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 →

Opportunity International and MyBucks: The Future of Digital Microfinance?

nextBillion, 21 June 2016

Co-authored with Gabriela Erice Garcia, e-MFP

Back in November 2015, a press release briefly made the rounds, announcing that “Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company.” This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it “a good (or not so good) operation.” But aside from this, reaction has been surprisingly muted.

By all accounts, this should have been bigger news for the microfinance sector. One of the major microfinance networks selling six subsidiaries to a fintech startup, and doing so in sub-Saharan Africa – the global hub of innovation in mobile banking. At a time when technology and mobile money are the talk of the sector, how does a story like this pass under the radar? 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 →

Are MFIs overstating their savings outreach?

e-MFP, 28 Oct 2013

Since the microfinance sector broadened its focus from loans to financial inclusion, savings have become a major focus.  And rightly so – the argument for providing poor customers with a safe and reliable place is backed by both robust research and common sense. Meanwhile, MFIs are already delivering on the promise: in 2011, MIX Market reported nearly 80 million depositors world-wide, with an average balance of $994.

It’s a great story. Unfortunately, it’s at least somewhat misleading. Simply put, when it comes to microsavings, objects in mirror may be larger than they appear.  More →

From Responsible Lending to Responsible Profit

Financial Access Initiative, 16 November 2012

If there’s one issue that’s most difficult for microfinance practitioners to explain to the lay public, it’s high interest rates.  As Elisabeth Rhyne describes it, at some point the numbers get so high that people become outraged and stop listening altogether.  Most recently, the issue was put back in the public eye through Hugh Sinclair’s Confessions of a Microfinance Heretic and the media coverage it has spurred.

With few exceptions, his critique that microfinance investors are investing in MFIs charging exorbitant interest rates has gone largely unanswered. That’s not a tenable position for the long-term.  For a socially responsible fund, the case ought to be simple – if you have investments that you’d rather not have to publicly support and explain, then either those investments don’t belong in your portfolio or you should learn how to explain those investments.

Rates in excess of 100% (in APR terms) are not unknown in microfinance.  more →

Can borrowers be trusted to reschedule their own loans?

Financial Access Initiative, 13 September 2012

I have written before how tiny Zidisha Microfinance is challenging long-held assumptions by leveraging internet social media and mobile payments like M-PESA to lend to clients without the help of loan officers or local staff.  Since then, Zidisha has grown from tiny to small, with a portfolio now at $200,000, over 430 active borrowers, not to mention its 1400+ lenders.  And, as before, its operations remain solid, with PAR30 at a respectable 6.6%[1] (check out its stats for more).

I’ve been advising Zidisha since before its launch in 2010, and with that had the opportunity to watch the evolution of the platform’s many innovations.  One feature, introduced in August 2011, allows borrowers to request to reschedule their loans, regardless of whether they are delinquent or not.  more →

What’s wrong and what’s right about consumer finance?

Financial Access Initiative, 8 May 2012

It’s the microfinance bête noire.  The great unspeakable.  The furtive shadow slinking down the narrow alleys of poverty.  Yes, the consumer loan.  Has microfinance really come to this, we ask?  Helping the poor buy a TV?  Charging 40% interest for the couch to go in front of that TV?  And what about family celebrations, festivals, dowries?  Is that really what microcredit is for?

Consumption lending has been creeping out from the shadows for some time, but mostly for “good” consumption like school fees, urgent medical care, or basic needs like food during those difficult periods when income is scarce.  Still, for many of us the TV-on-credit notion that represents what is so easy to think of as “bad” consumption remains too painful an idea to swallow.

But how to draw the line?  If not the TV, then what about a microwave?  A motorbike?  Plumbing in the home?  Is there a framework one can use to evaluate when consumer credit is acceptable and when it is not?  No less importantly, how does an institution dedicated to serving poor customers decide what type of funding mechanism – savings or credit – is more appropriate for a given purpose?  more →