Why 2017 is our Year of Housing

e-MFP, 3 February 2017

Financial Inclusion. Housing.

How often have you seen the two concepts appear together? If you think rarely – you’re not alone. Housing finance is that mysterious niche that crops up from time to time, but rarely makes headlines in our sector. And that’s both a conundrum and a shame.

Housing is a core human need and a top investment priority for families anywhere. Whether rich or poor, housing is often the single largest capital investment these families will ever make, that is to say, it cries out for effective products to help finance it. Unsurprisingly, housing finance is a core of financial services in wealthy nations. Indeed, if you’re over 40, chances are that a home mortgage is the single largest loan that you, dear reader, ever held. And yet in the financial inclusion and microfinance sector, housing gets notoriously short shrift. Habitat for Humanity, the world’s leading NGO dedicated to housing, estimates that while 1.2 billion people need improved shelter, just 2% of microfinance portfolios are dedicated to housing. more →

Preventing client over-indebtedness in Cambodia

e-MFP, 20 October 2016

This week marks Financial Inclusion Week. In support of this effort to highlight what Financial Inclusion means for the Platform, e-MFP would like to highlight the work being done in Cambodia by its members and partners, including ADA, BIO, FMO, Incofin, and Proparco, as well as by the MIMOSA Project.

From its beginnings as a hotbed of NGO activity to one of the world’s most active microfinance markets today, Cambodia has always traced its own path in the sector. A decade ago, access to finance in Cambodia was minimal. Today, the Cambodia Microfinance Association counts 2 million loans outstanding for a population of 15 million, along with a growing number of deposit accounts, remittances, and other financial products. The Symbiotics MIV 2016 survey reports Cambodia receiving nearly 10% of microfinance investments in the world, second only to India – a country whose population is nearly 100 times larger.

What happens in Cambodia affects across the entire microfinance sector. And on that front, Cambodia is once again tracing its own path. more →

Fake deposits faking microfinance outreach

e-MFP, 20 September 2016

Last week saw two nearly identical financial scandals hit two very different parts of the world. One was the revelation that Wells Fargo, one of the leading US banks, had falsely created some 2 million accounts for customers who never asked for them and were largely unaware of their existence. The other was about banks in India secretly depositing 1 rupee (0.015 euro) into their customer’s accounts.

What’s remarkable is the sheer silliness of the scandals – for the most part, this was not a case of money being stolen or fraudulently taken from customers. Instead, the scandals were being driven by the need to meet targets. In the case of Wells Fargo, staff were under pressure to meet sales goals. In the case of India, the banks needed to comply with government targets aimed at expanding savings accounts to financially excluded populations. In both cases staff managed to meet the targets, while completely missing the objectives the targets were meant to achieve. The financial writer Matt Levine put this brilliantly: “Measurement is sort of an evil genie: It grants your wishes, but it takes them just a bit too literally.”

Naturally, in our line of work, it’s the India scandal that’s most relevant. And frankly, we at e-MFP are not one bit surprised. more →

Financial Inclusion 2011-14: Massive growth or a mirage?

e-MFP, 27 April 2015

The press release from the World Bank did not hold back:  “Massive Drop in Number of Unbanked,” reads the headline. In just three years, the number of adults with a bank account has grown from 51% to 62% — an increase of 700 million people. That’s a fantastic number!

And that’s the problem. Fantastic is good for children’s bed-time stories. It’s a bit more concerning when it comes to survey data. What’s the story behind this incredible, utterly unprecedented growth?  What happened in these past three years that might explain it? more →

Debt, Greece, and Microfinance

e-MFP, 23 March 2015

The microfinance sector has many actors with many different objectives, but if there is one common element that all agree on, it’s that microfinance should not harm the clients. And one of the most important elements of client protection is responsible collections.

To operate as viable enterprises, MFIs must collect on their loans. Inevitably, some clients prove unable to repay. Some cases seem easy – a client has suffered an unexpected tragedy, so an MFI will work to understand her situation and make alternative arrangements to repay the debts, be it a grace period, rescheduling, or even extension of a supplemental loan. But what to do with those cases where a client has simply borrowed too much? What if she did it for a “bad” reason – say, to buy a television? What if a borrower lied by denying that she had other debts? Unfortunately, such situations do happen.

In such cases recovery is still the goal. But one cannot recover money that’s not there. Responsible MFIs don’t press their clients to sell key income-generating assets that they depend on for survival. The key is to find the middle path – maintain pressure to repay, but not so high that the client is pushed into destitution.

So what about Greece? Does the experience of microfinance have any useful lessons for the Greek government and its creditors? more →

The biggest gap in Financial Inclusion? Metrics.

 e-MFP, 27 February 2015

The microfinance sector has been abuzz with the implications of the “final word” study on microcredit impact. For many, including myself, this has been an opportunity to consider a trend that’s been taking place for several years now – from microfinance to financial inclusion. In my last blog, I touched upon the subject of metrics that this new shift requires. I would like to delve deeper.

To use the definition of the Center for Financial Inclusion, “Financial inclusion means that a full suite of financial services is provided, with quality, to all who can use them, by a range of providers, to financially capable clients.”  That encompasses many things, but perhaps more intuitively, financial inclusion means providing serving those who aren’t being served – whether they are too poor, too informal, or too remote.

It’s a compelling goal. Yet the metrics we use to measure progress came from a time when microfinance meant making loans to the poor. They simply are not up to the task of measuring financial inclusion. more →

Microfinance is dead. Long live Microfinance!

e-MFP, 12 February 2015

The verdict is out. Final publication of six randomly-controlled studies (RCTs) has drawn a pretty thick line under the words of David Roodman: the average impact of microcredit on poverty is about zero. The notion that microfinance lifts the poor out of poverty is officially dead.

Now, the caveats. The studies evaluated microcredit only – not savings or payments or insurance. Nor did they cover so-called microfinance-plus programs, which provide training, health care or other interventions, along with credit. It’s quite possible that these or other specialized branches of microfinance practice do raise the living standards of the poor. But, if I may be so bold, even the best of these initiatives are probably less effective than we might have supposed.

This is good news. We in the microfinance community could use some humility. We’re financiers, not doctors, scientists, or teachers. To think that we can alter the lives of millions is hubris. more →

The Mystery of Mexican Microfinance: Client Incomes, Expenses and Debt

e-MFP, 31 October 2014

I’ve been poring over the data collected by the Angelucci, Karlan & Zinman study of Compartamos clients.  To recap from my previous blog, with an average monthly loan payment of 2,100 for the loans in the study (and for Mexican MFIs generally), the figure of 1,572 pesos as the average client income poses a seemingly impossible debt-to-income ratio of 130%.

The immediate question is whether the income figure is reliable. It does seem extremely low, putting the clients below the 3rd income percentile in the country.  Can we get anything more from that data? more →

To Mexico: Days 2-3 and beyond

e-MFP, 24 October 2014

This is part 3 of a 3-part installment from my brief visit to Mexico in October 2014.  Read parts one and two.

The biggest mystery about Mexico is understanding the numbers. They just don’t quite seem to add up. And that’s what was dogging me throughout the visit, including the two days spent in Mexico City talking to various actors in the sector.

I was lucky – it just so happened that ProDesarrollo was releasing its 2013-14 Sector Benchmarking, and I managed to get myself invited to the event.  A great opportunity to network with many actors in the sector at once. I also got to see the presentation of the market figures. At the outset of the trip, I laid out several hypotheses.  It seems to me that there are really only two that matter more than all the rest:  1) the number of unique clients and number of loans they hold, and 2) the profile of the MFI clients on which the market rests. more →

To Mexico, Day 1: Tapachula, Chiapas

e-MFP, 24 October 2014

This is part 2 of a 3-part installment from my brief visit to Mexico in October 2014.  See: parts one and three.

My first stop in Mexico was a place I first heard about nearly two years ago:  Chiapas.  The state is in many ways one of the centers of Mexican microfinance.  According to ProDesarrollo’s 2013-14 Benchmarking, Chiapas is tied with much larger Veracruz for the largest number of the network’s members (32).  The number of MFI branches per population is nearly double the national average.  It’s also Mexico’s least developed state.

In all, I spent about 22 hours in Chiapas.  But even that paltry amount of time can prove revealing. more →