Archive for: Smart Campaign

Poor families in the informal economy need access to financial services as much as wealthier households, if not more so. Their income and expense streams are more irregular, and they have less of an economic cushion to begin with. Yet an estimated 2.7 billion working-age adults globally at the base of the economic pyramid have no access to formal financial services and, instead, have to rely on informal financial mechanisms that are typically incomplete, less reliable, and considerably more expensive. Read the rest of this page »

Our field made good progress last year. Building on the success and the experience to date, and learning from new challenges and insights, we started executing against a broader vision of financial inclusion: A vision that reaffirms the basic tenet that the right access to the right formal financial service helps households, microbusinesses, and the economy as a whole and a vision that recognizes that financial services are not an end in and of themselves but ultimately must improve household welfare. Access to formal financial services needs to give poor families a broader range of choices to build assets, smooth consumption, manage risks, and as a result make them better off than when they have to use the traditional, informal alternatives that are often limited, unreliable, and costly. Read the rest of this page »

I read Chuck Waterfield’s CGAP blog post and have been participating in many discussions lately about the plight of microfinance. As people talk about the way forward, I cannot help but notice what seems to me an obsessive focus on issues that really seem rather secondary – issues such as standard setting, defining responsible microfinance, transparency, certifications, and so on.  We need to focus on the real underlying issue and I am coming to think that it is commercialization that is the problem. Read the rest of this page »

Since its launch, the Smart Campaign has made enormous strides toward ensuring that clients of microfinance would receive transparent, respectful, and prudent treatment.  The Campaign is proud to now have more than 1000 institutions as endorsers and these organizations that serve over 40 million low income people.

In the last year, at least 10 major microfinance investment funds managing over US$2 billion have integrated client protection into their due diligence and reporting.

The Campaign is a truly global effort.  It is governed by a 28-member Steering Committee whose membership represents all facets and geographies of the sector and its work is accomplished through partnerships with virtually every facet of the industry.  Read the rest of this page »

Responsible finance is not something that you can check off a list. It is not a practice that you can hope to implement before the 4th quarter ends. Responsible finance is a way of doing business – a never-ending process of adapting your products, processes and policies to keep your clients at the center. If responsible finance is a marathon and not a race, how then, can we make it the new “normal” for the microfinance industry? And more importantly, how can we make the practice of responsible finance withstand the tests of time?

Make it part of your institutional DNA.

This year marks the fifteenth anniversary of Banco Solidario´s founding. In 1996, long before the term “responsible finance” was part of the lexicon of the microfinance industry, Banco Solidario opened its doors with the slogan, “Los primeros con misión social” (The First [bank] With a Social Mission). In the 15 years since, we have remained committed to this idea through a client-centered approach to our business. We would even venture to say that responsible finance has always been part of our DNA. Read the rest of this page »

A soon-to-be-published CGAP Focus Note asserts that “responsible finance” should become the new standard for delivery of financial services to poor people. Simply extending more access within the “white space” of underserved people and places is not enough. Microfinance clients should be able to count on products and practices that are transparent, fair and take reasonable care to avoid harm such as over-indebtedness. And likewise, we should expect the great majority of microfinance providers, funders and others that are double bottom line institutions to be able to measure the extent to which they’re benefiting their clients and to use this information to improve services.

So the definition we use for responsible finance has two main dimensions. The first — client protection — is an essential standard for all retail providers, no matter their legal type, profit orientation or mission. The second — social performance management – is relevant for all players with a social or development mission. And unless you are protecting your clients against potential harm, it’s hard to assert that you are doing good. Read the rest of this page »

It is my privilege to close out this blog series which has been a wonderfully rich exploration of one of the most complex and consequential topics in microfinance.  I’m tempted just to sit back and say – I like what Rich wrote about the challenge of definitions and how Jessica illustrated the difficulty of drawing the line of “acceptable sacrifice” and the way Jacco laid out the responsibilities of various stakeholders. In fact, that’s largely what I propose to do, while taking up the overall theme of learning from research.

This series demonstrates the wide field of research emerging on overindebtedness. Several of the contributors to the series are the first movers who have established tentative hypotheses and tested research methodologies.  We need more such studies to inform product design and policy making. Milton is skeptical that more knowledge will lead to better outcomes, and he does have a point.  It’s quite possible that the only way to learn and take the steps necessary to produce a better outcome is to plunge a market into a crisis.  Even better, however, would be to use the results of research. Although the studies profiled here are a huge step forward, it is still early to use them for making decisions: it is not yet clear how their findings will hold up in other countries and different settings. Read the rest of this page »

The consequences of over-indebtedness are shared among all stakeholders in microfinance. Households, individuals, and communities are affected by borrowers who cannot repay their debts. They risk the loss of livelihoods, reputations and the chance to improve their families’ lives. MFIs that lend to over-indebted borrowers face potentially large loan write offs.

Microfinance Investment Vehicles (MIVs) that lend to these MFIs also face losses, directly affecting both the financial and social return to their investors. Read the rest of this page »

While over-indebtedness can be difficult to observe in practice, we can use simple surveys to estimate one proxy for over-indebtedness: cross-indebtedness, or the number of institutions from which the typical borrower has a loan. In markets with strong credit bureaus, MFIs have good data to support such surveys. Data on multiple borrowing lets us test the relationship with social and financial performance metrics, and provides a check on aggregate outreach figures.

Definition of over-indebtedness and multiple borrowing
Typically, we think of over-indebtedness when a borrower’s debts exceed their repayment capacity. However, this can be difficult to observe in practice. One common proxy for over-indebtedness is whether a borrower has multiple active loans outstanding. Since the borrower may have loans from several different institutions, we can try to measure the number of institutions from which they have borrowed instead. We call this measure – the number of MFIs from which a client borrows – ‘cross-indebtedness.’  As credit bureaus have opened in some markets in Latin America, MFIs have more information about multiple borrowing by clients. Read the rest of this page »

CGAP has been hosting a two-day online Virtual Conference “Responsible Finance: Making it Work in Microfinance” on April 12-13. The event is bringing together MFIs, policymakers, NGOs and individuals from across the world for a rapid-fire online debate and discussion.

Day one of the conference focused around the question “what is responsible finance, and why is it needed?” and featured guest moderators from four continents and nearly 300 participants commenting and following along with the debate. Hot topics of discussion included:

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