There were two topics that dominated debate at the recent European Microfinance Week (EMW) conference: the threats and opportunities brought about by the fintech revolution in inclusive finance, and the issue of financial inclusion for refugees and internally displaced persons. The event, organized by the European Microfinance Platform (e-MFP), provided the venue for a discussion of these issues that ranged from hopeful to surprisingly cautionary. EMW 2018 focused heavily on the spectre – or, depending on your perspective, the promise – of technology. The theme was approached from many angles, as panelists explored the opportunities and risks of digital financial services, Big Data and new fintech entrants into the sector. It was even the focus of the 2018 European Microfinance Award, Financial Inclusion through Technology. The opening plenary captured both sides of the issue, with a keynote speech from Graham Wright of MicroSave – who played the Cassandra role that suits him so well to implore the inclusive finance sector to pay attention to the risks that technology can pose to clients and institutions.
This is the second in a publication series of three interview pieces with the three finalists for the European Microfinance Award on "Financial Inclusion through Technology". ESAF Small Finance Bank (ESAF SFB) is an Indian MFI that is leveraging the rapid expansion of mobile phone and smartphone penetration in India to digitise a wide range of its lending processes, in particular customer onboarding, electronic applications, customer financial training, credit appraisal, in-field verification, mandatory customer identity and address verification using eKYC, as well as opening of accounts, cashless disbursement and paperless collections of loan repayments. ESAF’s field officers use Internet-connected tablets with biometric identity verification and its clients have QR-enabled Aadhaar Cards – with Government-issued 12-digit unique identify numbers based on biometric and demographic data. Their details are automatically transmitted for credit bureau verification, and clients are given ATM cards to withdraw money in convenient tranches from any ATM.
This is the first in a publication series of three interview pieces with the three finalists for the European Microfinance Award on "Financial Inclusion through Technology". Advans Côte d'Ivoire (Advans CI) is a NBFI in the Ivory Coast which offers payment, saving and credit services enabled by an Advans account linked to a MTN mobile money account. Advans CI has responded to traceability and safety issues faced by cooperatives paying cocoa farmers, as well as low school enrolment due to lack of regular cashflow among farmers, by offering its digital savings and payment solution, with wallet-to-bank and bank-to-wallet transfer services, enabling producers’ cooperatives to make digital payments to farmers for their crop revenue. Since 2017, Advans CI has been also providing small digital school loans, based on an algorithm reflecting farmers’ cashflows. Advans CI also successfully negotiated free MTN transfers between mobile wallets and Advans accounts for their farmer clients.
Since the dawn of the commercialization of microfinance nearly two decades ago, investment in microfinance has been made on a widely-accepted premise: investors will receive a ‘market rate’ financial return, while pursuing a socially-motivated strategy. This premise is so widespread that it has taken on the allure of all groupthink – becoming an accepted truism, without necessarily being true. The double-bottom line – the equal focus on financial and social return – can be deceptive. The dilemma is that while financial return has a clear target, social return is more nebulous. What social return is really being promised? Is serving a certain segment of clients enough? Do additional products need to be offered? What about financial education?
The central contribution of the microfinance revolution has been the creation of long-term client relationships. More so than tangible collateral, these relationships are the foundation of the incentives structures that govern the interactions between microfinance institutions (MFIs) and their clients – and that contribute to the fulfillment of contract obligations. From this perspective, genuine microfinance has been a kind of ‘relational banking’ for the poor. This interpretation is consistent with the growing emphasis on ‘client centricity’ in financial inclusion and it focuses on the value of the relationship, as measured by its cost and quality. The quality of inclusion, on the one hand, brings together what is valued in the transaction, such as proximity, timeliness, transparency, adequacy with respect to actual client requirements, variety, sufficient amount, reliability, sustainability, respect and dignified treatment - and others. Cost, on the other hand, refers not only to financial charges (interest and fees), but also to all the opportunity costs incurred by the clients.
The publication of the 2017 Global Findex has generated much reflection on the state of financial inclusion – and plenty of analysis of the data, looking for the buried treasure of some new trend or pattern. This yields important insights. "The Financial Inclusion Hype vs. Reality report" by the Center for Financial Inclusion (CFI) is particularly worth reading for its in-depth and honest reflection of what Findex tells us. But when using Findex, there are important things to keep in mind. First, while the overall figures and trends are important, the numbers for any one country should be treated with caution. This is not because we mistrust the Findex team or their work. It’s simply the result of what Findex is – a set of surveys based on randomly selected (hopefully representative) population samples of more than 150,000 adults in over 140 economies. And surveys can – and often do – go wrong, particularly when they deal with difficult or personal subjects (like finance) or are conducted in countries undergoing political and economic turmoil. This reality forms the backdrop of our work at the Microfinance Index of Market Outreach and Saturation (MIMOSA) project, which since last year has been supported by a strategic partnership with e-MFP. A huge part of MIMOSA is collecting and comparing data – from credit bureaus, microfinance and banking associations, central banks, third-party surveys like Findex, and our own field surveys.
For most, socially responsible investing means just that - investing in a manner that not only generates financial returns, but also produces positive social value. But what does it mean for an investor to be “responsible” when selling their holdings? How does one stay responsible at the very moment when one ceases to be an investor? This is a basic challenge facing investors seeking to “exit,” i.e. sell their equity stakes to a new buyer. The issue isn’t entirely new. It first emerged in the mid-2010s, when several microfinance investment vehicles (MIVs) were starting to reach the end of their ten-year terms, and were seeking to divest their assets. This issue was first addressed in the financial inclusion sector by a 2014 paper commissioned by CGAP and CFI, which first defined many of the key questions that socially responsible investors need to address when selling their equity stakes. With another four years of multiple exits under the sector’s belt, NpM, Netherlands Platform for Inclusive Finance, along with the Financial Inclusion Equity Council (FIEC) and the European Microfinance Platform (e-MFP) asked us to take a closer look at one particularly tricky part of the exit process - selecting a buyer that is suitable for the microfinance institution (MFI), its staff and ultimately its clients.
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.
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.