Since it was published a few weeks ago, the 2014 Global Findex financial inclusion report has made a splash in media around the world. The headlines may have differed, but the articles all mention the key finding from the press release published by the World Bank: Massive Drop in Number of Unbanked. According to the Findex survey, which covered more than 150,000 people in 143 economies, the number of people with financial access grew from 51 percent to 62 percent between 2011 and 2014, a shift that reportedly represents a total of 700 million people worldwide
Our paper on suicides and microfinance, researched in 2011, was recently published in Strategic Change (Ashta, Khan, & Otto, 2015). It is worthwhile to establish clearly what we found, what we learned, and distinguish this from what we didn't find, and to reiterate clearly our policy recommendations for MFIs and regulators.
The press release from the World Bank did not hold back: “Massive Drop in Number of Unbanked,” reads the headline. In just three years, the number of adults with a bank account has grown from 51% to 62% -- an increase of 700 million people. That’s a fantastic number!
This week, e-MFP announced the launch of the 6th European Microfinance Award. This year, the Award will recognise one of most important challenges that some financial institutions face: providing financial services to vulnerable clients in post-conflict or post-crisis regions. As all e-MFP members well know, providing quality services to clients in stable markets poses many challenges – from managing portfolio risk, to expanding product offerings, hedging risk, understanding clients, adapting to regulatory changes, sourcing funds and innovating with new technologies.
The microfinance sector has many actors with many different objectives, but if there is one common element that all agree on, it’s that microfinance should not harm the clients. And one of the most important elements of client protection are responsible collections practices.
The microfinance sector has been abuzz with the implications of the “final word” study on microcredit impact. For many, including myself, this has been an opportunity to consider a trend that’s been taking place for several years now – from microfinance to financial inclusion. In my last blog, I touched upon the subject of metrics that this new shift requires. I would like to delve deeper.
The verdict is out. Final publication of six randomly-controlled studies (RCTs) has drawn a pretty thick line under the words of David Roodman: the average impact of microcredit on poverty is about zero. The notion that microfinance lifts the poor out of poverty is officially dead.
Now, the caveats. The studies evaluated microcredit only – not savings or payments or insurance. Nor did they cover so-called microfinance-plus programs, which provide training, health care or other interventions, along with credit. It’s quite possible that these or other specialized branches of microfinance practice do raise the living standards of the poor. But, if I may be so bold, even the best of these initiatives are probably less effective than we might have supposed.
This is good news. We in the microfinance community could use some humility. We’re financiers, not doctors, scientists, or teachers. To think that we can alter the lives of millions is hubris.
Overindebtedness is like the unwelcome spectre at the feast. Amidst robust and exciting discussions about technology, product development, distribution innovations, client protection and rural finance at a conference like European Microfinance Week, overindebtedness is always there – hovering. It’s the underlying trigger of market crises. It’s what outsiders who’ve read a few alarmist headlines think about microfinance.
Opening Session of European Microfinance Weeks Asks if Financial Inclusion, Stability and Client Protection can Co-Exist