SPECIAL REPORT: European Microfinance Week Closes, Looking to Future of Financial Inclusion: Wooing Regulators, Women Leveraging Loans by Factor of 5, Investor Collaboration, New Customers for MFIs

Claudio European Microfinance PlatformGonzalez-Vega, a board member of Spain’s BBVA Microfinance Foundation, spoke of the huge impact of the COVID-19 pandemic at the closing plenary of European Microfinance Week, with life expectancy falling and an estimated 115 million people being pushed into extreme poverty. Despite the difficulties for microfinance institutions (MFIs), he said they may soon find a larger, very appropriate market for their services, given that many of these newly poor people have business experience. Dr Gonzalez-Vega argued that the “pandemic will make microfinance more important,” as – given MFIs’ “intimate knowledge of clients – the role of microfinance will be appreciated in a new light.”

Dina Pons of Belgium’s Incofin Investment Management agreed that microfinance clients have gotten poorer – that progress in reducing poverty has been set back several years. Ms Pons also commented on the response by microfinance investors to the pandemic. She praised investors’ collaboration, saying, “There was no opportunity for anybody to be a free-rider.” One example is the widespread use of “handshake” agreements rather than complex and expensive legal action to adjust the terms of MFIs’ repayment of their wholesale loans. She also argued that “we have a responsibility to guide our [retail] institutions without [over]burdening them with reporting requests.” Regarding “social performance, client protection [and] human resources risks, we need to be highly vigilant so that we don’t shortcut on basic practices and principals that we have been standing for for so long.”

While various industries have been affected very differently by the pandemic, Ms Pons argued that, “Economies are more agile in less developed countries. People will shift, but this takes time.” In terms of MFIs, Dr Gonzalez-Vega predicted that many will not survive the pandemic – and that this is good. He believes the industry needs fewer, stronger institutions that will have deep enough pockets to withstand future shocks.

Dr Gonzalez-Vega also discussed the role of regulators, including that they can help weaker players exit the market. He criticized past moves by some regulators, including to cap interest rates in Bolivia and Ecuador, resulting in MFIs being unable to afford the extra cost of serving many of the most vulnerable groups. Dr Gonzalez-Vega added that he would like to see regulators modernize their approach to digital finance. He also pointed out the need for non-financial infrastructure, such as roads, to help reduce transaction and other costs for small businesses.

To build partnerships with regulators, Ms Pons has found the best strategy is to avoid “political contamination” by gathering representatives of large regulated institutions to bring data to civil servants showing the merits of their case. Even better is to have representatives of development finance institutions, backed by local embassy personnel, expressing support for the MFIs’ requests.

Looking ahead, Dr Gonzalez-Vega argued that there will be a post-pandemic rise in focus on gender, which remains an afterthought within some MFIs. Regarding digital financial services, he warned that financial education is key to reducing the gender gap. BBVA Foundation, which has stakes in six MFIs in Latin America and the Caribbean, studies the marginal impact of different loan sizes disbursed to men versus women. It has found that increasing a loan to a man by a certain number of euros increases his income by 2.8 times that amount per year. However, for women, the same increase in loan size boosts her income by 5.2 times.

Both speakers noted the importance of non-financial services. Dr Gonzalez-Vega argued that such services help both with managing risk as well as boosting impact. He cited examples such as technical assistance for borrowers, veterinary services for their livestock, and others. Ms Pons gave the example of farmers needing to learn new agricultural practices to adjust to climate change. Dr Gonzalez-Vega cited a demonstration farm in Colombia that teaches farmers climate-smart techniques. He warned, “Climate change, like the pandemic, disproportionately hurts the most vulnerable populations.”

This feature is the final part of a sponsored series on European Microfinance Week 2020, which took place online from November 18 through November 20. The event is held annually by e-MFP. MicroCapital has been engaged to promote and report on the conference each year since 2012.

Sources and Additional Resources

European Microfinance Platform (e-MFP) information on European Microfinance Week 2020
http://www.e-mfp.eu/european-microfinance-week-2020

MicroCapital coverage of European Microfinance Week, including the European Microfinance Award
https://www.microcapital.org/category/european-microfinance-week/

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