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HOW DOES MICROFINANCE HELP HELP MICROFINANCE DOES HOW

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BAROMETER 2019 BAROMETER MICROFINANCE MICROFINANCE KEY FIGURES OF FINANCIAL INCLUSION | WORLD Global microfinance figuresWhat are the trends?

ince 2010, the Microfi- nance Barometer anal- S yses key figures on financial inclusion worldwide, using MIX Market figures on World Total 2018 & growth since 2009 the global microfinance mar- ket. Here is a look back at the Other MFI 20% 80% Eastern Europe and Central Asia main trends in the sector. 24% $124 B 51% 49% $5.7 B In 2018, 139.9 million Top 100 MFI 76% borrowers benefited 140 M 916 136 2,5 M 62% South Asia 2016: +9.4% 65% 2016: -11.1% 2016: -2.5% 11% 89% 2016: +9.6% 2017: +6.5% from the services of 2017: +15.6% 2017: -2.3% 2017 : +5.6% 2018: +13.1% 2018: +8.4% MFIs, compared to only 2018: +8.5% 2018: +9.5%

150 Evolution of the portfolio at risk > 30 days 8% Middle East and North Africa 98 million in 2009. Of Number of active borrowers $36.8 B 40% 60% 120 (million) 7% these 139.9 million $1.5 B Gross loan portfolio 6% 214 (USD billion) 2.5 M 47% borrowers, 80% are 90 5% 29 2016: +3.2% 2016: +7.1% 85.6 M 72% 4% 2017: +13.5% 2017: +11.4% women and 65% are 60 2016: +23.5% 2016: +13.4% 9 0 1 2 3 4 5 6 7 2018: +11.4% 2018: +9.5% 9 0 1 2 3 4 5 6 7 8 200 201 201 201 201 201 201 201 201 2018 2017: +24.2% 2017: +6.6% rural borrowers, pro- 200 201 201 201 201 201 201 201 201 201 2018: +10.3% 2018: +13.8% portions that have re- Africa East Asia and Paci c mained stable over the Latin America and Caribbean 36% 64% past ten years, despite $10.3 B 27% 73% the increase in the nu- 37% 63% 129 6,3 M 60% mber of borrowers. 2016: -0.6% 2016: +2.3% $21.5 B $48.3 B 2017: +3.5% 2017: +0.4% 2018: +5.5% 2018: +0.3% 160 20.8 M 79% Focus on institutions and 248 2016 : +9.2% 2016: +8.0% clients 22.2M 23% 2017 : +18.1% 2017: +10.6% 2018: 14.6% 2018: 10.2% In ten years, microfinance 2016: +8.1% 2016 : +3.1% institutions (MFIs) have lent 2017: +12.4% 2017 : +1.1% 2018: -0.3% hundreds of billions of dollars, 2018: +5.7% with an average annual growth rate of 11.5% over the past five Number of MFIs reporting to the Portfolio size Number of borrowers Proportion of rural borrowers years. At the same time, the MIX (consolidated data for year 2018) number of borrowers world- wide continued to increase Over the past decade, MFIs bilised between 2016 and 2018 amount of borrowers (85.6 mil- - albeit at a slower pace than have also improved their ef- at around 7%. lion in 2018), with this number in the 2000 to 2010 period - re- ficiency. Despite a decade growing faster than in other cording an average annual marked by a sharp increase Focus on the regions regions (+13.8% between 2017 growth rate of 7% since 2012, in the cost per borrower, from and 2018). It also has the top compared to a rate of nearly an average of $68.4 in 2009 to South Asia continues to dom- three markets in terms of bor- 20% in the previous decade. $106.7 in 2018 (+56%), the oper- inate global microfinance: it rowers, India, Bangladesh and ating expense ratio decreased is the region with the largest Vietnam. In 2018, 139.9 million borrow- by 2.7 points over the period. ers benefited from the services Between 2009 and 2018, MFIs of MFIs, compared to just 98 also recorded an increase in MFIs average performance ratios in 2017 (consolidated) million in 2009. Of these 139.9 their returns on assets (+1.3 million borrowers, 80% are points) and equity (+2.9 points). women and 65% are rural bor- Portfolio yield 19.2% rowers, proportions that have Nevertheless, there was a remained stable over the past slight deterioration in the qual- Operating expense ratio 10.6% ten years, despite the increase ity of the portfolio over the en- in the number of borrowers. tire period, with the portfolio at Portfolio at With an estimated credit port- risk (PAR) over 30 days having risk 30 days 6% folio of $124.1 billion, MFIs re- risen from 6.4% in 2009 to 7% corded another year of growth in 2018. After a decline in the Return on in 2018 (+8.5% compared to PAR > 30 days between 2010 11.5% equity 2017). and 2012, it rose again and sta-

MICROFINANCE 2 BAROMETER 2019 KEY FIGURES OF FINANCIAL INCLUSION | WORLD

only experienced weak growth between 2017 and 2018 (+1%), Eastern Europe and Central Asia recorded an increase of World Total 2018 & growth since 2009 5%, an improvement after the decline in 2015 and 2016. Other MFI 20% 80% Eastern Europe and Central Asia 24% The total outstanding amount $124 B 51% 49% of African MFIs has increased $5.7 B by 56% since 2012, while the Top 100 MFI 76% number of borrowers increased 140 M 916 136 2,5 M 62% South Asia by 46% over the same period to 2016: +9.4% 65% 2016: -11.1% 2016: -2.5% 11% 89% 2016: +9.6% 2017: +6.5% reach 6.3 million people in 2018. 2017: +15.6% 2017: -2.3% 2017 : +5.6% 2018: +13.1% 2018: +8.4% Despite a low quality portfolio 2018: +8.5% 2018: +9.5% (13.6% PAR > 30 days in 2017)

150 Evolution of the portfolio at risk > 30 days and high costs per borrower, 8% Middle East and North Africa Number of active borrowers $36.8 B 40% 60% the portfolio continues to show 120 (million) 7% $1.5 B a strong yield - 20% - but down Gross loan portfolio 6% 214 (USD billion) 2.5 M 47% 6.6 points. The return on assets 90 5% 29 2016: +3.2% 2016: +7.1% 85.6 M 72% also remained positive - 1.9% - 4% 2017: +13.5% 2017: +11.4% 60 2016: +23.5% 2016: +13.4% 9 0 1 2 3 4 5 6 7 2018: +11.4% 2018: +9.5% but down (-1.4 points). 9 0 1 2 3 4 5 6 7 8 200 201 201 201 201 201 201 201 201 2018 2017: +24.2% 2017: +6.6% 200 201 201 201 201 201 201 201 201 201 2018: +10.3% 2018: +13.8% Africa Finally, with 73% female cli- East Asia and Paci c ents and 79% rural borrow- Latin America and Caribbean 36% 64% ers, MFIs in East Asia and the $10.3 B 27% 73% Pacific continue to grow with 37% 63% a portfolio of $21.5 billion in 129 6,3 M 60% 2018, up 13.1%. The same year, 2016: -0.6% 2016: +2.3% $21.5 B 20.8 million beneficiaries bor- $48.3 B 2017: +3.5% 2017: +0.4% rowed from MFIs in this region 2018: +5.5% 2018: +0.3% 160 20.8 M 79% (+10.2%). Since 2012, the total 248 2016 : +9.2% 2016: +8.0% outstanding amount of MFIs in 22.2M 23% 2017 : +18.1% 2017: +10.6% the region will has increased by 2018: 14.6% 2018: 10.2% an average of 16% per year, ac- 2016: +8.1% 2016 : +3.1% 2017: +12.4% 2017 : +1.1% companied by a continuous but 2018: +5.7% 2018: -0.3% more moderate growth in the number of clients (+6%/year). Number of MFIs reporting to the Portfolio size Number of borrowers Proportion of rural borrowers MIX (consolidated data for year 2018) BLAINE STEPHENS CHIEF OPERATING OFFICER & MOHITA KHEMAR A notable feature of the region, characterised by a low pene- borrowers in Eastern Europe ASSOCIATE PRODUCT MANAGER almost all borrowers are in fact tration rate in rural areas. MFIs and Central Asia and 60% in MIX female borrowers (89% in 2018). in the region are the least ru- the MENA region in 2018. Credit Although it represents almost ral-oriented, accounting for only portfolios in these two regions two-thirds of global borrowers, 23% of their clients. also increased during the pe- South Asia is only second in riod. While the MENA region terms of credit portfolio, with an In contrast to these leading re- estimated outstanding amount gions, countries of Eastern Eu- of $36.8 billion in 2018. rope and Central Asia as well Methodology as those of the MENA region In contrast, Latin America and are smaller markets. However, Calculations are based on data provided by financial service providers through MIX Market (http:// www.themix.org/mixmarket). MIX makes every effort to collect the data from the dominant actors the Caribbean alone account for they are growing both in terms of each market to ensure visibility into each market but does not collect data on every actor in 44% of the total microfinance of number of customers and every country.

sector portfolio, with $48.3 bil- credit portfolio. In Eastern Eu- Total figures for borrowers and loan portfolio as of FY2018 are based on data provided by 916 ins- lion in outstanding loans (+5% rope and Central Asia, the num- titutions. For FY2018 data, we have considered data for all institutions that have reported through per year on average since 2012). ber of borrowers has increased MIX Market for any period in 2018. Where institutions reported annual figures for FY2017 but not for This region is the second largest by more than 30% since 2012, a date in 2018, those FY2019 figures were used to calculate the estimated total outreach for 2018. in terms of number of borrow- reaching 2.5 million in 2018. Growth figures for borrower and loan portfolio values for FY2017 and FY2018 are based on a ba- ers, with 22.2 million customers The MENA region has the same lanced panel data from the set of institutions that have provided both data fields through MIX Mar- ket for each of the fiscal years from FY2016 and FY2017. in 2018, a slightly lower figure number of borrowers. MFIs in (-0.3%) after years of growth. these two regions also have Client segment, funding data, and institutional performance data come from MIX’s Global Outreach The Latin America and Caribbe- the lowest proportion of women and Financial Performance Benchmark Report . an region also continues to be borrowers, with 49% of female

MICROFINANCE BAROMETER 2019 3 FINANCIAL INCLUSION | EUROPE

Unlocking the potential of microcredit for a more inclusive and dynamic Europe

hirty years ago, when setting up the Association for the Trends in microcredit activity and outreach Right to Economic Initiative (ADIE) in France, Maria Nowak Number of microloans distributed Value of microloans distributed introduced in Europe an innovation that had already been T per year per year successfully developed in Bangladesh by Professor Yunus: micro- 800 000 2,5 credit. ADIE’s goal is to grant a genuine right to people whom the 2 laws of the market or personal misfortune prevent from developing 600 000 664 000 € 2.07 633 173 € 1.86 their projects or creating their businesses due to a lack of access 552 834 € 1.57 to conventional bank credit. Implementing this right requires the 400 000 granting of tailored loans, with personalised support to project 1 leaders. 200 000

This initiative quickly spread throughout Europe, in shapes and 0 0 forms adjusted to the specific context of each country. The Micro- 2015 2016 2017 2015 2016 2017 finance Centre (MFC) was created in Warsaw in 1999, followed by +20% +32% the European Microfinance Network (EMN) in 2003. There are now some 450 microfinance institutions in Europe. According to the lat- 3.16 B euro 993 182 est survey carried out by EMN and MFC, there were nearly one Gross Microloan Active million active borrowers in 2017, for a total outstanding amount of Portfolio Outstanding Borrowers +24% +33% €3.2 billion. Growth 2015-2017 Growth 2015-2017 Experience in Europe over the last 30 years What is the future of microfinance in Europe? shows that the development of self-employ- ment and micro-enterprises makes it possible A new European Parliament has just been elected and a new Com- mission is being set up. At the same time, the Yellow Vests move- to transform vulnerable people into wealth ment in France has shown the depth of social divides and the feel- creators. Likewise, it can reduce poverty and ings of abandonment currently experienced by many of our fellow social divides, while contributing to the achie- citizens. It is therefore a particularly opportune moment to recall the social impact and economic efficiency of microcredit, and to vement of the Sustainable Development Goals put proposals forward to remove obstacles or barriers to its de- velopment.

The number of microcredit beneficiaries and outstanding loans are This is the goal of the Working Group chaired by Maria Nowak un- increasing steadily. However, this growth may still be considered der the umbrella of Paris Europlace. This Working Group, made of too slow given the microcredit “market”’s potential, as estimated experts from ADIE and French banking groups, as well as repre- by the EMN/MFC study (two million borrowers, representing a po- sentatives from Banque de France and the European Microfinance tential annual demand of €17 billion). Unfortunately, in most coun- Network, has drawn up a White Paper on Microcredit in France tries, such development potential reveals the ongoing difficulties and in Europe1. This White Paper reviews the current state of mi- that many people encounter in accessing bank credit to set up or crocredit and analyses the factors that led to the development of develop their micro-enterprise; to the worsening of inequalities microcredit in France. It also gives an overview of studies demon- and social, regional and digital divisions; and to the development of strating the economic and social utility of microcredit, and sets out a social model that favours integration via wage labour rather than proposals to encourage accelerated microcredit development both self-employment and entrepreneurship. in France and in the European Union.

Experience in Europe over the last 30 years shows that the develop- Microcredit’s social and economic utility owes everything to micro- ment of self-employment and micro-enterprises, with the combined credit institutions’ stated desire to make it their primary business support of microcredit and assistance to project leaders, makes it purpose; to translate it into their policies, internal procedures and possible to transform vulnerable people into wealth creators. Like- products and services; and to periodically gauge the real-world wise, it can reduce poverty and social divides, while contributing impact of their actions using recognised methods for measuring to the achievement of the Sustainable Development Goals. It has social impact. Social performance, social impact and long-term also shown microcredit institutions’ long-term economic viability. economic equilibrium are the three pillars of what could be called the “European model” for microcredit institutions. European institutions have understood and supported the develop- ment of microcredit across the continent, particularly with the cre- It is up to each of us to develop it for a more inclusive and dynamic ation of the EU Programme for Employment and Social Innovation Europe. (EaSI) in 2014. As part of this programme, the European Commission 1 The White Paper is available on the Paris Europlace website: https://www.paris-europlace. has provided a guarantee instrument with a budget of approximate- com/fr/publications ly €300 million for the 2014-2020 period. Its aim is to improve access to financing for social enterprises, micro-enterprises and vulnera- ble groups. The Commission has also used this programme to set JEAN-LUC PERRON VICE CHAIRMAN up a grant instrument with a budget of €16 million over the same CONVERGENCES & period of time to strengthen the institutional capacities of micro- VICE CHAIRMAN credit and social financing providers. CENTRE YUNUS PARIS

MICROFINANCE 4 BAROMETER 2019 FINANCIAL INCLUSION | FRANCE

From banking inclusion to financial education: trends in microfinance in France

ince the start of its monitoring in 2013, By making microcredit more visible and more In this respect, improving French citizens’ aware- microcredit has grown at a fairly steady accessible, and by bringing social stake- ness of microcredit increases the use of this tool, S rate in France. Yet, the amounts are still holders, associations, public institutions and which is useful both economically and socially, modest given the role microcredit could play in bankers together with microcredit institu- while at the same time reinforcing borrowers’ terms of financial inclusion. tions, these types of products can be more ef- ability to repay loans, as microcredit represents fectively marketed. Banque de France and its a binding commitment. The online platform of With 244,000 microloans outstanding at the end branches already manage over-indebtedness Budgetary and Financial Education, “Questions of 2018, representing an amount of €1.359 bil- and basic account rights, but also actively about Money” (www.mesquestionsdargent.fr) lion, compared with nearly €1 billion in 2013, mi- promote microcredit by supporting discus- offers simple, neutral and educational content crocredit continues to grow steadily in France. sions between stakeholders at the regional from national strategic partners, supported by Most loans are professional in nature (55% of and national levels through the Banking In- the Banque of France. An entire section is ded- the outstanding amount) or used to finance eq- clusion Observatory, chaired by the Governor. icated to microcredit. uity capital (40% of the outstanding amount). Only Since 2016, the bank has implemented a new 5% of the outstanding amount is used to finance tool: the national strategy for financial, budg- In every French department, branches of the personal projects (e.g. the purchase of a vehi- etary and economic education. Banque de France offer social workers, employ- cle), but the personal microcredit still makes up ees and voluntary associations training sessions to 19% of the total number of loans. Communication and financial education, driv- on microcredit, as well as on other subjects: pre- er of microcredit growth vention of over-indebtedness, payment methods, In France, microcredit is supported by the state: it accounts and banking services, etc. is used to pursue personal and professional pro- The aim of this strategy is to provide everyone jects with the help of specialised social workers with practical knowledge and good financial STÉPHANE TOURTE and organisations that support business crea- behaviours to help them make more informed HEAD OF RETAIL BANKING & tion. This enables borrowers to access finances choices about repayments, loans, savings MARK BEGUERY that would not otherwise be available to them. and insurance. The objective is to ensure DIRECTOR OF FINANCIAL EDUCATION BANQUE DE FRANCE In this respect, assisted microcredit constitutes that everyone can make decisions towards an excellent method for improving banking and financial well-being, that they do not miss financial inclusion. Though it is already promoted economic opportunities, and that they avoid by public authorities, the development of micro- inappropriate choices given their needs and credit requires raising awareness among poten- situation and avoid scams. tial borrowers. Solidarity finance,a tool benefiting microfinance

n early 2019, nearly €13 billion1 were placed by pioneers such as CCFD-Terre Solidaire, Adie in socially responsible investments, enabling and Oikocredit, and then gradually included by KEY FIGURES OF I activities with high social and environmental other organisations such as Entrepreneurs du value to be funded. Social savings deposits in- Monde and Fadev. MICROFINANCE creased 8 times in 10 years and witnessed dou- ble-digit annual growth rates on average. Over the years, these stakeholders have diversi- IN FRANCE fied their resources by developing new socially This rapid growth is primarily explained by French supportive savings products, whether directly regulations promoting employee savings, which using their own schemes to collect equity or debt require all companies, since January 1st 2010, (issuance of equity shares, bonds, associative se- to offer at least one social fund in all company curities, etc.), but also through bank investments, 244,000 savings schemes. Other elements contributed life insurance policies and, more recently, via microcredits have been to the development of social resources, such as crowdfunding platforms. The first one created in distributed at the end of 2018 the growing commitment of financial institutions Europe was Babyloan. Adie is the leading microf- in promoting their ranges of social products. inance organisation in France. 1.359 The number of these funds is growing. In 2018, billion euros outstanding in 2018 the Finansol label, based on solidarity and trans- Microfinance has always been a vector for parency criteria, was awarded to 19 new, highly high-impact innovation in the fight against pov- + 35.9% varied savings vehicles, bringing the total to 161. erty and for social and professional inclusion. It the evolution of outstanding On the demand side, savers use investments to must now continue to grow while adapting to a give greater meaning to their savings. Last year, rapidly changing market (development of insti- microcredits between 2013 et 2018 423,000 new socially responsible investment sub- tutional investment, digitisation, impact finance, scriptions brought the total to €2.8 million on 31 etc.). No doubt it will be a success. 55% December 20182. the percentage of professional micro-

1 Baromètre de la finance solidaire 2019 – Finansol/La Croix. credit out of the total outstanding amount Microfinance in France, Europe and around the 2 Ibidem. world has a long-standing and preponderant 19% place in the social funding ecosystem. Social in- the percentage that personal micro- vestments are often used to finance microfinance FRÉDÉRIC FOURRIER HEAD OF THE SOLIDARITY credit represents out of all loans institutions and, ultimately, microcredits. The mi- FINANCE OBSERVATORY crofinance component has been present since FINANSOL the creation of the first investments, first offered

MICROFINANCE BAROMETER 2019 5 SPECIAL REPORT Look back at 10 years of evolutions in microfinance

Overview of the flagship articles of 10 years of Microfinance Barometer © Alain Lévy, BNP Paribas © Alain Lévy,

n a context of renewed such, the articles of this pub- Muhammad Yunus, received the questions of measuring social economic and social poli- lication are both enthusiastic 2006 Nobel Peace Prize. Then, impact and the dissemination of I cies aimed at combatting about the development of an es- after years of hope and enthusi- good practices in this area. poverty, the emergence of mi- sential development policy tool, asm, over-indebtedness of ben- crocredit in the 1980s quickly and aware of the limits and pos- eficiaries and excessive profits New self-regulation sparked a lot of interest. De- sible risks of microfinance. This of unscrupulous microfinance velopment stakeholders saw in stance was reflected as early institutions (MFIs) showed mi- initiatives were gra- this tool a means of reducing as 2010 by Alix Pinel, journalist crofinance in a whole new light. dually developed, de- poverty by financially empow- at Mediapart: “Microfinance is monstrating a genuine ering the poorest members of not a universal solution for the The huge profits earned by society, and invested heavily development sector, it is not on Compartamos in Mexico, as desire to empower and in the development of microf- its own a miracle answer. [That well as the crises in southern professionalise the inance. The sector has signifi- said, it] can usefully link up with India, Pakistan, Morocco, and cantly changed since then, with other development policies and Nicaragua, highlighted the sector. the emergence of new services further increase its contribution dangers microfinance could and new stakeholders. to the fight against poverty.” Fi- pose to its customers in the nancial inclusion, social perfor- absence of responsible man- This process marked a turning mance management, economic agement. These crises were point that gave rise to the de- Microfinance is not a profitability: what have been the result of a three-fold prob- velopment of new tools. New the flagship themes of the Mi- lem, as summarised in the 2011 self-regulation initiatives were universal solution to crofinance Barometer since its Barometer by Xavier Reille, gradually developed, demon- the development sec- first release in 2009? Microfinance Manager at the strating a genuine desire to Consultative Group to Assist tor, but it can useful- empower and professionalise 2010 to 2013: from criticism the Poor (CGAP), for whom “the the sector. According to Cecile ly link up with other to improvement. microfinance crisis is due to an Lapenu, the current director of development policies excessive search for profit, the Cerise, it was in the early 2010s “Microcredit, miracle or disas- uncontrolled growth of MFIs, that “the sector entered a pe- and further increase its ter?”, “microfinance in crisis”, and the lack of regulation.” riod of maturity. The lessons contribution to the fi- “microcredit turns to tragedy”. learned in recent years [con- The sector then entered a phase ght against poverty. In the early 2010s, following the tributed] to the establishment numerous crises that damaged of profound reform. The second of responsible, ethical and in- the sector, the international edition of the Microfinance Ba- clusive microfinance.” (2013 press painted a bleak picture of rometer, in 2011, with the title Barometer). The Microfinance Barome- microfinance. These criticisms “For a Return to More Social ter has consistently reflected contrasted with the prevailing Microfinance”, reflects well These years of introspection these changes. The Barometer optimism in the sector, where this process of self-criticism saw microfinance stakeholders presents microfinance as an ef- microcredit was seen as a mi- that resulted from the crisis of come together under the ban- fective system when combined raculous solution to poverty the 2010s. From then on, the Ba- ner of the “Social Performance with responsible practices. As for which its creator, Professor rometer dedicated a section on Task Force”, which now repre-

MICROFINANCE 6 BAROMETER 2019 SPECIAL REPORT Look back at 10 years of evolutions in microfinance

What have been the trends and evolutions of microfinance ? sents over 3,000 organisations of great expectations, as Kalin For example, Sam Mendelson, As a result, microfinance, as working to promote responsible Radev, General Manager of Soft- a consultant for the European the only mature impact invest- practices. They also gave rise to ware Group, summed up in 2015: Microfinance Platform, reflect- ing sector, has a lot to teach to the development of the Universal “technological innovations now ed on the links between mi- these newcomers, particularly Standards of Social Performance provide numerous solutions for crofinance and education. In when it comes to impact as- Management, published in 2012. most of the sector’s operational addition to financial products to sessment. In a 2017 article, Mi- challenges, including accessibil- fund studies, MFIs also finance chael Knaute, Regional Director This period led to the creation of ity [services], efficiency, process the construction of schools and for Africa and MENA for Triodos the Smart Campaign - a global automation, security and cash- infrastructures facilitating ac- IM, stated: “applying the les- campaign aimed at integrating less operations.” cess to educational centres. sons learned in microfinance customer protection practices They also offer non-financial over the past three decades to into the activities of microfinance But traditional microfinance services (teacher training, sup- the impact investing sector will institutions. stakeholders were not the only port for developing curricula, help to pave the way towards ones to identify the potential of improvement of safety stand- achieving the SDGs.” From then on, industry practic- new banking technologies. The ards in schools etc.), and pro- es have generally stabilised. arrival of new players (in par- vide employment training ser- These widely shared tools ticular telephone operators and vices. While microfinance no brought greater transparency fintechs) offering mobile money Arrival of new investors, digiti- to the measurement of social services shook up the market. sation of microfinance, diversi- longer has a mono- performance, allowed for the As of 2015, 34% of people living fication of the offer: the sector poly on impact inves- development of more responsi- in Sub-Saharan Africa had ac- underwent rapid change sbe- ble practices, and offered a bet- cess to a banking service thanks tween 2014-2016. ting, the lessons it has ter customer protection. These to mobile money. learned can be useful practices became widespread in From 2017 onwards: a sec- to other responsible the sector. Developments in mobile tech- tor whose influence extends nology blurred the boundaries beyond its initial borders finance stakeholders. 2014 to 2016: professionalisa- between phone companies, These are welcome tion and digitisation of microfi- new digital stakeholders and Beyond microfinance, an entire news given the finan- nance traditional financial institutions. responsible finance sector is Partnerships between fintechs, taking shape. The strong devel- cial efforts required to After the wake-up call of the MFIs, phone companies, and opment of impact investing over achieve the SDGs by early 2010s, the years 2014 to public institutions became a the past few years may give the 2016 saw the continuous pro- new formula for increasing both impression that microfinance 2030. fessionalisation and improved the impact of microfinance and is no longer fashionable, that it efficiency of microfinance. its scope. has been outdated by more effi- cient and ambitious players. Microfinance and SDGs The period was first charac- In 2016, one year after the adop- terised by a diversification of tion of the Sustainable Devel- Yet, recent editions of the Ba- Microfinance continues to investors in the sector. In 2014, opment Goals (SDGs), the Ba- rometer present a rather differ- grow, with $124 billion in world- Christian Etzensperger, analyst rometer addressed the issue ent image, with microfinance wide lending and 9.5% customer at ResponsAbility, noted that the of diversification of the micro- depicted as a pioneer in impact growth in 2018. These positive arrival of pension funds marked finance offer. Beyond simple investing. results are signs of an indus- a turning point for the sector. access to credit, the Barometer try that has successfully grown Pension funds are generally risk- showed that microfinance also Creation of business models from its mistakes and that will averse, and only get involved in promotes access to essential combining social impact with continue to develop and foster sectors with proven profitability. services and opens up new op- financial stability, diversifica- financial inclusion around the Their presence thus demonstrat- portunities for its customers in tion of stakeholders’ resources, world. ed that “the microfinance sector the areas of agriculture, energy tools and indicators for measur- has moved from the initial stage and housing. ing social performance: microf- While microfinance no longer of subsidised programmes to that inance actors have a unique ex- has a monopoly on impact in- of profitable retail banking.” pertise. Bonnie Brusky, Deputy vesting, the lessons it has Arrival of new inves- Director of Cerise, commented learned can be useful to other The professionalisation of the on this last point in the present responsible finance stakehold- sector was also reflected in the tors, digitisation of edition of the Barometer: “Un- ers. These are welcome news growing and innovative use of microfinance, diversi- like the traditional development given the financial efforts re- quired to achieve the SDGs. new technologies. The 2015 Ba- fication of the offer: actors that paved the way in rometer made this its central microfinance, impact investors theme, depicting an innovative the sector underwent rarely have strong monitoring BAPTISTE FASSIN PUBLICATION AND microfinance ambitiously enter- and evaluation habits and know rapid changes between COMMUNICATION OFFICER & ing into the digital revolution. little of the academic concepts 2014-2016. CARINE VALETTE of impact assessment.” PUBLICATION AND New technologies’ contribu- COMMUNICATION MANAGER tion to the sector was a source CONVERGENCES

MICROFINANCE BAROMETER 2019 7 SPECIAL REPORT Look back at 10 years of evolutions in microfinance

Social Performance Management is becoming mainstream: An opportunity - or a threat - for the impact investment sector?

s a niche initially confined to distant Several years after this exciting period that these changes are not properly implemented by geographies and populations unat- witnessed the development and improvement all actors not only will free riders bring substan- A tended by the mainstream financial in- of the first social audit tools, SPTF now works tial reputational risk to the many who are imple- dustry, the microfinance sector has since long to link social performance and outcomes man- menting change, but also investors, asset own- embraced the issue of social performance. agement in inclusive finance to the Sustaina- ers and other actors could risk investing into Promising the responsible inclusion of the ex- ble Development Goals. The Standards initially markets that do not deliver on the announced cluded, and often vulnerable, populations into developed for microfinance are tested and ap- promise. This is yet another lesson learned from the financial services space in order to devel- plied to a larger section of the financial services the experience of the microfinance sector: reg- op and/or grow their economic activities and industry such as SME financing organisations, ulations are necessary to ensure transparent eventually lift them out of poverty, the industry banks and fintechs. In addition, a th7 dimension measurement by all actors. long ago realised that it had to demonstrate the will be added to the Universal Standards to en- achievement of its initial promise. compass environmental performance. This ad- …to push for further harmonisation regarding dition reflects growing demand from the sector social performance measurement But how to evaluate the achievement of social to evaluate financial, social and environmental With the 1929 Big Crash, economic actors be- and environmental goals behind microfinance performances simultaneously and in an equally came aware of the necessity of harmonisation transparently and coherently? How to ensure thorough way. of language on financial reporting. Today, IAS/ the delivery of both responsible financial ser- IFRS and GAAP help to understand financial vices and the financial objectives necessary Our experience comes right in time... reporting and analysis and determine the reli- for a sustainable industry? Something is changing since the 2008/10 finan- ability of a project’s financial health. cial markets crisis. During its initial years, these Over the initial years, the most voluntary organ- social and environmental measurement tools We now need to develop the equivalent of IFRS isations (investors and financial service pro- were being used exclusively by microfinance for social and environmental performance. The viders – FSPs) developed in-house approach- actors and a few responsible institutions. More sector also needs to share its initial learnings es. Their learnings were important, but these recently, we have witnessed a new, promising with the global economy: that putting customer individual approaches resulted in a confusing change: under the pressure of clients, staff, value in the center of its activities, focusing on landscape with about as many methodologies shareholders, directors, and the public at large happy clients, satisfied staff, efficient and well as there were actors developing them. In 2005, who are all more concerned about the social aligned governance and useful products are the need for greater cooperation between and environmental consequences of a single the real long-term performance guarantors of these actors became obvious. That year, SPTF (financial) bottom line, the financial sector has any economic endeavor. in coordination with the Smart Campaign (Cli- begun to systematically adopt social and envi- ent Protection Principles) and other initiatives ronmental language in its business models. To Inclusive finance appears today like the labora- launched a sector wide cooperation to create go even further: financial-only, short-term fo- tory that over some decades has allowed to test a common language for social performance cused result management is increasingly being how to cooperate in a competitive market envi- evaluation. With great success. considered as non-optimal and not responding ronment, to learn how to share knowledge and to real fiduciary responsibilities. see this as an added value gain rather than a Since 2012, the industry disposes of a tru- risk of losing a competitive advantage. We need ly global standard proposal – the Universal A rapidly increasing number of mainstream fi- to increase our joint efforts to promote highest Standards. Completed by and fully aligned with nancial organisations or corporates are com- clarity of concepts, methodologies, tools and CERISE’s social performance audit tool (SPI4) pleting communication in their annual reports, evaluations and demonstrate to the global fi- in 2015, inclusive finance investors and FSPs websites or newsletters praising their social nancial markets that responsible investment have since then the capacity to evaluate how and environmental responsibilities. Many of practices are the only guarantee for long-term well they perform both financially and socially these actions are serious, committed to the financial success. We are moving into the right based on the agreed upon Universal Standards. highest value of such a change to a global per- direction – but this change is now more urgent Today, over 600 FSPs use the SPI4, represent- formance evaluation. Social and environmental than ever. ing over 50% of MFIs, over 30% of clients and performance measurement has indeed begun close to 20% of total portfolio of MFIs reporting to penetrate the mainstream corporate and fi- 1 Study on Social Performance Management in Microfinance, to the Mix Market1, and a larger number not Cerise et ADA, 2019 nancial world. only evaluate and assess but also benchmark, JURGEN HAMMER and improve their social performance based on MANAGING DIRECTOR These positive changes should however not these Standards. SPTF EUROPE blind us to the real risks the sector faces. If

Nobel Peace Microfinance First social audit SPTF is created, Price is Launch of the crisis in Andhra tool (CERISE SPI) first social notation attributed to Smart Campaign Pradesh, India M. Yunus KEY STEPS

2002 2005 2006 2009 2010

MICROFINANCE 8 BAROMETER 2019 SPECIAL REPORT Look back at 10 years of evolutions in microfinance

Reusing the (Social Performance Management) wheel: what can impact investing learn from microfinance

he Microfinance Barometer is cel- “A great deal of money and time has been Applying a SPM approach is not difficult, ebrating its 10 year anniversary. A wasted on poorly designed, poorly imple- but it does require systematically looking at T look back at the publication’s key mented, and poorly conceived impact eval- one’s activities through the lens of one’s mis- themes over the last decade reveals an in- uations,” point out impact experts Mary Kay sion (or impact thesis, or theory of change… teresting dynamic. Many of the “hot topics” Gugerty and Dean Karlan. But if not impact pick your term). CERISE, in collaboration with of the 2010’s, with the exception of digitalisa- proof, then what? impact investor partners, has developed the tion, could easily be placed in the 2000s, the Impact-Driven Investor Assessment (IDIA) 1990s and even the 1980s. The microfinance sector offers an answer. to make this easier. IDIA is a rapid appraisal Once a “hot topic” itself in the world of de- tool for investors or funds to see if govern- Maybe I’m just getting old, but it feels like hot velopment finance, microfinance attracted ance and internal systems are aligned with topics are often just the rehashing of an old troves of donors in the early days, all looking strategic intent. topic. Truly fresh ideas are hard to come by to prove that this market-based tool could and often, a big new thing is just the repack- reduce poverty. Millions were spent, but But it would seem that CERISE is not alone aging of some old thing. It’s not reinventing demonstration of results was mostly tepid in promoting SPM among investors. In April the wheel, exactly. More like redesigning it. (and almost always hotly debated due to this year, International Finance Corporation methodological issues). (IFC) launched the Operating Principles for It could be argued that impact investing is Impact Management2 that largely follow a one of those big new things that is really Impact assessment hit an impasse in mi- SPM approach: define intent, set up inter- just a redesign. The Global Impact Investing crofinance. Eventually, thanks to the vocal nal systems to support that intent, monitor Network (GIIN) 2018 annual Impact Investor efforts of practitioners (like CERISE’s found- progress and reflect on how to sustain im- survey estimates fund managers will invest ing partners) and sector-level coordination pact. The Operating Principles show what $225 billion during 2018, a 20% increase from (spearheaded by the Social Performance it means to be an impact investor, that is, 20171. Clearly, impact investing is gaining Task Force), the sector shifted its focus from the common elements that impact investors ground, or at least the number of actors call- impact measurement to performance man- should commit to if they want to incarnate ing themselves impact investors is increas- agement. This is no slight change. their label. ing, despite the lack of clarity around what exactly constitutes an impact investor. Today, rather than collect data to prove im- So far, they have garnered 60+ signatories. pact, stakeholders are more likely to collect What exactly this entails is not yet clear, al- Indeed, the lack of a “common understand- data aimed at holding microfinance insti- though in theory, signatories commit to pub- ing of definition and segmentation of the tutions (MFIs) accountable to their social lic disclosure and independent verification impact investor market” is considered a mission. In practice, this means encourag- of their practices, to demonstrate alignment significant challenge by 40% of the 200+ ing financial providers to integrate social in- with the principles. IDIA offers a method to respondents to the GIIN’s 2018 survey. It tentions into their strategy and management do so. It draws microfinance’s lessons on is no wonder. So many of the new players, systems, and to monitor them with key per- what it takes to achieve one’s mission. Be- corporate foundations, family offices, and formance indicators. cause there is no need to reinvent the wheel. commercial banks, are altogether new to the social investment sphere. The risk is This is social performance management, and 1 https://thegiin.org/assets/2018_GIIN_AnnualSurvey_Executive- Summary_webfile.pdf that anyone and everyone can be an impact it has become mainstream in microfinance 2 https://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/ investor and that “impact-washing” under- in the last 10 years, underpinned by the Uni- IFC_External_Corporate_Site/Impact-Investing mines the credibility and integrity of what is versal Standards for Social Performance a potentially transformative form of finance. Management (SPM), a set of collective- BONNIE BRUSKY ly-defined, practitioner-driven management DEPUTY DIRECTOR Unlike the traditional development actors practices considered essential to fulfilling CERISE that paved the way in microfinance, impact one’s mission. The SPM approach (common- investors rarely have strong monitoring and ly represented by the SPM Arrow) should be evaluation habits and know little of the aca- leveraged by the impact investing world. It demic concepts of impact assessment. They is pragmatic and unifying without being nor- know they want to show “impact”, but do mative—the Universal Standards do not tell not want to bother with the complexities of you what your social mission should be, just additionality, attribution, and the associated how to best achieve it. costs. And frankly, they are right.

Universal Creation of Operating Principles for Standards for First MFI IDIA, tool for Principles for investors in performance certified by the assessing the Impact inclusive finance management Smart Campaign social strategy Management (PIIF) of investors

2011 2012 2013 2018 2019 OF SOCIAL PERFORMANCE MEASUREMENT

MICROFINANCE BAROMETER 2019 9 SPECIAL REPORT Look back at 10 years of evolutions in microfinance

Do private microfinance stakeholdersreally care about Social Performance?

ore than 10 years ago, Nobel surveyed funds (77 out of 83 respondents) track to become a new standard for the Peace Prize Laureate Muham- mentioned that they target both financial microfinance sector. And that triple bottom M mad Yunus said “I firmly believe and social returns. What could only be a line could just be the new opportunity for that we can create a poverty-free world statement turns into a stronger commitment the sector to show its relevance and impact. if we collectively believe in it. In a pover- when an assessment is performed. ty-free world, the only place you would be 1 MFIs portfolio yield was assessed at 20.9% in 2016 able to see poverty is in the poverty muse- And as a matter of fact, the majority of MIVs according to the 2018 Microfinance Barometer 2 www.e-mfp.eu/sites/default/files/resources/2018/11/e- ums.” Unfortunately, poverty still exists. measured both financial and social returns mfp_Financial%20Inclusion%20Compass_A4_def3-web. pdf an account, 56 percent of all unbanked adults globally (64 out of 83), while a minority (6 out of 83) (figure 2.2). Part of the reason for the survival of pover- focused exclusively on measuring financial 3 https://symbioticsgroup.com/wp-content/uploads/2018/10/ ty is that a large number of people remain returns. Symbiotics-2018-MIV-Survey.pdf 3 According to Symbiotics, the average number of active unbanked. Globally, about 1.7 billion adults borrowers financed by MIV was around 494 K by MIV for are financially excluded in 2017 compared The survey also shows that MIV’s meas- 91 MIVs. to 2 billion in 2014. China has the world’s urements mainly come from collecting and ALAIN LÉVY largest unbanked population, followed by analysing outreach indicators on their inves- HEAD OF MICROFINANCE & SOCIAL India (190 million), Pakistan (100 million), tees. Besides, 67% of them used in-house ENTREPRENEURSHIP FOR ASIA and Indonesia (95 million). These four econ- developed tools to assess their investees’ AND AMERICAS omies, together with three others — Nige- social performance management. Finally, BNP PARIBAS ria, Mexico, and Bangladesh — are home 67% of MIVs conduct internal social ratings to nearly half the world’s unbanked popu- on the MFIs of their portfolios. lation. BNP Paribas, like other funds, also assesses These figures show that the way towards the social performance of investees as part a world where everyone has access to fi- of its Corporate Social Responsibility. Pro nancial services is still long. Microfinance bono social due diligence missions are of- PRIVATE ACTORS sector’s stakeholders therefore have room fered to the MFI we are working with. During for growth. Large private microfinance in- one week, a couple of high potential execu- AND SOCIAL stitutions and microfinance investment tives perform an SPI4 audit after they have vehicles (MIVs) can be instrumental in the been trained by the NGO Cerise. We bench- PERFORMANCE fight against these inequalities. marked our microfinance portfolio with 286 other MFIs in the world assessed with the But in a market as profitable as microfi- SPI4 methodology and the results are con- nance1, can their actions really be trusted clusive: the MFIs financed by BNP Paribas In 2018, client protection is to be socially oriented? The microfinance have a score significantly higher than the considered the most impor- sector was heavily delegitimised during average. Indeed, the 26 MFIs audited (out of tant criterion for MFIs, accor- the 2000s because of the crisis of over-in- 34 MFIs financed) reach the score of 79/100, ding to the Financial Inclu- debtedness impacting poor people, casting whereas the global score is 64/100 showing doubts on the social aspect of microfi- that a large investor can truly make an im- sion Compass produced by nance. Is the current context better now? pact with their investments in microfinance. e-MFP. How does this trans- Did private stakeholders find the right bal- late into concrete action? ance between financial return and social The triple bottom line performance? 93% Social performance is a key element of mi- of MIVs studied by Symbiotics1 Today’s investors generally care about their crofinance’s DNA. A large part of the main target both social and financial stakeholders knows it and cares about dis- social impact return playing it to show their effective commitment Efforts have been made over the last years to achieving their social mission. for greater transparency and qualitative 67% social assessment. Reports tend to show Yet, another challenge arises for the micro- of these MIVs have developped that this concern is now well understood finance market. The issue of environmental tools of social performance by the sector. For instance, the 2018 Finan- performance (see also p.14-15) is gaining management cial Inclusion Compass2 produced by the significant importance as 25% of MIVs’ in- European Microfinance Platform (e-MFP) vestees are offering green loans specifically 67% demonstrates that client protection is rec- designed to finance the purchase of envi- of them attribute a social rating ronmentally friendly products, such as solar ognised by microfinance stakeholders as to MFIs in their portfolio the most important criterion in achieving panels, biodigesters, or clean cookstoves. the objectives of financial inclusion where- BNP Paribas itself partnered with the UN en- as governance is ranked at the third posi- vironment and Yapu, a Berlin based start-up 25% tion. which develops a digital solution for sustain- of these MIVs offer green cre- able agricuture to allow two MFIs in Senegal dits to reinforce the resilience This concern is also true for investors. The and Colombia to test a pilot for sustainable of MFIs 2018 MIV survey by Symbiotics3 shows that agriculture microloans. most microfinance investors and fund man- 1 MIV survey, Symbiotics, 2018 agers are taking various aspects of social Together with financial and social dimen- performance into account4. Most of the sions, environmental performance is on

MICROFINANCE 10 BAROMETER 2019 SPECIAL REPORT Look back at 10 years of evolutions in microfinance

Microfinance and financial inclusion: terminology aside, is there a real difference between the two?

ver the past decade, microfinance has gradually evolved into the broader field of financial inclusion. But are these two terms interchangeable? O Renée Chao-Beroff, Director of Pamiga, and Isabelle Guerin, a researcher at the Institute of Research for Development (IRD), share their thoughts. In recent years, major international organisa- tions have increasingly referred to financial inclusion rather than microfinance. Why this change in terminology? Isabelle Guérin (IG): First of all, this change has a rhetorical justification. The microcredit crises of the late 90s affected the sector’s rep- utation. This required a change of terminolo- gy to restore confidence and strengthen the credibility of microfinance. Using an adjective in the new expression itself emphasises the positive dimension of finance.

Renée Chao-Beroff (RCB): Faced with a nega- tive and controversial discourse, the change in terminology was seen as a way of restoring a more universal dimension to microfinance.

This semantic change also reflects microfi- nance stakeholders’ desire, in particular that of the Consultative Group to Assist the Poor Does the arrival of new actors in the financial (CGAP) – a think tank of the world’s 32 larg- inclusion sector, such as fintechs and mobile est microfinance donors – to bring the central The “high-tech/high-touch” ap- banking operators, make a difference for mi- banks on board. However, the terms had to be crofinance? proach allows people to benefit adapted to the central banks’ priorities if they were to be attracted to microfinance. From the IG: In theory, fintechs enable highly isolated from the advantages of techno- year 2010s on, it was the potential for finan- populations and regions to benefit from poten- logies (“high-tech”) while gai- cial inclusion (i.e. quantifying the number of tially cheaper financial services. When backed ning from the on-the-ground people with bank accounts) that drew them to by social policies, such as social transfer pay- microfinance. ments, this can be a way of facilitating trans- experience (“high-touch”) ac- parency and limiting the risk of corruption. quired by MFIs over the years. In your opinion, what are the main differences between microfinance and financial inclusion? RCB: Fintechs represent a real problem for tra- ditional MFIs, and thus for microfinance. Until RCB: The main difference is in the implicit Personally, I am in favour of a “high-tech/ the arrival of these new players, MFIs were the goals underlying each of the terms. Financial high-touch” approach, which allows people to only ones operating in isolated regions. They inclusion pursues a purely quantitative goal, benefit from the advantages of technologies set up local banks, trained local cashiers, etc. which points towards 100% banking inclusion. (“high-tech”) while gaining from the hands on This costs a lot of money and for several years But that tells us nothing about the use of bank experience (“high-touch”) acquired by MFIs justified the fact that MFIs were subsidised. accounts. For microfinance’s pioneers, it is over the years that can ensure more impact Today, however, thanks to digitisation, fintechs not so much the access – of course you need for the clients. and banks can reach these customers without access – but the impact that matters. That is, the need for physical buildings. They can also the ability to change people’s lives through fi- IG: I see three other major risks: the promise collect savings in villages where there have nance. to reduce costs for customers is still illusory, never been any banks. while the fintechs’ profits are relatively high; IG: Financial inclusion involves a greater num- the capture of personal data, with the prospect Are there risks to replacing traditional microfi- ber of stakeholders and services, including of including “poor” people in consumer soci- nance actors with fintechs? fintechs, and also incorporates the traditional ety while basic services remain inaccessible banking system. RCB: I would say that the main risk is the loss to them; and, finally, privacy control, which is of meaning for financial inclusion. Technology still very badly regulated. Microfinance was In a number of countries, the last few years makes it possible to enroll people and give already struggling to keep its promises, and have seen a considerable increase in bank- them access to services without the need to this is even more true of financial inclusion. ing inclusion. This has been achieved mainly reach them individually and spend time with We should not forget that for poor people, the through social transfer policies, whether they them. For example, the use of credit scoring main problem – more so than financial exclu- were conditional or not. Microfinance there- allows fintechs to create beneficiaries’ profile sion – is still monetary exclusion. fore no longer has a monopoly on financial without ever meeting them in person. Howev- inclusion. In a general sense, however, micro- er, there is no guarantee that the customer’s INTERVIEW BY BAPTISTE FASSIN PUBLICATION OFFICER & finance pays greater attention to the social needs will actually be identified, and this is GARANCE DIACONO issues linked to financial inclusion. why MFIs remain relevant in this increasingly COMMUNICATION ASSISTANT digitised world. CONVERGENCES

MICROFINANCE BAROMETER 2019 11 SPECIAL REPORT A look back at 10 years of microfinance

Microfinance digitalisation:risk or opportunity?

he digital revolution is profoundly transforming the world of finance and forcing financial service providers to adapt. In this interview, Graham T Wright, Executive Director of Microsave, discusses the challenges and risks of this necessary transition for microfinance. For many experts, the digitalisation of mi- … And what are the main risks? Key steps of digital transformation crofinance is essential to the survival of the sector. According to you, what are the bene- I would first like to dispel some of the myth fits of digitalisation to microfinance? around digital transformation. It does not solve all organisational problems and does There are at least 4 main benefits to digital- not suit all organisations. It is crucial for ab Client Price isation. organisation to truly assess its needs and how relations technology can best respond to those. First, it allows MFIs to increase revenues Customer and reduce costs. McKinsey estimate that Then there are obviously many risks associ- Products experience Channel financial institutions’ digital transformation ated with digital transformation, the main one and design could add 45% to their annual net revenues: being that in the transformation process, MFIs solutions 15% from enhanced product uptake and 30% loose focus on the social reason for such from reduced operational costs. The Inter- transformation: improving the social role of national Finance Corporation calculates that microfinance (by reducing borrowing costs, Campaign management it reduces the annual cost to serve a cus- improving user experience etc.). tomer by 80%, and an 18% reduction in the cost-to-income ratio (a classic efficiency Other risks include the unnecessary prolifer- Source : Winter is coming: key lessons on digital transformation for financial measure). ation of products and services, as well as the institution, Microsave, 2018. total digitalisation of borrowing services with- Second, it brings the opportunity to leverage out maintaining some human interactions. freedom, choice, and control. In 2018, the Eq- relationship banking. Traditional MFIs and uity Bank Kenya customers carried out 97% of banks have important competitive advantag- Given the importance of digitalisation, is there their transactions outside the bank branches. es over fintech. They have valued, historical a strategy to adopt to integrate more digital relationships with millions of customers, tools in a relevant and effective way in the mi- In your opinion, do MFIs necessarily have to they have data on those customers’ finan- crofinance sector? digitalize in order not to disappear? cial behaviour, they have the infrastructure to provide the human touch that low-income Ultimately, a financial institution needs a com- MFIs face an existential threat from digital customers crave. Furthermore, traditional prehensive, integrated strategy for digitalisa- technology. This is because fintechs are dis- financial institutions have the right regula- tion – and then to break it down into manage- rupting traditional financial services markets tory clearances and compliance to offer fi- able pieces – so that digital transformation by creating new financial services that are nancial services – something that fintechs is a journey. Just focusing on processes or more efficient and able to reach populations often lack. channels will not be enough. generally served by MFIs.

Third, it allows MFIs to provide personal- Once the overall strategy has been defined, So MFIs must embrace digital transformation. ized customer experience. Traditional finan- there are many sub-strategies. The first might They must harness the potential of their lega- cial institutions need to be cognizant of the be to digitalise processes – after all digital cy of experience and relationships. They must changing demographic and cultural con- processes are quicker, more efficient and work with fintechs to deliver personalised, text, namely the rise of millennials and mo- cheaper than manual ones. A digital trans- digitally-enabled services. And MFIs must bile-first generation, to develop and deliver formation of processes reduces the cost and work through staff and agents to provide the first-class personalized user-experience. friction points of delivering services. It pro- human touch and assistance that so many still A great user experience involves solutions vides the data needed to supply a better ser- seek. adapted to the customers’ behaviours and vice offering to end-users and increasingly to attitudes. businesses. The digital revolution offers the chance to deliver rapid, responsive and differentiated Finally, it provides the opportunity to deliv- A second sub-strategy lies in the digitisation financial and social services to low-income er services with a stronger social purpose. of the products and services themselves. The people in a way that we have never been able Looking into the medium term, the tech rev- rise (and flexibility) of mobile banking for in- to do in the past. In this context, MFIs really olution allows us to answer the “elephant in stance necessarily requires that MFIs adapt have an added-value, since they know very the room”: financial inclusion, but to what their product to meet this new demand. That well their clients and the regions where they end? Tech allows us to link pure financial being said, new digital products should be de- operate. Their future will now depend on their services to the real-world economy. veloped in a flexible manner so as to respond ability to bank on their expertise, so that the to client’s preferences. digital revolution is both high tech and high For example, MSC is working to develop touch. “precision agriculture” in India. Under this A third sub-strategy consists of digitalizing project, data is collected on a farmer’s land channels which involves using technology INTERVIEW BY holding and soil quality, as well as the seeds, platforms to improve customer acquisition BAPTISTE FASSIN fertilizers and pesticides he or she has pur- and user experience. The emergence of dig- PUBLICATION OFFICER & chased. This allows AI-powered chat bots to ital platforms and alternative channels has SARAH ZEKRI provide tailored coaching to optimize both profoundly changed the way customers do COMMUNICATION ASSISTANT CONVERGENCES yields and the prices the farmer gets in the their banking. Customers now prefer self-ser- market. vice technology platforms that give them

MICROFINANCE 12 BAROMETER 2019 SPECIAL REPORT A look back at 10 years of microfinance

Digitalisation: what’s at stake for microfinance?Advans point of view

he booming digitalisation in developing countries, T especially on the African continent, is one of the main fac- tors behind the increase in finan- cial inclusion witnessed in the past ten years. In Sub-Saharan Africa for example, 42.6% of the adult population had an account in 2017 compared to just 23.2% in 2011 with almost 21% of adults having a mobile money account, based on data from the Global Findex.

This trend represents a unique opportunity for financial service providers (FSPs) to better achieve their mission and reach out to more clients. Technology can help traditional microfinance in- in branches. Finally, this year in stages, from thinking about devel- Advans digital transformation is stitutions to overcome challenges Nigeria and Cambodia, Advans oping a new service to roll it out, in motion. Now that the group has such as high operating costs (forc- subsidiaries are launching mobile and constant performance moni- developed a set of channels and ing MFIs to focus on high-density applications allowing clients to toring of any service is essential to business models it can scale the urban centres) or high operation- manage all of their transactions identify areas for improvement. activities that work best. In all sub- al risks (due to manual and pa- instantly online. In Nigeria, mobile sidiaries where the business case per-based processes). banking services will help grow stacks up, Advans aims to launch the portfolio by an estimated 5% in The path to success for or scale in priority a combination There is no doubt that digitalisa- 2020 to 10% per year from 2021. of digital channels for client in- tion in today’s financial inclusion FSPs relies on the ability teraction. This will help Advans market is not a choice but a neces- to remain agile: listen to increase its outreach in a more sity. One question remains though: Client research and feed- sustainable manner, driving ef- how can microfinance providers to the market, listen ficiency and encouraging client digitalise intelligently and, above back are key at all stages, to customers, react ti- usage based on convenience and all responsibly? from thinking about mely and grab opportu- low transaction costs. As well as mixing physical and digital touch Over the past ten years Advans developing a new ser- nities when they arise. points, Advans will create new dig- has had the chance to implement vice to rolling it out, and ital propositions and partner with and test multiple digital technol- constant performance digital players to seize upcoming ogies to improve the financial in- Secondly, microfinance clients opportunities in its markets. clusion journey for its clients. In monitoring of any service remain a specific target with Côte d’Ivoire for example, a USSD is essential to identify often lower use of technology, Given the pace of change around mobile banking solution has en- lower financial literacy and trust areas for improvement. us, the path to success for FSPs abled access to saving accounts issues to be considered. In light relies on the ability to remain ag- to over 19,000 cocoa farmers in of this, digital tools alone are not ile: listen to the market, listen to remote areas with 1,120 of these enough to create a meaningful customers, react timely and grab These experiences have not been clients also benefitting from digital and sustainable relationship with opportunities when they arise. school loans in 2018 for an amount without challenges and have clients. Instead, it is crucial to take taught Advans a number of val- of €180,000. a high-tech and high-touch ap- 1 Unstructured Supplementary Service Data uable lessons in terms of digital proach, with first and foremost an In neighbouring Ghana, digital transformation. omni-channel offer for clients, and FANNY SERRE GROUP HEAD OF MARKETING channels have especially in- additional services such as finan- Firstly, a one size fits all model is AND CLIENT EXPERIENCE & creased account usage, with 33% cial education, customer care (for ANNE-LAURE ASBOTH of client interactions being made not viable: each of our markets example through call centres) and GROUP HEAD OF BUSINESS through the Advans USSD1 mobile and all our clients are evolving at on field agents as solutions to en- ADVANS GROUP banking service and an average a different pace. Even though Ad- sure that clients fully benefit from of 4.3 transactions per month per vans shares experiences between financial services. active client. subsidiaries, it always follows a model of piloting, testing then scal- In short, any FSP that wants to dig- Meanwhile, in Cameroon, the im- ing products or channels, ensuring italise responsibly has to start with plementation of an agent network that digital services take into ac- understanding customers’ needs across the country has enabled count clients’ evolving needs and in order to design and offer ser- Advans to offer to its clients more expectations. Client research and vices which are in line with their proximity and reduce congestion feedback are therefore key at all everyday reality.

MICROFINANCE BAROMETER 2019 13 MICROFINANCE AND CLIMATE CHANGE RESILIENCE

(Micro)finance for Resilience:Helping Clients Adapt to Climate Change

The challenge of climate solutions to mitigate its effects. change The European Microfinance Award 2019 on Strengthening ew data on climate Resilience to Climate Change, change continues to co-organised by European Mi- N emerge, and it is sel- crofinance Platform (e-MFP), dom good. CO2 levels are at his- has invited applications from toric highs. Arctic ice contin- organisations working on this ues to shrink. Climate-related problem, and received them natural disasters such as hur- from 42 organisations from 27 ricanes and drought increase countries, including 18 non- in both frequency and severity. bank financial institutions, 5 banks, 4 NGOs, and 15 from var- Humanity, however, has al- ious other categories. ways faced enormous chal- lenges, from disease pandem- Among them, there have been ics to global conflicts. Climate innovations in index insurance, change – while posing an ex- Within the agricultural, live- cilitating clients’ long-term fi- improved agricultural practic- istential threat to our species stock, forestry and fisheries nancial planning, including via es, value chain development, and our environment – is slight- sectors, there is a broad range savings products, to help them enhanced nutrition, education, ly different: it’s a slow-moving of emerging solutions to help build more adaptable economic clean energy, use of technology crisis that we can address vulnerable groups strength- activities. such as geo data, and disaster through innovations in science, en their resilience to climate preparedness etc. technology and education. change via adaptation to per- Moreover, the institutions that manently changed environ- serve these clients are also Seeing the scope and depth Governments and companies ments, for example a reduction often vulnerable to the effects of responses that these appli- are taking the first, very slow in rainwater, a shift in the sea- of climate change. To build re- cations represent highlights steps towards climate change sons, or higher temperature ex- silience among them, these in- the broad and deep role the mitigation – most notably by tremes. stitutions must also become re- sector can play in helping the switching to cleaner and re- silient themselves. That means financially excluded adapt to a newable fuels. But though this This can be achieved by pro- adapting to the changing eco- changing climate. This is just is necessary, it is not sufficient. moting various activities and nomic situations of their clients the beginning. We must also focus resources techniques (such as innova- (including their debt-repayment on adaptation1 leading to resil- tive agricultural and husband- capacity), as well as building 1 The Intergovernmental Panel on Climate Change (IPPC) defines ‘adaptation’ as “any ience2 – which is particularly ry techniques) that increase systems that allow for rapid adjustment in natural or human systems in productivity in challenging and effective responses follow- response to actual or expected climatic stim- crucial for those populations uli or their effects which moderates harm or most susceptible to climate contexts. It can also include ing weather disasters, such as exploits beneficial opportunities”. 2 ‘Resilience’ refers to systems being cli- change’s effects: vulnerable increasing preparedness for floods or hurricanes. mate-proofed for the future. It is the capaci- future shocks, such as use of ty of ecological, social, or economic systems (and particularly rural), finan- to adjust in response to actual or expected resilient materials to protect Finally, financial services may climatic stimuli and their effects or impacts cially excluded communities and “…refers to changes in processes, prac- homes, businesses and land, be complemented by non-fi- tices, and structures to moderate potential living in low-income countries. damages or to benefit from opportunities without resorting to costly cop- nancial products and ser- associated with climate change”. (UNFCCC - United Nations Framework Convention on The problem is at least four- ing strategies, such as taking vices that fill capacity gaps, Climate Change. fold. First, these communities on unsustainable levels of debt, including awareness-raising earn their livelihoods from or selling productive assets. and understanding of climate DANIEL ROZAS activities most affected by risks through technical assis- In both cases, access to finan- tance and training; promoting SENIOR MICROFINANCE climate change (such as ag- EXPERT & riculture, forestry and fisher- cial and associated non-finan- construction standards that SAM MENDELSON ies). Second, their countries cial services can help house- increase resilience to flood- FINANCIAL INCLUSION and regions will be the most holds to adapt. ing and high winds; and incor- SPECIALIST porating climate risk assess- EUROPEAN MICROFINANCE affected by climate stressors, PLATFORM such as flooding, sea level rise, Microfinance and climate ments and forecasts of extreme drought, extreme storms, ero- change resilience weather into institutional plan- ning – then helping clients use sion and pestilence. Third, this The microfinance sector’s role the data in their economic ac- direct vulnerability is often ex- in increasing this resilience is tivities. acerbated by the low econom- broad. It can include providing ic and institutional capacities loans for investments in irriga- All of these activities can be of the most affected countries. tion, drought resistant seeds further leveraged through part- And fourth, all these conse- or other adaptive solutions; nerships, such as with insur- quences are further multiplied writing insurance policies to ance companies, researchers, by the growing risk of climate support greater resilience to fintechs or other technical ser- change induced migration, dis- shocks; using remittance and vices providers that specialise placing people to urban areas transfer services to funnel aid in the causes and consequenc- and across borders as refu- in the aftermath of climate-re- es of climate change among gees. lated natural disasters; or fa- vulnerable populations, and the

MICROFINANCE 14 BAROMETER 2019 MICROFINANCE AND CLIMATE CHANGE RESILIENCE

How can microfinanceadapt to climate risk?

efore climate change even reached top-priority level on the global agenda, B microfinance institutions have started to take local action against natural disasters.

As the 3rd highest risk area in the world, with more than 60% of its land area exposed to multi- ple hazards and 74% of its population considered vulnerable, the Philippines is one of the countries where early attempts emerged to enhance the readiness of people and institutions to natural disasters.

For local microfinance institutions, helping strengthen their clients’ resilience while main- taining their own operational continuity was a natural move towards a more proactive re- sponse to repeated calamities.

Oikocredit chose the Philippines as its pilot area © Opmeer Reports for natural disaster management in 2014, after That dual capacity building pilot was rolled- for Microfinance institutions. The guidebook years of supporting its affected local partners out to other countries in South-East Asia and sketches 12 key steps towards DRRM and through a solidarity fund. In partnership with led to the creation of a Roadmap for Disaster BCP, synthesized in a 5-phased Roadmap, Corporate Network for Disaster Response, a Resiliency. from understanding risks (1) to disaster con- training on Disaster Risk reduction and Man- tingency (2) and business continuity (3), to agement (DRRM) was offered to volunteer mi- Several local MFIs and clients using this testing (4) and reviewing (5). crofinance institutions in the Philippines. roadmap already reported reduced losses, faster assistance, and enhanced business The more institutions make that and other The pilot project was comprised of 2 capacity continuity in situations of disaster over the last disaster risk management tools their own, the building initiatives, the first part aiming at en- years, as a result of the proposed risk reduc- more data will be available in the future to ac- hancing basic knowledge of DRRM concepts, tion approach. curately measure the positive outcome on the and the second part consisting in a train- lives of exposed microfinance clients. ing-workshop on basic continuity management, Late 2018 this work was made available to all to equip partner MFIs with tools they could through the joint-publication with Philippine GAEL MARTEAU use to craft their own Business Continuity Plan MFI ASKI of A Guidebook on Disaster Risk DIRECTOR FRANCE (BCP). Reduction and Business Continuity Planning OIKOCREDIT

Financiera FDL contributes to the spread of agroecology in Nicaragua

aced with climate change that is al- after one year if the producer adopts sustain- Since support for changing cultural practic- ready underway, Nicaragua, especial- able agricultural practices. The MFI consid- es is costly, one of the MFI’s main difficulties F ly in its rural areas, is having to adapt ers this an incentive for the “environmental is finding external financing. Despite these rapidly. Local temperature rises, for example, services provided”. challenges, Financiera FDL has resolute- are disrupting low-level coffee production ly turned towards green finance in order to and having a direct impact on coffee farmers’ The most recent credit product launched by tackle the causes of climate change, trying incomes. In this context, Financiera FDL is the Financiera FDL, Ecomicro, specifically con- to influence its customers’ environmental leading financial microfinance institution -ad cerns customer climate risk mitigation meas- impact as well as the consequences, with dressing these issues. Nearly 80% of its cus- ures. Such measures include the financing of measures to adapt to climate risk. tomers live in rural areas, and 37% of its loan water tanks, wells, micro-irrigation systems portfolio is dedicated to agriculture. It decid- or the planting of trees in pastures, known as In this case, Financiera FDL’s goal is to offer ed to become involved in green microfinance silvopastoralism. “win-win” solutions, since reducing climate 20 years ago. risk for producers leads to a reduction in risks Moreover, the MFI has adopted responsible for the MFI. It even goes so far as to consider The MFI has gradually developed a series of practices: it excludes the financing of projects that the ecological transition is necessary to products to support producers to adopt more in protected areas, the acquisition of polluting ensure the sustainability of its services, and resilient cultivation practices. For instance, equipment, as well as the purchase of land, therefore its survival. it promotes the planting of fuel wood around in a context where many producers aim to in- plots and provides loans for solar photovol- crease their income by purchasing plots rather LAUERNT CHEREAU COMMUNICATION MANAGER taic equipment. Financiera FDL also offers than by improving yields. The MFI noticed that SIDI innovative products such as the “credito am- extensive production requires deforestation at biental” (environmental loan). This long-term the local level. Conversely, intensive models, credit, which also comes with technical sup- such as agroforestry, are particularly produc- port, has an interest rate which decreases tive and ecologically sustainable.

MICROFINANCE BAROMETER 2019 15 MICROFINANCE AND REFUGEE ASSISTANCE

Serving refugees: 5 key recommendations for financial service providers*

he number of forcibly dis- identity and collateral requirements spondents do not have plans to re- placed people worldwide but there is no need for exclusive turn to their countries or to relocate T has hit a record high of 70.8 “refugee products” to match de- to another country. Resettlements million in 2018, as showed by the mand. are also rare within countries. Ref- data recently released by UNHCR’s ugees’ aspirations were much more IN PARTNERSHIP WITH annual Global Trends report. Within 2. Find out what type of credit refu- related to gaining economic inde- this group, the number of refugees in gees in a given area need, and how pendency than to moving on to a new the world — defined as people dis- much. location. Between 2014 and the end placed outside of their home country of April 2018, only 5% of the regis- due to war, persecution and conflict In Uganda and Jordan, we found that tered refugee population in Jordan — reached 25.9 million, 500,000 more while refugees were borrowing reg- and 1% in Uganda resettled1. than in 2017. ularly from savings groups, friends and family, they were not able to 5. Consider adding non-financial ser- In this context, promoting positive borrow enough to cover their busi- vices to complement the credit offer. interventions that enable socioec- ness needs. Many wanted access onomic integration of refugees rep- to formal credit, would prefer indi- In both countries, non-financial ser- WITH TECHNICAL SUPPORT FROM resents one of the main sustainable vidual loans, and most were willing vices – primarily financial education solution to the refugee crisis. The to pay interest. The survey also re- and business management support – financial industry has a fundamental vealed a need for financing green are particularly relevant for refugees th role to play to ensure that refugees energy products in settlements, and with limited or no prior experience Thank you to the members and conrtibutors of the 10 Microfinance Barometer: Advans (Katherine Brown, have access to a range of financial highlighted the potential of digital fi- with credit or running a business. Aurélie de Fonvielle, Fanny Serre); Banque de and non-financial services. That said, nancial services, which are already FSPs should apply their client seg- France (Mark Béguéry, Marie-Laure Hie, Béatrice Raoult-Texier, Stéphane Tourte); BNP Paribas very few financial service providers used by refugees in both countries. mentation procedures to assess (Claudia Belli, Alain Levy); Centre Yunus (Jean-Luc (FSPs) have so far been extending In Uganda, where land is reasonably which refugees may need non-fi- Perron); CERISE (Bonnie Brusky); Crédit Coopéra- their services to this underserved available for refugees, there is also nancial service provision. In order to tif (Cyrille Langendorff); Crédit Municipal de Paris (Sandra Bythell) ESC Dijon (Djamchid Assadi); population, often perceiving them as a demand for agricultural products, better comprehend refugees’ needs, e-MFP (Gabriela Erice García, Gemma Cavaliere, a “too risky”market segment. both for individuals and for companies it is highly valuable for FSPs to part- Sam Mendelson, Daniel Rozas); Finansol (Frédéric looking for raw agricultural products. ner with existing specialized NGOs Fourrier); Fondation Grameen Crédit Agricole (Phi- lippe Guichandut, Carolina Herrera); HCR (Micol To deepen the understanding of ref- Much like with regular clients, it is es- which offer these services. Pistelli); IRD (Isabelle Guérin); Microsave (Graham ugees’ financial needs, the Grameen sential that FSPs closely interact with Wright); MIX Market (Mohita Khamar, Blaine Ste- Credit Agricole Foundation com- refugees to better understand their The studies clearly demonstrate that phens); Oikocredit (Gaël Marteau); PAMIGA (Renée Charo-Beroff); SIDI (Laurent Chéreau, Dominique missioned a market study in Jor- needs and preferences. the growing number of refugees Lesaffre); SPTF (Jurgen Hammer); Symbiotics (Sé- dan and Uganda, conducted by the should be considered by all microfi- bastien Duquet). consulting firm Microfinanza. These 3. Screen refugees’ business ideas. nance stakeholders as a new market studies constitute the first step in the and a real opportunity to promote Convergences: implementation of a joint program In Uganda, 78% of refugee respond- financial inclusion. For the refugees Paul Constantin, Garance Diacono, Baptiste Fassin, Alexis Hemar, Clara James, Thibault Larose, Gabrielle between the Swedish International ents have plans to start or develop themselves it could be the insurance Lecornu, Jennifer Linares, Lucas Magnani, Sarah Plot, Development Cooperation Agency, their own businesses, and 60% have to be fully integrated in the main- Emilie Poisson, Fanny Roussey, Estelle Teurquetil, Ca- UNHCR and Grameen Crédit Agricole already taken the first steps - using stream economy of their host country. rine Valette, Manon Vigier, Sarah Zekri. Foundation, designed to expand ac- savings, borrowing informally and cess to financial and non-financial enrolling in vocational trainings. In 1 UNHCR resettlement data, http:// Microfinance Barometer 2019 / Convergences. www.unhcr.org/resettlement-data.html#_ Editorial conception : Baptiste Fassin, Carine Valette services for refugees and host com- Jordan, most refugees prefer to start ga=2.19545528.1017050701.1540310607- Graphic conception : Baptiste Fassin, Carine Valette munities in Jordan and Uganda. their own business over seeking 1116228831.1539297281 Printing : Imprimerie Centrale de Lens employment in the limited available About Convergences: The findings from these studies shed sectors for non-Jordanians. In terms * This article is issued from a blog written by the authors Launched in 2008, Convergences is the first light on five main recommendations of gender segmentation, about one and published by the FindevGateway on their website platform for thought, advocacy and mobilisation for financial service providers (FSPs) out of every four women interviewed in Europe to promote the Sustainable Develop- ment Goals and the development of a world willing to contribute to the financial in Jordan have strong plans to start PHILIPPE GUICHANDUT “Zero Exclusion, Zero Carbon, Zero Poverty.” Its inclusion of refugees. or develop her own, mostly home- HEAD OF INCLUSIVE FINANCE mission is to organise debates, mobilise thoughts and actions, spread good practices and encou- based, business, a proportion which DEVELOPMENT rage the co-construction of partnerships and in- 1. Do not develop specific financial increases to one in every three wom- GRAMEEN CRÉDIT AGRICOLE novative solutions. products for refugees. en in Uganda. FOUNDATION & Convergences relies on more than 200 partner or- MICOL PISTELLI ganisations represented within its working groups to co-organise the Convergences World Forum, SENIOR FINANCIAL This recommendation may seem sur- 4. Overcome the fear of flight risk, as which gathered more than 5000 participants prising, as refugees are often seen data shows that refugees rarely re- INCLUSION COORDINATOR every year, to write studies and publications, and UNHCR to organise events throughout the year. as a separate social category with settle. For further information: www.convergences.org specific needs. Yet, the study demon- Copyright Convergences August 2018 – Conver- strates that many financial products Flight risk is an oft-mentioned con- gences, 33 rue Godot de Mauroy, 75009 Paris on the market already meet the de- cern for FSPs when it comes to – France // +33 (0)1 42 65 78 85 mands identified among refugee cli- considering refugees as a potential For more information: [email protected] ents. FSPs may need to adjust their target market. However, our studies or www.convergences.org internal policies and procedures for found that the vast majority of re-

MICROFINANCE 16 BAROMETER 2019