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The Focus Note Series is CGAP's primary vehicle for dissemination to governments, donors, and private financial institutions on best practices in microfinance.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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?
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.
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.
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.
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.
This paper reviews the mounting body of evidence showing that the availability of financial services for poor households is a critical contextual factor with strong impact on the achievement of MDGs.
This note highlights how international financial institutions can serve as catalysts in the development of microfinance retail capacity. Tthe World Bankemployed a patient, phased support to Brazil's Banco do Nordeste as it designed, launched, and nurtured its CrediAmigo microfinance program. Its early progress suggests useful lessons for microfinance donors.
The IGVGD program builds on a governmental food security intervention to provide financial services to the most destitute. This link between the government program and BRAC has facilitated the delivery of food grain assistance and savings and credit services to nearly a million women, over the last ten years.
Aimed primarily at donors and policymakers considering microcredit as a poverty alleviation response, funders are encouraged to select a package of tools that is likely to work best in a specific situation. The authors argue that effective poverty alleviation may require linkages among specialized institutions and multiple intervention programs.
Donor staff-at headquarters and in the field-need to become more aware that donor coordination in microfinance is good practice and should be encouraged. It is particularly effective as an incentive for MFIs and in communicating messages to host governments. There are different levels of existing donor coordination, and successful cases of in-country coordination are often critically dependent on motivated individuals (often as few as two or three).
SafeSave, a small MFI, provides unusually flexible savings and credit services to poor slum dwellers in Dakha, Bangladesh. Given financial services that take their needs into account, the poor will use these services in diverse ways-supporting the growing consensus in microfinance circles that MFI products and delivery systems need to be more responsive to demand.
Based on field studies conducted in four countries, this note argues that MFIs should design their financial service products to meet the needs of the poor. Client-focused product development requires understanding the economic goals of poor households, how people manage their resources and activities, and how they deal with risk in their day-to-day lives.
This Focus Note summarizes original research by Leonard Mutesasira, Henry Sempangi, Harry Mugwanga, John Kashangaki, Florence Maximambali, Christopher Lwogs, David Hulme, Graham Wright, and Stuart Rutherford. It investigates client drop-out rates and the failure to attract potential clients among 13 MFIs in East Africa. Based on a research project coordinated by MicroSave-Africa of Uganda, the study highlights the importance of designing flexible, demand-driven financial products to both attract and retain clients, as well as to achieve significant outreach.
The new era of microfinancial services is envisioned as having diverse financial products, including savings, insurance, and microcredit. Financial services to the poor need to evolve from earlier concentrations on agricultural loans and microloans to targeting women and their income-generating businesses.
Four deposit-taking MFIs-the Bank for Agriculture and Agricultural Cooperatives in Thailand, Banca Caja Social in Colombia, Bank Rayat Indonesia, and the Rural Bank of Panabo in the Philippines-were studied by the CGAP Working Group on Savings. GTZ (Gesellschaft für Technische Zusammenarbeit, Society for Technical Cooperation) of Germany conducted the original research on which the note is based.
This synopsis of a study written by Mayada Baydas, Douglas Graham, and Liza Valenzuela for Development Alternatives, Inc. (Washington, DC) describes issues faced by commercial banks interested in offering microfinance services. It briefly documents the experience of 17 commercial banks with microfinance programs.
This is a snapshot in 1998 of how microfinance fits into the agency structures of CGAP member donors, including the country or geographic priorities of each agency, the instruments (grants, loans, equity, etc.) they provided to MFIs, and the procedures to request support from each agency.
A state-owned village banking system in Indonesia (Bank Rakyat's desa unit) is transformed into a successful microfinance institution. Success of the transition is traced to several key factors, the absence of which would seriously constrain the reform of a similar, state-owned development finance institution.
How best can one support an MFI that has a track record of extending quality financial services to significant numbers of poor people on a progressively financially sustainable basis? Using examples of CGAP funding, the paper outlines an approach based on mutual accountability, institutional performance, and shared risk.
This synopsis of a paper by Marguerite S. Robinson looks at the ways microcredit institutions can mobilize voluntary savings from the public, potentially the largest and the most immediately available source of finance for some MFIs.
BancoSol, a Bolivian MFI, faced significant financial and management challenges as it underwent a transition from NGO to licensed commercial bank. The publication summarizes an Ohio State University paper by Claudio Gonzalez-Vega, Mark Schreiner, Richard L. Meyer, Jorge Rodriguez, and Sergio Navajas.
Thirteen MFIs in seven countries examine the trade-offs they made between sustainability and poverty outreach. It is a summary of David Hulme and Paul Mosley, Finance against Poverty (London: Routledge, 1996).
Eleven microenterprise finance programs are examined from two perspectives, outreach and financial sustainability. Based on James Fox's summary an in-depth study of the same name authored by Robert Peck Christen, Elisabeth Rhyne, Robert C. Vogel, and Cressida McKean.
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