CFI will investigate the range of policy responses to COVID-19 and the impact of those policies on low-income customers.

Announcement

As part of our <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">partnership with the Mastercard Center for Inclusive Growth</a> and with additional support from <a href="https://www.giz.de/en/html/index.html" target="_blank" rel="noopener noreferrer">Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH</a>, the Center for Financial Inclusion (CFI) is launching a research initiative to study policy responses to the COVID-19 pandemic and their impact on the inclusive finance sector. CFI, an independent think tank housed at Accion, aims to provide stakeholders with a better understanding of the policies intended to mitigate the impact of COVID-19 and validate how those policies are impacting low-income customers and the financial services providers that serve them.

The COVID-19 pandemic took the world by surprise in early 2020. In the first half of the year, what began as a health crisis quickly extended far beyond its initial reach to include devastating impacts on the global economy. Policymakers are rapidly responding to the emerging crisis, leveraging instruments ranging from fiscal and monetary policies to exchange rates policies. International bodies, such as the IMF and World Bank, are scaling their support to governments for both their technical assistance and financing needs. The response has been swift and far reaching in an attempt to contain and mitigate the crisis.

Many organizations are tracking policy responses, but few are providing analysis of these policies and their impact on low-income customers. CFI’s research aims to fill that gap. Unpacking how these macro-level responses may or may not impact the lives of low-income customers will be important to understanding the effectiveness of these policies. Additionally, many measures which may appear effective in the short-term, such as a moratorium on loan repayments, may have long-term ripple effects on the inclusive finance sector that must be understood.

CFI will analyze data collected on policy responses by international bodies and engage in direct consultation with in-country stakeholders to assess the impact of policies, both in the short-term and long-term, on low-income customers and the financial providers that serve them. Research will be released in a series of papers, accompanied by a series of virtual discussions. The <a href="https://centerforfinancialinclusion.org/preserving-liquidity-policymaker-responses-to-covid-19-and-the-impact-on-low-income-customers/" target="_blank" rel="noopener noreferrer">first paper</a>, released on August 5, 2020, addresses the topic of liquidity.

This new effort is a component of our partnership with the Mastercard Center for Inclusive Growth to increase the financial health and resilience of individuals and businesses, with a refocused effort to support our understanding of the COVID-19 pandemic on low-income populations. Additional support was provided by GIZ, a federal enterprise that supports the German government in the field of international cooperation for sustainable development, as part of a new partnership with CFI.

&nbsp;

CFI Launches Research Initiative on Policy Responses to COVID-19

The <a href="https://content.centerforfinancialinclusion.org/" target="_blank" rel="noopener noreferrer">Center for Financial Inclusion</a> (CFI), an independent think tank housed at Accion, launched the Smart Campaign over a decade ago to advance consumer protection for low-income customers. Over the span of the program, CFI played a catalytic role in advancing knowledge of consumer protection by conducting research, establishing the Client Protection Principles, and rolling out a certification program under which 135 institutions attained Smart Certification, expanding protection for more than 62 million clients globally. Building on this success, CFI will transfer the wealth of implementation resources created by the Smart Campaign to trusted industry partners, enabling CFI to continue playing a catalytic role focused on the risks to low-income customers in the rapidly changing inclusive finance landscape.

CFI and our partners are proud of what the Smart Campaign has achieved over the past ten years by bringing heightened attention to consumer protection and creating a common language for the inclusive finance community. In order for CFI to focus on identifying, understanding, and catalyzing the conversation on an evolving range of critical topics, CFI will shift ownership of the Smart Campaign implementation resources to <a href="https://sptf.info/" target="_blank" rel="noopener noreferrer">SPTF</a> and <a href="https://cerise-spm.org/en/" target="_blank" rel="noopener noreferrer">CERISE</a> and sunset the Smart Campaign brand. These partners were instrumental in the creation of many of these resources, and their focus on implementation and direct engagement with financial service providers (FSPs) make them well-suited to the ongoing management of these resources. With this handoff, CFI will remain focused on consumer protection through its research on emerging risks in the increasingly complex inclusive finance landscape, such as risks concerning data privacy, algorithmic decision-making, and sup-tech solutions.

Longtime partners to the Smart Campaign, SPTF and CERISE, will become the stewards of the Campaign’s community of experts, implementation tools, and Client Protection Standards. The Smart Campaign’s standards have always been fully integrated in the SPTF’s <a href="https://sptf.info/universal-standards-for-spm/start-here" target="_blank" rel="noopener noreferrer">Universal Standards for Social Performance Management</a> (USSPM), and SPTF will maintain and update the consumer protection portion of the Universal Standards in the future.

Providers and others will continue to be able to access the Smart Campaign tools through SPTF’s Resource Center and will access implementation support through the SPTF-managed Responsible Inclusive Finance Facilities. The active consumer protection assessors and trainers that the Smart Campaign accredited over the years will also move into the larger community of social performance management experts managed by SPTF and CERISE, creating increased efficiency.

CFI will also gradually retire the Smart Certification brand. New Smart Certification seals will continue to be awarded until April 30, 2021. All four-year certifications will be valid for the full length of the accreditation and CFI will continue to display a list of <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/certified-organizations">certified FSPs</a>. We believe that a global client protection recognition scheme remains an important tool to incentivize and recognize FSPs that are committed to consumer protection and are collaborating closely with the Smart Campaign’s highly experienced <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign" target="_blank" rel="noopener noreferrer">Certification Bodies</a> to provide continuity in the market beyond April 2021. The licensed Certification Bodies are well positioned to continue offering products under their own branding that recognize FSPs for their consumer protection performance at the global level.

CFI remains committed to consumer protection as a core part of our mission and will continue to work with the industry to produce new research and maintain the Client Protection Principles and Guidance. We will also work closely with our partners, SPTF and CERISE, along with the Certification Bodies and others to translate CFI’s research into practical tools for FSPs. CFI is grateful to all those who have supported the Smart Campaign over the years - donors, investors, FSPs, regulators, consultants, and other partner organizations - and looks forward to ongoing partnership as we collectively work to improve consumer protection for low-income customers.

CFI Celebrates Smart Campaign’s Advancement of Consumer Protection, Announces Plans to Transition Resources to Industry Partners

Ezra Mannix

Mayada El-Zoghbi

The Spanish multinational FSP features CFI's Managing Director in its Responsible Banking content section.

News

EL-Zoghbi discusses how COVID-19’s economic shocks are affecting incomes, and elaborates on the population segments most vulnerable to pandemic-induced shocks.

She also describes why financial inclusion alone is not enough, and how financial inclusion – especially when paired with digitization – can help distribute support from humanitarian and governmental organizations to the base of the pyramid.

Furthermore, El-Zoghbi mentions the Microfinance Coalition’s calls to action aimed at awareness-raising among <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">investors</a>, <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-donors/" target="_blank" rel="noopener noreferrer">donors</a> and <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-policymakers/" target="_blank" rel="noopener noreferrer">policymakers</a>.

Lastly, she predicts that insurance products will see higher demand, and notes that the crisis requires collective action that goes beyond market-oriented solutions.

El-Zoghbi is a member of the Advisory Council of BBVA's <a href="https://www.bbvaedufin.com/en/" target="_blank" rel="noopener noreferrer">Center for Financial Education and Capability</a>.

Read the full article <a href="https://www.bbva.com/en/how-to-strengthen-the-finances-of-the-vulnerable-population-against-the-crisis/" target="_blank" rel="noopener noreferrer">here</a>.

&nbsp;

BBVA Interviews Mayada El-Zoghbi on Financial Inclusion in the Pandemic Era

The article highlights how certain groups could be left vulnerable by a widespread COVID-induced switch to digital-only payments. 

The elderly, young people, the homeless and casual workers are just some of the groups that might have a difficult time participating in the economy, the article notes. Some do not have the skills to use digital payments, do not have access to the internet, do not have a credit history or a fixed address:

<em>A dependence on cash can be linked to the digital divide that exists in both rich and poor countries, said Mayada El-Zoghbi, managing director for the Center for Financial Inclusion (CFI), an independent U.S. think tank.</em>

<em>“A move to a cashless society will not benefit all groups equally. The groups that are most likely to be excluded will be women, rural communities, and the elderly,” she said.</em>

Read the full article <a href="https://www.reuters.com/article/us-health-coronavirus-banks-britain-trfn-idUSKBN23X0XE" target="_blank" rel="noopener noreferrer">here</a>.

&nbsp;

Reuters Quotes Mayada El-Zoghbi on Going Cashless During the Pandemic

The <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/fiec">Financial Inclusion Equity Council (FIEC)</a> has, for over a decade, brought together leading managers of equity investments in microfinance and financial inclusion in developing countries.  Our members have made equity investments of over $5 billion in institutions focused on under-served or un-served clients with the goal of improving livelihoods and opportunity.

Microfinance institutions (MFIs) and the clients they serve are currently facing severe economic challenges as a result of COVID-19. Many clients face uncertain incomes in the best of times and perhaps now more than ever, will need to rely on the vital role MFIs play in providing reliable access to savings, emergency loans and grants, health information and loans to restart businesses as lockdowns are lifted.

To ensure they can continue meeting their clients’ needs, MFIs will need the full support of the investor community and FIEC members stand ready to continue their support of this critical industry. Debt investors have begun to come together to <a href="https://www.covid-finclusion.org/investors">coordinate their responses</a> to COVID-19, particularly focused on near-term issues of liquidity and repayments. FIEC members support these timely efforts to address the immediate challenges. Meanwhile, FIEC members are <a href="https://www.covid-finclusion.org/post/preparing-for-insolvency-and-recapitalization-everybody-in-the-pool">preparing for the recapitalization</a> of MFIs that may face significant erosion of equity as they preserve their capacity to support their clients.

FIEC members commit to working with the entire investor community to achieve maximum cooperation among stakeholders and conserve resources. We will engage with the community to draw on previous experience to anticipate and resolve hurdles before they can impede a timely resolution. Further, FIEC members are committed to making financial instruments and structures available to help optimize financial outcomes while accommodating the diverse circumstances of creditors, shareholders, and other funders. Most importantly, we pledge to preserve our focus on social impact and commitment to patient capital.

The COVID-19 crisis presents an unprecedented challenge to the financial inclusion sector and the clients it serves. FIEC members resolve to work constructively and collaboratively with all members of the inclusive finance ecosystem to ensure the future viability and vitality of this critically important industry.

Financial Inclusion Equity Council (FIEC) Responds to COVID-19

<p>The Center for Financial Inclusion (CFI) is an independent think tank housed at Accion that works to better serve, protect and empower clients. CFI learns, tests and shares insights; promotes concrete solutions; and advocates for inclusive, responsible finance that helps individuals. We collaborate with stakeholders globally to achieve our goal of enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.</p>
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<p>MIX is the leading global data resource for socially responsible investors and businesses focused on inclusive finance. MIX’s catalytic data initiatives encourage the growth of inclusive markets and support informed thinking on the future of financial services. MIX convenes stakeholders to build common data standards that create transparency and develops strategic insight from complex data to help sectors flourish. Founded in 2002, MIX has served as a trusted data partner for socially responsible investors who move USD 10 billion annually. Learn more at www.themix.org.</p>
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Bringing together deep data expertise and thought leadership in financial services will yield crucial insights in service of broader development goals.

Press Release

WASHINGTON, May 26, 2020 – MIX and the Center for Financial Inclusion at Accion (CFI), two mission-driven organizations advancing financial services for the poor, announced they are joining forces to strengthen their collective capacity to deliver data-driven insights to the industry. Effective June 1, 2020, MIX will become a unit within CFI.

The strategic integration brings MIX’s unique data expertise together with CFI’s thought leadership and convening power to advance and guide efforts to improve the lives of the 3 billion financially underserved people globally. Together, the CFI and MIX teams will conduct data-driven research that supports the decision-making of key stakeholders, including financial service providers, investors, donors, regulators and policymakers.

“MIX’s team is adept at building trusted data networks and spurring the adoption of common data standards that enable meaningful analysis. This combination will strengthen the Center for Financial Inclusion’s existing capabilities to surface insights and scale our learnings for impact,” said Mayada El-Zoghbi, Managing Director of CFI, who will lead the combined team. “Deepening the Center for Financial Inclusion’s capacity in data analytics will enhance our role as an advocate for improved outcomes across a rapidly changing financial services landscape.”

CFI, an independent think tank housed at global nonprofit Accion, works to better serve, protect and empower clients. CFI learns, tests and shares insights; promotes concrete solutions; and advocates for inclusive, responsible finance that helps the bottom of the pyramid. CFI uses its research and convening power to advocate for end clients with the goal of ensuring that inclusive financial services lead to improved outcomes for the poor. MIX is a global data resource for socially responsible investors and businesses focused on inclusive finance. The global nonprofit develops catalytic data initiatives that help unlock capital for financial service providers, including early-stage fintechs and agricultural enterprises, and supports informed thinking on the financial services ecosystem.

“Bringing MIX’s data expertise together with CFI’s applied research and advocacy capabilities allows us to demonstrate the value of mission-driven consolidation,” said Camilla Nestor, CEO of MIX. “As a single team, it will be possible to develop a robust knowledge base on the growing diversity of financial service providers, the direction of the sector, and the opportunities or risks that may emerge.” Following the integration, Nestor will shift from an operational to a governance role, joining the CFI Advisory Council to support the integrated team’s ongoing success.

MIX’s team of directors and analysts will continue to build on current partnerships both during and after this transition, and will continue its long track record of providing value to its partners as a trusted steward of data for the sector. By joining forces, MIX and CFI look forward to developing independent and data-driven analysis, insight, and knowledge for inclusive finance. Funding for the combination and integrated strategy has been provided by Visa Foundation and MetLife Foundation.

MIX would like to express appreciation to Goodwin for providing pro bono legal services.

###
Please direct media inquiries to:
Lauren Braniff, CFI - lbraniff@accion.org
Nikhil Gehani, MIX - ngehani@themix.org


MIX and CFI Announce Strategic Integration to Drive Industry Knowledge for Inclusive Finance

Listen

CFI's Managing Director was interviewed for more than 30 minutes on her background, CFI's evolving role in financial inclusion, COVID-19's impact on CFI's agenda and more. 

On each episode of Peter Renton's long-running show, the Lending and Fintech Podcast, a different leader in fintech and finance is interviewed in depth. On episode 245, Mayada touches on the following topics:
<ul>
 	<li>Her background in inclusive finance</li>
 	<li>The work that she did on the Global Findex database</li>
 	<li>Why she decided to take the job to be the head of CFI</li>
 	<li>The mission of CFI today</li>
 	<li>Why improving financial inclusion is about far more than technology</li>
 	<li>The geographies they focus on and the types of demographics</li>
 	<li>The relationship between CFI and Accion</li>
 	<li>How COVID-19 has impacted the agenda for CFI</li>
 	<li>The silver lining that could come out of this crisis</li>
 	<li>How it will affect the gender gap</li>
 	<li>What more fintech companies should be doing today in this area</li>
 	<li>The priorities that CFI is focused on beyond the current crisis</li>
</ul>
Listen below, or visit this episode's podcast <a href="https://www.lendacademy.com/podcast-245-mayada-el-zoghbi-of-cfi/">page</a>. Lend Academy's podcasts are available on iTunes and Stitcher.

Lend Academy Podcast features Mayada El-Zoghbi

Mayada El-Zoghbi outlines changes to CFI's agenda to focus on COVID-19's impact on clients and financial inclusion stakeholder responses. 

In this letter, CFI's Managing Director outlines changes to CFI's agenda to focus on COVID-19's impact on clients and financial inclusion stakeholder responses. 

While many of us have been trying to carry on with our work as normal, there is nothing ‘normal’ about the current situation. Like other organizations, CFI is rethinking its priorities in both the short and long term.

COVID-19 has upended life around the world, but it is likely going to have much longer and deeper ripple effects on the lives of the BOP and on the institutions that serve them. In light of this, CFI has made important changes to its work program, thanks to the generosity and flexibility of our donors who have been co-collaborators and thought partners in our collective response to the pandemic.
<h2>Customer Research and Customer Capability</h2>
Over the past several years, CFI has prioritized research on financial health and had plans to extend this work to micro and small enterprises in 10 developing countries. We were one week away from launching data collection in Nigeria, followed by nine other countries, with support from the Mastercard Center for Inclusive Growth. But the rapid roll out of shelter in place policies and lockdowns throughout the world has meant a need to rethink our research agenda. For the past several weeks, we have been mobilizing to <a href="https://www.centerforfinancialinclusion.org/understanding-covid19s-impact-on-financial-health-of-msmes">reshape our research approach</a> and our methodology to embark on phone-based panel surveys in at least five countries to answer the following questions for micro-and small enterprises:
<ul>
 	<li><strong>New Reality</strong>: How were things before COVID? How are things now?</li>
 	<li><strong>Exits</strong>: Which firms are exiting the market? What are the basic characteristics of those firms?</li>
 	<li><strong>Survivors</strong>: How are they keeping the doors open? How long can they survive?</li>
 	<li><strong>Financial Tools</strong>: Are owners on the “rails”? Can they be reached through formal channels now?</li>
 	<li><strong>Household Impact</strong>: Are owners making ends meet? Are they food secure?</li>
</ul>
We will make both the data and our analysis of the data publicly available and we hope this can be used by policymakers, financial service providers, investors and donors to guide their respective responses.

In addition to focusing on micro and small enterprise data, we are also looking to deploy research and a new customer capability tool with a broader base of customers, including gig workers and those who are formally employed. With the support of MetLife Foundation, CFI is developing an app, called FinVenture, that is built on global evidence on behavioral research and uses nudges, rewards and games to improve customer decision making and capability. We are in discussions with multiple stakeholders from microfinance networks to social media and e-commerce platforms to test the use of the app to support financial health during the COVID-19 related responses.
<h2>Consumer Protection Under COVID-19</h2>
Over the past several months, CFI has been rethinking its consumer protection work and assessing the future of the Smart Campaign in light of evolving risks in the digital age. The emergence of new players, like MNOs, fintechs and digital platforms, raise new questions about consumer protection as well as the means by which we influence behavior change. In light of that, CFI is considering whether a campaign-style approach, fueled by the incentive of certification, is still effective and relevant in today’s context. While CFI will continue to assess our overall consumer protection approach, including the future of the Smart Campaign, COVID-19 is requiring that we immediately prioritize the emerging risks linked to the COVID-19 response.
<blockquote>COVID-19 is requiring that we prioritize emerging consumer protection risks linked to the COVID-19 response.</blockquote>
We are seeing an increase in fraud and an escalated and expedited use of digital payment channels to get cash out to the BOP as part of the COVID-19 responses. For these and many other reasons, we are shifting our consumer protection agenda to better understand and document emerging consumer protection risks. We also aim to support donors, governments and humanitarian organizations to build in sound consumer protections in their cash transfer and other financial services used for the COVID-19 response.
<h2>Supporting Investors and Policymakers</h2>
Critical to the COVID-19 response is the role of investors and policymakers who have within their means the tools that will make or break the impact of the pandemic on the institutions that serve the BOP.  How should investors respond during this pandemic? We know <a href="https://www.covid-finclusion.org/post/how-long-can-microfinance-institutions-last-the-liquidity-crunch-an-analysis-of-the-data">liquidity</a> is a major concern now and should be the main priority. But what happens next? What should DFIs prioritize? How should equity investors respond?

CFI, along with many of our industry partners, have been in discussions about developing coordinated tools and responses for the investor community. CFI, SPTF and e-MFP launched a discussion platform, <a href="https://www.covid-finclusion.org/forum">covid-finclusion.org</a>, to reflect on what we know from past crises and to develop updated guidance for investors and providers relevant for today’s situation. CFI, MIX and CGAP are in discussions about reducing the data collection burden on MFIs, and putting in place more streamlined tools that can help investors get the right information they need from their investees without unduly adding to the operational strains of the pandemic.

As home to the Financial Inclusion Equity Council (FIEC), CFI is also facilitating and engaging with the equity investors and coordinating with other investor constituencies to ensure that there is a structured and coherent investor response. Among other things, FIEC members are embarking on shared principles linked to COVID-19. Additionally, we plan on launching dedicated research that will help equity investors address longer-term restructuring, merger and insolvency issues that may arise from the fall-out of the pandemic.

On the policy front, we are seeing COVID-19 responses spanning fiscal stimulus (cash transfers, funds to MSMEs, health care spending, etc.) as well as important monetary policies, such as liquidity measures, to support the banking sector and deferment in the application of Basel III rules. Which of these measures are most critical for the BOP and the institutions that serve them, and how should regulators and policymakers think about prioritizing short-term benefits without undermining longer-term impact on the BOP? CFI will be launching a policy initiative that aims to support the evidence and impact analysis of different policy responses.
<h2>Delaying Formal Launch of CFI’s New Strategy Launch</h2>
In light of the immediate COVID-19 measures, CFI will be delaying the formal launch of its new strategy, which I referred to in this <a href="https://www.centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space">blog post</a> that was featured in our last <a href="https://us5.campaign-archive.com/?u=394352ae963270aef6c51680d&amp;id=9e6112223c">newsletter</a>. In addition to our consumer protection work, we had identified several pro-poor research streams including women’s financial inclusion, financial services to support resilience and livelihood adaptation to climate change, and data opportunities and risks. We will continue to push all of these agendas but will begin with the COVID-19 related aspects of this work. For example, we are starting our work on data opportunities and risks focusing on how the COVID-19 pandemic is resulting in a wave of responses that may have long-term ramifications for data privacy and data rights.
<blockquote>We will continue to push our gender, climate change and data agendas, but will begin with the COVID-19 related aspects of this work.</blockquote>
As the pandemic stabilizes and we return to a modicum of normalcy, we hope to organize a formal strategy launch at a later date to share more details about our plans with the wider community.

Inclusive finance is undeniably more important today than ever. It is heartening to see the amount of collaboration that is taking place across the industry to ensure that the BOP does not bear the brunt of this pandemic. CFI is proud to be working with all of our partners and stands ready to do our part.

Best,

Mayada El-Zoghbi
Managing Director

&nbsp;

Letter from the Managing Director: CFI Responds to COVID-19

CFI launches multi-country data collection effort to assess the financial health of MSMEs and inform responses to COVID-19.

As part of our <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">partnership</a> with the Mastercard Center for Inclusive Growth, the Center for Financial Inclusion at Accion (CFI) is embarking on an ambitious research program to collect data on micro, small, and medium enterprise (MSME) performance and resilience during the COVID-19 pandemic. CFI’s research will provide financial inclusion stakeholders the insights they need to develop policy, products, and services to support MSMEs across the globe.

Countrywide lockdowns in response to COVID-19 are slowing economies globally, and the impact is likely to be devastating for MSMEs in emerging markets. However, without data, it will be impossible to understand the extent to which COVID-19 has impacted the livelihoods of MSME operators in emerging markets and how they are coping in response. In turn, this will make it more difficult for governments, the donor community, and private institutions to craft effective responses to the crisis. CFI’s research aims to fill the data gap to ensure these stakeholders have visibility on MSMEs in order to address their needs.

The centerpiece of this program will be a longitudinal phone survey of clients at Accion partner institutions in Latin America, sub-Saharan Africa, and Asia, conducted every other month over the course of twelve months.

Broadly, the survey aims to answer the following research questions:
<ul>
 	<li>How has business performance and practice changed since COVID-19 began?</li>
 	<li>Which MSMEs are shuttering operations and why?</li>
 	<li>What strategies are operational businesses using to cope with COVID-19?</li>
 	<li>What financial services are MSMEs using? Can financial assistance be quickly delivered through these channels?</li>
 	<li>How are changes in MSME owners’ livelihoods impacting household well-being?</li>
</ul>
CFI’s survey will collect details of business operations, business practices, and household well-being. The longitudinal methodology will allow CFI to see how these indicators change over time with the aim of providing critical data on the pace of MSME deterioration and recovery in each market.

CFI expects to provide insights into the types of behaviors and products that correlate with better resilience during this shock. Those insights can be used to develop, test, and scale interventions that promote success factors—business practices or use of financial services—amongst struggling MSMEs.

Data collection is set to begin in early May in Lagos, Nigeria with preliminary results published in June.

This new effort is a component of our partnership with the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the financial health and resilience of individuals and businesses, with a refocused effort to support our understanding of and responses to COVID-19 on MSMEs and vulnerable populations.

&nbsp;

&nbsp;

&nbsp;

&nbsp;

Understanding COVID-19’s Impact on Financial Health of MSMEs

A leading Colombian news outlet featured a photo of the CFI Managing Director speaking at FOROMIC, an annual conference on microfinance and entrepreneurship in the Latin American and Caribbean region. The Global Microscope 2019 was formally unveiled at the conference. 

The <a href="https://www.elespectador.com/economia/colombia-lidera-entorno-para-la-inclusion-financiera-regional-articulo-888988">article</a> (in Spanish) notes that Colombia -- along with Peru, Uruguay and Mexico -- lead the <a href="https://centerforfinancialinclusion.org/global-microscope-2019/">Global Microscope 2019</a> rankings this year. Supported by CFI and the Bill &amp; Melinda Gates Foundation, an updated Microscope is published every year by the <a href="https://www.eiu.com/n/">Economist Intelligence Unit</a>. It assesses the enabling regulatory environment for financial inclusion in 55 countries worldwide.

<a href="https://events.iadb.org/calendar/event/20252?lang=en">FOROMIC</a> is hosted annually by the Inter-American Development Bank (IDB).

In El Espectador: CFI, Mayada El-Zoghbi Mentioned in Microscope Coverage

Latest from CFI

Alexandra Rizzi

Malacci Ohrt

As the Smart Campaign winds down, we examine what we’ve learned about developing tools for listening to clients, raising awareness about their rights and responsibilities in financial services, and how to empower vulnerable consumers to avoid threats like fraud. This is the second in a series of blog posts about CFI’s experience working with FSPs, regulators, and investors on consumer protection, and highlighting opportunity areas for each stakeholder group.

Blog Post

Around the developing world, the use of mobile technology for financial services is skyrocketting. In Africa, the value of mobile money transactions has grown over <a href="https://qz.com/africa/1721818/africa-mobile-money-industry-is-entering-its-next-stage-of-growth/" target="_blank" rel="noopener noreferrer">890 percent since 2011</a>. App-based lenders in Kenya, Uganda, and elsewhere claim to leverage more than 10,000 data points as part of their <a href="https://www.mitpressjournals.org/doi/abs/10.1162/inov_a_00240" target="_blank" rel="noopener noreferrer">underwriting processes</a>, (though consumers are largely <a href="https://digital.hbs.edu/platform-digit/submission/tala-using-machine-learning-to-provide-access-to-credit-for-the-worlds-unbanked/" target="_blank" rel="noopener noreferrer">unaware of what data is being collected</a> from them). In Myanmar, where 20 years ago SIM cards cost $5,000, today, more than 75 percent of the population own (mostly) smartphones, and mobile money provider <a href="https://www.wavemoney.com.mm/wp-content/uploads/htd_Wave-Money-cements-mobile-money-leadership-with-stellar-2019-results-_FINAL.pdf" target="_blank" rel="noopener noreferrer">WAVE Money</a> has reached more than <a href="https://medium.com/@geoffcharles/from-zero-to-40-million-the-rise-of-digital-payments-in-myanmar-2499b488f871" target="_blank" rel="noopener noreferrer">17 million unique users</a>.

Consumers have had to adjust rapidly. For many, their first experience with financial services asks them to contend with new digital interfaces, complex products, nefariously creative forms of fraud, and detailed regulations with rights and responsibilities they <a href="https://gdpr-info.eu/" target="_blank" rel="noopener noreferrer">may not understand</a>.

This is not just a developing-world issue, of course. Carnegie Mellon researchers found that it would take the average American more than 76 working days annually to <a href="https://techland.time.com/2012/03/06/youd-need-76-work-days-to-read-all-your-privacy-policies-each-year/" target="_blank" rel="noopener noreferrer">fully read the privacy policies</a> they encountered on the internet. Underserved customers also often do not have actual people to engage with on <a href="https://customersguide.cgap.org/sites/customersguide.cgap.org/files/resource/2018/07/CGAP-Voice-of-Customer-Toolkit.pdf" target="_blank" rel="noopener noreferrer">questions, complaints, or feedback</a>.

This context served as the backdrop for CFI, in partnership with the Mastercard Foundation, to build and test a toolbox of consumer engagement channels to surface challenges clients face as financial services go digital. From <a href="https://centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa/" target="_blank" rel="noopener noreferrer">radio campaigns</a> and client surveys to digital recourse channels for regulators and industry associations, these projects provided a set of valuable lessons about the increasing complexity of the sector and steps we must take to protect the well-being of customers. As the Smart Campaign winds down, CFI is reflecting on these lessons to inform the next stage of our consumer protection agenda.
<h2>Tailor Your Tools to Clients, Then Tailor Them Again</h2>
When done well, digital interactions with customers – whether it be financial products or surveys or other forms of communication – can provide immense value to both customers and providers. We learned from clients about the critical importance of being customer-centric in the design of these interactions. Investing in design upfront leads to better outcomes for all stakeholders, but most importantly, it can protect customers from negative consequences.

In our <a href="https://centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services/" target="_blank" rel="noopener noreferrer">client survey on mobile money in Rwanda</a>, while most people reported that mobile money interfaces are easy to use, they worry that it’s also easy to make a mistake. Sixty-nine percent of clients believed it was easy to make a mistake and 17 percent have made an error. One issue is language: clients may select the wrong default language to begin with (English instead of Kinyarwanda, in our research in Rwanda, for instance), or even after selecting Kinyarwanda find that the language switches unexpectedly. Fear of making a mistake might be a disincentive for some users to engage with digital products, or worse, actually making a mistake could result in loss of funds or instances of fraud.

CFI also worked with three FSPs and the <a href="https://cma-network.org/" target="_blank" rel="noopener noreferrer">Cambodia Microfinance Association</a> to design and implement a survey, using the interactive voice response (IVR) method, with the goal of hearing directly from clients about the FSPs’ client protection practices. From the outset, we knew that precision in the survey’s language would be integral for the project’s success. But even with this expectation, we were surprised by how much it took to get it right. As my colleagues <a href="https://centerforfinancialinclusion.org/amplifying-client-voices-using-interactive-voice-response-ivr-technology-insights-from-cambodia/" target="_blank" rel="noopener noreferrer">pointed out in a CFI blog post</a>, pre-launch testing showed that while the Khmer jargon used in the survey was well-understood among microfinance staff, clients would either ask for help or skip questions altogether. Moreover, my colleagues observed that intonation and speech tempo of the voice talent behind the IVR recording made a significant difference in respondents’ successful completion of the survey. Seemingly small details such as this can easily prevent a project from achieving the intended results, further emphasizing the importance of upfront product design and testing with clients (not just MFI staff) before roll out.

In our <a href="https://www.centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa#ghana:-you-deserve-to-know-campaign" target="_blank" rel="noopener noreferrer">Ghanaian radio campaign</a>, we partnered with local designers to create posters and animated videos to promote the broadcasts. For example, for the themes of fraud and privacy, we had a cartoon in Twi, the language spoken by over 10 million Ghanaians, depicting what happens when a family is called by a scammer (the family figures it out before they lose any money, fortunately). Our approach initially was to create purely educational social media content to drive listenernship, but we found more success with an edutainment approach, with the lively cartoons amplified by paid advertisting on Twitter and Facebook. In this case, it was important for the team to quickly learn from consumers what resonated and lean into that approach rather than simply stick with the original plan.
<h2>Fraud’s Digital Inroads</h2>
Financial fraud is <a href="https://www.cbsnews.com/media/top-14-financial-frauds-of-all-time/" target="_blank" rel="noopener noreferrer">nothing new</a>, but there are characteristics unique to digital finance that give it renewed virulence. These include less face-to face interaction between consumers and providers, a larger burden on clients to conduct transactions independently, and a wider network of entry points for fraudsters to gain access to clients’ data and scale their schemes.

Indeed, fraud was top of mind among partners and consumers in all of the markets where we implemented projects. In Rwanda, 39 percent of the clients surveyed perceived mobile money fraud to be a big problem and 10 percent reported being defrauded themselves. These frauds resulted in real financial harm for individuals, and we were troubled by how few were able to report it to authorities. One victim reported that the perpetrator claimed to be part of the Girinka “One Cow Per Poor Family” program and even invoked the involvement of Jeannette Kagame, First Lady of Rwanda, to gain the client’s trust.

In Uganda we heard of schemes including PIN fraud and false text messages stating users won a competition and would need to send a fee to claim a prize. Through a mix of dramatic storytelling, local reporting, expert interviews and social media public service announcements (PSAs), our three radio campaigns tried to impart on listeners how to distinguish fraudulent institutions from real ones and how to recognize mobile money scams.

The pervasiveness of fraud (especially digital) highlights real gaps in client capability. Schemes show that clients need a greater understanding of privacy risks and continued awareness campaigns about how to protect themselves as fraudsters evolve their tactics. We also found the burden of reporting fraud needs to be reduced to meet the constraints of this lower-income segment since opportuntiy costs for this group are steep.
<blockquote>Leveraging technology for consumer protection has great potential to meet consumer protection challenges.</blockquote>
Leveraging technology for consumer protection has great potential to meet these challenges, with, for example, chatbot-powered complaints management system. In this <a href="https://www.r2accelerator.org/chatbot-prototype-1" target="_blank" rel="noopener noreferrer">use case</a>, which has already been tested in markets like the Philippines, all actors could benefit - from the central bank to financial service providers to the consumers. Access to new quantitative and qualitative information can enable regulators to better understand customer experiences and more easily detect fraud in the market. We are eager to identify, test, and document more use cases around the use of technology to improve market monitoring and consumer protection.
<h2>Empowerment Comes from Long-Term Client Engagement</h2>
While we are excited by what CFI accomplished with the radio campaigns, we know that the length of the interventions, which ranged from six to 13 weeks, were likely not enough to catalyze long-term behavior change. However, we designed the radio campaigns with partners whom we hoped could continue to distribute and air the episodes and media content. In both Uganda and Ghana, government entities expressed interest in continuing to run the content. In Benin, we used a decentralized approach of training 19 radio journalists on the key client protection market issues, then managed a competition to see who could create the best educational content. The journalist competition allowed us to multiply our outreach efforts in a cost-effective, sustainable way.

With the Client Voices research, we worked closely with the National Bank of Rwanda (BNR) research unit in the hopes of embedding data collection as a regular occurance and not a one off, which they are currently exploring, though at a smaller scale. In Cambodia, the objective for the IVR was to pilot an effective tool for MFIs and others to take the pulse of their clients on an ongoing basis. Over the course of the project, we recognized that providing such feedback can have significant (and in our case unanticipated) cost implications for low-income households. For this reason, we had to reexamine the programing of the platform so that clients would not incur any charges for airtime used when they called in to complete the survey.
<h2>Looking Ahead: CFI Strategy &amp; Impact</h2>
CFI’s experience with client engagement under the Smart Campaign yielded several valuable lessons. First, engaging clients in the design and testing of any digital tool is essential to ensuring that the product features and safeguards work for them. Client engagement also helps providers prioritize what’s most helpful and rout out anything harmful, ideally in the design stage before any harm actually occurs. Second, direct client feedback should not be considered a one-time occurance during product design. Ongoing engagement can provide valuable lessons and ensure that client needs are being met. Finally, digitization has introduced an era of rapid change, made only more extreme by the impacts of the COVID-19 pandemic. We must be poised to listen to clients, and quickly adapt as needed to fulfill our commitment to the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a>.
<blockquote>CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers.</blockquote>
CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers. For example, we launched a series of policy papers examining policy measures to mitigate the impact of COVID-19 and understanding their impact on low-income customers. We are also collecting data on the impact of COVID-19 on MSMEs to help inform providers, investors, and policymakers about the depth and breadth of the impact on low-income customers. As the world faces unprecented times in the wake of COVID-19, we will continue to listen to customers and adapt our work. The customer voice — and engaging them at every step — is crucial for advancing financial inclusion, perhaps now more than ever.

<em>We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.</em>

Making Digitization Work for Clients Starts With Client Engagement

Alex Taylor

Laura Schroeder

As the Smart Campaign winds down, we examine a decade of financial service provision guided by our consumer protection tools and discuss the evolution of consumer protection in light of disruptive digitization. This is the first in a series of blog posts about CFI’s experience working with FSPs, regulators, and investors on consumer protection, and highlighting opportunity areas for each stakeholder group.

When CFI <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">launched</a> the Smart Campaign in 2009, global financial upheaval had revealed huge cracks in financial consumer protections around the world, including <a href="https://www.centerforfinancialinclusion.org/2009-microfinance-banana-skins-report" target="_blank" rel="noopener noreferrer">new challenges</a> for the inclusive finance sector. A lack of comprehensive consumer protection regulation covering microfinance institutions across the globe put vulnerable clients at risk. The industry faced inconsistent regulations at the country level and did not have a globally accepted framework describing appropriate consumer protection from the provider perspective. Steeped in an <a href="https://www.huffpost.com/entry/on-microfinance-whos-to-b_b_777911" target="_blank" rel="noopener noreferrer">over-indebtedness crisis</a> that threatened both the operations and reputations of microfinance institutions, the industry had an imperative to accelerate and amplify its individual consumer protection actions.

The <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> emerged as a shared set of responsible financial inclusion guidelines that would become the bedrock of the Client Protection Standards and <a href="https://centerforfinancialinclusion.org/about/what-we-do/certified-organizations/" target="_blank" rel="noopener noreferrer">Smart Certification</a>, and the infrastructure needed to support the implementation of good consumer protection practices: technical know-how through a community of experts and tools, access to funding through support facilities, and evaluations and capacity building for both providers and regulators. Since 2013, when CFI began certifying financial service providers (FSPs) that met adequate standards in their treatment of clients, 135 institutions in over 40 countries have earned Smart Certification, collectively serving over 62 million people. We also conducted over 120 trainings and 300 assessments, produced hundreds of tools for FSPs, and hosted convenings for thousands of financial inclusion professionals around the world, all part of a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">multi-pronged strategy</a> to raise awareness about the importance of consumer protection and improve providers’ practices.
<blockquote>Smart Certification has been awarded to 135 institutions serving 62 million people in 40 countries.</blockquote>
A cohesive landscape of investors and providers facilitated collaboration, enabled the uptake of certification, and created conditions in which clients could better access a range of financial services with confidence. Providers were <a href="http://smartcampaign.org/tools-a-resources/1172-consumer-protection-resource-kit" target="_blank" rel="noopener noreferrer">motivated</a> to undergo evaluations and seek certification in order to differentiate themselves as responsible actors, strengthen internal processes, attract investors, and improve relationships with regulators. <a href="https://responsiblefinanceforum.org/investor-guidelines/" target="_blank" rel="noopener noreferrer">Investors</a> adopted components of the standards into their due diligence and social impact assessments. Regulators have relied on our <a href="https://blogs.worldbank.org/psd/model-law-best-practice-financial-consumer-protection-important-driver-universal-financial-access" target="_blank" rel="noopener noreferrer">Model Legal Framework</a> (now known as the <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>), which was recently updated for digital financial services. Regulators also used CFI’s <a href="https://centerforfinancialinclusion.org/client-protection-in-peru/" target="_blank" rel="noopener noreferrer">research</a> to design policies that balance client risk and market sustainability while taking the voices of both providers and clients into account. (For more resources and past consumer protection knowledge products, visit the Smart Campaign <a href="https://centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/" target="_blank" rel="noopener noreferrer">project page</a> on the CFI website.)
<h2>Changing Times Raise New Concerns for Client Protection</h2>
New actors, fintechs, and their investors are launching ventures aimed at serving unbanked and underbanked customers, hoping to use technology to scale their offerings beyond the reach of physical branches. Fintechs have entered the ecosystem at a rapid rate, particularly in growing markets, such as <a href="http://www.nairobibusinessmonthly.com/impact-of-fintech-on-kenyas-financial-services-industry/" target="_blank" rel="noopener noreferrer">Kenya</a> and <a href="https://www.techinasia.com/talk/state-fintech-cambodia" target="_blank" rel="noopener noreferrer">Cambodia</a>. Some of these companies have emerged under a loose banner of “inclusive fintech,” but many new entrants have different motivations and experiences than the providers that have traditionally sought to provide financial services to low-income customers. Fintechs that aim to serve this vulnerable segment may have good intentions, but many are also driven by different forces, including pressure to scale quickly in competitive markets, and commercial investors that are motivated more by returns than by development goals. As financial inclusion slogans increasingly appear in the <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans" target="_blank" rel="noopener noreferrer">lexicons of fintechs</a>, these companies are largely unaccountable for their claims and, as non-bank entities, do not fall under existing consumer protection regulations.

Of course, many fintechs have genuine ambitions to advance inclusive finance and want to do everything in their power to prevent harm to their clients. Yet they face limits in what they can control due to fragmentation of the financial product delivery value chain. For instance, one credit product might involve an array of different companies: one that designs the credit model, another company contracted for collections, a bank that provides the capital, and the mobile network operator (MNO) that controls the digital rails. Because of this fragmentation, FSPs can find themselves as deal takers with limited influence over the practices of some partners.
<blockquote>Fintechs face limits in what they can control due to value chain fragmentation.</blockquote>
The new landscape compounds the challenges faced by regulators to improve consumer protection measures. Consumer protection is higher on the agenda than ever, as evidenced by findings of the annual <a href="https://centerforfinancialinclusion.org/global-microscope-2019/" target="_blank" rel="noopener noreferrer">Global Microscope</a>, an index that assesses the enabling environment for financial access in 55 countries across the globe, and the agenda set by the <a href="https://www.afi-global.org/" target="_blank" rel="noopener noreferrer">Alliance for Financial Inclusion</a> (AFI). Nonetheless, the progress that many countries have made to bolster consumer protection regulations and enforcement does not apply to new digital business models – either because these non-bank, non-microfinance entities fall outside current frameworks or because regulation has not yet addressed risks unique to digital financial services.
<h2>Building a Responsible Digital Ecosystem</h2>
As the inclusive finance ecosystem fragments and becomes more complex, CFI will shift its approach from codes of conduct and provider certification to focus on regulation, market conduct, and consumer research. With the <a href="https://centerforfinancialinclusion.org/cfi-celebrates-smart-campaigns-advancement-of-consumer-protection-announces-plans-to-transition-resources-to-industry-partners/" target="_blank" rel="noopener noreferrer">closure of the Smart Campaign</a>, our partners, SPTF and CERISE, will manage the Client Protection Standards going forward as a part of the Universal Standards for Social Performance. CFI will continue to manage the Client Protection Principles, which we believe can form the base of a shared language to understand consumer risks across the range of inclusive finance providers. CFI will continue to collaborate by engaging in research and learning that can be translated by our partners into practical tools for FSPs.
<blockquote>CFI will continue to collaborate by engaging in research and learning that can be translated into practical tools for FSPs.</blockquote>
To begin addressing the digitalization of financial services for the poor and the increasing complexity of the sector, CFI conducted <a href="https://centerforfinancialinclusion.org/a-framework-for-responsible-digital-credit/" target="_blank" rel="noopener noreferrer">research on digital credit</a> (including the <a href="https://centerforfinancialinclusion.org/client-protection-standards-for-digital-credit/" target="_blank" rel="noopener noreferrer">Client Protection Standards for Digital Credit</a>) to provide digital lenders with a shared set of criteria to assess their practices. CFI convened researchers, investors, and providers to discuss and debate good practices. These consultations revealed the following lessons:
<ul>
 	<li><strong>The relative importance of the Client Protection Principles are shifting in a digital world. </strong>Principle Six (Privacy of Client Data) has become a key consideration, while Principle Five (Fair and Respectful Treatment of Clients) may look vastly different when a business model leans toward tech over touch.</li>
 	<li><strong>Protection by design better aligns with fintech's faster product development and deployment cycles</strong>. Previously, the CPPs looked at established products and institutions, but the pace at which fintech products are brought to market and refined based on customer use shifts attention to the product development cycle as a crucial opportunity to embed client protection.</li>
 	<li><strong>Consumer protection needs an awareness boost</strong>. The Smart Campaign put consumer protection on the radar of FSPs by raising awareness of unintended consequences and convening stakeholders to identify practical solutions. It’s time to open this conversation to new investors and providers that are concerned about alarming trends in markets like <a href="https://centerforfinancialinclusion.org/red-flags-in-kenyas-nano-credit-market/" target="_blank" rel="noopener noreferrer">Kenya</a>, for example, to raise awareness again. In a rapidly evolving digital financial system, it is more important than ever to anticipate, understand, and catalog risks to consumers -- activities that will form the basis of CFI’s consumer protection agenda going forward.</li>
</ul>
<em>We’d like to thank the <a href="https://mastercardfdn.org/">Mastercard Foundation</a> for partnering with us on this journey.</em>

&nbsp;

FSPs Adopt Client Protection: A Look Back, A Look Ahead

The crowd is wise. Priorities may differ. Concerns have been assuaged. Opportunities are abundant. After reviewing and responding, Mayada El-Zoghbi offers her takeaways from this timely survey and analysis.

At CFI, we can sometimes be skeptical of voluntary surveys. Just think of the selection bias involved. The kinds of people who reply to voluntary surveys are, by definition, not representative of the general public. They are the select group who may be paying attention, who may have strong views, or who just happen to run across the invitation for the survey on their LinkedIn feeds.

But having been asked to respond to the latest <a href="http://www.e-mfp.eu/news-and-events/special-edition-covid-19-financial-inclusion-compass-published-revealing-sector-fear" target="_blank" rel="noopener noreferrer">Compass</a> for a <a href="https://www.youtube.com/watch?v=0EnzkIq-yxc&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">webinar</a> held on July 13, I was forced to go beyond my skepticism and reflect more deeply on what the findings revealed. I was pleasantly surprised that the results of the survey mirrored what I have been hearing and learning elsewhere in my many conversations within CFI, with external partners, and with the stakeholders that make up this industry: providers, investors, regulators and policymakers, and support organizations.

I came away from this experience with four key takeaways:
<h2>1. The wisdom of the crowd can be eerily accurate.</h2>
The interesting thing about the methodology of this exercise is that it may not be a rigorous representation of the stakeholders in this industry, but it does bring out the wisdom of the crowd. The challenges that were identified for each stakeholder group – clients, providers, funders and others – literally mirrored every conversation I’ve been in over the past four months linked to COVID-19. Clients are experiencing financial pressure, and most demand-side research -- by <a href="https://datastudio.google.com/u/0/reporting/1-T5e174z7670AygBH3ptmiA51ghFJd-D" target="_blank" rel="noopener noreferrer">BFA</a>, <a href="https://www.covid19tracker.africa/" target="_blank" rel="noopener noreferrer">Finmark Trust</a> and others -- confirms this. Clients are not able to move around to run their businesses, tend their fields, or <a href="https://migrationdataportal.org/themes/migration-data-relevant-covid-19-pandemic" target="_blank" rel="noopener noreferrer">migrate for work</a>; and <a href="https://www.worldbank.org/en/news/press-release/2020/04/22/world-bank-predicts-sharpest-decline-of-remittances-in-recent-history" target="_blank" rel="noopener noreferrer">remittance flows</a> are indeed down 20 percent globally.

For FSPs, repayment is at the forefront of their concerns, but so are the macroeconomic conditions, with GDP growth experiencing an <a href="https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world" target="_blank" rel="noopener noreferrer">estimated 5 percent contraction</a> globally in 2020. As a result, there are pressing concerns with liquidity that e-MFP and CFI have discussed on <a href="https://www.covid-finclusion.org/investors" target="_blank" rel="noopener noreferrer">covid-finclusion.org</a>. Challenges facings funders (information, losses, inability to meet investee needs) and others (inability to travel to the field, decrease in demand, and aligning their strategies), were all common sense and aligned with what I am gleaning from engagements with the <a href="https://www.covid-finclusion.org/investors" target="_blank" rel="noopener noreferrer">Microfinance Investment Vehicles</a> (MIV) group and our internal research.
<h2>2. Priorities identified are skewed by the type of respondents to the survey.</h2>
More than 50 percent of respondents were FSPs or support organizations, meaning that other stakeholder groups were less well represented. Perhaps some regulators and policymakers were among the “other” category, which accounted for around 13 percent of respondents, but the result of the sampling bias is that the priorities identified with regulators and policymakers did not resonate with what we have been hearing and researching at CFI. Based on what we have seen with the policy responses actually taking place and the dialogue that is happening among policymakers, we see a different set of priorities for this stakeholder group than what came out of the survey. The priorities we have identified are as follows:
<ul>
 	<li>Fiscal stimulus to people and MSMEs. Based on <a href="https://blogs.worldbank.org/voices/how-social-protection-can-help-countries-cope-covid-19" target="_blank" rel="noopener noreferrer">World Bank data</a>, we know that 126 countries have already introduced such measures.</li>
 	<li>Liquidity measures for financial institutions, both banks and non-banks.</li>
 	<li>Implementing moratoria to address liquidity constraints among consumers whose income sources have been disrupted by lockdown measures.</li>
</ul>
<blockquote>Research on clients is important, but might be receiving too much attention among support organizations.</blockquote>
Similarly, the priorities for consultants and support organizations did not correspond with what we are seeing. While doing research on clients is of course important, it is possibly receiving too much attention among support organizations. We see a need to help interpret the findings of the data that is already being collected to help inform policy and provider practices. We also see the need to support the longer-term digital transformation that many providers need in order to survive, and hopefully thrive, after the pandemic. CGAP’s Global <a href="https://www.cgap.org/pulse" target="_blank" rel="noopener noreferrer">Pulse Survey</a> of Microfinance Institutions is showing that only 34 percent of the MFI respondents have opened new digital channels for customers. A larger number have expanded call centers to respond to customer inquiries. Finally, we think a focus on market consolidation will inevitably be needed.
<h2>3. The concerns raised in the Compass report assuage my own concerns.</h2>
I was pleasantly surprised by the concerns raised and see this as reflective of something positive overall. The heavy focus on maintaining the progress we’ve achieved as a sector, especially the gains made by clients and the focus on consumer protection, indicates to me that the work of organizations like CFI over the past decade have been effective in instilling the importance of a customer-focused view and elevating consumer protection as a topic of priority for the sector. This is especially important given that the majority of respondents to the Compass survey are FSPs and support organizations.
<h2>4. The opportunities raised in the Compass report are tangible and the actions of stakeholders show that these are not just words.</h2>
Beyond the increased focus on digital channels and digital transformation, which we know has been a key focus of this sector for over a decade, I was especially excited to see that respondents flagged cooperation and a refocus of the priorities of the sector.
<ul>
 	<li>On the issue of cooperation, the collaboration between the Microfinance Coalition and the MIVs is unheralded. As CFI has been facilitating dialogue among these two groups, we can truly attest to their openness, transparency, and aligned interests. The key stakeholders in this sector are proactively collaborating to reduce risks and ensure that we do not lose the gains we have already achieved.</li>
 	<li>That there is a realization that we have to do better as a sector is also reassuring. And there are so many opportunities for us to reset our priorities to address fundamental issues like <a href="https://centerforfinancialinclusion.org/food-security-and-covid-19-how-financial-inclusion-can-support-livelihoods/" target="_blank" rel="noopener noreferrer">food security</a>, <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">safety nets</a>, and other important roles that the financial system can and should deliver for the development agenda.</li>
</ul>
The dedicated COVID-19 Compass has been a Herculean effort on the part of e-MFP. It is great to see this important platform quickly adapting to showcase what is on everyone’s mind, and to put together such an elegant report in record time is quite impressive. I hope everyone gets the opportunity to read the report and to reflect on the results as they relate to their own experiences.



Four Reflections on the COVID e-MFP Compass

Ethan Loufield

Investors answer the call by collaborating with the Microfinance Coalition. Below are tangible benefits of that collaboration.

Earlier this year, as all of us were coming to grips with COVID-19, 14 leading microfinance organizations came together to form the <a href="https://centerforfinancialinclusion.org/people/microfinance-coalition/" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a> to represent the voice of microfinance providers globally and take collective action. This group first introduced itself in May by way of a <a href="https://www.findevgateway.org/blog-series/call-action-how-donors-investors-and-policymakers-can-help-mfis-survive-covid-19" target="_blank" rel="noopener noreferrer">call to action blog series</a>, published here and on FinDev Gateway, that targeted key stakeholders on issues essential to micro, small and medium enterprises and the financial institutions that serve them, and there have already been some positive responses in the two months since.

After an introductory post, the <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">first call to action</a> was released with a focus on the investor community. Shortly thereafter, this call was answered by the group of nine microfinance investment vehicles (MIVs) (which has now expanded to ten) that had previously issued a <a href="http://www.e-mfp.eu/sites/default/files/news2020/2020-04-24 MIV Covid-19 coordination MoU.pdf" target="_blank" rel="noopener noreferrer">Memorandum of Understanding</a> as a part of their own response to COVID-19. This group began to engage with the Microfinance Coalition to identify opportunities for collaboration, and although this engagement is still in its early stages, tangible benefits are already starting to emerge.

Broadly speaking, these benefits fall into the following three categories:
<ol>
 	<li>Fostering increased transparency and trust</li>
 	<li>Identifying specific issues on which to collaborate</li>
 	<li>Amplifying our voice in engaging with other stakeholders</li>
</ol>
<h2>Increased Transparency and Trust</h2>
It’s important to recognize that while we’re all in this together, the situation is evolving rapidly, and visibility is limited. This can lead to misunderstandings and misperceptions that only serve to heighten the sense of risk. To counter this, open dialogue and information sharing are key, and that’s precisely what this engagement has allowed for. For example, a few members of the Coalition raised concerns about whether MFIs that proactively ask for handshake agreements or inquire about flexibility with covenants might compromise their ability to obtain new loans. The MIVs responded that to the contrary, MFIs that are transparent actually make it easier for the MIVs to work with them.

Another concern was whether sharing projections that include middle- or worst-case scenarios might backfire, and the MIVs maintained that information and thoughtful analysis provide much more assurance than the lack thereof.

Thanks to this dialogue, what has emerged is a venue for exchange that will help to facilitate an even more informed and coordinated response than would have been possible otherwise.
<h2>Collaborating on Specific Issues</h2>
Our initial conversations have already surfaced a number of items on which to collaborate, including the treatment of covenants, potential ways to de-risk lending, dealing with foreign exchange risk, and managing the legal costs for any restructurings that may become necessary. However, not surprisingly, one of the items that has gotten the most immediate attention is the need for a harmonized approach to the sharing of information, especially forward-looking information.

Given all the data collection efforts that are already afoot, there's a clear recognition that the reporting burden must be kept to a minimum, and that any additional information sharing must be uniquely additive. Hence, there is a preference for projections or a package of forward-looking metrics that can be anonymized and aggregated to shed light on the potential impact that COVID-19 might have on overall MFI portfolio quality, profitability and capital adequacy on a country-by-country basis. Among other things, such information could help to anticipate solvency challenges across markets as the crisis continues to unfold.
<blockquote>Projections or a package of forward-looking metrics that can be anonymized and aggregated are preferred.</blockquote>
These data-related discussions led to a recent session during which CGAP presented the findings of its first two waves of its <a href="https://www.cgap.org/pulse" target="_blank" rel="noopener noreferrer">Global Pulse Survey of Microfinance Institutions</a> to the Coalition and MIVs, which served the dual purpose of providing reactions to CGAP on the survey and helping to inform the approach to be taken by the Coalition and MIVs on these forward-looking indicators. This engagement with CGAP is set to continue, which will help the Coalition and MIVs further define which metrics to ultimately share with each other.
<h2>Engaging with Other Stakeholders</h2>
The third benefit is the ability to leverage this platform of cooperation with the MIVs to connect with other stakeholders who are also working on their own responses. As noted above, one issue that the Coalition and MIVs would like to address is how to deal with foreign exchange risk. Hedging costs have increased, and if loans that MFIs seek to reschedule are converted into hard currency loans, that brings additional exposure to the MFIs and, by extension, to their clients.

The poor are the ones who are most vulnerable to this pandemic, so it behooves us to find solutions that don’t let such risks flow through to them. The Coalition and MIVs believe that this is an area where other players, such as development finance institutions and <a href="https://www.tcxfund.com/" target="_blank" rel="noopener noreferrer">TCX</a> (a fund that helps to manage currency risk), could be instrumental. We aim to initiate conversations with them on potential mechanisms that could be put in place to address this issue.

Looking ahead, it seems clear that we are only in the very early stages of this pandemic. We need to be taking a much longer view to our cooperation. Rather than thinking of the effects of COVID-19 as coming in waves, it may be more appropriate to see them as a sea change that we need to adapt to for the long haul.
<blockquote>COVID-19's effects might be a sea change as opposed to coming in waves.</blockquote>
We're grateful for the engagement we have seen to date, and we are optimistic about what we can accomplish together. As mentioned in our call to action blog series, there are other stakeholders, such as donors and policymakers, that also have crucial roles to play, and CFI is looking forward to helping build bridges to overcome the new sets of challenges that this pandemic has put before us.

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Microfinance Coalition, MIVs Team Up in Response to COVID-19

Richard  Greenberg

This is the first of an occasional series of interviews with professionals from development finance institutions supporting inclusive finance during these difficult times. 

Richard Greenberg is a Managing Director of the Social Enterprise Finance group at U.S. International Development Finance Corporation (DFC, formerly OPIC). The group leads DFC efforts to place capital in highly impactful and innovative enterprises and funds.

Like other development finance institutions, DFC – which has prioritized inclusive finance for decades to address critical challenges facing the developing world – has been hard at work supporting immediate and longer-term needs of MFIs and other actors so they can continue supporting base-of-pyramid clients during the COVID-19 crisis. In this interview with CFI, Greenberg discusses collaboration with other DFIs, DFC’s social impact initiatives that support its development goals, digitization during the pandemic, and more.
<h3>In April’s COVID-related joint <a href="https://www.dfc.gov/media/press-releases/development-finance-institutions-join-forces-respond-covid-19-developing" target="_blank" rel="noopener noreferrer">statement</a>, the <a href="https://www.dfc.gov/media/opic-press-releases/opic-signs-mou-establishing-dfi-alliance-key-allies" target="_blank" rel="noopener noreferrer">DFI Alliance</a> highlighted that its DFI members would work to address not only current liquidity issues in the financial sector, but also other measures related to essential business activities. How have you collaborated on your inclusive finance objectives since that announcement? Has there been any other inter-DFI coordination? What more could be done in this regard?</h3>
There have been extensive conversations to collaborate and coordinate with other DFIs to ensure we’re deploying our capital as efficiently as possible given the significant impacts of the crisis. The crisis has generated tremendous demand for capital from DFC and other DFIs. Since we are long-term lenders focused on our missions, in times like these, DFIs become even more important in addressing market gaps.
<blockquote>In times like these, DFIs become even more important in addressing market gaps.</blockquote>
Many of the projects that we’re looking at involve multiple DFIs. Sometimes that’s a challenge because our level of participation, our products, our policies and our risk-return requirements may all be slightly different, but these diverse strengths and capabilities are also what make our collaboration so powerful. Our goal is to make sure we can accommodate—and leverage—the differences there may be to arrive at the financing package that best supports the developmental impact we’re seeking.

We have also recently announced that DFIs have collectively <a href="https://www.dfc.gov/media/press-releases/2x-challenge-drives-groundbreaking-45-billion-women-developing-countries" target="_blank" rel="noopener noreferrer">catalyzed $4.5 billion in investment financing</a> to support women through the <a href="https://www.2xchallenge.org/" target="_blank" rel="noopener noreferrer">2X Challenge</a>, surpassing the initial goal of $3 billion. Building on DFC’s <a href="https://www.dfc.gov/our-work/2x-womens-initiative" target="_blank" rel="noopener noreferrer">2X Women’s Initiative</a>, launched in 2018, we encouraged our counterparts from G7 countries to accept the 2X Challenge by prioritizing investments in women. And it’s not just G7 countries: 15 total countries have joined to date.

Another aspect of our collaboration is discussions with DFIs and other investment partners to share market and institutional response information. One of those groups that we have joined is being led by CGAP.
<h3><strong>In addition to the recently <a href="https://yourstory.com/2020/06/funding-alert-northern-arc-us-international-development-finance-corporation" target="_blank" rel="noopener noreferrer">announced</a> $50 million of debt financing for Northern Arc, has DFC provided direct assistance to institutions support base-of-pyramid clients during these difficult times? Could you tell us a bit more about how the Northern Arc support came to pass?</strong></h3>
We’ve had a long-standing relationship with the senior management of Northern Arc (formerly IFMR Trust). They are a pioneer and a leader in wholesale finance in India. They have tremendous expertise and knowledge of the market. The proceeds of our loan to Northern Arc will be used to expand its loan portfolio in areas of importance to DFC, such as women’s economic empowerment, food security, and the WASH sector.
<blockquote>Our goal is be as responsive as we can to what the market needs at this unique time.</blockquote>
Our goal is be as responsive as we can to what the market needs at this unique time, working with established and new clients. For clients that we have previously worked with, we’ve been able to move projects forward especially quickly throughout the crisis. For example, in India, we have closed and disbursed funds to two clients, including <a href="https://www.dfc.gov/investment-story/improving-access-quality-education-india" target="_blank" rel="noopener noreferrer">Varthana</a>, an education finance company that serves low-income families, and <a href="https://yourstory.com/2020/05/funding-alert-caspian-debt-investment-from-dfc" target="_blank" rel="noopener noreferrer">Caspian</a>, an income fund manager that lends to SMEs. The debt <a href="https://economictimes.indiatimes.com/wealth/save/sbi-loan-emi-moratorium-extended-here-are-all-the-details/articleshow/76087915.cms" target="_blank" rel="noopener noreferrer">moratorium</a> in India certainly created additional risk and complexity, but the quality of these entities and the strong relationships we had with them enabled us to keep moving forward.

These are just two examples among <a href="https://www.dfc.gov/media/press-releases/dfc-approves-1-billion-investments-global-development" target="_blank" rel="noopener noreferrer">many others</a> we are supporting in developing countries reeling from COVID-19, such as Banco Industrial in <a href="https://gt.usembassy.gov/dfc-approves-a-200-million-investment-for-guatemala/" target="_blank" rel="noopener noreferrer">Guatemala</a>, whose portfolio includes 30 percent women-owned or women-led businesses, Root Capital for farmers in Latin America and Africa, <a href="https://www.dfc.gov/investment-story/supporting-worlds-smallest-farmers" target="_blank" rel="noopener noreferrer">One Acre Fund</a> supporting farmers in Kenya, and a fund managed by <a href="https://www.dfc.gov/media/press-releases/dfc-approves-nearly-900-million-global-development-projects" target="_blank" rel="noopener noreferrer">WaterEquity</a>, which lends to MFIs to improve access to reliable and clean sources of water.
<h3><strong>What about coordinating with fund managers? What role have they played?</strong></h3>
We have relationships with many of the leading global microfinance fund managers. Some of them have expanded their investment strategy to include SMEs and other financial intermediaries. Shortly after the crisis began, we were contacted by many fund managers with ideas about how to address needs by expanding existing funds, creating new funds, or reorienting funds that were already raising capital but not yet launched.
<blockquote>There are a lot of questions related to the type of capital to be deployed, the timing, and demand versus supply in various markets.</blockquote>
We are working with several of them right now, making good progress on underwriting and collaboration with other DFIs and fund managers to put together the right kind of capital for these funds so they can quickly start to deploy it. Of course, in the context of the crisis, there are a lot of questions related to the type of capital to be deployed, the timing, and demand versus supply in various markets. The base case assumption for most is that there’s going to be significant liquidity needs in the near term, though that will likely vary significantly across markets.
<h3><strong>Geographically, DFC’s microfinance/inclusive finance activities have reached a <a href="https://www.dfc.gov/sites/default/files/2019-08/fy2019_cbj.pdf" target="_blank" rel="noopener noreferrer">diverse range</a> of countries and regions. Are there any countries or regions DFC has prioritized with regards to its support of inclusive finance during COVID? Are there issues unique to specific places, or are challenges mostly universal?</strong></h3>
In terms of regions, DFC is open for business across emerging markets. We focus on low-income and lower middle-income countries. Priority regions include Africa, Latin America and the Caribbean, and the Indo-Pacific.

There are different needs and challenges around the world. The strength and resilience of financial sector institutions and regulation varies considerably, as does extent of digitization which is so important at this time. Countries are getting hit very differently and we need to account for that.
<h3>Has the crisis altered DFC’s approach to funding social impact enterprises beyond microfinance?</h3>
DFC’s <a href="https://www.dfc.gov/what-we-offer-our-products/portfolio-impact" target="_blank" rel="noopener noreferrer">Portfolio for Impact and Innovation (PI2)</a> has launched, which builds on the success of OPIC’s Portfolio for Impact (PI) initiative, introduced in 2014. PI2 is how we serve smaller, early-stage social enterprises that have a highly developmental impact but that lack scale-up capital due to their relative size, novel approach, or limited track record. Initially, financing for each project under PI2 was $1 to $5 million; now, we’re able to go up to $10 million per deal.

In the wake of COVID-19, PI2 takes on even greater importance: we know that it is often small, early-stage ventures that introduce the most innovative solutions to daunting challenges. These creative business models will be exactly what we need to navigate the many new challenges that COVID-19 has brought to emerging markets.
<h3><strong>Has the crisis shifted the perceptions of inclusive finance within DFC?</strong></h3>
Inclusive finance has been a focus of DFC for a long time. We have become one of the most significant capital providers among DFIs to microfinance over the last 10 years. This crisis is demonstrating how inclusive finance is even more essential.

Though our underwriting process is rigorous, we have leveraged information sharing with co-investors to further accelerate the deployment of capital. Additionally, in the management of our existing portfolio, we have been proactive and expeditious in trying to respond to clients who may be struggling as a result of this crisis and may need some relief.
<h3><strong>Has DFC engaged with fintechs and non-microfinance FSPs during this crisis? Are you seeing a rush to digitization among your partners? How, if at all, are your investees working to accelerate digitization for consumer segments who were conducting business primarily offline – and how might this be done <a href="https://www.centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection" target="_blank" rel="noopener noreferrer">safely</a>?</strong></h3>
There’s no question that, with the lockdowns, having a digital platform is critical. Some MFIs have already digitized, others less so, and the latter are of course a lot more vulnerable in these conditions.

It’s really important that those MFIs and intermediaries that need to further digitize have the opportunity and support to do that. For example, a fund manager launching a fund for which we expect to provide financing has a specific technical assistance facility that focuses on digitization. They assess an MFI’s digitization needs and can provide finance to facilitate action items. It’s important that we not only provide financing, but provide this kind of targeted support to strengthen financial institutions to which we are lending.
<h3>What about time frames? <a href="https://centerforfinancialinclusion.org/how-should-investors-coordinate-when-time-is-of-the-essence/" target="_blank" rel="noopener noreferrer">CFI</a>, the <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a>, and others have identified investor medium-term needs as well as short term ones. What do you see as the medium-term needs beyond liquidity? When does the medium term “start”?</h3>
My personal interpretation is the “short term” is the next quarter or two. We’re trying to move very quickly. We don’t want to miss the opportunity to support pressing needs.

We are thinking about liquidity now and solvency issues that might arise down the road. At this time it is difficult to forecast market conditions in the coming quarters. One of our existing partners that lends to MFIs has a view that demand for their funds will slow down temporarily while others are expecting increased demand. Projecting the demand for capital in this kind of volatile market is less certain than it typically would be, so that’s creating some challenges in thinking about the risks versus returns.
<blockquote>We are thinking about liquidity now and solvency issues that might arise down the road.</blockquote>
Unfortunately, it seems likely that some people in the markets we serve who are currently middle income may lose jobs and income that will push them into a lower income level or even poverty – at least temporarily – so that could create more demand for the services from some of the institutions that we fund.

We want to support funds and intermediaries that will manage their capital prudently and avoid taking unnecessary risks. In some cases, this may mean focusing their lending initially to MFIs that are the strongest right now, and then adding institutions to their portfolios that are smaller and more vulnerable – but serve important underserved groups – over time.

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DFIs, COVID-19 and Financial Inclusion: A Conversation with Richard Greenberg of DFC

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