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Author: e-MFP. 2019 marks ten editions of the European Microfinance Award, launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, as a biennial Award – the first of which took place in 2006, and after considerable interest and exposure, became annual after 2014. The Award serves two parallel goals: rewarding excellence, and collecting and disseminating the most relevant practices for replication by others. The Award’s influence and prestige has grown, and its €100,000 prize for the winner (and €10,000 for the runners-up), attracts applications from many organisations that are innovating in a particular area of financial inclusion. As well as the significant prize, an important additional benefit to winners is the exposure that they receive, and the opportunities for expansion and replication that the attention of the sector can provide. To celebrate ten editions of the Award, e-MFP has decided to reach out to the previous winners, for a ‘where are they now?’ blog series, published in the order we receive them throughout 2019, to look at what they have been doing with their initiative since they won, and how the winning of the Award has helped, and what plans they have in store. In 2016, the theme of the Award was Microfinance & Access to Education. Kashf Foundation of Pakistan won for Kashf School Sarmaya, or Kashf Education Financial Program (KEFP), a holistically designed credit facility providing access to finance to Low Cost Private Schools as well as a capacity building and training for teachers and school owners, and a training of trainers on Financial Education for Youth. The following is an edited interview with Kashf Foundation. e-MFP: How has your initiative evolved since you received the Award? What have been the biggest changes? Kashf: In November 2016, Kashf Foundation was recognised for its pioneering efforts in the education sector by the European Microfinance Award (EMA). The award was an acknowledgement of the unique and innovative work Kashf is doing in the low-income education sector in Pakistan. It is the only MFI in the country to offer an education finance product that actually twins access to finance with capacity building trainings for teachers and school owners. The initiative looks at education and supply side gaps holistically and is a customisable solution for a broad range of Low Cost Private Schools (LCPS). With the support of the EMA, Kashf has been able to train 6,786 teachers and 2,122 schools owners on improving the overall pedagogy of learning through better teaching styles, classroom and school management and tools to develop student centered classrooms for provision of 21st century education. Through this award, Kashf has also managed to deliver child safety and well-being trainings to 745 teachers and schools owners in the areas of Lahore and Kasur in order to equip children with the knowledge of preventive measures against child sexual abuse. The distinct program efforts have translated into impactful outcomes with teachers and school owners immediately implementing their learnings from the trainings. Improved management and quality of education have led to increased enrolment at these schools, resulting in improved business incomes for the school entrepreneurs. Development of enabling classroom environments, adoption of interactive teaching methodologies and increased awareness among children and parents on social issues such as child sexual abuse have been some of the substantial results of these capacity building trainings. e-MFP: What did winning the EMA mean to your organistion? Did anything change as a result of winning, both within the specific initiative for which you won and in the organisation more broadly? Kashf: In order to better map the baseline data of the clients, Kashf revised its business appraisal forms for the Education Finance Program in 2017 to better gauge a client’s profile prior to disbursement. The assessment process of the entire school was previously done on a two-page document but with the support of the European Microfinance Award the appraisal form and data is now being collected digitally through tablets by business development officers. Furthermore, the earlier format assessed the school’s profile, student numbers, revenue, expenses, availability of resources etc.; with more focus on the income and expenditure of the client. However the revised process now contains detailed information on other factors such as grade level student enrollment and attendance, grade level fee acquisition, list of school’s asset and quality and comprehensive details of loan utilisation. Such extensive appraisal creates a transparent and efficient system, which ensures that every loan is disbursed to the deserved beneficiary. Effectiveness is a vital component of Kashf Education Finance Program (KEFP) in order to ensure its progress towards achieving its objectives. The entire school assessment process conducted by Kashf is endorsed by the school owners and they often report that on many occasions these assessment results have proven to be more informative, relevant and effective for them to understand the current position of their schools and to develop new strategies on that basis. After the revision of the business appraisal process, Kashf Foundation has also conducted a Training of Trainers (TOT) of its existing field based operational staff, i.e. the Business Development Officers (BDOs), who are responsible for loan mobilization and disbursement, in order to train them on the digital procedure. A total of 1,210 BDOs have been provided such trainings. The capacity building training modules for teacher and school owner training have been reviewed and updated by an independent education expert in the sector in order to ensure latest training techniques and styles have become part of the capacity building sessions. All the School Development Associates (SDAs) have then been trained on these training modules, through a Training of Trainers and then with additional regular refresher sessions in order to keep the trainers afresh on the training content. The revised module focuses on new 21st century teaching activities and methodologies in order to make the classroom environment more interactive and student friendly. It also aims to equip the teachers with new learning styles and effective strategies for classroom and student management. With the support of the European Microfinance Award, Kashf has developed a teacher and school owner training on child safeguarding and well-being with the objective to provide them effective preventive strategies for child sexual abuse and know-how of building a safer environment for the children within schools and in their homes. Kashf considered it imperative to provide education to children on protecting themselves, engaging in safer a manner with strangers, distinguishing between good and bad touch and reacting to situations of abuse. This is a very sensitive and important topic especially in line with the rising number of child abuse cases in Pakistan; last year alone child sexual abuse cases have increased by over 20% and it is estimated that at least 10 children are sexually abused every day. It is of utmost importance to educate children from primary age on preventive measures of sexual harassment. Kashf’s capacity building trainings have been focusing on educating teachers and school owners on how to make the children more aware about their relationships with their environment, at school and at home. The Financial Education for Youth curriculum also focuses on developing skills among children which help create empathy, enhance imagination and creativity and boost their confidence and independence. e-MFP: Are you aware of any impact your initiative has had on other organisations? Kashf: The European Microfinance Award 2016 significantly increased the credibility of the program. Kashf Foundation has been provided grant assistance by Pakistan Microfinance Investment Company (PMIC) to train 850 schools across Pakistan on the current and improved staff training program Kashf has been implementing under its Education Finance Program. Kashf has also been invited by the Global Schools Forum to be a member of its platform. Global Schools Forum is a community of education entrepreneurs who are running and supporting innovative and inclusive schools in underserved markets. They have two types of members: Non-state schools and school networks serving low and middle-income families and organisations that support these schools to scale their impact. The vision of Global Schools Forum is a world where all children have access to quality education. The mission is to strengthen the non-state education sector in developing countries serving children from low-income backgrounds. They aim to do this by equipping the members to support and run quality non-state schools and by creating a more favourable policy and funding environment for non-state organisations to engage in education. e-MFP: What do you see in the future for your initiative and for this area of practice more generally? Kashf: Our goals for the period up to June 2022 are: 7,000 active loans to schools worth PKR 1,053,399,375 (USD 7.5m); providing school owner and teacher training to 22,500 additional participants; and providing child sexual abuse training to a further 11,200 participants. The European Microfinance Award is jointly organised by the Luxembourg Ministry of Foreign and European Affairs, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu).

Author: Ian Radcliffe. When we at WSBI set out its Scale2Save Programme in 2016, we anticipated that customer centricity was a challenge for savings and retail banks in Africa. The programme’s first-ever study, State of savings and retail banking Africa, released earlier this year, has proven that to be true. Based on responses to a survey of 34 WSBI Africa member institutions, the study shows that making small-scale savings work requires both more thought on the supply side, and a better acknowledgement of the needs of people – the demand side – too. The 50-page report is part of the research component of Scale2Save – a partnership between WSBI and Mastercard Foundation – and reveals that member banks offer an array of transaction and savings accounts as part of their drive to attract and satisfy customers. The infographic below sheds some light on just how active banks are to push out products, but also the pitfalls and challenges when it comes to the four pillars that frame the report: usability, accessibility, affordability and sustainability. As the survey results focus on supply-side (that is to say, banks’) perceptions of customer centricity, it reveals that the product and service mix offered falls short. That shortfall can impair account activity and hamper take-up by potential customers. If this persists, these banks could see adverse effects on their financial performance, undermining what the Scale2Save programme seeks to achieve – increasing the viability of small balance savings in six African countries. WSBI banks offer a broad service, indeed, which shows a real commitment to widening financial access to low-income people, especially when it comes to women and those in rural areas. As we examined the data further, we found a persistent affordability gap, which makes it hard for low-income people to access financial services. Two in five people in Sub-Saharan Africa live on less than the internationally recognised poverty line of US$1.90 a day (in 2011 prices). Any business case that weaves in high account charges for maintenance of those accounts is bound to fail for this segment of the population. The chart below illustrates how banks view customer perception of what customers like most: low fees. That makes sense. We also see that a big proportion of targeted customers have no account because of insufficient funds. It seems customers have expressed some concern about financial services being too expensive. High-tech accessibility hampered by start-up costs; customer reach suffers Survey results show an appetite among respondents to scale-up alternative delivery channels for financial services, such as through ATMs, agents and mobile phones. Half of them use agents and mobile banking. Some 45% of respondents remain interested in investing in mobile banking. Designed to make it easier for customers to carry out banking, alternative channels have a costly price tag that weighs down on the already limited operating budgets of banks. Banks see upfront investment costs as an especially heavy burden, while there is neglect on outlays for continuous training and monitoring. As mobile banking continues to explode in Africa, WSBI member banks will need to spend more on digitally driven platforms. To keep costs in check and speed up service delivery, banks are considering partnering with mobile network operators or new entrants such as FinTech companies. Anecdotal information goes beyond data Results of the report echoed first-hand accounts by financial institutions at the Peer Review Workshop held in March. That gathering brought together people from the six Scale2Save projects in Kenya. Held with the help of Kenya Post Office Savings Bank (KPOSB), which is both a WSBI member and project partner, and with the support of its Managing Director Anne Karanja, the event was an opportunity to hear a wide variety of participants’ anecdotes via first-hand accounts of customer centricity struggles with the six Scale2Save projects. One account by a financial institution revealed the caution institutions must exercise in approaching customers around insurance, as they may wonder if you want them dead. Take-up of an account requires care on the supply side, indeed. Customer experience was also discussed during one panel. Experts advocated the need for investment in organisational structures and highlighted the need for putting internal structures in place to support customer centricity. Regulation was one report finding that echoed throughout the workshop sessions. The 40 attendees shared differing approaches to banking rules in the region. A lot of frustration bubbled up around regulation thwarting financial inclusion, especially when it comes to accessibility. One example was a rule requiring Interpol clearances in Uganda for thousands of agents there – no small task, indeed. In Kenya, it seems Tax ID, or tax registration rules, may hinder more account take-up as well. Searching the right role for government when it comes to digitisation is crucial. They have a role indeed, but how are they going to help drive digital-driven financial inclusion without hindering it? The chart below presents the 34 WSBI institutions’ response to question on regulatory barriers. One question that persists is: why isn’t anyone here talking about open banking? It’s coming, it’s already here. From M-PESA to M-KOPA, they have opened up. So much of the conversation in banking is about open banking and APIs, and regulators need to tackle the customer protection side. Questions around who is liable should also be addressed. As WSBI’s Weselina Angelow observed during the workshop, the move from cash to digital for customers is a challenge. Even in the host country Kenya, the birthplace of M-PESA, it’s clear how much of a lifeline it is for people throughout the country. It’s evident too that KPOSB taps into M-PESA to move money from village group savings boxes placed in member homes into POSTBANK accounts for safeguarding. What we learned so far Bank organisations must reform their business models. That means greater customer-focused bank leadership and culture to help improve the customer experience when opening an account and actually using it. Doing so would allow banks to satisfy customers more, which leads to more sustainable services from the banks themselves. Shying away from it ultimately drains the bottom line for banks, and the long-term prospects for bringing to market financial services for poorer people. That means coping with razor thin margins and cost-cutting moves on the bank operations side, balanced with the need on the demand side for convenient, secure, affordable and accessible products and services that deliver value for people. But if banks in Africa, like anywhere, maintain too much of a product-led focus, then expect slow take up of basic accounts, high account dormancy rates, and banks struggling to remain a sustainable business in this growing, vibrant and younger-aged marketplace. Photo: Ian Radcliffe (centre) discusses KPOSB’s Scale2Save project with workshop participants

Author: Mathilde Bauwin. In 2012, the Social Performance Task Force published the Universal Standards of Social Performance Management. Created both by, and for, practitioners in the sector, these Universal Standards gather together a collection of good management practices which should enable financial service providers to accomplish their social mission. Since then, how have microfinance institutions appropriated these standards? In 2014, the social audit tool, SPI4, developed by Cerise, was fully aligned with these standards so as to allow financial service providers to assess their social performance management practices, to identify their strengths and weaknesses and to target possible avenues for improvement. Accordingly, since 2014, Cerise has collected in a centralised database all of the SPI4 audits which have been performed and submitted. In 2018, ADA and Cerise joined forces to analyse this database and to carry out a study to review the current practices related to the assessment and management of social performance. The study places a particular focus on three questions: What are the profiles of the financial service providers that carry out a social audit? What are the main strengths and weaknesses of these actors in terms of social performance management? What are the potential synergies between social, financial and environmental performances? The main results of the study can be found below, while the full study is available here. Profiles of the institutions using the SPI4 tool Between March 2014 and August 2018, 435 audits were performed and submitted to Cerise by 368 microfinance institutions from 73 countries, with Latin America and the Caribbean and sub-Saharan African regions being highly represented. There are relatively few cooperatives amongst the institutions performing an audit, compared to the number of institutions reporting to the MIX Market. Furthermore, a majority of the institutions are large in terms of their portfolio size and there are as many for-profit as there are non-profit structures. Strengths and weaknesses in terms of social performance management In terms of the review of the practices related to social performance management, the institutions in the study sample produced an average score of 65.4%. Generally, the institutions with the lowest scores are: those located in Sub-Saharan Africa, cooperatives, institutions which have a small portfolio and those which target urban areas. This means that these are the types of institutions that have a particular need for support on these issues. Amongst the six dimensions of the Universal Standards of Social Performance Management, the dimension with the lowest score is that related to the procedures and processes implemented to ensure the commitment of all of the institution’s stakeholders to the social goals (dimension 2). The dimension with the highest score is balance between financial and social performance (dimension 6). Generally, the institutions that received the lowest global scores did not do so due to outlier low scores on one particular dimension, but were generally weaker across all of the dimensions. Social performance, transparency, environmental performance and financial performance In 2018, a Transparency Index was included in the SPI4 tool, which makes it possible to assess the seven main representative components of the integrity and transparency of the institutions. The global transparency score for the sample institutions is 69.7%. The scores are higher for the components related to the audit and the publication of accounts and human resource policy, whilst they are lower for the policy on aggressive sales technique and the mechanisms for complaints resolution, which once again highlights the practices which are the most difficult to implement and areas which require specific support. The SPI4 also includes an optional module, the Green Index, which was developed with support from the e-MFP Microfinance and Environment Action Group, which enables institutions to measure their environmental performance. Of the institutions included in the sample, 28% completed this module, demonstrating their interest and commitment in this area. Generally speaking, these institutions perform better than the others in terms of social performance management. This indicates that the institutions which are the most committed to the achievement of their social missions are those which are also the most concerned with their environmental performance. On the other hand, their environmental performance scores remain low in relative terms, which shows that they probably have a significant need for support and capacity building in this area. Finally, the SPI4 tool contains some data related to the institutions’ financial performances, which makes it possible to analyse links between good social performance management practices and the quality of the portfolio. Whilst the question of the links between financial and social performances is not new, this analysis is the first to be based on the Universal Standards to define social performance, which is considered here in terms of management, rather than results. The analysis shows that, all other things being equal, the link between good social performance management practices and the quality of the portfolio is positive and statistically significant: the higher the social performance management scores, the lower the portfolio at risk. This strong result should be one more reason to keep fostering the evaluation and the improvement of social performance management practices. While the usual caveats relating to representativeness and size of samples must be acknowledged, this study takes advantage of a valuable data set, built upon a standard-setting framework years in development, to reveals some very interesting results. These results are welcome not only in empirically supporting the much-argued claim that social performance and financial performance positively correlated, but perhaps even more so in identifying in which particular areas MFIs are succeeding in social performance, and where there remains much room for improvement. Photo credit: Anne Wangalachi

Author: e-MFP. 2019 marks ten editions of the European Microfinance Award, launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, as a biennial Award – the first of which took place in 2006, and after considerable interest and exposure, became annual after 2014. The Award serves two parallel goals: rewarding excellence, and collecting and disseminating the most relevant practices for replication by others. The Award’s influence and prestige has grown, and its €100,000 prize for the winner (and €10,000 for the runners-up), attracts applications from many organisations that are innovating in a particular area of financial inclusion. As well as the significant prize, an important additional benefit to winners is the exposure that they receive, and the opportunities for expansion and replication that the attention of the sector can provide. To celebrate ten editions of the Award, e-MFP has decided to reach out to the previous winners, for a ‘where are they now?’ blog series, published in the order we receive them throughout 2019, to look at what they have been doing with their initiative since they won, and how the winning of the Award has helped, and what plans they have in store. In 2008, the theme of the Award was Socially Responsible Microfinance, which aimed to highlight and catalyse initiatives that represented a breakthrough in promoting social responsibility and performance in microfinance. Buusaa Gonofaa MFI, founded in 2000, provides micro-lending and saving services to resource-poor households in Ethiopia to improve their livelihood. Buusaa Gonofaa has a particular focus on women, landless youth and smallholder farmers. Buusaa Gonofaa’s initiative, the development of a Client Assessment and Monitoring System or Social Ledger, was presented for the European Microfinance Award 2008. Buusaa Gonofaa MFI had internally developed a scorecard including 20 indicators related to the poverty and progress of its clients’ wellbeing over time. Thanks to this initiative, Buusaa Gonofaa was able to develop a precise segmentation of its clients. In addition, it helped not only in modifying loan products features in order to fit the clients' needs, but also in managing the achievement of Buussa Gonofaa's social goals. e-MFP: How has your initiative evolved since you received the Award? What have been the biggest changes? Buusaa Gonofaa (BG): First, in the ten years since winning the Award, BG’s activities, supported by the client monitoring system, have greatly expanded. Branches have increased from 19 to 33, active borrowers from 39K to 85K, the loan portfolio from 2.3m to 12.4m euros, assets from 3.1m to 16.8m euros, and savings deposits from 534K to 5m euros. This growth has paralleled the expansion of BG’s use of the scorecard, which was given impetus by winning the 2008 Award. Initially, BG invested the Award money in the development of an automated data processing system for its scorecard on the Access platform; but when pilot tested, it was unsuccessful and was abandoned. After that, BG recruited an IT expert and another system was developed on the SQL platform. The poverty scoring data of a small sample of on average 600 active borrowers in 8 out of 30 branches is being processed every year on this system. The system generates basic reports that show the target groups that are being reached by BG, their poverty status (very poor, poor or not so poor), and their graduation patterns over time. The report gives important insights about our clients; it provides critical inputs for decisions on product improvement, new product development and strategic planning. However, this system also has serious limitations in generating the required reports. As a result, BG is currently implementing a new core banking software in which the scorecard data processing will become an integral part of the loan operation process. Such integrated data processing will streamline the reporting and allow regular deliberations at management and board level, something not possible so far due to the challenges of the manual data processing system. e-MFP: What did winning the Award mean to your organisation? Did anything change as a result of winning, both within the specific initiative for which you won and in the organization more broadly? BG: Winning the Award was a momentous achievement for the Ethiopian microfinance industry in general and BG in particular – it was official recognition of BG’s commitment and effort to remain true to its promises of improving the livelihood of its target groups. Since BG won the Award, there has been a growing commercial focus among MFIs and more questions are being asked on the efficacy of microfinance as a tool to fight poverty. It is within this context that the Award accorded more legitimacy to BG’s poverty tracking system. At the same time, the increased visibility put pressure on BG to stay on course with its initiative; this in turn helped BG to invest more in the development, improvement and institutionalisation of the scorecard. For sure, BG has been able to demonstrate to its internal and external stakeholders how it has been striving to translate its mission into day-to-day actions. Most importantly, integration of the scorecard system in the day-to-day operations of BG has provided valuable longitudinal data over typically 3-5 years for each of the sample clients. The insights from the scoring indicates who is being reached by BG, who is and is not succeeding, whether or not graduation out of poverty is occurring and if so, in what pathways. For example, BG has learned from the scoring data that over two thirds of the target clients are very poor and poor; that the very poor and poor are more likely to graduate from poverty as compared to the non-poor clients; that main pathways out of poverty is via assets, such as oxen, cows, sheep and goats, which is quite credible in view of the fact that over 65% of BG’s target clients are rural households whose main livelihood is smallholder subsistence farming. Another example of the important role of the scoring system is that it has helped BG to learn about the different trajectories of growth in the loan size and hence underlying economic activities of the different categories of the poor clients. Comparison of growth in loan size shows significant difference for urban poor compared to the rural poor. The loan size for the urban poor increases at a much faster rate when compared to that of the rural groups. The urban poor depend on micro enterprise activities where the micro loans are more likely to help them overcome liquidity constraints and grow their business. In comparison, the rural poor depend on smallholder subsistence farming which is known for very low level of productivity of average 2 tons and this is because farmers typically cultivate less than 2 hectares of land with very limited inputs of seeds and fertilizer and low farming skills. These insights from the scorecard were used by BG to revisit its strategies towards the rural poor and it introduced agricultural value chain financing thereby increasing the productivity of the smallholders from 22% up to 3 fold in some cases. Winning the Award and the actual implementation of the scoring system has helped BG to convince new social investors to provide foreign bank guarantee facilities in order to borrow from local banks to finance expansion and growth of BG. BG’s longtime partner ICCO Terrafina has used BG’s poverty scoring tool to write a winning proposal to donors and has been able to get multimillion dollars funding for a program that is now being implemented in four African countries, namely, Burkina Faso, Senegal, Rwanda and Ethiopia. This winning proposal, called STARS, (Strengthening African Smallholders) aims to offer more adapted financial products and services for those very poor and poor farmers that have graduated from the existing general purpose group loan as indicated by the scoring tool. Interestingly, this STARS program is a natural fit with BG’s new strategy of agricultural value chain financing for smallholder poor farmers. e-MFP: Are you aware of any impact your initiative has had on other organisations? BG: Following the winning of the Award in 2008, BG was invited to several forums to share its experience on this tool and how it has been working and its application in the management of BG’s micro credit operations. From 2009 to 2014, for example, BG made presentations at annual conferences of AEMFI, the national network of MFIs in Ethiopia. Many other presentations and experience sharing exchanges were also made in Mali, Uganda, Kenya, Italy, Luxembourg, Belgium, France and the European Microfinance Week. Several experience sharing and exchange events were organised at BG through the facilitation of the national network AEMFI in Ethiopia. It was also shared with members of the PAMIGA network as well. e-MFP: What do you see in the future for your initiative and for this area of practice more generally? BG: There is no doubt that BG will further expand and strengthen the implementation of its poverty scoring tool. The poverty scoring data processing will be soon integrated into BG’s new core banking software so as to enable seamless operation of lending operation including the poverty scoring as one component and the scoring data will be processed for all 33 branches (currently only 8 branches’ data is processed). BG aims in the future to explore much deeper and get further insight about the factors that contribute to the different graduation pathways followed by the rural and urban poor clients. It needs to learn why the rural poor seem to follow asset based graduation pathways and learn whether or not there might be some optimal level of the rural poor’s investment in for example livestock assets or whether they have particular preference for certain types of key assets. Such deeper understanding of existing clients’ needs will require perhaps further refining of BG’s offerings of financial products and services. There are more reasons for MFIs in general to seriously revisit their current practices of focusing purely on the money side of their business; the bulk of recent empirical evidences suggest that MFIs should not take for granted that their loans will always bring enterprise growth and increased income, thereby improving the welfare of the poor households. MFIs need more systematic tools and mechanisms to get a much deeper understanding of the needs of poor people and the challenges they confront in their livelihoods, to understand how the financial services they access from the MFI help the poor in facing those challenges. For example, the growing evidence from financial diaries of the poor is already challenging our conventional wisdom and it is giving us a completely new perspective that was not in the conventional models of due diligence techniques of lending to the poor. The European Microfinance Award is jointly organised by the Luxembourg Ministry of Foreign and European Affairs, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu). For more information on the 2019 Award on "Strengthening resilience to climate change" , visit the Award website .

Author: e-MFP. "Any sufficiently advanced technology is indistinguishable from magic”, wrote Arthur C. Clarke. Put aside cynicism about the perils of our technology-obsessed culture, focus on how communication and convenience have been changed in recent years, and then – try to imagine how transformational the current technological revolution must be for the financially excluded in low-income countries. The ability to predict the weather; contact vendors or customers; send, save, receive or borrow money affordably and immediately; find new markets – this is magical in all but name. It’s happening so fast, too. The mobile phone and Internet are both barely twenty years old. The internet-connected smartphone – a tool of almost limitless utility – is half that age. What technology has done for the lives of richer consumers in the developed world may be nothing to what it can do for the financially excluded. These were the messages at a joint e-MFP/FIF UK Offsite<1> Session held at Allen & Overy in London on 23rd May. The event was entitled Financial Inclusion through Technology – the theme of the European Microfinance Award 2018 – and served to summarise the process and takeaways of that Award (including via a launch of the new report, Digital Pathways in Financial Inclusion) and bring together a panel of experts to debate the biggest issues in the financial inclusion and technology sector. The event began with a short slide presentation by e-MFP’s Financial Inclusion Specialist (and lead author of the report) Sam Mendelson. Sam opened with a big picture look at ‘why technology matters’: the reduced costs compared to human-intensive traditional microfinance; improvements in communications, information exchange, and the speed and reliability of financial services in remote areas; and the potential to bring into the financial ecosystem previously excluded segments – especially women, rural communities and the very poor – that brick-and-mortar MFI struggle to sustainably reach. The innovations that make these opportunities possible are provided by a diverse range of new entrants into the rapidly-evolving financial inclusion landscape. They can offer, as Sam outlined in his introduction, an equally diverse array of technology-led products and services: credit, savings, insurance, payments or transfers, as well as institution-side delivery solutions and non-financial services. Aurélie Wildt Dagneaux from PHB Development then gave a more detailed overview of the emergence of this new landscape, from the first microfinance institutions of 30-40 years ago to the emergence of mobile money and digital financial services for low-income groups in the last ten years, to the fintech aggregators with their exploitation of new sources of client data. So much of increased access to financial services has been driven by technology, with growth in mobile money usage far outpacing uptake of bank accounts in many markets. Graham Wright of MSC is well known to e-MFP, most recently for his keynote at EMW 2018 in which he exhorted MFIs to ‘digitise or die!’ in the face of the threat from new entrants that risk serving only urban, high-value customers, leaving traditional MFIs with low-value rural clients in an unsustainable business model. However, Graham began on an upbeat note, with a profile of Equity Bank in Kenya, and its remarkable transformation into a digital bank, with 97% of transactions conducted outside branches and a 57% increase in profits. Also profiling what can happen when digital transformation is done well was Audrey Joubert from Advans International, and formerly of Advans Cote d’Ivoire – the winner of the EMA 2018. Audrey presented the Advans CI’s digital credit and savings initiative for cocoa farmers via cooperatives. There are success stories such as these, as well as cautionary tales, that exemplify what the three panelists termed the ‘necessity to digitise’. A 2015 McKinsey report predicted that MFIs that fail to transform will lose 20-60% of profits by 2025. Graham gave examples of the trends underway in some markets of digital lenders, without the core expertise in credit assessment and working with low-income segments, posing existential threats to socially-focused MFIs that are stuck in unsustainable, traditional models. How can this necessity be made real in practice? Aurélie introduced the ‘How to Succeed in your Digital Journey’, a six-part toolkit developed with UNCDF Microlead and Mastercard Foundation, which outlines six overlapping models for digitally transforming financial institutions. These start, as Aurélie described it, with basic operations (use of tablets for credit assessment, for example) via partnerships all the way up to mobile banking. Partnerships are a critical part of digital transformation in financial institutions, as outlined as one of the ‘factors for success’ in Digital Pathways in Financial Inclusion. Advans CI works with various partners such as MNOs Orange and MTN, the latter which enabled Advans CI to implement its own USSD Mobile Banking menu where rural customers can check their balance and carry out transactions from their Advans account to another Advans Account. This channel (the Bank-to-Bank) is used by cooperatives to pay part of the farmers’ crops directly on their savings accounts. Advans CI also offers the farmers a wallet-to-bank and bank-to-wallet transfer service in partnership with MTN, and also offers a withdrawal card offered in partnership with SGBCI from the Société Générale Group. Finally, Advans CI received support from CGAP, both in funding to implement the mobile banking solution, and also TA from CGAP’s digital finance team, including support for a feasibility study and technical implementation of the digital school loan. Aurélie pointed out the importance of partnerships in scaling up, pricing, and how digital transformation is an opportunity for MFIs to sustainably offer individual loans that wouldn’t be possible without efficiency increases. But there are sometimes unforeseeable consequences to such transformations: PHB has worked with MFIs where on the request of clients, they had to re-introduce the group meetings typical of the traditional microfinance model. There remains a need for the human touch and the social cohesion of group lending and savings models that can be lost in a switch to automation and branchless individual banking. Finding a way to innovate without sacrificing what clients want and need may be the biggest challenge of all. The challenges or risks in digital transformation was the final topic for the panel. Graham is a vocal critic of some of the trends underway in the sector, including (with Kenya an example) the proliferation of consumer lenders using poor credit appraisal models (such as airtime top-ups) that lead to high write-offs, ignoring of actual client data, blacklisting of millions of clients for tiny defaults, a failure to protect consumers, endemic multiple borrowing, and barriers to mobile internet access in rural areas exacerbating the digital divide. Audrey gave examples of Advans CI’s own challenges – notably the need for financial and technological education for cash-accustomed clients in how to protect private data and safely use (and trust) mobile banking. So what’s next? A vibrant series of questions from the audience during the panel presentations and after looked for the panellists’ ideas on what needs to be done to address the many challenges ahead. There is unanimity that in key markets, a focus on consumer finance has led to a failure to innovate in serving (M)SMEs – for which the benefits of digital finance can be the greatest. There needs to be support from other stakeholders for digitally transforming FIs, especially in disseminating best practice and helping FIs with a comprehensive digital strategy. Mobile Internet must be brought to rural, more remote clients. Finally, there needs to be a re-focus on what financial inclusion is for. Is it the Findex-type focus on bank account penetration in which there has been considerable success? Or is a focus on access making the sector miss certain blind spots and lose sight of whether technology increases the quality and value of financial services to those who need it most? <1> Offsite Sessions are a new activity developed under our Strategic Plan 2017-2021 which take place in different e-MFP members’ countries and provide e-MFP with opportunities for more frequent touchpoints with its members and external stakeholders besides the European Microfinance Week.

Author: e-MFP. 2019 marks ten editions of the European Microfinance Award, launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, as a biennial Award – the first of which took place in 2006, and after considerable interest and exposure, became annual after 2014. The Award serves two parallel goals: rewarding excellence, and collecting and disseminating the most relevant practices for replication by others. The Award’s influence and prestige has grown, and its €100,000 prize for the winner (and €10,000 for the runners-up), attracts applications from many organisations that are innovating in a particular area of financial inclusion. As well as the significant prize, an important additional benefit to winners is the exposure that they receive, and the opportunities for expansion and replication that the attention of the sector can provide. To celebrate ten editions of the Award, e-MFP has decided to reach out to the previous winners, for a ‘where are they now?’ blog series, published in the order we receive them throughout 2019, to look at what they have been doing with their initiative since they won, and how the winning of the Award has helped, and what plans they have in store. In 2017, the theme of the Award was Microfinance for Housing, which sought to highlight the role of microfinance in supporting access to better quality residential housing for low income, vulnerable and excluded groups, with no or limited access to housing finance in the mainstream sector. Cooperativa de Ahorro y Préstamo Tosepantomin (Tosepantomin), the 2017 winner, targets rural communities living in marginalised areas, to which it offers savings and loans for housing improvement and house building. The cooperative mainly applies the solidarity group methodology and uses a holistic approach to its housing programme, with technical support that includes architectural planning, elaboration of housing project budgets, and oversight of the construction processes. The programme also promotes ecological and sustainable housing through eco-friendly building techniques, recycling, renewable energy and energy efficiency. e-MFP: How has your initiative evolved since you received the Award? What have been the biggest changes? Tosepantomin: On November 30th 2017, the Tosepantomin Savings and Credit Cooperative was announced as the winner of the European Microfinance Award 2017 on “Microfinance for Housing”. This was a huge moment for our organisation, and in particular, our housing programme. Since then, Tosepantomin has expanded its activities and increased the provision of financial services to its cooperative members. New credit products were created in order to serve Small and Medium Enterprises (SMEs), those who provide public transport services and those who require financing for the purchase and installation of solar panels in their home, via a new credit product called “Yolchicaualis” (meaning ‘strength’ or ‘heart’ energy in the Nahuatl language). The prestige and attention from winning the Award has been a large factor in this development, and has allowed a virtually three-fold expansion of our housing program: while 869 families were served in 2017, with a loan portfolio of US$1.7m, 2,635 were served in 2018, with a loan portfolio of US$5m. Tosepantomin is part of the Union of Tosepan Cooperatives and the Award has helped strengthen the Union’s internal alliance. The General Assembly of the Union of Tosepan Cooperatives named 2019 the “Year of Youth and Recovery of Values”, recognition of the fact that supporting the young is not a problem to solve but an opportunity to transform their reality for the better. e-MFP: What did winning the Award mean to your organisation? Did anything change as a result of winning, both within the specific initiative for which you won and in the organization more broadly? Tosepantomin: In the framework of the Year of Youth and Recovery of Values, Tosepantomin and the Union of Tosepan Cooperatives have launched a program in 2019 that seeks to allocate social investment resources and efforts in order for young people to achieve their social and economic goals. The program has three main elements: Job training. Young people connected with Tosepantomin will be included in the governmental project Jóvenes Construyendo el Futuro (Youth Building the Future), initiated by the Mexican government with the aim to integrate them as trainees for one year in a workplace, with the view to developing the skills and specific competences needed to perform well in a working environment. Life plan training. Young people will be offered a diploma for the creation of ‘life plans’ to revitalise the community, based on principles from Gandhi’s ‘constructive program’ approach. This diploma will be divided into four modules: Cooperative Principles; the ‘Solidarity Economy’; Innovation and Entrepreneurship; and Life and Business Plans. Social Ventures. The main objective of the diploma will be to define life plans, and on this basis, develop social enterprises or initiatives that will lead to permanent jobs. Tosepantomin intends to provide finance for the productive activities resulting from the ventures. It’s hoped that 20 to 30 new cooperatives will be created each year by young people as a result of this. The objective of the present approach is to help the so-called ‘solidarity economy’ – processes that promote common welfare, with the special intention of making young people aspire to improve and transform their life plans into reality within their communities, through social ventures that, crucially, allow them to stay in their area if they choose, rather than be forced to migrate for work. Internally, winning the Award brought enthusiasm and pride among the cooperative members, accentuating the belief that with organisation and effort, one can achieve a great deal. Externally, it enriched Tosepantomin’s housing program through increased linkages and exposure. A collaboration agreement was signed with the foundation Habitat for Humanity, allowing for more significant financing opportunities for members and improvements in the technical assistance offered. e-MFP: Are you aware of any impact your initiative has had on other organisations? Tosepantomin: Tosepantomin became the financial arm of the cooperative movement created in 1977 in the Sierra Nororiental de Puebla region of Mexico, and later became the Union of Tosepan Cooperatives. The Union is composed of eight other cooperatives that all wish to improve the quality of life of the partners’ families in order to improve lives. Tosepantomin has therefore had an impact on its eight cooperative sister organisations, but not only that – our housing program has also influenced other Mexican organisations. Several savings and loans cooperatives as well as civil associations approached Tosepantomin to hear about our experience and share financing and technical assistance strategies. e-MFP: What do you see in the future for your initiative and for this area of practice more generally? Tosepantomin: In the near future, our housing program is seen as the main tool to enhance adequate housing of all cooperative members, their children and grandchildren, with a focus on providing and promoting eco-techniques to use energy and water appropriately, transform agricultural residues in organic fertilisers and produce healthy food products. Tosepantomin will also continue financing sustainable systems such as the organic production of food products used for home consumption, trade or fair trade. This will help our members achieve “Yeknemilis” (‘good life’ in Nahuatl), which remains the main objective of the Tosepan Union of Cooperatives, of which Tosepantomin is a member. The European Microfinance Award is jointly organised by the Luxembourg Ministry of Foreign and European Affairs, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu). For more information on the 2019 Award on "Strengthening resilience to climate change" , visit the Award website.

Author: e-MFP. 2019 marks ten editions of the European Microfinance Award, launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, as a biennial Award – the first of which took place in 2006, and after considerable interest and exposure, became annual after 2014. The Award serves two parallel goals: rewarding excellence, and collecting and disseminating the most relevant practices for replication by others. The Award’s influence and prestige has grown, and its €100,000 prize for the winner (and €10,000 for the runners-up), attracts applications from many organisations that are innovating in a particular area of financial inclusion. As well as the significant prize, an important additional benefit to winners is the exposure that they receive, and the opportunities for expansion and replication that the attention of the sector can provide. To celebrate ten editions of the Award, e-MFP has decided to reach out to the previous winners, for a ‘where are they now?’ blog series, published in the order we receive them throughout 2019, to look at what they have been doing with their initiative since they won, and how the winning of the Award has helped, and what plans they have in store. In 2010, the theme of the Award was Value Chain Finance, focusing on stimulating and promoting inclusive financial schemes that contribute to the evolution of value chains in developing countries. A value chain is a vertical alliance between different independent enterprises, collaborating to achieve a more rewarding position in the market. Harbu of Ethiopia won for its initiative to finance the soy bean value chain as a response to market demand generated by a shortage of cow milk in Jimma city, in Oromia state. The initiative sought to strengthen horizontal linkages with farmer marketing organisations and vertical linkages with retailers and women's associations that are processing and producing soy milk. The initiative created market opportunities for producer-farmers and employment opportunities for urban women and youth. At the same time, it improved families’ nutrition, especially for children and women. Harbu provided financial services to most of the actors across the value chain, from the individual producers all the way to retailers. e-MFP: How has your initiative evolved since you received the Award? What have been the biggest changes? Harbu: In 2015, the soy milk value chain project was fully handed over to Jimma Kera Women Association, the members of which now run the business. They have a business management team comprising five members who are accountable for the overall management and administration of the project. This includes the managing of the milk processing enterprise and, on top of this, the women’s capacity has grown with the expansion of their individual micro and small businesses. This growth has meant that they can take larger (and more useful) working capital loans than in the earlier stages of the project. The women also continue to collect the raw materials (soya beans) they use for processing the final output from the Farmers Marketing Organization (FMO) as usual. Even while supply is limited, soya bean demand is increasing – from large cafes, bakers, and factories that are using it. The FMO is becoming more productive in response to this, and larger scale soya bean producers are being linked to larger factories like FAFA- the biggest food processing body in Ethiopia Despite the shortage of soya bean grain, the women have also started processing too, meaning they are currently able to produce milk powder in addition to liquid soy milk as a new product line. e-MFP: What did winning the Award mean to your organisation? Did anything change as a result of winning, both within the specific initiative for which you won and in the organisation more broadly? Harbu: As a result of winning the Award, Harbu MFI became better recognised by many local and international development organisations that contributed a lot to the institution’s recent growth, both in terms of general operations as well as specific to the Value Chain initiatives. Currently, Harbu’s financing needs are met by various World Bank-affiliated financial development packages such as WB-WEDP (Women Entrepreneurs Development Program), WB-RUFIP (Rural Financial Intermediation Program), WB-SME (Small & Medium Enterprise Development Program), and WB- RSMEP (Rural Sustainable Micro Energy Program), all programmes managed by Development Bank of Ethiopia (DBE). Besides this, the institution is also backed by International loan fund guarantors such as Rabobank and ING investment groups, which are providing guaranty facilities for Harbu to access funds from local banks for its agriculture and value chain product lines. Harbu is also working with the French company SIDI in the same area of facilitating local bank financing via guaranty. Harbu sees all this support as directly or indirectly a result of winning the 2010 Award, and it has translated into significant growth in the institution’s activities: since 2010, Harbu has grown from 13 to 21 branches, 18,000 to 46,000 clients, deposits from ETB 5.3 million (USD 182K) to ETB 57 million (USD 2 million), and a gross loan portfolio from ETB 13.8 million (USD 475K) to ETB 160 million (USD 5.5 million). With respect to innovation and the respective value chain trajectory, Harbu continues to have a leading position and financing role within the various value chains. Harbu has been included in the Malt Barley Value Chain Program currently promoted by global NGO ICCO Cooperation and funded by MasterCard Foundation to reach 200,000 family farms in four countries within five years timeframe. Harbu’s individual target is 9780 family farms over the course of the program, and it has currently reached 4904 family farms at the three-year mark. The Malt Barley value chain also includes a new initiative with Boortmalt Inc., one of the biggest malting plants in Europe, currently constructing a big malt plant in Ethiopia with capacity of over 60,000 tons of malt per annum. Because of Harbu’s experience in the malt barley value chain, BoortMalt Ethiopia invited Harbu to work with them. Over the 2019 planting seasons, Harbu plans to reach 2,000 smallholder farmers under this relationship, via the opening of a new branch office in the North East of the country. Finally, Harbu’s value chain interventions are not limited to soya bean milk and malt barley alone, but honey too. The Honey Value Chain initiative is under the Food Security & Rural Entrepreneurship (FSRE) program, involving Oxfam GB as promoter, the farmers as honey producers, various local cooperatives as processors, and Harbu as financer. Within this honey program, Harbu has been able to finance 950 family farms under its two rural branch offices. e-MFP: Are you aware of any impact your initiative has had on other organisations? Harbu: Yes, Harbu has shared its rich experience with organisations in Rwanda, and Tanzania as well as various local development organisations. Several of these parties have adopted Harbu’s know-how and begun replicating the same initiative. e-MFP: What do you see in the future for your initiative and for this area of practice more generally? Harbu: Using the same milk producing raw materials (soya bean), Harbu plans to enable women to diversify the product lines. This means, among other things, expanding the powdered milk processing activities and supplying powdered milk as raw material for bakeries, cafes and snack makers that have such high demand for this product. From the farmers’ perspective, Harbu has a plan to facilitate the soybean cleaning and packaging process that helps the FMO deliver sub-processed grains to certain end users such as factories and processors. This enhances the income of the FMOs by adding value to the soya bean grains. The European Microfinance Award is jointly organised by the Luxembourg Ministry of Foreign and European Affairs, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu). For more information on the 2019 Award on "Strengthening resilience to climate change" , visit the Award website.

Author: Elisabeth Rhyne. How should financial institutions approach consumer protection differently when they offer services through smartphones rather than humans? This was the question we posed when the Smart Campaign team first started revising the standards to be applied to digital financial services, especially digital credit. We are very pleased to have launched the new Standards, their accompanying Guidance Document, and the companion Handbook for Regulators. What we didn’t expect, however, was quite how profound the differences would turn out to be. We made significant changes to the standards for all seven Client Protection Principles (the principles themselves remain the same). I want to focus here on the most fundamental: Appropriate Product and Delivery Design. When financial service providers (FSPs) consider tackling client protection, their first thought is often, “We need a Code of Conduct!” That reflexive response shows that FSPs traditionally view protecting clients mainly through the lens of setting and enforcing boundaries on staff behaviour. And traditionally, that made sense. After all, ground zero for protecting clients occurs in the moments when they come face to face with staff. That’s when the client receives product information that is transparent (or not) and is treated (or not) with fairness and dignity. The practice of client protection has centered on defining codes of conduct, incentivising and training staff to follow them, monitoring their adherence, and applying sanctions to breaches. When face-to-face interaction disappears, what happens to consumer protection? When staff are not present, however, the client experience changes. On the one hand, the problem of rogue or substandard staff behaviour disappears, which is good for clients. But so does the helpful staff person who can answer a client’s questions and guide the client to the right product. With digital services, everything the client experiences is pre-programmed and embedded into the user interface upfront, before a single client has clicked on a single screen. Everything is determined in advance, through coding and algorithms, and the sequences roll along without individual human intervention. In this setting, protecting clients is all about good design. But product and delivery design teams in FSPs include a range of people, not all of whom are traditionally alert to client protection: the IT team, the market research and marketing teams, commercial analysts, and possibly outside software developers. Team members come from different disciplines with different training and skills, and they may not even be aware of client protection principles. These teams need guidelines to assist them in integrating protections into the interfaces they ultimately design. For example, designers need to determine whether clients are likely to understand the product information they provide in a setting where they cannot easily ask questions. Those involved in market research and prototype testing need to have client protection issues in the forefront of their minds as they do their work. To do this, they need a “code of conduct” for the design process, and that is how we think about the new standards for Appropriate Product and Delivery Design. We call the approach “Protection by Design,” taking a cue from the concept of Privacy by Design often advocated as a rubric for data privacy. Protection by Design is a vastly different approach to implementing client protection from the old codes of conduct. The focus is what goes into the product, rather than how the staff member behaves with each individual. Protection by Design focuses on anticipating the totality of needs of all clients and incorporates them right from the start. And that brings up another profound difference between traditional client protection practice and the new standards. When the focus is on ensuring that the staff conducts successful interactions with each client, adherence is monitored on an ongoing basis through everyday work. With Protection by Design, and its focus on getting it right in advance for the whole portfolio of clients, the staff stand back and watch the machines do the work. There is no daily staff feedback to tell supervisors whether client outcomes are satisfactory. Thus, in Protection by Design, systems and methods for monitoring client outcomes – through portfolio data and direct client surveys – become essential. We are just at the start of understanding these and other implications of Protection by Design for the practice of client protection. The Smart Campaign looks forward to engaging with members of e-MFP to build out and test robust tools that can enable the approach to be widely applied. We’d like to work out how to incorporate client input and testing during the design process, protocols for algorithm review and other facets of the new approach. Beyond Protection by Design, the revised standards for digital financial services incorporate several other very important changes, some of which are among the hottest issues in the sector today: data privacy, data security, and the thorny question of fairness and responsibility in algorithm-based lending. The Smart Campaign will dig deeper into these issues during the coming year. We would like to thank all those who worked with us in designing the standards, especially MFR and the members of the Fintech Protects Community of Practice. It has been a community effort. In a world that is changing very rapidly, we consider the client protection standards to be a permanent work in progress, anticipating that they will need to be adapted as new developments in financial services occur. At this stage, our hope is that the players in the financial inclusion sector will actively promote and use the new standards to ensure that the sector does right by its clients, no matter what methods it uses to deliver its services. We invite you to review the standards and send us your thoughts. Photo: Will she be protected by good digital product design? A Bolivian client of BancoSol, a Smart-certified institution (source: CFI at Accion) About the Author: Elisabeth Rhyne was Managing Director of the Centre for Financial Inclusion (CFI) at Accion until her retirement in September 2019.

Author: e-MFP. 2019 marks ten editions of the European Microfinance Award, launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, as a biennial Award – the first of which took place in 2006, and after considerable interest and exposure, became annual after 2014. The Award serves two parallel goals: rewarding excellence, and collecting and disseminating the most relevant practices for replication by others. The Award’s influence and prestige has grown, and its €100,000 prize for the winner (and €10,000 for the runners-up), attracts applications from many organisations that are innovating in a particular area of financial inclusion. As well as the significant prize, an important additional benefit to winners is the exposure that they receive, and the opportunities for expansion and replication that the attention of the sector can provide. To celebrate ten editions of the Award, e-MFP has decided to reach out to the previous winners, for a ‘where are they now?’ blog series, published in the order we receive them throughout 2019, to look at what they have been doing with their initiative since they won, and how the winning of the Award has helped, and what plans they have in store. In 2018, the theme of the Award was Financial Inclusion through Technology. Advans Côte d’Ivoire, part of the Advans Group, is a non-bank financial institution in the Ivory Coast which won for its response to traceability and safety issues faced by cooperatives paying cocoa farmers, as well as low school enrolment due to lack of regular cashflow among farmers, by offering a digital savings and payment solution, with wallet-to-bank and bank-to-wallet transfer services that enable producers’ cooperatives to make digital payments to farmers for their crop revenue. The following is an edited interview with Advans CI. e-MFP: How has your initiative evolved since you received the Award? What have been the biggest changes? Advans CI: Firstly, since Advans CI won the 2018 Award, we have increased our outreach to farmers in Cote d’Ivoire significantly. We strengthened our capacity to reach new areas and better oriented key actions and objectives for our field teams. The number of farmers benefitting from our account and mobile banking service has reached 29,000, with 12,000 farmers opening accounts between January and August 2019 and 260,000 Euros in cumulated deposits after the first semester. Our third digital school loan campaign, which aims to ensure that children go to school even in the low season when cocoa farmers have insufficient funds for school fees, has also got off to a flying start, with 500 loans already disbursed via mobile after only three weeks (disbursements begin in August and run to end September each year). e-MFP: What did winning the Award mean to your organisation? Did anything change as a result of winning, both within the specific initiative for which you won and in the organisation more broadly? Advans CI: At Advans CI, winning the Award was a real motivating factor for our teams, who were very proud to have achieved this level of recognition from the industry. Field staff felt rewarded for all their hard work on the project and are now even more committed to help drive financial inclusion in rural areas. In addition, the media coverage and the reputation of the Award meant that important stakeholders in the cocoa and other value chains heard about Advans and this has facilitated some new partnerships and promising contacts among agri-businesses for the future development of the project. Some potential future partners contacted us following the award: for instance, a chocolate maker heard a lot about our digital school loan and asked us for a presentation for a possible partnership, and other organisations like the Jakobs Foundation are now promoting our products more. Even our current partners were aware of the international recognition the award bestowed on the organisation and our initiative, and this has strengthened our partnerships, such as with our insurance provider with which we have created a special insurance product for farmers. At the Advans Group level, we’ve been able to capitalise on the award to dig deeper into Advans Côte d’Ivoire’s experience using digital services for farmers, this has served as a leverage to fuel further discussions and research into digital financial inclusion for rural populations. This included a group workshop on digital transformation in July, which highlighted the important potential of digital services in rural areas and will continue with a seminar in November in Abidjan on Cote d’Ivoire’s experience. The future workshop will aim to inspire subsidiaries that will work together on an innovation ‘roadmap’ to increase financial inclusion in both urban and rural areas. Other Advans subsidiaries in Tunisia and Ghana have begun to perform studies on possible additional delivery channels for their farmer clients. We’ve also been invited to several panels and events (including the joint e-MFP/Financial Inclusion Forum UK event in London in May) to speak about the project and it’s always a pleasure to share our experience. e-MFP: Are you aware of any impact your initiative has had on other organisations? Advans CI: As explained above, the attention created by the Award around the project has encouraged other affiliates in the Advans Group to explore new channels for outreach, showing them that it is possible to launch this kind of digital solution in rural areas (Advans operates in Cameroon, Ghana, DRC, Nigeria, Tunisia, Pakistan, Cambodia and Myanmar). Several media organisations also shared our story so we had quite a lot of contacts from other companies as potential partners following our win as mentioned above. e-MFP: What do you see in the future for your initiative and for this area of practice more generally? Advans CI: Going forward we’d particularly like to replicate our scheme in other agri value chains in Cote d’Ivoire; not just working with cocoa farmers but also for example with rice and cashew farmers. We also plan to adapt the scheme in other Advans subsidiaries that serve rural clients. In Cote d’Ivoire we are planning to expand our offer to include more financial services for our farmer clients, based on the needs identified in our research, including insurance, trainings and more personalised financial advice and support. This will include launching new delivery channels adapted to rural areas and full digitisation of payments to farmers. In addition we aim to provide a wider range of services to Village Savings and Loans Associations (rural groups of women in needs of savings accounts and group loans) in partnership with the international NGO Care and some new partners. We believe that digital solutions like our mobile banking service are starting to play a key role in accelerating financial inclusion in rural areas, and digital technologies will be increasingly integrated into the customer experience in the years to come. At Advans we aim to take a high-tech and high-touch approach to ensure that our clients fully benefit from our financial services – as with our financial inclusion agents who support farmers in their first steps using the mobile banking solution. Our main concern remains understanding farmer’s needs in order to be able to design and offer services which are in line with their everyday reality (especially important for populations that are more vulnerable or less financially literate) to ensure uptake and regular use. The European Microfinance Award is jointly organised by the Luxembourg Ministry of Foreign and European Affairs, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu). For more information on the 2019 Award on "Strengthening resilience to climate change", visit the Award website.

The following piece originally appeared in NextBillion. “Save money – and money will save you” goes a Jamaican proverb. Variations of this adage exist in countless languages, lauding preparedness, prudence and forethought when managing one’s finances. But the notion goes even further than money. Benjamin Franklin said as much – “By failing to prepare, you are preparing to fail.” It is probably one of the few genuinely universal life tenets. It’s also intuitive. We all have a basic understanding of what savings – or the act of saving – are. You hold back some of what you earn, sacrificing immediate pleasures or opportunities for some future benefit. This benefit can vary from coping with the unknown and unplanned shocks that can throw one’s life into disarray, to more highly planned savings for high-cost but predictable future expenses – a wedding, pregnancy, a deposit for a house, or retirement. Extending these benefits to more of the people who need them most is the topic of the European Microfinance Award 2020 – “Encouraging Effective & Inclusive Savings” – which is now open for applications until April 15. In over 10 editions to date, the €100,000 award has sought to shine the spotlight on organisations innovating in a particular area of inclusive finance. It’s open to providers of all categories and sizes that have demonstrated excellence, creativity and rigour in their initiatives for the vulnerable and financially excluded. Why savings matter This year, savings will be in that spotlight. There are good reasons for this. For much of the past 40 years, the microfinance sector has focused overwhelmingly on credit, which is easier to offer and more profitable for the provider. More often than not, that results in credit being provided as the default financial product when other options – savings or insurance in particular – are both better suited to the particular needs of the client – and come at both lower cost and lower risk. And even though for microfinance institutions (MFIs), total savings deposits are roughly comparable to loans outstanding, these figures conceal the reality of many dormant accounts among lower-income clients, with most deposits drawn from higher-income individuals. While this provides MFIs with flexible, local-currency funding that’s cheaper than foreign debt, it does not serve the poor or the excluded. The provision of savings as a service to this population is still consigned to a much smaller segment of markets and institutions, and remains a rarity in the global financial inclusion ecosystem overall. There is a growing amount of research on the benefits of effective and inclusive savings to clients, providers and society at large. Part of this is because of the enormous number of benefits that savings bring to clients – some of which are highlighted below: Cash-flow smoothing: For the households that comprise the majority of the world’s poor – variations in income and expenses can be one of the heaviest burdens of poverty. Easily accessible savings are the most affordable and suitable means of managing these ups and downs, as well as preparing for the proverbial “rainy day” – without the high cost and risks of emergency credit. Long-term planning: Savings are a perfect fit for most lifecycle events – from birth to schooling to marriage and child-rearing – whose cost and time of arrival (except maybe the final lifecycle event of death) is known well in advance. Gender empowerment: Microfinance and women’s empowerment have been inextricably linked from the start, but few products show the depth of impact that savings can have on this area. Savings as equity creation: Whether the goal is to buy land or invest in an asset, savings are an effective way to increase a household’s net worth and improve its financial well-being. Productive investment: While credit is a key product for business investments, savings can be cheaper, less risky and equally effective – especially for smaller and less time-sensitive investments. Formalisation: Savings can be an important entry point to formal financial services, building a client’s transaction history and creating opportunities to access low-cost credit. Safety and convenience: Besides the usual risks (theft, fire, etc.), cash at home is subject to “leakage,” whether that involves helping out a neighbour or succumbing to a temptation purchase. Saving formally provides motivation to avoid this tendency – an effect seen among all people, everywhere. How real people save Despite the many benefits, savings don’t just happen naturally. Rather, these financial decisions are affected by long-term planning, gut instinct, habits or social pressures. Put together, these variables create savings practices that aren’t well-aligned with the traditional economic view of people as rational actors – nor are they well-matched to traditional savings products like time deposits and current accounts (also called checking accounts). That’s why providers are designing new approaches geared toward the different “mental models” that people employ to help themselves save better. The complex mental models that show up in savings practices are starting to be better understood by the relatively young area of behavioural economics. One important response to these models is commitment savings, which leverages people’s existing mental models and demonstrates substantially higher levels of saving. Other practices, such as clearly denoting the purpose of the savings (for example, health expenditures) can also increase saving activity. Even simpler interventions, like regular text message reminders to save, have also proven effective in increasing savings. The goal of all these efforts is to develop savings products and programs that better fit how real people save, rather than blindly following the established practices that financial institutions are used to. What the 2020 European Microfinance Award is Looking For To highlight these emerging efforts, the European Microfinance Award 2020 invites applications from organisations and programmes that are innovating in the delivery of savings to low-income and excluded populations. There are three main components to this: First, financial and non-financial institutions can encourage savings by lowering barriers (making savings accounts/groups easy to open or join.) But access alone is insufficient. It’s just as important for institutions to show that their savings programme is built with a holistic understanding of clients’ behaviour – to take advantage of incentives, group coordination and teachable moments for awareness-building to promote positive savings behaviour. Second, savings products are effective when they: Are well-matched to clients’ specific goals and needs; Are affordable, accessible, secure and easy to understand; and Take advantage of technological innovations at the client and institution side to expand outreach, lower costs and improve service quality wherever possible. These products are beneficial for the client and sustainable for the institution, and they’re highly transparent in terms, conditions or fees. They are likely to see genuine client usage – in contrast to, for example, programmes that prioritise the opening of many new accounts that end up dormant. And third, savings are inclusive when they reach un(der)banked and excluded segments – with a special focus on women and youth. Successful savings programmes ensure the protection of those most vulnerable to shocks, and do so within a comprehensive client protection framework. They recognise that taking poor clients’ savings is a moral as well as a financial responsibility – to not only safeguard their money, but to do so affordably and with high levels of transparency. Along with the criteria above, the European Microfinance Award 2020 will look for evidence of programmes that promote the development of a “culture” of savings. This concept includes widespread evidence of active usage, high customer value, security and trust, a genuine focus on financial education, and engagement (where relevant) with regulators and policy-makers. All the details about eligibility and the application and evaluation processes are available in the Application Guidelines, supported by a Concept Note for applicants. Round 1 is now open until April 15, and we at e-MFP can’t wait to receive what will surely be a broad and fascinating range of responses from across the inclusive finance sector.

Author: e-MFP . These are frightening and unprecedented days. In response, many are looking for ways to provide relevant, actionable support. News, blogs, and webinars - well-intentioned as they may be - feel like they’re creating information overload. Yet it’s clear that in a rapidly evolving situation, information is critical. At e-MFP, we want to add value and support where we can, especially to our members, and avoid adding to the noise when what everyone needs is focus, clarity and purpose. We’d like to use our core strengths - facilitating exchange, connecting stakeholders and being a clearing-house for discussion - to help the sector (and especially our members) prepare, weather this crisis, and eventually recover and rebuild. In the coming weeks and months, e-MFP will be re-focusing several work streams towards the COVID-19 response. The Financial Inclusion Compass sector-wide survey will be brought forward, and will be specifically focused on how stakeholders are triaging their challenges and what they see as the most critical interventions needed - and by whom. European Microfinance Week will be significantly adapted to focus on this topic. The current European Microfinance Award on Encouraging Effective and Inclusive Savings will collect examples of how savings can increase resilience to the kind of health and financial shocks that microfinance clients and SMEs are about to face. We would like to hear from our members what e-MFP can do to support them, and we stand ready to offer that support where we can. In the meantime, we think it’s worth going back a few years to the 2015 European Microfinance Award, on microfinance in post-disaster, post-conflict areas and fragile states. The winner, Crédit Rurale de Guinée (CRG), won that Award for its response to the Ebola outbreak - an especially pertinent case study for others right now. We published the annual ‘European Dialogue’ on the subject in 2016, entitled Resilience & Responsibility, available (along with various other excellent materials) on the FinDev Gateway COVID-19 Hub and CGAP’s page on lessons from past crises. Within our paper, e-MFP provided case studies of the ten Award semi-finalists. Each of them provide useful insights into how FSPs can respond to challenging contexts. CRG’s is especially useful. CRG is a microfinance bank that established operations in 1989 in Guinea, serving mostly rural members. In December 2013, the most widespread epidemic of the Ebola virus in history began in Guinea and spread to Liberia and Sierra Leone. By May 2015, Guinea had recorded 3596 cases with 2390 deaths. CRG was badly hit: 123 clients and 4 staff died initially, and this was compounded by changes in behaviour and economic downturn, as fear of the disease spread and workplaces were shut down temporarily, particularly in forested areas, resulting in workers unemployed and services to fragile clients being suspended. At the beginning of the outbreak, CRG took health and safety measures directed at beneficiaries and staff. All head office and network branches were equipped with sanitary kits (chlorinated water and soap for hand washing and infrared thermometers). A national awareness raising campaign was delivered on the risks associated with contracting the virus and on prevention, with over 4,000 participating. But perhaps the more relevant lesson from CRG was its response to the clients’ financial needs. A mobile cash transfer service was introduced to reduce the need for dangerous travel in the midst of a deadly epidemic. CRG facilitated savings withdrawals in affected areas, sometimes with transfers from crisis-stricken areas to unaffected ones. To allow clients to access savings, CRG allowed some term deposits to be terminated without penalty. The Macenta and Gueckédou areas (at the centre of the outbreak) saw over EUR 500,000 in cash withdrawals between August and December 2014. Loan rescheduling was offered for those borrowers who could not continue their business operations; a new loan was offered to help them re-start, typically between 60 and 600 Euros, for one year. “A post-disaster or post-conflict context has many effects. It increases the risk of poverty traps over the short and long term. Poor households’ incomes decrease, productivity of economic activities decreases, investments are impaired, market opportunities are reduced, trust and social relations are weakened, and health, housing and shelter conditions are worsened. That is, poverty is not just a household-level consequence of a crisis; but the whole community and economic value chain is affected; the re-establishment of normal socio-economic conditions is undermined. A negative feedback loop of poverty traps can emerge: incomes fall and become more volatile; productivity decreases; markets worsen; infrastructure decays; movement of goods deteriorates; and social cohesion suffers.” - Resilience & Responsibility, p.5. Ebola is a different virus from COVID-19, of course. The latter is a pandemic, whereas Ebola remained regional, and likewise its transmission is very different, which will have implications for how humans can safely interact – and transact. But CRG shows us all that MFIs can be flexible and stay relevant to their clients even under the most difficult circumstances. Whatever the differences in their contexts, CRG and the other institutions profiled in that paper (and many thousands more) are now going to have to face another challenge - a common challenge. At e-MFP, we’re confident that in the weeks and months ahead we’ll see examples of bravery, prescience, generosity and imagination in facing this threat, protecting the most vulnerable clients’ health and livelihoods and keeping these institutions alive. In Resilience & Responsibility we sought to extract several factors that between them cover the approaches those ten institutions took in dealing with their radically different situations. Those nine factors were: Immediate Humanitarian Response; Adapting Core Financial Services; Awareness Building & Psychological Support; Innovating with Products; Planning Ahead; Making Partnerships; Taking Care of Staff; Ensuring Financial Sustainability; and Leading by Example. Detailed examples of how these work in practice can be found in that paper, and we expect that the various responses that emerge in the coming months will share common elements with these. For sure, these lessons can and hopefully will inform what MFIs (and the organisations that support them - MIVs, DFIs, fintechs and TA providers, among others) can do to protect institutions’ and clients’ health and livelihoods. In the coming weeks and months, e-MFP will be sharing our new work and publishing members’ news and ideas on what they think are the principles that should underpin the sector’s COVID response. We’re able and willing to coordinate activities among members if that’s needed and stand ready to support you and the sector in any way we can.

Authors: Daniel Rozas & Sam Mendelson First published in covid-finclusion.org - a new discussion forum and blog for the financial inclusion sector from e-MFP, CFI and SPTF In our first piece in this series - Keeping the Patient Alive - Adapting Crisis Rubrics for a Covid World, we introduced the analogy of the emergency room doctors trying to treat a critically ill patient - a financial services provider (FSP), its staff and clients in lockdown or socially distancing, unable to travel and with incomes collapsing, health expenditures increasing, and some sick or dying. Repayments are close to impossible, and new loan applications are flat. But operational expenses continue, and it’s a race against the clock. In short, this patient is critical. To continue the analogy, ensuring the reciprocal trust and confidence of staff and clients and investors is like treating a patient’s organs, with interventions from pharmacology to surgery to transplant. We’ll get to that, though. For now, the challenges need triage. The patient can’t breathe, so she cannot oxygenate and circulate her blood. This, to come back to our institution, is the critical need for liquidity. We see three broad drivers of (il)liquidity. First, there is the risk of a run on deposits by savers facing income shortfalls and even panic about the institution’s holding enough to pay the savers. Second, there are the operational expenses, mandatory for the functioning of the institution, that it must pay for without repayments of principal and interest from clients. This is a significant risk, but will depend on the underlying health of the institution. If the FSP has enough cash on hand and a reasonable OpEx to assets ratio, there will be ways to get through even months of non-repayments through tolerable cuts to management and staff salaries, made easier by reduced commissions to loan officers. In other words, most well-run FSPs have a few months of breathing space here. The third driver of illiquidity is the maturing of debt to investors. This is the most severe threat to the institution - and in aggregate, to the sector. Investors like to think of themselves here as the proverbial white knights - rushing in to save institutions. But saving them from whom? The answer is from the investors themselves. The average maturity of debt from foreign investors to FSPs is 22 months, meaning that more than a quarter of all foreign debt has to be repaid every six months. If investors lack the flexibility, prescience and resolve to offer broad-based moratoria on these repayments, many FSPs will die right there in the hospital bed. But we’re getting ahead of ourselves. In this paper, we’re going to focus on the first of these issues - the importance of deposits - and then go deeper on the next two, with case studies and external contributions in subsequent posts. Deposits and Liquidity At first glance, deposits represent arguably the most serious and immediate liquidity risk. Savings play a significant role in providing resilience to vulnerable clients, especially during crisis, as the current European Microfinance Award will show. Already in this crisis, savings have emerged as the go-to coping mechanism. But managing deposits during a crisis also poses serious challenges to FSPs, with a run on deposits being the greatest threat of all. The COVID threat to deposits follows a pattern fairly typical for financial crises - part driven by need, and part by fear. Savers facing sudden income shortfalls will seek to withdraw their deposits en masse. That initial wave of withdrawals to meet basic needs could trigger a subsequent and larger wave of withdrawals motivated by fear - fear that the deposits will be inaccessible later, that the institution might close, or more general comfort in a time of stress that having cash in the house is preferable to having it someplace else. There is also an element of herd behaviour creating a negative feedback loop as well: withdrawals lead to more withdrawals, whether needed or not. The pandemic has already seen examples of this with classic (and entirely unnecessary) runs on toilet paper in stores around the world. However, there is one part of the fear that is quite relevant and even appropriate. Many institutions have seen closures forced by social distancing requirements - and these closures have often applied to FSP branches. Worse yet, these closures can be unpredictable and even vary by branch, as described by Shameran Abed during the FaivLive webinar (minute 22). In that environment, it’s entirely rational for a saver to want to withdraw her entire balance if she fears that she may not be able to access it later. Uneven distribution of savings To counter these risks, most FSPs and financial institutions serving low-income households have one important advantage: the highly uneven distribution of deposits. Small accounts held by the poor comprise a major part of total clients, but only a small fraction of the balance. On the other end, a small number of wealthy clients hold the bulk of the balance. In between, there may be a chunk of customers - essentially the middle class - who comprise both a significant portion of the balance and also of outreach. Consider two examples: cooperatives in Bolivia and banks in Pakistan, both of which show these similar trends. As you can see in the graphs below, in Bolivia accounts below $500 comprise 43% of customers (after adjusting for empty or dormant accounts), but only 3% of the total balance. Meanwhile, accounts above $20,000 comprise just 3% of customers, but a full 50% of the balance. In between are the middle-class customers - 54% of customers and 47% of the balance. Banks in Pakistan follow a similar pattern: small savers with balance below 50,000 rupees ($600 USD) comprise 37% of customers, but just 3% of the balance; large accounts above 500,000 rupees ($6,000) comprise just 3% of customers, but 61% of the balance; and middle-class accounts comprise 59% of customers and 33% of the balance. This structure suggests that withdrawals for necessities, which for poor clients may often mean the entire balance, would not put a significant burden on liquidity. The primary risk is to ensure the continuing confidence of the large depositors -- whose deposits need to be maintained at all costs. The experience of “Artemis” in Ghana described in Weathering the Storm is instructive: "As Artemis entered a period of restructuring, which saw massive changes to its loan products and lending procedures, it zeroed in on the need to maintain depositor confidence. Whenever a client raised concerns or mentioned a rumour, she would be visited by the branch manager to allay her fears...and executives took a proactive approach to communicating with large clients…In the end, the FSP pulled off the feat: By the end of the year-long restructuring, not only had it avoided a bank run, Artemis actually increased its total deposits base". While in-person visits are not viable at the moment due to social distancing, proactive outreach by phone or video can be an effective replacement. For middle-class customers, the key is to avoid any reason for them to panic; institutions must focus on having the liquidity on hand to meet a large number of withdrawals, which should reduce the risk of a follow-on panic. So the strategy regarding deposits is almost counter-intuitive. The best thing institutions can do is ensure that clients can safely withdraw their funds, even in the time of social distancing. It’s worth considering waiving withdrawal fees and limits on withdrawal frequency. To reduce likely queuing, FSPs could even consider raising limits on withdrawals at ATMs, to make it easier for these middle-class customers to withdraw significant amounts, even if not their entire balances. All these changes should be actively communicated to clients - as a way of making their financial lives a little bit less precarious in a time of stress. At the same time, FSPs should proactively reach out to their large savers, understand their needs, and provide attractive opportunities to roll over maturing time deposits. This strategy - maximum access for the ‘99%’; tailored attention for the ‘1%’ - has benefits that go beyond liquidity. An institution that successfully pursues it will be seen as especially responsive during the pandemic and will earn long-lasting trust and confidence of its clients. And it may also gain new clients too, for there is evidence that demand for deposits can increase during times of stress. For example, during the civil war in Syria, First Microfinance Institution found that demand for deposits increased, as the risk of keeping cash at home grew. Meanwhile, keeping services open and flexible (for example, allowing early withdrawal for time deposit clients suffering their own liquidity crisis) increased its reputation, ensuring that depositors would continue to trust the institution with their money. Monetary instability Of course the success of this strategy is not guaranteed. Two confounding factors are monetary instability, whether in terms of a depreciation relative to other currencies or in terms of overall inflation. The pandemic has already had a serious impact on the currencies of many countries. Inflation - for example as a result of unsustainable efforts by governments trying to provide support to their people - may yet become a risk. In either case, few factors motivate savers to empty their accounts more than the fear of losing the value of their savings. And that fear affects all savers, small and large alike. FSPs have limited means to react in such situations. If they can offer foreign currency accounts, that helps. But absent that, there is almost nothing the FSP can do to avoid a run. Such situations nearly always mandate active involvement by the country’s authorities, whether the Central Bank or other parts of government. Their response might mitigate or worsen the situation. And in the financial inclusion sector, there’s the additional risk that different institutions might be affected very differently by government actions as a result of their legal status. We will address the role of Central Banks and other authorities in this time of pandemic in a separate article, but for the time being, it’s sufficient to note that, at least when it comes to deposits, their role will be greater than that of any other outside institution. Limits on withdrawals and fresh funding Finally, a crisis of this magnitude inevitably raises the question of explicit limits on withdrawals by depositors. Those may come either from the regulator or the FSP itself seeing no other path. In either case, such withdrawal limits come at the cost of undermining customer confidence - not just during the crisis itself, but for years to come. Such an effort must truly be seen as a last-ditch attempt at survival, after all other options have been exhausted. One such option is emergency liquidity funding, whether from the Central Bank, other government entities or DFIs entrusted with financial sector development and stabilisation. We will address their role, the OpEx and debt issues of liquidity, and how to maintain client and staff confidence in the upcoming articles.