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Fellow Exec Ed

Blog Post

Jennifer Tescher, CEO of the <a href="https://finhealthnetwork.org" target="_blank" rel="noopener noreferrer">Financial Health Network</a> and CFI <a href="https://centerforfinancialinclusion.org/about/advisory-council/">advisory council</a> member, is used to drawing the attention of regulators, policymakers, bankers, and financiers to financial health inequities in the U.S. With the pandemic raging, these inequities have only become more evident – and the need to draw attention to them even more urgent.

Tescher’s passion for financial health research and consumer advocacy has been at the forefront of her work since founding the Financial Health Network (formerly the Center for Financial Services Innovation) in 2004. Recently, Tescher has been hosting leaders on her <a href="https://emerge.finhealthnetwork.org/explore/emerge-everywhere/" target="_blank" rel="noopener noreferrer">EMERGE Everywhere podcast</a>, writing <a href="https://www.forbes.com/sites/jennifertescher/?sh=6d85aef6612a" target="_blank" rel="noopener noreferrer">articles</a>, and <a href="https://www.youtube.com/watch?v=xFkLqcZd0g8&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">speaking</a> about building financial health ecosystems so everyone can benefit.
<h2>COVID-19’s Impact on Racial and Financial Inequities</h2>
As Tescher sees it, the typical data used to gauge the overall health of the economy bears little resemblance to the financial lives of most Americans. Compare the stock market’s recent rally to the <a href="https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-01-14-2021-11610573648" target="_blank" rel="noopener noreferrer">rising unemployment claims</a> and the disconnect becomes clear. Adding in COVID-19’s disproportionate impact on people of color, the ramifications of the current economic crisis -- including the loss of wealth and unemployment -- also become clear.

"What's different this time around is that we're having a conversation about systemic racism and the numerous structural challenges Americans face,” Tescher said in a recent interview with CFI.
<blockquote class="pullquote--left">Over two-thirds of Americans are still not considered financially healthy.</blockquote>
While the Financial Health Network’s <a href="https://finhealthnetwork.org/research/u-s-financial-health-pulse-2020-trends-report/" target="_blank" rel="noopener noreferrer">U.S. Financial Health Pulse: 2020 Trends Report</a> indicates that financial health has actually improved, Tescher highlights that over two-thirds of Americans are still not considered financially healthy, and much of the improvement can be attributed to the decade-long financial recovery finally trickling down to middle and lower-income Americans – a recovery that is now over. The report further highlights that financial health disparities have widened when considering race and income. “Taking into account COVID-19, Black Americans, people with low incomes, and women are bearing the brunt of the economic burden,” the report states.
<h2>“Breaking Silos” with the EMERGE Podcast and Platform</h2>
Highlighting COVID-19’s impact on racial and economic inequity is just one way Tescher champions the need for meaningful action to address financial health. Another way has been hosting the <a href="https://finhealthnetwork.org/programs-and-events/emerge-financial-health-forum/" target="_blank" rel="noopener noreferrer">EMERGE: Financial Health Forum</a>. Given the restrictions of COVID-19, EMERGE was reimagined this year. The Financial Health Network team created a new platform for the forum and has since leveraged that platform for a range of content such as blog posts, virtual events, and the podcast.

The idea behind the podcast, as listeners quickly learn, is the need to “break silos” to further financial health. And the diversity of professionals Tescher has on the show indicates that she means it: Dan Schulman of PayPal, Mayor Melvin Carter III, Jelena McWilliams of the FDIC, and Bill Bynum of HOPE are a few of her recent guests.

“The leaders that I’ve been privileged to interview during the first few months of Emerge Everywhere are flourishing during these challenging times precisely because of their ability to embrace complexity, demonstrate empathy, and act boldly. They see in 3-D,” Tescher points out.

Although the topics Tescher addresses in her podcast are focused on financial inclusion, she makes it a point to discuss topics relevant to leadership, industry partnerships, gender, and community engagement. For example, in the episode “<a href="https://emerge.finhealthnetwork.org/podcasts/episode-5-banking-with-empathy/" target="_blank" rel="noopener noreferrer">Banking with Empathy</a>” with McWilliams, the pair discuss disenfranchisement and inclusion in financial services as well as Jelena’s personal and financial challenges after immigrating to the U.S. with only $500.

It may seem like there isn’t much her guests have in common, but each episode includes key requirements to creating a holistic approach to financial health and (re)building the economy to work for everyone. For example, we learn in one episode that one of those requirements, feeling what it’s like to go without, is taken literally for employees at PayPal: Dan Schulman requires his staff to spend a day living without digital financial services.
<h2>Tescher on CFI’s Priorities in Inclusive Finance</h2>
With regard to <a href="https://centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week/" target="_blank" rel="noopener noreferrer">CFI’s four strategic priorities</a> – data risks and opportunities, mitigating and adapting to climate risks, consumer protection, and women’s financial inclusion -- Tescher believes that although these areas could be tackled individually, the intersection and interconnection amongst these topics are what interest her.

“Thinking about CFI’s priorities together as one is where the geographic boundaries become less relevant, which creates an opportunity for the financial inclusion industry to collaborate.”

Climate change is still an evolving topic that Tescher and her team are thinking through. The U.S. is lagging behind the rest of the world in terms of both the ramifications -- i.e. droughts and food shortages, and risk management -- as they relate to climate change’s impact on financial services and consumer financial health. When it comes to climate change, it is important to recognize the connection between physical and financial health, Tescher notes.

On gender, Tescher points out that women historically have not had the same financial health outcomes as their male counterparts, yet <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X10002330" target="_blank" rel="noopener noreferrer">women have shown</a> they are better at repaying debt like mortgages or microloans. The challenge now is connecting women to tools that are aimed at helping them become entrepreneurs and financially healthy.

Financial Health Network’s <a href="https://finhealthnetwork.org/research/consumer-data-sharing/">data work</a> continues to be one of its main policy priorities. Tescher sees the importance of data rights as a means to <a href="https://finhealthnetwork.org/research/give-consumers-control-of-their-financial-data/" target="_blank" rel="noopener noreferrer">empower consumers</a> to have control over, and access to, the information they need to make better decisions and leverage data for good.

“Consumer protection is certainly an aspect of financial data; however, the focus shouldn’t be solely on how data is used for bad, but also how to use data for good.”


Breaking Silos and Challenging Inequities in America: An Interview with Jennifer Tescher

Brief

<em>Past crises have taught the microfinance sector a lot about weathering storms, and microfinance institutions (MFIs) are once again facing challenging times. This case study is part of a series that CFI, in partnership with the European Microfinance Platform (e-MFP) and the Mastercard Center for Inclusive Growth, is publishing to revisit tales of tough times and resiliency in five markets — <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, Bosnia and Herzegovina, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, Nicaragua and <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-vitas-palestine/" target="_blank" rel="noopener noreferrer">Palestine</a> — and discuss how MFIs, with the help of their investors and other stakeholders, emerged and thrived. The lessons learned from these cases will be compiled and examined in a forthcoming report, </em>Weathering the Storm II<em>, a follow-up to the first edition published in the aftermath of the global financial crisis a decade ago. The hope is that these lessons will be applicable to not only the COVID-19 response, but to future crisis responses as well.</em>

During the final months of 2008, as the world was entering what would be the worst economic crisis of the past half-century, Senad Sinanović, CEO of Partner Microcredit Foundation in Bosnia and Herzegovina, was contemplating the future.

A year earlier, he and his staff had celebrated Partner’s 20th anniversary. Partner was founded following the tragic war that marked the breakup of Yugoslavia, which had itself been assembled from the ashes of the Austro-Hungarian Empire 90 years earlier. It was in the country’s capital, Sarajevo, that WWI began, with the assassination of the Archduke Franz Ferdinand. On his frequent work visits to Sarajevo, Sinanović sometimes passed by the plaque marking the site of the “shot heard round the world,” along the way stepping on the Sarajevo Roses — red-painted shell marks on the pavement, remnants of the Bosnian war of the 1990s. In that corner of the world, history can seem omnipresent.

But it wasn’t history that was on Sinanović’s mind. He was worried about how the financial crisis would impact his clients, his institution, and the broader microfinance sector in the country. The path ahead concerned him greatly. The situation was unfolding against a backdrop of high liquidity in the sector. A strong period of growth of the main MFIs during the second half of the 2000s, as well as a new regulatory framework for microcredit, contributed to the high confidence of donors and funders, who responded by pouring large amounts of funding into the market.

In 2008, the tiny country of Bosnia and Herzegovina, with a population of 3.7 million, was the second biggest destination worldwide, behind Peru, for <a href="https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Foreign-Capital-Investment-in-Microfinance-Reassessing-Financial-and-Social-Returns-May-2011.pdf" target="_blank" rel="noopener noreferrer">foreign capital investment</a> in the microfinance sector. In that market, Partner was (and still is) one of its leading MFIs, with the third largest by gross loan portfolio at about 181 million convertible marks (abbreviated KM), or about USD$106 million, and the second largest in number of active borrowers, at 63,500.

High liquidity may be a blessing during growth periods, but it quickly becomes a curse when loan demand contracts and all that cash sits in a bank, yielding no income. The deep recession in Bosnia brought about by the global financial crisis strongly affected the micro and small enterprises in the country, resulting in less appetite for investment, and thus for the business loans provided by the microcredit sector.
<blockquote>High liquidity may be a blessing during growth periods, but it quickly becomes a curse when loan demand contracts and cash sits in a bank, yielding no income.</blockquote>
Those same challenges also lowered clients’ ability to repay their existing loans. In a context of intense competition between MFIs and widespread multiple borrowing — which was difficult to trace since the use of credit bureau data was still incipient — this predictably resulted in severe loan delinquency problems and credit losses across all MFIs. The poor lending standards of several MFIs also undermined the sector’s reputation, further legitimizing non-repayment of loans even beyond what might have been expected from the economic downturn alone.
<h2>Dealing With High Liquidity</h2>
Partner had, by the end of 2008, a total debt of 156 million KM, broken down into 10 outstanding short-term loans with local banks and 23 long-term loans from foreign social and development investors. While the overwhelming majority of these were market-rate loans, Partner also had subsidized loans, including a 6 million euro loan from a bilateral public funder.

<img class="alignleft wp-image-41167" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Chart-debt-in-KM-4.png" alt="bar graph debt" width="700" height="389" />Some of the loans had just been disbursed when the crisis began to unfold, leading to a situation where Partner was that it could not lend out, and thus could not generate income, even as the interest due on the loans continued to accrue.

To limit interest losses, especially on its more recent and expensive loans, Sinanović tried to give the money back, asking to prepay the loans ahead of schedule. However, this was not welcomed by all investors, and some needed to be persuaded to accept the money and terminate the contracts without penalties. This process included a meeting in April 2009 with lenders at the Microfinance Centre (MFC) conference in Belgrade, organized by a group of Bosnian MFIs, including Partner. Facing the reluctance of some investors to accept early loan prepayment, one of the Bosnian CEOs questioned if their behavior was consistent with social investing, which helped change investors’ minds. During the period of crisis, and in the following years, Partner’s short- and long-term debt fell significantly. By the end of 2011, its total debt was down 61 percent from its peak in 2008.
<h2>Getting Ahead of Events</h2>
While reducing excess liquidity solved a part of Partner’s problems, the MFI was still facing strong, serious challenges in its loan portfolio and the consequences of escalating credit and market risks.

<img class="alignright size-full wp-image-41142" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Chart-glp-delinquency-partner.png" alt="graph" width="600" height="320" />During 2009 and 2010, Partner’s portfolio contracted by nearly 50 percent off its 2008 peak, and while it has been recovering steadily since then, as of 2019, its portfolio remains 25 percent smaller than it was over a decade ago, at 137 million KM ($78 million).

<img class="alignright size-full wp-image-41191" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Chart-write-offs-partner-V2.png" alt="chart" width="600" height="266" />Beginning in 2008, delinquency levels grew rapidly, peaking at 11.5 percent in 2010. Partner also took an aggressive approach to writing off loans it saw as non-recoverable. Between 2009 and 2011, the MFI wrote off 11.4 percent of its 2008 gross loan portfolio (GLP). While high, these credit losses were modest in the context of the Bosnian microfinance crisis. Three of Partner’s major competitors experienced cumulative write-offs of 25 percent or more of their peak 2008 portfolio (according to the authors' calculation using <a href="https://databank.worldbank.org/source/mix-market" target="_blank" rel="noopener noreferrer">MIX Market</a> data).

Nonetheless, Partner’s portfolio quality was worrying, and during the early months of the crisis, Sinanović knew already that Partner would breach many of its debt covenants with its lenders. Together with Partner’s board of directors, Sinanović decided to get ahead of events and provide lenders all the information available on the context of the crisis, the reputation issues affecting the sector, and the exact situation of the MFI. For this, Sinanović and his staff prepared a detailed, 13-page memorandum outlining the impact of the crisis on Partner, its clients, and the Bosnian microfinance market, as well as Partner’s response up to that point and planned next steps. The memo also included extensive monthly data and ratios pertaining to Partner’s portfolio and financial situation. This document was sent to all 17 creditors in April 2009, when the crisis was still in its early phase.
<blockquote class="pullquote--left">Sinanović and his staff prepared a detailed, 13-page memorandum outlining the impact of the crisis.</blockquote>
In this way, Partner’s transparency helped gain lenders’ confidence and, at the same time, effectively created the reporting template for all individual creditors. This early transparency helped Partner avoid being flooded with multiple and diverse requests for information by lenders and gave Sinanović and his team the space to focus on containing repayment problems in its portfolio.

Midway through the crisis, after extensive conversations with like-minded MFIs in the country and with support of outside stakeholders, Partner went further. In 2010, together with two other MFIs, EKI and Mi-Bospo, Partner created U-Plusu. This non-profit financial management advisory center aimed to tackle client over-indebtedness and improve the public image of the institution and the sector by providing financial education and mediation services between clients and financial institutions, especially in cases of multiple borrowing.

Despite the serious impact from the crisis, with credit losses accompanied by steep drops in lending and profitability (ROE decreased from 24 percent in 2008 to -5 percent in 2009), Partner managed to keep the situation under control throughout, and its solvency was never at risk. In fact, despite the large provisions and eventual write-offs, Partner’s equity only slightly decreased during the crisis period (from 43 million KM to 41 million KM).
<blockquote>Partner's solvency was never at risk and its equity only decreased slightly.</blockquote>
Partner’s ability to weather the storm was closely linked to a process of foresight and preparation led by Sinanović and the MFI’s directors. It started with swift adaptation to a significant decrease in loan demand, both in terms of credit offer and operational structure, and an aggressive strategy regarding write-offs, while getting rid of excessive liquidity and being proactive and transparent in its communications with creditors. All this helped Partner ready itself for what would be a sustainable — albeit smaller — future.

<em>What are some dos and don’ts and key success factors that the microfinance sector can learn from the Partner case? CFI’s forthcoming report, </em>Weathering the Storm II<em>, will draw on lessons from Partner and cases from microfinance institutions in four other markets: </em><a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer"><em>Azerbaijan</em></a><em>, </em><a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer"><em>India</em></a><em>, </em><a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-vitas-palestine/" target="_blank" rel="noopener noreferrer"><em>Palestine</em></a><em> and Nicaragua. See also the <a href="https://centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/">original Weathering the Storm</a> report from 2011. </em>

Weathering the Storm II: A Case Study of Partner

Following nearly a year of limited direct access to the lives of the vulnerable people who are the subject of his research, Prof. <a href="https://wagner.nyu.edu/community/faculty/jonathan-j-morduch" target="_blank" rel="noopener noreferrer">Jonathan Morduch</a> -- economist, co-founder of the <a href="https://www.financialaccess.org/" target="_blank" rel="noopener noreferrer">Financial Access Initiative</a> (FAI), scholar of the lives of the poor and <a href="https://centerforfinancialinclusion.org/about/advisory-council/" target="_blank" rel="noopener noreferrer">CFI Advisory Council</a> member – has been working beside a white-hot forge of projects, continuing to help shape the global body of knowledge about the lives that inclusive finance seeks to improve.

“It’s been a very busy time, even though we haven’t been able to do what we really want to do, which is being in the field: doing surveys, doing research, getting to know people and better understand problems.”

For Prof. Morduch and his <a href="https://www.financialaccess.org/about" target="_blank" rel="noopener noreferrer">team</a>, co-led by Timothy Ogden, that’s meant building partnerships and assembling teams for four different projects focusing on people from a range of backgrounds: from ultra-poor workers migrating to Dhaka from northwest Bangladesh, to families in Compton, California, struggling in a pandemic-scarred economy.
<h2>Small Firm Diaries: Applying the “Portfolios” Model</h2>
Perhaps the most visible of these so far is the <a href="https://www.smallfirmdiaries.org/" target="_blank" rel="noopener noreferrer">Small Firm Diaries</a> project. Morduch, co-author of “<a href="https://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/0691148198" target="_blank" rel="noopener noreferrer">Portfolios of the Poor</a>” and <a href="https://www.usfinancialdiaries.org/" target="_blank" rel="noopener noreferrer">U.S. Financial Diaries</a>, is part of a team that will apply the financial diaries model -- collecting data from hundreds of poor households frequently and regularly over a long period of time (at least a year) -- to firms with 1 to 20 employees, in contrast to CFI’s <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">research</a> on MSMEs, which has been focused on collecting and analyzing survey data on COVID-19's impact on the financial health of owners of a broader range of business sizes.

“There’s a lot of great research available on small firms from different angles – liquidity, gender, how they use digital services... The diaries instead present a chance to look at firms holistically, without imposing a particular agenda from the start. The diaries are a way to understand the lives of firms and whom they employ, whom they serve – and whom they are served by – and try to understand them on their own terms.”
<blockquote>The diaries present a chance to look at firms holistically, without imposing a particular agenda from the start.</blockquote>
With financial support from the Mastercard Center for Inclusive Growth, the Bill &amp; Melinda Gates Foundation, and the Argidius Foundation, the team will collect data for one year from firms in Colombia, Fiji, Indonesia, Kenya, Ethiopia, Uganda and Nigeria. In addition to following cash flows, the researchers will also complete qualitative interviews in roughly 100 households per country from a variety of sectors.
<h2>From South Asian Cities: Researching Digital Remittances Back Home</h2>
A second project Prof. Morduch is leading is digitally connected and builds on a <a href="https://www.aeaweb.org/articles?id=10.1257/app.20190067" target="_blank" rel="noopener noreferrer">pilot in Bangladesh</a> that connected ultra-poor families – whose working-aged children were employed mostly in garment factories in Dhaka and who were largely excluded from technology -- with digital networks to send money home easily. This pilot intervention revealed a 25 percent boost in money going to home villages; the team also found that consumption was smoothed during the lean season and increased overall. The project was spearheaded to fill a knowledge gap in the impact of domestic remittances. Beyond the numbers, it has also changed the way Prof. Morduch has viewed microfinance interventions, which have traditionally been about bringing resources like microcredit to grow businesses in villages.

“This project shows other ways to improve rural conditions. One is to make it easier for younger people to move to cities where they can be more productive and earn higher wages. What about the people who are left behind in rural areas? They can benefit if migrants have reliable ways to send money home.” In addition to introducing the technology to urban migrants and their rural families, the team translated the digital interfaces (which were mostly in English) and gave users hands-on experience. The initial result? Active use of the product went from 20 percent to 70 percent.

The team hypothesized that urban-to-rural remittances would become more frequent as a result of the digital ease of transacting. Surprisingly, the frequency remained largely the same, but the amounts grew.

While the financial and usage results were positive, the treatment group of migrants reported worsened physical and emotional health. The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.
<blockquote class="pullquote--left">The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.</blockquote>
“It’s a reminder that digital financial services can disrupt social relationships. All of a sudden, migrants are available to their families all the time, both to talk and to send money. This changes how we go through life. These technologies can be powerful, but they disturb a social balance.”

With support from the Bill &amp; Melinda Gates Foundation, the team will replicate the work in six other sites in India, Pakistan and Bangladesh.
<h2>To the Homes of Compton: A Guaranteed-Income RCT</h2>
Prof. Morduch is also part of a group that’s working on a guaranteed-income randomized control trial in Compton, California, involving several hundred families whose incomes are below twice the U.S. poverty line. The purpose of this RCT is to test a premise about <a href="https://www.youtube.com/watch?v=Yw4jRO5rYf8" target="_blank" rel="noopener noreferrer">being poor and facing instability</a>: while financial services’ role in smoothing consumption via saving and borrowing is critical, the poor also need a “<a href="https://www.microsave.net/files/pdf/BN_13_Money_Managers_The_Poor_and_Their_Savings.pdf" target="_blank" rel="noopener noreferrer">usefully large sum</a>” from time to time.

As Morduch says, families need to both “smooth” and “spike” during the year.

“These are different savings problems. We tend to focus on smoothing, but both smoothing and spiking are really hard for poorer households, and they call for different solutions.” So for the duration of the experiment, some families will get a check every couple of weeks (smoothing), and another group will get a larger disbursement of funds less frequently, which Prof. Morduch and his collaborators hope will allow them to support important purchases.

Morduch points out that even though the U.S. has the Earned Income Tax Credit (a <em>de facto</em> lump sum payment in the form of a tax refund) and programs -- like SNAP -- to support food purchases for low-income families (a smoothing mechanism), “we never really step back and think about them as financial mechanisms, and that’s what the Compton project is all about.”

Indeed, thinking about stability’s role has been a common theme throughout his planning and executing of projects. “One of the great inequalities in life is that people who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”
<blockquote class="pullquote--right">"People who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”</blockquote>
With that instability and seasonality of employment for the poor, there needs to be more frequent measurements to understand poverty, be them quarterly, or monthly, as opposed to yearly. And the kind of instabilities we saw in "Portfolios of the Poor" are also faced by American workers as the power of labor (i.e., declining unions, <a href="https://www.investopedia.com/terms/m/monopsony.asp" target="_blank" rel="noopener noreferrer">monosponies</a>) falls away, Morduch points out. The Compton project could help inform ways to better collect data frequently.
<h2>A New Primer on Financial Inclusion</h2>
As if that weren’t enough to keep them busy, a new book is also in the works. "Financial Inclusion: What Everyone Needs to Know," by Prof. Morduch and Ogden, will be an explainer organized in Q &amp; A form, a chance for the pair to “pull together ideas and evidence that we talk about all the time, but that may be new to readers.” Prof. Morduch pointed out that while organizations like CFI implicitly explain topics by offering solutions, a book that explains the problems for a broader audience will help advance financial inclusion objectives even more. The book is slated for fall 2021 release.
<h2>CFI’s Strategic Shift</h2>
In some ways, Prof. Morduch’s strategizing and planning is similar to that undertaken by CFI, for whom he has advised for many years. And the excitement is shared.

“CFI’s strategic priorities show an organization that’s truly looking forward, while also looking back. CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”
<blockquote>"CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”</blockquote>
For the latter topic, Morduch urges CFI to make it clear why climate risk is important for people concerned with financial inclusion. “If everyone worried about finance also understands why they should get excited about climate risk, then they will follow CFI, and they will push CFI to push harder, and I am excited about that possibility.”
<h2>Wanted: Closer Public Sector Involvement</h2>
Whether it’s CFI, FAI or other organizations advocating for inclusive finance, Morduch believes that public sector interventions need more prominence.

“The microfinance ethos, in some sense, got us off on the wrong foot. It seemed very anti-government in the beginning -- a private sector intervention. Politically, that was aligned with the moment, but it cut off important conversations. Instead of minimizing connections to public action, financial inclusion should be coming alongside steps by governments to support citizens. That’s one of the great omissions of the financial inclusion conversation: it has been too optimistic about the power of finance alone to address inequality.”

We at CFI agree that the conversation must go beyond private sector interventions: “How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances?” Mayada El-Zoghbi, CFI Managing Director, <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">asked</a> readers of this blog last June.

And we’re looking forward to learning and comparing what we’ve discovered.

Prof. Jonathan Morduch’s Four New Projects

In 2010, when the world was going through the largest economic crisis in three generations, the microfinance sector found – in most cases for the first time – that it’s not immune. The sector’s many stakeholders, very few of whom had previously experienced a major crisis, had to learn on the fly. Seeing this knowledge gap – and also recognizing an opportunity – CFI launched <a href="https://centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/" target="_blank" rel="noopener noreferrer">Weathering the Storm</a>, a first-of-a-kind research project to capture the experience of MFIs dealing with crisis.

With the onset of COVID-19 came a scramble for direction on how to respond, and, amid the hubbub, the first Weathering the Storm made the rounds on <a href="https://twitter.com/bull_greta/status/1254851974798999553">social media</a> as one of the reference materials for this new crisis. Many of its lessons -- admonition to MFIs to “keep leverage low and liquidity high,” focus on prioritizing client and staff confidence, emphasis on maintaining transparency with creditors -- proved as true in April 2020 as they did a decade ago. Indeed, its discussion of creditor responsibilities helped inform the rapid and well-organized <a href="https://www.covid-finclusion.org/investors" target="_blank" rel="noopener noreferrer">response by social investors</a>.

Even so, it wasn’t a perfect fit. Much of the original Weathering the Storm focused on institutions whose crises were due more to internal mismanagement than to external threats -- a situation that is largely reversed today. And most of that study focused on avoiding a crisis rather than surviving one – hardly appropriate advice to institutions facing a pandemic. Recognizing these differences, CFI -- this time in partnership with<a href="http://www.e-mfp.eu/" target="_blank" rel="noopener noreferrer"> e-MFP</a> -- launched <a href="https://www.centerforfinancialinclusion.org/series/weathering-the-storm-ii" target="_blank" rel="noopener noreferrer">Weathering the Storm II </a>to seek out cases that are more relevant to today’s situation.

The new project includes five case studies from around the world that highlight challenges that were not extensively featured in its predecessor publication. These cases examine institutions that were beset more by external challenges than internal mismanagement, and some of them feature institutions that survived exceptionally high levels of credit losses.
<blockquote class="pullquote--left">Surviving the immediate danger is only the start of a multi-year journey.</blockquote>
But perhaps what comes out most clearly from these new cases is that deep crises have long tails. Surviving the immediate danger is only the start of a multi-year journey. Some institutions spent years operating under loan restructuring agreements, effectively insolvent, as they wrote off bad loans only to the extent their paper equity allowed. New funding typically became available only after they had fully stabilized and were ready for renewed growth.

It’s true that these were the worst-case scenarios that still ended with a successful turnaround. And while the current pandemic may also create similar outcomes for a few, most institutions are likely to face less severe pressures and experience faster rebounds. Nevertheless, even if the pandemic itself ends sometime during 2021, most institutions won’t end the year fully back to normal. The after-effects are likely to last well into 2022, and for some, it may take several more years to fully recover.

In early 2021, we will compile the lessons from the combined 15 case studies from Weathering the Storm I and II – a volume that will be able to serve as a useful guide for the long road ahead. And, as with its predecessor, we hope that years from now, the many stakeholders in the sector will be able to consult it whenever the situation requires.

Preparing for the Long Tail of COVID’s Impact on Microfinance

Perhaps more than ever, 2020 provided us an opportunity to reflect on that for which we are thankful. One thing we’re thankful for at CFI is our <a href="https://centerforfinancialinclusion.org/blog/" target="_blank" rel="noopener noreferrer">blog</a>, a place where CFI and our community of contributors share their unique perspectives and calls to action for inclusive finance. The 76 posts of 2020 offer incredible insights into a wide range of themes and projects across many geographies.

Not surprisingly, since late March, nearly every CFI post has covered or mentioned COVID-19 in some form or fashion. But the top 10 posts (by unique page views) also dove into topics such as data and consumer protection -- pillars of CFI’s <a href="https://centerforfinancialinclusion.org/reflecting-on-the-past-and-charting-a-new-direction/" target="_blank" rel="noopener noreferrer">new strategy</a> -- over-indebtedness in Kenya, internal migration, women’s financial inclusion (another key, cross-cutting CFI strategic focus area), a deep dive into resilience, and even how comics were used to spread COVID-19 awareness.

Happy reading, and happy new year!
<h2>1. <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">Pandemics and Natural Disasters: What Can We Learn from Past Disasters to Help with Today’s Pandemic?</a></h2>
Two weeks after the WHO declared the COVID-19 outbreak a pandemic, Managing Director <a href="https://centerforfinancialinclusion.org/people/mayada-el-zoghbi/" target="_blank" rel="noopener noreferrer">Mayada El-Zoghbi</a> wrote about how this crisis compares to previous ones: namely, the Indonesian tsunami of 2004 and the Pakistan earthquake of 2013. She pointed out that households experience shocks similarly, regardless of the cause, and that the systemic nature of the shocks means that the firms and FSPs that serve them need to measure and implement the right responses to meet the challenge. She also predicted that the pandemic would be a “tipping point” for platform financial service provision.
<h2>2. <a href="https://centerforfinancialinclusion.org/what-is-the-future-of-microfinance-q-and-a-with-paul-dileo/" target="_blank" rel="noopener noreferrer">What Is the Future of Microfinance? Q and A with Paul DiLeo</a></h2>
This year was a tipping point for microfinance, too, noted <a href="https://centerforfinancialinclusion.org/people/paul-dileo/" target="_blank" rel="noopener noreferrer">Paul DiLeo</a> in this interview with CFI. DiLeo is the Managing Director of Grassroots Capital Management and a veteran faculty member of CFI <a href="https://centerforfinancialinclusion.org/board-leadership-for-impact-program-overview/" target="_blank" rel="noopener noreferrer">board governance training</a>. He is also coeditor of a recently published volume, “The Future of Microfinance.” DiLeo suggested that investors in this space resist the temptation to move on to the next “bright, shiny object” in financial inclusion and continue to support microfinance to preserve social missions and benefit target populations.
<h2>3. <a href="https://centerforfinancialinclusion.org/resilience-and-the-three-phases-of-response-brac/" target="_blank" rel="noopener noreferrer">Resilience and the Three Phases of Response</a></h2>
In May, BRAC’s microfinance director <a href="https://centerforfinancialinclusion.org/people/shameran-abed/" target="_blank" rel="noopener noreferrer">Shameran Abed</a> and <a href="https://centerforfinancialinclusion.org/people/laurie-j-spengler/" target="_blank" rel="noopener noreferrer">Laurie J. Spengler</a>, the CEO of Courageous Capital Advisors, wrote that resilience is the “connective tissue” between the three phases of response: relief, recovery and rebuild. The authors advocate for assessing resilience through two lenses, opportunity and risk, and point out that the pandemic is an opportunity to invest in resilience because “recurring dividends will be realized by all.”
<h2>4. <a href="https://centerforfinancialinclusion.org/data-globalization-vs-data-localization/" target="_blank" rel="noopener noreferrer">Data Globalization vs. Data Localization</a></h2>
Before the pandemic hit, CFI’s <a href="https://centerforfinancialinclusion.org/people/ethan-loufield/" target="_blank" rel="noopener noreferrer">Ethan Loufield</a> and Credit Suisse’s <a href="https://centerforfinancialinclusion.org/people/shweta-vashisht/" target="_blank" rel="noopener noreferrer">Shweta Vashisht</a> wrote about how the flow of data across borders is a contentious issue countries encounter when developing data protection laws and regulations. They present arguments for data localization, but ultimately conclude that data can, and should, be allowed to flow across borders with the right frameworks in place.
<h2>5. <a href="https://centerforfinancialinclusion.org/data-consent-lets-share-the-burden-for-effective-consumer-protection/" target="_blank" rel="noopener noreferrer">Data Consent: Let’s Share the Burden for Effective Consumer Protection</a></h2>
Also part of the <a href="https://centerforfinancialinclusion.org/data-protection-and-financial-inclusion-why-it-matters-introduction/" target="_blank" rel="noopener noreferrer">Data Protection and Financial Inclusion: Why It Matters</a> series, this post argues that it’s futile for small tech to keep up with high-standard consent practices, and that the path from data consent principles to implementation is, for low-capacity environments, “littered with landmines.” Vashisht and Loufield conclude that successful solutions need to be shouldered by both consumers and providers.
<h2>6. <a href="https://centerforfinancialinclusion.org/q-and-a-using-comics-for-covid-19-awareness/" target="_blank" rel="noopener noreferrer">Q and A: Using Comics for COVID-19 Awareness</a></h2>
<a href="https://centerforfinancialinclusion.org/people/graham-a-n-wright/" target="_blank" rel="noopener noreferrer">Graham A.N. Wright</a>, founder of MSC, sat down with CFI to discuss a series of informative comics his team produced to get the word out about the dangers of COVID. The colorful comics, complete with protagonists warning clients about the hazards of the virus and how they can help knock it out, informed how real-life group meetings and staff visits have been conducted.
<h2>7. <a href="https://centerforfinancialinclusion.org/support-for-indias-migrants-during-covid-19-navigating-potential-gaps-in-the-system/" target="_blank" rel="noopener noreferrer">Support for India’s Migrants During COVID-19: Navigating Potential Gaps in the System</a></h2>
The lockdown in India had massive impacts, perhaps for none more than internal migrant workers, who left for home villages in droves when work dried up. This post warned that system-wide social payments challenges boded poorly for these vulnerable workers due to, among other reasons, ATM access constraints and domicile restrictions of state governments. The post was authored by <a href="https://centerforfinancialinclusion.org/people/shashank-shreedharan/" target="_blank" rel="noopener noreferrer">Shashank Shreedharan</a> and <a href="https://centerforfinancialinclusion.org/people/jithin-jose/" target="_blank" rel="noopener noreferrer">Jithin Jose</a> of LEAD.
<h2>8. <a href="https://centerforfinancialinclusion.org/its-time-to-protect-kenyans-from-a-digital-lending-laboratory/" target="_blank" rel="noopener noreferrer">It’s Time to Protect Kenyans from a Digital Lending Laboratory</a></h2>
CFI’s <a href="https://centerforfinancialinclusion.org/people/alex-kessler/" target="_blank" rel="noopener noreferrer">Alex Kessler</a> warns readers that the breakneck growth in mobile lending and aggressive debt collection and debt stress have raised enormous consumer protection red flags. This article offers key statistics on mobile money’s exponential growth there, highlights the need for consumer protection-oriented algorithms, and suggests calls to action for regulators.
<h2>9. <a href="https://centerforfinancialinclusion.org/reimagining-inclusive-finance-with-women-in-mind/" target="_blank" rel="noopener noreferrer">Reimagining Inclusive Finance With Women In Mind</a></h2>
In this <a href="https://centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> post, we meet Carla, a fictitious -- but very realistic -- mother of three young children living in a village in Tanzania. Carla’s story is like that of millions of poor women in the Global South who are excluded from financial products that weren’t designed for them. CFI gender lead <a href="https://centerforfinancialinclusion.org/people/julia-arnold/" target="_blank" rel="noopener noreferrer">Julia Arnold</a> asks our community if we are listening to women enough, and implores our sector to design and deliver financial products and services with the Carlas of the world in mind. She also provides early thinking around CFI’s gender work in 2021 and beyond.
<h2>10. <a href="https://centerforfinancialinclusion.org/can-financial-inclusion-moderate-impacts-to-coronavirus/" target="_blank" rel="noopener noreferrer">Can Financial Inclusion Moderate Impacts of Coronavirus?</a></h2>
It’s fitting that we round out the 2020 list with our very first COVID response post, written by research lead <a href="https://centerforfinancialinclusion.org/people/eric-noggle/" target="_blank" rel="noopener noreferrer">Eric Noggle</a> and published on March 20. While alarm bells in the media had sounded long before, this was one of the early posts in the inclusive finance space that offered a clear call to action for this “major stress test,” namely, getting as much money as possible into the hands of those who need it most -- and doing so as quickly as possible. How did governments of the world do? Read our December <a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">policy brief</a> for examples of many governments that innovated quickly to get social payments into the literal and digital hands of citizens.
<h3>We hope you continue to read and share views from our blog in 2021. For a sneak peek into the kind of content you'll see, revisit these Financial Inclusion Week posts (plus #9) related to our top priorities for inclusive finance:</h3>
<h3>• “<a href="https://centerforfinancialinclusion.org/financial-services-are-needed-to-help-low-income-people-mitigate-and-adapt-to-climate-change/" target="_blank" rel="noopener noreferrer">Financial Services are Needed to Help Low-Income People Mitigate and Adapt to Climate Change</a>” By Eric Noggle
• “<a href="https://centerforfinancialinclusion.org/covid-19-ushers-in-new-challenges-for-consumer-protection/" target="_blank" rel="noopener noreferrer">COVID-19 Ushers in New Challenges for Consumer Protection</a>” By Lauren Braniff
• “<a href="https://centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers/" target="_blank" rel="noopener noreferrer">Data for Inclusive Finance: Delivering on the Promise for Consumers</a>” By Alexandra Rizzi and Alex Kessler</h3>

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<h2>FinHealthCheck</h2>
<p>Tescher and her team often say that “<a href="https://emerge.finhealthnetwork.org/what-gets-measured-gets-managed-making-employee-financial-health-personal/">what gets measured gets managed</a>.” A critical piece of Financial Health Network’s theory of change is that there should be an easy way for companies to measure the financial health of their customers and employees; otherwise, it won’t be prioritized.</p>
<p>To make financial health a priority for the private sector, the Financial Health Network spent the last eight years developing a financial health framework and measurement methodology building on learnings from the <a href="https://finhealthnetwork.org/score/" target="_blank" rel="noopener">FinHealth Score</a>, Financial Health Pulse and <a href="https://finhealthnetwork.org/research/eight-ways-to-measure-financial-health/" target="_blank" rel="noopener">eight indicators</a> the Financial Health Network developed. They worked with dozens of firms to test their measurement framework and help them gain a deeper understanding of their customers and employees.</p>
<p>Turning all of that experience into an end-to-end system, Financial Health Network launched the FinHealthCheck platform in 2020 to make financial health management standard practice. FinHealthCheck will help organizations improve the financial health of their customers and employees, whether through a new strategy, a new product, or a revised policy or process. The platform allows partners to survey, aggregate data, and benchmark their outcomes. Tescher and her team are looking for visionary organizations that share their mission to join a growing roster of early customers.</p>
<h2>Looking Ahead to 2021</h2>
<p>With the incoming administration in the U.S., Tescher and the Financial Health Network believe there are significant opportunities for the public sector to address the systemic issues underpinning poor financial health. Part of their 2021 plan is to develop a <a href="https://finhealthnetwork.org/research/policy/" target="_blank" rel="noopener">financial health policy agenda</a>, which includes how the public sector can leverage Financial Health Network’s data and expertise to support financial health-oriented policies.</p>
<p>One characteristic that remains constant in Techer’s writing, talks, and podcasts is that she is optimistic for the future. In Tescher’s <a href="https://emerge.finhealthnetwork.org/podcasts/episode-9-seeing-the-silver-linings/" target="_blank" rel="noopener">last podcast episode of 2020</a>, after acknowledging the tragedies we’ve all witnessed this year, she shares her three “pandemic silver linings”— the growing energy around stakeholder capitalism, racial equity, and empathy.<br />
She believes there is no doubt we’ll look back at this time as one that has brought to light so many persistent issues such as racial justice, economic inequality, and public health.</p>
<p>The challenge, according to Tescher, is to ask ourselves “what silo-busting will we accomplish in the new year?”</p>


The founder and CEO of the Financial Health Network discusses COVID’s impact on communities of color, Financial Health Network’s projects for 2021, and her take on CFI’s strategic priorities. 

Joana Afonso

Daniel Rozas

Ezra Mannix

With the pandemic restricting direct research, 2020 was a year of planning and preparing for a busy 2021 that will (if the pandemic abates) take Prof. Morduch and his collaborators from rural villages in South Asia to Compton, California – all with a view towards further deepening our understanding of the lives of the poor.

While similarities between the pandemic and the financial crisis a decade ago exist, the threats are now more external, which is one reason CFI is publishing an updated case study series: Weathering the Storm II.

Data, consumer protection, and women's financial inclusion were among the most read topics this year. 

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