There were two topics that dominated debate at the recent European Microfinance Week (EMW) conference: the threats and opportunities brought about by the fintech revolution in inclusive finance, and the issue of financial inclusion for refugees and internally displaced persons. The event, organized by the European Microfinance Platform (e-MFP), provided the venue for a discussion of these issues that ranged from hopeful to surprisingly cautionary. EMW 2018 focused heavily on the spectre – or, depending on your perspective, the promise – of technology. The theme was approached from many angles, as panelists explored the opportunities and risks of digital financial services, Big Data and new fintech entrants into the sector. It was even the focus of the 2018 European Microfinance Award, Financial Inclusion through Technology. The opening plenary captured both sides of the issue, with a keynote speech from Graham Wright of MicroSave – who played the Cassandra role that suits him so well to implore the inclusive finance sector to pay attention to the risks that technology can pose to clients and institutions.
e-MFP today launches the Financial Inclusion Compass 2018 – its new publication on emerging short, medium and long-term trends in the financial inclusion sector, based on a mixed-methodology survey of e-MFP members and key industry stakeholders, to see where the sector has come from, as well as where it is going. The Compass was conceived to be a way to leverage e-MFP’s multi-stakeholder membership and position in the inclusive finance community, while capturing too some of the dynamic debate from the workshops at the annual European Microfinance Week, giving a wide array of practitioners, investors, donors, academics and support service providers the opportunity to assess and describe the importance of various Trends, select and give opinions on New Areas of Focus, and provide open-comment qualitative input on the expected (and hoped-for) direction of financial inclusion progress
This is the final in a publication series of three interview pieces with the three finalists for the European Microfinance Award on "Financial Inclusion through Technology". KMF is an NBFI in Kazakhstan that operates in one of the most sparsely population regions of the world, beset by unstable telecommunications networks in the remote areas where almost half the population lives. To reach clients and improve efficiencies in this challenging context, KMF uses in-house developed tablet software – called Mobile Expert – that communicates remotely with its core banking system to ensure that loan officers, management, loan recovery and internal control teams can schedule loan officers’ work, capture loan applications, make loan approval decisions, monitor and recover late loans, and conduct internal control visits in the field. Crucially in this context, this software can be used both on- and offline, allowing management to monitor field activities in close to real time even over long distances. KMF was noted for its development of its software in-house, and its response to the exceptional challenges of serving remote clients over such distances.
This is the second in a publication series of three interview pieces with the three finalists for the European Microfinance Award on "Financial Inclusion through Technology". ESAF Small Finance Bank (ESAF SFB) is an Indian MFI that is leveraging the rapid expansion of mobile phone and smartphone penetration in India to digitise a wide range of its lending processes, in particular customer onboarding, electronic applications, customer financial training, credit appraisal, in-field verification, mandatory customer identity and address verification using eKYC, as well as opening of accounts, cashless disbursement and paperless collections of loan repayments. ESAF’s field officers use Internet-connected tablets with biometric identity verification and its clients have QR-enabled Aadhaar Cards – with Government-issued 12-digit unique identify numbers based on biometric and demographic data. Their details are automatically transmitted for credit bureau verification, and clients are given ATM cards to withdraw money in convenient tranches from any ATM.
This is the first in a publication series of three interview pieces with the three finalists for the European Microfinance Award on "Financial Inclusion through Technology". Advans Côte d'Ivoire (Advans CI) is a NBFI in the Ivory Coast which offers payment, saving and credit services enabled by an Advans account linked to a MTN mobile money account. Advans CI has responded to traceability and safety issues faced by cooperatives paying cocoa farmers, as well as low school enrolment due to lack of regular cashflow among farmers, by offering its digital savings and payment solution, with wallet-to-bank and bank-to-wallet transfer services, enabling producers’ cooperatives to make digital payments to farmers for their crop revenue. Since 2017, Advans CI has been also providing small digital school loans, based on an algorithm reflecting farmers’ cashflows. Advans CI also successfully negotiated free MTN transfers between mobile wallets and Advans accounts for their farmer clients.
MicroCapital: How long have you been concerned about possible overheating in the Cambodian microfinance market? Kea Borann: Concerns of the market overheating started at least as early as 2015. Since then, the total outstanding portfolio of the industry has been growing at an average of 25 percent per year, even as the number of loans has remained unchanged at 2.3 million. This seems to mean that the same clients are taking on more debt when their loans are renewed. The average loan size grew from USD 1,691 to USD 3,003. Dina Pons: This phenomenon is coupled with another: While most loans had a tenor of 12 to 24 months in the past, we now see loan maturity as high as four or even five years.
Since the dawn of the commercialization of microfinance nearly two decades ago, investment in microfinance has been made on a widely-accepted premise: investors will receive a ‘market rate’ financial return, while pursuing a socially-motivated strategy. This premise is so widespread that it has taken on the allure of all groupthink – becoming an accepted truism, without necessarily being true. The double-bottom line – the equal focus on financial and social return – can be deceptive. The dilemma is that while financial return has a clear target, social return is more nebulous. What social return is really being promised? Is serving a certain segment of clients enough? Do additional products need to be offered? What about financial education?
The central contribution of the microfinance revolution has been the creation of long-term client relationships. More so than tangible collateral, these relationships are the foundation of the incentives structures that govern the interactions between microfinance institutions (MFIs) and their clients – and that contribute to the fulfillment of contract obligations. From this perspective, genuine microfinance has been a kind of ‘relational banking’ for the poor. This interpretation is consistent with the growing emphasis on ‘client centricity’ in financial inclusion and it focuses on the value of the relationship, as measured by its cost and quality. The quality of inclusion, on the one hand, brings together what is valued in the transaction, such as proximity, timeliness, transparency, adequacy with respect to actual client requirements, variety, sufficient amount, reliability, sustainability, respect and dignified treatment - and others. Cost, on the other hand, refers not only to financial charges (interest and fees), but also to all the opportunity costs incurred by the clients.
Back in May, and only a few weeks after the release of the 2017 Global Findex, the World Bank launched the 2018 SDG Atlas. Perhaps less well known than the Findex, the Atlas of Sustainable Development Goals is an even more massive endeavour, drawing on the Bank’s World Development Indicators (WDIs), a database of over 1,400 indicators for more than 220 economies, many going back over 50 years. The ‘SDG’s in the title are of course the Sustainable Development Goals - the post-2015 follow up to the Millennium Development Goals that served as the target-based development architecture for the past decade or so. The SDGs provide a variety of targets across different areas of human development to be achieved by 2030. This is the UN General Assembly-adopted “2030 Agenda for Sustainable Development”, which extends the MDGs but also makes key adjustments, incentivising collective action by all countries.
MicroCapital: How is it different evaluating lenders to SMEs versus microlenders?
Lucia Spaggiari: One difference is the language used. For instance, SME lenders speak of “sustainable performance” more than “social performance.” Beyond language, a key difference is scale. By definition, SME lending requires a larger balance sheet, and this means complying with prudential regulation and attracting investors expecting to earn (at least) market returns.
Laura Foose: Based on investor demand expressed at the European Microfinance Platform (e-MFP) Investor Action Group meeting at European Microfinance Week 2016 and the March 2017 Social Performance Task Force (SPTF) Social Investors Working Group, we have been exploring how best to evaluate the environmental and social performance of SME finance institutions. We began by mapping the ESG frameworks of four development finance institutions (DFIs) and then surveyed our member microfinance investment vehicles to learn what indicators were most important to them. The high quality of the DFIs’ tools was very helpful in designing an evaluation framework that is feasible for our member funds’ smaller investments.