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  • From RCTs to Diaries: The Enduring Value of Research Through Observation and Interview

    Regardless of our profession, most of us like to think we know what we’re talking about - especially during this Financial Inclusion Week. But how much do we know, really? Assumptions and heuristics (‘rules of thumb’) dominate more than most of us would readily admit. And why not? Usually they’re good enough. Before Galileo upended astronomy, existing models, regardless of how wrongheaded, were still good enough to maintain calendars, predict agricultural seasons, and support navigation. Since the beginnings of modern microfinance in the 1970s, we have likewise relied on similar orthodoxies: that take-up of microcredit was a demonstration of its inherent value to the clients; that on-time repayments were evidence that clients were not over-indebted; that competition would inevitably lead to lower interest rates. And, perhaps most importantly, that targeting specific groups of clients would inherently create social benefits: lending to the poor would alleviate their poverty, lending to women would strengthen their roles in society, lending to farmers would improve their yields, etc., etc. Starting in 2010, a new type of research methodology not previously attempted in the sector - the Randomised Controlled Trial (RCT) - began to upend many of those notions, most importantly that microfinance loans have on average a statistically significant and positive impact on either the incomes or quality of life of clients. With their large samples, longitudinal timeframes, and randomised treatment and control groups, RCTs are able to isolate correlation - and sometimes causation - from external variables, subject to the boundaries of confidence intervals. A compendium of six such RCTs in 2015 appeared to put the earlier notions to rest (although there is, as David Roodman observed in his book on the impact of microfinance, Due Diligence, some nuance required here: “The absence of proof is not the proof of absence”). Yet as Timothy Ogden later pointed out in his Case for Social Investment in Microcredit, these studies do highlight an important point - the focus on the average misses a great deal of variation among clients. Some do well, others do poorly. In principle, if lenders were better placed at identifying the clients most likely to benefit, the outcomes of their loans would be more positive. That’s where another research innovation comes in: financial diaries. Although used as far back as the 1990s, this approach gained attention at the same time as the RCTs, with the publication of Portfolios of the Poor in 2009. The Diaries take a diametrically opposite approach from RCTs; with small samples, they make more modest claims of providing a statistically representative measure of client outcomes across a large population. Instead, through regular enumerator meetings over months or years, complemented by daily household diary-keeping, they seek to paint a deep picture of the true lives of financially excluded families. By doing so, they are able to uncover details that primarily survey-based techniques like the RCT cannot capture. For example, Portfolios raised a key aspect of poverty that had not been widely understood previously - that the ups and downs of income and expenditure over time, or ‘cash flow volatility’, was as much a challenge to poor households as their overall low income. And that many poor households were using a wide range of formal and informal financial tools, including microfinance, to ‘smooth’ this volatility. Portfolios spurred a host of other financial diary projects. Some, like the US Financial Diaries, have been widely read and have made major contributions to understanding the precarious financial lives of poor and middle-class American families, who face similar challenges of cash flow volatility as the much poorer families in Bangladesh, India and South Africa described in the earlier Portfolios. Meanwhile, other studies have had a narrower focus, but have nevertheless made important contributions to understanding clients and their needs. One of us was a program lead on the Energy Diaries, which tracked 90 Indian households’ acquisition and use of different energy sources (such as kerosene, charcoal, wood, grid electricity, or LPG) as well as use of distributed renewable energy products (such as a portable solar lights or improved cookstoves) and other economically-productive and energy-dependent assets (such as a mobile phones, motorcycle, kerosene lamps or mud stoves). The result was a richer understanding of how families combine different energy sources into a special type of “portfolio” to meet diverse needs, and the role of culture, cost, and government subsidy in guiding energy use. Other studies have looked at a specific segment. The Garment Worker Diaries is studying the lives and wages of garment workers in Cambodia, Bangladesh and India. Other Diaries projects have highlighted the role of remittances, credit, and other financial products in making business investments, paying for education and other family needs in countries around the world. Each has produced a wealth of quantitative and qualitative data to highlight previously poorly understood aspects of low-income people’s lives. The spate of RCTs in the last few years was the best thing that could have happened to microfinance. There is an inherent honesty in the well-designed RCT. Moreover, their sober findings put much-needed brakes on the hype of microfinance as a one-size-fits-all solution to poverty, and the lazy virtuous circle of donors, practitioners and observers endlessly repeating anecdotes of women leveraging fifty-dollar microloans into thriving community businesses. Yet like microfinance itself, RCTs are no panacea. Aside from their methodological limitations and high cost, there is more to client-centric financial inclusion than can be revealed through the lens of quantitative impact measurement alone. Fleming discovered Penicillin not by iteratively double-blind testing variations of a medication on large groups, but by diligent and close observation of small samples, leading to an unexpected insight. There is, obviously, a place for both approaches. Diaries (though not cheap, either) can fill the gap left by a singular focus on randomised studies. But too often, Diaries research exists in a vacuum, and it is difficult to identify the practical application of the wealth of client household and business data they produce. Beyond conference presentations, where is the identifiable effect on product design, on SPM, on regulation, on how financial institutions work with low-income and excluded segments to bring them into the formal financial ecosystem? There will of course be examples of how this has worked well, and we welcome any retorts to this that wave the flag for the in-practice outcome of Diaries. Our simple point is that, while the impact of RCTs on financial inclusion has been considerable, and overwhelmingly positive, too often it’s hard to identify how Diaries translate theory into practice. These broad approaches are complementary, and the sector would do well to actually use the results of both as it innovates in the years to come. Photo: Direct Relief via Flickr author: Daniel Rozas - Sam Mendelson

  • Microfinance in Europe: a view from the South

    Today, as our friends and colleagues across the continent mark European Microfinance Day, we would like to offer a view from the South. After all, e-MFP occupies a distinct place – we’re a platform for Europe-based microfinance actors who are specifically focused on working in the South as their core objective. Like an astronomer atop a lonely mountaintop, we find ourselves in the heart of Europe, yet our minds are focused on the world beyond. So what does European microfinance look like when seen from the South? Well, it is a bit like looking at the stars – the light shines bright yet comes from a distant past. Microfinance institutions (MFIs) in Europe look remarkably similar to the global MFIs of the 80s and 90s -- small, local organizations with a deep focus on lending to micro-enterprises while maintaining basic financial sustainability. They're treading the paths laid by MFIs in countries like Bangladesh and Peru. MFI clients in Europe and in the South share one key thing in common: these are people to whom banks aren’t interested to lend. In the South it usually means that their enterprises are informal, without proper documentation and thus no paper trail. In Europe it often means they are too new to have built up a history and the same paper trail banks like to see. In both cases, they rarely have collateral they can provide. Above all, microenteprises everywhere are often simply too small to bother – the combination of time required to understand the business and its operations juxtaposed with the (relatively) small amount of funds they need is a formula that just doesn’t fit within the traditional banking model. That leaves room for a specialist lender that can spend the time with the borrower, understand her business needs, and perhaps offer some business training or other non-financial services. In short, a microfinance lender. But there are also large differences. The places where MFIs operate in the South are not just dealing with a lack of credit. Poor families, often in rural areas, have little access to any financial services – current accounts, savings or insurance, the ability to make payments or send money without using cash. That is the reason why MFIs in the South have over the years broadened their focus, providing opportunities not just to borrow, but also to save, buy insurance, send money to their family in the village. The evolution of social missions and terminology, from microcredit to microfinance to financial inclusion, has mirrored a sector’s increased understanding of poor clients and their financial needs. Meanwhile in Europe, MFIs have little need to broaden to such services. Most of their clients already have a bank account. Nearly all use card payment services to process client payments. Their need for the type of insurance that’s so critical in the South is much reduced – basic health care is nearly always assured one way or another, regardless of personal means. Children’s education isn’t dependent on personal savings or loans. That leaves the European MFIs to focus on the one critical thing their clients need that others cannot or will not provide them – credit. So it is both peculiar and also completely proper that while the MFIs in the South that created and perfected microcredit have been shifting and broadening their services in all sorts of ways, European MFIs are firmly rooting themselves in the core lending practices perfected decades ago. The two share a name and a common origin, but their paths are diverging. And as they do, both South and North will continue to share and exchange experiences and get better at their missions. We look forward to watching and supporting these developments as they unfold. Photos: Johan Fantenberg/Flickr, Vicente Diamente/Flickr author: e-MFP

  • Fostering social equality through microfinance in Nicaragua: interview with Veronica Herrera, CEO...

    Mennonite Economic Development Associates). “Empowering youth is vital to see the change in Nicaragua that we seek” Mrs Herrera says. “I believe education, in addition to microfinance, is a powerful tool to <…> empower youth” she adds. MiCrédito is one of few MFIs today in the country to provide student loans at very low interest rates, enabled through Kiva – the San Francisco-based not for profit. While the Sandinista government managed to reduce the illiteracy rate in the country dramatically in 1980 (from 50.3% to 12.9% within only five months<1>), which earned it the UNESCO Literacy Award, today’s education level in the country is relatively low compared to the rest of Latin America, with around 45% of the population attending secondary education, versus an average net enrolment rate of 74% in 2011 across Latin America<2>. In what could be her motto, Mrs Herrera adds: “How does one get out of poverty? It is through education”. Daughter of micro-entrepreneurs, Mrs Herrera has been involved in microlending since the 1990s through Fundación CHISPA, which successfully pioneered the first microfinance programmes in Nicaragua through the support of MEDA. After establishing the first regulated MFI in the country, CONFIA, in 2000, MEDA and the management team later founded MiCrédito to specifically target the underserved rural market of the country. Today the company counts 116 employees and 12 subsidiaries spread across Nicaragua. MiCrédito successfully survived the global financial crisis in 2008, which also hit the Nicaraguan microfinance sector. During this time, several clients defaulted on their debt and the microfinance payment culture deteriorated significantly, thus igniting a social Non-Payment Movement (“Movimiento No Pago” - MNP) composed mainly of farmers who protested the high interest rates and encouraged their followers to stop honouring their payments. Within this context, a number of microfinance institutions and NGOs defaulted, while many donors left the market: in less than three years since 2008, total microcredit portfolio in the country dropped 52%<3>. Questioned about the factors behind the endurance of her organisation throughout the tough MNP years, Mrs Herrera lists four key factors. The first one is “creativity”: the introduction of innovative services such as microinsurance which served the same customer segment. “These were like the heroes of the story because they increased and sustained the turnover” she explains. She emphasises the importance of a committed team – especially at the managerial level - that is willing to cut its pay to help bring down costs, like she did together with two other senior managers during this time. Another key factor was the presence of a long-term partner like MEDA, as well as a committed donor like Kiva, which supported MiCrédito during the MNP. Finally, Mrs Herrera mentions client loyalty: although the company experienced default rates as high as 15% between 2009 and 2011, MiCrédito managed to maintain a loyal client base whereby the majority of the clients honoured their payments: “I tried to encourage my team <…> we need to keep fighting for the 85% that is still paying ” she added. The MNP prompted significant changes for the broader financial services sector in Nicaragua: “the crisis is the mother of innovation”, she points out, “much of the industry reinvented itself”. Historically, the country has relied heavily on public remittances and international donors. Starting in the late 90s when private banking was legalised, several microfinance institutions (MFIs) emerged with the support from international donors, which viewed microfinance as a tool to reduce poverty: between 2000 and 2008 the microfinance industry experienced exceptional growth, especially in the regulated segment (42% annual growth) which received the bulk of the multilateral support<4>. At its apex, the Nicaraguan MFIs disbursed a total of US$ 560 million<5> loan amount to over half a million clients, i.e. about 10% of the total population. <6>, focuses on the microfinance sector. The databases of the credit bureaus are fed by data delivered independently by regulated and non-regulated financial institutions in Nicaragua. The microfinance sector in the country today is primarily driven by consumer credit: nearly half the loans registered in 2016 by the microfinance institutions adhering to CONAMI – the National Microfinance Commission (Comisión Nacional de Microfinanzas) - are used to finance consumer credit (48%), followed by commerce (22%)<7>. Consumer credit has gained considerable ground since the financial crises, and it grew by about 26% per annum since 2014. However, Mrs Herrera argues these data do not necessarily signal overindebtedness due to the fact that today’s financial institutions providing consumer credit are regulated and therefore their practices are more transparent. “I believe that if we teach people to have an appropriate consumption, we can help generating jobs in other areas” she adds. This is particularly true if directed toward the productive sectors of the country, including the agricultural sector and the small entrepreneurs, which are at the core of microfinance institutions like MiCrédito, she stresses. Nicaragua today has progressed from one of the poorest and most heavily indebted countries of Central America in the early 2000s<8>, to the second fastest growing economy of the region after Panama, registering a 4.5% growth in 2016<9>. Public debt shrank from the heights of 117% of GDP in 2003, to nearly 30% of GDP in 2015<10>. Social development followed through: the number of people below the poverty line also decreased from 20.5% in 2001 to 6.2% of the population of 6.1 million in 2015<11>. However, social disparities persist, with the richest 20% detaining over 52% of the resources<12>. If on the one hand the Léon-born mother of three demystifies consumption credit, she also emphasises the importance of enabling people in the bottom of the pyramid to save money. According to Mrs Herrera, Nicaragua lacks a “financial democracy”, given that the banking system is dominated by five banks which impose minimum requirements for clients to access a savings account. Therefore, a proportion of the population today is still excluded from the banking system, and thus from any savings products. Through her presence on the board of ASOMIF, Mrs Herrera is pushing to change the current law 769 of promotion and regulation of microfinance introduced in 2011, by enabling microfinance institutions like MiCrédito to provide saving services in addition to credit services. She believes this would allow MFIs to reduce interest rates to their clients through a reduction in financial costs, as well as benefit the whole economy through the inclusion of about half million people (i.e. those currently served by the institutions registered in ASOMIF) which today are excluded from the macroeconomic statistics of the country. Mrs Herrera, who speaks softly and persuasively, is very determined in pursuing her goals within the microfinance sector. “I think this is a matter of justice” she says. <1> UNESCO, 2006. Nicaragua’s literacy campaign. Retrieved from: http://unesdoc.unesco.org/images/0014/001460/146007e.pdf <2> UNESCO, 2014. Regional Report about Education for All in Latin America and the Caribbean. Retrieved from: http://www.unesco.org/fileadmin/MULTIMEDIA/HQ/ED/ED_new/pdf/LAC-GEM-2014-ENG.pdf <3> J. Bastiaensen et Al., 2013. After the Nicaraguan Non-Payment Crisis: Alternatives to Microfinance Narcissism. Distributed by Development and Change 44(4): 861–885. DOI: 10.1111/dech.12046 <4> CGAP, 2005. Country-level effectiveness and accountability review (CLEAR). Nicaragua. Retrieved from file:///C:/Users/uko/Desktop/research%20papers/CGAP%20review%20Nica_2005.pdf <5> J. Bastiaensen et Al., 2013. After the Nicaraguan Non-Payment Crisis: Alternatives to Microfinance Narcissism. Distributed by Development and Change 44(4): 861–885. DOI: 10.1111/dech.12046 <6> ASOMIF is a network counting 23MFIs today <7> CONAMI, 2016. Statistics. Retrieved from: http://www.conami.gob.ni/index.php/estadisticas-consolidadas#menu-04 <8> CGAP, 2005. Country-level effectiveness and accountability review (CLEAR). Nicaragua. Retrieved from file:///C:/Users/uko/Desktop/research%20papers/CGAP%20review%20Nica_2005.pdf <9> The World Bank, 2016. Data, Nicaragua. Retrieved from: https://data.worldbank.org/country/nicaragua <10> Ibid <11> World Bank, 2016. Data, Nicaragua: Poverty and Equality. Retrieved from: http://povertydata.worldbank.org/poverty/country/NIC <12> Ibid author: Marina Iodice - Kiva

  • The MicroBuild Fund Story: Habitat for Humanity and Triple Jump on forming the first investment f...

    A few weeks ago, headlines covered former U.S. President Jimmy Carter’s health while building Habitat for Humanity Homes in Canada. For the 34th year, Jimmy and Rosalyn Carter brought hundreds of volunteers to construction sites where donated materials and contributions from donors were used to build homes for low-income households. That image of volunteers coming together to build a home is what people expect from Habitat for Humanity. But some are surprised when they find out we also sponsor a US$100 million investment fund for housing microfinance that finances work around the globe. Why do we do that? Some of Habitat’s history with microfinance and markets traces back to an accidental discovery. Typically a Habitat for Humanity house comes with a zero percent home loan to the family. Nonetheless, regulations on non-profits in Egypt prevented Habitat from lending out any funds; and a microfinance institution (MFI) offered to help. So a partnership formed whereby our funding was lent to households via an MFI partnership. Soon after, the MFI began lending its own money for housing. At first Habitat did not pay much attention to this – it wasn’t our program nor was it being done with our funding, after all. But eventually we realized how powerful this was. The MFI went on to lend much more for housing than our program ever could, and competing financial institutions responded with similar products. This was the beginning of a change in the market that would result in much more widespread access to housing finance than any of our non-profit programs could have on their own. And, indeed, unmet demand for finance for housing is massive. Penetration of housing finance around the world is extremely limited – the World Bank’s FINDEX report (Demirguc-Kunt, Klapper, 2012) shows, for example, that just 2% of adults surveyed in India had housing finance products for the purchase of a home, with similar low figures in Uganda (1%) and Mexico (3%). Access to less formal construction loans were equally low in all three countries with less than 6% of households reporting access. Sometimes without knowing it, microfinance was already involved. Evidence showed that people were already using enterprise loans to improve their homes. So we asked ourselves, “What if we could get the microfinance market to embrace housing as an intentional product?” Estimates showed that housing products comprised about 2 percent of microfinance portfolios worldwide. If we could work to raise that to 10 percent, an estimated 15 million families would gain access to over US$4 billion of capital for housing. We took on the challenge. We began by offering technical advice – providing product development expertise to leading institutions to develop housing microfinance products. Investors, however, were often less sanguine. Doubts emerged about whether housing was a “productive investment” for a household and whether a quality housing loan portfolio could be sustained. It was clear that housing needed to be better understood by investors. So we launched the MicroBuild Fund in 2012 as the first microfinance investment vehicle dedicated to housing. MicroBuild’s goal is to create a portfolio of investments from which institutions and investors in the industry can learn and better understand housing as both a product and an investment opportunity with the ultimate goal of attracting other investors to the sector through MicroBuild’s demonstration. Habitat for Humanity and its Terwilliger Center for Innovation in Shelter brought OPIC, Omidyar, and Metlife together as the sponsor investors of the fund, and hired Triple Jump B.V. to be the fund manager for MicroBuild. Triple Jump was immediately interested in partnering with Habitat for Humanity to make the MicroBuild Fund a reality, because of the clear need to help local financial institutions offer dedicated housing products to their end-clients. Having analyzed hundreds of MFIs over the years, offering both investment capital and advisory services, we were aware how powerful a combination of technical assistance and funding can be. With Habitat for Humanity’s Terwilliger Center providing technical assistance to financial institutions on both the institutional as well as end-client level, and Triple Jump looking at the investment angle, the complementarity was there from the start. I am convinced MicroBuild is a change-driver and will have a lasting effect on the industry. Patrick Since housing finance products were new to many of the investee institutions, Habitat’s Terwilliger Center for Innovation in Shelter engaged with institutions to support them in the product development process and in gaining insight into local housing market conditions and construction methodologies. Though it is still early, the business case for housing microfinance is beginning to emerge. For 93 percent of MicroBuild investees, their housing product is performing better than the general portfolio of their institution. Interest rates are generally comparable to enterprise loans, with a few investees offering rates one or two points lower (APR). Evidence also suggests that the housing product is being used to attract new clients as much as it is to incentivize proven clients to stay with a particular financial institution. Steven Offering a housing loan product is clearly a good addition to the product portfolio of the financial institutions with whom we work. On the one hand, end-clients benefit from tailored products that fit their underlying financial needs in terms of loan size and repayment terms, while they often also can benefit from advice regarding technical issues. The institutions, on the other hand, profit from a generally well-performing portfolio, and since housing is often a source of growth, the institutions are able to cross-sell to existing clients as well as attract new clients. From an investment perspective, we deem financial institutions that are able to build a well-structured housing portfolio next to their general loan book to be less risky. Patrick Close to US$76 million has now been invested by MicroBuild in housing microfinance products in 43 institutions across 26 countries. MFIs have directed an additional US$167 million of capital to housing as they take risks to finance the growth of housing products to keep up with client demand. More encouraging yet, a vast majority of financial institutions we’ve worked with see housing as outpacing the growth of other product lines. But all that pales in comparison to the capital needed to adequately finance the third-highest spending category for the base of the pyramid. Many more investors and stakeholders are needed. As MicroBuild grows, we’ll continue to share information and knowledge to help provide insight into what’s working—or isn’t. We ask you to join us. As practitioners, investors, and donors we ask you to look at housing as a foundational issue for development and as an opportunity for market-based intervention and investment opportunity. author: Patrick Kelley - Steven Evers

  • Student lending: too risky, or the right product for mature MFIs?

    In 2010, Omtrix, a microfinance fund manager based in Costa Rica, saw that the greatest barriers to higher education for low-income youths was lack of access to financing. Omtrix wondered if this need could be met by microfinance institutions. Serving this sector would certainly meet their mandates, and MFIs already knew how to reach and serve low-income people. Omtrix hypothesized that under the right conditions, and with the right approach, student loans could be a viable product for MFIs. They decided to create a new fund to promote higher education. The new fund, called The Higher Education Finance Fund (HEFF), would lend to MFIs so that they could in turn on-lend to bright young people whose aspirations lay beyond their financial reach. HEFF’s funding would be accompanied by a technical assistance program to train MFI staff in how to appraise, monitor, and collect on student loans, as well as offer other tools to launch a new product. Additionally, HEFF would serve as a pilot program to be replicated by other MFIs or funds in the future and across the globe. Over the past six years, HEFF’s original assumptions have been tested, and the innovative program has experienced some growing pains. Omtrix has begun the process of capturing lessons learned and best practices to disseminate those lessons to anyone who may want to replicate or build on HEFF’s model. In 2016, Omtrix published Cross Fertilization Workshop in Student Lending: Lessons Learned, a paper which captures the experiences, challenges, and best practices of HEFF’s FIs. In 2017, TAF funders commissioned a business case study to analyze the viability of student loans as a double-bottom line product.<1> Most lessons learned challenge HEFF’s original assumptions. When HEFF’s student lending methodology was conceived, it was geared towards full-time students who recently graduated from secondary school. The loans would be long term, double the length of years of study. During higher education enrollment, students would only pay interest rates. After graduation, borrowers could opt for a grace period of up to six months between graduation and employment before starting to amortize the loan. It was also expected that FIs would market to children of existing clients in their portfolios. In practice, the bulk of the methodology was sound, and adopted as-is. HEFF’s portfolio FIs were enthusiastic about the lending method, but soon after implementing the product discovered some snags in product launch. For example, credit officers were reluctant to experiment with the new student loan product, and busy managers couldn’t give student loans the attention necessary to grow a new portfolio. On the IT side, student loans required new forms and processes, and banking software wasn’t always readily modified. As for the clients, few were recent graduates or full-time students. The average age of HEFF’s student borrowers is 24, not 19, and most of them work full time and study nights and weekends. Often, clients struggled to adapt to the long terms of student loans, and preferred short, renewable loans without grace periods, preferring to begin paying back the loan immediately upon signing it. Market penetration proved a challenge as well. MFI’s initial expectations turned out to be optimistic and institutions had to penetrate a new market segment, but their traditional marketing methods failed to engage tech-savvy millennials. When reaching young adults, MFIs had to invest in social media marketing, and snazzy online videos that engage young people, while also educating them about the product. A real launch point for many institutions came when they formed alliances with popular universities and institutions so that prospective students were exposed to the MFI’s marketing materials while visiting the schools. HEFF helped MFIs meet these challenges by expanding TAF’s services to include funding for new marketing methods, and on-going consultant visits past initial training. These consultants had exposure to the solutions devised across HEFF’s MFIs, and shared those ideas with other MFIs facing the same challenges. With the wisdom of hindsight, these adjustments seem obvious, but in practice, MFIs have fixed operational routines. The theory that a new product may seamlessly glide into place within that routine was quickly disproven. Developing and launching a new product is disruptive and requires focused attention, fresh approaches, a lot of experimentation, and a distilling and dissemination of the best solutions, which is what HEFF plans to do. <1> For a copy of Cross Fertilization Workshop in Student Lending, email info@omtrixinc.com. The business case analysis will be published later this year. Photo credit home page © World Bank/Dominic Chavez via Flickr author: Anais Concepción - Omtrix

  • Crossing Over: A natural transition from micro to SME loans?

    As part of that change in the international microfinance scenery, we have witnessed many MFIs around the world expanding beyond micro loans to include SME loans. Such decision, many times deemed as a “natural growth path”, is caused by more competitive markets that make it more difficult for MFIs to retain traditional clients, higher costs for regulated MFIs, and a natural pursuit of continued growth. Under those circumstances, many MFIs have considered the possibility of “crossing over,” offering loans in higher amounts to their own clients and seeking to enter a new market segment: small and medium enterprise loans (SME loans). The rationale for crossing over as a way to follow a path of “natural growth,” is often times based on the premise that to serve this new market segment, it is not necessary to make major changes to the current methodology, processes, and products, and that MFIs hold a competitive advantage in this market because they already have an infrastructure and a broad knowledge of the microenterprise market. Such reasoning is true up to a certain extent, since by the time most institutions formally decide to serve the SME loan segment many of them already had relatively large loans in their portfolios, which had been “naturally” acquired as they grew and developed. However, some MFIs that decided to go beyond microloans to SME loans, have acknowledged that they underestimated the challenges and overestimated their capacity to serve the SME loan segment. Over time, these organizations have had adverse results on the portfolio, significantly affecting their financial health, and that of the financial market in which they do business. A recent study sponsored by Calmeadow entitled “Crossing Over: The Experience of Microfinance Institutions that Entered the SME Loan Market”, was conducted with the aim to learn about the experiences of MFIs that made the transition. The study was based on a small sample of MFIs in Latin America that were surveyed and visited to learn about their experience. The authors of the study found that MFIs invariably learned, sometimes the hard way, that SME loans were not simply bigger microloans, and that they required a new and different approach. The impact of not managing SME loans correctly could be significant, not only for the institution (that may either take losses on that portfolio or abandon SME loans altogether) but also for the borrower. Therefore, it is fundamental to acknowledge that each SME loan represents a greater risk to the organization given that increasing the amount of the loan also increases its risk. In principle, a microfinance institution can withstand the impact of losing a small loan without major problems. However, that does not apply for loans of significantly larger amounts. An SME portfolio in arrears can significantly affect a microfinance institution’s net worth, compromising its sustainability. Consequently, any microfinance institution that decides to serve the SME segment should establish clear methodologies and set up a specialized department for the management of higher amount loans. The study concludes that the difference between microenterprise and small enterprise goes beyond the purely semantic. The success of “crossing the border” will depend on whether such decision is framed in an appropriate strategy for the SME loan segment. Moreover, the likelihood of success for a microfinance institution serving that market will depend upon the institution’s preparation and adjustment prior to the experiment. The good news is that if done correctly, serving the SME market can successfully expand the product offering of the MFI, and will contribute to strengthening the market and financial position of the organization. author: Georgina Vázquez - Calmeadow

  • DRR Matters for Financial Service Providers Too! Resources for FSP Resiliency in the Wake of Disa...

    In an effort to raise awareness around this important topic, the SEEP Network’s global Disaster Risk Reduction (DRR) Program, funded by the Citi Foundation, seeks to promote more resilient financial services markets in which financial service providers (FSPs) and their clients have the capacity to better anticipate, cope and recover from the negative impacts of disasters. In the program, SEEP promotes the topic of DRR for low income financial services markets at a number of global industry events and through a learning platform featuring case studies, webinars, peer discussions and an online DRR resource library. These learning outputs highlight the promising practices of organizations working to improve institutional and client resilience through improved internal risk management; forming strong partnerships with humanitarian agencies; establishing protocols for needs-based response for clients in times of crisis and providing innovative loan and insurance products for disaster response. For example, the Aga Khan Agency for Microfinance and Global Communities, provided tangible examples of actions being taken at the FSP level by First Microfinance Bank-Afghanistan, First Micro-Finance Institution Syria and Vitas Group to ensure business continuity in times of crisis, while maintaining a clear ex ante client focus to ensure that community-based, people-focused responses are applied to support clients’ recovery. Mercy Corps, Catholic Relief Services (CRS) and Habitat for Humanity India are evolving public private partnerships to bring micro insurance to particularly vulnerable populations in the very distinct markets of Guatemala, Senegal, Mali, Gambia and India. Studies undertaken by Mercy Corps in India and Freedom from Hunger in Burkina Faso have attempted to shed light on the financial needs of vulnerable populations in times of crisis to better understand the types of financial and insurance products needed to help increase client resiliency. IRC worked closely with SEEP Network to develop a tool that aids humanitarian agencies to better assess FSP partners capabilities, readiness and effectiveness in administering cash transfer programs. To support institutions that have not identified disaster preparedness as a priority or are unaware of disaster mitigation strategies for institutional and client resiliency, the Institute for Financial Management and Research (IFMR), with guidance from SEEP, developed and conducted a mapping study to assess India’s DRR preparedness among FSPs. While study findings focused on the Indian context, the mapping process is transferable to other locations, and serves as a useful methodology to understand FSPs’ awareness and preparation for disaster risk mitigation. These are just a few examples of the excellent work being performed at the cross-section of DRR and financial service provision. For more detailed information about these practices, approaches and institutions, please visit SEEP’s Disaster Risk Reduction Initiative page. e-MFP Note: The First Microfinance Institution Syria was a finalist of the 2015 European Microfinance Award on Microfinance in Post-Disaster, Post-Conflict Areas & Fragile States which recognised MFIs that provide financial and non-financial services aimed to increase the resilience of affected, vulnerable populations in crisis situations. For more on the topic see e-MFP’s publication Resilience & Responsibility author: Christopher Addison - Sonya Salanti of SEEP Network

  • Gender, Islamic microfinance, Fintech, research & the future of microfinance explored at the rece...

    The event was opened by Andy Thorpe (Portsmouth Business School) and Christoph Pausch (e-MFP) and commenced by asking whether microfinance would live to the year 2030, a chilling prospect in itself. If so, under what guise would it do so – is there still the well-trodden ‘promise’ of microfinance? What are the challenges to its realisation? In the opening session chaired by Dirk Zetzsche (University of Luxembourg) perspectives were shared by Marek Hudon (Université Libre de Bruxelles and CERMi), Annette Krauss (University of Zurich), Sam Mendelson (Financial Inclusion Forum UK and Arc Finance) and Kimanthi Mutua (Sidian Bank Kenya). The panellists set the tone for the ensuing debate across increasing risks and regulation in the sector, the likelihood or not of possible downscaling by commercial banks and upscaling by microfinance institutions and the growing need for institutions to have appropriate strategies to survive. The panel arrived at a broad consensus as to the requirement to adjust to increasingly emerging technology-driven solutions in the context of growing levels of private capital and related product solutions offered by new market participants. Following the opening panel, two parallel sessions allowed for the presentation of 42 research papers distributed by four streams: Products, Processes and Innovation; Clients and Social Performance; Markets and Regulation; and Institutions, Strategies and Performance. Closing the first day, the panel ‘Islamic Microfinance – faith-based cosmetic or an advance for everyone?’ was brought to the fore of the research agenda – Islamic Microfinance is a topic still underexplored by European researchers. The panel was moderated by Ajaz Khan (Care International UK) and valuable contributions were made by Malcolm Harper (Cranfield Management School), Habib Ahmed (University of Durham), Amjad Saqib (Akhuwat Pakistan) and Mohammed Kroessin (Islamic Relief Academy). The highly experienced academics and practitioners addressed a number of critical questions to understand Islamic Microfinance and, particularly, its differences and similitudes with conventional microfinance. The third parallel session of paper presentations included 23 different research papers and preceded the afternoon plenary sessions which explored new frontiers in microfinance. Ariane Szafarz (ULB/CERMi) discussed social finance and its consistencies in mission with microfinance and Tyler Wry (The Wharton School) offered a sociological viewpoint on the relationship between outreach intensity and financial sustainability. The final panel of the day revolved around the increasing connections between Fintech and microfinance. If technology as a driver were to potentially yield the death-knell of microfinance as we know it, how then should Fintech be embraced or shaped to reach the bottom billion and more? The Fintech panel and parallel session attracted young entrepreneurs and researchers drawing on their combined experiences in research and practice. In the Fintech panel, Wei Wu (University of Birmingham) outlined the growth in crowdfunding platforms in China and Phil Mader (University of Sussex) related this to understanding the implications of the increased activity in the context of society and the wider political economy. After Gunnar Camner of the GSMA outlined the challenges of the growing mobile economy in Africa, Niall Dennehy of Aid:Tech took to the floor to demystify the blockchain and its uses in forging digital identities and lowering transaction costs in existing financial products offered to the financially excluded, notably in terms of remittances. Questions from delegates challenged the permanence and immutability of data stored on the blockchain together with the much-espoused tenets of such solutions in delivering increased client-focused transparency. The afternoon ended with a very special moment, the Best PhD Paper Award ceremony. Muluneh Hideto (ULB/University of Agder) took the first place with the paper ‘Association between Social Performance Rating Scores and Governance Structure in Microfinance Institutions’ and Francisco Bächler and Jann Goedecke were awarded the second place with the paper ‘Do multiple bank relationships push borrowers into indebtedness? Evidence from a microlending market’. The winners will receive €1000 and €500, respectively and were invited to present their work at the European Microfinance Week next November, courtesy of the European Microfinance Platform. The conference highlights also include the social events held on both evenings of the event. Delegates had a chance to take time to meet old and new colleagues at the barbeque on Monday and at the networking event the following evening in Portsmouth Historic Dockyard. Tuesday evening was opened by Maude Massu of the Financial Inclusion Forum UK. Guests enjoyed a fantastic sunset and were treated to a moving performance by young people from a local charity, Music Fusion. The charity, led by Jinx Prowse, enables socially disadvantaged and deprived children to channel their inner emotions through music. ‘Valery’ by the late Amy Winehouse offered delegates a very memorable start to the evening. Through the generosity of delegates at the evening, Music Fusion is able to further its inspiring work in the local community. The final day started with the last parallel session with 17 further paper presentations and concluded with a challenging panel on the role of research in microfinance. James Copestake (University of Bath) presented a flexible framework for reframing microfinance research while Maren Duvendack (University of East Anglia) drew attention to the methodological challenges faced by researchers in the sector. The panel moderated by Marc Labie (University of Mons/CERMi) followed with a number of provocations and suggestions from practitioners Maude Massu (Financial Inclusion Forum UK), Lucia Spaggiari (Microfinanza Rating/SPTF) and Grzegorz Galusek (Microfinance Centre). The three days of the conference passed very quickly. They were full of new ideas, new approaches to old issues and emotions and hopefully they will shape new projects and collaborations in a near future. As the delegates waved goodbye to their days in Portsmouth, they eagerly awaited the announcement of the next destination for the conference! Read the conference report author: Michael O'Connor-Joana Afonso of Portsmouth Business School

  • Recipes for Inclusive, Sustainable Housing

    At BSHF we were very interested to learn about the European Microfinance Awards and really keen to hear more about some of the great practice being identified. We have been running the World Habitat Awards since 1985. In searching for and sharing the best examples, we have a lot in common with e-MFP. Our objective is to identify and highlight approaches to housing across the world which make outstanding contributions to people’s living conditions. As a minimum we believe everyone should be able to afford their home, have access to basic services, and be free from the threat of eviction or displacement. This might seem like stating the obvious, but it isn’t something that can be taken for granted. Over the years, a large range of excellent examples have been identified in the countries of the global North and the global South. From the very beginning, our focus has been not only on the identification of good housing practices but also in the sharing of knowledge and experience to others who can transfer them in their own situations. The first international peer exchange to a World Habitat Award project winner was in 1987 and the exchanges have continued ever since. Really great approaches recognise, provide and guarantee the right to safe and secure housing; treat people and the environment with dignity; and work collaboratively to get the best out of people and places. Contexts, actors and circumstances vary hugely, but everybody tackling housing faces three crucial ‘sustainability’ challenges – social, environmental and financial: For homes to really work they need to be within a community that also works. Great housing is inclusive; encouraging and enabling wide participation and universal access to a place, for all those who have a stake in it. Genuinely inclusive housing can have a profound impact on the confidence and capacity of communities. Strong social sustainability can be achieved through interventions to improve people’s health, safety, security, capacity and independence. This might be through training for new skills; education about things like health and hygiene; support for community building; or activities which empower marginalised or oppressed groups. The World Habitat Awards contain many approaches which have achieved social sustainability. To take one, “The Intercultural Neighbourhood, Argentina” (World Habitat Awards Finalist 2016) created high levels of empowerment and inclusion, and generated substantial impacts through the solidarity this created. The neighbourhood was created through a partnership between the indigenous Mapuche Curruhuinca community and impoverished Creole communities, who had both often been excluded from access to housing. The partnership boasts many great accomplishments including new social enterprises, health education and environmentally sustainable practices. It has created a precedent for government land being handed back to indigenous communities. Environmental Sustainability Some approaches work to protect the environment using materials which are locally sourced, recycled or have low embodied energy to build homes. Others make use of existing buildings or structures instead of building new. It’s also possible to support environmental sustainability in other ways, for example through improving sanitation, or decreasing levels of pollution and waste. Work led by the Umande Trust, “Promoting Eco-sanitation in Informal Settlements, Kenya” (World Habitat Awards Finalist 2016) provides housing as part of a larger social enterprise which supplies improved toilet and washing facilities in urban informal settlements. The approach improves the health of people living in these communities, and the wider environment. The process of bio-sanitation produces fuel which can be used for cooking and lighting. The proceeds from charging a small fee for use of the facilities are reinvested into activities chosen by the host communities. These range from youth centres to IT rooms, to communal rooms for viewing football matches. Financial Sustainability All housing requires funding which can come from many different sources. Over time reliance on external funding can threaten sustained impact, so we look at how activities are funded over the long term. This might include capacity building (for example in building techniques, and ‘training of trainer’ schemes), so the skills needed to provide homes are embedded in the local community. Good examples of this are “Passive Solar Verandas, Afghanistan (World Habitat Awards Finalist 2016), and “Build Back Safer with Traditional Construction Methods, Pakistan” (World Habitat Awards Finalist 2014). Income generating activities can be set up which reduce dependency on external funding. This might involve developing and supporting social enterprises, entrepreneurial activity, or other approaches to boost the local economy (for example increasing the ability to cater for tourists). Sustainable funding doesn’t happen overnight, but it’s important to think about and plan for. Microfinance is featured in World Habitat Awards applications fairly regularly. We don’t often see it as the sole source of funding for development, but it can be used to lever in more substantial funding or investment (this was the approach of PASO A PASO: Strategic Alliances for Better Housing, Ecuador, World Habitat Awards Finalist 2007). We also see microfinance used to support capacity building in communities, which is hugely important in ensuring social sustainability. For example the MEDINA Project: Economic Development of Historic Cities in Yemen, (World Habitat Awards Finalist 2012) used microfinance as part of a holistic strategy for urban renewal, so that communities were able to establish a stronger skills base and grow their local economy. Azerbaijan Integrated Community Shelters (World Habitat Awards Finalist, 2007) used microfinance for a similar purpose, to help refugees and internally displaced persons to establish communities with sustainable social and economic infrastructure. We think there is real potential for microfinance to support safe, secure housing and thriving communities and we would love to see more examples of it. If you have a great example of microfinance supporting housing, please do contact us. Holistic Housing Because housing is a basic need, getting it wrong or being denied access to it has a profound impact on individuals as well as society’s health and well-being. Housing as a human right is recognised in international law, but as a global society we are struggling to reduce the number of people that are inadequately housed. It is becoming one of the most pressing social problems of the modern world. Thousands of people are working to bring together socially, environmentally and financially sustainable solutions to this problem. The best solutions are holistic, drawing together all these elements. A great example of a holistic approach to housing is being applied in the Global South by our 2016 World Habitat Awards winner: A Roof, A Skill, A Market, delivered by the Nubian Vault Association in several countries in West Africa. A Roof, A Skill, A Market provides environmentally sustainable housing using locally sourced materials to revive the ancient Egyptian architectural approach of using sun-dried mud bricks to create vaulted roofs. These replace the problem of unsuitable materials often used for houses in the Sahel. The Nubian Vault Association works through pan-African collaborations and knowledge exchanges between a wide range of actors. This approach to housing supports economic and social sustainability, providing training to transfer knowledge and skills between communities, as well as benefitting their health through improved housing. Although the World Habitat Awards only scratch the surface of all the effort being made to make a difference through housing, we hope they help provide an inspiring reminder that change is possible, wherever you are in the world. We’ll be staying up to date with the European Microfinance Awards, eager to discover more great examples of sustainable approaches to housing made possible with microfinance. See more World Habitat Awards winners and finalists on the BSHF website: https://www.bshf.org/world-habitat-awards/winners-and-finalists Photo on homepage: Julius Mwelu/UN-Habitat author: Jenny Line - Building and Social Housing Foundation

  • Building a market for Housing Microfinance in Sub-Saharan Africa

    In Sub-Saharan Africa, the shortage of financing for housing is even more acute. As a result, poor and even middle-class households in pursuit of better shelter are often driven into the informal financial sector. Banks generally fail or ignore the financing of low-cost shelter, as the perceived risks and costs outweigh benefits. This problem is further accentuated by ambiguous property rights and legal precedents that constrain conventional ways of financing shelter. Thus, mortgage markets in the region remain small, providing access to only a small, elite segment of the population. Research commissioned by the FinMark Trust into housing finance sectors in various African countries has found that, at best, 15% of local populations are eligible for mortgage finance – and this is before housing affordability is considered. Some staggeringly low penetration rates for mortgage markets prevail in Africa – 2% of households in Angola, 1% in Uganda, 4% in Ethiopia, and a mere .02% of households in Rwanda. On the other hand, microfinance continues to grow between 10-15%, globally. According to MIX, the number of borrowers worldwide grew by 16% to 130 million in 2014-2015. Microfinance markets in Sub-Saharan Africa are on average expected to register growth of 15–20 % in the upcoming years. However, despite the evident need for dedicated housing microfinance products, and the fact that the portfolio quality for housing microfinance is better than the overall portfolio of financial institutions offering it as a differentiated product, a small number of financial institutions have ventured into it, with very small portfolios, representing less than 1% of overall MFI portfolios in the region (MixMarket.org). Some of the reasons include: lack of technical expertise in developing housing microfinance products, which includes not only the loan appraisal but understanding the nature of the loan and its conditions that should be accounted within the processes and procedures to originate the loan, so it doesn’t become just a consumption loan. This market failure was at the core of the partnership between Habitat for Humanity and The MasterCard Foundation to implement a six-year project “Building Assets, Unlocking Access” to provide technical assistance to six leading financial institutions in Uganda and Kenya to develop housing microfinance products and non-financial support services for people living on less than US$5 per day. This project started in 2012 and, as of today, over 37,000 low-income customers accessed the housing microfinance loans, total value USD 30 million, impacting over 150 000 individuals since the inception of the project. This is already a huge success for housing microfinance market in Sub-Saharan Africa if we take into consideration that over the last decade the housing mortgage market, in Kenya, has issued approximately 23,000 loans. Microfinance organizations are looking at ways to diversify portfolio by offering new products to the existing client base. New home improvement loans are issued for land purchase, fencing, processing of land documentation, repair and, in less cases, incremental construction. In a few instances, loans fund: installation of power, home solar systems, water tanks, and biogas digesters. After new loans are introduced and tested, microfinance organizations are encouraged to roll them out to other clients at the lower segment of the market. When products become popular with clients, organizations bring them into the core portfolio. This outcome largely depends on a combination of factors, including market assessment to identify the clients’ needs and development of the product itself. As part of the project, a number of research studies and feasibility assessments were carried out prior to developing housing microfinance products. But access to affordable housing financing is only one part of the housing value chain. The project also seeks to improve the housing quality and construction methods by advancing the training of local artisans and masons, supported by local colleges and technology platforms. It also encourages partners to develop non-financial housing products and services, to aid low-income families and households to better plan and execute the construction of their homes. Strategic partnerships such as the one between The MasterCard Foundation and Habitat for Humanity, where the former provided the funding for technical assistance and financial inclusion expertise to assist financial institutions in developing differentiated products for the base of the pyramid, and the latter provided expertise in housing and design of housing microfinance products, are pivotal to bring products and services to the low-income segment of the market. We need to find a way to scale this work and help more families make affordable improvements to their homes and meet the demand that exists for these products. Then we can ease the challenges of rapid urbanization for populations in Sub-Saharan Africa and make a dent in the housing need on the continent. To learn more about the partnership and the lessons emerging from the “Building Assets, Unlocking Access” project visit this website. Photos: Habitat for Humanity author: Habitat for Humanity Europe Middle East and Africa

  • e-MFP and Financial Inclusion Forum Host London Panel Session to launch "Investing in Tomorrow" a...

    <1> of the year took place in London on Monday 10th April, in partnership with the UK’s Financial Inclusion Forum – the leading British financial inclusion network. The session was entitled The Role of MFIs in improving access to and quality of education: Perspectives on the 7th European Microfinance Award and the European Dialogue and was timed to coincide both with the launch of Investing in Tomorrow (e-MFP’s latest Dialogue) and last week’s launch of the call for applications for the upcoming Award on Housing. The event brought together a panel including Arc Finance’s Sam Mendelson (who was the lead author of the paper, as well as a member of the Award Selection Committee), Kaspar Wansleben from Luxembourg Microfinance and Development Fund (a supporter of two of the 2016 Award finalists and key investor in education finance) and Nathan Byrd from Opportunity International’s Education Finance team, along with e-MFP’s Daniel Rozas (who has supported the management of the Award for the past three years). Katy Jones from Big Issue Invest and the Financial Inclusion Forum chaired the packed out event, generously hosted by Allen & Overy. Daniel opened the session by outlining the importance of education – its primary importance to households at all income levels and in all places, and the obstacles to universal access in low-income countries. The failure or inability of governments to provide free or affordable quality education to its people is a key reason for the emergence of low-cost private schools in many countries (and the channel for several of the Award semi-finalists’ initiatives). The role of microfinance in expanding beyond core enterprise credit to include education support can be a broad one; Daniel laid out a matrix of potential initiatives by MFIs that was included in the Dialogue: from the supply side financial and non-financial support to schools to the demand side support to families who may need to borrow or save to afford tuition and the associated costs, or have that education insured in the event of a family shock. The Award started with 30 applications from 19 countries and was whittled down over two assessment stages to 10 semi-finalists and three finalists. Sam presented a brief summary of each of the semi-finalists’ initiatives, divided into three broad categories: organisations that work with schools for children; those that focus on families and communities; and those that work primarily with and for young adults. While the semi-finalists represent a broad array of interventions to address different aspects of education access in varied context, there are commonalities among the best initiatives, which Sam outlined as: combining both financial and non-financial services; combining both demand- and supply-side interventions; client-centricity; high levels of embeddedness and institutional commitment; and extensive use of partnerships. Opportunity International is the parent organisation of Opportunity Bank Uganda Limited – one of the Award finalists. Nathan described Opportunity’s desire to demonstrate the immense demand for education finance in the bottom strata of the economic pyramid, having already invested US$83 million in education loans to 160,000 beneficiaries in 14 countries, with a current active portfolio of US$22.2 million which had created over 275,000 new seats in schools. Big Data credit modeling provides live decision tools across all aspects of the program, and equally important is the Monitoring and Evaluation of target schools. Nathan invoked a Maslow-style Hierarchy of Needs among schools in which poor schools provide only the most basic needs, and higher-order educational services are achieved by better schools. Opportunity’s Education Finance team is extremely bullish on the prospects for this market, with Nathan describing a market of over 300 million households. For this reason, its efforts have been highly focused on demonstrating both the financial and social value propositions of its edufinance program in a broad range of microfinance institutions, the majority of these coming from outside Opportunity’s network. Kaspar then gave the investor perspective, with a particular focus on higher education finance in Latin American through the Higher Education Finance Fund, in which LMDF invests. Why does this matter at this stage of development of the microfinance market and where do investors see the promising avenues between education and microfinance and which role can they play in developing the space? With demand for microcredit loans reaching its logical limits in many established markets, the need to diversify to serving the financial needs of others, including non-microentrepreneurs is becoming increasingly important. New areas, such as education finance, are thus a key element into meeting the commitments of social investors to expanding financial inclusion. But this also requires new types of financial vehicles, including longer-term and lower-cost funding. An engaged, informed and largely socially-focused audience had several questions for the panel, including on affordability of credit products, the consequences of expanding finance to low-cost private schools, on the role of government in education; the threshold or definition – if any – for what ‘low cost’ means, whether savings rather than credit should be the primary encouraged channel for educational finance, and how the impact of any initiatives can be independently measured. The event wound up with networking over drinks but not before Daniel announced this week’s launch of the Call for Applications for the upcoming Award, on Microfinance for Housing. Plans are in place for another offsite event a year from now, at which the semi-finalists of this next Award can be presented and discussion stimulated on how MFIs can finally work to make quality housing safe and affordable for hundreds of millions of low-income families. <1> Offsite Sessions are a new activity developed under our Strategic Plan 2017-2021 which take place in different e-MFP members’ countries and provide e-MFP with opportunities for more frequent touchpoints with its members and external stakeholders besides the European Microfinance Week. author: e-MFP

  • Launch of European Microfinance Award 2017 on Microfinance for Housing

    Each year, e-MFP launches the European Microfinance Award, in conjunction with the Luxembourg Ministry of Foreign and European Affairs and the Inclusive Finance Network Luxembourg (InFiNe.lu). And like previous years with their focus on agriculture, social performance management, the environment, post-disaster and crisis contexts, or last year’s edition on Education, this year’s Award is looking for applications from financial institutions that are innovating, exploring and testing new ideas, that go beyond their core financial services, and exemplify the evolution of the microfinance sector beyond boilerplate microenterprise credit. Housing is a great example of how to do this. After the health and safety of children, there’s probably nothing more important to people everywhere than adequate housing. It is a core human need and a top investment priority for families anywhere. But 1.6 billion people live without adequate shelter. By 2030 this will have doubled and the need will be mostly in urban areas, where more than half of the world population lives today and where it is estimated that 2 billion people will be living in slums, where, almost by definition, substandard and unsafe housing is the norm. Addressing this is about more than just poverty (although poverty is strongly correlated with inadequate housing). Low quality housing affects a host of factors that hold back development: exposure to the elements, poor ventilation, and insufficient hygiene and sanitation facilities are all causes of poor health; poor building structures undermine safety and vastly increase vulnerability to disaster; lack of lighting and sufficient space limit children’s educational opportunities; insufficient privacy and lack of toilet facilities can contribute to sexual assault and constrain opportunities for women and girls. And lack of clear property rights are major contributors to crime and social injustice, while limiting families’ ability to invest in better housing. This doesn’t just help families. A healthy, vibrant housing finance market can be a major economic engine, generating local employment and drawing mainly on local inputs. Meanwhile, communities enjoying secure property rights are also more likely to give rise to active citizens, less tolerant of corruption and more demanding of their political leaders. Housing markets usually involve private actors – a bit different to previous Award subjects like education or crisis response, which are usually the province of public bodies or NGOs. In developing economies, housing finance is woefully underdeveloped, limited to upper income households usually with formal (often government) jobs. For many MFIs serving low-income families, housing is often relegated to a niche product targeting a small number of clients, with housing loans accounting an estimated 2% of combined microfinance portfolios worldwide. For the microfinance sector, housing finance presents an opportunity to branch out not only into new lending, but to reach new clients as well. This new segment is both capital-hungry and still largely unserved, providing vast opportunities for growth. And opportunities for creating social value are just as real, with investments in housing generating not only stability and comfort for families, but also better health and improved standards of living. So in every way, improving access to adequate housing has positive knock-on effects across the spectrum of development outcomes. For this reason, the 2017 Award looks to recognise institutions that provide a broad range of financial services – from helping households to build out and improve their own homes through housing microfinance and housing savings to supplying micro-mortgages that allow young, working poor families buy decent apartments. Property insurance can be crucial in helping clients get back on their feet quickly following a natural disaster. Even remittance products can play a role, for example, enabling long-term overseas workers direct their remittances not only for current family needs, but also to accumulate the large sums needed to build or buy a home when they return. As this Award will illustrate, successful MFIs are partnering with NGOs and local governments to help clients secure tenure and gain protection against eviction. Others collaborate with housing specialists to enhance local construction markets with supplies and building techniques that result in homes more resilient to earthquakes or hurricanes. And MFIs may offer non-financial services linked to financial products as well, such as educational materials related to house construction or renovation; trainings on home improvement plans and budgets; professional advice on planned construction or renovation; or legal advice on land ownership execution; or Technical Assistance – providing the capacities to renovate or construct a house. This is a broad and fascinating range of potential interventions by MFIs and e-MFP is excited to receive applications that offer different and innovative ways to improve housing conditions, from home purchase or expansion of existing living space, to providing access to clean water, sanitation, electricity, and other core housing needs, to raising the quality of those homes being lived in, to mitigating against the risks of natural disasters using the latest designs and materials. Besides the cash prize, the press exposure and investment opportunities that come from being a semi-finalist, finalist or winner of the Award can be enormous, as organisations who have done well in previous years can attest. The call for applications from institutions working in this area is now open and all the details of eligibility and more about the scope of the award can be found in the Explanatory Note on the Award website. We look forward to seeing you at the Award ceremony at the EIB where the winner will be announced and the €100,000 prize presented on November 30th! Watch our video Why the European Microfinance Award? author: e-MFP

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