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This Brief provides a quick look at the growing use of banking agents to extend financial services to low-income and poor people.
Microinsurance is growing increasingly popular among donors as a way to help poor people manage risks and reduce their vulnerability. This Brief addresses how donors can support microinsurance efforts.
This Brief discusses the various issues that should be considered when estimating demand for microloans.
African leaders gather to discuss policy change, while Malawi's pioneers look to transform access to finance.
This Focus Note presents CGAP's observations on its early experiences with branchless banking. It addresses each of the elements and players in the branchless banking delivery chain, including customers, financial service providers, agents, products, and technology platforms.
This Focus Note presents an alternative, systemic approach to branchless banking in which there is no need for a bank to have a contractual relationship with any of the retail outlets through which it is absorbing deposits or meeting liquidity needs of its customers.
CGAP and Citi sponsor 'Microfinance Banana Skins 2008' survey of leading industry opinion.
According to this new survey of the risks facing microfinance, completed at a
time when the sector is undergoing profound changes, the greatest threats to the
business lie in poor management and inadequate corporate governance.
As more and more private investors are getting involved in microfinance, the sector is experiencing an investment boom. Between 2004 and 2006, the stock of foreign capital investment in microfinance institutions more than tripled to reach US$4billion. So far, the vast bulk of private investment in microfinance is socially motivated, says this Focus Note, written by Xavier Reille and Sarah Forster.
Regulating branchless banking; Are microcredit interest rates exploitative? AML-CFT: Could increasing access improve security?
This Focus Note is based on assessments of policy and regulation in seven key countries. Current regulation tends to be both over- and under- protective, and policy will determine not only where branchless banking is allowed, but also which business models turn out to make economic sense -- and how far they will go in reaching poor people.
This 2007 edition of CGAP's Microfinance Investment Vehicle (MIV) Disclosure Guidelines is the result of 18 months of extensive consultation and a consensus
building process among 35 industry and capital market experts, organized by CGAP. CGAP is continuously improving the MIV Disclosure Guidelines. The 2008
edition will include a more developed social performance section.
Good for clients, good for business?
This Brief discusses the industry's growing interest in social performance and new advances in measuring social performance and developing guidelines and tools for reporting.
It takes more than money
Building Local Financial Systems That Work for the Poor: Equity and Efficiency
CGAP's strategy for 2008 and beyond (and the evaluators' report that helped to form that strategy.)
CGAP and Grameen Foundation recently conducted a survey of MFI managers to better understand MFI capital structure decision-making processes in the face of
expanding financing options. This Brief summarizes the study's findings and makes recommendations about ways we can work toward optimizing MFI balance
sheets.
Measuring Social Performance: First-Ever Common Standards Adopted
This Occasional Paper reports on two separate studies of SHG programs. Part I looks primarily at the financial viability of SHG programs. Part II proposes a methodology for designing SHG programs to ensure their sustainability.
Banco Compartamos: Interest Rates, Profits, and an IPO
A Case Study on Microfinance Interest Rates and Profits
This Focus Note highlights the emerging emphasis on social performance in microfinance and reviews some of the assessment tools recently developed.
Despite a sound regulatory framework for microfinance and significant injections of donor funding estimated at close to US$ 400 million over the past five years, there is a lack of strong, sustainable institutions in Pakistan able to reach the scale necessary to have significant impact. However, today, heightened interest on the part of government and several new donor projects offer the opportunity for a new direction.
Foreign capital investment in microfinance is surging. Cross-border investment has more than tripled in the last two years to reach US$1.4 billion in 2006.
How do we open the door wide enough for innovation while mitigating new or enhanced risks?
The Appraisal Format consists of detailed instructions and Excel spreadsheets to guide an experienced microfinance analyst through a qualitative, institutional evaluation of a relatively mature MFI. The Appraisal Format evaluation process covers the core components of a final evaluation report. The executive summary has quantitative and qualitative reviews of key -conclusions and recommendations. Individual sections are devoted to institutional factors, MFI services/clientele/market, strategic objectives, and financial performance, respectively. The handbook1s annex provides additional information on how to calculate theoretical interest yields.
This format is designed to gather information and assess network support organizations for both comprehensive appraisals and "mini" evaluations. It has a number of possible applications, ranging from appraisals for funding decisions to internal NSO self-assessments. It is currently undergoing testing, and results of the testing will be incorporated into the final document.
In October 2006 CGAP commissioned a client survey examining opinions and perceptions of CGAP strategy and performance among its key stakeholders.
Hi-tech devices are already very much a part of poor people's lives. In Africa alone, the number of mobile phone subscribers has reached 155 million.
This Focus Note looks at recent experience with guarantees of commercial loans to microfinance institutions (MFIs). Such loan guarantees are a form of insurance that covers a lender--typically a commercial bank--against default on its loan to an MFI.
A Technical Guide to Developing and Delivering Money Transfers
Evidence from South Africa
Banking through mobile phones has been common in developed countries for years. But the real potential of "m-banking" may be to make basic financial services more accessible to millions of poor people across the world.
In Africa, funders need a tailored approach
(Originally published under the title: "Building Inclusive Financial Systems: Donor Guidelines on Good Practice Microfinance", December 2004)
The Good Practice Guidelines for Funders of Microfinance provide practical guidance for donor staff on how to best interact with, and support, the various actors in microfinance. Through a highly participatory process, including comments from 20 CGAP member donors and 10 other civil society organizations and individuals, the authors sought to balance all views in updating the Good Practice Guidelines.
Structure and Documentation, A Technical Guide for Microfinance Institutions
A Technical Guide for Microfinance Institutions
CGAP recently undertook a scenario-building exercise to help anticipate and prepare for the global demographic, political and technological forces that will shape the future of microfinance. This Focus Note examines these forces and applies them to four scenarios. It ends with broad recommendations for how the international community can prepare for and respond to these scenarios.
This Focus Note examines the experience of five pioneering countries--Brazil, India, South Africa, the Philippines, and Kenya--where agent-assisted branchless banking that targets poor customers is already a reality. It introduces the main issues involved in regulating branchless banking, particularly regarding the use of retail agents.
This Focus Note summarizes the findings from Country-Level Savings Assessments in Benin, Bosnia, Mexico, the Philippines, and Uganda, which suggest five strategies for improving poor people's access to savings services.
In Sri Lanka, donors learn the hard lessons of microfinance
When it comes to microfinance, Sri Lanka is a study in contrasts.
Donors support many community-managed loan funds (CMLFs) often designed as components of larger projects. Unlike microfinance institutions (MFIs) with professional staff, CMLFs rely on group members themselves to manage the funds. The recently published CGAP Brief Supporting Community-Managed Loan Funds shows that CMLFs can be attractive alternatives for areas and populations that are too expensive for formal MFIs to reach. Savings-based models have experienced promising results, but funding CMLFs with external capital at the outset almost always leads to poor repayment rates and fund failure.
This Focus Note presents conclusions from a performance review of dozens of CMLF projects established or supported by donors and international nongovernment organizations (NGOs) over the past 15 years.
This Focus Note reviews some of the findings of CGAP's evaluations of the World Bank and UNDP microcredit projects. The evaluations reveal serious problems, but also highlight promising corrective measures.
Across the world, new measures are being
introduced to combat money laundering and the financing of terrorism. Once the concern primarily of banks, governments have expanded regulations and requirements for compliance since the late 1990s. Now all financial service providers, including those working with lowincome communities, are--or will--be affected.1 As a result, the new international framework and national measures for anti-money laundering (AML) and combating the financing of terrorism (CFT) could have far-reaching effects.
Experience has shown that funding agencies' microfinance interventions produce better results when design, reporting, and monitoring focus explicitly on key measures of performance. This note, written by Richard Rosenberg for staff who design or monitor projects that fund microfinance institutions (MFIs), offers basic tools to measure performance of microfinance institutions (MFIs).
Much-needed donor funds poured into Sri Lanka following the tsunami. Yet, managing this money well and with a long-term sustainable perspective has proved difficult. CGAP's latest CLEAR takes a close look at the effectiveness of funding agencies, including public donors, international NGOs, and private investors, in this difficult environment. The report analyzes findings from the CLEAR's interviews with over 200 people in Sri Lanka in October 2005, including government representatives, practitioners, and donor staff. It also offers recommendations for how donors can address gaps in the financial system more effectively.
Does microfinance reach the poorest?
Some MFIs are finding ways to team up with existing safety net programs in hopes of making themselves at least indirectly useful to the poorest. Some safety net and grant programs are deliberately providing financial training and information to their clients so that their clients can subsequently link with MFIs. In other words, people who benefit from safety net programs may "graduate" to become full-fledged microfinance clients. This Focus Note discusses two basic models of linkages between MFIs and safety net programs.
Does competition result in lower interest rates to microcredit customers? To address this question, this Focus Note analyses the experiences of Uganda, Bangladesh, and Bolivia, home to some of the early regional and even global pioneers of microcredit.
Some of the innovations commercial banks need to service poor clients may be found in information and communications technologies (ICTs).This Focus Note addresses the following questions: Can banking technologies, applied innovatively in developing countries, make microfinance profitable for formal financial institutions? Will they reduce costs to such an extent that banks could profitably serve even those whom MFIs have mostly excluded to date, such as very poor and remote rural customers? Will these customers be comfortable using technology?
Access for All: Building Inclusive Financial Systems outlines the "new" vision of microfinance, offering a clear view of the state of microfinance today, and what is needed to build financial systems that work for poor people.
This Focus Note discusses issues related to foreign exchange rate risk in microfinance. It explains what exchange rate risk is, looks at techniques used by MFIs and investors to manage the risk, and makes recommendations on managing and avoiding risk.
The Madagascar Country-Level Effectiveness and Accountability Review took place in Antananarivo from April 26 to May 17, 2005, and included interviews with over 115 representatives from the government, donor community, microfinance/financial sector, and the private sector. While poor people's access to financial services has grown rapidly (246 percent growth in the number of depositors from 1999-2004), most microfinance providers remain fragile and are still far from reaching sustainability. The Madagascar country review provides recommendations to donors on how they can strengthen inclusive financial systems through increased aid effectiveness.
Some observers question whether the increased attention to microfinance could attract lenders that might not care as much about development objectives, and might even engage in predatory lending practices that take advantage of poor clients. For this reason, consumer protection has become a hot topic in microfinance.
Many microfinance institutions in developing and transition economies receive foreign funding. This Focus Note looks at these "foreign investors" and the demand for their services. It presents a view of the market and addresses key questions, including How much foreign investment in MFIs is really private? How much of this investment is really commercial? Where is the investment being placed, in terms of region, number, and type of MFIs? Are investors competing to invest in MFIs? As MFIs grow and absorb more funding, what is the likely role of foreign investment compared with domestic sources? Does foreign debt create inappropriate currency risks for MFIs? and What practical lessons emerge from this analysis?
Savings and credit cooperatives provide financial services to millions, including poor and low-income people in many countries. Thus, donors who want to increase access to financial services, especially savings, often support savings and credit cooperatives. Working with these cooperatives offers many advantages, but, to be effective, donors must learn how to overcome several unique challenges.The latest Donor Brief Working with Savings & Credit Cooperatives provides guidance on how to address these challenges.
Renewed emphasis on poverty reduction has put rural populations, particularly agricultural households, back in the spotlight of development efforts. Agricultural development programs often include credits for agricultural production, which have renewed the debate about how to provide finance in rural areas. This paper offers a model (agricultural microfinance), for providing financial services to poor, rural farming households, which combines the most relevant and promising features of traditional microfinance, traditional agricultural finance, and other approaches.
A CLEAR took place in Nicaragua from February 14 to March 4, 2005 and included interviews with 140 people representing a broad cross-section of stakeholders, from government officials to microfinance institution (MFI) managers and staff along with representatives of the full spectrum of donor agencies and donor microfinance projects. Donors have contributed to the emergence of microfinance in Nicaragua, but their uncoordinated funding fragmented the financial system on all three levels (micro, meso, macro). The Nicaragua country review analyzes the main gaps in the financial system, and provides recommendations to donors on how they can better adapt their support to fill these gaps and improve their effectiveness in Nicaragua.
Across the world, new measures are being introduced to combat money laundering and the financing of terrorism. All financial service providers, including those working with low-income communities, are--or will--be affected by these measures. This paper summarizes the implications of the international framework for anti-money laundering (AML) and combating the financing of terrorism (CFT) for financial service providers working with low-income people.
There is a vast potential market for retail financial services among low-income clients, and a growing number of commercial banks have successfully entered this market. Compared with many existing providers of microfinance, commercial banks have potential competitive advantages in a number of areas, such as recognizable consumer brand names, existing infrastructure and systems, and access to capital. Given the differences between classic banking and microfinance, commercial banks need to view microfinance as a new business line and conduct the same kind of research that any company would entering a new market. No bank should expect to make a 'quick buck' from microfinance, but the evolving models are encouraging more banks to see the long-term business rationale. This Focus Note highlights recent CGAP research about the different ways in which commercial banks have successfully entered the microfinance market.
Recent moves to fight money laundering and the financing of terror could directly impact the poor, according to a new paper by the World Bank and CGAP. The paper summarizes the implications of the international framework for anti-money laundering (AML) and combating the financing of terrorism (CFT) for financial service providers working with low-income people. Also in this issue: "Whither Savings," "Queen Rania Chairs First MENA Executive Council Meeting," "New CGAP Resource Centers," and "Hightlight: Banque du Caire Mainstreams Microfinance."
Retail financial institutions remain the backbone of financial systems that serve low-income clients. They need complex skills to offer poor people quality financial services on a permanent basis. In most countries, inadequate retail capacity is the main bottleneck to scaling up microfinance. This brief addresses how funding agencies - public donors, international NGOs, private foundations, and investors - can help meet the challenge of developing retail capacity.
MFI portfolio reviews are critical for management, as well as regulators and the growing number of commercial investors in microfinance. External audits, ratings, and evaluations generally fail to accurately quantify the primary risk facing investors?misrepresentation of microcredit portfolio quality. This loan portfolio review tool evaluates the accuracy of reported levels of repayment and the extent to which the MFI employs sound loan management practices. It has three, gradually deepening, levels of review that give increasing degrees of certainty about the quality of loan portfolios, regardless of how they are reported. It is flexible enough for different uses and requirements for confidence in reported loan portfolio quality, and does not require specialized audit or financial analysis skills.
Estimating market potential and assessing regulatory obstacles
This report was commissioned by the FinMark Trust and CGAP (The Consultative Group to Assist the Poor), in order to highlight the potential demand for cross-border remittance services in southern Africa, evaluate the potential business and technological opportunities in the remittance market, identify regulatory barriers to doing business (in both financial and immigration legislation), and propose policy and regulatory changes to facilitate the development of the market.
Little is known about how consumer protection might apply to financial services for the poor. As commercialization and competition increase, vulnerable borrowers may be more exposed to potentially abusive lenders. Low-income borrowers may be functionally illiterate, first-time consumers, or insufficiently informed about their rights and can be pressured into making poor borrowing decisions. Strategically, enhanced consumer protection measures can be a more constructive alternative to new or lowered interest rate ceilings. This paper discusses two primary approaches to enforcement of such measures - voluntary codes and state regulation - in the context of developing countries.
In the first issue of this new CGAP publication, read on-the-ground insights about the post-tsunami reconstruction and more on how today's aid money can help fight poverty in the long run. Also, frontiers and innovations in microfinance funding.
New technologies are available to help microfinance providers improve efficiency, track operations more accurately, increase transparency, and reach new customers, yet MFIs struggle to select the right technologies and get the most from their investments. This Donor Brief offers guidance on how to ensure microfinance providers follow good investment and management principles when choosing and implementing new technologies.
Formal remittances constitute the second largest source of external funding for developing countries, ahead of capital market flows and development assistance. From the viewpoint of financial service providers, transferring remittances can be a lucrative business, and smaller providers have begun to explore market segments not yet penetrated. This paper explores operational and strategic considerations involved in launching a money transfer product.
These guidelines embody the working consensus of CGAP donor members on how donors can support deposit services in microfinance. The paper examines what the poor seek from savings and other deposit services, and analyzes the potential of different financial institutions to offer these services. It reviews the financial and institutional capacity requirements needed, such as operating environments, costs and pricing, market orientation, and the depth of outreach of a deposit services provider are examined.
As the communities affected by the recent devastating tsunami begin to rebuild their lives, microfinance institutions (MFIs) can play a powerful part in the path to recovery. The following guidelines are intended to help MFIs provide the appropriate range of emergency and longer-term assistance to their clients, while helping both MFIs and donors ensure that the ultimate mission of the MFI--to be a sustainable provider of financial services--is not compromised.
Five core elements of effectiveness-- strategic clarity and coherence, strong staff capacity, accountability for results, relevant knowledge management, and appropriate instruments--are key for development assistance agencies and other funders to improve how they support financial systems for the poor, and identify their comparative advantage and best level of engagement.
International and Mexican donors helped Financiera Compartamos grow from a small, non-governmental organization in 1991 to the largest microfinance institution in Latin America in 2004, raising funds in the financial markets while maintaining an unswerving commitment to serving poor women. This case tell the story of how it happened.
A Country-Level Effectiveness and Accountability Review took place in Cambodia from October 3 to 24, and included interviews with over 110 people representing a broad cross-section of stakeholders, from government officials to microfinance institution (MFI) managers and staff to representatives of the full spectrum of donor agencies and donor microfinance projects. The study reveals that donors have achieved considerable success in building commercially oriented microfinance in Cambodia and formulates some recommendations to donors on how they can continue to support inclusive financial systems through increased aid effectiveness, applying the guiding principles of microfinance, investing in staff training, and continuing to use performance based management.
This case study tells the twenty year story of how Agence française de développement (AFD) in the Republic of Guinée managed the trade-offs between reaching poor, rural customers with savings and credit and also reaching institutional and financial sustainability.
A change in Dutch microfinance funding policy led to successful public-private partnerships that brought private financial expertise to microfinance funding. Government funded not-for-profit development agencies partnered with socially responsible financial institutions and the result was an increase in the amount, range and flexibility of financial instruments offered to microfinance institutions (MFIs). This case tells the story of how it happened.
(Publication revised October 2006, new title: Good Practice Guidelines for Funders of Microfinance)
The donor guidelines on good practice microfinance provide practical guidance for donor staff on how to best interact with, and support, the various actors in microfinance. Through a highly participatory process, including comments from 20 CGAP member donors and 10 other civil society organizations and individuals, the authors sought to balance all views in updating the Good Practice Guidelines.
Supporting microfinance in devastated and fragile communities can be successful when donors work in concert, select qualified partners, are patient, willing to take risks, and prepared to pay higher costs. This brief is the latest in our series of Donor Briefs and it provides information on the characteristics, essential conditions for effective interventions, and how donors can play an instrumental role in these complex situations.
The Uganda Microfinance Sector Effectiveness Review was undertaken in March 2004 as a precursor to the Country-Level Effectiveness and Accountability Review . The review examined the behavior and actions of all microfinance stakeholders in Uganda from 1998 to 2003, identifying factors that both contributed to the sector's success and hindered its effectiveness. Intended to be forward looking, the review also identified specific and actionable recommendations for expanding microfinance in the country.
(adapted from Elizabeth Littlefield and Richard Rosenberg, "Microfinance and the Poor: Breaking Down the Walls between Microfinance and Formal Finance," Finance & Development 41, no. 2 (June 2004): 38-40)
There is a dawning understanding that developing countries' financial systems need to be more accessible to poor people and that there are practical ways to make this happen. All kinds of financial institutions--regulators, mainstream rating agencies, commercial and state banks, insurance companies, and credit bureaus--are starting to play a part in developing sound, inclusive financial systems that serve the majority of poor countries citizens.
This paper outlines the rationale for higher microcredit interest rates, the historical performance of subsidized lending, and the impact of interest rate ceilings on microfinance clients. It includes recommendations for fostering lower microcredit interest rates through competition and consumer protection without imposing interest rate ceilings.
By applying good microfinance practice to housing finance, a range of financial institutions are beginning to offer much-needed housing finance services to low-income people. This brief outlines how donors can support these institutions and expand sustainable housing finance.
This CGAP analysis of the distinguishing features of 33 microfinance support organizations differentiates their roles and identifies broad trends that characterize their organization and activities. This Note also offers a list of questions to guide donors when appraising networks for potential funding.
Here are the results of CGAP's survey of the global outreach of a broad set of institutions that extend financial services downward---institutions with a "double bottom line" of financial and social/development objectives. The survey found that over 750 million acccounts exist below the traditional level of commercial banks, and that a substantial fraction of these predominantly savings accounts probably belong to the poor or near poor--and represent an important opportunity for outreach.
CGAP developed and field tested an activity-based costing tool to help MFI managers understand and analyze individual product costs, especially administrative/organizational costs. Once a product's costs are determined, the tool suggests methods for understanding why and how the costs were incurred and how the product contributes (or not) to the overall financial viability of the MFI.
The Disclosure Guidelines represent the consensus of CGAP's 28 member donors on MFI financial reporting requirements. The guidelines do not prescribe accounting policies or any particular format for financial reporting. Rather, they indicate the minimum information that should be included in MFI financial reports, regardless of how that information is presented. It reflects revisions based on field testing, which concluded in 2002.
Understanding the limited but constructive role governments can play in building financial systems is key to ensuring poor people's permanent access to quality financial services. Experienced donors can support governments to develop sound policy frameworks and encourage vibrant and competitive microfinance, rather than directly providing financial services.
Because sustainable microfinance is a key element in creating solid financial markets in developing countries, CGAP's donor members developed and endorsed these Key Principles of Microfinance. The G8 also endorsed these principles at their June 2004 Summit in Sea Island, Georgia, USA, as part of their commitment to expanding the access of microfinance.
These cases (prepared for the international conference in Shanghai, May 2004) represent powerful examples of scaling up microfinance. These diverse institutions made conscious decisions to pursue scale while serving poor clienteles, demonstrating creativity and a willingness to take risk, while operating under commercial business principles.
Interest rate ceilings imposed by governments to protect poor people unfortunately often have the opposite effect. Customers do need protection from predatory lending practices and this brief offers other options governments and donors can employ.
This donor brief builds on the experience of several donor agencies that have long applied a financial-systems approach in their microfinance operations. It outlines a practical way that donors can work, individually or on collaboration, to support pro-poor financial systems that ensure permanent access to financial services for significant numbers of poor people.
State banks, or recently privatized state banks, offer huge potential for sustainable expansion of financial servies to low-income populations due their existing rural presence and extensive rural networks of branches or outlets. This note offers models for engagement and recommendations for working with state banks.
A few innovative MFIs have adapted their operations and products to expand viably into agriculture lending in difficult rural areas. This note describes how they have tailored their procedures and products to growing cycles, applied risk management techniques, and adopted new technologies and and alternative delivery mechanisms to increase coverage and lower operating costs.
This CGAP study reveals that governments and multilateral agencies have funded nearly 90% of the US$ 1.1 billion in total investment in microfinance through quasi-commercial debt, equity, and guarantees. Privately managed microfinance investment funds are expected to double their capital by mid-2004. Microfinance institutions and investors must become more transparent about their performance before commercial capital reaches the volumes needed to fund massive outreach. However, the dominant source of funds for microfinance will likely remains deposits and domestic capital sources.
Microinsurance is one of the many financial services that can help poor people protect themselves from risk. Understanding the numerous informal and formal strategies employed by poor people to prepare for and cope with risk can help determine whether insurance is an appropriate response. This introductory brief provides practical dos and don'ts for donors interested in supporting this promising but still largely untested field.
Ensuring that poor people in rural areas have access to quality, permanent financial services remains a tremendous challenge for donor agencies. This introductory brief clarifies the confusing terminology related to rural finance and identifies the main constraints to financial services in rural areas. The brief also pinpoints specific issues donor agencies face internally to effectively support financial services for the rural poor, and offers helpful guidance.
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