We’re delighted to announce the publication of the latest European Dialogue, presenting the outcomes of the European Microfinance Award 2017 on 'Microfinance for Housing'. The Dialogue series has been published since 2008, and each year one of them is dedicated to the European Microfinance Award, providing e-MFP a great opportunity to present the process, the applicants and the findings from the extensive Award process to a broader audience than those at European Microfinance Week and the Award ceremony. This latest Dialogue was written by e-MFP’s Sam Mendelson with support from Award consultants Katarzyna Pawlak and Ewa Bańkowska, and e-MFP’s Gabriela Erice and Daniel Rozas, and presents the housing programmes of the ten semi-finalists across several sections. Entitled 'Building New Foundations in Housing Microfinance', it looks at the innovations underway in what has for too long been a niche product, but which is growing in importance as MFIs respond to the fact that so many of their financial services are used for housing anyway. Now, they increasingly see the opportunity to innovate in providing a range of financial products and non-financial support to help clients improve their homes, addressing issues of safety, security, health and income-generation in the process.
At the time of year when we’re coming up to the launch of the next European Microfinance Award (on 'Financial Inclusion Through Technology', application period opens mid-April), it’s a great opportunity to check in on the progress of a previous winner. In November 2016, Kashf Foundation won that year’s 'Microfinance and Access to Education' Award for its pioneering efforts in the low-income education sector in Pakistan, particularly through low-cost private schools (LCPS) – the only MFI in the country to offer an education finance product that combines access to finance with capacity building trainings for teachers and school owners. Kashf was established in 1996 to provide microcredit facilities and other financial and non-financial services to poor households. It targets mostly women and aims at enhancing their incomes, savings, food security, and improving access to health and education. Kashf offers a range of products and services including microcredit, micro-insurance (health and life insurance), savings, financial education, business development services, and social advocacy interventions aiming at creating awareness about gender discrimination and social issues at the community level.
European Microfinance Week evolves each year, with new thematic streams, new Action Groups, and, of course, a new major area of debate based on the year’s European Microfinance Award topic. One constant are the plenaries that bring together all participants regardless of their professional background or interest. These plenaries always tackle the big issues and bring the top people in their fields to the podium – and at EMW 2017 there were three.
The opening one was on the European Microfinance Award – this year on Housing – which gave representatives from the three finalists’ organisations the chance to present their programs. This kicked off with a keynote address from Sandra Prieto from Habitat for Humanity’s Terwilliger Center for Innovation in Shelter during which she laid out the key challenges in increasing access to affordable housing: lack of collateral, lack of guarantees, a relative lack of funding for housing finance, the need for Technical Assistance to help clients either build homes from scratch or expand or otherwise improve their homes, and the problem of land tenure. Despite these challenges, housing microfinance has massive potential for social impact and diversification of MFIs’ portfolios. The three Award finalists, Sandra said, have common elements: first, they all address not only access to housing, but also other housing-related social needs such as water, sanitation, health and energy; and they each put client needs at the centre of their interventions.
Regardless of our profession, most of us like to think we know what we’re talking about - especially during this Financial Inclusion Week. But how much do we know, really? Assumptions and heuristics (‘rules of thumb’) dominate more than most of us would readily admit. And why not? Usually they’re good enough. Before Galileo upended astronomy, existing models, regardless of how wrongheaded, were still good enough to maintain calendars, predict agricultural seasons, and support navigation. Since the beginnings of modern microfinance in the 1970s, we have likewise relied on similar orthodoxies: that take-up of microcredit was a demonstration of its inherent value to the clients; that on-time repayments were evidence that clients were not over-indebted; that competition would inevitably lead to lower interest rates. And, perhaps most importantly, that targeting specific groups of clients would inherently create social benefits: lending to the poor would alleviate their poverty, lending to women would strengthen their roles in society, lending to farmers would improve their yields, etc., etc.
Today, as our friends and colleagues across the continent mark European Microfinance Day, we would like to offer a view from the South. After all, e-MFP occupies a distinct place – we’re a platform for Europe-based microfinance actors who are specifically focused on working in the South as their core objective. Like an astronomer atop a lonely mountaintop, we find ourselves in the heart of Europe, yet our minds are focused on the world beyond. So what does European microfinance look like when seen from the South? Well, it is a bit like looking at the stars – the light shines bright yet comes from a distant past. Microfinance institutions (MFIs) in Europe look remarkably similar to the global MFIs of the 80s and 90s -- small, local organizations with a deep focus on lending to micro-enterprises while maintaining basic financial sustainability. They're treading the paths laid by MFIs in countries like Bangladesh and Peru. MFI clients in Europe and in the South share one key thing in common: these are people to whom banks aren’t interested to lend.
Veronica Herrera co-founded MiCrédito in 2004 with the support of the Canada-based development association MEDA (Mennonite Economic Development Associates). “Empowering youth is vital to see the change in Nicaragua that we seek” Mrs Herrera says. “I believe education, in addition to microfinance, is a powerful tool to […] empower youth” she adds. MiCrédito is one of few MFIs today in the country to provide student loans at very low interest rates, enabled through Kiva – the San Francisco-based not for profit. While the Sandinista government managed to reduce the illiteracy rate in the country dramatically in 1980 (from 50.3% to 12.9% within only five months), which earned it the UNESCO Literacy Award, today’s education level in the country is relatively low compared to the rest of Latin America, with around 45% of the population attending secondary education, versus an average net enrolment rate of 74% in 2011 across Latin America. In what could be her motto, Mrs Herrera adds: “How does one get out of poverty? It is through education”.
A few weeks ago, headlines covered former U.S. President Jimmy Carter’s health while building Habitat for Humanity Homes in Canada. For the 34th year, Jimmy and Rosalyn Carter brought hundreds of volunteers to construction sites where donated materials and contributions from donors were used to build homes for low-income households.That image of volunteers coming together to build a home is what people expect from Habitat for Humanity. But some are surprised when they find out we also sponsor a US$100 million investment fund for housing microfinance that finances work around the globe. Why do we do that? Some of Habitat’s history with microfinance and markets traces back to an accidental discovery. Typically a Habitat for Humanity house comes with a zero percent home loan to the family. Nonetheless, regulations on non-profits in Egypt prevented Habitat from lending out any funds; and a microfinance institution (MFI) offered to help. So a partnership formed whereby our funding was lent to households via an MFI partnership. Soon after, the MFI began lending its own money for housing. At first Habitat did not pay much attention to this – it wasn’t our program nor was it being done with our funding, after all. But eventually we realized how powerful this was. The MFI went on to lend much more for housing than our program ever could, and competing financial institutions responded with similar products. This was the beginning of a change in the market that would result in much more widespread access to housing finance than any of our non-profit programs could have on their own. And, indeed, unmet demand for finance for housing is massive.
In 2010, Omtrix, a microfinance fund manager based in Costa Rica, saw that the greatest barriers to higher education for low-income youths was lack of access to financing. Omtrix wondered if this need could be met by microfinance institutions. Serving this sector would certainly meet their mandates, and MFIs already knew how to reach and serve low-income people. Omtrix hypothesized that under the right conditions, and with the right approach, student loans could be a viable product for MFIs. They decided to create a new fund to promote higher education. The new fund, called The Higher Education Finance Fund (HEFF), would lend to MFIs so that they could in turn on-lend to bright young people whose aspirations lay beyond their financial reach. HEFF’s funding would be accompanied by a technical assistance program to train MFI staff in how to appraise, monitor, and collect on student loans, as well as offer other tools to launch a new product. Additionally, HEFF would serve as a pilot program to be replicated by other MFIs or funds in the future and across the globe. Over the past six years, HEFF’s original assumptions have been tested, and the innovative program has experienced some growing pains. Omtrix has begun the process of capturing lessons learned and best practices to disseminate those lessons to anyone who may want to replicate or build on HEFF’s model.
Today, the microfinance industry is much more than microloans. New products have been included in microfinance’s offering of financial products. Complementary products such as savings, remittances, and insurance, among others, are commonly offered by microfinance institutions (MFIs), and give them comparative advantages allowing them to differentiate themselves, in order to retain their clients and ensure their own growth. As part of that change in the international microfinance scenery, we have witnessed many MFIs around the world expanding beyond micro loans to include SME loans. Such decision, many times deemed as a “natural growth path”, is caused by more competitive markets that make it more difficult for MFIs to retain traditional clients, higher costs for regulated MFIs, and a natural pursuit of continued growth. Under those circumstances, many MFIs have considered the possibility of “crossing over,” offering loans in higher amounts to their own clients and seeking to enter a new market segment: small and medium enterprise loans (SME loans).
Earthquakes. Fire. Floods. Chemical spills. Conflict. Impacts of these disasters bring to mind loss of lives and livelihoods, disruption to communities and vulnerable populations struggling to recover and cope. The impact of disasters on financial inclusion and the role financial service providers play—or don’t play—in disaster risk reduction is not an immediate consideration when preparing for or responding to such emergencies. However, disaster preparedness and response is exceptionally important in the context of financial inclusion. Countries with higher concentrations of poverty, weak infrastructure and poor public services are more at risk. Experience has shown that financial institutions serving at-risk populations are as vulnerable as their clients to these disasters and crises. While the initial humanitarian and emergency response to crisis is crucial, there is a growing recognition of the value of disaster risk reduction (DRR) strategies in preparing for and thus reducing economic losses associated with disasters. In an effort to raise awareness around this important topic, the SEEP Network’s global Disaster Risk Reduction (DRR) Program, funded by the Citi Foundation, seeks to promote more resilient financial services markets in which financial service providers (FSPs) and their clients have the capacity to better anticipate, cope and recover from the negative impacts of disasters.