We're live-blogging the Innovations for Poverty Action/Financial Access Initiative Microfinance Conference 2008.
There is no tenet of microfinance theory more fundamental than the focus on women. The marketing narrative is replete with reasons why a focus on women is sacrosanct. To quote Muhammad Yunus: “Women have greater long-term vision and are ready to bring changes in their life step by step. They are also excellent managers of scarce resources, stretching the use of every resource to the maximum.” And of course, we all "know" that women invest more in their households and children than men do . . .
Read MoreAs we prepare for our upcoming Microfinance Impact and Innovation Conference that will take place on October 21-23 in New York City, we are looking back to the last time we drew together in one place so many of our best minds in microfinance. In October 2008, IPA and FAI co-hosted a microfinance conference at Yale University. Below, a blog post from that conference by Laura Starita, managing editor of Philanthropy Action:
We're live-blogging the Innovations for Poverty Action/Financial Access Initiative Microfinance Conference 2008.
As the current global credit crisis illustrates in part, it is very difficult for lenders to determine what makes an individual, much less a small business, a good risk.
In this afternoon's first session, Asim Khwaja of Harvard broke down the appealing attributes of potential entrepreneurial lendees according to two criteria: the first is whether the person has a good idea that can be realistically commercialized and the second is whether they are honest, i.e. highly likely to repay . . .
Read MoreOne of the reasons that debates about microfinance, IPOs and impact generate lots of discussion and very little insight is that investors don’t necessarily know enough about what MFIs do from the inside: What are their lending practices? How do they choose clients? How do they access capital? Is there a qualitative difference between the way in which for-profit and nonprofit microfinance institutions provide financial access?
Read MoreWe’ve all read the story of the poor woman who was unable to pay her bills and keep her children in school, until a microfinance institution came to her village and loaned her the funds to start her own business and become financially self-sufficient. Such stories communicate the promise of microcredit but they are, in the end, just stories. Reality is always more complicated.
“I think we tend to oversell the benefits of financial inclusion as a poverty alleviation tool,” says Carlos Danel, co-founder and Executive Vice President of Compartamos Banco, a microfinance institution serving 1.6 million clients in Mexico. “We all tell stories, and it is fine to tell stories--they are indicative of what we do. But this whole idea that microfinance institutions change lives is overblown. We don’t change lives. Our clients change their own lives as they see fit. We just bring some tools, and that is significant.”
Read MoreIf you’ve ever wondered what the difference is between microfinance and microcredit then rest assured – you’re not alone. The terms are commonly (and mistakenly) substituted for one another in everyday use, but they actually mean different things.
Microfinance refers to all kinds of financial services that can help poor people better manage their lives and their money, and includes microinsurance, microsavings and, yes, microcredit, which involves giving small loans to poor individuals for a range of purposes. So you can think of microcredit as a narrower subset of microfinance . . .
Read MoreMicrofinance refers to financial services for the poor, like credit, savings and insurance. Started in the 1970s by innovative and entrepreneurial practitioners and popularized by advocates like Nobel Laureate, Muhammad Yunus, microfinance has shown that poor people can indeed make excellent customers, refuting the notion that the poor are a credit risk, or “unbankable” due to their lack of education and capital.
In the beginning, microfinance institutions (MFIs) focused on providing basic loans to small businesses and entrepreneurs, especially women. As microfinance gained in popularity, however, MFIs expanded their services to include products like savings, housing loans, insurance packages and social services like health care and education . . .
Read MoreAs we prepare for our upcoming Microfinance Impact and Innovation Conference that will take place on October 21-23 in New York City, we are looking back to the last time we drew together so many of our best minds in microfinance in one place. In October 2008, FAI and IPA co-hosted a microfinance conference at Yale University that focused on thefirst microfinance impact studies. Next week at the conference we’ll get a first look at the results of follow-up studies. To get you caught up on where things stood this time last year, below is a blog post from that conference by Timothy Ogden, editor-in-chief of Philanthropy Action.
We're live-blogging the Innovations for Poverty Action/Financial Access Initiative Microfinance Conference . . .
Read MoreProviding insurance to protect the world’s most vulnerable people seems like a no-brainer, but putting microinsurance into practice is easier said than done. A recent event co-hosted by FAI and Allianz SE – a leading global financial services provider – shared new and practical insights from the insurer’s perspective about the challenge of desigining effective insurance products for the poor.
Held at the Allianz Global Investor headquarters in New York City on September 22, the discussion was moderated by Robert Schiff and Tony Goland from McKinsey’s Social Sector Practice. Heinz Dollberg and Michael Anthony of Allianz discussed the barriers and opportunities for larger players in the microinsurance market and about Allianz’s experience following Cyclone Nisha in 2008.
The session began with an assessment of potential markets for the Allianz group. Michael Anthony stressed that emerging markets, especially India and Indonesia, but also including Egypt, Senegal and the Ivory Coast in Africa, and Brazil and Colombia in Latin America, were particularly attractive because of growing populations and an awareness and demand for insurance products.
Three types of products are typically offered in each of these countries – simple credit life insurance; accident / life insurance products which are linked to savings; and new products that address the specific needs of people in developing countries . . .
Read MoreSocial finance is becoming an important new area of research for FAI. As we delve into that arena, look for blog posts on this topic by us and others. Here we’re pleased to feature a guest post from impact investors Gray Ghost Ventures.
How does Gray Ghost define impact investing?
Impact investing is a pretty broad arena. The part we focus on is looking for market-based investment solutions to poverty alleviation—the merger of both societal impact and financial return. It’s a broad spectrum, but within that we’re probably closer to the expectation of market-like returns, whereas others would not necessarily be on that edge—there are others who are seeking social impact and a financial return, not necessarily market-like. While we respect all the different pieces, we think that unless you get a financial return, you’re less likely to get to scale and replicability, because it’s less sustainable and more dependent upon other sources of funding that are more fickle and erratic . . .
Read MoreThis is the second of two guest posts by Barbara Magnoni, President of EA Consultants, on what we can learn from Banex and its demise. Banex had been one of the most prominent microfinance institutions in Nicaragua, but as it pushed forward with an aggressive growth strategy, its foundations proved weak. In early August 2010, Banex (formerly Findesa) entered liquidation. Magnoni gives starting points for understanding how the bubble burst.
While I do not claim to understand the dynamics of Banex’s drastic deterioration, I would propose we examine some possible causes to avoid repeating mistakes in other MFIs and other countries. Some of the issues to take into account (in no particular order) are:
1) Extremely fast growth and how this may have affected loan analysis (when entering new areas such as livestock, consumer lending and agriculture) as well as hiring practices, training of new staff, and conformity to loan policies and procedures.
2) Incentive schemes . . .
Read MoreThe SKS IPO is a microfinance milestone: the first IPO of an Indian microlender – an event big enough to be covered by the international media. When the first IPO happened in Mexico in 2008, Banco Compartamos was attacked for its high interest rates and (arguably) excessive profit rates, with Muhammad Yunus leading the charge.
This time, there's controversy of a different sort: the focus is on the investors rather than the microlender, namely Unitus. This is Jonathan Lewis, founder of Opportunity Collaboration, pinning down the questions swirling around Unitus, a key SKSsupporter which has, at best, massively botched its PR strategy:
With its announcement, Unitus unleashed a series of web and media commentaries . . .
Read MoreTwo very different events hit the microfinance world this summer. In India, the SKS IPO sparked debates about the lines between profit-making and social responsibility when investors profess a “double bottom line.” In Nicaragua, the failure of Banex is an event that may have even wider reverberations. This is the first of two guest posts by Barbara Magnoni, President of EA Consultants, on what we can learn from Banex and its demise.
I have been working with the microfinance sector in Nicaragua since the end of 2004, arguably the beginning of the “bubble.” At the time, Nicaragua was strangely popular among investment funds, due to its relatively mature microfinance market, which had received support from various donors over 15 years. This aid ensured a certain level of efficiency, transparency and best practice that helped convince investors to keep pouring money in, as more and more money was coming to investment funds from donors, socially responsible and commercial investors.
Since then, MFI performance has plunged . . .
Read MoreIn a previously posted video, FAI’s Jonathan Morduch talks about providing the “ultra poor” – people who live on $1.25 a day or less – with financial services.
As Jonathan said, BRAC’s program, Challenging the Frontiers of Poverty Reduction – Targeting the Ultra-Poor (CFPR-TUP), has been a trailblazer in reaching extremely poor households. At the same time, the question of the program’s impact must be taken up more rigorously. BRAC has made valuable efforts to measure the impact of this program, and published several working papers providing insights into whether and how CFPR-TUP works. A new working paper came out in June 2010, investigating the long-term impacts of the program with panel data.
These evaluations, however, did not rely on a randomized controlled trial methodology (RCT). . .
Read MoreCan the poorest be reached with finance? "Ultra poor" members of society face a series of constraints and deprivations that distinguish them from the general poor. Limited social networks, chronic malnutrition, and reliance on patronage systems characterize a socioeconomic class that is hard to "bank."
Read MoreBillions of poor households around the world lack access to basic financial services. New ideas about banks can translate into workable financial institutions that serve the poor around the world . . .
Read MoreFor those of you who couldn’t attend Wednesday’s event, “Microfinance's Social Impact: Cutting through the Hype,” sponsored by the Microfinance Club of New York and hosted by FAI, here’s a recap.
The panel featured FAI’s Jonathan Morduch, David Roodman, a senior fellow at theCenter for Global Development, Chris Dunford, President of Freedom from Hunger, and Jody Rasch from Moody’s Investors Service.
We were happy that the moderator started the event by making the important distinction between social performance measurement and impact evaluation. Social performance measurement seeks to answer the questions of how MFI clients are doing, and how MFIs can help serve those clients better. Social impact evaluation, which is the focus of much of FAI’s research, tries to answer the question of what would have happened to people in the absence of microfinance. . .
Read Moren a previous post, I wrote about my visit to SafeSave in Dhaka. SafeSave also has a cousin organization, called Shohoz Shonchoy (“Easy Savings,” in Bangla), that operates in rural Bangladesh. Shohoz Shonchoy employs the same flexible methodology as SafeSave, with collectors visiting clients every day to allow clients to make financial transactions from their homes or workplaces. Shohoz Shonchoy has been providing a fascinating product since 2007. Product 9 (P9) incorporates many new insights into poor people’s ways of managing their financial lives, and makes it easy for them to save . . .
Read MoreLast week I had the pleasure to visit SafeSave, an unconventional microfinance institution operating in Dhaka, Bangladesh. SafeSave was founded by Stuart Rutherford (among other things, author of The Poor and Their Money and co-author ofPortfolios of the Poor) and puts a very interesting twist on the traditional model of credit-led microfinance institutions. (To see Stuart Rutherford discussing SafeSave, seeVideo IV, at the 5:30 mark.)
SafeSave provides financial services to very poor clients without relying on group meetings, joint liability, guarantors, or even fixed weekly loan repayments. It was set up as an experiment, to learn whether a flexible, non-group lending methodology would be sustainable. In practice, a lot of the common microfinance wisdom is challenged, and it works: the repayment rate, for example, stands at 95 percent. This is just one statistic. More importantly, I think SafeSave’s methodology is a great way of serving clients with a flexible and convenient system that matches their needs in a unique way.
At the heart of SafeSave’s methodology are the 66 collectors, who visit clients at their homes or workplaces every day and provide them with an opportunity to make savings deposits or withdrawals, and repay their loans (clients need to go to the branch for loan disbursement and large savings withdrawals). All collectors are women who come from the same neighborhoods that SafeSave serves. To match clients’ irregular income flows, savings and loan repayments are optional, and clients choose how much they want to save or repay on a given day. Loans therefore do not have a definite term . . .
Read MoreAs a quick follow-up to Meredith's post, I wanted to add a few additional thoughts.
Meredith mentioned that "at IPA, we always strive to conduct research in a way that identifies not just whether an isolated solution works, but why it works, so that we gain information about what was causing the problem in the first place.' The majority of IPA's projects involve randomized evaluations in the developing world, and we have been able to replicate similar evaluations in various contexts in order to understand the local factors that play a role in a program's impact. While individual randomized evaluations may be criticized for their external validity, the replication approach helps to address that concern. Ultimately, numerous points of light shine through and we begin to develop a holistic perspective on things.
Which is not to say that randomized evaluations are the only way to go about things; but they play an integral part in the development of functional problem-solving systems. This is something that top-down development advocates would do well to take note of. For instance, development theorists are constantly on the lookout for the "right" institutions. As Banerjee (2008) observes, the institutionalist literature is still unclear as to what sort of institutions need to be encouraged, with few reliable policy prescriptions having emerged. If you subscribe to the thinking of seminal institutionalist thinker Douglass North, institutional change is overwhelmingly an incremental one. Alternatively, you could subscribe to the original Shock Doctrine that advocated inter alia rapid, wholesale change.
Although I don't quite subscribe to all the rhetoric of shock doctrine critics, I think there is enough reason to believe that institutional change should be an incremental process; after all, when we barely know what institutions truly work, how could we advocate system-wide changes?
Read MoreIn microfinance, the issues that get the most play tend to be the ones most closely related to bottom lines: What are the net impacts on households? How do institutions achieve sustainability? Which mechanisms work, and why? But sometimes, in our pursuit of headline results, we skip over quieter details that tell us something important. Take-up rates often fit this description. In a new FAI Framing Note by Dean Karlan, Jonathan Morduch, and Sendhil Mullainathan, we pay them some much deserved attention.
Take-up rates are the proportion of individuals from a defined population who participate in a program. They are surprisingly variable and, in some cases, surprisingly low: data from 2 surveys and 13 projects show that take-up rates of financial services range between 2 and 84 percent of eligible individuals.
By revealing valuable information about customers’ interest in a particular product or service, take-up rates give us a way to quantify demand. Low take-up rates also can suggest pent-up demand for products that are differently designed or priced. In addition, take-up rates have a technical implication for impact evaluations: when they are very low, researchers need data from a much larger sample to get results they can be confident in.
In a way, take-up rates are always a bridesmaid and never the bride . . .
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