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Some lessons are unexpected. Back in 2000, during the height of internet stock craze, I was an amateur manager of a small stock fund consisting of 8 smalltime shareholders who were all my relatives. Being a bit of a contrarian, the fund focused mainly on biotech stocks, which were enjoying quite a strong run, even if not quite as exuberant as dotcom stocks. The fund did well – a roughly 250% return over 3 years, but as always, the lesson was not from this relative success, but from a far larger failure – the missed opportunity to bank a 750% return. One stock stands out in my mind: Incyte Pharmaceuticals, which I had bought variously when it was trading in the $10-$20 range during 1998-99. By early 2000, it had crossed $100/share and was rapidly heading higher. At the time, I was well aware that there was no fundamental reason behind this runup – it was classic speculation. The question was when to sell? Internally, we had set a target of $150 (at a time when it was nearing $140 and rising rapidly). It was not to be. We sold some weeks later when it had slid down to the $60s… Call me greedy and stupid. But I learned my lesson – I’m not made for stock trading! More importantly, it was my first introduction to the dangers of inexorable growth, which creates expectations that are difficult to reset and that far too often lead to disaster. No, I’m not implying that microfinance in Cambodia or elsewhere is a dotcom-level bubble. But what’s at work is the basic mathematical principle – sustaining a high growth rate becomes increasingly difficult over time. A young industry may well grow 30%-40% annually for many years; for a mature one, this is nearly impossible. And all young industries mature eventually, so growth must necessarily slow. Watching Cambodia over the past several years has become increasingly uncomfortable for this very reason. Its MFIs have been averaging annual growth of 45% since 2004. And while they started small, that is no longer the case. Even so, as of Q1 2016, they posted 41% year-over-year growth – and show no sign of slowing. The $1.4 billion growth in loan portfolio in 2015 was larger than the entire market in 2011. The big question the sector seems unwilling to tackle is how long can such growth go on? [<{"type":"media","view_mode":"media_original","fid":"2068","attributes":{"alt":"","class":"media-image","height":"367","style":"vertical-align: middle;","typeof":"foaf:image","width":"584"}}>] The answer from MIMOSA is simple – not much longer. Now would be a good time to slow down. A lot. But let’s set aside MIMOSA and look at a different perspective that’s more commonly used by macroeconomists – domestic credit to the private sector as a share of the economy. On that score, Cambodia is yet again an outlier on several fronts. Continue reading -> author: Daniel Rozas

Rural areas typically have twice as many people living in poverty as urban areas in the same country. Out of the two billion people globally who are financially excluded, one in four work in agriculture. And while more than 70% of people living in poverty around the world are farmers, financial providers are only meeting 3% of their demand for financial services. This makes sense from a for-profit financial provider’s business perspective: rural smallholder farmers are costly to serve as they are spread out geographically and make for high-risk clients with unpredictable incomes subject to extreme weather. It is difficult to sustainably serve these communities, yet it can and must be done if we want every person to be able to realise life in all its fullness. Access to microfinance enables 10-20 million households every year to significantly and positively change their lives. In recent years, several mission-driven microfinance providers have developed strategies to effectively reach and serve these smallholder farmers. VisionFund is proud to be one of these organisations and to serve 68% of our clients in rural communities around the developing world. A part of World Vision’s holistic development programmes, we aim to deliver the support and financial services necessary to increase smallholder farmer productivity and sustainability. For example, our THRIVE model addresses the end-to-end business systems of farming, natural resource management like water, and accessing better markets and pricing. Financial inclusion is embedded in this model as farmers can access credit to finance the crop inputs and receive financial education to manage those funds safely. In order to overcome the operational sustainability barriers to serving rural areas, VisionFund is scaling our microfinance institutions and implementing technology solutions like mobile and tablet banking to increase convenience and reduce costs. We are creatively implementing risk management practices and developing recovery lending tools to help farmers more quickly bounce back from natural disasters. Integrated programmes like THRIVE that work with large groups of farmers not only benefit our clients, but also us as a services provider by reducing costs and risks in such rural areas. Integrating microfinance across community development models like this produces results: THRIVE communities in Tanzania have seen incomes increase by well over 100% in just the first crop cycles. Based on the success of this pilot, we are now scaling and rolling it out in Zambia, Malawi and Mali. We are also continuing to test other smallholder farmer models, such as our pilot in Mali with our partner Water4. This project will test a sustainable microcredit funding model for hand-drilled wells as well as irrigation for productive agricultural purposes for rural smallholder farmers. VisionFund values partnership. Just as we are increasing our integration with other programmes within World Vision, we are developing and supporting industry partnerships to better reach and service smallholder farmers. Last month saw the launch of Propagate: a Coalition of Smallholder Finance Practitioners that includes VisionFund and Agora Microfinance, BRAC, Juhudi Kilimo, One Acre Fund and Opportunity International, all innovative organisations focused on serving farmers. We look forward to working with our Propagate Coalition partners to influence and support the delivery of quality and sustainable financial services, especially to those with the greatest need. Learn more at http://www.visionfund.org/ and http://www.propagatecoalition.org/ author: Peter Harlock - VisionFund

The publication is entitled Resilience and Responsibility, and written by Sam Mendelson, with support from Davide Forcella and Yekbun Gurgoz – the consultants who designed the Award methodology and oversaw the selection process – and e-MFP’s own Daniel Rozas and Gabriela Erice. It can be read online here and downloaded as a PDF here. The 2015 Award which Resilience and Responsibility draws upon looked for institutions that demonstrate an effective strategy to increase both their own resilience and that of vulnerable clients, while putting in place responses that provide for their immediate, medium- and long-term needs. It sought to recognise excellence by answering the question: how can MFIs working in the most difficult environments balance their financial and social responsibilities, protecting the sustainability of the institution as well as the lives and livelihoods of their clients? A post-disaster or post-conflict context has many effects. It increases the risk of poverty traps over the short and long term. Poor households’ incomes decrease, productivity of economic activities decreases, investments are impaired, market opportunities are reduced, trust and social relations are weakened, and health, housing and shelter conditions are worsened. That is, poverty is not just a household-level consequence of a crisis; but the whole community and economic value chain is affected; the re-establishment of normal socio-economic conditions is undermined. A negative feedback loop of poverty traps can emerge: incomes fall and become more volatile; productivity decreases; markets worsen; infrastructure decays; movement of goods deteriorates; and social cohesion suffers. Microfinance institutions suffer in crises too. Non-performing loans can skyrocket. Deposit-taking institutions may see a run on savings for which they are ill prepared. There is pressure to forgive debt, to write off loans, even as portfolio quality remains a key driver of funding: how to balance the need for future outside liquidity against the welfare of borrowers struggling today? Resilience and Responsibility presents the key issues which emerged during the assessment phase leading up to the evaluation of the three finalists last November, and extracts nine factors which exemplify the emerging best practice in this field: Immediate Humanitarian Response; Adapting Core Financial Services; Awareness Building & Psychological Support; Innovating With Products; Planning Ahead; Making Partnerships; Taking Care of Staff; Ensuring Financial Sustainability; and Leading by Example. The paper begins with a summary background of the particular challenges that MFIs face in post-crisis contexts, how those challenges vary depending on whether the crisis is acute or protracted, and the particular opportunities for MFIs to make a positive impact, increasing the resilience of clients and the institutions themselves in the face of extreme vulnerability. The Dialogue also provides case examples from among the ten Award semi-finalists of how institutions can match these factors to a range of contexts – from sudden natural disasters, to on-going civil conflict – and includes profiles of each of the ten organisations that made it to the semi-final stage. This edition of the European Dialogue is a fascinating read, and has been put together to be especially accessible to a broad range of stakeholders of differing expertise and background, and will be particularly valuable as a one-stop, introductory tool for those interested in knowing more both about this critical and young sub-sector of microfinance, and the institutions providing services to clients in the most difficult circumstances imaginable. author: e-MFP

We’re excited to announce today the launch of this, the 7th edition of the Award, focused on Microfinance and Access to Education, all details of which can be found on the Award website. Like previous years with their focus on social performance management, or the environment, or last year’s Award concerning microfinance in post-disaster and crisis contexts, the 7th Award will shine a spotlight on institutions that are innovating in something very difficult – and very important. Education may give the biggest ‘bang for your buck’ in international development. There are massive knock-on effects in health, women’s empowerment, enterprise and livelihood development that come from ensuring access to quality education for children and adults. We know that increasing both the level of access and quality of education among low-income populations in poor countries is very difficult. States have budgetary constraints. Infrastructure is expensive. Parents often carry a huge, unsustainable burden of the cost – which affects their livelihoods. To find models that minimise pressures on parents, ensure quality education and universal access for children, and the right vocational trainings for young adults to be able to find fulfilling employment well matched to their aspirations and needs? There could hardly be anything more worthwhile. MFIs and the financial inclusion sector can play an important role here, and the 7th European Microfinance Award will see institutions experimenting, being bold or taking risks in this area. It will recognise the role of microfinance in enabling access to education for children and skills training for youth and adults to enhance their employment opportunities, as well as in improving education quality in the process. So we are looking forward to applications from a wide range of financial institutions around the world, tackling this issue from both the supply side (supporting schools and other providers) and demand side (supporting families and students), with both financial and non-financial services (such as Education to Employment services involving vocational training and capacity building) and shining a path for others to follow. Many of these initiatives will involve partnerships – with government, schools, private companies, other financial institutions, NGOs or other entities. We welcome all applications that meet the eligibility criteria, found in the Explanatory Note on the Award site. And here at e-MFP we are excited to hear who has been doing what in this field so far, and where they’ll be leading everyone else. The prize of €100,000 will be presented on 17th November 2016 during the European Microfinance Week in Luxembourg. For more information on the eligibility criteria and to apply, visit www.european-microfinance-award.com author: e-MFP

“Refugee microfinance” is too risky, right? After all, refugees are more likely to default on their loan because they don’t have ties to the local community or profit-generating enterprises. They are likely to rejected by existing clients as “competition” or simply as outsiders. Refugees’ lack of collateral and their unstable legal status give them little incentive to develop a long-term relationship with the financial service provider (FSP). Right? Not necessarily. In fact, quite the opposite has been true for Al Majmoua, a Lebanese microfinance institution (MFI) serving Syrian, Pilipino, and Palestinian migrants and refugees (in addition to low-income Lebanese clients). A new publication by the Social Performance Task Force’s (SPTF), Serving Refugee Populations in Lebanon - Lessons Learned from a New Frontier,<1> demonstrates how Al Majmoua successfully incorporates refugees into its lending operations and non-financial services. Focused primarily on the subject of Syrian refugees, the case study details how Al Majmoua’s analyed refugee needs and the existing market opportunities before opening up to refugees, and the financial success of the model. The Syrian refugee portion of Al Majmoua’s portfolio has a portfolio at risk (PAR30) of 0.85%, compared to the MFI’s overall PAR30 of 0.72%. An insignificant difference, to say the least. Overall, the MFI recorded 60 cases of flight (0.11% of the portfolio) in 2015—a number inconsistent with public perception of the risks associated with refugee microfinance. In interviews with loan officers, the SPTF found that Al Majmoua staff saw no difference in entrepreneurship potential, nor in the performance, group collapse rate, or repayment rate of mixed groups (groups composed of Lebanese and Syrian clients) compared to Lebanese-only groups. This is not to say that refugees are easy to serve. They have unique needs and face greater barriers to entry into their host economy. However, Al Majmoua’s experience should be an encouragement to other FSPs and their funders. Here are a few of the key bits of wisdom gained from the MFI’s experience working with Syrians over the past few years: 1. Expect resistance by clients and staff. Al Majmoua staff were concerned that their portfolio quality would suffer. Angry clients perceived that Syrian immigrants were reducing the market-shares of Lebanese microentreprenuers. The MFI facilitated many open discussions—with the board, staff, clients, and refugees—about their concerns, stereotypes, and assumptions. This ongoing conversation has been an essential part of easing all parties into an inclusive business model. 2. Do the work upfront. Al Majmoua argues that an MFI doesn’t need a special product just for refugees—and in fact, such a delineation between refugees and “regular” clients is bad for business. Instead, the MFI engaged in detailed market research to get to know the refugee population: Where do they live? What are their income-generating activities? What barriers do they face that nationals do not? With this information, the MFI saw a clear way forward—loans made to groups with both Lebanese and Syrian women, combined with business training. The upfront investment to understand the needs of refugees, and the biases of staff and existing clients, allowed the MFI to determine who they could serve best, and how. 3. Non-financial services are a great entry point. Offering non-financial services can be a great entry point for refugees who are often socially isolated. Al Majmoua set up meeting centers where refugees and low-income national alike accessed all sorts of social, personal, and vocational trainings and support. More than anything else, these centers created trust between refugees and the financial institution, and helped integrate them into the broader community. 4. Consider product modifications. As mentioned previously, AL Majmoua found that relegating refugees to a separate product or program would have exacerbated tensions between refugees and Lebenese nationals. However, not all product terms will be appropriate for refugees. For example, finding national guarantors is harder for refugees, so an MFI might consider alternatives such as social vetting by (refugee) associations, places of worship, or relatives; evidence of stability like long-term rental contracts, children in school, spouse in formal job; and evidence of repayment capacity like remittance receipts, in place of of national guarantor. What the Al Majmoua case show us is that when outreach is done right, refugees can make excellent clients for FSPs. In fact, refugees may be the next frontier for financial inclusion. However, there is much work to do to generate interest in and knowledge on how to serve refugees successfully. In 2016, the SPTF, in partnership with the Livelihoods Unit of the United Nations High Commissioner for Refugees (UNHCR) will produce Global Guidelines for FSPs Serving Refugees. Based on these guidelines, the SPTF will also offer training materials for FSPs and technical assistance providers who wish to learn best practice for providing financial services to refugees. Our hope is that with greater knowledge and proof of successful practice, increasing numbers of FSPs will be willing to extend their services to refugees. What do you think? Are refugees too risky a market for financial service providers? Do you know of successful models for providing financial services to this target population? Want to know more? Listen to the SPTFs introductory webinar: Refugees- The Next Frontier in Financial Inclusion? Also available: the presentation notes and PowerPoint. Sign up to receive notifications of upcoming SPTF events and publication releases or contact info@sptf.info. <1> Lene Hansen, December 2015. author: Leah Wardle SPTF

This blog is a republication of a post from the MimosaIndex.org website. Since publishing the first MIMOSA report – on Cambodia – I’ve heard one persistent critique. We say that the market is saturated, yet none of the current indicators appear to support it: repayments are great, there’s no field evidence of widespread overindebtedness, and the major MFIs are all undergoing a process of Smart Certification. How can we assert that Cambodia is at risk of overindebtedness, let alone a credit crisis, when no other indicators seem to support it? These are important and reasonable questions. But here’s the rub – all the factors that point to a healthy market are either lagging indicators or are too vague or too poorly understood to be used as benchmarks. First, if there’s one thing I’ve learned over the years of studying credit bubbles – starting with my work in the US mortgage sector during 2001-2008, through Andhra Pradesh, Morocco, and others – it’s that delinquency should never be used an indicator of a bubble. Rising delinquency is an important warning signal, certainly – but what it signals is that the bubble has begun to burst. From there on, it’s all about crisis management. What MIMOSA seeks to do is to avoid getting to that stage in the first place. Read more > author: Daniel Rozas

This blog is a republication of a post from the MimosaIndex.org website. Since publishing the first MIMOSA report – on Cambodia – I’ve heard one persistent critique. We say that the market is saturated, yet none of the current indicators appear to support it: repayments are great, there’s no field evidence of widespread overindebtedness, and the major MFIs are all undergoing a process of Smart Certification. How can we assert that Cambodia is at risk of overindebtedness, let alone a credit crisis, when no other indicators seem to support it? These are important and reasonable questions. But here’s the rub – all the factors that point to a healthy market are either lagging indicators or are too vague or too poorly understood to be used as benchmarks. First, if there’s one thing I’ve learned over the years of studying credit bubbles – starting with my work in the US mortgage sector during 2001-2008, through Andhra Pradesh, Morocco, and others – it’s that delinquency should never be used an indicator of a bubble. Rising delinquency is an important warning signal, certainly – but what it signals is that the bubble has begun to burst. From there on, it’s all about crisis management. What MIMOSA seeks to do is to avoid getting to that stage in the first place. Read more > author: Daniel Rozas

When we use the word sustainability in financial inclusion terms, what does it mean? Does it stand for profit or a long-term perspective that looks beyond the next reporting deadline? Is it a code word for triple bottom line accounting – people, planet, profit? Or maybe sustaining financial services in the face of natural disaster or armed conflict? What about crisis avoidance – cooling overheating markets and preventing over-indebtedness? At this year’s European Microfinance Week (EMW) in Luxembourg, sustainability meant all those things and more. Titled Financial Inclusion for Sustainable Development, the conference featured multiple workshop streams reflecting the breadth and importance of the topic - with sessions on green microfinance; MIV governance; long-term risk planning; and new tools, such as MIMOSA, to assess market saturation. As e-MFP Chairwoman Anne Contreras stated: “it means financial sustainability – identifying overheated and underserved markets. It means encouraging funding for the sector with a long-term outlook, not short-term returns. It means new approaches to managing risk and expanding outreach through better understanding of client needs and developing tools to reach them effectively and affordably. It means driving social sustainability - protecting clients from shocks in difficult contexts and providing them with a suite of financial services for sustainable livelihoods. And of course it means environmental sustainability – through finance for clean energy products and improved agricultural practices. What they have in common is an emergent long-term thinking about the future of the Financial Inclusion sector, and of its clients.” Read more on the Microfinance Gateway author: e-MFP

Jordan Response Plan 2015. This plan is unfortunately underfunded by the emergency international agencies and should be complemented by a system which could guarantee the quality and security of the services provided. One of the main issues to be addressed remains the access of these refugees to financial services. The Syrian refugees and the underprivileged Jordanian people are receiving financial help from their relatives, from the government or from international organisations such as NGOs. However they remain deprived of access to proper financial services. Until now, informal channels are being preferred over formal ones and this situation increases the risk of money laundering and terrorism financing. Thus, regulation and supervision of digital payment has to be improved. PHB Development and CGAP have recently worked with GIZ in Jordan to design GIZ’s technical assistance plans to improve access to remittances and other financial services through digital solutions. This will benefit both the refugees in hosting communities and urban areas, but also the financially underserved Jordanians. The project is scheduled to start in January 2016 and to end in 2018, with a total contribution of up to 2.3 million euros by the German Federal Ministry for Economic Cooperation and Development (BMZ). There are three steps in this project execution: first, research was conducted this past spring; a second phase of assistance and dialogue which is running hand by hand with work on financial education; third, a pilot to support the setting up of the project over the long term. Jordan digital finance is now more regulated and secured Remittances and Mobile Transfer providers are a source of income for the host countries of Syrian refugees. The objective of digital finance is to offer a very comprehensive platform at “no cost”. Currently, fees paid are proportionally high (12%) and the Ministry of Finance has set a tax on mobile payment and this is one important barrier to the development of digital finance. As a result, money is either not remitted or remitted through insecure informal channels. For the assistance transfers, humanitarian organizations use two different digital payment schemes. UNHCR uses IRIS scanning recognition at ATMs, while World Food Program (WFP) and Care International use ATM Cards to disburse assistance cash. These two schemes are provided by innovative banks with a strong sense of their corporate social responsibility: Cairo Amman Bank (CAB) and Jordan Ahli Bank (JAB). They unfortunately open the prepaid accounts to UNHCR and WFP and not directly to the refugees, thus blocking the refugees’ capacities to receive (international) remittances. The refugees can only withdraw the full amount, limiting their capacities to manage their money and benefit from additional services. The international transfers with prepaid cards are not a priority for the CBJ. Therefore the project can start by facilitating the national payments to the Syrian refugees and the Jordanian hosting communities. Interviewing members from different relevant government bodies helped to understand the refugees and the underprivileged Jordanian people’s need for digital finance. Inside each of these ministries, there are also obvious applications for digital services. For example, the Ministry of Social Security wishes to make it possible for voluntary social security contributions and for benefit payments from the Ministry to be made electronically. There is a clear will from the Ministry of Planning and International Cooperation to respond to the Syrian crisis, with the Jordan Mobile Payment system. The CBJ (Central Bank of Jordan) is trusted and therefore, has an important role in leading the development and regulation of financial services. Thanks to the CBJ, national mobile payment has been opened in February 2014 with the Bank of Jordan (BoJ) launching JoMoPay, the Jordan Mobile Payment, which could benefit from some adjustments on the ground. The Visa prepaid cards are already being used in Jordan for many NGOs in refugees programs but it would first need to be implemented with a bank. They should be directly connected to JoMoPay. A first step could be the use of Mobile Wallets for clients to deposit money and receive money from families in Jordan. The influence of culture in the setting up of digital finance An alternative financial system becomes more and more urgent as cohabitation between refugees and Jordanian people brings new money flows. There are tensions between Jordanian hosting communities and Syrian refugees because of competition for income-generating opportunities. Unemployment in Jordan has increased from 14.5% to 22% between 2011 and 2014. There is a risk that, with the humanitarian aid scaling down, a large number of refugees enter into the labour market. The development of new economic activities make it necessary for both target groups to have access to reliable financial services. The cultural factor should be taken into account. In Syria, there is a strong culture of saving but refugees are not allowed to have a saving account. 75% of Jordan’s adult population does not have a bank account. None of the card systems suit the refugees because of their limited services. However, they are open to phone based financial services and a lot of them own a smartphone. Therefore they need to be taught about this channel. Moreover, the population is totally ignorant of digital finance. There is a real need to support the transition to financial inclusion and to educate the target populations to digital finance. A partnership with NGOs and the government could provide financial education to the target population. In May 2015, JoMoPay led an awareness campaign to talk about the Central Bank reputation as guarantor of the payment system security. In particular women could be the first target population because they head households and receive remittances. Last but not least, religious reasons such as those within Islamic finance need to be taken into account. author: Philippe Breul

Daniel Rozas and David Roodman address financial inclusion metrics on Next Billion. 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. While we highly appreciate the survey and the light it shines on the state of financial inclusion across the world, we are concerned about the accuracy of this headline finding. The growth it suggests is almost certainly overstated. To illustrate this concern, we suggest an alternative news headline, also based on the survey findings: Number of Unbanked in U.S. and Eurozone Cut in Half. U.S. unbanked population drops from 12% to 6% in 2011-14; Eurozone cuts number of unbanked from 9 percent to 5 percent, according to report. If this headline seems removed from reality, that’s because it is. Read more on Next Billion author: e-MFP

The impact of the Andhra Pradesh microcredit crisis was so strong that it contributed significantly towards the global dip in microcredit outreach in 2011. The Andhra Pradesh microcredit crisis was largely started by reports in popular media that suicides were being exacerbated by microcredit lenders charging high interest rates and harassing borrowers. The resulting political instigation of non-reimbursements in some Indian States almost killed the sector. Our research on microfinance in India investigated the relation being drawn in the media between microfinance lending and suicides amongst borrowers. We recognized that the data on microfinance borrowers is limited to the formal microfinance sector, and specifically to those institutions who choose to disclose their data. The data on suicides is fuzzy, based on reports of the National Crime Records Bureau of India and by different countries across the world (as reported to the World Health Organization). Thus, we suggest, from the outset, that our conclusions and observations be taken with appropriate reserve. To appreciate the complexity of drawing correlations and associations, as an example, the average suicide rate in France is about 16 per 100,000 which compares unfavorably with India's suicide rate of 10 per 100,000.Such a simplistic investigation suggests that with higher microfinance proliferation in India than in France, the suicide rates are lower in countries with higher microfinance. However, this is clearly over-simplified. Drawing from the research of Emile Durkheim in the nineteenth century, we know that the poor are likely to be less suicide prone than the rich. Divorce, women's participation in the labor force, and migration to cities, all increase with economic development. These factors all play a role in increasing the propensity to commit suicide, perhaps due to a stronger isolation of individuals and the breaking of traditional support groups such as families. At the same time, research on the Japanese experience has shown that people who are over indebted or have taken guarantees from other people are more prone to committing suicides. Therefore, first, we checked if the 54 suicides reported by the media in October 2010 could be expected on average in a country the size of India with a billion people – where the average suicide rate is 10 per 100,000 inhabitants per year. After controlling for the population of Andhra Pradesh, an average family size of five individuals per household, each with three or four loans and the size of Self-Help Groups, we found that 54 suicides should theoretically not be the cause for unjust alert or be unilaterally blamed on an increased borrower stress due to microfinance. Our investigation of the time series data on suicides in India revealed a slightly significant positive correlation between microfinance penetration and male suicide rates, and a slightly negative correlation (not significant) with female suicide rates – but no relation between microfinance and total suicides. Generally, no causal relationship can be assumed from these correlations. The cross-sectional data of Indian States indicates a small positive correlation (not significant) between microfinance penetration and suicide rates. However, the correlation doubles and becomes significant when we consider total suicides with number of SHGs loans outstanding to banks. Again, no causation is suggested as both directions are plausible. Fourth, world-wide country-wise analysis indicates that there is no correlation between microfinance and male or female suicides, yet regression analysis of 31 countries very weakly indicates that microfinance penetration among the poor is a causal factor for increased suicides. Thus, all we can really say for now is that perhaps there is a (causal) relationship between microfinance penetration in the country and suicides. This could be due to hidden factors which depend on the economic development overall. What we take away from our research and this debate (and furor in the media) is to clarify what we can do to alleviate borrower stress. First, unbridled growth and a drive to increase outreach may have created an environment where each credit officer in India is serving twice as many people as credit officers globally, leading to loss of personalization. Fast growth rates also mean that a credit officer’s recruitment and training have to be rapid and may ignore softer skills required to cope with borrower stress. Second, there is enormous pressure on credit officers who are doing their best to please the bosses who demand full repayment rates. The human consideration therefore needs to extend to this employee and his fears and frustration when the borrower does not repay. Third, if the increase of microfinance proliferation does increases male suicides, is this impact different for women and men - possibly due to their changing roles in society? Changes in relationship roles indicated the need for social support groups for males to take in shocks now that the woman is busy and possibly even more successful. Although more field research is required, some of our policy recommendations are listed below: The need for self help or other social support groups for vulnerable individuals (especially men) to better cope with the changes in the family situation being ushered in through the economic and social empowerment of women given their access to microfinance. The need for MFIs to be allowed to take deposits from a broader client base, beyond their own borrowers, as it is the case with leading non-bank (NGO) MFIs in Bangladesh. This would then change the relationship at the grass roots between the collection officer and the client. It would no longer be one of dominance of the field officer, but also recognition that if he wants to fulfill his deposit mobilization targets, he is dependent on the same customer. The need to cap microfinance loans to some percentage of the expected earnings of the household for that period. Failing this, the caps can be on GNI per capital for that period. Thus, a four month loan should have a lower cap than a one year loan, which in turn can have a lower cap than a two year loan. The role of a strong pro-poor regulatory environment needs to be stressed. A conducive environment is important in allowing borrowers to succeed with their business, enabling people to repay and, in turn, to make MFIs successful. If upper caps on interest rates are introduced, these need to be sufficiently restrictive of loan-sharking, yet enabling MFIs to survive and grow. Ashta, Arvind, Khan, Saleh, & Otto, Philipp E. (2015). Does microfinance Cause or Reduce Suicides? Policy Recommendations for Reducing Borrower Stress. Strategic Change: Briefings in Entrepreneurial Finance, 24(2), 165–190. author: Arvind Ashta - Saleh Khan - Philipp Otto

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! And that’s the problem. Fantastic is good for children’s bed-time stories. It’s a bit more concerning when it comes to survey data. What’s the story behind this incredible, utterly unprecedented growth? What happened in these past three years that might explain it? The authors don’t really say. One area they highlight in the report accompanying the data is the growth of mobile banking. This has been tremendous – 2% of adults globally report having a mobile money account in 2014 (no numbers available for 2011). Many of them are concentrated in countries in Sub-Saharan Africa that previously had much lower financial inclusion rates. This is a major story and something to celebrate. But it doesn’t explain the headline figure. Of those with mobile money accounts, roughly half are mobile-only users. In other words, mobile money could account for 1% of the 11% increase in financial access globally over the three years. That’s 60 million adults worldwide – well short of the 700 million in the headline. The unstated implication is that this growth came through traditional means, with accounts being opened at banks, cooperatives, post offices, microfinance institutions, and so forth. That’s where the fantastic turns into unbelievable. Traditional channels can certainly bring about broad change, but not in three short years. The growth isn’t limited to a handful of large countries. It’s truly global. There are 39 countries in all that have seen more than 10% growth in the share of adults holding accounts, including wealthy countries like Italy, Saudi Arabia, and United Arab Emirates. Even the United States, which had an 88% account penetration rate in 2011 managed to jump to nearly 94% in just three years. This must surely come as a surprise to those who follow financial access issues in the country, where according to a 2014 study by the Federal Deposit Insurance Corporation, the number of unbanked households held fairly steady at 8% during 2011-2013. What to make of this puzzle? I believe the issue lies not in the survey itself. Rather, the problem may stem from the change in the definition of an account holder. And no, it’s not the issue of adding mobile money. According to the metadata definitions in the Findex database, here is the 2011 definition for account at a financial institution<1>: “Denotes the percentage of respondents with an account (self or together with someone else) at a bank, credit union, another financial institution (e.g., cooperative, microfinance institution), or the post office (if applicable) including respondents who reported having a debit card (% age 15+).” And here is the definition for the same in 2014 (significant differences in italics): “Denotes the percentage of respondents who report having an account (by themselves or together with someone else) at a bank or another type of financial institution; having a debit card in their own name; receiving wages, government transfers, or payments for agricultural products into an account at a financial institution in the past 12 months; paying utility bills or school fees from an account at a financial institution in the past 12 months; or receiving wages or government transfers into a card in the past 12 months (% age 15+).” It appears that for 2014 respondents, there were several additional ways to count an account – ways that weren’t captured in 2011. A slight methodological change, but a crucial one. The latter measure may well be the more accurate one, but it’s problematic as a direct comparison with 2011. There is a wealth of data in the Findex database, shedding light on all kinds of trends in financial access, including borrowing, saving, us of informal services, and so on. The opportunities to learn and explore are vast, helping inform decisions for regulators, politicians, and private actors. The Findex team and its supporters deserve a great deal of credit for creating and maintaining this critical resource. However, the headline finding of a massive increase in number of accounts is difficult to explain as a reflection of a true global shift. Instead, it appears that a large part of this trend may be simply due to changes in the survey definitions. Celebrating the “massive drop in number of unbanked” may prove a little premature. <1> The two different years are denoted by and , e.g. wave 1 and wave 2 author: Daniel Rozas