In 2014, Vitas launched a special needs loan program in Iraq, made available to people with disabilities (PwDs), particularly youth. The loan amounts range from US $100 to $3,000. Our current portfolio of almost $200,000 includes nearly 300 clients.
<h3>What was the need for a product to reach this segment?</h3>
We realized that there were huge negative misperceptions around and persistent stigmas associated with PwDs. People who are blind, deaf, partially paralyzed, have missing limbs, or have other special needs were mostly excluded from parts of society. Successive governments have failed to address the problem and the stigma has remained. We believe that PwDs have tremendous potential to be productive contributors to their communities, yet they are not given the tools to do so. Furthermore, natural disasters and conflicts create even greater numbers of PwDs, rendering this problem more acute. However, with a tailored approach to provide support, we believe that many PwDs can reach their full potential and become active and vigorous social and economic participants.
<h3>Young PwDs</h3>
According to the World Health Organization, during the years of war and the various disasters that have followed, the number of PwDs in Iraq has now reached approximately 2 million. A significant number of these are youth. It was vital for us to recognize disabled Iraqi youth as an opportunity rather than a problem. Contrary to the commonly-held belief that PwDs cannot be good clients because of their perceived inability to work, our experience has proven that PwDs do make good clients.
<blockquote>Contrary to the commonly-held belief that PwDs cannot be good clients because of their perceived inability to work, our experience has proven that PwDs do make good clients.</blockquote>
<h3>What is the impact?</h3>
The current political environment in Iraq leaves PwDs completely neglected by the government. Since launching our product two years ago, we are proud to report that the results are extremely encouraging. There has been a positive increase in social capital overall, such as improved self-esteem for PwDs and pride among members who have supported them. More importantly, we have been able to work toward changing social perceptions.
<h3>Scalability</h3>
Vitas’ outlook toward financial inclusion for PwDs is to increase the special needs loan outreach by implementing improved processes and tools, training staff to increase awareness, and continuing to organize and sponsor initiatives aiming at supporting these important members of our society. We want to establish strategic partnerships with various government institutions such as the Ministry of Social Affairs, civil society and local associations, to reach larger numbers of PwDs, and empower them to generate their own incomes and improve their standard of living.

There is a double social impact in changing harmful and ill-informed biases and unlocking the potential of PwDs to live full and productive lives. Given our experience in Iraq, we feel there is an opportunity to offer similar products across the Middle East. To this end, we have also renewed our focus on offering employment opportunities to PwDs at our subsidiaries. Breaking down this entrenched stigma takes time, but it is critical to fulfil our mission that all people should have access to the financial tools they need to improve their lives and become full social and economic participants within their communities.

Read about CFI’s work on the topic of PwDs <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-for-persons-with-disabilities/">here</a>.

Why We Serve People with Disabilities: Lessons from Iraq

&gt; Posted by Elissa McCarter-LaBorde, CEO, Vitas Group

<a href="https://www.flickr.com/photos/126278138@N03/17096832777/"><img class="alignright wp-image-23408" style="margin-top: 0;border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/17096832777_b86f614a70_z1.jpg" alt="" width="315" height="178" /></a>Alex Silva and Jeffrey Riecke’s recent blog post entitled “<a href="https://cfi-blog.org/2017/03/17/whats-responsible-about-impact-investing-exits/">What’s 'Responsible' about Impact Investing Exits?</a>” hits squarely on the head a critical issue facing our industry. But it doesn’t go far enough. They ask “What if responsible investors sell their stake to an investor that doesn’t place priority on the social mission?” They argue for investors to take a “pragmatic” course and find “a buyer in the middle,” meaning something in between the “high-priced but questionable offer” and the “capital-starved social investors.” This left me wondering, who exactly is in the middle?

In the past, the NGO founders of what are today profitable microfinance banks were expected to be the keepers of a social mission, if not through ownership then through some form of continuing sponsorship or governance role. Compared to five years ago, today we see term sheets that force NGO shareholders out in the name of successful exits. In fact, even the large open-ended funds, presumably more socially-responsible leaning ones, and the development finance institutions (DFIs) that technically don’t require tighter exits of 5-7 years, are coming with term sheets that require a put option (an option contract giving the owner the right to sell assets at an agreed price) in 5-7 years back to the NGO founder or the company, or that include a drag-along right that forces a majority sale to a future “strategic buyer.” In other words, if the minority investor finds a strategic buyer who wishes to buy a majority stake or to acquire the whole company, the investor can drag other shares along to constitute a majority sale.

This seems to be the outcome of lessons that exits are still incredibly difficult in our industry. With IPOs hard to count on, the equally opaque and far off “strategic buyer” seems the other plausible solution. But just who is this strategic buyer? It is not another microfinance investment vehicle (MIV), DFI, or other player on the spectrum of social responsibility. Few of these want to buy secondary shares. A strategic buyer is a commercial bank, a telecommunications company, a consumer finance company, or other commercial entity that will want to get in on the base of the pyramid market.  Hopefully the managers of these businesses might have sympathetic feelings about the business and appreciate that it is social because it reaches lower-income customers, but at the end of the day, social is not in their lexicon.

Is this a bad thing? I agree with Silva and Riecke that if lower-income customers are served well, then it shouldn’t matter. But in reality, it does often matter because there are tradeoffs. We in the financial inclusion industry are working very hard to demonstrate returns and prove that exits are possible in order to build an impact investing community of buyers and sellers. But it can be at the expense of the investees – the financial service providers. We need more of the focus to be on what these financial service providers need and how to tailor the right kind of capital to fit those needs. Where are the (affordable) investment bankers who can identify buyers and structure appropriate capital at the right stage to match those needs?  Managing a double bottom line is never an even balance when shareholders are sitting at different stages of investment. There are always trade-offs. Riskier market segments, harder to reach geographies, capacity building or expansion that is good for the investee and its customer base, but will reduce book value and returns in the short run, are often at the losing end of those trade-offs. They are casualties when the dominant need is to push the price up.

Who is responsible for the responsible exit? We need shareholders to act responsibly together, to sequence investments in a way that helps the business pursue its goals and leads to the success of the business, not just the success of the impact fund. The fund managers who often sit on boards are not in the right place to do this. There are too many pressures to demonstrate a return for the next fund they are raising. Should the onus be on the anchor investors, many of whom are still DFIs and large institutional investors? The alternative is that “pragmatic” decisions taken by shareholders could force a sale to a commercial buyer when the institution might not be ready or not find such a sale in its best interest at that point in time.

In full disclosure, I am not opposed to commercial investors and ironically, I am finding the purely commercial investors easier to negotiate with, than the socially responsible ones who in theory are “like-minded.”

Vitas Group, established by Global Communities as a for-profit vehicle to advance its work in financial inclusion, operates a network of financial services companies that lend to small enterprises across the Middle East. Over the last decade, Vitas companies have disbursed more than $1.6 billion to 614,000 customers with an annual default rate below one percent in Iraq, Palestine, Lebanon, and Jordan. Vitas employs more than 1,500 young professional staff and has sustained more than 214,000 jobs by lending to small business owners. Despite the volatility that has defined this region, even before ISIS or the Syria conflict emerged, Vitas has continued to earn double digit returns and has been a solid investment for its shareholders, illustrated by the fact that this year Vitas will close its first transactions with two purely commercial, private equity investors in the region.

To my point above, Vitas could not have arrived at this point without the right kind of capital at the right time. With new commercial partners and technological innovations coming into our industry, we have an even greater opportunity to achieve that larger goal of financial inclusion for every citizen. But that makes it all the more important for the development-focused founders, sponsors, investors, and other shareholders to govern well and to work together responsibly to shepherd the process.

<a href="http://www.vitasgroup.com/summary/leadership/#">Elissa McCarter-LaBorde</a> is Chief Executive Officer of Vitas Group and Vice President of Development Finance for Global Communities, where over the last 12 years she has built the technical department that manages Global Communities’ microfinance, SME, and housing finance operations. Ms. LaBorde has 18 years' experience as a microfinance practitioner.

Image credit: <a href="https://www.flickr.com/photos/126278138@N03/17096832777/">Pictures of Money</a>

Have you read?

<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/2013/03/20/four-challenges-for-impact-investing/" target="_blank" rel="noopener">Four Challenges for Impact Investing</a>

<a href="https://cfi-blog.org/2015/03/03/what-impact-investors-could-learn-from-microfinance/">What Impact Investors Could Learn from Microfinance</a>

Who's “Responsible” for Responsible Impact Investing Exits?

&gt; Posted by Iftin Fatah, Investment Officer, Overseas Private Investment Corporation (OPIC)

<img class="alignright wp-image-23090" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/sewing.png" alt="sewing" width="305" height="241" />Limited access to credit in the developing world is often exacerbated by conflict, which presents a strong demand for microfinance. In Iraq, for example, only 11 percent of adults hold an account at a formal financial institution, according to the <a href="http://datatopics.worldbank.org/financialinclusion/country/iraq">2014 Global Findex</a>. The Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, is helping to build a more inclusive financial sector in Iraq through its partnership with Vitas Iraq, a subsidiary of Global Communities, which is a non-profit development organization that partners with local stakeholders across a range of topic areas. Vitas Iraq established Al Tamweel Al Saree LLC (ATAS) as the financing vehicle to support expansion of its operations. In 2012, OPIC provided ATAS with a direct loan to enable the expansion of Vitas Iraq’s portfolio of loans to individuals and to micro, small and medium-sized enterprises (MSME), thereby expanding financial access in Iraq.

The loan, which supports inclusive economic growth in Iraq, also underscores OPIC’s commitment to investing in development in regions affected by conflict. About one-third of OPIC’s global portfolio is in conflict affected regions. By country, Iraq represents OPIC’s second-largest microfinance exposure. OPIC’s commitment to investment in conflict affected regions is based on the understanding that economic stability can help promote political stability. With the support of the OPIC loan, Vitas Iraq has contributed to different facets of Iraq’s economic growth. This includes an estimated 107,500 loans disbursed since 2012, including 26,500 to women and 61,560 to first-time borrowers.

Vitas Iraq lends to Iraqi individuals and small businesses who do not otherwise have access to sufficient capital. It is the largest microfinance institution (MFI) in the country, with a market share of nearly 40 percent and a network of 14 branch offices in 11 governorates across the country. The bulk of Vitas’ operations are in central and southern Iraq - areas that have been less directly impacted by conflict.

Performance and Social Impact

Vitas Iraq offers a wide array of financial products and services from individual loans tailored to MSMEs to home improvement, group, and youth lending. It provides loans up to $25,000 under flexible terms ranging between 8 and 24 months. As of December 2016, ATAS has a gross loan portfolio of $69.8 million which reflects an average annual growth rate of 12 percent since 2013. As of December 2016, Vitas Iraq has maintained PAR30 below 2 percent, despite the uncertain political, security and economic climate in Iraq.

Vitas Iraq and OPIC place a great emphasis on the importance of balancing financial and social impact. Both institutions have endorsed the Smart Campaign, a global effort to integrate client protection into MFIs’ due diligence, investee selection and loan covenants.

Client Focus

[caption id="attachment_23083" align="alignright" width="300"]<img class="wp-image-23083" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/houssam.jpg" alt="houssam" width="300" height="225" /> “With the support of Vitas Iraq, I was able to overcome the painful ordeal that befell me and provide my family with a decent life.” - Houssam[/caption]

Adaweya (pictured above) has been sewing curtains and clothing for several years at her home. Life hit her hard when her husband had an accident at work which left him disabled, leaving her as the sole breadwinner for the family. With the support of three Vitas Iraq business loans, she was able to expand her sewing business, increase her income, and provide education to her three daughters and treatment to her husband. The family was able to move to a better place where Adaweya became a member of a charity distributing clothes to orphans. She hopes to continue to expand her business to cover the whole city and other provinces.

At 26 years old, Houssam, received an incorrect diagnosis and medical treatment that led to complications and paralysis in both legs. Obtaining a loan from Vitas Iraq enabled Houssam to open up a spare parts shop. This was essential in helping Houssam provide a living for his family, as the sole breadwinner.

As these stories highlight, access to finance can be transformative, particularly in post-conflict countries such as Iraq. The work of Vitas Iraq has helped to build an inclusive financial sector in Iraq. Financial products as well as the offering of education and training of entrepreneurs to better manage their loans and business paths has proven impactful to Iraqis as they work to rebuild their society and revitalize their economy.

Have you read?

<a href="https://cfi-blog.org/2012/01/11/opic-supports-microenergy-credits-in-building-clean-energy-microfinance/">OPIC Supports MicroEnergy Credits in Building Clean Energy Microfinance</a>

<a href="https://cfi-blog.org/2016/09/30/power-of-partnerships-how-guaranteed-loans-to-microfinance-institutions-benefit-people-in-emerging-markets/">Power of Partnerships: How Guaranteed Loans to Microfinance Institutions Benefit People in Emerging Markets</a>

<a href="https://cfi-blog.org/2017/02/14/refugees-and-humanitarian-assistance-which-kind-of-aid-is-best/">Refugees and Humanitarian Assistance: Which Kind of Aid Is Best?</a>

Building an Inclusive Financial Sector in Iraq

&gt; Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign

This is the fourth and final blog entry in a <a href="https://cfi-blog.org/tag/financial-inclusion-of-refugees-blog-series/">series</a> exploring how financial services can be leveraged to assist refugee populations. This entry will consider the future of refugee financial services and what our sector can do to ensure that the future is an inclusive one that serves genuine needs and protects refugee rights. 

Syrian refugees shop at a market with their bank card given by the Turkish Red Crescent.

It is worth asking whether the financial inclusion sector is at the forefront of the movement to financially include refugees. The humanitarian sector has long struggled to determine how to provide assistance during a crisis in a way that is sustainable, effective, and accountable. Recently, humanitarian organizations such as Oxfam and the International Finance Corporation (IFC) have begun considering whether it’s possible to use payments as an on-ramp for financial inclusion of refugees. Cash transfers have historically facilitated corruption and failed to make it into the hands of the people who needed it most. In-kind donations of goods such as tents, food, sleeping material and other items undermined local merchants who made their livelihoods selling these very goods. In response, the sector has begun experimenting with digital financial payments. In Afghanistan, for example, the World Food Program (WFP) has <a href="https://btca-prod.s3.amazonaws.com/documents/185/english_attachments/Afghanistan_Case_Study_May2016.pdf?1463507198">issued e-vouchers</a> and mobile money to cover food aid. The first e-voucher pilot was carried out on a small user base of 603 recipients in Kabul for a three-month disbursement cycle from April to June 2014. The total value of e-vouchers disbursed was US$72,360. The program proved successful and the WFP launched several follow-on pilots across the country in the subsequent year.

By eliminating the need for central distribution points, e-vouchers helped insulate staff and beneficiaries from security risks. Biometric technology such as finger-print scanning and chip and pin technology helped the WFP overcome literacy challenges and safeguard client data. As a result, e-vouchers were more effective at protecting clients’ rights to privacy and helped deliver a more transparent and approachable payment product.

Lebanon has proved to be another test case for digital financial services and refugee populations. Lebanon has welcomed 1.2 million refugees within its borders, mostly from Syria, Iraq, and Palestine. As such, it is the country with the most refugees per capita in the world. Here too, digital financial services have played a pivotal role. By creating points of access with merchants and ATMs, aid organizations have <a href="http://www.cashlearning.org/downloads/untappedhumanitariandemand-abusinesscaseforexpandingdfs.pdf">developed a fully functioning distribution network</a>, allowing refugees to use their pre-paid cards in more transactions than ever before.

With the success of these seemingly disconnected technology programs, humanitarian organizations have begun speaking to their financial sector counterparts to explore how these pilots could transition to an on-ramp for genuine financial inclusion. Whereas in the past, humanitarian organizations became adept at quickly installing basic, flexible, and effective financial networks to use in times of crisis, the new approach seems to be focused around developing a more lasting system that can continue to serve at risk populations long after reconstruction. For example, more and more humanitarian organizations are considering how payment networks can evolve into a system that facilitates savings, credit, and insurance.

What can donors do better?

To achieve results on this front, donors, aid agencies, and humanitarian organizations will have to take a critical look at prior approaches and incentives. For example, the sector may wish to reconsider whether old monitoring and evaluation paradigms are best suited to providing sustainable financial services to refugees. Previously, auditors assessing the efficacy of an intervention might have counted how much money was distributed and spent. However, if we are to work towards developing long-standing financial channels for refugees, it is imperative that we account for and encourage savings. Evaluators may be required to develop newer and more accurate metrics to determine whether pre-existing payment channels can grow to accommodate the diverse array of financial services refugees will require.

Additionally, donors and practitioners will need to learn to tell their story better. In doing so, they might consider what counts as a success and why it matters to governments, donors, practitioners, and to refugees themselves. New narratives would be most effective if boosted by emerging research on refugee financial services. For example, if the sector were to demonstrate that financially included refugees are more likely to return to their country of origin, it could use this data to make a stronger case before skeptical donors. Donors champion financial organizations like Al Majmoua in Lebanon and Microfund for Women in Jordan that experiment with financial services for refugees.  By highlighting successes, donors could use their considerable megaphone to reinforce the importance of such programs and demonstrate that they can deliver financial services for refugees in a sustainable and effective manner. Such publicity could be paired with a concerted focus on overcoming the perception of refugees as risky borrowers: donors could guarantee some portion of loans issued.

What can practitioners do better?

Practitioners can find new ways to leverage digital services to address challenges refugees face. Myriad avenues are being explored; a few of the more promising ones are highlighted below:
<ul>
 	<li>Currently, refugees risk losing credit histories that they carefully built in their home countries – as well as credit histories they start from scratch and build in their host country. Credit score portability can help mitigate these challenges and encourage refugees to take up financial services in their host country as well as return to their home countries when it is safe, with the knowledge that their sound financial decision making will be recognized.</li>
</ul>
<ul>
 	<li>Refugees often arrive to their host countries with few fixed assets and limited collateral. Creditors can harness the power of crowdfunding to create digital stores of collateral for potential refugee clients, allowing them to get a foot in the door of the credit marketplace.</li>
</ul>
<ul>
 	<li>As refugees might arrive with limited documentation, they are often unable to demonstrate their creditworthiness. Alternative creditworthiness analysis tools offer one promising solution. By leveraging a refugee’s social media presence, contacts and networks, loan officers can get a sense of the client’s trustworthiness and diligence, allowing the provider to lower the interest rate on an otherwise prohibitively risky product.</li>
</ul>
<ul>
 	<li>Many refugees face political persecution in both their home country and their host country. As such, they are often reticent to divulge personal information necessary to secure a loan. Strong digital safeguards can help protect a refugee’s privacy, anonymize data and minimize risk to the client’s contacts back home.</li>
</ul>
Technology, of course, will not be a substitute for appropriate strategizing and good sense. Many of the core obstacles facing refugees’ financial inclusion can be best solved not through novel technical approaches but by reviewing and carefully internalizing lessons already uncovered by the sector. For example:
<ul>
 	<li>Mobile lending units allow the product to come to the client in cases where the client cannot come to the product. In Syria, UNRWA developed a small fleet of mobile lending units, allowing loan providers to reach clients in areas with few security threats but limited financial infrastructure.</li>
</ul>
<ul>
 	<li>Appropriate and flexible products can help an institution adapt to a rapidly changing situation. In Syria, UNRWA launched its <a href="http://www.unrwa.org/sites/default/files/content/resources/microfinance_department_annual_report_2015.pdf">BST (“Bastat”)</a> product aimed specifically at street peddlers and designed to cope with their frequent displacement, in part through low repayment amounts. A separate product provides home reconstruction loans for Syrians. These highly tailored products help address real and pressing needs faced by Syrian victims of conflict. These strategies are an effective illustration of appropriate product design, the first of the Smart Campaign’s Client Protection Principles. You can learn more about how the Smart Campaign views this principle <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">here</a>.</li>
</ul>
<ul>
 	<li>Providing financial services to refugees is often a contentious proposition. In countries where resources are limited, politics are fraught and conflict is a recent memory, the public and the government are often skeptical when precious funds are redirected to temporary and foreign visitors. Recognizing this reality, institutions can minimize disruption by supporting activities that do not compete with the local economy. For example, in Lebanon, Al Majmoua has funded refugee families who make aghabani table cloths, a traditional Syrian textile in high demand throughout the Middle East.</li>
</ul>
<ul>
 	<li>Institutions serve refugees best when they focus on people. As we’ve seen in <a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">our Azerbaijan case study</a>, one of the easiest and most effective ways financial institutions can learn about how to serve refugees and the internally displaced is to hire them. Refugee staff come with an intuitive feel for the clients and their culture and an eagerness to work and learn. Additionally, financial institutions have found success by creating joint refugee and host borrower groups to create interdependence and build bridges between individuals who might not normally associate with one another. Additionally, by offering financial products to women refugees specifically, institutions are more likely to assist an underserved market segment and less likely to be seen as intrusive.</li>
</ul>
What governments can do better:

Meaningful progress on providing financial services to refugees requires the assistance of governments. Elected and appointed officials set the rules of the market, determine the country’s overarching policy towards refugees, signal moral support for migrants’ rights, and channel public concerns. Their support is fundamental to ensuring that refugees and the internally displaced can access meaningful economic opportunities.

Government officials can begin by stimulating an honest dialogue about the political dimensions of refugee financial inclusion and steering the rhetoric away from a binary option. Rather than forcing the public to make an imagined choice between citizen rights and refugee assistance, governments could explore avenues for how refugees can be financially included while benefiting their host communities.

Recognizing that refugees are some of their most vulnerable populations, officials can enact rules that would ensure their protection. By encouraging formal institutions to enter the market before they are superseded by less reputable lenders, officials can prevent the emergence of a black market for credit and thwart abuses before they appear.

While financial inclusion practitioners know far more about what it takes to assist refugees today than ten or even five years ago, there is much more to learn. Are refugees with more access to capital more likely to return to their home country? What types of financial services offered to refugees have the greatest net-positive effect on their host communities? These and other questions require additional research. Governments have the resources and the moral suasion to commission and implement such studies and should be vocal about the need to learn more on this critical topic.

Have you read?

<a href="https://cfi-blog.org/2016/09/20/financial-inclusion-of-refugees-an-introduction/">Financial Inclusion of Refugees: An Introduction</a>

<a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">Financial Inclusion of Refugees: Azerbaijan Case Study</a>

<a href="https://cfi-blog.org/2016/10/07/financial-inclusion-of-refugees-al-majmoua-in-lebanon/">Financial Inclusion of Refugees: Al Majmoua in Lebanon</a>

The Future of Refugee Financial Inclusion

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18868" style="border:1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/08/fi2020-news-feed-8-3-2015.png" alt="" width="615" height="330" /></a>

Freshly published is the latest edition of the <a href="http://newsfeed.financialinclusion2020.org/">Financial Inclusion 2020 News Feed,</a> our weekly online magazine sharing the big news in banking the unbanked. Among the stories in this week’s edition are the launch of the Citi Mobile Challenge in the Asia-Pacific region, the kick-off of this year's microTracker survey on the microenterprise industry in the United States, and a blog post series from Ericsson on financial inclusion in Iraq. Here are a few more details:
<ul>
	<li>Following successful Citi Mobile Challenges in other regions, the Asia-Pacific iteration invites developers to submit innovative mobile banking solutions for a chance at taking their technologies into production with the support of Citi and its partners.</li>
	<li>The U.S. Microenterprise Census's online microTracker survey is open, collecting and counting data on the microenterprise industry in areas including client reach, lending volume, and performance efficiency.</li>
	<li>A new post series on Ericsson's "M-Commerce: the Call for Change Blog" spotlights the financing landscape in Iraq, which serves only 11 percent of adults in the country, targeting action areas like regulation, interoperability, and mobile money.</li>
</ul>
For more information on these and other stories, read the latest issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

Mobile Innovation Accelerator, the microTracker, Inclusion in Iraq – the Latest FI2020 News Feed

&gt; Posted by Danielle Piskadlo and Jeffrey Riecke, Senior Program Specialist and Communications Associate, CFI

In Iraq and Afghanistan, about <a href="http://www.iraq-businessnews.com/tag/poverty/" target="_blank">23</a> and <a href="https://www.cia.gov/library/publications/the-world-factbook/geos/af.html" target="_blank">35 percent</a> of people live below the poverty line. Both countries have microfinance industries, though they’re small and financial inclusion rates are low. In the effort to combat these low levels of inclusion, an unlikely financial service player, the U.S. military, is using the principles of microfinance to optimize fund dispersal by local ground commanders in order to strengthen communities in conflict areas.

[caption id="14538" align="aligncenter" width="586"]<a href="https://www.flickr.com/photos/29456680@N06/5604883445/"><img class="wp-image-14538 size-none" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/04/5604883445_497004a959_b.jpg" alt="" width="586" height="392" /></a> Charkh, Afghanistan[/caption]

We recently become aware of this military effort when contacted by a group of West Point cadets interested in learning more about microfinance. In the conversation we learned that U.S. military ground commanders in Iraq and Afghanistan each receive about five thousand dollars a month to allocate as they see fit toward development projects in the local communities where they are posted. The money can go towards public roads, schools, medical clinics – projects contributing to community rebuilding and reconstruction. These allotments from ground commanders are part of the Commander’s Emergency Response Program (CERP) developed in 2008. Currently, ground commanders don’t have specific guidance on how they should allocate these funds so they often rely on suggestions from village elders, who the cadets recognized are sometimes biased and self-interested in the projects they recommend.

The cadets are therefore working to develop a portfolio optimization template - based on the principles of microfinance - to guide ground commanders on how to allocate their CERP funds as microgrants to help raise the standard of living within local communities. The project objective is to enable ground commanders to allocate their funds as loans to small-businesses, entrepreneurs, and individuals, facilitating income growth, economic development, and community strengthening. The template is modeled after microfinance practices because of similarities in distribution methods found between microcredit loans and the financial aid provided by ground commanders through CERP funds.

The cadets identified economic development and stability as important goals for the military that in impoverished regions help to reduce the number of people attracted to extremist behavior. Ideally, utilizing this financial support in the form of microgrants to start and grow businesses would help mitigate the extremism that often results in regions of conflict, violence, poverty, and instability. Using CERP funds to provide microgrants is a grassroots way of helping to kick-start economic development in areas where the microfinance sector is otherwise nascent.

To design the tool, the team is utilizing historical microfinance loan data on dimensions including return on investment, loan size, and intended versus actual loan use, and reaching out to members of the microfinance community.

According to the MIX, Iraq’s lending portfolio is about <a href="http://www.mixmarket.org/mfi/country/Iraq" target="_blank">US$ 143 million across 66,566 borrowers</a>. Afghanistan’s <a href="http://www.mixmarket.org/mfi/country/Afghanistan" target="_blank">US $136 million across 251,846 borrowers</a>. For comparison, the nearby Azerbaijan microfinance industry has US$ 3.2 billion in loans and 792,666 borrowers. Iraq and Afghanistan have populations of roughly 33 million and 30 million, while Azerbaijan is about 9 million. Financial inclusion <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/country-profiles" target="_blank">in Iraq is at about 11 percent, and in Afghanistan 9 percent</a>.

There is a need for available capital in many conflict countries where U.S. military ground commanders have capital and microfinance providers are scarce. Whether the military is in a position to act effectively as grantors is a question that remains to be seen. Regardless, if ground commanders continue dispersing funds within impoverished and unstable communities where MFIs are not present, and employ the principles of microfinance in doing so, that seems to be an advance for both the military and microfinance communities.

Image credit: <a href="https://www.flickr.com/photos/29456680@N06/5604883445/" target="_blank">isafmedia</a>

Have you read?

<a href="http://cfi-blog.org/2014/01/31/mobile-money-in-afghanistan-an-uphill-battle/" target="_blank">Mobile Money in Afghanistan: An Uphill Battle</a>

<a href="http://cfi-blog.org/2014/03/19/mobile-moneys-newest-outpost/" target="_blank">Mobile Money's Newest Output</a>

<a href="http://cfi-blog.org/2013/07/08/fighting-for-inclusion-in-an-expectant-brazil/" target="_blank">Fighting for Inclusion in an Expectant Brazil</a>

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