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This is the final in a publication series of three interview pieces with the three finalists for the European Microfinance Award on Financial Inclusion through Technology. e-MFP: How is the technology initiative that you presented for the Award particularly innovative? KMF: We believe the innovation comes through the opportunity to process a loan application from the beginning to the final decision, including financial analysis and getting the results of requests to the Credit Bureau and the State Center for Pension Payment immediately, and this information can be accessed while at the client's place of business. This includes the ability too of loan officers to work remotely – increasing both the convenience for clients as well as mobility and flexibility for employees. This system – called Mobile Expert – is an online version of a Customer Relationship Management (CRM) system – providing loan officers’ planning, loan application schedules, zoning and monitoring (planning of visits to clients whom a loan officer should visit) and statistical reports – including loan repayments by clients, number of clients, loan portfolio size, birthday reminders, and salary calculators. What this all means in practice is greater convenience, easier and more reliable communication channels between branches and loan officers in the field, the opportunity to obtain a preliminary decision at the moment of writing a loan application, and if an application is approved at the level of a loan officer, then to obtain senior approval on a loan application and rapid disbursement of that loan. Any employee wants to know how much he or she earned today, but this information is especially crucial for a loan officer, whose salary depends directly on acquisition of clients, on the size of the loan portfolio, on the quality of the loan portfolio and other factors. Therefore, the opportunity to see one’s earnings at any time is another advantage of the Mobile Expert. e-MFP: Could you give one or two examples of challenges you’ve faced in implementing your initiative, and how you have had to change or adapt your activities as a result? KMF: We’ve seen psychological barriers among employees to the introduction of the Mobile Expert, which have required a complete restructuring of lending processes and procedures. Loan officers and credit administration specialists initially did not trust data from the Mobile Expert, as previously all data were submitted to the Credit Administration Unit on paper, and after that Credit Administration specialists entered all data into the software. Now, all client data are entered electronically by a loan officer, which they directly migrate to the software. For some time, though, scepticism among loan officers and credit administration specialists lead to double verification of information, and inefficiencies. Automated blocks were implemented in the software to prevent this duplication, and trust and comfort with the systems has significantly increased over time. e-MFP: Could you please give an example of something that has surprised you during the process of introducing or expanding your technology initiative? KMF: We were pleasantly surprised by the changes that became possible due to the introduction of the Mobile Expert – especially the increase in productivity of loan officers (up 22%), the decrease in new loan application processing periods (from 2.5 days to 1 day on average), the increased number of applications processed per working day (up by 150%), and a reduction in overhead expenses by 37%. e-MFP: What are some of the (general or specific) risks that are possible when using technology to serve clients, and what do you think the financial inclusion sector can do to protect those clients or institutions from those risks? KMF: One in particular – the risk of information leakage. Institutions like ours are obliged to protect client information and take all necessary measures in this area. e-MFP: What are some of your future plans to further utilise technological opportunities in serving your clients? KMF: We are looking to establish a Mobile Credit Committee, enabling consideration of a loan application on a tablet by the credit committee members, making possible a loan decision while the loan officer is at the client’s place of business. The entire lending process client monitoring, including mobile collection, mobile credit controllers will be implemented. We also wish to expand Mobile Collection – meaning expedited analysis of the results of debt recovery activities conducted by the Collection Unit, helping us plan our approaches with problem borrowers, including restructuring repayment schedules. The winner of the €100,000 European Microfinance Award 2018 will be announced during the ceremony which takes place on the 15th November in Luxembourg in the framework of European Microfinance Week. For further details on the Award visit the European Microfinance Award website. author: e-MFP

This is the second in a publication series of three interview pieces with the three finalists for the European Microfinance Award on Financial Inclusion through Technology. e-MFP: How is the technology initiative that you presented for the Award particularly innovative? ESAF SFB: Our technology initiative was innovative in its approach to end-to-end customer experience and scope. Rather than attempting to re-work one or a few pieces in the customer journey, the initiative went back to the drawing board on all processes. It transforms the entire processes of customer onboarding, including capturing account creation request (on tablet using texts and pictures), financial literacy training (via queue management, using tablets and multimedia content), customer appraisal (including house verification visits and Group Recognition Tests, loan application appraisal (via automated straight-through processing through an external Credit Bureau and in-house business rules engine), e-KYC verification (using biometric identity and the Aadhaar database) and AML. Once loans are sanctioned, Pre-generated Kits (PGKs) with debit cards are allocated and entire set of documents is auto-printed from the system. Then the customer is scheduled to come to outlets wherein she signs the pre-generated document and the funds are electronically transferred to her savings account. She is given the PGK to use at any ATM of her choice and withdraw money. Further, for ongoing repayments, transactions are captured on a tablet, which talks with Core Banking Software (CBS) on a real-time basis. This approach has helped reduce various types of risks within the core business for the institution. It reduced the hassles for staff on accounts of moving with paper based applications, poor database quality owing to multiple stages of data capture and digitisation, operational risks associated with significant cash in-transit, process deviations, as well as general customer dissatisfaction on account of long processing times. Most importantly, it facilitates fast decision making by supervisors due to easy availability of data and visibility on various stages in the process. e-MFP: Could you give one or two examples of challenges you’ve faced in implementing your initiative, and how you have had to change or adapt your activities as a result? ESAF SFB: The most important challenge was training staff and supporting them in adapting. More than half of our field force are women, most are over 40, poorly educated and with low technological literacy. Making them technology-ready was a herculean task. A well-structured training program was devised to overcome this challenge. Cadres of Regional Managers and Area Managers were first trained to initiate branch level staff into the process change on anvil. Further, branch managers were trained to pass-on the learning and comfort to the front-end cadre of field officers. However, once the transition was implemented, it led to huge disruption in service delivery. Weakness in at least one technology module to handle huge volume also added to the problem. Owing to this, business growth expectations were tampered and for almost three months, not much incremental business was done. The period was utilized to stabilize the new technology initiative and to make the staff comfortable. Business was slowly started and the staff was encouraged to move slowly. Another month into the restart, staff became comfortable enough to regain the tempo. As the technology proved useful in reducing workload on them, the business expanded rapidly in the following months. e-MFP: What are some of the (general or specific) risks that are possible when using technology to serve clients, and what do you think the financial inclusion sector can do to protect those clients or institutions from those risks? ESAF SFB: Some of the risks around use of technology are customer dissatisfaction due to lack of familiarity with technology solutions, newer ways of committing fraud, data abuse, possible exclusions of those who are not very tech-savvy, risk of obsolescence etc. One generic risk around technology is lack of sufficient awareness on using it safely. Our new process entailed depositing funds directly into clients’ savings account and giving them a debit card. This exposed some of them to new risks of unauthorised use of their debit card. In light of this, the bank came up with a list of Do’s and Don’ts to be shared with customers. e-MFP: What are some of your future plans to further utilize technological opportunities in serving your clients? ESAF SFB: Emboldened by success in achieving a large-scale technological transformation, ESAF SFB wishes to continue to assess ways and means to improve customer experience using technology. One of the key bottlenecks facing the inclusive finance ecosystem is heavy reliance on cash at the customer end. In addition to myriad costs, it also adds to abusive practices like being paid less than declared. It may be mitigated in two ways: by establishing a wide network of easily accessible cash transaction points wherein a customer may deposit, withdraw, or transfer very small amounts of funds; and promoting the use of digital money by bringing small shops to accept it as an acceptable alternative to hard cash. The government-initiated UPI payment mechanism is a significant step in this direction, which the Bank will use to push in its operating geographies through popularising its usage on smartphones, printed QR codes etc. The winner of the €100,000 European Microfinance Award 2018 will be announced during the ceremony which takes place on the 15th November in Luxembourg in the framework of European Microfinance Week. For further details on the Award visit the European Microfinance Award website. author: e-MFP

This is the first in a publication series of three interview pieces with the three finalists for the European Microfinance Award on Financial Inclusion through Technology. e-MFP: How is the technology initiative that you presented for the Award particularly innovative? Advans CI: Advans CI’s technology-enabled-services are innovative because the target clients are an underserved segment. There are currently about one million small cocoa farmers in Côte d’Ivoire. 72% of farmers are still below the poverty line and less than 10% have an account at a formal financial institution. Low financial inclusion among farmers leads to several crucial challenges: cooperatives often pay their farmers in cash, creating security problems with a high number of violent robberies and lack of transparency because payments are difficult to trace. Our solution is based on a value chain approach. Advans partners with cooperatives that then help to promote the service to their farmers. This has two main benefits: 1) it prompts farmers to open a personal bank account and receive their crop revenues on this account; and 2) it reduces operational costs: cooperatives build awareness on the benefits of services for farmers. The solution is also designed with client needs in mind: the mobile banking service comes at minimal charge so as to limit the cost for farmers. The digital school loan is specially designed to fit the farmers’ calendar, with the loan being delivered at the start of the school year during the ‘hunger gap’ period but loan instalments paid during the three months of crop revenue. Finally, it enables clients to gain control of their finances: the solution is focused on increasing farmers’ account usage thanks to a full range of tailor-made services; increased financial literacy thanks to dedicated training sessions, and adapted delivery channels. e-MFP: Could you give one or two examples of challenges you’ve faced in implementing your initiative, and how you have had to change or adapt your activities as a result? Advans CI: Financial education is key. Producers are accustomed to being paid in cash and lack trust in financial institutions. 47% of the cocoa producers Advans serves are illiterate, with 21% having left school before the Secondary level. Providing financial education was therefore essential to the delivery of the service and to building trust with the farmers. In 2017, we deployed a network of financial inclusion field agents. Their role is to increase awareness amongst the farmers of the importance of the savings through workshops on the field and the USSD mobile solution, and assist the cooperatives in setting up the digitalisation of part of the cocoa payment flows. Their coaching role is essential in order to increase the success of digital financial services in rural areas. Secondly, we had to give farmers access to cash at low cost. Even if producers are paid electronically, they need to be able to carry out simple cash transactions. As they have limited resources and are reluctant to pay for services, these transactions need to be as low cost as possible. Because producers are remote and dispersed, we had to find a reliable partner to offer these cash services. Since 2014 we have developed a strong partnership with MTN, the MNO providing Mobile Money through a network of 12,000 agents. Advans CI built up a tailored wallet-to-bank and bank-to-wallet transfer service, enabling farmers in remote areas to access these accounts directly from their mobile phones and withdraw or deposit money at the closest MTN Money cash point. We also succeeded in negotiating that the transfers between mobile wallets and Advans accounts should be free for the producers. e-MFP: What are some of the (general or specific) risks that are possible when using technology to serve clients, and what do you think the financial inclusion sector can do to protect those clients or institutions from those risks? Advans CI: One risk is client protection when using digital channels. This includes whether the client understands the service they have signed up for – especially for credit services, with high levels of credit risk for digital credit providers and clients being blacklisted by credit bureaus. Secondly, for clients with low literacy skills, even simple menus can be difficult to use. Finally, because the client-institution contact is mainly digital, the client may not know how to complain about the service or who to turn to if they have a problem. These issues can be addressed by financial institutions properly educating clients on the terms and conditions of the services and their commitments. e-MFP: What are some of your future plans to further utilize technological opportunities in serving your clients? Advans CI: Advans CI aims to capitalise on its experience with the current branchless banking solution in order to continue to increase its outreach and improve the range and quality of services on offer for farmer clients. We’ll look to scale up the digitisation of crop payments for farmers by rolling out the branchless banking solution in other value chains. We’ll also improve the quality of services on offer through the current mobile solution via developing a more extensive range of tailor made products and services for farmers; improving the training of Advans staff and agents and communication tools to ensure that clients are adopting and using services; and further developing alternative delivery channels and digital finance services for farmers to increase proximity and ease of use. The winner of the €100,000 European Microfinance Award 2018 will be announced during the ceremony which takes place on the 15th November in Luxembourg in the framework of European Microfinance Week. For further details on the Award visit the European Microfinance Award website. author: e-MFP

Author: Jeff Ashe. Last year the European Microfinance Award focused on “Encouraging Effective and Inclusive Savings.” Several European Microfinance Week 2020 sessions delved into various aspects of savings, including a plenary on creating an environment for effective and inclusive savings, a session on the needs of VSLAs during COVID-19, and a debate on the role of investors in encouraging savings. This blog by Jeff Ashe is another important entry in this important discussion. It was the summer of 2004. Mamadou Biteye[1] and I met a group of women traders at a market two hours from Bamako, Mali’s capital. Before we made our pitch for Saving for Change, the Savings Group Initiative I directed at Oxfam America, I asked, “Are any of you saving in a tontine.” Their hands shot up. One woman said, “We save money every week and each of us in turn receives her payout.” She described in detail how she organized her tontine as the others listened intently. Another woman chimed in “We save for a year and then divide the money when most of us need it.” Another added, “We save so we can buy what we need to sell wholesale. That way we make a lot more money.” In less than an hour, they described three solutions for saving money in useful amounts adapted to their specific needs. We listened politely, but we already had the answers. Like most of us in the development businesses, we saw ourselves as the experts. I had spent two years evaluating Pact’s Women’s Empowerment program in Nepal, Self Help Groups in India, and Village Savings Lending Associations (VSLAs) in Zimbabwe. My team and I had spent incalculable hours poring over the operating manuals and systems and creating the Saving for Change model. What else was there to learn? Saving for Change in Mali was a success; 425,000 of some of the world’s poorest women were organized in into 20,000 groups by the staff of our NGO partners. [2] Based on Mali’s success, we later replicated SfC in Senegal, Cambodia, El Salvador, and Guatemala. Nevertheless, what those women said about their tontines at that market years earlier haunted me. What could Saving for Change have achieved, I thought, if instead of introducing OUR model, we learned more about how THEIR informal groups worked? What if, instead of training teams of local university graduates to organize SfC groups in villages, we asked the tontine leaders how THEY would advance the expansion of quality savings circles in their villages with a focus on the poorest? They (we call them the “community geniuses”) would receive a small stipend to train more tontines in their own and neighboring communities. They would also set up committees to better channel some of the remittances sent to into these villages to fund savings circles, build local businesses, improve infrastructure, and help the destitute. Unlike the university-trained staff, these tontine organizers (most of them women), live in the villages, speak the local language, are known and respected in their villages, and can walk, or ride on the back of a motorcycle, to travel to nearby villages to train more groups. How they organize their tontines and ensure accountability has been honed over generations, but is constantly evolving. Tontines are incorporating VSLA concepts into their groups and using WhatsApp to keep records, all without outside support. Given that millions of Mali’s twenty million inhabitants are already part of savings circles (many times the number of SfC group members,) and that many thousands (most of them women) are already organizing tontines, we would have an inexhaustible number of candidates to choose from. And, since they lived in these villages, they could continue their work indefinitely as the groups they trained paid them for the help they received. Instead of promoting our model, the task of the local staff would be to identify tontine organizers with the strongest groups and a passion for helping their community. Each cluster of 25 or so community geniuses who lived in the region would be responsible for approximately 100 villages. They would meet at least monthly, either virtually through their cell phones or in person, to share their experiences, and set goals for the next month, all with a focus on reaching those who were not part of a tontine or did not save at all. We would listen, ask questions, learn, and monitor and evaluate the outcomes. The best of these “geniuses” could share what they learned with newly emerging clusters of geniuses in nearby communities. Furthermore, villagers who were leaders of Saving for Change groups could share that methodology or develop a SfC/tontine hybrid that better met their needs. All this would require a bit of external funding, but a fraction of what it cost to train savings groups – VSLA, SILC, Saving for Change, etc. What if a small amount of the grants that promote institutional financial inclusion – banks, MFIs and digital finance - were spent on strengthening informal financial institutions, tontines, tandas, susus, dhikutis (every country has its own name)? One hundred million dollars per year over ten years would provide 100 million of the world’s poorest a place to save and have regular access to a useful lump of money and to be part of a group that would stand by them in time of crisis, a kind of “virtual insurance” policy. Their capacity to manage their finances would be greatly enhanced without necessarily a connection to a financial institution, while reaching a population virtually untouched by institutional financial inclusion. The estimated cost would be about $10 per group member. “Proof of concept” funding could enable practitioners to test these ideas immediately. If this sounds expensive, consider that every year billions of grant money and much more from investors is poured into MFIs, banks, and mobile money providers. MFIs, and certainly banks, do not serve the truly poor, too many of the much ballyhooed savings accounts aren’t used, and mobile money is used mostly for sending money home. Online lending is too often expensive and can push users into a cycle of debt. To be fair, these institutional strategies are often useful, but it is time to look for saving and borrowing alternatives beyond financial institutions. Most help, whether from governments, non-profits, or foundations, assumes that resource-constrained communities are somehow deficient in their capacity to solve problems, even though these communities have survived famine, war, drought and flooding for many generations without outside support. Grassroots Finance Action embraces the mantra, “They already have the answers, just ask.” What if practitioners stopped what they were doing for a few days, ask questions of the tontine organizers as Mamadou and I did years earlier? They would be amazed what they would learn. About the Author: Jeffrey Ashe is Chair, Grassroots Finance Action and Adjunct Associate Professor, Columbia University. Jeff was the Director of Community Finance for Oxfam America between 2004 and 2013. He was a microcredit pioneer at Accion International, led the first study of microcredit funded by USAID (the PISCES project) and designed and evaluated peer lending MFIs in 34 countries. In the USA he launched Working Capital with operations throughout six states. Jeff started learning about savings groups in 2000 and he and his students started studying ROSCAS in 2017. https://mangotree.org/Resource/How-to-Achieve-the-American-Dream-on-an-Immigrants-Income. He teaches Finance for the World’s Poorest at Columbia University. For more information contact jeffaashe@gmail.com [1] Mamadou Biteye was Oxfam West Africa’s Senior Program Officer at that time. He later became the West Africa Director for Oxfam Great Britain and then worked for the Rockefeller Foundation. [2] Ashe, Jeffrey with Kyla Neilan. “In Their Own Hands: How Savings Groups Are Revolutionizing Development.” Barrett-Koehler Publishers, San Francisco. For a free electronic copy contact me at jeffaashe@gmail.com.

About the Author: Rob Kaanen. The COVID-19 pandemic is the latest crisis that is putting pressure on financial service providers (FSPs) globally. Lockdowns and regulatory moratoriums on loan repayments, together with a lower business activity are putting serious constraints on FSP’s liquidity positions. Early in the Covid pandemic, there was widespread concern that liquidity constraints could wipe out many of the financial institutions that serve low-income customers and small- and medium sized enterprises. Improved liquidity position allows financial service providers to focus on pandemic recovery Two recent reports issued by CFI/e-MFP and CGAP point to the vital importance of managing liquidity in the midst of a crisis. As the CFI/e-MFP report puts it: After all, the quickest path to failure of an FSP is running out of cash. Available liquidity should be used to retain the confidence and trust of both customers and creditors while continuing to operate and paying staff. Once stability is achieved, an FSP can start its recovery, but this cannot be achieved without retaining the confidence of customers, investors, staff, and the regulator. Evidence of successful crisis response Scale2Save is a partnership between WSBI and the Mastercard Foundation to establish the viability of small-scale savings in six African countries. To analyse the impact of the Covid crisis on the liquidity profile of our partner FSPs, we compared the pre-crisis liquidity position at end of year 2019 with that at end of 2020 when a cautious and gradual recovery of the Covid pandemic had set in. Across our programme partners, we collected liquidity gap reports from four banks and three deposit taking microfinance institutions in four countries: Ivory Coast, Nigeria, Morocco, and Uganda. Liquidity risk arises from both the difference between the size of positions of assets and liabilities and the mismatch in their maturities. When the maturity of assets and liabilities differ, an FSP might experience a shortage of cash and therefore a liquidity gap. A liquidity gap report profiles assets and liabilities into relevant maturity groupings based on contractual maturity dates and is an important tool in monitoring overall liquidity risk exposure. A liquidity gap report is a standard disclosure included in audited financial statements of our project partner institutions. Increased customer deposit balances All partner financial institutions increased their customer deposit volume at the end of 2020 compared to pre-Covid crisis level. Perhaps more importantly, they also mostly managed to increase the proportion of customer deposit funding as part of total liabilities, as seen in the graph below. The partner banks seem to have been more successful in increasing deposit volume compared to microfinance institutions. However, caution needs to be taken in generalising this conclusion as country and institution specific factors are also at play. Lower dependency on borrowed funds International creditors have been very supportive to banks and microfinance institutions during the Covid crisis, granting waivers for breaches of loan covenants, providing for temporary suspensions of interest and loan repayments, restructuring of loan terms and new financing. However, given the ample liquidity available from customer funding and the higher cost associated with international borrowings and debt issuance, most partner institutions chose to run-off these borrowings during 2020 lowering the proportion of borrowings in the funding mix. The average maturity of outstanding debt dropped as a result, as the following graph reveals. Improved liquidity profile The maturity of customer loans and advances increased during the crisis due to loan moratoriums and the related rescheduling and restructuring. The loan maturity loan terms of all partner FSPs extended, with one example of a 216% increase, seen below, in the case of an institution which generally has extremely short loan maturities. On the liability side, contractual maturities of funding decreased for all partner FSPs, except one. This was mainly the result of international borrowings that expired or that were not rolled over. When considered from the perspective of contractual maturities, the combination of lengthening loan terms and shorter funding maturities would suggest a worsening of the structural liquidity position of an FSP. However, the anticipated maturity of retail customer current accounts, security and savings deposits is often much longer than their contractual maturity, when taking into account the behavioural characteristics of a large and diversified pool of individual accounts that exhibit “stickiness”. Only a proportion of these retail customer balances will be drawn down on contractual maturity date and the entire pool provides a more stable, long-term source of funding. This point can be illustrated with reference to the international liquidity standards issued by the Basel Committee on Banking Supervision for the calculation of expected cash outflows for two key liquidity risk indicators, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The Basel standards assume that between 3% and 10% of retail deposits[1] would actually run-off over the next 30 days under an adverse liquidity scenario. The corollary of this is that 90-97% of retail deposit funding can be considered to be stable in nature and of longer duration. As short-term customer account funding (<30days) of our partner institutions make up a significant proportion of the total customer funding (between 30% and 90%), a large part of these funds can therefore be considered as “core” and provide a stable funding base to compensate for the extended loan maturities from Covid impacted loan rescheduling. The Basel global liquidity standards are meant as guidance and FSPs operating in less developed markets and more volatile environments may experience higher deposit run-off rates in case of liquidity stress. Nevertheless, a significant proportion of our partners’ customer account and savings balances can be considered as stable. Institutional resilience in face of the COVID crisis At the outset of the Covid crisis, our partner institutions invoked their pandemic crisis management plan and took protective measures for customers and staff to prevent infection and transmission. Partner institutions granted credit relief to borrowers in the form of loan moratoriums in line with regulatory forbearance measures. Digital access to customer accounts was stepped up, so customers could meet household consumption expenditure during the lockdown. Our partners have withstood the liquidity stress induced by the Covid crisis and successfully retained the confidence of customers and investors. With a cautious and gradual recovery from the Covid pandemic underway, FSPs can now focus on recovery steps higher up the hierarchy of financial institutions crisis management needs. These needs were described in the CFI/e-MFP report in the following order of priority: liquidity, confidence, portfolio and capital. (Diagram reproduced with permission from the “Weathering the Storm II – Tales of Survival from Microfinance Crises Past” report published by Center for Financial Inclusion and The European Microfinance Platform,) With stability restored, FSPs can now shift their recovery efforts to managing the loan portfolio by balancing collections of overdue loans with the need to continue lending to reliable low-income customers and small- and medium-sized enterprises and maintaining capital adequacy levels when Covid-related regulatory forbearance measures will expire. Through surveys and case studies the Scale2Save programme continues to investigate the driving factors that influence the different outcomes of Covid crisis management. About the Author: Rob Kaanen is a consultant at the Scale2Save programme, a partnership between the World Savings and Retail Banking Institute (WSBI) and the Mastercard Foundation working for financial inclusion in six African countries. [1] The 3% minimum norm would apply in the case of retail account balances covered by deposit insurance schemes to 10% in the case of high value deposits, foreign currency deposits or deposits that can be withdrawn quickly online.

Authors: Johan Bastiaensen and Frédéric Huybrechs. Over the last decade, one of the key rising topics in microfinance has been the sector’s response to environmental challenges, and this will continue to take centre stage. In the recently released Financial Inclusion Compass 2019 , ‘Climate Change Adaptation and Mitigation’ is only second to Agri-finance in the New Areas of Focus Index, which asks respondents across the sector to look 5-10 years ahead. In recognition of these rising environmental concerns, the European Microfinance Award 2019 sought to highlight outstanding innovations in Strengthening Resilience to Climate Change .  The last press release of European Microfinance Week, and the keynote address from the Award ceremony  also called for urgent action  on climate change. In this blogpost, we reflect on this timely call for action and question how transformative the financial inclusion sector is when it comes to responding to climate change. We do this on the basis of our past research on this topic and build on some of the messages put forward during the European Microfinance Award 2019 Ceremony. What type of action? The profound urgency of the climate crisis begs serious thought about the spending of climate-related international donor and investment funds. We absolutely agree with Dr. Hoyer, President of the European Investment Bank in his introduction to the Award Ceremony that climate change “is an existential threat for many nations and communities” and that “(h)ow we combat [this] and adapt will shape our future.” We also believe however that, in line with the widely shared consensus in the Transformation to Sustainability literature, such action requires profound structural transformation , and not business as usual with some green corrections . In this sense, we argue that, for finance to be a meaningful lever of change, it should be used to sponsor transformative pathways out of the upcoming climate crisis, rather than focusing mainly on valuable but ultimately insufficient band-aids to help some adapt to the worst of its consequences. Rural and agricultural MFIs in particular could play an important role in the transformation and restoration of the socially distorted and ecologically disastrous agricultural model.   We find support for this line of argument in the strong keynote speech delivered at the award ceremony by the Indian scholar and environmental activist, Sunita Narain . It was a passionate call for urgent efforts to address climate change: Climate change is real and is now widely accepted as a fact, but few people seem to understand what it actually means. It is not a gradual linear change with increasing consequences, but rather a catastrophic and abrupt deterioration that will affect everyone on the planet, especially once we irreversibly cross critical tipping-points . She stressed that we must not cultivate the illusion of merely adapting  to climate change, but must act quickly towards a paradigmatic transformation of our current destructive, unsustainable productive activities and lifestyles. Narain argued that those who risk being affected first, and most (the poor in the global South – especially rural workers and farmers) paradoxically also hold a key to restoration. The activation and strengthening of their diversified farming systems could indeed contribute to capture millions of tons of carbon, through capture by reforestation and rejuvenated soils , while also transforming socially unsustainable rural societies towards increased equity and livelihood security.   Reframing Climate Change towards structural transformation This argument of what type of action is required to address pressing issues of climate change also extends to the interpretation of what it means to ‘strengthen resilience’ to climate change – the choices that are made and the actions taken. At the moment, it seems that many of the microfinance-related initiatives that pursue this goal of strengthening resilience predominantly focus on adaptation, damage control and technical responses, rather than more proactively engaging with a structural transformation of productive and consumer frameworks. This was also partly reflected in the finalists of the European Microfinance Award.   The insurance company APA-Kenya presented an index-based crop and livestock insurance of the insurance company (sharing the climate risk). ASKI-Philippines  provides an articulated package of disaster-related services to increase client preparedness and post-disaster resilience, in particular related to the ever more frequent and severe typhoons. The third finalist was our Nicaraguan academic partner institution Fondo de Desarrollo Local (FDL)/Nitlapan-UCA. They presented their ‘green microfinance plus’ strategy, which combines the provision of financial and non-financial services to smallholders to support mitigation and adaptation in coffee and cattle regions.   In the end, the High Jury awarded the first place to the innovative index-based crop and livestock insurance initiative of APA which addresses the consequences of extreme weather events and pests. In itself, this initiative certainly constitutes a valuable financial instrument that can soften the impact of climate events on vulnerable small farmers in regions such as drought-prone North Kenya. We do not question the quality of the winners’ initiative as a financial instrument per se , nor do we want to downplay the lived and pressing concerns that their micro-insurance products aim to address. Nevertheless, and in light of our concerns about the more systemic and transformative way in which pressing social-environmental concerns should be addressed, we question the possible message sent out by selecting APA as the winner for ‘Strengthening Resilience to Climate change’. Does micro-insurance by itself point in the direction of the structural changes required by the current climate emergency? We would rather argue that such a financial instrument falls short of the type of action that is most needed, building resilience paying attention to mitigating vulnerabilities in a more systemic way.   Lessons from the past The current predominance of technical and reactive measures to strengthen resilience to climate change matches well with the dominant agenda of financial inclusion, focused on bringing the financially excluded into the realm of the global financial system. In this sense, the way in which environmental considerations are taken into account appears to be in line with the current reduced social ambitions of financial inclusion, i.e. to help the poor to manage their vulnerability rather than to strive for the initial (and now largely discredited) promise to eradicate poverty, a promise which prompted the international donor community to invest billions of dollars in the creation of the microfinance industry. We – and the planet – cannot afford a repetition of this experience.   The reason why we endorsed the candidature of FDL/Nitlapan UCA was because we believe it presented an initiative which moves more directly in the direction of transformative peasant-based on-farm reforestation and soil restoration, with the intention to address broader processes of social and economic exclusion. In their application, they presented their historical efforts to support and strengthen peasant production systems through an integrated Microfinance Plus package (including credit, technical assistance, and payments for improvements in ecosystem services). This approach is 80% self-financed from profits and partially subsidised by development assistance and innovative Payments for Ecosystem Services programs such as Proyecto CAMBio . For the Award, FDL argued that its support for diversified peasant-based production systems contributed to both the resilience of the clients and  the ecosystems, i.e. to the restoration of local ecosystems through agroforestry and forest-pasture cattle systems, and to the mitigation of planetary GHG-emissions by putting carbon back in soils and trees, as well as contributing to local biodiversity.   As they recognize themselves, the initiatives of FDL/Nitlapan UCA are neither perfect nor fully effective. But we believe that this emerging Green Microfinance Plus approach can inspire a more ambitious contribution to the required ‘paradigmatic’ transformation and human-nature restoration. It is this belief that underlies our motivation to submit this blog: we wish to draw attention to what FDL’s approach offers in terms of the urgent action needed on climate change by the broader microfinance sector.   Necessary alliances As we have discussed in previous research about FDL’s initiatives , microfinance alone cannot and should not pretend to make the difference by itself. Indeed, ‘microfinance narcissism’ needs to be overcome in order to combine finance with additional services and resources. These could include, for example, educational, technical, business, legal issues, as well as targeted subsidies and payments for ecosystem services, enabled and sustained by sufficiently broad political coalitions and partnerships engaging in a real and co-created transformation of (agricultural) production and a restoration of nature. Here also lies a crucial key to remedying microfinance’s historical deficit in terms of outreach to the agricultural sector – a precondition for the sector to play a significant role in the urgent transformative action needed for the climate.   Through our ongoing Truepath  research project we are trying to achieve progress in articulating and strengthening actor-coalitions, linked to FDL/Nitlapan-UCA’s financial and non-financial service delivery, with the intent to really contribute to a transformation of the destructive development pathways in the Nicaraguan Agrarian Frontier. Currently, this region is characterised by intense deforestation and encroachment of indigenous territories by extensive cattle ranching, while also being the target area of a new international REDD+ initiative . Similar initiatives should be researched elsewhere in order to generate experience and knowledge for the scaling-up and scaling-out of more transformative microfinance.   No more “business as usual” We hope that this post can inspire further action and reflection on the role that microfinance can and should play in light of this urgent action needed, with important considerations for social and environmental justice. We hope that the microfinance industry chooses to participate in the urgently needed transformative partnerships and finds ways to mobilise its own as well as additional, complementary funds and networks in order to make a more ambitious and transformative contribution. In the face of the emergency, we hope that it does not solely focus on financial opportunities but looks for ways to contribute to the structural changes that are needed. Merely seeking to make the climate disaster more manageable will not be enough.     Declaration of Interest As academics of the University of Antwerp, we have been partnering with the Fondo de Desarrollo Local/Nitlapan-UCA group (in particular with the research division of Nitlapan-UCA) to investigate the opportunities and pitfalls of FDL and microfinance in the transformation to social and environmental sustainability.  As independent researchers we do not speak for the FDL/Nitlapan-UCA. Frédéric Huybrechs was part of the Selection Committee of the European Microfinance Award 2019. All Selection Committee members sign a Conflict of Interest and Confidentiality Declaration when they join the Selection Committee.  If a member has a conflict of interest with an institution, s/he is recused from evaluating, voting or speaking on it.

Author: Sunita Narain. On 21st November 2018, at the European Microfinance Award ceremony at the EIB, European Microfinance Week attendees heard a chilling, impassioned and deeply concerning keynote address by Sunita Narain, Director General at India’s Centre for Science and editor of Down to Earth  magazine . We thought this address deserved an even broader audience, so with Sunita’s permission, we are publishing her keynote here in its entirety as a guest blog.    Forgive me when I say that climate change, it would seem, could not happen at a worse time in human history. It is clear that things are now spiraling out of control. Every year we are told is the hottest year, till the next year comes around. Then a new record is broken. It is getting worse. From forest fires, to increasing frequency and intensity of storms, to blistering cold waves and spiraling heat.  We know something is wrong. Very wrong. But we are so distracted – from trade wars, to Brexit, to immigration, to economic crisis and skirmishes that are raging across our countries – that climate change is not a priority. We simply don’t seem to have the bandwidth to handle it.   But we must. The fact is climate change is real; it is happening, and it is making the poor in our world, more marginalized. The farmers, pastoralists and all the others who work the land, use the water and make a livelihood, are the worst impacted. They are the victims of climate change. The poor in the world have not contributed to the making of the problem. But let’s be clear, their pain will make our world more insecure. And this is only going to get worse. This is why we need to act and act now.   Why do I say this? Take what is happening in terms of extreme rain events in vast parts of the world. In India, this monsoon, rain has been a curse, not the boon it always is. It has come down in torrents – regions have received 1000-3000 percent excess rain in a few hours. It has meant that rain has submerged vast lands; destroyed homes and livelihoods. But what is worse is that flood becomes a drought within no time. This is because the heavy rain cannot be captured; cannot be recharged; and so, there is drought at the time of flood.     Each of these now, not so natural calamities, take away the development dividend that governments work so hard to secure. Houses and other personal belongings are washed away; roads and infrastructure destroyed, and all then has to be rebuilt. It is also clear that the flood or the drought, is not just about climate change or changing weather patterns. The fact is drought is about the mismanagement of water resources; where not enough rain is being recharged or water is used inefficiently and inequitably. Flood is about the sheer inability to plan for drainage; for our lack of concern to protect the forests on watersheds or the near criminal act of building and destroying the flood plains. The weird weather comes on top of the already mismanaged land and impoverished polity. It is like the last straw on the camel’s back.   I call this the double-whammy. High temperatures are only adding to the already heat and water stressed lands. Lack of green cover, increases desertification conditions; over-withdrawal of groundwater and poor irrigation practices degrades land. Then there is the over-intensification of land, largely because of the way we are doing agriculture – what we are eating. And how we are growing, indeed manufacturing what we eat.   The 2019, IPCC report on climate change and land, rightly indicts modern agricultural practices for being over-chemicalised and over-industrialised and so adding to greenhouse gas emissions. The report has also called for changes in diets, which will make us tread lightly on earth. Our food and our climate change footprint is now connected.   The fact is that we are only just beginning to see the impacts of climate change. These will become even more deadly as temperatures continue to spiral and this spiral gets out of hand. It is also clear that today the poor in the world are the victims of this ‘manmade’ disaster – local or global. Rich do not die in sandstorms. The rich do not lose their livelihoods when the next cyclonic system hits. But the fact is that this weird weather is a portend of what awaits us. The change is not linear—it is not predictable. It will come as a shock and we will not be prepared for it – rich in developing world or the developed world. Climate change at the end will be an equalizer – it will impact all.   It is also clear that increasing numbers of disasters because of growing intensity and frequency of weird and abnormal weather will make the poor, poorer. Their impoverishment and marginalization will add to their desperation to move away from their lands and to seek alternative livelihoods. Their only choice will be to migrate – move to the city; move to another country. The double-jeopardy, as I have called it, in the interconnected world is the push – lack of option – to the pull – bright lights that suggest a choice to better futures. This will add to the already volatile situation of boat people and walls and migrant counting, which is making our world insecure and violent. This is the cycle of destructive change that we must fight. Our globalized world isinter-connected and inter-dependent. It is something we must recognize.   This is where the opportunity exists. If we can improve our management of land and water, we can shave off the worst impacts of climate change. We can build wealth for the poorest and improve livelihoods. And, by doing this, we mitigate greenhouse gases, as growing trees sequester carbon dioxide; improving soil health captures carbon dioxide and most importantly, changes practices of agriculture and diets reduces emissions of greenhouse gases. This is where the real answer is.   So, we have to invest in the economies of the poor; we have to build their capacities so that they can, not just withstand the next calamity, but indeed overcome the calamity. For this, we must invest in creating ecological assets – from rainwater harvesting to better food systems that are resilient. We must also redefine what we mean by resilience – often high-input agricultural systems are productive, but less resilient. Farmers are more vulnerable to shocks when their debts are high. We need, therefore, to understand the strength of small-holder agricultural systems that are multi-crop, low-input and built for shocks. We must strengthen those and not replace them with ours. The knowledge of the poor is not poor. They are illiterate but very resource literate. Our effort must be to learn and to give.   But at the end, I would like to saywith absolute conviction that the poor or the rich cannot ‘adapt’ to increasing temperatures – the scale of the devastation will be enormous and catastrophic. So, even as we build and invest in businesses with a difference, we must take stronger action to curtail greenhouse gas emissions. As yet the world is doing too little, too late. This must change. For all our sakes. Thank you.

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. In this sense, says report author and e-MFP Financial Inclusion Specialist Sam Mendelson, the Compass is a “not a crystal ball as much as it is a ‘time capsule’ – freezing in time what people working in inclusive finance see as important in the years ahead, so the sector can go back from year to year and see where it was wrong, and where it was right”. The survey behind the Compass was conducted over the summer and was mixed-methodology, asking for scoring of particular trends, their importance and direction of progress, and ratings of selected future Areas of Focus. Finally, respondents were asked to give comments on a series of questions that looked at challenges, opportunities, medium-term forecasts, the relevant financial service providers of the future, a policy-making ‘wish list’, and longer-term hopes. 77 complete responses were received. A majority is based in European countries, and a plurality mainly focuses on Sub-Saharan Africa – with the rest spread among a global focus, South Asia and East Asia Pacific; MENA, Europe and Central Asia; and the Americas. A plurality of respondents works for a financial services provider, with consultants and support providers, funders, industry infrastructure organisations and academics or researchers making up most of the rest. There are various interesting results in the paper – both quantitative and qualitative. But the first question, asking respondents to score and comment on the importance of selected trends, yielded an interesting Top Five – illustrated in Figure 1. The scores – and the full list of trends – can be seen in Figure 2. In New Areas of Focus, Figure 3 shows that Agri-finance was the dominant choice, with over 75 percent of respondents choosing it as one of their top five options, and it made up 18 percent of all the votes cast among the 14 options – 50 percent more than the second-highest choice. After Agri-finance, SME finance, Climate Change Adaptation/Mitigation, Housing Microfinance and Energy all scored highly. Some areas scored extremely low, including Finance for the Elderly, Fair Trade, and education. Figure 3 New Areas of Focus Ranked Various themes emerged from the research, including: The FinTech revolution is a potential threat to end-clients and the sector overall, but is likewise an opportunity – for clients and for providers alike. These include reduced operational costs that can be passed on to clients, better communication, greater outreach, opportunities in education, and innovations in risk assessment. Client protection is seen as very important at the moment, and technology is the area most moving in the ‘right’ direction. Agri-finance is the area in which financial inclusion can cause, or respond to, the most significant developments. SME Finance, Climate Change, Housing and Energy finance are all areas that face disruption and innovation. Client protection, privacy, ensuring the value proposition of financial inclusion services, and preventing an erosion of the social focus of financial inclusion via a ‘race to the bottom’ in the face of new entrants, are all major challenges. The financial service providers of the medium- term future will primarily be a mix of cooperatives, NGOs and local commercial banks. There is room for a range of providers, and no single model will triumph. Improvement in quality and affordable (and perhaps mandatory) financial education is arguably the most important policy development that respondents would choose to implement if given the chance. In the longer term, there is a strong hope for universal financial inclusion within a sector that maintains client-centricity and social mission – keeping an eye on the rationale for, and unique responsibilities inherent in, serving low-income customers. The Platform’s hope is that the Compass will be a valuable teaching tool, and as it becomes an annual publication, will give useful insight into how perceptions change over time, and how the past can inform predictions of the future. Download the report here author: e-MFP

This post was originally published on MicroCapital Cambodia Microfinance Association (CMA), Incofin, MIMOSA, the Credit Bureau of Cambodia, and several other stakeholders have been developing the CMA Lending Guidelines, under which microfinance institutions (MFIs) are working together to prevent over-indebtedness in Cambodia. The project is funded by Incofin, PROPARCO, BIO, FMO and ADA. MicroCapital: How long have you been concerned about possible overheating in the Cambodian microfinance market? Kea Borann: Concerns of the market overheating started at least as early as 2015. Since then, the total outstanding portfolio of the industry has been growing at an average of 25 percent per year, even as the number of loans has remained unchanged at 2.3 million. This seems to mean that the same clients are taking on more debt when their loans are renewed. The average loan size grew from USD 1,691 to USD 3,003. Dina Pons: This phenomenon is coupled with another: While most loans had a tenor of 12 to 24 months in the past, we now see loan maturity as high as four or even five years. MC: What metrics do the Lending Guidelines measure? Daniel Rozas: It’s a mix of traditional indicators for measuring over-indebtedness, such as multiple borrowing and loan-to-income ratios, but we’ve also added metrics for measuring loan refinancing, that is to say taking out new (and usually larger) loans to refinance existing loans that have not yet matured. MC: What obstacles did you overcome to bring the partners together? DP: The first obstacle is related to differences of opinion on risk levels. Contrary to overheating microfinance markets in other parts of the world, Cambodia does not have high levels of multiple borrowing. Instead, it has a fast increase of average loan size vs GDP per capita. This is coupled with a noticeable increase of loan tenor. Some argue that the country’s annual GDP growth of 7 percent justifies extending the maturity of a loan in order to inject more cash into a business if the monthly installment remains the same. On the contrary, defenders of the Lending Guidelines argue that credit risk increases if the time required to repay a loan exceeds the time required to create the income required to repay the loan. Meanwhile, self-regulatory measures are very hard to implement because they are based on willingness to comply. While many MFIs understand the value of the Lending Guidelines, some fear that non-endorsing competitors will take advantage of the situation to grab market share in pursuit of short-term profits. MC: How are MFIs adjusting their processes to stay within the guidelines? KB: MFIs that have endorsed the Lending Guidelines are adapting their credit underwriting policies and enhancing their risk management practices. They are also putting more emphasis on helping their staff communicate better with clients about the risks of taking on too much debt, especially with longer tenors. In support of this, CMA has pro­duced a range of educational videos and press releases. The association has also has done a lot of advocacy with industry stakeholders to build their support for the Lending Guidelines. MC: What is the reaction from investors and regulators? DP: Both the National Bank of Cambodia (NBC) and the investor community – more than 24 microfinance investment vehicles and development finance institutions – have been very supportive of this initiative. When the Lending Guidelines were formally unveiled in December 2016, NBC and several lenders made public statements calling on MFIs to adopt them. Today, the Credit Bureau of Cambodia issues each MFI a monthly “dashboard” that shows its level of compliance with the key metrics of the Lending Guidelines. These dashboards are sent to NBC, and they are also used by a growing number of investors when conducting monitoring visits and discussing funding rollovers and increases. MC: What are the next steps? DR: In the near term, we’re focused on tightening monitoring to minimize the room for MFIs to “game” the system through practices that meet the technical requirements of the metrics, even as they violate the spirit of the Lending Guidelines. This is an inevitable part of performance metrics; whichever way you define them, clever individuals will try to find a way around them. In the longer term, we expect to expand the Lending Guidelines to cover other relevant lending practices, as well as bring outside parties – including commercial banks – into the framework. We also hope that NBC can play a more proactive role in helping “call out” financial services providers that are flouting the Lending Guidelines and putting clients at risk. This is critical to insuring that the Lending Guidelines remain a meaningful force in Cambodia over the long term. Kea Borann is Board Chair of the Cambodia Microfinance Association and the CEO of microfinance institution AMK. Dina Pons serves as the regional director for East Asia as well as impact manager for Incofin. Daniel Rozas is the co-founder of MIMOSA and Senior Microfinance Expert at e-MFP. Representatives of all three organizations will discuss the Lending Guidelines in much greater detail at European Microfinance Week. Photo: Brett Matthews author: MicroCapital team

First published in the 2018 Microfinance Barometer which e-MFP is proud to partner. Since the dawn of the commercialization of microfinance nearly two decades ago, investment in microfinance has been made on a widely-accepted premise: investors will receive a ‘market rate’ financial return, while pursuing a socially-motivated strategy. This premise is so widespread that it has taken on the allure of all groupthink – becoming an accepted truism, without necessarily being true. The double-bottom line – the equal focus on financial and social return – can be deceptive. The dilemma is that while financial return has a clear target, social return is more nebulous. What social return is really being promised? Is serving a certain segment of clients enough? Do additional products need to be offered? What about financial education? There are cases that call for difficult decisions and real choices. Consider: many social investors measure impact by the amount of money invested, even though their funds may often stand in competition with locally-raised deposits, which themselves are at least as socially beneficial as credit. By undermining their investee’s incentives to raise local deposits, well-meaning investment may lead to reduced – and even negative – social returns. Or consider interest rates. Large loans tend to have lower rates than small loans, often while generating higher profits. So an MFI that moves upmarket to serve wealthier customers will appear to deliver both higher financial return (bigger profits) and social return (lower interest rates). But this is specious: the ‘double’ return is achieved by shifting away from Bottom of the Pyramid population, the precise target population that the institution was set up to serve in the first place. A simplistic retort is to invert things – that only when investors are willing to lower their financial return targets can they be reassured of having achieved positive social return. This, too, is wrong. There are countless examples where even well-intended charity causes more harm than good. Picking the high-hanging fruit The truth is that ensuring social return is difficult. Delivering a true double bottom line is possible, but requires dealing with the complex uncertainties hidden behind that nebulous social return. What social mission is the institution trying to pursue, and is it actually succeeding in doing so? Who are its clients? Are the institution’s services truly offering what’s needed, and is the institution effective at separating cases where it does good, from those where it actually does nothing, and even causes harm? Despite these difficulties, recent efforts to analyse and evaluate the complexity of the double bottom line are encouraging. Unsurprisingly given its dual mission, the microfinance sector has in fact been at the forefront of developing real-world social return metrics, encapsulated by the work of the Social Performance Task Force’s SPI4 tool. Such tools have contributed to the emergence of a class of committed social investors that recognizes the true complexity and necessity of the double bottom line and has invested in and focused on measuring not only financial but also social ‘profitability’ in an empirical manner. The outcome of these efforts has been to show that financial and social returns can be complementary and mutually beneficial. Increased focus on Social Performance Management (SPM) can improve efficiencies, allow for lower margins, reduce staff turnover and deepen the organization’s understanding of its clients’ needs, giving it a competitive advantage that is difficult to duplicate. This can then support higher financial profitability. Meanwhile, a strong social focus may lead investors to new markets that others assume unprofitable. In many ways, a strong SPM focus is reminiscent of the 1950s-60s Japanese manufacturing revolution pioneered by W. Edwards Deming: investing in a metrics-driven system can yield long-lasting returns, in this case, both social and financial. Humility and incentives: Understanding why social impact matters Above all, social responsibility requires humility. Setting the goal of “outreach” without recognizing market capacity and realistic limits can lead to an excess of even well-designed products. Credit in particular has this risk: too much credit is often worse than no credit at all. Humility also comprises willingness to think about demand-driven and not just ‘we-know-best’ supply-driven solutions. But doing that requires serious, long-term investment in SPM capabilities that only committed social investors are willing to make. Beyond humility, from a behavioural perspective it is the incentives that matter. Investors that believe in an illusory automatic link between financial profitability and social impact are more likely to take social impact for granted. This pernicious syllogism – a. I am funding microfinance; b. microfinance is Good; therefore c. I am doing Good – has dominated the narrative since the industry’s beginning. But in reality, the experience of MFIs around the world shows that financial profitability is the easier threshold to clear; it is the Doing Good that is much the harder part. Ensuring social impact demands investment, attention, monitoring and evaluation and – sometimes – tradeoffs in financial return. That being said, the very fact the question is asked – not just in the Barometer, but in boardrooms industry-wide – illustrates how far we have come. Check out the other Microfinance Barometer articles here author: Daniel Rozas - Sam Mendelson

Atlas of Sustainable Development Goals is an even more massive endeavour, drawing on the Bank’s World Development Indicators (WDIs), a database of over 1,400 indicators for more than 220 economies, many going back over 50 years. The ‘SDG’s in the title are of course the Sustainable Development Goals - the post-2015 follow up to the Millennium Development Goals that served as the target-based development architecture for the past decade or so. The SDGs provide a variety of targets across different areas of human development to be achieved by 2030. This is the UN General Assembly-adopted “2030 Agenda for Sustainable Development”, which extends the MDGs but also makes key adjustments, incentivising collective action by all countries. There are 17 goals that make up the (often criticised) SDGs. It’s been widely observed that the delicate and lengthy process of negotiation and compromise that produced the SDGs ended up with no SDG that specifically addresses financial inclusion. Nevertheless, the explanatory materials that support the 17 SDGs (and their many sub-components) clearly acknowledge that greater access to financial services is a key enabler for many of them. How does FI fit within the SDGs? The role of financial inclusion in the SDGs is clear. Five of the 17 Goals mention financial inclusion, including No Poverty (SDG1), Zero Hunger (SDG2), Good Health and Well-Being (SDG3), Gender Equality (SDG5), and Decent Work and Economic Growth (SDG8). Financial inclusion can be the key tool that is uniquely effective in mitigating poverty, hunger, gender inequality, lack of access to education, and the like. Account ownership promotes gender equality. Agri-finance promotes investment in planting, technology and transportation that drives yields and security. Microinsurance protects vulnerable people from health shocks. Housing microfinance affects, well, probably everything. So financial inclusion is embedded into the SDGs. What does the latest SDG Atlas, within its vast array of development indicators and data sets, have to say about the progress being made in inclusion? Financial Inclusion in the SDG Atlas The Global Findex is a unique (if limited) repository of country-level, survey-based financial inclusion data. The SDG Atlas is complementary to this resource, drawing its findings from the WDIs – the primary World Bank collection of development indicators, compiled from officially recognised international sources. Updated quarterly, it claims to present the most current and accurate global development data available, and includes national, regional and global estimates. The 2018 Atlas uses two primary methods for classifying and aggregating countries and economies, by income and by region. Like with the Findex, the picture is mixed. We’ll look at a handful of selected SDG ‘targets’ that touch on financial inclusion. Access to finance for health care – savings, credit and in particular insurance – is a critical and growing part of the inclusion landscape. The Atlas data shows the precariousness of many poor families’ finances when it comes to health expenditure. Target 3.8 is to “achieve universal health coverage, including financial risk protection, access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines and vaccines for all”. Yet in 2010, 800 million people spent over 10% of household budgets on healthcare, and 97 million were pushed into extreme poverty by health spending. Figure 1 shows absolute growth in those spending over 10%, and in those pushed below the $3.10 per day poverty line. The persistence of the gender gap in financial inclusion was a headline (and fairly depressing) outcome of the most recent Findex, and deeper analysis of this has been done in several other places, including an excellent CFI report. Gender differences are embedded in employment too. The WDIs, reported in the Atlas, also show that globally women are less likely to be employed than men, and that this gap is most pronounced in low-middle-income countries. Figure 2 shows male versus female employment levels by income level. In poor countries, the existential threat of grave poverty may compel men to tolerate their wives and daughters working; above this lowest income level, however, culture mores prevail, and lower-middle income female workforce participation is barely at 30%. Moreover, in all regions, fewer than half of firms are even partially owned by a woman. Yet it is in SDG 8 - Decent Work and Economic Growth – that the most financial inclusion-specific data emerges. Target 8.10 comprises the objective to “strengthen the capacity of domestic financial institutions to encourage and to expand access to banking, insurance and financial services for all”. Three years into the 15-year target timeframe, younger adults, women, the lower educated and the poorest continue to lag in account ownership. Nominal account ownership is increasing, driven both by specific government programs with no-frills accounts, and the cost reductions in outreach that FinTech offers to providers. Globally, 69% of adults now have an account with a financial institution or mobile money provider, showing some progress towards Target 8.10. However, Figure 4 below, which incorporates Findex survey data into the WDI results, reveals pernicious gaps in account ownership by income quartile, gender and education level in MENA and SSA in particular – although education level remains a strong determinant in all regions. Finally, target 8.5 is, by 2030 “ achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value”. The WDIs show the persistence of the problem of un(der)employment, especially for the young – a problem exacerbated by demographic changes, including reduced birth rates, increased longevity and, as a result, a smaller share of the population working at any one time. Figure 5 shows growing ‘working gaps’ over time between total and employed population in all income groups, with the strongest gradient in the lower middle income group, as this segment expands from 1.1 to 2.1 billion people over 1990-2016, and job creation struggles to keep pace. The SDG Atlas is an enormous project, much broader than the Global Findex with its focus on financial inclusion from primarily survey data. But there is some overlap where the SDGs touch – as they frequently do – on issues of financial exclusion, and the SDG Atlas, with its leveraging of a fantastically broad and deep array of data, offers a fascinating look at how international development is progressing against many different indicators. Despite its more general focus, it should be read alongside the Findex as a key resource in understanding the trends, progress and challenges in financial inclusion. author: Sam Mendelson

This post was originally published on MicroCapital 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. MC: What types of social measures do you consider? LS: In SME lending, the concept of “social” encompasses a broader group of stakeholders: in addition to clients, the assessment needs to cover the employees of the SMEs financed as well as the communities in which the SMEs operate. Compared with the missions of microlenders, which often focus on the financial wellbeing of the client, SME lenders are more oriented toward economic growth and job creation. However, client protection indicators remain very relevant. They also happen to be similar to the indicators we use to measure how SME lenders treat their personnel. In general, the assessment framework of social performance management (SPM) for microfinance institutions – although we think in terms of sustainable performance management – remains applicable. This includes its structure of defining goals, aligning systems, benchmarking and making improvements. However, we must adjust for the different development goals of SME lenders and their broader scope of stakeholder groups. MC: What issues arise when considering environmental performance? LS: The bar for managing environmental performance is much higher for SME lenders than for microlenders. It requires the systematic use of assessment and improvement tools that are specific to each sector, geography, enterprise size and other contextual factors. MFIs often have no screening system at all, or they simply consult a list of excluded activities. Most MFIs that are moving into SME lending will need to acquire a significant amount of new expertise in this area. MC: How do these factors fit into the existing SPM ecosystem? LS: While the aspirations, operations and risks of SME lenders are different in some ways from those of microlenders, the SPTF Universal Standards and the Smart Campaign’s Client Protection Principles largely remain applicable if we adjust the bar, enlarge the scope and adapt some of the language. LF: The end goal of this work is to create a module for SME finance within the SPI4 tool which is in broad use by investors with their microfinance portfolios. As investors expand their portfolios into SME finance, this would allow them to continue using the same tool with which they have already developed familiarity and confidence. Lucia Spaggiari serves as the business development manager for MicroFinanza Rating and leads the e-MFP/SPTF project through which she drafted a framework for evaluating the social performance of SME finance. The final paper will be released during European Microfinance Week 2018. Laura Foose is the executive director of SPTF. author: MicroCapital team