This is the final post, wrapping up a series that focused on the XIV Inter-American Forum on Microenterprise (Foromic) in Costa Rica, held from 10-12 October. CGAP and the MIF joined forces to argue about the key challenges in microfinance and distill the game-changing solutions for greater financial inclusion and stronger micro and small enterprises in Latin America and the Caribbean. These posts are also featured on MIF’s Microfinance Blog in Spanish.
Pura Vida– this phrase has become universally known in Costa Rica, where Foromic took place this year from 10-12 October. It means many things but it is often used to express that no matter your fortunes, whether large of small, you should be positive and forward looking. This pura vida spirit could also be used to describe the status of financial inclusion in Latin America and the Caribbean, as the industry proactively pushes for product innovation to increase access and lower cost, while confronting challenges like overindebtedness and rural finance. This year Foromic brought together over 1200 delegates from funding agencies, retail financial institutions, governments, and research institutions all committed to providing new and better financial services to help Latin America and the Caribbean continue the strong economic growth the region has seen in the past 10 years. In the hallways and during conference presentations several themes kept coming up as priorities for the region:
Rural – This is the last mile of microfinance in the region, and is back on the radar of providers, as urban markets have gotten crowded and new channels and technologies are helping to reach rural clients in a sustainable manner. However, even the most enthusiastic of ruralistas recognized that serving this population requires commitment, comprehension, capacity, and courage as a colleague from the MIF highlighted in the CGAP and IDB blogs some days ago. Two notes of caution are particularly relevant here: 1- rural microfinance is not agricultural finance, and serving this sector will require more than just agricultural credit; and 2- experimentation is needed with product types, financing structures, and partnerships between financial providers and other actors already established in the rural communities. With this in mind, the MIF signed contracts to invest nearly $7 million in three projects to increase and improve the offering of microfinance services to micro-entrepreneurs and small farmers in rural areas in Honduras, Guatemala, Costa Rica, and Nicaragua. Investors, such as Incofin, are also going rural and creating portfolios that combine rural and urban assets to better deal with risks. These are good initiatives from public and private investors and more risk takers are welcomed to truly scale up rural microfinance and bridge the urban-rural access gap.
Gender – This dimension was integrated into the discussion at Foromic more than ever before. Recent IFC/McKinsey research conducted for the G20’s Global Partnership for Financial Inclusion was presented and the numbers speak for themselves: globally, on average, women own 60% of micro-enterprises, however they own a mere 25% of small businesses and 8% of medium-sized businesses, so there is a new “glass-ceiling” in entrepreneurship that must be cracked (for more details, see this recent CGAP blog entry). The numbers in Latin America and the Caribbean are similar, as women still face many barriers in accessing finance and other services. The implementation of gender-equal legislation is a challenge, with traditional legal norms on important issues such as property rights and inheritance still very much in place. In Peru, MiBanco has launched Proyecto Salta, which is bringing women entrepreneurs together for capacity building and mentorship that will bring them to the next level in their businesses, as well as reach a national audience through financial education messages woven into the storyline of a popular soap opera.
Overindebtedness – This is among the most important issues facing the microfinance industry in Latin America today and a high ranking panel with researchers, investors, and academics discussed whether the problem lies with the processes and client assessment methodologies (Adrian Gonzalez, from MIX), the amount of investment pushed by foreign funders (Juan Flores, a MFI manager) or whether the saturation of markets was a normal development, a reflection of macroeconomic growth (Diego Cisneros, from the Peruvian financial regulator). Rich Rosenberg (CGAP) stressed the importance of being vigilant – even using household surveys – to monitor potential overindebtedness problems. The benefits of taking timely preventive measures far outweigh the costs of such surveys and Christian Speckhardt (ResponsAbility) mentioned better investor coordination as a solution. A heated panel for a heated topic.
Innovations – The most innovative topics related to two key questions: how to apply technology to banking and how to embed a financial inclusion goal in the payment of government transfers? Multiple examples were mentioned, with the 12 ideas recently sponsored by the Technologies for Financial Inclusion Program (TEC-IN program) presented at Foromic. In regards to government transfers, an increasing number of banks are seeing the opportunity to channel government payments; however, discussions highlighted the fact that more understanding on how the customer behaves and uses those transfers is urgently needed before building a business case around this innovation.
These are only a few of the ideas discussed at Foromic 2011 and this post is too short to cover all of them. Foromic is three days of intense discussions and forming of new partnerships to advance financial inclusion in Latin America and the Caribbean. However, the real work will be to build on what was discussed and committed to by participants so that financial inclusion keeps pace with the economic growth and technological advancements that are taking place across the region. Pura vida!