Category: Key Players

MICROFINANCE PAPER WRAP-UP: “The Next Stage of Financial Inclusion;” by Dean Karlan; Published by Stanford Social Innovation Review

“The Next Stage of Financial Inclusion;” by D. Karlan; published by the Stanford Social Innovation Review; fall 2014; 9 pages; available at: http://www.ssireview.org/pdf/Fall_2014_The_Next_Stage_of_Financial_Inclusion_1.pdf

This paper investigates the evolving role of nonprofit organizations in providing microcredit to people with low incomes. Dr Karlan argues that the role of nonprofit organizations has changed from providing microcredit to people with low incomes in general as for-profit companies have entered the market and begun to provide these services effectively. Instead, nonprofit institutions are addressing market failures to reach those who continue to be excluded from the market. The article is structured around three issues: (1) reaching individuals not covered by the for-profit sector, including those “too rural,” “too poor” or “too young;” (2) building trust among customers and microcredit providers; and (3) promoting innovation.

The author argues that pursuing poor people living in very rural areas is expensive and in fact unsustainable on a for-profit basis. He suggests that nonprofit organizations should promote savings-led microfinance, such as savings groups in which 10 to 30 people work together to save and loan to each other. Randomized trials conducted in Ghana, Malawi, Mali and Uganda by Innovation for Poverty Action (IPA), with the help of Plan International, Oxfam and Freedom from Hunger (FFH) indicate that savings groups initiatives have a modest, but positive impact on total savings, livestock levels and higher levels of food security.

Dr Karlan further argues that nonprofit institutions are essential to strengthen trust between the financial industry and its future customers, and that they are vital in ensuring a smooth transition for the emergence of for-profit companies. A recent study conducted by IPA in Uganda showed that certain products previously unknown to the public had a purchase rate of 49 percent if sold by nonprofit vendors compared with 31 percent if sold by for-profit vendors. Endorsement or certifications by microfinance institutions (MFIs) can also lead to higher purchase rates. BASIX, an India-based MFI, demonstrated in one instance that the purchase rate for rainfall insurance was 36 percent higher when an MFI-endorsed insurance educator promoted it.

As financial returns of process innovation in the microfinance sector are very low, Dr Karlan argues that nonprofit institutions should be the key agents promoting innovation. The first policy proposed is to replace debt financing by equity financing, as is common in Islamic finance models, such as ijarah, murabaha or musharaka. The second proposed measure is to provide more generous repayment schedules using concepts from corporate project financing. For instance, a company that borrowed money to build a factory would only have to repay its loan once the factory starts generating revenues. A study conducted in India demonstrated that test groups with a grace period of two months had a 4.5 percent likelihood of starting a business compared to 2 percent for control groups that had a two-week grace period. It further showed that after three years, business profits and household incomes were 41 percent and 19.5 percent higher for the group with the longer grace period. However, the study also demonstrated that default rates were up to 6.2 percent for the test group compared with 1.7 percent for the control group.

By Simon Pfanner, Research Associate

[1] Standard Social Innovation Review, “The Next Stage of Financial Inclusion“

MicroCapital, July 12, 2012, Innovations for Poverty Action (IPA), Citi Foundation Issue Call for Financial Capability Research Funding Proposals

MicroCapital, April 29, 2011, Stanford Social Innovation Review (SSIR) Blog, Ignacio Mas, John Staley Offer Regulators, Financial Service Providers Ideas to Increase Financial Inclusion

MicroCapital, November 9, 2010, Microfinance Bank Compartamos Banco, Researchers Dean Karlan of Yale University and Jonathan Zinman of Dartmouth University to Study How Customers Use Microfinance Products

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CGAP, MasterCard Foundation Award $500k for Behavioral Research to Freedom from Hunger, IFMR, Innovations for Poverty, The MicroInsurance Centre

CGAP (Consultative Group to Assist the Poor), a US-based nonprofit that aims to facilitate the expansion of financial access, and the MasterCard Foundation, a Canadian nonprofit that aims to promote youth learning and financial inclusion in emerging markets, recently awarded a total of USD 500,000 to the following four organizations: Freedom From Hunger, a US-based NGO operating in developing countries to alleviate poverty and hunger; IFMR Finance Foundation, an arm of India’s Institute for Financial Management and Research (IFMR) Trust Group; Innovations for Poverty Action, a US-based nonprofit organization that uses randomized evaluations to research development initiatives; and The MicroInsurance Centre, a US-based, for-profit research, product development and training firm. Continue reading

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MICROCAPITAL BRIEF: International Finance Corporation (IFC) Loans $5m to KazMicroFinance (KMF) of Kazakhstan for On-Lending to Small Enterprises

The International Finance Corporation (IFC), the private-investment arm of the World Bank Group, has announced that it will loan the equivalent of USD 5 million in Kazakh tenge (KZT) to KazMicroFinance Limited Liability Company (KMF), a microfinance institution (MFI) in Kazakhstan. Continue reading

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MICROCAPITAL BRIEF: Kenyan Regulators Approve Equity Bank Mobile Money Services Despite Security Objections from Safaricom

The Communications Authority (CA) of Kenya, the government body that regulates the communication industry in the country, and the Central Bank of Kenya (CBK), the country’s central banking authority, have given their approval to Equity Bank, a private Kenyan microfinance bank, to roll out a one-year pilot of its mobile money services using “Thin Sim technology” [1]. Continue reading

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MICROCAPITAL BRIEF: China’s Alibaba Launches Microfinance Arm, Ant Financial, to Consolidate Financial Services Units Including Alipay Mobile Payments, Yu’e Bao Money Market Fund

Alibaba Group Holding Limited, a Chinese internet and e-commerce company, recently launched Ant Financial Services Group, a microfinance arm to consolidate all six of Alibaba’s affiliated entities Alipay, an online payment tool; Alipay wallet, a mobile payment application; Yu’e Bao, a USD 93 billion money market fund; Zhao Cai Bao, a platform that allows individuals and small businesses directly borrow from investors; Ant Micro, a microfinance provider and MY Bank, an affiliated private bank. Continue reading

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MICROCAPITAL BRIEF: International Monetary Fund (IMF) Releases 2014 Financial Access Survey (FAS)

The International Monetary Fund (IMF), a US-based organisation that is part of the United Nations, has released the results of its 2014 Financial Access Survey (FAS), a publication that provides data and analysis on financial inclusion around the world. Continue reading

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MICROCAPITAL BRIEF: Call for Applicants for $227k Ashden International Sustainable Energy Awards Open until November 4, 2014

Ashden, a UK-based nonprofit established in 2001 that promotes the use of sustainable energy, has issued a call for applicants for the 2015 Ashden International Awards, which will recognize development programs with a focus on reducing carbon emissions and increasing access to sustainable energy. Continue reading

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MICROCAPITAL BRIEF: Project Concern International (PCI) to Target 250,000 Additional Women Through Women Empowered (WE) Initiative

Project Concern International (PCI), a US-based non-governmental organization (NGO), recently announced that it plans to scale up the operations of its Women Empowered (WE) initiative by providing approximately 250,000 women, in addition to the 230,000 women it currently serves, with tools and training for their businesses. Continue reading

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MICROCAPITAL BRIEF: European Bank for Reconstruction and Development (EBRD) Commences Advisory Services for Small, Medium-Sized Enterprises (SMEs) in Morocco

The European Bank for Reconstruction and Development (EBRD), a UK-based financial institution that operates in Eastern Europe, Central Asia and North Africa, recently began offering advisory services to support small and medium-sized enterprises (SMEs) in Morocco. Continue reading

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SPECIAL REPORT: Over-indebtedness, Microfinance and Environment Award, Conflict Zones at e-MFP’s European Microfinance Week

MicroCapital: Please describe one of the key issues to be covered this year at European Microfinance Week.

Christoph Pausch: The question of over-indebtedness is still the major risk for the sector, as identified in the most recent Banana Skins survey. We had a very successful plenary last year exploring the issue from a research perspective. This year, we’re taking a very different approach by bringing CEOs of leading microfinance institutions (MFIs) from three countries – Bangladesh, Morocco, and Mexico – to discuss how they’ve been dealing with the issue. Each of these countries has had a different experience, with Bangladesh having successfully averted a potential crisis by slowing market growth (as described in an excellent paper by Stuart Rutherford and Greg Chen). Morocco was one of the original “microfinance crisis” countries during 2008 and 2009, and the MFIs there have had an interesting experience in resolving the problems from that period. Finally, Mexico is a major market with serious concerns regarding over-indebtedness, and MFIs there are working to avert a potential crisis. Continue reading

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MICROCAPITAL BRIEF: International Finance Corporation (IFC) Loans $2m to Al Majmoua of Lebanon for On-Lending to Small Businesses, Female Entrepreneurs

The International Finance Corporation (IFC), the private-investment arm of the World Bank Group, has announced that it will loan USD 2 million to Al Majmoua, a Lebanese nongovernmental organization (NGO) that is also known as the Lebanese Association for Development. Continue reading

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MICROCAPITAL BRIEF: National Bank for Agriculture and Rural Development (NABARD) Launches $807m Long-Term Rural Credit Fund

The National Bank for Agriculture and Rural Development (NABARD), a development bank in India that formulates certain credit and banking policies, recently announced the launch of the long-term rural credit fund, which will provide INR 5,000 crores (USD 807 million) for refinancing agricultural loans disbursed by cooperative banks and regional rural banks (RRBs). Continue reading

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MICROCAPITAL BRIEF: United Nations Global Compact, Gate Global Impact Launch Gateway 2.0 to Fund Socially Responsible Projects

The United Nations (UN) Global Compact, an initiative to encourage businesses to adopt sustainable and socially responsible policies, and Gate Global Impact (GGI), a US-based regulatory-compliant electronic marketplace that focuses on impact investing, have launched Gateway 2.0, a website enabling small and medium-sized enterprises (SMEs) listed on the UN Global Compact Social Enterprise Hub to access financing for sustainable and “socially responsible” projects [1]. Continue reading

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MICROCAPITAL BRIEF: African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter-American Development Bank (IDB), World Bank Group (WBG) Issues Joint Statement on Climate Finance

A group of multilateral development finance institutions, the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank (IDB) and the World Bank Group (WBG), recently issued a joint statement on climate finance. Continue reading

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MICROCAPITAL BRIEF: European Bank for Reconstruction and Development (EBRD) Loans $3m to Muganbank of Azerbaijan for On-Lending to Corporates, Individuals for Energy Efficiency, Renewable Energy Projects

The European Bank for Reconstruction and Development (EBRD), a multilateral institution headquartered in London, is loaning USD 3 million to Muganbank, a financial institution that offers retail and corporate banking services in Azerbaijan. Continue reading

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MICROCAPITAL BRIEF: International Financial Organization (IFC) Syndicates Loans Totaling $60m to BBVA Paraguay to Fund Small, Medium-sized Enterprises

The International Finance Corporation (IFC), a member of the World Bank Group that offers financial services to businesses and governments in developing countries with the aim of increasing economic growth, has announced that it will loan a total of USD 60 million to Banco Bilbao Vizcaya Argentaria Paraguay (BBVA Paraguay), a subsidiary of the Spanish financial services group BBVA. Continue reading

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MICROCAPITAL BRIEF: Center for Financial Inclusion (CFI), HelpAge USA Launch Research Initiative on Financial Inclusion of Older Adults in Colombia

The Center for Financial Inclusion (CFI), an affiliate of US-based nonprofit Accion, and HelpAge USA, an affiliate of UK-based NGO network HelpAge International, have launched a research initiative on the financial inclusion of older adults in developing countries. Continue reading

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