<span class="TextRun SCXW263472838 BCX0" lang="EN-GB" xml:lang="EN-GB" data-contrast="auto"><span class="NormalTextRun SCXW263472838 BCX0">The impacts of climate change are diverse and wide-ranging</span><span class="NormalTextRun SCXW263472838 BCX0">. Its </span><span class="NormalTextRun SCXW263472838 BCX0">most immediate </span><span class="NormalTextRun SCXW263472838 BCX0">manifestations, such as natural catastrophes and extreme weather events, sea level rise, damage to biodiversity, and communicable diseases, amplify the hardships on developing economies</span> <span class="NormalTextRun SCXW263472838 BCX0">which</span><span class="NormalTextRun SCXW263472838 BCX0"> are often more vulnerable to damage and have fewer resources available to </span><span class="NormalTextRun SCXW263472838 BCX0">support the recovery</span><span class="NormalTextRun SCXW263472838 BCX0">.</span> <span class="NormalTextRun SCXW263472838 BCX0">The</span> </span><a class="Hyperlink SCXW263472838 BCX0" href="https://globalrff.org/december-2022" target="_blank" rel="noreferrer noopener"><span class="TextRun Underlined SCXW263472838 BCX0" lang="EN-GB" xml:lang="EN-GB" data-contrast="none"><span class="NormalTextRun SCXW263472838 BCX0" data-ccp-charstyle="Hyperlink">December </span><span class="NormalTextRun SCXW263472838 BCX0" data-ccp-charstyle="Hyperlink">2022 RFF</span></span></a><span class="TextRun SCXW263472838 BCX0" lang="EN-GB" xml:lang="EN-GB" data-contrast="auto"><span class="NormalTextRun SCXW263472838 BCX0"> discussions explored the links between responsible finance and the challenges posed by climate change.</span></span>
<h1>Preparedness, Risk Management, and Insurance</h1>
<span data-contrast="auto">Along the lines of the three key themes of the December 2022 RFF convening – consumer protection, the role of stakeholders, and the path forward in the face of climate change – insurance has an important role. Insurance can strengthen the resilience of vulnerable communities and help them adapt to the climatic changes impacting their lives. If leveraged systematically for both transition and physical risks, it can contribute to the health of the entire financial sector.</span>
<blockquote class="pullquote--left"><span data-contrast="auto">If leveraged systematically for both transition and physical risks, insurance can contribute to the health of the entire financial sector.</span></blockquote>
<span data-contrast="auto">The role of insurance supervision in this extraordinarily complex challenge is far-reaching and multifaceted. As the guardians of consumer protection and financial stability, enablers of innovation and market development, and policy influencers, supervisors are in a position to contribute to financial literacy efforts, establish standards and expectations for financial institutions, remove regulatory barriers for new or innovative solutions, assess risk management practices, support the efforts of the government bodies, and convene forward-looking multistakeholder initiatives. </span><a href="https://a2ii.org/en/home" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Access to Insurance Initiative (A2ii)</span></a><span data-contrast="auto"> has supported insurance supervisors in promoting the development of inclusive insurance markets in low- and middle-income countries, in the context of climate and disaster risk, among other key focus areas.</span>

<span data-contrast="auto">But strengthening the financial system’s resilience in the face of climate change requires systemic solutions and a comprehensive disaster risk management strategy. This can only be achieved through collaboration and innovative approaches from various stakeholders. Supervisory engagement with the industry players, for instance, develops an understanding of the practical challenges and regulatory barriers that providers face in bringing new products to consumers.</span>
<h1>A2ii’s Work on Climate and Disaster Risk</h1>
<span data-contrast="auto">In recognition of this, the A2ii launched the third </span><a href="https://a2ii.org/en/iii-lab" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Inclusive Insurance Innovation Lab</span></a><span data-contrast="auto"> on climate – the first lab with a thematic focus. As part of the project, regulators and other key stakeholders of the insurance space (i.e., government representatives, the industry, distribution, and the nonprofit sector) convened in a year-long process of finding innovative approaches to closing the protection gap against climate change headwinds.</span>

<span data-contrast="auto">The selected country teams of Costa Rica, Grenada, Zambia, and Zimbabwe emerged from the lab process with the following:</span>
<ol>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto"><span data-contrast="auto">A web-based platform for small hoteliers providing risk assessments and sustainable solutions (Costa Rica)</span></span></li>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto"><span data-contrast="auto">A mutual risk pool providing direct relief to farmers and fisherfolk after a climate-related disaster (Grenada)</span></span></li>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto"><span data-contrast="auto">An awareness-raising campaign for agriculture stakeholders jointly with community champions (Zambia)</span></span></li>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">A bundled product – the Farmer’s Basket – offering Affordable Area Yield Index Insurance with inputs like pesticides, fertilizers, and irrigation equipment (Zimbabwe)</span></li>
</ol>
<span data-contrast="auto">On the capacity-building side, </span><a href="https://connect.a2ii.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Connect.A2ii</span></a><span data-contrast="auto">, A2ii’s learning and exchange platform for supervisors, offers trainings on the topic.</span>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">The </span><a href="https://connect.a2ii.org/supervision-of-climate-related-risks-in-the-insurance-sector" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Supervision of Climate-Related Risks in the Insurance Sector</span></a><span data-contrast="auto"> training is based on the </span><a href="https://www.sustainableinsuranceforum.org/publication/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">joint IAIS-SIF Application Paper</span></a><span data-contrast="auto"><span data-contrast="auto">. The training module includes recommendations for supervisors on five key areas: i. supervisory review and reporting; ii. corporate governance, risk management and internal controls; iii. enterprise risk management for solvency purposes; iv. investments; and v. disclosures.</span></span></li>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><a href="https://a2ii.org/en/event/inclusive-insurance-training" target="_blank" rel="noopener noreferrer"><span data-contrast="none">The Inclusive Insurance Training</span></a><span data-contrast="auto"> is delivered multiple times per year in English, Spanish, and French and features an important foundational climate and environmental risk module. The module is designed to provide insight into the nature and effects of climate risks on insurers, economies, and consumers, with a focus on inclusive insurance markets. It also explores the role of financial institutions and the role of the supervisor.</span></li>
</ul>
<span data-contrast="auto">Index insurance is undoubtedly on the path forward in the face of climate change. However, in emerging markets globally, regulatory frameworks are adapting cautiously with solutions coming from the industry. Supervisory capacity-building, information, and peer exchange on how to regulate and encourage the development of responsible and sustainable index-based solutions are critical.</span>
<blockquote class="pullquote--right"><span data-contrast="auto">Supervisory capacity-building, information, and peer exchange on how to regulate and encourage the development of responsible and sustainable index-based solutions are critical.</span></blockquote>
<span data-contrast="auto">Looking to support supervisors in understanding the mechanics of index insurance, A2ii has recently partnered with the UNCDF Pacific Insurance and Climate Adaptation Programme (PICAP) to publish a </span><a href="https://a2ii.org/en/knowledge-center/index-insurance/joint-publication-on-index-insurance-best-practices-for-insurance-regulators-and-practitioners-in-the-pacific-island-countries" target="_blank" rel="noopener noreferrer"><span data-contrast="none">best practices report on index insurance</span></a><span data-contrast="auto">, sourcing from the Pacific Island countries. The publication provides valuable insight for the region and beyond and guidance on enabling regulatory frameworks to develop index insurance.</span>

<span data-contrast="auto">Additionally, the upcoming </span><a href="https://a2ii.org/en/event/public-dialogues/index-insurance-public-dialogue" target="_blank" rel="noopener noreferrer"><span data-contrast="none">A2ii-IAIS Public Dialogue – Index Insurance Best Practices</span></a><span data-contrast="auto"> will provide a platform to meet and discuss key insights from the report, including regulatory guidelines for index insurance solutions.</span>

<span data-contrast="auto">In conclusion, supervisors are increasingly recognizing the importance of addressing climate change impacts as well as the emerging opportunities arising from the challenge. Doing things differently will require building new partnerships for novel products and business models, aligning regulation and technology to be hand-in-hand. The goal is to build more robust insurance value chain ecosystems and resilient communities. A2ii is committed to accompanying supervisors on this learning journey through future capacity building, multistakeholder initiatives, knowledge generation, and dialogue.</span>

&nbsp;

<i><span data-contrast="auto">A2ii is a unique global partnership working to ensure that the excluded and underserved have access to insurance, allowing them to take control of their lives and reduce their vulnerability against risks. A2ii supports insurance supervisors and regulators in creating the conditions necessary for an inclusive insurance market to grow.</span></i>

<i><span data-contrast="auto">A2ii is the 'implementation arm' of the International Association of Insurance Supervisors (IAIS) on Inclusive Insurance.</span></i>

Envisioning Responsible Finance in the Context of Climate Change – the Role of Insurance Supervision

ESG frameworks provide standards and guidance for how companies should integrate the consideration of risks and opportunities arising from environmental, social, and governance factors into their practices at all levels. But could the implementation of the frameworks themselves become a source of risk or of opportunity for companies?

We set out to explore this question in a well-defined subset of companies: financial institutions operating in the ‘Global South’, that is, low- and middle-income countries. We engaged with leaders from 32 financial institutions, including banks, fintechs, and non-bank and microfinance institutions with a fairly even spread among them. They represented institutions of different scale—around two fifths were large with over a million current clients, one fifth were small with less than 50,000 clients, and the rest were in between. In a <a href="https://www.fmo.nl/southern-voice-in-esg" target="_blank" rel="noopener noreferrer">new report</a> called Southern Voice in ESG, we seek to provide some answers to this question.

<img class="aligncenter wp-image-45394 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/11/ESG-FIs.png" alt="" width="970" height="788" />
<h1><strong>Why Is This Question Even Relevant?</strong></h1>
The question about the potential implications of ESG frameworks is relevant because of the accelerating pace of adoption of ESG measures globally. In some places, ESG measures are known interchangeably as sustainability measures, although both terms are rather vague and ill defined. The pace has been driven by two channels—investors and regulators.

On the one hand, the proportion of institutional capital under some form of ESG mandate has continued to rise, especially in the Global North (high-income countries), so any entity seeking to raise capital there would likely be subject at least to questions. This would apply whether the capital is equity or debt, and especially if it comes from public development finance institutions who have by and large adopted ESG policies relating to their practices.

On the other hand, regulators have become an active channel for entrenching frameworks in domestic regulation, so that they are no longer voluntary but compulsory. While some Northern regulators have been especially outspoken on the issue, Southern regulators have increasingly paid attention. The <a href="https://www.sbfnetwork.org/" target="_blank" rel="noopener noreferrer">Sustainable Banking and Finance Network</a> now has 62 regulators from the global South at different stages of adopting the frameworks. And voluntary frameworks are becoming international standards: consultations on the <a href="https://www.ifrs.org/projects/work-plan/general-sustainability-related-disclosures/" target="_blank" rel="noopener noreferrer">new draft IFRS Sustainability standards S1 and S2</a> closed in July 2022, with the expectation that final standards in these areas may be issued in 2023. Regulators generally require regulated financial institutions as well as public companies to follow IFRS accounting standards, so the influence of standards like these is likely to be global.
<h1><strong>The Frameworks Will Have Material Implications</strong></h1>
Not surprisingly, our respondents already sensed the mounting pressures: almost 80 percent of the people with whom we spoke in the Global South expected that their depth and breadth of reporting would change in the next three years as a result of ESG pressures – in other words, that the frameworks would have a material impact. More than 70 percent said that it was ‘important or very important now’ to have capacity internally on ESG. However, only 7 percent described the current levels of skills and knowledge inside their organizations as adequate for their needs at present – more than half reported ‘some but limited’ or no skills in this area. They aren’t alone – ESG skills are in high demand but are scarce globally, according to this <a href="https://podcasts.apple.com/us/podcast/esg-insider-a-podcast-from-s-p-global/id1475521006?i=1000578199477" target="_blank" rel="noopener noreferrer">recent podcast</a>.
<blockquote>"More than 70 percent said that it was ‘important or very important now’ to have capacity internally on ESG. However, only 7 percent described the current levels of skills and knowledge inside their organizations as adequate."</blockquote>
<h1><strong>What Are the Potential Risks or Opportunities?</strong></h1>
The impact of the ESG frameworks is expected to be material in the next three years, and there is already a shortage of capacity to address them. How could the frameworks themselves be risks or opportunities? During our discussions, we saw the following risks and opportunities:

Potential risks:
<ul>
 	<li>Diversion of skills and focus</li>
 	<li>Costs to implement</li>
 	<li>Distraction from other national priorities</li>
 	<li>Constrained access to capital if not compliant</li>
 	<li>Changed nature of impact from organization’s mission</li>
 	<li>Strategic focus that is not aligned with institutional purpose</li>
 	<li>Rapid adoption may be only skin deep: i.e. “ESG-washing” if the approach is compliance driven</li>
</ul>
Opportunities identified:
<ul>
 	<li>Differentiation from competitors in capital raise</li>
 	<li>Differentiation on staffing</li>
 	<li>Implementing new ESRMs</li>
 	<li>Resourcing for new areas of capacity-building</li>
 	<li>Funding for new portfolio development</li>
</ul>
An issue of rising importance was the heightened emphasis on the ‘E’, with most associated indicators focusing on mitigation of climate risk. As one respondent put it, “The E has landed, the S is nowhere, and the G is hiding somewhere in the other two.” Most Southern financial institutions to which we spoke were ill prepared to report on climate risk measures, although they cared deeply about what some called ‘the S in the E’, that is, the adaptation and resilience indicators among vulnerable populations whom they served, many of whom live in the areas most exposed to the effects of climate change though their own carbon footprints are very small.
<h1><strong>Which Is It — Risk or Opportunity?</strong></h1>
So, what is the answer: are the emerging frameworks seen more as risks or as opportunities? Our sample indicated a mix of both. For example, when asked to indicate their level of agreement on a scale of 1 (fully agree) to 5 (fully disagree) with the statement: “ESG frameworks are on balance a positive force for our organization”, responses averaged 2.7, almost right in the neutral middle, with little difference between banks and non-banks. Responding to the statement “ESG frameworks encourage us to consider opportunities for value creation more than the need for compliance,” responses averaged a very similar 2.8. Similarly, “ESG frameworks create new reporting burdens which are disproportionate to the likely benefits” yielded an average of 3.1, right around the neutral midpoint. However, as one respondent told us, “Different frameworks may bring specific risks or opportunities, but overall, we see having an approach to sustainability is an imperative, not a choice.”
<h1><strong>ESG Voice in the South</strong></h1>
To date, most international ESG frameworks have been developed mainly under Northern leadership and pressure, reflecting the environmental and social priorities experienced there. This is quite different from earlier moves in areas of impact finance, like modern microfinance which was ‘born’ in the Global South and whose leading early practitioners like Grameen Bank’s Mohammed Yunus, BRAC’s Fazle Abed or Bancosol’s Pancho Otero were outspoken social entrepreneurs living and working there.

We sought to understand whether international ESG frameworks considered the needs and context of developing economies. The overall average score here reflected a range of views –with many neutral, perhaps because of lack of knowledge, but some strong divergence around this.

We asked all respondents to identify leading Southern voices with a distinct view on the issue, but received few suggestions. While there clearly is some Southern voice represented in most if not all of the major framework bodies like UNEP-FI or IFRS, there is less evidence at present of a distinctly Southern voice around these issues. However, as Southern-based financial institutions start to pay more attention to the issue of ESG framed in this way, new voices are likely to emerge with the interest and passion to engage locally, regionally, or internationally.

In the course of our discussions, we encountered the view that the impact of ESG frameworks may be less asymmetric by geography (i.e. whether based in the Global North or South) but by size of institution. Small and medium sized institutions have less capacity to hire new skills and absorb the resource costs than large ones, wherever they are based. A proportional approach to the introduction especially of compulsory frameworks is needed to ameliorate this risk.
<h1><strong>What to Do About It?</strong></h1>
Our aim at this stage was primarily to benchmark current reality as the basis of considering future actions. For example, almost half the respondents reported that they had no senior manager with a designated responsibility for sustainability, although one fifth already had placed someone in this role.

The possible strategic stance of a financial institution on this issue depends on how material the issue is, which will vary based on factors like client base, regulator attitude, extent of foreign funding, and the extent to which they believe ESG frameworks are locally influenceable. This will be a function of how much domestic regulators are influenced by international norms, and whether they are open to local adaptation.

Our findings point to several possible directions to mitigate risk and emphasize opportunities:
<ol>
 	<li><strong>Discussion and advocacy:</strong> While less than half of the institutions currently discussed ESG issues in the trade groups of which they are a part, almost double this number expressed interest in being part of discussions going forward. One positive example of <a href="https://fsdafrica.org/press-release/anca-announcement/" target="_blank" rel="noopener noreferrer">proactive engagement is the work of FSDA</a> supporting the piloting of Taskforce for Nature-Based Financial Disclosures, the next frontier within the ‘E’ of ESG, with a sample of large African FIs.</li>
 	<li><strong>Capacity building:</strong> There are many examples of courses being offered, in person and online, but most at present are developed by prominent Northern-based universities like Cambridge or Yale, or Northern professional bodies like the <a href="https://www.iema.net/" target="_blank" rel="noopener noreferrer">Institute of Environmental Management and Assessment</a>. There are opportunities to support regional offerings to spread awareness and knowledge.</li>
 	<li><strong>Technical support:</strong> Several institutions directly asked about technical support offerings. However, in a recent training session for Kenyan banks run, experts from UNEP-FI said that, due to the fast-moving pace in this area, many consultants may not have more knowledge than the bank staff themselves. Local technical support may need further capacity building to be helpful.</li>
</ol>
<h1><strong>Conclusion</strong></h1>
Southern financial institutions clearly believe that international ESG frameworks matter and that they will affect their activities in some way, negative and/or positive, in the next three to five years. As the numerous voluntary frameworks converge and start to harden into standards and even local regulation, it is important that Southern financial institutions have voice and can participate meaningfully at all levels: both shaping international frameworks and especially adapting them for regional and local implementations. The urgency of climate action for mitigation in large emitting nations risks provoking a ‘rush to regulate’ Southern financial institutions whose clients may not themselves be major emitters of CO2, though their livelihoods are highly vulnerable and in need of adaptation support. In the presence of conflicting priorities and constrained local resources, it will take time to regulate appropriately. However, supporting Southern financial institutions to adapt to these priorities over time will likely improve ESG outcomes for these institutions and for the many vulnerable clients they serve.

ESG Frameworks: Risks or opportunities for financial institutions?

<span style="font-weight: 400;">Is there value in good governance at the early-stage of a company’s life? It turns out that the answer depends on with whom you speak and on what you mean by “good governance.”</span> <span style="font-weight: 400;">We spent two months speaking widely to investors, accelerators, and founders in the startup investment ecosystem in different parts of the world. This was part of an exercise commissioned by the </span><span style="font-weight: 400;">Center for Financial Inclusion</span><span style="font-weight: 400;"> to wrap up its multi-year </span><a href="https://www.centerforfinancialinclusion.org/about/what-we-do/board-leadership-for-impact-program"><span style="font-weight: 400;">Board Leadership for Impact program</span></a><span style="font-weight: 400;"> by considering governance needs of early-stage companies – ranging from startup to a Series B funding round or equivalent.</span>

<span style="font-weight: 400;">Our interviews showed a disconnect in understanding between funders and founders, caused in part because the word “governance” is vague with different connotations</span><b>. </b><span style="font-weight: 400;">Funders differed in their degree of activism on the issue of governance, but tended to agree on the value of good governance and had a general desire to see certain practices in place over time. This was true whether or not the funder’s strategy or available resources allowed them to be actively involved in investee governance.</span>

<span style="font-weight: 400;">However, founders tended to have less positive views of the value of governance at the early-stage. Some founders experienced a low return on their investment of scarce time and money in formalizing their board. The co-founder of African fintech Zoona, Mike Quinn, writes in his recent autobiographical reflection, </span><a href="https://www.amazon.com/Failing-Win-Hard-earned-lessons-purpose-driven-ebook/dp/B09BDL1HQ8" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400;">Failing to Win</span></a><span style="font-weight: 400;">, that while he spent a lot of time preparing for board meetings, the outcomes of meetings were not focused on the pressing issues he faced as an early-stage CEO. For other founders, governance connoted adding formality and bureaucracy in ways that fettered their discretion and ability to move fast at a stage when there was little time to waste.</span>

<span style="font-weight: 400;">This is one of the reasons why the accelerators with which we spoke tend to avoid putting structured emphasis on the issue of governance, and instead, focus on product-market fit and go-to-market strategies. This Silicon Valley “proverb” expresses the prevailing view of many founders that boards bring more risk than they bring value: “</span><span style="font-weight: 400;">Good boards don’t create good companies, but a bad board will kill a company every time.”</span>
<blockquote class="pullquote--right">Founders who are working on their second or later startup are much more likely to recognize the value of paying attention to governance early on.</blockquote>
<span style="font-weight: 400;">While we heard evidence of this disconnect between funders and founders in our interviews, we don’t want to exaggerate its extent: it turns out that founders who are working on their second or later startup are much more likely to recognize the value of paying attention to governance early on, in part because of ‘scars’ from difficulties they experienced in earlier ventures. And there is value in good governance: funders generally supported the view that investors are willing to pay a premium for good governance – certainly by the time of a Series B round. Even at the time of a seed or Series A round, the lack of governance processes is a negative screen for many investors. Founders can capture more investment value by building a governance roadmap that anticipates how their governance structures and practices will evolve as they mature.</span>

<span style="font-weight: 400;">Part of the disconnect is generated by different understandings of the term governance. Some definitions emphasize the structure and practices, usually focused on the role played by the board of directors. This tends to be the emphasis of </span><a href="https://www.cfainstitute.org/en/ethics-standards/codes/esg-standards" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400;">ESG standards </span></a><span style="font-weight: 400;">designed for and applied primarily to large public companies where the board plays a central role. For startup companies, the board typically becomes the main governing body after an inflection point, usually a seed or Series A funding round in which external investors have at least one board seat. But prior to that point, the locus of governance may well sit outside a formal board and be vested rather in less formal decision-making structures among founders, perhaps assisted by mentors or an advisory board.</span>

<span style="font-weight: 400;">It is important to note that an overemphasis on governance structures misses a key point of what happens to a company during a startup journey: not only is a company emerging out of an idea, but it is also accumulating stakeholders other than the founders – including investors, employees, suppliers, government officials, and the society in which it operates – who have legitimate but often competing expectations that their needs and claims on the company will be considered and met.</span>

<span style="font-weight: 400;">Good early-stage governance amounts to effective and ethical decision-making processes in the transition from founder-centric to a multi-stakeholder environment. Governance is a progressive process along the startup journey: governance practices evolve as the startup evolves. Smart, agile governance</span> <span style="font-weight: 400;">recognizes not only that an evolution towards multi-party decision-making is inevitable but also that it can and should be value adding. The interviews shed light on the importance of reframing early-stage governance more along these lines.</span> <span style="font-weight: 400;">And the rationale for doing so is clear: for founders, good governance pays off through better access to capital on better terms; for funders, good governance helps to de-risk a fundamentally risky early-stage investment proposition. This forms the basis of reconnecting the interests of founders and funders.</span>
<blockquote>For founders, good governance pays off through better access to capital on better terms; for funders, good governance helps to de-risk a fundamentally risky early-stage investment proposition.</blockquote>
<span style="font-weight: 400;">Reframing early-stage governance is important.</span> <span style="font-weight: 400;">Without it, the disconnect between founders and funders may widen. ESG pressures are rising for fund managers, even in alternative asset classes like venture. Without a clear reframing, this pressure may have the unintended consequence of rigidifying early-stage governance so that it is less, not more, effective. That deadweight loss is something society can ill afford at a time when risk capital may become scarcer and when innovation is required as never before to reach the </span><a href="https://sdgs.un.org/goals" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400;">Sustainable Development Goals</span></a><span style="font-weight: 400;">.</span>

<span style="font-weight: 400;">Reframing is also timely</span> <span style="font-weight: 400;">because of recent events in the emerging world, which has experienced a flood of VC investments in the past few years. In April 2022, former employees and an investigative journalist surfaced </span><a href="https://restofworld.org/2022/inside-the-scandal-at-flutterwave-nigerias-fintech-champion/#:~:text=The%20police%20said%20at%20the,ultimately%20released%20without%20being%20charged." target="_blank" rel="noopener noreferrer"><span style="font-weight: 400;">allegations of abuse and misconduct </span></a><span style="font-weight: 400;">at one of Africa’s fintech unicorns, Flutterwave. If found to be true, these may be attributed in large part to lack of good governance. This one case may be the tip of an iceberg: also in April 2022, Sequoia India published a </span><a href="https://www-india.sequoiacap.com/corporate-governance-the-cornerstone-of-an-enduring-company/" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400;">blog post </span></a><span style="font-weight: 400;">reporting that some founders in their portfolio were under investigation for potential fraudulent practices or governance lapses. Their lament expresses the reality that some VCs, in their chase to win deals and be “founder-friendly,” have neglected, or at least underemphasized, their governance responsibilities. Sequoia India has committed to double down on improving governance at its early-stage portfolio companies.</span>

<span style="font-weight: 400;">We hope that other VCs and impact investors will follow suit. We also hope that the outcome will not just be more procedures or controls, though some of that may well be needed, but rather a smart, agile approach to good governance at the early stage.</span>

Is There Value in Good Governance at the Early-Stage?

<em>Past crises have taught the microfinance sector a lot about weathering storms. Microfinance institutions (MFIs) are once again facing challenging times. This case study is part of a series that CFI, in partnership with the European Microfinance Platform (e-MFP) and the Mastercard Center for Inclusive Growth, is publishing to (re)visit tales of tough times and resiliency in five markets – <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, Bosnia and Herzegovina, <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, Nicaragua and Palestine – and discuss how MFIs, with the help of their investors and other stakeholders, emerged and thrived. The lessons learned from these cases will be compiled and examined in a forthcoming report, Weathering the Storm II, a follow up to the <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/" target="_blank" rel="noopener noreferrer">first edition</a> published in the aftermath of the global financial crisis a decade ago. The hope is that these lessons will be applicable to not only the COVID-19 response, but to future crisis responses as well.</em>

In the spring of 2018, Alaa Sisalem, the general manager of Vitas Palestine, was reviewing the materials prepared for an upcoming board meeting. In the first quarter of 2018, Vitas Palestine – part of <a href="https://www.vitasgroup.com/" target="_blank" rel="noopener noreferrer">Vitas Group</a>, a holding company that operates non-bank financial services companies in the Middle East and Eastern Europe – achieved 95 percent of projected portfolio growth while maintaining a PAR 30 (loans in arrears for over 30 days) of 2.1 percent. As Sisalem looked through the growth projections for the year, he glanced outside his window at the bustling streets of Ramallah. He thought about Vitas Palestine's clients and their ability to pay in the current economic conditions, and he realized that while the financials didn't show it yet, a major storm was coming.

A few weeks earlier, in April 2018, the salaries for about 38,000 civil servants in the Gaza Strip were delayed. The following month, the Palestinian Authority (PA) <a href="https://www.reuters.com/article/us-palestinians-gaza-salaries/anger-as-palestinian-authority-cuts-gaza-salaries-and-pays-late-idUSKBN1I41LM" target="_blank" rel="noopener noreferrer">cut staff salaries</a> by 20 percent. This marked the beginning of a crisis for Vitas Palestine. The civil servant salaries were unpaid or delayed multiple times, especially in Gaza, which took a toll on the local economy. Gaza's economy was already under severe stress because of movement restrictions brought about by the conflict between Hamas and Israel. Hamas gained control of Gaza in the 2006 elections, but the PA continued to administer payroll in the region, causing tensions between Hamas and the PA.<img class="alignright wp-image-40560" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Vitas-Chart-1-4-1024x678.png" alt="chart " width="400" height="265" />

Civil servant salaries significantly impact the Palestinian economy because of the low rates of private investment and a low labor force participation rate of <a href="https://databank.worldbank.org/Palestine---Labor-Force/id/ecae3350" target="_blank" rel="noopener noreferrer">44 percent</a>. The territory has one of the highest unemployment rates in the world, with a quarter of the working-age population unemployed. The situation is even more dire in Gaza, which accounted for 29 percent of Vitas' 2018 gross loan portfolio and has an unemployment rate close to <a href="https://databank.worldbank.org/Unemployment/id/2a6c0966" target="_blank" rel="noopener noreferrer">45 percent</a>. In Gaza, 37 percent of the employed individuals worked in the public sector, and therefore, interruptions to civil servant salaries tend to have a cascading effect on consumer spending and the local economy.

The West Bank economy is more diversified than Gaza, with <a href="http://www.pcbs.gov.ps/pcbs_2012/Publications.aspx" target="_blank" rel="noopener noreferrer">16 percent</a> of all employed individuals working in the public sector. Yet, there were concerns that the crisis would seep into the West Bank after the Israeli government passed a law in 2018 that allowed unilateral deductions from the tax revenues it transfers to the PA. The deductions are equivalent to the amount paid by the PA to families of Palestinians killed or put in jail due to the conflict with Israel (about $12 million per month). The tax revenues transferred from Israel represent more than 60 percent of PA's total revenues, and the deductions would further strain PA's budget.
<h2>The Board Moves to Head Off Crisis</h2>
Vitas Palestine began in the early years of the microfinance sector as a USAID project. The incorporation of Vitas Palestine as a for-profit company in 2014 made it easier for the company to borrow from local and international lenders. This ease of access to funding contributed to the rapid growth of Vitas' loan portfolio (see graph below).

<img class="wp-image-40561 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Vitas-Chart-2-2-1024x487.png" alt="bar graph" width="600" height="285" />

But when the Vitas Palestine's board met in May 2018, the region's worsening economic conditions dominated their discussion. Following the salary interruptions in early 2018, Vitas Palestine began to experience declining portfolio quality, with a 10 percent drop in the collection rate, resulting in a PAR 30 of 6 percent for the total portfolio in May, and a PAR 30 of 16 percent in Gaza. This was a significant increase from the December 2017 PAR 30 of 1.32 percent. Vitas Palestine had a strong debt to equity ratio of 1.81 at the end of 2017, but in 2018, the declining portfolio quality led to a breach of delinquency covenants.

The board and the management agreed that Vitas needed to prepare for further challenges due to the political instability. After deliberations with management, the Vitas board advised against aggressive growth targets and counseled the management to prioritize three areas: managing liquidity, improving portfolio quality, and controlling operational costs.
<blockquote class="pullquote--right">Managing liquidity, improving portfolio quality, and controlling operational costs were three priorities for the board.</blockquote>
Sisalem had been through numerous crises at the company, ever since CHF Ryada, Vitas Palestine's predecessor, disbursed its first housing loan in 1995. As Sisalem was formulating the plan of action to tackle the salary crisis, he knew from experience that maintaining strong relationships with clients, investors, and staff would be crucial to Vitas' survival. The management team at Vitas ensured open communication with its staff and investors. The management also recognized that the front-line staff plays an essential role in deepening client relationships and continued its investment in client relationship officer training to prepare staff to handle difficult conversations with clients.

In order to control operational costs, the management team performed a detailed analysis of its expenses and identified ways to optimize operations. Their analysis showed that there was sufficient liquidity to tackle the next six to nine months without exploring drastic measures to reduce costs. Further, the loan officers' incentives were based in part on portfolio quality, and the increase in PAR 30 during the crisis led to lower incentives paid by the company. This variable component of the compensation structure led to lower staffing expenses and aided the management efforts to lower costs.

Weathering the Storm II: A Case Study of Vitas Palestine

Microfinance began in its early days as a novel approach to economic development with a focus on making loans to low-income customers using social collateral. No longer niche, microfinance has reached millions of customers around the world and helped demonstrate that low-income people are, in fact, bankable. Fast forward to today, when microfinance is now but a subset of a diverse range of financial service providers targeting low-income customers.

How did we get here and what happens next for microfinance? CFI recently sat down with one of the editors of a new book that seeks to answer that question.

Paul DiLeo, Managing Director of Grassroots Capital Management and former faculty member of CFI’s <a href="https://centerforfinancialinclusion.org/board-leadership-for-impact-program-overview/" target="_blank" rel="noopener noreferrer">governance training</a> programs in Africa, coedited “<a href="https://www.brookings.edu/book/the-future-of-microfinance/" target="_blank" rel="noopener noreferrer">The Future of Microfinance</a>,” with Ira Lieberman, Todd Watkins and Anna Kanze. The book was born out of a workshop at Lehigh University and includes contributions from more than twenty leading authorities in the field. Together, they tell the important story of how microfinance developed and how it has met the needs of hundreds of millions of people. They also set forth answering questions about how it can continue to meet those needs.
<h3>Why did you publish this book?</h3>
<strong>PD</strong>: The coeditors and I felt that, somewhat paradoxically, as microfinance has consolidated its position to be an integral component of national financial systems around the world, its visibility has diminished. Its success -- and setbacks -- hold important lessons for the broader financial inclusion and impact investing communities at a time when market-based solutions to pressing social and environmental challenges are receiving so much attention. The microfinance experience can be useful in helping these initiatives achieve timely success and avoid pitfalls. Also, while not a consideration when the bulk of the book was written, it also offers some guidance on the essential value we have to preserve as microfinance navigates the pandemic.
<h3>Looking back on microfinance’s history, what are some of the key milestones or accomplishments?</h3>
<strong>PD</strong>: In the early days, microfinance started to demonstrate that poor people didn’t pose an insurmountable credit risk; they were not unbankable and they were not uncreditworthy. From there, the industry moved to prove that the institutions serving microfinance clients can operate sustainably and that they aren’t preponderantly dependent on subsidized or concessional financing. Further, the funding going into the microfinance industry began to evolve to a broader range of financing – from grants and heavily subsidized capital, to purely commercial capital. From there, microfinance institutions (MFIs) began taking on more of the substance of financial institutions from a regulatory, supervisory, and governance standpoint.

What’s interesting is how microfinance has become less of a “headline topic.” In other words, microfinance is now part of the mainstream landscape just like every other sort of subcategory of financial institutions. Microfinance is no longer this idiosyncratic oddity that people can write “whoever imagined this” articles about.
<blockquote class="pullquote--right">Microfinance is no longer this idiosyncratic oddity that people can write “whoever imagined this” articles about.</blockquote>
However, there is a downside. Microfinance was never intended to become “mainstream.” It was always intended to be distinctive from everything else in conventional financial services.
<h3>I’m sure if I asked you in January, your answer would be much different, but how would you describe the chapter of microfinance we're in now?</h3>
<strong>PD</strong>: I think this chapter poses the question of whether microfinance can preserve its essential differentiation: does it retain its priority commitment and distinctive character to continue to serve poor people? Some institutions do it more efficiently, do it more profitably, achieve greater scale, so there's nothing distinctive about microfinance in those dimensions. What distinguishes microfinance is the priority to develop products and services along with the ability to find ways of reaching and innovating for their clients.

Microfinance derives a substantial proportion of its value through relationships that accrue to the client rather than being captured and maximized for the benefit of the financial intermediary. This isn’t a new concept, but the current situation resulting from COVID is going to put this topic in focus because inevitably you're going to see a lot of mergers. We’ll have to keep an eye on the character of the fewer institutions that survive.
<h3>On the topic of consolidation, the book mentions how, in competitive markets, like Peru or India, consolidation is much faster than in less saturated markets. Do you see COVID accelerating consolidation, and if so, in which markets?</h3>
<strong>PD</strong>: Consolidation in the microfinance industry has always been a challenge because in many markets there are many smaller institutions that do not see the benefit, or feel pressure to achieve economies of scale. I think what may be different now, as opposed to previous crises, is that decapitalization is going to be faster and more severe, and the impact is affecting all institutions to a significant degree at the same time.

The wild card is what the regulatory authorities will do because in many of the less competitive markets a lot of these institutions may not be subject to strict regulatory capital requirements, which allow institutions to operate with relatively low levels of capital, or even negative net worth, while they wait and see if a brighter day comes. If regulators do not move to force consolidation, you could see the typical resistance to consolidation and, as a result, a lot of these institutions will continue to fight for survival. Whether consolidation is forced by regulators or not, funders could force consolidation, since they are the ones providing life support. Hopefully, the industry will keep in mind the importance of preserving what is distinctive about microfinance, rather than just trying to create the most profitable and efficient institutions.
<h3>The book mentions how many players in the space “have gone on to other endeavors like financial inclusion, which is closely related to microfinance, but not quite the same thing.” Do you think there’s still enough interest and, more importantly, enough capital to reinvest in microfinance?</h3>
<strong>PD</strong>: Unfortunately, some of the legacy investors in microfinance have declared victory and moved on because, from their perspective, microfinance is well established and has relatively good access to capital markets based on a solid business model developed through experimentation and trial and error over many years.

In one sense, there's nothing wrong with these investors that ostensibly have a development objective moving on to support new models. However, in pursuing their mandates to address social and economic issues, they shouldn’t just move on to the next bright, shiny object in financial inclusion. They should continue to support and guide a proven model like microfinance as it scales to preserve social missions and achieve appreciable benefit to target populations.
<blockquote class="pullquote--left">Investors shouldn’t just move on to the next bright, shiny object in financial inclusion.</blockquote>
It’s a shame that many of these investors have essentially ceded responsibility for preserving what they played a large part in creating. Instead of saying “it’s not our role anymore,” those funders can recommit and play an outsized role in preserving the character and integrity of microfinance. Just because you have succeeded in developing and nurturing a business model like microfinance, doesn't mean your responsibilities are over.
<h3>From a governance perspective, what are some considerations microfinance investors and executives should keep in mind as the industry continues to grapple with COVID-19?</h3>
<strong>PD:</strong> It’s important to re-emphasize that leaders in management and boards need to look at both the financial stabilization of their institution and the implications for clients to determine their response.

For example, accelerating the shift to more digital channels may be an obvious response to COVID, but we need to ensure that we aren’t leaving certain client segments – rural, illiterate, older, women – behind.

We may feel pressure to quickly achieve pre-COVID levels of profitability, but this urge should be resisted if it means abandoning certain clients, products or research that are core to our social mission.
<h3>There’s a chapter written on the need to refocus on the client. Do you think the industry has moved away from focusing on customer centricity to something like product development?</h3>
<strong>PD:</strong> The book has a line that states most MFIs understand the poor, which helps them better serve the poor; however, we must make a distinction between the product and the client. There's a lot of outfits that understand the poor very well, like lotteries, gambling casinos, and payday lenders. They can devise products that extract as much value as possible from the poor. The issue here is not just understanding the poor: it’s about what institutions do with that knowledge, the objective of learning about their vulnerabilities, and what they need.

MFIs have a huge amount of knowledge about the poor. MFIs understand the economic systems in which they operate as well as how the communities work and the characteristics of their value chains. That said, we must ensure we retain those strengths because if we move towards a more transactional relationship, we lose our ability to create meaningful value for customers and, instead, prioritize maximizing value extraction.
<h3>Do you have any recommendations to ensure the upcoming consolidation period is both responsible and maintains the ethos of client centricity?</h3>
<strong>PD:</strong> In our current context, I think one of the strengths of microfinance as a mature, established sector is that it has a diverse funder and shareholder base. Hopefully, these investors will recognize the crucial and, in many cases, unique role that microfinance can play in helping poorer, informal clients and communities weather the crisis. But for this to happen, legacy investors – the DFIs, philanthropies, social investors – who may have been diluted to low levels need to step up. MFIs exist to create value for their clients in a sustainable way, and legacy investors need to speak up and ensure that this character defines the way that the industry moves forward from COVID.

What Is the Future of Microfinance? Q and A with Paul DiLeo

The <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) is designed for social enterprise leaders to learn and exchange ideas about issues critical to social enterprise growth and impact. In a two-day interactive workshop, participants will gather with faculty and facilitators for role play, simulations, discussions, case studies and more. By re-framing board effectiveness as a strategic imperative and focusing exclusively on C-suite executives and board members, BLI aims to strengthen the leadership and governance of social enterprises.

Our syllabus covers <strong>digital transformation</strong> and <strong>inclusive finance</strong>, but is grounded in <a href="/topics/governance"><strong>board effectiveness</strong></a>—a foundational issue applicable to all companies, no matter its industry or maturity. Board dynamics, risk management and basic governance are baked into the program. Following the workshop, we help you stay connected through a dedicated virtual portal, where you’ll join hundreds of social enterprise leaders in our global network.

Join us! Walk away with valuable connections and new perspectives you can use to drive your organization toward greater growth and impact.

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Board Leadership for Impact Program Overview

The <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) gathers social enterprise leaders to learn and exchange ideas on board effectiveness and governance. After two days of facilitated discussion, case study and role play, we walked away with new perspectives on how important governance is for achieving growth and impact. Here’s what BLI participants from the <a href="/board-leadership-for-impact-program-launch-workshop">Nairobi 2019 Launch Workshop</a> shared with us about what governance and board effectiveness means to them.

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Understanding the Value of Board Effectiveness

It’s the time of year when you take stock of what you’ve done and plan your coming year. And here at the Center for Financial Inclusion at Accion (CFI), we’re doing the same thing: reflecting and planning. Here are five highlights from 2019 as we pursue our mission to engage and challenge the industry to better serve, protect and empower clients. We look forward to engaging our community anew in 2020!

If you like what you read, consider including the Center for Financial Inclusion at Accion in your <a href="https://give.accion.org/page/contribute/cfi">end-of-year giving</a> plans. Donate between now and December 31st and your contribution will be fully matched up to $250,000.
<h1>1 Made consumer protection in digital finance an imperative</h1>
In a world where face-to-face contact in financial services is on the decline, we took up the “<a href="https://www.centerforfinancialinclusion.org/from-human-conduct-to-protection-by-design-the-smart-campaigns-digital-standards">protection by design</a>” call and created the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Digital Credit Standards</a>, which incorporate feedback from consumers, researchers and financial service providers. The <a href="https://www.centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance">Handbook on Consumer Protection for Inclusive Finance</a> was also released, providing a legal and regulatory framework to protect low-income consumers. We heard from hundreds of digital financial service clients in Rwanda in our most recent <a href="https://www.centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services">Client Voices</a> report; and we commissioned a study on the <a href="https://www.centerforfinancialinclusion.org/making-digital-credit-truly-responsible">state of digital credit in Kenya</a>, highlighting challenges and making recommendations on customer centricity.
<h1>2 Continued to shape the next generation of financial inclusion leaders</h1>
We believe strong board leadership is crucial for social enterprises to grow and have impact. In October, following the conclusion of the 5-year <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program">Africa Board Fellowship Program</a>, we launched the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> for social enterprise leaders to learn and exchange ideas on governance, digitalization and inclusive digital finance. And since 2006, we continue to provide management and leadership training to microfinance leaders via the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/hbs-accion-program-on-strategic-leadership-in-inclusive-finance">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>.
<h1>3 Engaged with mainstream banks to reach the underserved</h1>
We also published the final the two reports from our <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/mainstreaming-financial-inclusion-best-practices">Mainstreaming Financial Inclusion: Best Practices</a> project in 2019. These briefs focus on <a href="https://www.centerforfinancialinclusion.org/leveraging-technologies-to-improve-the-quality-and-maximize-the-productivity-of-agent-models">agent models</a> and how technology can boost their quality and effectiveness, and how the <a href="https://www.centerforfinancialinclusion.org/charting-the-customer-journey-in-the-digital-age">customer journey</a> has morphed in the digital era – with unique examples from the industry. These reports facilitate learning and action on six key challenge areas of serving unbanked and underbanked customers.
<h1>4 Transitioned to new leadership</h1>
In September, I <a href="https://www.centerforfinancialinclusion.org/q-a-with-mayada-el-zoghbi-cfis-new-managing-director">took the reins</a> at CFI as Elisabeth Rhyne, our founding Managing Director, retired. With new leadership and a new year will come unique strategic priorities, and in the first months of 2020, we’ll announce our new strategic imperatives for the new year and beyond.
<h1>5 Guided Financial Inclusion Week 2019</h1>
For the fourth annual <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, we solicited <a href="https://www.centerforfinancialinclusion.org/series/financial-inclusion-week-2019">contributions</a> from members of the financial inclusion community, this year under the theme “<a href="https://www.centerforfinancialinclusion.org/financial-inclusion-for-what">Financial Inclusion: For What?</a>”. And you responded: thousands took part engaging with blog posts, sharing their perspectives and research, and interacting with webinars, podcasts, quizzes and in-person events by dozens of partners worldwide. You gave us your thoughts and votes on which areas – equity, financial health, the bottom line, sustainable development – you believe financial inclusion’s ultimate purpose lies. #FinclusionWeek

Looking Back at 2019: a Transition, a New Initiative, Sharing Insights and Engaging Our Community

Let’s face it: corporate governance isn’t exactly a topic that gets most people’s pulses racing, especially if those people are the founders or executives of innovative social enterprises working on the next big disruptions. Given the recent high-profile corporate governance debacles at social impact-oriented companies like <a href="https://www.forbes.com/sites/michaelperegrine/2019/09/25/wework-and-the-value-of-effective-governance-part-ii/#7aced8d011ea">WeWork</a>, however, it’s clear what can happen if board leadership practices are not honed and refined from an early stage.

While the explosive growth of innovative, early-stage startups serving underserved consumers in the developing world – along with advances in data science and artificial intelligence – holds tremendous promise, founders don’t exactly time to pore over the corporate governance strategies they will need for success.

But executive leadership is crucial for helping these firms go from an idea, to proof of concept, to a tangible, lasting benefits underserved customers. By having a dedicated board of directors that has the right experience, network, expectations and is fit for purpose overall, these growth-stage companies not only can scale their business models, but also put in place governance structures that evolve as an innovative company matures – not to mention help them become more appealing impact investments.

<a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide">Corporate Governance for Early-Stage Innovative Companies: A Practical Resource Guide</a>, compiled by CFI and <a href="https://www.fmo.nl/">FMO</a> (the Dutch development bank), is a guide that’s both practical and aspirational, featuring resources and testimonials gleaned from consultative interviews from company founders, investors, academics and others who have been closely involved with growth-stage innovative startups. This resource includes insights and testimonials from peer professionals in the social investment sector: investors, investees and board members.

At a few thousand words long, the report isn’t meant to be exhaustive or encompass all situations and companies, but it raises key topics and points users to further resources, such as a <a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide#annex-3">best board practices slide presentation</a> from Accion’s Venture Lab and our “cheat sheet” <a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide#annex-1">Maturity Matrix</a>.

This resource is a field guide that a potential board member or a COO can read on a lunch break, something board members can have a printed copy of in their board packs.

This resource’s intended main audience is both board members and founders/executives of innovative companies, but it’s also of interest to financial community professionals, academics, students and anyone with a general interest in financial inclusion or impact investing.

For detailed explanations on the principles, don’t forget to check out the <a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide">report</a>. What would you add or change?

Board Governance for Innovative Companies: 9 Principles for Success

<h2>Key Takeaways</h2>
<ul>
 	<li>It's important for early-stage companies, especially innovative ones with exponential growth and market disruption potential, to be proactive about governance by ensuring a strong board is in place before periods of growth and important inflection points occur.</li>
 	<li>Boards need to ensure investors are aligned on social mission and values.</li>
 	<li>It's important for the role of the board and the role of individual board members to be clearly defined and understood from the outset. This means that investor board members should be neither too involved in operations, nor merely fulfilling an obligation to have a board seat.</li>
 	<li>The role of boards will evolve as a company grows and innovates, but strong, well-functioning boards add value at every stage of a company’s growth and development.
Board meetings should to be held at regular intervals, and attendees should “do their homework” and be prepared to actively participate.</li>
 	<li>Having a board provide “checks and balances” doesn’t necessarily mean slowing down growth or innovation. Strong boards challenge founders, make important introductions, partner in growth, and ultimately make a company more sustainable for the long term.</li>
</ul>

Corporate Governance for Early-Stage, Innovative Companies: A Practical Resource Guide

Risk Management

Dunja Latinovic

David Porteous

Jesse Fripp

Sam Parker

Marc Herson

Shradha Modi

Paul DiLeo

Garrett Jaso

Deborah Drake

Mayada El-Zoghbi

Ezra Mannix

Danielle Piskadlo

Jasper  Veel

Lizzy Bolze

Middle East and North Africa

West Bank and Gaza

Kenya

Sub-Saharan Africa

Consumer Protection

Financial Health

Index Insurance

Insurance

Resilience

Governance

Policy, Regulation and Government Initiatives

Responsible Investing

Challenges and Crises

Credit

Customer Centricity

Delivery Channels

Digital Financial Services

Enabling Environment

Microfinance

Financial Service Providers

Impact Investing

Microfinance Institutions

Responsible Digital Finance

Agricultural and Rural Finance

Banks

Consumer Credit

Digital Credit

Education Finance

Energy Finance

Fintechs

Housing Finance

Informal Credit

Insurance Companies

Neobanks

Partnerships

Underserved Groups

Trends

Blog Post

Brief

Video

Report

Event

Press Release

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

We are convening a select group of social enterprise leaders at the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) inaugural workshop taking place October 27-29, 2019, at the Fairview Hotel in Nairobi, Kenya.

BLI is dedicated to empowering corporate leaders in the social enterprise sector to achieve business growth and social impact. By focusing exclusively on executive leadership and reframing board effectiveness as a strategic imperative, BLI strengthens leadership and management to ensure these companies sustain business growth and drive social impact.

BLI is offered as a two-day interactive workshop where participants gather with faculty and facilitators for role play, simulations, discussions, and more. Workshops are augmented with a robust virtual portal where participants can access resources and videos, participate in discussions, and stay connected with hundreds of leaders in our global network. At this inaugural workshop, attendees will have the opportunity to engage with peers on issues critical to social enterprise growth and impact, including digital strategy and culture, data, partnerships and financial inclusion in the digital age.

Board Leadership for Impact Program Launch Workshop

<strong>WASHINGTON, DC, August 27, 2019</strong> – The Center for Financial Inclusion at Accion (CFI) has launched an executive education program for financial service providers serving low-income communities in emerging markets. Through peer learning and exchange, the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> will empower executives and board members to foster client centricity, lead digital transformation, sustain business growth and drive social impact. In partnership with the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> and <a href="https://www.fmo.nl/">FMO</a>, the Dutch development bank, supporting program implementation and participant scholarships, the Board Leadership for Impact Program will offer multiple in-person workshops per year coupled with a robust virtual portal.

Derived from CFI’s five-year <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>, which fostered the growth and development of more than 300 executives and board members of financial service providers serving more than 10 million clients in Africa, the Board Leadership for Impact Program will now expand to include early stage to mature companies offering financial services to underserved customers that operate in emerging markets around the world.

“Our experience with leadership development through peer exchange will inform our efforts through this new program to cultivate a community of leaders who have the skills and the network to help their organizations thrive,“ said <a href="/bio/deborah-drake">Deborah Drake</a>, Vice President, Center for Financial Inclusion at Accion. “Tackling challenges like achieving sustainable growth or pursuing digital transformation, particularly as a mission-driven organization, takes strategic leadership at the board level.”

Through role play, simulations and facilitated discussion, participants will gain new perspectives, skills, and knowledge on topics critical to social enterprise growth and impact, including risk management, board dynamics, digital transformation and inclusive digital finance. They will join an active community of alumni of the Center for Financial Inclusion at Accion’s <a href="https://www.centerforfinancialinclusion.org/get-involved#fellow-exec-ed">executive education programs</a>.

“By developing and strengthening leadership skills that drive business growth and social impact, our partnership with the Center for Financial Inclusion at Accion will help accelerate financial inclusion and economic progress around the world,” said Florencia Spangaro, Director of Programs, Citi Foundation.

“FMO is a proud partner of Accion for over a decade and we realize that creating a lasting impact starts in the board room. Strengthening the management of financial service providers and enterprises will help ensure business longevity and commitment to underserved customers,” said Gerbrich Salverda, Capacity Development Officer at FMO.
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<strong>About the Center for Financial Inclusion at Accion</strong>

The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.
<a href="http://www.centerforfinancialinclusion.org/">www.centerforfinancialinclusion.org</a>
<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>
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MEDIA CONTACT

Center for Financial Inclusion at Accion
<a href="/bio/virginia-moore">Virginia Moore</a>
<a href="mailto:vmoore@accion.org">vmoore@accion.org</a>
+1 202.393.5113

The Center for Financial Inclusion at Accion Launches Executive Education Program for Financial Service Providers to Enable Business Growth and Social Impact

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<div class="sc-bwzfXH ejJzIl"><article class="jsx-1739195141 text-block__article">Africa Board Fellowship (ABF) program participants convene in Cape Town, South Africa, to close out the program’s 9th cohort.

The ABF seminars are an interactive combination of guided discussion and peer-to-peer exchange on governance best practices and risk-management strategies, with an emphasis on fellows sharing knowledge and experience.

World-class experts and leaders in microfinance and financial inclusion will facilitate and engage participants in active dialogues. The aim of the Africa Board Fellowship program is to connect board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients in sub-Saharan Africa.

Research has shown that the single biggest success factor in MFIs across the world is good governance. Program activities, structure, and content have been carefully designed to create an open atmosphere that allows for frank discussion among peers. Fellows identify their objectives for the program and then work with a program advisor on achieving those goals. Additionally, Fellows have access throughout the program to a participant-led virtual collaboration space with tools, resources, content, and access to subject-matter experts. At the conclusion of the program, Fellows stay connected as alumni, providing a network of leaders confronting similar challenges.

<a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Learn more</a> about the program.

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Africa Board Fellowship Closing Seminar – Cohort 9

<a href="/bio/deborah-drake">Deborah Drake</a> will be discussing the forthcoming “Governance Guidelines for Innovative Companies Serving the Base of the Pyramid,” a collaboration between FMO and CFI (originally published 2005, revised in 2019). We look forward to receiving input on this draft at/following this event.

13th Annual DFI Corporate Governance Conference

<strong>WASHINGTON, DC, February, 12, 2019</strong> – The Center for Financial Inclusion at Accion (CFI) and the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> announced a new partnership to strengthen financial institutions specializing in reaching underserved communities in emerging markets. The Citi Foundation is providing $1.2 million in funding to support the three-year initiative.

“Our partnership with the Center for Financial Inclusion at Accion will help develop and strengthen the next generation of financial inclusion leaders who in turn will accelerate financial inclusion and economic progress for families and communities across the world,” said Florencia Spangaro, Director of Programs, Citi Foundation.

Through peer-to-peer learning and executive education programs, CFI builds organizational and human capacity around the globe to deepen and sustain financial inclusion. Its programs include the <a href="/about/what-we-do/hbs-accion-program-on-strategic-leadership-in-inclusive-finance/">Harvard Business School (HBS)-Accion Program in Strategic Leadership in Inclusive Finance</a> (SLIF), an intensive week-long course providing management and leadership training to those shaping the microfinance industry; and the <a href="/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a> (ABF), a governance focused six-month peer learning and exchange program for board members and executives of African financial institutions serving low-income clients. Citi Foundation funding will support both programs, supporting scholarships for HBS-Accion SLIF participants who demonstrate financial need and supporting the optimization and expansion of ABF.

“We are grateful to the Citi Foundation for recognizing the importance of investing in leaders who are working on-the-ground toward financial inclusion,” said <a href="/bio/deborah-drake">Deborah Drake</a>, Vice President, CFI, and head of the governance portfolio. “ABF and HBS-Accion SLIF alumni gain useful skills and knowledge, particularly around governance issues, as well as new relationships and strong networks that they can use immediately and draw on over time.”
<p style="text-align: left">Additionally, the Citi Foundation’s support will contribute to the launch of a new global executive education program to help C-suite leaders and board members of financial institutions effectively and sustainably serve underserved communities. Arriving in fall 2019, with seminars in Asia and Africa, this new program will focus on governance, risk management, growth, client centricity and other mission-critical issues.</p>

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<strong>About the Center for Financial Inclusion at Accion</strong>
The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.
<a href="https://www.centerforfinancialinclusion.org">www.centerforfinancialinclusion.org</a>
<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>

<strong>About the Citi Foundation </strong>
The Citi Foundation works to promote economic progress and improve the lives of people in low-income communities around the world. We invest in efforts that increase financial inclusion, catalyze job opportunities for youth, and reimagine approaches to building economically vibrant cities. The Citi Foundation's "More than Philanthropy" approach leverages the enormous expertise of Citi and its people to fulfill our mission and drive thought leadership and innovation. For more information, visit <a href="https://www.citigroup.com/citi/foundation/">www.citifoundation.com</a>.

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MEDIA CONTACT

Center for Financial Inclusion at Accion
<a href="/bio/virginia-moore">Virginia Moore</a>
vmoore@accion.org
+1 202.393.5113

The Center for Financial Inclusion at Accion and the Citi Foundation Announce Partnership to Strengthen and Expand Executive Leadership in the Financial Inclusion Sector

<h1 style="text-align: center">Finance for All: A Round-Table Discussion</h1>
<h2 style="text-align: center">Thursday, October 4, 2018
12:30pm - 2:15pm
Armourer’s Hall, 81 Coleman St, London EC2R 5BJ</h2>
<h3 style="text-align: center">Supported by the Citi Foundation and the Center for Financial Inclusion at Accion</h3>
Financial inclusion has become a big cause across the globe, and is increasingly becoming big business. It is also a risky business. Many of the markets where financial exclusion reigns are untested, the consumers lack financial sophistication, regulation may be unfriendly, and the technology may not always deliver what it says on the tin.

The CSFI has just conducted - with the support of the Citi Foundation and the Center for Financial Inclusion at Accion - a survey of these risks using its tried and tested Banana Skins methodology. The result is <a href="https://content.centerforfinancialinclusion.org/finance-for-all-wedded-to-fintech-for-better-or-worse/">Finance for All</a>, which identified 18 areas of risk for service providers and ranked them by the scores given by respondents. Technology risk was the clear leader, with “FinTech” firms opening new opportunities and new risks across all the markets surveyed.

Leading the discussion will be:
<ul>
 	<li>Keyur Patel, a CSFI researcher and lead author of the report</li>
 	<li><a href="https://content.centerforfinancialinclusion.org/people/deborah-drake/">Deborah Drake</a>, Vice President, Investing in Inclusive Finance, Center for Financial Inclusion at Accion</li>
 	<li>Philip Brown, Managing Director, Risk, at Citi Inclusive Finance.</li>
</ul>
There will also be a discussion panel including Simon Long, International Editor of The Economist, who published his own special report on technology in financial inclusion earlier this year.
This will be an excellent opportunity to hear a hard-nosed discussion about the prospects for financial inclusion which takes account of the business case as well as the philanthropic.

Roundtable Discussion: Finance for All

The eight cohort of the Africa Board Fellowship (ABF) program convenes in Cape Town, South Africa for its opening seminar on October 17-19th 2018, followed by a closing seminar for the seventh cohort (October 22-24).

The seminars will be an interactive combination of guided discussion and peer-to-peer exchange on governance best practices and risk-management strategies, with an emphasis on fellows sharing knowledge and experience.

World-class experts and leaders in microfinance and financial inclusion will facilitate and engage participants in active dialogues. The aim of the Africa Board Fellowship program is to connect board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients in sub-Saharan Africa.

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Africa Board Fellowship Seminars October 2018

The Africa Board Fellowship Program connects board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients. It's not your average corporate training. One aspect of our peer learning and exchange model are these graphic harvests, which help fellows visualize the governance and risk concepts discussed during in-person seminars.

Africa Board Fellowship Graphic Harvest