When most microfinance clients start out, they’re first-timers at a formal financial institution. Like anything unfamiliar, a first foray with banks can be intimidating. You don’t want to be duped or make a mistake and lose precious savings. Peace of mind was granted to clients of two microfinance institutions, one in Paraguay and the other in the Dominican Republic recently as the first <a href="http://smartcampaign.org/certification/">Smart Certifications</a> in those countries were awarded. Fundacion Paraguaya and Banco ADOPEM were certified as meeting all the standards needed to treat their clients with adequate care. This certification demonstrates to prospective clients as well as investors and other industry stakeholders that their institutions are operating responsibly.

Fundacion Paraguaya and Banco ADOPEM are both market leaders in their own right. Banco ADOPEM is one of the largest microfinance institutions in the Dominican Republic. According to the MIX, 351,000 depositors in the Dominican Republic bank with Banco ADOPEM. When Banco ADOPEM pursues and achieves Smart Certification, that sends a message to MFIs and other stakeholders in the country that client protection is a key priority. In 2014 ADOPEM was named “Most Innovative Microfinance Institution of the Year” by Citi, in part because of <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwiqm5rRtcvNAhVBVT4KHQJ6A7AQFggfMAA&amp;url=http%3A%2F%2Fwww.bancoadopem.com.do%2Fapp%2Fdo%2Fproductos.aspx%3Fid%3D1408%26iid%3D1406&amp;usg=AFQjCNGgptkSBD2J3D7ZsUJPbBnM2oBakA&amp;sig2=2F9CvETC8A2D75Fe1H3ozw">ATA-Movil</a>, a portable electronic application that allows credit advisers to assess customers in their businesses or in their homes. The mobile information system also allows for convenient and direct communication with clients.

Mercedes de Canalda, President and Founder of Banco ADOPEM, told the Smart Campaign that the MFI’s decision to pursue Smart Certification was to evaluate the institution’s policies and practices against the industry’s best practices in areas like transparency and communication with clients. She said, “The deep evaluation of our policies and procedures opened our eyes to what we can improve. The biggest advantage is that it gave us reasonable and concrete goals and a specific timeline to improve our practices. It was a detailed requirement. It challenged us to innovate and continue to improve to ensure that clients are treated well and that they are heard.”

Fundacion Paraguaya has long been a leader and innovator in microfinance and in the broader fight against poverty, contributing to areas like <a href="http://www.fundacionparaguaya.org.py/?page_id=490">poverty assessment</a>, <a href="https://cfi-blog.org/2013/09/05/disability-inclusivity-and-the-smart-campaign-at-fundacion-paraguaya/">financial inclusion for persons with disabilities</a>, and <a href="http://www.fundacionparaguaya.org.py/?page_id=77">youth empowerment</a>. The <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">Global Microscope</a> 2015 reports that client protection regulation in Paraguay is lacking. For example, it lacks strong grievance redressal mechanisms and does not adequately prevent aggressive collection practices. The report also finds there are mounting concerns over over-indebtedness among lower-income groups in the country and that the government needs to devise and implement a national program to ensure greater education about financial services. Fundacion Paraguaya, along with its strong client protection practices, offers <a href="http://www.fundacionparaguaya.org.py/?page_id=491">a range of financial education services</a>, including services to <a href="http://www.fundacionparaguaya.org.py/?page_id=517">children and youth</a> via uniquely structured, financially sustainable programs.

There have been a number of other recent Smart Certifications: Amret Microfinance, Prasac, Sathapana Bank, and VisionFund in Cambodia; Grooming Centre and Fortis Microfinance Bank in Nigeria; AgroInvest in Serbia; Pro Mujer in Nicaragua; FINCA in Georgia; Annapurna Microfinance in India; Tamwil El Fellah in Morocco; Pichincha Microfinanzas in Ecuador; and FINCA in Mexico. The total number of certified institutions is now 60, and together these institutions serve over 26 million consumer protected clients.

For more on Smart Certification, including a listing of certified institutions, visit <a href="http://smartcampaign.org/certification/certified-organizations">the Smart Campaign website</a>.

Have you read?

<a href="https://cfi-blog.org/2016/03/21/a-client-protection-milestone-50-smart-certified-institutions-25-million-clients-covered/">Disability Inclusion, in Ecuador and Around the World: An Interview with Larry Reed</a>

<a href="https://cfi-blog.org/2016/03/21/a-client-protection-milestone-50-smart-certified-institutions-25-million-clients-covered/">A Client Protection Milestone: 50 Smart Certified Institutions; 25 Million Clients Covered</a>

<a href="https://cfi-blog.org/2015/03/26/smart-certification-kashf-foundation-takes-the-lead-in-pakistan/">Smart Certification: Kashf Foundation Takes the Lead in Pakistan</a>

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Client Protection Firsts in Paraguay and the Dominican Republic

<a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/"><img class="alignright wp-image-20072" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/2652377697_7cd2f08d4e_o.jpg" alt="2652377697_7cd2f08d4e_o" width="349" height="224" /></a>Aging is an issue that we all hope to face personally, if we haven’t already. As we prepare to participate in <a href="http://www.e-mfp.eu/microfinance-week">European Microfinance Week</a>, we are more convinced than ever that this is a critical topic for the financial inclusion community to address. (If you are planning to be at European Microfinance Week too, make sure to <a href="https://event.neimenster.lu/ehome/emw2015/308192/?&amp;">check out our panel</a> on the Sustainable Development Goals and financial inclusion!) In Europe, the aging of the population is well acknowledged. With average life expectancy in Europe among the highest in the world, at 77 years, the proportion of the population reaching older age is naturally growing. About 25 percent of Europe’s population is now over the age of 60, and that percentage is set to rise. The aging of the population is well understood in Europe, but what is less recognized is that the middle and lower-middle income countries of the world – the countries that encompass most of the world’s population – are already beginning to experience the same older age population boom. In most middle income countries, from Mexico to China, over-60s are the fastest growing cohort of the population. Aging is a product of successful development. Increased life expectancy, better family planning mechanisms, and higher quality of life all contribute to growth in the proportion of the population that is older.

Aging is a reality, but can it also represent an opportunity for financial institutions? The smart money is on providers who recognize that the answer is yes, and work to figure out how to respond.

We’ve created a list of activities, some practical and some research-oriented, we think would be valuable to close the gaps in financial inclusion for older people and for younger people who want to prepare for their older age. And, frankly, we would love for you to steal these ideas!

Develop a toolkit for becoming an age-friendly institution. We hear of a few financial institutions—from MFIs to commercial banks—that are using age as a lens through which to segment product offerings. From long-term savings products for people in their primary working years to credit designed for older people, being age-friendly across the life course allows a focus on life transitions and the diverse financial needs that accompany them. Case studies and toolkits would help financial institutions follow proven approaches. As part of becoming an age-friendly institution, there are a few starting points that would make a big impact:
Age-proof channels and technology. Financial institutions recognize that new technology, new channels, and new products must be built with the user experience in mind. There are existing vehicles for testing channels and technology to ensure that they work for older people. As part of vetting channels and technology, financial institutions can leverage older persons’ associations, assuring the technology’s validity for later life.
Ensure that staff members are not discriminating based on age. Financial institutions and support organizations can test the customer experience through mystery shopping in order to better understand how people of different ages are treated when they walk into a branch. An exercise like this could inform market-specific training modules to dispel myths about aging for staff of financial institutions.
Use existing data to create better products. Financial institutions have a wealth of data on clients that goes unused, and age is one data point that is collected because of the way that AML/CFT laws are translated into institutional policy. Financial institutions can use the data they have on clients to better understand how age influences client behavior. From this data, financial institutions have the opportunity to create better products to serve people across their life cycle, and especially into their older age.
Enhance financial security in older age by leveraging G2P and P2G early on. The shift toward electronic government-to-person and person-to-government payments presents an opportunity for creating “on-ramps” to inclusion. Leveraging these products could include automatically diverting funds sent through electronic channels to help people save funds for older age (which is already happening in many parts of the world) or using electronic G2P payments that go to older people as collateral for loans (older people are often seen as higher risk). Financial institutions which provide the accounts through which electronic payments are channeled have the positioning to capitalize on this opportunity.

Raise or eliminate age caps on credit and insurance. Over half of the institutions we <a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">surveyed earlier this year</a> reported that they impose upper age restrictions on their products. Many age caps at microfinance institutions are based on outdated actuarial tables, and are ripe for being challenged or creatively eliminated. Many people who are older may be willing to pay more for credit. And financial institutions could find highly receptive clients if they responsibly raise age caps on credit products. A dedicated loan guarantee fund could help mitigate perceived risk during a pilot phase, accompanied with careful performance monitoring to provide more data about actual risks of lending to older adults.

Enable people to save for their older age. Pension systems were designed for a largely formal labor force, and the current reality of the size of informal markets does not match the intention of pensions systems. More progressive governments have begun to reform their pension systems to account for the more informal labor force, by creating alternative channels for contributions at places like corner stores and through mobile phones. Financial institutions can also play a role, either serving as channels to collect funds for the pension system or by setting up independent long-term savings programs that promise a competitive interest rate.

We are confident that there are a hundred more ideas that are just as good (or better). More importantly, though, we look forward to seeing a world in which age is not a barrier to people having access to a full range of quality financial services.

If you end up stealing one of these ideas, or if you’re already doing something to advance industry thinking on aging, let us know—we would love to champion your work.

Image credit: <a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/">World Bank</a>

Have you read?

<a href="http://cfi-blog.org/2015/02/20/moving-to-action-on-aging-and-financial-inclusion/">Moving to Action on Aging and Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/02/10/aging-and-financial-inclusion-an-opportunity/" target="_blank" rel="noopener">Aging and Financial Inclusion: An Opportunity</a>

<a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">Aging and Financial Inclusion: A Client Protection Issue?</a>

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&nbsp;

&nbsp;

&nbsp;

Aging and Financial Inclusion: Steal These Ideas!

The government of China is launching a mandatory credit scoring system in 2020 and since the publishing of a <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">piece on the system</a> by the American Civil Liberties Union (ACLU) last week, it's become a topic of passionate discussion. It remains to be seen how the system will work.  

Below are the opening excerpts from the ACLU post and from a <a href="https://www.techinasia.com/china-citizen-scores-credit-system-orwellian/">Tech in Asia post</a>, which weighs in on the ACLU's points and offers additional food for thought.

"China’s Nightmarish Citizen Scores Are a Warning For Americans"

&gt; By Jay Stanley, Senior Policy Analyst, ACLU Speech, Privacy &amp; Technology Project

China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator <a href="https://twitter.com/interfluidity/status/650803807262130177">put it</a>, “authoritarianism, gamified.” Read <a href="https://www.privateinternetaccess.com/blog/2015/10/in-china-your-credit-score-is-now-affected-by-your-political-opinions-and-your-friends-political-opinions/">this piece</a> for the full flavor—it will make your head spin. If that and the <a href="http://www.chinadailyasia.com/business/2015-06/09/content_15274221.html">little</a> <a href="http://www.fastcoexist.com/3050606/china-is-building-the-mother-of-all-reputation-systems-to-monitor-citizen-behavior">other</a> <a href="http://www.volkskrant.nl/buitenland/china-rates-its-own-citizens-including-online-behaviour~a3979668/">reporting</a> I’ve seen is accurate, the basics are this:

<ul>
 	<li>Everybody is measured by a score between 350 and 950, which is linked to their national identity card. While currently supposedly voluntary, the government has announced that it will be mandatory by 2020.</li>
 	<li>The system is run by two companies, Alibaba and Tencent, which run all the social networks in China and therefore have access to a vast amount of data about people’s social ties and activities and what they say.</li>
 	<li>In addition to measuring your ability to pay, as in the United States, the scores serve as a measure of political compliance. Among the things that will hurt a citizen’s score are posting political opinions without prior permission, or posting information that the regime does not like, such as about the Tienanmen Square massacre that the government carried out to hold onto power, or the Shanghai stock market collapse.</li>
 	<li>It will hurt your score not only if you do these things, but if any of your friends do them. Imagine the social pressure against disobedience or dissent that this will create.</li>
 	<li>Anybody can check anyone else’s score online. Among other things, this lets people find out which of their friends may be hurting their scores.</li>
 	<li>Also used to calculate scores is information about hobbies, lifestyle, and shopping. Buying certain goods will improve your score, while others (such as video games) will lower it.</li>
 	<li>Those with higher scores are rewarded with concrete benefits. Those who reach 700, for example, get easy access to a Singapore travel permit, while those who hit 750 get an even more valued visa.</li>
 	<li>Sadly, many Chinese appear to be embracing the score as a measure of social worth, with almost 100,000 people bragging about their scores on the Chinese equivalent of Twitter.</li>
</ul>
A few years ago I wrote a <a href="https://www.aclu.org/blog/would-it-be-easier-fight-surveillance-if-soviets-were-still-around">piece</a> about how the fall of the Soviet Union, for all its benefits, has made it harder to defend privacy in the United States. During the Cold War, I argued, we defined ourselves in opposition to an enemy that exemplified and embodied in very real form the nightmarish potential of widespread surveillance and control. This made it easy to point to surveillance and shout, “un-American!”

To read the rest of this post, <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">click here</a>.

"China’s ‘citizen scores’ credit system isn’t as Orwellian as the ACLU thinks…yet"

&gt; By C. Custer

Recently, you may have come across <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">this ACLU piece</a> – or any of the dozens of sites reblogging it – about China’s new citizen score system. Mandatory credit scores for everyone that take into account everything from your video game purchases (that’ll drop your score) to your friends’ political activities? Rewards like travel visas for those with good scores? It sounds like a nightmare.

Thankfully, it’s not quite as bad as all that. The ACLU seems to have been confused about a few things, but here’s the key one: Alibaba’s Sesame Credit scoring system, Tencent’s credit scoring system, and the mandatory government one (which isn’t mandatory until 2020) are not the same things. They are three different things that many articles in the Western press are treating as if they were the same.

Alibaba and Tencent’s credit systems: two different non-government products

Sesame Credit does offer some of the features outlined in the ACLU article. It doesn’t hand out Singapore visas, obviously – I’m not sure how that would even be possible – but it was offering promotions for people with high credit scores, including access to a high-speed VIP check-in at Beijing’s Capital International Airport. China’s government has not endorsed this, though. In fact, <a href="http://english.caixin.com/2015-09-28/100859064.html">according to Caixin</a>, China’s central bank is annoyed by the promotional tactics and has reportedly ordered Sesame Credit to stop offering the airport promotional benefit.

The online score-sharing and bragging alluded to by the ACLU also seems to be coming primarily from Sesame Credit. Some critics have accused the scoring system of essentially being a marketing gimmick designed to promote use of Alibaba’s payment service Alipay (since an increased number of transactions will raise your score).

Many of the other details from the ACLU’s article seem to be based on Tencent’s credit score system, which does <a href="http://www.chinadaily.com.cn/business/tech/2015-08/08/content_21535587.htm">mine data from users’ social networks</a> in order to determine their credit. I haven’t been able to find any direct statement that Tencent factors in users’ political post history – or that of their friends – in determining a credit score.

The difference between the two systems makes sense when you think about the companies’ backgrounds. Ecommerce-focused Alibaba’s credit system is based heavily in users’ purchase and payment history. Social giant Tencent’s credit system is based on users’ social networks. Each company is leveraging the data to which it has access. China doesn’t have a national, comprehensive, and widely-used credit system like those in the West, so private lenders like Alibaba and Tencent have created these systems to better inform their lending decisions.

To read the rest of this post, <a href="https://www.techinasia.com/china-citizen-scores-credit-system-orwellian/">click here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/10/13/the-data-story-in-the-fi2020-progress-report-on-credit-reporting/">The Data Story in the FI2020 Progress Report on Credit Reporting</a>

<a href="http://cfi-blog.org/2015/04/03/new-research-highlights-increasing-use-of-alternative-data-in-credit-reporting/" target="_blank" rel="noopener">New Research Highlights Increasing Use of Alternative Data in Credit Reporting</a>

<a href="http://cfi-blog.org/2015/07/16/more-credit-information-sharing-in-emerging-markets-a-call-to-action/">More Credit Information Sharing in Emerging Markets: A Call to Action!</a>

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Mixing Credit Scoring and Political Control in China. How Bad Is It?

&gt; Posted by Tyler Aveni, Positive Planet China

[getty src="179628484?et=GgCaq6CEQdlJs64RSN4CFA&amp;viewMoreLink=on&amp;sig=pvS2qjiVTWBxLnLM0IeaSV7Yv2XmXBmACDzG6Frnxjw=" width="594" height="396"]

In an industry that is constantly evolving due to new technology and abundant knowledge-sharing opportunities, practitioners of socially-driven microfinance and inclusive financial services are also helping to drive new innovation. Accompanying research critically assists this process, especially in evaluating the impact of these new methods and initiatives. This presents a problem for countries like China where a dearth of credible (or existing) data resources makes a critical review of practices far harder to manage. As such, researchers interested in the world’s second-largest economy often must settle with statistics that may suffice but rarely meet higher standards found elsewhere.

The work of Li Gan, a Texas A&amp;M professor who also heads the Survey and Research Center for Household Finance at Southwestern University of Finance &amp; Economics (SWUFE) in Chengdu, China, is helping to address the problem. Professor Li has spent much of the last four years spearheading an effort to gather more data on the financial condition of Chinese households and businesses. Through generous funding by SWUFE and support from the PBOC, China’s central bank, Professor Li has set into motion two key multi-year surveys: The China Household Finance Survey (CHFS) and the “ChinaPnR-SWUFE SME Index” which looks at small enterprises.

Prior to the household survey, the main source of data available on household finance in China came from the National Bureau of Statistics (NBS), a government-sponsored research department. These reported statistics, while comprehensive, are sometimes met with a certain degree of skepticism. Researchers question the integrity of the data collection methods, and some analysts raise concerns about number-tinkering. Any alternative, private surveys were collected on a much smaller scale.

The CHFS is filling the void. Results of the CHFS first began being published in 2012 and are now becoming an increasingly rich and pliable resource for research as additional years of data capture shifts in China’s social and financial landscape. The CHFS started with more than 8,000 households from across mainland China (Tibet and Xinjiang AR excluded) and has been gradually expanded every year. In 2013, some 1,600 SWUFE students were hired and trained to conduct surveys, with the number expected to grow to more than 2,500 for the 2015 survey. Nearly 28,000 households (or 100,000 individuals) are expected to be included in this year’s survey.

Out of approximately 3,000 counties in China, 260 are randomly selected. This selection is then controlled to insure that the sample is both nationally and provincially representative of the population. Within each of these 260 counties, 4 neighborhoods (consisting of villages and communities) are randomly selected. Among the households in the 1,000-plus neighborhoods, between 20 and 50 are randomly selected to be interviewed. The ChinaPnR-SWUFE SME Index works on a very similar system wherein counties and neighborhoods are randomly selected; neighborhood businesses are recorded and then some are randomly selected to participate in the survey.

According to Li Gan, households could be very reluctant to participate but to avoid bias, persistence (i.e. many returned trips) with the support of the local governments and neighborhood committees, has given the CHFS the tools necessary to collect accurate mass-market results. High participation levels (only 11 percent refused to participate in the survey after repeated visits) attest to this earnestness.

Li Gan’s data have shown that wealth is far more concentrated at the top of the socioeconomic pyramid than the NBS figures suggest. It also illustrates that the big picture savings figures are skewed since most of the total dollar amount comes from high income savers.

Interestingly, the survey may also hint at changes in the role of China’s small businesses, since micro-businesses and household finances are often intertwined. In fact, this subset of interest inspired Li Gan and his team of researchers to create the new micro, small, and medium-sized enterprise (MSME) index  in collaboration with a Chinese technology payment services company, ChinaPnR Limited. Used to capture information about China’s roughly 60 million small unlisted companies, data from the ChinaPnR-SWUFE SME Index has now been collected for more than a year. Government and research bodies have strongly encouraged the program, because, as Li Gan points out, any existing lists on these organizations that are currently available are completely outdated. Mass movements of migrant workers to cities and changing economic conditions have relentlessly re-shaped businesses. New shops crop up daily, and turnover is high.

Li Gan sees both the household and microenterprise survey as crucial for microfinance both directly and indirectly. In his view, policies related to microenterprises or small enterprises could even be affected by the survey results. The data keeps relevant information updated by addressing many important questions like: What is the current demand for loans? How much debt can micro and small businesses afford? What financing channels are currently available? Why do micro-entrepreneurs start their businesses? Do they use internet? How knowledgeable are they with internet technology and other innovation?

Answers to these questions may hold implications for what microfinance institutions offer clients and how they deliver services. In addition to researchers digging into past changes and effects, practitioners and organizations may find that the data hold new insights. In recent years there has been a move to holistically evaluate client needs and rethink product and services design to become more appealing for new and existing clients, which in turn, also benefits the institution. This approach, coined “human center design” (HCD) stands to benefit from data, such as the CHFS and SME indexes, which may serve as a broad platform to improve practices and their core offerings.

As of a July 1 update on the CHFS research center’s website (which oversees both surveys), results of the MSME index were officially <a href="http://www.chfsdata.org/detail-26,28-109.html">released</a> last month on June 26. Updates and new results will be published quarterly, with plans made for at least an additional 5-10 years of data collection for both the MSME and household finance indices. As is the case with the CHFS, this data is planned to be made freely available as a public asset for the research community.

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China’s Microcredit Companies</a>

<a href="http://cfi-blog.org/2015/01/06/the-role-of-microfinance-ratings-in-the-sustainable-development-of-chinas-financial-inclusion-sector/">The Role of Microfinance Ratings in the Sustainable Development of China's Financial Inclusion Sector</a>

<a href="http://cfi-blog.org/2014/10/27/gender-dynamics-in-rural-china-illuminate-the-need-for-financial-education/" target="_blank" rel="noopener">Gender Dynamics in Rural China Illuminate the Need for Financial Education</a>

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New Surveys Fill Data Void in China’s Microfinance Industry

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18655" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/fi2020-issue-five.png" alt="fi2020 issue five" width="614" height="329" /></a>

Good afternoon! Freshly published is this week’s Financial Inclusion 2020 News Feed, sharing the big news in banking the unbanked. Among its stories are a new partnership between MetLife Foundation and Opportunity International to expand financing and skills training in rural China, the launch of a World Food Programme initiative that integrates climate risk reduction with financial services, and the release of the first annual Consumer Banking PACE Index, which gauges bank performance to consumer expectations. Here are a few more details:
<ul>
 	<li>MetLife Foundation and Opportunity International have embarked on a three-year partnership to support thousands of small businesses in rural China with financial services and business development training via banks, mobile vans, and rural service centers.</li>
 	<li>The World Food Programme launched the R4 Rural Resilience Initiative, which helps smallholder famers in Zambia navigate environmental demands using index-based agricultural insurance, improved natural resource management, credit, savings, and productive safety nets.</li>
 	<li>The new Consumer Banking PACE Index, drawing on input from over 9,000 consumers, examines bank performance in a handful of countries around the world to conclude that, among other findings, fair and transparent pricing falls below consumer expectations, and trust in banks remains an issue.</li>
</ul>
For more information on these and other stories, read the fifth issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

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Rural Finance in China, Climate Risk Reduction, Meeting Consumer Expectations – the Latest FI2020 News Feed

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18544" style="border: 1px solid #000000;margin-bottom: 3px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/fi2020-news-feed-three.png" alt="" width="614" height="326" /></a>

Hot off the press! We published the third issue of the Financial Inclusion 2020 News Feed, our new weekly online magazine on the big news in financial inclusion. What’s been happening in the world of banking the unbanked?

Among its stories, the new issue of the FI2020 News Feed spotlights the following:
<ul>
 	<li>The State Bank of Pakistan ordered all commercial banks in the country to create a new account category, Asaan Account, which targets the base of the pyramid by simplifying account opening requirements</li>
 	<li>Mybank, a new online bank in China, was launched by Ant Financial, utilizing transaction records on Alibaba to extend credit to individuals and small businesses</li>
 	<li>In Tanzania, agent and mobile phone-based banking continues to grow steadily in both the volume and value of transactions</li>
</ul>
For more details on these and other stories, read the third issue <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

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Pakistan’s New Asaan Account, the Alibaba-Enabled Mybank, Mobile Progress in Tanzania – the Third Issue of the FI2020 News Feed

&gt; Posted by Nelly Agyemang-Gyamfi, Program Coordinator, CFI

<img class="aligncenter wp-image-18030" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/04/hbs_yes.png" alt="" width="620" height="374" />On the 6th of April, 68 financial inclusion stakeholders from 23 countries across the globe arrived in (a thankfully snowless) Boston to commence the 10th annual <a href="http://www.centerforfinancialinclusion.org/collaborators-a-sponsors/harvard-business-school-accion">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>. Over the past decade, the deeply immersive, week-long program has trained over 660 high-level executives from more than 250 organizations spanning 90 countries. As in past years, this year’s program was held on the beautiful campus of the Harvard Business School and led by world-renowned HBS professors Michael Chu and V. Kasturi Rangan. As a Center for Financial Inclusion staff member who helped organize the course, I was privileged to take part, and I offer these reflections on what I saw and learned.

Participants were exposed to a wide range of issues pertinent to inclusive finance, from managing political uncertainty to impact investing and measurement. This year, reflecting the changing landscape of inclusive finance, the course included seven new sessions including cases on China’s <a href="http://english.creditease.cn/">CreditEase</a>, Massachusetts’ <a href="http://payforsuccess.org/">Pay-for-Success</a>, and Peru’s <a href="http://www.edyficar.com.pe/">Edyficar</a>.

To be an observer of all the happenings was exhilarating. Discussions were extremely lively with points and counterpoints that reflected the unique perspectives of the various industries represented – microfinance providers, technology companies, regulators, investors, and so forth. For me, one of the best parts was when lessons learned from cases that seemed far from financial inclusion were applied in tangible terms to the industry.

From my humble point of view, four of the main takeaways from the week were:
<ol>
 	<li>Make sure you are addressing your customers’ pain points. Do not just offer them products YOU think they need. In the session on mobile banking, for example, what Kenya’s population wanted was a way to transfer money to the rural areas to support their families. M-Pesa met this need and a study conducted showed that M-Pesa users were twice as likely to have had a bank account and be wealthier than non-users.</li>
 	<li>Addressing your customers’ pain points can lead to increased sustainability as your customer becomes your advocate. Such was the case with the Manila Water Company where members of the community showed up to a regulatory committee hearing to support the company’s request to increase its rates.</li>
 	<li>There is a need to boil down financial inclusion into a manageable piece for your organization. Decide on what you want to achieve and focus on it. Not every organization can effectively tackle all the dimensions of financial inclusion (e.g. offering not just savings, but also credit and insurance and so on). This was illustrated in the healthcare context through the <a href="http://en.wikipedia.org/wiki/Aravind_Eye_Hospital">Aravind Eye Hospital</a>. The hospital determined that their expertise in the fight against blindness in India was curing the problem as opposed to preventing it. Now, the hospital system has seen upwards of 32 million patients and conducted nearly 4 million cataract surgeries.</li>
 	<li>Once you decide what you want to achieve, do not be afraid to explore other avenues within that focus. Stretch your mission but do not drift from it. At the Aravind Eye Hospital, having decided that their expertise in the fight against blindness was providing cures, leaders decided to expand by offering optometry services in addition to cataract surgeries.</li>
</ol>
If you are interested in experiencing the HBS-Accion Program for yourself, look out for announcements about the 2016 application period which opens in November.

Have you read?

<a href="http://cfi-blog.org/2014/05/16/seventy-global-leaders-convene-for-hbs-accion-program-on-strategic-leadership-in-inclusive-finance/" target="_blank" rel="noopener">Seventy Global Leaders Convene for HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>

<a href="http://cfi-blog.org/2010/04/08/1427/">Dispatch from Harvard Business School — Relating Social and Financial Value</a>

<a href="http://cfi-blog.org/2009/04/24/optimism-in-the-wake-of-crisis-a-week-at-hbs-accion-program/" target="_blank" rel="noopener">Optimism in the Wake of Crisis: A Week at the HBS-Accion Program</a>

&nbsp;

Celebrating 10 Years! Dispatch from the 2015 HBS-Accion Program on Strategic Leadership in Inclusive Finance

<img class="alignright wp-image-17492" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/03/plant-164500_1280.jpg?w=300" alt="" width="324" height="215" />With increasing regularity, I hear people talking about a new concept: deploying funds to earn profit while at the same time solving complex social and environmental problems, also known as impact investing. One article that stood out for me, and in fact prompted me to write this, is <a href="https://www.alumni.hbs.edu/stories/Pages/story-bulletin.aspx?num=4273">“Good Investments”</a> by Dan Morrell in the Harvard Business School Alumni Bulletin. At one point the author writes: “What impact investing really needs, all agree, are pioneers.”

Impact investing advocates can sometimes give the impression that they have “outsmarted poverty” (and other societal problems) by discovering the need for this profit-making approach, one that allows high net worth individuals to further increase their assets while also having (in the words of another impact investor quoted in the HBS article) a “fabulous social impact.”

Count me as someone who does not feel that what “impact investing” needs now are “pioneers” per se. Rather, it needs pragmatic, risk-taking, deeply curious, and disciplined people with access to funding who can work collaboratively to move an old idea forward, bearing in mind the lessons of the past and the opportunities of the present.

In fact, the actual pioneers of impact investing began laying the groundwork for this latest incarnation decades ago. Think of the <a href="https://www.missioninvestors.org/system/files/tools/history-of-pris-ford-foundation.pdf">Ford Foundation’s work</a> in the 1960s to establish, legitimize, and get U.S. government policy support for Program Related Investments, the “Philanthropy at Five [Percent]” movement in nineteenth century America and England, the Russell Sage Foundation’s financing of low-income housing in New York in the early 1900s, or, in more recent times, the <a href="http://www.calvertfoundation.org/">Calvert Foundation</a>, just to name a few.

Or simply consider the modern microfinance industry and how an ecosystem of financing mechanisms – including dozens of “microfinance investment vehicles” (MIVs) – grew up around it in the 1990s and 2000s. Even today, according to <a href="http://www.thegiin.org/cgi-bin/iowa/download?row=334&amp;field=gated_download_1;">an important study</a> by the Global Impact Investing Network (GIIN) and JPMorgan Social Finance, close to 40 percent of impact investments are in microfinance institutions (MFIs) or funds. Microfinance is the largest single sector for receiving impact investments, and is larger than its two closest competitors combined. Clearly there are strong linkages between microfinance and impact investing, and additional opportunities for sharing lessons.

It is important to remember that few if any social innovations besides microfinance have proven capable of reaching large scale and generating consistent profits – which should give people pause before they create a new impact investing “bubble.” Hopefully it will also prompt some new curiosity about what microfinance got right, and why.

It may seem uncharitable to find fault with a historical thinking among some advocates and practitioners of impact investing. Indeed, those involved in the field generally have noble intentions and some will end up making significant impact. The real danger in my mind is not failing to acknowledge earlier contributors, but rather in failing to learn from and apply their hard-earned lessons.

So here are six lessons that I take primarily out of my experience in microfinance during the last few decades.
<ol>
 	<li>Carefully manage expectations</li>
</ol>
During the mid-2000s, a small but influential number of microfinance investors and practitioners began to claim that eye-poppingly high returns and high social impact were possible and in fact, should be expected. This drove a kind of informal “bidding war” with microfinance practitioners and funds feeling that they needed to keep pace with claims related to impact and financial returns in order to compete for attention and funding. Irrational exuberance took hold, and those of us who argued for restraint and realism were dismissed, at least for a time. (Perhaps people like me should have argued with more conviction.) This dynamic hastened and made more painful the inevitable reckoning, and contributed to the backlash among a handful of governments and media outlets that began in late 2010 and that has only recently began to subside. Impact investing would do well to temper expectations related to investment pipelines and financial returns, and avoid falling into the trap of creating the expectation that most future deals will be as financially lucrative as the most profitable.
<ol start="2">
 	<li>Be rigorous with the social (or impact) bottom line, and don’t confuse outputs with outcomes</li>
</ol>
Up until recently, many microfinance practitioners and advocates, myself included, under-invested in monitoring and evaluation. Tools like the <a href="http://www.progressoutofpoverty.org/">Progress out of Poverty Index</a>, the <a href="http://hdr.undp.org/en/content/multidimensional-poverty-index-mpi">Multi-Dimensional Poverty Index</a>, and the <a href="http://www.sptf.info/spmstandards/universal-standards">Universal Standards for Social Performance Management</a> were available (the latter only in draft form until 2012), but were often forsaken in the rush to reach scale and increase profitability quickly. Instead, the lazy practice of conflating outputs – such as the number of loans disbursed or savings accounts opened – with outcomes (e.g., clients crossing the poverty line) and impact (e.g., clients crossing the poverty line compared to a control group of non-clients) became common. (In general, one should only equate outputs, which are essentially means to an end, with outcomes, which represent the end itself, if there is a deep evidence base – as in the case of vaccinations and improved public health – that the output consistently leads to better outcomes across multiple contexts.) This lack of rigor magnified the doubts about microfinance and prolonged the crises in several key markets. The <a href="http://www.thegiin.org/cgi-bin/iowa/investortools/reporting/index.html">IRIS standards</a> developed by the GIIN and its allies represent a step in the right direction, but there is a way to go to make this framework both meaningful and widely used. I believe the risk of substituting outputs or even less rigorous measures of the social bottom line for outcome-oriented results is a significant one for the impact investing community.
<ol start="3">
 	<li>Don’t ignore the socio-political context in the emerging markets receiving impact investments from abroad</li>
</ol>
While the idea of wealthy people making money while (hopefully) helping to solve societal problems plays well in London, New York, and San Francisco, it can be very controversial in some emerging markets such as India, where Gandhian asceticism still influences the debate about the ethical boundaries of doing business with the poor. In 2010, the CEO of the Indian MFI SKS publicly embraced the idea of earning substantial profits (and getting personally rich) through providing loans to the poor. This position, <a href="http://usatoday30.usatoday.com/money/books/reviews/2010-12-08-fistful-of-rice_N.htm">widely reported</a> in the press at the time, emboldened critics and contributed to the Indian government and civil society losing faith in microfinance for a number of years. This in turn ended up harming the entire sector and millions of the clients they had served. Greater modesty, humility, discretion, and honest acknowledgment of trade-offs (more on the latter below) would have served everyone better.

Bearing this in mind, impact investing should avoid triumphalist rhetoric that could embarrass local governments and NGOs with a mandate to address the issue that the investee is tackling (e.g., poverty), which could stoke resentment and attacks. Said another way, there will always be people ready to accuse impact investors and the executives at impact investees of greed, exploitation, and hypocrisy. At the risk of saying the obvious, it is wise to avoid giving them much material to work with.
<ol start="4">
 	<li>Avoid antagonizing adjacent industries</li>
</ol>
Microfinance practitioners and advocates, myself included, could have done a better job at building bridges with other humanitarian sectors (such as health care, water and sanitation, and refugee aid) so the people serving in these complementary areas did not feel threatened that their funding would dry up due to the attractiveness of microfinance, including its promise of paying for itself and returning profit to lenders and investors – promises that other sectors did not feel they could match due to inherent factors. I believe that the hostility that grew during the 1990s and 2000s from these communities harmed microfinance. Potential allies became skeptics, if not antagonists. In this context, I like the language on the GIIN’s website that distinguishes impact investing from grant-making, while acknowledging the value of each when done well.
<ol start="5">
 	<li>Acknowledge trade-offs</li>
</ol>
I believe that in general, there are real trade-offs between maximizing social impact and maximizing financial returns in microfinance. For a time, microfinance leaders expressed doubt this was true and belief that maximizing them both was possible. This led to a lot of wishful thinking and too little rigorous debate about how to make these trade-offs, whether at the level of managing the operations of an individual MFI or developing a balanced portfolio of MFI investees.

So I was concerned when I read in the GIIN/JPMorgan report that 60 percent of impact investors answered no to the question "Generally speaking, do you think a trade-off between financial returns and impact is necessary when making impact investments?” My answer: In general, of course there is! So the fact that 60 percent thought otherwise is concerning. (On the other hand, I was pleased to see that 40 percent did acknowledge trade-offs.)

Attracting investors who do not appreciate the trade-offs can lead to a wave of disinvestments later on. Such capital flight can in turn be destabilizing to a sector trying to manage at least two bottom lines, if not three. Grameen Foundation’s <a href="http://www.grameenfoundation.org/what-we-do/financial-services/impact-investing/impact-measurement">MOTIV scoring tool</a> is one of several that rigorously score financial and social returns within a context of acknowledging trade-offs. Tools like this should be in wider use as a way of realistically evaluating investments and educating investors about trade-offs and other critical issues.
<ol start="6">
 	<li>Don’t forget the importance of local finance</li>
</ol>
Tapping into foreign sources of debt and equity capital for growth can be valuable for a social enterprise like an MFI, in part because it confers prestige and cache. But there are risks. While most foreign investors in social enterprises are well-intentioned, as a group they tend to follow fads and be a bit capricious. More important, foreign investors are easy to pillory in the local press as profit-extracting neo-colonialists. For these and other reasons, I believe it is dangerous to rely on these sources of capital and, as a result, under-invest in developing local sources of finance. In general, local sources tend to be more stable during times of crisis, and are also more politically palatable in some markets (especially when it involves equity and when the investors are earning substantial returns).

Over-reliance on foreign debt, which sometimes comes with significant foreign exchange risk, played a role in many MFIs delaying the hard but necessary work of mobilizing deposits and developing relationships with local wholesale lenders and investors. This reality is one of the reasons Grameen Foundation worked so hard, with support from the Bill and Melinda Gates Foundation, at helping three trend-setting MFIs develop robust savings offerings in the late 2000s, and it is why we set up a $31 million loan guarantee program in 2006 that was used to catalyze more than $225 million in local currency transactions benefiting qualified MFIs.

One potential area that U.S.-based impact investors could focus on is cultivating their peers in countries such as India, Brazil, South Africa, and China. They could emerge as the equivalents of the local banks that came to play such an important role in financing portfolio growth of MFIs around the world.

* * *

One of the reasons that <a href="http://www.amazon.com/Social-Entrepreneurship-Everyone-Needs-Know%C2%AE/dp/0195396332">Social Entrepreneurship: What Everyone Needs to Know</a> and <a href="http://www.amazon.com/Due-Diligence-Impertinent-Inquiry-Microfinance/dp/1933286482/ref=sr_1_1?s=books&amp;ie=UTF8&amp;qid=1424592008&amp;sr=1-1&amp;keywords=due+diligence%2C+roodman">Due Diligence: An Impertinent Inquiry Into Microfinance</a> are two of my favorite recent books is that they do a great job of putting their subjects – social entrepreneurship and microfinance, respectively – into historical perspective. Both of these movements, it turns out, have origins that go back centuries.

In fact, when you take a historical view, impact investing is getting some important things right. It is gradually developing its own ecosystem, standards, models, consulting firms, media following, and loose network of constructive skeptics. (The Omidyar Network published an excellent paper on the evolution of this ecosystem titled <a href="https://www.omidyar.com/sites/default/files/file_archive/insights/Priming%20the%20Pump_Omidyar%20Network_Sept_2012.pdf">“Priming the Pump.”</a>) In this way as well, impact investing is following in the footsteps of the microfinance movement, as the latter built its own ecosystem and set standards in the 1990s and 2000s (though was late in addressing the issue of consumer protection, which it has belatedly though effectively addressed recently).

One especially useful <a href="http://www.mitpressjournals.org/doi/abs/10.1162/itgg.2007.2.1-2.159#.VOipOvnF9hw">article</a> that could benefit the impact investing community was written by Susan Davis and Vinod Khosla analyzing the track record of the Microcredit Summit Campaign during its first decade. (The promising start and strong commitment to learning demonstrated by the impact investing fund <a href="http://khoslaimpact.com/">Khosla Impact</a> may reflect, at least in part, the fact that the man behind it thought long and hard about relevant past efforts.) Jed Emerson and Anthony Bugg-Levin’s book <a href="http://www.amazon.com/Impact-Investing-Transforming-Making-Difference/dp/0470907215">Impact Investing</a> is also a balanced treatment that recognizes past efforts, going as far back as the Quakers in the 1600s.

In fact, consciously or not, some of the leading impact investors are already building on the achievements of microfinance by, in the words of Mark Straub of Khosla Impact, trying to address “the challenges of building last mile distribution, the ways of developing processes to automate and scale, [and incorporating] the notions of social collateral and trust which allowed microfinance to work.”

When I was considering writing this article, I asked my mentor Wayne Silby, an early leader in social investing, whether it was a good idea. Initially, he discouraged me from writing anything that might be considered critical about all the excitement about impact investing. “The Buddhist in me doesn't mind who wants to take credit” for helping lay the groundwork for social or impact investing, he wrote. In general, he was excited about all the energy around this latest wave of social investing, and in particular hoped that young people would get more involved. But when I brought up the point about thinking historically potentially leading to better decisions by a new generation of socially-minded investors, he encouraged me to write it.

So let us forge ahead, aggressively using the new brand of “impact investing” if it helps bring in new resources, people and ideas. But as we do so, let’s acknowledge earlier incarnations and leaders and also draw from what they learned, so that we can humbly contribute to addressing some of the world’s pressing problems in the most effective ways possible.

Alex Counts is President and CEO of <a href="http://www.gfusa.org/">Grameen Foundation</a>, and serves on the Advisory Board of the <a href="http://www.centerforfinancialinclusion.org/">Center for Financial Inclusion</a>. 

Have you read?

<a href="http://cfi-blog.org/2012/09/05/alex-counts-on-karlan-and-appels-more-than-good-intentions/" target="_blank" rel="noopener noreferrer">Alex Counts on Karlan and Appel’s “More Than Good Intentions”</a>

<a href="http://cfi-blog.org/2013/10/17/microfinance-ceos-make-six-major-commitments-at-2013-partnerships-against-poverty-summit/" target="_blank" rel="noopener noreferrer">Microfinance CEOs Make Six Major Commitments at 2013 Partnerships Against Poverty Summit</a>

<a href="http://cfi-blog.org/2013/11/07/alex-counts-what-i-learned-at-the-fi2020-global-forum/" target="_blank" rel="noopener noreferrer">Alex Counts: What I Learned at the FI2020 Global Forum</a>

&nbsp;

&nbsp;

What Impact Investors Could Learn from Microfinance

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="142765195?et=R5H1wf3HRzVY85zP-SHj7A&amp;socialOnLoad=off&amp;sig=MCzrHiaz1fbKeXXBgrpdooZt9BGrF3EX8HvxLFGuv-s=" width="506" height="339"]

Islamic finance is expected to expand substantially in 2015, from 2014’s total of <a href="http://www.brecorder.com/money-a-banking/198/1138766/">$2.1 trillion to $2.5 trillion</a>, according to figures released last week by the Al-Huda Centre of Islamic Banking and Economics. In 2011, the industry had assets of about <a href="http://www.cgap.org/topics/islamic-products">$1 trillion</a>. Islamic microfinance, the segment of Sharia-compliant services targeting clients at the base of the pyramid, only occupies a small slice of the pie, at 1 percent of all Islamic finance globally. However this uptick in Sharia-compliant finance, as well as encouraging recent support for the 650 million Muslims living on less than 2 dollars a day, suggest a rising tide for Islamic microfinance.

The industry findings indicate that not only did Islamic finance surpass the $2 trillion landmark in 2014, it gained traction in nascent markets and entered new ones. Markets still green in offering Islamic finance that showed growth in 2014 include Morocco, Tunisia, Azerbaijan, Libya, and several non-Muslim-majority countries including Nigeria, Tanzania, and South Africa. Among the new markets where Islamic finance took root last year are Australia, Brazil, and China. Globally, there are 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries. The expansion of Islamic finance opens the door for the many Muslims whose beliefs preclude them from accepting finance with interest rates and fee structures outlawed by Sharia doctrine.

Islamic microfinance, which has typically grown slower than its mainstream microfinance counterpart, could be in for a big year. In 2013, Islamic microfinance had an estimated <a href="http://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">1.28 million clients</a>, about 82 percent of whom lived in three countries – Bangladesh, Indonesia, and Sudan. (Nevertheless, the number of Islamic microfinance clients in Muslim-majority Bangladesh is dwarfed by the 8 million conventional microfinance borrowers in the country.) Along with the Al-Huda estimation of 19 percent growth in 2015 for all Islamic finance, a report by TechNavio from November found that the Islamic microfinance market would grow at a compound annual growth rate of about <a href="http://www.prnewswire.com/news-releases/global-islamic-microfinance-market-2014-2018-281593461.html">20 percent</a> between 2014 and 2018. The current Microfinance Market Outlook forecasts <a href="http://www.microfinancegateway.org/library/microfinance-market-outlook-2015">15-20 percent</a> growth for 2015.

Strong government support, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">instrumental for financial inclusion efforts</a>, has been <a href="http://www.emirates247.com/business/economy-finance/islamic-banking-finance-set-to-reach-dh9-1trn-in-2015-2015-01-01-1.575128">demonstrated</a> for Islamic microfinance in countries including Yemen, Afghanistan, Sudan, Malaysia, and Pakistan. As part of its larger Financial Inclusion Program, the State Bank of Pakistan launched the partially U.K.-funded <a href="http://www.sbp.org.pk/AC&amp;MFD/events/FICF-Round-3-Guidelines.pdf">3rd Financial Innovation Challenge Fund</a>, which focuses on Islamic microfinance. Until the application deadline of February 20, 2015, the bank will accept proposals for grants to test solutions for delivering low cost Islamic microfinance services to more markets. One aim of the challenge is to develop Pakistan’s base of Islamic finance professionals.

GIZ, the German government’s international development agency, is <a href="http://www.reuters.com/article/2014/11/05/islam-microfinance-idUSL6N0SH04020141105">working with CGAP and others</a> to develop model regulations, education, and trainings to expand Islamic microfinance in developing countries. A current GIZ study is exploring demand factors, while another is comparing Islamic finance regulations in five countries. A study by GIZ and CGAP on Islamic microfinance aims to find ways to lower costs – a key obstacle for product adoption. Difficulties in adapting traditional microfinance products to Islamic microfinance have limited product offerings, with the <a href="http://www.cgap.org/news/innovation-islamic-microfinance">most popular</a> being murabaha, a cost-plus-markup product for asset purchases. Last year’s CGAP <a href="http://www.cgap.org/news/pakistan%E2%80%99s-wasil-foundation-wins-islamic-microfinance-challenge">Islamic Microfinance Challenge</a>, a global contest to identify innovative Sharia-compliant products, was themed “Beyond Murabaha.”

We look forward to following the developments in Islamic microfinance throughout the year.

Have you read?

<a href="http://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="http://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="http://cfi-blog.org/2014/08/07/financial-inclusion-of-disabled-people-in-bangladesh-the-broken-promises-of-mfis/" target="_blank" rel="noopener">Financial Inclusion of Disabled People in Bangladesh: The Broken Promises of MFIs</a>

&nbsp;

Set to Grow in 2015: Islamic Microfinance

&gt; Posted by Kaj Malden, Consultant, PlaNet Finance China

<a href="https://www.flickr.com/photos/kongharald/11809665464"><img class="aligncenter wp-image-16933" style="margin-top: 5px;margin-bottom: 5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/01/11809665464_cfd2ea95a5_z.jpg" alt="" width="610" height="407" /></a>For China’s young microfinance sector, which could benefit from more regulatory oversight and transparency, ratings have the potential to catalyze healthy growth. Efforts to incorporate ratings throughout the country’s market, however, have so far been largely ineffectual. A new report from PlaNet Finance China and Planet Rating, The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector, part of PlaNet Finance and Credit Suisse’s “Microfinance Robustness Program”, outlines how ratings could provide welcome growth and strengthening for Chinese microfinance, and describes the current obstacles that stand in the way.

Mainstream ratings systems evaluate creditworthiness of debt and financial products for companies. They also contribute to setting benchmarks for the wider financial services industry. Specialized microfinance rating agencies evaluate some of the same qualities traditional rating agencies do, but they are trained in microfinance and investigate other financial inclusion-specific indicators, such as social performance. Microfinance ratings function as institutional ratings, not credit ratings, as in the case of mainstream ratings. These more nuanced ratings for the microfinance sector first emerged in Latin America, where microfinance boomed in the late 1990s.

In the Latin American region, ratings armed investors, government leaders, and other stakeholders with a clearer picture of the microfinance landscape, eventually leading to increased debt funding and growth-conducive policy. Today, Peru, Colombia, and Chile feature robust microfinance markets, as suggested by their ranking among the top five countries for financially inclusive environments in the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope" target="_blank" rel="noopener">2014 Global Microscope</a> from the Economist Intelligence Unit (EIU). While ratings are far from the whole story of success in Latin American microfinance, they made – and continue to make – important contributions.

In China, there has been an expansion in the number and type of institutions serving the base of the pyramid. For instance, policy initiatives have encouraged traditional lenders to downscale their services in the form of Village and Township Banks, and there are also over 8,000 microcredit companies (MCCs) across the country. In spite of this encouraging growth, however, the policy environment for inclusive finance in China ranks 42nd in the EIU’s 2014 Global Microscope.

Many of the Chinese institutions engaged in inclusive lending could benefit from third-party feedback on how to scale their operations – exactly the kind of feedback ratings provide. Supervisors would also benefit from the best practices and experiences of other MFIs. If history in Latin America provides any lessons, perhaps specialized ratings for microfinance operations in China could form the next crucial step in the sustainable development of the sector.

However, as the PlaNet Finance China report clarifies, comparing the history of ratings undertaken globally to those recently done in China is a complex exercise. China faces unique developmental conditions in using ratings for microfinance:
<ul>
 	<li>MFIs in China so far have only undergone superficial credit ratings performed by mainstream domestic agencies, as mandated by central government leaders trying to make sense of a complex market. These agencies spend minimal time on site, and given their generalized approach, do not provide deep feedback or insight to the young financial institutions.</li>
 	<li>The responsibility of implementing these pilot rating projects is devolved to provincial offices of financial affairs (POFAs). While ratings should stay “local” given China’s provincial diversity, these POFAs perform ratings as mandated by central authorities and they do not share their findings with each other. Central coordination when rating and evaluating these new institutions will be key in defining national benchmarks for the industry.</li>
 	<li>Ratings have not armed Chinese MFIs and MCCs with increased access to debt funding, a concern further exacerbated by the fact that foreign investors with interest in microfinance have difficulties investing in the Chinese market. In contrast, non-banking financial institutions globally have enjoyed easier access to debt funding and preferential policy treatment as a result of ratings, making them a worthwhile value-added exercise that garners industry support and boosts capacity building. Mainstream rating pilots in China’s microfinance sector have not so far delivered these kinds of benefits.</li>
</ul>
There’s much that ratings can do for the robust growth of microfinance. However, the sector is still emerging in China, and fragmented coordination of surface rating pilots do not yet offer Chinese players the benefits needed for increased growth. The new report hopes to mediate that missing knowledge and provoke discussion on the part of stakeholders.

To read the report, <a href="http://www.planetfinancechina.org/planet-finance-china-publishes-report-on-the-role-of-microfinance-ratings-in-china/" target="_blank" rel="noopener">click here</a>.

Image credit: <a href="https://www.flickr.com/photos/kongharald/11809665464" target="_blank" rel="noopener">Harald Groven</a>

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/14/how-client-protection-certification-and-ratings-work-together/" target="_blank" rel="noopener">How Client Protection and Ratings Work Together</a>

<a href="http://cfi-blog.org/2014/10/27/gender-dynamics-in-rural-china-illuminate-the-need-for-financial-education/" target="_blank" rel="noopener">Gender Dynamics in Rural China Illuminate the Need for Financial Education</a>

&nbsp;

The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector

Sonja Kelly

Susy Cheston

David Tuesta

Apis Partners

Alex Counts

Kaj Malden

Bhuvana Ramakrishnan

Eric Zuehlke

Amanda Yap

Danielle Piskadlo

Dominican Republic

Latin America and The Caribbean

Paraguay

China

Colombia

Europe and Central Asia

Ghana

Guatemala

India

Mexico

Nigeria

Peru

Tanzania

United States

Zambia

Rwanda

Pakistan

Kenya

Brazil

United Kingdom

Afghanistan

Australia

Azerbaijan

Bangladesh

Indonesia

Libya

Malaysia

Morocco

South Africa

Sudan

Tunisia

Yemen, Rep.

Chile

Russian Federation

Consumer Protection

Data Transparency

Microfinance Institutions

Agent Banking

Credit

Digital Payments

Financial Capability

Financial Inclusion Strategy

Fintechs

Impact Investing

Microfinance

Risk Management

Savings

Women

Youth

Alternative Data

MSME/SME Finance

Agricultural and Rural Finance

Remittances

Digital Financial Services

Mobile Banking

Enabling Environment

Policy, Regulation and Government Initiatives

Customer Centricity

Blog Post

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

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.

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

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.

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

Jeffrey Riecke

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 Bhuvana Ramakrishnan, Daniella Llanos Flores, and Singyew Foo, Credit Suisse

[getty src="94632957?et=5MA8-1V9RU9LO0_0Mr3nHQ&amp;similar=off&amp;sig=hx2UBLfQ2slbtO4d7X50BDvGjbx4s8dUEsNO4uckaGc=" width="594" height="395"]

The <a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> project has been talking to the experts lately to get their views on the main recommendations that came out of the 2013 <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion" target="_blank" rel="noopener">Roadmap to Inclusion</a> process. A group of <a href="http://www.centerforfinancialinclusion.org/collaborators-a-sponsors/virtual-volunteers">Credit Suisse Virtual Volunteers</a> conducted interviews with various experts within Credit Suisse. Insights from those conversations helped shape this post. 

What can a new shampoo formula teach us about financial services? Quite a bit, as it turns out.

Procter and Gamble (P&amp;G), one of the world’s largest fast-moving consumer goods companies (FMCGs), has an annual research and development budget of $2 billion – with nearly a half a billion going towards consumer research. In emerging markets, this money funds field research that aims to identify how existing products are used and how a new product could become a part of someone’s daily routine. In China, <a href="http://fortune.com/2011/01/06/can-pg-make-money-in-places-where-people-earn-2-a-day/">P&amp;G has a simulated Hutong</a> (a typical Chinese home) where researchers can observe consumer behavior and make on-the-spot modifications to product prototypes. They have sent teams around the country to observe how women wash their hair. Such research yielded a shampoo that suds and washes out with little water – a response to the shortage of water and privacy in the villages visited.

In India, Nestlé sent local staff to 1,500 homes to better understand how people cook and eat. The insights gained during this five year project, titled <a href="http://www.economist.com/node/21525427">Project Epicure</a>, were used to fuel product innovation and development. As a result, Nestlé reported a 20 percent increase in sales and a 9 percent increase in its net profit during the following quarter.

Beyond understanding product-related needs, FMCG companies also work to comprehend how consumers spend their money, especially in resource-constrained households. For example, many FMCG producers have introduced cleaning and cooking products in wallet-sized sachets for only a few cents, to align with customers’ spending behavior.

In order to reach full financial inclusion, it is crucial that financial service providers scale up their efforts to understand the unique set of needs and behaviors of their customers. Providers must strive to pull in customers rather than push out products, and the only way to do this is to grasp what will pull them in. In this case, it won’t be a quick-bubbling chemical or a certain spice, but rather financial services that create value and foster financial capability.

A <a href="http://www.ideo.com/work/interbank-explora">transformation of a Peruvian bank’s branches</a> illustrates both the importance of addressing customer needs and the business incentives of doing so. In 2013, Interbank, one of Peru’s largest banks, partnered with IDEO, a design consultancy. In Peru, a country where only about 20 percent of the population has a bank account, addressing customer needs began with understanding why most of the population prefers under-mattress money savings to formal savings accounts. A large-scale assessment revealed that many Peruvians did not understand the benefit of banking and were too intimidated to talk to tellers at existing branches. On top of that, lines to access banks and financial products often wind around the block.

To combat this stereotypical banking experience, Interbank opened up an Interbank Explora branch, which brought financial products and tellers into the center of the store. Additionally, the Explora branch eliminated lines through a digital queuing system, incorporated social learning spaces where customers could browse products and consult with staff, and also encouraged electronic and digital banking to minimize wait times.

Interbank opened the first Explora branch in Lima, Peru on May 3, 2013 and experienced an immediate shift in demand. Customer satisfaction nearly tripled, jumping from 33 to 84 percent. This satisfaction was paired with a reported 138 percent increase in non-interest income activities and a 200 percent increase in sales in its first 60 days. While the initial transition required up-front investment, Interbank managers state that the cost of running the more interactive Explora branch is exactly the same as normal operations costs. By cutting costs on procedures that often pushed customers away, Interbank created a more inclusive environment that pulled in customers.

Interbank’s experience serves as proof that the customer matters. Whether the product is shampoo or a savings account, creating value for the consumer is the only way to create value for the company. In order to do so, companies should strive to operationalize customer centricity. FI2020 suggests that “companies (…) develop a specific definition of what being customer-centered means and lay out a strategic approach that fits with their own market opportunities and internal capabilities.” The result will be a win-win for providers and consumers.

Have you read?

<a href="http://cfi-blog.org/2013/11/20/encouraging-active-clients-is-part-of-fi2020/" target="_blank" rel="noopener">Encouraging "Active" Clients is Part of FI2020</a>

<a href="http://cfi-blog.org/2013/10/02/fast-moving-consumer-goods-companies-and-microfinance/" target="_blank" rel="noopener">Fast-Moving Consumer Goods Companies and Microfinance</a>

<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/" target="_blank" rel="noopener">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

&nbsp;

Fast-Moving Consumer Goods and Customer Needs: The Missing Link Between Shampoo and Savings Accounts

&gt; Posted by Kaj Malden, Project Manager, PlaNet Finance China

[caption id="attachment_16404" align="aligncenter" width="600"]<img class="wp-image-16404" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/10/dsc_1024.jpg" alt="" width="600" height="397" /> Huimin Microcredit client engaging in budgeting exercise[/caption]

Poor rural women in China face challenges not dissimilar to poor rural women in other developing countries. Many are homemakers and child rearers, with much of their work tied to the home, offering little social or professional mobility. However, there are some dynamics in China that make women’s conditions somewhat different. The Communist Revolution of 1949 promulgated an ideology that favored gender equality and claimed women “hold up half the sky” (半边天). According to a <a href="http://www.weforum.org/issues/global-gender-gap/">recent study by the World Economic Forum</a>, gender inequality is more apparent in the developed economies of Japan and Italy than in China. Modern China’s One-Child Policy, however, leads to a cultural view that “values males and belittles females” (重男轻女). The fact that China’s gender ratio skews towards males may support this view and suggest that parents favor males. Additionally, China’s massive urbanization continues to create large flows of migrant workers, posing other challenges for women. Husbands often find work in neighboring provinces or eastern coastal cities, leaving their wives to manage the household’s finances and run the family business independently.

The management of household finances offers an interesting vantage point for considering not only gender equality in China, but also the opportunity to empower women through financial training. This forms the logic behind a financial education project <a href="http://www.planetfinancechina.org">PlaNet Finance China</a> (PFC) is currently implementing. Supported by Diageo’s Plan W program (which supports non-profit projects that advance women’s empowerment), the project provides rural women in China with financial education to promote their ownership over household economic decision-making, thereby delivering empowerment. PlaNet Finance China works with Huimin Microcredit Company, a vanguard of rural microfinance in China, to embed light touch financial education for women throughout their lending practices. Instead of classroom-style seminars, PFC and Diageo designed a series of innovative tools for use at the MFI and at home including interactive budgeting e-calendars and “choose your own [financial] adventure” style readers. Huimin is an ideal distribution channel, given its 90 percent female client base. Most rural MFIs share this characteristic, whereas urban MFIs are more gender neutral.

When we spoke with one woman who makes economic decisions in the household, she said: “My husband, he oversees all of it, he makes the decisions. But I have to calculate and manage those decisions myself. ”

This woman is a mother of three, with her own plot of land whose corn crops she single-handedly manages in order to afford schooling for her children, house repairs, and food. She has decided to borrow money from a local microfinance institution, with a signed contract in her name. A conversation between her and her loan officer reveals why the microfinance institution lends directly to her:

Client: “Why is it always women that sign these forms and not the men?”

Loan Officer: “Because women are tied to the land. Their husbands make the majority of income necessary to support the family, but they must leave the village to find work, and pose more of a risk for us when it comes to collecting interest payments or avoiding a loan-default scenario. Their wives must stay to raise the children, manage the household, and work in the fields. They are less of a risk for us.”

[caption id="attachment_16403" align="aligncenter" width="599"]<img class="wp-image-16403" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/10/dsc_0891.jpg" alt="" width="599" height="397" /> Loan officer reviewing financial exercises with clients[/caption]

Financial Inclusion through Financial Education

What’s illuminating here is the fact that, due to women being unable to move, this MFI seems to “trust” them with microloans more than men. This may suggest that with the right skills and training, women that sign microloan contracts could not just be doing more for their families, but could also be bigger contributors to the country’s economy, which is soon set to be the world’s largest. Yet, even with such a vital global economy, the Chinese population is not very financially literate. In a 2012 study by Visa, China ranked 14th out of 27 countries in financial literacy, behind countries like Belarus and Bosnia. In the same study, China ranked 18th out of 27 in household budgeting practices. With the right financial training, women in China, especially in rural areas, could emerge with an important role in building financial inclusion.

But what is the right financial training? Women in rural China, similar to the rural poor in other regions of the world, already seem to be adept at managing finances. As Portfolios of the Poor shows us, many impoverished people lead complex financial lives and make use of both formal and informal tools. However, for rural women in China, their financial understanding could be more standardized and context-relevant. In Ningxia province, for example, where farm land is recovering from desertification, income from agriculture can be unreliable as can the wages from migrant labor that men pursue. Both amount and frequency of remittances from husbands can be in flux. Such irregularities in money flows make particular lessons in formal financial education, such as investment diversification, more critical. Compared to other markets, interestingly, lessons in savings are not as helpful to China’s rural clients. Chinese culture already champions savings habits. And lessons in mobile banking, while intriguing and innovative, don’t have the same immediacy given a lack of sophisticated telecommunications infrastructure in China’s rural areas.

The experiences of the rural Huimin microfinance institution in China, as well as distinct gaps in financial knowledge, show us that there is a big opportunity in advancing financial inclusion in the country starting with financial training for women who are the principal recipients of microloans and ultimately the ones who manage many household budgets. If women continue to be rurally isolated, knowledge and service deprived, and “tied to the land,” then financial inclusion can start with them.

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China’s Marginalized</a>

<a href="http://cfi-blog.org/2014/09/23/chinas-microfinance-landscape-nonprofits-microcredit-companies-rural-financers-and-alibaba/" target="_blank" rel="noopener">China's Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba</a>

&nbsp;

Gender Dynamics in Rural China Illuminate the Need for Financial Education

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="113909912?et=_6kWVqx4Q59DMZYjnY7XMw&amp;sig=VUsmJJq-oYjkoLGk0zD9tPtZKCYhgZPi4Ow_-eJPvC8=" width="594" height="396"]

Albeit a relative newcomer to microfinance, China’s market has grown rapidly in recent years. In 2012 the country had 6,000 microcredit providers, but only 25 percent had been in operation for more than three years. Today the number of providers is a few thousand higher, spanning nonprofit institutions, government programs, microcredit companies, commercial banks, rural credit cooperatives and banks, village and township banks, and P2P lenders. Even Alibaba, China’s internet giant, is involved. It has offered loans to over 230,000 micro-entrepreneurs through its AliFinance arm, launched in 2011.

Earlier this year Accion’s Training and Capacity-Building team conducted a comprehensive assessment to determine the training and knowledge-sharing needs of the microfinance providers sustainably serving the poor in China. The assessment was carried out in partnership with the China Microfinance Institution Association, the China Association of Microfinance, and the PBC School of Finance Tsinghua, with support from the MetLife Foundation. As part of the assessment, the team compiled a landscape of the country’s microfinance institutions. Offering a snapshot of the state of the market and the challenges that lie ahead, here are some of its findings.

Nonprofit Financial Institutions

This category includes non-government organizations (NGOs), government programs, quasi-government organizations, social enterprises, and rural development associations. Among those the team identified few have reached sustainability. Of the 50 NGOs, for instance, fewer than 10 met the team’s criteria for sustainably serving the poor: at least 600 clients; an average loan size of RMB 300,000 (~US$49,000) or less; and at least three years in operation. Of course there are some success stories, including the NGO China Foundation for Poverty Alleviation (<a href="http://www.cfpamf.org.cn/">CFPA</a>), which operates nationwide.

Microcredit Companies

According to the People’s Bank of China (PBC), the central bank, the number of microcredit companies (MCCs) in the country totals 8,217. Approximately 10 percent of these meet the team’s specifications for sustainably serving the BoP. The majority of MCCs target financing for SMEs, not for individuals. To advance financial inclusion, incentives for MCCs to offer less-profitable microlending need to be integrated. One barrier MCCs face to improving their services to microfinance clients is low access to credit reporting information held by the PBC.

Commercial Banks

China has five large commercial banks (four of which are state owned), 12 joint-stock commercial banks, 144 city commercial banks, and 337 rural commercial banks. Disaggregated data was not available for determining the proportion offering microfinance. However, the team’s research indicates that there are likely fewer than 10 doing so. Similar to MCCs, most commercial banks focus on SME lending. Challenges to these institutions serving the base of the pyramid include mixed support for microlending from senior management, unfamiliarity with microfinance lending methodologies, and difficulty innovating due to a lack of autonomy from parent banks.

Rural Finance – VTBs, RCCs and PSBCs

Village and Township Banks (VTBs), Rural Credit Cooperatives (RCCs), and the Postal Savings Bank of China (PSBCs) provide large-scale financial services in China. There are about 2,000 country-level RCCs, 147 rural cooperative banks, 800 VTBs, and 39,000 frontline branches for the PSBC. Until recently, RCCs provided the majority of financial services outside cities. With its expansion branch network, PSBCs service about 2.2 million microcredit clients with an average outstanding loan size of RMB 54,000 (US$8,800). The main products offered by PSBCs are agricultural loans, women’s loans, re-employment loans, and loans with informal collateral. Challenges facing these rural institutions include a lack of microfinance expertise and reluctance to try new methodologies.

P2P Lending

The P2P lending market in China crossed the RMB 80 billion mark (US$13 billion) in 2013, according to Forbes. The explosion of activity reflects the growth of e-commerce in the country. The advances haven’t been without missteps and complications, however. Of the 1,000 P2P lending providers in China, 58 went bankrupt in the first quarter of 2013.

Alibaba

Quickly becoming a household name around the world, Alibaba’s virtual marketplace ecosystem connecting customers and entrepreneurs with products, payments, financing, and each other has made products less expensive and more available and has reduced the startup and operational costs for businesses. Alibaba’s Taobao Market, the largest C2C marketplace in China, boasts over 8 million vendors, with the vast majority small and micro-sized enterprises. Alibaba tracks the incidence of “Taobao Villages,” where nearly all the households are using the marketplace in some capacity.

To help the Taobao Marketplace vendors grow their businesses, Alibaba offers loans through the AliFinance platform. To date, AliFinance has provided loans to over 230,000 clients with an accumulated loan portfolio exceeding 80 billion RMB (US$13 billion) and an average loan size of 23-30,000 RMB (US$3,500 to $5,000). The platform employs an alternative credit scoring methodology based on the client’s activity on TaoBao and other Alibaba platforms.

The payment service used on Alibaba platforms, which hosted over 300 million registered users at the end of 2013, is called AliPay. Predominantly used for online transactions and growing for mobile, AliPay is connected to over 100 banks in China as well as major global payment providers like Visa and Western Union. The platform can be used to pay for goods and services, utilities, airtime, investment products, microloans, and donations to nonprofits, among other purposes.

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China's Marginalized</a>

<a href="http://cfi-blog.org/2014/06/12/selling-sheep-on-instagram-and-sending-virtual-gifts-to-karaoke-singers-in-the-new-mobile-internet-economy/" target="_blank" rel="noopener">Selling Sheep on Instagram and Sending Virtual Gifts to Karaoke Singers in the New Mobile Internet Economy</a>

&nbsp;

China’s Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba

&gt; Posted by Eric Zuehlke, Web and Communications Director, CFI 

<a href="http://www.yy.com/"><img class="aligncenter wp-image-15195" style="margin-bottom: 5px;border: 0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/06/yy.png" alt="" width="630" height="360" /></a>Budding entrepreneurs, vendors, and everyday people in emerging economies are creating new ways of benefiting from the internet, using their own ingenuity in ways that go beyond the original intended use of many web-based platforms. A recent slideshow from Yiibu, a Scotland-based design and consulting firm, offers a dizzying array of examples of how people use the mobile web to sell and pay for anything you can think of, mostly in Asia along with the Middle East, Africa, and Russia.

The growth in traffic from growing economies is a familiar story (Yiibu mentions that Chinese, Indian, and Russian sites now make up almost half of the Alexa “top 20”). What’s new is how the mobile internet has opened up new ways of doing business for anyone with a smart phone. Individuals, small businesses, and major corporations are selling a jumbled mix of products and services, from cars and iPhones to handmade crafts to travel visa services.

Most of us may think of Instagram as a platform to show off our exotic travels to make our friends jealous, or to take selfies on a night out. But as the slideshow illustrates, by taking a photo of goods you want to sell, adding your phone number and price on the photo, Instagram becomes an immediate way to sell goods – even livestock. Facebook is also a way to set up a business site quickly and for free. Who needs web designers, hosting platforms, and domain registries when these platforms already exist for free and with a huge built in audience? And who needs brick and mortar stores when you can sell for free online to a much broader range of people? The market stalls become Facebook pages.

One of Yiibu’s key messages is that mobile isn’t a popular, convenient alternative to other mediums now. Rather, it is the primary, and increasingly, only way, to do business and access the web around the world. What all these examples have in common is that the mobile web is a user-led space. This is transforming the informal economy. Characteristics include:
<ul>
 	<li>Ad-hoc adaptability: People adapt existing platforms as needed. An example: Facebook doesn’t take payments (<a href="http://cfi-blog.org/2014/04/16/facebook-to-provide-remittances-the-news-and-the-bigger-picture/">although that may be changing</a>)? No problem. Just list your account name for a popular local social messaging app and take orders directly.</li>
 	<li>Broad reach:  <a href="http://www.yy.com/">YY.com</a> in China, for example, has 300 million users and mixes the reach of video channels like YouTube with payment platforms that integrate virtual currency. Virtual currencies are used to pay for virtual gifts to give to Karaoke singers or other performers with videos on the site.</li>
 	<li>Ease of use: Social media platforms that are popular in China, such as <a href="http://www.wechat.com/en/">WeChat</a>, allow users to text, chat via video or audio, send photos, set up their own mini-sites to sell goods, and send or receive payments – all on the same platform.</li>
 	<li>Rural and urban users: Yiibu points out that people in rural Thailand are benefitting from mobile marketplaces and sellers in Chinese cities don’t have to worry about setting up physical stores.</li>
 	<li>A globalized network: The presentation gives the example of an American baker who buys her supplies from individuals in China and then sells her cakes on Etsy and a small family-run fashion design firm in China that sells to Western markets on Etsy.</li>
</ul>
The lesson from all this seems to be that there is a huge amount we can learn from how people are adapting the mobile web to use financial services and sell products and services. We can find out about customer needs from how they adapt these services. The world is changing very fast and it’s hard to keep up with the variety of new platforms, technologies, and services out there. Along with innovation from above to reach more customers with financial services, we should also make sure to spend time learning from what’s happening on the ground.

Check out the <a href="http://www.slideshare.net/yiibu/the-emerging-global-web">full slideshow from Yiibu</a>:

[slideshare id=33272498&amp;doc=emerging-global-web-by-yiibu-140408084509-phpapp01]

Image credit: <a href="http://www.yy.com/" target="_blank" rel="noopener">yy.com</a>

Have you read?

<a href="http://cfi-blog.org/2013/07/09/listening-to-clients-in-tanzania-client-insights-on-using-mobile-money/" target="_blank" rel="noopener">Listening to Clients in Tanzania: Client Insights on Using Mobile Money</a>

<a href="http://cfi-blog.org/2013/04/25/new-mobile-platform-empowers-farmers-in-uganda/" target="_blank" rel="noopener">New Mobile Platform Empowers Farmers in Uganda</a>

<a href="http://cfi-blog.org/2014/05/12/urbanization-the-informal-economy-and-microfinance/" target="_blank" rel="noopener">Urbanization, the Informal Economy, and Microfinance</a>

&nbsp;

Selling Sheep on Instagram and Sending Virtual Gifts to Karaoke Singers in the New Mobile Internet Economy

&gt; Posted by Joshua Goldstein aka Mr. Provocative

There is unfortunately no reliable substitute for family support when it comes to helping a person succeed with their schooling, with their disability, or with their microfinance loan.

Thomas Friedman of The New York Times recently <a href="http://blogs.wgbh.org/on-campus/2014/5/4/interview-college-heading-huge-disruption/" target="_blank" rel="noopener">asked</a> educators in Shanghai what made Chinese schools successful, compared to schools in the United States. The unequivocal answer was that while improved teacher training that the U.S. emphasizes was of course important, far and away the key to student achievement was intensive parental involvement; Chinese schools spend time and resources insuring that parents are trained in how to help their children learn.

[youtube http://www.youtube.com/watch?v=uKKpjvPd6Xo?rel=0&amp;w=580&amp;h=326]

A heretical Mr. Provocative agrees with conservatives that throwing billions into the latest education reform fad will have extremely limited success as long as family support is anemic or absent. (This is not to say that reformers don’t routinely ask parents to take more responsibility but clearly such a nudge is not enough.) “It’s the parents, stupid,” or, “It’s the family, stupid.”

We have to point at the family as the prime mover even when this is hurtful and it causes “guilt and shame.” Nothing wrong with pricking the conscience. This is a “theory of change” that is millennia old and has long had some success for most religions—in a positive way. But public policy cognoscenti shun the language of judgment and conscience. In not asking more of families are we not party to what George W. Bush called “the bigotry of low expectations?”

My “it’s the family, stupid” sentiment has been reinforced by listening to a recent <a href="http://tedxtalks.ted.com/video/Navigating-Deafness-On-The-Way;search%3Atag%3A%22ep1308%22" target="_blank" rel="noopener">Ted Talk</a> by Stanford graduate and Rhodes Scholar, Rachel Kolb, who was born profoundly deaf.

Rachel has managed remarkable success in navigating the hearing world, a sadly rare feat for someone from the deaf community. She credits her parents for her achievements and happiness. They never told her she couldn’t do something. They concentrated on her abilities not disabilities and did whatever it took to help Rachel pursue her education and dreams. One example: Young Rachel loved horses, but was told at the stable that a deaf child could never be safe on a horse. Her parents found a trainer who did not buy into this nonsense.

Rachel’s parents learned sign language when she was an infant so that they could better communicate with her. Later, they provided her with years of intensive speech therapy that made it possible for her to deliver this incredibly articulate Ted Talk. In a world where most deaf Americans read at a fourth grade level, and only a third of deaf children complete high school, Rachel, who has steeped herself in literature from a young age, is planning on becoming a writer.

The point is that without family support, Rachel would live a marginalized life with few opportunities to become herself. And among persons with disabilities who are clients of microfinance institutions, my anecdotal research, visiting MFIs around the world, tells me that the family is the guarantor of success, the most reliable collateral.

Such families help the relative with a disability realize the dream of building a business. So if, for example, a young woman in a wheel chair takes out a loan to buy a bread oven, she will do the baking at home and a relative will take the loaves to market and sell them. The individual loan empowers the economic activity of at least two people in a household! A caretaker and a dependent have morphed into business partners. I would guess that many individual microfinance loans to the non-disabled are de facto family loans, but I have no statistics to back that up.

So what frequently happens to the poor, disabled person who lacks family support and encouragement ---as well as a disability friendly financial services provider? (And that is the vast majority, since only 0.5 percent of current clients of MFIs are persons with disabilities.) Her fate is similar to the school child who is not encouraged by her family---but far more hellish. Out of embarrassment families hide her away, deprive her of stimulation, and condemn her to a kind of solitary confinement, stunting her growth for good.

The moral of the story: We all need the love and support of others, especially our families, to flourish in our lives. At home, at school, at work. There is no such thing as a “self-made” human.
Video credit: <a style="color: #4e87a0" href="http://tedxtalks.ted.com/video/Navigating-Deafness-On-The-Way;search%3Atag%3A%22ep1308%22" target="_blank" rel="noopener">TEDx</a>
Have you read?
<a href="http://cfi-blog.org/2014/01/13/a-how-to-guide-to-realizing-disability-inclusion-at-mfis-is-now-available/" target="_blank" rel="noopener">A How-To Guide to Realizing Disability Inclusion at MFIs is Now Available</a>
<a href="http://cfi-blog.org/2013/10/22/combatting-exclusion-for-persons-with-disabilities-in-india-and-mexico/" target="_blank" rel="noopener">Combatting Exclusion for Persons with Disabilities in India and Mexico</a>
<a href="http://cfi-blog.org/2014/05/15/coping-with-clients-suffering-from-cognitive-deficits/" target="_blank" rel="noopener">Coping with Clients Suffering from Cognitive Deficits</a>
&nbsp;

There is No Such Thing as a Self-Made Human

&gt; Posted by Amanda Yap, Research and Communications, PlaNet Finance

<a href="http://cfi-blog.org/category/investing-in-inclusive-finance/" target="_blank" rel="attachment noopener wp-att-9676"><img class="alignright" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/02/untitled2.jpg" alt="" width="310" height="54" /></a>The <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance" target="_blank" rel="noopener">Investing in Inclusive Finance</a> program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.

Before the advent of the People’s Bank of China’s county-level pilot program to create microcredit companies (MCCs) and village and township banks (VTBs), there was a large number of unbanked individuals and micro-entrepreneurs whom commercial banks were unwilling to serve. Hence when the pilot program to create MCCs, <a href="http://www.planetfinancechina.org/resource-center/MCCs-VTBs-Guarantees">the product of a financial inclusion plan by the Chinese government</a>, went into action in 2005 the number of MCCs boomed, and in the past few years they have mushroomed to an astounding number of 9,000 as of 2013. The Chinese financial sector has been plagued with corruption in the past few years - for example, the <a href="http://www.marketwatch.com/story/pleas-over-capital-punishment-verdict-in-china-2012-03-06?link=MW_latest_news">Wu Ying private lending network scandal</a> and the <a href="http://english.caijing.com.cn/2012-05-22/111855735.html">Qilu commercial bank forgery</a> in Shandong. To circumvent corruption and maintain control of the increasingly overpopulated sector, regulators enforce strict capital requirements and caps on interest rates. However, these requirements are stifling the operational sustainability of these MCCs. Joe Zhang, author of the book <a href="http://blogs.wsj.com/chinarealtime/2013/06/18/eight-questions-joe-zhang-inside-chinas-shadow-banking/" target="_blank" rel="noopener">Inside China’s Shadow Banking: the New Sub-prime Crisis?</a> writes, “The regulation is killing the dynamism of the sector. Everyone in the sector is working extra hard to make a modest return (after huge expenses and bad debts).”

Should 9,000 MCCs all be painted with the same regulatory brush?

<a href="http://www.microfinancegateway.org/p/site/m/template.rc/1.9.60426/">Some industry leaders believe a rating system for microcredit companies is the answer.</a> Liu Ping, Director General of the Senior Advisors of the People’s Bank of China, believes ratings can be a yardstick to measure the sustainability of microcredit companies and differentiate the good apples from the bad. MCC investors hope that high grades based on credible ratings could move the authorities to loosen restrictions on outlets, so that business costs could be better covered, individual company branches could grow, and the sector could eventually be made more sustainable. Conversely, low rating grades would expose institutions with questionable practices that require operational changes. In addition, a ratings system may change the popular perception that these institutions are “loan sharks”, leading to increased investment, institutional growth, and client outreach.

Rating systems – a staple of the traditional finance sector – play an important role in microfinance globally. Rating agencies select and weigh indicators for both companies issuing debt and the debt instruments, setting benchmarks for the industry and allowing for factors of comparison amongst companies. Rating reports create access to the risk analysis of debt and debt issuers, increasing market transparency and facilitating investors in sourcing investments, performing credit decisions, and supervising risk. For investees, monitoring of issuers of debt instruments encourages issuers to act in the interests of the investor community which leads to best management practices.

Currently, there are seven approved rating companies in China. Two of these companies are joint ventures with international credit rating agencies - Lianhe Credit with Fitch and Chengxin Credit with Moody’s. Chinese rating companies commonly perceive that getting an accurate picture of MCC operations is unfeasible due to the rather unreliable nature of financial reporting amongst Chinese MCCs, rendering traditional rating methods bogus. Currently, no single regulator has all the data needed to form a comprehensive picture of an MCC. Instead, they advocate a market based approach. If markets can ascertain reliable information, then ratings systems can be built around these indicators. Lianhe Credit applies this market-based approach by performing credit investigation instead of ratings. “The main utility for us is to help the provincial-level supervisors construct information systems that can give them a better grasp on the target MCC’s operations,” says Lianhe’s CIO, Shi XX. The Provincial Office of Financial Affairs in each province, which were abruptly tasked with the duty of regulating MCCs in May 2008, are dedicating energy and time to rating systems. Even if policy restrictions aren’t loosened, MCCs and financial affairs offices now have new management and supervision tools to supplement standard reporting and provide greater clarity to investors.

From the outset, there has been heated debate over the methodologies and goals of a microfinance rating system. Ed Wu, Managing Director of PlaNet Finance China suggests that the most common risk factors in determining sustainability are governance, strategy, risk management skills, IT systems, and funding. The importance of effective risk governance is also emphasized in <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/512-governing-banks-mfi-edition-part1" target="_blank" rel="noopener">Governing Banks: MFI Edition</a> by CFI’s Running with Risk project. These risk factors should be taken into account when developing new rating schemas.

When overburdened with companies to regulate, Provincial Offices of Financial Affairs (POFA) may be inclined to use ratings to single out non-compliant MCCs or MCCs with poor risk management in order to revoke business licenses and closely supervise operations. The provinces with the greatest numbers of MCCs urgently need the ability to differentiate among them and are working quickly to establish a ratings infrastructure. Some areas, such as Tianjin, already require a yearly rating report and audit report to be submitted to the local POFA. Additionally, in Jiangsu, Inner Mongolia, and Yunan, POFAs either own state-owned enterprises that do ratings or have internal rating standards and schemes for regulatory purposes.

The concept of ratings for MCCs is taking off and may enable regulators to relax the regulatory noose strangling strong MCCs, whilst reining in MCCs with less than ideal operations. To learn more about this topic, please look out for the joint report by PlaNet Rating and PlaNet Finance coming out in the first quarter of 2014, written with the support of the Credit Suisse microfinance capacity building initiative.

Have you read?

<a href="http://cfi-blog.org/2013/06/27/emerging-risks-on-chinas-path-towards-financial-inclusion/" target="_blank" rel="noopener">Emerging Risks on China's Path Toward Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China's Marginalized</a>

<a href="http://cfi-blog.org/2013/07/23/a-journey-to-understanding-risk-as-a-new-board-director-in-governing-banks-mfi-edition/" target="_blank" rel="noopener">A Journey to Understanding Risk as a New Board Director in "Governing Banks MFI Edition"</a>

&nbsp;

Ratings to Loosen the Regulatory Noose on China’s Microcredit Companies

&gt; Posted by Jeffrey Riecke, Communications Assistant, CFI

<a href="http://www.microfinancegateway.org/gm/document-1.9.61842/Emerging%20Risk%20on%20China's%20Path%20towards%20Financial%20Inclusion.pdf" target="_blank" rel="attachment noopener wp-att-11583"><img class="alignright wp-image-11583" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/06/emerging-risks-2.png" alt="" width="330" /></a>Much of the <a href="http://www.nytimes.com/2013/06/25/business/global/chinese-central-bank-says-liquidity-at-reasonable-level.html?hp&amp;_r=0" target="_blank" rel="noopener">financial world’s attention</a> is directed at China and the global impact of fluctuations in its banking and financial markets. Last week saw a sharp increase in the country's short-term borrowing costs, and a record high in the country's interbank (bank-to-bank) overnight rate - a rate that serves as a gauge of liquidity in a market. In a statement published on Monday, the People's Bank of China asserted that the liquidity in the country's banking system overall is at a reasonable level, but emphasized that financial institutions need to improve "awareness about preventing risks."

Turning with impeccable timing to China's small and micro lending sector, last week PlaNet Finance released its latest research report, <a href="http://www.microfinancegateway.org/gm/document-1.9.61842/Emerging%20Risk%20on%20China's%20Path%20towards%20Financial%20Inclusion.pdf" target="_blank" rel="noopener">Emerging Risks on China's Path Towards Financial Inclusion</a>.

China first began experimenting with microfinance in the late 1990's, much later than many other countries. Since then, in part due to a policy environment aimed at supporting rural area and small enterprise development, the industry has grown rapidly, with over 6,000 microcredit companies as of June 2012. At this time of counting, only 25 percent of these companies had operating histories of longer than three years, and only 50 percent longer than two years. Of China’s current population of over 1.3 billion, an estimated 400-500 million live on only two dollars a day. As China's microfinance industry continues to grow and serve more individuals, effective risk management becomes increasingly important. The PlaNet Finance report reviews the development of the Chinese microfinance sector and identifies four pertinent industry risk areas.
<ul>
 	<li>Many microcredit companies mainly focus on credit risk, without reference to other risks, such as governance risk, external risk, operations risk, IT systems risk, and liquidity risk</li>
 	<li>Restrictions in access to funding create obstacles for the scaling-up of operations</li>
 	<li>Emerging market leaders are beginning to face the risks inherent in a rapid expansion strategy, including the challenges of maintaining control and standardization, particularly as portfolio monitoring, risk management, and IT systems have not kept pace with the increasing scale and complexity of operations</li>
 	<li>A disproportionately fast increase in lending volume in certain urban markets raises concerns about potential future risks regarding market overcrowding, over-indebtedness, and inadequate consumer protection</li>
</ul>
The report is part of the Microfinance Robustness Program, an initiative of PlaNet Finance in partnership with the Credit Suisse Microfinance Capacity Building Initiative. The program is focused on upgrading risk management as a necessary foundation for the industry's sustainable growth, with a focus on China. The program produces and disseminates research, trainings, and tools. Along with the report, the program released a credit risk dashboard tool for MFIs last week. The tool, available to download <a href="http://blogs.planetfinancegroup.org/blogs/microfinance-robustness-platform" target="_blank" rel="noopener">here</a>, visualizes the credit risk exposure of an MFI.

Image credit: <a href="http://www.microfinancegateway.org/gm/document-1.9.61842/Emerging%20Risk%20on%20China's%20Path%20towards%20Financial%20Inclusion.pdf" target="_blank" rel="noopener">Microfinance Robustness Program</a><a href="http://janchipchase.com/2010/08/mobile-money-afghanistan/" target="_blank" rel="noopener">
</a>

Have you read?

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China's Marginalized</a>

<a href="http://cfi-blog.org/2012/07/24/title-the-lucky-three-tailored-products-for-the-rural-poor-in-china/" target="_blank" rel="noopener">The "Lucky Three": Tailored Products for the Rural Poor in China</a>

<a href="http://cfi-blog.org/2012/07/16/banana-skins-2012-overindebtedness-tops-the-risk-charts/" target="_blank" rel="noopener">Banana Skins 2012: Overindebtedness Tops the Risk Charts</a>

&nbsp;

Emerging Risks on China’s Path Towards Financial Inclusion

&gt; Posted by Danielle Piskadlo, Senior Program Specialist, CFI

<a href="http://cfi-blog.org/category/investing-in-inclusive-finance/" target="_blank" rel="attachment noopener wp-att-9676"><img class="alignright wp-image-9676" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/02/untitled2.jpg" alt="" width="310" /></a>The <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance" target="_blank" rel="noopener">Investing in Inclusive Finance</a> program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.

In Chinese, the word “guanxi” translates literally to “relationships” but in reality it is a much more complex term that describes how business is often done in China. Guanxi also loosely means “networking” or “connections,” and is used to describe relationships that may result in the exchanges of favors that are beneficial for the parties involved. In a country rife with corruption, there is sometimes a very blurry line around the true meaning of guanxi.

Deborah Drake of the CFI’s Investing in Inclusive Finance team recently participated in a panel at the <a href="http://socialenterpriseconference.org/" target="_blank" rel="noopener">Harvard Social Enterprise Conference</a> that examined the issue of corruption and ways of combating it. Among the solutions mentioned, perhaps surprisingly, was microfinance!

In China, as in many countries, one of the biggest obstacles to getting a micro-loan is preferential lending. Loan approval in China often has little to do with your credit-worthiness and everything to do with who you know or “guanxi,” sometimes involving a bribe. This has long been true at many of the locally owned and operated Rural Credit Cooperatives (RCCs) that dominate the micro-lending market in China. The survival of RCCs has been largely based on government regulatory protection, a lack of competition, and subsidized interest rates. Indonesia faced a similar situation decades ago with its government-owned Bank Rakyat Indonesia (BRI). But with the support of the Indonesian ministry of finance and central bank, BRI was turned into a microfinance bank operated on commercial terms. BRI became a microfinance pioneer and remains one of the largest microfinance institutions in the world.

<a href="http://eyedrd.org/2011/07/120-billion-was-embezzled-by-corrupted-chinese-officials.html" target="_blank" rel="attachment noopener wp-att-10401"><img class="alignright wp-image-10401" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/03/corruption.gif" alt="The photo depicts two hands about to shake, with one hand holding a roll of bills." width="265" height="189" /></a>However, in the absence of a major turnaround of state-owned institutions in markets like China, private international microfinance institutions have the opportunity to introduce a truly disruptive business model, changing the way microfinance has traditionally been administered. Contrary to the present model, internationally run MFIs operate with strong credit approval methodologies that result in solid portfolios, they operate with high ethical standards, especially for front line staff, and they have effective operating controls. Perhaps most importantly, MFIs generally operate with a strong social mission to provide quality financial services to traditionally underserved segments of the population – a mission that is protected by governing bodies composed of socially minded funders and investors.

Many international MFIs have managed to firmly establish strong and ethical operating principles and have steered clear of entanglement with government. And by the time such organizations become big enough to attract unwanted attention, it is often too late – a new norm has already been established and strongly supported.

The Harvard Social Enterprise Conference panel also surfaced ways in which technology is playing a role in combating corruption. A new website in India called “<a href="http://www.ipaidabribe.com/" target="_blank" rel="noopener">I Paid a Bribe</a>” provides a platform for individuals to report the bribes they pay with the hope of increasing transparency and highlighting the prevalence of corruption in India.

Likewise, m-banking has the opportunity to offer government agencies assistance in combating money laundering. According to the Business Daily article “<a href="http://www.businessdailyafrica.com/Opinion---Analysis/-/539548/603304/-/p1cj9b/-/index.html" target="_blank" rel="noopener">How m-banking can reduce laundering</a>,” “in tackling money laundering, officials generally seek to identify persons of concern and to discern patterns in their transactions. Both goals are predicated on the collection and storage of information. M-banking systems, including M-Pesa, already use extensive safeguards to identify users of their network.”

This is not to say that microfinance is problem-free. Given the financial nature of the business, and the numerous developing countries in which MFIs operate, there is always the potential for corruption. Chief among these is probably fraud, as documented in some of the <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2011/07/weathering-the-storm-case-studies_110712_final.pdf" target="_blank" rel="noopener">case studies</a> from the Weathering the Storm <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2011/07/weathering-the-storm_center-for-financial-inclusion_final.pdf" target="_blank" rel="noopener">paper</a>, which examines MFIs in crisis. Such relatively infrequent examples notwithstanding, however, perhaps one of the major contributions that microfinance can make to the institutional landscape in developing countries is a model of how to operate with little to no corruption.

Image Credit: <a href="http://eyedrd.org/2011/07/120-billion-was-embezzled-by-corrupted-chinese-officials.html" target="_blank" rel="noopener">eyedrd.org</a><a href="http://www.middle-east-online.com/english/?id=54291">
</a>

Have you read?

<a href="http://cfi-blog.org/2012/11/19/microfinances-new-normal/" target="_blank" rel="noopener">Microfinance's New Normal</a>

<a href="http://cfi-blog.org/2012/11/15/straight-talk-on-client-protection-standards-of-professional-conduct/" target="_blank" rel="noopener">Straight Talk on Client Protection - Standards of Professional Conduct</a>

<a href="http://cfi-blog.org/2011/04/12/colombia-mfis-fight-corruption-financial-illiteracy-to-close-client-protection-gap/" target="_blank" rel="noopener">Colombian MFIs Fight Corruption, Financial Illiteracy to Close Client Protection Gap</a>