<h4>“When an institution finds itself in severe crisis, it’s normal to panic. As delinquencies mount, staff morale declines, and investors start calling and demanding answers, managers can be forgiven if they pine for the simplicity of the OMS — the Ostrich Management System. There is nothing quite so calming as sticking one’s head in the sand while the world goes crazy…”</h4>
Weathering the Storm II – conducted as part of our partnership with the Mastercard Center for Inclusive Growth and produced with the <a href="https://www.e-mfp.eu/" target="_blank" rel="noopener noreferrer">European Microfinance Platform</a> – is a follow-up to the <a href="https://centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/" target="_blank" rel="noopener noreferrer">original report and case studies</a>, published in the aftermath of the financial crisis. This updated Weathering the Storm synthesizes relives experiences and lessons from 16 institutions in 14 countries on four continents over 15-year period (including five new case studies from <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-partner/" target="_blank" rel="noopener noreferrer">Bosnia and Herzegovina</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-financiera-fama/" target="_blank" rel="noopener noreferrer">Nicaragua</a>, and <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-vitas-palestine/" target="_blank" rel="noopener noreferrer">Palestine</a>). Nearly every type of institution – from NGO to bank – is included.

The goal is to inform best practices for triaging the critical and the merely very important in order to survive and thrive. Content is organized by a hierarchy of needs for survival: liquidity, confidence, portfolio, and capital. Readers will come away with a better understanding of how leaders – with the support of investors and ecosystem actors -- stabilized their financial institutions and embarked on a full recovery. The hope is that no one reading this will go through a similar crisis, but if so, Weathering the Storm II will be a useful guide in addition to a history lesson.

Weathering the Storm II: Tales of Survival from Microfinance Crises Past

Mastercard Center for Inclusive Growth

Azerbaijan

Europe and Central Asia

Benin

Sub-Saharan Africa

Bosnia and Herzegovina

East Asia and Pacific

Ghana

India

South Asia

Indonesia

Kazakhstan

Latin America and The Caribbean

Middle East and North Africa

Morocco

Nicaragua

North America

Pakistan

United States

West Bank and Gaza

Weathering the Storm II

Challenges and Crises

Enabling Environment

Credit

Financial Service Providers

Microfinance

Microfinance Institutions

Report

Weathering the Storm II: A Case Study of Financiera FAMA

MSME/SME Finance

Brief

&gt; Posted by Elisabeth Rhyne, Managing Director, CFI

<img class="alignright wp-image-9551" style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/01/seal_fp_new.jpg" width="240" height="240" />The following post was <a href="http://www.huffingtonpost.com/elisabeth-rhyne/client-protection-and-microfinance_b_2536881.html" target="_blank">originally published</a> on the Huffington Post Business Blog. 

The global microfinance industry realized a significant and long-awaited goal this week with the introduction of <a href="http://www.smartcampaign.org/certification" target="_blank">Client Protection Certification</a> as promoted by the <a href="http://www.smartcampaign.org/" target="_blank">Smart Campaign</a>. With certification, lenders and banks for low-income people will be able to demonstrate -- on the basis of an on-site, third-party evaluation -- that they take adequate care to protect their clients.

As one of the founders of the Smart Campaign, my high hopes are that Client Protection Certification will become a kind of Fair Trade mark for the microfinance industry. If established as we envision, donors, investors, regulators, and even clients will check the certification registry before they invest in or bank with microfinance institutions, choosing the ones that meet the standards. This in turn will create positive incentives for institutions to improve, ultimately leading to safer, more respectful services for the low income clients microfinance reaches.

This certification program is part of an ongoing process that gained momentum in 2008 as we in the microfinance industry, perhaps a little smugly, observed how poor client protection among U.S. subprime mortgage lenders triggered the global financial crisis. Many of the leading players in microfinance said to each other, "Microfinance is not like that." We naively believed that because of their deep pro-poor motivations, micro-lenders would always put clients' welfare first.

That conviction prompted a small group, led by the Consultative Group to Assist the Poor (CGAP), a microfinance center hosted at the World Bank, together with several of the industry's leading investors to adopt a set of <a href="http://www.smartcampaign.org/about-the-campaign/smart-microfinance-and-the-client-protection-principles" target="_blank">Client Protection Principles</a>. These principles provide a moral touchstone, almost a Hippocratic Oath for financial services. They include the elements that come to mind when we ask what constitutes fair treatment, including preventing over-indebtedness, transparent communications, responsible pricing, appropriate collections and the like. As a Center for Financial Inclusion publication <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2012/01/110126_cfi_rpt_what-is-the-high-bar-and-what-is-the-low-bar-for-client-protection_en_final.pdf" target="_blank">states</a>, "Good client protection is especially important for anyone lacking experience with financial services and for the vulnerable populations microfinance serves, such as the poor, women, youth, rural dwellers and persons with disabilities."

Unfortunately, in 2009 and 2010, microfinance suffered its own series of bubbles, as microfinance markets in India, Bosnia, and Nicaragua, among others, overheated and sent many clients into severe debt stress. These crises revealed that microfinance institutions, now often operating as banks and finance companies, could also be susceptible to the encroachment of poor practices.

The microfinance industry acted quickly in response. The <a href="http://www.centerforfinancialinclusion.org/" target="_hplink">Center for Financial Inclusion at Accion</a>, together with <a href="http://www.cgap.org/" target="_hplink">CGAP</a>, led a coalition to create the Smart Campaign to put the client protection principles into practice. Over 1,100 microfinance institutions and over 2,200 additional individuals and organizations (e.g., investors, donors, and networks) have endorsed the Smart Campaign principles. The Campaign and its supporters recognized that the industry would need more than lip service to a set of principles, however. They would need a sturdy supporting architecture. With today's certification launch, a major portion of that architecture is now open for public inspection.

To develop certification, the Smart Campaign and its task forces translated the seven principles into 30 specific standards of practice within organizations. The standard-setting process drew upon norms, values, and practices already present within microfinance, but not always formally recognized. Expert field teams developed the methodology to be used when investigators conduct on-site verification visits. Starting today, any organization that meets the standards and passes the verification visit will be publicly acknowledged as "Client Protection Certified."

For transparency, as an example, the principle requires providers to give clear, sufficient and timely information, especially on prices, in a manner that clients can understand. The standards accompanying this principle include more than simple disclosure. They require institutions to consider factors like their clients' limited literacy, and to apply procedures that will ensure that clients can be genuinely informed when the time comes to make decisions.

The <a href="http://www.smartcampaign.org/certification/certified-organizations" target="_blank">first group of certified institutions</a> announced today are from two countries where the microfinance sector experienced an over-lending crisis and saw the need to prioritize client protection: India and Bosnia. Before seeking certification, these institutions examined their policies and practices internally and made needed adjustments. Through this upgrading process, the certification program has already begun to add value for clients. When the institutions were ready, they invited one of the four certifiers licensed by the Smart Campaign (Planet Rating, Microfinanza, M-CRIL and MicroRate) to examine them on-site. In order be certified, the institutions had to pass all 30 standards, quite an accomplishment.

The Smart Campaign enjoys widespread support across the microfinance industry, because most of the practitioners of microfinance do, in fact, care greatly about client welfare. With a clear framework now in place, they are ready to hold themselves to a highly visible standard. This resolve is what makes me proud to be part of this industry.

Over the past twenty years, microfinance brought financial services to hundreds of millions of people who were previously ignored. In the next few years, it may demonstrate that a committed group of financial institutions serving low-income clients can lead the financial sector in implementing responsible financial services.

Have you read?

<a href="http://cfi-blog.org/2013/01/24/announcing-the-launch-of-the-client-protection-certification-program/" target="_blank">Announcing the Launch of the Client Protection Certification Program!</a>

<a href="http://cfi-blog.org/2013/01/15/why-the-fine-print-matters/" target="_blank">Why the Fine Print Matters</a>

<a href="http://cfi-blog.org/2012/12/21/client-protection-from-the-first-point-of-contact/" target="_blank">Client Protection from the First Point of Contact</a>

Client Protection and Microfinance: Crossing a Threshold

Nigeria

Consumer Protection

Smart Certification

Blog Post

The Financial Behavior of Rural Residents: Findings from Five Latin American Countries
By Jacqueline Urquizo - Published: March 2012

&nbsp;

This report provides the financial industry with important recommendations for creating and improving services to rural residents in Latin America. The study – based on market research conducted in Colombia, Dominican Republic, Ecuador, Nicaragua and Peru – provides a detailed portrait of access, use and attitudes towards financial services by rural residents, both farmers and microentrepreneurs.  The study offers a unique opportunity to understand the financial choices rural residents make and the attitudes they bring when they interact with banks and microfinance institutions.

The study targeted heads of households who work in an independent activity, specifically entrepreneurs and small farmers.  The study describes the rural population according to socioeconomic and psychographic variables, social interactions and financial behavior, considering credit, savings, investment and risk management.  Financial education and awareness and use of formal financial services are discussed.
<h3></h3>
&nbsp;

The Financial Behavior of Rural Residents

Colombia

Dominican Republic

Ecuador

Peru

Rural Populations

Underserved Groups

&gt; Posted by Center Staff
[caption id="attachment_1124" align="alignright" width="294" caption="Nicaraguan protesters during an earlier period of &quot;No Pago&quot; movement activities."]<img class="size-full wp-image-1124" title="Observador Economico" src="http://centerforfinancialinclusionblog.files.wordpress.com/2009/11/observador-economico.jpg" alt="Observador Economico" width="294" height="205" />[/caption]
One of our most-read series here at the Center blog has covered the Nicaraguan microfinance industry's crisis and subsequent progress toward recovery. Senior Analyst Sergio Guzmán has provided nearly all of the posts, which are assembled below to give you an overview of the unfolding story.
<ul>
	<li><a href="http://centerforfinancialinclusionblog.wordpress.com/2009/11/05/nicaraguan-microfinance-in-crisis/" target="_blank">Nicaraguan Microfinance in Crisis - November 5, 2009 </a>
The microfinance industry in Nicaragua is under siege by a politically motivated group of borrowers who call themselves the No Payment Movement (Moviemiento No Pago). </li>
	<li><a href="http://centerforfinancialinclusionblog.wordpress.com/2010/03/23/ley-moratoria-moratorium-law-passes-in-nicaragua/" target="_blank">Ley Moratoria (Moratorium Law) Passes in Nicaragua - March 23, 2010</a>
In November of 2009, we reported that the microfinance industry in Nicaragua is under siege by a politically motivated group of borrowers.  Calling themselves “No Payment Movement,” they pressured the government to lower their interest rates, suspend debt recovery trials, and grant grace periods on repayment.</li>
	<li><a href="http://centerforfinancialinclusionblog.wordpress.com/2011/01/24/nicaraguas-microfinance-crisis-looking-back-what-did-we-learn/" target="_blank">Nicaragua’s Microfinance Crisis: Looking Back, What Did We Learn? - January 24, 2011  </a>
The Nicaraguan microfinance industry suffered a profound crisis in 2009 and 2010 as a result of both the international financial downturn and the domestic No Pago (No Payment) Movement.</li>
	<li><a href="http://centerforfinancialinclusionblog.wordpress.com/2011/05/02/nicaraguan-mfis-forge-ahead-in-wake-of-no-pago-crisis/" target="_blank">Nicaraguan MFIs Forge Ahead in Wake of ‘No Pago’ Crisis - May 2, 2011</a>
Nicaragua’s MFIs are playing an important social and economic role, and some are rebounding from the No Pago (No Payment) Movement crisis, according to local and international reports.</li>
	<li><a href="http://centerforfinancialinclusionblog.wordpress.com/2011/09/08/nicaraguas-mf-crisis-is-it-winding-down/" target="_blank">Nicaragua’s MF Crisis: Is It Winding Down? - September 8, 2011</a>
It seems like it is too good to be true, but the “No Pago” Movement leaders have agreed to have their members individually negotiate with MFIs the restructuring of their loans.</li>
</ul>
We look forward to providing you with more analysis of the challenges and opportunities in Nicaragua. If you are interested in microfinance in general and Latin American microfinance in specific, we invite you to bookmark this blog and <a href="http://centerforfinancialinclusionblog.wordpress.com/feed/" target="_blank">subscribe</a>.
Image credit: <a href="http://www.elobservadoreconomico.com/" target="_blank">El Observador Económico</a>

Nicaragua&#039;s Microfinance Crisis: A Coverage Round-Up

&gt; Posted by <a href="http://www.centerforfinancialinclusion.org/page.aspx?pid=1297#guzman" target="_blank">Sergio Guzmán</a>
[caption id="attachment_1124" align="alignright" width="294" caption="Nicaraguan protesters during an earlier period of &quot;No Pago&quot; movement activities."]<img class="size-full wp-image-1124" title="Observador Economico" src="http://centerforfinancialinclusionblog.files.wordpress.com/2009/11/observador-economico.jpg" alt="Observador Economico" width="294" height="205" />[/caption]
It seems like it is too good to be true, but the <a href="http://www.elnuevodiario.com.ni/nacionales/113000-no-pago-ceden-renegocian-deudas" target="_blank">“No Pago” Movement leaders have agreed</a> to have their members individually negotiate with MFIs the restructuring of their loans. This is a major concession from the movement that <a href="http://centerforfinancialinclusionblog.wordpress.com/2009/11/05/nicaraguan-microfinance-in-crisis/" target="_blank">rallied and protested</a> in front of MFI branches and even successfully <a href="http://centerforfinancialinclusionblog.wordpress.com/2010/03/23/ley-moratoria-moratorium-law-passes-in-nicaragua/" target="_blank">lobbied </a>the National Assembly to pass a Moratorium Law forcing MFIs to renegotiate loans. This created a major setback for MFIs in the country who saw their portfolio’s quality deteriorate and their investors flee during the height of the protest.
The “No Pagos” wanted collective bargaining rights in order to restructure their loans in the laxest possible way. Neither the MFIs nor the government gave in to their requests and now the movement’s 1,500 members (down from estimates of 5,000 – 13,000 at the height of the crisis) are approaching their financial service providers in a bilateral  effort to renegotiate their obligations.
Why did they give up? As Omar Vilches, leader of the movement, explained, the members did not want to jeopardize their future ability to obtain loans and were facing pushback from the MFIs who did not want collective bargaining.
It was <a href="http://www.fdl.org.ni/noticias.es?idnoticia=72" target="_blank">estimated that the crisis created losses of up to US$20 million</a> for the MFIs that restructured more than 32,000 loans.
Hopefully, the renegotiation of loans with individual borrowers will contribute to the unraveling of this two-year episode. This would be a good time for the sector in Nicaragua to look back at the causes of the crisis and implement solutions to avoid a repetition. A good place to start would be this <a href="http://blogs.cgdev.org/open_book/2010/12/recalibrating-microfinance-a-six-point-program.php" target="_blank">6-Point Action Agenda to Recalibrate Microfinance</a>.
Image credit: <a href="http://www.elobservadoreconomico.com/" target="_blank">El Observador Económico</a>
Have you read?
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/05/02/nicaraguan-mfis-forge-ahead-in-wake-of-no-pago-crisis/" target="_blank">Nicaraguan MFIs Forge Ahead in Wake of 'No Pago' Crisis</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/01/24/nicaraguas-microfinance-crisis-looking-back-what-did-we-learn/" target="_blank">Nicaragua’s Microfinance Crisis: Looking Back, What Did We Learn?</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2010/03/23/ley-moratoria-moratorium-law-passes-in-nicaragua/" target="_blank">Ley Moratoria (Moratorium Law) Passes in Nicaragua</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2009/11/05/nicaraguan-microfinance-in-crisis/" target="_blank">Nicaraguan Microfinance in Crisis</a>

Nicaragua&#039;s MF Crisis: Is It Winding Down?

&gt; Posted by Center Staff
<img class="alignright size-full wp-image-3404" title="nicaragua-map" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2011/05/nicaragua-map.png" alt="" width="223" height="239" />Nicaragua’s MFIs are playing an important social and economic role, and some are rebounding from the No Pago (No Payment) Movement crisis, according to local and international reports.
The <a href="http://centerforfinancialinclusionblog.wordpress.com/2011/01/24/nicaraguas-microfinance-crisis-looking-back-what-did-we-learn/" target="_blank">No Pago crisis</a>, in which thousands of clients refused to pay back their loans, combined with the international financial downturn and political interference to leave many MFIs illiquid in 2009 and 2010.
However, the Nicaraguan Foundation for Economic and Social Development (FUNIDES), in its Economic Situation Report 2011, recently said MFIs were important to the country’s economic and social development because of their service to over 270,000 low-income people.
Nicaragua’s MFIs generate employment and help reduce poverty, according to the report, which was covered by <a href="http://www.microfinancefocus.com/nicaraguan-microfinance-industry-requires-regulation-report" target="_blank">Microfinance Focus</a> on April 14.
Meanwhile, some MFIs appear to be making headway despite the No Pago turbulence, Barbara Magnoni reported in the February issue of the <a href="http://www.microcapital.org/microcapital-monitor/" target="_blank">MicroCapital Monitor</a>.  Some MFIs have reached pre-crisis credit quality, wrote Magnoni, pointing to successes by Pro Mujer Nicaragua, which now serves 26,000 clients, and the Fondo de Desarrollo Local. 
These achievements come against a backdrop of ongoing concerns about the No Payment Movement, which is offering to support President Daniel Ortega’s re-election campaign, according to <a href="http://www.laprensa.com.ni/2011/04/10/nacionales/57479" target="_blank">allegations</a> reported in April by La Prensa.
The backing would come at the price of Ortega arranging for the repayment of US$25 million that the group of merchants, microentrepreneurs, and producers owe to 67 financial institutions, including MFIs, the newspaper reported.
The No Payment Movement’s proposition. according to La Prensa, is that the government would take over the US$25 million debt, and the debtors would repay the state over a 10-year period.
For further reading:
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/01/24/nicaraguas-microfinance-crisis-looking-back-what-did-we-learn/" target="_blank">Nicaragua’s Microfinance Crisis: Looking Back, What Did We Learn?</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2010/03/23/ley-moratoria-moratorium-law-passes-in-nicaragua/" target="_blank">Ley Moratoria (Moratorium Law) Passes in Nicaragua</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2009/11/05/nicaraguan-microfinance-in-crisis/" target="_blank">Nicaraguan Microfinance in Crisis</a>

Nicaraguan MFIs Forge Ahead in Wake of &#039;No Pago&#039; Crisis

&gt; Posted by Center Staff
<img class="alignright size-medium wp-image-2598" title="Nicaragua-map" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2011/01/nicaragua-map.png?w=280" alt="" width="224" height="240" />The Nicaraguan microfinance industry suffered a profound crisis in 2009 and 2010 as a result of both the international financial downturn and the domestic No Pago (No Payment) Movement. Heightened by political interference, these events took a toll on Nicaraguan MFIs and left them both illiquid and unpopular.  As <a href="http://www.laprensa.com.ni/2010/12/20/nacionales/46902" target="_blank">reported</a> by La Prensa, more than 100,000 clients have stopped receiving credit. The industry served some 324,000 clients before the crisis, while today it serves an estimated 225,000. Total portfolio dropped from US$420 million in 2008 to US$170 million at present. Despite heavy write-offs, members of the Nicaraguan microfinance institution association (known by its Spanish acronym, ASOMIF) have an estimated portfolio at risk of 19 percent. There have been cases of failure.
Although this news is bleak, there are glimmers of improvement. The sector appears to have stopped deteriorating and overt support for the No Pago from the government seems to have lessened. The IMF has put some pressure on the government to support the microfinance sector. A few institutions are seeing signs of recovery. According to an <a href="http://www.imf.org/external/pubs/ft/scr/2010/cr10376.pdf" target="_blank">IMF Document</a>, the Nicaraguan government will seek the approval of a Microfinance Law that will enhance “the supervision, transparency, and efficiency of the sector… in particular, the regulatory framework applicable to unsupervised microfinance institutions.”
In previous posts we examined the nature of the No Pago <a href="http://centerforfinancialinclusionblog.wordpress.com/2009/11/05/nicaraguan-microfinance-in-crisis/">Movement</a> and the <a href="http://centerforfinancialinclusionblog.wordpress.com/2010/03/23/ley-moratoria-moratorium-law-passes-in-nicaragua/">Moratorium Law</a>.  Here, we ask: What can the microfinance industry as a whole learn from these events?
<ul>
	<li>International investors will not tolerate an unstable environment: Microfinance investors had <a href="http://www.confidencial.com.ni/articulo/154/millones-en-riesgo-por-ldquo-ley-de-no-pago-rdquo">warned</a> early on that they would not make new investments in Nicaragua if the political environment did not change. They have acted on those words and continue to shrink their exposure to Nicaraguan MFIs. Equity investment in Nicaraguan MFIs was also halted. Unless some conditions change, Nicaragua could have a funding shortage of over US$100 million. Investors have mentioned that they would like to see a law that regulates investment, stronger MFIs, and a more stable environment that doesn’t put their investments at risk.  There is concern about the uncertainty of the economic outlook in Nicaragua among international institutions like the IMF who has mentioned that a key priority for Nicaragua is to better regulate the microfinance and cooperative sector.</li>
	<li>Demagogy is louder than the law: Even though the Moratorium Law required a renegotiation process between clients and MFIs, only 7 percent (363, to be exact) of clients in the No Pago Movement reached out to their institutions to restructure their loans. Some of these clients remain hopeful that the government will pay their debts or else have <a href="http://www.laprensa.com.ni/2010/12/31/economia/47710">threatened</a> to blackmail incumbents in the voting polls.  MFIs fear that the No Pago Movement and the Moratorium Law have weakened the culture of payment among clients. This will make it more difficult for MFIs to properly evaluate willingness to pay.</li>
	<li>MFIs will fail – As David Roodman <a href="http://blogs.cgdev.org/open_book/2010/08/death-of-a-microfinance-institution.php">blogged</a> recently about the failure of Banex, the No Pago Movement was not the only reason for Banex’s demise. Contributing factors include political, social, and economic circumstances combined with weak governance and credit methodologies, topped by too-rapid growth.  MFIs that better leveraged their lending portfolio might have been better equipped to avert failure. Either way, some MFIs simply will not survive. </li>
	<li>Is everyone to blame? True, investors are partly to blame for the excess liquidity in Nicaragua that created a lending spree. At the same time, it would be fair to blame MFIs who gave excess loans to people who had not demonstrated the capacity to pay their financial obligations. MFIs like to point to the No Pago Movement and the government’s early involvement in the protests as factors responsible for the uncertain climate. It is important to recognize that the combination of all of these factors culminated in the events that unfolded.</li>
</ul>
It is critical that the microfinance industry reflect and adjust the way it does business.  For these reasons, we advocate a <a href="http://blogs.cgdev.org/open_book/2010/12/recalibrating-microfinance-a-six-point-program.php">6-Point Action Agenda to Recalibrate Microfinance</a>.  It is important that all actors move forward in the creation of a framework that promotes full financial inclusion and at the same time protects clients from future economic turbulence.

Nicaragua&#039;s Microfinance Crisis: Looking Back, What Did We Learn?

Daniel Rozas

Garrett Jaso

Somen Saha

Elisabeth Rhyne

Jessica Schicks

Housing Finance

Payments

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

&gt; Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI

<a href="http://publications.iadb.org/bitstream/handle/11319/6466/int630C.PDF?sequence=1"><img class="alignright wp-image-15540" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/idb.png" alt="" width="280" height="364" /></a>In Latin America and the Caribbean, approximately 40 percent of families live in houses to which they have no title or that lack sewage systems, water, electricity, or proper building materials, according to the Inter-American Development Bank (IDB). However, current annual investments in living solutions by the base of the pyramid in LAC total $56.7 billion, confirming the increasing buying power of this segment and the growing opportunity in developing housing finance business models.

A few weeks ago I attended an event hosted by the IDB to launch the report <a href="http://publications.iadb.org/bitstream/handle/11319/6466/int630C.PDF?sequence=1" target="_blank">Many Paths to a Home: Emerging Business Models for Latin America and the Caribbean’s Base of the Pyramid</a>. The report was written by Christy Stickney for the Opportunities for the Majority Initiative (OMJ), a part of the Private Sector Group of the Inter-American Development Bank. OMJ provides finance to small, medium-sized, and large companies, as well as financial institutions and funds to support the development and expansion of business models that serve BoP markets.

The report analyses cases within OMJ’s housing portfolio in countries such as Colombia, Mexico, Nicaragua, Paraguay, and Peru. Stickney found  two main housing solutions for the BoP, a “complete” housing solution and an “incremental” housing solution.

The complete housing category includes the micro-mortgage business model, and the rent-to-own model. Employing the micro-mortgage model, the Colombian government supports private sector developers in offering mortgages to families using a multi-faceted credit scoring and savings program to mitigate risk. Families that fall under an established income threshold can ask for government subsidies to make the initial down payment. Those unable to meet the initial payment can enter into a 6 to 12 month savings plan while their home is built.

The rent-to-own model gives customers the option of signing a formal rental agreement. Families that qualify can occupy homes and part of their monthly rent goes towards their future mortgage down payment. This option enables clients to build a payments history in the formal financial system through the rental payments while they save to pay for their home. This model is currently being pilot-tested in Comfama in Colombia and RAFCASA in Nicaragua.

The incremental housing category includes two business models, the core house model and the home improvement model. The core house model, developed by the housing finance company FOMEPADE in Mexico, targets low-income state workers. FOMEPADE first helps clients consolidate and refinance all of their outstanding debt, then extends a housing loan to buy a core house (a newly built basic house of modular design) or undertake a house improvement. The design of core houses facilitates rapid, low-cost improvements and additions. The financing for this model is provided by government subsidies, the family’s down payment, and FOMEPADE’s loan. This model is unique because it links social housing developers, public sector employees, and government subsidy programs.

The home improvement model has been used by different actors such as microfinance banks, municipal savings and loan funds, and wholesale financing institutions. The publication finds that these groups are increasingly using microfinance lending methodologies to help customers make small (roof, floor, water, etc.) or large (room, second story) improvements to their homes. Besides funding, in partnership with other entities like social housing developers, non-profits, and hardware stores, these institutions provide technical assistance, materials, and labor.

What is interesting about these four different business models is that they are not only making it easier for customers at the base of the pyramid to buy a home, or slowly build one, but also that in some way they are bringing this customer segment into the formal financial system. The complete housing solution options are particularly interesting to consider as on-ramps products. Micro-mortgages and rent-to-own offer people the option of having savings products, in addition to building credit scores and payments histories. It’s not difficult to imagine that BoP customers that now have these commodities could access different types of credit and insurance products in the future.

Another positive impact of these housing business models is that they enable financial behavior. Entering savings programs and making regular payments could influence these customers to continue these practices in the future, which could contribute to developing financial capability. Of course, there’s also an opportunity in incorporating capability-building guidance throughout the housing finance services.

We would love to hear your opinion - is housing finance a potential on-ramp to financial inclusion that might be worth a closer look and wider replication?

Have you read?

<a href="http://cfi-blog.org/2013/09/03/microfinance-to-mitigate-substandard-housing/" target="_blank">Microfinance to Mitigate Substandard Housing</a>

<a href="http://cfi-blog.org/2013/02/15/microfinance-for-housing-in-africas-cities/" target="_blank">Microfinance for Housing in Africa's Cities</a>

<a href="http://cfi-blog.org/2012/03/06/removing-road-blocks-to-housing-finance-new-findings-from-latin-america/" target="_blank">Removing Road Blocks to Housing Finance: New Findings from Latin America</a>

Housing Finance Models in Latin America and the Caribbean

Nicaragua

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Weathering the Storm II: Tales of Survival from Microfinance Crises Past

Weathering the Storm II: A Case Study of Financiera FAMA

Housing Finance Models in Latin America and the Caribbean

Client Protection and Microfinance: Crossing a Threshold

The Financial Behavior of Rural Residents

Nicaragua's Microfinance Crisis: A Coverage Round-Up

Nicaragua's MF Crisis: Is It Winding Down?

Nicaraguan MFIs Forge Ahead in Wake of 'No Pago' Crisis

Nicaragua's Microfinance Crisis: Looking Back, What Did We Learn?