<p>Recognizing the need for collective action in response to COVID-19, the Microfinance Coalition was formed to raise the voice of microfinance organizations and the people they serve, and to collaborate on the most pressing needs for the sector.</p>
<p>The original coalition members include:</p>
<ul>
<li>AccessHolding</li>
<li>Accion</li>
<li>Advans</li>
<li>Aga Khan Foundation</li>
<li>ASA International</li>
<li>Baobab</li>
<li>BRAC</li>
<li>FINCA Impact Finance</li>
<li>Grameen Foundation</li>
<li>Opportunity International</li>
<li>Pro Mujer</li>
<li>VisionFund International</li>
<li>Vitas Group</li>
<li>Women’s World Banking</li>
</ul>
<p>Additional supporters include:</p>
<ul>
<li>Fonkoze</li>
<li>Water.org</li>
<li>World Savings and Retail Banking Institute</li>
</ul>
<p>&nbsp;</p>
<p>&nbsp;</p>


Microfinance Coalition

How policymakers can support MFIs and their clients during the COVID-19 pandemic. 

Blog Post

<em>This post was <a href="https://www.findevgateway.org/blog/2020/05/microfinance-coalition-call-action-policymakers">originally published</a> on FinDev Gateway.</em>

Countries around the world have been heavily impacted by COVID-19. The IMF <a href="https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/04/17/IMF-Managing-Director-s-Statement-to-the-Development-Committee-April-2020-49344">predicts</a> a substantial decline in global GDP compared to 2019, with a contraction projected for emerging and developing economies to be at least 1 percent, compared to 2.9 percent growth in 2019. The full account of how the pandemic will play out in these countries will depend on many variables, including how long the outbreak lasts as well as the ramifications of the measures to contain the virus. Many have already seen significant disruptions in trade, global value chains, foreign direct investment, capital outflows and remittances. This situation is made worse by these countries’ limited domestic capacity, weak health infrastructure, and competition for scarce medical supplies and food during the pandemic, creating pressure on the prices of these critical goods.

Policymakers and global bodies, such as the UN, the World Bank and the IMF, have all stepped up to respond to the unprecedented impact of COVID-19 on the global economy and GDP growth. The <a href="https://www.imf.org/en/News/Articles/2020/04/17/pr20168-world-bank-group-and-imf-mobilize-partners-in-the-fight-against-covid-19-in-africa">World Bank and IMF have announced</a> that each has committed $18 billion to support African countries to address the pandemic. In the meantime, countries are responding with immediate actions to reduce the impact of COVID-19 on their economies. Keeping up with the flurry of different measures taken at the policy level has been difficult, but actors, such as the <a href="https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#I">IMF</a>, the <a href="https://www.iif.com/COVID-19">IIF</a> and <a href="https://www.afi-global.org/afi-covid-19-policy-response">AFI</a>, have set up trackers to help stakeholders stay abreast of the rapidly evolving landscape.
<blockquote>The rapidity of government and regulator responses to the economic and social impact of COVID-19 has left many important sectors and social groups under-represented.</blockquote>
However, the rapidity with which governments and regulators have had to respond to the economic and social impact of COVID-19 has left many important sectors and social groups under-represented in those responses. While some countries do have highly effective microfinance associations that have informed government responses, there are many countries where microfinance institutions and their clients – particularly those that are credit-only – have been largely left out of the dialogue. <a href="https://www.livemint.com/industry/banking/sbi-to-extend-moratorium-to-nbfcs-and-microlenders-11588774331563.html">The recent effort by stakeholders</a> in India to lobby the Reserve Bank of India to extend the moratorium on the banking sector to non-bank financial companies is one case in point where local action has yielded positive outcomes. Nonetheless, few countries have the local advocacy capabilities that India has, leaving a potentially significant gap in awareness of what is needed to support the microfinance sector during the pandemic, and few institutions have the wherewithal or the influence to raise these issues at this time.
<h2>Focus on Fiscal Stimulus Is a Win-Win</h2>
Most countries are embarking on fiscal stimulus, such as expanding social transfers to affected households, providing direct support to micro and small enterprises, and expanding investments in the health sector. These measures support the ability of consumers and firms to continue to operate during the shutdown, essentially increasing the demand for goods and services in the economy. These efforts are considered a win-win for both households and firms, as they enable firms to retain their workers and people to sustain their purchasing power, ultimately keeping the economic engines running.

Where feasible, countries should look for opportunities to channel these stimuli using digital channels to support widespread digital adoption. When such channels are not available, countries should explore working with microfinance institutions as partners to reach population segments that may otherwise be left out.
<h2>Financial Sector Policy and Implications for Non-Bank Actors</h2>
Countries are also taking steps to help the financial sector manage the crisis, including the following policy measures:
<ul>
 	<li>Relaxation of provisioning requirements</li>
 	<li>Re-classification of deferred loans</li>
 	<li>Relaxation of minimum capital adequacy requirements</li>
 	<li>Relaxation of collateral requirements</li>
 	<li>Liquidity support to the banking system</li>
</ul>
Depending on a country’s legal and regulatory system, microfinance institutions may or may not be covered by the aforementioned policies. Because MFIs are a critical lifeline to the bottom of the pyramid (BOP), regulators and policymakers should engage directly with local advocacy groups or technical specialists who can provide guidance on how such policies may have differentiated impacts on various categories of institutions, whether they are non-bank financial companies, non-profit organizations, cooperatives or deposit-taking institutions.

In cases where MFIs are not covered by the policy measures intended for the banking sector, efforts should be made by policymakers to solve similar liquidity, provisioning and other constraints that these institutions face. Like in the case of India, regulators should engage with institutions that serve the BOP to ensure that prudential regulations do not inadvertently cut off a critical lifeline to these actors in the financial system or create an unlevel playing field. This also applies to government decisions relating to loan moratoriums. Policymakers should work closely with MFIs to find the right balance between helping clients in times of stress and preserving the long-term financial viability of the sector. For example, in Tunisia, a six-month moratorium halted loan payments to MFIs but allows MFIs to continue accruing interest on these loans during the moratorium period. Accounting for both the needs of individuals and the businesses that support them is key.

The Microfinance Coalition recognizes the challenges that policymakers face in responding to the diverse needs of all actors across the financial sector, especially during the current crisis when many voices are seeking to be heard. For this reason, the members of this Coalition believe we have a collective responsibility to prioritize and advocate for the types of policy responses that are most critical for the microfinance sector to best serve the needs of the BOP - not only in overcoming the initial impact of COVID-19, but also in rebuilding once we begin to emerge from the pandemic and the economic aftermath. This call to action is intended to serve as our starting contribution to emerging policy responses, and we look forward to engaging further.
<blockquote>Members of this Coalition believe we have a collective responsibility to prioritize and advocate for policy responses that are most critical for the microfinance sector to best serve the needs of the BOP.</blockquote>
Although each of us has a slightly different lens, we are all deeply committed to responsible financial inclusion and the alleviation of poverty. Above all else, we want to make sure that the microfinance sector does not lose all the gains we have made in the fight for financial inclusion, and that our clients do not bear a disproportionate share of the economic pain created by this global pandemic. As a collective, we stand ready to work with all stakeholders to demonstrate the power of inclusive finance in the face of a crisis in which our services are needed now more than ever.

Microfinance Coalition: Call to Action for Policymakers

How donors can support MFIs and their clients during the COVID-19 pandemic. 

How donors can support MFIs and their clients during the COVID-19 pandemic

<em>This post was <a href="https://www.findevgateway.org/blog/2020/05/microfinance-coalition-call-action-donors">originally published</a> on FinDev Gateway.</em>

Many microfinance institutions were created through donor initiatives in the 1980s and 1990s. As these institutions have matured and commercialized, donors have shifted their efforts away from direct subsidies of microfinance operations to other critical issues, such as the infrastructure and policy environments that limit growth of the inclusive finance sector. Donors have also invested in demand-side research, building financial capability of clients, and addressing specific constraints of excluded groups, like women, farmers and youth.

Donors have continued to support market-building efforts to crowd in capital to new opportunities, such as PAYGO business models for access to energy and other services. They have also increasingly supported <a href="https://www.cgap.org/research/publication/navigating-next-wave-blended-finance-financial-inclusion" target="_blank" rel="noopener noreferrer">blended finance vehicles</a> that can support achievement of the Sustainable Development Goals (SDGs). In CGAP’s latest round of the Funder Survey, it found that <a href="https://www.cgap.org/research/publication/2018-trends-international-funding-financial-inclusion" target="_blank" rel="noopener noreferrer">one-third of inclusive finance funders</a> have aligned their funding to the SDGs.
<blockquote>The foundational support of donors is once again crucial to preserving and fostering responsible financial inclusion.</blockquote>
In light of the impact of the COVID-19 crisis on financially vulnerable micro-entrepreneurs and the institutions that serve them, the foundational support of donors is once again crucial to preserving and fostering responsible financial inclusion. CGAP is working with its members to provide visibility on where donor subsidy may be most impactful, and is supporting a data initiative to capture the effects of COVID-19 on the institutions that serve the bottom of the pyramid (BOP).

The Microfinance Coalition has identified several ways in which donors and microfinance institutions can work together to respond to the needs of the BOP during this crisis.
<h2>1. “Last Mile” Cash Distribution</h2>
Governments and humanitarian organizations are already scaling cash transfers to the BOP. As of mid-April, over <a href="https://blogs.worldbank.org/voices/how-social-protection-can-help-countries-cope-covid-19" target="_blank" rel="noopener noreferrer">126 countries</a> had expanded or introduced cash transfer programs. WFP and UNICEF also <a href="https://www.wfp.org/school-health-and-nutrition" target="_blank" rel="noopener noreferrer">announced</a> an expanded initiative to support children who are out of school and have thus lost access to school feeding initiatives. The new program supports children through vouchers or cash transfers in 68 countries.

With their deep community connections, microfinance institutions can be core partners in the “last mile” distribution of these cash transfer initiatives, particularly in communities where digital channels are not the customers’ preferred choice or where infrastructure is not readily available.
<h2>2. Partner in the Emergency Food and Medical Response</h2>
Beyond cash distribution, the humanitarian community is scaling emergency food and medical assistance.

With their extensive infrastructure, whether in the form of branch offices or agents, microfinance institutions could be leveraged in the distribution of emergency relief efforts, provided measures are taken to protect the health and well-being of their staff, and protective gear and sterilization practices are utilized. At a minimum, microfinance institutions can be used to channel information to the BOP about relief efforts that could support their ability to withstand the lockdown measures and the significant drops in income.

Furthermore, many microfinance institutions work with or operate savings groups, village savings and loan associations, and other models that are geared toward serving the most vulnerable segments. These quasi-formal structures can be leveraged in the distribution of relief efforts, facilitating access to the most excluded and often neglected segments of society.
<h2>3. Onboarding into the Digital Economy</h2>
Emerging <a href="https://www.findevgateway.org/slide-deck/2020/03/diagnosis-epidemics-impact-financial-health-working-class-and-mses-china-policy" target="_blank" rel="noopener noreferrer">evidence from China</a> is demonstrating that micro and small enterprises that are engaged on digital platforms or those that are equipped to make and receive payments digitally are more successfully navigating the COVID-19 crisis. While China’s digital ecosystem is more robust than many of the least developed countries in which the Coalition works, China does provide a lesson regarding the importance of onboarding micro and small enterprises into the digital economy as an important hedge against future pandemics and other crises.

Microfinance institutions are well-positioned to support the digitization of their clients’ businesses. Given the levels of trust they have developed with their customers, their outreach channels could serve to educate and support a gradual onboarding process.

&nbsp;

Many microfinance institutions have already begun to digitize some components of their operations, creating opportunities for their customers to transition and increase their comfort with digital tools. For example, an Accion investee, <a href="https://www.accion.org/accion-invests-in-civico-to-accelerate-access-to-innovative-financial-services-in-latin-america" target="_blank" rel="noopener noreferrer">Civico</a>, developed a new digital application to help facilitate conditional cash transfers to underserved merchants. AccessHolding recently launched a web-based application to help loan officers work quickly with customers to restructure loans. And the FINCA Impact Network is delivering public health and safety messaging to its 2.6 million customers worldwide through the network’s digital channels and agents, which are experiencing user spikes as high as 2,000 percent in the past month. For many customers, it is the first time they have connected with FINCA remotely.
<blockquote>The Microfinance Coalition stands ready to support relief efforts and requests that donors consider microfinance institutions as possible partners in relief distribution.</blockquote>
Donors are undoubtedly stepping up their relief efforts, and in doing so, are likely to rely on their traditional humanitarian assistance arms. The Microfinance Coalition stands ready to support these relief efforts and requests that donors consider microfinance institutions themselves as possible partners in the relief distribution system.

Furthermore, the Coalition calls upon the donor community to consider mechanisms to facilitate direct support to microfinance institutions in the following ways:
<ul>
 	<li>Investing as first loss partners in liquidity and guarantee facilities.</li>
 	<li>Providing technical assistance funding to support onboarding of the BOP into the digital economy.</li>
 	<li>Providing grant support to enable microfinance institutions to quickly expand their existing capabilities to extend their reach and to protect staff with the appropriate protective gear and sterilization practices.</li>
</ul>
Most microfinance institutions have long ago stopped relying on donor subsidies. There is limited risk that any short-term measures to use MFIs as relief partners or provide them direct support would trigger dependency or misdirect these institutions from their commercial orientation. The Coalition and the MFIs in our respective organizations are prepared to leverage our established networks and client relationships to support COVID-19 relief efforts to the fullest extent possible. We welcome the partnership of donors working similarly to alleviate the pandemic’s impact on the BOP.

Microfinance Coalition: Call to Action for Donors

How investors can support MFIs and their clients during the coronavirus pandemic.

How investors can support MFIs and their clients during the coronavirus pandemic

<em>This post was <a href="https://www.findevgateway.org/blog/2020/05/microfinance-coalition-call-action-investors">originally published</a> on FinDev Gateway.</em>

In our <a href="https://centerforfinancialinclusion.org/covid-19-threatens-the-microfinance-sector-and-the-livelihoods-of-those-we-serve-building-a-coalition-for-collective-action/" target="_blank" rel="noopener noreferrer">introductory blog post</a>, we introduced the members of this coalition and highlighted their capabilities to reach the lowest income countries using both traditional approaches and digital channels. In this post, we want to focus on how investors can support microfinance institutions (MFIs) to respond to the needs of the base of the pyramid (BOP) during the pandemic.
<h2>Liquidity: The Most Immediate Constraint</h2>
As with other crises, the most critical and immediate issue that presents both short and long-term risks for our collective response is liquidity. Lockdown measures and shelter in place rules have had devastating effects on the types of businesses that are run by the BOP. This has meant that many are no longer able to make repayments. Furthermore, MFIs themselves have been restricted in their ability to collect loan payments from customers, reducing cash inflows and thus, the ability to disburse new loans. While government policies, such as moratoriums on loan repayments and forced rescheduling, are intended to protect consumers, they also contribute to the liquidity crunch of MFIs.

The longer businesses are shuttered, the greater the likelihood that the BOP will be unable to resume their businesses. Without income coming in, business owners must pay for essential living expenses like rent, food or medical care out of their limited savings. Over time, business owners will deplete these savings or sell off assets, reducing their ability to re-open their businesses without cash injections. Ultimately, a significant number of microfinance clients may default on their loans due to the crisis.
<blockquote>A significant number of microfinance clients may default on their loans due to the crisis.</blockquote>
While savings balances of small deposit holders remain stable or in some cases have even increased, there is lack of clarity as to how this will play out, and things might change quickly if people are unable to resume their income-earning activities again soon. Availing savings to those in need is a critical function that deposit-taking institutions play, and it is an essential aspect of preserving the trust of their clients. Should customers fear that these funds are not available, there is the risk of a run on financial institutions. Thus, liquidity to meet deposit obligations and to maintain capital adequacy ratios is critical for these institutions and for broader macro-stability.
<h2>Rapid Response Liquidity</h2>
To address these issues, most MFIs will need access to fast operational liquidity to cover near-term staff costs and to extend broader grace coverage and relief to clients. It is important to note, however, that borrowing to cover operational expenses is at best a short-term bridge to reopening, and ultimately puts institutions in an unsustainable position if lockdowns and operational impediments persist. Depending on the duration of the crisis, pressures on institutional liquidity may increase over time.
<h2>Near-term and Medium-term Debt</h2>
Beyond the immediate short-term needs, most MFIs depend heavily on debt as a source of funding for their loan portfolios. This creates two distinct sets of problems:
<ul>
 	<li>As risk capital flees less developed markets, institutions are finding it difficult to replace loans that are not being rolled over or extended. This means their ability to offer new loans to clients, or even accommodate existing clients with prolongations, will be constrained.</li>
 	<li>Because the funds needed to repay external loans coming due are trapped in their institutional portfolios, there is also a growing possibility of defaults among otherwise solvent institutions due to liquidity shortages which will further impair their ability to attract new funding.</li>
</ul>
Most financial inclusion-supportive lenders are already keenly aware of these constraints and are working to identify a common approach given the magnitude of the crisis. Because the duration of the crisis is likely to vary from country to country and is changing fluidly, lenders must remain flexible and support the conservative approaches that MFIs are taking to preserve their liquidity while meeting the needs of their existing customers. At a minimum, lenders should be prudent in the measures they take to reschedule or restructure their debt. Where feasible, lenders should avoid highly legalistic (and therefore expensive) restructuring approaches.

The ability of MFIs to continue to serve the BOP will be contingent on how flexible their lenders are with rollover and extension requests and with their willingness to extend or support additional funding once operations have resumed. Moreover, lenders should collectively commit to not penalize MFIs that have rescheduled or restructured debt in good faith in the current environment when they seek future financing. This issue does not appear to have been addressed in either the <a href="http://www.incofin.com/wp-content/uploads/2020-04-24-MIV-Covid-19-coordination-MoU.pdf" target="_blank" rel="noopener noreferrer">memorandum of understanding</a> or the <a href="https://7eab7e50-e834-461b-8539-7e8435e86338.filesusr.com/ugd/361833_613447b8d9e1422584dc4e48ba8f3603.pdf">pledge</a> that were recently issued by a number MIVs and other microfinance stakeholders.

In specific terms, the following facilities will likely be critical for both rollover funding and new funding:
<ul>
 	<li>Rapid-deployment debt facilities to cover funding gaps</li>
 	<li>Local currency facilities</li>
 	<li>Guarantee facilities to attract new lenders</li>
</ul>
<h2>Capital Investments and Subordinated Debt</h2>
For institutions with minimum capital requirements, it is highly likely that additional injections of capital will be needed for two main reasons:
<ol>
 	<li>Interest income will decline in the short-run due to limited operations and loan losses.</li>
 	<li>Even if portfolio quality does not decline dramatically in all cases, there will likely be increased delinquencies as well as a significant amount of loan restructuring to accommodate clients facing their own operating pressures, forcing MFIs to increase their provisioning.</li>
</ol>
These two factors will likely have a highly material impact on capital adequacy as institutions will be using cash to maintain operating capacity, while incurring losses. Should capital injections to rebuild capacity post-COVID not be possible, lenders and regulators will, at a minimum, need to grant waivers to allow institutions to continue operating without it. Over time, both rapid-deployment subordinated debt funds and equity investment funds will be critical.
<h2>All Investors Must Step Up</h2>
How investors respond during this pandemic will determine the extent to which MFIs are able to respond to the needs of their customers. Many investors have already stepped up and are setting important principles and agreements toward responsible collective action. See, for example, the <a href="https://www.inclusivefinanceplatform.nl/wp-content/uploads/2020/04/COVID-19-MS-V3-1.pdf" target="_blank" rel="noopener noreferrer">investor statement</a> that was issued by the members of NpM (The Netherlands financial inclusion platform) and the previously mentioned memorandum of understanding signed by the group of nine MIVs.

We commend these organizations for taking collective actions, and call on all investors in inclusive finance to do their part. In particular, we ask that development finance institutions (DFIs), with their higher risk tolerance and longer-term horizons, support the sector in the ways that many MIVs and other social investors are unable to do.

&nbsp;

&nbsp;

Microfinance Coalition: Call to Action for Investors

There is no individual action that can address the effects of COVID-19 on the lives and livelihoods of the base of the pyramid (BOP). Collective action is needed.

<em>This post was <a href="https://www.findevgateway.org/blog/2020/05/covid-19-threatens-microfinance-sector-and-livelihoods-those-we-serve-building">originally published</a> on FinDev Gateway.</em>

Over the past couple of months, we have seen unprecedented coordination among investors, donors, and other industry actors all seeking to support the BOP and the institutions that serve them. We are building a coalition so that these institutions that serve the poor with financial services also have a voice in the COVID-19 response.

Under the leadership of Andrée Simon of FINCA Impact Finance, a new coalition is forming to raise the profile of microfinance organizations as critical players in the response to the unfolding crisis. The coalition began under the umbrella of the <a href="https://centerforfinancialinclusion.org/about/what-we-do/partnership-for-responsible-financial-inclusion/" target="_blank" rel="noopener noreferrer">Partnership for Responsible Financial Inclusion</a> (PRFI) which is housed at CFI, but quickly extended far beyond PRFI membership. Members of the coalition include:
<ul>
 	<li>AccessHolding</li>
 	<li>Accion</li>
 	<li>Advans</li>
 	<li>Aga Khan Agency for Microfinance</li>
 	<li>ASA International</li>
 	<li>Baobab</li>
 	<li>BRAC</li>
 	<li>FINCA Impact Finance</li>
 	<li>Grameen Foundation</li>
 	<li>Opportunity International</li>
 	<li>Pro Mujer</li>
 	<li>VisionFund International</li>
 	<li>Vitas Group</li>
 	<li>Women’s World Banking</li>
</ul>
Collectively, these organizations and their partners and investees serve more than 80 million active customers, 69 percent of whom are women. Each of these institutions has expanded their capacity to deliver financial services – especially in mobile and agent banking – and strengthened their infrastructure through technological innovations and digital communications, with the aim of accelerating responsible financial inclusion.

Most importantly, the microfinance institutions represented in this coalition operate in the corners of the world that are often hardest to reach. We collectively operate or support microfinance partners in 23 of the 47 least developed countries.

But more than microfinance, many of the coalition partners are also directly engaged in the delivery of additional services including education, agriculture, health and energy – reaching tens of millions of clients with other forms of assistance beyond the provision of financial services.

If leveraged strategically, the infrastructure of this group of providers could save millions of livelihoods. First, we offer critical access to credit, savings and other financial tools – increasingly through digital means – to tens of millions of people around the world who do not have formal employment opportunities. These financial services enable clients to operate small businesses that are frequently more resilient than the formal sector in the face of severe economic shocks, and which will be even more needed in a post-pandemic world in which formal employment has been decimated.

Second, these institutions collectively constitute an essential “last mile” network, meaning we have deep reach into communities in which individuals might otherwise miss out on support because of limited access, literacy, infrastructure or technology connections (where digital experience is limited and novel). Combined, these elements position microfinance as a critical tool to not only mitigate the economic impact of the crisis, but also to accelerate recovery from it.

This coalition has come together to outline what we believe is needed to support and protect our customers, now and into the future. We will articulate our collective position over the course of three blogs in which we outline our calls to action to investors, donors, and policymakers.

We invite other microfinance networks and organizations to join this coalition and to make their voices heard.

&nbsp;

Microfinance Coalition

Latest by Microfinance Coalition

Stay informed. Subscribe to our newsletter.