> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group
As I traveled to London to attend the FI2020 Global Forum, my mind was filled with many thoughts. First was excitement that I had been invited to attend when I was still very much a microfinance practitioner. I was still in the process of adjusting after 17 years living in Haiti struggling to build an institution that would be a model of a client-centric, double bottom line microfinance institution (MFI) committed first and foremost to reaching the very poorest people in Haiti and providing them a pathway to a better life. For me, this meant providing them with a full range of financial and social services. My commitment to these clients had been solidified through my years in Haiti but also by my service on the Smart Campaign Steering Committee and the Board of the Social Performance Task Force and more recently by my role as a practitioner advisor to Truelift.
But now that I was in the plane and on my way, I had taken on a new role: Manager of the Microfinance CEO Working Group, a collaborative effort of the CEOs of eight pioneering global microfinance networks – Accion, FINCA, Freedom From Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking – all dedicated to advocating for more responsible microfinance practices and to instituting the highest standards of performance within their own MFIs. These eight CEOs represent 250 MFIs in 70 countries, serving some 40 million families. Suddenly I had been boosted from deep concerns about the future of poverty in one tiny country of 9.5 million to a preoccupation with the future of MFIs worldwide.
The Forum was a beautiful reflection of the often chaotic financial services marketplace of today where traditional banks, telecoms, retail stores, donors, investors, policymakers, regulators, and MFIs often collide in seeking to capture new markets. In attendance were the CEOs of institutions like Citi and MasterCard, along with several former Governors of Central Banks, technology innovators like the CEO of bKash, executives of insurance companies like MetLife and Swiss Re, Managing Directors of investment companies like Wolfensohn Fund Management, experts in alternative data systems like Cignifi. There were times when I thought maybe I had actually entered the wrong conference! Who were all these people, and what did they have to do with the future of microfinance?
But as time went on and the discussions deepened, it started to be clearer what they had to do with microfinance. These are some of the lessons for microfinance that I took away from the Forum:
1. It’s time we all learn and consider for our own work the implications of the “new” definition of full financial inclusion:
A state in which all people who can use them have access to a suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, to financially capable clientele.
How many of us can say that we have achieved this goal, if only for our own target group in our own geographic region? What this means, for starters, is that credit is certainly not enough in today’s world – our clients need savings, insurance, remittances, payments, currency exchange, etc. And they need them at affordable prices in convenient places for them to reach and with respect.
2. And what is this new phrase – financially capable? What exactly does that mean? Does it just mean financial education? No, it doesn’t. At the Forum, we learned that it doesn’t mean simply imparting knowledge and transferring skills; it also means adopting the attitudes and behaviors that a person needs to make sound financial decisions that support well-being. To achieve it, we need more than just the 3-day pre-loan training in group lending processes that most of us are used to offering. It means shifting from financial education as knowledge transfer to financial capability as promoting sound financial choices and behavior. Do you know how to do that?
3. When we move to the phrase “all people who can use them”, is it reasonable to think MFIs could do that? After some thirty years or more of testing and building and stretching, we’ve reached an estimated 200 million borrowers across the globe whose families comprise about one billion people, according to the Microcredit Summit Campaign Report of 2012. But there are 2.5 billion people who are today excluded from formal financial services, and they include, in addition to the poor and poorest, youth, seniors, persons with disabilities, migrants, women in many countries around the world, and those living in areas so remote they can’t even be reached with a motorcycle. The only way to get close enough to “touch” them is to walk for hours on end. Could technology provide a faster, even better way to reach these 2.5 billion? At the Forum, we heard about a relatively new product launched through a partnership between Commercial Bank of Africa and Safaricom that gives users the possibility of saving their money and taking out loans. In just 13 months, they have reached 5 million customers! Regardless of what you think about the product, the reach is truly amazing!
4. And how many of you MFI practitioners out there live in countries with an effective credit reporting system that works for all parties and seamlessly covers the poorest? Certainly I did not. In fact, I was the person who argued that while a credit reporting system might work for SME clients, it wouldn’t work for the poorer clients because first and foremost we had no way to identify them! Moreover, much of the financial activity of the poor, as we learned in Portfolios of the Poor, takes place in the informal sector so that we know very little about it. But at the Forum, we heard about the use of alternative data. Alternative data might consist of phone records, rental information, remittance data, etc. and there are new companies out there like DeMyst and Cignifi that work with alternative data to build new models for assessing creditworthiness. Is this a possible solution?
There is no doubt that the field of microfinance is changing rapidly as we all struggle to figure out how to implement client protection and social performance management through SPTF, the Smart Campaign, True Lift, SPI 4, etc. However, what I learned in London is that we must be vigilant because the changes in the larger ecosystem in which we operate are coming just as fast and perhaps even faster. In today’s world, we need to know what all these players – banks, telecoms, technology innovators, insurance companies, behavioral economists, remittance companies, regulators and policymakers, consumer protection agencies – are thinking when they enter the base of the pyramid and we must consider their roles in our world. Finally, we should also seek to distinguish those who are entering this space for the wrong reasons from those who are focused on real value creation for the poor as part of doing business with them.
The bottom line is we need to know exactly what value we bring to these other players as well as what value they can bring to us. What is clear to me is that some of the very important values the best MFIs bring is their (1) knowledge of their clients (who tend to be the most difficult to serve), (2) understanding of what their clients’ needs are, (3) grasp of their clients’ perceptions of formal institutions, which in the end have discouraged them from using those services, (4) skill in designing products that do meet their clients’ needs, and (5) ability to help their clients learn and grow – which they have acquired from years of on-the-ground experience working with them. The best MFIs have long-term, intimate relationships with their clients, and they have successfully learned to listen well to what they have to say. They have systems in place to protect their clients and know the importance of giving them voice in everything they do. And, finally, and most importantly they know how to advocate for their target group whether it be the poorest, the most rural, women, or youth – and that means that if the financial inclusion movement leaves any of those groups out, they will be prepared to hold them accountable.
What value, on the other hand, do the telecoms and the insurance companies and the behavioral economists and the consumer protection agencies have to offer us? That’s a question that I hope we will all reflect on in the months to come. Here are a couple of examples. The telecoms understand scale and how to reach it. Moreover, they can offer technology-enabled business models that they have been building and testing. The insurance companies bring a deep understanding of risk and how to mitigate those risks that can be mitigated and manage those that cannot. With their insights, the behavioral economists can help us learn how to better develop financial capability among our clients. The consumer protection agencies can help us move from “protection” of our clients to their “empowerment” so they know how to protect their own interests.
The biggest threat to the microfinance sector today is not the entry of telecoms and other major players. It is refusing to collaborate, to partner with, and to learn from these new players to expand our services and do a better job of reaching our clients. The Global Forum made it clear that, as Michael Schlein put it, “Everyone has a significant role to play in actually achieving a financially inclusive world.” It’s not only MFIs that have a role to play, but, on the other hand, the role they will continue to play is substantial.
Image credit: The Center for Financial Inclusion
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