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Author: Cheryl Frankiewicz. In September of this year, e-MFP published the results of a survey that mapped Human Resource Development (HRD) Practices in the Microfinance Sector and highlighted opportunities for acting on those results. This is the first part of the third blog in a series of thematic case studies which explore the actions that some survey participants have taken to address each area. The profiled institutions were selected based on the quality of their HR practices and their willingness to share experiences. We are extremely grateful for their time and effort to contribute to this important research. All but one of the case study institutions in this series conduct interviews with employees when they leave the organization. The insights gathered during these interviews have helped the MFIs understand what can be improved, but they haven’t shed much light on what MFIs are doing right. Why do people engage and stay engaged? In the words of Salome Kvakhadze, Head of Talent Development and Management at Crystal in Georgia, “We need to find out what motivates them BEFORE they leave. We want to be more proactive.” The case study MFIs are using a variety of methods to better understand and influence employee engagement. Among these are climate and satisfaction surveys, focus groups, polls, complaint and suggestion systems, Q&A sessions with the CEO, informal conversations, and personal observation. What follows are their reflections on what works and why. A clear career growth path In interviews with the MFIs, a clear and credible career growth path was identified as the most important factor in staff retention. If employees see a way to grow within an organization, they are much more likely to stay than if they don’t. Promotion to a higher level of responsibility and compensation is attractive to most employees, even if it’s a goal that isn’t immediately attainable. What seems to matter is the visibility of the career ladder and the extent to which employees feel it is possible to climb. At Mutuelle pour le Développement à la Base (MDB) in Benin, the career ladder begins with a three-month internship, at the end of which participants are evaluated and the best performers are offered a six-month, renewable work placement. Additional training is provided and those who pass a subsequent evaluation are offered a longer-term contract when a position becomes available. Espérat Tossa, the Executive Director, explains how the promotion chain continues: “A successful savings collector may be promoted to become a loan officer, the loan officer becomes a branch manager, and so on.” Bank Arvand in Tajikistan follows a similar approach, drawing from a pool of agents who are responsible for client recruitment to fill vacancies in loan officer positions. The growth path doesn’t have to be constrained to an advancement in position. VisionFund Guatemala, for example, has categories within the loan officer position. Employees can move from the beginner to junior, senior, and master designations and see their salary and responsibility increase. Only after reaching the last category is a loan officer eligible for promotion to branch manager. In the meantime, all loan officers can grow, and all are eligible for variable remuneration based on the growth and quality of their portfolio. Part of what makes internal promotion effective in the case study institutions is that it’s the norm. Most positions are filled internally, so employees see the career ladder in action and have confidence in its effectiveness. Nancy Camey, People and Culture Manager at VisionFund Guatemala remarked, “They have an example that their boss grows with the organization and the organization grows with him.” Any act of promotion sends a message about what the organization values. If employees see that people with certain competencies are being promoted, that will encourage them to develop the same set of competencies. The more consistently the same competencies are promoted, the more naturally those competencies evolve within the organization. Every employee will have examples to learn from. VisionFund Guatemala has a competency management system that is linked to career paths. It clarifies what competencies are required to excel in a position, so people know what information and skills they need to acquire if they want to advance in a particular direction. Bank Arvand has a similar system of career maps for every position which accomplishes a similar purpose. With this kind of guidance, employees can proactively seek opportunities that help them develop in the direction they desire; they don’t have to wait for the organization to deem them eligible for development. Of course, growth doesn’t just mean promotion. Lateral career moves, stretch assignments, involvement as a coach or mentor, and participation on a task force, problem solving team, or product/market development team are all growth opportunities that could engage employees. Link HRD investments to career growth opportunities The more immediately an employee can use the knowledge or skills acquired in the workplace, the more likely it is that the HRD investment will generate value for the employee and the employer. As time passes, information will be forgotten, skills will get rusty, and motivation often wanes. Fermin Sanchez, CEO of FINCA Guatemala, believes that this is the main reason for which some MFIs see increased turnover when they invest in employee development. Employees don’t want to waste what they’ve gained any more than institutions do. “If you train someone, if you give them more knowledge, it must be hand in hand with growth, with additional responsibility, or the authority to take decisions. If people aren’t challenged, that's when they start thinking about going to the competition.” Help employees see the value they’re creating At Bank Arvand, each position’s job description includes KPIs as well as a definition of its “valuable end product” – the contribution that people in that position are expected to make to the business. This kind of clarity guides employee performance, but also makes it easy for people to see why their work is important. Twice a year, ASKI in the Philippines recognizes top performers on its social media page and profiles an employee-of-the-week in the live feed of its internal portal. The profile typically includes a photo, some information about the results achieved, comments from the employee on what makes them so effective, and at times, customer feedback. Besides this virtual recognition, ASKI also gives cash rewards to their employees. MDB provides its most efficient employees with performance certificates. To make employees’ contribution to the achievement of social goals more easily accessible and visible to all stakeholders, including themselves, was one of the main reasons for Buusaa Gonofaa to digitize its poverty scorecard. These different measures are complementary to the financial incentives provided by all the interviewed MFIs. Most commonly, these incentives reward loan quality, but all except one also reward employees for customer satisfaction and/or the achievement of social goals. Connect to shared values All the case study MFIs look for a set of core values in their new recruits. Many then invest in reinforcing those values during the onboarding process. Some make a continued effort to buttress those values throughout an employee’s relationship with the organization. ASKI, for example, asks all staff to begin their day with a devotion and recitation of the seven client protection principles. Shared values can create a strong bond between employer and employee, one that fuels the relationship and helps the parties overcome challenges along the way. They can also differentiate an MFI from other employers looking for people with similar talent. There is a direct relationship, however, between the strength of an MFI’s value system and its effectiveness as an engagement strategy. If an organization says that it values transparency, but then fails to share information with employees, or if it recruits empathic front-line workers and develops their skills on the job but hires highly skilled managers from the outside who fail to empathize with the frontline, the mismatch between what an organization says and does can become a reason for employee exit rather than retention. Case study MFIs that try to engage employees through values like ‘empathy’ and ‘respect’ have worked hard during the COVID-19 pandemic to act in ways that demonstrate these values. Some asked employees to work in shifts rather than reducing the number of staff. Others managed not to reduce salaries and provided e-learning offerings that gave people access to information about COVID-19 and how to stay safe. Crystal is one of the MFIs that is proud of the way it treated employees during the pandemic, but Ms. Kvakhadze says it’s not something to be advertised. “The actions have to speak for themselves.” Pay a competitive salary Several MFIs commented that the market has become competitive enough that the baseline salary for employees is a hygiene factor. They monitor market norms informally, and sometimes through salary surveys, to prevent non-competitive compensation policies from causing employee exit. Salaries have had to rise significantly for IT professionals who are in high demand worldwide in the wake of the COVID-19 pandemic. Make the job easier MFIs have had to make a lot of changes in the last few years, and it’s been challenging for all interviewed MFIs to manage those changes. One thing they’ve learned is that if change can make something about an employee’s job easier or more enjoyable, it’s more likely to be embraced. Both ASKI and Crystal began their digitalization journeys by streamlining internal processes. This brought quick wins for the organizations, but also saved employees significant time and energy. ASKI got its field staff on board by making the payment of allowances the first transaction conducted through their mobile devices. Next came iStaff, a system through which employees could much more easily access pay slips, record attendance, and request leave. Only after employees had embraced the digital transition did ASKI move forward with the changes to reporting systems and client service. Part two of this blog will continue examining what case study MFIs have learned about keeping employees engaged. Photo 2 above: Bank Arvand, Tajikistan About the Author: Cheryl Frankiewicz has more than 20 years of experience building human and organisational capacity for greater financial inclusion, being specialised in diagnostic and design services, training and workshop facilitation, training-of-trainers, and coaching. She holds a master’s degree on Economic and Political Development from the University of Columbia - School of International and Public Affairs, US, and an MBA (Finance) from the University of Ottawa, Canada. Cheryl has been working with the e-MFP Human Resources Action Group (AG) since 2018. She was involved in the design and implementation of the worldwide HR survey among financial services providers conducted by the AG, as well as in the analysis of survey data and preparation of the report “Human Resource Development practices in the microfinance sector”. She is also the lead consultant in the preparation of thematic case studies based on the report recommendations.

Author: Cheryl Frankiewicz. In September of this year, e-MFP published the results of a survey that mapped Human Resource Development (HRD) Practices in the Microfinance Sector and highlighted opportunities for acting on those results. This is the second part of the third blog in a series of thematic case studies which explore the actions that some survey participants have taken to address each area. The profiled institutions were selected based on the quality of their HR practices and their willingness to share experiences. We are extremely grateful for their time and effort to contribute to this important research. The case study MFIs are using a variety of methods to better understand and influence employee engagement. Among these are climate and satisfaction surveys, focus groups, polls, complaint and suggestion systems, Q&A sessions with the CEO, informal conversations, and personal observation. What follows are their reflections on what works and why. Get feedback, and get it often The mechanisms used to gather the feedback don’t seem to matter as much as the flow of communication itself. Most case study institutions are taking advantage of digital solutions to gather information often, at a low cost, and anonymously when that’s desirable. However, Buusaa Gonofaa is among those MFIs that are still in the process of digitizing, so it uses face-to-face methods and has come to the same conclusion. How frequent is frequent? FINCA Guatemala conducts a climate survey every six months, but it holds focus group discussions, and administers mini-surveys using Microsoft Teams, Survey Monkey or Google Forms more frequently. Sometimes it directs the mini-surveys to a limited group of people to probe a specific issue and sometimes to all employees, depending on where it identifies a problem or in which area it wants to grow. Mr. Sanchez explains, “We need a lot of surveys because the situation is always changing. HRD should be a moving part, not something static.” Teshome Dayesso, General Manager at Buusaa Gonofaa, holds ten-minute meetings with his management team on Mondays to discuss what they want to achieve for the week, and then another meeting on Fridays to reflect on what worked and what didn’t. He’s also experimenting with monthly one-on-one meetings with each team member to exchange more structured feedback against targets. If those meetings are effective at facilitating greater ownership and accountability, he plans to encourage his team to adopt a similar approach with the people they supervise. The feedback mechanism that works best for ASKI runs continuously via SMS. “It’s a way of listening,” says Joy Santos Vice President of Operations. “Employees, partners and clients can send recognition to a branch, complain, or just make a comment at any time through ‘Komento Mo I Text’ (send your comments thru text). The feedback mechanism is helping ASKI to continuously review, revise and adopt new initiatives that will really put our clients in the forefront of our services.” Case study MFIs all ask for feedback when a new HR program or tool is introduced. Typically, this is a one-time invitation, but FINCA Guatemala is asking for feedback every month on its transformational leadership program and is using the input to improve the program as it progresses. Do something with the feedback you get Frequent requests for feedback won’t be well-received by employees if they don’t believe anyone is listening to what they have to say. They may not respond at all, or if they respond, they’ll resent the time spent on it and put the least amount of effort into their reply as possible. The reverse is also true. When employees see actions being taken as a result of their feedback, it encourages them to participate more. It demonstrates that the organization is listening and values what they have to say. “I think that if we, as employees, feel that our ideas are being taken into account, that we feel of value for the company,” says Mr. Sanchez from FINCA Guatemala. “We are going to stay.” An easy way for MFIs to show that they’re listening is to share the results of surveys and polls conducted. Three out of the four case study MFIs that conduct employee satisfaction surveys share the results with every employee. All four systematically respond to the survey results and track the resolution of employee grievances. At VisionFund International (VFI), managers prepare action plans in response to their annual employee satisfaction survey and those action plans are followed closely each quarter by the Senior Leadership Team and the Board. Even Audit uses the results and analysis to identify risks and follow-up on corrective actions. “As people see action,” says Solymar Torres, VFI’s People and Culture Manager for Latin America and the Caribbean, “they are increasingly growing more confident and use the survey as a way to provide feedback for improvement.” The way you ask the question matters If you’re asking for feedback and your question is unclear, or you ask it in a way that leads employees to answer in a particular way, the results will be misleading. Case study MFIs have found it useful to get expert advice when designing an engagement or climate survey that they intend to use on an ongoing basis. However, institutions almost always design ad hoc and mini-surveys locally, since these tend to respond to specific, time-sensitive challenges or opportunities and the questions are only used once. MFIs that use these tools often may find it helpful to train the people who design the surveys in simple techniques for effective questioning. Segment the data Three out of seven case study MFIs segment their employees and define HR strategies for each employee segment. This increases the likelihood that their HRD investments will be relevant and attractive to each segment and result in greater engagement. To better understand the needs of its employees, Bank Arvand is among those institutions that segment its engagement survey results. It analyzes the data by branch (to help branch managers understand what is working well and what needs to be improved within their span of control), length of service (to see whether employees’ commitment and motivation is increasing or decreasing with time), and by position (managers versus others). This year, it is planning to analyze the results by gender as well to see if there are any signs of discrimination. Digitalization is affecting engagement in many ways. It’s making it easier to communicate across distance and enables teams to function even during a crisis like the COVID-19 pandemic, but there’s less in-person interaction, fewer spontaneous meetings, and hardly any large and energetic gatherings. Ms. Kvakhadze from Crystal noted, “Most MFIs are now facing a really big problem of corporate culture because without the face-to-face collaboration, communication and involvement, employees are not feeling attached, and when they don’t feel attached, it’s easier for them to leave.” She claims that many of those leaving the sector are going to the technological sector which has grown and became more attractive during the pandemic. Case study MFIs are reacting in varied ways. Crystal and MDB are choosing to recruit new employees with a different profile who are attracted by the work in its new context. Executives at Buusaa Gonofaa and FINCA Guatemala are convinced that finding ways to facilitate in-person interaction is more important now than ever. According to Mr. Sanchez, field visits are “still the only way to know what’s really happening on the ground.” Mr. Dayesso credits a two-day in-person workshop held earlier this year with branch managers taking ownership of their current situation, something he says could never have happened online. Bank Arvand is excited about the potential of its new learning management system (LMS) to optimize employee development. Employees will be able to see different career paths more clearly and monitor their progress towards goals more easily. Learning will be more self-driven and personalized. Employees will be able to learn when they want, access as few or as many resources as they want, and practise difficult material repeatedly until they feel comfortable with it. The HR team will be able to track who is learning what, identify areas where people are having trouble, and design new content with gamification, which it believes will be more engaging. All but one of the MFIs are investing in employees’ capacity to use digital collaboration tools, hoping that the relationships built through virtual collaboration will bind employees to each other and to the organization just as in-person tools used to do. Clearly, digital tools are making it possible to share a lot more information and train a lot more people than before, but that doesn’t mean the information and training are bringing value. People are increasingly overwhelmed with information, and they easily lose attention in a virtual training. When they watch a recording rather than participate in an event, they engage less, which usually means they learn less. According to Mr. Sanchez, it’s requiring HRD professionals to be more creative than ever. The boss factor The “boss factor” is what a 2020 McKinsey study referred to as impact that supervisor-employee relationships have on employee engagement. “Relationships with management are the top factor in employees’ job satisfaction, which in turn is the second most important determinant of employees’ overall well-being.” None of the case study MFIs referred to that study, but several came to the same conclusion of their own accord. At VisionFund Guatemala, exit interviews and an annual climate survey highlighted the issue. “We saw that many people left the organization because they did not receive support, or they did not feel developed, or they did not feel inspired,” says Nancy Camey, People and Culture Manager. “Statistics tell us that people leave organizations because of their leader, so we want our leaders to be transformational leaders.” Three case study institutions are investing in new leadership development programs that strengthen the skills and motivation of managers to support the growth of the people they supervise. The programs range from three weeks to nine months. Crystal and VisionFund Guatemala started with one-on-one coaching for the most senior leadership and plan to cascade down to all levels of management. FINCA Guatemala developed one program for branch managers and one for others. Three of the other MFIs interviewed already have some kind of management development program in place. Employees can grow every day, even within the same position, if they’re supported to make their own decisions, take ownership of those decisions, and learn from those decisions. The fourth blog in this series will explore how MFIs are trying to develop managers who can encourage this kind of HRD. Photo 1: Buusaa Gonofaa Photo 2: Bank Avrand Photo 3: ASKI About the Author: Cheryl Frankiewicz has more than 20 years of experience building human and organisational capacity for greater financial inclusion, being specialised in diagnostic and design services, training and workshop facilitation, training-of-trainers, and coaching. She holds a master’s degree on Economic and Political Development from the University of Columbia - School of International and Public Affairs, US, and an MBA (Finance) from the University of Ottawa, Canada. Cheryl has been working with the e-MFP Human Resources Action Group (AG) since 2018. She was involved in the design and implementation of the worldwide HR survey among financial services providers conducted by the AG, as well as in the analysis of survey data and preparation of the report “Human Resource Development practices in the microfinance sector”. She is also the lead consultant in the preparation of thematic case studies based on the report recommendations.

Author: Cheryl Frankiewicz. In September of this year, the European Microfinance Platform published the results of a survey that mapped Human Resource Development (HRD) Practices in the Microfinance Sector and highlighted opportunities for acting on those results. This blog is the fourth in a series of thematic case studies which explore the actions that some survey participants have taken to address each area. The profiled institutions were selected based on the quality of their HR practices and their willingness to share experiences. We are extremely grateful for their time and effort to contribute to this important research. As noted in the first and third (part 1 and part 2) blogs of this series, managers play a critical role in HR development. They establish expectations, identify needs, facilitate learning, nurture individual potential, and coordinate teamwork. They are expected to model preferred behaviors, motivate performance, and ensure discipline. It’s a daunting job description – and that’s only the HR part. To explore some of the ways that MFIs are supporting managers to carry out these functions, this blog uses the 9Buckets framework, which was inspired by research conducted with CGAP on employee and agent empowerment. Each of the buckets in the framework represents a type of resource that MFIs might provide to increase managers’ ability or willingness to carry out their HR role. Resource category #1: Information and knowledge There are many kinds of information that could prove useful to managers. Some of the examples mentioned by survey respondents include: a description of the HR functions that managers are expected to perform; job descriptions that clarify what each employee is expected to deliver; succession planning guidelines; data on the performance of individuals and teams; and results from employee and climate surveys. VisionFund Guatemala and Bank Arvand in Tajikistan both conduct regular engagement surveys. They share organization-wide results with all employees, but they also segment the data by branch and share that analysis with branch managers so they can see what is working well and what needs to be improved within their span of control. Resource category #2: Skills and habits The second way that MFIs can support managers in their HR role is to provide opportunities for them to strengthen their HRD practices. More than three-quarters of all survey respondents train managers to assess their employees’ technical and soft skills, provide professional feedback, or identify employees’ individual strengths and delegate tasks accordingly. 34% provide training in all these areas. At some MFIs, such as ASKI in the Philippines, HR training is a requirement for promotion to a supervisory position. Training isn’t the only type of opportunity being provided. Coaching is increasingly popular and is offered by 65% of survey respondents. MFIs like Crystal in Georgia and FINCA Guatemala have developed programs that combine training with practice and coaching to build HRD skills through a series of interactions – but with considerable differences: Crystal’s program lasts three weeks, while FINCA Guatemala’s lasts nine months. Managers are expected to practice what they learn in between training sessions and discuss the results each time they reconvene. Resilience training is an important part of the agenda, strengthening managers’ ability to respond to whatever circumstances may arise. Resource category #3: Values and attitudes Managers are more likely to fulfil their HRD role if they believe that doing so is important and feasible. MFIs can’t force managers to believe in HRD, but they can nurture that belief through their messages, targets, and culture. VisionFund Guatemala’s transformation leadership initiative started with a simple message, “You’re not just responsible for making sure employees stay with you forever; they’re supposed to grow.” That message is supported by the work of the People and Culture Department, which strives to get everyone in the organization thinking about the culture they want to work in and taking concrete steps to live it. At Buusaa Gonofaa in Ethiopia, General Manager Teshome Dayesso was able to guide his managers through a particularly difficult period during the COVID-19 pandemic by asking them to identify one thing that they could do something about. “As soon as that was clear,” he says, “everyone was relieved, and the mood went up [a lot].” Resource category #4: Dialogue and support In interviews with case study MFIs, this resource category was mentioned more often than any other. MFIs are providing managers with opportunities to access other people’s knowledge, skills, energy and influence through formal coaching and mentoring programs, participatory performance management processes, informal feedback sessions, discussion guidelines, periodic field visits, phone calls and WhatsApp chats. “Sometimes we just speak to our branch managers and say, ‘Okay, how is your team doing?’” Fermin Sanchez, CEO of FINCA Guatemala, asks members of his management team to visit branches regularly so that those in the field recognize that they are part of a bigger company. At Buusaa Gonofaa, company level joint feedback sessions allow branch managers to learn from each other’s success, failure, and challenges. At ASKI and VisionFund, regional representatives play an important role, providing HR guidance and one-on-one support on the ground in a relevant context. And at Bank Arvand, midterm reviews offer an opportunity to discuss whether managers have what they need to meet expectations. When a change affects all employees, having a dedicated person that supports managers with timely implementation can be helpful. One of the ways that ASKI overcame employee resistance to a new mobile app was to have a dedicated person communicating with employees, helping them register and login, and designing creative strategies to help people see the benefits of the new app. Resource category #5: Control and influence To play a productive role in HRD, managers need to be given responsibility for specific HR functions, have the authority to act within their span of control to fulfill those functions, and be held accountable for the results. Ideally, they would also have channels for influencing HR decisions outside their span of control, especially when those decisions impact their team. The case study MFIs seek to clarify managers’ HR responsibilities through job descriptions and annual performance agreements. They hold managers accountable for achieving specific HR results as part of their standard evaluation process. Most often, what gets measured is employee satisfaction and retention, but some MFIs measure whether the professional development plan for each employee has been met. All the case study MFIs that conduct regular employee surveys ask managers to develop action plans that address areas of weakness. At VisionFund, these action plans are followed closely each quarter by the Senior Leadership Team and the Board; even the Audit department uses survey results to identify risks and follow-up on corrective actions. MFIs are also finding opportunities for managers to influence HR decisions that are outside their span of control. 57% of survey respondents consult managers on the design of learning and development (L&D) programs to ensure they are practical. 46% ask managers to assess the impact of L&D measures on their employees’ performance. In many MFIs, managers do not control the hiring of new employees, but they influence hiring decisions by participating on selection committees. Resource category #6: Tools and infrastructure There are many types of tools that can make it easier for managers to fulfil their HR role, but interviews with case study MFIs highlighted three: tools for understanding employees, their performance, and their motivation; tools for communication and collaboration; and a coherent system of policies and procedures that create a safe and equitable work environment. The better managers can understand their employees’ knowledge, performance, and motivation, the more appropriately they can guide and support their employees’ development. Knowledge tests, competency management systems, scorecards and employee surveys make it easier for managers to identify what an MFI expects of each employee and the extent to which employees are meeting those expectations. Bank Arvand’s assessment system creates an automated report for each employee that summarizes input from the employee, supervisor, any tests or trainings taken during the evaluation period, quantitative and qualitative performance indicators, as well as contextual information such as the number of years the employee has been working with the company. The report provides the basis for discussions between the employee, their supervisor, and the HR department. Salome Kvakhadze, Head of Talent Development and Management at Crystal in Georgia, commented on how the digitization of performance data increases the speed with which managers can access information about employee performance and use it to improve results in the current period. “Manual data is past data and it’s more static,” she explained. “Digitalization helps us be more proactive.” For communication and collaboration, case study MFIs found platforms like WhatsApp, Zoom and Microsoft Teams to be game changers, particularly during the COVID-19 pandemic. Two organizations also mentioned using the DiSC® model to help managers understand team member personalities and improve working relationships. With respect to policies and procedures, interviewees spoke in general terms about the need for guidelines that would help to ensure fair treatment (such as protocol for resolving complaints), and structures that could help managers create better routine practices (such as quarterly performance reviews to encourage more regular feedback). Resource category #7: Rewards and penalties Even if managers know what their HR role is, and can perform it, they may not choose to do so if they don’t enjoy it or, as mentioned above, they don’t think it is important enough to warrant their attention. Rewards and penalties can motivate managers to take their HR role seriously, and guide, motivate or discourage specific actions. 42% of survey respondents incentivize HR goals (either employee retention or specific learning and development objectives). 9% reward managers when the employees they supervise are promoted. Among case study MFIs, ASKI makes a point of recognizing top performing managers on social media, something which is generally highly valued in the Philippines. Resource category #8: Time and energy Time and energy are finite resources. There are only 24 hours in anyone’s day and people have limited energy, so if MFIs want managers to spend more of their time and energy on HR functions, they have only three options: Help managers use their time and energy more efficiently by providing one or more of the resources described above; De-prioritize some of the tasks that currently consume managers’ time and energy so they can spend more on HR functions; or Bring in other people to help. Case study MFIs have used all three approaches, but primarily adopt the first. They are providing information, tools and skill building opportunities. They’re also engaging managers in conversations about the kind of support that would make it easier, or more enjoyable, to carry out their HR roles. Sometimes it is the existing tools and infrastructure that may make the job difficult or unappealing, and in these cases reengineering a process, rather than replacing an entire system, can have a significant impact. Resource category #9: Money The ninth type of resource that could be used to support managers in their HR role is financial. Interestingly, none of the MFIs interviewed mentioned money as a constraint or a lever for this purpose. That doesn’t mean it can’t be useful. Money is typically needed to acquire new tools and improve the infrastructure, for example, but MFIs usually find it more cost-effective to purchase or develop tools for all managers to access rather than give each manager money to buy tools themselves. The good news for HRD is that many of the resources discussed above can be provided without additional financial resources. It’s part of what makes this an exciting and promising area for action within the microfinance sector. Photo 1: Bank Arvand Photo 2: ASKI About the Author: Cheryl Frankiewicz has more than 20 years of experience building human and organisational capacity for greater financial inclusion, being specialised in diagnostic and design services, training and workshop facilitation, training-of-trainers, and coaching. She holds a master’s degree on Economic and Political Development from the University of Columbia - School of International and Public Affairs, US, and an MBA (Finance) from the University of Ottawa, Canada. Cheryl has been working with the e-MFP Human Resources Action Group (AG) since 2018. She was involved in the design and implementation of the worldwide HR survey among financial services providers conducted by the AG, as well as in the analysis of survey data and preparation of the report “Human Resource Development practices in the microfinance sector”. She is also the lead consultant in the preparation of thematic case studies based on the report recommendations.

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