Swaziland’s Ministry of Finance reportedly will launch a program to protect Swazi consumers from over-indebtedness by making consumer credit information available to all credit providers in the country, including development finance institutions, microlenders, savings cooperatives and retailers . Another aim of the effort is to lower the cost of credit to support a government effort to increase financial inclusion in the country from 50 percent in 2011 to 75 percent by 2022 . The principal secretary in the Ministry of Finance, Bheki Bhembe, reportedly said that “The project aims to strengthen credit information flow in Swaziland. By so doing, the project aims to increase access to affordable credit among the under-served market segments.”
Millicom International Cellular, a Luxembourg-based telecommunications company that operates the brand Tigo, recently announced that its Tanzanian unit will distribute third quarter profits of TZS 3 billion (USD 1.8 million) to users and agents of Tigo Pesa, a mobile money service accessed by 3.6 million customers.
Major David Beskow of the US Military Academy told a crowd at European Microfinance Week, about distributing microgrants in eastern Baghdad, Iraq, largely to women shop-owners for refrigeration, generators or inventory. Funded by the Iraqi government and the US Army’s Commander’s Emergency Response Program, each grant ranged in size from USD 500 to USD 5,000. Although no repayment was required, each beneficiary business was documented through photos and other means before disbursal and after one and six months, in the presence of local police.
To open the two-day conference portion of European Microfinance Week, which is hosted by the 130-member, Luxembourg-based European Microfinance Platform (e-MFP), panelists and attendees addressed “Balancing financial inclusion, market stability and client protection.” Narda Sotomayor, who leads the Department of Microfinance Analysis at Peru’s Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones, stated that “MFIs [microfinance institutions] moving further down market to serve new people is risky, as this group has less financial education, less collateral. An institution’s credit portfolio can deteriorate quickly unless its lending methodology is revised as part of a dynamic process.” On the issue of increasing financial capability, she added, “We find synergies between financial education and stability. This also leads to benefits for institutions and the whole system.”
MicroCapital: You will be speaking in a few days at European Microfinance Week. How will you describe the state of risk management within microfinance and where it fits in the broader context of the industry?
Kevin Fryatt: In the last several years, we have seen a lot of focus on new technology and serving clients better through new product development, savings mobilization and agent networks, amongst other avenues. Similarly, institutions’ balance sheets are getting increasingly diverse in the types of funding they are sourcing. But within this, the conversation of risk management isn’t happening. There’s a sense of cynicism within the leadership of microfinance institutions (MFIs) toward risk management. It is often misunder-stood and confused with the roles of internal audit or compliance. It is often very difficult to quantify the value of risk management.
“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.
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.
Risk Management Initiative in Microfinance (RIM), a platform that promotes adoption of risk management standards in microfinance, has announced the launch of its official website, which aims to provide a “hub for the dissemination of risk management standards, information sharing and industry cooperation” .
“Digital Financial Services Risk Assessment For Microfinance Institutions – A Pocket Guide;” by Tom Shaw, Marcella Willis, Daryl Skoog, Sonia Arenaza, Sudha Garg, Susan Salerno, Eve Hamilton and Shailee Adnolfi; published by The Digital Financial Services Working Group; September 2014; 15 pages; available at https://lextonblog.files.wordpress.com/2014/09/dfs_risk_guide_sept_2014_final.pdf
The authors of this “pocket guide” argue for the importance of “Digital Financial Services (DFS)” to reach low-income individuals who do not have access to traditional banking solutions.
The International Labour Office (ILO), an agency of the United Nations
that deals with labour standards, and the World Bank Group (WBG), a
group of five multilateral organizations that invest in developing
countries, reportedly have entered into a three-year partnership with
the aim of providing index microinsurance products in Africa and Asia
through ILO’s Microinsurance Innovation Facility (MIF), which provides grants to organizations to develop microinsurance products, and WBG’s Global Index Insurance Facility (GIIF), a trust fund that supports disaster and weather index insurance markets.
The Bangko Sentral Ng Pilipinas (BSP), the central bank of the Philippines, has issued Circular Number 841, which amends the Manual of Regulation for Banks, increasing mandated maximum microinsurance premiums and benefits.
“Microfinance Banana Skins 2014: Facing Reality;” published by Centre for the Study of Financial Innovation; July 2014; 84 pages; available athttp://csfi.org/files/Microfinance_Banana_Skins_2014_-_WEB.pdf
This report, which is based on data collected by surveying 306 people associated with the microfinance industry, examines 19 risks faced by microfinance institutions (MFIs) across the globe.
“Over-Indebtedness in Mexico: Its Effect on Borrowers;” published by Microfinance CEO Working Group; May 2014; 32 pages; available at http://microfinanceceoworkinggroup.org/wp-content/uploads/2014/05/Over-Indebtedness-in-Mexico-Its-Effect-on-Borrowers-552014.pdf
This report cautions lending institutions in Mexico about rising levels of over-indebtedness – meaning more borrowers cannot reasonably repay their debts – which can threaten the financial system as well as the economic outlook of low-income individuals.
PlaNet Finance, an NGO based in Paris, France, recently announced a partnership with the China Microfinance Institution Association (CMIA), a trade group of microfinance institutions (MFIs), to enhance risk management in the microfinance industry in China.
In an effort to promote financing to self-employed entrepreneurs and micro- and small enterprises (MSEs) in emerging economies, Entrepreneurial Finance Lab (EFL), a US-based company, is employing psychometric analyses to assess the creditworthiness of loan applicants.
The debate about the contributions that microfinance is making to global poverty alleviation is an interesting one. But it’s also getting a little tedious.
We are all disappointed that microfinance has not, as the popular culture has promoted it, proven to be the “silver bullet” for poverty alleviation. If, however, we challenge ourselves to really understand (and be transparent about) the strengths and limitations of microfinance, and begin to think about it as just one part of a more comprehensive package of development services, the debate (and potential for impact) becomes much more interesting.
A number of startup companies are employing analytical techniques based on “big data” to interpret the mobile phone usage of poor people to assess the creditworthiness of those applying for loans in developing economies.