Mar 06, 2020

First published by our media partner MicroCapital and reposted with permission

MicroCapital: Why was "Encouraging Effective & Inclusive Savings" chosen as the topic of the European Microfinance Award 2020?

Christoph Pausch: For much of the past 40 years, the microfinance sector has focused overwhelmingly on credit. Credit is easier to offer and more profitable for the provider. More often than not, this results in credit being provided as the default even when other financial products – such as savings – are better suited to the needs of the client. Moreover, these other options come at both lower cost and lower risk to the client. Unfor­tunately, the provision of savings as a service to the poor and the excluded remains consigned to a relatively small segment of markets and institutions, remaining a rarity in the global financial inclusion ecosystem. But saving can do so much. It enables consumption smooth­ing for people with volatile incomes. It helps families protect themselves from shocks, such as health crises. It empowers women by increasing their financial autonomy. It helps build equity by enabling asset pur­chases. It can be used for productive investment in businesses. It helps families prepare for significant expenditures, like tuition fees or housing improvements. And formal saving increases security com­pared to informal alternatives. In most of these cases, savings might not be the only solution – but part of a suite of financial activities that make up genuine financial inclusion. This is why it's so important to highlight innovations in this field.


MC: How are you approaching the design of the Award this year? What will the evaluation teams be looking for?

CP: We've incorporated three key components into the Award topic – all reflected in the title. Firstly, there's the "encouraging." Access to savings can be provided at the most basic level by opening accounts, but providers can encourage positive and valuable usage of savings – for planning, goal setting, risk mitigation and investment – by drawing on the growing body of knowledge of human behaviour. People can be "nudged" to save by reaching them at the right times, with the right messages, and supporting them with reminders. Second, savings services need to be "effective." This means they are matched to clients' specific goals, accessible, affordable, easy to understand, transparent and sustainable for the provider. And finally, savings should be "inclusive" – focusing on and reaching un(der)banked and excluded segments, with priority given to client protection. We'll also be looking for initiatives that promote the development of a culture of savings more broadly, in which there is widespread active usage of accounts, high levels of trust, a real focus on financial education and engagement with policymakers.

MC: What organizations do you hope will apply for the Award this year?

CP: There is a broad range of providers that are eligible as long as the initiative is more than a year old and it's playing an integral role in the provision of financial services in one or more countries designated by the OECD as eligible to receive official development assistance. But beyond these requirements, we hope to receive applications from a broad range of providers, from cooperatives and savings groups through NGOs, tradi­tional MFIs, fintechs and regulated banks. The scale of an initiative is relevant to show impact, but it's only one criterion. Overall, the eval­uation teams will be looking for innovation that should be spotlighted and has the potential to be replicated elsewhere.


MC: What are the benefits to potential applicants of taking part in the Award?

CP: The headline attraction is that there is a financial prize (100,000 euros to the winner and 10,000 euros to each of two other finalists). And while this prize – generously provided by the Luxembourg Ministry of Foreign and European Affairs – is significant, without doubt the real benefit of the Award comes in the exposure that the 10 semi-finalists (and three finalists) all get. The e-MFP plays a unique role as a network of stakeholders working all over the world; and donors, investors and other potential partners pay attention to the outcome of this Award. There is international and industry press coverage, plus e-MFP's annual publication, which profiles the semi-finalists and extracts the key factors for success from their initiatives. There are also all kinds of partnerships developed, and this work is presented at various panels and workshops. The late Ulanbek Termechikov, former CEO of Kompanion Financial Group (a previous Award winner), once described the Award as the "Nobel Prize of Microfinance." To live up to this lofty comparison, we take the process of running it very seriously, making sure that it always serves its goal of highlighting excellence and potential!

Christoph Pausch is Executive Secretary of the European Microfinance Platform (e-MFP). The €100k European Microfinance Award is jointly organised by the Luxembourg Ministry of Foreign and European Affairs, e-MFP and the Inclusive Finance Network Luxembourg. The first (short) round of applications for the Award will open on March 9 and close May 5. For more information on how to apply, please visit http://www.european-microfinance-award.com.

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