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Wells Fargo, one of the leading US banks, had falsely created some 2 million accounts for customers who never asked for them and were largely unaware of their existence. The other was about banks in India secretly depositing 1 rupee (0.015 euro) into their customer’s accounts. What’s remarkable is the sheer silliness of the scandals – for the most part, this was not a case of money being stolen or fraudulently taken from customers. Instead, the scandals were being driven by the need to meet targets. In the case of Wells Fargo, staff were under pressure to meet sales goals. In the case of India, the banks needed to comply with government targets aimed at expanding savings accounts to financially excluded populations. In both cases staff managed to meet the targets, while completely missing the objectives the targets were meant to achieve. The financial writer Matt Levine put this brilliantly: “Measurement is sort of an evil genie: It grants your wishes, but it takes them just a bit too literally.” Naturally, in our line of work, it’s the India scandal that’s most relevant. And frankly, we at e-MFP are not one bit surprised. The levels of dormancy in these no-frills accounts that the India Government pushed the banks to open were remarkably low – often less than 30% of accounts had zero-balances, a figure that’s been trending downward for some time. By contrast, our research on zero-balance accounts have found dormancy levels of 50-75% in most countries and MFIs we studied. That the India government was reporting such high success rates through mandates was thus exceptional, and in hindsight, apparently too good to be true. The problem with dormant accounts is that they falsify financial outreach data in two critical ways: first, they overstate the number of active savers, and second, they understate the average account balance, making it appear that the savers are poorer than they actually are. To its credit, the Indian government was aware of these issues and specifically set out to track dormancy – by collecting data on zero-balance accounts. Unfortunately, this monitoring system proved easily tricked. Staff simply had to deposit 1 rupee of their own money in each fake account, so they no longer met the metric of “zero-balance” – even if the 1-rupee balance is trivial for all but the very poorest of Indians. There is a better way. The paper we published two years ago proposed an algorithm that could fairly easily discover similar attempts at cheating the system. The only thing required is that the regulator collect data on a stratified basis – how many accounts are below 100 Rs, 100-1000 Rs, 1000-5000 Rs and so on, along with the total balance at each level. From that, the algorithm could quite easily discover if there’s an anomaly. We even provided the calculations and detailed explanations in a downloadable excel file. It seems to have gone almost completely unremarked; in the two years since, we received exactly zero inquiries on how one might use such a system to monitor REAL savings outreach, as opposed to figures juiced-up by dormant accounts. Perhaps this scandal will help spur change. It’s time we start treating savings outreach with a bit more care than the current blind reporting of misleading averages. The techniques aren’t that difficult. Call us – we’re ready to support the effort. author: Daniel Rozas

Swisscontact’s Sustainable Cocoa Production Program (SCPP) in Indonesia, aiming to assist 130,000 cocoa farmers by 2020, tackles those two topics through training financial institutions about the cocoa sector and cocoa financials and shedding light on the financial situation and perception of cocoa farmers. Through an advanced program management database, SCPP is able to identify critical and interesting data relations. Baseline data of 17,429 farmers and first conclusions were compiled into a baseline report. This blog post highlights some findings from the report. One of the most important outcomes of our data analysis is the categorization of farmers into professional, progressing and unprofessional categories,<1> and subcategorizing them into small, medium and large in terms of farm size. This leads to different approaches in targeting farmers, especially in the sense of formal Access to Finance (A2F). Unprofessional farmers produce less than 500 kg of dry cocoa beans per hectare in a year, equivalent to a monthly income of USD 80-100/month. They could increase production by two thirds through proper pruning, sanitation and denser planting, with strict replacement of old trees. There would be no need for heavy agri-input investments at this stage of development. Cash flow wise, it would be more advantageous for these farmers to go to the farm daily for regular maintenance. For progressing (500-1000 kg/ha/year) and professional (>1,000 kg/ha/year) farmers, the situation looks different. These farmers could achieve much higher production through better planting material and/or better farm inputs as their yields prove that basic agriculture practices are applied. For that segment, A2F is crucial. A2F in this regards includes both savings and loans. The majority of farmers have a medium sized farm (1-2 ha, 44.59%), while many have small farms (<1 ha, 41.79%) and only 13.62% are considered large farmers (>2 ha). 12.29% of the farmers are considered professional and 31.43% as progressing. Categorization of Farmers by Professionalism and Farm size Professional farmers have higher production per hectare than unprofessional farmers. Therefore, they have a higher cash flow per hectare and would obviously be preferred over unprofessional farmers for business loans. Industry interest focuses on the 43.72% of professional and progressing farmers, considering training cost and production potential. That is a trade-off to stakeholders from the development-cooperation side, which view farmers with a low production as a target group to improve the livelihoods of poor farmers. Yields and Tree of different Farmer Categories Professional Cocoa Farmers have 17.97% more trees per hectare (860 vs. 729) and a 4.05 times higher yield per tree (1.50 kg/tree vs. 0.37 kg/tree) compared to unprofessional farmers, leading to 4.8 times higher production per hectare (1,293 kg/ha vs. 267 kg/ha). Yield differences between best and worst farmers It also can be seen that the top 10% of the farmers have on average 1,177 kg/ha, a much higher farm yield than the bottom 10% with just 205 kg/ha. Access to formal loans for cocoa farmers is low. Only 1.91% of the farmers have outstanding loans with banks, whereas overall 17% of the Indonesian population borrows formally.<2> This is in line with SCPP estimations that 16% to 18% of the farmers would be eligible for a loan. 5.31% of the cocoa farmers have experience with bank loans. 39.77% of the farmers don’t want a loan. 96.18% of the farmers consider a loan to be a big responsibility and 88.79% worry about how to repay a loan. Loan use (formal and informal loans) is not perfect with a significant share of clients using loans for school fees or daily needs. Farmers below the age of 25 are significantly underrepresented in access to formal loans, while they are heavily overrepresented in the overall loan experience. This could be due to multiple reasons. One reason could be the lack of collateral (as shown later on the data of land titles), or mistrust of young people. The data indicates that banks focus on farmers between 35 and 54 years of age. Formal Loan Experience by Age 97.24% of the farmers want to learn how to save and 85.75% trust banks to keep their money safe. 84.72% of the farmers own a mobile phone or at least have access to it. 40.24% of the farmers don’t save at all, while 44.41% save in-cash and 15.34% save in-kind or invest in another business. These latter two could be bricks, gold, chickens etc. The saving rate of key farmers<3> is 69.83%, compared to the average of 59.75%. 62.02% of all surveyed farmers think they are disciplined enough to save. However, 39.84% out of those do not have any savings at all (24.71% of total), while 60.16% do have some savings (37.31% of total). Out of the 37.98% who think they are not disciplined enough to save, 42.07% have savings (15.97% of total).<4> First indications on saving behavior show that farmers use their income from cocoa for daily needs, due to the relatively regular income throughout the year, while savings are built with income from other crops, which farmers receive once or twice a year in relatively larger amounts. Cocoa Farming Savings 69.15% of farmers don’t have a bank account. From the ones who have, 6.34% don’t use the account actively.<5> Farmers with accounts have them in Bank Rakyat Indonesia (BRI, 88.9%), Bank Negara Indonesia (BNI, 3.5%) and other institutions <7.6%, mainly cooperatives, bank danamon, bank central asia (bca), bank mandiri and bank muamalat>. 83.29% of the farmers don’t have any idea about interest rates and fees for their account. Bank Accounts Most interesting is that farmers with loan experience with traders get on average 9.06% higher prices than farmers with loan experience with banks. The average price difference between farmers with loans from traders and farmers without loan experience is 5.61%. This would indicate that the theory that the price of a loan is hidden in the purchase price is wrong. It is unclear as to why this is the case. It is possible that higher prices are paid to avoid side-selling and to ensure repayment of the loan, or a special relationship in the sense that only good friends/clients receive a loan (and higher prices). It is also noteworthy that farmers who stated that traders are rich get higher prices than farmers who don’t think so (difference 3.40%). Access and knowledge about agricultural insurance is low. Only 5 out of 17,429 farmers are aware of the existence of insurance to protect the crop and income. The data analysis led to a number of activities such as sharing data of progressing and professional farmers with banks to increase access to loan for eligible farmers. Pre-conditions include signed written consent of the farmer to share data, an expression of interest on a loan, and being based in a location within the operational area of a bank. In addition, farmers are supported in low-cost land registration so that they are certain about the land status, which might lead to higher investments, and have proper collateral. A (still ongoing) saving pilot with 3,000+ farmers was initiated, using behavioral science insights. The objective is to increase savings. The initial idea for the pilot program was built on two questions, where do farmers get money and where would they be able to save money? The answer would be at a cocoa trader’s place and thus cocoa traders were included in the pilot as branchless banking agents. Results are expected by the end of 2016. <1> Another option would be to categorize them into traditional, semi-intensive and intensive. <2> IFC: Mobile Banking in Indonesia, p.39 <3> Key farmers are group leaders of the farmer groups trained by SCPP. They get additional training to facilitate the Farmer Field Schools. <4> There is a very slight difference between the 40.24% and the (24.71%+15.97% =) 40.68% because some slightly different baselines, where farmers were excluded, if they didn’t answer the particular question. <5> Defined as at least one transaction within the last 12 months author: Dirk Lebe - Swisscontact

First published on NextBillion press release briefly made the rounds, announcing that "Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company." This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it "a good (or not so good) operation." But aside from this, reaction has been surprisingly muted. By all accounts, this should have been bigger news for the microfinance sector. One of the major microfinance networks selling six subsidiaries to a fintech startup, and doing so in sub-Saharan Africa – the global hub of innovation in mobile banking. At a time when technology and mobile money are the talk of the sector, how does a story like this pass under the radar? Were that not enough, the deal echoes another major topic for microfinance and impact investors: responsible exits, or how socially oriented investors can sell their equity stakes without undermining the social mission of their investees. As explored in the 2014 CGAP-CFI paper and debated at that year's European Microfinance Week, the concern is especially relevant when the buyer is not a traditional microfinance or impact investor. By any measure, this transaction warrants more attention than it has received. So we talked to the CEOs of both Opportunity International and MyBucks. And we did some digging. The opportunities generated by this deal are many, but the challenges are just as real. Here's the story in our retelling.... Read more on NextBillion Photo credit (homepage): Neil MacWilliams via Flickr. author: Daniel Rozas - Gabriela Erice García

First published on NextBillion press release briefly made the rounds, announcing that "Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company." This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it "a good (or not so good) operation." But aside from this, reaction has been surprisingly muted. By all accounts, this should have been bigger news for the microfinance sector. One of the major microfinance networks selling six subsidiaries to a fintech startup, and doing so in sub-Saharan Africa – the global hub of innovation in mobile banking. At a time when technology and mobile money are the talk of the sector, how does a story like this pass under the radar? Were that not enough, the deal echoes another major topic for microfinance and impact investors: responsible exits, or how socially oriented investors can sell their equity stakes without undermining the social mission of their investees. As explored in the 2014 CGAP-CFI paper and debated at that year's European Microfinance Week, the concern is especially relevant when the buyer is not a traditional microfinance or impact investor. By any measure, this transaction warrants more attention than it has received. So we talked to the CEOs of both Opportunity International and MyBucks. And we did some digging. The opportunities generated by this deal are many, but the challenges are just as real. Here's the story in our retelling.... Read more on NextBillion Photo credit (homepage): Neil MacWilliams via Flickr. author: Daniel Rozas - Gabriela Erice García

First published on NextBillion press release briefly made the rounds, announcing that "Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company." This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it "a good (or not so good) operation." But aside from this, reaction has been surprisingly muted. By all accounts, this should have been bigger news for the microfinance sector. One of the major microfinance networks selling six subsidiaries to a fintech startup, and doing so in sub-Saharan Africa – the global hub of innovation in mobile banking. At a time when technology and mobile money are the talk of the sector, how does a story like this pass under the radar? Were that not enough, the deal echoes another major topic for microfinance and impact investors: responsible exits, or how socially oriented investors can sell their equity stakes without undermining the social mission of their investees. As explored in the 2014 CGAP-CFI paper and debated at that year's European Microfinance Week, the concern is especially relevant when the buyer is not a traditional microfinance or impact investor. By any measure, this transaction warrants more attention than it has received. So we talked to the CEOs of both Opportunity International and MyBucks. And we did some digging. The opportunities generated by this deal are many, but the challenges are just as real. Here's the story in our retelling.... Read more on NextBillion Photo credit (homepage): Neil MacWilliams via Flickr. author: Daniel Rozas - Gabriela Erice García

First published on NextBillion press release briefly made the rounds, announcing that "Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company." This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it "a good (or not so good) operation." But aside from this, reaction has been surprisingly muted. By all accounts, this should have been bigger news for the microfinance sector. One of the major microfinance networks selling six subsidiaries to a fintech startup, and doing so in sub-Saharan Africa – the global hub of innovation in mobile banking. At a time when technology and mobile money are the talk of the sector, how does a story like this pass under the radar? Were that not enough, the deal echoes another major topic for microfinance and impact investors: responsible exits, or how socially oriented investors can sell their equity stakes without undermining the social mission of their investees. As explored in the 2014 CGAP-CFI paper and debated at that year's European Microfinance Week, the concern is especially relevant when the buyer is not a traditional microfinance or impact investor. By any measure, this transaction warrants more attention than it has received. So we talked to the CEOs of both Opportunity International and MyBucks. And we did some digging. The opportunities generated by this deal are many, but the challenges are just as real. Here's the story in our retelling.... Read more on NextBillion Photo credit (homepage): Neil MacWilliams via Flickr. author: Daniel Rozas - Gabriela Erice García

For its annual meeting in Luxembourg this year, CGAP asked e-MFP to organize a session for its members. This was our first opportunity to present some of the lessons being highlighted by the 7th European Microfinance Award “Microfinance and Access to Education”, especially the role that donors and investors can play to support the efforts of MFIs to promote access to quality education at the bottom of the pyramid. Financial barriers are a major cause of inadequate access to education, affecting both the supply and demand sides of the sector. On the supply side, insufficient public funding results in quantity and quality shortages (lack of schools, teachers, equipment and good teaching practices) that lead to reliance on private schools to be able to respond to the demand. And if meeting the costs of public education (uniforms, supplies, transport, etc.) can be a struggle for poor families, paying private school fees is an even greater challenge. Effective financial services can thus meet key needs of both the schools themselves and of the families and students that attend them. MFIs are well placed to deal with both sides of the sector: their MSME products can well serve the needs of low cost schools, which are themselves small businesses; and they are almost by definition set up to respond to the financial needs of poor households. Francesca described how MFIs provide financial and non-financial services to schools and families and students: the former can access education provider loans as well as capacity building services often coupled with these loans, while the latter can be offered a wide array of financial services (loans, savings, insurance and remittances) to cover education needs. Some MFIs may also provide education-to-employment programs for youth and unemployed adults, either directly or through affiliated partners. MFIs are not the only player that can have a say on educational finance for the bottom of the pyramid; other stakeholders can play a key role in supporting the MFIs’ efforts and initiatives. The session featured two case studies of investment funds active in this field, the Higher Education Finance Fund (HEFF) and the Regional Education Finance Fund for Africa (REFFA), as well as the experience of the MasterCard Foundation. The Higher Education Finance Fund (HEFF) was launched in 2011 in order to finance higher education through MFIs for the poor in Latin America, where the cost of tertiary education has risen dramatically in recent years and the financing instruments, when they exist, are not sufficient or sustainable and in some cases benefit more middle and lower middle income students. HEFF aims to demonstrate that with the right methodologies and principles, student lending can be done on a sustainable basis by a private for-profit financial intermediary and in this regard they consider MFIs the ideal vehicle due to their proven capacity to manage sustainable lending programmes and reach households in marginal urban areas and rural settings with products adapted to their needs. Though HEFF is only now seeing the first batch of graduates emerge from its programme, the early figures are promising. As of 31st December 2015 the fund has reached a total of 2,667 students, 70% of whom under 25 years old and 57% from families with an average income below US$730 per month. Most students also combine their studies with work. While HEFF focuses on student finance, the Regional Education Finance Fund for Africa (REFFA) provides funding for both students and education providers. Maria Teresa Zappia, CIO of BlueOrchard, REFFA’s fund manager, referred to a recent study that found that almost 25% of primary students in poor countries are enrolled in private schools.<2> This is especially a growing reality in Africa, where public education has simply been unable to cope with the growing demand due to population growth and increased emphasis on education; meaning also that teaching quality has not kept up. For example, in Tanzania, there is one trained teacher for every 100 students. Consequentially it produces a particular challenge for poor families that sometimes spend 40% to 50% of their income on education. In this context, REFFA was launched in 2012 with the overall objective of increasing equal access to secondary, vocational and higher education, and enhancing quality of education. The US$27 million fund provides loans and technical assistance to MFIs that offer customized loans to schools, as well as education loans and savings products to families and students. Currently the fund is working in 6 countries: Cameroon, Dem. Republic of Congo (DRC), Ghana, Kenya, Senegal, and Tanzania. Maria Teresa focused especially on working with schools to raise the quality of education. She presented the results of a survey of educational providers financed by ProCredit Bank in DRC, which found that this funding has allowed the schools to increase enrolment by an average of 220 students per loan cycle, improve their infrastructure, hire 2 to 8 more staff and increase staff wages. An interesting finding was that, while 80% of the schools had increased their operating profit after receiving the loan, their profitability ratios fell due to the fact that school owners decided to invest in the school, sacrificing higher profits in the short-term to insure the long-term success of their schools. REFFA plans to expand to 11 countries in 2016 and its next steps include piloting education quality measurement tools; defining criteria for affordable schools to be used by the MFIs; and continuing to improve the relevance of the technical assistance provided to the MFIs while at the same time combining it with technical assistance to support education service providers such as schools, school associations, the government agencies, and others. The last speaker to take the floor was Mark Wensley, Senior Program Manager, Financial Inclusion at the MasterCard Foundation. As a donor, the Foundation is promoting and supporting education finance through several partnerships and projects. Mark highlighted in particular the Foundation’s partnership with Opportunity International to provide education finance tools that allow children to access a quality education in rural settings. These tools include education-focused loans, savings and insurance, not only to allow parents to send their children to school and support schools, but also ensure that children will be able to continue to go to school if something happens to their parents. The programme started in December 2013 and is deployed in six countries: Ghana, Kenya, Malawi, Rwanda, Uganda and Tanzania. Mark also mentioned the Youth Employment Initiative launched by the Foundation in December 2015 to train and help transition 200,000 out-of-schools and unemployed youth in Ghana and Uganda into sustainable jobs in the construction and agricultural sectors. The initiative includes training for skills development, networking opportunities and access to appropriate financial services to further their education, support their job search or help them start their own business. As Francesca said at the beginning, providing access to quality education is a huge challenge; but as subsequent speakers pointed out, MFIs and their partners are beginning to address the issue with real-world solutions. As the 7th European Microfinance Award gets underway, we hope to see many more such examples. Don’t forget the deadline for applications is June 1st! About the Award First held in 2006 and jointly organised by the Luxembourg Ministry of Foreign and European Affairs, e-MFP and the Inclusive Finance Network Luxembourg (InFiNe.lu), the European Microfinance Award includes a prize of €100.000 to be awarded on November 17th 2016 during the European Microfinance Week, at a ceremony to which the three finalists will be invited and will present a short video about their programs. For more information, visit: www.european-microfinance-award.com <1> Education to employment: Designing a system that works, McKinsey Center for Government, 2013. http://mckinseyonsociety.com/downloads/reports/Education/Education-to-Employment_FINAL.pdf <2> http://www.economist.com/news/briefing/21660063-where-governments-are-failing-provide-youngsters-decent-education-private-sector author: Gabriela Erice

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