#tbt: Digital Transactions for Products the Poor Can Afford

Gallery

This gallery contains 1 photo.

The promise of mobile technology infographic: how it works
Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation in the United States, talked to Larry Reed, director of the Microcredit Summit Campaign, for the 2013 State of the Campaign Report.

Larry Reed: What opportunities do you see for digital transactions making a difference in the lives of the very poor?

Rodger Voorhies: Like most of us, poor people live their lives through a lot of different kinds of financial connections, and payments are really the connective tissue that hold those financial transactions together. Unless we can figure out ways to help poor people transact in a way that is profitable for them and profitable for providers, we’re really not going to see large-scale financial inclusion take place.

Now, one of the most exciting things that’s going on for us is the ability of mobile money to reach down into really poor households, and so right now in a country like Tanzania 47 percent of households have a mobile money user. An exciting bit of that is not so much, okay, there’s one person in the household sending money to friends, but it might open up all kinds of innovations that before were previously unavailable.

So, let’s think about savings, because we know savings have a big impact on poor people. Well, it’s really hard to save, and poor people have to take a lot of self-control and we expect a lot of self-discipline out of them if they’re going to be able to save. If I can actually begin to transact digitally and I had defaulted into commitments accounts and savings accounts for school fees or whatever the mental maps are that work for me, I think we can see large scale inclusion that actually has a big development impact. And we know that the empirical evidence around these pieces work, so we know commitment accounts work, but poor people just don’t have a way to get those commitment accounts.

Español | Français | Continue reading

#tbt: 2011 workshop paper on microfinance for remote, hard-to-reach areas

#Tbt_18

Lea en español *** Lisez en français


In 2011, we commissioned more than 40 papers to accompany the workshops and plenaries organized at our Global Microcredit Summit 2011. This week’s #ThrowbackThursday is a great opportunity to review the wealth of knowledge generated by the Summit. Listen to the audio recording from the workshop here.


What is the Cutting Edge for Microfinance in Remote, Hard to Reach Areas?

Authors: Anne Hastings and Steven Werlin

Introduction

Maximizing access to financial services in remote rural areas requires us to face a range of challenges that demand, in turn, a range of solutions. The problem is no more uniform than the regions that the services need to get to or the nature of the services required.

Access is not an end in itself but merely an important means towards progress for rural families and the communities they inhabit. That means that there are two sides to the question of access. On one hand, we must ask: what are the most effective ways to deliver financial services to especially hard-to-reach areas. Getting standard financial services to some areas presents significant challenges. On the other, there are distinct products and services that can help families living in remote rural areas in important ways. In other words, there is both a question of delivery of services and a separate question of the design of those services. In this paper, we have chosen to focus almost exclusively on the delivery of services.

Even if we limit our analysis to the question of delivery, the answers we present must vary for the various standard financial services we consider. If the issue is access to credit, we believe that one cutting edge approach to delivery continues to be a well-tried model: opening branches in underserved areas that spread their reach through traditional solidarity-group credit centers. The key to this approach remains ensuring attention to what we call the three pillars of standard solidarity-group microcredit: center attendance, 100% repayment, and proper investment of loans. We will discuss our own experience re-establishing these pillars at one rural branch as well as our new effort to shift center leadership from MFI staff to local credit center members.

Read the full paper.

Listen to the audio recording of the workshop.

Review Dr. Pant’s presentation.


Related reading

#tbt: Affordable Transactions for the Poor

#Tbt_10

Photo courtesy of Jeffrey Ashe

Lea en español *** Lisez en français


We are pleased to bring you this #ThrowbackThursday blog post, which was originally published in Resilience: The State of the Microcredit Summit Campaign Report, 2014, under the chapter “Mobile Network Operators Can Build Systems that Reach the Poorest and Most Remote.” The section excerpted below describes how important mobile technology and digital financial services are for reducing the cost of doing business with the poor and hard-to-reach — both for the provider and the client. Read also Ian Radcliffe’s blog post from Tuesday in which he describes WSBI’s progress achieved so far toward a related Campaign Commitment.


Transaction costs pose a significant challenge to those seeking to provide financial services to people transacting in very small amounts or living in remote areas. The cost of providing the service often exceeds the price that the client can afford to pay. People living in poverty must manage daily transactions with incomes that are small, inconsistent, and often unpredictable.

Ian Radcliffe, of the World Savings Bank Institute (WSBI) reported its research that calculates that people living in poverty can only afford to pay about USD 0.60 a month for financial transactions, an amount far lower than the cost to employ staff to manage the transactions. Moving transactions to mobile platforms can drastically reduce many of these costs.


An interview with Ian Radcliffe, Director of World Savings Bank Institute. Download a transcript of the video [PDF].

Low-income clients have shown the ability to adopt new technology when it provides them with essential services at much lower cost or with much easier accessibility than the alternative. A study by William Jack and Tavneet Suri of the M-PESA mobile payment system in Kenya describes how their system grew from its launch in 2007 to cover 70 percent of the Kenyan population today. The study stated that “while M-PESA use was originally limited to the wealthiest groups, it is slowly being adopted by a broader share of the population,” including those in the bottom quartile of household expenditure. [1] Compared to the option of receiving money from relatives far away only on their sporadic visits home, or through a USD 5 bus ride into the city, low-income people in rural areas quickly found out how to get access to a mobile phone, receive a funds transfer on it, and travel to the nearest agent to turn the digital funds into cash.

In addition, access to mobile payments can play a key role in reducing vulnerability and building resilience. Jack and Suri studied low-income families in rural Kenya who experienced economic shocks. Those with access to M-PESA received a greater number of remittances and more money from friends and family than those who did not have access to M-PESA. Access to mobile money gave them the ability to tap into a larger network and weather the economic crisis.


[1] William Jack and Tavneet Suri, 2011, “Mobile Money: The Economics of M-PESA,” http://www9.georgetown.edu/faculty/wgj/papers/Jack_Suri-Economics-of-M-PESA.pdf.

#tbt: Clients Continue Movement above the US$1 a day Threshold

The study found that, on net, 1.8 million microcredit client households, including 9.43 million household members, crossed the $1.25 a day poverty threshold between 1990 and 2008.

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2011. We commissioned a study to estimate the net number of microcredit client households in Bangladesh that crossed the US$1.25 a day threshold between 1990 and 2008. You can download a copy of the study from our Resource Library as well.


Authored by Sajjad Zohir, the director of the Economic Research Group; he is based in Bangladesh.

The Microcredit Summit Campaign is committed to using microfinance to powerfully contribute to the end of poverty. Its decade-long focus on client poverty measurement and progress out of poverty underscores this commitment. To this end, the Campaign continues to track progress towards its second goal to ensure that, from a starting point in 1990, 100 million of the world’s poorest families move from below US$1 a day adjusted for purchasing power parity (PPP) to above US$1 a day adjusted for PPP by 2015.

Evidence from Bangladesh

Findings from a nationwide study in Bangladesh commissioned by the Campaign shows promising results. The study, undertaken by the Bangladesh-based Economic Research Group, was administered between February and August 2009. Researchers surveyed a nationally representative sample of 4,000 Bangladeshi microcredit clients and estimated the net number of households in Bangladesh that crossed the US$1.25 a day threshold between 1990 and 2008.[1]

The study found that, on net, 1.8 million microcredit client households, including 9.43 million household members, crossed the $1.25 a day poverty threshold between 1990 and 2008. A second key issue raised in the report, seen in Figure 1 below, was that in some years a large percentage of clients left poverty, whereas, in years coinciding with the 1998 floods and the food crisis of 2008, many households, including some who where non-poor when they joined the microcredit program, slide below the $1.25 threshold.

Figure 1: Percentage of Client Households, on Net, Crossing the US$1.25 Threshold in Bangladesh

Figure 1: Percentage of Client Households, on Net, Crossing the US$1.25 Threshold in Bangladesh
Data showed that among those taking their first microcredit loan between 1990 and 2008, the following poorest client households crossed the US$1.25 threshold:

1990-1993 8.94%
1994-1997 19.83%
1998-2002 0.33%
2003-2008 1.84%

It is important to note that the findings in this report were significantly influenced by the period in which the data was collected. In 1998 Bangladesh suffered from what are often described as the most severe floods ever to hit the country. In 2008, a food crisis coupled with political instability in Bangladesh and the global economic crisis led to a general slack in economic activities. All these factors may have led to the depletion of assets that are commonly chosen as proxies to measure poverty status among the very poor in Bangladesh. This in turn may have led to under-estimation of the number of microcredit client households that may have otherwise crossed the threshold.


Footnote

[1] This study made no attempt to establish causality between microcredit and poverty alleviation. Instead, it simply estimates the change in status of microcredit client households between 1990 and 2008, when compared with their status during the time of the first loan received by any member of the household.


Related reading

#tbt: 2011 workshop paper on financial literacy

#Tbt_18

Lea en español *** Lisez en français


In 2011, we commissioned more than 40 papers to accompany the workshops and plenaries organized at our Global Microcredit Summit 2011. This week’s #ThrowbackThursday is a great opportunity to review the wealth of knowledge generated by the Summit. Listen to the audio recording from the workshop here.


Financial Literacy: A Step for Clients Towards Financial Inclusion

Authors: Monique Cohen and Candace Nelson

Introduction: Financial Education for Financial Inclusion

These are tumultuous and exciting times for microfinance, marked equally by the stunning potential of the cell phone to change the face of financial services and disturbing reports of suicides linked to over-indebtedness. Against this backdrop, a shift in the industry is taking place, drawing our attention from the financial institution back to the client. Indicators of a renewed concern for clients include research to quantify the “unbanked,” rallying calls for consumer protection, and efforts to better meet customer needs with diversified products. A key driver of this change in focus is the now widely embraced goal of “financial inclusion.” Governments of developed economies, in G20 Summit agreements, have recognized financial inclusion and consumer protection as integral to achieving financial stability and integrity. Financial access has been highlighted as a “key accelerator” to meet
the Millennium Development Goals. Key to attaining this laudable goal is financial education (World Savings Bank Institute, 2010).

Financial inclusion is a multi-dimensional, pro-client concept, encompassing better access, better products and services, and better use. Herein lies its challenge — without the third element, use, the first two are not worth much. Technological innovations are bringing both new customers, potentially including millions of unbanked cell phone owners, and new service providers — a diverse array of retail outlets, telcoms and others — into the market. Diversification of products and services has already resulted in rich, and complex, choices for consumers, especially compared to the early days of one-size-fits-all working capital loans. Yet, increased access and better choices do not automatically translate into effective use. The path from uptake (i.e., opening an account) to usage is still an uncharted course. Effective use is hampered by asymmetries of information and power between financial institutions and poor consumers, an imbalance which grows as customers are less experienced and the products they can choose are more sophisticated an imbalance which holds real potential for negative outcomes due to institutional abuses or ill informed client decisions.

Financial education is an important tool to address this imbalance and help consumers both accept and use the products to which they increasingly have access. Because it can facilitate effective product use, financial education is critical to financial inclusion. It can help clients to both to develop the skills to compare and select the best products for their needs and empower them to exercise their rights and responsibilities in the consumer protection equation. Properly designed, financial education is tailored to the client’s specific context, helping them to understand how financial instruments, formal or informal, can address their daily financial concerns, from the vagaries of daily cash flow to risk management. Its power lies in its potential to be relevant to anyone and everyone, from the person who contemplates moving savings from under the mattress to a community savings group, to the saver who tries to compare account choices offered by competing banks. As such it spans the informal and formal financial sectors, supporting clients’ access to, and more importantly, use of, diverse financial services.

Current developments in microfinance are both exciting and potentially perilous. To take advantage of the former and protect against the latter, those placing the client at the center of their efforts are embracing financial education. This paper will situate financial education in an evolving financial landscape, identify its stakeholders, and most importantly, summarize experience to date and explore how that experience is shaping the vision and agenda for its future.

Read the full paper.

Listen to the audio recording of the workshop.


Related reading

#tbt: Lobbying the World Bank, Part II

ddd

“We measure what we value and we value what we measure. It is clear that donor agencies value strong financial performance because they require their clients to measure their financial performance precisely. Except for USAID, other donors still do not demonstrate a similar value on measuring the poverty level of entering clients.”
Read the entire 2004 State of the Campaign Report.

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2004. The RESULTS International Conference is this weekend (July 18-21), and grassroots activists from the U.S. and around the world will be in D.C. to lobby the USAID Administrator and World Bank Directors. In reviewing advocacy fights in the early 2000s, we remember our campaign to push the World Bank to mandate the use of poverty measurement tools by their partners.


In this introduction to the State of the Microcredit Summit Campaign Report, rather than presenting a neat, uncontested picture of the field of microcredit seen solely from the Campaign’s perspective, we think it useful to listen to the challenges and opposition to what the Campaign and these parliamentarians have championed, coming as it does from some of the most influential institutions in development. In the pages that follow, we invite you to listen in on debates that contrast the views of the World Bank and CGAP with those of industry leaders like BRAC founder Fazle Abed, Grameen Bank founder Muhammad Yunus, and the Microcredit Summit Campaign. What follows are excerpts from the World Bank and CGAP’s responses to the 700 parliamentarians, along with reactions from the Microcredit Summit Campaign.

In his response to 188 British Parliamentarians, World Bank President James Wolfensohn wrote, “I very much agree with your observation that microfinance has a demonstrated, powerful impact in improving the livelihood of the poor, and a crucial role in reducing poverty. Access to financial services for the poor is a critical condition for the attainment of the Millennium Development Goals.”…This show of support is important, but the words must be followed by more effective action.

Wolfensohn asked officials from the World Bank and the Consultative Group to Assist the Poor (CGAP), to jointly address the detailed issues raised in the parliamentarians’ letter…

Continuing from Part I

WB/CGAP: We of course agree that conventional microfinance does not automatically push itself deeper to reach poorer clients. In fact, many MFls do move away from poorer clients to those who are better-off, under the assumption that better-off clients pose lower risks and the larger loans they would be taking would increase institutional profitability and sustainability. We believe, therefore, that there needs to be a sustained effort at trying to reach poorer people. This needs to come from understanding client needs and developing products and services that are useful to them. It needs to come from developing better targeting tools and identifying, encouraging and funding innovations that enable sustainable financial services to the very poor. It needs to come from greater transparency so that information is made available on whether institutions are actually reaching very poor clients. What is required is a set of incentives that promote such activities and ongoing demonstration [that] financial services to the very poor is a feasible and sustainable business.

Download the full 2011 State of the Campaign Report in our Resource Library

Download the full 2011 State of the Campaign Report in our Resource Library

MCS: What greater incentive is there for promoting outreach to those below $1 a day than for an MFI to know that the World Bank and other donors want them to use a cost-effective poverty measurement tool? Wouldn’t this give us “greater transparency so that information is made available on whether institutions are actually reaching very poor clients?”

Advocacy efforts to ensure that donor efforts in microfinance reached the very poor began in 1986. There has never been a greater move to ensure that the very poor are reached than has occurred since the U.S. legislation became law in 2003. This change took 17 years and a Congressional mandate. With the Millennium Development Goals due in just 11 years, another decade of soft incentives is insufficient. Freedom from Hunger’s Chris Dunford argues that we measure what we value and that we value what we measure. It is clear that donor agencies value strong financial performance because they require their clients to measure their financial performance precisely. Except for USAID, other donors still do not demonstrate a similar value on measuring the poverty level of entering clients.

WB/CGAP: Many of the poorest people with no sources of income require grants, employment and other services, rather than microcredit. Donor support for developing models that “graduate” them from welfare-type safety net programs to where they have sufficient incomes to productively use financial services, is far more important than credit per se. Credit is, after all, debt, and under certain circumstances it can make the extremely poor more vulnerable, not less vulnerable.

MCS: “Donor support for developing models that ‘graduate’ them from welfare-type safety net programs to where they have sufficient incomes to productively use financial services” is important, but which donors are leading in this area and how extensive is that leadership? The impression is given that very poor families should not access microfinance but instead choose the services they need as if these services are readily available. This is a false choice for the very poor when 29,000 of the children of the poorest die each day from mostly preventable malnutrition and disease, when 104 million of their primary-school aged children are not in school, and when the services they desperately need are not likely to be available today or in the near future.

World Bank and CGAP officials say that “Credit is, after all, debt, and under certain circumstances it can make the extremely poor more vulnerable, not less vulnerable,” but it is the debt that they have taken on from unscrupulous moneylenders that mires hundreds of millions in a life of grinding poverty. As Karen L. McGuinness of Princeton University wrote in a letter for The New York Times, “The reality in most poor countries is that the poorest are already saddled with incredible debt at usurious rates from local moneylenders. This is the fundamental predicament that microfinance institutions have effectively addressed for nearly three decades now.”

WB/CGAP: We fully agree that there is a need for cost effective poverty measurement tools. Much greater transparency is required on whom financial institutions are reaching. CGAP has been very active in developing tools to encourage a deepening of microfinance outreach. It has developed a “Client Poverty Assessment Tool” and a “Poverty Audit of Microfinance Institutions’ Pro- Poor Services” for donors to determine whether their funded institutions do indeed try hard and succeed in working with the very poor. Recently, CGAP has also been working with financial institutions to assist them to develop their own simple and cost-effective poverty assessment tools.

MCS: While the work of CGAP is appreciated, it has not created the breakthrough in thinking and action that the new U.S. law has forged. Developing new tools can still be a far cry from ensuring their use. Even though CGAP’s Poverty Measurement Tool has been available for at least four years, not more than a handful of CGAP’s 29 members have ever used it. The slow pace of voluntary implementation is insufficient for ensuring the change necessary for cutting absolute poverty in half by 2015.

WB/CGAP: We are aware of the microfinance legislation passed in 2002 by the U.S. Congress. In fact, at the urging of its bilateral and multilateral donor members, CGAP launched a discussion on its website on whether the approach promoted by such legislation could be more broadly applicable to other donor agencies. A very active discussion followed and the result was that many senior members of the microfinance community were opposed to the extension of such mandates in other donor agencies. (The discussion submissions can be found on the internet under US Poverty Mandate Discussion at www.microfinancegateway.org.)

MCS: It is true that many senior members of the microfinance community were opposed. In fact, the first four statements posted were from CGAP Executive Committee members, all of whom were opposed to adoption of the new mandate by other aid agencies. On the other hand, the mandate had the support of Fazle Abed, Chairman of BRAC, Shafiqal Haque Choudhury, Managing Director of ASA, Muhammad Yunus, Managing Director of Grameen Bank, Chris Dunford, President of Freedom from Hunger, Anton Simanowitz, Director of ImpAct, Didier Thys, CEO of The MIX, Alex Counts, President of Grameen Foundation U.S.A., and other key players. These are the opinions from leaders of some of the largest and most successful poverty-focused microfinance institutions in the world.

Relevant reading

#tbt: Lobbying the World Bank, Part I

#Tbt_6

Elizabeth Littlefield, CEO of CGAP in 2004, said at the 2004 Microcredit Summit in Bangladesh, “There is no evidence of a necessary trade-off between poverty and sustainability.”
Read her full quote on page 12 of the 2004 State of the Campaign Report.

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2004. The RESULTS International Conference is only three weeks away (July 18-21), and grassroots activists from the U.S. and around the world will be in D.C. to lobby the USAID Administrator and World Bank Directors. Therefore, we’re reviewing advocacy successes and struggles in the early 2000s. This week, we look at a breakthrough we achieved in getting the World Bank to recognize microfinance as an important strategic element in reducing poverty and announcing that they were committed to increasing their funding for microfinance.


In this introduction to the State of the Microcredit Summit Campaign Report, rather than presenting a neat, uncontested picture of the field of microcredit seen solely from the Campaign’s perspective, we think it useful to listen to the challenges and opposition to what the Campaign and these parliamentarians have championed, coming as it does from some of the most influential institutions in development. In the pages that follow, we invite you to listen in on debates that contrast the views of the World Bank and CGAP with those of industry leaders like BRAC founder Fazle Abed, Grameen Bank founder Muhammad Yunus, and the Microcredit Summit Campaign. What follows are excerpts from the World Bank and CGAP’s responses to the 700 parliamentarians, along with reactions from the Microcredit Summit Campaign.

Download the full 2011 State of the Campaign Report in our Resource Library

Download the full 2011 State of the Campaign Report in our Resource Library

In his response to 188 British Parliamentarians, World Bank President James Wolfensohn wrote, “I very much agree with your observation that microfinance has a demonstrated, powerful impact in improving the livelihood of the poor, and a crucial role in reducing poverty. Access to financial services for the poor is a critical condition for the attainment of the Millennium Development Goals.”

This is a tremendous vote of confidence from Mr. Wolfensohn, but if, as Wolfensohn says, “access to financial services for the poor is a critical condition for the attainment of the Millennium Development Goals (MDGs),” then reaching those below $1 a day is also critical. Mr. Wolfensohn acknowledges the poverty goal, which seeks to cut absolute poverty in half by 2015, as the lead MDG. Absolute poverty is measured by those living below $1 a day, adjusted for purchasing power parity. This show of support is important, but the words must be followed by more effective action.

Wolfensohn asked officials from the World Bank and the Consultative Group to Assist the Poor (CGAP), to jointly address the detailed issues raised in the parliamentarians’ letter.

World Bank and CGAP officials begin their own response to the parliamentarians on a hopeful note when they write that microfinance forms “…an important strategic element in any broad based effort to reduce poverty,” and assert that the World Bank and CGAP “are committed to massively scaling up this access to financial services.”

While it is good for the Bank to declare microfinance as an important strategic element in reducing poverty, there is still a disconnect between this assertion and the fact that microfinance constitutes less than one percent of annual Bank spending. Assigning such a low priority to microfinance is neither strategic nor a sign it is viewed as important. There is also a disconnect between the Bank’s enviable commitment “to massively scaling up…access to financial services,” and the fact that the Bank offers nothing measurable in response to the parliamentarians’ request to double spending. It would seem that a massive scale-up would at least equal a doubling from less than one percent to less than two percent.

World Bank and Consultative Group to Assist the Poor (WB/CGAP) officials continue by saying, “While the World Bank Group already provides more microfinance funding than any other agency, we remain committed to doing much more. The fundamental constraint to an exponential increase in the numbers of poor people receiving financial access is, however, a real absence of retail institutional capacity. Building this capacity is an integral part of the financial systems of our client countries and is, therefore, a critical task for the World Bank Group and other agencies.”

MCS: The World Bank should provide more microfinance funds than any other agency given that its overall portfolio dwarfs that of all other bilateral and multilateral donor institutions. However, the World Bank does not provide more funding than any agency. USAID surpasses the Bank’s total spending in microfinance. In addition, more than one percent of USAID’s funds and more than three percent of UNDP funds[5] go to microfinance.

Retail institutional capacity does exist. Some of the global and domestic partners of a number of institutions and networks are either already reaching very poor clients or gearing up to do so as a result of the new U.S. law. These include institutions and networks such as ASA, BRAC, PKSF[6] and Grameen Bank in Bangladesh, NABARD and SIDBI in India, Pro Mujer, Freedom from Hunger, Opportunity International, FINCA, CARE, Save the Children, Catholic Relief Services, World Vision, Katalysis, Grameen Foundation U.S.A., ACCION and World Relief in the U.S., Développement international Desjardins in Canada, members of The Africa Microfinance Network (AFMIN), Sanabel members in the Middle East and North Africa, and members of REDCAMIF and Foro Latinoamericano y del Caribe de Finanzas Rurales in Latin America.

PKSF alone estimates that for the six years beginning July 2004 and ending in June 2010, $562 million could be absorbed by its 192 Bangladeshi partner organizations and those to come. This is in just one country.

There are scores of institutions around the world that have demonstrated the vision and systems to reach the very poor sustainably. To say there is “a real absence of retail institutional capacity” is to imply that whatever capacity exists has been fully exploited. This is clearly not the case. The greater problem is the low priority donor agencies place on finding institutions with the vision and systems necessary for expansion to the very poor, not the “absence of retail institutional capacity.”

WB/CGAP: We agree with the spirit of your recommendation that at least 50% of World Bank funds should be reaching those living on less than a dollar a day. However, we do not think that earmarking funds would be the best strategic choice for moving the microfinance industry towards sustainably serving much larger numbers of those in absolute poverty. In fact, such directed lending could have an adverse effect on scaling up, through distorting markets. Many MFIs achieve sustainability through increasing outreach to a larger diversified client group. They end up serving much larger absolute numbers of the very poor, even though they may have a smaller percentage of very poor clients in comparison with poverty-focused institutions that are not sustainable. Such MFIs would be penalized through the suggested mandate.

MCS: Institutions that do not exclusively, or even predominantly, target the poorest need not be penalized. The parliamentarians are not asking that all MFIs reach the very poor or that half of an MFI’s clients fall below $1 a day when they entered the program. They are asking that, on balance, half of World Bank spending in microfinance go to people who were very poor when they started with the program. Within the World Bank’s portfolio there might be a group of institutions that primarily serves better-off clients, another group with a more mixed clientele, and a third group largely serving those starting below $1 a day. Yet institutions such as the World Bank have not provided incentives to reach those below $1 a day. If anything, the Bank and others have discouraged depth of outreach. This is why the parliamentarians believe earmarking is required. The World Bank/CGAP response leaves the impression, however unintended, that programs reaching very poor clients may be less sustainable, but this is far from current reality. CGAP CEO, Elizabeth Littlefield, backed that up with remarks made at the Asia/Pacific Microcredit Summit held in Dhaka, Bangladesh in February 2004.

“There is no evidence of a necessary trade-off between poverty and sustainability,” Littlefield said in Dhaka. “…Very recent data from our MicroBanking Bulletin (MBB) and from The Microfinance Information eXchange (The MIX) show us that the best poverty-focused microfinance institutions are breaking right through conventional wisdom. Of the 124 microfinance institutions reporting to the MBB, 66 were fully selfsufficient. Of those, 18 were institutions that work with very poor populations, the poorest. These 18 institutions had higher average sustainability, higher return on assets, and higher return on equity than the overall averages. Sustainable microfinance institutions that serve lower end markets, the poorest, reach, on average, one and a half times as many borrowers as other microfinance [institutions] and they do it with fewer resources. Hence, these institutions do a much better job of stretching their resources to reach more clients. In terms of clients served, they are far more efficient with their human resources, serving each borrower at half the cost, on average, of a sustainable institution serving higher market segments.”

Footnotes

[5] Approximately two percent of USAID funds and three percent of UNDP funds go to microfinance.

[6] Palli Karma Sahayak Foundation (PKSF) is a Banlgadesh-based autonomous microcredit fund.

Relevant resources

#tbt: A New Law and New Hope

#Tbt_5

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2004. The RESULTS International Conference is only three weeks away (July 18-21), and grassroots activists from the U.S. and around the world will be in D.C. to lobby the USAID Administrator and World Bank Directors. Therefore, in the weeks leading up to that great event, we’ll review advocacy successes and struggles in the early 2000s wherein we achieved breakthroughs in poverty measurement in order to target the extreme poor and other concessions from USAID and the World Bank.


The revolution in reaching the very poor is most evident in a new U.S. law and the resistance to it by some leaders in international development. The law, which was enacted in June 2003, calls for the U.S. Agency for International Development (USAID) to develop and certify two or more cost-effective poverty measurement tools that measure $1 a day poverty. The new tools are to replace loan size, which is currently used and has proven to be inadequate for poverty measurement. As Freedom from Hunger President Chris Dunford remarked, “The average loan size for entering clients tells you more about the institution making the loan than it does about the poverty level of the person receiving it.”

Download the full 2011 State of the Campaign Report in our Resource Library

Download the full 2004 State of the Campaign Report in our Resource Library

After the newly mandated tools are certified, institutions receiving microenterprise funds from USAID will be required to use one of them and report the number of entering clients who start below $1 a day. The law is an effort to bring accountability and transparency to the long-standing Congressional commitment to have at least half of USAID microenterprise funds benefit very poor clients. This new law, particularly if it is adopted by other aid-giving countries and institutions, would have a great impact on the Microcredit Summit’s commitment to reaching the very poor and provide tremendous support to the MDG focused on halving the number of families living below $1 a day by 2015.

While the new law demonstrates the revolution that is taking place in microfinance, efforts to expand the revolution have been met with resistance. This resistance comes from major development institutions that have been asked to adopt policies similar to the new U.S. law — The World Bank, the regional development banks, and the United Nations Development Program (UNDP).

In November 2003 more than 700 parliamentarians from the United States, the United Kingdom, Canada, Japan, Australia, India, and Mexico wrote to the heads of the World Bank, the Asian, African, and Inter-American Development Banks, and UNDP. The parliamentarians lauded the institutions’ commitment to achieving the Millennium Development Goals (MDGs) which they said are “crucial to building a safer and more equitable world — and will show our constituents that development programs are truly making a difference.”

The parliamentarians continue with a concern that:

…sustainable microfinance for the very poor has not received sufficient priority in your policies and practice aimed at cutting absolute poverty in half by 2015, the most crucial — and most difficult — of the MDGs. As important as it is to support well-designed health, education, and good governance programs, these interventions alone will not ensure that some 600 million people move out of poverty.

The parliamentarians ask the heads of these powerful institutions for the following:

  • Increased funding for microenterprise: We urge you to make substantial increases in the proportion of your institutions’ lending and grants that go to microenterprise and actually reach clients. For example, the World Bank estimates that an average of $168 million in funding, less than one percent of Bank resources approved annually, is approved each year for microenterprise. We believe resources devoted to microenterprise should at least be doubled (emphasis added).
  • At least 50 percent of funds reaching the poorest: By December 31, 2004, we would like to see your institutions make the commitment to having at least 50 percent of your microfinance funds reach clients who are below US$1 a day when they start with a program.
  • Use of cost-effective poverty measurement tools to ensure meeting the target: By December 31, 2005, the microenterprise institutions should be required to use cost-effective poverty measurement tools that can determine which families start below US$1 a day and use the same or similar tools to show which families have moved above US$1 a day.
  • Annual reporting of results: By December 31, 2006, we would urge your institutions to report, on an annual basis, the amount of funds provided for microenterprise and the percentage of those funds that reach families who begin with a program at below US$1 a day.

In their letter, the parliamentarians discuss the new U.S. law and say, “We believe your institutions should be a vital part of this process and urge you to adopt a similar procedure.”

Relevant resources

#tbt: Top 10 Reasons That Fewer Loans Are Going to the Poorest

ddd

1. Myopic focus — For many years, the indicators used to measure microfinance performance have focused on numbers of clients and the sustainability or profitability of the institutions that reach them. These indicators tell us little about whether we are achieving the real aim of microfinance — helping people lift themselves out of poverty. Without tools to measure our ultimate ends, we satisfy ourselves by measuring our means instead.

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in Vulnerability: The State of the Microcredit Summit Campaign Report, 2013. For two years in a row, we have reported a decrease in the total number of extreme poor (those living on less than $1.25 a day) that had received a loan. Our “Top 10 Reasons” chapter in the 2013 Report are still very relevant.


What has caused a reduction in microfinance clients worldwide? And why have all of those reductions been from the poorest clients? Here are our top 10 reasons.

10. Andhra Pradesh crisis in India — Our reports show that India accounts for almost all of the reduction in clients worldwide. Most of these reductions come from Andhra Pradesh, where fast growth led to overlending, cases of harsh collection practices, and heavy regulation from the state government. Many MFIs and banks stopped lending to microfinance clients and self-help groups as a result.

9. Maturing markets — Some of the fastest growing markets in the world, including Bangladesh and parts of Latin America, have reached a point where a large proportion of the people most easily reached have become clients, and MFIs’ growth is slowing as they seek ways to lower costs and reach more remote and more difficult markets.

8. Global economic crisis — Microentrepreneurs and the financial institutions that serve them could not remain insulated from the worldwide economic crisis. Less economic activity in the developed world meant less tax revenue and greater focus on domestic spending by Western governments. It also led to a drop in donations to international charities. Remittance flows dwindled, which negatively affected economic activities in towns and villages dependent on income from family members in other countries.

7. Investor wariness — Banks and other investors in India and other countries curtailed their investments in microfinance, while international microfinance investment vehicles continued to invest almost three-quarters of their funds in Eastern Europe and Latin America, regions with less outreach to the poorest.[1]

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

6. Donor fatigue — Many bilateral donors have reacted to growing commercialization and negative press by reducing their support for microfinance. This means less funding is coming in for groups that may need subsidies to build sustainable programs to reach poorer and more remote clients.

5. Herd mentality — MFIs find it easier to operate in locations where other MFIs have already developed the market. Investors find it easier to invest in MFIs where other investors have already done the due diligence. The result is a piling-on effect that eventually leads to bad debts and a retreat from the microfinance market.

4. Patchy information — Global reporting on microfinance activity (including our own in this report) shows data by country. This disguises the fact that, within a country, some locations may have more than enough microfinance services available while others have very little. Without accurate and timely maps that localize activity, it can be hard to see which markets are overheating until it is too late.

3. Better measurement — In the past few years, many MFIs have more widely adapted poverty measurement tools, such as the Progress out of Poverty Index®, Poverty Assessment Tool, and the Food Security Survey. The MFIs that employ these tools often find that the number of the poorest that they are serving is less than they originally estimated. This means that some of the reduction in numbers of the poorest being served reported to us is due to more accurate reporting on the number of poorest clients.

2. Misaligned incentives — he market provides few rewards to those MFIs that reach poorer and more remote clients because reaching these clients usually entails higher costs and smaller margins. Without ways of recognizing those that reach the poorest, MFIs will have few incentives to extend to this market and will find it difficult to attract funding to do so.

1. Myopic focus — For many years, the indicators used to measure microfinance performance have focused on numbers of clients and the sustainability or profitability of the institutions that reach them. These indicators tell us little about whether we are achieving the real aim of microfinance — helping people lift themselves out of poverty. Without tools to measure our ultimate ends, we satisfy ourselves by measuring our means instead.

Farmers (credit - Andrés Quinche)_comp

Photo credit: Andrés Quinche


[1] Symbiotics, 2012, “2012 Symbiotics MIV Survey: Market Data & Peer Group Analysis,” (Geneva, Switzerland: Symbiotics), http://bit.ly/MIV_survey.

#tbt: Excerpts from “Microfinance in India: A Way Forward”

CRECER clients

Photo credit: CRECER Bolivia

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in Vulnerability: The State of the Microcredit Summit Campaign Report, 2013. It is particularly relevant with yesterday’s announcement of a Campaign Commitment launched by CRECER Bolivia. Learn more.


Read the full report here.

Grameen Foundation president and CEO Alex Counts has reflected on the recent crises affecting microfinance by thinking, reading, writing and interviewing people. He presented some of the findings in a talk given at the Sa-Dhan/FICCA Annual Conference in New Delhi in August 2012. These edited excerpts highlight the experiences of two institutions working in challenging, saturated environments, and how they overcame the difficulties.

First, let’s turn to Bolivia. If India’s microfinance sector was at its heyday in 2009, Bolivia’s was at a similar place 10 years earlier, in 1999. Well, within months of this moment in time, things went badly. A political movement against microfinance that included some dissatisfied clients, opportunistic politicians, and professional organizers accused MFIs of exploiting the poor by charging high interest rates and using coercive collection practices. Blockades were set up in front of MFIs’ offices, repayments plunged, and there was a general loss of support for microfinance in civil society.

One Bolivian organization was able to navigate the 1999–2001 crisis better than most: a non-governmental organization (NGO) called Crecer. During the crisis, their portfolio-at-risk rose, but not by much. Their staff and clients were often allowed to pass the blockades that were set up. The question is, why? My research has so far focused on four aspects of Crecer’s approach that enabled it to weather the crisis relatively unscathed:

  1. Once Crecer was consistently profitable, it began progressively reducing its interest rates and providing free life and accident insurance to its clients.
  2. Crecer promoted a client-centric culture that [ranged from] providing free nutrition and health education to calling its borrowers “members.”
  3. Crecer’s leaders resisted the encouragement of many to convert into a for-profit finance company because they did not feel it was consistent with their organizational purpose.
  4. They were active in FINRURAL, the [national] association of NGO-MFIs, and its work advocating for supportive policies. Crecer’s CEO often chaired FINRURAL’s board.
Crecer_DSC_2179_cr_comp

Photo credit: CRECER Bolivia

Let us now turn to Bangladesh. How was Grameen [Bank] able to thrive for decades in the face of stiff competition, unstable governments, and periodic bursts of religious fundamentalism? I see seven basic reasons that are relevant to the context in India:

  1. Constant tinkering with its products to create more value for clients
  2. Including active roles for clients in ownership and governance
  3. Promoting savings from its inception
  4. Placing strict limits on [compensation] for its executives
  5. Customiz[ing] credit products to fit the cash flow needs of clients (This was done despite the fact that it created major problems for the bank’s IT systems, as well as the need to retrain its staff.)
  6. Rather than “zero tolerance” [for missed loan payments], practicing what you might call “infinite tolerance” for legitimate cases of clients unable to pay according to the original schedule
  7. Creating a “balanced scorecard” for evaluating staff and branches, in the form of a five-star system, that included three measures of financial performance and two of social performance

[These are my reflections on] what might guide us from experiences abroad and what I think we should do going forward.

To read Alex Counts’ full speech, please visit http://bit.ly/U7T2Ug.

To learn more about Grameen Foundation, visit http://www.grameenfoundation.org.

Accessible and affordable microinsurance with Afua Donkor

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in Resilience: The State of the Microcredit Summit Campaign Report, 2014. Afua Boahemaa Donkor, executive director of Star Microinsurance in Ghana, explains how they have developed microinsurance products that are simple and affordable for the poor.


>>Authored by Ana Hecton, former intern, and Sabina Rogers, Communications and Relationships Manager

SOCR 2014_front-cover_EN_270x348

You can read a transcript of her interview here.
Read the full report here.

The 2014 State of the Campaign Report features various actors in the microfinance sector that are taking steps to help their clients lift themselves out of poverty. In this interview Afua Boahemaa Donkor, executive director of Star Microinsurance in Ghana, talks to DSK Rao from the Microcredit Summit Campaign about how microinsurance works and how it can benefit the poorest. Ms. Donkor also discusses the challenges in providing coverage for the poorest.

Star Microinsurance in Ghana started in 2008 as a specialized microinsurance subsidiary of the Star Insurance Group. Star Microinsurance works to design microinsurance products, looks for distribution channels, and provides the back office administration of the products.

“Microinsurance is supposed to be suave. When I say that, it means that it has to be simple, accessible, understandable, fundable, and efficient.”

— Afua Boahemaa Donkor

Star Microinsurance aims to make their insurance accessible to all people, those living in the city and those living in remote areas. The microinsurance products that are offered by Star Microinsurance are “made very simple, the premiums are set to be very cheap, affordable, so that the informal person, in the rural sector, can afford to have insurance products.”

Star Microinsurance collaborates with rural banks, MFIs, and post offices where the product is located. The rural banks and post offices are spread all throughout Ghana, therefore being highly accessible to all people no matter their location.

The challenges that face microinsurance

When talking about microinsurance and selling it to those living in poverty, Ms. Donkor says that it is hard for people to grasp the concept that they are paying for a possibility that may or may not occur. For those living in extreme poverty, possibilities of the future or what could happen is not a high priority. The demand is for what they need right here, right now. Thus, trying to sell microinsurance to people whose concern is focused solely on getting through that day is very difficult. In fact, “insurance in general is a very difficult thing to sell whether to an educated person or an uneducated person because it is an intangible good we are selling.”

What we know of the impact of microinsurance

ei76 infographic en

A systematic review of the impact of microinsurance (2013) produced by the ILO’s Microinsurance Innovation Facility. Source: http://www.impactinsurance.org/emerging-insights/ei76

#tbt: Interview with Sir Fazle Abed of BRAC

Photo courtesy of BRAC

Photo courtesy of BRAC

Lea en español *** Lisez en français


Pathway

Ultra-poor graduation programs


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2011. It documents an interview conducted with Sir Fazle Abed, founder and chair of BRAC in Bangladesh.


Interview with Sir Fazle Abed of BRAC

What excites you about microfinance today?

Microfinance is the most exciting thing that has happened to poor people over the last 30 years. We have worked with the poor in a way that honors their dignity, and we have shown that poverty alleviation is not a give-away thing.

What concerns you about microfinance today?

BRAC Chair Fazle Abed to Attend Africa-Middle East Regional Microcredit Summit

Sir Fazle Abed, founder and chair of BRAC in Bangladesh

There is a lot of greed coming into microfinance. A lot of people wish to make a lot of money out of it, and that worries me a little bit. I also [understand] the other side of it – when return on investment is high, more money will flow into the sector … I just don’t think that people should make money out of poverty.

I think we still have a long way to go in reaching people, particularly poor people in remote areas, rural areas, and so on. That remains a great challenge.

You came into microfinance as a poverty alleviation tool …

[Yes], we came to microfinance by looking first at integrated rural development, looking at people for their health, education, employment [and] savings. We actually started a savings program before we started giving credit.

I have always felt that poor people have very short time horizons to think about – daily bread, daily needs. They can’t think more than 24 hours at a time. I thought the thing to do was to start savings because that would give a person a longer time frame to think about, not just one day.

What about the randomized control trials (RCTs) that have been done to measure the impact of microfinance? Largely they have shown very limited impact, sort of mixed results, and yet in BRAC you have millions of people coming back for loans year after year. How do you reconcile your experience with the results of these studies?

I understand that RCTs may be scientifically quite good to have, but microfinance works best when you have done it for a number of years. With the first microcredit taken by a woman, she has immediate consumption needs, so she buys those things which she needs most [but] doesn’t show a great deal of improvement in either nutrition or health or welfare. But we found in a longitudinal impact study [from] 1999 to 2005 that you can see significant results in somebody’s income and welfare if somebody has taken three loans and the quantum of the loans is more than US$400.

Does microfinance help a poor person lift herself out of poverty, or is it microfinance combined with other things that does that?

Microfinance has to be combined with other things like health and education. When going into a new area, [get] microfinance … working right and then you can provide education and health care and other things.The unique thing about microfinance is that it creates…capital that can be leveraged to supply other development services. We have eight million women meeting together every week in 300,000 Village Organizations. They know how to invest money, pay it back and save for the future. They know how to work together. Because of their work with us, they now know how to interact with formal institutions. So that forms the base for addressing the other constraints that they [face], and it also provides the scale you need to develop [viable] programs.

That sounds complicated. Shouldn’t a microfinance organization focus on what it does best, financial services, and let others focus on the other needs?

I think that is too limited a way to think about what we do best. The basic spirit of microfinance is to search for possibilities based on knowledge, understanding and perspectives that start at the ground level. We understand our clients and their needs. We know how to select clients, enforce contracts, manage money, develop systems and deploy people and resources on a very large scale. There is no reason why we cannot use those same skills to address the other constraints our clients face.

In BRAC, we saw that many women were stuck in low-return activities. We saw that many were involved in poultry but were not making much money because of diseases, so we trained a person in each Village Organization to do vaccinations, treat basic diseases, and train in proper feed and hygiene. These people get paid for the services they provide to the women who raise chickens. Between the growers, advisers and sellers, they have created almost two million poultry jobs.

We did something similar with basic health care. We trained a person from each Village Organization … to provide basic health information and advice. They each cover 300 households and sell nonprescription medication, bring pregnant mothers in for check-ups and help mothers bring their children in for immunization. We have 80,000 volunteers covering 64 districts and a population of 92 million.

We’ve added other things, too. Economic development for adolescents, training in legal rights, programs for commercial sex workers, primary schools that have trained four million students, and programs aimed at those too poor to make good use of our financial services.

How can someone be too poor for microfinance?

Our Research Division looked at those who dropped out of our program and found that most of them were among the poorest. This group tended to borrow far smaller amounts, do so less frequently and have more problems with repayments. We worked with donors to develop a program that targeted the ultra-poor.

It starts with a ration card for food, plus training in business skills and money management. Over time, we provide them with a small loan and then seek to graduate them to our microfinance program. So far, about three quarters of them have graduated. CGAP did a study on this program and found that the average subsidy per woman was US$135. As more and more of these women graduate into the microfinance program, we hope to recoup these subsidies.

What is BRAC doing with small and medium businesses?

You need to create jobs for poor people [in addition to making] them social entrepreneurs. [For this reason], I asked a group of donors [for] money to start a small and medium enterprise lending program, and this has been very successful in creating new jobs for people. We set up a bank in Bangladesh and it is creating jobs on a fairly large scale, $1.2 billion now for small enterprises.

Are you able to use technology in a way that lowers your costs and helps you get out to more rural areas?

This is my hope. In the next three to five years in Bangladesh, almost everybody, including our poorest clients, will have access to a cell phone. BRAC has already got a license from the Central Bank to set up a mobile cash management system. In other words, all these 30 million Bangladeshi microfinance borrowers will have access to mobile payments, and then we will be able to cut down the costs of delivering financial services to the poorest people in the remotest areas.

Do you think this will create a push to more individual lending, or will the group programs continue?

The group programs will still continue, but face-to-face time with people will diminish a bit and we will have to find another way of meeting them. Right now, 8.2 million people in Bangladesh meet BRAC staff every week. That is too costly. I would rather meet these 8.2 million people once a month and cut down [their] travel. We can collect their money and stay connected to them through cell phones. They will be able to transact business among themselves through their cell phones. I think tremendous efficiency comes out of this, on their side as well as our side.

It sounds like you are looking forward to what comes next.

I just hope I live long enough to see this happen. It is wonderful to see all the changes that are happening and in the right direction. Some people have said that as you grow older you get more and more pessimistic, but I get more optimistic the older I get.

#tbt: The Need for Pricing Transparency in Microfinance

Muhammad Yunus signs onto the MicroFinance Transparency. With Chuck Waterfield

Muhammad Yunus endorsese the MicroFinance Transparency (MFT). With Chuck Waterfield, MFT founder, at the 2008 Microcredit Summit in Bali.

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report, 2009. This particular Box is especially relevant given the news about MFT closing down and the stakeholder meeting hosted by the Microfinance CEOs Working Group on April 21st.


>> Authored by Chuck Waterfield, the developer of Microfin, a business planning tool used by microfinance institutions worldwide, and MicroFinance Transparency (MFTransparency), which was launched at our 2008 Microcredit Summit in Bali, Indonesia.

Microfinance has long been a highly transparent industry, and rightly proud of it. Unfortunately however, the true price of microfinance loan products has never been accurately measured nor reported. For an industry born to displace the moneylenders by providing low-cost credit to the working poor, this is hard to imagine and even harder to explain.

Many countries require commercial lenders to state true product pricing using standards such as the APR (Annual Percentage Rate) formula mandated forty years ago in the US Truth-in-Lending Act. Such laws were enacted to help consumers make informed decisions regarding choosing loan products with different pricing. Currently, the same disparity that existed prior to Truth-in-Lending laws can be found in the microfinance industry. For example, a quoted interest rate of 3% per month can, depending on how this rate is applied, result in an APR between 36% and 96%, and beyond. Unfortunately, such misleading claims are commonplace in microfinance today. Why should the same principles of transparent pricing applied within the commercial finance industry not be applied to the microfinance industry?

The widely practiced non-transparent pricing in microfinance has evolved and perpetuated for two reasons. Firstly, there is no single market interest rate for micro-loans. The industry recognizes that interest rates on micro-loans must be higher than interest rates on larger commercial loans, but it is seldom recognized that there is no single “market rate” for micro-loans. In a market where all MFIs deal with the same cost structures, the smaller the micro-loan, the higher the interest rate necessary for that MFI to cover the costs of that loan and achieve sustainability. Due to the challenges of explaining why MFIs need to charge higher interest rates than the commercial sector, and to charge the highest interest rates to the poorest clients, the easiest alternative has been to use non-transparent pricing, where a quoted price is generally significantly lower than the actual price.

Secondly, once the industry began widely employing confusing product pricing, it became very difficult for MFIs to convert to transparent pricing. To do so, the MFI would advertise what appeared to be the highest price in the market, even though their true price could actually be the lowest. As a result, the vast majority of MFIs practice non-transparent pricing even though many would prefer to do otherwise.

In recent years the industry is shifting from the goal of “sustainable microfinance” to the goal of “high-profit microfinance.” When MFIs are operating in a very opaque pricing environment – where nobody knows how the price of one product compares to the price of another product – there exists the opportunity for MFIs to charge a price that results in very high profit levels. High profits generated off of the poor by charging non-transparent prices can create a bad public image for the microfinance industry and result in a strong backlash.

Given this reality, the industry has been in intensive dialogue and several initiatives are underway to address non-transparent pricing. One initiative is the “Campaign for Client Protection” that began after an April 2008 conference that produced the “Pocantico Declaration.” Transparent and fair pricing is one of the six core principles advocated in the campaign.

The second initiative is MicroFinance Transparency, a non-profit agency that will address pricing transparency through two joint activities. First, MFTransparency will collect product prices on all micro-loan products around the world and report those prices by a common, objective measurement system. Second, MFTransparency will undertake the equally important role of developing and disseminating straightforward educational material to enable microfinance stakeholders to better understand the concept and function of interest rates and product pricing.

It can be argued that an industry-wide effort towards transparent pricing is essential to the long-term survival of the microfinance industry. The mainstream public media is already reporting the interest rates typically charged in microfinance, but there is little explanation or understanding of why microfinance interest rates are higher than previously believed, nor why there is significant variation in interest rates among different institutions. What non-transparent pricing has kept hidden for years is no longer hidden. A forum for the industry must be built in order to report – in a clear, consistent and fair fashion – what actual interest rates are and why interest rates in competitive microfinance markets need to be higher than in commercial finance.

By practicing pricing transparency, a healthy and vibrant market for microcredit products can be built, providing a valuable component necessary in free markets and currently absent in microfinance – transparent, open communication about the true cost of products.

Over 100 microfinance industry stakeholders have endorsed MFTransparency. You may view the list and choose to sign up and endorse at the website.
Chuck Waterfield, Founder, MFTransparency, http://www.mftransparency.org/endorsements.

#tbt: Microfinance as a Platform for Health Education

KNOWLEDGE ABOUT HIV VIRUS

Knowledge about HIV

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2011.


Microfinance as a Platform for Health Education

>>Authored by D.S.K. Rao, Regional Director; and Anna Awimbo

<img class="size-thumbnail wp-image-4303" src="https://mcsummit.files.wordpress.com/2014/04/momf.jpg?w=150" alt="April is the Month of Microfinance
Learn more” width=”150″ height=”150″ />
April is the Month of Microfinance
Learn more

The Microcredit Summit Campaign launched its Financing Healthier Lives Project in 2002. The project aims to build a global group of microfinance institutions capable of providing health education trainings to their clients in a sustainable manner and reach over half a million clients affecting some 2.5 million family members.

In March 2009, the Campaign released an updated version of its report outlining how microfinance can be used as a platform for health education. This strategy has proven effective at enhancing clients’ movement out of poverty, especially in situations where microfinance alone is insufficient. The document, titled Financing Healthier Lives, makes the case for a global expansion in the use of microfinance as a platform for health education and other health services.

Much of the initial work on this project has been centered in South India where The Campaign has trained in-country trainers and partnered with four organizations to reach more than 30,000 microfinance clients with health education. The four organizations are Star Microfin Service Society (SMSS), People’s Multipurpose Development Society (PMD), Pioneer Trad and McLevy Institute of Development Services (MIDS). SMSS is an MFI operating in Andhra Pradesh, whereas the remaining three are NGOs based in Tamil Nadu. The clients have received education in the following six topics in their local language 1) HIV and AIDS prevention; 2) Integrated Management of Childhood Illnesses (IMCI); 3) Women’s Health; 4) Infant and Child Feeding; 5) Healthy Habits and Planning for Better Health and Using Health Care Services; and 6) Malaria Prevention and Treatment.

In early 2010, the Campaign expanded its work to North India, where it is working with CASHPOR Microfinance to implement a pilot project covering 9,000 clients with education in IMCI and Women’s Health. Encouraged by the extremely positive feedback from its field workers and clients, CASHPOR is planning to triple its outreach to 30,000 clients.

The following graphs illustrate the Campaign’s findings from the work in India and demonstrate that important client-level outcomes are achieved when MFIs integrate health education. For example, data showed improved knowledge of malaria and HIV and AIDS as well as positive behavior change to mitigate the risks associated with these illnesses. Similar positive results were shown with respect to pre- and post-natal medical check-ups of pregnant women. Clients have also shown improved confidence in preparing for future health expenses [1].

Knowledge about HIV

KNOWLEDGE ABOUT HIV VIRUS

Knowledge about critical danger signs in children

figure2_danger signs

A team of UCLA Executive MBA students recently evaluated this project and published a 2010 report that recommended expansion of the initiative because of its benefits to clients and the partner institutions. The report also underscored the need to deepen its work on measuring knowledge gains and behavioral changes in clients and their families. The Campaign has begun laying the groundwork for a more in-depth study of these changes and hopes the additional data will go a long way in convincing many more MFIs worldwide to introduce and scale up health integration.


Source: Financing Healthier Lives, Microcredit Summit Campaign, 2009.

[1] The project’s independent third-party evaluators randomly surveyed 400 members from all project participants across all four organizations. The selected members were given a questionnaire prior to and at the conclusion of both the HIV and AIDS and IMCI education modules. Incomplete or illegible surveys were excluded from the final tally.

#tbt: Microfinance Revolution at the Very Bottom

#Tbt_6

Keynote speakers of the 2004 Microcredit Summit in Bangladesh. Begum Khaleda Zia, then Prime Minister of Bangladesh, was the “chief guest.”

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2007. We hope this will encourage you to reflect on both how long we have been fighting to convince the policy makers (and other doubters) that microfinance can reach the extreme poor as well as be inspired by our early revolutionaries.


Microfinance Revolution at the Very Bottom: A Radical Departure

The following is an excerpt from an interview Campaign Director Sam Daley-Harris conducted with Jamii Bora founder Ingrid Munro in October 2007.

April is the Month of MicrofinanceLearn more

April is the Month of Microfinance
Learn more

Microcredit Summit Campaign: RESULTS volunteers in the United States and in other countries have been working for four years to get half of World Bank microfinance funds to those living on less than a dollar a day. The arguments that come from the World Bank and others is that you cannot reach the very poor with microfinance, they need safety nets first. The president of the World Bank said this in an October 2007 meeting with 29 members of the U.S. Congress. Do you agree with this position?

Ingrid Munro: I don’t agree with that at all, because in Jamii Bora we know that you can reach the very poor. Not just reach them, not just feel sorry for them, pat them on the head and say, we are going to help you to come above the poverty line…

Our experience is, first of all, the most desperate are the ones that need microfinance the most, and they can handle it, we have proven that. It’s not something that is a theory, it is a proven fact…The poorer they are, the more they need the microfinance. And, they don’t need charity because charity is a way to keep people down. If we keep saying, “I feel very sorry for you because you can’t manage this yourself,” you start thinking [to yourself], “I should feel sorry for [myself] because I can’t manage [on my own].”

But, if we say to you, “You can make it. You have talents. God has given you talents like He has given everybody talents, and He wants you to use them.” And [if] you see some of your friends who were begging beside you on the same street now walk around in nice dresses, their children are in school, they eat three meals a day, they live in a better house — then you also dare to dream that that is possible for [you too].

Microcredit Summit Campaign: You say that some groups have tried to do what you do in reaching the very poor, but they get their fingers burned. What are some of the principles that can allow microfinance to succeed when you work with beggars, landless laborers, and prostitutes?

Ingrid Munro: …You have to be very close. You see, the beggar is a professional, it is a profession in itself. So, if you come and give a beggar $100, and say, “You go and start a business,” they will run away with that money. You have to prepare everybody for what it is, and we think you have to start by getting them to save, because then they are in that habit of setting aside a bit of money every day. That makes it easy for them to pay back the loan.

You also have to be there and encourage them when the problems come. The city authorities chase you away from where you are doing your business. A police officer might even take your goods, or thieves break in to your little kiosk, or you have a fire that [burns] down everything. You can’t be like a normal bank and say, “Okay, we will still hunt you. You have to bring the money back.” [Instead] you come together and say, “Now how do we solve this situation?” And you help them get on their feet so they are helped to pay back the old loan, but also a new loan. It’s a matter of being there all the time and understanding.

If you are naïve and you just go up to somebody who you haven’t spoken to about a loan, who doesn’t know [your] group, who doesn’t trust you…and you say, “Here’s $100, go start a business,” then you will lose that money. And there are naïve people who do that, and I think those are the ones who are spreading this dangerous message that you can’t reach the very poor, because they’ve done it the wrong way themselves, not because you can’t reach the very poor. I invite anyone who doubts to come visit us…

In that sense I think we are a movement, a people’s own movement, more than we are an institution, a normal financial institution. But we’re still microfinance.

Microcredit Summit Campaign: There are so many different things that Jamii Bora does from housing to the “get sober” program. Please talk about another of your innovative offerings, health insurance. How did it come about, what does it costs, and what are the benefits?

Ingrid Munro: In early 2001 we were one year and a few months old. We realized we had some people who were…falling behind in their repayments. So we decided to make a hundred percent research. We would visit every single one of them with our staff and try to note down what are [their] problems. Why can you not pay?

It was such a shocking result. We found that 93 percent had the same problem, they had a patient in hospital…It means my son, my daughter, my baby, my grandchild, or my spouse, or my sister — somebody very close to [them] had to be admitted in hospital, otherwise they would die. Now, of course, you can’t expect that anyone will let their child die because they have to pay their loan to Jamii Bora. So, it was clear to us, this was something we could not compete with. This was something that we had to solve.

So we went to all the insurance companies and asked, “Could you develop an insurance product for us?” They said, “Oh yes, yes.”

We had 6,000 members in those days, and they thought that was a lot. But the cheapest they could come up with was 6,000 shillings, and 6,000 shillings is about US$80 per year. And, US$80 per year, if you are a single mother with five children, you see, you have to [multiply that] times six. That is a lot of money. That is way above what anyone could dream of.

We then decided we’ll start our own in-house product. Everyone told me, “Now Ingrid, you are killing this beautiful organization. This will pull you down. It will not work.” But we never did any research. We sat in a group of staff with a lot of knowledge about our members. We decided we could charge 1,000 shillings a year, which was US$12 at the time, on condition that the members could pay every week, a small amount (about 30 cents US), and they didn’t have to pay everything up front. And, we decided it would cover an adult member and a maximum of four dependent kids. If they had more than four kids, they would add an extra US$2 per child per year. We would cover in-patient, that is, treatment in hospital. If they came into hospital, we would cover everything.

We started by linking up with one of the big mission hospitals in Nairobi. We said, “We’ll give you a deposit of what we think it could cost per month,” because mission hospitals cannot afford to give you services on credit. So we paid them up front. Then our members would come with a letter from us saying, “This patient has health insurance from us and please treat her. If she has to be admitted, we will pay everything.”

There was not more research than that. The background was, “This is what our members can afford to pay and we have to get it to work.” Over time, this has become a most incredible part of our organization. We also decided weren’t going to ask for any donor funding, because then they would send a lot of consultants and they’d tell us it’s not possible to do what we had decided to do, and they would also say, “So and so should qualify and those clients should not qualify.”

We wanted it to be for everybody. We decided it would cover maternity, it would cover any kind of operations, it would cover any kind of in-patient treatment, and we would not exclude people with HIV and AIDS, because then it was a useless insurance for us. And today, [October 2007] it is soon going to be seven years that we have run this.

We have always covered all our costs. We have never had any donor subsidy, not even US$1, and we have never asked for it either. I am sure we would have got it if we had asked. It has saved so many lives. Right now 120,000 people [are covered by the health insurance], because [every member of Jamii Bora] doesn’t take out health insurance…

Relevant resources