As outlined in a workshop session at European Microfinance Week 2017, Financial Education (FE) is one of the pillars of financial inclusion. Without it, microfinance clients are not able to make informed and appropriate choices; they cannot compare the costs of financial products, understand the risks of failing to repay their own loans or of taking on someone else’s risk in cases of guarantees, or accurately assess how much credit, and what type, they actually need – if any. FE may be important, but there are key challenges to its provision. First, the link between offering FE and achieving positive impacts are not always direct and clear. Evaluation of the outcomes of FE shows impact to be inconsistent – a function of that impact’s sensitivity to the content and delivery of the education. Second, it is also unclear how, even if the content and delivery to achieve impact were standardised, financial education can be provided sustainably at scale. Provision of any type of training is costly.
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.
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.
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.
Portsmouth Business School was delighted to host the recent 5th European Research Conference on Microfinance from 12th to 14th June in England. Thankfully the weather gods obliged with over 130 delegates attending the event over each of the three days. A mix of established researchers with a number of leading practitioners infused the financial inclusion debate with insights and thought-provoking panel presentations. Topical themes across gender, Islamic microfinance, Fintech, research and the future of microfinance were probed in wide-ranging panel discussions. The event was opened by Andy Thorpe (Portsmouth Business School) and Christoph Pausch (e-MFP) and commenced by asking whether microfinance would live to the year 2030, a chilling prospect in itself. If so, under what guise would it do so – is there still the well-trodden ‘promise’ of microfinance? What are the challenges to its realisation? In the opening session chaired by Dirk Zetzsche (University of Luxembourg) perspectives were shared by Marek Hudon (Université Libre de Bruxelles and CERMi), Annette Krauss (University of Zurich), Sam Mendelson (Financial Inclusion Forum UK and Arc Finance) and Kimanthi Mutua (Sidian Bank Kenya). The panellists set the tone for the ensuing debate across increasing risks and regulation in the sector, the likelihood or not of possible downscaling by commercial banks and upscaling by microfinance institutions and the growing need for institutions to have appropriate strategies to survive. The panel arrived at a broad consensus as to the requirement to adjust to increasingly emerging technology-driven solutions in the context of growing levels of private capital and related product solutions offered by new market participants.
At BSHF we were very interested to learn about the European Microfinance Awards and really keen to hear more about some of the great practice being identified. We have been running the World Habitat Awards since 1985. In searching for and sharing the best examples, we have a lot in common with e-MFP. Our objective is to identify and highlight approaches to housing across the world which make outstanding contributions to people’s living conditions. As a minimum we believe everyone should be able to afford their home, have access to basic services, and be free from the threat of eviction or displacement. This might seem like stating the obvious, but it isn’t something that can be taken for granted. Over the years, a large range of excellent examples have been identified in the countries of the global North and the global South. From the very beginning, our focus has been not only on the identification of good housing practices but also in the sharing of knowledge and experience to others who can transfer them in their own situations. The first international peer exchange to a World Habitat Award project winner was in 1987 and the exchanges have continued ever since. Really great approaches recognise, provide and guarantee the right to safe and secure housing; treat people and the environment with dignity; and work collaboratively to get the best out of people and places. Contexts, actors and circumstances vary hugely, but everybody tackling housing faces three crucial ‘sustainability’ challenges – social, environmental and financial
Housing plays an important role in household asset building – providing both a place of protection from vulnerabilities as well as a base from which to be economically productive. Even low-income people prioritize investment in improving their living conditions. The base of the pyramid is estimated to spend over $330bn annually on shelter. The question is why we lack financing for housing? In Sub-Saharan Africa, the shortage of financing for housing is even more acute. As a result, poor and even middle-class households in pursuit of better shelter are often driven into the informal financial sector. Banks generally fail or ignore the financing of low-cost shelter, as the perceived risks and costs outweigh benefits. This problem is further accentuated by ambiguous property rights and legal precedents that constrain conventional ways of financing shelter. Thus, mortgage markets in the region remain small, providing access to only a small, elite segment of the population.