Over the past 15 years, the field that CGAP aspires to advance has broadened from the initial focus on microcredit to microfinance, to access-to-finance, and most recently financial inclusion.  This evolution happened for good reasons as practitioners, donors, academics, and policymakers learned more about the financial needs of poor families in the informal economy, and success and scale in the early endeavors resulted in important learning and new frontiers.  As a public good at these frontiers of a collective market development effort, CGAP continuously and purposefully influenced, shaped, and adapted to this evolution.

In the mid-1990s, the then-nascent field focused on microcredit.  Social entrepreneurs in the developing world were pioneering new ways of providing credit to poor families in the informal economy.  The innovation of the social collateral allowed serving low-income segments that had been previously thought of as unbankable.  CGAP supported this early experimentation, provided for peer-learning opportunities, and advocated more broadly for a sustainable approach to the provision of financial services for the poor.

In the late 1990s, the industry focused on scaling up the initial microcredit success and on professionalizing the sector.  Many observers felt the focus of building institutions was necessary to prove that the poor could be served in a financially sustainable fashion at scale.  During the period, CGAP built consensus around good practice standards, created transparency and new data sources, such as The MIX information exchange, which was eventually spun off into an independent entity.

In the early 2000s, the field started recognizing the broader range of financial services needs of the poor and moved to speak and work more broadly on microfinance.  Many poor families in the informal economy are producers and consumers at the same time.  Their micro business activities and household needs are intermingled.  As producers, they need access to financial services to invest, generate income, and build assets.  As households, they need to smooth consumption in the face of irregular income and expense streams and manage risks.  The field started to work towards providing a broader range of required services, such as savings and insurance.  In this period, CGAP supported innovations by non-traditional players such as community-based organization to offer savings.  CGAP was a leader in working with commercial banks trying to down-scale and reach lower-income customer segments and launched its micro-insurance working group that eventually spun off into the microinsurance network.

While some expansion of the product range was achieved in the mid 2000s, it became increasingly clear that the cost of service for the typically very low ticket sizes of financial transaction of the poor was a major hurdle, in particular for remote areas. The field started to focus on the challenge of expanding lower-cost access-to-finance.  In particular the advent of the cell phone and technology-based solutions promised the possibility to significantly increase reach and lower delivery costs.  CGAP was an early leader in providing targeted support to business model innovations using technology and generating and disseminating new knowledge on branchless banking as a solution to the earlier, high-cost business model challenges.

In the late 2000s, the microcredit with its focus on short-term loans reached market saturation in a first set of high-growth markets and led to episodes of over-supply and over-indebtedness.  The narrower microfinance community realized the need to re-focus on clients and for consumer protection and financial literacy.  At the same time, global and national policymakers realized the importance of more inclusive financial system that reached larger parts its citizens.  This broadening of the aperture is captured by the more recent language around financial inclusion with more linkages to the mainstream financial system and mainstream players.  During this period, CGAP was a leader in helping the traditional microfinance sector develop a meaningful responsible finance agenda and was early in its support to global and national level policy-makers, for example in the G-20 context, as they turned their attention to building inclusive financial systems.

While the language changed with insights and expanded horizons, the underlying fundamental idea has remained the same:  Help poor families in the informal economy realize their economic potential and give them the financial services means to manage their lives that most of us in the North take for granted.

—– Tilman Ehrbeck is the CEO of CGAP. 

A Negros Women For Tomorrow (NWTF) business development officer demonstrates the features of a solar portable lighting device during a group meeting in Palawan, the Philippines.

Offering financial products that enable poor clients to purchase clean, low-carbon alternatives to kerosene, firewood and other conventional fuels is perhaps the most direct way in which microfinance can be mobilized to combat climate change and preserve ecological resources.

Of course, from the perspective of a client who lacks access to modern energy, the appeal of alternatives like small-scale solar charging devices and efficient cookstoves, is not, nor likely ever will be, about cutting carbon. Fortunately, it doesn’t have to be. Energy poor households and businesses aspire for access to solutions that save them money and time, deliver superior and higher levels of service, facilitate new forms of work and leisure, and maximize convenience. This means that clean energy end-user finance is rooted in the immediate needs and preferences of clients, and therefore driven by bottom-up consumer demands rather than top-down appeals to environmental stewardship. (more…)

The exorbitant interest rates offered by so-called  “microlending” companies (who look much more like payday lenders or garden variety loan sharks) to clients of the Russian Post  recently gave rise to a wave of indignation on the part of the public, government, mass media and the responsible microfinance industry. 

Microlending has existed in Russia for 15 years but it was not until 2011 that special legislation came into force, providing for a clearer legal status of microlending MFIs. These institutions play an important role in the country, serving people who do not have access to bank loans.  Thus, last year about 70 percent of microloans were disbursed in small towns and rural areas; 60 percent of microborrowers were women and 10 percent – youth; and about 50 percent of all microloans were used to fund micro and small businesses.   The average annual interest rates charged by MFIs are about 28 percent per annum. (more…)

When President Calderón of Mexico announced the creation of a National Council for Financial Inclusion, one of the first tasks he assigned was to ensure all financial data included statistics on financial inclusion:

“I would also like to urge the Minister of Treasury, in his capacity as Minister and as member of such Council, not to wait two or three years to conduct the financial inclusion surveys. … Every time the Minister receives financial information related to the country, there must be some financial inclusion data in it.”

We believe both policy making and private sector decision making is much improved when it is rooted in rigorous research and analysis. (In fact, rigor is one of the four values of The Bill & Melinda Gates Foundation). Better evidence can improve outcomes in a number of ways: (more…)

With around 20 million borrower accounts estimated for March 2012, India still has one of the largest microfinance industries in the world – even though the number is much lower than 32 million in October 2010 when the microfinance crisis began.  However, in March 2012 it also had the dubious distinction of having perhaps the worst portfolio quality in the world (at the national level).  Since October 2010 commercial bank lending to MFIs, which made up over 70% of their funding, has been consistently drying up mainly because of perceived political risk. (more…)

This post kicks-off a three-part series on Russia’s financial inclusion space. This short series will feature prominent voices from Russia’s microfinance industry and discuss new developments and implications for the global industry as a whole.

Just as the dust settled after a controversial entrance of new players in the Russian microfinance sector about a year ago – those claiming themselves to be “microfinance organizations”  and yet charging 730% interest per annum, another “innovative microfinance” product has totally shocked visitors of the Russian Post, as reflected in a multitude of blogs and in numerous media articles published in recent weeks.  Promotional booklets found in post offices in several major Russian cities were advertising microloans in the amounts starting from $100 that, if taken for one week, would cost 2772% p. a. (and a “special offer for low-income pensioners” – at 2598%).  The largest amount of 5000 rubles (about $167), for a one-month term, is offered at a “mere” 720%. (more…)

The Findex project helps to correct a long-standing imbalance in evidence on global finance: an abundance of data on the supply of financial services but curiously little that’s systematic and comparative about global demand. Together with the IMF’s Financial Access Survey, we’re finally getting a clear picture of the holes in global financial access. 

There’s a lot to celebrate now that the Findex is here. So much so that it’s striking that it took so long to create a constituency for the efforts. Stanley Fischer had initiated the push in 2004 as head of the Advisors Group for the UN Year of Microcredit, and I joined Princess Maxima of the Netherlands in pushing the agenda forward in advisory roles with the UN in 2005. But it was the Bill and Melinda Gates Foundation’s support of the World Bank’s Development Economics Vice Presidency (DEC) in 2010 that ultimately got us here. (more…)

Recent reports reveal that we’re making some progress in the fight against poverty, but there’s been little effect on the most challenging to reach—the ultra-poor.  While the number of people living in extreme poverty has declined so significantly that we’ve achieved one of the Millennium Development Goals (MDGs) years ahead of schedule, according to a report from the World Bank, the same report also reveals that at the current rate of progress there will still be approximately 1 billion people living below $1.25 per day in 2015, and the challenges faced by those 1 billion people are quite different depending on how far down the poverty spectrum you look.

For those closer to the $2 per day line, microfinance services offer a lifeline to help strengthen their economic activities. The challenge of fighting poverty among the poorest is far greater. These people are generally the most vulnerable and isolated, live on less than $1.25 per day, are food insecure and rely heavily on sporadic wage labor. For the ultra-poor to succeed, interventions must focus on stabilizing a volatile household economy before economic strengthening activities begin. (more…)

What percentage of women in South Asia have a formal account compared to those in Latin America? What are the most common self-reported barriers to financial inclusion among women and rural residents worldwide? To what degree has mobile money reached the unbanked in Sub-Saharan Africa?
 For the first time, we have hard data to evaluate how women and rural residents around the world save, borrow, make payments and manage risk both inside and outside the formal financial sector. With the release of the Global Financial Inclusion (Global Findex) Database we now have a comprehensive, individual-level, and publicly-available database that allows for comparisons across 148 economies. Women and rural residents make up more than 75 percent of the sample of the first round of the Global Findex database, based on more than 150,000 nationally representative adults in 148 economies.

Gender and rural gaps are persistent in all developing economies

With over 40 indicators, and the ability to differentiate each one by gender and rural or urban residence as well as age, education, and income, one can easily get lost in the nuance. But let’s start with the broad strokes. According to the data, in developing economies, 37% of women versus 46% of men are banked. 

(more…)

Thanks to the launch of the Global Findex data set, based on nationally representative surveys of more than 150,000 adults in 148 economies, we have a fresh and robust answer to that question—approximately 2.5 billion adults lack a formal bank account. Most of these people are concentrated in developing economies.

Figure 1

  (more…)