next billion, 14 April 2020
The COVID-19 pandemic has generated a real sense of crisis in inclusive finance, surpassing even the reaction to the 2008 financial crash a decade ago. And particularly among investors, the topic of highest concern is the looming crisis in liquidity for financial institutions.
For microfinance institutions (MFIs) in many countries, the combined effects of the pandemic and its economic impact will lead to high levels of non-performing loans (NPLs), as clients struggle to make their scheduled payments. During past crises, the typical impact on MFIs has been a period of retrenchment. Much of this is likely to be repeated: With slowing trade and economic activity, fewer loans will be made and portfolios will shrink. The combined effect of credit losses from the NPLs and a shrinking portfolio will put serious pressure on equity capital, quite possibly threatening MFIs with outright insolvency, and ultimately, losses to investors.
But a financial institution can simultaneously be insolvent and still liquid, and in a crisis, preserving MFIs’ liquidity must take precedence over maintaining their solvency. To understand why, it’s important to explore the two concepts, and how they’re likely to impact MFIs and their investors as the current crisis progresses.
more ->
next billion, 4 December 2018
To remain silent and indifferent is the greatest sin of all.
– Elie Wiesel
Over recent months, I have been engaged in multiple events and conversations on expanding financial inclusion for refugees. I’m impressed by how quickly the sector has ramped up to focus attention on this topic, and encouraged by the level of interest it’s been generating among donors, investors and providers.
But all this attention has forced me to confront a topic that’s been troubling me for some time. The attention on refugees includes a focus on the plight of the Rohingya, the Muslim minority from Rakhine State in Myanmar, and the world’s latest victims of genocide. Hundreds of thousands of Rohingya have fled to neighboring Bangladesh, where they’ve been supported by the usual agencies and NGOs that work with refugees, as well as by BRAC – one of the world’s leading microfinance institutions. This is important and laudable work.
And yet, throughout these conversations, I haven’t heard anyone from the microfinance sector mention the source of the Rohingya’s misery – the unspeakable atrocities taking place in their villages in Myanmar. Perhaps that’s not an accident. That discussion is too painful.
more ->
next billion, 18 June 2018
The publication of the 2017 Global Findex has generated much reflection on the state of financial inclusion – and plenty of analysis of the data, looking for the buried treasure of some new trend or pattern. This yields important insights. The Financial Inclusion Hype vs. Reality report by the Center for Financial Inclusion (CFI) is particularly worth reading for its in-depth and honest reflection of what Findex tells us.
But when using Findex, there are important things to keep in mind. First, while the overall figures and trends are important, the numbers for any one country should be treated with caution. This is not because we mistrust the Findex team or their work. It’s simply the result of what Findex is – a set of surveys based on randomly selected (hopefully representative) population samples of more than 150,000 adults in over 140 economies. And surveys can – and often do – go wrong, particularly when they deal with difficult or personal subjects (like finance) or are conducted in countries undergoing political and economic turmoil. more ->
next billion, 2 May 2018 (with Sam Mendelson)
For most, socially responsible investing means just that – investing in a manner that not only generates financial returns but also produces positive social value. But what does it mean for an investor to be “responsible” when selling their holdings? How does one stay responsible at the very moment when one ceases to be an investor?
This is a basic challenge facing investors seeking to “exit,” i.e. sell their equity stakes to a new buyer. The issue isn’t entirely new. It first emerged in the mid-2010s, when several microfinance investment vehicles (MIVs) were starting to reach the end of their 10-year terms and were seeking to divest their assets. This issue was first addressed in the financial inclusion sector by a 2014 papercommissioned by CGAP and CFI, which first defined many of the key questions that socially responsible investors need to address when selling their equity stakes.
With another four years of multiple exits under the sector’s belt, NpM, Netherlands Platform for Inclusive Finance, along with the Financial Inclusion Equity Council (FIEC) and the European Microfinance Platform (e-MFP) asked us to take a closer look at one particularly tricky part of the exit process – selecting a buyer that is suitable for the microfinance institution (MFI), its staff and ultimately its clients. The result is Caveat Venditor: Towards a Conceptual Framework for Buyer Selection in Responsible Microfinance Exits – a new paper that goes beyond raising questions, and seeks to provide a template to help investors navigate the complex terrain of “responsible exits.” More –>
next billion, 10 May 2017
There is nothing so convenient as arguing against a straw man. You dress it up in whatever way you want, then tear it down, feeling great about the accomplishment.
That’s what Milford Bateman does in his recent NextBillion article, “Don’t Fear the Rate Cap: Why Cambodia’s Microcredit Regulations Aren’t Such a Bad Thing.” He starts with the rather startling – and entirely unsupported – assertion that the rate cap announced in Cambodia is an effort to “to avert an otherwise inevitable and destructive meltdown.” He then proceeds to raise an entire army of strawmen in the form of arguments I apparently made in my article in the Phnom Penh Post, none of which are there.
Did I “steer blame away from those responsible for the current crisis in Cambodia”? Where did I write that “the supply of microcredit will completely dry up as a result of government intervention”? Did I write “if the microcredit sector is constrained in some way or its growth halted, the poor will flock to the local money-lender to satisfy their huge thirst for microcredit”?
It may work in today’s political environment, but for a credentialed academic, such license with truth and facts is simply not acceptable. The trouble is that this approach pervades the entire article.
more ->
Next Billion, 11 April 2017 (with Sam Mendelson)
A thought experiment. What if we designed financial services based on the hierarchy of human needs? We would prioritize food, shelter … hmm. Shelter. That’s pretty high on the list.
Consider the financial portfolio of a typical reader of this site. What’s the single largest financial product this person has ever relied on? Most likely the answer will be a home mortgage. In fact, home mortgages comprise the bulk of retail credit in wealthy economies, nearly 90 percent in the U.S. and UK. And yet, housing finance plays but a bit part in the financial inclusion story. Habitat for Humanity, the world’s leading NGO dedicated to housing, estimates that while 1.2 billion people need improved shelter, only 2 percent of microfinance portfolios consist of housing loans. Why?
As a fundamental human need, housing has tremendous social returns. Substandard housing greatly deepens the effects of poverty. Exposure to the elements, poor ventilation and insufficient hygiene and sanitation facilities all contribute to poor health, including major killers such as childhood diarrhea. Poor building structures and risky locations undermine physical safety, vastly increase vulnerability, and are the leading cause of death following natural disasters. Lack of lighting and sufficient space limit children’s ability to study, affecting educational opportunities. Insufficient privacy and lack of toilet facilities can contribute to sexual assault and constrain opportunities for women and girls. And lack of clear property rights are major contributors to crime and social injustice, while creating a negative feedback loop by limiting families’ ability to invest in better housing. more →
Next Billion, 25 January 2016
Podcast with Anna Kanze, Grassroots Capital Management. more →
nextBillion, 21 June 2016
Co-authored with Gabriela Erice Garcia, e-MFP
Back in November 2015, a press release briefly made the rounds, announcing that “Opportunity, Inc. . . . has entered into a share purchase agreement to sell six banks serving sub-Saharan Africa to the MyBucks Group, a Luxembourg-based financial technology (fintech) company.” This generated some comments on LinkedIn and a blog by consultant Hannah Siedek, who recognized how unusual a deal this was and wondered if she should consider it “a good (or not so good) operation.” But aside from this, reaction has been surprisingly muted.
By all accounts, this should have been bigger news for the microfinance sector. One of the major microfinance networks selling six subsidiaries to a fintech startup, and doing so in sub-Saharan Africa – the global hub of innovation in mobile banking. At a time when technology and mobile money are the talk of the sector, how does a story like this pass under the radar? more →
NextBillion, 11 May 2015
Since it was published a few weeks ago, the 2014 Global Findex financial inclusion report has made a splash in media around the world. The headlines may have differed, but the articles all mention the key finding from the press release published by the World Bank: Massive Drop in Number of Unbanked. According to the Findex survey, which covered more than 150,000 people in 143 economies, the number of people with financial access grew from 51 percent to 62 percent between 2011 and 2014, a shift that reportedly represents a total of 700 million people worldwide.
While we highly appreciate the survey and the light it shines on the state of financial inclusion across the world, we are concerned about the accuracy of this headline finding. The growth it suggests is almost certainly overstated. To illustrate this concern, we suggest an alternative news headline, also based on the survey findings:
Number of Unbanked in U.S. and Eurozone Cut in Half
U.S. unbanked population drops from 12% to 6% in 2011-14; Eurozone cuts number of unbanked from 9 percent to 5 percent, according to report.
If this headline seems removed from reality, that’s because it is. more →
|
|