I could not have been happier when I heard that this year the European Microfinance Platform is focusing on housing microfinance. As a microfinance specialist for the last 21 years—and the last 9 exclusively dedicated to microfinance products for housing—I have witnessed the growth potential of this sub-sector of microfinance, as well as the constraints and limitations to the expansion of housing finance portfolios, amongst which the most important include lack of adequate capital and insufficient knowledge on how to develop differentiated housing finance products. When we hear that: at least 1.6 billion of the global population lives in substandard housing; at least half of the global population—3.5 billion people—currently lives in cities; and 828 million people live in slums (according to the United Nations’ Sustainable Development Goals), both funders and financial institutions alike should take note and pay close attention. Within these concerning figures, which only seem to move upward, an opportunity is evidenced. A good portion of the individuals denoted by these statistics have been or are served by traditional microfinance loans, which are frequently diverted towards efforts to improve housing conditions.
Financial Inclusion. Housing.
How often have you seen the two concepts appear together? If you think rarely – you’re not alone. Housing finance is that mysterious niche that crops up from time to time, but rarely makes headlines in our sector. And that’s both a conundrum and a shame. Housing is a core human need and a top investment priority for families anywhere. Whether rich or poor, housing is often the single largest capital investment these families will ever make, that is to say, it cries out for effective products to help finance it. Unsurprisingly, housing finance is a core of financial services in wealthy nations. Indeed, if you’re over 40, chances are that a home mortgage is the single largest loan that you, dear reader, ever held. And yet in the financial inclusion and microfinance sector, housing gets notoriously short shrift. Habitat for Humanity, the world’s leading NGO dedicated to housing, estimates that while 1.2 billion people need improved shelter, just 2% of microfinance portfolios are dedicated to housing.
Microfinance, a lead sector within the larger impact investing spectrum, has gained prominence from development-minded investors over the past decades. Initially, international funding into microfinance was generated largely from donor organizations, including public development agencies and private foundations. As the market gained traction, the role of private capital grew in importance as not only a means for microfinance institutions (MFIs) to reach scale, but also to increase their social outreach beyond what was possible with donor money. Private investors and donor agencies thus joined efforts in creating microfinance investment vehicles, better known in the industry jargon as “MIVs” or more simply “microfinance funds”. MIVs act as the main link between MFIs and the capital markets and usually provide debt financing, equity financing or a combination of both to MFIs located in emerging and frontier markets.
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 provided 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.
This week marks Financial Inclusion Week. In support of this effort to highlight what Financial Inclusion means for the Platform, e-MFP would like to highlight the work being done in Cambodia by its members and partners, including ADA, BIO, FMO, Incofin, and Proparco, as well as by the MIMOSA Project.
From its beginnings as a hotbed of NGO activity to one of the world’s most active microfinance markets today, Cambodia has always traced its own path in the sector. A decade ago, access to finance in Cambodia was minimal. Today, the Cambodia Microfinance Association counts 2 million loans outstanding for a population of 15 million, along with a growing number of deposit accounts, remittances, and other financial products. The Symbiotics MIV 2016 survey reports Cambodia receiving nearly 10% of microfinance investments in the world, second only to India – a country whose population is nearly 100 times larger.
In the framework of the 9th Convergences Forum, e-MFP organised a session on housing microfinance, a topic that, though not new (there are more than 20 years of practice in the sector), it is still rarely addressed within the financial inclusion community and the numbers are quite small, it only accounts for just 2% of MFI portfolios!
This little attention together with the fact that finance is strongly needed to support housing needs in developing countries, were the two very first things highlighted by the moderator, Daniel Rozas, e-MFP Senior Microfinance Expert, before giving the floor to the three panellists: Patrick McAllister, Senior Consultant at Habitat for Humanity & Representative of Habitat for Humanity's Center for Innovation in Shelter and Finance; Malkhaz Dzadzua, Chief Executive Officer, JSC MFO Crystal Georgia; and Sothany Chun, Chief Executive Officer, First Finance Cambodia.
Last week saw two nearly identical financial scandals hit two very different parts of the world. One was the revelation that Wells Fargo, one of the leading US banks, had falsely created some 2 million accounts for customers who never asked for them and were largely unaware of their existence. The other was about banks in India secretly depositing 1 rupee (0.015 euro) into their customer’s accounts. What’s remarkable is the sheer silliness of the scandals – for the most part, this was not a case of money being stolen or fraudulently taken from customers. Instead, the scandals were being driven by the need to meet targets. In the case of Wells Fargo, staff were under pressure to meet sales goals. In the case of India, the banks needed to comply with government targets aimed at expanding savings accounts to financially excluded populations. In both cases staff managed to meet the targets, while completely missing the objectives the targets were meant to achieve. The financial writer Matt Levine put this brilliantly: “Measurement is sort of an evil genie: It grants your wishes, but it takes them just a bit too literally.”
A lack of data is a significant bottleneck for financial institutions and development organizations. The same is true for knowledge about a targeted sector, especially when working in agriculture and agri-finance.
Swisscontact’s Sustainable Cocoa Production Program (SCPP) in Indonesia, aiming to assist 130,000 cocoa farmers by 2020, tackles those two topics through training financial institutions about the cocoa sector and cocoa financials and shedding light on the financial situation and perception of cocoa farmers. Through an advanced program management database, SCPP is able to identify critical and interesting data relations. Baseline data of 17,429 farmers and first conclusions were compiled into a baseline report. This blog post highlights some findings from the report.
One of the most important outcomes of our data analysis is the categorization of farmers into professional, progressing and unprofessional categories, and subcategorizing them into small, medium and large in terms of farm size. This leads to different approaches in targeting farmers, especially in the sense of formal Access to Finance (A2F).
Back in November 2015, a press release briefly made the rounds, announcing that "Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company." This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it "a good (or not so good) operation." But aside from this, reaction has been surprisingly muted.
For its annual meeting in Luxembourg this year, CGAP asked e-MFP to organize a session for its members. This was our first opportunity to present some of the lessons being highlighted by the 7th European Microfinance Award “Microfinance and Access to Education”, especially the role that donors and investors can play to support the efforts of MFIs to promote access to quality education at the bottom of the pyramid.