This post is adapted from the recently-released publication “<a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

New technologies are dramatically changing the landscape for insurance around the world and enabling insurers to reach new mass market segments. New data sources and analytical tools are changing risk models by enabling new ways to create, capture, and analyze valuable information that can help insurers better calculate and manage the risk associated with customers. Machine learning applied to satellite imagery is changing agricultural and disaster insurance, allowing for more sophisticated claims management, even facilitating pre-loss payments that can help minimize the cost of a disaster before it is full-blown. The expansion of identity solutions and onboarding options is lowering operations costs and enhancing convenience. These innovations are helping the global insurance industry transform from a passive risk-transmission industry into an active risk mitigation and advisory partner for individuals, businesses, and governments.

The use of mobile phones to deliver insurance is no longer a novelty, but there is tremendous scope for growth. Mobile phone penetration in emerging markets is now 80 percent, making mobile devices excellent distribution channels. Mobile phones are convenient for enrollment, transmitting premiums and paying claims. Mobile phones have also been helpful for customer service, policy management, consumer education, and other vital functions.

While mobile insurance products have already broken important new ground, there is a much broader array of more recent innovations paving the way for growth. The joint CFI-IIF report found providers using technology to solve both front-end and back-end challenges. Here are some of the ways providers are addressing customer and business needs through technology.
<h3>Instant Enrollment</h3>
In many countries, advances in identification systems have made it possible to enroll customers instantly. Garrance Wattez-Richard, Head of Emerging Markets at AXA, notes, “National ID is changing everything in China and in India.” In Colombia, Margarita Henao Cabrera reports that customers can enroll in DaviPlata’s insurance in seconds by entering their national IDs into their mobile phones. Richard Leftley, CEO of MicroEnsure, notes that even basic questions such as the customer’s name, age, and other demographics can create a barrier to enrollment, so enrolling customers based only on phone numbers eliminates those barriers. “We don’t know anything about them until they make a claim, not even their name or age,” says Leftley. Depending on the market, automated enrollment mechanisms include internet-based products in China and point-of-sale devices among retailers in Latin America.
<h3>Technology-Enabled Claims Verification and Payouts</h3>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/daviplata.png"><img class="wp-image-24911 alignright" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/daviplata.png" alt="" width="465" height="507" /></a>

Since paying claims fast builds trust and adds customer value, Allianz is experimenting with payments that do not require customers to submit a claim—for instance, if the distribution partner reports that a customer has been in an accident. Parametric or index insurance using data from weather satellites enables automatic payments for farmers. Claims payouts and management are even being enhanced by drones. Drones allow access to isolated and dangerous areas after disasters to collect aerial data and assess loss through cutting-edge imagery analytics. Munich Re has been experimenting with the technology and has partnered with U.S.-based drone company PrecisionHawk. The two companies worked together in the aftermath of the April 2016 earthquake in Ecuador.
<h3>Back-Office Systems</h3>
Modernizing back-office IT systems helps bring down administrative costs, making low-premium products cheaper to manage. When AXA acquired MicroEnsure, its first investment was to improve legacy IT infrastructure. LeapFrog Investments also prioritizes IT with its microinsurance investments. To further reduce transaction costs, some experiments use blockchain technology, such as Consuelo, offered by the Mexican-based mobile platform Saldo.mx, in this case to facilitate microinsurance for Mexican migrant workers in the United States. By providing a universal and tamper-proof record of transactions, blockchain technology could reduce human error, fraud, data duplication, processing delays, and opaqueness—ultimately increasing efficiency and lowering operational and administrative costs for the insurance industry. (Though at a very high energy cost.)
<h3>Using New Data to Reappraise Risks</h3>
Historically, there has not been enough data to feed actuarial analysis that can inform a relevant product at a fair and attractive price for newer and lower income market segments. However, data has now become available on people who have a national ID or mobile phone number. Data analytics can then be effective at identifying prospective customers and their behavior patterns. Salmaan Jaffery of DIFC Authority looks forward to using artificial intelligence and machine learning in product development and risk assessment. With new data tools, the sector will look at risk differently. As Jaffery explains, “It may become apparent, through the analysis of behavioral and social data, that lower-income people may not be any greater risk than those with higher income profiles.”

For more on the uses of technology in inclusive insurance, including how it’s enabling integrated services for health insurance, read “<a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>.”

Image credit: Accion

Have you read?

<a href="https://cfi-blog.org/2018/01/08/inclusive-insurance-closing-the-protection-gap-for-emerging-customers/">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>

<a href="https://cfi-blog.org/2017/04/13/making-microinsurance-work-in-bangladesh-three-takeaways/">Making Microinsurance Work in Bangladesh: Three Takeaways</a>

<a href="https://cfi-blog.org/2014/10/06/bundling-mhealth-info-and-microinsurance-to-improve-health-outcomes-in-kenya/">Bundling mHealth Info and Microinsurance to Improve Health Outcomes in Kenya</a>

&nbsp;

&nbsp;

How Technology Is Propelling Inclusive Insurance

MetLife Foundation

Innovation Spotlight

Agricultural and Rural Finance

Credit

Financial Technology

Inclusive insurance

Insurance

Insurance Companies

Insurtech

Blog Post

BRAC Uganda shares strategy and sustainability insights from its transition from an MFI to a bank.

By Emily Coppel and Isabel Whisson, BRAC


[caption id="attachment_24537" align="aligncenter" width="1024"]<img class="alignnone size-large wp-image-24537" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/awright_ug_006333-e1509999126706.jpg?w=2048" alt="Woman holds carton of eggs" width="1024" height="623" /> ©BRAC/Alison Wright[/caption]

BRAC Uganda Microfinance is pursuing a shift in its regulatory status that will allow it to broaden the landscape of financial services it provides to Uganda’s rural poor.

BRAC, the largest microfinance provider in Uganda, currently serves more than 200,000 predominantly rural, female clients, through more than 150 branches across nearly every district in the country. In the nine years since the microfinance company was established, BRAC has provided microloans to poor women (a basic loan ranges from US $55 - $1,400), and small enterprise loans for male and female business owners (from US $1,400 - $10,000). Its current portfolio is around US $45 million. This year, BRAC submitted its application to transform into a bank. In Uganda, it was a Tier 4 institution, a category for unregulated credit-only NGOs, and money lenders. After the transformation, BRAC will become a regulated Credit Institution, under Tier 2, allowing it to expand its suite of services for clients – most notably, to savings accounts.

The process of transitioning to a regulated institution in Uganda is a lengthy one, and requires the organization to strategically analyze its goals and pro-poor model. Much can be learned from this process that can inform others considering a similar transformation to expand services for clients. As with any significant change, the organization is already facing new challenges that must be carefully and creatively navigated so as not to alienate its customer base.

<h3><img class="alignright wp-image-24531" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/classification-of-financial-institutions-in-uganda.png?w=820" alt="Classification of Financial Institutions in Uganda Infographic" width="360" height="900" />Pursuing Mission-Aligned Regulation
</h3>
BRAC had been considering this transformation since 2012, but waited several years to initiate the process. “We wanted to wait until we were certain that the balance sheet was big enough, and the company profitable enough to absorb the added compliance costs of being a deposit taking entity without risking mission drift,” said Shameran Abed, BRAC’s Director of Microfinance and Targeting the Ultra Poor Programs. By 2015, BRAC leadership were confident that they could begin.

The decision to pursue Tier 2 Credit Institution status, as opposed to other tiers, was also strongly driven by its social mission of promoting financial inclusion for Uganda’s poor. After some analysis, ‘Tier 1’ and ‘Tier 3’ status posed several risks that could compromise BRAC’s pro-poor mission.

The initial thought was to transition to a Tier 3 Microfinance Deposit Taking Institution, but this entailed several drawbacks. With Tier 3 institutions, despite lower regulatory costs, the regulations restriction the largest shareholder to a maximum 30 percent ownership stake. BRAC leadership wanted to avoid a situation where other shareholders might come in and steer the company in a different direction. As a Tier 2 institution, BRAC can hold a 49 percent share and ensure that the bank sticks to its mission by partnering with like-minded stakeholders.

Problems also surfaced with Tier 1 Credit Institution status, which is suited to commercial banking and invites significant added regulation. In addition to other challenges, it would mean competing with traditional formal banking institutions, instead of serving the poor. “Tier 1 regulation was really high-end,” said Emmanuel Emaasit, Chief Operating Officer of BRAC Uganda Microfinance, “we would be treading a thin-line against mission drift under commercial banking. Our clients are poor, so we thought we can still serve them best in Tier 2.”

By staying true to its existing client base under Tier 2, BRAC can focus squarely on providing services that meet their specific needs, e.g. by exploring savings products and money transfer services. Finally, Tier 2 enables BRAC to call itself a ‘bank,’ which instills trust and legitimacy that will give clients confidence to save with the institution.
<h3>Cross-Subsidizing Products for the Poor</h3>
For customers interested in starting a savings account with the new institution, the opening balance is just US $1.50. Because of its low income client base, BRAC anticipates the majority of its savings accounts will be relatively small.

As a credit-only NGO, disbursing and collecting small loans from clients only required BRAC to have loan capital on hand. But transitioning to a regulated institution that collects savings will require the bank to meet a minimum standard for its deposit base. “Small savers will not give us a large enough deposit base,” said BRAC Uganda Microfinance CEO Jimmy Adiga. “So we opened a branch [in Uganda’s capital] to attract corporate clients who would have larger savings accounts.”

According to Adiga, these corporate savings accounts will have attractive interest and the lending function of the bank will only be for BRAC’s usual low-income client base. But what if these new corporate clients want to take out loans? The bank will put a loan ceiling in place to ensure that BRAC doesn’t drift from its mission of predominantly serving poor clients.
<h3>Ushering Digital Financial Services Into Rural Areas</h3>
Walking around Kampala, it would be hard to miss the pink “Mobile Money” signs at nearly every convenience store along the roadside. Mobile money is relatively new to Uganda, but about half of the country is using it. With neighboring Kenya seeing massive success of its M-PESA platform, Adiga explains that poor clients are primed for digital financial services. “For the poor, it creates convenience and access,” he said, “but it’s not affordable if we run on the existing platform.”

With this transition, BRAC Uganda plans to begin introducing mobile money to the rural poor in the next two or three years. Its goal again aligns closely with the mission of the international BRAC organization -- to expand financial inclusion and empower the poor. A <a href="http://www.microfinancegateway.org/sites/default/files/publication_files/new_jack_and_suri_paper_1.pdf">research report in </a><a href="http://www.microfinancegateway.org/sites/default/files/publication_files/new_jack_and_suri_paper_1.pdf">Science</a> looked at the impact of mobile money over six years and found that access to M-PESA enabled 2 percent of Kenyans to move out of poverty, with results particularly pronounced for women.
<h3>Square Peg in a Round Hole</h3>
Early challenges are beginning to surface. Many Tier 2 regulations were not designed with BRAC’s client base in mind. For example, using a signature to verify client identity is standard practice for other Tier 2 banks. But for BRAC clients, many of whom are illiterate, signatures are often inconsistent and unreliable. BRAC plans to explore biometric identification instead.

Furthermore, rules required by the central bank to increase accountability among borrowers make loans prohibitively expensive for BRAC’s low-income clients. Every borrower from a regulated institution is expected to register with the Credit Reference Bureau. This incurs an additional cost to customers, which, for BRAC’s clients, would challenge its value proposition. Determined not to let the transition push clients away, BRAC is exploring the possibility of cost-sharing with investors who also value high quality, accessible, financial services for the poor.

Pursuing a change in regulatory status can seem daunting for financial service providers that serve the poor – and for whom certain regulatory environments are often not suited. BRAC hopes that it can demonstrate – to regulators and other financial service providers alike – the critical role microfinance institutions can play in addressing the broad range of financial needs of people living in poverty.

For more on BRAC’s work in Africa, see <a href="http://globaldeliveryinitiative.org/library/case-studies/financial-inclusion-and-resilience-how-bracs-microfinance-program-recovered">this case study</a> on how BRAC responded to the Ebola crisis in West Africa.

Success, Growth and Regulation – BRAC Uganda’s Transition to a Bank and What It Means for Customers

Uganda

Microfinance Institutions

Policy, Regulation and Government Initiatives

<img class="aligncenter wp-image-24227" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/10/fi-week_cropped.png" alt="" width="616" height="273" />

<a href="http://www.financialinclusionweek.org/">Financial Inclusion Week 2017</a> is just over two weeks away. From October 30 – November 3, over 50 organizations will host online and in-person events across the globe, exploring the theme New Products, New Partnerships, New Potential.

We are excited to announce <a href="https://group.axa.com/">the AXA Group</a> is a <a href="http://financialinclusionweek.org/axa-sponsorship/">track partner</a> for the Week. The AXA Group, a world leader in financial protection, supports its individual and corporate customers at every stage of their lives, providing them with the products and services that meet their insurance, personal protection, savings and wealth management needs.

A full calendar of Financial Inclusion Week events will be launched on October 17th, but here is a quick preview:
<ul>
 	<li>AXA will host a fireside chat between <a href="https://group.axa.com/en/about-us/profile/garance-wattez-richard">Garance Wattez-Richard</a>, Head of AXA Emerging Customers and <a href="http://www.centerforfinancialinclusion.org/about/leadership/121-elisabeth-rhyne">Elisabeth Rhyne</a>, Managing Director of the Center for Financial Inclusion at Accion. The discussion will focus on how innovative products and partnerships are expanding access to insurance around the world.</li>
 	<li><a href="https://www.themix.org/">MIX</a> and <a href="https://oneacrefund.org/">One Acre Fund</a> will host a webinar to discuss how their recently-announced <a href="https://www.themix.org/news/mymix/supporting-smallholder-finance">smallholder finance product directory</a> will help close the information gap in smallholder agricultural finance. This will be an opportunity to learn how better information-sharing can catalyze growth and product development across the smallholder finance sector.</li>
 	<li><a href="https://www.habitat.org/">Habitat for Humanity</a>, <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, and <a href="https://www.omidyar.com/">Omidyar Network</a> will host a session in Washington, D.C. titled Promoting Access to Finance for Affordable Housing. During the session, microfinance CEOs who, with the help of Habitat for Humanity’s <a href="https://www.habitat.org/impact/our-work/terwilliger-center-innovation-in-shelter/microbuild">MicroBuild Fund</a>, have led the way in developing housing finance products will share their stories.</li>
</ul>
It’s not too late for you or your organization to get involved. If you haven’t made plans for the Week yet, here are a few suggestions:

Host a conversation: You can organize a small internal or external conversation to discuss the theme New Products, New Partnerships, New Potential. The conversation will be promoted on the Financial Inclusion Week website as well as on social media. Following the event, the convening will get a dedicated page on the Financial Inclusion Week website to highlight key messages, photos, and other materials from the event.

We welcome you to pick the event format that works best for you. That may be a larger event or a smaller conversation, occurring in-person, by conference call, or via webinar. The most important thing is that your event fulfills our common purpose of having conversations that are significant for advancing financial inclusion. We’ve developed <a href="http://financialinclusionweek.org/toolkit2017/">a full set of resources for planning and promoting your event</a>.

Integrate Financial Inclusion Week into planned events: If you already have an event planned during the week of October 30th, and it aligns with the Week’s theme, we would love to promote your event as part of Financial Inclusion Week and share your work with the FI Week community.

Join a webinar or watch live-streaming events: Stay tuned for a full calendar of events to be launched next week. There, you will find webinars and online events covering a wide range of topics. Register and fill out your calendar for Financial Inclusion Week.

Write a blog post or join the conversation on social media:  We encourage you to write a blog post focused on how new products and new partnerships are unlocking great potential for reaching and better serving underserved customer segments. You can post these on your own sites and/or reach out to us on potentially posting these on the CFI Blog. We also welcome you to join the conversation on Twitter and Facebook, with the hashtag #FinclusionWeek.

Explore the <a href="http://www.financialinclusionweek.org/">Financial inclusion Week website</a> for more information or reach out to Allyse McGrath at <a href="mailto:amcgrath@accion.org">amcgrath@accion.org</a> with any questions.

Have you read?

<a href="https://cfi-blog.org/2016/11/17/financial-inclusion-week-roundup-e-magazine-keeping-clients-first-in-a-digital-world/">Financial Inclusion Week Roundup E-Magazine: Keeping Clients First in a Digital World</a>

<a href="https://cfi-blog.org/2017/03/03/when-the-data-is-not-enough/">When the Data Is Not Enough</a>

<a href="https://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

Have You Marked Your Calendars for Financial Inclusion Week 2017?

Mexico

Financial Inclusion Week

Agent Banking

Digital Financial Services

&gt; Posted by Brigitta Nyawira, Program Manager, Grameen Foundation

<a href="https://www.youtube.com/watch?v=3EjbTJF99aw"><img class="aligncenter wp-image-24199" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/10/grameen-foundation-screenshot.png" alt="" width="614" height="314" /></a>Alice is a smallholder farmer in Machakos, a semi-arid town east of Nairobi, where subsistence farming is prevalent. Most farmers in Machakos grow maize and other drought-resistant crops for domestic consumption and sell whatever little surplus they have at the gates of their farms and in local markets. Until recently, Alice struggled to make a decent living from her small plot of land and small grocery. She did not have the inputs required to increase her productivity, and her farming skills were basic at best, learned through season after season of trial and error. Farming was frustrating because it barely gave her enough money to feed her three children, take them to school, and pay hospital bills. But without capital and the requisite skills to expand her income sources, it was the only thing she could do.

Alice’s story is not uncommon. Smallholder farmers across Africa still face obstacles accessing suitable, affordable financial services. This is especially acute for women.

According to the Food and Agriculture Organization (FAO) of the United Nations, 80 percent of the arable land in Sub-Saharan Africa is managed by smallholder farmers, with women accounting for 50 percent of the agricultural labor force. In Kenya, where 75 percent of the population makes a living from agriculture (directly and indirectly) and the sector accounts for 24 percent of GDP, only 4 percent of the country’s total credit is channeled to agriculture. A fraction of that goes to women smallholder farmers.

Where credit is available, traditional lenders, who typically view smallholder farmers as being high risk, require a series of hard-to-meet pre-requisites in order to access credit. Smallholder farmers are commonly asked to produce a title deed to their land, or demonstrate financial stability that can only be verified through bank statements. Most will not meet these minimum requirements. This keeps smallholder famers in Kenya locked in a vicious cycle of poor inputs, low productivity and low income. It is particularly hard for women, who traditionally have not been allowed to own property, require their husbands’ consent to open a bank account, and have primarily worked at home or on the farm, making little or no money at all. Any money they would make would either be given to the husband, or channeled back to the home to cater for the needs of the household. Without collateral, savings or financial records, it has been nearly impossible for women in Kenya to access formal financial services.

To address these challenges and provide access to a suitable, affordable and accessible agricultural loan, Grameen Foundation and Musoni Kenya, a local microfinance institution that operates mainly in rural Kenya, collaborated to design Kilimo Booster. The loan product is tailored to the needs of smallholder farmers.

Unlike other loans, its flexible repayment terms correspond to farmers’ harvest cycles and cash flows. Equally important, funds are disbursed directly into farmers’ mobile money accounts no more than 72 hours after a loan is approved. Additional features also make Kilimo Booster especially convenient to women.
<h4>Groups Are Still Important</h4>
The Kilimo Booster loan utilizes the group methodology in which members co-guarantee each other for loans. This type of social collateral typically works well for women as they are already accustomed to the workings of informal savings and credit groups, and because it eliminates the need to prove financial stability through bank statements and traditional collateral.
<h4>Technology Extends Reach</h4>
Musoni Kenya’s operations are powered exclusively by mobile technology. Applications for Kilimo Booster are made via a digital field app and loan disbursements and repayments are made via mobile money technology. This is typically a welcomed feature among the women, who do not have to leave tending of the home and farm to travel to a Musoni branch in town for their loans to be processed. According to Alice, “Using the mobile phone is easy for us and it saves time. No one knows what you are doing, or if you have money, so it is also safe for us.”

Using digital technology, the loan application process has been simplified enough to accommodate everyone, regardless of their education levels. The loan officer visits the farmers in their homes, collects all the necessary information digitally, and once the loan is processed, the women can cash out at a mobile money agent, typically found within a 5 kilometer radius. Kenya’s mobile phone penetration, which stands at 90 percent (more than 75 percent of them are registered mobile money users), has provided an enabling environment for the uptake of digitally-enabled products such as Kilimo Booster.
<h4>Targeted Outreach</h4>
Since its roll-out in 2013, more than 17,000 Kilimo Booster loans have been disbursed, with women receiving 55 percent of the loans. To continually reach more women, Kilimo’s marketing activities are focused in rural areas, specifically in rural marketplaces, where the population of women is higher. In addition to financing, Grameen Foundation and Musoni offer farmers training on an ongoing basis, thus building their skill set and enabling them to take on and profitably utilize higher loan amounts.

Alice’s experience demonstrates how the right product can overcome the barriers to financing smallholder farmers. She has graduated from her first loan of US$200 to a loan of US$2,000, which she has used to expand her farming activities. She now grows vegetables and green grams, in addition to maize, and has also expanded into poultry, dairy goats, rabbits and guinea fowl. This has helped to smooth her income and create a stable agribusiness.

As she says in the video, “If I compare myself to people who are not with Musoni, they cannot do business the same way I do.”

Have you read?

<a href="https://cfi-blog.org/2017/07/19/how-women-help-women-gain-control-of-their-financial-lives/">How Women Help Women Gain Control of Their Financial Lives</a>

<a href="https://cfi-blog.org/2017/03/23/will-the-crowd-support-more-women-agents/">Will the Crowd Support More Women Agents?</a>

<a href="https://cfi-blog.org/2017/06/23/helping-women-control-their-financial-lives-through-digital-financial-services/">Helping Women Control Their Financial Lives through Digital Financial Services</a>

How Mobile Money Is Closing the Agricultural Finance Gap for Women in Kenya

Kenya

Mobile Banking

Women

&gt; Posted by Bruce MacDonald, Vice President, Communications and Operations, CFI

The following post was <a href="http://nextbillion.net/letter-from-mindanao-part-2-rural-banking-and-the-promise-of-cacao/">originally published</a> on NextBillion.

<img class="aligncenter wp-image-21374" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/05/first-valley-488.jpg" width="615" height="426" />In <a href="https://cfi-blog.org/2016/05/18/letter-from-mindanao-part-1-the-impact-of-asean-integration-on-banking-in-the-philippines/" target="_blank">part one of this post</a>, Bruce discussed the potential impact of ASEAN Integration on banks in the Philippines, informed by his recent visit to the country. In part two below, he continues exploring the challenges and opportunities facing one of these institutions, 1st Valley Bank in Cagayan de Oro, Mindanao. 

Though national bank liberalization has led commercial Philippine banks to acquire more rural and thrift banks, potentially increasing competition for 1st Valley, it has also provided the bank with a unique advantage. A 2013 amendment to the Rural Banking Act allowed foreign investment in Philippine banks which, in turn, permitted a new company called Bridge, led by American Paul Kocourek and Englishman Gus Poston, to invest in 1st Valley. Kocourek and Poston, both with deep regional banking experience, founded Bridge in order to help build a strong network of provincial Philippine banks committed to social impact. Identifying rural finance as the “missing component of inclusive banking,” their aim is to provide critical capital for growth, but also assistance in product design, risk management and more. 


Bridge came to market in March of 2013 with $24 million in funding, provided by microfinance investment vehicles such as Bamboo Finance and national development banks such as the German DEG and Dutch FMO. (Full disclosure: Accion is also an investor and operating partner in Bridge.) 1st Valley was Bridge’s first investment, and remains its crown jewel. “The growth opportunities in [1stValley’s] target markets are huge,” says Poston. “There are 1.3 million farms in the areas where 1st Valley operates, and the bank is only lending to 7,000 at the moment. To put it into perspective, Mindanao is about the size of Cambodia. There’s approximately $5 billion of microfinance lending in Cambodia. ‘Inclusive banking’ in Mindanao is smaller than a billion dollars.”

The Bridge investment has added substantial heft to the bank’s foundation and prospects, although no one underestimates the magnitude of the task ahead. While 1st Valley President and CEO Nicolas “Sonny” Lim lists bank liberalization and the threat of ASEAN integration among his concerns, Poston throws in a few more challenges. “Typhoons, land holding questions, security issues … we face specific barriers to lending in the Philippines,” he says. “1st Valley’s challenge is to continually improve its product offering, service quality and risk-management methodology so that it can reach more farmers and microfinance clients.”

Magic Beans

Bridge’s imprint can be seen and felt particularly in product development, helping to create tools such as new loans for poultry farmers and micro-insurance. But perhaps the most important new product is 1st Valley’s cacao loan.

Eighty to 90 percent of the world’s cacao (the raw ingredient in chocolate, cocoa butter and many other popular products) is produced by small, family-run farms – farms that must be no more than 15 to 20 degrees in latitude from the equator. Cacao, says Lim, can be grown in only 36 countries in the world – but it thrives in the soil and climate of the islands’ palm-shaded small holdings, and is productive within 18 to 24 months. That makes the Philippines ideally placed to help address a global cacao shortage that <a href="https://www.washingtonpost.com/news/wonk/wp/2014/11/15/the-worlds-biggest-chocolate-maker-says-were-running-out-of-chocolate/" target="_blank">some say will reach a million metric tons by 2020</a>. Since 1670 cacao has been a cash crop in the Philippines. By the 1980s, national production had reached 40,000 metric tons. By 2013, however, land reform and diseases had conspired to whittle that down to some 8,000 tons.

In response, the Department of Agriculture flagged cacao as a High Value Crop – a banner program created to help address food security, poverty alleviation and sustainable growth. Through the Philippine Cacao Challenge, the country committed to producing 100,000 metric tons by 2020, and has included cacao as part of its National Greening Program, an initiative to reforest the country. Mindanao, already delivering 90 percent of the country’s crop, was identified as ground zero.

A 1st Valley cacao loan provides borrowers up to 75,000 pesos ($1,600) over seven years. The bulk of the loan is delivered up-front, with two years’ grace given as the crop becomes established, initial installments reduced, and full installments required only during the last four years, as the plants become fully productive. To help ensure success, the bank partnered with Philippine agribusiness company Kennemer Foods International, which created a complete agricultural value chain for the smallholder farmer. This included seedlings, fertilizer, pest control, agronomy assistance and training – training not only for the growers, but also for bank staff. Farmers who follow their protocols, says Kennemer, will see their yields quadruple.

The support is typical – and timely. Mindanao is eight months into a widespread drought, the result of a powerful El Niño that has shaped Philippines weather for a year. Despite lower growth rates as a result, however, Poston reports that clients’ first cacao plantings are already producing pods.

He and Lim are forthright about the work ahead for 1st Valley:  improved risk management, expansion into electronic channels, growth across all loan products and term deposit accounts. Expectations for microfinance and SME lending, in particular, are high – 7 million pesos ($150,000) per month for the microfinance portfolio, for example, or 80 percent growth year on year. And addressing delinquency, with the total outstanding balance of loans past due for more than 30 days currently at nearly 10 percent, is paramount.

There’s work for Bangko Sentral ng Pilipinas (BSP), too. “The central bank still has a lot of problems to solve, especially in the rural banking industry,” Lim says. While the number of rural banks has declined by a third in recent years, to around 650, he estimates that only 200 are profitable and healthy.

As for ASEAN integration, Poston evinces little concern. “We have to be realistic about the difference between rural banking and commercial banking,” he says. “1st Valley is targeting hard-to-reach rural clients and providing them with microfinance, SME and agricultural loans, which require totally different skill sets from other forms of banking. I don’t think there will be a major foreign competitor operating in rural Mindanao. Even the local banks are reluctant to expand in these areas.”

Road Under Construction

[caption id="attachment_21376" align="alignright" width="330"]<img class="wp-image-21376" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/05/first-valley-626.jpg" width="330" height="220" /> Rice farmer and 13-year client of 1st Valley, Luz Hernando, Lala, Mindanao.[/caption]

To get a true feel for 1st Valley, one must leave Cagayan de Oro and get out to the country. For two days we made our way west along Mindanao’s northern coast road, stopping to visit branches and clients en route. We met Discy Santiago, a first-grade teacher at Iligan City Central School, who took out a salary loan to cover her sister’s medical expenses. In Lala, we met rice farmers such as Luz Hernando (pictured left), whose supervised credit helps ensure that her 2.5-hectare tenant farm is as productive as possible. The loan addresses every phase of the production cycle, from fertilizer and seed through to a guaranteed buyer (1stValley itself, if for any reason the farmer can’t sell their crops on the market – and at market price). “It’s like a family here,” Mimi Enad, the bank’s head of risk, told us.

The coast road itself is a work in progress. Pedestrians, motorbikes and cars wrangle and compete for space. Blind corners, high speeds, and games of “chicken” favor the nimble and strong of nerve. Cavernous potholes attest to the road’s importance; endless repaving projects emphasize the challenge. And every once in a while, for a brief second, comes a glimpse through the palms of the electric-blue Bohol Sea, like a travel poster advertising a reward for a job well done. Somewhere in there is a metaphor for 1st Valley.

The Philippines cast a long shadow in financial inclusion. To its credit go the earliest mobile money solutions, SmartMoney and GCash. The country perennially scores at the top of The Economist’s “Global Microscope” report, an annual assessment of enabling environments for financial inclusion. The BSP, among the most far-sighted, client-protection-friendly and highly regarded of central banks, keeps a sure hand on the levers of finance. It has always been a country to watch. And as Kocourek and Poston intended from the start, perhaps the Philippines is just the right place to address rural finance, that missing component of inclusive banking.

Image credits: Bruce MacDonald

Have you read?

<a href="https://cfi-blog.org/2016/05/18/letter-from-mindanao-part-1-the-impact-of-asean-integration-on-banking-in-the-philippines/">Letter from Mindanao, Part 1: The Impact of ASEAN Integration on Banking in the Philippines</a>

<a href="https://cfi-blog.org/2014/12/12/asias-top-country-on-financial-inclusion-policy-the-philippines-strengthens-its-microfinance-market/">Asia’s Top Country on Financial Inclusion Policy, the Philippines, Strengthens Its Microfinance Market</a>

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Letter from Mindanao, Part 2: Rural Banking and the Promise of Cacao

Philippines

&gt; Posted by Bruce MacDonald, Vice President, Communications and Operations, CFI

The following post was <a href="http://nextbillion.net/letter-from-mindanao-part-1-the-impact-of-asean-integration-on-banking-in-the-philippines/">originally published</a> on NextBillion.

<img class="aligncenter wp-image-21361" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/05/unspecified.jpg" width="615" height="410" />As 2016 New Year’s resolutions went, few matched the enthusiasm, ambition and fragility of the commitment made by the Association of Southeast Asian Nations (ASEAN). On Jan. 1, its 10-member countries – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – inaugurated the ASEAN Economic Community, a common market whose goal is to forge a prominent regional bloc to rival China and Japan, and bring economic well-being to its 625 million citizens.

Some 13 years in the making, the Community promises an increasingly free flow of services, investment, skilled labor and capital to a market that is now larger in terms of population than either North America or the European Union. Such a single market, its creators envision, will increase intra-ASEAN trade and justify greater spending on infrastructure. Currently, the six leading nations in the group (Indonesia, Malaysia, Thailand, Singapore, the Philippines and Vietnam, a.k.a., ASEAN-6) allocate an average of 26 percent of their GDP to investment, which any recent visitor to Manila or Jakarta might argue is nowhere nearly enough.

Where one stands on ASEAN integration depends, of course, on where one sits. On a recent visit to the Philippines, we posed the question to various people, including government and central bank officials, and bankers whose businesses will be impacted by the Community.

'Sweet Spot'

As 2016 neared, the Philippines government expressed confidence that the nation was ready for integration. The country’s 6.3 percent growth rate, the highest five-year average in the last four decades, puts the nation in a “sweet spot,” said Department of Trade &amp; Industry Secretary Gregory Domingo. Citing projections from HSBC and Goldman Sachs, Domingo predicted the Philippines would be the fifth-largest economy in Asia by mid-century, and the 14th largest in the world. He added, however, that prioritizing micro, small and medium enterprises (MSMEs) in the regional trade agenda was critical; Philippine MSMEs comprise 98 percent of all registered GDP.

The Philippines’ central bank, Bangko Sentral ng Pilipinas (BSP), was less sanguine. Under the ASEAN Banking Integration Framework, qualified ASEAN banks will be allowed to establish operations throughout the Community. Greater competition is a given. Regional integration would, for example, drop BDO Unibank, the Philippines’ largest bank as measured by assets, to the 19th spot in ASEAN. To help prepare banks to compete in a regional system, the BSP is adopting higher capital requirements, enhancing credit-risk management rules and raising governance standards, among other actions.

“It is imperative that you define and carve out your comparative advantage in our local market,” advised BSP Governor Amando Tetangco in a speech to Philippine bankers just before the Jan. 1 deadline. In case the message wasn’t clear, he added, “If you have not done so, you will need to make those tough decisions now to give yourselves time to execute your strategic goals.”

The ASEAN Way

Time, fortunately, appears to be on bankers’ side. Integration will be delayed, if not confounded, by an approach among ASEAN members that favors consensus-based decision-making and a policy of non-interference in the internal affairs of others – the “ASEAN way,” as it has come to be known. An absence of penalties for noncompliance and the lack of a powerful central bureaucracy add to the challenge.

Unlike the EU, ASEAN has no plans for a common currency, and cross-border travel is still limited. Trade liberalization is the only aspect of the Community’s vision that shows any significant progress. Nearly all of the items the top six countries have agreed to put on the <a href="http://www.asean.org/asean-economic-community/asean-free-trade-area-afta-council/">“inclusion list”</a> are free of tariffs. Nevertheless, countries such as Indonesia and the Philippines have held back many important agricultural and food-related products from the inclusion list, citing a food security rationale. Development gaps and infrastructure differences between and among ASEAN-6 and the less developed ASEAN-4 nations present have added obstacles. ASEAN financial integration, the Financial Times pronounced recently, is “embryonic.”

<img class="alignright wp-image-21362" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/05/dsc_2261.jpg" width="330" height="220" />Nicolas “Sonny” Lim (pictured right) did not exactly exude enthusiasm over the prospect of integration when we asked, but neither did he sound particularly concerned. It is, he says, just one factor he considers in his strategic planning. Lim is president and CEO of 1st Valley Bank in Cagayan de Oro, Mindanao. Rural and family-owned, medium-sized but growing, profitable but not without pressures, 1st Valley works on the front line of bringing ordinary citizens into the global economy. Founded in 1956 by Sonny’s father, Rosario, as the Rural Bank of Kapatagan Valley, it was created to serve the rice and corn farmers of the north-central provinces of Mindanao, the Philippines’ second-largest and southernmost island.

A rice farmer himself, the elder Lim understood his clients’ needs. The bank grew – not stupendously, but steadily – and eventually merged with the Rural Bank of Sinacaban in 2005 to become 1st Valley. With 60 to 70 percent of the Philippines’ rural population lacking a bank account, says Lim, and only a mere 6 percent of business growth in small, provincial businesses funded by bank lending, 1st Valley’s mission and market is to reach these businesses and households with support and economic prosperity. Today, 37 branches serve more than 70,000 clients, making it one of the Philippines’ largest rural banks.

Fully 61 percent of 1st Valley clients use loans for agriculture, typically rice and corn, and now, increasingly, cacao. Two loan types are offered: those secured by land or salary stream, and those that are unsupervised (uncollateralized). Salary loans of up to 525,000 pesos ($11,200), made mainly to government employees and teachers, account for 2.4 billion pesos ($51 million), or almost half of 1st Valley’s portfolio. Microfinance loans of up to 300,000 pesos ($6,400) comprise a small share of the bank’s portfolio, but serve as an important test bed for all its credit products. Small and medium enterprise (SME) lending, from 300,000 to 5 million pesos ($6,400 to $106,000), accounts for 10 percent of the portfolio and is growing at 30 to 40 percent per year, with plans to ramp it up even faster.

National bank liberalization has already led commercial Philippine banks to acquire more rural and thrift banks, potentially increasing competition for 1st Valley. The big banks see money, Lim says, particularly in salary loans. Christian-Muslim antagonism and Communist insurgency – the latest attack by the New People’s Army blared from Cagayan de Oro headlines the day we arrived – add spice to his planning challenges. For now, he explains, 1st Valley will focus on what it does best: agricultural and SME lending, and microfinance.

Image credits: Bruce MacDonald

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Letter from Mindanao, Part 1: The Impact of ASEAN Integration on Banking in the Philippines

&gt; Posted by Saran Sidime, Operations Assistant, the Smart Campaign

<img class="alignright wp-image-21236" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/thumb_b16dd4e1ca264d1f808145b85aed7c8c.jpg" width="315" height="210" />Despite – or because of – economic growth, booming exports, and increased foreign investments in many African countries, income inequality on the continent, by many accounts, is increasing. As a region, sub-Saharan Africa has a <a href="http://www.brookings.edu/blogs/africa-in-focus/posts/2015/09/22-inequality-africa-sustainable-development-goals-bhorat">higher level of inequality</a> than the rest of the developing world. Globally, <a href="http://www.worldbank.org/en/region/afr/publication/poverty-rising-africa-poverty-report">seven of the top 10 countries</a> in terms of inequality are in Africa.

Contributing to the discrepancy is the lack of formal financial services within the region, according to <a href="http://app-cdn.acwupload.co.uk/wp-content/uploads/2016/03/APP_AR2014_EXTRACT2016_PRINT.pdf">Shaking up Finance and Banking in Africa</a>, a policy brief produced by the Africa Progress Panel, which draws its analysis from the <a href="http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Africa_Progress_Report_2014.PDF">2014 Africa Progress Report</a>. Only one in five Africans have any form of account at a formal financial institution. Like most parts of the world, the poor, rural dwellers, and women are particularly excluded. The strategic deployment of sustainable and inclusive finance is a vital ingredient to ensuring that Africa’s long-term growth encompasses all individuals equitably.

Between 1990 and 2012, the proportion of Africans who were poor fell from <a href="http://www.worldbank.org/en/region/afr/publication/poverty-rising-africa-poverty-report">56 percent to 43 percent</a>, according to the World Bank. However, when you account for population growth, the total number of individuals living in poverty increased. The most optimistic scenario, calculated by the World Bank, indicates that across this 22 year window, the number of Africans living in poverty increased from 280 million to 330 million. On the other side of the spectrum, Africa is now home to over <a href="http://www.theguardian.com/global-development/datablog/2015/jul/31/africa-wealth-report-2015-rich-get-richer-poverty-grows-and-inequality-deepens-new-world-wealth">160,000 people</a> whose personal fortunes exceed USD 1 million, which represents a doubling in the number of individuals of such wealth since the turn of the century.

Haroon Bhorat, Senior Fellow at Brookings’ Africa Growth Initiative described the problem, <a href="http://www.brookings.edu/blogs/africa-in-focus/posts/2015/09/22-inequality-africa-sustainable-development-goals-bhorat">saying</a>: “Simply put, income inequality is the thief of the poverty-reducing effect of growth.”

The agriculture sector is a key priority area for expanding financial inclusion to combat income inequality. Rural dwellers are the most financially excluded people on the continent. Overwhelmingly, farmers lack access to all formal financial products – credit, savings, and insurance. Farmers need to both insure themselves against environmental risks, and make investments in seeds and other productive inputs to boost their productivity. Without insurance, they have to invest their earnings into dealing with emergencies like poor harvests, droughts/floods, and illness, rather than investing in boosting productivity. Their lack of access to loans and savings make them unable to respond to market opportunities, like buying fertilizers, pest control, and new equipment.

A transformed financing environment will allow the continent to tap into the vast potential of its domestic resources. Supporting farmers associations and the integration of financial services access therein can bring a wealth of benefits, including: increased access to financing via transactions records kept within associations; increased market access; and increased access to informational services and skills-building opportunities. Inclusive finance can also yield less intuitive benefits that boost productivity systemically. Kofi Annan, Chair of the Africa Progress Panel, asserts the potential for pension funds to – along with their imperative role in supporting aging - finance energy proliferation. In Ghana, Mozambique, and Nigeria, for example, pension funds have allowed governments to tap into deeper pools of savings that exist to actively finance the energy sector. Annan said: “One of the greatest barriers to the transformation of the power sector is the low level of tax collection and the failure of governments to build credible tax systems. Domestic taxes can cover almost half the financing gap in Sub-Saharan Africa.”

Financial services also present huge opportunities for supporting education – one of the biggest factors to boosting equality. For every 100 African children that enter the school system, only four will make it to a tertiary institution. This is the lowest rate in the world. Savings and loans can offer families the support they need to ensure that their children are empowered to live productive lives.

The good news is that, along with the gradual expansion of traditional banking systems, peer-to-peer banking and mobile banking have increasingly taken root to further address the needs of those excluded from the financial system, democratize the financial playing field, and boost growth that benefits all. Among developing regions, mobile money is <a href="http://www.forbes.com/sites/danielrunde/2015/08/12/m-pesa-and-the-rise-of-the-global-mobile-money-market/#17edf1c723f5">most widespread</a> in sub-Saharan Africa, followed by Southeast Asia and Latin America. Constantinos Kypreos, Vice President &amp; Senior Credit Officer at Moody’s and co-author of the report <a href="https://www.moodys.com/research/Moodys-Africas-mobile-phone-banking-boom-to-support-economic-growth--PR_343501">Mobile Banking Supportive of Economic Growth and Banking Sector Prospects</a>, stated in an <a href="https://audioboom.com/boos/4160830-driving-financial-inclusion-for-sub-saharan-africa-constantinos-kypreos-of-moodysratings-on-mobilephonebanking">interview</a> that with time, mobile phone banking will boost economic growth and create opportunities for banks to expand across the continent.

Developing the financial sector is one of the most urgent challenges facing the region. As the governor of Ghana’s central bank put it, “An efficient financial sector provides the rudiments for income growth and job creation [and]…financial development contributes to the reduction of poverty and inequality.” The Shaking up Finance and Banking in Africa brief concludes that inclusive financial systems serve as the bridge that connects economic growth to the wellbeing of people. We at the Center for Financial Inclusion agree.

Image credit: Accion

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Sustainable and Inclusive Finance Is Key to Africa’s (Equitable) Economic Transformation

P2P Lending

Pensions and Retirement Saving

&gt; Posted by Andrew Fixler, Freelance Journalist

<a href="https://www.flickr.com/photos/38476503@N08/21760883046/"><img class="alignright wp-image-20783" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/21760883046_408ce22872_z.jpg?w=490" alt="" width="330" height="220" /></a>Consolidation and investment in coffee brands is reaching a fever pitch, according to Andrew Daday, Director of Coffee for <a href="https://www.stumptowncoffee.com/">Stumptown Roasters</a>. Coffee is the second-most traded commodity in the world, and the modal coffee farmer is a smallholder living near or below the poverty line, resulting in unique value chains in Latin America, East Africa, and Southeast Asia. These value chains are characterized by factors like the <a href="http://www.investopedia.com/university/commodities/commodities2.asp">commodity coffee markets</a>, agronomics, organization/associations of growers, government coffee marketing institutions, and the state of rural financial services. <a href="https://en.wikipedia.org/wiki/Specialty_coffee">Specialty coffee</a> is characterized by meeting particular quality standards. Specialty coffee production allows some farmers to escape the vicissitudes of the commodity coffee market and to capture value commensurate with their product’s quality and input costs. In the United States, <a href="http://www.scaa.org/?page=resources&amp;d=facts-and-figures">55 percent</a> of the 48 billion dollars of coffee retail value consumed falls into the specialty category – representing immense growth in recent decades. If bullishness ratifies the growth prospects for high-end coffee in the U.S. and abroad, it is worth looking into how scaling will manifest at the agricultural end of the value chain, because the relationships coffee farmers have with downstream firms impact their well-being in a number of ways, including via their access to financing.

Agriculture finance for smallholders can be an operationally-intensive, high-risk enterprise. However, financial institutions like the Netherlands’ Rabobank and Mexico’s Banorte <a href="http://www.fao.org/docrep/017/i0846e/i0846e.pdf">express</a> that agricultural credit is especially viable and profitable if “producers are well-integrated into a viable value chain.” Linking into a larger firm’s supply chain is a boon to small business growth in many contexts. Besides serving as a “<a href="https://nycfuture.org/pdf/Giving_Small_Firms_the_Business.pdf">springboard for growth</a>” for small businesses from increased market access, buyer-supplier linkages yield exposure to key industry information and data points along the value chain that contribute to better capital allocation and financial accessibility for qualified entrepreneurs. Linking with a value chain may also <a href="https://www.microlinks.org/good-practice-center/value-chain-wiki/value-chain-finance">enable</a> a transition from informal lending, which can rely overwhelmingly on local knowledge for underwriting, to the formal financial services sector.

Viability of financing increases when value chain linkages are stronger and are used as intangible collateral. While building relationships with farmers, buyers consider smallholder attributes similar to those examined by credit underwriters. This translates into easier screening of potential borrowers, disbursement and repayment of loans, and management of collateral and risk. A detailed understanding of the quality of value chain linkages can further assure lenders of farmers’ future revenue streams. Lead firms in the value chain depend on supplier quality and resilience, so they may actively play a role in facilitating outside financing, or in rarer cases directly finance their partners through product and receivables financing.

In specialty coffee, value chain integration is diligently forged. The <a href="http://www.scaa.org/chronicle/2012/02/14/direct-trade-the-questions-answers/">direct trade</a> model is defined by a transparent relationship between farmer and roaster starting with contract negotiation, and continuing through a long-term alignment of interest in the farm’s growth, stability, and sustainability. Scalability is built on a knowledge network supported by government coffee institutes and international coffee raters, like the Cup of Excellence or Coffee Analysts, as well as roasting companies. In different manifestations of specialty coffee trade, this network is tapped in order to scale the number of producers as demand grows. So as coffee consumption grows, and the market share of specialty coffee increases, more farmers will enter close relationships with international firms.

For example, Starbucks runs <a href="http://www.starbucks.com/responsibility/community/farmer-support/farmer-support-centers">Farmer Support Centers</a> to <a href="https://books.google.com/books?id=xRL32pfxl8gC&amp;pg=PA123&amp;lpg=PA123&amp;dq=starbucks+farmer+support+center+costa+rica+value+chain+finance&amp;source=bl&amp;ots=3SSBDQ0BaU&amp;sig=WCgKAGGOsmXCnfI795B-XKssiQg&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiygoKjmezKAhULMz4KHUGfDF4Q6AEIMzAD#v=onepage&amp;q=starbucks%20farmer%20support%20center%20costa%20rica%20value%20chain%20finance&amp;f=false">ensure</a> the company can meet growing demand. They administer an array of resources and support to growers, and bring new farmers into the company’s fold.

Specialty coffee allows farmers to recoup investments in increased quality by assuring that their produce will be processed and sold by a series of actors that will recognize the beans’ quality and distinctive identity. Additionally, the degree to which coffee farmers capture returns on their products’ distinct value attributes <a href="https://books.google.com/books?hl=en&amp;lr=&amp;id=mwpAO0J9ojgC&amp;oi=fnd&amp;pg=PR8&amp;dq=history+of+coffee+commodity&amp;ots=iESGIxaVI-&amp;sig=VwMnMFr3BYKA9h8D2KKy3G8Z55M#v=onepage&amp;q=history%20of%20coffee%20commodity&amp;f=false">determines a significant component of their market power</a>. Daday explained that <a href="https://en.wikipedia.org/wiki/Third_wave_of_coffee">third wave coffee roasters</a> (specialty coffee roasters which consider coffee more an artisanal foodstuff than commodity) buy beans from a single origin in shipping container-sized quantities, and at a premium price. This further entrenches a mutual dependence, and cements the negotiational potence of specialty coffee producers relative to their counterparts who sell coffee destined for the commodity market.

Beyond the rarified world of third wave coffee roasters, retailers are investing in their value chains, often with regard for the financial externalities this avails to their businesses and those of their partners. Starbucks’ Director of Coffee Sustainability and general manager of the Starbucks Agronomy Company notes in a <a href="http://www.fao.org/3/a-i0016e.pdf">2006 seminar</a> that sustainability and risk control are paramount in the company’s value chain. This might manifest in partnerships with impact investors who can finance growers with whom the coffee company hopes to build a long term relationship. Recently, Keurig Green Mountain, Coffee Cooperatives, Starbucks, and USAID partnered with Root Capital to target the Roya blight, a leaf rust endemic to Latin America which causes a <a href="http://www.fomin.org/en-us/Home/FOMINblog/Blogs/DetailsBlog/ArtMID/13858/ArticleID/2179/NoTitleLink.aspx">half billion dollars in losses</a> annually when left unmitigated. Their <a href="http://www.rootcapital.org/about-us/press-releases/usaid-keurig-green-mountain-cooperative-coffees-starbucks-and-root-capital">efforts</a> will allocate $23 million, including $15 million in investment capital, to technical assistance and farm-rehabilitation efforts. Part of the technical assistance includes advice on negotiating ongoing Roya prevention costs into contracts.

From coffee to cocoa to other crops, there are roughly 500 million smallholder farmers around the world. As lessons learned in supply chain sophistication and agriculture financing amass in the growing artisanal produce and mass market grocery industries alike, the prospects for entrepreneurial smallholders may significantly brighten.

Image credit: <a href="https://www.flickr.com/photos/38476503@N08/21760883046/">CIAT</a>

This post was modified from its original version on March 4, 2016.

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Coffee Connections: Improving Smallholder Inclusion through Value Chain Finance

Risk Management

Smallholder Farmers

Underwriting

Editor's Note: Eric Noggle worked at Microfinance Opportunities when this research was conducted and published.

In 2014, <a href="http://fsdzambia.org/">Financial Sector Deepening Zambia</a> and <a href="https://www.microfinanceopportunities.org/">Microfinance Opportunities</a> (MFO) began the Zambia Financial Diaries—a 52-week study of the financial lives of 352 low-income Zambians. The study included 92 smallholder farmers—individuals who own small plots of land on which they grew crops or tended livestock for sale and/or subsistence.

The Zambian smallholder farmers represent only a tiny fraction of the estimated 500 million smallholder households worldwide. Smallholder farmers are a large livelihood group and addressing their diverse needs—from crop diversification to market integration—is a strategic priority for the World Bank Group, country-level governments, and non-government organizations.

Understanding smallholder farmers’ income patterns is critical for designing financial services that meet their financial needs. The common perception of farmers’ income patterns is that they are lumpy and linked to agricultural cycles, but the income patterns identified in MFO’s Zambia Financial Diaries challenge this perception.
<h2>Income Patterns</h2>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png"><img class="alignright wp-image-20735" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png" alt="" width="350" height="88" /></a>The farmers in MFO’s study had lower and more variable incomes than respondents who earned the majority of their income from informal, off-farm sources (“informal workers”). The farmers had 4.3 income sources on average, often relying on casual labor or running informal shops to supplement their agricultural activities, while informal workers had 3.3 sources. Farmers’ average weekly earnings were low—only about $19 per week on average compared to $50 for informal workers (based on June 2015 exchange rates). The farmers also experienced more week-to-week income variation, as measured by the coefficient of variation (COV), than other respondents who work in the informal economy.

However, these data mask the diversity of smallholder farmers’ income patterns. The study found farmers who earned large sums frequently, while others had large and inconsistent windfalls. Lower-income farmers also had diverse patterns, with some earning small sums on a frequent basis while others went weeks between earning income.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png"><img class="aligncenter wp-image-20737" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png" alt="" width="615" height="232" /></a>

MFO developed a simple market segmentation framework to understand the role of income patterns in financial service design better. The framework comprises two dimensions: average weekly income and week-to-week income variation as measured by the COV. We divided respondents into high- or low-income groups at the median of average weekly income and high- or low-variation groups at the median of the COV.

&nbsp;
<h2><a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png"><img class="aligncenter wp-image-20738" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png" alt="" width="615" height="299" /></a></h2>
<h2>Implications of Segmenting by Income Behavior</h2>
The segmentation framework demonstrates the diversity of smallholder farmers’ income patterns and their similarity to the income patterns of informal workers. This finding should encourage stakeholders to prioritize collecting information about consumers’ income patterns when designing financial services for the low-income market segment. The financial needs of a smallholder farmer with high, steady income are more similar to those of a micro-entrepreneur with the same income pattern than a smallholder farmer who irregularly earns small sums. Recognizing these inter-livelihood similarities can help stakeholders mitigate inefficiencies in the design, marketing, and delivery of financial services.

&nbsp;

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png"><img class="aligncenter wp-image-20739" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png" alt="" width="615" height="232" /></a>

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Stakeholders focused specifically on smallholder farmers should consider the needs and opportunities that these income patterns suggest. For instance, a farmer with high income and high variation may benefit from interventions that allow the farmer to diversify on- and off-farm income sources. This diversification could lead to more consistent annual income. A farmer with high income and low variation may be best suited for interventions that support the expansion of farming activities through asset financing or linkages with local markets. Farmers with low-income and high variation may struggle to piece together the income necessary to purchase inputs during the planting season; thus, a layaway product might be beneficial for them. Cash transfers from government agencies or non-governmental organizations would help farmers with low-income and low variation pay basic on- and off-farm expenses that their meager earnings cannot cover.

Income patterns alone should not inform the design of financial services for smallholder farmers, but they are a critical component in the process. MFO’s hope is that this study and other research can help improve the efficacy of interventions meant to help this diverse group.

For more information on the research methodology and additional findings, please read the <a href="https://www.microfinanceopportunities.org/?p=2824">Zambia Financial Diaries Interim Report</a>.

Have you read?

<a href="http://cfi-blog.org/2014/09/10/pay-for-performance-operationalizing-the-embedded-education-model/">Pay-For-Performance: Operationalizing the Embedded Education Model</a>

<a href="http://cfi-blog.org/2014/06/11/climate-change-adaptation-for-smallholder-farmers/">Climate Change Adaptation for Smallholder Farmers</a>

<a href="http://cfi-blog.org/2013/11/01/what-is-financial-capability/">What Is "Financial Capability?"</a>

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Using Income Patterns to Segment Livelihood Groups: The Case of Smallholder Farmers

Zambia

Underserved Groups

&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

Financial Inclusion 2020

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

China

Colombia

Dominican Republic

Ghana

Guatemala

India

Nigeria

Paraguay

Peru

Rwanda

Tanzania

United States

Aging and Older Adults

Consumer Protection

Financial Capability

Financial Inclusion Strategy

Fintechs

Housing Finance

Impact Investing

Microfinance

Persons With Disabilities

Remittances

Saving

Social Performance

Transparency

Youth

Adrian Merryman

Eric Noggle

Jeffrey Riecke

Azerbaijan

Chile

France

Japan

Latin America and The Caribbean

Alternative Data

Appropriate Product Design and Delivery

Banks

MSME/SME Finance

Payments

Trends

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.

Brigitta Nyawira

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.

Bruce MacDonald

Saran Sidime

Andrew Fixler

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.

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

&gt; Posted by Center Staff

[youtube https://www.youtube.com/watch?v=AEZcvzGg7m4&amp;w=560&amp;h=315]

Yesterday a digital finance event in Bogota hosted by the Colombian government and the Better Than Cash Alliance celebrated a pioneering business-to-business electronic banking program that’s led to over 300,000 Colombian coffee farmers receiving access to formal banking services. Launched in 2006 by the Colombian Coffee Growers Federation (FNC), the Smart Coffee ID Card program offers the farmers represented by FNC with a dual identification/e-banking card that can be used for payments, debits, and savings. It now encompasses over 8 million transactions totaling nearly $1 billion. The event launched a Better Than Cash Alliance <a href="http://www.marketwired.com/press-release/rural-financial-inclusion-study-shows-colombias-smart-coffee-id-is-model-replicate-1986417.htm" target="_blank">case study</a> on the Smart Coffee ID Card program, which finds that the FNC initiative is a benchmark example of how transitioning from cash to e-payments in emerging economies can lead to increased safety, productivity, growth, and greater quality of life.

For Smart Coffee ID cardholders, the identification components give farmers access to FNC services, such as participating in coffee grower elections, while the banking component, backed by Banco de Bogota, enables banking online or at 230,000 commercial establishments. A savings account has been paired with the Smart Coffee ID Card since 2014. Card use also allows farmers to develop a banking history and in turn obtain lines of credit.

For the Colombian Coffee Growers Federation, the program improves institutional organization and farmer payment efficiency. It also helps with payment flexibility – especially helpful in incidences like emergency support. Through the cards’ ability to offer farmers incentives cost-effectively, the program has helped facilitate sustainable farming practices. At the event in Bogota, Julian Medina, FNC’s Chief Financial Officer said, "Without the Smart Coffee ID Card, FNC initiatives to combat climate change, such as encouraging growers to plant more productive and coffee leaf rust-resistant tree varieties and implementing ambitious plant renovation programs to improve yields, would have been impossible to develop." More recently the card network has been leveraged for providing government incentives and credits.

The Better than Cash Alliance case study on the Smart Coffee ID Card program is the first study to examine a cash-to-electronic payment transition in a large-scale rural business-to-business context. The event in Bogota also launched a <a href="http://betterthancash.org/news-releases/partners-should-build-on-progress-made-in-colombias-shift-to-electronic-payments-says-study-by-un-based-alliance/" target="_blank">Colombian market diagnostic</a>, which found that Colombia has made big progress in the shift to e-payments, but that there’s room for improvement in addressing the informal cash economy and strengthening merchant acceptance and consumer adoption.

Colombia is considered a “cash-light” economy, as 69 percent of money is spent electronically. However, most payments are still conducted via cash. In 2012, less than 10 percent of the 828 million payments were made electronically. Essentially, large payments are made digitally, and most small and medium ones are made in cash.

The government has been a leader in furthering Colombia’s transition to electronic payments. About 94 percent of government payments by monetary value and 76 percent by volume are made electronically.

The Better Than Cash Alliance’s diagnostic indicates that Colombia’s area for greatest improvement in shifting to e-payments is consumer purchases. Barriers to expansion include: high costs for merchants to support payment card programs; limited value proposition for banks expanding their networks; and consumer access to card services.

Have you read?

<a href="http://cfi-blog.org/2014/06/20/electronic-g2p-for-the-poor-does-electronic-social-protection-need-better-consumer-protection/" target="_blank">Electronic G2P for the Poor: Does Electronic Social Protection Need Better Consumer Protection?</a>

<a href="http://cfi-blog.org/2014/04/24/new-council-to-expand-responsible-financing-for-agriculture/" target="_blank">New Council to Expand Responsible Financing for Agriculture</a>

<a href="http://cfi-blog.org/2014/09/09/pending-presidential-approval-colombias-financial-inclusion-bill-set-to-become-law/" target="_blank">Pending Presidential Approval: Colombia's Financial Inclusion Bill Set to Become Law</a>

Banking Services Extended to 300,000 Colombian Coffee Growers

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

<a href="https://www.flickr.com/photos/14843496@N02/5031042480/"><img class="aligncenter wp-image-16938" style="margin-top:5px;margin-bottom:5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/01/5031042480_2fc5f4ac8e_z.jpg" alt="" width="610" height="405" /></a>If you are in a wheelchair in Guatemala, lots of nice people will be willing to carry you up the stairs… But that’s not the point. A recent conversation with Alan Tenenbaum, a disability inclusion advocate based in Guatemala, offered me that perspective. Tenenbaum, who became a quadriplegic after suffering a spinal cord injury in his late twenties, focuses his work on the Latin American country. Those looking to advance disability inclusion in Guatemala, like in most countries, have their work cut out for them. Countrywide, according to <a href="http://www.teamaroundthechild.com/images/stories/journal-pdfs/Guatemala.pdf">Team Around the Child</a>, less than two percent of Guatemalan adults with disabilities have work, most children with disabilities do not attend school, and only a small percentage of those in need of wheelchairs have one. To date, according to a <a href="http://www.trickleup.org/media/publications/upload/Disability-Poverty-Livelihoods-Guidance-from-Trickle-Up-small-file-2.pdf">recent paper</a> from Trickle Up, most efforts to advance disability inclusion in Guatemala have been limited to urban areas – even though 50 percent of the country’s population resides in rural areas, where economic opportunities are harder to come by.

I sat down with Tenenbaum to get a sense for progress made and challenges still present in Guatemala for persons with disabilities (PwDs). Since his injury, Tenenbaum wrote a book sharing his story, <a href="http://www.amazon.com/En-Silla-Morfeo-Spanish-Edition/dp/9929403892">En la Silla de Morfeo</a> (On Morpheus' Chair), started and led a foundation, <a href="http://www.alantenenbaumw.com/#!fundacion/c1jz6">Sigue Avanzando</a>, and has regularly given speeches for schools, universities, news outlets, and private companies. At the heart of these efforts is what he identifies as the biggest barrier to disability inclusion: public awareness.

In Guatemala, and in most Latin American countries, Tenenbaum says, “I want to think that [disability inclusion] is not a matter of immorality, but of ignorance. I believe that here you become aware of the exclusion only when you or someone very close to you has a disability. When you live with it, then you realize how bad and overdue our countries are with this subject.”

Globally, about 15 percent of people have a disability, according to the World Health Organization, making this the largest vulnerable population in the world. Within this group, 82 percent live in developing countries and 20 percent live in extreme poverty.

Tenenbaum’s foundation, among the groups in Guatemala working to combat these statistics, focuses specifically on those with spinal cord injuries and those in wheelchairs. Sigue Avanzando provides educational resources, organizes sports and community-building activities, advocates for infrastructure changes, and works to build public awareness.

Another Guatemala-based organization, <a href="http://transitionsfoundation.org/index.php">Transitions</a> runs a wheelchair manufacturing workshop that’s staffed entirely by individuals in wheelchairs. The chairs are custom made for their recipients and are given away free or for a nominal price. The organization offers education, healthcare, skills-based training, and assistance with social integration, as well.

As a reader of this blog, you’re likely aware of the potential of microfinance to ameliorate the intensifying cycle between disability and poverty. You might also know that current estimates indicate that less than one percent of microfinance clients around the world are PwDs. In Guatemala, for all potential client segments, there is huge room for growth in the microfinance market. According to the Global Findex, only 22 percent of adults, and only 13 percent of the bottom two quintiles of the economic pyramid, have a bank account at a formal financial institution.

CFI has worked with partner MFIs and organizations around the world to <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd">sound the call</a> for financial inclusion for PwDs, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/603-making-microfinance-accessible-to-persons-with-disabilities-awareness-and-attitudes-among-indian-microfinance-institutions">identify issues</a> among providers that impede inclusivity, and <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd/framework-for-persons-with-disabilities">equip them with the tools and resources</a> to bring on PwDs as <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/josh_goldstein_keynote_uganda_11-14.pdf">viable</a> clients.

Between 2010 and 2013, Trickle Up developed and implemented an economic strengthening project for PwDs in Guatemala, applying an approach that combines grants, savings, and skills training. Their paper shares pitfalls and lessons from the project, and serves as a guide to encourage and assist other organizations in including PwDs in similar programs. Reflective of Guatemala’s needs, the project paid special attention to PwDs in rural areas.

Mobile money holds great potential for furthering inclusion in Guatemala. Although a small portion of the population is formally banked, and mobile money has <a href="http://cfi-blog.org/2014/09/22/adopting-digital-financial-services-in-guatemala/">yet to take off</a> in the country, mobile phone penetration is high: there are 8.8 million unique subscribers in the 15.5 million total population. Mobile money could help sidestep some of the logistical and transportation challenges of PwDs.

The general lack of awareness of disability inclusion is signaled in the parking lots of Guatemala. According to Tenenbaum, “Most establishments don’t even have handicap parking spaces. And if they do, they’re not made with the specifications needed. And if they are, someone without a disability parks there without caring!”

Though this all could be changing and very soon. Through my window to the disability inclusion movement at CFI, I’ve seen powerful momentum building in recent years. Our PwD inclusion work at CFI has gained <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd/">traction around the world</a>. Just last month, the UNDP released a policy paper, <a href="http://www.inclusivefinanceindia.org/uploads/news_attachments/20141213051342_pollicy-paper---financial-inclusion-of-excluded-segment.pdf">Financial Inclusion of Excluded Segments – Learning from Experience Delivery of Financial Services to Persons with Disabilities</a>, based on our work in India. And some of the biggest names in the development community – <a href="http://blog.brac.net/2014/07/inclusive-microfinance-putting-the-ability-into-disability/">like BRAC</a> – have also joined the fight.

Progress on exclusionary infrastructure should soon accelerate in Guatemala. According to Tenenbaum, construction companies were offered incentives to meet disability requirements in the past. But now those requirements have become law.

Image credit: <a href="https://www.flickr.com/photos/14843496@N02/5031042480/">Mario Bollini</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">A How-To Guide to Realizing Disability Inclusion at MFIs Is Now Available</a>

<a href="http://cfi-blog.org/2013/09/05/disability-inclusivity-and-the-smart-campaign-at-fundacion-paraguaya/" target="_blank">Disability Inclusivity and the Smart Campaign at Fundacion Paraguaya</a>

<a href="http://cfi-blog.org/2014/09/22/adopting-digital-financial-services-in-guatemala/" target="_blank">Adopting Digital Financial Services in Guatemala</a>

Guatemala Rolls Toward Disability Inclusion

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="109419838?et=wrMxf-Q2TRdxTBXqYCmUYg&amp;socialOnLoad=on&amp;sig=2LGi234vtYBMz1QZLFdV4uOsgtLMQyoJ2cNAMuCzQ3o=" width="594" height="394"]

Last week the Bangko Sentral ng Pilipinas (BSP) <a href="http://www.philstar.com/business/2014/12/05/1399185/microfinance-loans-continue-rise">announced</a> substantial increases throughout the country’s microfinance market: growth in the volume of loans dispersed to microentrepreneurs, in the number of microcredit institutions offering savings services, and in the return on equity of rural banks with microfinance operations. Concerning regulation and institutional support, the recently released <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/eiu_global_microscope_2014.pdf">2014 Global Microscope</a> found that the Philippines has the best environment in Asia for financial inclusion.

In 2014, loans extended to microentrepreneurs in the Philippines totaled <a href="http://www.philstar.com/business/2014/12/05/1399185/microfinance-loans-continue-rise">P9.3 billion</a> (US$209 million) as of June, according to figures reported by BSP Governor Amando M. Tetangco Jr. at the recent Citi Microentrepreneurship Awards in Manila – a roughly 7 percent increase over last year’s figure. On savings, in early 2012 only 22 banks in the country offered micro-deposit accounts. Now, 69 of the Philippines’ 183 banks with microcredit operations take deposits, with a total of 1.7 million micro-deposit accounts. Beyond credit and savings, <a href="http://www.interaksyon.com/business/100511/microfinance-shows-way-for-profitable-low-risk-banking-business-says-bangko-sentral" target="_blank">86</a> of the country’s institutions offering microcredit also provide microinsurance and 26 provide electronic banking services.

During his speech, <a href="http://www.philstar.com/business/2014/12/05/1399185/microfinance-loans-continue-rise">Tetangco said</a>, “It is clear microfinance has become a viable proposition for banks. In fact, we can say that microfinance as a medium for financial inclusion has strengthened the institutional stability of banks by generating reliable business opportunities.” Over the last four years, the return on equity of rural banks with microfinance operations was on average <a href="http://www.interaksyon.com/business/100511/microfinance-shows-way-for-profitable-low-risk-banking-business-says-bangko-sentral">three percent</a> higher than that of the rural banking sector as a whole. Additionally, the ratio of non-performing loans of rural lenders offering microfinance is now very slightly below the industry average.

The 2014 Global Microscope, the EIU’s annual examination and ranking of the inclusiveness of countries’ financial sectors, found the Philippines to be <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/eiu_global_microscope_2014.pdf">the best country in Asia</a> and the third best country in the world after Peru and Colombia. Tetangco <a href="http://www.gmanetwork.com/news/story/390866/economy/moneyandbanking/microfinance-key-to-financial-inclusion-in-phl-bangko-sentral-chief">highlighted</a> the country’s Microscope ranking, noting that the report singled out the Philippines’ highly capable regulator, credit regulation, and effective dispute-resolution mechanisms. Peru, Colombia, and the Philippines (with scores of 87, 85, and 79) ranked considerably higher than the next highest scoring countries, Chile, Mexico, and India (66, 61, and 61).

The Philippines’ financial inclusion efforts enjoy proactive leadership at the national government level. It was the first country in the world to establish an office dedicated to financial inclusion, the Inclusive Finance Advocacy Staff. The Philippines’ national financial inclusion strategy has specific goals and commitments, many of which have already been implemented, including financial education initiatives.

Much room for additional outreach remains, however, as only 27 percent of the adult population has a deposit account, according to the Global Findex. The archipelago country of 7,000 islands presents great physical challenges for reaching the unbanked. To date, the vast majority of financial services are concentrated in urban and semi-urban areas. New Findex figures are due out in the first half of 2015. That’s when we will be able to tell whether enabling policies are actually paying off in the form of rising inclusion.

For more on the Philippines’ financial inclusion environment, including additional challenges, read the <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/eiu_global_microscope_2014.pdf">2014 Global Microscope</a>.

Have you read?

<a href="http://cfi-blog.org/2013/07/16/savings-overtakes-loans-in-the-philippines/">Savings Overtakes Loans in the Philippines</a>

<a href="http://cfi-blog.org/2012/09/10/serving-persons-with-disabilities-in-the-philippines/">Serving Persons with Disabilities in the Philippines</a>

<a href="http://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/">The 'Global Microscope 2014': Results and Surprises</a>

Asia’s Top Country on Financial Inclusion Policy, the Philippines, Strengthens Its Microfinance Market

<img class="alignright" style="border:0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2011/08/disc-meter.jpg?w=300&amp;h=174" alt="" width="300" height="174" />&gt; Posted by Center Staff

This edition of top picks features posts highlighting initiatives to optimize smallholder finance data collection and usage, efforts to improve youth financial capability, and insights on how mobile money services can effectively reach women.

To better provide financing for the 450 million smallholder farmers around the world, there’s a big opportunity in developing shared knowledge bases and coordinated learning agendas for this topic area. A <a href="http://www.cgap.org/blog/filling-smallholder-household-data-gap-new-learning-agenda">new post</a> on the CGAP blog shares the work of Dalberg Global Development Advisors and the Initiative for Smallholder Finance to ascertain the state of the smallholder financing knowledge base and put in place a number of complementary tools so that those addressing this financing gap can work together, repurpose what others have already learned, and build off of the field's scarce resources to drive it forward. The post highlights a smallholder impact literature wiki, an interactive map of smallholder finance tools, a framework for data collection that includes a shared learning agenda, and new briefings offering supply and demand side insights as well as indications of where data is lacking.

How can children and youth become financially capable adults? A <a href="http://www.poverty-action.org/blog/how-can-children-and-youth-become-financially-capable-adults" target="_blank">new post</a> on the Innovations for Poverty Action (IPA) blog examines interventions that have been conducted to improve the financial capability and well-being of the younger client segment. In Uganda, a country with one of the highest primary school drop-out rates in the world, 81 percent of parents with children who have dropped out cite financial constraints as the reason. Youth finance to keep kids in school and support their overall betterment is not a new item on the financial inclusion and development agendas, and so efforts to date to improve capability have been varied and even tested in combination. The IPA post discusses promising results that have arisen from financial education and savings initiatives, and important next steps.

In Papua New Guinea, where roughly 15 percent of the population has access to formal financial services, the MiCash mobile money service boasts an impressively high gender balance among its clients: 38 percent are women. The service was launched by Nationwide Microbank in 2012 and has been met with relatively high uptake among the population. GSMA’s Mobile Money for the Unbanked blog is producing a series of posts that build on their recently released report Reaching Half of the Market: Women and Mobile Money, outlining takeaways from mobile money services that have been effective in reaching women. <a href="http://www.gsma.com/mobilefordevelopment/reaching-half-of-the-market-women-and-mobile-money-the-example-of-nationwide-microbank-in-png">This week’s post</a> on MiCash in Papua New Guinea includes insights on financial literacy, outreach, and partnerships.

Image credit: <a href="http://commons.wikimedia.org/wiki/User:Iainf" target="_blank">Ianf</a>

Smallholder Data, Youth Capability, Women and Mobile – Top Picks of the Microfinance Blogosphere

&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

Accion Global Advisory Solutions

Martin Burt

&gt; Posted by Lisa Kienzle, Director, Mobile Financial Services, Grameen Foundation

The following post was <a href="http://www.huffingtonpost.com/lisa-kienzle/savings-groups-mobile-pho_b_5695573.html" target="_blank">originally published</a> on the ImpactX blog of the Huffington Post.

[caption id="attachment_16086" align="aligncenter" width="490"]<img class="wp-image-16086 size-full" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/09/o-grameen-foundation-570.jpg" alt="" width="490" height="378" /> Women participating in paper prototyping for new mobile app in Uganda[/caption]

Women are the backbone of the household in Africa -- they manage the home, care for the children, are responsible for education and healthcare, and contribute to the household's livelihood. Helping women helps the entire family. However, women continue to lag men in participating in the formal economy, including accessing financial services.

The Problem: The Poor -- Especially Women -- Are Excluded From Financial Services.

For the rural poor -- especially women -- accessing formal financial services is nearly impossible. Few have formal identification needed to open an account; others lack a stable job or collateral needed for a loan. Often bank branches are far from a rural village, making the trip to deposit or borrow funds too expensive and time-consuming.

Many of the rural poor have taken up an approach to support saving and borrowing by forming Village Savings and Loan Associations (VSLAs). Under this approach, 25-30 members of a community form a group. This group meets weekly and saves a fixed amount -- at times, as little as 20 cents a week. The savings are lent out to members as loans. All money not lent out is stored by the group treasurer in a metal box secured with three locks and three keys, which are held by three separate key holders. It is, as some group members call it, the "Village Bank."

The Benefits And The Challenges Of The "Village Bank"

Group savings is wildly successful, with millions of individuals across Africa reporting themselves enrolled in VSLAs or other forms of savings groups. In Uganda alone, where Grameen Foundation works closely with savings groups, the FinScope 2013 survey revealed that nearly two in three adults save in some sort of group. Savings can yield big money over time -- by the end of a one-year cycle, some groups have thousands of U.S. dollars locked in the box.

The challenge, however, is that cash is risky, and the group's success can be tempting for local thieves who may target a treasurer's home. Storing these funds as cash also means that the group's rich transaction history is invisible to formal institutions that might be able to provide more services to groups if they had insight into transaction activity. While some banks offer formal products to groups -- like group savings accounts offered by Barclays' <a href="http://www.barclays.com/citizenship/citizenship-in-action/banking-on-change.html">Banking on Change</a> program -- many groups find that they are located too far from a bank branch.

Solving The Cash Challenge: Mobile Solutions

These issues -- the insecurity of cash, and the challenge in accessing cash-in/cash-out points like bank branches -- are issues that mobile money has been tackling across Africa for years. Mobile money allows individuals to deposit money on an electronic wallet (e-wallet) associated with their SIM card using their basic feature phone at any local agent location, which is often a shop in a local village. They can then send money to friends or family or transfer the funds to their bank account.

This infrastructure is already in place and could be used to help groups. The problem to-date, however, is that mobile financial services are tailored to individuals and secured by a single PIN number. For a group to feel secure depositing money into this virtual system, they need group-level security.

Grameen Foundation and Airtel, one of the leading mobile operators in Uganda, <a href="http://www.grameenfoundation.org/press-releases/airtel-uganda-grameen-foundation-and-plan-uganda-introduce-new-group-savings-produc-2">partnered to develop a solution</a> called Airtel Weza. This new wallet took the analog product -- a box with three locks -- and digitized it. The product features a three-PIN system requiring approval from three group members before funds could be removed from the group's account. To ensure that three members cannot collude, additional text messages are sent to other members in the group as well. Instead of a box for physical storage, funds are stored virtually. Instead of three locks, there are three PINs. The product was launched in the Kamuli region of Uganda earlier in August, and Airtel will continue expanding across the country in the coming months.

An Upside For Both Customers And Providers

The product serves a major social need for women involved in savings groups by giving them a safe place to store excess funds. It stimulates the local economy - <a href="http://www.gsma.com/mobilefordevelopment/gsma-women-mobile-a-global-opportunity">over 40 percent of women report</a> that having access to a phone provides greater access to income-generating opportunities. However, attracting women to mobile services is not just a local good; it is also a boon for mobile operators and financial institutions. According to <a href="http://www.gsma.com/mobilefordevelopment/programmes/mwomen/the-mwomen-opportunity">research by the GSMA mWomen team</a>, 21 percent fewer women than men own mobile phones in middle and low-income countries. This translates into a gender gap of 300 million women and a revenue loss of $13 billion for operators. For banks, individual small savers and borrowers can be too costly to serve; offering group products provides an efficient way to serve the poor.

Developing products tailored for this market, such as products tailored for women-dominated savings groups, helps operators reach out with an offer that resonates and encourages uptake. For women, it is an important opportunity to start participating in the formal sector through the use of mobile financial services and to start slowly closing the gender gap.

Have you read?

<a href="http://cfi-blog.org/2013/05/01/deep-outreach-financial-inclusion-savings-groups-for-those-microfinance-cant-reach/" target="_blank">Deep Outreach Financial Inclusion: Savings Groups for Those Microfinance Can't Reach</a>

<a href="http://cfi-blog.org/2013/01/30/savings-groups-and-the-mdgs/" target="_blank">Savings Groups and the MGDs</a>

'<a href="http://cfi-blog.org/2014/07/28/mobile-money-sprinters-adapt-to-local-conditions-in-pakistan-somaliland-and-zimbabwe/" target="_blank">Mobile Money Sprinters' Adapt to Local Conditions in Pakistan, Somaliland, and Zimbabwe</a>

Savings Groups, Mobile Phones, and a New Solution for Rural Women

&gt; Posted by Joshua Goldstein, Principal Director for Economic Citizenship &amp; Disability Inclusion, CFI

<a href="http://www.flickr.com/photos/30827726@N05/6443373679/"><img class="aligncenter wp-image-14900" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/6443373679_40512f2f5c_z.jpg" alt="" width="580" height="435" /></a>It has always been my unexamined belief that as economies mature the so called “informal sector” will shrink and with it the microfinance market. Sometimes unexamined beliefs based on instinct or intuition turn out to be right when subject to a fact-rich inquiry. But not this time. Upon investigating I uncovered growth trends in the informal sector and in urbanization, suggesting a refocusing for microfinance.

The informal sector is <a href="http://www.oecd.org/development/povertyreduction/43280700.pdf">growing everywhere in the world</a>. This segment of the economy, though its definition varies, includes activities of the working poor that are unrecognized, unrecorded, unprotected, or unregulated by public authorities. In more developed countries, also considered part of the informal economy are employment positions that have <a href="http://www.ilo.org/dyn/infoecon/docs/441/F596332090/women%20and%20men%20stat%20picture.pdf">tenuous connections between the worker and formal structures</a> and few, if any, labor rights or benefits. Globally, estimates for the total informal economy vary between <a href="http://www.cgap.org/sites/default/files/FocusNote-Financial-Inclusion-and-Development-April-2014.pdf">50 and 60 percent</a> of the world’s population. According to Gallup’s 2012 World Survey, only about 40 percent of adults around the world, across all countries and income groups, have a fixed income for over 30 hours per week.

In India, when looking at the non-agricultural sector, <a href="http://www.thehindubusinessline.com/opinion/columns/c-p-chandrasekhar/india-still-a-vast-informal-economy/article5282078.ece">71 percent</a> of workers in rural areas and 67 percent of workers in urban areas are operating in the informal economy. Some poor countries have informal economies that include over 80 and even 90 percent of the population. Not surprisingly, self-employed women make up the <a href="http://blogs.state.gov/stories/2012/05/17/decent-work-informal-sector-workers#sthash.3cdzCes0.dpuf">majority</a> of informal sector workers. Much of informal work is done from the home.

In wealthier nations where formal sector employment and its benefits have been more the rule than the exception, the environment is changing. In France, for example, <a href="http://home.windstream.net/bsundquist1/ie.html#B2">86 percent</a> of new hires are temporary workers. In Japan, the percentage of temporary staff is about <a href="http://www.lexology.com/library/detail.aspx?g=41dd48d3-7af8-4cc0-8972-92971050569c">38 percent</a>, with more than half of the female working population holding such positions.

A backdrop to this growth is the rise of urbanization. The urban population in the developing world is expected to nearly double in size between 2000 and 2025, <a href="http://home.windstream.net/bsundquist1/ie.html">from almost 2 billion to more than 3.5 billion</a>. It is projected to surpass the rural population by 2020. Conversely, the rural population in developing countries is projected to stop growing after 2020, at about 3.1 billion. About 90 percent of the world’s population growth out to 2025 is expected to come from urban areas in developing countries. Beyond these forecasts, the urban population and urbanization are expected to continue increasing.

The implications of urban informality for the microfinance industry are self-evident: the services microfinance offers will continue to be relevant and their market will grow.  MFI strategic plans should factor in an ever growing urban client base and the proportional shrinking of the rural one. If this happens, how might the industry landscape reshape? Investors in regulated institutions will surely be happy that densely populated cities mean lower operational costs and therefore higher margins than in rural areas. But if such dense client bases are available, perhaps this wealth could be leveraged to enable institutions to expand service for the harder to reach rural clients. Through the changes, it will remain essential that the industry strives to adequately serve both urban and rural client segments.

Image credit: <a href="http://www.flickr.com/photos/30827726@N05/6443373679/" target="_blank">uusc4all</a>
Have you read?
<a href="http://cfi-blog.org/2012/01/09/financial-inclusion-by-2020-five-global-trends-that-will-shape-the-answer/" target="_blank">Financial Inclusion by 2020? Five Global Trends that Will Shape the Answer</a>
<a href="http://cfi-blog.org/2013/02/15/microfinance-for-housing-in-africas-cities/" target="_blank">Microfinance for Housing in Africa's Cities</a>
<a href="http://cfi-blog.org/2012/04/12/taxes-necessary-evil-or-blessing-in-disguise/" target="_blank">Taxes - Necessary Evil or Blessing in Disguise?</a>

Urbanization, the Informal Economy, and Microfinance

Elisabeth Rhyne

&gt; Posted by Elisabeth Rhyne, Managing Director, CFI
<a href="http://microlinks.org/studying-past-looking-future-pisces-project-helping-small-enterprises-swim-upstream"><img class="aligncenter wp-image-14829" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/final_header_file_2.jpg" alt="" width="620" height="289" /></a>
The following post was <a style="color:#4e87a0" href="http://www.microlinks.org/studying-past-looking-future-pisces-project-helping-small-enterprises-swim-upstream" target="_blank">originally published on USAID's microlinks</a>.
Elisabeth Rhyne joined USAID shortly after the seminal PISCES (Program of Investment in the Small Capital Enterprise Sector) studies were completed in the 1980s. From 1994 to 1998, she was the Director of USAID’s Office of Microenterprise Development, where she developed and led USAID's Microenterprise Initiative.
The breakthrough innovations that sparked the birth of microenterprise credit in Latin America occurred in the early 1980s, and USAID was very much the driving force. Through PISCES, the Program for Investment in the Small Capital Enterprise Sector, operational from 1979 to 1985, USAID and its partner organizations began to discover the principles of success for lending to the poor, opening the way for the microfinance industry.

To understand the origins of this microfinance strategy, it helps to visualize PISCES at a time when three streams of thought came together. First was the "Spring Review" on directed agricultural credit carried out by the rural finance gurus of Ohio State University, Dale Adams and Claudio Gonzalez Vega, with J.D. von Pischke of the World Bank. Their work revealed the waste and dysfunction of subsidized agricultural credit doled out by bankrupt government credit banks. These banks were swallowing hundreds of millions of development dollars annually. The Ohio State team’s manifesto was that financial institutions must make credit decisions based on risk assessments, not politics, and charge interest rates that would allow operations to be sustainable. That review launched a gradual shift by USAID, the World Bank, and other aid agencies away from public development banks. But, if public development banks were sidelined, who would serve the poor?

At the same time research mainly by the International Labor Organization (ILO) revealed the importance of the “informal sector,” small-scale businesses operated by low-income households. These were especially important in urban areas as a source of livelihood for a vast portion, and sometimes even the majority, of the poor in developing countries. (Why this was a revelation was a mystery to me – one has only to stroll through the poor areas of a developing country to see the scale of the informal sector.) The ILO’s work excited the interest of USAID’s Office of Urban Development. Michael Farbman and his colleagues there wanted to figure out how development organizations could assist the proprietors of small and microenterprises to improve their businesses and work their way out of poverty.

Finally, with the election of Ronald Reagan to the White House in 1981, USAID adopted a pro-private sector stance. Although the businesses of the informal sector were small, interest in them received a political boost from the Reagan Administration’s new team, as did experiments in supporting vehicles other than government to deliver services.

With all those ideas fermenting among the staff and partners of the Office of Urban Development, it was only natural to design an action research project to push insights toward practice. USAID charged three organizations to go forth and search the world for entities that were doing a good job in supporting the enterprise credit needs of the poor, and to identify success factors. Accion, the overall lead, was assigned to investigate organizations working in Latin America, the Development Group for Alternative Policies in Africa, and Partnership for Productivity in Asia.

This work bore fruit in Latin America, because it was through the work of PISCES that Accion began to learn what it needed to know to build successful microfinance institutions across the region. Jeff Ashe, Accion’s lead researcher, made the following fundamental observation, which set the stage:

Once it is recognized that business owners are the best qualified to decide how to use the credit provided and that business advice will be provided informally by other business owners in the community, the process of designing programs to assist existing micro-enterprises translates largely into how to provide the right amount of credit to the small business owners quickly and economically while ensuring that the loans are paid back promptly*.

With this perspective, Ashe identified organizations in several countries that made loans quickly and economically and that had high repayment rates. In El Salvador, FEDECCREDITO, a local NGO, made very small loans to solidarity groups of five to eight people. Using that methodology, it offered credit to 2,735 businesses in 18 months, vastly more than the usual few hundred beneficiaries of most programs – and with much higher repayment rates.

While writing up the results for the PISCES report, Ashe was busy inside Accion arguing for the solidarity group approach and urging the program to test the methodology on the ground. In PISCES II, he got the chance.

To read the rest of this post, visit <a href="http://www.microlinks.org/studying-past-looking-future-pisces-project-helping-small-enterprises-swim-upstream" target="_blank">microlinks</a>.

*“The Pisces Studies: Assisting the Smallest Economic Activities of the Urban Poor”, Michael Farbman, editor, USAID, 1981, p. 29.

Note: This blog post title was inspired by Galen Hull in <a href="http://books.google.com/books/about/Experiments_in_Small_and_Microenterprise.html?id=OkMDHQAACAAJ" target="_blank">Experiments in Small and Microenterprise Development</a>.
Have you read?
<a href="http://cfi-blog.org/2013/11/06/a-study-of-client-protection-practices-in-latin-america-and-the-caribbean/" target="_blank">A Study of Client Protection Practices in Latin America and the Caribbean</a>
<a href="http://cfi-blog.org/2013/07/22/clearing-the-path-to-financial-capability-in-latin-america/" target="_blank">Clearing the Path to Financial Capability in Latin America</a>
<a href="http://cfi-blog.org/2013/06/26/democratizing-data-to-increase-transparency-access-and-knowledge-for-the-new-generation-of-latin-americans/" target="_blank">Democratizing Data to Increase Transparency, Access, and Knowledge for the New Generation of Latin Americans</a>

The PISCES Project - Helping Small Enterprises Swim Upstream