<p>Lizzy provided operational support for the Financial Inclusion Equity Council, Africa Board Fellowship and MENA Governance projects.</p>
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Former Senior Specialist, Investing in Inclusive Finance

Lizzy Bolze

ABF Fellows will convene in South Africa to close out the ninth cohort. 

Event

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<div class="sc-bwzfXH ejJzIl"><article class="jsx-1739195141 text-block__article">Africa Board Fellowship (ABF) program participants convene in Cape Town, South Africa, to close out the program’s 9th cohort.

The ABF seminars are an interactive combination of guided discussion and peer-to-peer exchange on governance best practices and risk-management strategies, with an emphasis on fellows sharing knowledge and experience.

World-class experts and leaders in microfinance and financial inclusion will facilitate and engage participants in active dialogues. The aim of the Africa Board Fellowship program is to connect board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients in sub-Saharan Africa.

Research has shown that the single biggest success factor in MFIs across the world is good governance. Program activities, structure, and content have been carefully designed to create an open atmosphere that allows for frank discussion among peers. Fellows identify their objectives for the program and then work with a program advisor on achieving those goals. Additionally, Fellows have access throughout the program to a participant-led virtual collaboration space with tools, resources, content, and access to subject-matter experts. At the conclusion of the program, Fellows stay connected as alumni, providing a network of leaders confronting similar challenges.

<a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Learn more</a> about the program.

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Africa Board Fellowship Closing Seminar – Cohort 9

The ninth cohort of the ABF will kick off the program in South Africa.

Africa Board Fellowship (ABF) program participants convene in Cape Town, South Africa, to kick off the program's 9th cohort.

The ABF seminars are an interactive combination of guided discussion and peer-to-peer exchange on governance best practices and risk-management strategies, with an emphasis on fellows sharing knowledge and experience.

World-class experts and leaders in microfinance and financial inclusion will facilitate and engage participants in active dialogues. The aim of the Africa Board Fellowship program is to connect board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients in sub-Saharan Africa.

Research has shown that the single biggest success factor in MFIs across the world is good governance. Program activities, structure, and content have been carefully designed to create an open atmosphere that allows for frank discussion among peers. Fellows identify their objectives for the programme and then work with a program advisor on achieving those goals. Additionally, Fellows have access throughout the program to a participant-led virtual collaboration space with tools, resources, content, and access to subject-matter experts. At the conclusion of the program, Fellows stay connected as alumni, providing a network of leaders confronting similar challenges.

<a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Learn more</a> about the program.

Africa Board Fellowship Opening Seminar - Cohort 9

The Financial Inclusion Equity Council (FIEC) is the first membership organization to bring together the leading private entities that make equity investments in financial inclusion throughout the developing world. 

The Financial Inclusion Equity Council (FIEC) is the first membership organization to bring together the leading private entities that make equity investments in financial inclusion throughout the developing world.

This year's convening will be hosted by FIEC member Citi Inclusive Finance.

<a href="https://www.centerforfinancialinclusion.org/about/what-we-do/fiec/">Learn more</a> about FIEC.

Financial Inclusion Equity Council (FIEC) Annual Meeting

ABF Fellows will convene in South Africa to close out the eighth cohort. 

Africa Board Fellowship (ABF) program participants convene in Cape Town, South Africa, to close out the program's 8th cohort.

The ABF seminars are an interactive combination of guided discussion and peer-to-peer exchange on governance best practices and risk-management strategies, with an emphasis on fellows sharing knowledge and experience.

World-class experts and leaders in microfinance and financial inclusion will facilitate and engage participants in active dialogues. The aim of the Africa Board Fellowship program is to connect board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients in sub-Saharan Africa.

Research has shown that the single biggest success factor in MFIs across the world is good governance. Program activities, structure, and content have been carefully designed to create an open atmosphere that allows for frank discussion among peers. Fellows identify their objectives for the programme and then work with a program advisor on achieving those goals. Additionally, Fellows have access throughout the program to a participant-led virtual collaboration space with tools, resources, content, and access to subject-matter experts. At the conclusion of the program, Fellows stay connected as alumni, providing a network of leaders confronting similar challenges.

<a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Learn more</a> about the program.

Africa Board Fellowship Closing Seminar - Cohort 8

Blog Post

Digital trends in the African financial inclusion sector are evolving quickly. With the entrance of fintech startups and a more tech savvy client base, the role of corporate governance is more important than ever. As David Kombanie, Board Member of VisionFund put it: <strong>“Disruptive innovations are here with us. It’s change or die.” </strong>

Kombanie, along with more than 50 CEOs, board members, investors, fintech leaders, and regulators from Africa’s financial inclusion industry, engaged in a peer-learning exchange roundtable, <em>Governing in a Digital World</em><em>.</em> This <a href="https://www.youtube.com/watch?v=g2zVq24iEes&amp;w=560&amp;h=31">video</a> provides an overview of discussions and key takeaways from the participants:
<h2>Governance for Financial Service Providers in a Digital World</h2>
The roundtable’s peer-to-peer exchanges provided three important governance considerations and recommendations for the boards of financial service providers (FSPs) as they evolve with the digital world:

<strong>Develop a Digital Strategy</strong>

Many FSPs aren’t adequately prepared for the disruption created as technologies enter the market. At the same time, it’s important not to digitize for the sake of digitizing. Boards of FSPs should have a clear strategy and understanding of how digitization can improve product offerings and back office operations. Their role is to provide leadership and expertise to guide the institution in developing and implementing a digital strategy. Change management and gaining knowledge about technology are key components for such success.
<h4><strong>Ensure Board Leadership and Expertise</strong></h4>
Understanding and filling technology knowledge gaps on the board is crucial for ensuring strategic leadership of the FSP. Boards should be evaluating their competitive advantage, rather than following trends. Rohit Acharay, co-founder of First Access says that answering the questions: <strong>“What are we good at, who are our customers, and how do we create products that really serve them...?”</strong> is the first evaluating step for FSP boards to take.

<strong>Better Utilize Data to Serve Clients </strong>

Fintech startups serving low-income clients use data to gain competitive advantage. In contrast, many FSPs have an abundance of underutilized data that could be leveraged to better segment clients. For example, different levels of human touch and support may be needed for different client segments.

[youtube https://www.youtube.com/watch?v=SRjEBXzDaEA&amp;w=560&amp;h=315]
<h3>Governance for Fintech Startups</h3>
For start-ups, building a technologically-advanced product isn’t enough. It’s also important to focus on building governance structures while navigating regulation and prioritizing client centricity. Key governance recommendations for fintech and innovative startups include:
<h4>Engage with Regulators</h4>
Regulation tends to lag new players entering the financial inclusion sector. However, regulations inevitably will catch up, and fintechs need to be proactive in doing things ‘right’ initially to avoid regulatory trouble later on. Paul Lamont, Director of Digital Services for Accion in Africa, noted that because some disruptive technologies <strong>“move faster than regulation”</strong> it’s important for fintechs to build close working relationships with regulators to stay aligned with evolving regulatory environments and provide perspective to regulators about pushing the boundaries that drive financial inclusion. Fintechs should ensure the lines of communication with regulators remain open so that there is a clear understanding of the products and services offered.
<h4>Ensure Board Independence and Diversity</h4>
It is crucial to have independent voices on the board with diverse perspectives and backgrounds who can provide insights, especially on what’s happening on the ground. It is also essential to have board members who are able to make important introductions and connections, and can provide a sounding board and checks and balances for the founder(s) or CEO.
<h4>Consider Partnership Opportunities</h4>
There are many partnerships opportunities – especially around data usage – for fintechs and FSPs. As mentioned, many FSPs are collecting a lot of data about clients but aren’t effectively using it. Some fintechs have developed a more streamlined and insightful process for utilizing client data that could greatly benefit FSPs. With financial inclusion-focused FSPs and fintechs aiming for the same goals for their clients, it’s important to establish an ecosystem through partnerships to better understand strengths, weaknesses and opportunities to work together.

[youtube https://www.youtube.com/watch?v=4dm7bWAR9VY&amp;w=560&amp;h=315]

By practicing good governance, FSPs and fintech startups have the opportunity to evolve with the digital world and continue to play an important role for the future of financial inclusion.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/02/01/are-banks-the-future-of-banking-africa-board-fellows-deliberate/">Are Banks the Future of Banking? Africa Board Fellows Deliberate</a>

<a href="https://cfi-blog.org/2016/04/25/is-weak-governance-to-blame-for-bank-collapses-in-kenya/">Is Weak Governance to Blame for Bank Collapses in Kenya?</a>

<a href="https://cfi-blog.org/2015/07/23/lessons-learned-from-abfs-convening-of-microfinance-leaders-in-cape-town/">Lessons Learned from ABF’s Convening of Microfinance Leaders in Cape Town</a>

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Governing in a Digital World

CEO of the largest investment firm asserts understanding social impact among most pressing issues facing investors today

Just prior to the global elite gathering at Davos, Larry Fink, Chairman and CEO of BlackRock investment firm wrote a <a href="https://www.blackrock.com/corporate/en-us/investor-relations/larry-fink-ceo-letter">letter to CEOs</a> about the importance of long-term, sustainable strategy and understanding the social impact of the companies BlackRock and others invest in. He emphasizes that “Without a sense of purpose, no company, either public or private, can achieve its full potential.” As the <a href="https://www.blackrock.com/corporate/en-us/about-us">largest investment firm</a>, managing <a href="http://www.businessinsider.com/everyone-at-davos-is-talking-about-larry-finks-letter-to-ceos-2018-1">$6.3 trillion in assets</a>, BlackRock’s message represents a social shift that blends the lines between impact investing and the profit-driven investment space. The letter sparked conversation and debate last week at the <a href="https://www.weforum.org/">World Economic Forum</a> in Davos where leaders across the investment, political, academic and public spheres met to discuss key global issues.

In the letter, Fink explains that in the United States and other high income countries there is a paradox: high returns for those with capital and high anxiety for millions of individuals who don’t have the capacity and resources to save for retirement. With the rise of automation, increased public scrutiny of companies moving operations overseas, and a lack of government support for retirement, infrastructure, and worker retraining, Fink contends, “Society is demanding that companies, both public and private, serve a social purpose.” Additionally, there’s a <a href="https://www.economist.com/news/finance-and-economics/21731640-millennials-are-coming-money-and-want-invest-it-responsibly-sustainable">growing body of research</a> indicating that younger generations of individuals are concerned about social challenges, with new expectations about what return on investment means. As a result, over the next three years, BlackRock plans to double the size of its <a href="https://www.blackrock.com/corporate/en-us/about-us/investment-stewardship">investment stewardship team</a>, which works to enhance engagement with companies, supports sustainable long-term financial performance, and protect the value of clients assets.

The letter calls for more active engagement and communication among directors, board members and shareholders. The governance model emphasizes the essential role of the board in developing a strategy for achieving long-term growth, and “helping a company articulate and pursue its purpose, as well as respond to the questions that are increasingly important to its investors, its consumers, and the communities in which it operates.” The model also calls for more diverse boards that are able to pivot when necessary and are less likely to succumb to “group thinking”.

Fink’s points about the need for improved corporate governance are relevant to financial services providers serving the world’s lower income segments. We regularly write about the pervasiveness of governance challenges for microfinance institutions and other inclusive financers, like strategic alignment between boards and senior leadership, diverse board representation, and adapting to changing environments, to name a few (see <a href="https://cfi-blog.org/2017/06/09/evolve-or-die-it-is-that-simple-a-look-into-finca-tanzania/">here</a>, <a href="https://cfi-blog.org/2017/10/04/how-can-microfinance-institutions-in-the-middle-east-and-north-africa-manage-risk-and-meet-client-demand-governance-is-key/">here</a> and <a href="https://cfi-blog.org/2016/05/05/views-from-the-top-africa-board-fellows-on-the-challenges-of-inclusive-finance/">here</a>). The Center for Financial Inclusion addresses these challenges through the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/what-is-abf">Africa Board Fellowship</a>, a program that connects and empowers board members and CEOs of inclusive finance institutions in sub-Saharan Africa through peer learning and exchange to strengthen the governance of their institutions.

Response to the letter has been vigorous, but mixed. Some feel BlackRock isn’t in a position to criticize CEOs on their social responsibility. Others point out that socially-focused investments often take longer to pay off, which challenges the deal timeline and high financial returns of the current corporate investing environment. Additionally, others assert that BlackRock, as a passive investor in index funds, is often chosen by clients because it bets on the whole market. There is concern about the attractiveness or reliability of its funds if BlackRock no longer plays a passive role but more prominently includes social considerations in investment decisions. But, as Fink put it, “<a href="https://www.cnbc.com/video/2018/01/24/blackrock-ceo-profits-with-a-purpose-are-vital-for-long-term-survivability-and-long-term-profitability.html">profits are paramount to everything a company does</a>" which means there have to be financial considerations, in addition to social responsibility, driving the long-term success of companies.

Regardless of how the letter will directly impact investing, we’re happy to see that it has sparked conversation about the responsibilities companies and fiduciaries have to the interests and needs of the clients they serve.

Global corporations may be having a moment of conscience, recognizing that their extended lack of attention to social impact may have contributed to the current rise of populism and anti-globilization. PayPal’s CEO Dan Schulman also used the World Economic Forum as a platform to stress a need for social performance in financial services. He argued in support of universal financial health for those underserved by the financial services industry. You can find more on that story <a href="https://www.wsj.com/articles/dan-schulman-on-shifting-from-financial-inclusion-to-financial-health-1516201094">here</a>.

We’ll look forward to following these conversations in the weeks and months to come.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/03/03/what-impact-investors-could-learn-from-microfinance/">What Impact Investors Could Learn from Microfinance</a>

<a href="https://cfi-blog.org/2017/04/27/time-to-ditch-impact-investings-unproductive-self-analysis/">Time to Ditch Impact Investing's Unproductive Self-Analysis</a>

<a href="https://cfi-blog.org/2017/03/17/whats-responsible-about-impact-investing-exits/">What’s “Responsible” About Impact Investing Exits?</a>

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“Larry’s Letter:” Challenging Traditional Investor Responsibilities

<div class="getty embed image">

[caption id="attachment_24184" align="alignright" width="621"]<img class="wp-image-24184" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/10/mena-tnda.png" alt="" width="621" height="267" /> Board members and CEOs of MFIs in the MENA region met at the MENA Governance and Strategic Leadership Seminar hosted by CFI, Calmeadow and the Sanabel Network, in Jordan. March 2017.[/caption]

Over the past few years, the financial inclusion landscape in the Middle East and North Africa (MENA) region has rapidly evolved with new market entrants, changing regulations and increased financial risks. The industry aims to expand access to formal financial services and achieve much needed economic stability, and yet the financial inclusion ecosystem in MENA has experienced slower growth over the last 10 years compared to their peers in other parts of the developing world. According to <a href="http://documents.worldbank.org/curated/en/187761468179367706/pdf/WPS7255.pdf#page">reports</a> by the World Bank and CGAP, microfinance institutions (MFIs) in MENA are currently reaching approximately 3 million borrowers, with a loan portfolio of over $2 billion -- far below the market potential estimated at 56 million borrowers. The stakes are getting higher and MFIs need to reconsider their strategic directions in order to reach the unmet clients at the base of the economic pyramid.

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The ability of MFIs to manage market and financial risks in a perpetually unstable economic environment will depend on the strength of their risk strategies, corporate governance structures and board dynamics. The Center for Financial Inclusion at Accion, Calmeadow, and the Sanabel Network, with support from the Dutch Development Bank (FMO), sought to understand key governance challenges facing MFIs in the MENA region by conducting a technical needs and demand assessment (TNDA). This assessment examined the challenges as perceived by board members and CEOs of MFIs, with an emphasis on the question of whether boards are well-equipped to steer their organizations onward to both stability and growth. The TNDA surveyed and interviewed 140 CEOs and board members of MFIs in the region, indicating their least effective technical areas and their largest governance concerns are:
<ul>
 	<li><strong>Managing market and financial risks </strong></li>
 	<li><strong>Assessing technology and new business models </strong></li>
 	<li><strong>Board dynamics</strong></li>
 	<li><strong>Diversity</strong></li>
</ul>
<strong> </strong>A majority of respondents to the TNDA felt that their boards lacked the diversity, skills, dynamics, and microfinance knowledge needed to effectively govern their institutions.

In terms of diversity, a key governance concern is the infrequent rotation of MFI board members. Most boards have an average three-year term that is often renewed. As a result, most board members have seats on their boards for a decade or more, and in some cases since the founding of the institution. While this ensures continuity in leadership, it sometimes poses challenges if special skills and fresh perspectives are needed to make decisions that effectively serve the MFI.

Board members and CEOs felt that their boards lacked effectiveness in monitoring market and financial risks. What’s more, only a handful of institutions across the region have board members that actively participate in external training events. The sociopolitical turmoil that has afflicted the region in recent years has had severe implications for financial service providers. Some have faced widespread defaults as their clients’ economic lives have been disrupted. Others have faced liquidity challenges. As recent <a href="https://www.cgap.org/sites/default/files/Brief-Lessons-Learned-from-the-Moroccan-Crisis-July-2013_0.pdf">evidence shows</a>, weak governance at a leading MFI in Morocco was a significant contributor to the 2008 Moroccan repayment crisis, where rapid growth led to unsustainable stress for many MFIs. The crisis ended when the top three MFIs in the country started making efforts to improve long-term institutional development, including by implementing new training methodologies, assessing risk management and governance practices, and improving the overdue recovery process.

Many MFIs in the region are facing financial risks because of their non-profit status. They struggle to raise enough capital to support growth and deepen equity cushions during difficult times. In response, and as regulation evolves, more MFIs are transforming to for-profit, non-deposit taking financial institutions, which is creating a greater need for investors and consequently a need for sound corporate governance with these partnerships.

Digital financial services offer great potential for MFIs to expand their delivery channels and increase access to financial services for excluded populations. Although many players in the region see new market entrants as competition, only 4 percent of TNDA respondents indicated that their boards were effective in assessing technology and new business models. As competition from fintechs increases, MFIs in the region will need to think strategically about establishing innovative business models and developing partnerships with these non-traditional players.

Going forward, strong governance structures will play a critical role to help MFIs in MENA sustainably grow and meet the client demand as the sector evolves. There will be no shortage of risks confronting inclusive finance providers in the region. MFIs in MENA will need to think seriously about their future strategic direction and how to address their identified shortcomings and bring their governance structures to the level needed to achieve their strategic goals.

To learn more about the results of the regional TNDA assessment, reach out to Lizzy Bolze at the Center for Financial Inclusion: <a href="mailto:lbolze@accion.org">lbolze@accion.org</a>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

<a href="https://cfi-blog.org/2017/07/24/uber-governance-fails/">Uber Governance Fails</a>

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How Can Microfinance Institutions in the Middle East and North Africa Manage Risk and Meet Client Demand? Governance Is Key!

The recent <a href="https://www.nbcnews.com/tech/security/massive-equifax-data-breach-could-impact-half-u-s-population-n799686">security breach of credit reporting agency Equifax</a> exposed birth dates, social security numbers and credit card information of up to 143 million consumers. The hackers will likely sell this personal information which could result in financial and medical identity left, and fraudulent credit card activity and tax reporting, along with a slew of other activities. Earlier this week <a href="https://www.nytimes.com/2017/09/26/business/equifax-ceo.html?mcubz=3">Equifax announced</a> their CEO, Richard Smith will be retiring and could walk away with $18 million in pension benefits. The Massachusetts Attorney General, Maura Healey <a href="http://www.npr.org/2017/09/14/550949718/after-equifax-data-breach-consumers-are-largely-on-their-own">called it</a> “the most brazen failure to protect consumer data we have ever seen.” As a result, the Federal Trade Commission, members of Congress and multiple states’ authorities are looking into criminal investigations. However, the burden of this breach will fall primarily on individual consumers to ensure they are protected, and only <a href="https://qz.com/1079138/whats-the-worst-that-can-happen-with-the-equifax-breach-a-lot-especially-if-youre-poor/">10 percent</a> of the potential 143 million affected have even checked the Equifax site to see if their information was compromised. (You can check to see if you may have been impacted <a href="https://www.equifaxsecurity2017.com/am-i-impacted/">here</a>.)

The precautionary recommendations put forth have been to: 1. Check your credit score regularly (which can only be done for free once a year); 2. Freeze your credit; and 3. Purchase credit monitoring services. (Freezing your credit means establishing a “lock” that prevents opening new forms of credit in your name, while monitoring your credit is the process of periodically reviewing your credit reports for accuracy and changes that might be the result of fraudulent activity.) The irony of these suggestions is that you have to rely on the three major credit bureaus (Equifax, Experian and TransUnion) to perform these consumer protection activities. How can we know we are safe from fraud when our recourse requires trusting the entities that have been compromised? What’s more, why should we pay additional fees to correct the credit bureau’s mistake?

The Equifax breach affects consumers at all levels of the socioeconomic landscape, and unfortunately those with fewer financial resources and capability will be affected the most. Correcting identity theft can be a time consuming and financially burdensome endeavor. For many it is challenging to come up with emergency cash to cover legal fees to prove identity theft or restore credit, recover stolen assets and pay for additional credit monitoring services. And sadly, we haven’t seen strong consumer protection support on behalf of the credit bureaus and formal financial service providers in the wake of this breach -- support like educating the public about monitoring credit, providing more than one free credit report annually or offering free/discounted credit monitoring for more than one year. Thomas Hinton, CEO of the consumer advocacy non-profit American Consumer Council, <a href="https://qz.com/1079138/whats-the-worst-that-can-happen-with-the-equifax-breach-a-lot-especially-if-youre-poor/">said</a> he “is deeply concerned that Equifax – and all credit reporting companies – are not doing enough in a timely manner to protect under-served consumers who have been victimized by this data breach and stand to suffer the most.”

Such massive security breaches erode the public’s trust in the financial system, particularly among the unbanked already skeptical of entering the formal financial fold. The <a href="http://www.usfinancialdiaries.org/issue">U.S. Financial Dairies</a> showed that many Americans don’t trust the financial system because of unexpected bank fees – like overdraft fees – and because banks provide little or no social support, which many people get with informal group lending and savings options.

This isn’t the first major data breach in U.S. history and it won’t be the last. Last year when Yahoo was in negotiations to be bought by Verizon, it came out that <a href="https://www.csoonline.com/article/2130877/data-breach/the-16-biggest-data-breaches-of-the-21st-century.html">1.5 billion</a> user accounts were compromised between 2013 and 2014. And we can’t forget the 2013 Target breach that compromised credit/debit card and contact information of up to <a href="https://www.csoonline.com/article/2130877/data-breach/the-16-biggest-data-breaches-of-the-21st-century.html">110 million</a> customers.

So, what can be done? How can anyone feel comfortable about the protection of personal information?

Financial service providers are looking to biometric data as a secure identification source for financial services. Over the past seven years, <a href="https://uidai.gov.in/about-uidai/about-uidai.html">the Unique Identification Authority of India (UIDAI)</a> has issued over <a href="https://uidai.gov.in/about-uidai/about-uidai.html">one billion</a> Unique Identification Numbers (UID), also known as Aadhaar numbers, which are verified and authenticated with biometric data via finger prints or iris scans. This identification system is a part of <a href="http://indiastack.org/about/">India Stack</a> that uses four distinct technology layers – including simplified payments addressing and interoperability – to provide digital financial services across governments and businesses in India.

The technology already exists to use finger print and facial scans to unlock our phones or log into personal banking apps, and there is even the potential of using <a href="https://www.wired.com/2016/03/biometrics-coming-along-serious-security-concerns/">ear scans and heart beat identification</a> as biometric identification sources. But so far biometric identification is fairly unregulated, some consider the security to not yet be airtight and there are additional privacy concerns with using bodily identifiers. Hackers are already finding ways to spoof biometric identification. Recently, the security firm Vkansee was able to <a href="https://www.wired.com/2016/03/biometrics-coming-along-serious-security-concerns/">break into Apple’s Touch ID system</a> with a small piece of play doh. But we will see rapid improvements in Apple’s security, particularly with the new iPhone X Face ID technology.

In the case of India’s Aadhaar scheme, there is robust opposition to the program, with concerns including the perceived ease of forging fingerprints, the program’s potentially inadequate digital security, and its ubiquity. Some opponents of the program believe that if the Aadhaar numbers are widely integrated and linked between previously-siloed databases, it expands the opportunity for citizen profiling and surveillance. In August, India’s Supreme Court <a href="https://www.theatlantic.com/technology/archive/2017/09/aadhaar-worlds-largest-biometric-database/538845/">issued a ruling</a> enshrining the fundamental right to privacy. The anti-Aadhaar movement in the country celebrated the ruling, asserting that the program is in conflict with this fundamental right. Soon the Supreme Court will indeed assess if Aadhaar does violate Indian citizen’s privacy rights.

Regardless of how our information is authenticated, it is becoming increasingly important for consumers to protect and regularly track their financial information. Consumers should be concerned about the potential threats and take appropriate action by checking their credit score and monitoring credit card activity. But we can also realize that, at least as of now, security breaches are mostly out of our hands.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/05/01/how-secure-is-data-used-in-digital-credit/">How Secure Is Data Used in Digital Credit?</a>

<a href="https://cfi-blog.org/2017/05/05/demonetization-brought-out-the-best-in-indian-microfinance-clients/">Demonetization Brought Out the Best in Indian Microfinance Clients</a>

<a href="https://cfi-blog.org/2017/06/28/why-do-privacy-policies-matter-for-digital-credit/">Why Do Privacy Policies Matter for Digital Credit?</a>

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In the Wake of the Equifax Breach, Are Biometrics the Answer?

Miranda Beshara

Key governance and growth insights from a regional assessment of microfinance institutions in the Middle East and North Africa.

Brief

This study seeks to understand the key governance challenges facing microfinance institutions (MFIs) in the Middle East and North Africa (MENA). It examines the challenges that board members and CEOs see for MFIs operating in the region with a focus on whether boards are well-equipped to stabilize and grow their institutions. 140 executives and board members were interviewed about the governance opportunities and challenges their institutions face, and how effectively their boards operate.

The report further explores opportunities for MFIs to improve governance practices, reach a larger client base, and stay ahead of the evolving microfinance industry.

This report is also available <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/11/CFI_Brief_MENA_TNDA_Final_Arabic.pdf">in Arabic</a>.

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Governance and Strategic Leadership of Microfinance Institutions in the MENA Region

There's one factor that FIEC members unanimously highlighted as being the primary driver in deciding where to domicile funds.

<a href="https://www.centerforfinancialinclusion.org/offshore-financial-centers-for-financial-inclusion"><img class="alignright wp-image-23798" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/offshore.png" alt="" width="300" height="384" /></a>In the aftermath of the Panama Papers, the words “offshore” and “tax-haven” are often taboo rhetoric within the investment industry. Perhaps even more so in the impact investing space, where fund managers have both fiduciary and social responsibilities. The <a href="http://fiecouncil.com/">Financial Inclusion Equity Council</a> (FIEC; of which CFI is the secretariat) recently published the report <em><a href="https://www.centerforfinancialinclusion.org/offshore-financial-centers-for-financial-inclusion">Offshore Financial Centers for Financial Inclusion: A Marriage of Convenience</a></em> to better understand attitudes and practices when it comes to how equity impact investors use offshore financial centers (OFCs). To dive into this topic, CFI and consultants Daniel Rozas and Sam Mendelson interviewed FIEC members from the U.S. and Europe. Conversations resulted in varying opinions on the practice of using OFCs, with three key considerations for doing so: administrative efficiency, tax liabilities, and transparency and ethics.

Among all FIEC members interviewed,<strong> administrative efficiency</strong> was unanimously a primary driver in making the decision about where to domicile funds. Fund managers cited the importance of understanding local regulatory requirements, the presence of embassies, bank relationships, management facilities, remittance corridors, and convenience of location as important considerations in their decision. The reality is many low income offshore countries lack the infrastructure and capacity for supporting the administrative requirements of investments. Additionally, there are increasingly stringent AML/KYC requirements that disproportionately affect lower-income countries creating administrative burdens. The new CFI report states: “…this is at least one of the goals of using OFCs – not to avoid the regulators, but to outsource some of the reporting burden to entities that specialize in this service that have relationships to do it efficiently.”

When discussing OFCs, it’s impossible to not talk about <strong>tax liabilities</strong>, which is where opinions of North American and European FIEC investors were strikingly different. It comes down to a difference in philosophy on paying taxes. Most European investors interviewed emphasized the positive impact of taxes paid to support local infrastructure and economy. While across the Atlantic, the U.S. investor’s perspective is more focused on the investor and investee. Taxes are seen as burdensome that get in the way of “the primary objective – social investments to benefit the end-client.” The view is that tax treaties are in place for a reason and investors have a fiduciary responsibility to their investors. Doing otherwise would reduce funds available to their investees.

While OFCs might seem unethical as a means to reduce tax, all investors interviewed were aligned on the <strong>importance of transparency.</strong> There is no interest in hiding operations. This includes transparency to the target country, to the source country and to their public reputation. Efforts have been made in recent years to disincentivize countries from offering unclear banking services. Industry associations like the Organization for Economic Co-Operation and Development (OECD) work with governments to promote policies that improve economic and social standards through transparency.

A few weeks ago FIEC members met in Copenhagen for an annual meeting to discuss topics like this and other questions challenging the impact investing space. The group conversation about offshore incorporation was less polarizing than the previously-received feedback of individual interviews with members, who felt the Atlantic divide about tax justification was overstated in the paper.

Everyone agreed this is an area that is misunderstood, and that investors should aim for a structure that supports paying an appropriate amount of taxes. This means avoiding double taxation, while responsibly paying the fair share. There was less importance attributed in the conversation to deciding where to domicile and more emphasis on assessing the character of who to invest with.

Debates about OFCs and taxes will become increasingly interesting as more impact funds exit their investments and consider how to do so responsibly, a topic CFI has <a href="https://cfi-blog.org/2014/02/05/the-art-of-the-responsible-exit-in-microfinance-equity-sales/">already explored</a> and will continue to dig into this year.

<em>For more, read <a href="https://www.centerforfinancialinclusion.org/offshore-financial-centers-for-financial-inclusion">Offshore Financial Centers for Financial Inclusion</a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/05/11/fintech-in-microfinance-in-search-of-the-high-tech-high-touch-unicorn/">Fintech in Microfinance: In Search of the High-Tech High-Touch Unicorn?</a>

<a href="https://cfi-blog.org/2017/03/17/whats-responsible-about-impact-investing-exits/">What's "Responsible" about Impact Investing Exits?
</a>

<a href="https://cfi-blog.org/2017/01/26/a-tale-of-four-ipos-is-public-investment-in-microfinance-becoming-ok-again/">A Tale of Four IPOs: Is Public Investment in Microfinance Becoming OK Again?</a>

Offshore Financial Centers for Financial Inclusion: An Aligned Industry or Oceans Apart?

[caption id="attachment_22489" align="aligncenter" width="615"]<img class="wp-image-22489" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/12/myanmar-accion-champions-financial-inclusion-fish-seller-ma-san-hew-microfinance-client-of-accion-dawn-image-by-john-rae.jpg" width="615" height="412" /> Accion client Ma San Htwe selling fish in Myanmar, one of the key areas discussed at European Microfinance Week 2016.[/caption]

<a href="http://www.e-mfp.eu/european-microfinance-week-2016">European Microfinance Platform</a> is celebrating 10 years of supporting inclusive finance innovation, and hosted European Microfinance Week 2016 (EMW) in Luxembourg a few weeks ago. At the conference, I joined discussions about key organizations and challenges in the industry. Here are five of the main takeaways from the week:
<h4>1. The Underserved Refugee Population<strong>
</strong></h4>
The <a href="http://sptf.info/">Social Performance Task Force</a> (SPTF) is helping to provide financial services to the refugee population, which is now <a href="http://sptf.info/working-groups/refugee-microfinance">approximately 20 million people</a>. In reality we don’t know very much about the socioeconomic needs of refugees, and much of the research is focused on humanitarian efforts. SPTF is working to research and provide guidelines to financial service providers to better serve the financial needs of this population. The guidelines will be published on SPTF’s website in the coming months. Learn more about leading organizations supporting refugees from <a href="https://cfi-blog.org/tag/financial-inclusion-of-refugees-blog-series/">CFI’s blog series</a> on refugees.
<h4>2. Opportunity in Myanmar<strong>
</strong></h4>
Representatives from VisionFund, Advans, UNCDF, and M-CRIL provided a look at the economic landscape of Myanmar and the future of financial inclusion there. In Myanmar, 70 percent of the population was excluded from formal financial services <a href="http://partners.wsj.com/metlife/multipliers/articles/myanmars-economic-revolution/">until 2011, when microfinance rapidly </a>expanded. After 2011, 267 licensed Monetary Financial Institutions (MFIs) opened. This<a href="http://partners.wsj.com/metlife/multipliers/articles/enabling-new-business/"> opportunity</a> comes with many barriers to inclusion, such as a lack of government regulation and funds and capacity-building issues. However, there is widespread optimism with an adoption of regulations proposed by the <a href="http://smartcampaign.org/home/1082/1082">Smart Campaign</a>, as well as further demand for microfinance in Myanmar. Investors should consider moving into the region for long term impact.
<h4>3. Offshore Financial Centers<strong>
</strong></h4>
The <a href="http://fiecouncil.com/">Financial Inclusion Equity Council</a> (FIEC) hosted a discussion at EMW about their latest research on offshore financial centers. Daniel Rozas and Sam Mendelson of the European Microfinance Platform have been working with FIEC members, raising questions about the key drivers in deciding to domicile funds offshore, and why this is important for the impact investing space. This session was a good introduction to the research, and their publication will be released early next year.
<h4>4. Cyber Security and Digital Finance</h4>
Expanding digital finance is important to everyone working in the financial inclusion space. Unfortunately, operational costs are too high to open banks in remote areas. The threat of cyber-attacks and the challenge of gaining trust in emerging markets are also important topics to review. International Development organizations, investors, regulators, and innovators gathered to highlight the risk. One topic that was discussed was the risks specifically faced by smaller banks: they are much more vulnerable to cyber-attacks and they don’t have enough capital to invest in security measures. Organizations like Suricate Solutions (an electronic banking and IT security firm) and <a href="http://www.uncdf.org/">UNCDF</a> are working with regulators to collect data from the market and set up preventative measures to avoid vulnerability for the financial inclusion sector.
<h4>5. Microfinance and Access to Education<strong>
</strong></h4>
This year, access to education was the theme of the European Microfinance Award. It was represented by three finalists from around the world: Kashf Foundation (Pakistan), Fundación Génesis Empresarial (Guatemala), and Opportunity Bank (Uganda). The winner was Kashf Foundation, an organization that provides loans to private schools, training for teaching staff, and educational opportunities for women and girls. In a country where 25 million children are out of school, this €100,000 award by the Luxembourg Ministry of Foreign and European Affairs will make a great impact. The organization is also <a href="http://www.smartcampaign.org/certification/certified-organizations#Kashf">SMART Certified</a> by the Center for Financial Inclusion.

These are just a few of the important discussions about innovations in financial inclusion. Each presents not only challenges but unique opportunities to learn and collaborate to make progress in inclusive finance.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/11/15/the-future-of-refugee-financial-inclusion/">The Future of Refugee Financial Inclusion</a>

<a href="https://cfi-blog.org/2015/02/18/myanmars-first-ecommerce-platform-supports-the-transition-from-cash-to-electronic/">Myanmar's First eCommerce Platform Supports the Transition from Cash to Electronic</a>

<a href="https://cfi-blog.org/2016/07/22/more-in-for-impact-whats-up-in-socially-responsible-investing/">"More in for Impact": What's Up in Socially Responsible Investing?</a>

&nbsp;

5 Themes in Financial Inclusion Innovation from European Microfinance Week 2016

<em>Alex Silva, Calmeadow Foundation, contributed to this post.
</em>

Are you a microfinance institution in the Middle East or North Africa (MENA) region? Would you like to improve your bottom-line and attract more investors? Here is one simple trick: improve your governance! A recent International Finance Corporation (IFC) paper focusing on MENA, <a href="http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/corporate+governance/publications/cg_success_stories_mena"><em>Corporate Governance Success Stories</em></a><em>,</em> concludes that “good corporate governance can help companies improve their [financial] performance and gain access to capital,” and various stakeholders, such as institutes and regulators have been actively promoting strong corporate governance in the MENA region. As a result many MFIs in MENA have experienced an increase in access to finance, higher profitability, a reduction in organizational inefficiencies, and an increase in impact on sustainability, among other important growth factors.

One such MFI is the Pakistan-based NRSP Microfinance Bank, which went through a rigorous transformation in 2007 and set goals to improve corporate governance. NRSP focused on restructuring board and management roles, establishing board committees and governance policies, and developing a risk management framework with internal audit functions. Within two years of implementing these governance changes, NRSP saw a $1.7 million profit in the first year, a credit rating improvement from “stable” to “positive”,  and an increase in board effectiveness with the inclusion of women and independent directors. At the same time its ability to leverage equity increased. Access to finance grew to four times equity.

Another MFI that demonstrates the power of good governance is Kashf. Also based in Pakistan, the institution was set up in 1996 and now ranks among the top 5 percent of MFIs in the world in terms of outreach. Kashf began corporate governance reforms in 2007. Key board committees were established to enhance its board’s independence and effectiveness, and committee structures were changed, which included enlarging the audit committee’s scope. The MFI added a non-executive member with an accounting background to enhance its board’s skill mix. To strengthen its management and control environment, Kashf bolstered its internal audit function, instituted a compliance function that reports directly to the managing director/CEO, and formalized succession planning for key senior management positions. These changes helped strengthen board effectiveness, improving board engagement on strategy setting and oversight capabilities; increase access to additional sources of funding ($25 million in commercial loans and $1 million in grants); improve Kashf’s reputation among and success with the donor community; and finally, staff morale and the company’s corporate culture were positively impacted by the changes.

NRSP and Kashf are just two of 19 companies highlighted in the IFC’s report on corporate governance success stories in MENA. Not only is good governance important to the operational health of MFIs, it is becoming increasingly significant for building reputation, and the trust of investors. The report states, “The 2008 financial crisis escalated the need for change by showing that good governance is no longer an option, but an imperative.”

In a recent study sponsored by SANABEL and IFC, <em><a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">Voices: An Assessment of the Perceived Risk Facing the Microfinance Sector in the Arab World</a></em>, which monitors the risks faced by the microfinance sector, half of those interviewed perceived corporate governance risk as “high” or “very high”. Financial institutions in all markets are rethinking the importance of improving governance, particularly in MENA where there has been an emphasis on building investor relationships by strengthening company transparency and governance strategy. Understanding how better investor relationships are linked to improvements in corporate governance has increased the demand for knowledge sharing and training in this area.

Yet there is still a significant amount of progress to be made. A <a href="http://www.ifc.org/wps/wcm/connect/a4157280485833068b81ebfc046daa89/Hawkamah_CG_Survey_MENA_Banks%2B%2B.pdf?MOD=AJPERES">study by IFC and Dubai’s Hawkamah Institute of Corporate Governance</a> found that more than half of the companies in MENA don’t fully understand the benefits of corporate governance, but recognize that governance practices need improvement, particularly in areas of board structures and roles, risk management, and audit. Undertaking organizational and board changes is daunting for any institution, but understanding the successes that many MFIs in MENA have experienced from doing so will be a motivator for other institutions to follow suit.

<em>Calmeadow, SANABEL, and the CFI are developing a Fall 2016 seminar for board members and CEOs to improve governance practices through peer-to-peer learning and exchange. Stay tuned for more information.</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="http://cfi-blog.org/2015/06/17/what-can-the-financial-inclusion-world-learn-from-fifa-about-governance/">What Can the Financial Inclusion World Learn from FIFA about Governance?</a>

<a href="http://cfi-blog.org/2015/03/11/miv-governance-the-case-of-africap/">MIV Governance: The Case of AfriCap</a>

Lizzy Bolze

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