Challenges to the field and solutions

1. Challenges to the field and solutions University of Greenwich Microfinance Conference, 19th November 2011 Anton Simanowitz (antons@ids.ac.uk)

2. What is success?

4. Microfinance under attack

6. My messages today • Past 15 years focus on numbers not impact • Need for greater client focus • Not all microfinance is the same – it’s the details that matter Three key areas for improvement: • Creating value for clients • Deepening financial inclusion • Client protection

8. What is microfinance? Access to financial services??

9. Creating value for clients • Investing in an economic opportunity • Small business, farming etc • credit • business training, marketing etc

10. Creating value for clients • Money management and consumption smoothing • Small irregular incomes -> pay for anticipated needs eg. school fees, buying food) • - savings, credit, remittances • financial education etc

11. Creating value for clients • Coping with the unexpected • Illness, death, floods, theft etc etc • (poor are vulnerable) • - savings, insurance • flexible products • group solidarity/support

12. Creating value for clients • Empowerment - groups, training etc

13. Creating value for clients • Providing, or linking to other services eg. health, education etc • Reduce risk • Improve capabilities related to other goals • - Leverage outreach to bring other benefits

14. Deepening financial inclusion • Common practices lead to exclusion • Geographic focus (easy to reach areas) • Enterprise focus • Physical barriers (office location, meeting timing) • Collateral or land deeds exclude women • Registration fees or minimum fees • Staff prejudices or incentives • Client self-perception • Inappropriate products/services

15. MLF poverty outreach

17. Staff incentives • Most MFIs incentivise • Number of new clients • Portfolio size • Portfolio at risk

18. Zero tolerance to late repayment “The practice of banks and MFIs realising security in the developing world happens for the same reasons that banks pursue these remedies in the developed world – to contain credit losses and to maintain a sense of commitment and discipline in their borrowers.” (CEO from International MFI)

20. Solutions: 1. Balance social and financial performance Focus on only growth and efficiency lead to... • Mission drift: easiest/most profitable targeted • MFI systems and internal controls stretched and staff are trained and promoted too quickly • Staff-client relationships deteriorate as systems stream-lined. • Value for clients undermined as processes are simplified and products and services standardised • Multiple lending and pressure to lend -> over-indebtedness - Focus on what creates value for client not just profit for MFI - Innovate to push boundaries

21. Solutions: 2. Managing to improve social performance Quality and effectiveness Do what you say you do and do it well • HR – staff recruitment, incentives • Performance management & incentives • Quality management systems • Risk management • Etc See Imp-Act Guidelines for SPM

22. Solutions: 3. Responding to client needs • Products and services designed for economic investment, smoothing, emergencies, empowerment • Savings as well as credit • Not just enterprise credit • Opportunities for non-financial services • Opportunity not prescription • Apply what is already known

23. Actions… MFI Managers • Products, services, systems and staff management Boards • Strategy based on client needs • Performance assess on social and financial Investors and donors • give tangible weight to financial inclusion, value for clients and client protection in their investment decisions Regulators and policy-makers • Client protection • Avoid negative influence

24. SPM Network Resources Training Technical support SPM assessment www.Imp-Act.org