Support for the Smart Campaign will allow client protection assessments, certification testing, pilot projects, and translation and dissemination of tools to foster adherence to Client Protection Principles at leading microfinance institutions.

Washington, DC, January 27, 2012 — The Smart Campaign, a global initiative to incorporate strong client protection principles across the microfinance industry, will receive support from the Multilateral Investment Fund (MIF), member of the Inter-American Development Bank (IDB) Group to help Latin American and Caribbean  microfinance institutions  incorporate client protection practices into their operations.

The support will work to institutionalize adherence to the Smart Campaign’s Client Protection Principles, which include  appropriate product design and delivery, prevention of over-indebtedness, transparency, responsible pricing, fair and respectful treatment of clients, privacy of client data, and mechanisms for complaint resolution, in four primary ways:

• Understanding the current state of client protection practice via in-depth Client Protection Assessments of twenty microfinance institutions (MFIs);
• Changing client protection practices via pilot implementation of recommendations from the Smart Assessments;
• Piloting the certification process of ten microfinance institutions as a crucial step to raise client protection standards in the industry; and
• Making Smart Campaign tools more broadly available in Latin America through translation and dissemination of those tools and materials into Spanish and Portuguese.

“Support from the MIF comes at a critical time in the life of the Campaign and will ensure that the experience of microfinance institutions in Latin America and the Caribbean is taken into account when defining adequate standards for client protection worldwide,” said Isabelle Barrès, Smart Campaign Director.

“We are pleased to support the Smart Campaign in finding improved mechanisms to raise standards in client protection for microfinance,” said Tomas Miller, head of the Access to Finance Unit at the MIF.  “An effective and transparent certification process is certainly needed in the industry.”

About the Smart Campaign
The Smart Campaign is a global campaign consisting of microfinance leaders from around the world who believe that protecting clients is not only the right thing to do but the smart thing to do. To date, over 2,414 microfinance and other financial institutions, microfinance support organizations, investors, donors, and individual industry professionals have pledged adherence to the Smart Campaign’s core Client Protection Principles. By providing microfinance institutions with the tools and resources they need to deliver transparent, respectful and prudent financial services to all clients, the Smart Campaign is helping the industry maintain a dual focus on improving clients’ lives while attaining financial sustainability. The Campaign is headquartered at the Center for Financial Inclusion (CFI) at ACCION International and is governed by a Steering Committee representing a broad cross-section of the industry.

About the MIF
Established in 1993 as a member of the Inter-American Development Bank Group, the Multilateral Investment Fund (MIF) was created to develop effective approaches to support economic growth and poverty reduction through private-sector-led development. Its mission is to act as a development laboratory—experimenting, pioneering, and taking risks in order to build and support successful micro and small and medium enterprise business models. The MIF works through grants, lending, and equity investments and is the largest international technical assistance provider to the private sector in Latin America and the Caribbean. For more information, visit www.fomin.org.

*  *  *

Contact:

The Smart Campaign
Charlotte Connors
Manager, Operations and Communications
Tel. +1 202-393-5113 ext 1667
charlottec@smartcampaign.org

Multilateral Investment Fund
Inter-American Development Bank
Sergio Navajas, Senior Specialist
Tel. +1 202 623 3268
sergion@iadb.org

Paola A. Pedroza, Consultant– Access to Finance
Tel. +1 202 623 3602
paolap@iadb.org

Change. People fear it, they avoid it and resist it, but ultimately change is the only constant in life. Some of the microfinance industry’s heavy hitters have weighed in recently on how they believe the industry is – or needs to be – changing.

Marguerite Robinson, Michael Chu, and Robert Christen, three microfinance industry leaders, discussed this topic at a recent MIT panel. They have all spent years in the trenches building microfinance institutions to prove to the financial industry that microfinance was worth taking seriously. But now that the industry has “cracked the capital markets,” they are advising the next generation of microfinance leaders that it is time to shake it up again. But how?

One answer is mobile and agent banking. After 40 years of building microfinance banks, it is time to move beyond them.  By some estimates, as many as 2.7 billion people in developing countries are still unbanked and we are never going to reach them all unless we drastically re-think the way we deliver financial services to the poor, especially in remote rural regions. Even when microfinance clients can get to a microfinance institution (MFI), it still costs that MFI roughly US$1 per transaction. Obviously not a very cost-effective business model when clients only want to transact 50 cents.

The panel also agreed that remittances are one of the most powerful ways to reach the poorest of the poor in the most remote regions. This is supported by the macro “Global Trends That Will Shape Financial Inclusion” as mapped by Elisabeth Rhyne of the Center for Financial Inclusion, which predicts population aging and youth bulges, and rising urbanization by 2020. The lives of many aging parents in remote areas could be improved by the money their children working in the cities could remit to them with mobile banking.

In a recent interview, Bob Annibale of Citi Microfinance discussed some of the innovative solutions they are working on with mobile banking and prepaid cards. And, he projected the next big markets for investors as China and the Middle East and Northern Africa (MENA).

What do you think will be (or should be) the next big change for the microfinance industry?

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The Center for Financial Inclusion at ACCION International has set an audacious commitment to build toward full financial inclusion by 2020. As part of this movement, we are starting a conversation on this blog. We look forward to what will come out of this.

In September, we began a series of roundtable discussions aimed at deepening the consensus around the steps to reach full financial inclusion by the year 2020. In each roundtable, experts from the microfinance industry consider the Center’s report on the “Opportunities and Obstacles to Financial Inclusion.”Participants include providers, investors, donors, regulators, academics, and other industry influencers.

With this post we are taking that process virtual and kicking off a blog series on financial inclusion.

We hope this series will deepen our understanding of financial inclusion, using the year 2020 as a target date to help galvanize our thinking, and exploring the implications of the Center’s definition of full financial inclusion:

Full financial inclusion is a state in which all people who can use them have access to a suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, and rural populations.

We will also begin to build out the items on the action agenda that emerged from the Center’s survey of 301 key stakeholders in the microfinance industry:

• Financial education
• Product range, informed by understanding client needs
• Technology-enhanced delivery channels
• Credit bureaus
• Client protection
• Institutional capacity building
• A sound regulatory framework
• Financial capability

For each of these points we want to discuss: What actions are most strategic?  What are the biggest problems in each area that need to be solved?  Which actors will make the biggest contributions?  Please join us here in the coming weeks for this virtual roundtable about what financial inclusion is and how to achieve it.

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The stories of crises and failures in microfinance often seem to involve the same underlying problem: weak governance.

“Weathering the Storm: Lessons in Microfinance Crisis Survival from Those Who Have Been There” found that “good governance is the ultimate backstop for crisis prevention and management,” and the recent “Failures in Microfinance: Lessons Learned” concluded that, “the clearest and strongest conclusion derived from this study is that an institution’s governance structure proved to be  the  primary  differentiating factor between those entities that overcame a crisis and those that did not.”

In the “Weathering the Storm” case study of “FuegoNord,” an MFI in Lagos, Nigeria closed in 2010 partly because it tied up large amounts of capital in illiquid assets. Yet the management of the MFI invested a large chunk of newly raised equity in three expensive branch buildings without getting the board’s approval.

The case of “MFI 7” from the Latin America study cites many causes of failure but “mainly a lack of proper governance evidenced by the concentration of power in the person acting simultaneously as the CEO, the Board Chairman and its main shareholder.”

Similarly, “Loki,” an MFI operating in a country with a culture of corruption, faced near failure after uncovering a massive Madoff-esque system of fraud. However, the board took a very hands-off approach, allowing a locally hired CEO to hire friends and family and operate with a poor MIS system and weak internal audits. According to the study’s author, Daniel Rozas, a different board “might have also chosen to appoint an expatriate individual as CEO or other senior officer, strengthen internal audit, provide anonymous channels for whistleblowers, institute stricter hiring policies to prevent nepotism, and taken any number of other steps that were absent in the case of Loki.”

In an industry that tends to be painted with a broad stroke, when a few MFIs get into trouble, it affects us all. The fact that governance is repeatedly highlighted in the “Microfinance Banana Skins” survey reports as a key and growing industry risk demonstrates awareness of the problem among industry participants.

In responsAbility’s recent “Microfinance Market Outlook 2012” survey, industry experts were asked to identify the most pressing business needs of MFIs in 2012, and “improving corporate governance” was listed first, followed by “increasing risk management capabilities.”

Regardless of your specific microfinance focus, better governance will likely play an important role in preventing the kind of reputational harm that would have dire consequences for the future of microfinance industry.

Image credit: Wars

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In my opinion, blogs provide a great way to stay involved and up-to-date with current discussions about topics of interest. However, if you ever feel bombarded with information (and how does anyone have time to follow all the interesting blogs?), I understand. After all, at last count, Technorati was tracking over 100 million blogs.

With the idea of zeroing in on some of the most valuable resources out there, I recently took on the quite extensive project of creating a visual map of blogs related to financial inclusion.  I started with three relevant blogs and mapped connecting blogs (based on blogrolls) to get a better idea of the blog community surrounding CFI. While the map was definitely not exhaustive, it was very informative.

If you’re interested in blogs related to financial inclusion and international development, I hope this post will act as a good resource.

Here’s a short list of blogs I uncovered that I, personally, find very interesting (this list is also not exhaustive – there are so many other great blogs I could add):

• David Roodman’s Microfinance Open Book Blog – This blog was an important part of the creation of Roodman’s new book Due Diligence (which looks incredibly interesting).  Now that the book has been released, I hope he will continue to blog on relevant issues.
• Creating a World Without Poverty – This blog, by Grameen Foundation, discusses microfinance, financial inclusion, and the foundation’s initiatives, and gives a great overview of some of the toughest problems facing the world’s poor.
• CGAP Microfinance – Many of CGAP’s blog posts are related to advancing access to financial services. They also highlight other relevant projects and current events. This is one of many great places to keep up with the progress towards financial inclusion.
• India Development Blog – This blog is written by staff at the Institute for Financial Management and Research (IFMR) and the posts are very interesting and easy to understand.
• NextBillion – “Development through Enterprise” is the focus of this blog. The posts highlight current news and events and put forth some very neat ideas about connecting business and entrepreneurship to development.

Beyond tapping into these resources, I’ve found that setting up RSS feeds in your email or with Google Reader  is a great way to stay organized and reduce the info-gathering work for you.

In our comments space, please let me know of any relevant blogs that you find especially interesting!

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Jean-Philippe de Schrevel of BlueOrchard had this to say about the Microfinance CEO Working Group’s just-released “Road Map for the Microfinance Industry: Focusing on Responsible and Client-Centered Microfinance.”

Dear colleagues,

We have read your letter “Road Map for the Microfinance Industry.” We fully share your vision and commitments.

We too have endorsed all of these initiatives (Smart Campaign, MFTransparency) and we are participating actively in the Social Performance Task Force, to which we have offered feedback on the universal standards for social performance. Not only have we backed these initiatives, we are advocating for further endorsement by MFIs and other microfinance stakeholders.

Even more, we have incorporated these best practices into our social performance scorecard, SPIRIT (Social Performance Impact Reporting & Intelligence Tool). We also contributed our social performance data (over 100 MFIs assessed to date) to industry research initiatives examining the state of client protection in MF. (If you wish to read more about what we are doing on this front: Social Performance Report 2011) .

Like you, we believe that we must preserve the client-centered focus of microfinance.
We are pleased to read your statement and to support you in your undertakings,

Sincerely,

Jean-Philippe de Schrevel and the whole BlueOrchard/Bamboo teams

_____

Image credit: Sarregouset

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Report from the Russian Microfinance Center’s National Conference on Microfinance

A policymaker’s dilemma: how to pursue a policy of access to a bank account for everyone, while at the same time erecting regulatory barriers to the opening of those accounts to prevent their misuse. It’s like pushing the accelerator and putting on the brakes at the same time.  This is not to belittle law enforcement concerns, chiefly the need to prevent or detect money laundering.  But as we argued in a previous blog post, neither financial inclusion nor law enforcement are well served by keeping the bulk of the population away from modern digital — and hence, inherently more traceable — payment systems.

These objectives can be easily reconciled by making account opening trivially easy at first, and tightening the requirements for documentation and record-keeping progressively as the accounts become larger and more active. With this approach, everyone wins. New-to-banking customers can learn about how to use the account before they are asked to submit to onerous Know Your Customer (KYC) obligations. Banks don’t need to put in place costly KYC processes for customers that are not yet profitable. And law enforcement agencies can get relevant information on accounts commensurate with the risks involved.

In 2011, the Mexican authorities implemented such a scheme, a world first in its breadth and clarity. The scheme is also a model for inter-agency coordination, as it involved the relevant departments at the central bank, the ministry of finance and the banking regulator.

The authorities created four tiers of accounts based on the value of transactions. Level 1 accounts are anonymous, and no account holder data needs to be captured at the point of sale or subsequently. The restrictions are that the cumulative value of monthly deposits cannot exceed U.S. $280, and customers cannot transfer funds to others from the account. For level 2 accounts, customers must self-report some basic information, but verification of the data can be delegated to third parties and no paperwork needs to be exchanged with the bank. The cumulative value of monthly deposits is capped at $1,160, and there are no restrictions on money transfers. For level 3 accounts, customer information must be verified through face-to-face meeting with bank staff, but no hard copies of customer documents need to be kept. The cumulative value of monthly deposits is capped at $3,860. Level 4 accounts are full-fledged: the customer data requirement is the same as for level 3, but the bank needs to file copies of ID, proof of address and tax ID.

Indonesia is implementing a similar regulatory logic, although it applies only to e-money (rather than bank) accounts. E-money accounts do not require recording of customer identity as long as their balance does not exceed about $110.

The Haitian authorities are enabling easy account opening through selective authorizations rather than broad regulation. To accommodate the nascent mobile money market, the central bank has allowed Tcash and Tchtcho Mobile to offer entry-level accounts without face to face registration and identification requirements. These accounts are capped at $62 and subject to transaction monitoring.

There is huge pent-up demand for savings accounts among the world’s poor, and we need to make it as easy as possible for them to opt into the financial system, which has become such an essential element of participation in modern commerce and society. Law enforcement risks only come from use of the account, so let’s peg the severity of law enforcement requirements to the use of the account. That’s not only fair but also efficient.

Claire Alexandre works with the Bill & Melinda Gates Foundation. Ignacio Mas is an independent consultant whose work can be found at www.ignaciomas.com.

Image credit: Renaud d’Avout

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Coordinating in an unprecedented way, a group of eight microfinance CEOs from leading organizations has just issued a “Road Map for the Microfinance Industry: Focusing on Responsible and Client-Centered Microfinance.” The Microfinance CEO Working Group is a collaborative effort by the CEOs of a number of pioneering microfinance organizations, including ACCION, FINCA, Freedom from Hunger, Grameen Foundation USA, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking.  The Center for Financial Inclusion currently serves as secretariat for the Working Group.

The Road Map outlines the Working Group members’ vision for the positive evolution of the microfinance field and underscores their commitment to raising industry standards, starting with their own. Central to this vision is the Working Group’s support for three initiatives that are laying the groundwork for a more responsible, client-focused and transformative industry: the Smart Campaign, MicroFinance Transparency, and the Social Performance Task Force’s universal standards for social performance management.

In the Road Map, the CEOs call for their valued peers in the microfinance industry to take action by endorsing these three initiatives and transforming their principles into action.

The Working Group would value your feedback. Please feel free to comment here (all comments will be forwarded to the group) or email Meghan Greene, the group’s coordinator, at mgreene@accion.org.

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The Smart Campaign Certification Task Force needs the help of all Campaign endorsers!

The comment period on the Client Protection Certification Program  has been extended through the end of February 2012, as it is crucial to include the voice of endorsers in the development of this program.  The full proposal has also been translated into French and Spanish in order to receive feedback from diverse stakeholder groups.  With this input, the task force hopes to confirm the assumptions, refine the process, and pilot test the proposed adequate standards for client protection.

To read the full Certification Program proposal, please click here and then share your questions and/or comments by sending an email to comments@smartcampaign.org.  We appreciate your time and participation as we build this important industry initiative.

We are seeking the feedback of Campaign endorsers at this point. But we encourage everyone to read and think about the Certification Program proposal. It’s a way of keeping up with the Smart Campaign’s efforts to embed client protection in the industry’s DNA!

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President George H.W. Bush signs the Americans with Disabilities Act (ADA) on July 26, 1990.

How do you determine if a person’s life is worth living in freedom, independently and with the opportunity for education and a career?

The answer is: You don’t, because every life is worth living and all human beings have the right to be free, happy and a valuable part of society.

This belief was reaffirmed when I watched “Lives Worth Living,” a documentary released in 2011, which traces the development of the Disability Rights Movement in the United States from the 1950s until its culmination with the signing into law of the Americans with Disabilities Act.

Persons with disabilities (PWDs) have always been a large minority in the United States, but as a group, they were largely marginalized with little to no access to schools, public transportation, public buildings, and more. They were second-class citizens who were deprived of their rights in countless ways. This documentary vividly depicts the Disability Rights Movement in the United States and the commitment and determination of the pioneers who worked together tirelessly to win a battle that culminated in the signing of the Americans with Disabilities Act (ADA) by President H.W. Bush on July 26, 1990. This momentous piece of legislation prohibits discrimination based on disability, and is very much in the spirit of the Civil Rights Act of 1964, which made discrimination based on race, religion, national origin, etc. illegal.

Since the signing of the ADA, progress in the United States has been significant. Though much more work needs to be done, Americans with Disabilities can more fully participate in civil society than ever before.   The international picture, particularly in developing countries, is much grimmer.  The mandate of the Convention on the Rights of Persons with Disabilities (CRPD) is to extend basic civil rights projections to the 785 million persons with disabilities around the world (nearly 15% of humanity), who are heavily concentrated among the world’s poor.

The theme for the annually observed 2011 International Day of Persons with Disabilities (held on December 3rd) was “Together for a better world for all: Including persons with disabilities in development.” PWDs must become a central priority of current and future development efforts, or the Millennium Development Goals simply cannot be achieved.

To address this issue in the realm of microfinance and financial inclusion, through its Financial Inclusion for Persons with Disabilities Program, the CFI works with the industry and various other stakeholders to develop a body of “how-to” knowledge for financial service providers around the world, indicating the steps needed for persons with disabilities to enjoy equal and fair access to quality financial products and services. Also, in 2011 the Smart Campaign added a non-discrimination clause to the Client Protection Principles (under “Fair and Respectful Treatment of Clients”), which reads as follows:

“Non-discrimination means treating all clients equally regardless of their race, religion, ethnicity, political affiliation, disability or gender. It means, in the case of persons with disabilities, for example, making microfinance institutions as physically accessible as reasonably possible and ensuring that staff and practices are disability friendly. “

In this New Year, I am hopeful that efforts to include persons with disabilities in financial services, and in international development overall, will continue to grow and that the voices of persons with disabilities around the world can be increasingly heard and listened to.

Image credit: White House

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