Search Results

Author: Daniel Rozas. This piece was originally published on covid-finclusion.org Liquidity has been foremost on the minds of just about everyone in the financial inclusion sector. Several essays on this site have delved into the topic. The first article in our liquidity series outlined three drivers for illiquidity: deposit withdrawals, operating costs, and maturing debt, and argues that maturing debt presents the greatest risk. But what does the data say? Here we will dig into that, and investigate just how severe the different elements of the liquidity crunch are to different categories of MFI around the world. We don't have access to sector-wide data reflecting the situation right now. Nobody does. But we can get a good view of what may be happening from historical data collected by MIX Market over many years. Let's start with the most basic question. Assume an MFI is operating under complete shutdown, with no repayments, no new disbursements, and no other inflow or outflow of funds - it's operating entirely from cash reserves. How many months would it be able to survive before the money runs out? Before we look at this - a few preliminaries. Figure 1 shows cash available to cover operations at 100% cost, for 2016 and 2018. You can see that, while MIX data pretty much ends in 2018, after 2016 it deteriorated significantly, with notable reporting gaps. But analysis of where those missing records come from don’t appear to reveal any particular bias in distribution regarding cash, deposits, operating expenses and other data discussed below. For this reason, all subsequent charts will rely on the more robust 2016 data. And realistically, both years are probably equally good at representing the state that the sector was in at the onset of the current crisis. From the 2016 series, we also remove records with missing data, so Figure 2 shows the cash available among all fully reporting MFIs in 2016: The upshot is interesting. Nearly half (46%) of MFIs would have no trouble covering a full year's worth of operations and another 35% would be able to cover at least 6 months. The highest-risk situations, with cash reserves to cover no more than two months of operations, comprise 19% of institutions. Recall, moreover, that this assumes paying the full cost of normal operations - with all the commissions, bonuses, travel and other expenses that would be much lower during a shut-down. Under shut-down scenarios, we could reasonably expect operating expenses to be 20-30% lower than normal, without any salary cuts or staff reductions. Of course this sort of analysis has limitations. While one might assume that debt repayments to investors might be temporarily suspended, an MFI with deposits cannot under any circumstances run down its cash reserves to anything close to zero; how else would it then be able to honour withdrawals from its savers? That analysis is a bit more complex, so for now, let's focus on credit-only institutions, and break them down in Figure 3 by total assets and also by region (East Asia Pacific and Sub-Saharan Africa have too few credit-only MFIs in the dataset and are removed). Again, the colour key shows the number of months of cash available (still at 100% cost) - so green is the most resilient and red the most precarious. Most apparent from Figure 3 is that the smallest institutions have the smallest cash cushion; a third of them would not be able to survive under full shut-down for more than a month. Credit-only MFIs in Latin America look much the same. Meanwhile, among larger MFIs (US$10 million or more in assets), over half could fairly easily cope for nine months or longer. The situation looks even better in South Asia, where the proportion is about two-thirds. Again - these are credit-only MFIs, which don't have to worry about keeping cash to honour any deposit withdrawals. They really could go down close to zero and still survive. But what about those that take deposits? These MFIs have to ensure they have enough cash to operate and still have cash on hand to honour withdrawals. To conduct this analysis, in Figure 4 we use an adjusted version of the Cash Deposit Ratio, first setting aside three months' worth of operating expenses and then examining how much cash would still remain to pay depositors. We also limit this to institutions for whom deposits are a significant funding source, including only those whose deposits are equal to at least 10% or more of total assets. As with operating costs, the analysis here provides a degree of comfort. Figure 4 shows that more than half of institutions can cover 3 months of operating expenses, and still have enough cash to cover at least 20% of deposits. Our earlier analysis of deposits and liquidity pointed out that, absent a total run on the bank (triggered by fear of insolvency, a currency crisis, or similar), most deposit-taking MFIs' should have little difficulty allowing its savers to withdraw whatever they need for ongoing consumption. Assuming that implies an outflow of 5-10% of deposits, just over a quarter (26%) of MFIs would experience difficulty under that scenario. A deeper dive in Figure 5 reveals some notable variations. On the left you see that, among the largest institutions, significantly fewer (19%) would be unable to honour deposit withdrawals above 10%. On the right it’s broken down by region. South Asia stands out as being especially high-risk, with over half (55%) unable to meet that threshold. Other regions show relatively modest variation (MENA is removed due to very few deposit-taking MFIs). Finally, we come to the third and final driver of illiquidity: repayment of maturing debt. To model illiquidity risk, we make two adjustments. First, we set aside three months of operating expenses, and then, for deposit-taking MFIs only, we set aside additional cash to cover 10% deposit withdrawals. We then see how much debt the remaining cash can cover. Figure 6 examines this adjusted cash-to-debt ratio for credit-only and deposit-taking MFIs. Here the picture is more concerning than with the other two drivers of illiquidity. Among credit-only MFIs on the left pie chart of Figure 6, a full 25% would not be able to cover any debt redemption, and only 19% would have the cash to cover redemptions of more than 30% of debt. The previous article in this liquidity series pointed out that on average over a quarter of debt outstanding is redeemed every six months. Were those debt repayments to be enforced, it would push a large majority of MFIs into a liquidity crisis. The picture for deposit-taking MFIs on the right looks only slightly less serious. 26% would not be able to meet any debt redemptions and still have the minimum cash needed for operations and deposits. On the other hand, 48% have enough cash to cover redemption of at least 30% of debt and still be able to meet those operational and deposit needs. Note, however, that these are minimum cash requirements; in a time of crisis, a deposit-taking MFI ought to be maximising its liquidity, not aiming for a minimum threshold. So unless an MFI is really safely covered and has no risk of a liquidity crunch in even the direst of scenarios, it would be wise to limit debt repayments whenever possible. Taken together, these analyses clearly show that liquidity is not a one-size-fits-all problem. Different institutions have different needs and face different risks. A significant number of them have quite a lot of cash on hand and could weather even the most severe scenarios without impacting their liquidity. But others will need substantial help - and in different ways. Triaging the response Like the patient in the emergency room, ensuring liquidity will require triage. Step one is to ensure that debt repayments and redemptions don’t create a liquidity crisis on their own. That halt doesn’t need to be a blanket moratorium; MFIs that have plenty of cash reserves may find it worthwhile to repay some of the excess debt, especially in an environment where demand for new loans is likely to be lower. But crucially, the decision to repay (or not repay) debt should be based on the needs of the MFI, and not those of the investors. Ira Lieberman and Paul DiLeo have an excellent proposal for an effective process to handle such a moratorium, and discussions like it are underway among investors. Effective rescheduling of debt should meet the needs of most MFIs and should be sufficient to see them through the crisis itself. But not all. A significant number of MFIs have headed into this crisis with little cash on hand, some unable to meet more than a couple of months of operations or all but the most modest withdrawals of deposits. While help may be appropriate in some of those cases, it’s also legitimate to ask: why were their cash reserves so low in the first place, particularly if they have deposits? Perhaps it’s reasonable to provide modest emergency funding for a few months, but some will need to be evaluated more deeply, so that funds meant to address a crisis aren’t instead used to undo the earlier mistakes of poorly-run organisations. We should accept that those institutions may not survive the crisis. What next? In short, discussions pertaining to liquidity need to be highly focused on the issues the money is meant to address. For example, IFC has already announced large increases in emergency funding, which includes a substantial amount for financial institutions. But where will that money go? One useful area might be to support the liquidity-preservation efforts of others. A major risk in debt extension and restructuring is the cost of currency hedging - a problem for a large number of loans made in foreign currency. With hedging costs increasing in this volatile financial environment, it would be wrong to force an MFI to choose between absorbing a huge increase in the cost of the hedge or paying off a loan and thus eroding its much-needed liquidity. DFIs can - and should - step up to provide hedging subsidies through TCX (the primary hedge provider in the sector) so that the hedging costs of extended and rescheduled debt are kept stable. There are also other areas where new money may be needed. The biggest, of course, are the households themselves, which have seen their incomes collapse and are suffering. For them, cash grants are absolutely appropriate and should be scaled up wherever possible. In some cases, MFIs may even be useful partners to channel such grants. But it is not the normal role of a financial institution to provide emergency loans to families that, at least now, are not able to repay them. In this environment, the focus must instead be on preserving the institutional capacity to honor deposit withdrawals and be ready to lend when appropriate: to SMEs providing food; to farmers seeking to plant; to healthcare clinics looking to buy critical supplies. But those needs must be clearly identified and MFIs that can make such loans should be given the additional funding to do so, if they need it. Flooding financial institutions with cash just because there is a crisis at hand isn’t the answer - especially if much of that cash flows back out to debt redemptions of other investors. A final point. All the analysis in this paper is based on data that is four years old. New, current data that reflects the market reality will be needed to make decisions about specific markets and institutions. We at e-MFP stand ready to support collection and sharing of such data to inform the sector. But even this analysis, we believe, already provides a useful template for thinking about the complex issues and trade-offs ahead. About the Author: Daniel Rozas is Senior Microfinance Expert at e-MFP

Author: e-MFP. Like many major microfinance markets, the Philippines microfinance sector is suffering from the twin threats of a public health emergency and the mitigation response which entails economic shutdown, both of which disproportionately impact vulnerable population segments and the financial providers that serve them. As part of our efforts to understand the impact of the pandemic on our partners, e-MFP reached out to Alalay sa Kaunlaran, Inc. (ASKI), a good and long-time friend of e-MFP, having been a winner and finalist of the European Microfinance Award on multiple occasions. Via an email exchange, ASKI brought us up to speed on the situation on the ground. On March 16, 2020, through the Executive Order issued by President Rodrigo R. Duterte, the entire island of Luzon was placed under “Enhanced Community Quarantine” due to the increasing cases of COVID-19 in the country. This resulted in total lockdown affecting many cities and municipalities in Luzon including the areas of operation of ASKI. Many establishments, government offices and other private institutions were temporarily closed. Mass/public transportation were not allowed to operate, and people were restricted in going outside their homes and must conduct home quarantine. This situation greatly affected the whole community including the microentrepreneur clients of ASKI. Restricting people’s movement from one village or municipality to the other made access to basic goods difficult and, in some areas, was exacerbated by the rising cost of commodities. Since the March 16 Executive Order, the President last week yesterday extended the “Enhanced Community Quarantine” in some parts of Luzon where there are still an increasing number of COVID cases, until May 15, 2020. Some of ASKI’s offices are affected by this extension. There are also however areas of ASKI’s operations now under “General Community Quarantine” where slowly selected businesses will be allowed to open as well as mass transport but following the guidelines of the “new normal”. As a follow-on to this initial update, ASKI’s President and CEO Mr. Rolando Victoria, sat down with us to discuss their response to the current situation. The following is an edited transcript of the interview. e-MFP: As we saw in the 2019 European Microfinance Award on Strengthening Resilience to Climate Change, ASKI has developed (with the support of Oikocredit, an e-MFP member) a Disaster Risk Reduction Management (DRRM) program for crisis response. How has this helped you in the current situation? Rolando Victoria (RV): As soon as the seriousness of the COVID-19 crisis became clear, we implemented our disaster response program. This had a number of steps. Prior to the lockdown, our disaster management team made sure we had the current contact numbers for all clients, and that these were secure and accessible to staff even when they couldn’t be in the office. We took steps to make reports accessible online. We made sure there was a call-tree, from senior management down to branch managers. We helped set up a daily conference call for the national microfinance association to coordinate communications with and advocacy to the government. Our ASKI Multipurpose Cooperative through its Convenience Store made sure that it has available basic necessities like rice, breads, and other grocery supplies to ensure the continuous flow of goods for the customers. The cooperative also made physical cash available to beneficiaries of the government conditional cash transfer, social amelioration program and savers through the portable POS. Although risky and with restricted people’s movement, ASKI served as a pay-out branch for those needing physical cash to keep or for their purchasing needs in the midst of the crisis. As of now, where lockdown is implemented, a total of Php 4,114,100 (USD 82,282) were paid out by ASKI to 966 customers. ASKI also coordinated with local government units for immediate food distribution specifically rice to those who belong to the poorest of the poor in the communities. It also took the lead in donating food items for front-liners like doctors, nurses, police and military who are in the health care system and community check points. Although limited and on selected areas only due to travel restrictions. We have considerable liquidity challenges, like many microfinance institutions. We have to pay more than 1,000 employees their salaries, not just the 815 permanent staff but also non-permanent workers. The funds for this are coming from our own cash on hand, and all repayments from clients have stopped during this period. We have applied for government programs to subsidise the salaries of staff especially the non-permanent staff, however, there is no assurance yet on the application as of the moment. If the lockdown continues beyond the end of May, we will have significant problems. We also expect, even though now not all clients are able to withdraw savings as the branches are closed, that about 50% of client savings and the resiliency fund will be withdrawn once clients are able to, which puts further liquidity pressures on the organisation. But we continue to focus on confidence and communication. We’re currently instructing managers to get in touch with clients to make clear that ASKI will be there for them for whatever they need when the lockdown is lifted. e-MFP: What kind of support has ASKI received from your investors and funders? RV: ASKI has funding relationships with a broad spectrum of organisations, from local banks to social investors in Europe and development institutions around the world. On the local front, the banks based in the Philippines, which represent a large portion of our funding, have to follow guidelines issued by the Central Bank and comply with the Republic Act 11469 or the Act Declaring the Existence of a National Emergency Arising from the Coronavirus Disease 2019, also known as the “Bayanihan (Filipino term meaning Helping One Another) to Heal as One Act” signed on March 24, 2020. After the lockdown is lifted, we will have to start to restructure loans. Much of this effort has been taken up by our microfinance association, the Microfinance Council of the Philippines (MCPI), which has sought to negotiate cheaper and longer-term loans from a broad group of local banks, as well as agreeing guidelines for member MFIs to provide repayment moratoria to clients. Moreover, MCPI has been in discussions with the Asian Development Bank (ADB) to receive subsidized loans that may be converted into grants to pay operating expenses. There is no agreement yet on either one of these efforts. MCPI also submitted a request for a subsidized loan to USAID via the MCPI-APPEND programme that has been active in the Philippines for many years. MCPI has also sought assistance from different government agencies, though there is no final word on these efforts yet. At the same time, ASKI has worked with both Oikocredit and the Grameen Foundation, and we have been in discussions with both since the start of the crisis. e-MFP: What coordinated efforts are underway in the Philippine sector to address the crisis? RV: We are in virtually constant communication with the networks we belong to - the Microfinance Council of the Philippines (MCPI) and the Alliance of Philippine Partners in Enterprise Development (APPEND). The network has already agreed to propose to the government institutions a possible funding allocation for the rehabilitation of those affected communities. This will be a low interest rehabilitation loan and with a grace period of three months. The network has agreed to impose a loan payment moratorium for 30 days without penalties to all affected clients. The moratorium can be extended if the community quarantine is also extended as indicated in Republic Act 11469. This will obviously have an impact on the financials of the organisation and the situation will affect the Philippine economy as well since many businesses have been forced to close and will struggle to re-open. e-MFP: What do you see as ASKI’s priorities once you get out of the lockdown phase of this crisis and try to support clients to get back on their feet? RV: There are going to be lots of negative impacts on clients and the sector here which we will all have to face. One big factor is the inevitable impact on remittances because of the Philippine diaspora overseas losing income because of lockdowns and economic contractions in their sending countries. We also expect once the lockdown is lifted, there’ll be a large influx of workers back into the country, because of negative opportunities where they’ve been living. They’ll need jobs and support to start a business back home. Currently, we are exploring how to conduct an online training course since face-to-face training will be affected by the “new normal”. We will also push through the implementation of the digital transactions because the crisis gave us an opportunity to really see the importance of shifting to digitalisation. We have already started the initiative, but it is temporarily affected by the lockdown. We also need to plan for how to deal with existing loans to clients, who will need loans to recapitalise their businesses as soon as possible. We might have to consider starting again with lower loans (probably under US$500), and in some cases we’ll provide additional funding, but on a case-by-case basis. This will depend on the purpose of the loan and the sector. For example, we really want to be able to support small farmers to ensure food security for our clients, and one option we’re exploring is how to get cheap funding direct to ASKI from the relevant government department to support small farmers. We’re confident that new credit lines will be approved in the first half of May, negotiated via MCPI and through the efforts of ASKI. In the longer-term, it’s clear that there won’t be any increases in our loan portfolio in 2020, and there will be a need to implement cost-cutting measures too within the organisation. As I said before, we can manage to pay salaries if the lockdown continues until the end of May. Beyond that, there will be liquidity problems, unless we can access new credit lines. Overall, the primary objective at this point is to maintain stability within our portfolio and protect our clients and help get their businesses and livelihoods running again as soon as we can.

Author: e-MFP. As part of our efforts to understand the impact of the COVID-19 pandemic on microfinance markets around the globe, e-MFP reached out to Kashf Foundation in Pakistan, a good and long-time friend of e-MFP, having been a winner of the European Microfinance Award in 2016. Via an email exchange, Roshaneh Zafar, Founder and Managing Director, brought us up to speed on the situation on the ground. e-MFP: What is the current public health and economic situation in your country regarding COVID-19? Roshaneh Zafar (RZ): The novel coronavirus has wreaked havoc in the country. To date 31,728 cases have been confirmed in the country with 691 deaths. The province of Sindh and Punjab have been most impacted by the virus with 12,017 and 11,568 cases respectively. They are followed by KP (4,875), Balochistan (2,061), Islamabad (679) and GB/AJK (442/86). Moreover, as the country grapples with the coronavirus, the economic impact is mounting, with the economy expected to shrink to negative 1-1.5% against an expected growth rate of 2.4% during the current fiscal year. In addition, the imports are expected to decrease by 50-60% and the exports by 10-20%. The employment loss is also estimated at 20%. Furthermore, Kashf Foundation undertook an impact assessment of COVID on most frequently occurring micro enterprise trades such as tailoring, beauty parlor, kiryana (small grocery stores), rickshaw, fruit/veg lending and livestock. The study highlighted that across the sector 55% of the businesses had completely shut down, 23 % have irregular business activity, 19% have regular limited activity while 3% are operating at the same level as before. In addition, the overall loss of income experienced by the sample was 76% i.e. from Rs.22,920 per month to Rs.5,550. Furthermore, the highest loss of income was experienced by beauty parlor owners and cloth traders (96% each), while for dairy businesses and kiryana store owners it was much lower - 48% and 56% respectively. e-MFP: How have you supported clients and staff during this crisis? RZ: In response to COVID-19, Kashf undertook a client’s assessment to understand the short term and medium term challenges faced by our clients. The study highlighted that 46% of the interviewees had financial resources to sustain themselves for only 15 days or less. Moreover, 81% of the clients reported that their top spending priority was rations. Hence, when asked, what support they require from Kashf Foundation, an overwhelming of the majority i.e. 69% stated they wanted ration packages. Therefore, to provide immediate relief, Kashf Foundation was one of the first organizations in the microfinance sector to reschedule all outstanding loans to give temporary relief to our 550,000 clients who have been negatively impacted by the corona virus. The organization also raised awareness regarding COVID-19 and has educated 550000 clients regarding the same over the past 4 weeks through telephonic contact. In addition, the organization has also initiated a food relief program and has distributed food rations to more than 3000 women headed households in poverty stricken districts across Pakistan whose businesses have been severely impacted by the outbreak. Kashf is also designing, developing and rolling out specialized lending programs and business continuity trainings to help its clients rebuild their businesses. At the organizational level, Kashf has designed and implemented SOPs to ensure safety of our staff. Kashf regularly sends emails and videos to its human resource on the preventive measures such as maintaining social distance, regularly washing hands, and wearing mask etc. that should be practiced at home and office to protect themselves from the virus. Moreover, the organization also conducted a training on how to effectively work from home for its employees on its recently launched E-Learning platform. As the lockdown is easing in the country, the organization is also providing its staff with the necessary personal protective equipment such as gloves, masks and hand sanitizers to ensure their safety in the workspace. Moreover, the staff members who may have been exposed to the virus are encouraged to work from home. e-MFP: What coordinated response have policy-makers, financial supervisors or networks taken to protect the financial inclusion sector in your country? RZ: To protect the financial inclusion sector in the country, the State Bank of Pakistan issued a circulation which has allowed one year deferral of principal amount without any penalty for the organization. This circulation has aided the organizations in the sector to have enough liquidity to undertake its operations. In addition, this policy is applicable to the both the organization and its clients in the sector to reduce their financial burden in these testing times. The Pakistan Microfinance Network has also been taking on an active role to lobby with regulators and lenders to assist the sector at this critical juncture, especially regarding liquidity needs. This involves looking the possibility of loan rescheduling, loan guarantee schemes, risk mitigation fund for the sector etc. e-MFP: What kind of support (financial or otherwise) have you received from your investors, funders and any other relevant partners? RZ: The local investors are allowing deferral of amount without penalising the microfinance organizations to ensure they have enough liquidity to undertake their operations. In addition, Kashf Foundation is working with various international and local donors such as Philip Morris, UNDP and Jubilee Insurance etc. to provide immediate relief to women headed households by distributing food rations. At the same, all foreign investors have also been looking at the possibility of injecting fresh capital to ensure that there is adequate liquidity at the level of the institution during the next 18-24 months, as that time period will be critical for getting back to business post COVID. e-MFP: What do you see as the top priorities to support and protect your clients from the economic consequences of the COVID crisis? RZ: To understand the support and protection for our clients from the economic consequences of the COVID crisis, Kashf has undertaken a comprehensive sector wise analysis on the challenges faced by micro entrepreneurs in various trades. The research highlighted to protect and support our clients it is important to roll out COVID response financial products such as Top-up loans Business Loans for Illiquid Businesses, recapitalization loans and/or nano ration loans. Hence, the first priority that of the organization is to provide the necessary financial access to ensure our women micro entrepreneurs have the required capital to rebuild their businesses. In addition, Kashf is also prioritising a “Don’t let Corona Put You Out of Business Trainings” to build the capacities and knowledge of women entrepreneurs to revive their businesses. The training will include topics such as creating/Generating Sales in Low Demand Phase, Increasing Efficiency of Business, Budgeting, Planning and Forecasting to improve margins and return. In addition, the training will also include components on the importance of digital financing and online marketing/virtual sales platforms to build the skills of women micro entrepreneurs to improve the efficiency of their business systems and process. Hence, the organization is undertaking a multi-pronged approach to ensure our women micro entrepreneurs’ don’t only have the necessary capital but also the necessary skills and knowledge to use this capital effectively to revive their businesses. For more on how Kashf Foundation is dealing with the crisis see our video interview: Financial Inclusion Conversations: Learning from the past - a conversation between e-MFP's Sam Mendelson and Kashf Foundation's Roshaneh Zafar

Author: e-MFP. As part of our efforts to understand the impact of the COVID-19 pandemic on microfinance markets around the globe, e-MFP reached out to Kompanion Bank in Kyrgyzstan, a good and long-time friend of e-MFP, having been a winner of the European Microfinance Award in 2014. Via an email exchange, Margarita Cherikbaeva, CEO, brought us up to speed on the situation on the ground. e-MFP: What is the current public health and economic situation in your country regarding COVID-19? Margarita Cherikbaeva (MC): As of morning May 20, there were 1,322 coronavirus infection cases in Kyrgyzstan, 37 cases for the last 24 hours. 949 people recovered (68.3% of the total number of registered COVID-19 cases). Analysis shows a downward trend starting from April 16. An increase was observed from April 5 to 20. The highest numbers were registered on April 11-12. The number of cases has started to decrease since end of April. Regarding the impact of COVID-19 on the economy of the Kyrgyz Republic, the Ministry of Economy projects a 6.8% decline in the annual GDP due to self-isolation. The weakening of national currencies in Q1 2020 may place some pressure on the cost of imported goods, which will be the main reason for rising inflation in 2020. There is a high level of uncertainty in economic prospects. The macroeconomic forecast for Kyrgyzstan highly depends on the pandemic development trends. e-MFP: How have you supported clients and staff during this crisis? MC: The pandemic has had a strong negative impact on medium and small-size businesses that represent about 40% of the country’s economy. In view of the current economic situation caused by COVID-19, the Bank has come up with supporting lending programs to restart businesses and help entrepreneurs maintain the liquidity of their commodities and inventory. To alleviate the financial burden for customers, the Bank has started to provide a 3-month grace period with individual review of loan agreement conditions and repayment schedules. So far, the Bank has offered loan restructuring to 11,700 clients totaling KGS 1 billion 611 million. To ensure an uninterrupted access to financial services and to support customers, the Bank continues to operate in all regions and “hotspots” of the country so that people have access to their bank accounts and have an opportunity to conduct all required transactions. Currently, the Bank is actively working towards a full-scale renovation of its remote banking services and is taking efforts to integrate new solutions together with prominent banks in the CIS. To protect staff, the Bank has arranged special transportation and provided for all required personal protection equipment. The Training and Development Department of Kompanion Bank developed the training on effective remote work that helped employees come to terms with the remote working mode. Further, Kompanion Bank donated KGS 2 million to combat COVID-19 and has been actively sensitizing the population to the safety measures that help reduce the spread of COVID-19. Bank employees supported this initiative and additionally donated their one-day pay to support the vulnerable. e-MFP: What kind of support (financial or otherwise) have you received from your investors, funders and any other relevant partners? MC: Having considered the requests related to the COVID-19 consequences, Kompanion Bank has received new funding conditions from some of its partners and investors. Despite the fact that funds have become more expensive, it’s important that we can have access to liquidity, which is crucial for ensuring the sustainability of banks during this time. e-MFP: What coordinated response have policy-makers, financial supervisors or networks taken to protect the financial inclusion sector in your country? MC: As part of the set of measures supporting the sectors of economy and entrepreneurs (worth KGS 40 billion), the Government has developed an action plan for 2020 to restart economic activity and assist businesses. The plan envisages 21 measures, including 15 financial and fiscal measures to support entrepreneurs and 6 administrative support measures. e-MFP: What do you see as the top priorities to support and protect your clients from the economic consequences of the Covid crisis? MC: Consistent with its Mission, Kompanion Bank provides socially responsible financial services contributing to greater economic and social well-being of clients and communities and environmental protection. In pursuance of the Mission, in 2010, the Bank established a special-purpose in-house Community Training & Support Department consisting of 30 accomplished agronomists and veterinarians. They provide consultations and free trainings to farmers living in the remote regions of the country. The Bank continues to carry out social projects to support people. In addition, we continue to provide deferrals and loan restructurings, as well as move forward with expanding our digital channels to provide tailored services to our customers.

Author: e-MFP. As part of our efforts to understand the impact of the COVID-19 pandemic on microfinance markets around the globe, e-MFP reached out to Advans CI in Cote d’Ivoire, a good and long-time friend of e-MFP, having been a winner of the European Microfinance Award in 2018. Via an email exchange, Mariam Djibo, CEO, brought us up to speed on the situation on the ground. e-MFP: What is the current public health and economic situation in your country regarding COVID-19? Mariam Djibo (MD): To date, there have been 2,477 confirmed cases, of which 95% are in Abidjan, and 30 deaths. The government has built several testing centers in Abidjan and ordered 200 million masks. Given the statistics available and the potential impact of a strong economic crisis, restrictions on gatherings have recently been lifted and schools have been opened outside Abidjan. As of May 15 there is also an ease of restrictions within Abidjan. In terms of the impact of the crisis on economy, the government estimates that GDP growth for 2020 will be down to 3.5% from 7%. SMEs and the informal sector will be amongst the most impacted by the crisis due to (i) disruptions on the supply chain with the closing of borders, (ii) decrease in consumer demand for non-essential goods, (iii) closure of different types of businesses (such as hotels and restaurants) due to government restrictions. All our clients will be affected even though to different extents. Our analysis shows that 33% will be severely impacted (hotels, restaurant, schools, clothing, hairdressers…), 45% will experience a moderate impact. For 15% there will be no negative consequences and these clients could even benefit from the situation (such as food distribution or telecom retailers). Trading activities are impacted by interruptions in the supply chain for imported goods (from China/Europe/Dubai), transport activities are struggling with lockdown and reduced movement, agricultural activities will be impacted by an inevitable lack in demand internationally (cashew, cocoa, cotton), while all activities will suffer from a decrease in consumer spending. Each micro-entrepreneur has between 5 to 10 dependents so reduced revenue for one individual will have a knock on effect. e-MFP: How have you supported clients and staff during this crisis? MD: Protecting our staff and clients is our main concern and highest priority ever since the crisis started. We have been raising awareness on preventive measures among staff, supplying protective medical equipment such as hand sanitizer, gloves and masks; we have also installed hand wash basins in front of branches. In order to limit staff exposure, field visits were put on hold, the number of staff in branches was reduced to 30% with two teams working on rotation. 50% of staff at head office have been working remotely and the rest are only physically present 2 or 3 days a week. We have retained all current staff and maintained payment of salaries. We have also been focusing on our internal communication with regular emails from Management, WhatsApp groups facilitating communication on all levels and across the company and Zoom digital meetings. Our HR team have made individual calls to all our 600 staff to reassure them and listen to their needs and feedback. Raising awareness on preventive measures amongst clients has also been a main priority with information being shared in branches as well as online on social media. To avoid clients coming to branches unnecessarily, we have been promoting our alternative channels such as the service Mobilité and our third party agent services. We have introduced grace periods on outstanding loans so as to help our clients get through the crisis by taking away the burden of repaying their loan. We have also kept in continuous contact with our customers through regular calls. The main objective of these calls is to see how clients’ health and businesses are impacted by the crisis and to better understand their needs at this time. This has been facilitated by the implementation of a new digital follow up tool which enables us to plan follow up calls and save client information on a smartphone. A crucial measure in supporting our agricultural clients was the uninterrupted funding of the agricultural input campaign (the application of fertilizers and phytosanitary products cannot be delayed) and the continuation of our financial inclusion program for cocoa farmers. Finally we have also developed a dedicated emergency credit offer, Advans Oxygène, to support customers in need of help for their personal expenses. e-MFP: What kind of support (financial or otherwise) have you received from your investors, funders and any other relevant partners? MD: There is a common goal in the industry to support microfinance clients and therefore microfinance institutions through this crisis. Our partners are supportive and have made it clear that, should we be in need, potential additional financing or flexibility on financial covenants is possible. Some also offer technical assistance funding to support specific projects related to the crisis or needs arising from the crisis such as digitalisation of our processes, IT security, e-learning training, etc. e-MFP: What coordinated response have policy-makers, financial supervisors or networks taken to protect the financial inclusion sector in your country? MD: 40% of the population in Cote d’Ivoire is banked thanks to microfinance institutions and telecommunications companies. Money transfers below 5 000 FCFA are now free and mobile money transaction thresholds have been increased. Furthermore, the government has launched a campaign to limit the rise in prices of basic necessities. There are also open discussions between the regulator and the Microfinance Association on how to best support microfinance actors during the crisis and increased financing options for MFIs from local banks. Some of the concrete measures introduced to support businesses include: A FCFA 20 billion dedicated fund for the informal sector (mobile money payment of FCFA 75,000 per quarter to 177,000 households for a total of FCFA 13 billion from May 2020 on) A dedicated FCFA 40 billion fund to help SMEs A dedicated FCFA 50 billion fund to help agricultural producers A solidarity fund of FCFA 50 billion A special fund of FCFA 30 billion for large companies e-MFP: What do you see as the top priorities to support and protect your clients from the economic consequences of the Covid-19 crisis? MD: We will keep communicating on protective measures and applying them in our contact with customers in order to make sure they remain safe. We are making sure we stay in close contact with our clients to understand their needs and how the crisis affects them personally and business-wise so that we can best support them during these challenging times. Customer feedback is already helping us to develop new offers adapted to their current needs such as emergency credits, renewals and top up loans for companies in essential sectors. Coming out of the crisis, we will continue working on tailored credit products and other services in order to meet our customers’ needs as they restart their businesses as best as possible. We hope the government and our partners will support our efforts with financing or guarantee mechanisms as the risk profile of the affected customers will increase.

Author: e-MFP. As part of our efforts to understand the impact of the COVID-19 pandemic on microfinance markets around the globe, e-MFP reached out to Cooperativa Tosepantomin in Mexico, a good and long-time friend of e-MFP, having been a winner of the European Microfinance Award in 2017. Via an email exchange, Álvaro Aguilar Ayón, Chairman of the Board of Directors, brought us up to speed on the situation on the ground. Cooperativa Tosepantomin is a Mexican savings and credit cooperative set up in 1999 that serves indigenous people of the Náhuat and Totonaco ethnic groups living in rural mountainous and marginalised communities in the States of Puebla and Veracruz. e-MFP: What is the current public health and economic situation in your country in relation to Covid-19? Álvaro Aguilar Ayón (AA): On 9 June, 2020, the Mexican Ministry of Health reported that there were over 124,000 confirmed coronavirus cases, with 14,053 deaths since the first infections of this pandemic in our country. With these data, Mexico is one of the 10 countries with the most casualties due to COVID-19 with a case fatality rate of over 11%, higher than the close to 6% global average. Over the last couple of weeks, the growth of infections and deaths has been progressive, and every day the numbers of the previous day are exceeded. Although this situation prevails, the Mexican government has communicated that as of June 1st, the gradual opening of economic activities will begin. Mexico is going through a difficult economic situation because in this crisis nearly one million jobs have been lost, the peso has devalued by more than 20% with respect to the US dollar and it is estimated that the gross domestic product (GDP) will have a negative growth of nearly 7% during 2020. e-MFP: How have you supported your customers and your staff during this crisis? AA: Tosepantomin has been in dialogue with its cooperative members to find out about their current economic situation and to determine whether they are in a position to repay their loans in the short term or, if not, to renew their loans so that they do not fall into arrears. Fortunately only 25 cooperative members had to renew their loans, which has already been done. e-MFP: What kind of support (financial or otherwise) have you received from your investors, donors and other relevant partners? AA: To date, Tosepantomin has not received any support. e-MFP: What coordinated response has been adopted by policy makers, financial supervisors or networks to protect the financial inclusion sector in your country? AA: The National Banking and Securities Commission, which supervises Cooperative Savings and Loans in Mexico, issued a statement authorising them to renew loans that cannot be covered by the cooperative members, provided they have not fallen into arrears by 31 March 2020. Based on this communication, Tosepantomin renewed the loans of 25 members at their request. e-MFP: What do you consider to be the main priorities to support and protect your clients from the economic consequences of the Covid crisis? AA: Tosepantomin considers that the main priorities to support its members from the economic consequences of the COVID-19 crisis are the following: To renew, in a longer term, the members’ loans who have difficulties to repay in the next months. To have sufficient liquidity to grant the loans that our members will need in order to raise their pepper, coffee, honey and citrus crops. To have enough liquidity to respond to the funding needs of our members to reactivate their economic activities in trade, tourism and services. To have liquidity to provide financing to our members so that they can produce food and thus make progress towards achieving food security. Tosepantomin is concerned that in the coming months the request for loans from members will increase substantially, while at the same time, due to COVID-19, deposit collection has decreased. In view of this situation, it is possible that Tosepantomin will need to look for external funding sources

Author: Stuart Rutherford. As the European Microfinance Award 2020 on 'Encouraging Effective & Inclusive Savings' moves to its final Selection Committee and High Jury stages, and the announcement of the winner during European Microfinance Week in November, e-MFP is publishing pieces from various experts who have worked in Savings over the decades. Following on from Hans Dieter Seibel’s kick-off blog, this is the second in the series from Stuart Rutherford, a pioneer in the field. Then and now Think ‘Bangladesh’ and you probably think ‘microcredit’. Rightly so. BRAC and Grameen Bank pioneered joint-liability credit groups for the poor in the 1970s. ASA hugely improved the model’s efficiency and it soon spread around the world. But look at a recent Grameen Bank balance sheet. As of 2018 Grameen Bank borrowers had loans worth 154 billion taka (about US$1.8 billion). But its savers held deposits worth 221 billion taka ($2.7 billion). The bank that pioneered loans for poor households now holds a lot of their savings. In this transformation, what was the role of the providers, and what was the role of their clients? What happened at Grameen Bank In 1997 enthusiasts from more than 130 countries gathered in Washington DC for a ‘Microcredit Summit’. Despite some grumbling by those who would have liked a Microfinance Summit (promoting savings as well as loans) the focus was firmly on credit. At a preparatory meeting a year earlier I had heard Muhammad Yunus, the founder of Grameen Bank, tell his audience that the poor had little use for savings. In this spirit, the Summit launched a campaign to raise money to bring microcredit to a hundred million poor households by 2005. But by the end of the century Grameen Bank, microcredit’s flagship, was in deep trouble. The immediate cause was heavy seasonal flooding, and the immediate solution was to seek further concessionary funds. But the underlying cause was structural, and it was the savings of Bangladeshi households, not money from international donors, that finally solved the problem. The structural problem lay in microcredit’s core product, a loan that was repaid in small weekly instalments over a year and followed immediately by a fresh and somewhat larger loan. The loans were meant to be invested in businesses that would thereby grow, allowing for yet more credit and yet more growth year after year, until poor households emerged entirely from poverty. Some clients did achieve this, and microcredit providers celebrated their success stories. But most clients did not in fact run growing businesses and used the loans for other spending needs. In the group setting it was hard to lend some borrowers less than others, so just about everyone’s loans increased each cycle. If the weekly repayment amount was still small enough to be found from regular household cash flow, that didn’t matter. But the relentless growth in loan values meant that, sooner or later, weekly repayments became larger than such households could afford. They fell into arrears, defaulted, or even absconded. Yunus himself wrote: More and more borrowers fell off the track. Then there was the multiplier effect. If one borrower stopped payments, it encouraged others to follow….. The floods left many borrowers temporarily unable to make any repayments and turned this problem into a full-blown liquidity crisis. Appeals for funds from donors met with disappointing results. The very existence of the bank was at stake. Grameen had to act. Grameen II In 2005 I wrote an account of what Grameen did. They rebranded as ‘Grameen II’ and made three big sets of changes. They modified the credit model; took deposits from the general public; and launched new savings products for the clients. As part of the changes to the credit model, they abandoned joint-liability and clients were treated more as individuals, so those without growing incomes were less likely to be offered bigger and bigger loans. This went some way towards correcting the structural problem noted above. Taking deposits from the general public proved successful. Better-off villagers were persuaded to transfer their savings from regular banks into Grameen, where they got better interest rates and the moral glow of knowing they were thereby helping their poorer neighbours to get Grameen loans. But the transformative changes were in the savings services for the regular clients. To help secure the loans Grameen had always required borrowers to make small weekly compulsory savings which couldn’t be withdrawn until the account was closed and all loans repaid. From each loan 5% was deducted and stored in a ‘Group Fund’ over which clients had nominal, but staff had actual, control. Over time, it grew large ($66 million by 1995) and unpopular: clients had started agitating against it. Under Grameen II the Group Fund money was redistributed into individual accounts held by each client. These are ordinary ‘passbook’ savings account where any amount can be paid in or withdrawn at any time. Then Grameen introduced a cumulative savings scheme modelled on the popular ‘Deposit Pension Savings’ that regular banks offer to better-off Bangladeshis. In the ‘Grameen Pension Savings’ (GPS), Grameen clients save a fixed monthly sum for 5 or 10 years. At maturity, generous interest is paid. They can be prematurely withdrawn in an emergency at a lower interest rate, and clients can hold more than one GPS at a time. The results were impressive. From August 2002 (when Grameen II reached every branch) to the end of 2005, the number of low-income clients (not including the villagers using the public savings accounts) grew from 2.3 to 5.7 million. Their savings at the bank tripled from $90 million (mostly transferred from the old Group Fund) to $270 million. In July 2004 the Bank’s saving portfolio exceeded its loan portfolio for the first time. Grameen no longer needed to tap outside sources to fund its lending. Savings had saved Grameen. A 2020 snapshot To understand the situation two decades later we turn to a ‘financial diary’ project in central Bangladesh which since mid-2015 has recorded the daily money transactions of sixty low-income ‘diarist’ households, who make a living from their own labour or from small-scale trading. Of these 60 households, 51 hold savings accounts at formal institutions – mostly at MFIs, a few at banks and Co-ops. Between them they hold $45,122, or about $884 each. We lack the data to make historical comparisons, but our diarists say that such balances were unheard of twenty years ago. A quarter of these balances are in the cumulative savings accounts known as DPS’s or GPS’s, again mostly in MFIs. Twenty years ago, no household like those of our diarists held this kind of account. Grameen Bank’s own share of these cumulative savings balances is about one quarter, showing how the scheme has proliferated among other MFIs, whose clients have increasingly demanded them. Another way to see how clients have changed the way they use MFIs is to compare their saving and loan balances. We noted that 51 diarists hold $45,122 of savings. A smaller number, 36, have loans outstanding, worth $19,901, again mostly at MFIs. Bangladesh’s low-income households have survived the determined attempt by microcredit providers to turn them into permanent borrowers and have reverted to a more common behaviour, in which most of them are saving most of the time and some of them are borrowing some of the time. The grammar of savings The numbers just quoted measure our diarists’ stock of savings. But to understand how and why poor people save we need also to look at the flows. Falguni, one of our diarists, is illiterate and makes a living repairing dirt roads. By World Bank standards her tiny income puts her among the ‘extreme poor’. Early in her marriage she was widowed and has brought up two children on her own. Her first savings outside her home came when she joined the local ghoroya samity, a neighbourhood ASCA (an accumulating savings and credit association) like those mentioned by Hans Dieter Seibel in the first blog in this series. Since 2004 she has saved 20 taka (about 24 cents) almost every day there, making up any missed payments the next day. Our diary project has tracked these savings for the last five years (during which she saved $370 in this way), and seen her withdraw her savings five times, for her daughter’s marriage, to repair her tin roof, and to instal a water pump. Falguni’s samity reminds us that saving is a verb as well as a noun. People whose salaries magically appear in the bank each month usually think of savings as a noun – money in a bank account or in securities – and for them success in saving means building ever bigger balances. But poor people like Falguni have to manage their own money, so for them saving is more often a verb – a daily or weekly task – and success in saving means assembling enough money at one time to buy the things that need to be bought. ASCAs turn their series of small set-asides into usefully large sums. In 2007 Falguni joined ASA, a major MFI. She treats it with the same discipline she brings to her samity. We have tracked her repaying the same amount each week for the last five years, since she always takes the same size loan. She uses the loans for similar purposes as her samity withdrawals. In Falguni’s samity savings, and in her ASA loans, she repeats the same process cycle after cycle. As the diagram shows, repeating cycles blur the distinction between saving (the ASCA) and borrowing (microcredit). Though we may think of savings and loans as diametric opposites, they are in fact variants of the same thing – a series of small set-asides that create usefully large lump sums of money. One difference between ASCAs and microcredit is how the size of the lump sum is decided. In Falguni’s samity, it depends on how much she sets aside each day, which is her decision and is limited by her capacity. Early microcredit lacked that ‘self-limiting’ feature, and ever-larger loan sizes drove up set-aside values until they were unsustainable. That’s microcredit’s ‘structural flaw’. Our diarists have learned that lesson well, which is why fewer of them now take microcredit loans and many who do, like Falguni, carefully keep the loan size within manageable limits. Falguni also has a DPS, at a local Co-operative. It is another ‘self-limiting’ and sustainable savings device, but with a long ten-year life, making it suitable not just for roof-sheets and water-pumps, but for life’s biggest spending needs, even as a substitute for a pension. Falguni withdrew a large sum from her DPS last year, for her daughter’s marriage, but she still has $2,400 saved there. Not bad for a daily labourer in a poor village. That’s the power of Bangladesh’s savings revolution. About the Author Stuart Rutherford is interested in how poor people manage their money. He has followed that interest as a researcher, consultant, evaluator, and practitioner. He founded the MFI SafeSave in Dhaka in 1996, and is the author of many articles and three books. With David Hulme of Manchester University he devised the 'financial diaries' research methodology and carried out the first ever diary project in Bangladesh in 1999-2000. He is currently running a long-term diaries project in central Bangladesh. He now lives in Japan.

Author: Sam Mendelson. From NextBillion and re-posted with permission. European Microfinance Week is the biggest thing the European Microfinance Platform (e-MFP) does each year. The 2020 event encapsulated much about the financial inclusion sector – the good, the bad and the simply confusing – as it navigated the historic challenges of the past year. For starters, there’s the event itself. By last summer, it was already clear that EMW2020 would have to be entirely online. This meant a daunting array of new problems to solve and platforms and possibilities to grasp – along with real opportunities for this to be a blueprint for the future. At the same time, the digital nature of the event has enabled far deeper insights into attendees’ real interests based on the sessions they actually chose to attend – insights that are harder to generate solely from post-conference surveys. Held from November 18-20, EMW2020 set multiple records: It drew the largest number of participants (over 500) from the most countries (61), and it featured the largest number of speakers (over 130) taking part in 55 sessions – twice the number of sessions of in-person EMWs. These sessions ran the gamut of important issues in contemporary inclusive finance, including several on the impact of COVID-19, four sessions on savings (the topic of the 2020 European Microfinance Award), along with discussions of digitisation, climate change resilience, client protection, WASH, remittances, finance for displaced persons, agri-finance and housing. These sessions were not only more numerous and diverse than in previous years, but they introduced many new formats better suited for an online conference, from topic lounges and fire-side chats to working sessions, case studies and interviews – all available live and recorded for viewing afterwards. While we hope to return to an in-person conference in the future, many of these innovations in structure, session formats and outreach to new audiences will undoubtedly be retained. We’ll release a full conference report in the coming weeks – with extended summaries of all sessions and links to videos where relevant. But in advance of that, there are three broad takeaways from EMW2020 that we wanted to share with NextBillion’s readers, representing three key priorities for the inclusive finance sector. 1. ADAPT OR DIE Adaptation was a defining theme of this conference. On the format side, it meant experimenting with the capabilities of new platforms that didn’t even exist a year ago, helping speakers get comfortable outside of a Zoom or WebEx webinar ecosystem, and introducing a whole range of new session formats – to name just a few. On the subject matter side, adaptation was everywhere you looked, addressing a number of key questions. What can investors do to protect investees and adapt to a context of low repayment capacities and liquidity challenges at microfinance institutions (MFIs)? What can providers do to protect the financial and actual health of clients and staff? What have regulators and policymakers done to adapt to this new context? What is the role for networks, associations, technical assistance providers and others in the financial inclusion support ecosystem – all of whom are striving for a positive role, but want to avoid the “too many cooks in the kitchen” issue? The conference report will outline some of the answers to these questions. But it’s clear that those who realised the unprecedented nature of this crisis early in the pandemic and adapted quickly have been the most successful at mitigating losses – and even finding opportunities in the chaos. 2. COVID, COVID, COVID As we solicited members’ ideas for EMW2020 content, it quickly became apparent that while COVID-19 would necessarily dominate debate, it must not monopolise it. We worked to maintain this balance by dedicating a full stream of sessions to examining the impact the pandemic has had on clients, businesses, providers and the broader ecosystem. The theme was set appropriately by a keynote address entitled “Microfinance in 2021: Past Imperfect; Future Tense.” In it, Ela Bhatt, founder of the Self-Employed Women’s Association argued that the sector must focus on “helping low-income households to enhance their incomes, investing in skills, productive assets and working capital” to ensure that “all financial tools serve clients, and not the other way around.” The opening plenary, entitled “Institutional Resilience in Focus: What is the Current State of the Sector?” shifted the focus to the institutions, examining the emerging data on which categories of institutions are struggling, surviving or thriving – and why. Several other sessions looked at the many impacts and challenges posed by the pandemic on poor households, examining remittances and several other areas. But one session that deserves to be singled out was a fascinating fireside chat between CGAP’s Antonique Koning and Women’s World Banking’s Mary Ellen Iskenderian, discussing the particular impact of COVID-19 on women. Even so, the majority of the conference was devoted to topics other than the pandemic – too many to exhaustively list here. But none were impervious to the impact of the crisis. Like water on pavement, COVID seeps into every crack and crevice. It has implications for client protection, and has catalysed certain trends in digitalisation. It has upended the provision of technical assistance and conducting research; it has forced investors to adjust their relationships with investees and with their erstwhile competitors; and of course it has adversely impacted the lives of tens or hundreds of millions of low-income households. So while this was not a COVID-19 conference per se, there is virtually no area of work in financial inclusion that has not been affected by what happened in 2020. 3. KEEPING AN EYE ON THE HORIZON All that said, there was considerable interest and engagement in topics that look beyond the short and medium-term consequences of the pandemic. Attendance was highest at EMW’s sessions dedicated to digitalisation and its long-term trends. Not far behind were sessions devoted to climate change and the preeminent threat it poses to millions of low-income households long after COVID-19 is a bad memory. It is key, as the saying goes, not to let the “urgent” crowd out the “important.” Climate change is both – and was treated as such at EMW2020. As mentioned above, a major stream of the conference was savings, the topic of the European Microfinance Award 2020 on “Encouraging Effective and Inclusive Savings.” The award drew a diverse field of applicants (70 – another record broken in 2020), along with high attendance at the virtual ceremony in which the winner, Muktinath Bikas Bank Ltd of Nepal, was announced. Indeed, despite multiple sessions dedicated to the subject – including a plenary on how to create a conducive regulatory environment for effective and inclusive savings, a debate on investors’ roles in encouraging deposits, and the launch of the new e-MFP paper “Encouraging Effective & Inclusive Savings” – attendees maintained high attendance throughout them all. Equally prominent and well-attended were sessions focused on social performance and client protection, chief among them a session exploring where the sector is heading following the closure of the Smart Campaign, announced earlier in the year. Though narrower in scope, other topics garnered plenty of attention too. Sessions on refugees and internally displaced persons were well-attended by a dedicated group of participants, reflecting both recent trends as well as the consequences that the pandemic and climate change are expected to have on migration in the coming years. Designing financial products and services suited for their specific needs will remain one of the enduring challenges for the sector for years to come. But alongside these headline-dominating issues, it is important to maintain a focus on subjects that are clearly important – but not so clearly urgent. To that end, EMW2020 saw the launch of e-MFP’s new multi-author book, published by Practical Action, entitled “Taking Shelter: Housing Finance for the World’s Poor.” Housing finance has been the sector’s proverbial forgotten middle child for many years, and the book is intended to shine a spotlight on the topic. Housing is after all one of the core human needs, and it is the area where finance has the largest role to play. But despite bringing together the world’s top experts on the topic, the housing sessions were the least attended of all. At e-MFP, we believe that while attention may be elsewhere right now due to the stress and uncertainty of the pandemic, it’s imperative to look beyond just putting out today’s fires, and to continue building for a longer-term future. Without denying the importance of digitalisation to the future of inclusive finance, it should be obvious to all that having a decent home is a fundamental human need, and one to which the sector must start paying more attention. We’ll be releasing detailed summaries of the sessions mentioned above – as well as dozens of others – in the conference report that will be published in the coming weeks. In content as well as format, EMW2020 made clear the staggering changes that the COVID-19 crisis has brought – on top of a range of developments, both positive and negative, that were already transforming a dynamic financial inclusion sector. Overall, 2020 really was a year defined by adaptation through cooperation and engagement. And that work has only just begun. As e-MFP’s chairwoman Laura Hemrika observed in her closing remarks, while some of the most pessimistic forecasts on the liquidity challenges facing MFIs may have receded, there remains enduring uncertainty over the impact of the COVID-19 crisis on clients. There is a real and growing need to overcome the challenges of providing technical assistance and conducting research in this new context, made easier by an evident desire for new linkages between stakeholders that for too long have remained siloed. There is also a renewed appreciation of the particular importance of savings in increasing client resilience, and a welcome realisation that the debate over the digitalisation of financial inclusion continues to move beyond binary “good vs. bad” arguments to a much more nuanced discussion of how digitalisation can be made to work for the benefit of everyone. We are immensely grateful to all the speakers and participants who joined us on an accelerated learning curve to take part in an entirely new kind of conference, and for everyone who attended, engaged and debated at the event. And we’re grateful to Charles Maes’ Good Vibes team for their round-the-clock efforts to get EMW2020 up and running in a way we could never have foreseen. Whatever the situation may be by late 2021, without doubt the insights and innovations from EMW2020 will endure. As we bid a not-overly fond farewell to 2020, e-MFP wishes all its members, friends and everyone in the financial inclusion sector a positive beginning to a fresh new year. Visit the EMW 2020 conference report here

Authors: Daniel Rozas & Sam Mendelson Published by NextBillion and re-posted with permission. “The first wealth is health,” wrote Ralph Waldo Emerson. How particularly true this is for the global poor, for whom health is often the dividing line between the path to prosperity or a slide into destitution. To make matters worse, the combination of typically volatile and precarious incomes and the absence of high-quality universal health care where they live means low-income communities not only need access to health care, but also the ability to pay for it. For these households, paying for health care is a two-fold problem: First, accessing and affording quality health care may often be insurmountable challenges. And second, even for those who are successfully treated and fully recover from an illness or injury, the financial burden of the health shock can cast a shadow for years after. This is why “Inclusive Finance and Health Care” is the topic of the €100,000 European Microfinance Award 2021, which seeks to highlight initiatives that facilitate access to quality and affordable health care for low-income communities. The health and poverty trap The problem is enormous. The WHO estimates that in 2015, over 926 million people incurred catastrophic out-of-pocket health spending exceeding 10% of their household budget, with over 208 million people spending over 25% of their budget on health expenses. The severe financial hardship caused by these expenses pushes 100 million people into poverty each year. This challenge has grown considerably in the last year, and the consequences of the pandemic on the world’s most vulnerable may take years or decades to undo. The problem is also fundamentally a human one. When facing the emotional stress of a health emergency, people often seek out any options, no matter how costly, to access treatment. For poor households, this can mean taking on debt, selling income-generating assets — or even selling their own homes. And when the health shock prevents an income earner from working, the loss of assets to pay for treatment is magnified by the loss of income. This risks a negative feedback loop: Poverty leads to bad health, which generates further poverty. To break this loop, low-income populations need the means to access and pay for day-to-day “maintenance” health care (dentistry, optometry or prescriptions, for example), while also being protected from the devastating financial consequences of high-cost health emergencies — as well as chronic conditions that require treatment that’s unaffordable to all but the wealthiest of families. These needs follow a continuum, which can be subdivided into four levels based on an individual’s health situation and the financial pressures it entails. At one end is regular and preventative maintenance: the small but regular expenditures for vaccines, insecticide-treated nets (ITNs) to guard against malaria and other miscellaneous needs, including investments in hygiene. Some, like ITNs, are very cheap, while others, such as installing plumbing, may be more costly. But the majority are typically affordable to most households. As a result, these preventative needs can usually be met with existing savings, small and short-term credit, and non-financial services such as health camps. Level two includes the majority of health ailments: influenza, minor wounds, snake bites, many digestive disorders and even recurrent bouts of malaria. Most of these require medical (possibly urgent) care, but the cost is typically modest and affordable to most people. However, the challenge for these situations is that, even when predictable, they are still unplanned, meaning that cash-strapped households don’t have the funds at hand to address them on short notice. On the other hand, most of these needs can be met effectively by savings and short-term credit. Level three includes serious chronic diseases: diabetes, certain disabilities, HIV and other long-term conditions. Most can be managed for years with modest costs, but they require continuous expenditures and can be a challenge to solve through financial services alone. In some cases, a combination of health insurance, savings and credit may meet the need. However, many chronic conditions may require expensive drugs that cannot be sustainably met without outside support. Finally, at level four are serious and often sudden episodes of ill health such as severe accidents, heart attacks and other emergency situations requiring costly in-patient care. These typically impose the biggest financial costs, with potentially catastrophic effects on low-income households. On the other hand, most individuals will only rarely experience level four episodes, which is what makes them perfectly suited to insurance that spreads the risk — and cost — across a large group of clients. Needs also vary depending on the person and their context, as well as the illness. Some people may miss out on preventative care because of the costs of taking time away from work. For others, volatile incomes may mean delays in the treatment of fairly minor illnesses, turning treatable conditions into major or chronic problems. Rural and remote communities may not have certain medical services available at all. The poor and vulnerable can also be intimidated by health care professionals and may be reluctant to seek advice, or even embarrassed to reveal poor literacy or numeracy. And the needs and role of women in household health, both as child-bearers and as primary caregivers, are especially important. Understanding these complex needs is crucial for financial service providers (FSPs) looking to help their clients access health care. The role of the financial inclusion sector - and the European Microfinance Award 2021 Those FSPs that serve poor households are well-positioned to facilitate health care access for their clients. The universe of potential interventions is wide. FSPs can provide services like dedicated credit, savings and (especially) insurance products to meet the broad spectrum of health needs described above. They can offer other financial products too, from pre-paid medicine to vouchers. Moreover, FSPs’ strong and frequently high-touch relationships with clients (often mostly women) create an invaluable opportunity to offer a whole range of non-financial and value-added services. These could include bulk purchase discounts on pharmaceuticals, diagnostics and medical supplies; telemedicine consultations, health camps, check‑ups and screenings; health advice and information materials; and guidance on care providers and their respective specializations. This opportunity is enhanced by the fact that FSPs sometimes connect with these clients through group models that link members together with high social cohesion, making it easier to reach more people with these useful services. All these financial and non-financial initiatives can be delivered across new digital platforms and incentivized with loyalty schemes. Meanwhile, the specialization needed for health care delivery means that many programs are designed to operate in partnership with a broad array of stakeholders in the health care sector, such as local clinics, pharmacies, NGOs or hospitals. The role of the financial inclusion sector in innovating in this area has never been more relevant, so we are especially pleased that this year’s European Microfinance Award is focusing on the role of inclusive finance in health care. The net for applicants is being cast wide: Applications are welcome from any organization in eligible countries that facilitate access to health care among low-income populations through financial inclusion. This includes many different types of financial service providers that directly provide and/or facilitate access to health care. It also includes non-financial organizations that facilitate health care access, via partnerships or other relationships with FSPs. The call for applications closes on April 13th and the evaluation process will culminate in the fall, with the winner of the €100,000 prize announced on November 18th during European Microfinance Week. We look forward to applications from a diverse field of organizations in the financial inclusion sector that are pioneering ways to increase access to quality and affordable health care for low-income communities. Additional information on the topic, eligibility requirements, and application and evaluation processes can be found on the European Microfinance Award website. About the Authors: Daniel Rozas is Senior Microfinance Expert at the European Microfinance Platform (e-MFP) and co-founder of the MIMOSA Project. Sam Mendelson is Financial Inclusion Specialist at the European Microfinance Platform (e-MFP) overseeing various research, knowledge, communications and sector-building across e-MFP’s different financial inclusion research streams, and supporting coordination of the annual European Microfinance Award, including as continued lead author of the European Dialogue

Authors: Craig Churchill & Lisa Morgan. Kicking off a series of blog contributions throughout this year to complement the European Microfinance Award 2021 on ‘Inclusive Finance and Health Care’, Craig Churchill and Lisa Morgan from the International Labour Organization advocate not just a productive but a protective role of financial services, through increasing access to affordable and quality health care. Over the coming months, we’ll be publishing more in this series from our members and other experts in the field. We laud e-MFP and the other European Microfinance Award organisers for highlighting, via this year’s Award, the potential impact that financial inclusion can have on health care. This is indeed a critical issue. For low-income households and microentrepreneurs, ill health can be financially catastrophic – eroding savings, depleting working capital, causing loan repayment defaults and exacerbating indebtedness. Health related financial risks are a primary driver of impoverishment. The WHO estimates that about 150 million people around the world suffer financial catastrophe each year from out-of-pocket expenditure on health services, while 100 million people fall below the poverty line. It is also important to consider the gender dimension to the realms of wealth and health. Overall, women are more likely to be poor than men; less than half of all eligible women are able to participate in the labour force compared to 75% of men; and 56% of all those without a bank account are women. Discrimination, based on gender (or anything for that matter), has implications for the most basic aspects of self-determination, dignity and freedom, with serious implications for both financial inclusion and access to health care, amongst other things. While there is a tendency to think primarily about the role of financial services for productive purposes – such as to support the growth of microenterprises – we argue that the protective role of financial services should receive equal attention. For example, unless people can manage their health effectively, the impact promised by access to finance will be limited. For low-income households to avert poverty, they need family members who are healthy enough, for long enough, to be sufficiently economically active to accumulate wealth and thus financial resilience. The consequences for low-income households of not attaining financial resilience can be devastating, with long-term implications, for example where children fall out of the education system to contribute to family income. If the breadwinners run or work in small enterprises, those MSEs likewise need a healthy workforce to profit, remain sustainable and grow. From the viewpoint of financial service providers (FSPs), keeping clients healthy makes business sense. Healthy and economically active clients are less likely to default on loan repayments, and may earn and save more. In addition, they may have greater financial resources to consider purchasing other services, including risk management solutions. However, it is not easy to design and deliver financial services that can help to finance health care. To provide some insights and guidance on this issue, drawing on a Social Finance Working Paper we published a couple of years ago, we want to highlight five issues that financial service providers can consider when designing such products. 1. Understand all of the costs associated with a health event: When someone becomes ill, they incur a range of different expenses. Some are reasonably small, like transport to the clinic. Others might be quite expensive, such as surgeries. Some expenses are one-offs, while others are recurring. Government health care programmes might cover some costs. In fact, the pursuit of universal health coverage (UHC) is one the Sustainable Development Goals, and where possible, FSPs should endeavour to register their clients with the government schemes. Yet even the most generous programmes will have some gaps, and those gaps represent an opportunity for FSPs. What are the most significant health care costs not covered by other sources, and can the FSP finance and/or insure those costs? 2. Savings is the most versatile: Health savings accounts, which are semi-liquid and can be accessed when people have a health expense, are the most flexible option from the client’s perspective – and the most affordable. FSPs should consider offering a higher interest rate on this account to make it more attractive for clients to deposit funds in their health savings account. These accounts are particularly relevant for smaller expenses that occur more frequently. 3. Consider integrated solutions: When low-income households have savings, they often prefer not to deplete them because that would exhaust one of their last coping mechanisms. Consequently, they might prefer to borrow money, using the savings as collateral. Plus, for larger expenses that incur infrequently and are not covered by the government health scheme, insurance would be an appropriate solution. Clever FSPs are finding ways of combining all three – savings, credit and insurance. 4. Hospital cash: One of the most common insurance products is hospital cash, which pays a per diem for each day that the client is in the hospital. This is particularly relevant for workers in the informal economy, such as microentrepreneurs or day labourers, who do not get paid sick leave when they are away from their occupation. 5. Don’t forget about prevention: As Benjamin Franklin once said, an ounce of prevention is worth a pound of cure. In some environments, preventable illnesses are still quite common, so FSPs can consider providing basic health tips and guidance to encourage good hygiene and healthy behaviours. This approach can be positioned as a value-added service that is provided to clients who open health savings accounts, for example. Given the recent COVID-19 pandemic, this is an opportune time for FSPs to be thinking about embedding health solutions in their services. It is likely that there is an increase in the demand for health related services such as, but not limited to, telemedicine. FSPs not only stand to benefit from having healthy customers, but also, within limits, have an opportunity to contribute to better global health. Photo 1:Lord R. / ILO Photo 2: Marcel Crozet / ILO About the Authors: Craig Churchill, International Labour Organization, has more than two decades of microfinance experience in both developed and developing countries. In his current position as Chief of the ILO's Social Finance Programme, he focuses on the potential of financial services and policies to achieve social objectives. He serves on the governing board of the Access to Insurance Initiative and was the founding Chair of the Microinsurance Network. Craig holds an MA from Clark University and a BA from Williams College, both in Massachusetts, USA. Lisa Morgan, International Labour Organization, provides expertise on insurance and other risk management solutions in the public and private sectors. She has more than 20 years of actuarial and related experience in Europe, Africa and Asia. Her experience includes pricing, reserving and budgeting for private and national health insurance schemes, as well as developing and managing inclusive insurance projects. Lisa is a qualified health actuary and Fellow of the Institute and Faculty of Actuaries in the UK. She has a diploma in actuarial management from Cass Business School, London and a B.S. in actuarial science from the University of the Witwatersrand, South Africa.

Author: Gilles Renouil. The second in a series of blog contributions throughout this year to complement the European Microfinance Award 2021 on ‘Inclusive Finance and Health Care’, Gilles Renouil from Women’s World Banking presents the argument for a hospital cash and life insurance program and discusses the commercial viability of such a model. Over the coming months, we’ll be publishing more in this series from our members and other experts in the field. As leaders face the enormous challenge of reviving post-pandemic economies, financial inclusion plays a key role. But how do we ensure that incentives, tools and programs specifically designed for low income populations become commercially viable in their own right, and remain financially sustainable over the long term? In last month’s blog “Five to thrive Embedding health care in financial services”, Lisa Morgan and Craig Churchill from the International Labour Organization (ILO) highlighted that while the need is greater than ever, it’s not easy to design and deliver financial services that can help to finance health care for vulnerable groups. We at Women’s World Banking look back at 15 years of design and implementation of innovative health insurance programs for low-income populations and confirm that yes, it is not easy. Yet, Caregiver, our flagship insurance solution, provides a meaningful, affordable and sustainable life insurance and hospital cash solution to middle- and low income women (entrepreneurs) in developing countries, proving that with discipline and commitment it can be done. Insurance – why it is crucial to enabling financial inclusion Insurance protects hard earned assets and income from unexpected shocks and allows individuals and business owners to get back on their feet faster when disaster strikes. It is fundamental to the growth and development of any economy, and in particular to developing economies. Unfortunately the benefits of insurance are not as well understood as they should be in the quest to bring financial inclusion to scale. In this context it was recently established that insurance plays an important and direct role for achieving nine of the 17 Sustainable Development Goals (SDGs): No Poverty, Reduced Inequalities, Zero Hunger, Good Health and Well-being, Gender Equality, Decent Work and Economic Growth, Industry Innovation and Infrastructure, Climate Change and Partnerships for Goals. Caregiver – what it is, and what it does Caregiver is a hospital cash and life insurance program, primarily – but not solely - aimed at low- or middle-income women entrepreneurs. The program, established in 2006, is an income replacement tool addressing that need, complementary to the available government social security schemes, but it does not exist as a standard insurance offering. It has hitherto been successfully rolled out in 4 countries, serving 2 million customers, with flagship programs in Jordan and Egypt. Bundled with micro-credit loans at a nominal monthly premium of around US$1 (premiums vary from 45c to US$2) per customer, all health conditions are covered from day one, including maternity and pre-existing conditions. There are no waiting periods or exclusions. The insured is eligible to receive a cash amount (in general between $15-40 per night), making the program an attractive value proposition for low-income women. All the customer has to do is to show proof of hospitalisation. The benefits can be used to cover indirect expenses associated with illness or hospitalisation. The most critical of these allowed expenses is the lost income clients experience when they must suspend their business operations. But other indirect expenses covered by Caregiver include transportation to and from the hospital, meals, and other incidentals. Caregiver – barriers to the natural development of new, inclusive insurance markets: what we’ve learned Many low-income clients, and women in particular, have no previous relationship to insurance and don’t know how it works. While they relate to the notion of risk prevention, and coping mechanisms and services within their community, they have no concept of commercial financial risk management solutions. They trust only in personal relationships that are tried and tested. Persuading low-income customers to buy insurance is therefore an important barrier. Many microfinance institutions are ideal aggregators but lack sufficient understanding of insurance to make the case to clients - their core business is lending. Developing and selling inclusive insurance products is a second barrier. Finally, insurance companies are risk-averse and data-driven. They are interested in scale but rarely have sufficient data on the low-income segment to price the risks and hence do not regard this market as insurable. Ignoring the low-income segment and denying capacity to it is the ultimate barrier. Addressing these barriers So how can we remove those barriers? It is unfair and unproductive to solve the problem by asking our low income customers to make the first step. The financial sector needs to make it easy for them. But how? 1. Bundling a solution for a grouped portfolio to get economies of scale and remove all exclusions. Pilot thoroughly to create data and prove the case to the insurer. Insurance is a game of numbers. The more volume a program has, the more value it generates for the customers. Voluntary products bring customer choice and that should be the goal, but it bears two fundamental risks: anti-selection (customers with poorer health are more likely to enrol); and they are slow to scale. This threatens the sustainability of the program because, firstly, anti-selection drives price upwards and insurers add exclusions and waiting periods; and secondly, more exclusions take more time to explain or to settle claims. This makes the process more expensive and microfinance institutions wait for customers to opt in for insurance until they see its real value. By developing bundled products (for example with a loan) we can reach statistical numbers to confirm actuarial assumptions sooner. Bundling does not mean that one-size-fits-all or that we dilute the efforts on customer education. In fact, we need to double it up so that the customers can see that insurance works for them, and that they will want to renew the loan with that MFI because of insurance, not in spite of it. Financial Service Providers have a critical mass of customers, data and negotiating power and so can dilute risk more easily. Reservations against maternity cover on the grounds that it creates a moral hazard and should be excluded are irrelevant based on a portfolio of 100,000 clients because not all women will be pregnant at the same time. Maternity cases never represent more than a third of the cases in our schemes, even when 95% of the client base is women. Caregiver has no exclusions, no deductible, no waiting period. 2. Taking ownership of product development and of the delivery process. Banks and microfinance institutions must understand that coping with the cost of health emergencies is a significant barrier that women entrepreneurs face to growing their livelihoods, and they should not have to make a choice between health and economic prosperity. Otherwise it will also ultimately impact their bottom line, as financial and physical health are closely related. Caregiver is an income replacement tool addressing that need, complementary to the available government social security schemes, but it does not exist as a standard insurance offering. Instead, MFIs play the most critical role to build awareness and trust among the customers, which requires MFIs to depart from their default position to buy and plug a service from insurers. Data and clients without analysis and research are like fallow land. MFIs must leverage the knowledge of clients and their trust to drive product development, delivery and claims process as much as possible. Only this way can they reduce insurance high operating costs. This is where technical assistance is most useful. When designing a family coverage for Lead Foundation in Egypt (85% women customers), we found that for a woman micro-entrepreneur to give birth and not get coverage for her child was extremely stressful because she would have to prioritize caring for her child and reduce the effort to run her business, thereby losing revenue. Our insurance partner was originally reluctant to cover new-borns, but we were able to provide data patterns from a similar scheme and agreed to proceed with an estimated number of new-borns and a few indicators to monitor for the pilot. Piloting is the best moment to learn as you start small in a protected environment. 3. Listening to your customers at every step of the process and measuring the risks you take. Understanding your customers’ needs are key to developing not only the right product, but also the right process. In terms of products, when we designed our first with our partner Microfund for Women in Jordan (93% women), we proposed to give women customers a benefit in case of death. During the prototype testing, most women said that the product would be less useful because if they were to die, their husbands would not invest it in the children. Instead, he would use the money to get married again. But if he were to die, she would lose his contribution to the household. In fact, data showed that husbands were 9 years older than their wives on average, which made the risk that she would become a widow higher. Based on these insights, we designed a product to cover the life of the husband. And in terms of process, microfinance firms are very close to their customers, and they generally know when clients face health emergencies and can support them during claims filing. Loan Officers are the most important stakeholders when servicing the women’s market. From Lead Foundation’s experience, we know that women know their loan officers, but they don’t know Lead as a brand (“I took the loan from Mr. Mahmoud”). Women ask for more information and personalized advice from people they can trust, and loan officers fulfil that need very well. They can also help the customer to navigate the process when they hear their customer has been sick. Women’s financial behaviours have a positive multiplying effect on the finances of the household, and offering a good product allows them to realise that potential. According to the UN, women reinvest 90% of their earnings back into their families and communities while men invest 35%. Women have been particularly affected by this COVID crisis and as leaders face the enormous challenge of reviving post-pandemic economies, it is logical that women and their resilience must have a prominent place in their strategies. Looking at the Financial Services market opportunity, well implemented hospital cash programs have the potential to serve a high-volume market at low cost, and at the same time build financial services and insurance literacy amongst the customers, as well as generating trust in the concept of insurance. Simple, affordable, needs-based products like Caregiver can play an important role in helping low-income populations to stay afloat and thrive in the post-covid economy. But it will require all hands on deck to bring such products to meaningful scale. It is no longer sufficient for donors, insurers and MFIs to act in isolation - we need to partner with all parts of the financial services ecosystem to attain sufficient volume to make financial inclusion commercially viable, impactful, and sustainable over the long term. About the Author: Gilles Renouil is the global head of insurance programs at Women's World Banking. He has more than 20 years of experience in the insurance industry and in the non-profit sector. In this role, he is responsible for managing all insurance related engagements, replicating existing products with financial service institutions, developing new services and providing strategic direction in the insurance area. His areas of expertise include product design, pricing, underwriting, control frameworks, financial performance and process improvement. He holds a MSc from École des Ponts ParisTech, France.

Authors: Shams Azad and Rubait-E-Jannat. The third in a series of blog contributions throughout this year to complement the European Microfinance Award 2021 on ‘Inclusive Finance and Health Care’, Shams Azad and Rubait Jannat from BRAC Microfinance examine the rationale for medical loans, with a particular focus on BRAC’s MTL+ product. Over the coming months, we’ll be publishing more in this series from our members and other experts in the field. Watch this space! The need for client-centric financing during an emergency Bangladesh has recorded notable achievements in the healthcare sector in the last few decades. Reforms and a drive to develop an extensive healthcare infrastructure have led to reduced child and maternal mortality rates, increased immunisation, and progress in combating infectious diseases like malaria and tuberculosis. All of these achievements are remarkable among south Asian nations. But still, an all-inclusive health care system is a far-reaching goal. An estimated 67% of total healthcare expenditure is met from households’ out-of-pocket (OOP) expenses, one of the highest in the South-East Asia region. Out of this OOP expenditure, 69.4% goes on medicines, exacerbated by the absence of a national health insurance system. So low-income households experience different and serious vulnerabilities during health emergencies. Nearly 5 million people are pushed below the poverty line due to health-related catastrophes every year. Institutional financing options are limited. Accessing a regular microfinance loan also takes 3 to 4 days. And so in most cases, borrowing from friends or relatives or informal sources at higher rates or selling assets are the natural response to a unforeseen health expenses. Because of these factors, there is a real need to create a client-centric financing option for low-income families to tackle a medical emergency. In response to this need, BRAC Microfinance in Bangladesh launched "Medical Treatment Loan (MTL)" back in 2013. Shielding people from health shocks: Medical treatment loans The MTL helps families to respond to unprecedented medical expenditures and provides linkages with hospitals and clinics. The core initial consideration was: how can a field officer be involved in the household's decision-making process in a time of medical emergency to ensure there is no ‘purpose drift’ and the intervention does not lead to over-indebtedness. Clients were matched with a BRAC-doctor, and the loan amount considered per the doctor's recommendation, within a range from USD50 to 600, parameters decided based on market experience. If the required amount was more than USD 235, disbursement was in two phases. As the MTL was offered only to existing borrowers and/or savings, it was expected that the MTL would be taken as a top-up to an existing loan. Relaunching MTL as MTL+ After several years of improvements and insights from the MTL programme, there was a product re-design. Endorsement from the BRAC-assigned doctor was not always convenient. Travelling long distances to reach the doctor's clinic, especially in rural areas, and the lack of availability of the doctor or appointment clashes led to requests from clients’ families that they could choose the health provider themselves. Furthermore, the loan cap and two-stage disbursement was not flexible enough for most families. In the three stages of medical recovery - diagnosis, treatment and post-treatment recovery - financing needs might arise anytime. Some treatments, like surgery or childbirth, required money all at once. So fragmented disbursement in those cases was not suitable. And lastly, the restriction of the loan to existing clients was withdrawn, because a family should be able to start building a financial journey with BRAC even in a time of emergency. BRAC sees this as ‘staying close’ to the people it serves, and for all these reasons, MTL+ was launched in a completely different set of branch offices in 2019. New lessons learned After a year of observations of the new programme, we saw that loan uptake was 10% higher in MTL+ than its predecessor. 75% of the clients were between 31 to 50 years old (chart-1), and by profession, most of the recipient households were in the lower-income bracket – daily earners (chart-2). These households' average per capita income was around the international poverty line of USD1.90 per day, indicating impressive equitable access among the client groups, and that field officers were not just focusing on higher-income households for better repayement. These MTL+ borrowers comprised 3.7% of the total client base, and the average loan amount was USD 150, while the maximum was USD 950. 66% of loans were given for 12 months, 20% for 18 months, and 14% for 24 months. Lack of awareness or access to finance undoubtedly leads many families to reach out to informal service providers in a country like Bangladesh. Here at BRAC we wanted to learn if an affordable financing option would increase access and uptake of better, formal health care services. From BRAC’s perspective this means visiting a registered physician at any public or private healthcare facility. Our research involved 531 households which had taken the MTL+ loan and 531 households which had not, for similar health cases, and we found that access to such a treatment loan increased the probability of visiting a formal health care service provider by 41%. About 97% of the households from MTL+ clients went to formal healthcare providers for their illnesses, compared to only 61% of non-MTL+ households. MTL+ households also had higher OOP expenditure (USD225) versus non-MTL_ households (USD76), due to the removal of liquidity constraints. We also observed that MTL+ clients spent about USD 93 more on average for their treatment than they did on previous similar health incidents before the loan uptake, however their net expenditure decreased by USD 35.5 on average. These data suggest that MTL+ relaxes the burden on their regular income and household cash savings. Shahina used to run a small grocery store adjacent to her house, and her husband was a person with a disability. The family expenses were on Shahina's income. When she was once diagnosed with stones in her gallbladder, she was at a loss. Then she availed of BRAC's MTL+, an amount of USD 175 and successfully went through her surgery. The intervention also has a considerable benefit for women. The MTL+ loan was offered to female client groups and in almost 60% of cases (chart-3) the clients used the loan for their own treatment purpose, with a further 35% of spending on immediate family members, husband or children. The types of illnesses being treated also varied widely (chart-4). Full recovery from the illness was observed in 58.7% of the cases. In 34.8% of the cases, it was partial. Of course, an affordable financing option might solve some of issues for low-income households in case of medical emergencies, and MFIs can design an emergency loan, with quick disbursement, without burdensome assessment criteria. However, there are areas of concern. In many cases, clients ask for a grace period on repayment because of the main income earner requires the health treatment, the the monthly repayment load may become unmanageable – especially as 87% of the clients in the BRAC pilot already had a loan before they required the MTL+ top-up. Sultana and her husband, a small business holder, struggled with their son Samiul since his birth due to an "Atrial Septal" defect (a congenital disability of the heart in which there is a hole in the wall divides the upper chambers of the heart). Taking an MTL+ loan of USD 590, the family went through a bypass surgery for Samiul. Today Samiul, aged 7, is fully cured. Does this mean a medical loan should be offered at a subsidised rate? The portfolio quality ratio was higher in MTL+ in comparison to a regular microloan portfolio, but this may not always tell the full story of how families cope, and for an MFI like BRAC it’s a question of balancing repayment ratios with the social mession to ‘stand by’ the households they serve. A simple instrument of loan calculation that uses variables like household income, expenses, debt and savings outstanding, the amount asked for the treatment and proposed loan tenure, can help field officers to take faster decision, and this was implemented in BRAC’s case. The idea is that the field officer can work with the household to evaluate and adjust the variables to create a more bespoke loan that provides a manageable repayment schedule that genuinely helps rather than hurts a family. Scaling up such a financing option needs more study. What does a low-income household need more- a medical loan or a low cost and effective insurance coverage? Does a financing option make the families incline more towards commercial health care options, thus ending up in higher OOP expenditure? Does the quality of the services worth spending the money on? Moreover, the COVID-19 pandemic has put experimentation at an unprecedented standstill. However, at BRAC we are hopeful of being an important part of the discussion on affordable health care services for low-income households with the experience we are gathering from this medical treatment loan. About the Authors: Shams Azad is Chief Operating Officer, BRAC Microfinance Programme, LinkedIn, e-mail: sahed.azad@brac.net Co-author: Rubait – E – Jannat is Manager, Product Development, BRAC Microfinance Programme, LinkedIn, e-mail: rubait.j@brac.net