35031 Public Disclosure Authorized Public Disclosure Authorized Access for All Building Inclusive Financial Systems Public Disclosure Authorized Consultative Group to Assist the Poor Brigit Helms CAPTURING 10 YEARS OF CGAP EXPERIENCE Public Disclosure Authorized Consultative Group to Assist the Poor Argidius Foundation Ford Foundation ACCESS FOR ALL Building Inclusive Financial Systems CONSULTATIVE GROUP TO ASSIST THE POOR BRIGIT HELMS CAPTURING 10 YEARS OF CGAP EXPERIENCE © 2006 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail [email protected] All rights reserved. 1 2 3 4 09 08 07 06 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. ISBN 0-8213-6360-3 ISBN-13 978-0-8213-6360-7 e-ISBN 0-8213-6361-1 e-ISBN-13 978-0-8213-6361-4 DOI 10.1596/978-0-8213-6360-7 Library of Congress Cataloging-in-Publication Data Helms, Brigit. Access for all: building inclusive financial systems / Brigit Helms p. cm. Includes bibliographical references and index. ISBN-13: 978-0-8213-6360-7 ISBN-10: 0-8213-6360-3 1.Microfinance--Developing countries. 2. Credit--Developing countries. 3. Financial-- institutions--Developing countries. 4. Financial services industry--Developing countries. 5. Poor--Developing countries. 6. Microfinance--Government policy--Developing coun- tries. I. Title HG178 33.D44H45 2006 332.109172'4--dc22 2005057738 Contents Foreword v Acknowledgments vii The Consultative Group to Assist the Poor ix Key Principles of Microfinance xi Chapter 1. Introduction 1 Chapter 2. Poor and Low-Income Clients 17 Chapter 3. Financial Service Providers: The Micro Level 35 Chapter 4. Financial Infrastructure: The Meso Level 59 Chapter 5. Governments: The Macro Level 75 Chapter 6. Funders 93 Chapter 7. Cross-Cutting Challenges 113 Chapter 8. Conclusion 139 Afterword 145 Recommended Reading and Web Sites 147 References 151 Index 163 iii Foreword ccess for All is more than a slogan. For 10 years, the world’s largest aid agen- Acies have worked together under the banner of the Consultative Group to Assist the Poor (CGAP), committing people, money, and countless hours to building more inclusive financial systems—systems that work for the poor. The efforts of this consortium and its many partners—networks, funders, microfinance institutions—are unprecedented. Through publications, train- ing, and advocacy, the CGAP family has helped build near-universal consensus around the fundamentals of an inclusive financial system: from regulation and supervision at the policy level, to financial reporting and disclosure at the insti- tutional level, to fairly priced products at the client level. Together we have built this consensus around solid research, practical oper- ational tools, and a persistent public information effort. All have contributed to the professionalization of microfinance, once considered a marginal, even chari- table, activity by financiers. In the process, we have helped push microfinance beyond the conference rooms of aid agencies, to the boardrooms of commer- cial bankers and policymakers. The CGAP Key Principles of Microfinance—which call for, among other things, more enlightened policies from donor countries—have been endorsed and championed by the Group of Eight industrial nations as well as govern- ments throughout the developing world. Queen Rania of Jordan has made them the foundation of her work as chairperson of CGAP’s microfinance initia- tive for the Arab world. Worldwide, “best practice” microfinance is becoming standard practice. Almost 600 microfinance institutions now report to the Microfinance Information eXchange (MIX), the CGAP-created portal that has become “the Bloomberg of microfinance” to give a no-nonsense picture of transparency, sustainability, and growth in the microfinance sector. Indeed, mainstream rat- ing agencies themselves are now including microfinance institutions in their reviews. In the area of aid effectiveness, CGAP members have consented to peer re- views and made unprecedented efforts and difficult decisions to improve their v support of financial-sector development: pooling funds to ensure best practice, agreeing on common reporting formats, and building and applying consensus on best practice at both the headquarters and field level. The picture so far is breathtaking. Where small, heavily subsidized micro- credit schemes used to be the norm, hundreds of profitable microfinance providers of all institutional shapes and forms are now offering a wide range of financial services—money transfers, deposit services, and insurance—to ever-larger numbers of poor people in their communities. In a sure sign that microfinance is going mainstream, domestic and international commercial banks are now entering the fray, motivated by the excellent performance of poor clients and the promise of new information and delivery technologies to reduce cost and risk. Examples abound. In Kenya, Equity Bank is opening 18,000 accounts of poor people each month. K-Rep bank, which began as a small nongovernmental organization, is today a fully converted commercial bank—among the fastest growing in the country. India’s ICICI Bank, through partnerships with microfi- nance institutions and nongovernmental organizations, has added 1.2 million microfinance clients in the past three years. In Mexico, Compartamos has grown from a donor-supported institution to a licensed financial institution serving more than 400,000 clients and regularly tapping the local bond markets. Strong institutions follow from sound practices, solid standards, and com- mitted leaders. But that is not the whole picture. In the foreground are as many as 3 billion people who still lack access to basic financial services, from loans to finance a microenterprise or a medical emergency, to safe places to save, to reliable ways to transfer money within and across borders. As we mark a decade of service to the microfinance industry, we at CGAP re- main steadfast in our commitment to dramatically expand access to financial services. That is the theme of this book, which draws on and captures 10 years of experience shared by CGAP staff and their partners. In this text, you will find the reasons why this expansion is important, the challenges to making it hap- pen, and the many hopeful signs that it is possible, and even within reach. Much more than a compendium of CGAP’s learning and experiences over the past decade, Access for All opens a new chapter in our ongoing work. We in- vite you to join us. Elizabeth Littlefield Chief Executive Officer and Director Consultative Group to Assist the Poor vi Foreword Acknowledgments his book reflects the collective experience of CGAP, an organization that Tworks to ensure poor people have access to financial services that can help improve their lives. The ideas captured here emerged from CGAP in the course of the past decade, but they also reflect an ongoing discussion in the wider microfinance community. CGAP’s work and its place in building inclusive financial systems are made possible by the cumulative work and commitment of our 31 member donors. Their support has lent CGAP the opportunity to learn and pass on that learn- ing to the broader community. Many of the ideas and examples in Access for All are also drawn from their experience. Several of them also helped by reviewing this book, in particular Kate McKee of the U.S. Agency for International Development, Nimal Fernando of the Asian Development Bank, and Frank deGiovanni of the Ford Foundation, who deserves my thanks for reviewing the whole book over his summer vacation. Access for All draws on the original research and thinking of some remarkable individuals at CGAP. I would like to thank Elizabeth Littlefield, Bob Christen, Syed Hashemi, Martin Holtmann, Jennifer Isern, Alexia Latortue, Tim Lyman, Xavier Reille, Rich Rosenberg, and Ousa Sananikone. In writing this book my special thanks are due to the unflagging research and support of Jasmina Glisovic-Mezieres and Hannah Siedek. Their tireless curiosity was critical to this effort. A host of other experts gave generously of their time to review Access for All. My thanks to Monique Cohen, Kathryn Imboden, David Porteous, Stuart Rutherford, Beth Rhyne, Alex Silva, and Graham Wright for their expert advice on individual chapters. In addition, I would like to thank Jeanette Thomas and Maggie Duggan for their comments, and my family for putting up with me throughout. While I take full responsibility for any errors, omissions, and distortions, this book really is the work of all the CGAP staff. These past nearly 10 years at CGAP have been the most rewarding of my professional life, thanks to them. vii The Consultative Group to Assist the Poor ore than 3 billion poor people seek access to basic financial services essen- Mtial to managing their precarious lives.