Highlights of the first day according to the leaders of the sponsors of the conference:
Dean Karlan, Innovations for Poverty Action:
1) The results presented from the ultra-poor programs of SKS and BRAC were very exciting. They show that you can have an impact on the poorest of the poor.
2) The results of the studies on savings and insurance were also very encouraging. These programs continue to show that they can have measurable positive impact in a very short time frame.
3) The studies of the impact of credit continue to show that there are benefits but they are harder to find and weaker.
Read MoreThe emerging answer seems to be similar to the answer to the question: "Does Aid Work?" It depends.
We just finished up the first panel session at Microfinance Impact 2010, moderated by Jonathan Morduch, and with presentations by Dean Karlan (Yale and IPA), Abhijit Banerjee (MIT), Esther Duflo (MIT), Carlos Danel (Compartamos Banco) and Tanguy Bernard (Agence Française de Développement).
Dean Karlan began by setting the scene, describing the remarkable “audacious to humble” transformation of claims about microcredit. From the magic bullet for fighting poverty, to merely lifting millions from poverty, to raising consumption, to just helping the poor cope, to not doing any of that but allowing for greater freedom and empowerment.
Why do we care about measuring impact? For three reasons . . .
Read MorePeople often find it hard to save money, the poor no less than the better off. Human nature plays its role, of course: it is hard to save for some intangible future when our wants in the present are so concrete. But the poor also lack convenient and inexpensive mechanisms to save. So what could happen if we remove those barriers?
“There are two interrelated challenges in getting viable savings services to the poor,” says Jake Kendall, microfinance program officer at the Bill & Melinda Gates Foundation. “The first is that the poor live too far away from bank branches, and the second is that their deposit levels are too small to make it cost-effective for banks to serve them. So our guiding light has been to promote business models that simultaneously extend geographic outreach and dramatically lower the cost of dealing with the poor. To date, mobile applications have promisingly done both those things.”
Read MoreQuestions of fairness and consumer protection in finance do not always have clear answers. The consumer’s perspectives on transparency, fair treatment and rights are at least as important (and much less well-understood) as the provider’s, and yet banks need to cover costs and achieve repayment if they are going to build sustainable businesses. How can the needs of both sides be balanced? Is it realistic to expect MFIs and their associations to protect clients, or is outside “enforcement” needed, whether through regulation or investor pressure?
“We are preoccupied, and understandably so, with expanding access to finance, but if we want to be driving to long term benefits we need to focus on quality as well,” says Kate McKee of the Consultative Group to Assist the Poor. “Do the clients know what they are getting? Is the product designed in a way that it is sensitive to their particular circumstances? Is it good value for money?"
Read MoreFor those of you who followed the story of Hamid and Khadeja, the Bangladeshi couple introduced in Chapter 1 of "Portfolios of the Poor", we have an update on them from Stuart Rutherford’s recent visit to Bangladesh. We are excited to learn the couple is healthy and their household finances appear to have become further diversified and formalized.
The family is very much together and still living in Dhaka but in better housing. The second son is now eight, in school and well. Hamid seems to have put his poor health behind him and is still driving an auto-rickshaw (natural-gas powered these days). His income is up, as is Khadeja's. It is Khadeja who has changed the most: she is much more
self-confident and is running a very busy one-woman sari-selling business. Between them they now earn about 14,000 taka a month ($199 USD) – considerably more than in 2000 and 2005. At market rates the four of them are now earning per capita $1.68 a day, or $4.28 PPP . . . .
Read MoreWe're live-blogging the Innovations for Poverty Action/Financial Access Initiative Microfinance Conference 2008.
Ever since micro-credit entered the popular imagination as a “silver bullet” poverty intervention, there have been lots of assumptions about what it accomplishes for the poor: Micro-loans alleviate poverty; They allow poor people (especially women) to start businesses and become financially self-sufficient; They correlate with increased spending on education for children and health care, etc.
The reality is that there has not yet been a controlled trial on the impact of the standard microfinance product – a small loan given to a group of women who meet together weekly for repayment. Put another way, all of the above-mentioned “received facts” about what is accomplished by giving people access to small lines of credit have been based on anecdote. The reality is that no one knows what impact, if any, micro-credit has on the lives of the poor . . .
Read MoreThe vast majority of microfinance programs -- particularly group lending efforts -- explicitly target women. This focus grew in part out of the belief, supported by some research, that women are more likely to invest in the household as a whole, particularly in the children. Given that, what can we do to improve women’s financial self-sufficiency, either through employment, entrepreneurial success or thoughtful risk management tools?
Barbara Magnoni, President of EA Consultants, a development consultancy that advises on microfinance product design, thinks we could start by taking a more differentiated view of men and women as microfinance customers . . .
Read MoreWe'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 More
