mobile phones.
by Monique Cohen, Richard Leftley, D.S.K. Rao, María Matilde Olazábal, Pamela Flaherty, Alexandra Fiorillo and Syed Mohsin Ahmed
Financial education lies at the nexus between consumer and provider of financial services, introducing the consumer to new knowledge and behaviors that will help them to navigate a growing array of financial products and services. Within the microfinance community, there is increasing interest in financial literacy for low-income populations, but confusion persists around what this means and what actions can be taken to build financial capabilities. The chapter opens with a clarification of what is meant by financial education, financial literacy and financial capabilities. It then turns to the range of stakeholders (government, financial services, consumer advocates) driving this agenda and their differing, sometimes overlapping objectives. Next the paper examines what makes for effective financial education and how resources have been deployed to support this process, as well as content and delivery of key financial literacy messages. In light of the debates surrounding the value of financial education, the chapter addresses the evidence to date on the outcomes and impacts of financial education as a catalyst of behavior change. The paper concludes with a consideration of the challenges of scale and sustainability in financial education.
by Jürgen Hammer, Pilar Ramirez, Steven Funk, Bob Annibale, Ian Callaghan and Brian Cox
Finding Solutions to the Currency Risk Challenge for MFIs, Investors and Donor Agencies
Among its other lessons, the financial crisis revealed the extent to which MFIs are at risk when they borrow in hard currency to fund lending in local markets. The paper will highlight the latest data on currency risk in microfinance and describe best practices for managing currency risk by both international lenders and MFIs. It will describe new ways that investors are using currency derivatives and diversification strategies to shift their lending to local currency as well as new analytical tools that help MFIs quantify risk and plan their borrowing.
by Makanda Kioko, Elvira Espejo, Zina Sanyoura, Asad Mahmood, Alex Silva, Tim Hassett and Anne-Marie Chidzero
Abstract on Microfinance Investment Vehicles
* 1- Mismatch between Supply and Demand of Funding Resources: Over the last few years, there has been a surge in the number new microfinance investment vehicles (MIVs) that offer a wide range of funding sources. At the same time, the demand for specific funding instruments from MFIs has not necessarily matched the supply Why is this mismatch prevailing? How can mechanisms be created to ensure proper matching of funding needs and availability?
* 2- Debt – Equity Funding Mix: Debt funding has been the prevalent form of funding offered. As the industry grows and MFIs mature their need for equity grows. Simultaneously, there is still some uncertainty in commercial equity investment in MFIs given the very small number of exits and illiquidity. As international capital markets grow more familiar with microfinance, how will the funding mix evolve? Will the value of the non-commercial investors diminish?
* 3- Increasing Participation of Commercial Private Investors: As local commercial banks continue to be generally averse to MFI credit risk profile, non-commercial investors account for 80% of the total USD4 billion of international funding. Recently though, commercial private investors have begun to tap into the microfinance asset class. What has been the main driver fuelling the increase in the number of commercial private investors participating in the sector: intrinsic nature of microfinance as a solid “asset class”; the perceived social impact; or a combination of both?
Abstract on the peer-peer lending model
The paper will review the history of Micro-finance Intermediary Institutions (MIIs) including the creation of Kiva, Microplace and Prosper. It will then highlight the number of MIIs currently in operation and the different approaches taken by these organizations including: a) Person-to-Person vs general crowd funding (raising capital in small amounts from large numbers), b) social capital vs investment capital, c) global vs regional, d) general product vs specialized products and e) potential trade-offs between level of risk to lenders vs. potential social value creation. An attempt will be made to analyze the size of the MII market in terms of funds lent relative to traditional MIVs. An analysis will be undertaken to highlight some of the trade-offs MFIs make in funding through MIIs, including: a) currency gaps, b) information sharing/operating costs, c) borrower privacy issues and d) liquidity, contrasted with some of the benefits, including a) low-cost funding, b) PR gains, c) borrower empowerment, d) risk transfer and e) the promotion of best practices through network inclusion. Current challenges to MIIs will be reviewed as well as areas for future development and evolution.
by Carolina Laureti, Robert P. Christen, Michael Hamp, Graham Wright and Chris Dunford
Product Innovations: New Offerings that Maximize Benefits to Clients, MFIs, and their Communities
The biggest challenge of the microfinance industry is to offer and sustain a range of financial services, which respond to the needs of the vulnerable and marginalized clients in rural and urban environments. Among others, it requires to introduce some sort of flexibility into debt contracts, e.g. a flexible repayment schedule, flexible loan pricing, flexible loan amount, etc. This paper will discuss the necessary flexibility in microfinance products, with a focus on loans, through extensive literature research. The paper aims at capturing the ongoing debate and emerging key questions: Is flexibility beneficial for clients? What are major obstacles? How can flexibility be introduced into debt contracts and how does it affect financial discipline and defaulting clients? Does flexibility weaken the power of commitment? What are potential alternative solutions for different target clients, MFIs and their communities? If flexibility and commitment are truly incompatible, which microfinance product innovations serve poor people best?
Transforming from NGO to Regulated MFI while Maintaining Your Commitment to Empowering the Poor: A Step by Step Process
Many MFIs began their activities as credit granting NGOs. After attaining sustainability those entities faced the challenge to transform into a regulated finance institution in order to (i) overcome the funding constraint (via deposit mobilization and access to the capital markets); (ii) attain the scale needed to achieve mass outreach and high operational efficiency, and (iii) strengthen CG and risk management to ensure a healthy growth for the MFI. The paper will review the most relevant transformation experiences and distill the main lesson learnt and the IFC contribution to these process.
by Mary Ellen Iskenderian, Wolday Amha, Matthew Titus, José Moises Martín Carretero and Sergio Navajas
What Is the Problem: Getting an Empowering Regulatory Framework that Allows Taking and On-lending Deposits and Truly Works for MFIs, Their Clients and the End of Poverty
Most microfinance institutions in developing countries evolved as micro-credit
organizations, with savings being complimentary to credit and often mandatory and used as collateral. To date most MFIs cannot legally take deposits - yet savings are an important source of funding and driver to sustainable growth and scale of these institutions.
In response to this challenge, a number of countries have attempted to implemented new policy and regulatory frameworks for deposit taking MFIs.
Although the new microfinance legislations have somewhat underpinned public confidence in a sector, the new business model is facing a number of challenges. What is the problem? How do get an empowering regulatory framework that allows taking and on-lending deposits and truly works for MFIs, their clients and the end of poverty?
The paper will seek to address these and related issues, drawing from the experiences of Uganda, Kenya, Nigeria, and India - among others.
by Fazlul Kader, H.E. Son Koun Thor, Qazi Azmat Isa, Professor Mario La Torre and Katrin Fakiri
What Makes a Wholesale/Autonomous Microfinance Fund Work, and How Can Funds of Top Quality Expand Around the World?
The paper introduces the historical perspective based on which Apexes were established and discusses if they are still relevant and significant in the current scenario. Through review of the literature an effort is made to capture the critical indicators that serve as benchmark for successful Apex. Keeping in view these benchmarks a critique is carried out on performance of Pakistan Poverty Alleviation Fund. The final part concludes with the important lessons learnt from performance of Apexes in general and PPAF in particular and what are the areas of improvement
When Clients Grow Old: Microfinance Strategies and Products that Address the Needs of the Elderly
The simple truth is that most of the global microfinance movement has not yet paid much attention to developing products and services that benefit clients who are aged 65 years or older. Most MFIs do not offer special loyalty incentives for clients who have been around for 1-2 decades; nor have they developed products or services that target the adult children of their oldest clients, thus jump-starting the transition to the next generation. Fortunately, there are a few exceptions. This paper will focus on the path-breaking pension innovations of SEWA, Grameen, REDICAMIF, and others. It will also highlight the emergence of Government-sponsored social pensions for the elderly--such as Bolivia and Peru--and how MFIs can assist their clients to access pension benefits to which they are entitled
by Rosario Perez, Mamadou Diallo, Joy Marini, Shameran Abed and Sheila Leatherman
Why Integrating Microfinance, Health Education, and Other Forms of Health
Protection is Good for Your Clients and Good for Your MFI, and How Can You
Microfinance clients and their families often face health challenges that impede their ability to use financial services to improve their lives. Health shocks are among the most common reasons that clients fail to repay, save, and remain active customers. For the benefit of both their social and financial bottom lines, many microfinance providers have felt compelled to help clients prevent and/or treat common health problems. They have developed a variety of responses, ranging from preventive health education to healthcare financing (commitment
savings, emergency loans and insurance) to provision of health services and products. This paper surveys the range of experience of microfinance providers of all types and geographies, as well as the available evidence of impacts for clients, families, and communities and the cost and benefits to the microfinance providers who offer health protection options. Lessons for practice and ideas for experimentation and research are offered with the full expectation that integration of microfinance and health protection will become increasingly common in poverty alleviation programs.
by Peg Ross, Graham Macmillan, James Semekadde, Samit Ghosh, Md. Enamul Haque, Luisa Brunori and Eugenia Acosta
As microfinance organizations globally struggle to navigate financial, regulatory, competitive and other challenges, maximizing everyone’s contribution is critical. This paper will discuss the impact human capital management practices have on organizational social and financial performance, identify the principle drivers of employee commitment and performance, and share best practices from both the MF and private sectors of ways specific organizations are achieving their objectives through their people. Special attention will be paid to the practices
that may have contributed to challenges the sector is currently struggling with, including client over-indebtedness, inappropriate collection practices, and a loss of focus on social mission, and will explore what steps organizations can take to address these issues.
by Arnaud Ventura, Frances Sinha, Martha Cuentas Anci, Christian Loupeda and Laura Foose
Why Managing for Social Performance is More Important than Just Measuring It, and How Can MFIs Best Use These Insights?
MFIs, investors, donors, and other stakeholders do not rely on anecdotal information when assessing an institution’s financial performance, nor when making decisions about financial products and services. Why then, have we been comfortable as an industry with relying on stories, photos, and observations when assessing an institution’s social performance on its clients, staff, community, and the environment? Solid performance management requires that institutions define their desired social performance, measure their progress toward these goals, and use the performance information to improve products, services, and policies in order to improve the lives of clients.
14th–17th November 2011