European Microfinance Week is the highlight of the European Microfinance Platform (e-MFP) calendar and a major annual event of the microfinance industry, hosting high-level discussions by all sectors of the European microfinance community working in developing countries. The conference each year welcomes among the 400 participants much of the Platform’s membership, now over 120 organisations and individuals. This year’s conference was particularly special, being the tenth anniversary of e-MFP, and a perfect opportunity to reflect on how much has changed in the past decade, and how much there is to expect in the decade ahead.
The conference, held over 16th-18th November, took a different approach than previous editions. Rather than a single overarching theme, the conference provided equal focus to six main streams: green microfinance; investors, donors and funders; rural finance; social performance; and digital innovations and the 2016 European Microfinance Award topic of Access to Education. 24 workshops within these streams complemented three plenary sessions: ‘Microfinance and Access to Education’; ‘Microfinance and Housing, One Brick at a Time’; and ‘Digital Finance: Full Inclusion or Empty Promise?’, as well as the Platform’s Action Groups, which met on Wednesday 16th November to present their work, and discuss what to do over the coming year. Publications and papers were presented, reflecting the core vision and mission of the platform: to build a memberships base that can leverage their actions and networks to increase impact and foster responsible financial inclusion.
The plenaries are always the backbone of the conference, bringing together all the members and guests under a single roof. The opening plenary of the conference was on "Microfinance and Access to Education", presenting the three finalists of the European Microfinance Award to discuss the education programs they submitted. Moderated by Sam Mendelson, who outlined the context, topic, and evaluation process of the Award, the introduction included a moving video speech by Aryslady Cottes, a student from the Dominican Republic, who recounted what it was like to think she would be unable to afford to pursue tertiary education, and what the finance to do so meant to her. She described how access to a dedicated loan enabled her to pay for tuition and a computer for her studies in Tourism Administration, and her aspirations to work for the Ministry of Tourism when she graduates.
Representatives of the three finalists, Edgardo Pérez from Fundación Génesis Empresarial of Guatemala; Roshaneh Zafar of Kashf Foundation in Pakistan; and John Robert Okware from Opportunity Bank of Uganda Ltd were the three panelists, and took questions on their initiatives, challenges, sustainability, medium term plans, and the role of profitability and the private sector in addressing issues traditionally the role of governments – providing basic services to poor or vulnerable groups.
Roshaneh described the indispensable role of private education in Pakistan, where public education is increasingly unfit for purpose. For girls from poor families, in particular, providing access to low cost private schools, with quality teaching and facilities is critical in addressing gender gaps and lack of opportunity among vulnerable and excluded families. Edgardo outlined the unaffordability of higher education in Guatemala, and the cycle of poor education this promulgates. Narrowing the affordability gap for further study leads to a positive feedback loop where this education – and its perceived value – is passed on to future generations, breaking cycles of poverty. John Robert described OBUL’s holistic approach of offering supply and demand-side, financial and non-financial products and services as, rather than a case of ‘jack of all trades, master of none’ but an integral part of access: you can’t offer loans if people can’t also save and be insured; and none of this has value if there isn’t quality education available to them.
That evening saw the Award Ceremony at the European Investment Bank for the 7th Award, won by Kashf Foundation. The Award organised jointly by the Luxembourg Ministry of Foreign and European Affairs, e-MFP and the Inclusive Finance Network Luxembourg (InFiNe), showcases institutions pioneering Best Practice in areas of microfinance beyond enterprise credit.
Kashf Foundation’s program involves loans to low-cost private schools, along with pedagogical training for teachers to improve teaching practices and specialised school management courses for school owners to improve the school infrastructure and their financial and operational administration. Since 2014, Kashf has worked with approximately 1000 schools, serving over 150,000 students.
The Grand Jury reported a close decision, with the two other finalists, Fundación Génesis Empresarial of Guatemala and Opportunity Bank of Uganda Ltd., recognised respectively for their higher education finance program, and multi-pronged approach, helping schools and families with financial and non-financial services.
Education was a particular focus of the whole Week, with a dedicated ‘stream’ including workshops on “Microfinance, education & child labour”; and “The many paths to financing education, Part I – Implementation, and Part II – Funding”. Child labour may be internationally defined, but countries have different approaches. Microfinance can be effective in mitigating all five causes of child labour: demand, social norms, costs & quality of education, vulnerability and income poverty.
The National Rural Support Programme from Pakistan exemplifies how to reduce new child labour by adapting their current micro insurance product to include all members of a client’s household, and LAPO of Nigeria has increased access to education for children with a combination of an awareness programme and educational loans.
Building on the Award process, the implementation session outlined how the private sector can overcome access difficulties. MFIs can help parents pay for schools by providing loans and private schools can provide a higher quality of education, which is often lacking in public schools. But MFIs need sustainable and innovative solutions to finance education. Opportunity International has developed solutions to prevent children from dropping out of school: a school fee loan plan and loans for institutions; ADG provides training to MFI staff in order to increase the scale of education loans and ensure high portfolio quality at the same time; Sinapi Aba Savings and Loans from Ghana gives youth that dropped out of school the opportunity to get informal education, master a trade and get start-up capital to start their business; and CGAP has developed digital finance solutions to improve access to education for children in developing countries.
Investors, donors and funders benefitted from a dedicated ‘stream’ too, with workshops on "Myanmar, the new golden land for microfinance?"; "Investing in green inclusive finance: challenges, opportunities, strategies, the way forward"; "Securing the future through responsible exits; 10 years of MIV surveys, research and practice"; and "Long term debt for long term impact".
The 2011 microfinance law drove massive growth in Myanmar’s microfinance sector, with more than 200 institutions entering the market. Opportunities include the large number of unserved consumers, the high demand for financial services and the strong growth in mobile connectivity. But practitioners face big challenges, in particular in terms of the enabling environment. Key are interest rate caps for both savings and credit squeezing margins, and strong capacity building needs at the institution, supervisory and industry support level.
Access to long term debt has the potential to improve an MFI’s institutional stability and development. It also helps it develop products with longer maturity for market segments such as agriculture, housing and education where traditional short-term credit products have less impact. But appetite for long-term debt remains limited, as many MFIs see little risk in continuously accessing lower-cost, short-term debt on highly liquid debt markets. Awareness is needed on the benefits of long-term debt in terms of partnership building, innovation and stabilising balance sheets. FX exchange risks need to be addressed, but different options are available for the funder and MFI to distribute risks and costs in an appropriate manner.
A key challenge when impact investors exit from an MFI is to ensure continuity in the MFI’s mission. Investors need to plan ahead on how and when to responsibly exit: when market failures are solved, in case of changing strategies or legal contexts or when they face financial limitations. To guard against mission drift, investors should identify a partner which shares the investor’s values, with both parties benefiting from a continued focus on the mission; and fund managers should develop a structure answering to different exit scenarios, such as divestment, exits of investors or termination of the fund. Trust and understanding is vital to manage potential conflicts.
Investing in green inclusive finance grows as more MFIs and investors take environmental sustainability policies into consideration and are developing specific products to cater to the segment as service provider or funder. But challenges to funders interested in green microfinance include the size of green microfinance portfolios suitable for investment, the lack of awareness and understanding among MFI management and investors, the lack of a track record to entice investors, and the lack of synergies between efforts which would enable the upscaling of best practices.
As always, Social Performance is of great interest to delegates, and EMW is a rare opportunity to measure and compare progress across various SPM frameworks. In “Assessing and promoting social performance in Europe, exchanges and lessons learned from the South”, speakers argued that the European microfinance sector can use the tools and lessons learned from the ‘South’ as the debate has finally shifted from North versus South, to Western versus Eastern Europe. The larger availability of public funding and subsidies in Western Europe are creating different market approaches that are influencing the analysis and interpretation of the indicators used. This also means that regulators need to find a balance between protecting the financial sector and promoting social inclusion. The role of the regulators, but also of the various stakeholders in the sector, such as investors and funders, is crucial if we want to promote a more systematic assessment of social performance.
And managing outcomes is more than just data collection, but the system of collection, analysis, and use of outcomes data. It enables stakeholders to be accountable, review strategies and systems, and improve outcomes. Asset owners, asset managers, and FSPs should contribute resources so that the outcomes management agenda can advance. Everybody has a role to play, to get involved, and act on the data.
There are good examples of this being done. Oikocredit’s clients’ outcomes management is based on two pillars: building FSP’s capacity to measure and monitor client data, and conducting econometric research to better understand the changes in clients’ lives. Triple Jump has built an active approach to outcome management by setting outcome targets at fund level, integrating outcomes assessment into investment selection, collecting outcome results from investees, and monitoring and reporting outcomes at the fund level. Fundación Microfinanzas BBVA (BBVAMF) is managing a detailed client database with historical data, which is updated on a quarterly basis. BBVAMF classifies their clients into segments of economic vulnerability by comparing their monthly net income. According to the 2015 social performance report, the number of the 2011 client cohort living in poverty and extreme poverty has decreased from 55% to 27% in 2015. According to those findings, BBVAMF is having a large positive impact.
Green microfinance has grown in importance with each European Microfinance Week. This year, "Financing sustainable energy: Traditional solar vs PayGo" made the business case for distributed renewable energy like Solar Home Systems over traditional equivalents. But there is a need for more blended finance and innovative finance mechanisms. More awareness raising and training is needed to get a better understanding that solar solution are a better cost efficient solution compared to traditional fuels. Financing solar solutions must involve building trust among consumers by providing high quality products and servicing.
Microfinance can also be a lever for building sustainable cities and territories. 1.2 billion people are in need of improved shelter; by 2030 that number will have risen to 3 billion, stressing the need for 300 million new homes at least. By 2030 the majority of people in all continents will live in urban areas and 2 billion may live in slums. MFIs can do well and do good by designing smart, environment-friendly products for housing – a theme to be picked up in the morning plenary of the final day.
Rural finance remains a holy grail of sorts, something everyone in the sector knows to be crucial, but which remains tantalisingly difficult to achieve. Value chain finance can be beneficial for developing a value chain, but sharing the benefits evenly is key to success. Financing smallholders is a challenge when corporates want to work with farmers. There is a need for finance but often a dearth of finance providers. Warehouse receipt lending can be a good alternative to corporates stepping into finance themselves, with collateral for smallholder farmers to access credit and to gain a better bargaining position.
Social lenders can be an important support for smallholder farmers. CSAF, a network of nine social lenders, is growing. MFIs make up a relatively small share of smallholder finance, (probably 20%) and most smallholder farmers are in loose value chains. MFIs cannot cover all financial needs of smallholder farmers and most smallholders are non-commercial farmers, with cash flows outside of farming. A solution for these farmers would be to for lenders finance the commercial activities of a farmer, which would positively impact their non-commercial activities.
Digital innovations and the emergence of Fintech companies as key microfinance service providers continue to grow in importance. Adaptation will be important, of course, with smartphone and biometric technologies opening possibilities for a ’cash-lite’ world enabling a range of services the poor. These developments are coming fast, so there is an urgent need to ‘anchor’ these developments well into MFIs’ systems.
As moving away from decentralised to more integrated services becomes possible, so does consolidation and validation of data and systems, leveraging more benefits to customers. This includes new ways of encrypted data transfer like with Stellar - traceable and transparent. Clearly, solutions need to be well shared and learned from to ensure financial inclusion.
Cyber security is growing in importance in inclusive finance as everywhere else. Digital financial services are key to improve financial inclusion but security is non-negotiable and entails more than just having the right IT infrastructure in place. Digital financial service providers can mitigate risks related to new technologies and cyber-attacks, with Senegal – the largest market for digital finance services in Western Africa – an example to emulate. Senegalese state agencies and digital financial service providers have been attacked in recent years with considerable financial and data losses and Denial of Services attacks, but these have been met with a coordinated and thoughtful response.
But the speed of technology innovation means regulators can only do so much; digital financial services often operate in overlapping domains, requiring regulators on different areas to collaborate.
The morning plenary on the final day of the conference was entitled "Microfinance & Housing: One Brick at a Time". As this is the subject of next year’s 8th European Microfinance Award - announced at the previous night’s ceremony, this area is ripe for innovation. But providing affordable housing, with appropriate finance, to the world’s poor is one of the hardest tasks in Inclusive Finance.
As moderator Daniel Rozas outlined, 90% of the retail banking portfolio in the US and UK is mortgages, and two thirds of the audience themselves have one. But two thirds of the world’s population live in substandard housing (without adequate sewerage, electricity, heating or water). And while over 20% of microfinance loans are used for housing (either for building or home improvement), only 2% of MFIs’ portfolios are dedicated housing loans. Just increasing this to 20% would require US$20 billion in investment, but would benefit 100 million people.
Of course, the challenges are many. Further down the pyramid you go, the more informal incomes become – making collateral and credit assessment difficult. Land titles become less reliable too, leaving the traditional mortgage market limited to those with formal incomes and land title. The ‘micromortgage’ sector is trying to reach the next tier now; with mixed success. But the Holy Grail is the new tier below that – the very poor. Habitat for Humanity, represented on the panel by Patrick McAllister, has been working on this for a while now, as has Triple Jump’s Microbuild Fund, represented by Mark van Doesburgh, but this is only $100m out of US$13 billion in MIV assets.
Patrick argued that most MFIs are doing housing finance anyway, responding to a demand they see, knowing well that their clients are using ostensibly enterprise credit for housing anyway. But MFI officers don’t know how to assess a housing loan; they only know how to evaluate a business. Improving MFIs’ capacity analyse housing loans will be part of the diversification that is really needed. There is no ‘ideal’ for this diversification of products, however. Whatever products are designed need to involve better training of loan officers, helping clients’ with technical details, and helping management adapt to a quite different model. “The front end looks the same, but the back office is very different, with a longer loan term needed and interest rate risk factored in”, said Rozas.
The closing plenary was on “Digital Finance: Full Inclusion or Empty Promise”. Digital Finance and the emergence of Fintech providers as key players in the industry has the promise of being a great equaliser, but at great potential cost. In an interactive and lively debate, moderated by CGAP’s Greta Bull, Vicki Escarra from Opportunity International, Graham Wright from Microsave and Dave van Niekerk from MyBucks argued for and against propositions concerning the inevitable replacement of traditional microfinance by Fintech. Despite much bullish fanfare, Graham pointed out that most digital finance is just P2P transfers, bill payment or airtime top ups, its takeover is illusory, and that it risks creation exclusion, not inclusion, because of blacklisting based on clients’ very shallow digital footprints.
By contrast, Dave and Vicki advocated for the huge potential of digital finance, and the need for revolution and not incrementalism. “The electric light bulb didn’t come about by constant improvements in the candle”, said Vicki, with Dave adding that “digital financial services allow us to do is deliver the full suite of products…. We were asking poor people to run the marathon out of poverty on one leg, credit…. It’s not just about credit. It’s about transparency and customer experience…. It’s more than just a delivery channel; it’s a whole approach.”
Despite the cautionary tale he had put forward, Graham finished by seeking a positive path ahead. “As smart phones penetrate, so grows the opportunity for effective, meaningful digital financial services…. But we’ve got five to ten years during which I think we need to be very careful about client protection.”
Anne Contreras, e-MFP’s chairperson, then closed the conference with a look back and ahead. “In the past decade, the sector has changed in so many ways, from the products offered, to the way we monitor impact, to the technology available to increase access and lower costs. The Platform has changed too: it has expanded and diversified so much in the way it works, and who it reaches.”
“Ten years from now, the Platform will be a very different entity from today – and that is a good thing. Innovation is the heart of what everyone here in this room is trying to do”, she concluded”.
With thanks to the Blue Rhino team for note taking at all sessions
European Microfinance Week presentations are available here