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

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

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

ESG Frameworks: Risks or opportunities for financial institutions?

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

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

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

Board Leadership for Impact Program Overview

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

Understanding the Value of Board Effectiveness

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

Board Governance for Innovative Companies: 9 Principles for Success

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

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

<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

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

Africa Board Fellowship Closing Seminar – Cohort 9

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

Roundtable Discussion: Finance for All

Dunja Latinovic

David Porteous

Jesse Fripp

Paul DiLeo

Garrett Jaso

Deborah Drake

Ezra Mannix

Danielle Piskadlo

Jasper  Veel

Lizzy Bolze

Sub-Saharan Africa

Ethiopia

Mozambique

Nigeria

Zambia

South Sudan

Uganda

Consumer Protection

Financial Health

Insurance

Resilience

Risk Management

Governance

Policy, Regulation and Government Initiatives

Impact Investing

Microfinance Institutions

Agricultural and Rural Finance

Credit

Customer Centricity

Digital Financial Services

Fintechs

Microfinance

Partnerships

Underserved Groups

Enabling Environment

Challenges and Crises

Blog Post

Video

Report

Press Release

Event

Case Study

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

Africa Board Fellowship Seminars October 2018

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

Governance Peer Learning and Exchange Program Strengthens Financial Institutions in Africa

In this Seminar you will learn the following topic areas:
<h2>Risk Management</h2>
<strong>Problem Statement:</strong> The board is responsible for setting the tone at the top for an institution’s risk appetite. However, many MFI boards take a reactive role in responding to risk, reacting to risk management issues rather than proactively approving policies and risk limits which reflect the risk appetite of the institution. Instead of proactively address risk in a holistic nature by identifying and planning for risk management improvement within the business planning process, institutions often focus on some risk areas (liquidity, credit, etc.) and not others (strategic, reputational, etc.), not properly understanding the interrelated nature of the risks themselves. Boards have a large job and precious little time to do it. Lack of a proper understanding of the strategic nature and technical elements of risk management can cause a temptation to rely too heavily on estimates generated by risk measurement systems and tools (if they exist), rather than fully understanding and using their business judgment to challenge the underlying assumptions. Board dynamics issues can also pose serious threats to effective risk governance.

To govern risk well, board members need to: 1) establish and communicate a clear and transparent institutional risk appetite, 2) ensure formal and systematic risk management and monitoring tools are being applied and functioning properly, and 3) establish formal and systematic reporting channels which can ensure risk management information is reviewed, understood, and acted on by both board and senior management, and 4) develop the intangibles for good risk management.
<h3>Program Objectives:</h3>
<ul>
 	<li>Understand the components of a comprehensive risk management framework for MFIs and the interrelatedness of these components</li>
 	<li>Understand the concept of risk appetite, including the setting and monitoring of an institution’s risk appetite.</li>
 	<li>Understand the role risk management plays within the strategic planning process (including the roles and responsibilities of shareholders, board, senior management, risk committee, etc. within this process)</li>
</ul>
<h2>Technology Trends and Innovations</h2>
<strong>Problem Statement:</strong> MFI boards, and particularly boards in Africa, face difficult strategic choices regarding how to adopt and utilize new technologies, both to improve existing operations and introduce new business models. The sector has experienced an influx of new financial service providers from telcos to traditional banks moving down market to online lending platforms and retail credit providers.  The rapid emergence of new providers and technologies has accelerated the pace of change making it hard for boards to decide what investment to make at any given time and how best to monitor those investments once a decision is taken.

Given the speed of the changes within markets, there is a natural tendency for institutions—driven by either board or management—to attempt to respond quickly based on “quick and dirty” assessments without fully engaging in the strategic planning to properly understand how a new technology project will support the overall business goals of their organization. To avoid this, boards need a systematic way of assessing both the strategic need and the technological opportunities available in the market to advise their businesses accordingly. Of course having a well-defined technology strategy is only the first step in harnessing the full potential of the new technologies in the market. To ensure successful implementation and adoption of new technology based products and services, boards need to fully appreciate the types of decisions that are likely to emerge once the investment decision is taken and to know how best to monitor the success of these projects over time.
<h3>Program Objectives:</h3>
<ul>
 	<li>Understand key trends and new technologies in the financial sector, with an appreciation of the pros/cons and common challenges associated with each. Focusing on: 1) Innovative core banking solutions, including possibilities for cloud-based platforms.   2) Delivery channel solutions including mobile banking, ATMs, POS, Internet banking and extension services (mini branches, digital field applications)   3) Leveraging technology to collect and manage data (including scoring) and optimizing operating efficiency through new technologies including digital field applications. This will include a focus on how technologies can enable better data collection and management to understand clients more deeply and manage social performance objectives  . 4) Leveraging other distribution networks and partnerships including; agent networks, ATM/POS, national switches, mobile money and others</li>
 	<li>Appreciate the implementation lifecycle of delivery channel solutions and how this differs from traditional IT projects such as Core Banking Systems</li>
 	<li>Understand available tools and identify effective processes for introducing and/or assessing existing technology projects within the business covering the full project lifecycle through to post go live monitoring.</li>
 	<li>Recognize the need for a significant “mindset shift” to assess technology opportunities through a more rigorous business lens, based on analysis of the MFI’s strategic needs as well as how the technology will support the business. As part of this, the participants will need to recognize the attributes of an effective feasibility assessment and business case to guide the investment in new technology projects.</li>
 	<li>Appreciate the types of skills and experience that ideally would be available on a board to input and monitor technology projects technology.</li>
</ul>
<h2>Navigating Competitive and Challenging Environments</h2>
<strong>Problem Statement:</strong> As MFIs and their operating environments transition from small-scale, marginal players to significant actors serving important numbers of clients and filling a key role in the financial system, MFIs face a variety of challenges: sharper regulatory and political scrutiny, intensified competition amongst themselves and from new entrants for clients and staffing, the risk of over-saturated markets or a loosening of credit discipline, and more demanding requirements for MIS and risk management.  How can boards deliberately and strategically stay abreast of the dynamics of the changing operating environment and add value and oversight to management's efforts to preserve and enhance the company's competitive position? What tools and practices will help them navigate these challenges?
<h3>Program Objectives:</h3>
<ul>
 	<li>Identify best practices in board-level strategic process to look forward and anticipate where the market will be rather than where it is or has been.</li>
 	<li>Understand the characteristics of the stages of market cycles and ways to revisit and reconfirm the company's strategic competitive positioning and niche.</li>
 	<li>Recognize the impact of competition on clients and the bases of customer and staff satisfaction and loyalty.</li>
</ul>
&nbsp;

ABF Opening Seminar Spring 2018

New technology is delivering considerable benefits to the financial inclusion market – but is also creating new risks that service providers need to manage if they are to succeed. This is the main conclusion of a new survey of the risks (or Banana Skins) in the provision of financial services to people in emerging markets who have little or no access to these services.

Technology Risk Is High in Financial Inclusion Market

<p>The <a href="http://www.ada-microfinance.org/en/events/african-microfinance-week/otherevents-en#accion">Governing in a Digital Age Roundtable</a>, a CFI event hosted at <a href="http://www.ada-microfinance.org/en/events/african-microfinance-week">Africa Microfinance Week</a>, will cover key governance issues among leading CEOs, board members, investors and regulators from African microfinance and financial inclusion industries. Over two days, financial inclusion industry leaders will engage in peer learning and exchange about the role of a board as a vital guiding tool for top-management as new and disruptive channels and models emerge. The roundtable will also provide an opportunity for an “expert exchange” on technology, governance, risk and strategic planning.</p>



<p>The roundtable is by invitation only, but our team is attending Africa Microfinance Week and we look forward to meeting you. Contact <a href="mailto:dpiskadlo@accion.org">Danielle Piskadlo</a> with questions.</p>



Governing in a Digital Age Roundtable

<h1>Major Findings</h1>
While technology opens the way to huge growth in the provision of financial services, it is expensive and complex, and contains risks of its own. Chief among these is the risk that providers will fail to understand it effectively and place themselves at risk. It could lead to irresponsible borrowing and debt difficulties as tech helps avail credit to more people. Technology may also attract providers who are more interested in commercial gain than in the social goals of financial inclusion, or those who are unable or unwilling to design products specifically for the excluded.

In addition to technology, the survey also identifies risks that are seen to be rising in this market. Chief among these is political risk, such as interference by government in the form of interest rate caps on loans, debt waivers and subsidized competition. The risk of bad debts is also seen to be growing as the problem of indebtedness among low income populations persists. Weakness in the governance and management of service suppliers continues to be a concern. The risk of crime, particularly fraud, cyber crime and money laundering, is a growing worry.   On a more positive note, risks that are seen to be receding include the state of the global economy thanks to growing signs of recovery, and the availability of funding for financial inclusion services, particularly in the form of impact investing.

Finance for All: Wedded to Fintech for Better or Worse

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>

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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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