Addressing the financial needs of the most excluded

Anowara Begoum lives in Kazipara village. Anowara received a cow and goat to from BRAC through its STUP Special Targeting Ultra Poor. AusAID funds BRAC's work in Bangladesh, its estimated that BRAC works within 70,000 of Bangladesh's 86,000 villages. Photo: Conor Ashleigh for AusAID.

Anowara Begoum lives in Kazipara village. Anowara received a cow and goat to from BRAC through its STUP Special Targeting Ultra Poor. AusAID funds BRAC’s work in Bangladesh, its estimated that BRAC works within 70,000 of Bangladesh’s 86,000 villages. Photo: Conor Ashleigh for AusAID.

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The following blog post was originally published
by the Center for Financial Inclusion at Accion

>> Authored by Larry Reed, Director, the Microcredit Summit Campaign, and Jesse Marsden, Research and Operations Manager, the Microcredit Summit Campaign

In collaboration with the CFI’s process to develop the Financial Inclusion 2020 Progress Report (to be released October 1, 2015), the Microcredit Summit Campaign recently conducted interviews with microfinance leaders* around the world committed to reaching the most excluded. In this post, we share some of the insights from these conversations about how to ensure that the most invisible clients are financially included, directly drawn from the experiences of those who are doing it.

To set the stage, Luis Fernando Sanabria, general manager of Fundación Paraguaya, made this central point: “Our clients need to be the protagonists of their own development stories. Our products should be the tools they use to meet their needs and empower their aspirations.” With that reminder of the purpose of financial inclusion, we begin the discussion by asking who are the most excluded.

In each country, people living in extreme poverty (below US$1.25 a day) make up the largest segment of those excluded from the financial system. We spoke with leaders from organizations that make intentional efforts to reach this large excluded market: Fundación Paraguaya, Pro Mujer, Fonkoze, Plan Paraguay, Equitas, Grama Vidiyal, and TMSS. These organizations not only address poverty, but also a host of other dimensions that lead to exclusion, including literacy, race, gender, physical disabilities, and age. Less frequently-discussed reasons for exclusion include sexual orientation, language barriers (especially among indigenous populations), and mental or emotional health issues. In India and Bangladesh, for example, those interviewed noted that the lack of personal identification often drove exclusion, especially among women, persons with disabilities, and the socially excluded, such as transgender individuals.

In order to reach the most excluded, you have to know who they are. “Often the poorest families are invisible in their own communities,” said Steve Werlin of Fonkoze in Haiti. “When we do the wealth rankings in a community, they aren’t even mentioned.” Fonkoze takes steps to make sure that all households get included in their surveys so that the community can see who they have left out. Creating this visibility is essential. On a wider scale, in government statistics on economic activity, data on people over 65 is simply discarded or never collected.

Everyone, and every client, is unique. One of the messages of the FI2020 Progress Report is that the base of the pyramid (BoP) is not a monolithic bloc. Arjun Muralidharan of Grama Vidiyal in India noted, “You need to have a particular and unique strategy to seek out and serve these groups. This begins with deciding who you are going after. Different populations have very different problems.”

Two key elements for including the most excluded populations are building trust and overcoming prejudice. Not only do the financially excluded need to become confident in their services providers’ ability to responsibly manage their money, but they often have to become comfortable participating in a society that has regularly closed its doors to them.

“Working with disenfranchised groups is hard. We need to provide extra training and services to help overcome their self-exclusion,” said Muralidharan. Grama Vidiyal provides health services and legal rights training to members of the Dalit group (formerly known as untouchables) before including them in savings and lending groups.

On the other side of the equation are financial services staff attitudes. “In order to include people with disabilities, we need to train our staff first, to get them to overcome their prejudice,” said John Alex of Equitas in India. Equitas provides disability awareness training for its staff and clients and encourages them to find people with disabilities in their communities to include in the institution’s borrowing groups. Equitas also adapted its training and application systems to be accessible for people who are blind, deaf, mute, or face other physical limitations.

Excluded groups may have financial needs that do not fit the typical cash flows of other clients. TMSS asked rural farmers in northern Bangladesh what programs the farmers felt would be best to introduce. This client-first approach led to new programs that combined loans and savings in sync with the growing season. TMSS also changed its policies and products to meet the needs of an aging population — eliminating its age limit for borrowers. The institution also provides savings services for these clients and training for the next generation of family members to make sure they will be cared for as they age.

Those excluded from financial services often face many other types of exclusion as well, leaving them with a range of constraints that they need to address:

  • Both Fonkoze and Plan Paraguay employ the Ultra Poor Graduation Model developed by BRAC that provides a combination of cash transfers, training, savings, an asset, mentoring, and access to credit.
  • Equitas works with homeless people and provides housing and financial capacity training before providing loans.
  • TMSS provides health services, financial capability training, and vocational training.

These organizations often partner with the government and others to make sure their clients have access to the range of services they need. Fundación Paraguaya uses its Poverty Stoplight monitoring system to assess its clients on a checklist of 50 items related to poverty, health, education, and employment. It uses this data to bring in government services for common areas of need. Equitas partners with local hospitals, and Grama Vidiyal works with the government health insurance system to provide for the health needs of clients.

Achieving financial inclusion requires consistent energy to attain, maintain, and measure progress. Fundación Paraguaya uses its Stoplight system to enable clients to define and measure their own achievements over time, and provides incentives to its staff based on these clients’ achievements. Equitas provides incentives to its account officers for including persons with disabilities and measures the progress of its clients along consumption and health indicators. Plan Paraguay and Fonkoze measure the success of their ultra-poor graduation programs based on the numbers of clients who “graduate,” having met a comprehensive set of indicators related to food security, income security, asset ownership, school enrollment, housing quality, etc., and having reached a level at which they can use unsubsidized financial services.

Financial inclusion has always been about going where others wouldn’t go, addressing the needs of people who were excluded because it was too hard to serve them, or too risky, or too unsustainable. The people we spoke with represent the many financial pioneers who use innovation to expand the boundaries of inclusion, reaching those assumed to be impossible to reach.

For more on addressing client needs, check out the interactive FI2020 Progress Report, launching on Thursday (10/1).

Persons interviewed for this post: Luis Fernando Sanabria, Fundación Paraguaya; Carmen Velasco, co-founder of Pro Mujer; Steve Werlin, Fonkoze, Haiti; Mariella Greco, Plan Paraguay; John Alex, Equitas, India; Arjun Muralidharan, Grama Vidiyal, India; and Munnawar Reza, TMSS, Bangladesh.

The Capital of Pro-Poor Microfinance

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Muhammad Yunus speaks with other participants at the 17th Microcredit Summit in Mexico

Bangladesh is known as the birthplace of modern microfinance, but many people see that as an old story. What is not as widely known is that Bangladesh continues to be the capital of pro-poor microfinance, a laboratory of innovation and integration focused on reaching clients in poverty and facilitating movement out of poverty.

Here are 4 reasons why Bangladesh still leads the industry:

1. The Yunus Centre Social Business Design Lab
The Yunus Centre holds Social Business Design Labs at least once a month where people present their social business ideas to potential funders (they are live streamed and available online). The funders are various Grameen Social Business Funds, and while some of the presenters are larger social business ideas, most of the Design Lab is dedicated to the ideas of Nobin Udyokta (young entrepreneurs), who are children of Grameen clients.

Each Design Lab presenter gets 5 minutes to present his or her project and 10 minutes to answer questions from the audience. At the end, the audience is broken up into groups and each groups meets with one of the presenters for half an hour to ask more in-depth questions. At the end, the groups report on whether or not they recommend the business for investment.

By the time they get to these presentations, the business owners have all worked closely with their investors in developing their business plans and preparing to answer questions. All of the businesses were recommended for funding.

Grameen phone ladies from 2007

Grameen phone ladies from 2007

What is interesting about this process is the generational evolution it shows in the development of the businesses and the sophistication of the finances. While Grameen Bank clients mostly ran basic livelihood projects with no accounting, these businesses run by their children have accounts, business plans, and investors.

2. UDDIPAN
UDDIPAN (United Development Initiatives for Programmed Actions) works in 37 of the 64 districts in Bangladesh. They serve 450,000 microfinance clients and 2,400,000 beneficiaries.

UDDIPAN’s vision is “To build an environmentally sound society without poverty, free of exploitation, oppression, injustice and discrimination where children, women and men live with dignity and capable to exercise their rights and will have access to and participation in the mainstream socio-economic, political and cultural processes.”

UDDIPAN photo

An UDDIPAN client looks after her cows. Photo credit: UDDIPAN

Uddipan has designed programs and products around the ultra poor, green energy, people with disabilities, and Islamic self-help groups. Here are some examples:

  • After doing a study that found high levels of child malnutrition, Uddipan educated their clients to provide house-to-house training in nutrition.
  • They run a tube well and toilet program with Water.org.
  • They provide primary health care services in 4 of their branches.
  • They have organized 2,400 imams to work for peace and against human trafficking.
  • They advocate on child rights and train their clients to avoid child labor.

3. TMSS
TMSS (Thengamara Mohila Sabuj Sangha) works in 20,000 villages in the country, serving 930,000 clients (800,000 with loans and savings and the rest with only savings). In 84 of their branches, TMSS also operates a clinic staffed by nurses and community doctors.

TMSS’ microfinance unit is called Health, Education and Microfinance (HEM), since all three activities are linked together in the microfinance delivery. HEM is only one part of the 14 domains that TMSS works in. They also run hospitals, medical training schools, other technical training schools, agricultural and fisheries projects, human rights projects and climate and environmental change programs.

All told, TMSS works with 4.7 million women organized in groups. Their motto is “Family development through women’s empowerment.”

4. Palli Karma-Sahayak Foundation (PKSF)
PKSF is a government supported apex funding unit in Bangladesh. In the past, it supported groups like Grameen, BRAC, and ASA, but these groups have graduated from their funding and PKSF is now focusing in the next tier of MFIs. PKSF currently funds about 60 MFIs.

PKSF Chair Qazzi Kholiquzzamn Ahmad has been a critic of microfinance as a stand-alone activity, but a strong proponent of microfinance linked with other human development services.

Key Elements of ENRICH. Source: http://bit.ly/PKSF-AHolisticApproach

Key Elements of ENRICH, which is short for “Enhancing Resources and Increasing Capacities of Poor Households towards Elimination of their Poverty.” Source: http://bit.ly/PKSF-AHolisticApproach

Under his leadership, PKSF has not only implemented agricultural value chain projects, but also the ENRICH program, which supports MFIs to integrate education, health, nutrition, water and sanitation, energy and climate change response into their programs. Four years after its inception, “ENRICH is flourishing into a model of sustainable poverty alleviation, continually seeking solutions to ameliorate the poverty situation in Bangladesh,” according to PKSF. Learn more.

In addition, PKSF operates the PRIME program (“Programmed Initiatives for Monga Eradication”), which supports MFIs in their work with the ultra poor by addressing food insecurity and seasonal hunger. DFID has recognized the PRIME program as their most effective poverty alleviation investment.