Blogs

e-MFP today launches the Financial Inclusion Compass 2018 – its new publication on emerging short, medium and long-term trends in the financial inclusion sector, based on a mixed-methodology survey of e-MFP members and key industry stakeholders, to see where the sector has come from, as well as where it is going. The Compass was conceived to be a way to leverage e-MFP’s multi-stakeholder membership and position in the inclusive finance community, while capturing too some of the dynamic debate from the workshops at the annual European Microfinance Week, giving a wide array of practitioners, investors, donors, academics and support service providers the opportunity to assess and describe the importance of various Trends, select and give opinions on New Areas of Focus, and provide open-comment qualitative input on the expected (and hoped-for) direction of financial inclusion progress

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.

MicroCapital: How is it different evaluating lenders to SMEs versus microlenders? Lucia Spaggiari: One difference is the language used. For instance, SME lenders speak of “sustainable performance” more than “social performance.” Beyond language, a key difference is scale. By definition, SME lending requires a larger balance sheet, and this means complying with prudential regulation and attracting investors expecting to earn (at least) market returns. Laura Foose: Based on investor demand expressed at the European Microfinance Platform (e-MFP) Investor Action Group meeting at European Microfinance Week 2016 and the March 2017 Social Performance Task Force (SPTF) Social Investors Working Group, we have been exploring how best to evaluate the environmental and social performance of SME finance institutions. We began by mapping the ESG frameworks of four development finance institutions (DFIs) and then surveyed our member microfinance investment vehicles to learn what indicators were most important to them. The high quality of the DFIs’ tools was very helpful in designing an evaluation framework that is feasible for our member funds’ smaller investments.