As readers of CFI reports and blog posts, you’ve probably noticed that we’ve been paying a lot of attention to “<a href="https://www.centerforfinancialinclusion.org/getting-data-right">getting data right</a>” over the last few months. We aren’t just hitching our wagons to the latest tech news trends. Data breaches can and do have negative impacts for vulnerable, underserved populations in developing countries. Those seeking access to financial tools and products to improve their lives, whether it’s starting a family business or sending their children to school, need safe and reliable digital financial services, and many financial inclusion practitioners would greatly prefer to focus on growing their markets and not have to worry about cyberthreats.

In January, our Managing Director, <a href="https://www.centerforfinancialinclusion.org/bio/elisabeth-rhyne">Elisabeth Rhyne</a>, wrote about how <a href="https://www.centerforfinancialinclusion.org/consumer-harm-from-data-breaches-is-a-black-box">hard it is to find public information</a> documenting the consequences of data protection shortcomings, their frequency or severity.

Following up on that post, Andriana Moskovska, a tech blogger and contributor, sent us a detailed infographic that can help non-expert readers wrap their heads around the ways data breaches work and how many people they affect. The infographic documents the <a href="https://hostingtribunal.com/blog/biggest-data-breach-statistics/">biggest breaches</a> over the past few years – the tip of the iceberg in terms of the absolute number of incidents.

What does this mean for the future financial inclusion? Are laws and technologies adequate to contain the threats? How can we protect both financial service providers and their customers?

Check out the infographic below, which <a href="https://hostingtribunal.com/blog/biggest-data-breach-statistics/">originally appeared</a> on <a href="https://hostingtribunal.com/">Hosting Tribunal</a>, a website that reviews and ranks hosting sites and receives support from affiliate marketing. Let us know what you think!

<img class="wp-image-35345 size-full aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/05/infographic-data-breaches-1.png" alt="" width="990" height="24754" />

Infographic: “75 Records Compromised Every Second”

Challenges and Crises

Enabling Environment

Fraud

Blog Post

This virtual dialogue provides an opportunity for the <a href="/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship</a> (ABF) network and <a href="/about/what-we-do/fiec/">Financial Inclusion Equity Council</a> (FIEC) members to discuss the role disruptive technologies play in advancing financial inclusion. This dialogue will also provide opportunities for peer exchange on investment evaluation and which technology solutions have the potential to be the most disruptive.

Discussion Topics:
<ul>
 	<li>The theme of financial inclusion week is “getting inclusion right”. What role do disruptive technologies have in advancing that agenda?</li>
 	<li>What are the most innovative and disruptive technologies that you are seeing in the FI sector?</li>
 	<li>Are there technologies from other sector that we should be watching/following?</li>
 	<li>How can investors evaluate different technologies for financial inclusion? What criteria to you use to assess which technology solutions have the potential to be the most disruptive?</li>
</ul>
Featuring:
<ul>
 	<li>Wayne Hennessy-Barrett, CEO, 4G Capital, ABF Fellow</li>
 	<li>Ami Dalal, Managing Director, FINCA Ventures, FIEC Member</li>
</ul>
Moderator:
<ul>
 	<li><a href="/bio/danielle-piskadlo">Danielle Piskadlo</a>, Director, Investing in Inclusive Finance, CFI</li>
</ul>
&nbsp;

&nbsp;

Webinar: Disruptive Technologies Advancing Financial Inclusion

Africa Board Fellowship Program

Financial Inclusion Equity Council

Financial Inclusion Week

Equity Investing

Financial Service Providers

Financial Technology

Impact Investing

Trends

Webinar

<h1>Challenge</h1>
In emerging markets across Africa, microfinance institutions (MFIs) and other financial service providers (FSPs) play a critical role providing financial services to people who are unable to obtain traditional finance. Despite its important role, this sector in Africa faces enormous challenges. In 2013, our <a href="https://www.centerforfinancialinclusion.org/microfinance-banana-skins-2014-the-csfi-survey-of-microfinance-risk/">survey of African FSPs</a> revealed governance and risk management as the primary vulnerabilities in the sector. Weak governance and risky behavior also <a href="http://www.cgap.org/publications/growth-and-vulnerabilities-microfinance">played a role in microfinance crises</a> in Nicaragua, Morocco, Bosnia-Herzegovina, and Pakistan. CFI decided to commit to helping African FSPs focus on governance and risk—and not just individually, but at a sectoral level—to avoid this fate.
<h1>Navigating Obstacles</h1>
We quickly realized we would be starting nearly from scratch. The handful of existing governance resources on the market at the time comprised generic, one-off trainings or were geared to corporate participants. We knew that this kind of classroom-based, lecture-heavy, training was not an effective strategy for senior board members, whose time was valuable and who were often in positions of authority in other walks of life.

We wanted to create something meaningful and effective, tailor-made for FSPs, and delivered in a manner that would stick with participants so that they could lead their organizations and their industry to grow and prosper.

&nbsp;

Governance Peer Learning and Exchange Program Strengthens Financial Institutions in Africa

Mastercard Foundation

Sub-Saharan Africa

Governance

Microfinance Institutions

Risk Management

Case Study

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" />The following is part of an Africa Board Fellowship <a href="/series/abf-spotlight/">blog series</a> spotlighting the experiences of participants and reflections from industry experts.

In the previous blog in this series, we reframed external challenges as a “normal” part of doing business for financial service providers (FSPs) targeting the base of the pyramid. And based on insights from Africa Board Fellows, we looked at <a href="http://cfi-blog.org/2018/08/09/navigating-challenges-is-what-boards-are-all-about-part-1-anticipating-challenges/">specific ways board members can anticipate and even shape the challenging aspects of their operating environment</a>. However, while most boards have more potential for external influence than they often exercise, there are always external factors that cannot be controlled. Boards must also continually focus on reducing the FSP’s vulnerability and enhancing its resilience<img class=" wp-image-25794 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/31479737602_1ed7a2ba32_k.jpg" alt="31479737602_1ed7a2ba32_k" width="638" height="93" />
<h2>Reducing Vulnerability</h2>
Beyond external awareness and efforts to shape the operating environment, boards can direct their institutions to take internal steps to minimize exposure to external shocks and increase the FSP’s ability to withstand changes in the operating environment. These steps aim to secure adequate financial cushions and human resources to cope with shocks.
<ul>
 	<li>Strategic Planning: As part of strategic planning, the board should review external factors, including client demand, current and future market penetration of its own institution and competitors, and market saturation by area. The strategic plan should include multiple scenarios (e.g., conservative, base case, and optimistic) as well as short, medium and long-term targets. The plan should be reviewed and revised on a regular basis.</li>
 	<li>Capital Adequacy: Board members bear ultimate responsibility for ensuring that the institution’s capital and liquidity are adequate to surmount whatever disruptions can reasonably be anticipated, and – just as important – ensuring that management takes quick action to cut costs if capital starts eroding. Improvement in the economic environment is often just around the corner, but it can remain around the corner just long enough for the institution to become insolvent and fail. For regulated institutions, regulators set minimum capital adequacy and liquidity ratios, but this does not absolve directors from the responsibility to determine whether additional capital and liquidity would be prudent. Directors can work with management to evaluate how capital and liquidity will be affected in various scenarios.</li>
 	<li>Asset–Liability Management: Like any financial institution, FSPs are exposed to balance sheet mismatches, such as currency mismatches when borrowing in dollars or euros. While avoiding hard currency loans may not always be feasible, CEOs and board members should scrutinize foreign currency exposure carefully and limit it to levels that the institution can absorb if currency devaluation does occur. To prepare for currency fluctuations, Vision Fund Zambia’s board instituted a policy against foreign currency denominated borrowing, as CEO Nkosilathi Moyo describes in <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">this interview</a>. Passing foreign exchange risk on to clients by denominating loans in foreign currency is usually not an effective risk management technique, as most clients are even less able to absorb such risk than the FSP lender.</li>
 	<li>Staff Training and Incentives: As part of their fundamental responsibility for the viability of their institution, directors must closely scrutinize how management proposes to train and incentivize staff to ensure that they support strong operational procedures that appropriately retain and encourage staff. Staff knowledge and loyalty can be essential in a crisis situation.</li>
</ul>
<h2>Enhancing Resilience</h2>
[caption id="attachment_25799" align="alignright" width="226"]<img class="alignnone size-full wp-image-25799" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/paul-dileo.jpg" alt="Paul DiLeo" width="226" height="250" /> Paul DiLeo[/caption]

Inevitably, with all the best efforts and preparation, some external events cannot be avoided. But this doesn’t mean they cannot be planned for, even if they may take very different forms. Boards can be better prepared to recover from shocks if they take the following steps:
<ul>
 	<li>Board Composition and Training: Board self-evaluations should be performed on at least an annual basis to ensure the right skills are represented and to identify gaps. Any areas of improvement should be addressed by training, bringing in experts, and field visits to other institutions that have successfully dealt with relevant challenges and opportunities. Proactively taking these steps can help directors be more prepared for the unexpected.</li>
 	<li>Executive Committee of the Board: The ability to act quickly can be crucial to responding successfully to external shocks. Many boards have directors in far-flung locations, and it may be hard to assemble a quorum. Even when formal decisions are not required, the CEO and senior management will benefit from the counsel and insights of board members. Many boards designate a small executive committee, usually drawn from in-country directors, authorized to take decisions and provide counsel to management between meetings of the full board.\</li>
 	<li>Disaster Planning and Recovery: Board directors should ensure that contingency plans addressing a variety of common challenges are prepared and kept up to date. These will cover matters ranging from “phone trees” indicating who calls who to confirm staff safety and whereabouts in the event of a natural disaster or security threat, to secure offsite data backup and recovery to succession planning in the event of loss of a key manager. As Resi Janssen of FFSL South Sudan <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen_fssl.pdf">notes</a>, the first priority in a serious crisis is to ensure that staff are safe.</li>
</ul>
FSPs operate in dynamic environments where challenges and opportunities are constantly changing. Board directors with a good understanding of the institution’s strengths and weaknesses and a grasp on the operating environment play a crucial role in helping shape the environment over the medium term, and ensuring that the FSP and its management are resilient and prepared.

CFI is currently recruiting fellows for the next cohort of the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.

&nbsp;

&nbsp;

&nbsp;

Navigating Challenges Is What Boards Are All About – Part 2: Vulnerability and Resilience

Zambia

ABF Spotlight

Microfinance

Resilience

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.

Far from being “extraordinary and rare,” challenging environments are a “normal” part of business for financial service providers (FSPs) targeting low-income populations. We tend to think that external environment challenges are extraordinary events that cannot be predicted or are too varied and diverse to prepare for—and therefore are best confronted as they arise. What do currency devaluations, deteriorating security, political interference or regulatory upheavals have in common? Can we can plan for them all and prepare effective responses in advance? Do responses need to be tailored to each circumstance?

Through the <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellows program</a>, we have reviewed a wide sample of the external threats faced by the boards of FSPs in recent years in Africa and globally: economic fluctuations, currency devaluations, violence and instability, abruptly announced interest rate caps and capital requirements, natural disasters, terrorism—it’s a long and heterogeneous list.

<img class=" size-full wp-image-25776 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/31589334426_3111c44396_z.jpg" alt="31589334426_3111c44396_z" width="640" height="377" />

Despite this diversity, an engaged FSP – led by an active board – can often do quite a bit to shape and influence the operating environment or ready the institution to survive shocks. Preparing for and responding to crises, threats and opportunities is, in fact, a core responsibility of senior executives and board directors. Conversations with Africa Board Fellows demonstrate that boards can prepare by:
<ul>
 	<li>Anticipating and minimizing the likelihood of adverse external developments</li>
 	<li>Reducing the vulnerability of the institution to such shocks</li>
 	<li>Enhancing the resilience (ability to recover) of the institution to the situations it will inevitably face</li>
</ul>
We’ll tackle the first point on anticipating and minimizing shocks here. We’ll cover the last two points in our next post in this <a href="https://cfi-blog.org/tag/abf-blog-series/">series</a>.
<h3>Anticipating Challenges with an Ear to the Ground</h3>
<img class=" wp-image-25790 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/how-to-anticipate-changes-as-a-board-member.png" alt="how to anticipate changes as a board member" width="196" height="330" />The first step is to anticipate – and hence be prepared to mitigate – challenges. To do this, board directors must keep abreast of new entrants, potential disruptions, and promising opportunities in the marketplace. Directors cannot rely solely on management for this information. Instead, they should develop their own sources to supplement and confirm management’s view, such as by networking with industry observers and analysts–with management’s knowledge, of course. Locally based board members have an advantage in developing and maintaining such networks, which is one reason it is important to recruit qualified local directors. For example, finding and retaining qualified local directors has been a priority for FSSL South Sudan, given the ongoing political disturbances in the country that make it difficult to maintain continuity of leadership.
Talking frequently with FSP staff and clients is another way board directors can anticipate challenges. Frontline staff are in a position to report on competition, clients and local happenings. And it should go without saying – but always bears repeating – that clients can provide ground-level insight. Clients may reveal such things as their vulnerability to displacement in government raids on the informal sector or the inability to import goods. When ABF fellows from the Ivory Coast conducted client visits, these were some of the specific challenges about which they learned.

<h3>Getting Ahead of Operating Challenges with Active Participation</h3>
While they can never control the external environment, board members can help shape it to some degree through the following:
<ul>
 	<li>Create and participate in industry associations; promote and follow codes of conduct. Industry associations establish frameworks for fair practices and client protection and help facilitate self-regulation and compliance with governance and transparency requirements. An active industry association can also work closely with regulators and other government actors to help shape legislation, regulation and perceptions of the industry, which are all key features of the operating environment. Board directors should support and encourage management to devote time to nurturing strong associations – a medium term project – and engage directly with other FSP board directors to make this an industry priority. As one example, Barnabe Francois, CEO of Microcred Ivory Coast, <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/barnabe_francois_microcred.pdf">has been an active member of banking associations</a>, first in Madagascar and subsequently in Ivory Coast.</li>
 	<li>Develop relationships with regulators and government officials. To reinforce the efforts of industry associations, FSP management can also cultivate relationships with government officials to advocate and educate them (and the media) on operating environment challenges. Board directors, particularly well-regarded locally-based directors, can greatly enhance the effectiveness of such engagement. Or, like MicroCred Zimbabwe, the FSP can appoint an experienced bank regulator to the board (perhaps, a retired official or someone who worked in another country) who understands how regulatory bodies work and can connect on a peer-to-peer basis with regulators.</li>
 	<li>Build clients’ financial capability. An important aspect of an FSP’s risk management responsibilities is ensuring that clients use financial services responsibly and productively. Misunderstanding how financial services work can lead to multiple borrowing, or mismatched cash flows which often threaten clients’ ability to repay their loans. To ensure good value to clients and the long-term viability of the FSP, board directors should encourage management to include initiatives in strategic plans to help clients build their financial skills and practice good habits.</li>
</ul>
<ol>
 	<li style="list-style-type: none"></li>
</ol>
Such efforts can, over the medium term, reduce the likelihood that an FSP or the entire sector will face certain types of challenges and will help position providers to take advantage of new opportunities.

Stay tuned for the next blog in this series, which will highlight reducing an FSP’s vulnerability to external shocks, as well as enhancing resilience.
<h4>CFI is currently recruiting fellows for the next cohort of the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.</h4>
&nbsp;

&nbsp;

Navigating Challenges Is What Boards Are All About – Part 1: Anticipating Challenges

South Sudan

Zimbabwe

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.

In recent years, some African countries have experienced slower economic growth and less stability in their currencies. This deterioration in macroeconomic conditions has presented challenges for financial service providers (FSPs) seeking to serve the base of the pyramid and improve financial inclusion. Some ways macroeconomic conditions impact FSPs include:
<ul>
 	<li>Higher operational expenses (e.g., imported IT equipment and software; office leases and technical services invoiced in foreign currency)</li>
 	<li>Increase in non-performing loans as small businesses have had fewer growth opportunities</li>
 	<li>Higher cost of funds (both deposits and debt)</li>
 	<li>Reduced access to debt from international and local providers</li>
 	<li>Decrease in revenue or tighter margins</li>
</ul>
We're talking to <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> (ABF) alumni to share their experiences dealing with deteriorating macroeconomic conditions.

ABF alumnus Deji Fisho, Board Member of Fortis Microfinance Bank in Nigeria, provides insights into the implications for FSPs on the 2016 decision by the Central Bank of Nigeria to allow the exchange rate for the Naira to be market driven.

It affects a microfinance bank’s exposure to dollar loans. When the currency devalues, MFIs have to spend three times more Naira to keep money in dollars. But with the oil market crash, there weren’t even enough dollars coming in for repayments, so people have to go outside the bank to the black market to get dollars. In a currency devaluation situation like this, MFIs won’t have money to lend. The bigger banks borrow from the government and the smaller banks borrow from the bigger banks. So there is no trickle down to MFIs if the larger banks don’t have the cash.

Learn more in <a title="Deji_Fisho_Fortis MF Bank" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/deji_fisho_fortis-mf-bank.pdf">Deji's full interview</a>.

ABF Fellow Nkosilathi Moyo, CEO of VisionFund in Zambia, comments on how currency devaluations impact clients:

Some of our clients are traders, so they buy goods from Democratic Republic of Congo, South Africa and Tanzania. Devaluation meant that our clients had limited foreign currency to meet their business needs, resulting in default.

After the fluctuations, we revised our risk appetite statement to ensure that it is aligned with prevailing market conditions. For instance, the board made a decision that we should not contract any foreign currency denominated loans. Additionally, we reviewed our risk concentration to ensure we do not have too much focus on any one region or industry. For example, we are shifting some of our focus away from traders in the mine areas to smallholder farmers.

Read more in <a title="Nkosilathi _Moyo_VisionFund_Final" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">Nkosilathi's full interview</a>.

Regulators can sometimes respond to macroeconomic problems by imposing regulations designed to keep risks out of the financial sector. One response is to impose higher minimum capital requirements or higher reserve requirements. These may sometimes be imposed directly after a collapse of a similar type of financial entity due to a sudden bank run. Such restrictions can be debilitating for financial institutions, especially when they are imposed suddenly. Although meant to protect depositors, this type of regulation can push smaller FSPs out of the market.

In 2017, Mozambique recently faced challenges arising from multiple factors: political tensions and violent clashes, a debt scandal that resulted in the suspension of aid from key donors and endemic corruption. This affected macroeconomic variables, with a significant currency devaluation in 2016 and high inflation (15 percent) in 2017. These tough macroeconomic conditions led regulators to impose a higher minimum capital requirement on financial institutions. ABF Fellow Titos Macie, Socremo Board Chair, discusses the impact of that increase on the institution.

The deteriorating macroeconomic fundamentals, along with the non-performance of two major banks (one liquidated and one placed under the central bank administration), caused the central bank to increase minimum capital requirements. Initially, the central bank had indicated that the new capitalization requirements would be 500 million meticais, an increase from MZM 70 million, so the board made plans to meet that requirement within three years by not paying out shareholder dividends [and using] share premium and retained earnings to capitalize the bank. When the official decree was actually issued by the central bank, the capitalization requirement was much higher: MZM 1.7 billion (US $26 million). Facing this requirement, the board had little room for maneuver. It took a decision to downgrade Socremo from a full commercial banking license to a micro bank license. Socremo can still do almost all financial services, except for forex business.

<a title="Titos_Macie_Socremo" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/titos_macie_socremo.pdf">Titos' full interview</a> includes a discussion of the impact of currency devaluation on its clients. Accion discusses its recent investment in Socremo <a href="http://blogs.accion.org/features/plan-bring-small-businesses-in-mozambique-support/">here</a>.

Titos sums up how many FSPs operating in challenging macroeconomic and regulatory environments feel: We are surviving and looking at a better future.

CFI is currently recruiting fellows for the next cohort of the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.

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&nbsp;

&nbsp;

&nbsp;

&nbsp;

Dialogue With Africa Board Fellows: Navigating Challenging Macroeconomic Environments

Mozambique

Nigeria

Policy, Regulation and Government Initiatives

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="78" height="97" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.

&nbsp;

Few countries have escaped socio-political unrest, conflict or periods of crisis. As the consequences of such events can be severe for both financial service providers and their customers, it behooves every board and CEO to consider how they might prepare themselves to respond when the political environment around them deteriorates.

[caption id="attachment_25747" align="alignleft" width="169"]<img class=" size-full wp-image-25747 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/barnabe_francois-headshot-e1532552860511.png" alt="Barnabe_Francois Headshot" width="169" height="215" /> Barnabe Francois, ABF Fellow. Copyright Accion[/caption]

<a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> (ABF) alumnus Barnabe Francois, CEO of Microcred Ivory Coast, described a crisis his institution faced in early 2017 in which a range of events all struck at the same time:

“In January 2017 former soldiers demanded money from the government and violence erupted. At the same time, there were strikes within the public administration that lingered for three weeks. The timing could not have been worse, since the government had recently kicked out as many as 500 of our customers who were selling on the streets. This affected us tremendously. We had been in the process of addressing issues related to repayment when the political unrest escalated.”

The immediate effect was seen in Microcred’s portfolio at risk (PAR), which jumped from 3.8 percent in December 2016 to 5.1% in January 2017.Barnabe continues, “Since then, we have struggled to get back to our target PAR of 3 percent. As for our clients, some of them are still facing problems. Many lost all their goods because they had to flee the area when the government kicked them off the streets. I should also mention that there were some who were not affected by the unrest, but took advantage of the situation by claiming they were impacted and refusing to pay.”

The board was very concerned when this happened, and increased its attention to PAR targets. “We had a high concentration of clients in one particular area. This prompted me to start an expansion plan and we have opened new branches in other areas in order to have a more diversified portfolio.” <a title="Barnabe_Francois_Microcred" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/barnabe_francois_microcred.pdf">Barnabe's full interview</a> goes into greater detail about lessons learned from ABF in navigating these challenges.

[caption id="attachment_25746" align="alignright" width="206"]<img class="alignnone size-full wp-image-25746" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen.png" alt="Resi Janssen Headshot" width="206" height="237" /> Resi Janssen, ABF Fellow. Copyright Accion[/caption]

ABF Fellow Resi Janssen, Board Chair of Finance, South Sudan Limited (FSSL) faced a more extreme situation due to political and economic chaos in South Sudan. Violence made it dangerous for many clients and staff, and at the same time South Sudan’s economy was hit with devaluation and inflation, making the currency nearly worthless. One predictable response was flight, as Resi explains:

“In July 2016, some staff in one branch fled to Uganda and did not come back. Due to devaluation and inflation, the salaries of staff in terms of US dollars diminished some 25 times. We doubled the basic salary in January 2017, but this was still far from enough to earn a decent living…

Several clients lost properties. Businesses were looted (some tens, not hundreds). Because of the conflict, a few hundred clients fled to northern Uganda and DRC.”

In her <a title="Resi_Janssen_FSSL" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen_fssl.pdf">full interview</a>, Resi offers the following concrete advice for MFI board members on how to support staff and clients during periods of unrest:
<ul>
 	<li>Make sure staff is safe.</li>
 	<li>Have a contingency plan, and make sure everyone is aware of the content. Staff need to know it.</li>
 	<li>Have as few costs as possible in foreign currency. Conflicts always cause devaluation.</li>
 	<li>Have as few expatriate staff as possible. They evacuate in times of crises and are too expensive.</li>
 	<li>Have offices in relatively safe areas, although “safe” can change quickly.</li>
 	<li>Have savings insurance.</li>
 	<li>Ensure some local board members who are committed, qualified, have authority to make decisions, and are not likely to go abroad.</li>
 	<li>Be in close contact with staff—at least weekly visits or calls with the CEO and monthly board meetings.</li>
</ul>
The services of financial institutions can be especially important for clients during difficult times. A wide range of financial services can support people at the base of the pyramid and small businesses to weather shocks from deteriorating economic conditions and social unrest. This underlines the need for financial institutions and their boards to anticipate and prepare to navigate challenging contexts. With the <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>, we strive to strengthen the capacity of financial institutions at the executive level so they can do just that.

&nbsp;

Financial Institutions in Times of Political and Social Unrest: Thoughts from Africa Board Fellows

Uganda

The recent <a href="https://www.nbcnews.com/tech/security/massive-equifax-data-breach-could-impact-half-u-s-population-n799686">security breach of credit reporting agency Equifax</a> exposed birth dates, social security numbers and credit card information of up to 143 million consumers. The hackers will likely sell this personal information which could result in financial and medical identity left, and fraudulent credit card activity and tax reporting, along with a slew of other activities. Earlier this week <a href="https://www.nytimes.com/2017/09/26/business/equifax-ceo.html?mcubz=3">Equifax announced</a> their CEO, Richard Smith will be retiring and could walk away with $18 million in pension benefits. The Massachusetts Attorney General, Maura Healey <a href="http://www.npr.org/2017/09/14/550949718/after-equifax-data-breach-consumers-are-largely-on-their-own">called it</a> “the most brazen failure to protect consumer data we have ever seen.” As a result, the Federal Trade Commission, members of Congress and multiple states’ authorities are looking into criminal investigations. However, the burden of this breach will fall primarily on individual consumers to ensure they are protected, and only <a href="https://qz.com/1079138/whats-the-worst-that-can-happen-with-the-equifax-breach-a-lot-especially-if-youre-poor/">10 percent</a> of the potential 143 million affected have even checked the Equifax site to see if their information was compromised. (You can check to see if you may have been impacted <a href="https://www.equifaxsecurity2017.com/am-i-impacted/">here</a>.)

The precautionary recommendations put forth have been to: 1. Check your credit score regularly (which can only be done for free once a year); 2. Freeze your credit; and 3. Purchase credit monitoring services. (Freezing your credit means establishing a “lock” that prevents opening new forms of credit in your name, while monitoring your credit is the process of periodically reviewing your credit reports for accuracy and changes that might be the result of fraudulent activity.) The irony of these suggestions is that you have to rely on the three major credit bureaus (Equifax, Experian and TransUnion) to perform these consumer protection activities. How can we know we are safe from fraud when our recourse requires trusting the entities that have been compromised? What’s more, why should we pay additional fees to correct the credit bureau’s mistake?

The Equifax breach affects consumers at all levels of the socioeconomic landscape, and unfortunately those with fewer financial resources and capability will be affected the most. Correcting identity theft can be a time consuming and financially burdensome endeavor. For many it is challenging to come up with emergency cash to cover legal fees to prove identity theft or restore credit, recover stolen assets and pay for additional credit monitoring services. And sadly, we haven’t seen strong consumer protection support on behalf of the credit bureaus and formal financial service providers in the wake of this breach -- support like educating the public about monitoring credit, providing more than one free credit report annually or offering free/discounted credit monitoring for more than one year. Thomas Hinton, CEO of the consumer advocacy non-profit American Consumer Council, <a href="https://qz.com/1079138/whats-the-worst-that-can-happen-with-the-equifax-breach-a-lot-especially-if-youre-poor/">said</a> he “is deeply concerned that Equifax – and all credit reporting companies – are not doing enough in a timely manner to protect under-served consumers who have been victimized by this data breach and stand to suffer the most.”

Such massive security breaches erode the public’s trust in the financial system, particularly among the unbanked already skeptical of entering the formal financial fold. The <a href="http://www.usfinancialdiaries.org/issue">U.S. Financial Dairies</a> showed that many Americans don’t trust the financial system because of unexpected bank fees – like overdraft fees – and because banks provide little or no social support, which many people get with informal group lending and savings options.

This isn’t the first major data breach in U.S. history and it won’t be the last. Last year when Yahoo was in negotiations to be bought by Verizon, it came out that <a href="https://www.csoonline.com/article/2130877/data-breach/the-16-biggest-data-breaches-of-the-21st-century.html">1.5 billion</a> user accounts were compromised between 2013 and 2014. And we can’t forget the 2013 Target breach that compromised credit/debit card and contact information of up to <a href="https://www.csoonline.com/article/2130877/data-breach/the-16-biggest-data-breaches-of-the-21st-century.html">110 million</a> customers.

So, what can be done? How can anyone feel comfortable about the protection of personal information?

Financial service providers are looking to biometric data as a secure identification source for financial services. Over the past seven years, <a href="https://uidai.gov.in/about-uidai/about-uidai.html">the Unique Identification Authority of India (UIDAI)</a> has issued over <a href="https://uidai.gov.in/about-uidai/about-uidai.html">one billion</a> Unique Identification Numbers (UID), also known as Aadhaar numbers, which are verified and authenticated with biometric data via finger prints or iris scans. This identification system is a part of <a href="http://indiastack.org/about/">India Stack</a> that uses four distinct technology layers – including simplified payments addressing and interoperability – to provide digital financial services across governments and businesses in India.

The technology already exists to use finger print and facial scans to unlock our phones or log into personal banking apps, and there is even the potential of using <a href="https://www.wired.com/2016/03/biometrics-coming-along-serious-security-concerns/">ear scans and heart beat identification</a> as biometric identification sources. But so far biometric identification is fairly unregulated, some consider the security to not yet be airtight and there are additional privacy concerns with using bodily identifiers. Hackers are already finding ways to spoof biometric identification. Recently, the security firm Vkansee was able to <a href="https://www.wired.com/2016/03/biometrics-coming-along-serious-security-concerns/">break into Apple’s Touch ID system</a> with a small piece of play doh. But we will see rapid improvements in Apple’s security, particularly with the new iPhone X Face ID technology.

In the case of India’s Aadhaar scheme, there is robust opposition to the program, with concerns including the perceived ease of forging fingerprints, the program’s potentially inadequate digital security, and its ubiquity. Some opponents of the program believe that if the Aadhaar numbers are widely integrated and linked between previously-siloed databases, it expands the opportunity for citizen profiling and surveillance. In August, India’s Supreme Court <a href="https://www.theatlantic.com/technology/archive/2017/09/aadhaar-worlds-largest-biometric-database/538845/">issued a ruling</a> enshrining the fundamental right to privacy. The anti-Aadhaar movement in the country celebrated the ruling, asserting that the program is in conflict with this fundamental right. Soon the Supreme Court will indeed assess if Aadhaar does violate Indian citizen’s privacy rights.

Regardless of how our information is authenticated, it is becoming increasingly important for consumers to protect and regularly track their financial information. Consumers should be concerned about the potential threats and take appropriate action by checking their credit score and monitoring credit card activity. But we can also realize that, at least as of now, security breaches are mostly out of our hands.

Have you read?

<a href="https://cfi-blog.org/2017/05/01/how-secure-is-data-used-in-digital-credit/">How Secure Is Data Used in Digital Credit?</a>

<a href="https://cfi-blog.org/2017/05/05/demonetization-brought-out-the-best-in-indian-microfinance-clients/">Demonetization Brought Out the Best in Indian Microfinance Clients</a>

<a href="https://cfi-blog.org/2017/06/28/why-do-privacy-policies-matter-for-digital-credit/">Why Do Privacy Policies Matter for Digital Credit?</a>

&nbsp;

In the Wake of the Equifax Breach, Are Biometrics the Answer?

India

North America

South Asia

United States

Consumer Protection

Credit Provision

Privacy

&gt; Posted by Ira W. Lieberman, Todd A. Watkins, and Anna Kanze

<img class="alignright wp-image-23576" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/05/eb-accion_march-2011_kiki-flavien_fisherman_72-1.jpg" alt="" width="330" height="220" />We’ve identified the problem: Microfinance is no longer sexy. It’s old news. It can’t deliver “impact,” and its effect on alleviating poverty was oversold and has underwhelmed. It’s well and good to offer working capital loans, but at the end of the day, the poor need education, health care, water for drinking and irrigation, roofs, and electricity together with a wide variety of financial services. It’s time for investors seeking real innovation to move on to the next big thing that will transform the lives of poor people and save our planet. Never mind microfinance’s decades-long track record of listening to the poor and underserved clients and effectively developing products and services based on their needs.

Of course, we issue these statements with considerable sarcasm. But, all joking aside, industry trends and shifting sentiments are presenting investors with a real question: Should they abandon the reliable and successful platforms and infrastructure that microfinance institutions (MFIs) have built? In turn, MFIs are saddled with the question of whether to stick to what they know best, or instead, to use their platforms to deliver expanded product offerings that increase access to other essential services.

These were among the questions regarding the future of microfinance addressed by 32 microfinance and impact investing participants and analysts from around the world who convened last month, hosted by <a href="http://cbe.lehigh.edu/martindale">Lehigh University’s Martindale Center</a>, and sponsored by the <a href="http://calmeadow.com/">Calmeadow Foundation</a> and the <a href="http://fiecouncil.com/">Financial Inclusion Equity Council</a> (of which CFI is the secretariat).

In those discussions, there was wide agreement that even as MFIs have commercialized and scaled, they've listened to their clients. MFIs have hard-earned advantages in accessing the poor, understanding their needs, and serving as distributors. The path forward is clear: a wider array of services is beneficial to clients, and product diversification remains the siren call of future growth and profitability.

But that widening diversification, while long anticipated, has for the most part been sluggish. Though product data is scarce, services beyond working capital loans and savings products remain a stubbornly small percent of portfolios of large MFIs – no more than 10 to 15 percent. Microinsurance also has enormous growth potential for MFIs, either in partnership or directly, to address the needs of the underserved: the demand is huge, as the vast majority of poor people still lacks access, and commercial insurers tend to be short of good delivery channels to reach most low-income informal sector markets. However, uptake of microinsurance still remains slow.

In short, the waves of diversification into multiple products notwithstanding, microfinance remains at core, credit. A key challenge for the industry, as the conversations at Lehigh highlighted, is that impact investors are gravitating to new opportunities well beyond financial services. They don’t necessarily see MFIs as key to impact investing, yet they struggle with scaling-up in other sectors (alternative energy is a notable exception), due to the lack of sustainable, i.e. investible, institutions. The opportunities are an appetizing smorgasbord: health care, education, affordable housing, solar energy, irrigation for small farmers, potable water, agricultural value chains, and so forth. But none of these match the financial intermediation skill sets of MFIs. What’s more, microfinance and the broader financial inclusion industry remain the largest target of impact investors, by assets under management, in annual investor surveys.

But can MFIs succeed as impact players outside of their core microlending and savings businesses? A few examples give hope.
<ul>
 	<li>Equity Bank in Kenya actively supports education, including through capital improvement and equipment loans for schools, handling payroll for teachers, and special savings accounts for paying school fees.</li>
 	<li>BRAC in Bangladesh offers a wide array of client services, run as separate businesses from their huge microfinance business. Among other services, BRAC operates thousands of primary schools for girls, a (stock-exchange listed) bank targeting small businesses, and advisory services for entrepreneurs.</li>
 	<li>Pro Mujer offers health care screening and other health care assistance, largely subsidized by their MFI operations.</li>
 	<li>Higher Education Finance Fund (HEFF), managed by OMTRIX, Inc. in Costa Rica, has financed MFIs throughout Central and South America to develop higher education loans for students. HEFF needed to provide significant technical assistance to its MFIs for product development and marketing to get education loans off the ground.</li>
 	<li>Caspian Impact Investment Advisers, a private impact fund manager focused on socially responsible businesses in India, helped develop the nascent affordable housing market in India by making investments in affordable housing providers as well as by supporting the microfinance institutions in their portfolio, like Equitas and Ujjivan, to expand into housing loans.</li>
 	<li>Pamiga Association, which provides technical assistance and financing to a network of 12 rural MFIs in East and West Africa, offers loans through its finance company to its network MFIs for solar energy and water for irrigation. Over the past few years, it has become clear that to do so successfully Pamiga will also need to offer financing to SMEs that can go the “last mile” and install, maintain, and offer installment payment systems (pay-go) to their clients.</li>
</ul>
There is clearly no one way to address product diversification. Subsidies, commonly seen as anathema to “investing”, may be necessary in the initial stages to incubate product offerings till they become sustainable. If investors and donors push to expand impact investing beyond alternative energy and microfinance, whether in education, health care, housing, or agricultural value chains, they will need viable institutions with adequate capacity to do so. A main lesson from microfinance is that targeted subsidies are a good way to build such institutional capacity. For those MFIs with the institutional capacity and financial sustainability to get there, targeted donor subsidies for technical assistance to build capacity for product diversification within the MFIs makes good sense. At the same time, there remains a need for like-minded investors to continue supporting successful microfinance business models because they have a proven track record and an unparalleled understanding of the needs of the poor and disenfranchised populations they serve.

The next post in this series will explore digital financial services.

Dr. Ira Lieberman is President of LIPAM International. Todd A. Watkins is Professor of Economics, and Executive Director of the Martindale Center for the Study of Private Enterprise at Lehigh University. Anna Kanze is an Investment Manager at Grassroots Capital Management, PBC. 

Also check out the other blogs in this series: “<a href="https://cfi-blog.org/2017/04/20/microfinance-is-dead-long-live-microfinance/">Microfinance Is Dead; Long Live Microfinance!</a>” and “<a href="https://cfi-blog.org/2017/04/27/time-to-ditch-impact-investings-unproductive-self-analysis/">Time to Ditch Impact Investing’s Unproductive Self-Analysis</a>”

For video recordings of the Martindale Center event discussions, <a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_6gzZfFsSeOrSqntz90KSNR">click here</a>.

Image credit: Accion

Have you read?

<a href="https://cfi-blog.org/2013/03/20/four-challenges-for-impact-investing/">Four Challenges for Impact Investing</a>

<a href="https://cfi-blog.org/2017/03/22/how-water-org-took-a-leap-of-faith-into-social-impact-investing/">How Water.org ‘Took a Leap of Faith’ into Social Impact Investing</a>

<a href="https://cfi-blog.org/2016/11/29/what-to-consider-when-investing-in-green-microfinance/">What to Consider When Investing in "Green" Microfinance</a>

&nbsp;

Can MFIs Deliver What Poor People Need?

Credit

&gt; Posted by Jami Solli, Independent Consultant and Founder of the Global Alliance for Legal Aid

[caption id="attachment_23223" align="aligncenter" width="615"]<a href="http://www.consumersinternational.org/our-work/wcrd/wcrd-2017/"><img class="wp-image-23223" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/03/wcrd1.jpg" alt="" width="615" height="401" /></a> Click here for Consumer International's interactive map of global WCRD activities[/caption]

Happy <a href="http://www.consumersinternational.org/our-work/wcrd/">World Consumer Rights Day</a> (WCRD)! Every year on March 15 WCRD serves as an opportunity to promote the basic rights of all consumers and as a chance to protest against the market abuses and social injustices which undermine those rights. The theme for this year is 'Building a Digital World Consumers Can Trust’. The following post spotlights the increasing need for regulatory attention on online financial frauds.

No country in the world is free of financial fraud. And, every nation seems to have its own Bernie Madoff. Yet, Madoff’s $50 billion did not do systemic damage to the U.S. financial system, nor did it harm financial inclusion efforts in America. Unfortunately, when ponzis occur in developing countries, they do cause systemic risk and untold damage to financial inclusion efforts.

For example, Albania was plagued by ponzi schemes during the 1990s, and funds stolen were estimated to be worth <a href="https://www.imf.org/external/pubs/ft/wp/2009/wp0995.pdf">79 percent</a> of the country’s GDP. When these schemes in Albania collapsed, so did the existing government, causing civil unrest. Other regions have also experienced financial frauds worth significant portions of their countries’ GDPs. In 2008-09, an estimated 12-25 percent of Jamaica’s GDP was stolen, and in the little island nation of Grenada, the SGL Holdings scam netted 5 percent of the country’s GDP.

Often, these scams take the form of ponzi, pyramid, or even multi-level marketing frauds (MLM). Ponzi schemes are characterized by investors getting paid via new capital paid to the scheme's operators by new investors instead of from profit earned through legitimate sources. Pyramid schemes focus on payments to participants for recruiting others to join the scheme rather than for the sale of products or services. MLM frauds are a pyramid-shaped scheme, deemed in some cases as actual pyramid schemes, with this same emphasis on participant payment for recruitment rather than for sales. There are a variety of names and unique fraud ‘methodologies,’ but the common denominator in all of these scams is that there is no real, underlying business.

Largely speaking no one is selling a product or a service. If you ask to see the companies’ books, that reality may become clear immediately. Profits are generated only because new investors are continually lured into participating, such that the new investors’ money is used to pay off the earlier investors. These schemes always promise great and unrealistic returns. Often, the promoter of the scheme is a well-liked, prominent member of the community. His victims are made to feel that they would be stupid to not get in on this deal early.  

However, when the pyramid grows so large that too few new investors can be found to pay off the older investors, the pyramid always crumbles. And, rarely do the victims get any of their funds returned. In the worst cases, a few participants have <a href="https://www.imf.org/external/pubs/ft/wp/2009/wp0995.pdf">committed suicide</a> following severe losses.

These crimes are preventable and stoppable, but currently regulators are not putting forth the effort to do so. The scams are increasing in volume and scope, and thanks in part to the internet, social networking, and mobile technologies, they’re increasingly going digital and hopping borders. Ponzi schemes were at the center of Ghana’s presidential election campaign this year, and demonstrated this trend of schemes border hopping and venue shopping. For example, the Mavrodi Mondial Movement (MMM) scheme, which originated in Russia in 1994 has been in almost continuous existence, operating in Bangladesh, Ghana, India, Kenya, and Nigeria, among other countries. In fact, consumers in Ghana were <a href="https://www.naij.com/1089245-mmm-ghana-will-ghanaians-lose-money.html">still investing</a> in MMM shortly after its collapse in neighboring Nigeria.

Yet the regulatory mechanisms to prevent these frauds and monitor markets are not keeping pace. Instead, regulators simply advise consumers to ‘beware.’ Unfortunately, vulnerable financial consumers are paying the price, and national financial inclusion efforts are thwarted as well, as a major fraud scheme can undermine trust in fraudulent and legitimate financial service providers alike. Certainly, more can and should be done to protect consumers.

Financial sector regulators cannot say they have not been warned. These frauds have been with us for centuries. However, as digital schemes, they are becoming even more virulent with the power to harm more consumers. Therefore, regulators need to step up their digital market monitoring efforts.

Because fake investment opportunities are usually unlicensed by financial sector regulators, this presents a few straightforward opportunities for regulators to make a difference. One such opportunity is for regulators to create an online system where consumers can search to see if the company, or promoted investment opportunity does indeed have a license and publicize it widely so consumers can conduct at least minimal due diligence. If regulators do not have the bandwidth to perform these tasks themselves, then they should outsource the work to a consumer protection organization.

A new collaborative preventative strategy is needed, capitalizing on the internet and the many eyes of consumer advocacy organizations, working in partnership with public authorities, including financial and telecommunications regulators. Consumer organizations could be trained to monitor financial markets to identify potential frauds and warn regulators who have the mandate to investigate and shut down unlicensed investment opportunities.

Regulators also need to work with consumer organizations to conduct outreach campaigns to educate consumers. Regulators should take a page from the con artists’ play book. Criminals use social networks and social events like church gatherings to sell their scams. They fund sports events and donate to charities. Regulators need to be present online as well as at these same physical venues with their message of how to spot a fraud, how to verify that an investment offer is licensed, and how to get in touch with regulators. If regulators cannot or will not do this, then they should fund consumer organizations to do the job for them.

Simply telling consumers caveat emptor with no further outreach or enforcement is a not acceptable. Regulators can empower consumers to be a part of the solution to financial frauds, including digital fraud.

Have you read?

<a href="https://cfi-blog.org/2014/03/12/helping-consumers-understand-their-digital-data-initial-experiences-from-tanzania/">Helping Consumers Understand Their Digital Data: Initial Experiences from Tanzania</a>

<a href="https://cfi-blog.org/2015/03/16/on-world-consumer-rights-day-the-right-to-financial-rehabilitation-for-the-over-indebted/">On World Consumer Rights Day: The Right to Financial Rehabilitation for the Over-Indebted</a>

<a href="https://cfi-blog.org/2016/09/28/fintechprotects-prioritizing-responsible-agent-management-at-oxigen/">#FintechProtects: Prioritizing Responsible Agent Management at Oxigen</a>

‘Buyer Beware’ Is Insufficient Fraud Protection

The Smart Campaign

Agent Banking

Digital Financial Services

Deborah Drake

Vice President, Investing in Inclusive Finance Program

Elisabeth Rhyne

Managing Director

Eric Noggle

Senior Research Director 

Andriana Moskovska

Anna Kanze

Daniel Balson

Danielle Piskadlo

Ezra Mannix

Jeffrey Riecke

Lizzy Bolze

Paul DiLeo

Azerbaijan

Benin

Bolivia

Europe and Central Asia

Nicaragua

Philippines

Access Usage Gap

Banks

Customer Centricity

Financial Capability

Financial Inclusion Strategy

Mobile Banking

Refugees and Migrants

Smart Certification

Underserved Groups

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.

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.

Jami Solli

&gt; Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, The Smart Campaign

The following is the second post in a four-part blog series on the financial inclusion of refugees and the internally displaced. The first post can be found <a href="https://cfi-blog.org/2016/09/20/financial-inclusion-of-refugees-an-introduction/">here</a>.

In 1992, sporadic clashes between ethnic Armenians and Azerbaijanis in the mountainous region of Nagorno Karabakh erupted into full scale war. By the time a ceasefire was reached two years later, the territory lay under Armenian control, and between 800,000 and 1 million Azerbaijanis were displaced from their homes. Since the end of hostilities, ethnic Azerbaijani internally displaced persons (IDPs) who fled from Armenian-controlled to Azerbaijani-controlled territory have continued to face difficulties accessing economic opportunity. However, a financial sector inclusive to IDPs is emerging, lessening these difficulties and demonstrating that IDPs can be a bankable client segment. 

First, it’s important to distinguish IDPs from refugees. Unlike refugees, IDPs have not crossed an international border when fleeing violence or disaster; they are likely to remain in the same (or similar) cultural, linguistic, religious, and political milieu as the one they fled. It is likely that their documentation and identity is still recognized by the relevant local authorities. Nonetheless, IDPs form a specifically vulnerable population. Across the world, the majority of IDPs continue to lag the rest of the population on most economic indicators. Globally, IDPs are frequently forced to rely on services from informal actors in the grey economy, particularly when the government is the cause of their original displacement. In Azerbaijan and elsewhere, many IDPs <a href="http://www.unhcr.org/protection/convention/4bd7edbd9/azerbaijan-analysis-gaps-protection-internally-displaced-persons-idps.html">rely on government or international assistance</a> for basic provisions and are unable to secure property rights to their government-provided homes. Children of internally displaced persons typically find their schooling interrupted.

To address the financial difficulties faced by the IDP population, the government registers internally displaced Azerbaijanis and provides them with housing and a modest stipend. Additionally, it has put forward numerous schemes to promote IDPs’ self-reliance. While the housing assistance has proved successful in helping alleviate IDP poverty, the economic development schemes have yielded limited results. Because rural IDPs reside in areas far from major towns and near the conflict zone, they face limited opportunities to participate in commerce or trade. Moreover, Azerbaijani IDPs are unable to gain access to the country’s most fertile land, which was claimed and farmed long before they were displaced. As a result, many Azerbaijani IDPs are concentrated in urban and semi-urban areas where arable land is scarce and of poor quality.

While the details of their displacements vary, the vast majority of Azerbaijani IDPs have very limited access to financial services. For the most part, major financial institutions in Azerbaijan consider investing in internally displaced persons to be a risky proposition.

Major financial institutions shy away from providing IDPs with financial products because they require very small loans that have historically been expensive to administer. Often, IDPs lack a permanent or stable income as well as property in their name to use as collateral. Many IDPs suffer serious disabilities that prevent them from working, a legacy of the mine fields circling the conflict area. IDPs disproportionately live in or around the conflict zone, and violent incidents are not uncommon. Basic sanitation and access to energy are often substandard. These challenging conditions take a toll on the population’s health and circumscribe their ability to grow a business. Moreover, financial institutions fear their efforts to enforce collections actions against internally displaced families would die in the courts.

With major financial organizations refusing to provide credit, a number of internationally-funded boutique microlenders have stepped in to fill the gap. Today, 16 percent of IDPs bank with microcredit organizations, compared to 3 percent of the Azerbaijani population as a whole. Using seed capital provided by international non-governmental and development organizations, institutions including Eurasia Credit, Caspian Invest, Caucasus Credit, and Azeristar Microfinance focus on providing small loans for IDPs.

These small financial firms quickly found that IDPs were not as risky as many had suggested. Prior to the recent devaluation of Azerbaijan’s currency, internally displaced clients demonstrated an outstanding recovery percentage – with 98 percent of loans repaid on time. While financial over-indebtedness is a common problem across the country, IDP clients were no more susceptible than other Azerbaijanis. As the price of oil fell and Azerbaijan’s central bank devalued the manat, IDP clients proved that, in some ways, they are the less risky demographic. Since IDPs typically take on far smaller loans, their credit was less likely to be dollarized, leaving them less susceptible to currency fluctuations.

As this Azerbaijani IDP market segment became established, participating financial institutions found that to stay competitive, they had to differentiate themselves by providing exceptional customer service and client protection. Financial organizations began hiring IDPs and training them to serve as branch managers, thereby providing the firm with an internal perspective on the trials and opportunities IDPs faced. By hiring and training community members, financial institutions quickly learned that to succeed, they needed to cultivate the talents of people who culturally knew the communities in which they operated.

Financial institutions serving IDPs in Azerbaijan quickly identified several policies and practices that could be implemented to protect this population. Even more than ordinary Azerbaijanis, IDPs require flexible loans. Given their perceived riskiness, the precariousness of their economic situation, and their limited assets, IDPs face higher interest rates. To compensate, financial organizations offer refugees more flexible products with a variety of repayment schedules and conditions. Agriculture loans are developed with especially accommodating terms to ensure vulnerable farmers are able to meet their obligations. And branches serving IDPs are typically given a greater degree of decision-making autonomy, allowing them to modify and adjust products based on the feedback they receive. Some branches are even empowered to adjust financial products to a particular customer’s needs (within certain bounds).

Readers familiar with <a href="http://smartcampaign.org/">the Smart Campaign</a> will see that the above strategies are closely tied to the <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">client protection principles</a>. Appropriate Product Design and Delivery, for example, ensures that providers take adequate care to design products and delivery channels so as not to cause clients harm and to take into account clients' unique characteristics. Fair and Respectful Treatment mandates non-discrimination. Mechanisms for Problem Resolution requires recourse mechanisms so that clients who wish to complain can do so and will have their complaints taken seriously and handled responsibly.

While these positive client protection approaches ameliorate the harm caused to Azerbaijani IDPs by financial institutions, IDPs remain a particularly vulnerable client segment. Even though they are unlikely to borrow dollarized loans, the country’s economic downturn, precipitated by a currency devaluation and falling commodity prices, hits them hardest nonetheless. In regions with large refugee populations, Portfolio at Risk has risen to 30 percent. When quizzed about refugees’ unique economic vulnerability, a representative of Azerbaijan’s microfinance association said, “It’s really simple. When Azerbaijan sneezes, the IDPs catch pneumonia.”

Far from being unreliable borrowers, Azerbaijani IDPs have catalyzed a diverse and active industry of microfinance institutions catering to their needs. IDPs have shown themselves willing and able to help their institutions serve them better both by providing feedback to and working with their creditors. Nonetheless, they remain an economically disadvantaged population, highly vulnerable to economic downturns and shut out of the best economic opportunities their country has to offer. If special care is not taken to understand their needs and protect their rights, they risk being left substantially worse off than their neighbors during times of economic trouble.

&nbsp;

Financial Inclusion of Refugees: Azerbaijan Case Study

With their soaring ubiquity and utility, mobile phones are revolutionizing disaster and crisis relief, as recent experiences have shown. From Typhoon Haiyan in the Philippines to Ebola in West Africa, we’ve seen mobile networks help provide critical financial services, information, and communication – in every stage of a crisis. And all signs point to this support expanding.

A few weeks ago GSMA <a href="http://www.gsma.com/newsroom/press-release/leading-operators-across-asia-commit-gsma-humanitarian-connectivity-charter/?utm_campaign=DR_Newsletter_21Jul2016_Quarterly&amp;utm_medium=email&amp;utm_source=Eloqua">spotlighted</a> a growing collective of mobile network operators (MNOs) working together to aid those hit by crisis. <a href="http://www.gsma.com/mobilefordevelopment/programmes/disaster-response/humanitarian-connectivity-charter">The Humanitarian Connectivity Charter</a>, an initiative launched by GSMA in 2015, aims to unite the industry under a set of principles for harnessing mobile technology to support people affected by humanitarian emergencies. GSMA recognized <a href="http://www.gsma.com/mobilefordevelopment/programme/disaster-response/kddi-kt-corporation-ntt-docomo-inc-sk-telecom-become-latest-signatories-humanitarian-connectivity-charter">four new member MNOs</a> that signed onto the Charter, joining more than 60 other MNOs from around the world. By signing the Charter, MNOs commit to a common set of principles designed to enhance coordination, standardize preparedness and response activities, and strengthen partnerships between industry, government, and humanitarian organizations.

The four new member MNOs are from Asia and have already demonstrated leadership in disaster and crisis relief. KDDI of Japan has a range of measures associated with ensuring network reliability during disasters, such as back-up communication modes for the dissemination of warnings and other critical information. NTT Docomo of Japan hosts a message board service that allows friends and family to check the safety and status of one another following major events. Korean Telecom (KT) leads an integrated emergency notification network system across South Korea, merging 21 emergency hotlines from 15 government agencies. KT is also breaking ground in using LTE-based drones in rescue operations where cars and other vehicles can’t go. SK Telecom, also of South Korea, created a system that allows simultaneous voice calls and data transmission by hundreds of people in the event of a natural disaster - without overloading specific base stations.

In the mobile money space, Africell, Airtel, and iDT Labs were recently <a href="http://www.bitc.org.uk/our-resources/case-studies/idt-labs-automated-worker-registration-and-payroll-database-ebola">awarded</a> the UPS International Disaster Relief Award for their payment solution implemented in Sierra Leone during the Ebola crisis. Africell and Airtel are two of the country’s most prominent MNOs. The system helped prevent the collapse of the country’s healthcare system by enabling payments for emergency workers. During the crisis, emergency workers transported the sick, cared for patients, traced the exposed, attended to the deceased, and provided security and coordination. Funding was available to compensate these individuals, but doing so was challenging because many workers lacked national ID cards and were not enrolled in the national payroll or public sector registration systems. The disbursement of funds was disorganized and ineffective communication led workers to go months without pay.

Partnering with Splash, a mobile payment service, and UNDP, the team developed a system that used mobile wallets, cloud computing, and open source information management systems to create the hazard payment solution. To reach all relevant emergency workers, Africell sent out mass SMS alerts to spread awareness about the payment drive, iDT Labs worked with local radio stations to broadcast announcements, and Splash using its agent network helped register workers who didn’t have registered phones. Beyond the Ebola crisis, the service helped generate greater awareness and acceptance of mobile payment in the country and made the government more receptive to using open source technology.

In the aftermath of Typhoon Haiyan in the Philippines, Mercy Corps partnered with BPI Globe BanKO to <a href="https://www.mercycorps.org/press-room/releases/mobile-money-relief-effort-philippines-spurs-banking-access">provide mobile cash transfers</a> to those most impacted. BanKO is a mobile-based, lower-income-focused bank that was founded by Bank of the Philippines Islands, Ayla Corporation, and Globe Telecom, a leading MNO. Beneficiaries were able to receive cash transfers electronically through their BanKO savings accounts and cash them out via partner establishment locations. The digitization of the process helped ensure security, transparency, and rapid deployment of the cash transfers. The initiative was also seen as an on-ramp opportunity for recipients to gain access to and use financial services.

Microfinance organizations, harnessing their reach and client relationships, are also taking part. During the Ebola crisis, BRAC and CARE <a href="https://cfi-blog.org/2014/09/18/microfinance-and-the-economic-toll-of-ebola/">offered</a> health awareness communication through one-on-ones, group meetings, and street theater. Some BRAC staff also remained stationed at institutions to aid in prevention efforts and donated prevention supplies to ministries of health and sanitation. A day after Typhoon Haiyan, ASA Philippines <a href="https://cfi-blog.org/2016/01/28/responding-to-tragedy-asa-philippines-and-typhoon-haiyan/">sprang into action</a> visiting clients door-to-door, issuing the necessary insurance benefits, and offering a rehabilitation advance loan. Affected borrowers were also given a moratorium of two months on their loans – which later could be extended depending on the situation on the ground. Additionally, ASA Philippines gave institution members solar lamps, mosquito nets, fishing boots, and medical missions were carried out in collaboration with other MFIs and local institutions in the country.

Clearly, there is an opportunity for many players to leverage unique capabilities in combatting natural disasters and crises.

For more, check out a new study from Deutsche Post DHL Group and the United Nations Office for the Coordination of Humanitarian Affairs, <a href="http://www.dpdhl.com/en/media_relations/media_library/documents/ppp_study_combining_capabilities.html?utm_campaign=DR_Newsletter_21Jul2016_Quarterly&amp;utm_medium=email&amp;utm_source=Eloqua">Combining Capabilities</a>, which showcases the growing importance of public-private-partnerships in humanitarian action.

Have you read?

<a href="https://cfi-blog.org/2015/10/27/aski-is-first-financial-institution-in-philippines-to-be-awarded-smart-certification/">ASKI Is First Financial Institution in Philippines to be Awarded Smart Certification</a>

<a href="https://cfi-blog.org/2015/02/12/picking-up-the-pieces-the-role-of-microfinance-institutions-in-post-ebola-recovery/">Picking Up the Pieces: The Role of Microfinance Institutions in Post-Ebola Recovery</a>

<a href="https://cfi-blog.org/2012/09/10/serving-persons-with-disabilities-in-the-philippines/">Serving Persons with Disabilities in the Philippines</a>

Mobile Network Operators on the Frontier of Disaster and Crisis Relief

Typhoon Haiyan, one of the strongest tropical cyclones ever recorded, struck Southeast Asia in early November 2013, creating unspeakable devastation. In the Philippines alone, where the typhoon’s wrath was concentrated, over six thousand people lost their lives. One microfinance institution, ASA Philippines, sprang into action only a day after the typhoon hit, demonstrating not just microfinance’s social mission, but also how providers in the industry are evolving to support their clients through more than just credit.

Typhoon Haiyan affected 16 provinces where ASA Philippines had operations, spanning 72 branches and 104,708 active borrowers amounting to a loan portfolio of roughly 365 million Philippine Pesos (~US$7.5 million). Fast forward to the present, about two years later, ASA Philippines has almost a 99 percent collections rate and the institution is thriving. How did the institution manage this crisis? Hint: It wasn’t because of merciless collections practices.

The day after Haiyan hit, ASA Philippines’ president traveled to Tacloban, a city that was largely destroyed by the typhoon, to visit the local ASA Philippines office. For the staff, the president’s presence underlined the ambitious and important relief work ahead of them. Under normal operating circumstances, ASA Philippines’ offices are open 24/7, reflecting the institution’s motto of BWYC: Be with Your Clients. ASA Philippines works towards a culture of immediate response, during the typical day-to-day operations, and during times of tragedy. I recently spoke with a few ASA Philippines staff members and they drew a link between support for clients and client trust. Clients will remember the first person that helps them, I was told. This connection fosters trust and connection, which in turn supports efforts to repay loans.

Step one for ASA Philippines in Tacloban was visiting clients. The city was awash; government offices were closed. Staff visited members’ homes and spoke with them about their conditions and family needs. In cases where a family member had died, ASA Philippines exercised trust. As long as family members vouched for the death, the necessary insurance benefit was provided, without a need for the standard documentation usually required for claims.

ASA Philippines’ door-to-door client visits were not a last-minute mandate – they were part of the institution’s pre-existing preparedness policy for typhoons and other calamities. According to the policy, borrowers were granted a rehabilitation advance loan if desired, half as a grant that clients didn’t have to pay back and half as an interest-free loan with a horizon of one year. Secondly, ASA Philippines gave borrowers affected by Haiyan a moratorium of two months – which could later be extended depending on the situation on the ground. In deciding who was to receive these moratoriums, the institution had clear approval guidelines involving multiple organizational levels. And ASA Philippines’ policy mandated that relief to clients be administered within 24 hours of acknowledging the incident.

In total, out of the 104,708 affected ASA Philippines borrowers, only 838 write-offs have been necessary, a total of about 2.31 million Philippine Pesos (~US$50,000). However, it was decided that, given the circumstances, if these borrowers later wanted to rejoin the institution, they would be able to do so. The same applied to members who had to move to different areas of the country and had their repayments/contact with the institution disrupted: as long as it was due to Haiyan, they were also permitted to come back to ASA Philippines.

In addition to financial measures, ASA Philippines members were given solar lamps, mosquito nets, and fishing boots. Medical missions were carried out in collaboration with other MFIs and local institutions in the country.

ASA Philippines was able to take-on these extensive relief operations in part due to a special fund the institution created for such calamities, amounting to 417 million Philippine Pesos (US$8.7 million). The fund covered all the losses due to Haiyan. In the end, the expenses attributed to Haiyan totaled 110 million pesos. Since about 35 million pesos of that was issued as interest-free loans, it eventually returned to ASA Philippines, resulting in a net expense to the institution of about 75 million pesos.

The relief efforts of ASA Philippines and other MFIs were streamlined thanks to the Microfinance Information Data Sharing System (MIDAS) in the Philippines. MIDAS, a private credit bureau, was created by ASA Philippines and six of the largest MFIs in the country to maintain comprehensive histories of clients. Unfortunately, typhoons and cyclones are relatively regular occurrences in the Philippines, so when tragedy strikes, MFIs can extract the names of affected members from the MIDAS system to ensure that they aren’t duplicating efforts.

As extreme weather <a href="http://www.theguardian.com/environment/2015/apr/27/extreme-weather-already-on-increase-due-to-climate-change-study-finds">increases</a>, it’s increasingly imperative that more MFIs and relief providers in the Philippines and elsewhere follow the lead of proactive institutions like ASA Philippines.

Have you read?

<a href="http://cfi-blog.org/2015/10/27/aski-is-first-financial-institution-in-philippines-to-be-awarded-smart-certification/">ASKI Is First Financial Institution in Philippines to be Awarded Smart Certification</a>

<a href="http://cfi-blog.org/2015/12/04/global-microscope-2015-progress-on-the-financial-inclusion-front/">Global Microscope 2015: Progress on the Financial Inclusion Front</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>

&nbsp;

Responding to Tragedy: ASA Philippines and Typhoon Haiyan

Sub-Saharan African countries may be leading the world in mobile money and growth in access to accounts, but the state of financial consumer protection in Africa is in urgent need of attention.

In the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">EIU Global Microscope’s</a> 2014 overall rating of the policy environment for financial inclusion, African countries scored very close to the global average (44 SSA vs. 46 Global out of a possible 100). However, these countries were substantially below the average on consumer protection indicators – market conduct (27 SSA vs. 43 Global) and grievance redress (35 SSA vs. 45 Global).

These numbers have human consequences. The Smart Campaign commissioned research in two African countries – Benin and Uganda – which revealed the frequently harsh environment in which microfinance is conducted. In Uganda, <a href="http://smartcampaign.org/tools-a-resources/1030">research on what happens to clients who default</a> showed that, lacking regulatory oversight and the calming influence of credit reference bureaus, lenders in Uganda feel compelled to resort to practices such as rapid confiscation of a borrower’s assets. They are afraid that if they do not act quickly, the borrower may flee. In the <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">research on client experiences from Benin</a>, clients reported major gaps in trust and transparency. For example, many reported being surprised by fees that were not explained or expected, having no place to turn when problems arose, or being publicly shamed for late payments.

The research pointed to very low trust on both sides between providers and customers. In fact, in Smart Campaign conversations with African microfinance institutions about consumer protection, one of the most frequently asked questions is, “Who will protect us (the lenders) from them (the borrowers)?”

Perhaps this problematic environment partly explains why of the 43 institutions certified for good client protection practices by the Smart Campaign, only one, <a href="http://smartcampaign.org/certification/certified-organizations#Bayport">Bayport Botswana</a>, is in Africa. Quite a number of African MFIs have expressed interest in Smart Certification, and several have gone through certification missions. However, most scored relatively poorly, with a daunting list of items to be upgraded in order to pass.

In analyzing the experience of certification among African financial institutions, several observations stand out.

Onsite certifiers often find significant gaps between adopted policies and their field implementation. Procedures, staff training and internal controls – the internal elements that move policies into action – are often lacking, reflecting the overall institutional weaknesses of small financial institutions in the region. In many cases, complaints and grievance redress processes are either missing or dormant. These are correctable issues, but they take work. Certified institutions tell the Smart Campaign that one of the benefits from undergoing the certification process is that the certification analysis provides a detailed diagnostic of gaps in their internal processes and the impetus to close them.

More challenging are the difficult issues that may bite into the business models of the MFIs. These cannot be so easily resolved. Among them are issues connected with preventing over-indebtedness and promoting transparency:
<ul>
 	<li>Business models that approve risky loans, such as automatic renewals, top-ups or step increases without repayment capacity review.</li>
 	<li>Staff incentives that do not weight portfolio quality, leading to aggressive sales and risky loans.</li>
 	<li>Non-transparent prices through practices such as bundling of credit life insurance or compulsory savings requirements.</li>
</ul>
In dialogue with the Smart Campaign, institutions assert that they cannot change such practices without losing customers or reducing revenue. This may or may not be true, but it’s hard to blame organizations for reluctance to try out changes that they fear risk significant hits to the business model.

One bright spot is the interest among regulators to improve the consumer protection environment. At the recent Alliance for Financial Inclusion (AFI) meeting in Mozambique, the Consumer Empowerment and Market Conduct Working Group was very active, with strong representation from eastern and southern Africa. However, given the pace of legal and regulatory change, jurisdictional gaps, and deficits in supervisory capacity throughout the region, it will be some time before effective consumer protection regulation is in place. Meanwhile, as credit and other services are added to expanding mobile money rails, new consumer risks are emerging, and African regulators will have even more on their plates.

As a movement grounded in the industry, the Smart Campaign will continue to work with African financial institutions, associations and regulators to highlight the urgency of the need and to strengthen practices.

Have you read?

<a href="http://cfi-blog.org/2015/06/16/top-six-reasons-providers-dont-invest-in-client-protection/">Top Six Reasons Providers Don't Invest in Client Protection</a>

<a href="http://cfi-blog.org/2015/04/02/smart-campaign-announces-enhancements-to-client-protection-certification-program/">Smart Certification Announces Enhancements to Client Protection Certification Program</a>

<a href="http://cfi-blog.org/2015/08/06/three-cheers-for-the-smart-campaigns-certification-summit/">Three Cheers for the Smart Campaign’s Certification Summit</a>

Why Does Consumer Protection Lag in Africa?

Eric Zuehlke

&gt; Posted by Eric Zuehlke, Web and Communications Director, CFI
[getty src="470129381?et=d8CVyohlSx5alOEm7ynO_A&amp;sig=L2bPQOc5r8STbFN6jYVQ9CpvDNhDBZgbh3waNGzaiak=&amp;caption=true" width="594" height="396"]
“I took today off because the stress is too high. I was going to borrow $200 from a friend and it fell through. I truly need it. I want to cry and can’t. I need it before the month is out. I had it and lent it to my family and I’m catching hell getting it back.”

-- Tammy, age 60, U.S. Financial Diaries participant

<a href="http://www.census.gov/newsroom/press-releases/2014/cb14-188.html">According to the U.S. Census Bureau</a>, the U.S. supplemental poverty rate is 15.5 percent, meaning that 48.7 million Americans live below the poverty line.¹ While poorer households face higher difficulties to make ends meet, households across the lower and middle-income spectrum in the U.S. struggle with income volatility, unplanned expenses, and finding ways to save and invest. But they also use creative ways to manage their budgets and money.

The U.S. Financial Diaries project, a joint initiative of <a href="http://www.financialaccess.org/">NYU Wagner’s Financial Access Initiative (FAI)</a> and <a href="http://www.cfsinnovation.com/">The Center for Financial Services Innovation (CFSI)</a>, collected data from 200 low and moderate-income households across the U.S. in both urban and rural areas for a year. It asked how they spend their money, what financial services they use, and how they manage their money on a day-to-day basis. Considering that over 30 million low-income families in the U.S. lack access to traditional banking and financial services, the study can help policymakers and financial services providers better address and meet the needs of lower-income Americans.

What did they find?
<ul>
	<li>The use of informal tools – outside of banks or other institutions -- is common and contributes to financial well-being. These tools aren’t seen as a last resort to use only when desperate. Rather, they are often preferred to institutions, and families use them in combination with formal tools such as bank accounts. Savings groups, loans among family and friends, and “money guards” (a person who is relied upon to hold savings for another person) are common.</li>
	<li>Income varies from month to month and is outside the control of many households. The amount coming in varies along with the source of income and the timing. According to one of the project’s issue briefs: “Households regularly experience swings in their ability to cover basic expenses, pay down debt or save for the future. In this context, budgeting and planning become quite difficult. New financial services cannot increase household incomes. However, there is tremendous potential for high-quality financial services to help households achieve greater financial health and better manage income uncertainty.”</li>
	<li>Reflecting the precarious financial state of many American families, 77 percent of those in the study say that financial stability is more important than “moving up the income ladder.”</li>
</ul>
Much more data and analysis from the project is available on the <a href="http://www.usfinancialdiaries.org/">USFD website</a>, and I urge readers to check it out. The USFD diary features issue briefs on informal financial tools, how income uncertainty affects households, and the study’s methodology; charts and data; and a series of household profiles that each examine the financial life of one family in the study. Working papers and additional findings will be added over the coming weeks and months.

[1] Unlike the Official Poverty Rate, the Supplemental Poverty Rate takes into account the impact of different benefits and necessary expenses on the resources available to families, as well as geographic differences in housing costs.

Have you read?

<a href="http://cfi-blog.org/2014/08/15/300-households-for-one-year-results-of-the-kenya-financial-diaries/">300 Households for One Year - Results of the Kenya Financial Diaries</a>

<a href="http://cfi-blog.org/2011/11/10/what-financial-diaries-reveal-about-m-pesa-use/" target="_blank">What Financial Diaries Reveal about M-Pesa Use</a>

<a href="http://cfi-blog.org/2014/11/13/an-innocent-visits-the-pawn-shop/" target="_blank">An Innocent Visits the Pawn Shop</a>

U.S. Financial Diaries Project Highlights the Precarious Financial State of U.S. Families

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

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

- Posted by Sergio Guzmán
<img class="alignright size-medium wp-image-4630" title="Beth Boo" src="http://centerforfinancialinclusionblog.files.wordpress.com/2011/10/beth-boo.jpg?w=247" alt="" width="198" height="240" />We wish this was a joke, really we do. According to <a href="http://www.bbc.co.uk/mundo/noticias/2011/10/111028_tumbas_espana_desahucios_aa.shtml" target="_blank">BBC Mundo</a>, “The mayor of Zaragoza, Spain, launched a campaign to alert its inhabitants who have yet to pay the outstanding contributions to the cemeteries, that it shall remove the remains of their loved ones.” According to the source, stickers will be placed on the gravestones of those persons who have failed to pay upkeep fees. Warning of action was sent in March, via collections notices in the mail, and given the lack of response, the mayor chose the course of action described.
Talk about appropriate collections practices, eh? This seems like a very eerie, unorthodox, and frankly Scrooge-like way of collecting past-due debts.  Does anyone have examples of inappropriate collections practices they want to share?
Happy Halloween and Feliz Dia de las Brujas to everyone!
Image credit: <a href="http://en.wikipedia.org/wiki/Albus_Dumbledore" target="_blank">Albus Dumbledore</a>
Have you read? 
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/05/26/vampires-can-they-make-financial-education-more-fun/" target="_blank">Vampires: Can They Make Financial Education More Fun?</a>

If You&#039;re Late on Payments, You Will Face Eviction…from the Grave!

Jessica Schicks

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

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