The European Investment Bank Group, which includes the <a href="https://www.eib.org/en/" target="_blank" rel="noopener noreferrer">European Investment Bank</a> (EIB) -- aka “The EU Bank” -- and the <a href="https://www.eif.org/" target="_blank" rel="noopener noreferrer">European Investment Fund</a> (EIF), promotes development in Europe and supports its policies in more than 140 countries outside the continent. Shortly after the pandemic was declared, the EIB Group <a href="https://www.eib.org/en/press/all/2020-126-eib-board-approves-eur-25-billion-pan-european-guarantee-fund-to-respond-to-covid-19-crisis.htm" target="_blank" rel="noopener noreferrer">established</a> the 25 billion euro Pan-European Guarantee Fund, primarily for SMEs. Outside the eurozone, the EIB has set aside up to 6.7 billion euros to <a href="https://www.eib.org/en/about/initiatives/covid-19-response/index.htm" target="_blank" rel="noopener noreferrer">support health and private sector investment</a> in more than 100 countries, with a focus on Africa, Asia, Latin America and EU neighbors in the MENA region and Eastern Europe.

EIF has been involved in the European microfinance sector since 2000, providing funding (equity, quasi-equity and loans) and portfolio guarantees to a broad range of financial intermediaries, under various programs, aiming to make microfinance a fully-fledged segment of the European financial sector.

To gain insights into how the organization is supporting financial inclusion in the COVID era, CFI sat down with Cristina Dumitrescu, senior investment manager at the EIF’s inclusive finance division and Olivier Edelman, head of the EIB’s microfinance unit, to discuss support priorities during the pandemic, short and longer-term risks, instruments deployed, and what the inclusive finance community can do to support EIB Group’s priorities.
<h3><a href="https://www.centerforfinancialinclusion.org/how-should-investors-coordinate-when-time-is-of-the-essence" target="_blank" rel="noopener noreferrer">CFI</a>, the <a href="https://www.centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a> and others have framed the COVID-19 investor response in terms of short and medium-term needs. How is EIB supporting microfinance institutions now, and what is coming further down the road?</h3>
The EIB Group immediately reacted to the economic impact of the coronavirus crisis by setting up specific measures to support its clients, including MFIs. The first and immediate need from the sector was liquidity. Lockdowns and regulatory moratoriums on loan repayments, together with a drop in business activity, were expected to put rapid and serious constraints on MFIs’ liquidity position.

To ensure effective solutions to these needs, the EIB Group played its countercyclical role by supporting existing clients in getting funds disbursed quicker and obtaining top-ups on their existing loans. In addition, the EIB Group continued to appraise new operations, with existing but also new clients, almost as if we were in “normal” times.

Since the start of the COVID-19 crisis, the EIB Group has approved 20.1 billion euros to enable public and private partners around the world to better tackle health, social and economic challenges.
<h3>Liquidity has been talked about as the biggest immediate problem for many microfinance institutions. Is this what you are observing among your investees or are there more pressing risks? If liquidity is a major constraint, what is EIB doing with its investees to address this constraint (e.g. new lending, moratoriums on existing loans, etc.)?</h3>
Indeed, liquidity was immediately perceived as being the major constraint that MFIs would encounter as a first and pressing risk.

Eight months after the start of the crisis, many MFIs, in particular the largest ones, were able to handle the liquidity crisis by taking rapid and efficient actions. This was partially achieved by securing new credit lines from their microfinance financiers. However, MFIs also built up liquidity cushions by not renewing maturing loans granted to microentrepreneurs and by retaining cash from those repayments. This way, MFIs absorbed the first wave of the economic crisis; however, at the cost of a partial credit draw down. To respond to the overall liquidity crisis, the EIB Group stepped up to support existing and new clients in providing them financial support. However, EIB Group credit lines have to be allocated by MFIs to further finance microentrepreneurs.
<blockquote>To respond to the overall liquidity crisis, the EIB Group stepped up to support existing and new clients.</blockquote>
This way, we try to provide a countercyclical answer to the developing credit crunch that both microentrepreneurs and MFIs are facing.

Specifically in the EU and accession countries, by enhancing the technical parameters of the <a href="https://www.eif.org/what_we_do/microfinance/easi/easi-guarantee-instrument/index.htm" target="_blank" rel="noopener noreferrer">EaSI Guarantee Instrument</a>, financial intermediaries were incentivized to continue providing financing to microborrowers, microenterprises and social enterprises hit by the economic consequences of the pandemic.
<h3>Once the liquidity crisis is over its peak, what's next? Loan guarantees?</h3>
The overall economic situation is expected to translate to increased non-performing loan rates, delinquencies and, hence, future retained losses that will affect the capitalization of MFIs in the medium to long term; at the same time, liquidity shortage will remain a challenge. Therefore, financial solutions that maintain or restore the financial standing of MFIs, in particular their leverage and risk taking capacity, will be crucial going forward. These solutions might indeed come from loan guarantees, but also more traditional capital instruments as straight equity injections and subordinated loans. In addition to these financial solutions, redirecting the purpose of technical assistance facilities should also help MFIs increase their capacity to overcome the crisis. This may take many different forms depending on the countries, local context and the structure of our counterparts.
<h3>Besides direct investees, what other stakeholders has EIB engaged with in support of the microfinance industry? Are you engaging with MIVs, national associations, or any other industry stakeholders? What’s the nature of that engagement?</h3>
We always remain in contact with several microfinance stakeholders, in particular the European Commission and EU Member States, but also specialist funds, network associations and local authorities and associations. We listen to what they observe in the market and the associated needs on the ground. We also share our knowledge and views on the sector via working groups and information sharing session. The EIB Group is also participating in CGAP information sharing discussions.
<h3>The EIB has a broad geographical reach in its support of microfinance institutions, with a portfolio that is roughly split between overseas countries (Africa, the Caribbean and the Pacific) and EU/accession countries? Are there any specific countries or regions you are prioritizing in your COVID response?</h3>
The EIB Group indeed supports microfinance in a large number of countries, we are active in dozens of them around the world.
<blockquote class="pullquote--right">The EIF is on the frontline in the EU and accession countries, while the EIB focuses its actions on the MENA region and Africa.</blockquote>
Typically, for microfinance operations, the EIF is on the frontline in the EU and accession countries, while the EIB focuses its actions on the MENA region and Africa, the Caribbean, and the Pacific regions. Within these regions, there are no specific priorities other than concentrating our actions on providing support to poor microentrepreneurs to facilitate and improve their capacity to access financing. We try to support all countries equally, while taking into consideration local specificities and needs, which might differ, sometimes substantially.
<h3>With regards to the crisis at home, all 27 EU countries have been “invited” to contribute to the Pan-European Guarantee Fund (EGF), the centerpiece of your COVID-19 response, with member states’ shares of the 25 billion euros equal to their share of EIB capital. Can you clarify how that works in practice? Will support to MSMEs be delivered through MFIs and/or banks?</h3>
Through EGF, the EIB Group will deploy a number of equity, debt funds and guarantee products in cooperation with selected financial intermediaries, including MFIs, for the benefit of primarily SMEs but also mid-caps, large corporations, and public sector entities related to health across the EU. The objective of the EGF is to provide banks and national promotional institutions with guarantees and counter-guarantees to unlock lending to firms that are healthy but suffer from liquidity problems because of the fallout from COVID-19.
<h3>What are the main instruments that EIB is deploying in its work with MFIs and with other stakeholders that support the microfinance industry? Are you deploying any new instruments like blended finance vehicles, public-private-partnerships, etc.?</h3>
In principle, the EIB Group can offer a large set of products to MFIs. Investments in equity, typically operated via funds, aim at providing capital to MFIs and reaching the smaller and more risky institutions in need of funding. In addition, lending, often denominated in local currency, can be granted to larger MFIs in the region the EIB Group operates. Finally, loan portfolio guarantees can be deployed in order to support MFIs in financing more vulnerable groups of clients and hence further strengthen financial inclusion. While portfolio guarantee is a standard product for the EIF, the EIB intends to develop such a solution for its operations outside the EU in the near future.
<blockquote class="pullquote--left">Blending will remain a source of product development in the microfinance sector.</blockquote>
In addition, blending will remain a source of product development in the microfinance sector. Indeed, the combination of different sources and types of capital (i.e. from public donors to private investors) allows for provision of more customized solutions to the microfinance sector and generate double bottom line targets: financial and social impact. The EIB Group is already actively deploying such solutions, notably via layered funds. Other alternative uses of blended finance are constantly considered in order to further support the sector, which could take the form of loan portfolio guarantees.

A concrete example of blending instruments is the grant embedded in the EaSI Guarantee instrument, which covers the costs of the business development services offered by the MFI to a migrant or refugee entrepreneur.
<h3>Finally, how can the rest of us help? What can the inclusive finance community do to support the work of DFIs in research, for example, or in the <a href="https://centerforfinancialinclusion.org/how-should-investors-coordinate-when-time-is-of-the-essence/" target="_blank" rel="noopener noreferrer">coordination</a> of actors?</h3>
Communication and exchanges of knowledge and information is already quite strong in the microfinance community, which is well organized and able to coordinate among its various stakeholders. This has led to rapid actions, e.g. as shown by the <a href="http://www.incofin.com/wp-content/uploads/2020-04-24-MIV-Covid-19-coordination-MoU.pdf" target="_blank" rel="noopener noreferrer">memorandum of understanding</a> among MIVs. This is particularly true within each type of microfinance investor groups (e.g. MIVs, DFIs, private donors, etc.) and sometimes less across those groups due to their specificities. The COVID-19 crisis future development will require further coordination and, more importantly, actions from the microfinance community. Delivering solutions to MFIs in order to help them navigate the crisis ahead of us will be crucial to support the sector.

Blending solutions might be required, notably to restore MFIs capital and lending capacity. This will necessitate a coordination among and across different type of microfinance investors to deliver adapted financial answers to respond to the crisis MFIs will face, and hence to continue support to vulnerable microentrepreneurs.

Questions for EIB Group: DFIs, Financial Inclusion and the COVID-19 Response

<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

<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://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, Bosnia and Herzegovina, India, 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://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>

Spandana started in 1998 as a microcredit program of an NGO. It quickly became one of the bellwethers of the country’s microfinance industry, offering small group loans to predominately low-income women without the need for collateral. When Spandana was incorporated as a non-bank financial company/microfinance institution (NBFC-MFI) in 2003, it was the largest microfinance institution in India and the sixth largest in the world. In the early 2000s, Spandana was growing rapidly and began exploring a path to an initial public offering (IPO).

The state of Andhra Pradesh (AP) had become one of the most competitive microfinance markets in India during this time. As more commercial MFIs grew, they competed with the state government’s Self-Help Group-Bank Linkage (SHG) program. The SHGs had access to capital from the banking system and worked with millions of underserved women by helping them save small sums and take out loans.

The AP government started to become uneasy with the outsized impact and influence of commercial MFIs, however. Increased competition led to excessive lending, with many clients taking out multiple loans from both SHGs and commercial MFIs. Average household debt in AP rose to about INR 65,000 compared to a national average of about INR 70,001. The MFIs were accused of harassing customers for repayment. The suicide rate spiked, and the state government began attributing some of these suicides to excessive lending by the MFIs and coercive loan recovery practices.
<blockquote>The Andhra Pradesh government started to become uneasy with the outsized impact and influence of commercial MFIs.</blockquote>
In order to rein in the alleged coercive recovery practices of the commercial MFIs, the state government passed the AP Microfinance Institutions (Regulation of Money Lending) Act in October 2010. The ordinance barred MFIs from collecting payments at certain locations, such as a borrower's home or place of work. The regulatory authority also set interest rate caps and mandated stringent reporting guidelines.

<img class="alignright wp-image-40319" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Spandana-Portfolio-Distribution-Chart-V3-1024x639.png" alt="" width="450" height="281" />Clients misconstrued the ordinance to justify non-repayment of loans owed to the MFIs with no serious repercussions. Within a month, the loan repayment rate had dropped from 99.89 percent to 1 percent. An estimated INR 70 billion in loans in the state, from about 6.25 million accounts, had come under stress. This led to severe cash flow problems for the MFIs in the region. In the end, the ordinance caused some MFIs in the state to close and declare bankruptcy. For Spandana, even though it had sufficient capital adequacy (with equity of INR 4.85 billion), the unfolding crisis meant severe financial stress and cash flow problems.

At the onset of the crisis, loans in AP accounted for about half of Spandana's portfolio. In addition to its customers, the livelihoods of the firm’s employees were also at stake: Spandana employed 7000 in AP and had 850 branches operating there.

After the shock of the ordinance rippled through the microfinance ecosystem, Spandana felt it had no choice but to take the case to the court. While it was good news that their case eventually reached the Supreme Court, it meant a long wait, and Spandana’s management was forced to suspend operations in AP and scrap their IPO plans while the court heard their case. Knowing it couldn’t depend on the legal challenge alone, however, Spandana leadership triaged the most pressing challenges and made some difficult business decisions.
<h2>Hard Solutions for A Long Recovery</h2>
The senior management team quickly recognized that liquidity, crucial for ensuring the company could continue operations, was the top challenge. But for Spandana, additional liquidity in the form of financing was hard to come by as it had taken on debt from 48 lenders to fuel its growth.

<img class="alignleft wp-image-40320" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Lenders-Chart-V3-1024x711.png" alt="pie chart" width="450" height="312" />The team ultimately felt that a corporate debt restructuring (CDR) would be appropriate to get needed liquidity and avoid default. ICICI Bank and SIDBI, Spandana's largest lenders, agreed with the management team's assessment that Spandana needed a CDR. The team needed to convince the Reserve Bank of India (RBI), however, because it did not allow such a facility for NBFCs. Spandana's executive team, along with ICICI and SIDBI, began efforts to persuade the RBI to authorize debt of NBFCs as eligible for a CDR. At the same time, the management team held discussions with its investors to gather internal support for a CDR, pending RBI approval.

In 2011, after months of dialogue with the RBI, Spandana, along with other NBFCs in AP, finally got what they wanted: authorization to proceed with a CDR in accordance with guidelines established by the new policy. The RBI also established rules, which played an important role in stabilizing the regulatory environment on issues related to operational process, customer protection, and governance. It also created a separate class of institutions for NBFC-MFIs for regulatory purposes.

ICICI and SIDBI managed to persuade most lenders to sign on to the CDR package by emphasizing the increased chance of recovery over time with improved ground-level conditions, although some lenders did not agree to the CDR and were left out. In September 2011 (see timeline graphic below) Spandana’s investors signed the CDR, which would restructure their INR 21.46 billion in loans outstanding to address its exposure in AP and assist with liquidity challenges. The CDR had two components:
<h3>1. Optionally Convertible Note (OCN)</h3>
INR 10 billion (46 percent) of the outstanding loan value, an amount equivalent to AP portfolio that was deemed irrecoverable, was restructured into a convertible quasi-equity instrument. A redemption premium of 12 percent per annum was payable at redemption. The lenders also had the option to convert these instruments into equity shares of the company, an option Spandana hoped investors would exercise.
<h3>2. Term Loan</h3>
The remaining INR 11.5 billion (54 percent) was bundled into a 72-month term loan repayable in monthly installments at 12 percent interest from April 2012. The term loan was secured by a pledge of 7.27 million Spandana shares owned by its founder, Padmaja Reddy.
<h2>Leaner and Stronger Operations</h2>
While the CDR resolved the initial liquidity issues keeping Spandana from defaulting, many other business and operational challenges had to be dealt with in order to ensure long-term survival. The first, most immediate challenge was Spandana's increasing operational costs coupled with declining revenue. After an exhaustive analysis of its operational costs, the team decided to reduce its number branches and staff.

The next challenge was to establish strong practices related to customer experience and engagement. This included organizing institution-wide staff trainings on appropriate field behavior and client communications. To further improve field behavior, the staff remuneration structure was changed so that 70 percent of staff salaries were fixed, as opposed to 30 percent before the crisis. The goal of this was to encourage staff focus on portfolio quality instead of growth.
<blockquote class="pullquote--right">Staff members were encouraged to focus on portfolio quality instead of growth.</blockquote>
In 2012, after waiting almost two years, the Supreme Court ruled that Spandana could restart lending and recovery operations in the state. This decision restored Spandana’s recovery efforts and it managed to collect INR 10 billion between FY 2011 and FY 2017. With collections resuming in AP, and the new liquidity provided by the CDR, Spandana decided to expand its portfolio to other states to counter perceived overexposure to AP. By deploying capital in other states, Spandana managed to lower its exposure in Andhra Pradesh to 3.1 percent of its active portfolio in 2017, significantly lower than the pre-crisis level of 51 percent.

Spandana also needed to show it was on track operationally. In FY 2014, Spandana reported disbursing INR 16.67 billion in new loans. The improved collection rate and business performance gave confidence to the CDR lenders, which helped Spandana persuade them to defer CDR payments for a period of two years, from January 2014 to December 2015. This agreement allowed Spandana to continue using the cash from collections to reinvest in the expansion of lending operations. ICICI Bank also stepped up to provide an INR 11.5 billion credit facility to boost portfolio growth outside AP. As a result of these efforts, Spandana was able to strengthen its financial performance and condition and begin servicing the CDR when initial payments came due in 2016.
<h2>Profitability and A Strong New Ally</h2>
The shift in strategy, resumed collections in AP, and operational changes allowed Spandana to become profitable starting in FY 2014 (2013-14) after three years of losses (see graphs below). In FY 2016, Spandana reported a profit of INR 2.45 billion. Moreover, its capital adequacy ratio, which was negative the prior two years, turned positive in FY 2017.

<img class="size-full wp-image-40382 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Profit-Tax-Chart-V6.png" alt="" width="750" height="458" />

<img class="aligncenter size-full wp-image-40383" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Capital-Adequacy-Chart-V5.png" alt="graph" width="750" height="399" />

Although Spandana attempted to fulfill the CDR obligations, there were times when collections and revenue were not adequate to cover payments. Therefore, in 2016, the management began scouting for investors to obtain new funding and buy out the CDR lenders who did not intend to convert their investment into equity. While Spandana continued to negotiate the payoff of the OCN, time was running out fast to find new equity investors. In 2017, Kedara Capital, recognizing Spandana's long-term value, invested by buying out the remaining portion of the OCN. Spandana was also able to get a consortium of banks to provide a loan of INR 11 billion to pay off the outstanding term loan of the CDR. Following these moves, Spandana exited the CDR package, which assisted in improving its credit rating

<img class="aligncenter size-full wp-image-40325" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Spandana-Timeline-V2.png" alt="spandana timeline" width="1500" height="613" />

By 2019, Kedara Capital gradually increased its investment in Spandana to 59.1 percent. As a majority shareholder, Kedara took an active role to help Spandana consolidate the number of lenders and increase the availability of capital at lower cost. With the support of Kedara, the number of lenders was reduced to five, and Spandana was able to obtain new financing for business expansion. Kedara also advised the company to improve its governance structure by bringing in industry experts to serve as independent directors. This rebuild fueled Spandana’s operating and profit margins while enabling the upgrade of its credit ratings.
<blockquote class="pullquote--right">Kedara advised Spandana to improve its governance structure by bringing in industry experts to serve as independent directors.</blockquote>
Finally, 10 years after the AP crisis, Spandana came full circle when it successfully launched its IPO in 2019.  It went well: the company’s share price rose more than 33 percent between August 2019 and late February 2020. Then, COVID hit…

<em>What are some of the dos and don’ts and key success factors that the microfinance sector can learn from the Spandana case? CFI’s forthcoming report, </em>Weathering the Storm II<em>, will draw on lessons from Spandana and cases from microfinance institutions in four other markets – <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, Bosnia, Palestine and Nicaragua. See the original Weathering the Storm report from 2011 <a href="https://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">here</a>.
</em>

<em>The author is extremely grateful to N.K Maini, ex-Deputy Managing Director of SIDBI, Gourisankar Gollapudi, CEO of Manaveeya Development and Finance Limited, Nitin Agarwal (former CEO of Spandana between 2010 and 2014) Prakash Kumar, CGM, SIDBI, for agreeing to be interviewed about the Spandana crisis and revival. This case would not be complete without their contributions.</em>

Weathering the Storm II: A Case Study of Spandana

<a href="https://www.cdcgroup.com/en/" target="_blank" rel="noopener noreferrer">CDC Group</a>, the UK’s development finance institution, is one of the largest DFIs in the world. With nearly $6 billion invested in companies located mostly in Africa and South Asia, CDC is an impact investor that aims to drive development through commercial means.

CDC invests across a wide range of sectors but focuses on seven priority sectors that it has identified as having the greatest potential for development impact. Among these, the financial services sector currently represents a <a href="https://www.cdcgroup.com/our-impact/key-data#how-we-invest-in-sectors!" target="_blank" rel="noopener noreferrer">greater share of CDC’s portfolio</a> than any other sector.

As part of its exploration into how DFIs are responding to COVID-19, in particular with respect to the role of the financial sector, CFI connected with Machal Karim, an executive on CDC’s Development Impact team who focuses on financial services in developing countries.
<h2>For its COVID-19 response, CDC has laid out three areas of focus: ‘Preserve,’ ‘Strengthen’ and ‘Rebuild.’ Can you tell us more about those?</h2>
We prepared a briefing document with complete details that is available on our <a href="https://www.cdcgroup.com/en/covid-19-response/" target="_blank" rel="noopener noreferrer">COVID-19 response page</a>.
<blockquote>Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined.</blockquote>
Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined. This is particularly the case in those sectors most affected by COVID-19, where it’s been crucial to act to protect the positive environmental, economic, and social impact of these businesses. Our support has included providing working capital, technical assistance, and guidance to improve their resilience and protect jobs.

Our second area of focus is to strengthen the resilience of businesses by scaling up our response to the economic and health challenges of the crisis. On the economic side, we’re channeling much-needed liquidity to local banks to enable them to support their business customers. And to support those that have a direct role in combating the COVID-19 pandemic, we are assessing opportunities to invest in businesses providing healthcare or access to basic goods and services.

We’re now at a point where, alongside these more immediate actions, we’re thinking more about our third area of focus – to support economies to rebuild and recover once the worst effects of the pandemic have passed. As a DFI, our role to address the long-term challenges a crisis will bring – continuing to invest patient capital at a time when commercial investors pull back – is vital.
<h2>In terms of ‘Strengthen,’ CDC is looking to provide liquidity for local financial service providers. Have you identified opportunities for this type of support yet?</h2>
We’re giving priority to those who are in most urgent need of liquidity support. Over the last few months, we’ve committed just over $400 million to our program of systemic liquidity.

As an example, we’ve recently made an <a href="https://www.cdcgroup.com/en/news-insight/news/cdc-announces-additional-us75-million-trade-finance-deal-with-absa-as-part-of-covid-19-response/" target="_blank" rel="noopener noreferrer">additional $75 million commitment</a> to our existing trade finance facility with Absa Bank, an African financial services group. The pandemic has put significant pressure on African banks as international banks continue to withdraw from the continent.
<blockquote>What makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries.</blockquote>
The investment will enable local banks to sustain the availability of trade finance, supporting supply chains during the crisis. And what makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries and in sectors that are critical to serving people’s basic needs during the crisis – food and agriculture and health.
<h2>What about timeframes? What do you see as the medium-term needs beyond liquidity?</h2>
<blockquote>What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term.</blockquote>
CDC has identified various <a href="https://www.cdcgroup.com/en/news-insight/news/guidance-on-protecting-customers-during-covid-19/" target="_blank" rel="noopener noreferrer">short-term to longer-term risks and provided corresponding suggestions</a>, but we’re at a stage where it’s still very difficult to talk about timeframes. We still cannot predict what the ultimate impact will be. What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term, supporting businesses through the course of the pandemic and to rebuild sustainably.

In terms of needs beyond liquidity, our approach throughout has been to provide guidance for employers, investors, and financial institutions on issues ranging from <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/how-can-investors-help-companies-protect-jobs-during-covid-19/?fl=true" target="_blank" rel="noopener noreferrer">job protection</a>, to <a href="https://www.cdcgroup.com/wp-content/uploads/2020/04/CDC-Group-Guidance-on-protecting-customers.pdf" target="_blank" rel="noopener noreferrer">customer protection</a>, to <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/guidance-on-managing-a-remote-workforce-during-the-covid-19-pandemic/?fl=true" target="_blank" rel="noopener noreferrer">remote working</a>. As time has moved on, the nature of this guidance has evolved to include advice on <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/returning-to-the-workplace-during-covid-19-labour-and-workforce-considerations/" target="_blank" rel="noopener noreferrer">returning to the workplace</a> and how to support women working from home with limited access to technology.

Another part of our approach has been to provide support to investee businesses through <a href="https://www.cdcgroup.com/en/covid-19-response-facilities/" target="_blank" rel="noopener noreferrer">our technical assistance facility, CDC Plus</a>. This has included one facility providing grants to businesses, so they can adapt or scale-up to form part of the response to the pandemic, and a second facility to support the development of guidance for companies on how to respond to the crisis.
<h2>Throughout the short and medium terms, CDC suggests businesses maximize their “digital footprint and channels” as much as possible. How are your investees working to accelerate digitization for consumers?</h2>
We’ve been supporting our investee businesses, including financial institutions, to proactively explore how they may want to pivot their current products or operations to better meet customer needs. Much of this has revolved around learning more about digital opportunities and maximizing their digital offerings so they can continue to operate under the changing environments and new types of customer interaction and behavior that the pandemic has brought about.

We continue to support our investees through various channels, including our technical assistance facility, to explore these opportunities and step up their activities as economies open up.
<h2>Consumer protection remains an important topic for CDC. How have consumer protection challenges shifted in the COVID era?</h2>
<blockquote>Consumer protection risks have become particularly heightened due to the pandemic.</blockquote>
We recognized that financial institutions and their customers would come under particular stress as a result of COVID-19. Consumer protection risks have become particularly heightened due to the pandemic, as financial institutions have had to balance the immediate stress on liquidity with the need to sustain support to their customers and abide by regulatory requirements.

Early on, we ensured that the financial institutions we’re invested in had the support they needed to make decisions and manage risks while protecting customers, such as by issuing this <a href="https://assets.cdcgroup.com/wp-content/uploads/2020/04/09165635/CDC-Group-Guidance-on-protecting-customers_9-April-2020.pdf" target="_blank" rel="noopener noreferrer">guidance document</a>. Mindful of the many stresses on employment, liquidity and cashflows, we urged our financial institution partners to continue to consider the needs of, and risks to, customers through the crisis.
<h2>How has this crisis shifted the perception of inclusive finance, if at all?</h2>
<blockquote>Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable.</blockquote>
Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable. Our work to provide systemic liquidity has been a concrete channel of support to the market, with an explicit focus on supporting the most vulnerable first and ensuring their liquidity needs are managed.

When we start to recover, it will be vital to remember all segments of the market to ensure that the most vulnerable and excluded groups are not left behind. It will also be important to continue to support financial institutions in reaching those customers that have historically been perceived as higher risk and harder to reach, as they are also the most vulnerable.
<h2>CDC’s head of Africa has argued that the banking sector is where DFI support is most crucial, but that private capital will be required in the longer term. Does CDC structure any direct support to MSMEs or does everything flow via the banking sector?</h2>
<blockquote>We know that our most effective way for getting capital to SMEs is through partners, rather than investing directly.</blockquote>
A key part of our <a href="https://www.cdcgroup.com/wp-content/uploads/2020/05/Financial-Institutions_11.pdf" target="_blank" rel="noopener noreferrer">Financial Institutions' Strategy</a> is to help intermediaries serve SMEs because SMEs are the growth engines of the economy in our geographies. We know that our most effective way of getting capital to this size of business is through partners, rather than investing directly.

This includes investing in non-bank financial companies so that alternatives to traditional bank financing become available to SMEs, as well as supporting microfinance institutions looking to extend their lending to SMEs. It also includes working with our bank investees to increase the finance they provide to SMEs. This can mean funding work to develop products and operations better suited to SME clients. And it can mean entering into risk-sharing agreements, which reduce banks’ capital cost of lending to SMEs, or trade finance agreements to bridge the ‘trade finance gap’ and support trade undertaken by local businesses. Finally, it includes investing through funds to reach SMEs with different types of capital.

That’s why an important part of our response has been focused on working with our investee financial institutions, so that we can quickly help them to increase the credit available in our markets. For example, by expanding our pre-existing trade finance programs, we can inject liquidity quickly and accurately, and ensure that domestic supply chains keep operating, which in turn supports SMEs within those markets.
<h2>Has CDC coordinated with other DFIs on its COVID-19 response? What’s been the nature of this inter-DFI coordination, and what more can be done?</h2>
DFIs came together very early on to find ways to collaborate in response to the pandemic. The <a href="https://www.cdcgroup.com/en/news-insight/news/development-finance-institutions-join-forces-to-respond-to-covid-19-in-developing-countries/" target="_blank" rel="noopener noreferrer">DFI Alliance</a>, involving organizations from 16 OECD countries, has been working together to bring liquidity to the market, support companies impacted by the virus, and promote new investment.

CDC has been working with both bilateral and multilateral DFIs. There are various working groups underway coordinating on areas ranging from technical assistance funding, to our approach to certain sectors, to supporting the liquidity of investment funds.

We’ve also been collaborating on how to support the rebuilding of businesses and economies in a way that is more inclusive. For example, alongside our peers, we <a href="https://www.cdcgroup.com/en/news-insight/news/2x-challenge-and-gender-finance-collaborative-response-to-the-covid-19-pandemic/" target="_blank" rel="noopener noreferrer">called for a gender-sensitive approach</a> among investors in both immediate responses and longer-term recovery solutions.
<blockquote>We will continue to stand firm to play our role at a time when commercial investors are pulling back.</blockquote>
We feel proud of what we’ve been able to achieve so far and recognize there is a lot more to do as the pandemic shifts from an acute to a chronic challenge. Our approach of providing much-needed liquidity through financial intermediaries is very likely to continue to be needed in the coming years. We will continue to stand firm to play our role at a time when commercial investors are pulling back, so that in the long-term, businesses and economies are able to successfully rebuild.

DFIs, Financial Inclusion and the COVID-19 Response: A Q&A with Machal Karim of CDC

Earlier this year, as all of us were coming to grips with COVID-19, 14 leading microfinance organizations came together to form the <a href="https://www.centerforfinancialinclusion.org/bio/microfinance-coalition" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a> to represent the voice of microfinance providers globally and take collective action. This group first introduced itself in May by way of a <a href="https://www.findevgateway.org/blog-series/call-action-how-donors-investors-and-policymakers-can-help-mfis-survive-covid-19" target="_blank" rel="noopener noreferrer">call to action blog series</a>, published here and on FinDev Gateway, that targeted key stakeholders on issues essential to micro, small and medium enterprises and the financial institutions that serve them, and there have already been some positive responses in the two months since.

After an introductory post, the <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">first call to action</a> was released with a focus on the investor community. Shortly thereafter, this call was answered by the group of nine microfinance investment vehicles (MIVs) (which has now expanded to ten) that had previously issued a <a href="http://www.e-mfp.eu/sites/default/files/news2020/2020-04-24 MIV Covid-19 coordination MoU.pdf" target="_blank" rel="noopener noreferrer">Memorandum of Understanding</a> as a part of their own response to COVID-19. This group began to engage with the Microfinance Coalition to identify opportunities for collaboration, and although this engagement is still in its early stages, tangible benefits are already starting to emerge.

Broadly speaking, these benefits fall into the following three categories:
<ol>
 	<li>Fostering increased transparency and trust</li>
 	<li>Identifying specific issues on which to collaborate</li>
 	<li>Amplifying our voice in engaging with other stakeholders</li>
</ol>
<h2>Increased Transparency and Trust</h2>
It’s important to recognize that while we’re all in this together, the situation is evolving rapidly, and visibility is limited. This can lead to misunderstandings and misperceptions that only serve to heighten the sense of risk. To counter this, open dialogue and information sharing are key, and that’s precisely what this engagement has allowed for. For example, a few members of the Coalition raised concerns about whether MFIs that proactively ask for handshake agreements or inquire about flexibility with covenants might compromise their ability to obtain new loans. The MIVs responded that to the contrary, MFIs that are transparent actually make it easier for the MIVs to work with them.

Another concern was whether sharing projections that include middle- or worst-case scenarios might backfire, and the MIVs maintained that information and thoughtful analysis provide much more assurance than the lack thereof.

Thanks to this dialogue, what has emerged is a venue for exchange that will help to facilitate an even more informed and coordinated response than would have been possible otherwise.
<h2>Collaborating on Specific Issues</h2>
Our initial conversations have already surfaced a number of items on which to collaborate, including the treatment of covenants, potential ways to de-risk lending, dealing with foreign exchange risk, and managing the legal costs for any restructurings that may become necessary. However, not surprisingly, one of the items that has gotten the most immediate attention is the need for a harmonized approach to the sharing of information, especially forward-looking information.

Given all the data collection efforts that are already afoot, there's a clear recognition that the reporting burden must be kept to a minimum, and that any additional information sharing must be uniquely additive. Hence, there is a preference for projections or a package of forward-looking metrics that can be anonymized and aggregated to shed light on the potential impact that COVID-19 might have on overall MFI portfolio quality, profitability and capital adequacy on a country-by-country basis. Among other things, such information could help to anticipate solvency challenges across markets as the crisis continues to unfold.
<blockquote>Projections or a package of forward-looking metrics that can be anonymized and aggregated are preferred.</blockquote>
These data-related discussions led to a recent session during which CGAP presented the findings of its first two waves of its <a href="https://www.cgap.org/pulse" target="_blank" rel="noopener noreferrer">Global Pulse Survey of Microfinance Institutions</a> to the Coalition and MIVs, which served the dual purpose of providing reactions to CGAP on the survey and helping to inform the approach to be taken by the Coalition and MIVs on these forward-looking indicators. This engagement with CGAP is set to continue, which will help the Coalition and MIVs further define which metrics to ultimately share with each other.
<h2>Engaging with Other Stakeholders</h2>
The third benefit is the ability to leverage this platform of cooperation with the MIVs to connect with other stakeholders who are also working on their own responses. As noted above, one issue that the Coalition and MIVs would like to address is how to deal with foreign exchange risk. Hedging costs have increased, and if loans that MFIs seek to reschedule are converted into hard currency loans, that brings additional exposure to the MFIs and, by extension, to their clients.

The poor are the ones who are most vulnerable to this pandemic, so it behooves us to find solutions that don’t let such risks flow through to them. The Coalition and MIVs believe that this is an area where other players, such as development finance institutions and <a href="https://www.tcxfund.com/" target="_blank" rel="noopener noreferrer">TCX</a> (a fund that helps to manage currency risk), could be instrumental. We aim to initiate conversations with them on potential mechanisms that could be put in place to address this issue.

Looking ahead, it seems clear that we are only in the very early stages of this pandemic. We need to be taking a much longer view to our cooperation. Rather than thinking of the effects of COVID-19 as coming in waves, it may be more appropriate to see them as a sea change that we need to adapt to for the long haul.
<blockquote>COVID-19's effects might be a sea change as opposed to coming in waves.</blockquote>
We're grateful for the engagement we have seen to date, and we are optimistic about what we can accomplish together. As mentioned in our call to action blog series, there are other stakeholders, such as donors and policymakers, that also have crucial roles to play, and CFI is looking forward to helping build bridges to overcome the new sets of challenges that this pandemic has put before us.


Microfinance Coalition, MIVs Team Up in Response to COVID-19

<em>This post was <a href="https://www.findevgateway.org/blog/2020/05/microfinance-coalition-call-action-investors">originally published</a> on FinDev Gateway.</em>

In our <a href="https://centerforfinancialinclusion.org/covid-19-threatens-the-microfinance-sector-and-the-livelihoods-of-those-we-serve-building-a-coalition-for-collective-action/" target="_blank" rel="noopener noreferrer">introductory blog post</a>, we introduced the members of this coalition and highlighted their capabilities to reach the lowest income countries using both traditional approaches and digital channels. In this post, we want to focus on how investors can support microfinance institutions (MFIs) to respond to the needs of the base of the pyramid (BOP) during the pandemic.
<h2>Liquidity: The Most Immediate Constraint</h2>
As with other crises, the most critical and immediate issue that presents both short and long-term risks for our collective response is liquidity. Lockdown measures and shelter in place rules have had devastating effects on the types of businesses that are run by the BOP. This has meant that many are no longer able to make repayments. Furthermore, MFIs themselves have been restricted in their ability to collect loan payments from customers, reducing cash inflows and thus, the ability to disburse new loans. While government policies, such as moratoriums on loan repayments and forced rescheduling, are intended to protect consumers, they also contribute to the liquidity crunch of MFIs.

The longer businesses are shuttered, the greater the likelihood that the BOP will be unable to resume their businesses. Without income coming in, business owners must pay for essential living expenses like rent, food or medical care out of their limited savings. Over time, business owners will deplete these savings or sell off assets, reducing their ability to re-open their businesses without cash injections. Ultimately, a significant number of microfinance clients may default on their loans due to the crisis.
<blockquote>A significant number of microfinance clients may default on their loans due to the crisis.</blockquote>
While savings balances of small deposit holders remain stable or in some cases have even increased, there is lack of clarity as to how this will play out, and things might change quickly if people are unable to resume their income-earning activities again soon. Availing savings to those in need is a critical function that deposit-taking institutions play, and it is an essential aspect of preserving the trust of their clients. Should customers fear that these funds are not available, there is the risk of a run on financial institutions. Thus, liquidity to meet deposit obligations and to maintain capital adequacy ratios is critical for these institutions and for broader macro-stability.
<h2>Rapid Response Liquidity</h2>
To address these issues, most MFIs will need access to fast operational liquidity to cover near-term staff costs and to extend broader grace coverage and relief to clients. It is important to note, however, that borrowing to cover operational expenses is at best a short-term bridge to reopening, and ultimately puts institutions in an unsustainable position if lockdowns and operational impediments persist. Depending on the duration of the crisis, pressures on institutional liquidity may increase over time.
<h2>Near-term and Medium-term Debt</h2>
Beyond the immediate short-term needs, most MFIs depend heavily on debt as a source of funding for their loan portfolios. This creates two distinct sets of problems:
<ul>
 	<li>As risk capital flees less developed markets, institutions are finding it difficult to replace loans that are not being rolled over or extended. This means their ability to offer new loans to clients, or even accommodate existing clients with prolongations, will be constrained.</li>
 	<li>Because the funds needed to repay external loans coming due are trapped in their institutional portfolios, there is also a growing possibility of defaults among otherwise solvent institutions due to liquidity shortages which will further impair their ability to attract new funding.</li>
</ul>
Most financial inclusion-supportive lenders are already keenly aware of these constraints and are working to identify a common approach given the magnitude of the crisis. Because the duration of the crisis is likely to vary from country to country and is changing fluidly, lenders must remain flexible and support the conservative approaches that MFIs are taking to preserve their liquidity while meeting the needs of their existing customers. At a minimum, lenders should be prudent in the measures they take to reschedule or restructure their debt. Where feasible, lenders should avoid highly legalistic (and therefore expensive) restructuring approaches.

The ability of MFIs to continue to serve the BOP will be contingent on how flexible their lenders are with rollover and extension requests and with their willingness to extend or support additional funding once operations have resumed. Moreover, lenders should collectively commit to not penalize MFIs that have rescheduled or restructured debt in good faith in the current environment when they seek future financing. This issue does not appear to have been addressed in either the <a href="http://www.incofin.com/wp-content/uploads/2020-04-24-MIV-Covid-19-coordination-MoU.pdf" target="_blank" rel="noopener noreferrer">memorandum of understanding</a> or the <a href="https://7eab7e50-e834-461b-8539-7e8435e86338.filesusr.com/ugd/361833_613447b8d9e1422584dc4e48ba8f3603.pdf">pledge</a> that were recently issued by a number MIVs and other microfinance stakeholders.

In specific terms, the following facilities will likely be critical for both rollover funding and new funding:
<ul>
 	<li>Rapid-deployment debt facilities to cover funding gaps</li>
 	<li>Local currency facilities</li>
 	<li>Guarantee facilities to attract new lenders</li>
</ul>
<h2>Capital Investments and Subordinated Debt</h2>
For institutions with minimum capital requirements, it is highly likely that additional injections of capital will be needed for two main reasons:
<ol>
 	<li>Interest income will decline in the short-run due to limited operations and loan losses.</li>
 	<li>Even if portfolio quality does not decline dramatically in all cases, there will likely be increased delinquencies as well as a significant amount of loan restructuring to accommodate clients facing their own operating pressures, forcing MFIs to increase their provisioning.</li>
</ol>
These two factors will likely have a highly material impact on capital adequacy as institutions will be using cash to maintain operating capacity, while incurring losses. Should capital injections to rebuild capacity post-COVID not be possible, lenders and regulators will, at a minimum, need to grant waivers to allow institutions to continue operating without it. Over time, both rapid-deployment subordinated debt funds and equity investment funds will be critical.
<h2>All Investors Must Step Up</h2>
How investors respond during this pandemic will determine the extent to which MFIs are able to respond to the needs of their customers. Many investors have already stepped up and are setting important principles and agreements toward responsible collective action. See, for example, the <a href="https://www.inclusivefinanceplatform.nl/wp-content/uploads/2020/04/COVID-19-MS-V3-1.pdf" target="_blank" rel="noopener noreferrer">investor statement</a> that was issued by the members of NpM (The Netherlands financial inclusion platform) and the previously mentioned memorandum of understanding signed by the group of nine MIVs.

We commend these organizations for taking collective actions, and call on all investors in inclusive finance to do their part. In particular, we ask that development finance institutions (DFIs), with their higher risk tolerance and longer-term horizons, support the sector in the ways that many MIVs and other social investors are unable to do.

&nbsp;

&nbsp;

Microfinance Coalition: Call to Action for Investors

The <a href="/about/what-we-do/hbs-accion-program-on-strategic-leadership-in-inclusive-finance">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a> is the first executive education program of its kind to provide high-level management and leadership training to those shaping the microfinance industry, including CEOs of leading microfinance institutions and executives of mainstream banks entering the microfinance market.
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<h2>Dates</h2>
The 2020 HBS-Accion Program on Strategic Leadership in Inclusive Finance, originally scheduled to take place March 29 to April 3, has been postponed indefinitely due to growing concerns and travel restrictions across the globe related to Covid-19. Please contact <a href="mailto:mlongwell@accion.org">Maddy Longwell</a> if you are affected by this cancellation.
<h2>Deadlines</h2>
The application period is now closed. Applicants will be notified of their acceptance in February.
<h2>Fees</h2>
The program costs <strong>$8,850 USD</strong> including tuition, fees, housing and meals. Attendees will need to pay in full to be considered accepted into the program. Airfare is the responsibility of the attendee.
<h2>Scholarships</h2>
The <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> provides a limited number of partial scholarships to participants who otherwise cannot attend because of the cost. Please note that we are unable to offer scholarships to all applicants who apply. If you would like to apply for a scholarship, please indicate so in the application.
<h2>Questions</h2>
For additional questions, contact the Admissions Committee at <a href="mailto:hbsaccion@accion.org">hbsaccion@accion.org</a>. For questions about the 2020 cohort, please contact <a href="mailto:mlongwell@accion.org">Maddy Longwell</a>.

</article></div>

HBS-Accion Program on Strategic Leadership in Inclusive Finance 2020

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<div class="sc-gisBJw iCFDng sc-bwzfXH doQVok">
<div class="sc-htpNat bBOJNH">
<p class="text-block__article sc-kjoXOD hLBZML">The <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) is dedicated to empowering corporate leaders in the social enterprise sector to <strong>achieve business growth and social impact</strong>. 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.</p>

<h3 class="text-block__article sc-kjoXOD hLBZML">Join a select group of social enterprise leaders at the BLI Nairobi 2020 Workshop,  February 23-25, 2020, at the Fairview Hotel in Nairobi, Kenya.</h3>
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. 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.
<h3><strong>Pricing</strong></h3>
The BLI Nairobi 2020 Workshop tuition is <strong>$2,500 USD</strong>, excluding airfare and lodging. Discounts, group rates and partial scholarships are available:
<ul>
 	<li><strong>Early Bird Rate - $2,250 USD</strong> (10% discount). Available to all registrants through December 31, 2019.</li>
 	<li><strong>Group Registration Rate - $2,250 USD</strong> per person for groups of two or more (10% discount per person).</li>
 	<li><strong>Limited partial scholarships</strong> will be considered on a case-by-case basis. You can request scholarship consideration during the registration process.</li>
</ul>
<h2>Registration is now closed.</h2>
<h3>Questions</h3>
Learn more about the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> and <a href="mailto:gjaso@accion.org">contact us</a> if you have questions or need more information.

</div>
</div>
</div>

Board Leadership for Impact Nairobi 2020 Workshop

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.
<p style="text-align: center;"><strong>###</strong></p>
<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>
<p style="text-align: center;"><strong>###</strong></p>
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

Alexandra Rizzi

Senior Director, Smart Campaign 

Deborah Drake

Vice President

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi

Managing Director

Cristina Dumitrescu

Olivier Edelman

Shradha Modi

Narasimhan Srinivasan

Machal Karim

Ethan Loufield

Microfinance Coalition

Alexandra Fiorillo

Paul DiLeo

Danielle Piskadlo

Alexis Beggs Olsen

Rachel Morpeth

Europe and Central Asia

Middle East and North Africa

West Bank and Gaza

India

South Asia

Sub-Saharan Africa

North America

United States

Kenya

Zambia

South Sudan

Zimbabwe

Mozambique

Nigeria

Uganda

Challenges and Crises

Credit

Enabling Environment

Financial Service Providers

Microfinance

Microfinance Institutions

Partnerships

Consumer Protection

Customer Centricity

Delivery Channels

Digital Financial Services

Governance

Policy, Regulation and Government Initiatives

Over-indebtedness

Banks

Digital Credit

MSME/SME Finance

Resilience

Responsible Investing

Supply Chain Finance

Women

Credit Provision

Default

Fintechs

Agricultural and Rural Finance

Education Finance

Energy Finance

Housing Finance

Risk Management

Consumer Credit

Human Touch

Nano Loans

Neobanks

Underserved Groups

Informal Credit

Insurance Companies

Trends

Blog Post

Brief

Event

Press Release

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.

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.

I was a 19-year-old college student when I first encountered Alex Counts, at the Global Microcredit Summit in New York City. Having just finished my first microfinance job, at Banco Solidario in Ecuador, I was understandably -- maybe overwhelmingly -- inspired, energetic, and hopeful. I wanted to build a career in microfinance, and I wanted to tell everyone about it.

Several years later, as I introduced him for <a href="https://grameenfoundation.org/">Grameen Foundation</a>’s Annual Microfinance Awards Dinner, hosted by my graduate school microfinance club, it would have been the easiest thing in the world for a legend like Alex to condescend to me, put me in my place, or tell me to talk less and listen more. But he treated me like an equal, and more important, an ally in pursuing a shared vision of a more equitable world. Even after more than three decades in the field, he hadn’t lost his passion or compassion. He wanted, more than anything, to encourage my enthusiasm, and share whatever insights might help me on my way.

That attitude permeates <a href="https://www.centerforfinancialinclusion.org/bio/alex-counts">Alex Counts</a>’ latest book, <a href="https://www.amazon.com/dp/1733914102?ref_=pe_3052080_397514860">Changing the World Without Losing Your Mind: Leadership Lessons from Three Decades of Social Entrepreneurship</a>. The book’s most noticeable trait is a desire to teach and encourage in the face of slow, difficult progress. The book, a 300-page combination of memoir, historical reference, and instruction manual for social impact work, skips from year to year and country to country, recounting anecdotes from the early days of the financial inclusion industry, and drawing out so many lessons that it’s hard to keep track.

These lessons, described with breathless passion and often illustrated with vivid examples, form the book’s backbone, dispensing wisdom on topics like effective fundraising, and the power of good storytelling to motivate and instruct others. He also spends considerable time acknowledging the mentors who helped him on his own journey, and relays the still-relevant ideas they developed decades ago. This theme of leveraging existing resources, in fact, shows up frequently in the book.
<blockquote>Even after more than three decades in the field, Alex hadn’t lost his passion or compassion.</blockquote>
“Addressing the chronic underutilization of existing solutions and resources became a theme of my life. I came to appreciate how Muhammad Yunus, Sam Daley-Harris, and other mentors of mine focused at least as much on activating overlooked systems, idle assets, and forgotten people as they did on innovation," Counts writes. "After all, aren’t the very poor people served by microfinance themselves underutilized resources that can be made productive if provided with economic opportunity in creative and respectful ways?”

One lesson that resonates for anyone who’s led a project team is the importance of staying aware of your own shortcomings, and being honest about them to your team. Some of the book’s most enjoyable moments come when Alex shares his vulnerability as a leader. In one story, he receives a lesson in humility from his lifelong mentor, Dr. Mohammad Yunus, during a respectful but stern feedback discussion in his early years in Bangladesh. In another, he acknowledges behaving like an “arrogant brat” during his time working for Sam Daley-Harris at RESULTS.

For those of us who’ve worked in the social impact field for a few years or more, Alex’s enthusiasm rekindles our own optimism and energy like a strong cup of coffee on a cold morning. It reconfirms our reasons for entering the field in the first place. As Alex puts it:

Book Review: “Changing the World Without Losing Your Mind: Leadership Lessons from Three Decades of Social Entrepreneurship”

<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" /><em>The following is part of an Africa Board Fellowship </em><a href="/series/abf-spotlight/">blog series</a><em> spotlighting the experiences of participants and reflections from industry experts.</em>

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><strong>Strategic Planning</strong>: As part of strategic planning<strong>, </strong>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><strong>Capital Adequacy</strong>: 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><strong>Asset–Liability Management</strong>: 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><strong>Staff Training and Incentives</strong>: 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><strong>Board Composition and Training</strong>: 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><strong>Executive Committee of the Board</strong>: 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><strong>Disaster Planning and Recovery</strong>: 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.

<strong>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.</strong>

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Navigating Challenges Is What Boards Are All About – Part 2: Vulnerability and Resilience

<em><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.</em>

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 <em>can</em> 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.
<p style="text-align: left">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.</p>

<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><strong><em>Create and participate in industry associations; promote and follow codes of conduct</em></strong>. 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><strong><em>Develop relationships with regulators and government officials. </em></strong>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><strong><em>Build clients’ financial capability</em></strong>. 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.

<em>Stay tuned for the next blog in this series</em><em>, which will highlight reducing an FSP’s vulnerability to external shocks, as well as enhancing resilience.</em>
<h4><strong><i><span style="margin: 0;font-family: 'Calibri', sans-serif"><span style="color: #000000">CFI is currently recruiting fellows for the next cohort of the </span><a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a><span style="color: #000000">. 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.</span></span></i></strong></h4>
&nbsp;

&nbsp;

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

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.

<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" /><em>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.</em>

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.

<em>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.</em>

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:

<em>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.</em>

<em>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.</em>

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.

<em>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.</em>

<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: <em>We are surviving and looking at a better future.</em>

<em><strong>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.</strong></em>

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Dialogue With Africa Board Fellows: Navigating Challenging Macroeconomic Environments

<em><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.</em>

&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:

<em>“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.”</em>

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,<em> “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.”</em>

The board was very concerned when this happened, and increased its attention to PAR targets. “<em>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.” </em><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:

<em>“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…</em>

<em>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.”</em>

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.

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Financial Institutions in Times of Political and Social Unrest: Thoughts from Africa Board Fellows

<em><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="90" height="112" />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.</em>

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The mention of overheated credit markets sends chills up the spine of anyone who lived through the crises in Bosnia, Andhra Pradesh, Morocco, or Nicaragua, where market saturation played a prominent role. While regulators and investors have key responsibilities in avoiding these crises, boards of financial service providers (FSPs) must also steer their organizations carefully when more companies enter the space to compete for the same customers. And since portfolio at risk at 30 days (PAR30) is a lagging indicator in the earlier stages of a <a href="http://www.cgap.org/publications/regulatory-options-curb-debt-stress">credit market cycle</a>—growth and high liquidity mask debt stress for a time—boards have to be more creative about how to understand what is actually happening.

We spoke with two <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> alumni from Uganda, ECLOF Board Chairman Vincent Kaheeru and UGAFODE Board Member Olive Kabatalya, to capture their insights on governing in a competitive environment. “There are about 2,000 institutions [in Uganda] that could pass for microfinance institutions,” explained Vincent. “It’s quite a complicated market because there are both big and small players. Even the big banks target the smallest savers and borrowers.”

Based on their experience, Vincent and Olive offered other board members the following guidance:

[caption id="attachment_25725" align="alignright" width="300"]<img class="alignnone size-medium wp-image-25725" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/abf-fellow-olive-kabatalya-at-table.jpg?w=300" alt="ABF Fellow Olive Kabatalya sitting at table." width="300" height="214" /> ABF Fellow Olive Kabatalya (left). Copyright Accion.[/caption]
<h2><strong>Anticipate Where the Market Is Going</strong></h2>
“For any strategic response to be meaningful, the conversation between board and management needs to happen early in the credit market cycle,” warns Olive. “Keep studying market trends in any way possible. Pay attention to the media, newspapers, central bank announcements and other sector players. Financial sector studies like <a href="http://www.finmark.org.za/publications/">Finscope</a> are very informative. Look for reports from and talk to microfinance associations.”
<h2><strong>Meet Your Customers</strong></h2>
“Bring the customer closer to you and listen to him or her,” said Vincent. “You can’t serve them generally. It doesn’t work. Client visits were an idea we picked from the <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>. We [the board] had done them occasionally, but we intensified the number of visits and changed the approach to make the visit more effective. When you visit customers, you understand the context of all that is going on. That helped me and my team.”

Olive added, “We are visiting clients to ensure that we are not just reading performance reports, which do not usually include anything to do with meeting the needs of the client.”
<h2><strong>Get Creative with Target Market and Product Differentiation</strong></h2>
[caption id="attachment_25726" align="alignleft" width="300"]<img class="alignnone size-medium wp-image-25726" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/abf-fellow-vincent-kaheeru-and-robert.jpg?w=300" alt="ABF Fellows Vincent Kaheeru and Robert Ongodia" width="300" height="214" /> ABF Fellows Vincent Kaheeru (right) With Robert Ongodia, Accion. Copyright Accion.[/caption]

“We have a situation of multiple borrowing,” explained Vincent. “Many people have three or four loans from different financial service providers. It burdens the clients. But I’m also aware that the target clientele is narrow. There are still many people at the bottom of the ladder who want to borrow. Lenders need to be more creative and develop products to bring more of the unserved ‘into the boat’…

We’re doing studies to be more responsive to the needs of our market. Everyone offers the common products. If we don’t differentiate, we’re the same. We’re looking at products that will appeal to the target market by helping the target market make money…

About half of our portfolio is urban and half is rural. Each carries different risks. In rural areas, we’re looking at agricultural value chains, helping the farmer bridge the gap between harvesting and processing; and [we look at] the market side, so farmers are not stranded with a crop and can fetch a good price. We’re also looking at microinsurance to protect our investment as well as [appeal to] the interest of the client in case of drought.”
<h2><strong>Pay Attention to Your Staff</strong></h2>
“We’ve had a challenge with our highest performing staff members being poached by bigger and better-paying microfinance organizations,” said Olive. “This has caused us to review staff benefits.”
<h2><strong>Ensure Effective Operational Controls</strong></h2>
In competitive environments, FSPs face all the risks of rapid growth, including a deterioration of operational controls, without actually growing. As loan officers become more desperate to achieve targets in a competitive space, shortcuts are taken and credit assessment becomes lax. Boards must ensure effective supervision as well as a robust system of checks and balances. “Although growth is what we really want, even as we thirst for growth, we need to be careful that we do not go down with the growth never to be seen again,” said Vincent.
<h2><strong>Improve Your Own Capacity to Manage Risk</strong></h2>
Olive and Vincent also both emphasized, and have exemplified, the importance of board members continually sharpening their own ability to manage risk. Vincent explained, “Things are changing. What worked yesterday won’t work tomorrow. As a board member, you have to keep reading, keep sharing experiences to stay on the cutting edge.”

For more details, read our complete interviews with <a title="Olive_Kabatalya_UGAFODE" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/olive_kabatalya_ugafode.pdf">Olive</a> and <a title="Vincent_Kaheeru_ECLOF" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/vincent_kaheeru_eclof.pdf">Vincent</a>.

<em><strong>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.</strong> </em>

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The Board’s Role When Competition Heats Up

<em>If digital financial services are so convenient and affordable, why are uptake and usage rates among individuals with lower incomes so low? Monique Cohen explores the mismatch between products and money management needs.</em>

<em>&gt; Posted by Monique Cohen</em>

<img class="alignright wp-image-24684" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/12/thumb_1b4e5caeaab54bb5bbbbf9384089e357.jpg" alt="" width="330" height="220" />This maxim governs much of our financial lives, rich or poor. Yet, we offer financial services to the unbanked and underbanked, largely ignoring it. The thinking around customer centrality as it affects financial services for the poor emphasizes appropriately responding to people’s needs and wants for financial services. But, as Kim Wilson <a href="https://cfi-blog.org/2015/07/21/the-supply-centricity-of-customer-centricity/">pointed out</a>, this is still not happening:

<em>We have an agenda, which is this: please be our customer, have your needs, express them so long as they are about digital payments or failing that, using a bank account – a lot – and preferably, digitally. Else, we don’t give a damn. We don’t care about your archaic methods… We desperately want and need you to modernize, to become just like us. Otherwise we have no justification for all the work we do and all the money we spend.</em>

Until now the perceived drivers of uptake of digital financial services (DFS) have been their assumed attributes of convenience, timeliness and affordability, relative to current formal and informal financial service offerings. However, with uptake and usage levels of only 30 percent for digital financial services, it is clear that this rationale falls short. Impediments to high usage continue to be overlooked.

What has to change if we wish to have more users move toward a ‘cash lite’ economy? What have we missed?

Financial products tend to be viewed through a lens of functionality. Timely access to credit can enable an entrepreneur to grow a business or meet regular financial obligations such as rent or school fees, especially when cash flow is variable. But for many poor customers, use of financial services is not about choosing Plan A, but about matching what is available to the need of the moment. These behaviors are not always optimal, neither for them nor for providers. Several years ago Equity Bank in Kenya noticed a high rate of usage of working capital loans for school fees. Similarly the encouragement to save is framed around the provision of access to savings tools, ignoring the stability and level of income needed to generate a surplus that can be put aside.

Ann Cotton, in response to financial service providers’ puzzlement with the lower-than-anticipated rates of adoption of financial products, <a href="https://www.theguardian.com/global-development/2015/feb/28/ann-cotton-educating-millions-within-africa-by-inspiring-sustainable-change">noted that</a>:

<em>I hear, “Why do poor people make such bad decisions?” But actually their decision-making can be far more complex than that of the better-off in many ways. They’re not financially illiterate, they’re constantly weighing up choices based on the reality of poverty.</em>

The decisions poor people make around money are complex. Theirs is a continual process of trade-offs involving the weighing of choices based on the reality of their poverty and a continual battle to stabilize and raise income while reducing vulnerability. The supply-side thinking around product design and delivery fails to reflect this complexity and ignores how the poor use financial services as money management tools. The consumer’s context is defined by an ever-changing panoply of wants, sources of revenue and the available portfolio of financial tools, formal, informal and semi-formal. Instead financial service providers address demand with a limited product range knowing that they are used for a broad array of purposes. Is it no surprise that there are mismatches between the providers’ offers and users’ needs?

The current interface between customer and provider is shaped by a structural bias in which the financial service provider knows best and expects that the customer will do as told. The formal financial services customer tends to be passive and dependent, does not exercise voice and choice and lacks protections. By contrast, in the informal financial sector users speak up and feel freer to let their demands be known. Moreover, DFS require people to leapfrog into digital financial services which combine unfamiliar technology and unwelcoming formal financial services. All present significant barriers to adoption. Surely it is time to revisit this paradigm, recognizing that the increased use of digital financial services means looking beyond the functional attributes of a product to the user’s broader money management strategies and the structural contexts in which they exercise their choices.

Moving forward calls for approaches that generate mutually satisfying results. Each party seeks value and cost advantages. The providers are looking for numbers, volume and value of transactions as potential customers transition into these new systems of financial service delivery. Touch points supported by appropriate provider incentives as well as patience, respect and simplicity of use should be priorities. For users, seeing value in digital financial services will come from learning by doing. Empowered customers will be encouraged to test financial innovations, determine how they can best use them, and share this information with their providers, friends and communities. Lastly, re-enter the regulator whose role may have to be redefined to ensure the new structures work for both sides. These are the essential elements of a new operational framework that promises that customer centrality will become a win-win proposition.

<em>Among her many affiliations,</em> <a href="https://www.bouldermicrofinance.org/boulder/EN/FACULTY/bio/8"><em>Monique Cohen</em></a><em> was involved with the Boulder Institute of Microfinance’s training program from its inception through 2016, including teaching courses for over 10 years.</em><em> An earlier version of this post was <a href="http://www.bouldermicrofinance.org/corner/en/i-need-cash-when-i">published</a> on the Faculty Corner of the Boulder Institute of Microfinance website, October 21, 2016.</em>

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/12/05/client-centricity-at-scale-the-brac-smart-certification-journey/">Client Centricity at Scale: The BRAC Smart Certification Story</a>

<a href="https://cfi-blog.org/2014/03/28/behavioral-approaches-to-product-innovation-at-the-base-of-the-pyramid/">Behavioral Approaches to Product Innovation at the Base of the Pyramid</a>

<a href="https://cfi-blog.org/2013/10/16/scarcity-why-having-too-little-means-so-much/" target="_blank" rel="noopener">Scarcity: Why Having Too Little Means So Much</a>

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I Need Cash WHEN I Need It, WHERE I Need It, HOW I Need It

The devastating effects of Hurricane Harvey colored headlines across the nation. Two weeks later, Houston, Texas <a href="http://www.khou.com/news/local/residents-still-wait-for-flood-water-to-recede-in-west-houston/472654690">remains</a> partially submerged. The resulting financial damage will likely exceed that of Hurricane Katrina, which struck the Louisiana coast in 2005. Harvey is taking Katrina’s title as the most catastrophic storm in America’s history. A <a href="http://www.politico.com/magazine/story/2017/08/28/climate-change-hurricane-harvey-215547">Politico</a> headline, however, poignantly suggests another message that perhaps we should all be taking away: “Harvey Is What Climate Change Looks Like.” Harvey is classified as a “<a href="https://www.washingtonpost.com/news/wonk/wp/2017/08/29/houston-is-experiencing-its-third-500-year-flood-in-3-years-how-is-that-possible/?utm_term=.67d747da65c6">500-year flood</a>,” meaning a flood of this magnitude has a 1-in-500 probability of occurring in any given year. Yet this is Houston’s third 500-year flood in three years. Harvey’s successor, Hurricane Irma, has also caused death and devastation, while heavy flooding in South Asia has resulted in the deaths of over <a href="https://www.theguardian.com/world/2017/aug/30/mumbai-paralysed-by-floods-as-india-and-region-hit-by-worst-monsoon-rains-in-years">1,200 people</a> across India, Bangladesh, and Nepal.

Economic activity generates greenhouse gases that impact climate change, and climate change, in turn, affects economic activity. In the case of Harvey, the South Texas Cotton and Grain Association has estimated <a href="https://www.texasagriculture.gov/NewsEvents/NewsEventsDetails/tabid/76/Article/4333/Texas-Department-of-Agriculture-Responds-to-Hurricane-Harvey.aspx">$150 million</a> in crop losses. As natural disasters continue to occur with increasing frequency, financial service providers (FSPs) must ask themselves: what economic ramifications should be anticipated, especially in rural communities, and what can be done to overcome these obstacles?

Some of the consequences of climate change include drought, reduced food security, flooding, fires, landslides, and crop failure. Accordingly, it’s the agriculture sector that suffers a large brunt of climate change’s effects. Although humans have little immediate control over extreme weather patterns, there are steps we can take to buttress our economic well-being while determining how to reduce greenhouse gas emissions over time. For example, by financing innovative agricultural techniques, such as drainage systems, drought-resistant seeds, crop rotation, and <a href="https://www.ecowatch.com/5-ways-vertical-farms-are-changing-the-way-we-grow-food-1882019986.html">vertical farming</a>, FSPs can encourage new methods that will allow the populations most vulnerable to climate change to continue to thrive.

FSPs no doubt have a plethora of challenges to navigate, including many that appear more direct and immediate – market competition, client satisfaction, institutional funding, political instability, and so forth. It would be easy to dismiss climate change as a factor that cannot be controlled. However organizations are recognizing that it is not something to be ignored, and have started to develop solutions. Let’s take a look at a few examples.

Asobancaria, the banking association in Colombia, launched an initiative in 2016 backed by the country’s government called <a href="http://www.asobancaria.com/protocolo-verde/">Protocolo Verde</a>, which, among its activities, uses “green bonds” to finance projects in the environmental sector. These include clean transportation, green buildings, bioenergy, and energy efficient resources. Elsewhere in the region, the Inter-American Development Bank implemented <a href="http://www.ecomicro.org/en-us/Home/About.aspx">EcoMicro</a>, a program that partners with financial institutions to help them provide green financial products to rural communities. Among its products, EcoMicro has designed loans for projects ranging from solar panels to smaller installments such as <a href="https://www.youtube.com/watch?v=JyvFE53IX6A">energy efficient refrigerators</a>.

The United Nations has adapted two programs that focus on green microfinance. The first program is the Microfinance for Ecosystem-based-Adaptation to Climate Change (<a href="https://www.dropbox.com/s/r4j66t8rwie0iwh/1.%20Microfinance%20for%20Ecosystem%20based%20Adaptation_Options%2C%20costs%20and%20benefits.pdf?dl=0">MEbA</a>), which is working to improve the resilience of agricultural workers and rural populations in Latin American and the Caribbean that are particularly susceptible to the impacts of climate change. In addition to developing new financing solutions for MFIs to offer to lessen these impacts, they are also working to detect knowledge gaps among MFIs and their clients.

The second UN program is called <a href="http://www.uncdf.org/en/cleanstart">CleanStart</a>, which finances clean energy and technical assistance in six nations across Africa and Asia. CleanStart co-invests in innovations from financial institutions, distributed energy service companies, and providers of financing for clean energy. Energy consumption is a major household expense in these regions; for example, a Ugandan household might spend <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=UG">$20 per month on energy</a>, a whopping 40 percent of the average monthly income. Furthermore, because women and girls still take on most of the domestic responsibilities, they are disproportionately affected by the health impacts of dirty energy. By investing in efficient, quality energy, CleanStart is able to reduce the expensive costs associated with nonrenewable energy, and also improve household productivity in impoverished communities.

Harvey is not a one-off occurrence. It is part of an alarming, growing trend. Landscapes are changing before our eyes. During California’s drought, I remember watching agricultural lands turn to desert in just a few short years of driving between UCLA and my home near the Bay Area. As the ramifications of climate change become increasingly visible, FSPs will have to not only improve the efficiency of their own practices, but also continue to develop innovative products and services that aim to mitigate their impacts. FSPs can have a powerful influence on these climate developments by supporting financial markets that encourage the creation of environmentally-friendly and sustainable services that will allow societies to prosper.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/01/27/the-green-digital-finance-alliance-launched-by-ant-financial-and-the-united-nations/">The Green Digital Finance Alliance Launched by Ant Financial and the United Nations</a>

<a href="https://cfi-blog.org/2016/11/11/combatting-pollution-in-delhi-with-clean-energy-financing/">Combating Pollution in Delhi with Clean Energy Financing</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>

Houston, We Have a Problem: Financial Inclusion in a Harvey World