This <a href="https://centerforfinancialinclusion.org/financial-inclusion-week-2019/">Financial Inclusion Week</a>, we’re asking ourselves what the purpose of our work is. For those of us who work with refugees, financial inclusion is often for rebuilding sustainable livelihoods, resilience, and self-reliance.

Driven by necessity and limited employment choices, many refugees decide to start a business once they settle in a host country. However, lack of financial capital represents a major stumbling block on the way to business success. Financial service providers (FSPs) in a number of countries are starting to become aware of the potential of this underserved market, but much of the work is still at an incipient phase. FSPs often have questions related to whether operations adjustments may be required, strategies to follow to reduce credit risk, and supporting non-financial services. While every context is different, some good practices are emerging among a number of FSPs, which have been extending credit and other financial services to refugees. Drawing on their experiences, here are four recommendations for FSPs on how to start including this underserved market in their microfinance portfolio:
<h2>1. Analyze market data for better targeting.</h2>
Refugees aren't a homogeneous group, so FSPs first need to understand the differences of their socio-economic characteristics to be able to make an informed decision regarding which sub-segments they wish to serve. Relevant data for a first screening may be offered by local development and humanitarian agencies, and – in addition to basic demographic information – should ideally include data such as vocational or business training received, access to start-up financing, access to bank accounts, description of enterprises, and membership to any existing saving groups. Sometimes this data may be unavailable or insufficient, and market feasibility studies may be required. Especially in countries with high concentration of refugees living in settlements where FSPs have no presence, this would require set-up costs for branches or delivery channels.
<blockquote>A study revealed that refugee communities had enough financial capacity to be good clients.</blockquote>
To identify the potential market of serving refugee entrepreneurs in the West Nile region, <a href="http://www.visionfund.org/2095/where/africa/uganda/">VisionFund Uganda</a> conducted an <a href="http://www.visionfund.org/222/media/news/article/report---serving-refugee-communities-in-uganda/">assessment</a> of 6,700 refugee members of existing saving groups. The study revealed that the refugee communities had enough financial capacity to be good clients, given the presence of daily and weekly markets in the camps, availability of fairly good network coverage, and mobile money agents and existence of entrepreneurial groups and business activity. The results from this assessment, when considered alongside data collected from a broader <a href="https://www.findevgateway.org/blog/2018/oct/getting-it-right-providing-financial-services-refugees">market survey</a> previously conducted by Microfinanza, convinced the MFI to set-up their first branch in the West Nile and start serving refugees.
<h2>2. Widen the range of acceptable forms of IDs while complying with regulation.</h2>
Depending on FSPs’ internal policies and the host country’s regulatory framework, adjustments to FSPS’ internal procedures may be required to serve refugees clients. <a href="https://corporate.mybucks.com/articles/worlds-first-refugee-camp-bank-a-resounding-success/13TBmOsflyCQsUqyeQoSMI">MyBucks in Malawi</a> is the first financial institution to provide a full range of financial services to clients at a refugee camp. Refugees in the Dzaleka camp had no access to FSP providers until last year and had to travel roughly 40 kilometers to the nearest city of Lilongwe to access financial services. The bank saw the business potential of this untapped market, but in order to serve refugees, MyBucks needed to tailor its offering by widening the acceptable forms of identification. Refugee clients often don't meet KYC policies required by the bank – such as a passport or national ID – and don't own land properties that the bank can use as securities. Therefore, in order to comply with the country’s regulations, MyBucks sought a waiver from the central bank to use refugee forms provided by UNHCR to allow refugees to open bank accounts. Today, the bank, which opened its first branch in April 2018, is offering a full range of banking services to refugees.

As of July 2019, 153 refugee entrepreneurs have received business loans from the bank, which relies on group lending methodology to lower credit risks in extending collateral-free loans to refugees. Each individual has to repay according to his/her amount and repayment schedule. The group guarantees for the members, in case a member can't repay on time. Repayment rates to date are 100 percent. MFIs in other countries which don't have to comply to stringent banking regulations, have also been accepting old refugee IDs and expired passports as means to verify identities. A number of new identification and verification measures through blockchain are also starting to emerge which provide innovative tools to verify people’s identities and monitor risk in financial transactions.

A <a href="https://www.makingcents.com/hawiyati-english">digital identity</a> for refugees has been piloted in Jordan and Lebanon by local MFIs. This provides their clients with a “portable identity” that verifies their foundational identification (government or UNHCR issued) digitally, records their credit history, and uploads other important documents. This identity will be especially useful in case a refugee wishes to access banking services upon return to the home country or in case of resettlement, and can also work as an incentive to repay the loan on time.
<h2>3. Establish alternative procedures to mitigate credit risk.</h2>
FSPs are used to the conventional eligibility requirements that proof of citizenship, identity, and residency cards reduce credit risk. Nevertheless, there can be other ways to monitor risk and to verify IDs by adding some flexibility to documentation required. <a href="https://www.almajmoua.org">AlMajmoua</a> is the biggest MFI in Lebanon, the country with the highest number of refugees relative to its population. The MFI serves over 9,000 refugee borrowers with a loan portfolio of over $9 million and repayment rates of almost 100 percent, making it the financial institution with the highest number of refugee borrowers served in a country. More than half of the loans disbursed by AlMajmoua to refugees are for income generation in the limited sectors were refugees are allowed to work in the country, such as field crops, cleaning services, sewing, selling clothes and hairdressing.
<blockquote>AlMajmoua serves over 9,000 refugee borrowers with a loan portfolio of over $9 million and repayment rates of almost 100 percent.</blockquote>
How did this MFI succeed in reaching thousands of refugee clients – many of which through individual loans, so where no social guarantee can be applied – with excellent repayments? To mitigate credit risk, the MFI primarily relies on a strong communication channel between their loan officers and clients by conducting regular business visits, which also allow it to find out whether refugees may have imminent plans to return to their home country or relocate. Additionally, AlMajmoua exceptionally provides loans up to $1,500 to refugees who don’t hold an active residency permit as long as they have a Lebanese, Palestinian or Syrian guarantor with a valid residency permit.
<h2>4. If you provide enterprise support services, consider what would be relevant for refugees new to business.</h2>
Sometimes credit isn't sufficient to initiate and scale up a business activity and refugees may need the support of incubators and start-up technical assistance. Some FSPs might already have their training curricula well developed, which might have to be adapted to the needs of the foreign-born clients. <a href="http://www.microfund.org.jo/">Microfund for Women</a> (MFW), Jordan’s largest not-for-profit microfinance institution, serves over 7,500 Syrian refugees, approximately 40 percent of whom are involved in income generation activities, mostly commercial and home-based services. For MFW, it proved particularly important to accompany loans with non-financial services tailored around refugee women’s specific needs (most of their Syrian refugee women clients were not working before the war started). The MFI has established a learning academy and developed training curricula for both beneficiaries and staff members related to market ofrientation, business management skills, financial literacy, and marketing. In addition. MFW offers free feasibility studies for start-up entrepreneurial businesses with loan amounts higher than $4,000.

When FSPs don't offer such services, they may be able to partner with organizations offering that do. For example, <a href="https://www.ilo.org/global/lang--en/index.htm">ILO</a> is adapting its <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_560493/lang--en/index.htm">business skills development training tools</a> to the needs of the displaced population and the local context, and is now planning to train refugees and host communities to develop their own enterprises and facilitate access to finance. A first training has already been deployed in Kenya through the Danish Refugee Council in the Dadaab refugee camps.
<blockquote>When FSPs don't offer such services, they may be able to partner with organizations that do.</blockquote>
Hopefully, this post will spark FSPs to realize the important role they have in finding solutions to the refugee crisis. By extending their services to the refugee population in their country, FSPs won't only support the resilience and self-reliance of this widely underserved market, they will also assist in overcoming stigma and helping refugees contribute economically and socially to host communities.

How to Include Refugee Entrepreneurs in Microfinance

Jordan

Lebanon

Malawi

Middle East and North Africa

Sub-Saharan Africa

Uganda

Financial Inclusion Week 2019

Financial Service Providers

Microfinance Institutions

Refugees and Migrants

Underserved Groups

Blog Post

After great anticipation, three years’ worth to be exact, the 2017 Global Findex Database was officially released this morning. The Global Findex is the authoritative data source on global progress toward financial inclusion. Released every three years, the Global Findex surveys more than 150,000 adults in 144 economies to better understand how people access and use financial services to make payments, and also to save and borrow.

Since the 2014 Findex, the percent of the global population that has a bank account with a financial institution or mobile money service rose from 62 percent to 69 percent. Five-hundred and fifteen million individuals opened an account for the first time over the past three years, reducing the unbanked population to 1.7 billion adults worldwide. However, the new data also reveal critical shortcomings in progress. For instance, the financial inclusion gender gap didn’t improve. Globally, women remain 7 percent less likely to own a bank account than men.

Here are a few of the 2017 Global Findex’s high-level statistics:
<ul>
 	<li>Half of the 1.7 billion unbanked individuals worldwide live in just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.</li>
 	<li>In higher-income countries, 94 percent of adults have a bank account, while in developing countries this figure is 63 percent.</li>
 	<li>The proportion of individuals globally who send or receive digital payments increased from 42 percent to 52 percent; this figure is 76 percent for those who have a bank account.</li>
 	<li>In Sub-Saharan Africa, the proportion of individuals with a mobile money account nearly doubled to 21 percent, while bank account ownership increased by only 4 percent.</li>
 	<li>Globally, roughly two-thirds of those who are unbanked have a mobile phone, but Sub-Saharan Africa is the only region where mobile money penetration is greater than 10 percent.</li>
 	<li>In addition to the persistent gender gap, the difference in bank account ownership rates between the rich and the poor has not improved, with those living in the wealthiest 60 percent of households in the poorest 40 percent of economies 13 percentage points more likely to have a bank account.</li>
 	<li>The accounts of one-fifth of banked individuals worldwide are inactive.</li>
 	<li>The Findex’s financial resiliency question revealed that individuals in higher-income economies would be far more likely to be able to come up with emergency funds than those in developing economies.</li>
</ul>
For more findings, you can access the <a href="http://globalfindex.worldbank.org/">2017 Global Findex Database report</a>, <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/29510/211259ov.pdf">an abridged overview report</a>, and <a href="http://globalfindex.worldbank.org/sites/globalfindex/files/2018-04/Global%20Findex%20database_0.xlsx">the full dataset</a>.

In several weeks, the CFI will release a brief distilling our key takeaways from the 2017 Global Findex.

&nbsp;

&nbsp;

New Global Findex: 69 Percent of Global Population Is Banked

East Asia and Pacific

Europe and Central Asia

Latin America and The Caribbean

South Asia

Global Findex

Access Usage Gap

Enabling Environment

Mobile Banking

Payments

Trends

Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.

This webinar will explore how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It will share insights from a recent report from the Center for Financial Inclusion and the Institute of International Finance.

The report incorporates 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion that we think exemplify best-case scenarios and good practice.

Webinar: How Financial Institutions and Fintechs Are Partnering for Inclusion

Mainstreaming Financial Inclusion: Best Practices

Banks

Digital Financial Services

Fintechs

Partnerships

Webinar

&gt; Posted by Iftin Fatah, Investment Officer, Overseas Private Investment Corporation

The <a href="https://thegiin.org/knowledge/publication/annualsurvey2017">2017 Annual Impact Investor Survey from the GIIN</a> showed that respondents, which make up a diverse and active group of impact investors, committed more than $21 billion to impact investments in 2016 and planned to commit 17 percent more capital than that in 2017. Geographically, however, the Middle East and North Africa (MENA) only makes up 2 percent of assets under management.

Islamic finance is largely concentrated in three markets – Iran, Malaysia, and Saudi Arabia – but it spans nearly every part of the world, including MENA, Asia, and sub-Saharan Africa. For its part, Islamic finance has grown over the past two decades, with total assets reportedly totaling roughly <a href="http://sunnewsonline.com/islamic-finance-assets-leaps-to-2-trillion/">$2 trillion</a>. Despite this growth, Islamic finance still makes up a small share of the global financial market. These two areas of Islamic finance and impact investing are ripe for potential collaboration. Out of the 1.6 billion Muslims in the world, <a href="https://www.cgap.org/publications/trends-sharia-compliant-financial-inclusion">650 million</a> are living on less than 2 dollars a day.

For starters, for those who aren’t familiar, let’s quickly go over how Islamic finance works. Islamic finance is derived from principles rooted in the rulings of Sharia law. The key principles of Islamic finance include: prohibition of interest, profit and loss sharing, and prohibition of gharar (excessive uncertainty, deception and risk). At its core, Islamic finance is centered around mutual well-being for banks and clients. The most notable difference between Islamic finance and Western finance is that interest or riba is forbidden. Rather, banks sustain themselves by sharing in the risk of their financial services with clients, operating on a profit-loss basis. For example, one of the most common Islamic finance products is murabaha, which is a cost-plus-mark-up (non-interest-bearing) loan. Financers bear the cost of the loan, and instead of charging clients interest, clients are charged a mark-up. Accordingly, banks act as investors rather than creditors.

Globally there are largely untapped markets that show immense potential for Islamic finance, such as sub-Saharan Africa, which is the world’s fastest-growing population and has a large Muslim contingent. According to a 2015 Economist Intelligence Unit (EIU) report entitled <a href="https://www.eiuperspectives.economist.com/sites/default/files/MappingAfricasIslamicEconomy.pdf">Mapping Africa’s Islamic Economy</a>, to date, Islamic finance has a presence in 21 African countries. Perhaps counter-intuitively, the EIU report notes that while Sharia-compliant goods and services appeal to the values of Muslims, majority Muslim populations are not essential for a vibrant Islamic economy sector.

In the case of sub-Saharan Africa, one of the primary drivers of the region’s Islamic economy is the need for quality infrastructure. An inadequate supply of roads, railways and ports, and insufficient energy supplies and housing shortages are among the challenges facing the continent. Further, an urbanizing population will drive demand for even more infrastructure. Sukuk, Islamic bonds structured in such a way to generate returns to investors without infringing upon Islamic law, are of growing interest to governments trying to raise capital for such projects. For example, the Nigerian government, <a href="https://www.premiumtimesng.com/business/business-news/243336-nigeria-starts-sale-n100-billion-sukuk.html">recently announced</a> the sale of a N100 billion ($326 million) debt sovereign sukuk on the local market, meant to fund road infrastructure in the country.

The <a href="http://www.undp.org/content/undp/en/home.html">United Nations Development Programme</a> (UNDP) rightly recognizes the potential of this untapped market and in May 2017 collaborated with the <a href="http://www.irti.org/English/Pages/default.aspx">Islamic Research and Training Institute</a> (a member of the <a href="https://www.isdb-pilot.org/">Islamic Development Bank Group</a>) and the <a href="http://www.iicpsd.undp.org/">Istanbul International Center for Private Sector in Development</a> in producing a joint report entitled <a href="http://www.iicpsd.undp.org/content/dam/istanbul/docs/IslamicFinance_BroWEB.pdf">I for Impact</a>. The report focuses on recommendations for growing Islamic impact investing. Among these recommendations include creating an environment that promotes Islamic finance alongside the larger ecosystems of inclusive finance and responsible investing. Support should be offered to the creation and functioning of an effective capital market system for Islamic finance impact investing, including supporting existing and new actors in this space.

To further these recommendations, UNDP and the IDB established the Global Islamic Finance and Impact Investing Platform (GIFIIP) in 2016. The GIFIIP serves as a hub for Islamic finance impact investing actors. The aim of the GIFIIP is to be a collaborative working space that: supports the development of Sharia-compliant impact investing tools; serves as a forum for knowledge-sharing, policy dialogue and advocacy; and functions as a marketplace for deal sourcing and matchmaking. The GIFIIP strives to position Islamic finance impact investing as one of the leading enablers of Sustainable Development Goals implementation around the world, through private sector engagement.

With their rigorous moral and social criteria and emphasis on business-society relations, the principles of Islamic finance and impact investing have many areas of overlap. Bridging the two sectors and leveraging their ideological similarities is a natural response to the growing challenges related to development financing, particularly in Muslim-majority countries. Islamic finance can be a strong and virtually untapped source to finance sustainable development in many areas around the world.

Have you read?

<a href="https://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="https://cfi-blog.org/2013/01/15/continuing-the-conversation-on-inclusion-in-the-arab-world/" target="_blank" rel="noopener">Continuing the Conversation on Inclusion in the Arab World</a>

<a href="https://cfi-blog.org/2016/11/08/islamic-microfinance-advances-and-converges-with-fintech/">Islamic Finance Advances and Converges with Fintech</a>

Bridging Islamic Finance and Impact Investing

Iran, Islamic Rep.

Malaysia

Saudi Arabia

Turkey

Agent Banking

Impact Investing

Policy, Regulation and Government Initiatives

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

How Can Microfinance Institutions in the Middle East and North Africa Manage Risk and Meet Client Demand? Governance Is Key!

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

Governance and Strategic Leadership of Microfinance Institutions in the MENA Region

Calmeadow

SANABEL

Governance

Brief

[caption id="attachment_23436" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33301263350/in/album-72157678506203794/"><img class="wp-image-23436" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33301263350_ab536c426a_k-1.jpg" alt="" width="615" height="410" /></a> Alex Silva, Executive Director, Calmeadow[/caption]

Governance is a business imperative, and investors are willing to pay a premium for effective corporate governance. This was one of the key takeaways from the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/mena-leadership-seminar">Middle East and North Africa (MENA) Governance and Strategic Leadership Seminar</a>, held recently in Amman, Jordan. We’ve seen this stated priority of governance in the MENA microfinance market exhibited elsewhere, too. A joint <a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">IFC-Sanabel report</a> assessing the top perceived risks facing the microfinance industry in the Arab world uncovered that the market’s stakeholders viewed weak corporate governance structures as one of the more threatening risks out of roughly 30 risk categories. Financial service providers in particular perceive this risk to be rising.



[caption id="attachment_23433" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33301262930/in/album-72157678506203794/"><img class="wp-image-23433" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33301262930_46467c6ac5_o.jpg" alt="" width="615" height="482" /></a> Hany Assaad, Co-Founder and Chief Portfolio and Risk Officer, Avanz Capital[/caption]

This seminar was the first time senior leadership from across the MENA region’s microfinance industry convened to discuss their experiences with governance and strategic leadership. A total of 41 participants from 19 MFIs came together for three days of peer learning and exchanges. The seminar, modelled after CFI’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>, was hosted by CFI, <a href="http://www.calmeadow.com/">Calmeadow</a>, and <a href="http://www.sanabelnetwork.org/home/default.aspx">Sanabel (the Microfinance Network of Arab Countries</a>), with support from the <a href="https://www.fmo.nl/">Dutch Entrepreneurial Development Bank (FMO)</a>. The Arabic Microfinance Gateway was also among the partners to help facilitate the event, and we are thrilled to share the main takeaways in this post.

“As an investor, I look for adding value and reducing risk,” shared Hany Assaad, Co-Founder and Chief Portfolio and Risk Officer at Avanz Capital. “Effective corporate governance increases the value of businesses,” he added.

[caption id="attachment_23438" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/32842329964/in/album-72157678506203794/"><img class="wp-image-23438" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/32842329964_a25170c838_k.jpg" alt="" width="615" height="410" /></a> Mohammed Khaled, Senior Microfinance Operations Officer for MENA, IFC[/caption]

Mohammed Khaled, IFC’s Senior Microfinance Operations Officer for MENA, noted that most MFIs in the region are NGOs, and as such have largely volunteer board members, which can contribute to limited effectiveness. The commercial development of the sector in the region has been hindered by the lack, until recently, of legal pathways for transforming NGOs. As laws evolve in the region, MFIs may be allowed to register as non-bank financial institutions, which would change the institutions’ financial structures and create a need for investors and, as such, an increased need for sound corporate governance. Board responsibilities and dynamics are different for investor-owned financial institutions than they are for NGOs, requiring board members to acquire new skills, according to Alex Silva, Executive Director of Calmeadow.

The stakes are getting higher in the region as the overall industry is growing in complexity. Deborah Drake, Vice President, Investing in Inclusive Finance, CFI, spotlighted the changing sector risks as charted by the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/risk">Banana Skins report series</a> from 2008 to 2016.

The Banana Skins reports are based on the views of sector participants of the most pressing risks and challenges, like new technologies, new market entrants, client repayment capacity, and macro-economic risks. The <a href="https://www.microfinancegateway.org/library/financial-services-all-csfi-banana-skins-survey-risks-financial-inclusion">2016 Banana Skins report</a> pointed to the importance of governance, finding that nine of the top ten risks were “internal” and that institutions without a sound strategy could face marginalization.

[caption id="attachment_23444" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/32842330394/in/album-72157678506203794/"><img class="wp-image-23444" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/32842330394_de9f46adb4_k.jpg" alt="" width="615" height="410" /></a> Suha Ennab Tleel, Board Member, Vitas, Jordan[/caption]

Competition from new market entrants in the region, in particular fintech companies, is a prominent concern expressed by participants. According to a <a href="https://www.microfinancegateway.org/library/fintech-mena-unbundling-financial-services-industry">recent report</a>, the number of fintech companies in the region offering financial services has doubled from 46 to 105 in the past three years. Half of these offer payment solutions, and one-third offer lending and financing services. MFIs in the region are now estimated to reach out to <a href="http://www.cgap.org/blog/20-years-financial-inclusion-arab-world">approximately 3 million borrowers</a> with an outstanding portfolio over $2 billion – far below the market potential. Slow growth is due to both internal factors such as slow expansion and the lack of product diversification and external factors including political instability and regulatory barriers. MFIs in the region need to think deeply about the different risks and opportunities in order to adapt to change.

[caption id="attachment_23448" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33528835012/in/album-72157678506203794/"><img class="wp-image-23448" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33528835012_a2d936d0e9_k.jpg" alt="" width="615" height="410" /></a> Eyad Nino, Deputy General Manager, Microfund for Women[/caption]

Keeping the client at the center is one of the keys for sustainable and responsible growth. <a href="http://www.cgap.org/publications/business-challenges-booklet">Recent research</a> shows that customer centricity not only allows organizations to better serve customers but also solves the common business imperatives of acquisition, retention, and expansion.

When considering commercialization, concerns about drifting away from the social mission grow larger. One way to preserve the social mission is to ensure that management and boards consider both social and financial performance indicators. For example, the Microfund for Women in Jordan created the position of Social Performance Manager and Al Amana in Morocco established a Social Performance Committee that reports to the board.

[caption id="attachment_23440" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33528835252/in/album-72157678506203794/"><img class="wp-image-23440" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33528835252_48d18f34df_k.jpg" alt="" width="615" height="410" /></a> Jane Giacaman, Director of Microfinance, UNRWA[/caption]

Both the <a href="https://sptf.info/universal-standards-for-spm/start-here">Universal Standards for Social Performance Management</a> and <a href="http://www.smartcampaign.org/certification">Smart Certification</a> also provide guidance on best practices to help financial service providers put clients at the center of all strategic and operational decisions and align their policies and procedures with responsible business practices.

The seminar’s discussions engaged and enriched participants, who returned home with stronger masteries of good governance and leadership. Going one step further, many participants made specific commitments: to form board committees; to provide board training; to recruit more diversified and experienced talent for their boards; to better define risk appetites; to seriously explore technology and adaptations to their business models; to incorporate social performance and client protection practices; and finally to adequately prepare for succession planning. We, the seminar organizers, will be checking in with the participants to see how they are faring, and we hope these are just the first steps of many to further the dynamic microfinance market in the Arab region.

<a href="https://www.flickr.com/photos/cfi_accion/33644035656/in/album-72157678506203794/"><img class="aligncenter wp-image-23431" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33644035656_186e4ea05f_k.jpg" alt="" width="615" height="410" /></a>The Arabic Microfinance Gateway served as the Outreach Partner for the MENA Governance and Strategic Leadership Seminar. You can learn more about governance and other topics on the Gateway in <a href="https://goo.gl/y4gpXz">Arabic</a>,<a href="http://www.microfinancegateway.org/topics/governance"> English</a>, <a href="http://www.microfinancegateway.org/fr/sujets/gouvernance">French</a>, and<a href="http://www.microfinancegateway.org/es/temas/gobernabilidad"> Spanish</a>. 

And for more photographs from the seminar, the full album is available <a href="https://www.flickr.com/photos/cfi_accion/albums/72157678506203794">here</a>. 

This blog post is also available in Arabic <a href="https://goo.gl/V5s0Mt">here</a>.

Have you read?

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

It’s All About Governance!

Risk Management

&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?

Investors

Iraq

Syrian Arab Republic

Initial Public Offering

Responsible Exit

[youtube https://www.youtube.com/watch?v=8flyHNiuKJY]

Time flies. It’s hard to believe that the Africa Board Fellowship (ABF) program will soon begin its fifth cohort of fellows. Over the past few years and four cohorts, the ABF program has included more than 125 CEOs and board members from over 40 financial inclusion institutions across 35 countries in sub-Saharan Africa. If you’re an inclusive finance leader in sub-Saharan Africa, now’s your chance to join the governance and strategic leadership program. Applications are now open for the fifth cohort.

ABF recently held two seminars in Cape Town, welcoming the fourth cohort of fellows and graduating the third cohort. With new case studies on disruptive technologies, and an emphasis on interactive role plays and simulations, the seminars proved once again that peer-to-peer exchanges are an effective way to examine best and worst governance practices. To hear the fellows’ takeaways from the two seminars, watch our new video above.

The fifth cohort will kick-off with an opening seminar May 3-5 in Cape Town. The six-month fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.

The ABF program has demonstrated that many of the fellows are clearly struggling with the same challenges at their respective institutions and have a lot to share with each other. Though each ABF fellowship is only six months long, it is our hope that the connections forged among fellows create a durable network of leaders throughout sub-Saharan Africa in the financial inclusion sector.

This year, with Calmeadow and Sanabel, CFI is also hosting a Governance and Strategic Leadership Seminar for inclusive finance CEOs and board members of the Middle East and North Africa (MENA) region. The seminar will be held March 7-9 in Amman, Jordan. The highly-interactive two and a half days include discussions guided by industry leaders, case-based dialogues examining pressing sector risks, collaborative simulations, and opportunities for peer exchange and learning.

To learn more about ABF, and to apply, <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">click here</a>.

Have you read?

<a href="https://cfi-blog.org/2015/07/23/lessons-learned-from-abfs-convening-of-microfinance-leaders-in-cape-town/">Lessons Learned from ABF's Convening of Microfinance Leaders in Cape Town</a>

<a href="https://cfi-blog.org/2017/01/10/calling-all-financial-inclusion-leaders-in-mena-registration-is-open-for-the-mena-governance-and-strategic-leadership-seminar/">Calling All Financial Inclusion Leaders in MENA! Registration Is Open for the MENA Governance and Strategic Leadership Seminar</a>

<a href="https://cfi-blog.org/2016/12/08/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/">Harbingers of Doom? Bank Failures in Africa - How to Interpret These</a>

Join the Africa Board Fellowship Program

Africa Board Fellowship Program

South Africa

&gt; Posted by Center Staff

<img class="alignright wp-image-22706" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/01/meetingroom_mena.png" alt="MeetingRoom_MENA.png" width="330" height="218" />You’d be hard-pressed to list <a href="http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+cg/resources/guidelines_reviews+and+case+studies/mena+corporate+governance+success+stories">all the ways</a> corporate governance can make (or break!) an organization. In the financial inclusion sector, strong boards ensure effective strategic planning, manage sustainable growth, bolster attractiveness to investors, balance risks, develop client centric products and delivery channels, and, increasingly, act as “<a href="http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/adapting-your-board-to-the-digital-age?cid=other-eml-alt-mkq-mck-oth-1609">strong digital sparring partners for management</a>.”  Yet, a <a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">recent study</a> sponsored by the Sanabel Network and the IFC that inspected risks confronting the microfinance sector in the Middle East and North Africa (MENA) found that half of their interviewees perceived corporate governance risk as “high” or “very high.”

Being a board member or CEO of a financial inclusion institution is a great responsibility, and can also be a complex task. All boards have different dynamics and governance best practices can sometimes be nebulous. To address these challenges, Calmeadow, FMO, Sanabel and the CFI are hosting a “<a href="http://bit.ly/MENA-leadership">Governance and Strategic Leadership Seminar</a>” this March in Amman. This seminar brings together CEOs and board members of leading financial institutions serving the financially excluded in the MENA region to strengthen board capacity through peer learning and exchange. If you’re a leader in MENA’s inclusive finance sector, please consider attending this seminar to contribute your unique experiences and perspectives, and also to learn from the experiences of your peers.

The seminar will be held March 7-9 in Amman, Jordan. The highly-interactive two and a half days includes discussions guided by industry leaders, case-based dialogues examining pressing sector risks, collaborative simulations, and opportunities for peer-to-peer exchange. A diversity of topics will be covered, not limited to managing risk, board roles and responsibilities, managing sustainable growth, navigating challenging environments, client centricity, governance dynamics, and strategic leadership.

Why attend? Seminar takeaways include:
<ul>
 	<li>A greater understanding of the key trends, challenges, and risks facing MENA’s inclusive finance sector – and how to manage them.</li>
 	<li>An opportunity for participants to interact and network with representatives of other MFIs operating in the MENA region, working under similar geographic and social contexts.</li>
 	<li>Access to first-class experts and industry leaders in microfinance with expertise in corporate governance and risk management.</li>
 	<li>The ability to recognize early warning signals and key risk indicators.</li>
 	<li>An increased awareness of corporate governance and risk management best practices and how to implement them.</li>
</ul>
The program builds on the successes of the Center’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/">Africa Board Fellowship (ABF) program</a>, which works to strengthen the governance and risk management capacity of CEOs and board members of financial institutions serving lower-income clients in sub-Saharan Africa.

Register today! There are a limited number of seminar spots. To learn more about the MENA Governance and Strategic Leadership Seminar, and to register, <a href="http://bit.ly/MENA-leadership">click here</a>.

*This post was modified from its original version on January 11, 2017. The original posting incorrectly indicated that one has to apply for the seminar, while one simply has to register. However, it's important to reiterate that the seminar is only open to CEOs and board members of financial institutions serving lower-income clients in the Middle East and North Africa region.

Have you read?

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

Calling All Financial Inclusion Leaders in MENA! Registration Is Open for the MENA Governance and Strategic Leadership Seminar

Egypt, Arab Rep.

Israel

Libya

Morocco

Tunisia

Yemen, Rep.

Mayada El-Zoghbi

Managing Director

Allyse McGrath

Amanda Lotz

Daniel Balson

Dennis Ferenzy

Iftin Fatah

Lizzy Bolze

Micol Pistelli

Miranda Beshara

Sonja Kelly

Susy Cheston

Azerbaijan

Bolivia

Chile

Philippines

Alternative Data

Consumer Protection

Credit

Crowdfunding

Financial Inclusion Strategy

Privacy

Social Performance

Women

Report

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

&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 Susy Cheston, Senior Advisor, CFI

<a href="http://www.fi2020progressreport.org/client-protection/"><img class="aligncenter wp-image-19650" style="border: 1px solid #000000;margin-bottom: 5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/client-protection.png" alt="" width="614" height="341" /></a>Visitors to our <a href="http://www.fi2020progressreport.org/client-protection/">FI2020 Progress Report on Client Protection</a> will have noted our poor math skills. (This is the section of the report that assesses global progress to date in advancing fair treatment for lower-income financial services clients.) We rated regulators a 6 on consumer protection and providers a 3—and somehow averaged those out to a 5. Our averaging skills make even less sense when you consider the <a href="http://cfi-blog.org/2012/12/05/the-three-legged-stool-of-client-protection/">three legs of the client protection stool</a>—providers, regulators, and consumers—and realize that consumers are not even on the radar, rightfully earning a 1 at best in terms of their capacity to advocate on their own behalf. So why the optimism?

We were certainly swayed by the impressive momentum among a range of actors at the global level—including policy and private sector initiatives—toward improved consumer protection. But it’s what happens at the national level that really counts. The World Bank’s <a href="http://responsiblefinance.worldbank.org/~/media/GIAWB/FL/Documents/Publications/CPFL-Global-Survey-114econ-Oversight-2014.pdf">2014 Global Survey on Consumer Protection and Financial Literacy</a> reports that some form of legal framework for financial consumer protection is in place in 112 out of 114 economies surveyed. We are not so <a href="https://en.wikipedia.org/wiki/Pollyanna_principle">Pollyannaish</a> as to think that having a legal framework is equivalent to having a regulatory and supervisory system that protects consumers well, but we do think it’s a good step in the right direction.

We also looked at the <a href="http://www.centerforfinancialinclusion.org/microscope">Global Microscope</a>, which shows a wide range of policy and practice in each of the 55 markets it surveys. The Microscope provides a wealth of detail, including noting the countries that have weak market-conduct rules and grievance redressal mechanisms. In general, the MENA region is struggling in these areas. On the whole, in one-third of the countries studied, the Microscope found that significant efforts are needed in both regulation and its implementation. Yet, there are glimmers of best practice. The Latin American region stands out, with Peru, Colombia, Chile, and Bolivia ranked in the lead on consumer protection indicators in 2014, and the Philippines (as always) is worth noting, too.

Overall, with significant recent progress by national regulators such as Indonesia, continued deepening from leaders such as Peru and the Philippines, and progress on global standard-setting, we are just encouraged enough to give regulators a cautiously optimistic 6 in progress to date.

On the provider side, which we awarded a 3 for progress to date, there are bright spots. Among them, industry codes of conduct, and individual financial service providers that recognize the linkage between consumer protection and their own success. However, there are many forces pushing against industry leadership. The challenges and costs of reaching the base of the pyramid together with the challenges and costs of implementing good consumer protection practices can be daunting. We may seem like cockeyed optimists—but we nevertheless hold fast to the vision that providers can and must incorporate consumer protection into their professional identity. Not only is it the right thing to do, it positions clients to be effective, loyal services users, contributing to long-term financial bottom-lines.

Of course, as the market evolves, consumer protection challenges evolve with it. Technology can benefit consumer protection. Among the many examples are how technology can reduce opportunities for petty staff corruption and provide new ways for consumers to share complaints. But technology also brings new risks, such as complex and confusing interfaces, connectivity interruptions, lack of pricing transparency, and new types of fraud. Consumer data in digital form is proliferating, and most countries do not have protections in place about the use of that data. We are now in a period of learning about the consumer protection implications of rapidly changing technologies, and the jury is out on whether client protection is prone to be stronger or weaker amidst those changes.

We weighed all of these considerations and scored the world’s progress toward consumer protection for the base of the pyramid. The last I checked, the “People’s Vote” was a slightly less optimistic 4. Check out the <a href="http://www.fi2020progressreport.org/client-protection/">FI2020 Progress Report on Client Protection</a> and cast your own vote.

Have you read?

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress toward Financial Inclusion on a Scale of 1 to 10</a>

<a href="http://cfi-blog.org/2015/10/05/toward-an-agent-free-world/">Toward an "Agent-Free" World</a>

<a href="http://cfi-blog.org/2015/10/07/addressing-customer-needs-off-to-the-data-mines/">Addressing Customer Needs? Off to the Data Mines</a>

Why We Gave Consumer Protection a 5

Financial Inclusion 2020

&gt; Posted by Center Staff

<a href="http://www.ifc.org/wps/wcm/connect/851f4900488430f4bcc5fd299ede9589/Arab+Credit+Report+Guide-Final-Lowres.pdf?MOD=AJPERES"><img class="alignright wp-image-19390" style="border:1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/arab-guide.png" alt="" width="250" height="324" /></a>Credit reporting systems are a critical component of a financial system’s infrastructure. They facilitate access to credit for all who can use it, protect clients from overindebtedness, and help providers manage risk and decrease costs. What’s the state of credit reporting in the Middle East and North Africa (MENA) region? That’s the focus of the <a href="http://www.ifc.org/wps/wcm/connect/851f4900488430f4bcc5fd299ede9589/Arab+Credit+Report+Guide-Final-Lowres.pdf?MOD=AJPERES">Arab Credit Reporting Guide</a>, a new resource from the Arab Monetary Fund (AMF) and the International Finance Corporation (IFC). The guide was <a href="https://www.zawya.com/story/Arab_Monetary_Fund_World_Bank_publish_Arab_credit_reporting_guide-ZAWYA20150914052527/">launched</a> earlier this week alongside a meeting between the region’s central banks’ governors. In short, the guide finds that MENA countries have come a long way in developing credit reporting systems in recent years, but there’s still a long way to go.

The guide examines the region – 19 countries in total – in the context of global trends and best practices in credit reporting. A regional overview sheds light on credit reporting as well as credit access and risk management in MENA, while the guide also provides detailed investigations into the practices and progress of individual countries. A composite index comprised of the key elements for a comprehensive credit information sharing system is applied to each of the studied countries, offering a quantified status on credit reporting in each.

What were the big findings?

<ul>
	<li>Credit bureaus are a recent phenomenon in the region - 13 MENA countries still rely entirely on <a href="http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTGLOBALFINREPORT/0,,contentMDK:23268791~pagePK:64168182~piPK:64168060~theSitePK:8816097,00.html">credit registries</a>, which is a higher percentage than all other regions except for sub-Saharan Africa</li>
	<li>The six countries with an operational credit bureau (Bahrain, Egypt, Kuwait, Morocco, Saudi Arabia, and the UAE) received the highest index scores</li>
	<li>In terms of index scores, tracked between 2008 and 2012, seven countries didn’t improve, and six countries improved their scores by three points or less (top possible score is 21)</li>
	<li>Aside from Egypt, Morocco, and Saudi Arabia, which the guide identifies as great countries for credit reporting, most MENA countries have to undertake more initiatives to improve their scores and make their credit reporting systems more comprehensive</li>
	<li>Five out of the six credit bureaus in the region are fully or partially owned by the banking sector</li>
	<li>Consumers in 14 countries have access to their own reports, and all countries, except Libya, have mechanisms in place for consumers to raise disputes on erroneous data</li>
	<li>Basic laws and regulations allowing for credit reporting exist in several countries, yet roughly half of countries do not have specific laws or regulations in this regard</li>
</ul>
The guide is part of the Arab Credit Reporting Initiative, a joint effort from the AMF and IFC, which along with assessing the state of credit reporting in the region, works to foster regional coordination, raise awareness, and develop strategies, policies, and action plans in this area.

For more details, read the full guide <a href="http://www.ifc.org/wps/wcm/connect/851f4900488430f4bcc5fd299ede9589/Arab+Credit+Report+Guide-Final-Lowres.pdf?MOD=AJPERES">here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/06/03/buena-paga-mala-paga-an-incomplete-and-personal-history-of-credit-reporting/">Buena Paga, Mala Paga: An Incomplete and Personal History of Credit Reporting</a>

<a href="http://cfi-blog.org/2015/04/03/new-research-highlights-increasing-use-of-alternative-data-in-credit-reporting/">New Research Highlights Increasing Use of Alternative Data in Credit Reporting</a>

<a href="http://cfi-blog.org/2014/05/05/the-future-of-creditworthiness/">The Future of Creditworthiness</a>

Sizing-Up Credit Reporting in the Arab Region

&gt; Posted by&nbsp;Miranda Beshara and Natasha Tynes, Editorial Team, CGAP Arabic Microfinance Gateway

[getty src="111345909?et=pA9180MiR7tFKNlERs-Igw&amp;socialOnLoad=on&amp;sig=sx33whfj8W4b_Wjyg6dQzKS1q3S0LkUizGm27HJF_e0=&amp;caption=true" width="594" height="418"]

Microfinance in the Middle East and North Africa (MENA) is currently facing a number of challenges that are stifling its growth. On November 19, we attended the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/governance/governance-working-group">Governance Working Group</a> (GWG) call on governance challenges in microfinance institutions (MFIs) in the Arab region organized and hosted by <a href="http://www.centerforfinancialinclusion.org/index.php">Accion’s Center for Financial Inclusion</a> (CFI). A total of 11&nbsp;participants representing global MFI governance expertise and initiatives discussed key governance challenges facing MFIs in the region – many of which we captured for the <a href="http://www.microfinancegateway.org/ar">CGAP Arabic Microfinance Gateway</a> while <a href="http://goo.gl/e7PXRE">live tweeting</a>&nbsp;from the call.

Several of the call participants were recently engaged in the provision of technical assistance to MFI boards in the Arab region. Karla Brom, a financial consultant, gave a corporate governance workshop at <a href="http://sanabelconf.org/Default.aspx">Sanabel’s tenth annual conference</a>. She noticed that risk management and its relation to governance is a key challenge facing the sustainable growth of many MFIs in the region.

Lynn Exton, another consultant working in the region, highlighted that many MFIs suffer when it comes to board structure and practice. For example, she pointed out that women’s participation in boards in the region is low. Other participants also noted that the separation of duties and powers between board and management and the delegation of authority are not well practiced across the region.

“In some countries in MENA, board members are over extended with some belonging to up to 25 different boards in some instances,” commented David Risser from Nestor Advisors on MFI board membership in the region. This is all further compounded by the prevailing legal structure of MFIs in the region (i.e. mostly NGOs), which inherently have neither the mandate nor the culture for good corporate governance, several participants pointed out.

Despite those challenges, there is an increasing awareness that boards should become more professional, create better agendas, and adhere to international best practices in order for MFIs to be able to fulfill their mission, expand their outreach, protect their assets, and tap into various sources of financing,&nbsp;noted the participants during the call.

Zubyr Soomro, CEO of Hikmah Consulting added that in order to build governance in the region, networks and membership associations “need to focus more on industry and systemic governance issues and for (influential stakeholders) to spur the building of good governance.”

Several resources were shared at the end of the call. <a href="http://www.sptf.info/">The Social Performance Task Force (SPTF)</a> is in the process of finalizing a collection of materials on social performance for boards. This packet would be very useful in creating concrete metrics on double/triple bottom line performance for MFIs. CFI has recently announced the <a href="http://www.centerforfinancialinclusion.org/abf">Africa Board Fellowship</a>, a program based on peer-to-peer learning and exchange among MFI leadership in sub-Sahara Africa and that could be replicated in other regions if it proves to be effective. There is also the CFI’s LinkedIn group <a href="https://www.linkedin.com/groups?mostRecent=&amp;gid=7452732&amp;trk=my_groups-tile-flipgrp">“Managing Governance Risk in Microfinance</a>” for additional resources and peer exchange on the topic.

Lastly, don’t forget to also check out the available resources on governance in MFIs on the Microfinance Gateway in <a href="http://www.microfinancegateway.org/topics/governance">English</a>,&nbsp;<a href="http://www.microfinancegateway.org/es/temas/gobernabilidad">Spanish</a>, <a href="http://www.microfinancegateway.org/fr/sujets/gouvernance">French</a>, and <a href="http://www.microfinancegateway.org/ar/topics/%D8%A7%D9%84%D8%AD%D9%88%D9%83%D9%85%D8%A9">Arabic</a>!

Have you read?

<a href="http://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="http://cfi-blog.org/2013/12/03/microfinance-in-azerbaijan-who-is-not-invited-to-the-party/">Microfinance in Azerbaijan: Who Is Not Invited to the Party?</a>

<a href="http://cfi-blog.org/2014/02/21/microfinance-corporate-governance-is-it-special-part-one/">Microfinance Corporate Governance: Is It Special? (Part One)</a>

Governance Challenges in MENA Microfinance Institutions

&gt; Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI

Tomorrow, people around the world will celebrate <a href="http://www.internationalwomensday.com/" target="_blank" rel="noopener">International Women’s Day</a>. In honor of the day, and the tremendous impact that financial services can have for women, we’d like to highlight some of the top resources from the past year that focus on financial inclusion of women. Though there are many great resources out there, below are a few that have caught our attention.

1. <a href="http://siteresources.worldbank.org/EXTGLOBALFIN/Resources/8519638-1332259343991/N9gender.pdf" target="_blank" rel="noopener">Findex Notes: Women and Financial Inclusion</a>

<a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/213907/promoting-womens-financial-inclusion-toolkit.pdf" target="_blank" rel="noopener"><img class="alignright wp-image-14216" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/a-toolkit.png" alt="" width="240" height="340" /></a>Drawing from the Global Findex Database, the World Bank and the Bill and Melinda Gates Foundation created a briefing on the state of women’s access to and use of financial services globally. It’s a concise snapshot of financial inclusion data on women. It highlights gaps that persist for women, as compared to men, globally and across regions. It looks at variations in account ownership for savings and credit, as well as barriers to usage identified by women. And if you’re looking for more, I suggest exploring the <a href="http://datatopics.worldbank.org/financialinclusion/" target="_blank" rel="noopener">Findex database</a> or the <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/data-explorer" target="_blank" rel="noopener">CFI Data Explorer</a> and conducting your own analyses!

2. <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/213907/promoting-womens-financial-inclusion-toolkit.pdf" target="_blank" rel="noopener">Promoting Women’s Financial Inclusion: A Toolkit</a>

DFID and GIZ on behalf of the German Federal Ministry for Economic Cooperation and Development prepared a toolkit aimed at policymakers, donors, and NGOs who want to learn how to design and implement programs to enhance the financial inclusion of women. It provides insight into factors that contribute to financial exclusion of women and offers recommendations to address access barriers. In addition, the toolkit provides methods for client segmentation as well as several illustrative case studies. Rather than suggesting focusing on women exclusively, the toolkit also recommends understanding the distinct needs of men.

3. <a href="http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/publications/publications_report_vv-sme" target="_blank" rel="noopener">Ready for Growth: Solutions to Increase Access to Finance for Women-Owned Businesses in the Middle East and North Africa</a>

Vital Voices, MENA Businesswomen’s Network, and the IFC partnered on a report that explores solutions to increase access to finance for women in the Middle East and North Africa. Drawing from an in-depth survey of over 430 women from eight countries in MENA, the report reveals that many women face barriers in accessing finance (41 percent of those surveyed), citing high interest rates (67 percent) and lack of collateral (36 percent) as the main obstacles. In addition, many of the surveyed women expressed high demand for greater access to information and training to grow their businesses. With this expansion, access to financial services will be vital. Along with insightful data, the report includes recommendations on improving access to finance, developing tailored products, and overcoming barriers that women face.

4. <a href="http://www.oecd.org/daf/fin/financial-education/TrustFund2013_OECD_INFE_Women_and_Fin_Lit.pdf" target="_blank" rel="noopener">Women and Financial Literacy: OECD/INFE Evidence, Survey and Policy Responses
</a>

<a href="http://www.oecd.org/daf/fin/financial-education/TrustFund2013_OECD_INFE_Women_and_Fin_Lit.pdf" target="_blank" rel="noopener"><img class="alignright wp-image-14222" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/oecd-infe.png" alt="" width="240" height="337" /></a>In a report released mid last year, the OECD International Network on Financial Education (INFE) discusses data that illustrates gender differences in financial literacy levels. The findings indicate that in many countries women are less financially literate as well as less confident in their abilities than men. Additionally, the report explains the consequences of low financial literacy levels and points to potential explanations for why gender differences may exist, such as the effects of differing test formats or the influence of social networks. In response to the prevailing gap, the report considers ways to address barriers that women may face, drawing from existing policies and initiatives targeted at the needs of women and girls.

5. <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/GSMA-mWomen-Visa_Unlocking-the-Potential_Feb-2013.pdf" target="_blank" rel="noopener">Unlocking the Potential: Women and Mobile Financial Services in Emerging Markets</a>

Visa, GSMA’s mWomen, and Bankable Frontier Associates (BFA) have prepared a report that looks at how best to design mobile financial services, based upon data collected by BFA in Indonesia, Kenya, Pakistan, Papua New Guinea, and Tanzania. The report illustrates preferences and barriers to access, gleaned through interviews with women at the base of the pyramid. To share a few insights, 63 percent of women in Tanzania perceived savings groups as reliable and secure, while 86 percent of women in the country who use formal institutions for savings find them to be reliable and secure. For many of the services that women often use, mobile financial services can increase security and simplify processes. This is true for payments women typically make (utilities, school expenses), money transfers and remittances, and government-to-person-payments.

BONUS! We tried to stay with 5, but couldn’t resist highlighting another resource that we covered in <a href="http://cfi-blog.org/2013/12/20/adding-gender-to-the-microfinance-bottom-line/" target="_blank" rel="noopener">an earlier post</a> by Jaclyn Berfond.

<a href="http://www.womensworldbanking.org/wp-content/uploads/2013/09/Womens-World-Banking-Gender-Performance-Indicators.pdf" target="_blank" rel="noopener">Gender Performance Indicators: How Well Are We Serving Women?</a>

Have you been searching for a vetted framework for tracking and measuring institutional gender performance? Building on the work of the social performance community, Women’s World Banking (WWB) created an analytic framework of gender performance indicators, organized around three themes: Client-Centric Focus, Institutional Focus, and Financial and Social Outcomes. To support the development of these indicators, WWB piloted them with three microfinance institutions: Ujjivan Financial Services in India; Finance Trust in Uganda; and Fundación Delamujer in Colombia. Each indicator is ranked based upon its expected degree of complexity to implement, identifies responsible actors, and has corresponding data from the pilot organizations. Providers, take note. This is the best resource out there for measuring gender performance. And don’t forget to disaggregate any collected data!

What were your favorite resources of 2013, centered on financial inclusion of women?

Have you read?

<a href="http://cfi-blog.org/2013/03/08/international-womens-day-2013-where-are-we-with-womens-access-to-financial-services/" target="_blank" rel="noopener">International Women's Day 2013: Where Are We With Women's Access to Financial Services</a>

<a href="http://cfi-blog.org/2012/03/08/congratulations-its-international-womens-day/" target="_blank" rel="noopener">Congratulations, It's International Women's Day!</a>

<a href="http://cfi-blog.org/2011/03/08/women-and-microfinance-whats-there-to-celebrate-today/" target="_blank" rel="noopener">Women and Microfinance: What's There to Celebrate Today?</a>

Top Five Resources of 2013 on Financial Inclusion of Women

International Women's Day

&gt; Posted by Center Staff

[caption id="attachment_14016" align="alignright" width="310"]<a href="http://www.pma.ps/Default.aspx?tabid=205&amp;ArtMID=793&amp;ArticleID=410&amp;language=en-US" target="_blank"><img class=" wp-image-14016 " style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/02/600600p793ednmainimg_9615.jpg" width="310" /></a> PCMA CEO Abeer Odeh and PMA Governor Jihad Al Wazir[/caption]

Last week <a href="http://www.pma.ps/Default.aspx?tabid=205&amp;ArtMID=793&amp;ArticleID=410&amp;language=en-US" target="_blank">Palestinian government officials announced</a> plans to create a national financial inclusion strategy, an initiative that would put it on a short list of two countries in the Middle East and North Africa (MENA) region that have nationwide, government-led inclusion plans (Morocco being the other).

The Palestine Monetary Authority (PMA) and the Palestine Capital Markets Authority (PCMA), the country's central bank and a national regulating body will co-lead the project along with support from the Alliance for Financial Inclusion (AFI) and other public and private groups.

The policies and guidelines of the strategy will aim to facilitate greater access, improve awareness and financial education, and reinforce client protection. An area inviting particular attention is access to credit, which is low for both individuals and SMSEs. The strategy will build on inclusion principles endorsed by the G20, World Bank, AFI, and the OECD Principles on National Strategy for Financial Education.

It’s estimated that the strategy will take two years to create, and be comprised of two rollout phases. The first, lasting five years, will target financial sectors supervised by the PMA and the PCMA. The second, implemented over three years, will target the remaining services sectors.

In 2012 Palestine <a href="http://www.afi-global.org/library/publications/maya-declaration-commitment-made-palestine-monetary-authority" target="_blank">demonstrated its national-level inclusion ambition</a>, becoming the first MENA region country to submit a Maya Declaration commitment. The Maya Declaration, sponsored by AFI, is a process through which member countries set measurable commitments to greater financial inclusion.

Interest in financial inclusion is growing in the MENA region. Many of the region’s countries, including Syria, Sudan, Yemen, and Egypt, have become <a href="http://www.afi-global.org/afi-members" target="_blank">AFI members</a> in recent years.

For more on national financial inclusion strategies around the world, read AFI’s Progress on National Financial Inclusion Strategies <a href="http://www.afi-global.org/sites/default/files/publications/fisplg-timeline-achievement.pdf">paper</a>.

Image credit: <a href="http://www.pma.ps/Default.aspx?tabid=205&amp;ArtMID=793&amp;ArticleID=410&amp;language=en-US" target="_blank">Palestine Monetary Authority</a>

Have you read?

<a href="http://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/" target="_blank">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="http://cfi-blog.org/2009/01/28/microfinance-and-peace-in-colombia/" target="_blank">Microfinance and Peace in Colombia</a>

<a href="http://cfi-blog.org/2013/10/03/global-microscope-finds-the-world-getting-more-microfinance-friendly/" target="_blank">Global Microscope Finds the World Getting More Microfinance-Friendly</a>

Palestine to Develop a National Financial Inclusion Strategy

Researched by: Stephen Thomas, Director of Risk Management at <a href="https://www.credit-suisse.com/us/en/" target="_blank" rel="noopener noreferrer">Credit Suisse</a>

Introduction                                    

The microfinance industry in Morocco enjoyed many years of strong growth in a relatively lightly regulated environment, and then it experienced a period of crisis during which loan default rates rose to worrisome levels and the financial soundness of a number of microfinance institutions (MFI’s) became imperiled. The regulatory authorities realized that microfinance lending, as it was being practiced, was too often harming the very people that it was intended to help. In response, the authorities with the support of the government have embarked on a well-targeted and ongoing campaign to restructure and regulate the industry in a way that will allow it to achieve sustainable positive growth over the long term. At the heart of this initiative are policies designed to promote client protection. Tangible progress has been realized in the past three years:
<ul>
 	<li>The legal framework has been updated and enhanced to allow for more effective regulation and oversight of the industry.</li>
 	<li>The MFI’s have improved their lending practices and strengthened their finances.</li>
 	<li>Measures have been put in place to advance the adherence to the principles of client protection.</li>
</ul>
While much has been achieved to date, there remains much more yet to be accomplished.

Background

Morocco has one of the most extensive and vibrant microfinance sectors in the MENA region; the other being in Egypt. Currently the Moroccan microfinance industry counts some 800,000 clients and the value of the outstanding loans is in the order of $460 million, according to 2011 statistics. There are 10 active MFI’s, listed in Table 1, of which the three largest, Al Amana, FONDEP and FBPMC, control over 80% of the market in terms of loan portfolio value. The activity is distributed throughout the country with the clientele being roughly 60% urban and 40% rural.

The MFI’s in Morocco were given a legal framework within which to operate through the <a href="http://www.idlo.int/MF/DOCUMENTS/REGULATIONS/MOROCCO1.htm" target="_blank" rel="noopener noreferrer">Law No. 18-97</a>, enacted in 1999. The sector experienced rapid and significant growth up to 2006 when problems began to surface. The rate of nonperforming loans, which had been very low historically, began rising noticeably over an extended period of time.  This prompted the Central Bank of Morocco, the Bank Al-Maghrib (<a title="Bank Al-Maghrib" href="http://www.bkam.ma/" target="_blank" rel="noopener noreferrer">www.bkam.ma</a>), to intervene into what had been up to that point a lightly regulated industry. The Bank’s initiatives included on-site inspections of the loan portfolios of the various lending agencies, the MFI’s. The principal finding was the existence of a significantly high level of cross-borrowings – approximately 40% of the borrowers had multiple accounts, i.e., outstanding loans with two or more MFI’s. There were no controls in place to prohibit or even limit such cross-borrowings with the results being that a growing number of borrowers had become over-indebted relative to their ability to repay their loans.

Over the next 3 years, the growth of the sector came to a halt, and the financial performance of the existing loan portfolios deteriorated. For example, by 2008 the level of loans at risk, i.e., greater than 30 days past due, had reached 5% as compared to the level of 0.5% in <a title="‘Risques et Protection des Consommateurs en Microfinance’ page 10" href="http://www.idlo.int/MF/Documents/Publications/58E.pdf" target="_blank" rel="noopener noreferrer">2004</a>. Nonetheless, over this period of time, and continuing to the present, the government has enacted a number of laws designed to improve the regulation of the sector. At the same time, the Central Bank has taken a series of steps to effectively enforce these laws and to expand its oversight of the lending activities in the market. As a result of these efforts, the financial performance of the microfinance sector has greatly improved in recent years as the percentage of loans at risk has diminished from a high of 6.4% in 2009 to 4.3% in <a title="Rapport Annuel sur le Contrôle, l’Activité et les Résultats des Etablissements de Crédit – Exercice 2011" href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=3&amp;cad=rja&amp;ved=0CEYQFjAC&amp;url=http://www.bkam.ma/wps/wcm/connect/resources/file/eb0b3c0525abb7f/dsb-rapport-2011.pdf?MOD=AJPERES&amp;attachment=true&amp;ei=Gzm5UPHdOcmx0AHgrYCgAw&amp;usg=AFQjCNEe239PfjdF7VA-pJzIrWA9AEq5AQ&amp;sig2=nlacU8tYF9JIsXlsC5cQHQ" target="_blank" rel="noopener noreferrer">2011</a> and the industry has returned to profitability. In addition, the implementation of industry-wide credit qualification and risk management procedures has virtually eliminated instances of clients’ engaging in cross-borrowing beyond their ability to service their debts. The industry is once again experiencing growth at a sustainable rate. The principles of client protection have been incorporated into the operating policies of the market participants, and a culture of client protection is being effectively instilled within the industry.

Legal Framework

The Central Bank is the entity that is primarily responsible for regulating and supervising the microfinance industry throughout the country. Within the Bank, the ‘Office of Bank Supervision’, inside of the ‘Department of Oversight of Financial Institutions’, is the division that has direct supervisory responsibility. The Bank’s regulatory authority was initially formalized through <a href="http://www.idlo.int/MF/DOCUMENTS/REGULATIONS/558REG.pdf" target="_blank" rel="noopener noreferrer">Law No. 34-03</a>, enacted in 2006. Specifically, Articles 105-120 define the regulatory authority of the Central Bank.  Since then, it has been expanded and reinforced through a series of subsequent laws and regulatory orders.

The microfinance industry experienced very strong growth during the period 2005-07. By 2008, however, the Central Bank observed that the rate of nonperforming loans had been rising for some time and that the level of loans in default had reached a historically high rate of 5%. The Bank responded by tightening its regulation of the industry through legislation bolstered by on-site inspection and, when necessary, intervention. The most noteworthy of its actions was its role in facilitating the merger of the Fondation Zakoura with the Banque Populaire pour le Micro-Crédit (FBPMC) in May 2009. Zakoura was one of the two dominant MFI’s in Morocco and had experienced rapid growth in the years preceding 2009 but without effective risk management controls. By the fall of 2008, its portfolio at risk (&gt; 30 days) had reached an excessively high level of <a href="http://www.lavieeco.com/news/economie/fondation-bp-pour-le-microcredit-zakoura-histoire-d-un-sauvetage-13680.html" target="_blank" rel="noopener noreferrer">11.6%</a>  and its financial instability had become a threat to the entire microfinance sector. The Central Bank arranged the merger in order to avoid a crisis. Once this emergency action was completed, the Government and the Central Bank began the process of restructuring the regulatory environment of the industry in order to create a more sustainable model.

The new regulatory requirements were issued through the <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=directive%20relative%20%C3%A0%20la%20gouvernance%20au%20sein%20des%20associations%20de%20micro-cr%C3%A9dit&amp;source=web&amp;cd=2&amp;sqi=2&amp;ved=0CDUQFjAB&amp;url=http://www.bkam.ma/wps/wcm/connect/resources/file/eb744740e503015/Recueil%20des%20textes%20lgi%20et%20rgl%20de%20BAM%20V02-05-12.pdf?MOD=AJPERES&amp;attachment=true&amp;ei=Zha-UMJsx-DSAY2EgIgG&amp;usg=AFQjCNG2080l0H1TxLuvrFTQ7YtfFLx7-g" target="_blank" rel="noopener noreferrer">‘Directive on the Governance of Microfinance Associations’</a>, enacted in September 2009. This law provides further clarification of the managerial obligations with regard to governance, internal controls, external audit, the management of credit, liquidity and operational risks, and transparency in the dissemination of information concerning each institution and its operating performance. The Central Bank instituted formalized reporting policies to which the MFI’s must comply. Furthermore, it has required the MFI’s to implement risk management policies and procedures to improve the management of their loan portfolios. Since 2006, the Central Bank has had in place a practice of making regular on-site visits to the various MFI’s for the purpose of observing the operating practices, evaluating governance and internal controls, assessing the quality of the loan portfolios and verifying the conformance to the regulatory framework. This has been strengthened and the Bank stands prepared to intervene in the operations of an MFI when deemed necessary. Such intervention may take the form of:
<ul>
 	<li>Dictating improvements in operating procedures</li>
 	<li>Requiring the write-off of impaired loans</li>
 	<li>Implementing transparency practices</li>
 	<li>Adhering to client protection guidelines</li>
</ul>
The Bank also makes it clear that a failure to comply with its directives may result in the suspension of operations or the revocation of the banking license.

Also in 2009, regulations were enacted requiring the MFI’s to classify all loans and declare the level of non-performing loans in their respective portfolios. <a title="Text of the Law in the Official Bulletin No. 5866, pages 1140-41" href="http://www.sgg.gov.ma/BO/bulletin/Fr/2009/BO_5752_Fr.pdf" target="_blank" rel="noopener noreferrer">Furthermore, they were thereafter required to maintain reserves sufficient to cover the potential loss exposures</a>.

Risk management practices have likewise been significantly enhanced. For example, the MFI’s are required to implement a formal process to verify, i.e., fact check, the information submitted in each loan application. A key element in the realization of an effective nation-wide risk management policy has been the creation, in 2009, of the ‘Centralized Risk Repository’, "La Centrale des Risques", by the Central Bank. This Risk Repository fulfills the role of a credit bureau. <a title="Text of the Law in the Official Bulletin No. 5866, pages 1588-90" href="http://www.sgg.gov.ma/BO/bulletin/Fr/2010/BO_5866_Fr.pdf" target="_blank" rel="noopener noreferrer">The MFI’s are obligated to submit to the Repository the relevant information on all existing and prospective clients</a>. Consulting the facility before approving new loans has allowed the MFI’s to significantly improve their management of credit risk. The Repository has also given the Central Bank the ability to monitor and manage the risks within the microfinance industry at all levels, e.g., cross-borrowings, over-indebtedness, loans in arrears, etc.

For policy-makers, protecting the microfinance industry from credit abuses and maintaining its financial stability are critical elements to assuring the protection of clients. One of the tools employed to prevent the proliferation of cross-borrowings and to improve credit quality has been the sharing of client and loan information among the MFI’s. This has proved to be an effective policy in resolving the problem; however, it does raise the question as to the protection of confidential client information. To address this concern, the government enacted <a title="Text of the Law in the Official Bulletin No. 5714, pages 345-56" href="http://www.sgg.gov.ma/BO/bulletin/Fr/2009/BO_5714_FR.pdf" target="_blank" rel="noopener noreferrer">Law No. 09-08</a> which provides a series of legal protections of confidential and personal information in all matters financial and otherwise. The MFI’s have formally incorporated this concept into their business practices.  Nonetheless, the effective protection of client privacy will require ongoing oversight on the part of the Central Bank.

Another major area of interest in the effort to improve client protection has been the initiative to provide true transparency in loan pricing. Originally, the law gave the Central Bank the authority to impose an interest rate cap on microfinance loans; however, no such cap was ever enacted as it has never been deemed to be necessary. On the other hand, there have never been restrictions on fees and other costs that could be imposed within the terms of the loan contract; nor were there any requirements regarding the declaration or explanation of such terms. As a result, the market developed complex pricing strategies that very often left the client unaware, or confused about the total cost of the loan. Now, however, the regulations require that certain standards of transparency be met with regard to the terms of each and every contract. The contractual obligations must be clearly stated and understandable to the client. The principle of transparency, as it is being enforced by the Central Bank, covers the full disclosure of all costs involved in the lending relationship and the requirement that the loan documentation be complete and understandable to the client. The Bank’s concern is that borrowers have a thorough understanding of the full costs of their respective loans and that the MFI’s maintain a high standard of service by adhering to the principles of client protection and by dealing in good faith.

The principles of client protection have been formally defined in the <a href="http://www.fnam.ma/article.php3?id_article=22">‘Microfinance Code of Ethics’</a>, adopted in 2010. The Code incorporates the concepts that are enumerated in the Smart Campaign’s <a href="http://www.smartcampaign.org/about-the-campaign/smart-microfinance-and-the-client-protection-principles" target="_blank" rel="noopener noreferrer">‘Client Protection Principles’</a>. The Central Bank was instrumental in motivating the industry as a whole to collaborate on the creation and implementation of the Code. Although it does not have the force of law, it is intended to serve primarily to induce the MFI’s to incorporate the concept of client protection into their business philosophy. Significant progress has been made in this regard as the MFI’s have adapted their business practices to conform to the stated principles.

The Code also includes a clause that obliges the parties of any non-criminal dispute to seek resolution through arbitration. To facilitate this dispute resolution, the government has created a network of local tribunes called "tribunaux de proximité" whose mission is to provide rapid resolution of complaints while applying the precepts of the Code of Ethics and respecting the dignity of the plaintiffs. These tribunes are proving to be more efficient than the traditional court system, and their success is furthering the cause of client protection.

Microfinance Institutions

There are twelve active MFI’s in Morocco. The ten that report to Mix Market are listed in Table
I.  The remaining two are Tawana and Microcrédit du Nord

<a href="http://www.mixmarket.org/mfi/country/Morocco/" target="_blank" rel="noopener noreferrer"><img src="storage/Morocco_Table_1.jpg" alt="Morocco_Table_1" width="677" height="332" /></a>

Networks

The principal Moroccan microfinance network is the Fédération Nationale des Associations de Microcrédit, FNAM, (<a href="http://www.fnam.ma/" target="_blank" rel="noopener noreferrer">www.fnam.ma</a>). Its membership includes all twelve Moroccan MFI’s. FNAM has played a leading role in enlisting all of the MFI’s to incorporate the Code of Ethics into their operating practices and to make significant progress toward providing transparency in their lending procedures and product pricing.

Sanabel is also active throughout the MENA region and has an ongoing campaign to improve the performance of the microfinance industry and, in particular, to promote adoption and implementation of the <a href="http://www.sanabelnetwork.org/UserFiles/file/Publications/Transparency%20Publications/2011%20MENA%20Regional%20Snapshot_EN.pdf" target="_blank" rel="noopener noreferrer">Client Protection Principles</a>.

Conclusion

Morocco has achieved significant progress in stabilizing the microfinance industry and in implementing regulations that will promote client protection. The cooperation among the regulatory authorities, the IMF’s and the NGO’s active in the country has created an environment favorable to the future development of the industry. Yet much remains to be done. One important initiative on the horizon concerns a regulatory initiative to standardize the interest rate practices across the industry and to establish specific requirements to be met in terms of business transparency with respect to the clients.

<a title="Client Protection Library" href="publications-a-resources/client-protection-library" target="_parent" rel="noopener noreferrer">Back to Client Protection Library</a>

Client Protection in Morocco