An interview with Larry Reed

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>> An interview with Larry Reed, director of the Microcredit Summit Campaign by Miranda Beshara

The first Microcredit Summit was held in 1997 and called for a nine-year campaign to reach 100 million of the world’s poorest families. In 2005, the Campaign was re-launched until 2015. In 2016, where does the Microcredit Summit Campaign stand and how does the future look like?

At the Halifax Global Summit in 2006, the microfinance community set two new goals for the Campaign. First, to reach 175 million of the world’s poorest families with microfinance and, second, to see 100 million of the world’s poorest families move out of extreme poverty. Our latest numbers, from 2014, show we still have a lot of work to do to reach those goals. Much of the growth of microfinance in recent years has been with families that are not living in extreme poverty. We have focused our attention on the types of finance that reaches to the poorest families, and helps them limit vulnerabilities and take advantage of opportunities.

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Research on Ecuador’s digital platform to be featured at 18th Microcredit Summit

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The Microcredit Summit Campaign, as part of its 6 Pathways, is helping to highlight ways that digital platforms are helping to expand financial inclusion, especially for the extreme poor. We are pleased to share with you this Executive Summary of their research.

At the 18th Microcredit Summit this research will be included in the breakout session “The Digital Revolution and Financial Inclusion.” We hope to see you there!


>> Authored by Jorge Moncayo and Marcos Reis.

Financial systems have a vital role in national economies. They provide savings, credit, payment, and risk management products to society. In this sense, inclusive financial systems — those with a high share of individuals and firms that use financial services — are especially likely to benefit poor people and other disadvantaged groups. On the contrary, poor people must rely on their limited savings to invest in their education or become entrepreneurs. In addition, small enterprises must rely on their limited earnings to pursue promising growth opportunities (Demirguc-Kunt and Klapper, 2012).

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18th Microcredit Summit update: Dates extended at no extra cost

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Responding to intense demand for more sessions, we have decided to extend the days of the 18th Microcredit Summit at no extra charge!
We have some exciting developments with the Summit agenda to share with everyone. Responding to intense demand for more sessions, we have decided to extend the days of the 18th Microcredit Summit at no extra charge!

The new dates will be Monday, March 14th to Thursday, March 17th, so please be sure to plan your travel dates to be in attendance for the Welcome Ceremony, which will now take place in the morning of March 14th. We apologize for any inconvenience this may cause you, but we hope the program will make it worth your while.

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Implementing national financial inclusion mandates in the Arab region

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MCS+KF+AGFUND+AMF+18MCSummit logos longBeth Rhyne’s recent review of the Davos report “Guidance on the application of the core principles for effective banking supervision to the regulation and supervision of institutions relevant to financial inclusion” articulately and clearly present some of the chief benefits of the Davos meeting as well as outline some of the important work that still largely remains in context of framing regulations to support achieving full financial inclusion.

The Campaign, like the Center for Financial Inclusion, has a mission that focuses on ensuring that as financial inclusion strategies are developed become the prime means of moving forward the global agenda to end poverty, that these strategies are sure to include those who are among the hardest to reach populations. This will take a mix of new and innovative programs as well as, as Beth Rightly phrased it, a reinvention of how regulatory frameworks facilitate those programs.

At the 18th Microcredit Summit, the Campaign is organizing, in partnership with the Arab Monetary Fund (AMF) and the Arab Gulf Fund for Development (AGFUND), a special meeting of Governors of central banks throughout the Arab region to discuss recent progress in achieving this redefined shape and meeting their financial inclusion mandates. With participation from key stakeholders like GIZ, CGAP, and others, we will be facilitating a deep discussion on the importance of many of the key issues that Beth has raised. Learn more about this side event, called “Implementing National Financial Inclusion Mandates.”

We encourage you to read her assessment on where Davos has brought the regulatory sector and what roads and challenges lie ahead for it. Furthermore, if the topic really grabs you, the Davos report is open for public comment until March 31, 2016.

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Create lasting change at the 18th Microcredit Summit

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The 2015 State of the Campaign Report underscores the challenge microfinance faces in realizing its original goal — to alleviate poverty by providing quality microfinance services to the poorest segments of society. In it, we make the case for the scale-up of financial services “pathways” that can advance the end of extreme poverty with prescriptive actions for financial service providers, government policymakers, and others. These “Six Pathways,” which you can read all about in the report, will be featured throughout our 18th Microcredit Summit.

Financial inclusion is “the first step” in achieving the World Bank’s twin goals by “giving people the tools to get out of poverty [by 2030] and into shared prosperity,” as explained by Alfonso García Mora at the 17th Microcredit Summit in Mexico. Participants will engage in a thoughtful discussion around effective ways to reach the most vulnerable and marginalized and the microfinance services and financial inclusion strategies that promote inclusive, sustainable economic growth and social empowerment that helps improve their lives.

Join us in Abu Dhabi, U.A.E., on March 14-17, 2016, for another great microfinance conference!

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New report calls for scale-up of financial services “pathways” to help end extreme poverty

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The Microcredit Summit Campaign released our 17th annual survey of the global microfinance industry Wednesday at the Inclusive Finance India Summit held in New Delhi, India. Larry Reed featured the publication, Mapping Pathways out of Poverty: The State of the Microcredit Summit Campaign Report, 2015, in his presentation on Wednesday to attendees of India’s premier financial inclusion conference.

What does the 2015 report say about the data?
According to our annual survey, the global microfinance community reached 211 million borrowers as of December 31, 2013, and 114 million of them were living in extreme poverty (households living on less than $1.90 per day, PPP).

What this means is that, while the microfinance community provided loans to the most clients since we began tracking this number in 1997, the number of poorest clients fell for the third straight year. This is concerning.

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Where’s the Map? Another sneak peek!

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John Snow mapped out London's cholera epidemic in the 1850s. This helped my make connections between seemingly unrelated unrelated
“A map does not just chart, it unlocks and formulates meaning; it forms bridges between here and there, between disparate ideas that we did not know were previously connected.”
— Reif Larsen, The Selected Works of T.S. Spivet

How does BRAC, the world’s largest non-governmental organization (NGO), develop pathways out of poverty for the poorest people in a village? They begin with a map. As you see in the photo on the cover of this report, they bring the village together and start drawing maps in the dirt, identifying each household, market, business, and place of worship. They then ask the help of the community to identify the poorest households, marking each one on the map. Their work begins with those households.

This painstaking, household-by-household approach of identifying the excluded and locating them within their community and context represents the next step that we need to take to achieve a new set of ambitious global development goals.

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Sneak peek of the 2015 State of the Campaign Report

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The map on the right illustrates the prevalence of below $1.90 per day poverty in rural areas. Source: Adapted from World Bank Data (online), 2015, "Rural Population (% of total population)," http://data.worldbank.org/indicator/SP.RUR.TOTL.ZS; and ibid., "Poverty gap at $1.90 a day (PPP 2011) (%)," http://data.worldbank.org/indicator/SI.POV.GAPS.
The World Bank and the United Nations have both set their sights on ending extreme poverty by the year 2030. The Bank has also set a concomitant target of universal financial access by 2020 as a major contributor to ending extreme poverty. Our assessment, after reviewing the contributions that microfinance institutions and other financial providers have made toward these two goals, is this: if financial services are meant to play an important part in bringing an end to extreme poverty, we will not come close to reaching it.

Microfinance has demonstrated the viability of providing financial services to people in poverty and technological advances have drastically reduced the cost of providing financial services. But, we still do not see widespread adoption of financial services among the largest groups of those that still need to be reached: those living in extreme poverty.

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Insufficient and greatly uneven progress on the maternal health MDG

Millennium Development Goals: 2015 Progress Chart
Published articles to date: Introduction | MDG 1 | MDG 2 | MDG 3 | MDG 4

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The United Nations recently issued The Millennium Development Goals Report, 2015, the latest assessment of progress towards the eight MDGs. In short, they have had mixed results. This article is part of a blog series reflecting on the MDGs and the U.N. report. These are produced in partnership with our colleagues at RESULTS, a grassroots advocacy organization. They are lobbying for bipartisan legislation in the Senate that can impact the lives of mothers and children worldwide. (See the Fact Sheet.)


>>Authored by Marion Cosquer and Sabina Rogers

MDG 5: Improve maternal health

Target 5.A: Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio

graph_MDG5

Click to enlarge. Source: The Millennium Development Goals Report, 2015

In 1990, 380 pregnant women were dying for every 100,000 live births. As of 2013, the global maternal mortality ratio has decreased by 45 percent to 210 women per 100,000 live births. The highest gains were seen in South and Southeast Asia with a 64 percent and 57 percent reduction, respectively. Developing regions overall achieved a 46 percent reduction. Maternal survival has been aided by a one-third increase in childbirth attendance by skilled health personnel. Thus, the news in the U.N. Millennium Development Goals Report for MDG 5 is promising.

Nonetheless, progress towards improving maternal health so far falls far short of the targets set under MDG 5 and has lagged far behind the other MDGs. Additionally, global figures tend to mask regional inequalities. For example, there were 510 maternal deaths per 100,000 live births in sub-Saharan Africa compared to 190 in South Asia and 140 in Southeast Asia.

Progress in raising the proportion of births delivered with skilled personnel has been modest over the last 15 years, reflecting the lack of universal access to care. Indeed, one in four babies still being delivered without skilled personnel and wide disparities are found among regions. For example, there is a 52 percent spread between the largest rural/urban disparity across regions:

  • In Central Africa, 32 percent of births were attended by skilled personnel compared to 84 percent in urban areas.
  • In East Asia, there is no difference between urban and rural areas.

Sub-Saharan Africa and South Asia pull down the developing region average. Overall, 56 percent of births in rural areas are attended by skilled health personnel compared to 87 percent of births in urban areas.

From The Millennium Development Goals Report, 2015

Click to enlarge. Source: The Millennium Development Goals Report, 2015

Target 5.B: Achieve, by 2015, universal access to reproductive health
After 25 years of slow progress, only half of pregnant women in developing regions receive the minimum of four antenatal care visits recommended by the World Health Organization. Once more, coverage levels in sub-Saharan Africa and South Asia trail the other regions. Sub-Saharan Africa has barely increased from 47 percent to 49 percent of pregnant women; South Asia has the lowest coverage at 36 percent (though it increased from 23 percent). Moreover, despite having doubled contraceptive use [1] in sub-Saharan Africa from 13 to 28 percent, sub-Saharan Africa still trails all other regions.

From The Millennium Development Goals Report, 2015

Click to enlarge. Source: The Millennium Development Goals Report, 2015

Proven health-care interventions can prevent or manage the complications that cause maternal deaths, such as hemorrhage, infections, and high blood pressure. These complications are concentrated in sub-Saharan Africa and South Asia, accounting for 86 percent of all deaths worldwide in 2013. Use of contraceptives also contributes to maternal health by reducing unintended pregnancies, unsafe abortions, and maternal deaths.

The report tells us that contraceptive use has risen in all regions and 90 percent of users were using effective contraceptive methods. However, the unmet need is still high (24-25 percent) in sub-Saharan Africa and Oceana. Other developing regions hover around 11-14 percent unmet need, and the overall use in those regions is significantly higher than in sub-Saharan Africa and Oceana.

The adolescent birth rate shows a mixed story. While the global rate for developing regions has fallen by half (from 34 to 17 births per 1000 girls), it hides poor progress in Africa and Latin America and the Caribbean. Indeed, in three regions (Southeast Asia, the Caucasus and Central Asia, and North Africa), some of the gains in the adolescent birth rate from 2000 reversed in 2015. Moreover, progress in East Asia was stagnant over the last 15 years.

The report calls for urgently needed intensified efforts to delay childbearing and prevent unintended pregnancies among adolescents. By increasing opportunities to go to school and for paid employment, we would see an overall improved maternal and child health as well as reduced poverty, greater gender equality, and women’s empowerment.

Maternal health in the post-2015 development agenda

The new Global Goals for Sustainable Development, which are set to be approved at the Sustainable Development Summit September 25 to 27, encompasses a broader, more ambitious and inclusive health goal. Goal 3 seeks to “Ensure healthy lives and promote well-being for all at all ages.” Indeed, it seeks to reduce the global mortality ratio to fewer than 70 deaths per 100,000 live births. Under Goal 3, countries will agree to ensure, by 2030, universal access to sexual and reproductive healthcare services, including for family planning, information and education, and the integration of reproductive health into national strategies and programs — for which the microfinance sector can be a key partner.

The report concludes on the inequalities in data availability on maternal health among and within regions. The lack of data is a key factor contributing to the unfinished MDG agenda, hampering efforts to establish priorities on national, regional, and global health. In the post-2015 period, it is imperative to have better and more data, especially concerning registration of births and deaths, in order to set adequate policy priorities, target resources more efficiently, and measure improvements.

In order to build on the successes of the MDGs and achieve Goal 3 of the SDGs, the 18th Microcredit Summit will focus on integrated health and microfinance as one of the six pathways out of poverty. Empowerment of women — which can help reduce maternal mortality more quickly and efficiently — will also be an important theme.


Footnote

[1] “Contraceptive use” is defined concerning women aged 15-49, married or in union, who are using any method of contraception

Voices from the Field: Beth Porter

Financial inclusion to end extreme poverty

“By reducing vulnerability to economic shocks and boosting job creation, financial inclusion can be a key driver of poverty reduction and economic growth and at the same time contribute to promoting greater equality,” explains Beth Porter, policy adviser for financial inclusion at UNCDF.

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In preparation for our 18th Microcredit Summit, the Campaign conducted a Listening Tour from December 2014 through February 2015. The Listening Tour was our time to listen — and your time to speak — on the issues that the microfinance and financial inclusion sector face and served two purposes. First, it was our hope to find out how our audience (you) felt about the World Bank’s goal of eradicating poverty by 2030, and equally important, we wished to consult you in identifying the topics that were most pressing and urgent.

We collected your feedback through an online survey and organized conversations with 27 leaders in the microfinance and financial inclusion sector. We heard from them on how financial inclusion can contribute to the goal of ending extreme poverty by 2030 and the role of microfinance in the post-2015 agenda. The results of this consultation will be reflected in the 2015 State of the Campaign Report, the 18th Microcredit Summit, and Campaign Commitments.

Below is a short excerpt from our conversation with Beth Porter, policy adviser for financial inclusion at the United Nations Capital Development Fund (UNCDF) in New York.

Q: What is the role of microfinance and financial inclusion in the post-Millennium Development Goals (MDGs)/ Sustainable Development Goals (SDGs) era?

Beth Porter

Over the course of 2015, the Open Working Group, comprised of 30 member states, discussed the shape of the post-2015 agenda. The post-2015 agenda set out to build upon the Millennium Development Goals (MDGs, 2000-2015) and incorporate some of the broader global stewardship goals that came out of the Monterrey Consensus. To do so, they proposed a set of 17 goals and 169 targets (the MDGs had 8 goals with 10 targets each) to the UN General Assembly in September 2014 — a document which was adopted as a “zero draft.”

In 2015, member states began to consider the overarching vision for the Sustainable Development Goals (SDGs), examine more closely the goals and targets, set forth the means of implementation, and identify indicators. While such a large number of goals and targets are certainly unwieldy, many member states want to ensure that the SDGs are truly comprehensive and feel that further whittling them down would leave out important parts of the development agenda. So the targets are being examined to ensure that they are consistent with other global agreements and commitments and that are measurable, but the targets themselves have not, to date, been opened up for major changes or reduction in number.

Financial inclusion figures prominently amongst the targets. Financial Inclusion is achieved when individuals and enterprises have access to a wide range of financial services provided responsibly and at reasonable cost by diverse and sustainable institutions in a well-regulated environment. By reducing vulnerability to economic shocks and boosting job creation, financial inclusion can be a key driver of poverty reduction and economic growth and at the same time contribute to promoting greater equality — and, indeed, it is a target in all three of these goal areas (poverty eradication, economic growth and job creation, and reducing inequality). Financial inclusion also figures as targets under goals on food security, women’s economic empowerment, health, etc. This is consistent with financial inclusion being a means to achieving broader development goals. As a result, we hope that it will continue to be embedded in the targets under the eight goals where it is mentioned.

Q: What do you think will be needed to achieve the goal of global financial inclusion by 2020 and how can this contribute to the goal of eradicating extreme poverty by 2030?

In regard to the link between the goals of financial inclusion by 2020 and eradicating extreme poverty by 2030, let me say that while I believe that we can go far towards providing financial access by 2020, any declaration of reaching that goal will be based largely on transactional accounts. The fastest growing part of financial inclusion is in the area of payments: people using a phone to send or receive money to/from family or friends, to receive social transfer payments from governments or development organizations, or to pay bills more conveniently. Digital channels are opening up the possibilities for a large array of products and services.

But, where there will likely still be gaps by 2020 is going beyond access to usage. Providing a payment option or opening a bank account is a starting point but not enough; people must use those payment options or accounts in order to benefit from them and to be fully included financially. To drive usage, these payment services must be designed based on client needs and preferences. Furthermore, payments are just one aspect of the kinds of products and services that people want and need. They may be the entry point, but it will be critical that other products and services such as savings, credit, and insurance are layered on the payment services.

That takes us to the link between financial inclusion and eradicating extreme poverty. I am amongst the many who believe that financial inclusion is a critical factor in addressing poverty. We all know that the causes of poverty are complex, however, and the solutions are not simple either. Financial inclusion is necessary, but not sufficient, to eradicate poverty.

One of the things that we at the United Nations Capital Development Fund (UNCDF) are particularly focused on, given our mandate to work first and foremost in least developed countries (LDCs), is to look at ways that greater financial inclusion can help contribute not only to better developmental outcomes for people, but also contribute to more vibrant economies and greater availability of domestic resources.

We recognize a clear link between national financial inclusion strategies—and the ensuing implementation plans—and higher levels of financial inclusion. We believe that this in turn leads to both poverty alleviation and economic growth. As a result, we are stepping up our efforts to support the development, implementation, and monitoring of such plans through the Making Access Possible (MAP) initiative.

We have seen tremendous leverage from small amounts of “smart” overseas development assistance (ODA) and philanthropic funding used to help financial service providers (FSPs) to develop the business models that will help them meet the real needs of women and men. Such investments can help encourage private sector players move into riskier markets and demonstrate the potential of these markets to be profitable, and thereby “crowd in” domestic and South-South capital to scale up and replicate these models.

When people have convenient access to formal accounts, individuals and households of even limited means as well as micro- and small enterprises (MSMEs) will place their savings in institutions where their money is safe and accessible, as we have seen through the MicroLead initiative, amongst others. Such savings, when taken cumulatively, can then be directed into financial services that promote local markets, small-holder agriculture, MSME development, education for girls, and so on.

Q: In relation to our host region, what are the challenges and opportunities facing Africa & the Middle East in regards to microfinance and financial inclusion?

The Ebola crisis has forced a recognition that a public health crisis has many other dimensions, and one of those is related to the payments infrastructure—and, more broadly, how financial services can be relevant in the response, recovery, and rehabilitation stages in natural disasters and post-conflict situations. Given the number of countries in the region that are affected by these humanitarian crises, it is critical that governments, development organizations, and providers know when and how to use financial services to get through and beyond the crisis to secure, healthy, and productive lives. We are working on a policy guidance note on this topic, based in part on our experience supporting the Ebola response, and there are many others who are doing terrific work in this space.

An area in which Africa is leading the way globally is in mobile money. Indeed, mobile money was the major contributor to the increase of financial inclusion in Africa, according to Global FinDex. More people in Africa have phones than bank accounts. And, increasingly, mobile network operators are taking advantage of that—often in partnership with financial institutions—to offer people not only payment services, but also other products using the mobile platform. There is still much work to be done, however, to realize the promise of digital finance (i.e., mobile money and other services including the use of electronic vouchers, debit and credit cards, etc. in conjunction with ATMs, POS [point-of-sale], and other devices), but it has great potential in connecting low income and rural customers with the services that they need, not only financial services, but health, education, energy, water and many more.

We believe — and particularly at the Better Than Cash Alliance and the Mobile Money for the Poor initiative — that taking an “ecosystem approach” to digital finance will be essential to realizing that promise. Such an approach involves policymakers and regulators, the various providers of digital financial services, as well as retailers and others in the acceptance networks, and it requires the support of development partners and must take as its starting point the wants and needs and capabilities of the consumer. We are encouraged to see such approaches start to take root in a number of countries in the region.

Related reading

About the United Nations Capital Development Fund

The United Nations Capital Development Fund (UNCDF) is the UN’s capital investment agency for the world’s 48 Least Developed Countries (LDCs). UNCDF uses its capital mandate to help LDCs pursue inclusive growth. UNCDF uses “smart” Official Development Assistance (ODA) to unlock and leverage public and private domestic resources; it promotes financial inclusion, including through digital finance, as a key enabler of poverty reduction and inclusive growth; and it demonstrates how localizing finance outside the capital cities can accelerate growth in local economies, promote sustainable and climate resilient infrastructure development, and empower local communities. Using capital grants, loans, and credit enhancements, UNCDF tests financial models in inclusive finance and local development finance; de-risks” the local investment space; and proves concept, paving the way for larger and more risk-averse investors to come in and scale up.

About Beth Porter

Beth Porter has over 20 years of experience in microfinance and organizational development in 30 countries in Africa, Asia, and Latin America. As a policy adviser at the UNCDF, Beth provides policy guidance and support to the global team on financial inclusion. She previously launched and directed the YFS-Link initiative at Making Cents International to build the capabilities of financial services providers and youth-serving organizations in youth-inclusive financial services.

At Freedom from Hunger, Beth led program strategy and managed delivery of integrated microfinance services to 1.2 million women and their families in 16 countries. She has provided technical assistance and training in strategic and business planning, product design, and organizational effectiveness and operational efficiency, and is experienced in program appraisal, design and evaluation. In addition, Beth is on the boards of the SEEP Network, the Bolivian MFI CRECER, the SMART Campaign in Microfinance, Child and Youth Finance International, and was a founder of Women Advancing Microfinance (WAM)-International and past Chair of WAM-Northern California.

Visit the UNCDF website: http://www.uncdf.org/

The 2015 Listening Tour: Mapping pathways for ending extreme poverty

Photo credit: by Geoff (originally posted to Flickr as Pilgrim’s path) [CC BY 2.0], via Wikimedia Commons

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“Wars of nations are fought to change maps. But wars of poverty are fought to map change.”
— Muhammad Ali

After the success of Generation Next: Innovation in Microfinance, our 17th Microcredit Summit (Mexico in 2014), the Microcredit Summit Campaign conducted a Listening Tour to identify how this next generation could contribute to ending extreme poverty (those living on less than $1.25 a day) by 2030. The theme that emerges from this consultation will be reflected across the Campaign: in the 2015 State of the Campaign Report, the 18th Microcredit Summit, and Campaign Commitments.

With the post-2015 development agenda under negotiation, the financial inclusion and microfinance sectors have an opportunity to assess our role in shaping the international development framework and reflect on the impact we can have on the lives of millions of the world´s extreme poor. Our Listening Tour was the first step in surveying our coalition of partners to see what our role in this endeavor should be.

The Listening Tour was our time to listen — and your time to speak — on the issues that the microfinance and financial inclusion sector face and served two purposes. First, it was our hope to find out how our audience (you) felt about the World Bank’s goal of eradicating poverty by 2030, and equally important, we wished to consult you in identifying the topics that were most pressing and urgent.

We collected your feedback through an online survey where we received 151 responses from participants from around the world representing practitioners, advocates and support organizations, funders, investors, policymakers, and regulators. We also conducted phone interviews with 27 leaders in the microfinance and financial inclusion sectors. Below are some key findings from our Listening Tour calls and survey.

A client of Fundacíon Capital wiht her daughter Photo credit: Fundacíon Capital

A client of Fundacíon Capital wiht her daughter

Photo credit: Fundacíon Capital

1. Ending extreme poverty.

Our members believe that our main objective should be to end extreme poverty, but they acknowledge that microfinance and financial inclusion actors need to be mobilized around this objective. We need to take a leadership role in re-focusing the microfinance sector on a pro-poor mission and helping the microfinance community build confidence in a system that protects and benefits those who we serve. In order to accomplish this, we need to galvanize new visionaries and champions for the movement.

2. Universal financial access, financial inclusion, and ending extreme poverty.

The strategy for achieving both universal financial access by 2020 and the 2030 goal must be clear, and clear linkages should be created between these two goals. In addition, we need to clarify the definition of financial inclusion, especially in how it relates to ending extreme poverty. We cannot get to full financial inclusion unless inclusive financial systems are created that serve the extreme poor.

3. Defining roles.

It’s unclear what role each stakeholder plays in achieving these goals. Our challenge is to create a unified voice in support of this agenda among a diverse group of microfinance stakeholders, who sometimes have divergent priorities. How do we design a strategy and create a sense of responsibility to provide the appropriate products and services that help people move out of poverty?

4. Pushing innovation while maintaining client protection.

Innovation is key, and technology will need play an important role in reaching full financial inclusion. The microfinance community tends to copy successful ideas but hesitates when it comes to new methodologies. While we need to do away with this risk-averse culture when it comes to innovation, we need to make sure there is adequate regulation and client protection practices in place where our clients could be vulnerable.

Organizations that made a Campaign Commitment are recognized on stage at the 17th Microcredit Summit in Mexico.

Organizations that made a Campaign Commitment are recognized on stage at the 17th Microcredit Summit in Mexico.

5. Financial inclusion to end extreme poverty: six pathways.

Finally, we saw an emphasis on six topics that we have framed as our “pathways out of poverty;” these are financial inclusion strategies that reach people living in extreme poverty and facilitates their movement out of poverty:

  • Mobile money linked with agent networks in low-income communities (for example)
  • Agricultural value chains that reach to small scale producers (for example)
  • Savings groups (aka village savings and loans associations) (for example)
  • Conditional cash transfers linked with mobile delivery and asset building (for example)
  • Ultra-poor graduation programs (for example)
  • Microfinance savings and/or borrowing groups linked with health education, health financing, and health product delivery (for example)
Dignitaries who attended the 1997 Microcredit Summit.

Dignitaries who attended the 1997 Microcredit Summit. From L-R: Tsutomu Hata, Former Prime Minister, Japan; H.E. Pascoal M. Mocumbi, Prime Minister, Mozambique; H.E. Alberto Fujimori, President, Peru; H.M. Queen Sofia, Spain; H.E. Sheikh Hasina, Prime Minister, Bangladesh; Hillary Rodham Clinton, First Lady, United States; Prof. Muhammad Yunus, Managing Director, Grameen Bank, Bangladesh; Elizabeth de Calderón Sol, First lady, El Salvador; Ana Paula dos Santos, First Lady, Angola; H.E. Dr. Siti Hasmah, First Lady, Malaysia; H.M. Queen Fabiola, Belgium.

Let’s take a quick ride down memory lane. In February 1997, we convened the first Microcredit Summit in Washington, D.C., bringing together more than 2,900 delegates from 137 countries. This event resulted in the Declaration and Plan of Action in which Summit delegates promised to work towards making the Campaign a “global effort to restore control to people over their own lives and destinies” [1]. Since 1997, the Microcredit Summit Campaign has been leading, supporting, and guiding the microfinance field to address failures in reaching the extreme poor.

Jump forward to 2015. We still have a lot of work to do, but the will of our community to map out a better future together is evident. This is a time for change and transformation in the global development sector, and we must be bold in setting our goals.

We have taken it upon ourselves to make sure that the microfinance and financial inclusion movement is included as a tool in ending extreme poverty by 2030. Financial inclusion needs to serve the bigger purpose of helping people in poverty mitigate vulnerability, build resilience, and take advantage of opportunity. But, to reach the ambitious goal of ending extreme poverty by 2030, we need to draw a map of how to get there. We need to show how digital payments, savings groups, conditional cash transfers, agricultural value chains, and graduation programs intersect with other sectors like health, education, housing, and nutrition to build pathways out of poverty. We must map out pathways for how these different interventions, stakeholders, and initiatives can work together to achieve our shared goal.

We share responsibility for promoting microfinance and financial inclusion practices that put clients at the center and show progress toward poverty eradication. At the World Bank’s 2015 Spring Meetings, the Campaign made a commitment to support the World Bank Group’s goal to reach universal financial access by 2020 (UFA2020). Through our commitment, we have joined a global coalition of partners that includes Visa, Mandiri, the State Bank of India, the World Council of Credit Unions, WSBI, the Microfinance CEO Working Group (a group of 10 international microfinance networks), Telenor, Ooredoo, Equity Bank, and Bandhan.

We know that the hardest part of reaching UFA2020 will be to ensure that financial services reach those living in extreme poverty, and the Microcredit Summit Campaign will work with its reporting institutions to help them expand their outreach by at least 53 million of the world’s poorest families, bringing the overall total of the world’s poorest families reached by microfinance to 175 million by 2020.

UFA2020 will be a stepping stone to achieving the post-2015 development agenda, and the Campaign will document what is being done well and disseminate those lessons far and wide through the State of the Campaign Report and our Microcredit Summits. The 18th Microcredit Summit will be an opportunity to learn about these six pathways and engage in a thoughtful discussion around the role each of us plays.

We invite you to join us and take part in leading this movement; start by organizing a breakout session for the 18th Microcredit Summit and making a Campaign Commitment. Submit your breakout session proposal for the 18th Microcredit Summit, and use our platform to inform our community about what you are doing to contribute to our common mission. You can also join our own coalition of Campaign Commitment makers by announcing specific, measurable, and time-bound actions that you will take to support our goal of helping 100 million families lift themselves out of extreme poverty. This is a key step in reaching the end of extreme poverty by 2030, and by focusing on our six pathways, we can design a better future and create a map of opportunity.

Financial inclusion to end extreme poverty

Related resources

Sources

Declaration and Plan of Action. Microcredit Summit Campaign. February 1997, Washington, D.C. http://www.microcreditsummit.org/resource/58/the-microcredit-summit-declaration-plan.html

Voices from the Field: William Derban

Pathways: financial inclusion to end extreme poverty | Find out what we heard from the industry in this year’s Listening Tour

We’ll be bringing you articles throughout April that reflect the results of this year’s Listening Tour
Photo credit: by Geoff (originally posted to Flickr as Pilgrim’s path) [CC BY 2.0], via Wikimedia Commons

Lea en español *** Lisez en français


April is the Month of MicrofinanceLearn more

April is the Month of Microfinance
Learn more

In preparation for our 18th Microcredit Summit, the Campaign conducted a Listening Tour from December 2014 through February 2015. The Listening Tour served two purposes. First, it was our hope to find out how our audience (you) felt about the World Bank’s goal of eradicating poverty by 2030, and equally important, we wished to consult you in identifying the topics that were at the top of everyone’s mind.

The Listening Tour is our time to listen — and your time to speak — on the issues that the microfinance and financial inclusion sector face. We collected your feedback through an online survey and organized conversations with 27 leaders in the microfinance and financial inclusion sector. We heard from them on how financial inclusion can contribute to the goal of ending extreme poverty by 2030 and the role of microfinance in the post-2015 agenda. The results of this consultation will be reflected in the 2015 State of the Campaign Report, the 18th Microcredit Summit, and Campaign Commitments.

Below is a short excerpt from our conversation with Dr. William Derban, director of financial inclusion (CSR & PMO) at Fidelity Bank in Ghana.

Q: What do you think will be needed to achieve the goal of global financial inclusion by 2020 and how can this contribute to the goal of eradicating extreme poverty by 2030?

William DerbanGovernments are trying to create a good environment, and while MFIs and SACCOs have stepped in to fill a gap, it seems banks have been left out. We need to include them [banks], looking at this not as corporate social responsibility, but as an opportunity for businesses to expand their client base and a responsibility that they have to the people. The key question is, “How can microfinance and the financial inclusion sector better partner with banks and help improve their by creating linkages?” This should not be about competition, but a way that we can collaborate to provide financial services that they [clients] can graduate into as part of this value-chain of financial services.

Q: In relation to our host region, what are the challenges and opportunities facing Africa & the Middle East in regards to microfinance and financial inclusion?

We need more awareness and campaigning of the issues especially in the countries most affected by poverty. In Africa, there is a lack of awareness among the poor about the benefits of having formal financial services. There is a need for financial education so that they understand what impact this can really have on their lives. People need to understand that this is not about financial services for the sake of it, but that a bank account can help you manage your finances and it can serve as a safe place to save for your child’s educations and this can all help you live a better life. In this way, financial education can create empowerment and change.

Q: What are key themes to consider or important debate topics we need to address in the microfinance & financial inclusion sector in the coming year?

Innovation is key! We cannot get to full financial inclusion without technology, but we need to actually develop new ideas and not just replicate what may have worked in one specific country or environment. When innovating in mobile technology, we cannot just work with telecommunications companies but need to include mobile phone manufacturers, app developers, and retail shops. We must find a way to ensure that the public is educated on new innovations and make sure they learn how to use this new technology.

We also need to find ways to scale down or “bank downwards” where banks work on a model that works for the poor. However, we need to create the appropriate partnership in order to do this. Banks can decide to “scale down” [i.e., target poorer populations], but if they do it by themselves, there are certain services they won’t be able to provide.

Related resources

About Fidelity Bank

Corporate social responsibility (CSR) lies at the heart of the vision and mission of Fidelity Bank, Ghana’s largest private indigenous bank. Since inception, CSR at Fidelity has mostly focused on philanthropic endeavors, but now, as a bank that is consolidating its world class status, it has become imperative to align our CSR with our corporate strategy, allowing us to leverage our collective expertise and resources for maximum impact.

Under the theme “Building Lives through Finance,” Fidelity’s CSR work is being led by the director for financial inclusion and CSR, Dr. William Derban. Dr. Derban’s areas of focus are microfinance, payment services, and running the first agency banking service in the country. He is also responsible for aligning the Bank’s corporate responsibility strategy to its core business strategy. In the past 14 years, he has focused on providing sustainable, market based, financial services to the unbanked within the financial industry in Africa, Europe, and the Middle East. Dr. Derban earned his doctorate in Microfinance and Development Finance from the Nottingham Business School, UK. He provides lectures on sustainability and financial inclusion and is also a passionate speaker at various conferences on development across Africa, the Middle East, and Europe. Prior to working for Fidelity Bank, Dr. Derban was the head of community relations with Barclays Africa and Emerging Markets where he managed the community investment strategy across 14 countries in Africa, the Middle East, and Asia. Subsequently, he led the strategy of downscaling to informal groups with a £10m project working with savings groups across Africa, Asia, and Latin America with CARE international and Plan. In addition to financial inclusion, he has established successful projects on youth entrepreneurship, preventative health, clean energy solutions, female empowerment, and integrated rural development programs.

Learn more about Fidelity Bank.

Voices from the Field: Syed Hashemi

Pathways: financial inclusion to end extreme poverty | Find out what we heard from the industry in this year’s Listening Tour

We’ll be bringing you articles throughout April that reflect the results of this year’s Listening Tour
Photo credit: by Geoff (originally posted to Flickr as Pilgrim’s path) [CC BY 2.0], via Wikimedia Commons

Lea en español *** Lisez en français


April is the Month of MicrofinanceLearn more

April is the Month of Microfinance
Learn more

In preparation for our 18th Microcredit Summit, the Campaign conducted a Listening Tour from December 2014 through February 2015. The Listening Tour served two purposes. First, it was our hope to find out how our audience (you) felt about the World Bank’s goal of eradicating poverty by 2030, and equally important, we wished to consult you in identifying the topics that were at the top of everyone’s mind.

The Listening Tour is our time to listen — and your time to speak — on the issues that the microfinance and financial inclusion sector face. We collected your feedback through an online survey and organized conversations with 27 leaders in the microfinance and financial inclusion sector. We heard from them on how financial inclusion can contribute to the goal of ending extreme poverty by 2030 and the role of microfinance in the post-2015 agenda. The results of this consultation will be reflected in the 2015 State of the Campaign Report, the 18th Microcredit Summit, and Campaign Commitments.

Below is a short excerpt from our conversation with Syed Hashemi, senior adviser for the CGAP Vulnerable Segments Initiative and professor at BRAC University in Bangladesh.

Q: What do you think will be needed to achieve the goal of global financial inclusion by 2020 and how can this contribute to the goal of eradicating extreme poverty by 2030?

Syed M Hashemi_BRAC_187x249There have been major efforts to achieve financial inclusion through developing better and more flexible products to meet client demand, using technology to lower costs and financial education to improve client money management. Far less has been happening on linking access to finance to extreme poverty eradication. In fact, few MFIs actually reach out to those in extreme poverty. Part of this is due to the singular focus on credit which is not what the poorest often need immediately. And, possibly more importantly it is the failure of the microfinance sector to work with other development sectors.

What microfinance needs to do is better understand the lives of the poorest (as distinct from “the poor”), the risks they face and the needs they have. So, savings and insurance, specially designed for this group, as well as financial education, is what is required. But, too often the poorest spend all their time with the day to day struggles for food security. And too insecure to even plan for the future. This is where the primary need is for safety nets to guarantee them basic consumption levels.

Now if microfinance was to work closely with safety nets and build on top of the food security that safety nets provide, it could assist in creating a ladder for the poorest to eventually use financial services, build sustainable livelihoods and graduate out of extreme poverty. This is the graduation model that BRAC pioneered and CGAP and Ford Foundation adapted and promoted globally.

However, it is not enough to have some models that work or some products that increase outreach. What is required is massively scaling these up so that we can indeed achieve the global goals we set out. This is where governments and policy makers are key. MFIs can only achieve so much on their own. It will ultimately be governments who have the bandwidth to make this happen, of course with MFIs and NGOs as critical strategic partners.

Q: What is the role of microfinance in the post-Millennium Development Goals (MDGs)/ Sustainable Development Goals (SDGs) era?

Many of the sustainable development goals will focus on building resilience of different demographic groups — children, the youth, the elderly, the disabled — as well as the extreme poor. Microfinance has a huge role in the effective design and delivery of child support grants, universal pension schemes, health insurance as a key element of universal health coverage, financing schooling and training, credit for micro and small enterprises, better transfer payment and emergency loan mechanisms, deposit services and of course partnering with graduation programs.

The Summit is an ideal platform to convene people to show case ideas and campaign for financial inclusion and the end of extreme poverty through more effective use of financial services.

Q: What are the most recent innovations and proven best practices in the field helping those living in extreme poverty? What are key themes to consider or important debate topics we need to address in the microfinance & financial inclusion sector in the coming year?

Let me highlight the key concerns moving ahead:

  1. Financial education and consumer protection.
  2. Children, the youth, the elderly, and the disabled.
  3. The environment, climate change, and the shrinking ecological reserves.

And the way forward in addressing these issues (and addressing pervasive market and government failures) is far greater collaboration with governments. We know governments can be slow and unresponsive, but ultimately, they have the budget and the constitutional obligation to increase the welfare of its citizens. We need to hold them accountable to that.
19_plenary_Going-the-extra-mile_SyedHashemi_594x345_photo credit - Vikash Kumar Photography

About BRAC University

BRAC University (BRACU) was established in 2001 building on BRAC’s experience of seeking solution to challenges posed by extreme poverty by instilling in its students a commitment to working towards national development and progress. The mission of BRAC University is to foster the national development process through the creation of a centre of excellence in higher education that is responsive to society’s needs, and able to develop creative leaders and actively contributes to learning and creation of knowledge.

Syed M. Hashemi is Professor and Chair of the Department of Economics and Social Sciences at BRAC University. Prior to that, he spent five years as founder-director of the BRAC Development Institute—a resource center for promoting research and building knowledge for addressing poverty, inequity and social injustice. Hashemi also spent nine years with CGAP at the World Bank in Washington DC, focusing on identifying pro-poor innovations and disseminating best practice lessons related to poverty outreach and impact. Hashemi was amongst the pioneers who started the Social Performance Task Force to promote a double bottom line in microfinance. He also headed a multi-country program to develop new pathways for the poorest to graduate out of food insecurity through building sustainable livelihoods. Hashemi continues to be involved with the graduation work at CGAP. Earlier, Hashemi directed the Program for Research on Poverty Alleviation at Grameen Trust and taught Development Studies at Jahangirnagar University in Bangladesh. He has a Ph.D. in Economics from the University of California at Riverside.

Click here to visit the BRAC University website.

Can tablets and apps fight poverty?

Kids learning_LISTA_599x450

Kids use the financial literacy app developed by Fundacíon Capital called LISTA
Photo credit: Fundacíon Capital

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>>Authored by Julieta Bossi, Communications Officer, Fundación Capital

MoMF

April is the Month of Microfinance

We can talk about innovation and we can talk about technology, but when we work on poverty reduction, the most important thing we need to talk about is community.

It is only when we understand what capabilities and tools already exist and are being used within a community that we can develop and explore new technologies and solutions for that community. And it is only by working together with the social innovation community that we can ensure that these new tools can reach millions and have a lasting impact.

At Fundación Capital we work to eliminate poverty by fostering economic, financial, and social inclusion. Without economic opportunities and financial abilities, one cannot obtain full citizenship, including all of the rights and responsibilities that it entails. Therefore, our main goal is to promote financial inclusion and create economic citizenship. We do this by strengthening the productive, financial, human, and social assets of people living in conditions of poverty and extreme poverty, empowering them to find their own way out of poverty. Throughout this process, we rely on innovation and technology that we created in partnership with the community to provide sustainable and effective solutions.

Fundación Capital works with public and private institutions, helping government entities to create more innovative and efficient public policies and helping the private sector to develop products and services that fulfill needs at the base of the pyramid.

Working with communities, we identify needs and preferences that guide the design of new solutions we dream up and develop. Existing knowledge, capabilities, and social capital become the springboard for innovation and represent valuable tools that can be combined with digital solutions to generate real and effective change with the potential to reach millions, including those living in the most remote and rural regions.

A client of Fundacíon Capital wiht her daughter Photo credit: Fundacíon Capital

A client of Fundacíon Capital wiht her daughter

Photo credit: Fundacíon Capital

Through this process of innovation and co-creation, we have developed a number of digital solutions. One of them is LISTA, an initiative that was born out of the need to provide financial education to millions of conditional cash transfer recipients in a cost-effective way. LISTA offers interactive and relevant content delivered via a tablet computer provided to the families. The app called “Produciendo por mi futuro” provides tips for financial planning, familiarizes users with ATMs and mobile money through simulators, and seeks to break barriers between low-income communities and the formal financial system. This tool is brought into families’ homes, providing users with the opportunity to study on their own time, concentrate on topics most relevant to their needs, and include all family members in the learning process.

Another way we transfer knowledge to less advantaged communities living in remote areas is through government, this app teaches them how to run a business, manage and invest the capital into productive activities. It ensures that these injections of capital will be invested and provide a foundation to build on and eventually graduate out of poverty. Once they’ve built up their businesses, communities can access additional funding through LittleBigMoney, Latin America’s first crowdfunding platform for projects or businesses led by bottom of the pyramid entrepreneurs or whose impact benefits vulnerable communities.

Another challenge encountered in poverty alleviation programs is training field workers and ensuring the quality of the financial education they deliver. Since they engage with the community on a daily basis, it is important that they are properly trained, so we have created an e-learning course for fieldworkers working with our graduation program.

We also provide fieldworkers with the “Produciendo por mi futuro” app  to increase their productivity. The fieldworkers leave the tablets with participating families, who study the material over the course of the week, so that when they meet with their fieldworker “coach”, they can have more productive and personalized conversations with real outcomes. The app empowers families living in extreme poverty, by offering them financial education and business training.

After years of working on designing, developing, and implementing these kinds of solutions, we have come to understand that the most important input for our work and innovation is the constant feedback we receive from communities. They are our inspiration and a great source of ideas for constant improvement and adjustment. While we can’t expect that any one of these digital solutions will provide a “magic bullet” tool for poverty alleviation, these tools support communities as they work to improve their lives and reach their goals.

A Fundacíon Capital family in their shop Photo credit: Fundacíon Capital

A Fundacíon Capital family in their shop
Photo credit: Fundacíon Capital

The only way to ensure that innovation and technology works is by both designing and testing it with the community and then learning from failures and making the necessary adaptations. For us, it is also important to learn from and share ideas with the social innovation community, so we look forward to working in partnership with other members of the community.

Fundación Capital made a Campaign Commitment to end extreme poverty, watch this video to know more about it:

 

Is it April Fools’ Day, or ‘Groundhog Day’?

Pathways: financial inclusion to end extreme poverty | Find out what we heard from the industry in this year’s Listening Tour

We’ll be bringing you articles throughout April that reflect the results of this year’s Listening Tour Photo credit: by Geoff (originally posted to Flickr as Pilgrim’s path) [CC BY 2.0], via Wikimedia Commons

Lea en español *** Lisez en français


>>Authored by Larry Reed, Director, Microcredit Summit Campaign

MoMF

April is the Month of Microfinance

We are capitalizing on the occasion of the Month of Microfinance to bring you articles throughout April on our 100 Million Ideas blog that reflect the results of this year’s Listening Tour. We received written feedback from 151 people and conducted 27 interviews with thought leaders like Beth Porter (UNCDF), Syed Hashemi (BRAC University), Essma Ben Hamida (enda inter arabe), and William Derban (Fidelity Bank). This feedback from the industry forms the basis of the Campaign’s theme for 2015 of financial inclusion to end extreme poverty and the six pathways that we think show promise in getting us there:

  • Mobile money linked with agent networks in low-income communities;
  • Agricultural value chains that reach to small scale producers;
  • Savings groups (aka village savings and loans associations);
  • Conditional cash transfers linked with mobile delivery and asset building;
  • Ultra-poor graduation programs; and
  • Microfinance savings and/or borrowing groups linked with health education, health financing, and health product delivery.

These six pathways will be reflected in the 2015 State of the Campaign Report, the 18th Microcredit Summit, and Campaign Commitments to be featured this year. From the start, the Microcredit Summit Campaign has advocated scaling up microcredit (and, by extension, “microfinance”) as just one part of a larger effort to end poverty. We have held up as paramount the continued innovation and client-focused development of financial tools, creative ideas for delivering these services to remote and hard-to-reach areas at affordable prices, and the promise that microfinance can help create positive and durable changes in the lives of those being served. These six pathways are a continuation of that promise.

Fazila Begum struggling Member of Grameen Bank Shakhaerchar branch

We met Fazila Begum in 2007. She was a struggling member of Grameen Bank, Shakhaerchar branch.

When will researchers catch up with microfinance leaders?

From the very first loan of $27 that Mohammad Yunus gave to 42 women in Bangladesh, the heart of microfinance has always been about getting to know the needs of people living in poverty and designing products and services that help them loose the bonds that keep them in poverty. The aim of Yunus and many other founders of the movement was not to build financial institutions, but to empower people women to create a better future for themselves and their children. To do this they had to get to know people living in poverty and their cash flows, needs and aspirations in order to develop combinations of helpful products and services.

So when our team listened to the presentations of academic researchers made at the World Bank covering six randomized control trials of microcredit programs, we came away more than a little underwhelmed. Their big conclusion, after spending several years and millions of dollars on research: “Understand clients.” (Watch a recording of the forum.)

Even more alarming was that many of the researchers and the audience seemed surprised by the news. We have been engaged with leading microfinance groups around the world and have seen how they have learned — on their own — the lessons that the researchers presented as well as how they adapted their programs to address them long ago.

Here are some examples of research findings presented at the World Bank gatherings and actions previously taken by leading MFIs:

“Credit alone, on average, has neither large positive or negative effects.”

Very few of the leading MFIs that have focused on reaching people in poverty and facilitating their movement out of poverty have ever offered only credit. Grameen, from the start, had group savings and the 16 Decisions. The Village Banks developed by FINCA offered group savings and a group insurance fund. Many also provide training in business, marketing, health, nutrition, and sanitation in their group meetings.

“When only credit is available, people may use it when what they really need is savings, or insurance or other financial products.”

Microfinance leader BRI in Indonesia has been offering individual voluntary savings accounts since the 1980s and now has over 35 million savings accounts and 8 million borrowers. While many of the group lending systems provided loans, savings, and insurance bundled into one package, many of the leading MFIs have begun unbundling those services in the last two decades.

Grameen II, instituted in 2001, provides a range of financial services to clients, including voluntary savings and micropensions, and it removed the group guarantee on loans. Opportunity International began providing microinsurance in 2002, expanding from life insurance to health, casualty, and crop insurance and then spinning off MicroEnsure as a subsidiary that now reaches over 10 million clients.

Nangolkot, Noakhali, Bangladesh

Villagers in Nangolkot, Noakhali, Bangladesh
Photo credit: ©Shamimur Rahman and Giorgia Bonaga

“For 5-10 percent of the clients, credit has a very large positive impact on business growth and income.”

Aris Alip, founder of the CARD network of mutually reinforcing development institutions, saw this happening in the villages where CARD provided group-based savings and lending services. He also saw that those 5-10 percent that grew benefited the community by providing stable employment to others. In 2008, CARD created an SME bank to work specifically with fast growing microbusinesses and to see if, by providing appropriate products and services to this group, they could increase the percentage of growing businesses to 15 or 20 percent.

“For the ultra-poor, a gift of an asset has significant positive impact.”

REST Client photo_427x569

A woman client of Relief Society of Tigray (REST) in Ethiopia harvests her mango tree.
Photo credit: REST

This learning came directly from the work of BRAC and its ultra-poor graduation program. BRAC found that those who live on less than $.50 per day face so much vulnerability in their lives that they do not want to take on more debt. They developed a system of regular stipends of food or cash, a gift of an asset like an animal or a sewing machine, business training, savings, and regular mentoring. This program has now been replicated in several countries, and studies of these programs show strong positive impact.

The Relief Society of Tigray (REST) has combined this programs with the government’s Productive Safety Net Program so that the government provides the stipends and the assets, REST provides training and mentoring, and Dedebit Bank provides savings and lending facilities.


We are glad that these studies have proven out the innovations implemented by many leading MFIs. But if researchers want to get ahead of the learning curve, they could start to engage with some of these leading institutions on the questions that they are asking now. Here are some suggestions we have for new areas of research:

Research question 1: Conditional cash transfers (CCTs) seem to play an important role in providing some regularity in lives that are filled with unpredictability and vulnerability. How can these be linked with other services, like savings and insurance, to help beneficiaries move from resilience to asset building?

Research question 2: Are there some financial services that consistently provide benefits and rarely cause harmful effects so that they should be recommended for all? It looks like savings could fit this category, provided the savings mechanism is safe and the account maintains its value over time.

Research question 3: How do we refine our understanding of the situations in which credit is most likely to be helpful? And, what role do other services, such as group meetings, access to health care, insurance, and savings, improve the likelihood that a person will benefit from credit?

Research question 4: Graduation programs that start with a donated asset, group meetings, mentoring, and community involvement and lead to other financial service like savings and credit have proven to have a positive impact. Can we start to determine under what circumstances a person will need all of these services — and which people might need only one or two — to start moving from extreme poverty?

Instead of taking more time and money to prove that we need to understand clients, we suggest that researchers work with microfinance institutions that already listen to their clients and develop with them research agendas based on that growing understanding.

The same family from the top of the article has gone through the Stoplight process and now their situation is much improved.

A Fundación Paraguaya family has gone through the Poverty Stoplight process and now their situation is much improved. Read our blog post about the Poverty Stoplight.
Photo credit: Fundación Paraguaya


Relevant Resources

2013 State of the Campaign Report:Know Your Client

Social protection: innovative programs deliver financial services at scale

How families are creating step-by-step plans for poverty elimination


 

A few key takeaways from the World Bank forum on microcredit (video)

The diagnosis of the six randomized evaluations that spanned six countries on four continents, in both urban and rural areas with different borrower, lender, and loan characteristics, was that they showed no significant impact on the poverty level or living standards of the clients.

In some studies, it was concluded that the top 5-10 percent of clients did have some significant impact on their income and assets. One study showed some positive impact on women’s empowerment while another showed that depression seemed to go down for clients who had taken a loan, but their stress levels went up. Basically, it was all rather inconclusive, yet it also opened a transformative dialogue about how we can learn from our mistakes and what we need to do better to meet the needs of our clients.

On learning from what we know does work

The results of the randomized evaluations suggest that microcredit alone doesn’t have a transformative effect on the poor. However, despite its shortcomings, it is recognized that microcredit enhances the range of choices available to the poor and allows them to manage their circumstances as they consider appropriate.

Furthermore, microcredit still serves, in many cases, an important role as a risk absorption tool, acting as an insurance product that allows the clients to react to shocks and emergencies. In these instances, credit provides stability and prevents the clients from falling deeper into poverty. It has long been recognized that credit is not suited for many people, so insurance products should not be built around a credit product. In fact, several panelists said that microinsurance may be more needed than microloans particularly in sub-Saharan Africa,

For his part, Alex Counts (Grameen Foundation) invited the audience to focus on the five percent of clients — equivalent to millions of families — who moved out of poverty with microcredit. We should do this because we should want to understand (isn’t it our job to understand?) what it was that helped them compared to those less successful (or unsuccessful).

More research is needed to stimulate this conversation around what is working and what is not and to promote models that can serve as examples for adaptation and replication.

On understanding your clients

The research presented at the World Bank forum showed us that we need further analysis on what poor people really want and in understanding the heterogeneity of needs. It is important to study the particular context of each country, region, and community. Different circumstances lead to heterogeneous needs, so we need to offer a variety of products and services that actually meet the specific needs of the clients.

In addition, we need much more work on tracking how the money is being used. Perhaps we should not only look at factors like change in profits, wages, or consumption to test the success of microcredit products. Clients sometimes use their loan for personal needs, like for health issues or for social obligations such as weddings and funerals, and in order to see the impact of microcredit on the overall quality of life for clients, we need to know where the money is going.

Knowing more about these two dimensions will enable better product design, promote innovation, and help microfinance evolve in a manner that is both sustainable and beneficial to the extreme poor. It comes back to what Dean Karlan said, “Understand your clients.”

On the implications of digital innovations

Innovations in financial technologies are increasing client outreach and reducing transaction costs (to nearly zero), but they are also creating new transparency challenges that could pose serious risks to the clients if they are not addressed.

The main concern is the lack of adequate regulation for digital financial services. Client protection measures need to be in place to raise awareness of the risks linked to loans and ensure that customers understand the terms and conditions of the loans they are taking out. This is particularly important when we consider the rapid pace of growth and expected outreach of the new digital services.

When looking at agent networks, serving 100,000 clients after five years was a big achievement; today, however, they are expected to reach 1,000,000 clients after only one year of implementing a digital service.

We need to carefully assess the risk of inflicting harm to a large number of people at the base of the pyramid to ensure that digital financial services are being provided in a responsible way that brings no harm to the clients. Keeping this in mind may inspire innovative ideas for consumer protection and improve the quality of existing products.

On their recommendations for further research

In the coming years, Abhijit Banerjee (J-PAL) stated that research should focus on answering the questions: Why is there a low demand for microcredit products? What do clients need? What are the right products to offer them and the right channels? Where does the money go if it doesn’t reduce poverty?

Esther Duflo talked specifically about the graduation pilot programs, which are targeting the ultra-poor and already show some positive results on poverty levels. The results of this research will buoy efforts to promote the adoption of graduation programs as a poverty alleviation tool and underscores the need to segment the poor for the purposes of understanding the impact of microcredit and designing adequate products.

Are we measuring the real story? Jaikishan Desai, one of the researchers of the RCTs, posed this question to the audience. This seemed to go beyond how do we interpret the data to what is the purpose of measuring the impact of microcredit? Is microcredit and microfinance supposed to be the cure of the world poor or should it be used as a tool to include ignored segments of the population and reduce risk to those most vulnerable? Are we looking for a change in poverty levels or should we be focusing on the impact credit has on maintaining stability?

Other questions that were not resolved included, was the length of the study a factor? Do we need more long-term or short-term assessments? What about the generational impact? Could it be that we won’t see the effects of microcredit on clients unless we track progress through the next generation?

What impact does an MFI’s staff incentives and governance have on its clients? Does this impact the type of loans they receive and the quality of the product?

Relevant resources


For those who are unfamiliar with the cultural references in the title

April Fools’ Day: April 1st is a day of pranks and practical jokes and has its roots in medieval Europe — or possibly even earlier — and is similar to (or may be related to) the Holi festival of India.

Groundhog Day: February 2nd is an American tradition brought over by our German ancestors and adopted by popular culture and the media; it consists of looking to a rodent (a groundhog) to find out if winter is over or not. However, our reference here refers to a fantastic movie of the same name where Bill Murray relives the same day over and over again to hilarious effect.