Table of Contents
The World Bank and the United Nations have both set their sights on ending extreme poverty by the year 2030. The Bank has also set a concomitant target of universal financial access by 2020 as a major contributor to ending extreme poverty. Our assessment, after reviewing the contributions that microfinance institutions and other financial providers have made toward these two goals, is this: if financial services are meant to play an important part in bringing an end to extreme poverty, we will not come close to reaching it. Microfinance has demonstrated the viability of providing financial services to people in poverty and technological advances have drastically reduced the cost of providing financial services. But, we still do not see widespread adoption of financial services among the largest groups of those that still need to be reached: those living in extreme poverty.
We use this State of the Campaign Report to highlight the progress of the microfinance community toward two goals set at our 2006 Global Microcredit Summit: 1) reach 175 million of the world’s poorest families with microfinance, and 2) help 100 million families lift themselves out of extreme poverty. This year, we report those numbers in the context of the larger movements to provide universal access to financial services and to end extreme poverty—and they show the challenge we are having in attaining our goals.
At the end of 2013, the microfinance community reached 211 million clients, 114 million of whom were living in extreme poverty. While the microfinance community provided loans to the most clients in its history last year, the number of poorest clients fell for the third straight year. The growth in clients for microfinance has occurred primarily among those who live above US$1.90 a day.
The latest World Bank report on global poverty reports that, in 2012, 896 million people lived in extreme poverty. The 2014 Global Findex reports that more than half of all adults in the poorest 40 percent of households in developing countries did not have access to formal financial services. (This is a 17 percent improvement over the 2011 Findex.) That makes those living in poverty one of the largest and most difficult-to-reach population segments excluded from the financial system. The 2020 target of universal financial access compels us to reach everyone living in extreme poverty; yet, the part of the financial community that has done the most to expand financial access among the poor over the last few decades—microfinance providers—have stalled in their outreach to this segment.
A financial system that reaches and benefits everyone will need to provide financial services that people with the lowest income and with households in the most remote places find accessible and useful. This means we need to approach such a challenge with the end in mind—start from the end goal and work back to how we want to get there. In this way, we can design a system to sustainably reach clients in the most remote areas and who transact in the smallest sums. This design process must include the following steps:
Measure: In order to track our success with including those living in poverty, we must measure the income levels of the financially included, as well as the excluded. For this reason, we are greatly encouraged by the recent announcement from the World Bank that it will invest in conducting household surveys every three years in the 78 poorest countries—and making sure it happens.
It also requires a good definition of success, that is, what it means to be included in the financial system. On the other hand, we believe the 2014 Findex’s definition for “financial included” is too narrow. It counts a person as included if they have an account at a registered financial institution or with a mobile money provider. We find this definition inadequate for two reasons. First, it excludes people who maintain accounts with savings groups or other informal savings and credit associations, as well as people who have accounts with microfinance providers that are not licensed banks. Second, it includes people who have opened accounts, but do not use them in any meaningful way. For us, true inclusion means that a person not only has an account but has access to a full range of financial services that they can use in a way that benefits them.
Map: Reaching the excluded requires knowing where they are. Mapping the locations of these excluded people helps us place them in their geographical, cultural, and economic context. It helps us understand the sets of related factors that may contribute to their exclusion.
The Bolsa Família program started with a mapping exercise that identified the location of every household living in extreme poverty. They used this map to design their conditional cash-transfer (CCT) program and make connections with other challenges these households faced. The map on the right shows that Bolsa Família recipients are concentrated in the poorer northeast region of Brazil.
Understand: People living in poverty use financial services to accomplish their own objectives: to mitigate risks, take advantage of opportunities, build a better future for their children, celebrate joys, and mourn losses. Those who seek to provide financial services for this group need to understand the rhythms of their lives, their aspirations, their fears, and their cash flows.
Design: This understanding can help financial service providers design products and services that match the objectives and life cycles of their clients at price points that reflect what people living in poverty can afford and what they value.
Deliver: Delivering these products and services at scale will require alliances and partnerships that together can provide delivery channels and aggregators to reduce costs, hasten response time, and improve service. MFIs, banks, savings associations, telecommunication companies, governments, civil society organizations, and NGOs can all play a role in delivering a range of useful products and services to a widely dispersed population.
At our 2013 Microcredit Summit in the Philippines, we focused on the partnerships required to deliver financial services to those living in poverty. At our 2014 Summit in Mexico, we focused on innovations in microfinance with a demonstrated capacity to reach those in extreme poverty. Since then, we have continued to research the products, services, delivery channels, partnerships, and alliances that will enable the financial services community to make financial inclusion a key pillar in the global movement to end extreme poverty. In this report, we present six “pathways” where financial services can support families in their journey out of extreme poverty.
- Integrated health and microfinance: Health shocks often trap families in poverty or pull them back into it. They can also cause loan defaults and account closures. Financial providers can support growing livelihoods for their clients, and reduce risk in their portfolio, by providing health financing and health training, and by partnering with others to deliver health products and provide health services.
- Savings groups: The global savings group movement now reaches over 10 million clients worldwide, most of whom live on less income than the typical microfinance client. The self-help group movement in India provides financial services to over 50 million clients. Recent innovations with bank linkages, mobile delivery, and fee-for-service facilitation have expanded the range of services offered through these informal groups, while also increasing their viability.
- Graduation programs: The ultra-poor graduation model developed by BRAC has proved effective in Bangladesh and many other countries at reaching those living in the direst poverty and helping them to develop livelihoods and financial capability. Linking these programs to financial institutions and government social-protection programs can allow these initiatives to reach scale.
- Agricultural value chains: Most people living extreme poverty live in rural areas and earn most of their income from agricultural work. Expanding agricultural value chains to reach smallholder farmers, providing them with financing, risk mitigation tools, and access to the inputs and markets they need to expand production will increase income and employment opportunities.
- Conditional cash transfers: Government social-protection programs provide cash transfers (both conditional and unconditional) to households living in extreme poverty, to the elderly, and to those with physical disabilities. Delivering these payments through accounts in financial institutions, combined with incentives for savings and education, help households build assets over time.
- Digital finance: Digitizing financial transactions can greatly reduce costs, while increasing speed and accuracy, making it possible to profitably deliver transactions in small units and over great distances. The most popular financial service so far has been the ability to transfer payments over the phone. Recent innovations, such as getting mobile network providers to pay the cost of microinsurance as a lure to retain customers or mining transaction data to determine credit-worthiness, have expanded the range and value of services delivered digitally.
These six pathways represent key strategies to break out of the microfinance sector’s current stall and greatly expand outreach to those living in extreme poverty. They have even more power, though, when they are combined: for example, digitally delivering conditional cash transfers (CCTs) into a savings account, mobilizing the CCT recipients into savings groups, and furthering their ability to earn a livelihood through graduation programs.
In this report, we look more closely at each of these pathways and the ways that financial service providers can work within them. We also focus on the key role of mapping, an often overlooked step, in identifying where people living in extreme poverty reside and congregate, and what channels and linkages can provide the best routes for serving them.
― Reif Larsen, The Selected Works of T.S. Spivet
How does BRAC, the world’s largest non-governmental organization (NGO), develop pathways out of poverty for the poorest people in a village? They begin with a map. As you see in the photo on the cover of this report, they bring the village together and start drawing maps in the dirt, identifying each household, market, business, and place of worship. They then ask the help of the community to identify the poorest households, marking each one on the map. Their work begins with those households.
This painstaking, household-by-household approach of identifying the excluded and locating them within their community and context represents the next step that we need to take to achieve a new set of ambitious global development goals.
The Millennium Development Goals (MDGs) set by the United Nations aimed at cutting world poverty in half by the end of this year. By some measure, that goal has been achieved, although primarily through large reductions in populous Asian countries offsetting much more modest reductions in other parts of the world. UN member states recently approved a new set of 17 objectives, the Sustainable Development Goals (SDGs). The first SDG calls for the end of extreme poverty by 2030.
The World Bank Group shares in this goal. Bank President Jim Kim has focused the work of his institution around two goals: 1) end extreme poverty by 2030 and 2) boost shared prosperity among the 40 percent of the poorest people in low- and middle-income countries. The Bank has also established a goal of achieving universal financial access by 2020 as one means of supporting the 2030 goals.
At the Microcredit Summit Campaign, one of our key roles has been to work with the microfinance community to set global goals. We first sought to reach 100 million of the world’s poorest families with microcredit and other financial services. When the microfinance community reached these targets 10 years later, we set two new goals: 1) reaching 175 million of the poorest families with credit for self-employment and other financial and business services, and 2) helping 100 million families lift themselves out of extreme poverty. This report presents the performance of the global microfinance community against these goals.
The report also describes something that the global development community has proven less adept at: drawing maps that show how—and where—a variety of disparate organizations can work together to achieve the goals. The uneven performance of many countries in realizing the MDGs demonstrates this clearly. According to the 2015 MDG report, we know that the performance was especially uneven between urban and rural areas. Without maps to show who needed to be reached to achieve each goal, and what facilities and resources would be required to meet them, countries missed reaching large segments of their population with their MDG plans.
The numbers we report here on microfinance outreach reveal a similar story. While the total number of microfinance borrowers served worldwide continues to recover and grow, following a setback in India in 2010 (due to the Andhra Pradesh crisis), the number (as measured) of poorest clients reached continues to shrink. Without mapping where these potential clients live and work, and without developing effective strategies to provide them with products and services appropriate to their needs and aspirations, we will not reach our goal of seeing 100 million families move out of extreme poverty.
Those who want to reach audacious goals need to draw a map of how to get there. We learned this from the governments of Ecuador and Ethiopia. In Ecuador, the vice president’s office has made a goal of ensuring that the country includes all persons with a disability (PWDs) in the national plans and economic life of the community. One step in achieving this goal involved the development of disaster preparedness strategies that include emergency evacuation plans for all PWDs. This required working with enumerators to identify the household of each PWD, then creating a plan for evacuating that person in the case of a disaster.
The government of Ethiopia set a goal of making its land and its people less vulnerable to drought. To achieve this goal, the government mapped out the number of people living in vulnerable areas and worked with their communities to understand the factors that created vulnerability and develop solutions to increase resilience. They developed a massive Productive Safety Net Program (PSNP) that reaches over 10 million people and has helped reduce the poverty level in Ethiopia from 56 percent to 31 percent (2001–2011).Maps also help us identify who might be left out. They also help us make connections between factors that might seem unrelated to each other. The map drawn by John Snow in 1855 provides one of the most famous examples of this. The city of London faced a cholera epidemic in 1854. At that time, the most popular theory claimed that people caught cholera through miasma, or breathing infected air.
Snow had a different concept and drew a map to prove it. In his map of the Soho neighborhood, Snow used a bar to depict the location of each person who had died of cholera. Then, he identified each of the water pumps in the neighborhood with lines encircling all the homes that used each pump. His map clearly demonstrated that almost all the people who died had been using the same water pump. The neighborhood council responded to his map with swift and decisive action: they took the handle off the pump and brought an end to the epidemic.
Mapping the people who remain excluded from financial services can help us make connections that may be interlinked:
- The overlap of those needing access to financial services and those needing access to better health care, housing, nutrition, and education
- The connection between those lacking financial services and those earning a large portion of their income through agriculture
- The link between exclusion and gender in financial services, and the need to develop financial products appropriate to the needs and aspirations of women
- The need to place aggregators and agents in the right locations to make sure that digital financial services reach those living in extreme poverty
- The great masses of people fleeing from instability and destruction of their homes, and their need for tools to help them communicate with family and send and receive money wherever they may end up
- The link between those in poverty receiving conditional cash transfers from their government and those who need access to savings and credit facilities, financial capabilities training, and livelihood support.
The Center for Financial Inclusion, through its FI2020 program, has done the most work to date to develop the financial inclusion map. After interviewing more than 300 financial service practitioners, they developed their “Roadmap to Inclusion.” It identifies five key focus areas for reaching full financial inclusion (addressing customer needs, technology-enabled business models, financial capability, client protection, and credit reporting). Their Roadmap provides a set of instructions for expanding the outreach of financial services. In their recent progress report on the Roadmap, they gave the “addressing customer needs” focus area one of the lowest scores (3 points out of 10):
The test for financial inclusion should be whether the lives of the newly included are improved. However, access to an account does not improve lives if the account sits idle. Accounts are only a first step. The large and, we believe, growing access-usage gap, coupled with a lack of attention to services beyond payment accounts, prompts us to give this area a relatively pessimistic score of 3.
In reviewing recent progress, we found good news on access, but a bleak picture of usage. Despite mobile money’s glowing headlines, 68 percent of registered mobile wallets had not been used during the last 90 days, according to GSMA. Similarly, the Findex revealed that, while saving and borrowing trends indicate increased financial activity, this is not reflected in the uptake of formal products. And while data on microinsurance uptake is sparse, it is still a hard sell for much of the world’s underserved. The barriers often cited to explain low usage include poor product design, lack of consumer knowledge about how to use products, frustration with operational failures, and inept customer care, among others.
This points to another key value of maps: they help us start from our end goal and work back to how we want to get there. Maps help us focus on where we want to be and what we need to learn to get there. Without making and using maps, we may proceed down dead-end roads.
The Microcredit Summit Campaign has demonstrated this lesson. We have promoted microfinance as a tool for reaching the poorest families and helping them move out of poverty. The evidence from academic studies and our own analyses show that, without a very clear focus on that goal and a roadmap for achieving it, microfinance will miss the mark of realizing its potential to contribute to the elimination of extreme poverty.
In this report, we begin the effort of drawing a map to show how universal financial inclusion can support the goal of ending extreme poverty. We have identified six “pathways” that reach the poorest families to help them reduce their vulnerabilities and take advantage of opportunities. With each pathway, we also include maps that illustrate where the pathway can reach and who will have access to its resources. We also provide an example in each chapter of a Campaign partner that has launched a Campaign Commitment to take specific, measurable, and time-bound actions to support the particular pathway objective.
Our work that we describe here is incomplete, even though it identifies clear calls to action. Our maps still contain many blank spaces, terra incognita, where we still do not know the best approach or the right connection points.
This brings us to another value of maps, especially incomplete ones. They inspire adventurers and explorers to fill in missing spots, to blaze trails where none have existed before. In the same way that the crude drawings by ancient seafarers motivated others to go further and develop more precise atlases, we hope that our rudimentary attempts in this report contribute to the development of a new type of GPS system that charts the best routes out of poverty for the world’s poorest families.
Box 1: “Poverty Stoplight” — Families Mapping Their Way Out of Poverty
Interview with Luis Fernando Sanabria, general manager, Fundación Paraguaya, Paraguay
Fundación Paraguaya is a microfinance institution that develops and implements innovative and long-lasting poverty eradication solutions. The interview in this box and all direct quotes not cited in the text are from interviews carried out by the Microcredit Summit Campaign.
Fundación Paraguaya’s mission goes beyond financial inclusion. We believe that, while financial inclusion is a powerful and essential tool, it is not enough to eliminate poverty: our mission is to develop innovative solutions to poverty and disseminate them worldwide. Not only do we try to financially include our 70,000 customers, but we also help them close the poverty gap and move out of poverty by providing solutions to the 50 indicators of poverty identified in our “Poverty Stoplight” methodology.
We believe that poverty is multidimensional. It is like a big gray cloud that crushes poor families. They feel overwhelmed by this cloud because it is so complex that it is hard to know where to start. They say, “I was born poor and will remain poor all of my life,” out of resignation, a lack of self-esteem, but above all, the lack of a starting plan.
The Poverty Stoplight tool aims to operationalize that concept by dividing that gray cloud into small pieces that can be taken by families one by one in order to move forward. We have divided our Poverty Stoplight into six dimensions: 1) income and employment, 2) education and culture, 3) health and environment, 4) housing and infrastructure, 5) organization and participation, and 6) interiority and motivational. These six dimensions have 50 indicators, and each indicator has three designations: red for extreme poverty, yellow for non-extreme poverty, and green for no poverty.
We developed self-assessment software for tablets and smartphones, wherein families evaluate themselves using photographs and their responses are georeferenced. For example, to not be poor in Paraguay (green) you need to have a faucet, a tap. If you have a well or a stream on your property, you are poor, but not extremely poor: you are yellow. If you have to bring water from outside your property, then you are extremely poor: you are red.
The Poverty Stoplight is different from other poverty measurement tools in a couple ways. First, families use the software to conduct a self-assessment and then create their own roadmap out of poverty. This is vital because it leaves the problem in the family’s hands. It is not organizations lifting people out of poverty, it is the families themselves. What we can do is provide tools to release the energy that is already within the poor.
Second, we are not an index. Indices serve their purpose, but for the poor, they mean very little. If you score 7 out of 10 in any given index, it means nothing to a poor person. However, the fact that you have a common bathroom and you need to have a modern bathroom to move out of poverty leads to a concrete action that can be carried out. Having a checklist like the Stoplight allows us to not forget any indicator because no one can move out of poverty until all the indicators are green.
This can improve MFI products and services because we have a map of the demand: who lacks water, health services, education, financial training, credit, and supplies, as well as who has no self-esteem and where violence against women takes place, etc. By being georeferenced, the demand provides us with a community map that allows us to coordinate the supply. This kind of map allows us, for example, to tell Paraguay’s public services, “Look, these 20 families in this community need training to make their family budget.”
We aspire to have the existing services in the public and private sectors seek their customers in a proactive way. This way, if we can get our organizations to reach out to them with a well-planned map, we have a better chance of succeeding.
To learn more about the Poverty Stoplight tool, visit http://www.fundacionparaguaya.org.py.
Microfinance institutions (MFIs) worldwide reported 211.1 million total borrowers, as of December 31, 2013—the largest number ever reported—which is an increase from 203.7 million borrowers in 2012. The total number of women clients with loans outstanding also increased, from 150.9 million in 2012 to 157.7 million in 2013. On the other hand, the total number of poorest clients with loans outstanding declined for the third straight year, from 115.7 million in 2012 to 114.3 million in 2013. The total number of poorest women with loans outstanding also decreased, from 96.4 million in 2012 to 94.4 million in 2013.
Figure 1: Growth of Total and Total Poorest Borrowers
(December 31, 1997—December 31, 2013)
Table 1: Number of Borrowers Reported Each Year
As the graph in figure 1 and numbers in table 1 show, we have slowed and lost some ground in our pursuit of the Campaign’s two goals. In the years between 2002 and 2007, the totals of both microfinance borrowers and poorest borrowers (reported to us) grew at a compound annual growth rate of 14 percent. In the last five years, total clients have grown at only 2 percent per year, and poorest clients have declined by 2 percent per year.
In this section of the report, we look more closely at what the numbers reported to us tell us about the reasons for the slowing growth in total clients and the reductions in poorest clients. Other sections of the report provide pathways that MFIs and other financial providers, working in partnership with governments, businesses, and other development service providers, can take to expand the number of poorest clients they serve and the positive benefits their clients experience.
Changes at the Top
Table 2 shows the 10 largest institutions reporting to us in 2014 and the number of total and poorest borrowers they were reaching at the end of 2013 and 2012. Two of these 10 are networks— National Bank for Agricultural Development (NABARD) and ACCU; the other 8 are single institutions. All are located in Asia: 4 in India, 3 in Bangladesh, 1 each in Indonesia and Vietnam, and 1 in a Pan-Asia network. Five of the 10 increased both their total number of borrowers and poorest borrowers from 2012 to 2013 (highlighted in green), 4 decreased in both categories (orange), and 1 had small increases in total borrowers and small decreases in the poorest (yellow).
Table 2: Changes among the Top 10 Institutions*
*Based on the number of total borrowers for each institution, as of December 31, 2013.
Improving Tools for Measurement
The tools employed by MFIs to measure client activity and client poverty levels have improved significantly since we first started collecting this data in 1997. Such changes can affect the numbers reported to us. For example, the numbers in table 2 for NABARD show a reduction of 6 percent in total clients, which is predominantly a result of culling redundant self-help group (SHG) members from their data.
Figure 2 shows the trends in the tools that MFIs use to report the number of their clients who were living in extreme poverty when they received their first loan. Some use tools, such as the Grameen Foundation’s Progress out of Poverty Index® (PPI®), that are benchmarked against national and international poverty lines. Others use tools, such as Poverty Wealth Ranking, that show relative poverty levels in a community, but are not benchmarked against defined poverty lines. Still others use some form of estimate that is not based on any poverty measurement tool. As MFIs move away from estimating their poverty outreach to using more rigorous tools, the percentage of their clients that they report to us as being among the poorest usually declines.
Figure 2: Measuring Poorest Borrowers
* Benchmarked tools include Progress out of Poverty Index®, USAID Certified Poverty Measurement Tool, CGAP Poverty Assessment Tool, Poverty Scorecard, FINCA Client Assessment Tool, and data reported from a study or social audit conducted.
Among the MFIs and networks reporting to us in 2014 (for data as of December 31, 2013), some focus on serving the poorest and others focus on serving a broader range of income levels. Figure 3 looks at just the largest MFIs (does not include networks) and plots the total borrowers and the number of poorest borrowers they reported. Some of these, like Grameen Bank, have means tests for their clients, so they report that all of their borrowers were among the poorest in their country when they received their first loan. Others, like Compartamos, serve the poorest, but also serve large numbers of clients at higher income levels who still do not qualify for financial services from commercial banks.
Figure 3: Total and Poorest Borrowers for Largest MFIs in 2013
Table 3 shows the compound annual growth rates in total borrowers and poorest borrowers in the past two 5-year periods. In recent years, only Africa has seen significant growth in the number of poorest borrowers being served. These regional numbers need to be understood in the larger context of overall declines in levels of extreme poverty, especially in the Asia and Pacific region.
Table 3: Compound Annual Growth Rates by Region
We also examined whether some of the decline in poorest clients being served is due to markets becoming saturated, with future growth limited because of fewer clients left to reach. The charts in figure 4 show, for each region, how much of the adult population lives on less than US$1.90 a day and what percentage of them are microfinance borrowers.
Figure 4: Microfinance Outreach in Adult Populations by Region
We also examined the market for microfinance borrowers by countries with the highest numbers of clients relative to their population. Of these, only one—Bangladesh—appears to be approaching saturation. Other populous countries still show that large percentages of their poorest people do not have access to financial services, although some cities or states within these countries may be closer to saturation.
Countries with high population densities and lower GDP per capita, which defines much of Asia, have much higher proportions of their populations living under $1.90 a day with access to microfinance loans. In Latin America and the Caribbean, and Middle East and North Africa regions, those living on less than $1.90 a day make up a much smaller proportion of the population. Sub-Saharan Africa still has a large proportion of people living on less than $1.90 a day, but low population density and higher operating costs make it difficult for MFIs to reach these clients cost-effectively.
The Next Wave
Overall, our numbers show that the first wave of growth in microfinance borrowing has come to an end and that the percentage of poorest people reached during that wave was less than originally projected. We need to start a new surge of growth if the Microcredit Summit Campaign is to reach its goal of seeing 100 million of the world’s poorest move out of extreme poverty and to meet its commitment to add 53 million clients from among the world’s poorest to the World Bank’s goal of universal financial access by 2020. This next wave will require a broader set of institutions, actors, strategies, and partnerships. In the following pages, we outline six pathways that can make appropriate financial and other services more available to those living in extreme poverty.
Box 2: Our Data Collection Methods and Their Limitations
One of the core themes of the Microcredit Summit Campaign is “a positive, measurable impact.” In keeping with this value, we publish on an annual basis the progress made against our two goals. We believe that measuring and reporting on our progress helps our community see what is going right, what is going wrong, and where we can learn from each other.
The total numbers we report often get picked up by the press and others in the community as an approximation for the total number of microfinance clients in the world. We want to make clear how we collect these numbers, and what trade-offs we have made in the service of completeness, inclusiveness, rigor, and accuracy.
Each year, we send out a request to all the MFIs and networks in our database (over 3,700) to complete an Institutional Action Plan (IAP) that gives information on their clients and the types of products and services they offer. We follow up with emails and phone calls to get the surveys completed and returned to us. Once we receive an IAP, we send it to a third party verifier who knows the organization and can vouch for the numbers they report. We try to be as thorough as we can, but we know our process has significant gaps.
We report only clients with loans outstanding at the end of the year. Since we started with a focus on microcredit, our goals were based on numbers of microfinance borrowers. Over the years, we have added questions about savings and other financial services offered by MFIs, but we know that there is significant overlap between borrowers and savers. To be consistent with our goals and to avoid overcounting, we do not add the numbers of savers to the numbers of borrowers to get a total number of microfinance clients. Next year, we plan on revising our IAP form to get more information on savings, insurance, and payments to see if we can get this data in reportable form.
There is some double counting in the numbers we report. We report number of loans outstanding at the end of the year. If a client has loans from more than one institution, then that client gets reported more than once. We have no way of analyzing this data at the client level.
The number of MFIs that receive focused follow-up collection efforts has been decreasing. We send out the IAP forms to over 3,700 MFIs. Getting the IAPs returned often requires numerous reminders and phone calls. The number that we can follow up with in any one year depends on the amount of funding we have for this exercise, and that funding level has been going down. This year we focused on the 200 largest MFIs that represented 89 percent of total microfinance borrowers the previous year. In order to get a close approximation for total borrowers for those MFIs that do not send in an IAP, we include the numbers from the most recent IAP we received from them. This does create distortions in both directions. For growing MFIs, the numbers we include will be less than their current totals, while the opposite is true for MFIs that are decreasing their output or who have gone out of business.
This year, we added MIX data for the first time. Both the MIX and the Campaign collect data on total borrowers and the gender of those clients. We have received data from a larger number of MFIs over the years, but in some cases, the data in the MIX is more current than what we have. This year we looked closely at three countries where the MIX data was more current data than ours for a significant number of MFIs (India, Bangladesh, and the Philippines). In this year’s report, we used this data in our totals. Since the MIX does not uniformly collect data on the poorest, we had to estimate this number for the MFIs where we used MIX data. We used the country average for the percentage of total borrowers that were among the poorest from MFIs reporting to us in order to make this estimate. (In the case of India, we did not use the NABARD numbers to make this average calculation, since they are so large that they tend to distort any country averages.) Table 4 shows the numbers before and after including the data from the MIX.
Table 4: Figures Before and After Including MIX Data
(December 31, 1997—December 31, 2013)
*Calculated based on an average family of five.
^ We excluded smaller MFIs from the Campaign data whose combined outreach accounts for around 1 percent of the data for each of the three countries. This resulted in a net decrease of institutions reporting (892 Campaign MFIs subtracted and added 267 from the MIX).
2015 Grama Vidiyal Campaign Commitment
“Sticking to its original mission, [Grama Vidiyal] reaches clients beyond the credit lines through its entire gamut of services—focusing on health, environment, social skills, etc. A double bottom-line approach with the right balance of fiscal performance and positive social impact is key to the microfinance’s success.”
— Sathianathan Devaraj, chairman and managing director, Grama Vidiyal, IndiaThe Campaign Commitment from Grama
- organizing 720 health camps for clients and screening 300,000 members;
- providing health education to 80,000 client families; and
- helping 800,000 clients with its Free Meals program.
Figure 5: Savings Groups and Risk of Anemia among Children in Southern Mali
Note: These two maps compare the predictive geographical risk of anemia in children aged 1−4 years against the reach of savings groups in southern Mali under Oxfam America’s Savings for Change program. SfC map.
Microfinance providers that map the challenges faced by their clients who struggle often find that household health-related challenges form one of the primary causes of business failure. A sick proprietor cannot run a business, and a severely sick child can deplete accumulated family assets with payments for medical care.
Health providers that map the usage rates of their health services often find that large sections of the country do not avail of their services. In many cases, these are the same areas where microfinance providers operate.
Comparing maps, like those in figure 5, can help pinpoint where to implement an integrated health and microfinance program. Loan officers and savings group facilitators can be trained to deliver educational messages to women about health issues, such as nutritional foods to consume in order to prevent or treat anemia.
As MFIs participate in the goal to eliminate extreme poverty by 2030, they will need to develop strategic, coordinated partnerships with other sectors to help address the many dimensions of poverty faced by their clients, especially as it relates to healthcare. MFIs can provide some health services on their own (e.g., health education and health financing products). To reach scale with health services, however, they will also need to partner with others who provide direct health services, health insurance, and healthcare products.
When it comes to addressing healthcare needs of microfinance clients and their families, there is much for us to learn from the last 15 years pursuing the MDGs. Evidence from a series of studies published in 2014 by the World Health Organization (WHO) identified success factors for achievements in maternal and child health (MDGs 4 and 5). One of these studies shows that 50 percent of the reduction in the mortality of children under five years of age resulted from “health-enhancing investments in other sectors.” These factors include improvements in safe drinking water and sanitation, increases in women’s incomes, reduction of fertility rates, and increases in children’s school enrollment. This is good news for MFIs and other financial service providers with a mission to improve their clients’ lives. Their efforts to improve women’s outcomes plus their efforts to develop cost-effective integrated health and microfinance interventions have potential for important follow-on effects. Unsurprisingly, these studies credit a strategic, coordinated approach across sectors for the gains seen in MDGs 4 and 5.
A recent study conducted by the Microcredit Summit Campaign in collaboration with MAVIM, a partner implementing integrated health and microfinance services in India, shows an improvement in awareness and positive behavior change regarding healthy habits practiced to prevent non-communicable diseases, such as diabetes, hypertension, and cancer. For example, MAVIM showed that awareness by its SHG members about consumption of fruits and vegetables increased from 46 percent and 83 percent, respectively, to 98 percent (for each); and their change in patterns of consumption nearly doubled from 42 percent at baseline to 81 percent at the end line.
In addition, the provision of health-related services can improve an MFI’s relationship with its clients, who greatly value these services. A longitudinal impact study of Bandhan’s health program from 2008 and 2013 reported important improvements in health outcomes for mothers and children alike, such as increased breastfeeding rates and greater use of oral rehydration solutions for treatment of diarrhea. It also reported high satisfaction levels with the health program: “Clients repeatedly expressed that they felt as though Bandhan cared about their health.” These are some of the specific responses:
- 77 percent of the 36 participants interviewed qualitatively in 2013 (five years after the start of the program) felt positively about their involvement with Bandhan.
- 64 percent of participants would not be able to cover medical expenses with their current finances if they faced a major illness, but they were willing to use a Bandhan health loan if necessary.
- 17 percent of participants reported having taken out a health loan, but many who did not seek a loan expressed concern over their ability to repay it.
- The health education forums “were the most valuable part of the program, while others highly valued the services and knowledge of the SS” (Swastha Sahayikas, health product distributors).
The Campaign has worked to help cultivate partnerships between MFIs and health providers over the past five years. As part of these efforts, our “Healthy Mothers, Healthy Babies” project in the Philippines aims to deliver health education via group meetings and increase access to maternal healthcare through health fairs. CARD and Freedom from Hunger set a target to provide training with their “Healthy Pregnancies Make Healthy Communities” initiative to more than 600,000 women by the end of 2015. They met that target early and are on track to reach 1 million women by the end of the year. CARD is also working with the Microcredit Summit Campaign to mobilize strategic partnerships among MFIs, health providers, government agencies, and local funders (e.g., family foundations and CSR divisions within corporations) in order to secure an ongoing support base for a consortium of 21 MFIs called MFIs for Health.
Figure 6: The Celebrity Couples of Maternal and Newborn Survival
Leith Greenslade, vice chair of the MDG Health Alliance, refers to these uniquely powerful partnerships across sectors as “celebrity couples”—pairs of interventions that have a proven correlative relationship to leverage their respective impacts. They are the secret to achieving the MDGs and, by extension, the SDGs. As Leith explains, “If we know that we can accelerate achievement of health goals for women and children by investing in toilets, contraception, education, roads, electricity, water, and women’s incomes, why don’t we see more partnerships beyond the health sector? Why do single disease (e.g., AIDS) and single intervention (e.g., vaccines) investments still proliferate? Why are we not building health systems that harness the power of these cross-sector relationships?”
The microfinance sector has an opportunity, by making this a key strategic piece of service design and delivery, to improve the lives of their clients. MFIs occupy a critical place in between the healthcare demand and supply, enabling them to play a role in creating linkages between the two. They meet with millions of low-income women in rural areas every week and have built relationships of trust with their clients; enabling them to provide health education, health financing to clients, and linkages to health providers at a reduced cost.
Our data show greater numbers of MFIs taking on this challenge. In figure 7, almost half report providing health education to their clients, with significant percentages also providing health insurance and other non-financial health services (see figure 8).
Figure 7: MFIs Offering Health Products and/or Services
(December 31, 2009−December 31, 2012)
Figure 8: Types of Health Products and Services Offered
(December 31, 2011, and December 31, 2012)
Freedom from Hunger—a leader in designing integrated health and microfinance solutions, with which we work in India and the Philippines—and its network of 30 MFIs currently reach nearly 3 million families around the world. In India, 19 Indian MFIs reported in a survey in 2012 that nearly one in four of their clients—3.9 million families—had access to a health program in 2011.
The health-related services provided or coordinated by MFIs take many forms:
- Health education: offered via short lessons in groups meetings covering healthy habits and disease prevention techniques
- Health fairs: bring health professionals together to provide health screenings for microfinance clients and their family members
- Health financing: provides health insurance, health savings accounts, and emergency health loans
- Telemedicine: allows MFI branch offices to provide health screening through a computer video link with a hospital
- Local community health workers: trained and financed by MFIs.
Financial service providers: By providing health financing and education, and by linking with health providers, the microfinance sector improves knowledge, effects positive behavior change in relation to health, and helps families afford curative and preventive healthcare. Further, it addresses both a shortage of health providers through the provision and coordination of their own community health workers in these vulnerable communities, as well as the problem of distance by bringing healthcare closer to such communities.
Government health ministries and other health providers: Linking with MFIs with extensive outreach will expand access and usage of health services. Health shocks and the resultant expenses are the primary reason families fall into—or sometimes back into—poverty. Therefore, the delivery of health services and health-related financial tools by MFIs or direct linkages to local health actors represents a key pathway out of extreme poverty for their clients.
2014 Carsey School of Public Policy, University of New Hampshire Campaign Commitment
“Today more than 10 million people use savings groups for saving, lending, building financial security, and [accruing] social capital. Carsey has been a leader in savings groups training and learning events for several years and continues to expand opportunities to learn about this growing area of financial inclusion.”
— William Maddocks, director, Sustainable Microfinance & Development Program (SMDP), USA
The Campaign Commitment from the Carsey School of Public Policy includes:
- designing and launching research that measures the impact of savings groups in creating social capital,
- assessing the scale and impact of the projects of savings group training graduates, and
- studying how savings groups spread within and between communities in order to identify replicable qualities.
Maps of financial access points in countries with low population density often look like the maps of Kenya in figure 9. Commercial banks reach major urban centers. Credit unions and post office savings banks reach less populous cities and major towns farther afield. In Kenya, mobile money networks linked with agents reach any place that has a population large enough to justify a mobile network tower. But, there is one form of financial service that extends to every part of the country, from high-income neighborhoods in the big cities to rural markets that gather once a month. People from all income levels and geographies have found that traditional savings societies provide them with the motivation and structure that allows them to accumulate large lump sums of money to buy assets or cover significant expenses.
Figure 9: Locations of Field Works and Estimated Access to Financial Providers in Kenya
Most every culture in the world has longstanding traditions of people gathering together in informal groups to save money and lend it out to each other. These chits go by many names, such as tontines, stokvels, mujin, or arisan. They take two primary forms: 1) rotating savings and credit associations (ROSCAs), where each member of the group contributes the same amount at each gathering and that total amount is given to one member on a rotating basis until all members have had their turn; and 2) accumulating savings and credit associations (ASCAs), whose members manage their accumulated savings and lend it out to individuals in the groups based on needs or business opportunities.
In the past two decades, international development organizations have taken what they have learned from the clients they serve about accumulating assets over time and used it to refine and improve the traditional ASCA model. International non-governmental organizations (INGOs), such as CARE, Catholic Relief Services (CRS), Oxfam (with Freedom from Hunger), Plan International, and the Aga Khan Foundation have refined the savings-group methodology and turned it into a tool to help people living in poverty build resiliency and take advantage of opportunities.
Financial service providers can link with these informal groups by providing products that help them to safely save excess deposits and have access to a line of credit that they can use when credit needs within the group exceed the groups accumulated savings.
This savings group (SG) movement led by these INGOs was serving 9 million individuals in 65 countries in 2014, according to a presentation made by Jeff Ashe at the 17th Microcredit Summit in Mexico in 2014. In India, the Self-Help Group-Bank Linkage program supported by NABARD, now serves over 50 million members. The SG methodology provides several advantages for providing financial access to people living in extreme poverty and in remote areas:
- They do not require outside capital: SG members capitalize their loan fund with their own savings.
- SGs manage their own funds, so they do not need ongoing staffing: Each group decides its own lending policies and interest rates. Group members vote on whether or not to lend money based on requests made by individual group members. Once the group has been trained in how to manage their fund, they do not require outside staff to support them, bringing their ongoing operating costs to zero. Ashe mentions that, “‘Saving for Change’ in Mali reached 450,000 women organized into 19,000 groups with 209 trainers [with] one paid staffer for each 2,000 group members.”
- SGs do not require investments in infrastructure: Whereas bank branches require buildings, staff, and a safe to operate, SGs protect their accumulated funds in a lockbox with three locks. Three different savings group members have keys, so all three have to be present to open the box, and this is only done when all group members are present.
- SGs use easily understood systems that allow the groups to manage and protect their fund: At each group meeting, members account for the total amount deposited, lent out, and repaid. On a regular basis (usually 12 months), the accumulated deposits and interest are distributed to each member according to the amount they have saved.
- SGs can replicate on their own: Once they have been established in a community, SGs can replicate on their own. Non-members can learn from those who participate in a group and establish their own groups. According to a study by Datu Research in Uganda, for every group formed, two new groups start on their own.
These advantages allow SGs to operate at very low costs in difficult areas. Per-client costs, ranging from $20 to $150, depend on the model that INGOs choose to use to scale up and on the number of months of training needed.
The Bill & Melinda Gates Foundation has funded randomized control trials (RCT) to study the impact of SGs in several countries. The studies came to four conclusions:
- SGs reach the very poor: “Outreach estimates range from 34 to 81 percent of SG participants live below the $1.25 a day poverty line across the studies.” On the other hand, “SG members tend to be relatively wealthier and more financially and socially active than non-members.”
- SG members increase their net savings: “The studies show an increase in saving wherever measured…[and] no measurable negative impact on household expenditures or consumption, suggesting that the increased savings does not occur at the expense of consumption spending or reductions in expenditures.”
- SG members build resilience: “Findings from the RCTs suggest some impact on resilience: increased food security among treatment households suggests that shocks have less catastrophic results for group members.”
- SGs show mixed results on business income: “The collective evidence from the RCTs [on business income] is mixed. Although selected studies show evidence of increased business-related spending, profits, and the likelihood that a woman owns a business, these outcomes are not observed in all the RCTs.”
With SGs firmly established in rural communities throughout the world, SG promoters have begun to experiment with the basic model to speed the replication and expand the impact. Innovations being tested and deployed now include a fee-for-service model, mobile savings, health insurance, layering on additional development initiatives, and partnerships with government transfer programs.
CRS has developed the private-service provider (PSP) approach for their savings and internal lending communities (SILC), another SG methodology, in which groups pay certified trainers for their services. This eliminates the need for subsidies to pay for field agents who train new groups. A test of the “PSP program showed that [the] fee-for-service model is both viable and successful. PSP-supported programs outperformed [field agent]-supported programs on key financial measures and member growth rates.”
CRS is also experimenting with introducing health microinsurance into SILC in northern Benin. Partnering with a private insurance company and a healthcare provider, CRS is covering 70 percent of health-related and prescription medication costs at participating health care facilities. This initiative manages to increase healthcare access while simultaneously reducing healthcare expenses for group members. Adding a health insurance component—or other health intervention—to a savings group program strengthens poor families’ ability to resist unexpected health-related shocks.
Several INGOs have partnered with mobile network operators and banks to develop mobile technology to facilitate financial transactions and to allow members to save money in a mobile wallet rather than a lockbox. Three passwords open the wallet, replacing the three keys needed to open the box. CARE has launched several pilots in Tanzania and Kenya with Vodacom, Orange, Barclays Bank, Equity Bank, and Mwanga. In Uganda, Grameen Foundation and Airtel Uganda are working to design Airtel Weza, a mobile solution for savings groups.
Organizations like PACT and the International Rescue Committee also use savings groups as platforms to add domestic violence prevention, maternal healthcare, peacebuilding, or other interventions in order to enhance the resilience of their members.
The Government of the Dominican Republic launched a pilot program in 2014 to form SGs among the people who receive cash transfers under the government’s social protection program. With the technical assistance of Fundación Capital and a partnership with ADOPEM bank, 500 government employees were trained to build SGs and conduct financial literacy programs to help poor households manage their cash flows.
In Ethiopia, the government employed SGs together with an ultra-poor graduation program for a subset of the people participating in its Productive Safety Net Program, calling it PSNP Plus. PSNP Plus created 2,000 SGs between 2008 and 2011, and a USAID impact study reported that they contributed to the graduation of 4,820 households from government assistance.
Savings group promoters: Continue to develop innovations that can support a rapid scale-up in the number of groups and members. At their annual conference in 2013, the organizations leading the savings group revolution launched “50 by 2020,” an initiative seeking to expand savings groups to 50 million members globally by 2020.
Financial service providers: Develop products and services that will meet the needs of informal savings groups and provide a link to formal financial services for those who grow into them.
Regulators: Allow informal savings groups to flourish, while allowing group accounts at banks, which will connect SGs to the regulated financial system.
2015 Relief Society of Tigray (REST) Ethiopia Campaign Commitment
“By sequencing safety net transfers, livelihood supports, and access to finance, REST seeks to position extreme poor households onto the first rung of the growth ladder from where they can start looking and investing into the future, and create sustainable pathways out of extreme poverty.”
— Teklewoini Assefa, executive director, REST, Ethiopia
The Campaign Commitment from REST includes:
- helping 348,000 chronically food insecure families lift themselves out of extreme poverty by extending safety net transfers to help them smoothen their consumption and help them diversify their livelihood, and
- helping 22,500 families with the Weather index insurance coverage against drought.
Figure 10: Participatory Rural Appraisal
Mapping Process in Nadu Colony (India)
When villagers draw maps of their own communities, they learn more about their neighbors and the challenges that each of them face (see map of Nadu Colony in Tamil Nadu, India, in figure 10). The Participatory Rural Appraisal system starts with community mapmaking. MFIs, such as BRAC, Bandhan, and Fonkoze, use a similar approach called Poverty Wealth Ranking to identify which families live in huts rather than concrete or wooden structures and, among those families, which ones live in the greatest poverty. Having identified the families they will work with in their ultra-poor graduation program, they also identify a group of leaders in the village. These leaders take on the responsibility of making sure these families move out of poverty within two to three years.
The people reached with this graduation approach are the ultra poor, those living on less than $0.70 per day. They have no regular source of income that would allow them to participate in savings groups and face too much vulnerability to take on the additional responsibility of repaying a loan.
Graduation programs require ongoing subsidies in order to pay for monthly stipends of food or cash to the participants, training in livelihood management and financial capability, the gift of an asset and regular mentoring. They involve financial services from the beginning in the form of the regular payment of the stipend and a savings program. They also prepare their members for ongoing participation with financial services, including access to loans for those who graduate and choose to expand their livelihood activities.
Most of the graduation program implementations to date have been implemented by NGOs or MFIs receiving grant funding, but they also can be implemented through partnerships between a government social protection program providing the funding for stipends and assets, an NGO providing training and mentoring, and a financial institution providing payments and savings services.
CGAP and the Ford Foundation have sponsored replications of the BRAC Graduation model in eight countries. The Abdul Latif Jameel Poverty Action Lab (J-PAL) and Innovations for Poverty Action (IPA) have conducted RCTs of seven of these replications in Bangladesh, Ethiopia, Ghana, Honduras, India, Pakistan, and Peru. These studies found that the replications successfully targeted the ultra-poor, reporting that “the proportion of households living below US$1.25 per day that were identified as eligible for the program and included in the study sample exceeded—often by a substantial margin—the proportion of the population living below US$1.25 per day in every country.” Further, the program helped the ultra poor “shift into more stable self-employment that increased their standard of living both two years after the productive asset transfer, and three years after the asset transfer—a year or more after all program activities ended.” J-PAL and IPA noted these key results of the Graduation model:
- The Graduation approach caused broad and lasting economic impacts. Pooled data from six sites show that Graduation households’ consumption increased 5.8 percent, relative to the comparison group two years after the asset transfer. Graduation households’ consumption increased 7.3 percent in Bangladesh, 16.4 percent in Ethiopia, 6.9 percent in Ghana, 13.6 percent in India, and 10.2 percent in Pakistan, relative to the comparison group, though there was no impact on consumption in Honduras or Peru. Households experienced similar improvements in food security, asset holdings, and savings. Most positive impacts on participating households were consistent three years after the asset transfer—one year after all program activities ended.
- The improvements in well-being were mostly the result of increases in self-employment income. Injecting a combination of productive assets and relevant skills training led to an increase in basic entrepreneurial activities, primarily concentrated on livestock and activities, like petty trade.
- Graduation led to some improvements in psychosocial well-being. Happiness, stress, women’s empowerment, and some measures of physical health and political engagement improved for participants at some sites. The effects on women’s empowerment and physical health were no longer statistically significant one year after all program activities ended.
- These effects were consistent across multiple contexts and implementing partners. The program’s positive results on economic well-being, which range from very economically significant to moderately so, are not driven by any one country.
- Long-run benefits of the Graduation approach outweigh up-front costs. Comparing the program’s economic benefits to its total costs, researchers find a positive rate of return three years after the asset transfer in all contexts, except Honduras, ranging from 133 percent to 433 percent.”
The replications of the graduation model, which you can see in figure 11, employed a series of sequenced steps:
- Proper targeting tools ensure that a graduation program reaches the poorest by using community input, via local maps, to identify households and Participatory Wealth Rankings. Surveys, poverty scorecards (such as the PPI), and visits cross-verify selected households.
- Consumption support is provided at determined frequencies in the form of cash or food, as food insecurity can prevent the poor from taking advantage of opportunities or planning for the future.
- By saving regularly, participants become financially disciplined and familiarized with financial service providers.
- Asset transfers help participants take part in an economic activity.
- Through skills trainings, participants learn asset management, business administration, and basic health and nutrition. They also receive information about government services available to them, particularly health clinics.
Figure 11: BRAC’s Graduation Approach
The CGAP-Ford Foundation experience has demonstrated that, apart from BRAC (the institution where graduation programs originated), “few organizations have the human or financial capacity to offer all the components of the graduation model effectively.” Carolina Trivelli, an economist with CGAP who specializes in rural finance and financial inclusion in Peru, points out that an effective way of meeting resource and financial demands is to transform them into public-sector interventions.
Looking at the development of Haku Wiñay, a government graduation program in Peru, Trivelli proposes three steps to successfully scale up efforts behind graduation programs as a public sector effort:
- Learn and test the feasibility of desired objectives.
- Pilot and test the idea independently or as part of another policy within the public sector in order to ascertain the possibility for implementation at a larger scale.
- Use lessons learned from pilots to put together public policy or programs and to determine how to design, define guidelines, and determine resources.
Effective partnerships are also instrumental in making sure that graduation programs are far reaching. Results from the CGAP-Ford Foundation study of pilot programs determined that these types of partnerships should be based on shared vision, aligned practices, and trust. One such partnership could exist between a government and NGO, in which a government agency provides consumption support while the NGO provides skills training and savings services. Conversely, NGO-led programs could integrate government safety-net programs.
Although government-sponsored graduation programs appear to be the most logical place for scaled-up implementation, lessons learned from the CGAP-Ford Foundation experience underscore that, regardless of implementer, the program should have predefined goals and develop indicators for success that are coherent (i.e., targeted), meaningful (i.e., realistic), and measurable (i.e., indicators are weighted). By assuring that the extreme poor are properly targeted for participation in a graduation program, they have a greater chance of profiting from the long-term benefits associated with the various microfinance products and services designed to keep them out of poverty.
Government social protection programs: Employ the Graduation approach as a key tool for helping people move from government support to generating income-building assets from their own livelihoods.
Financial service providers: Link with participants of graduation programs, providing them with savings, credit, and payment facilities.
Box 3: Reaching the Poorest of the Poor
Interview with Shameran Abed, director of BRAC’s microfinance program, Bangladesh (which serves more than 5 million clients in seven countries); and Syed M. Hashemi, chair of the Department of Economics and Social Sciences, BRAC University, Bangladesh, and former co-leader of the CGAP-Ford Foundation Global Graduation Program.
We had been working for almost 30 years by the time we started thinking about the ultra-poor as a separate sector. After so many years, we realized that there was a lot of self-exclusion from microfinance by the ultra poor, and also other group members and group leaders were actually excluding the ultra-poor from their groups, mostly women. So, that was part of the reason we decided that we needed to look at the ultra-poor separately—not from just a credit angle or a strictly credit and savings angle but how to provide a sequenced sort of combination of interventions that could target the ultra-poor.
These are people who don’t necessarily have productive assets. They don’t have resilient homes. They don’t have access to sanitation or water. Their health conditions are typically poor. They don’t have social capital. So, even within their communities, they are typically socially excluded or ostracized. We had a fairly good understanding of the lives of the poor through our work with microfinance, health, education, agriculture, and value chains. We looked at the interventions they needed and how it would make sense to sequence them together.
What we learned is that targeting is very important. The community comes together to find the poorest among them, which builds ownership of this intervention. This also helps explain to people why some people get grant-based support and other people get market-based solutions.
The second critical element of the BRAC ultra-poor program is a substantial asset transfer (whereas a lot of similar programs do a cash transfer or conditional cash). BRAC and the clients work together to find the best enterprise for that client. Although the consumption stipend in the BRAC program is fairly small, we want ultra- poor households to be able to have the normal calorie intake. It’s basically to protect the asset and to provide them some room to maneuver because the asset doesn’t become productive right away.
We also do intensive hands-on training. We provide healthcare support because health shocks are a big reason that people backslide into poverty. A very critical part of the BRAC model is reintegration of the socially excluded, those ostracized—typically women—back into society. The community owns these households and says, “We will take care of these people. They’re part of us.”
Savings comes in very early, and our main intention is not how much they save but how regularly they save. Even when ultra-poor households graduate from poverty, a lot of them don’t borrow immediately or at all, but a majority of them continue to save and with much greater regularity than our normal microfinance members.
In Bangladesh, we have graduated 1.4 million households out of extreme poverty. One program provides the asset transfer as a grant, and we have another program in which everything else remains the same but the asset transfer is done through a soft loan. We’ve made a Campaign Commitment to graduate a further 250,000 households out of extreme poverty by 2016.
Syed M. Hashemi
At CGAP and the Ford Foundation, we were concerned with expanding the finance frontier to ever larger numbers of poorer people. We recognized that conventional microcredit programs were not well equipped to serve the poorest (those living on less than $1 per day), but safety-net programs did so successfully. Cash assistance, food- or cash-for-work programs, conditional cash transfers, and the like, however, generally failed to get people out of their dependence on such assistance. What we were interested in was building ladders for the poorest to “graduate” out of extreme poverty by developing sustainable livelihoods, generating incomes to keep them food secure, and linking up to quality financial services that could meet their diverse needs. We adopted the experience from BRAC’s hugely successful “Targeting the Ultra Poor” (TUP) program and piloted the graduation model in 10 sites* in 8 countries.
From the outset, we were convinced that we needed rigorous impact assessments to create credible evidence. We therefore brought in IPA, the Poverty Action Lab from MIT, and New York University to conduct randomized controlled trials, so that any improvements in the conditions of the extreme poor participants could be directly attributable to the program itself. The results are finally in and published in the journal Science. Most of the pilots demonstrated clear evidence of success measured in terms of consumption, assets, savings, and social indicators. The model works.
CGAP and the Ford Foundation realized early on that the graduation model could most effectively be scaled up through governments, using their safety-net (cash-transfer) programs as the foundation. More than a billion people around the world currently receive safety-net support. While many will continue to require ongoing assistance—the elderly, children, the disabled, and other vulnerable populations—significant numbers can seriously benefit from the graduation model and develop sustainable sources of earnings. So, along with the pilot testing, we conducted consistent advocacy with policymakers. We explained to them that “graduation” needed to be an integral element within a holistic, well-integrated social-protection program. Whether through our efforts or on their own, governments are adopting or planning on adopting different variants of the graduation model. We see this in Ethiopia, Kenya, Indonesia, Mexico, Paraguay, and Colombia. We also see genuine interest in Ghana, Malawi, Tanzania, Mozambique, Pakistan, Philippines, and Brazil. Interestingly, UNHCR has also adopted this model for some of their long-term refugees in Egypt, Burkina Faso, Zambia, Costa Rica, and Ecuador.
* One site each in Haiti, Honduras, Peru, Pakistan, Yemen, Ethiopia, and Ghana, and three sites in India.
2014 FAO Campaign Commitment
“FAO has launched a research initiative to identify and up-scale innovative financial arrangements that make inclusive agricultural investments feasible…motivated by mounting evidence of important structural changes in agricultural value chains…in response to a rapid increase in the global demand for agricultural products.”
— Eugenia Serova, director, Rural Infrastructure and Agro-Industries Division, Italy
The Campaign Commitment from FAO includes:
- training public and private financial service providers in Africa, Latin America, and Asia, aimed at mainstreaming value-chain finance analysis in their processes as a way of improving their ability to serve the agricultural sector.
Figure 12: Total Rural Populations and Poverty Gap at $1.90 a Day
Map the locations of where the world’s poorest live and you quickly see that 75 percent live in rural areas. And three-quarters of this group depend on agriculture for their livelihoods. As seen in figure 12, there is a relationship between smaller rural population (yellow countries) and smaller $1.90 a day poverty gap.
Given this data, it is evident that strengthening agricultural value chains can be a powerful strategy to develop strong partnerships and distribution systems that increase productivity and growth while helping mitigate some of the risks that often keep smallholder and subsistence farmers in poverty. “The State of Food and Agriculture 2015” report, compiled by the Food and Agriculture Organization (FAO) of the UN, makes the connection between agriculture and rural poverty clear: “Extreme poverty is disproportionately concentrated in rural areas, and the rural poor are more likely to rely on agriculture than other rural households, especially in sub-Saharan Africa. It is the poor’s reliance on agriculture for their livelihoods and the high share of their expenditure on food that makes agriculture key to poverty and hunger alleviation interventions.”
Making agricultural value chains work for smallholder farmers requires coordinated actions among many actors in the value chain, shown in figure 13.
Figure 13: The Rural Model
Financing plays a key role in many parts of the value chain, including:
- Credit for farmers to purchase improved seed, fertilizer and other inputs, allowing them to multiply productivity.
- Credit post-harvest for farmers that store their produce in order to sell when prices are higher.
- Credit for input suppliers to bring in improved seed, fertilizer and other inputs.
- Savings facilities that allow farmers to have money to invest in the next crop cycle and pay household expenses until the next harvest.
- Insurance that helps farmers mitigate the risk of crop failure.
- Payment systems that deposit funds to the farmers account when her crops are sold.
Financial organizations can also help smallholder farmers increase their incomes by negotiating better prices for them from buyers and exporters. Information and communication technologies (ICTs) can also be harnessed to increase farmers’ incomes. Having information available by phone on prices, varieties, growing techniques, and financing options helps farmers make better decisions about crops, inputs, and markets.
According to the World Bank, “agriculture is a source of livelihoods for an estimated 86 percent of rural people (2.5 billion people) and provides jobs for 1.3 billion smallholders and landless workers…Cross-country econometric estimates show that overall GDP growth originating in agriculture is, on average, at least twice as effective in benefiting the poorest half of a country’s population as growth generated in nonagricultural sectors.” A study by Dalberg Global Development Advisors estimates the demand for finance from smallholder farmers at almost $450 billion worldwide, with less than 2 percent of this being met by current sources.
Women, especially, face constraints in being able to access agricultural finance and services. According to Farming First, “women account for 60 to 80% of small holder farmers and produce 90% of food in Africa and about half of all food worldwide. Yet in sub-Saharan Africa, only 15% of landholders are women and they receive less than 10% of credit and 7% of extension services. Policies that address gender inequalities could, conservatively, increase yields on women’s farms by 2.5% to 4%.”
A project organized by World Vision Tanzania, which included Vision Fund, MicroEnsure and Farm Care, provided a set of services for smallholder rice farmers, for example, access to improved seed, training in cultivation techniques, and negotiations for the farmers as a group to get better prices. The 5,095 farmers involved increased their yields by 37 percent and received increased prices of 76 percent, leading to an overall income increase of 142 percent. In addition, 537 of these farmers received loans tied to crop insurance that allowed them to increase their plot sizes. These farmers received an additional 62 percent increase in their yields over and above the increase received by the other farmers.
A rigorous study by the International Food Policy Research Institute of Grameen Foundation’s Community Knowledge Worker (CKW) program in Uganda found that arming a farmer in each community with a cheap smartphone put an encyclopedia’s worth of locally relevant agricultural information in their hands. This basic service increased the application of two good farming practices by more than 28 percent, compared to control villages nearby that did not have a CKW program.
Value-chain actors are finding new ways to break with the traditional loan models to provide affordable financial tools that are increasingly tailored to crop and production cycles. One Acre Fund has developed an approach they term “Market in a Box,” which provides asset financing by delivering inputs on loans bundled with training and access to storage facilities. One Acre Fund’s approach offers loans to joint-liability groups of farmers’ as tangible goods, such as improved seeds and fertilizer, which ensures that the loan is invested in productive assets and reduces the risk for the lender. In addition, they offer more flexible loan terms, at times requiring interest-only payments during the season and principal repayment after the harvest. This model allows farmers to make payments more closely aligned with their cash flows, while allowing One Acre Fund to support their claim of a 98-percent repayment rate organization-wide in 2014.
Other value chain approaches focus more on providing technical support and training to improve outdated farming techniques. Opportunity International’s (OI) value-chain strategy uses innovative practices that allow for household profiling and GPS mapping to determine the location and land area available for farming to determine with greater accuracy the appropriate amount of inputs needed.
OI’s program in Nicaragua, “Del Campo al Mercado” (From the Field to the Market), is an example of a value chain that has created strategic alliances giving business solutions to small holder farmers. OI forms “nuclei,” or groups of small producers, whom they provide with training and facilitate the sale of their product beyond the local market. The key is having good technical trainers who can then train the head of each nucleus. Appropriate training and new techniques can help mitigate some of the risk that comes with soil erosion resulting from intensive and poor farming practices and climate change.
The agricultural industry is currently responsible for around 30 percent of the world’s carbon emissions as a result of poor farming practices, deforestation, and growing demand for animal protein in people’s diets. Smallholder farmers manage vast lands that represent more than 80 percent of farms in Africa and Asia, and account for 60 percent of agricultural land use worldwide. Providing access to organic fertilizer and “climate-smart” seeds, and improving irrigation and land-use techniques can address growing issues of water scarcity, harmful land use, and greenhouse gas emissions, while improving the quality of the harvest. By delivering a better and more valuable product through strong agricultural value chains, farmers can exponentially increase their productivity and income, and reduce their impact on the environment.
Extreme weather and increased climate change has increased the risk to smallholder farmers. Thus, making crop, area, and weather index-based insurance, and the like, is essential to helping farmers protect themselves against crop losses and devastating shocks. International Labor Organization’s Impact Insurance Facility 2014 Report estimates that around 4 billion low-income people remain excluded from appropriate insurance products, and this has spurred a movement to integrate index insurance schemes within the agricultural value chain. Unlike traditional insurance policies that are paid out based on losses, weather index-based insurance can ease the immediate constraints farmers encounter by disbursing payments automatically, based on the agreed rainfall threshold to which the crop has been insured, adjusted for the cropping season. Data from weather stations in the area are compared to historical records to provide context of the risk and determine when payment is due. This reduces costs and lowers premiums by eliminating the need for long, complicated claims processes, where claims agents must assess the losses which can be subject to moral hazards on both sides.
These types of insurance products act as safety nets from adverse weather and, when integrated into a value chain, can facilitate access to credit. MicroEnsure, a private insurance company and global leader in providing weather-index insurance products, worked with the International Finance Corporation, World Vision Tanzania, Vision Fund Tanzania, and Farm Concern to provide weather-index insurance—bundled with a loan and a mandatory flood insurance policy—to farmers in Tanzania. The partners identified improved paddy seeds and connected farmers with companies in developing markets that allowed them to sell their rice in aggregated groups for a higher price.
Entering a larger, more competitive market can be daunting to smallholder farmers who lack knowledge and experience. When looking at mitigating market risks, it is essential to understand the threats that farmers face post-harvest. At this point in the value chain, storage facilities and market pricing support is crucial for increasing yields and income while reducing waste.
FAO estimates that around one-third of the food in the supply chain is either lost or wasted at the farm, during storage and distribution, or in households. Appropriate storage facilities and improved distribution centers can reduce post-harvest losses. Good warehouse operators can facilitate market access for farmer cooperatives and increase their opportunity for a better price by allowing them to store their crops for an extended period of time until market prices improve.
Some value chain improvements work to integrate ICT platforms, including mobile phones, in order to provide market information, facilitate transactions, and link value-chain actors. Mobile technology has the potential of reducing risks to farmers by providing access to price information, disease, and meteorological data, and information on growing and marketing practices. At the same time, it also allows developers to capture information that can support further innovations.
Grameen Foundation does this with its aforementioned CKW program, which started in Uganda and has now spread to Ghana, Colombia, and Guatemala. Through this program, it supplies one farmer in each village with access to a smartphone pre-loaded with an app that searches for “data- and location-specific information related to farming and product marketing.” By supporting poor farmers who have limited resources to leverage in a competitive market, these ICT platforms can help them increase gains, especially the farmers who traditionally receive below-market prices for their crops.
Financial service providers: Investigate local product value chains, work with organizations of smallholder farmers, and provide savings, credit, and payment facilities for them. Provide credit to input suppliers and storage facilities to improve access to seeds, fertilizer equipment, and warehouse receipt financing. Work with the government, international agencies, and insurance companies to develop ways to bundle crop insurance with input loans. Negotiate with buyers to gain improved prices and marketing opportunities for smallholder clients.
Government agencies: According to the Agricultural Finance Support Facility, developed by the World Bank and the Gates Foundation, in order to expand agricultural finance, government needs to:
- develop country specific diagnostics and strategies segmented that include smallholders;
- develop a coherent legal and regulatory framework that intersects both finance and agriculture;
- design effective government support mechanisms, including investments in irrigation systems and weather stations;
- strengthen financial infrastructure such as credit bureaus and asset registries; and
- build the capacity of financial institutions and their clients.
2014 Fundación Capital Campaign Commitment
“Through the unique approach of linking banking mechanisms and savings mobilization with transformative social protection schemes like cash transfer programs, and in close cooperation with governments in the LAC region, Fundación Capital has already helped bank more than 3 million formerly unbanked families.”
— Yves Moury, founder and CEO, Fundación Capital, Colombia
The Campaign Commitment from Fundación Capital includes:
- expanding outreach to 15 million families by 2020 by increasing present agreements with national governments in the Latin America and Caribbean region, and with financial institutions and private partners; and
- expanding activities and networks in Africa and Asia to reach an additional 10 million families by 2020.
Figure 14: Concentration of Recipients Continually
Receiving Bolsa Família since October 2003
When Brazil’s Ministry for Social Development began its Bolsa Família (family allowance) program in 2003, it started by hiring the staff of NGOs and civil society organizations to work as enumerators. They traversed favelas, towns, and villages to identify and map every household living in extreme poverty. They used this map to design their conditional cash-transfer (CCT) program, through which they provide a regular cash stipend to families living in poverty, in exchange for the members of the family receiving regular medical checkups and keeping their children in school.
The map also helped the Ministry for Social Development staff make connections with other challenges these households faced. They could see where they needed to add health clinics or build schools in order for the families to meet the conditions of the transfer. They also saw that the largest proportion of participants in the program, as revealed in figure 14, lived in rural areas and earned most of their income from agriculture. For these families to be able to provide for themselves, so that they no longer needed stipends from the government, they would need to improve the productivity and income from their small plots of land.
The Ministry asked Banco do Nordeste to develop a lending product for small-scale producers receiving Bolsa Família payments. Working with the bank, it saw the need to ensure a market for the products for these farmers, so the Ministry arranged for the local schools to buy all the farmers’ produce to use in the school lunch program. Banco do Nordeste now has over 700,000 borrowers in its “AgroAmigo” program.
While primarily a safety-net program, governments can use CCTs to drive financial inclusion by paying the transfers through bank accounts set up for each recipient. Knowing that people are receiving regular cash infusions—from government transfers—into their accounts, financial institutions can develop additional products for these clients to help them build assets over time and borrow money, based on how they utilize their accounts.
The CCT model provides one of the largest investments by national governments to protect their poorest citizens against food insecurity and promote human capital development. Governments use cash transfers to reward parents for investing in the education and health of their children, while supporting increases in household consumption levels. This type of government intervention has proven to considerably reduce the number of people living in extreme poverty in a relatively short period of time and help break inter-generational poverty. In just 10 years, Bolsa Família lifted 36 million Brazilians out of extreme poverty.
Studies have shown that households enrolled in CCT programs not only spend more on food but also improve their diet by consuming higher-quality food. In addition, CCTs have proven to be effective in reducing child labor and gender disparities in education. In Cambodia, child labor dropped by 10 percent, and the school enrollment rates among girls increased in Bangladesh, Pakistan, and Turkey, helping reduce the gender gap in education. Recent pilots in sub-Saharan Africa are also showing promising results with orphans and vulnerable children affected by HIV/AIDS.
In Brazil and Mexico, the main characteristic of their programs is their wide coverage, reaching 46 and 25 million beneficiaries, respectively, and accounting for over 20 percent of the population in both cases. In other countries, like Chile and Turkey, programs focus exclusively on the extreme poor and socially excluded. Chile’s CCT program, “Chile Solidario,” targets about 5 percent of the population and is based on a customized approach where social workers team up with the beneficiaries to design action plans aimed at solving their households’ specific constraints. Together, they set up goals that help the family move out poverty. The cash transfers in this program are used as an incentive to collaborate with the social workers and take advantage of their services.
Studies of CCTs programs have provided clear evidence for short-term poverty reduction, as well as an increased use of education and health services among households, even when they did not use the services before the intervention. Other positive outcomes include reducing income inequality, as in Brazil, where Bolsa Família contributed to the recent sharp decline of the Gini coefficient.
CCTs can also contribute to providing access to basic financial services for the beneficiaries who are still part of the 2.5 billion unbanked adults. Governments can disburse transfer payments to savings accounts through electronic channels. This trend gives recipients an incentive to save a share of the amount received, while at the same time reducing significantly the cost of the payment delivery. Bolsa Família’s delivery costs, for instance, dropped from 14.7 percent of the grant value to 2.6 percent, when the program switched to electronic benefits cards.
As CCTs grow to cover large proportions of the population living in poverty, they place greater pressures on national budgets. Political support for these programs can diminish over time unless governments demonstrate how effective they are in assisting able-bodied recipients to move from government support to livelihoods that generate enough income for families to support themselves.
Fundación Capital works with 12 Latin American governments to help them link their cash transfers to the financial system and create incentives for recipients to build assets over time. It also works with financial service providers, including commercial banks, MFIs, and savings group promoters to help them develop financial products and services appropriate for those receiving government transfers. Their work includes the provision of financial-capabilities training for CCT recipients, including a program that employs a financial training app loaded onto tablets.
Working with government cash transfer programs, which reach millions of people, provides a way for financial institutions to build scale and profitability for accounts with small balances and transaction sizes. In India, part of the government’s social protection program includes the National Rural Employment Guarantee Act, which provides 100 days of employment for anyone willing to work in locally-designed public works projects. As part of the government’s push for financial inclusion, these payments have been paid through no-frills accounts set up in commercial banks. However, most of these banks do not have branches in the rural areas where the workers live. FINO Paytech, a local payment-solutions company that employs business correspondents, provides the last mile solution. The business correspondents use handheld devices, which link to the bank and to each recipient’s smartcard. They set up agent outlets in villages to provide convenient deposit and withdrawal services.
In Mexico, the government distributes a large portion of its cash transfers through BANSEFI, a state-owned bank formed to promote financial inclusion among those living in poverty. At our Summit in Mexico last year, the Mexican Minster of the Economy, Ildefonso Guajardo Villarreal, announced the creation of “Prospera,” an update of the Oportunidades cash transfer program. As a part of this program, BANSEFI partnered with MasterCard to deliver cash transfers electronically through an account that includes a line of credit, complimentary disaster insurance, and low-cost life and health insurance.
The Rwanda government has decided to use its cash transfer system as a key driver of its goal to become a cashless society. It has partnered with Visa to develop an interoperable mobile-payments system. Visa, in turn, has partnered with Kigali National Bank and Urwego Opportunity Bank (a microfinance bank) to provide mVisa as a distribution channel for their clients.
Government social protection programs: Build financial inclusion by distributing cash transfer payments electronically to bank accounts. In remote areas, work with NGOs to develop savings groups among CCT recipients. Eliminate disincentives and create incentives for CCT recipients to build assets over time, including incentives for retaining payments in savings accounts.
Financial service providers: Work with governments to become the distribution point for cash transfers. Provide additional financial services to those receiving CCTs.
Box 4: Combining Conditional Cash Transfers and Livelihoods Training for the Poor
Interview with Mariana Escobar, deputy director, Department for Social Prosperity, Colombia
This government agency is charged with overcoming extreme poverty for some 4 million people and making reparations to almost 7 million victims of the country’s internal conflict—and there is a great intersection of these two populations.
Fifteen years ago, Colombia created a strong conditional cash-transfer (CCT) program, “Más Familias en Acción” (MFA, More Families in Action). It is well designed and its conditions can be properly followed. When the Department for Social Prosperity was created and took over the MFA program, we adopted CCT as the tool for creating social inclusion. We already have 3 million families in the program, and the evaluations have proven that it has worked pretty well in terms of better health and nutrition, retention rates among school-aged children, and financial inclusion. Ninety percent of families who receive MFA payments now use a formal financial product.
In the short term, CCTs supplement an unreliable income in the poorest families, but it also helps in the long run. If you focus on assessing or thoroughly following up on those conditions—if children are well-fed and if they go to school—you can help build long-term social capital. It is great as a way of overcoming poverty, and it has a very valuable, trans-generational effect.
In Colombia, we have made strides toward making education and access to the health system universal. Therefore, in larger cities like Bogotá, we perhaps have to think about discontinuing the program; whereas, in rural areas, the program had not been working because it is difficult and expensive to reach dispersed communities. For this reason, we decided to gear our efforts towards those rural areas.
Our strategy is to build productive capacities and help beneficiaries accumulate productive assets because the money alone is not enough. We are doing this through financial inclusion, financial education, and microinsurance products, and we coordinate the CCTs with livelihood programs. The first step in financial inclusion has been to open bank accounts to receive the transfers. However, in some very distant rural areas and indigenous communities, we have had to rely on a network of banking agents. And some indigenous communities (which are generally not willing to accept the banking system) have recently come to accept women opening savings accounts.
In our financial education programs, we are mainly targeting savings. While we have women’s savings groups and individual savings processes set up, it is going to take a while to reach scale because of the vast numbers. We plan to educate 2.5 million people receiving their transfers through formal financial products, and we are using very interesting tools. We have tablets loaded with an easy-to-use, intuitive financial-literacy app that we developed with Fundación Capital. It covers topics like how to use an ATM, how microcredit and savings works, how to save when you buy food, and how to buy better food.
To complement the CCTs, we coordinate livelihood programs to build capacity in the areas of food security, housing, water, and income generation. The Department had other programs that were dispersed and poorly disseminated, so over the last two years, we have integrated CCTs with the livelihoods programs. What we have seen is that integration speeds up and improves the quality of interventions; indeed, it has to have everything in order to work.
We measure the success of our work by tracking 15 critical variables on the Multidimensional Poverty Index (MPI). We use it not only to measure income but also as a public policy tool. We have a scheme called La Red UNIDOS (Unified Network), in which government staff coach 1.5 million of the poorest families. Our social coaches work one-on-one with families to overcome the most critical variables in the MPI. In two years, nearly 250,000 families have risen from extreme poverty.
You have to listen to communities because they know what the problems are. They do not have access to opportunities or information, so we help them close the gap. When people participate, they become citizens, and that’s when you build a completely different relationship with them.
2015 Musoni Services Campaign Commitment
“The Musoni System gives MFIs the infrastructure they need to reduce their costs, improve their efficiency, and drive financial inclusion into rural areas where the majority of the unbanked live. End-clients benefit from increased security and flexibility and, in-time, lower interest rates…”
— Cameron Goldie-Scot, CEO, Musoni Services, UK
The Campaign Commitment from Musoni includes:
- integrating PPI scorecards into the system, allowing field officers to capture data remotely, and enabling MFIs to easily capture and analyze social performance data; and
- encouraging users of the Musoni system to start capturing PPI data from more than 150,000 entrepreneurs.
Figure 15: Numbers of Registered and
Active Customer Accounts by Region
A map of the locations of people using mobile money to make payments and conduct other financial transactions, such as in figure 15, shows that the largest penetration of mobile accounts occurs in some of the world’s poorest countries. They also tell another story: in all regions of the world, the number of people with mobile money accounts far exceeds the number that uses them regularly.
Mobile banking, or m-banking, is one of the most promising tools for achieving a cost-effective pathway to digital financial inclusion at scale, now that billions of low-income people own mobile phones. Many practitioners have recognized and harnessed this potential through a variety of mobile banking tools: some allow previously unreachable clients to make digital payments via their phone and others can send clients SMS payment reminders. Through mobile banking, transactions can be conducted more securely—and at lower cost—than with traditional platforms, making it possible for financial services to reach lower-income and more-remote customers.
Effective digital finance systems that provide a full range of services require a mobile network channel, a financial institution that can hold deposits, vendors that can accept digital payments, and a network of agents that can convert physical cash to digital cash and vice versa. Many digital finance systems also include payment providers, such as MasterCard or Visa, that provide a set of business processes, rules, safeguards, and enforcement mechanisms that allow for interoperability between payers, payees, and channels.
Variations in regulations and the size and strength of various businesses in the chain have led to a wide variety of relationships and structures for providing the set of services needed for digital finance, such as:
- a mobile network operator (MNO) owning a microfinance bank (Tameer Bank in Pakistan, owned by Telenor),
- a microfinance bank owning a mobile payment platform (bKash created by BRAC Bank in Bangladesh),
- a joint venture between a commercial bank and an MNO to create a mobile microfinance bank (BPI Globe BanKO in the Philippines), and
- an MFI working as an agent for digital savings accounts provided by a commercial bank (Cashpor and ICICI Bank in India).
The GSMA Global Mobile Economy Report 2015 noted, at the end of 2014, some significant positive evidence of progress:
- Half of the world’s population, 3.6 billion people, had at least one mobile subscription.
- 255 mobile money services operated across 89 markets, with over half of these in sub-Saharan Africa.
- There are 299 million registered mobile money accounts, but only 103 million of these accounts, just over one-third, were active.
- In East Africa, half of all mobile subscribers have signed up with a mobile money account.
- 32 mobile services in 15 countries offered mobile credit and 100 services offered mobile insurance, providing 17 million policies.
Urban males with higher incomes and bank accounts make up the largest proportion of early mobile-money adopters. As adoption expands, mobile money services will reach more unbanked and low-income people. According to Tavneet Suri and Billy Jack, the share of the unbanked who used M-PESA in Kenya rose from 21 percent in 2008 to 75 percent in 2011. Over the same time period, the share of those living on less than $1.90 a day grew from 20 to 70 percent. On the other hand, the 2014 Global Findex reports more mixed results for mobile account usage by women. Uganda and Tanzania show significant gender gaps in those who have a mobile money account and no bank account, while Kenya and Cote d’Ivoire showed no significant gender gaps in this area.
Due to the fixed fee structure of many mobile-money transactions, fees for small transactions make up a larger percentage of the transaction amount than larger transactions. As a result, a study by Research ICT Africa of income expenditures in 17 African countries found that many of the poorest participants in their study spent more than 16 percent of their income on mobile services.
Despite the higher proportional costs, those living in poverty experience significant benefits from being connected to mobile financial services. Jack and Suri measured the effect of M-PESA use in reducing the impact of negative shocks (such as an illness or losses due to weather) to a household. They found that those without an M-PESA account suffered an average income loss of 7 percent with a negative shock, while those with an M-PESA account saw no loss in income. Those with an account were more likely to be able to receive payments from friends and family, located outside the village, and were not affected by the shock. In 2009, CGAP reported that new rural participants in M-PESA saw their incomes rise between 5 and 30 percent as a result of an increase in the number of remittances and lower costs to receive them.
The Commercial Bank of Africa (CBA) has partnered with Safaricom to use the M-PESA mobile-money platform to deliver a bundled savings and credit service called M-Shwari. (Shwari means calm in Kiswahili.) Since November 2012, when CBA launched M-Shwari, 7.2 million Kenyans have established 9.2 million M-Shwari accounts, with 4.7 million of these accounts having activity in the last 90 days. Account holders have cumulatively deposited over $1.5 billion in these accounts, with $45 million on balance at the end of 2014. They have borrowed $277 million, with $17 million outstanding at the end of 2014. This makes M-Shwari one of the first mobile savings and credit products to go to scale.
CBA developed the M-Shwari product in consultation with FSD Kenya, which used its Kenya Financial Diaries research and additional surveys to determine the needs of low income Kenyans. The product has these key features:
- Ease of use: Clients with a phone and an M-PESA account can set up their M-Shwari account in less than one minute using a set of simple text menus. The minimum deposit to set up an account is 1 Kenyan Shilling (US$0.01, 1 cent). Once they have set up the account, clients can also deposit and withdraw money quickly, using a similar menu-based system.
- Interest-earning savings with no minimum balance: Savings deposits earn between 2 and 5 percent interest, paid quarterly, based on the average daily balance. Clients can earn more interest by moving funds into a locked savings account for one to six months.
- Access to short term loans: M-Shwari savers can qualify for one month loans, based on an algorithm that uses their savings and M-PESA transaction history and other factors. CBA charges no interest on the loans, but does charge a 7.5 percent origination fee. Loans must be repaid in 30 days, but can be rolled over for another month with the payment of another 7.5 percent fee.
Many Kenyans find this product valuable because it allows them to address two often-competing financial needs at the same time. They can make deposits when they have surpluses and allow their savings to accumulate to the point that they can pay large expected expenses (such as school fees or wedding expenses) or purchase important assets (such as a refrigerator or a sewing machine). At the same time, they have fast access to short-term loans that allow them to address unexpected shortfalls without depleting their savings.
M-Shwari customers value its simplicity, safety, easy access to the account (anytime and everywhere over the phone), and quick access to credit. On the other hand, the product’s simplicity means that clients often do not understand how credit decisions get made or what the true costs of their loans are. Many customers would also like longer-term loans that they could use for their business activities.
In Nigeria, Women’s World Banking (WWB) worked with Diamond Bank to develop mobile savings products designed for the women who work in traditional open-air markets. A WWB research team interviewed potential clients in the market to understand their cash flows and financial needs, and then helped design what Diamond calls the BETA savings account. The bank deploys agents who are linked to the bank’s mobile platform, called “BETA Friends,” to the markets; this allows women to do their banking without leaving their place of work. BETA Friends help new clients through the simple account opening procedures. They provide training with materials that feature market women and use the language and terminology of the market. The bank also disaggregates the data it collects by gender, using WWB’s Gender Performance Indicators, to help them understand how women are using this product and what other products they might need. Diamond Bank launched BETA Savings in 2013 and now serves more than 200,000 clients with this service.
The Grameen Foundation, in partnership with the MasterCard Center for Inclusive Growth, carried out user-experience research in Nigeria to understand what factors may inhibit the use of mobile money, especially for those living in poverty. They found that the way mobile money services market their products, the agents they employ, and the simplicity of the products and their use were key drivers of whether people excluded from the financial system sign up for and use mobile money services. Their report recommends that mobile money providers that want to reach the excluded and those living in poverty should:
- Target their marketing to their audience: They should use local languages, word of mouth networks, and pictorial guides that demonstrate how the service is used.
- Employ agents that people know and trust: Agents form the connection point between the service and the client. Trust in the agent quickly leads to learning and trying the new product.
- Make sure services are easy to use and reliable: New clients quickly give up if they get confused and can’t get an answer to their questions.
- Provide entry level products with low costs and few restrictions: People in poverty must deal with unpredictable and irregular income. They find little value in accounts with large minimum balances or high transactions fees.
Last year, India set a Guinness world record for the most bank accounts opened in one week, while carrying out Prime Minister Narendra Modi’s scheme to ensure financial inclusion for every household in India in 2015. His government announced a series of initiatives to accomplish this goal, which were built on the work of previous governments to improve financial infrastructure. Finance Minister Arun Jaitley has labeled the key components of India’s financial inclusion strategy the “JAM Trinity,” which stands for Jan Dhan Yojana (people’s wealth scheme), Aardhar, and Mobile.
- Jan Dhan Yojana (JDY): The government gave banks a strong incentive to open JDY, no-frills bank accounts linked to a debit card, an overdraft facility, accident and life insurance, a pension plan, and a network of banking agents. The government intends to make all social benefits payments through these accounts and began the process of doing so this year.
- Aardhaar: This national identification system provides an identity number for every Indian resident verified with biometric data.
- Mobile: The government makes its payments to these accounts electronically.
Since its roll-out last year, banks have set up more than 175 million new accounts. Over $2 billion has been deposited in these accounts, though 46 percent of the accounts have zero balances, meaning that the clients of those accounts withdrew money from the account as soon as the received it. MicroSave carried out a review of the implementation of the new account system and found that 86 percent of those signed up for JDY accounts reported this as their first bank account. The report also found challenges in the availability and connectivity of banking agents.
In addition to establishing new accounts, the government and the Reserve Bank of India (RBI) have taken many additional steps to make sure that the financial systems can provide a range of products and services to everyone in the country:
- Providing a commercial banking license to Bandhan, the largest microfinance provider in the country
- Approving eight MFIs to receive small bank licenses (of the 10 total issued), allowing them to accept deposits and lend to microenterprises, farmers, and small industries
- Creating the category of payments banks, which can establish mobile accounts and accept deposits, but not make loans (RBI licensed 11 payment banks, primarily to mobile network operators and technologically-based financial service providers.)
- Creating the Micro Units Development Refinance Agency Bank with a capital allocation of $3 billion to refinance the portfolios of those providing loans to micro and small businesses
- Simplifying know-your-customer (KYC) requirements to make it easier for low-income people to open accounts
So far, this set of actions has proven very successful in attracting and setting up new accounts. The challenge moving forward will be to make sure these accounts provide products and services that help low-income clients reduce their vulnerability, take advantage of opportunities, and build assets.
Governments: Create a national strategy for digital financial inclusion that coordinates the work of government agencies, the central bank, financial service providers (FSPs), and mobile network operators. Give FSPs incentives to establish accounts for the excluded. Use government social-benefit payments as a key driver for establishing accounts and mobile channels for every recipient.
Regulators: Create a regulatory environment that promotes financial inclusion. Create regulatory structures that allow FSPs that focus on reaching the excluded to take deposits and make loans. Create clear guidelines for establishing mobile accounts. Use risk-based approaches to KYC and anti-money-laundering, easing restrictions for small-balance accounts and small transactions.
Financial service providers: Redesign the microfinance business model to make use of digital technology, defining key comparative advantages and niches within the mobile financial channel. Use knowledge of clients’ needs, cash flows, and aspirations to design appropriate products and delivery systems. Build strategic alliances and partnerships with others in the digital-finance value chain to deliver these products at lower cost and on a much larger scale.
Box 5: Connectivity as a Pathway Out of Poverty
— Interview with Tara Nathan, executive director for public-private partnerships, MasterCard, USA
Tara Nathan leads partnership developments with NGOs and development and multilateral organizations to promote electronic payments for the unbanked and underserved.
MasterCard is a technology company in the payment space. We create payments interoperability between numerous payers and payees across the globe. That happens along several layers—like a stacked capability. At the core level there’s a technology platform—that’s physical connectivity. A lot of people stop at this technological layer and think that is what interoperability means. But with over 40 years of experience building interoperability, we know that technology is the easiest part. The real challenge is building the business processes, rules, standards, and enforcement mechanisms that create the necessary interoperability to deliver payments that are safe, secure, and reliable. That is what we do at MasterCard.
Traditionally, we used to work more in developed countries with banks—issuers and acquirers. Over the course of the past 10 years, that model has been gradually evolving to now include telecommunication companies, governments, and post offices. These new players are helping create payment networks that reach further down the economic ladder by delivering services more efficiently. And MasterCard provides the necessary connectivity between all those players, enabling the ability to scale very quickly.
MasterCard believes that there is a way to create real social impact through our core business, which is all about inclusion and connecting people to financial services. Financial inclusion can have a profound impact on helping people living in and near poverty. Each year, about 20 to 30 percent of the world’s poor migrate out of poverty. The challenge is that each year, around the same number regress into poverty. We can have real impact on solving world poverty by stemming the backward movement. Numerous studies have shown the positive things that happen when someone is able to save and access their money. Women invest in their families, reinvest in their children’s education, and invest in higher quality foods—and these actions are investments in a move out of poverty.
In South Africa, we are partnering with the Social Security Administration to distribute funds electronically. In a country where about 1 of every 3 adults receives some type of government assistance, that equals about 22 million people receiving social security benefits on a MasterCard with biometric identification. That biometric capability addresses the challenges of both confirming identity and improving usage by overcoming the barriers posed by illiteracy and innumeracy.
Another program we are most proud of is in Nigeria, where MasterCard is partnering with the government to create a national ID. We see that as the largest financial inclusion initiative on the continent of Africa. At the same time that the government is providing everybody with a formal ID, the people are also getting a tool that will help them easily receive funds and make payments. That’s quite game-changing.
The world stands poised to reach two historic milestones in the coming years. First, the combination of decades of innovation in the delivery of financial services to lower income populations and new digital technologies for delivering money and information will make it possible for the financial system to reach every person on the globe with a set of basic services, such as savings, credit, payments, and insurance. If harnessed correctly, this first milestone can also help lead the way to a second more important accomplishment—the end of extreme poverty. We can create an economic system that provides every household with sufficient income to meet basic needs for nutrition, shelter, education, and health.
But to turn these lofty ideals into reality, we will need to find new ways of working together across the traditional divides of government, business, finance, and social services. And, we will need to go beyond plotting graphs that show the growth in number of people included—instead drawing maps that identify the locations of everyone still left out and the paths we will take to reach them.
In this report, we have sketched out six pathways that reach those living in extreme poverty with financial services:
- Addressing health needs
- Incorporating savings groups
- Extending graduation programs
- Expanding agricultural value chains
- Providing a conditional cash transfer program that builds financial inclusion
- Advancing digital finance
Each of these pathways asks financial service providers to strike alliances with other types of businesses, government agencies, or social service providers. Each pathway has proven powerful in creating valuable benefits to those who travel them. The power of these pathways gets multiplied, though, when combined in various ways.
We saw this firsthand last year, when we organized an “Innovations in Social Protection” trip. Government ministers and leaders of social protection programs from three African countries visited innovative programs in Ethiopia and Mexico that combined social protection and financial inclusion. In Ethiopia, we met with government officials, NGO leaders, technical assistance providers, and financial institutions that helped implemented the government’s Productive Safety Net Program (PNSP).
Determined to address the recurring droughts that had killed over a million of its people, in 2005, the Ethiopian government initiated PSNP. Designed to bring resilience to both the land and its people, PSNP works to provide food security for families in drought-prone areas, while also returning arid land to productivity and improving agricultural output. In so doing, it is already incorporating five of the six pathways and has also begun a pilot effort to see how they can incorporate the remaining pathway, digital finance.
Creating PSNP began with a map showing all of the communities affected by drought and the locations of all the households within those communities — more than 10 million people in total. For those unable to work, PSNP provides a regular stipend during the hungry season — the months just before harvest when the money and food from the last harvest have run out — providing enough money to keep the family fed. For those able to work, PSNP requires five days of work per month in exchange for the stipend. The recipients provide labor for public works projects, and each community decides what projects will most benefit the community. Some may choose to expand the local school, others may choose to build a health clinic, but most choose to invest their time in agricultural projects that will improve the productivity of the land.
PSNP is supported by a consortium of international aid organizations and financial institutions, and run by a coordinating body of government departments led by the Ethiopian Ministry of Agriculture. It reaches more than 8 million people in six districts of the country. Local NGOs, like the Relief Society of Tigray, help guide the agricultural projects, assist participants in terracing hillsides, build water retention ponds, and plant riverbeds to reduce run-off. Local microfinance banks, such as the Dedebit Credit and Savings Institute, provide accounts for the participants where they receive their government stipends, build savings, and qualify for credit.
Over the years, PSNP has added features and aligned with other government support initiatives, such as the Household Asset Building Program. Together, these programs incorporate many of our six pathways. A conditional cash-transfer program linked to a public works program, PSNP develops agricultural value chains in rural Ethiopia. Recently, the “R4” Program of the International Fund for Agricultural Development has added crop insurance to the program to protect against weather vulnerability. Dedebit and other financial institutions tied to PSNP are testing digital delivery of the government payments. CARE and other NGOs have begun organizing savings groups among PSNP recipients. REST and other NGOs have also implemented an ultra-poor graduation program for participants living in the most extreme poverty.
The result is a social protection and financial inclusion program that has reduced household vulnerability while bringing macro level change to the Ethiopian economy. Since 2000, Ethiopia’s extreme poverty rate (those living on less than $1.90 a day) has reduced from 56 percent to 31 percent of the population. At the same time, levels of health, education, and life expectancy have all improved. The greatest improvements have come in the poorest regions of the country, regions where PSNP works.
As a part of our trip, we went to Tigray to visit people who participate in the public works projects and the graduation program. We saw workers planting trees and grasses, women breaking stones and handing them down to men, who dug and lined the retention pond. We watched the people working together as we looked from the hilltop to the valley below. Terraces lined every hillside. The sun reflected off the water in the retention ponds and reservoirs. We had arrived at the end of the rainy season and the land shone bright green, filled with plants bearing food.
This land, once ravaged by drought, was now bringing two and sometimes three harvests a year, bursting with life. The PSNP participants laboring at the top of the hill could look at their work and say, “Not only has life improved for me and my family, but my whole community is better off because of the work I have done.”
We all benefit when our economic systems include everyone. The six pathways not only provide ways to reach those living in extreme poverty with financial services but they also provide a channel for their energy, skill, and creativity to improve life for us all. By mapping this previously uncharted territory, we can find a world more vibrant, fruitful, and varied than we can now imagine.
In this report we have outlined six pathways for how financial inclusion can serve the goal of ending extreme poverty. We have sketched a few maps, and tried to show how they might connect together. We hope we have inspired you to get out and explore, to see how the work you do can be combined with others to reach lands we only dreamed of before.
Box 6: The Business of Poverty Eradication
— Interview with Muhammad Yunus, Nobel Peace Prize Laureate and founder of the Yunus Centre, Bangladesh
As the founder of Grameen Bank, Muhammad Yunus’ idea of microcredit has spread worldwide and he is also credited with developing the social business concept.
If we talk about social business, we talk about business that is delinked from personal profit. So, if anybody wants to solve some social problem in a sustainable and ethical way, as we started with microcredit, then it’s very attractive to use the social business concept.
One area where we should encourage the governments to help with ensuring the right to capital for everybody is to create a separate legislation to create banks for the poor. As long as we only have laws for banks for the rich, you cannot push the entrepreneurs to create banks for the poor.
The other challenge is unemployment. We designed microcredit for the needs of the first generation, but now we are adjusting it for second generation, which is much more capable and educated. Unemployment goes across the social layers, so it has much more appeal. We should gradually be focusing on how microcredit, equity, or social business can play a role in dealing with unemployment. As we move forward, the distance between social business and microcredit will be within the same concept, one is the subject of another.
If you can solve unemployment you can also solve the problem of state dependence by creating options. Our aim would be zero dependence (of the people) on the state. How do we believe it can be done? To unleash entrepreneurship is absolutely critical. Microcredit can help. Social business can help. That’s my business. I use all these concepts in small scale and then in the process I define the methodology, which can be used for the next 500 people, the next 5 million people.
The real challenge is how to cut off the external part of microfinance funding. How do you become self-reliant yourself?
Box 7: Leadership Study Indicates an Evolving Relationship with Clients
— Interview with Glynis Rankin, CEO, Creative Metier, UKGlynis Rankin works to ensure that the financial inclusion industry possesses the leadership and capacity to ensure long-term success.
In advance of the 17th Microcredit Summit: Generation Next, Creative Metier interviewed industry leaders to understand their perspectives on leadership qualities, the challenges that they face, the importance of developing future leaders and ensuring diversity of leadership, and the ways that current leaders can support the next generation. The findings contributed to a plenary session on leadership on the first day of the Summit and provided insights into ways of supporting upcoming leaders to meet the challenges of an industry in transformation.
The study looked at leadership from the perspectives of industry founders, organization builders, innovators, and the next generation of leaders. In analyzing the interviews, we realized that these lenses are more about the life stages of a leader than the role that they are currently playing. While respondents at different stages of their leadership journeys expressed diverse perspectives on certain issues, the majority held similar views on the critical qualities and elements of leadership, and on the imperative to develop and support future leaders. Leading up to the Campaign’s next Summit, we will feature thought-provoking excerpts from these interviews on the Campaign’s “100 Million Ideas” blog to continue the essential conversation on how to support the next generation of leaders.
Respondents gave generously of their time and shared valuable lessons and illustrative experiences:
- Honing four essential qualities for leaders:
- The ability to stick with one’s own beliefs
- A clear vision and ability to inspire it in others
- The ability to change and innovate
- Understanding the clients’ perspective
- Knowing and understanding how new technology is impacting the industry and how to use technology to better serve the clients’ needs
- Figuring out how to motivate and empower others, build strong teams, and manage stakeholders
- Recognizing diversity as a significant benefit to leadership and an essential factor for meet the challenges of a changing context
Trying to summarize the work of a movement that stretches across the globe and includes thousands of institutions serving hundreds of millions of clients requires a host of helpers. We received 172 Institutional Action Plans in 2014 and relied on more than 43 individuals to verify this data. We recognize that, without their collaboration, there would be no report.
The following people provided interviews and/or written contributions for this report: Shameran Abed, Mariana Escobar, Syed M. Hashemi, Tara Nathan, Glynis Rankin, Luis Fernando Sanabria, and Muhammad Yunus. Alex Counts, Carmen Velasco, and Roshaneh Zafar reviewed a late draft and provided helpful suggestions that led to a stronger report. We are grateful for their input and for their ongoing contributions to the microfinance sector overall.
Microcredit Summit Campaign staff and interns have spent enormous amounts of time producing this year’s report. In particular, we wish to thank Camille Rivera and Sabina Rogers for their guidance of this project. Yanira García, D.S.K. Rao, and Despoina Sakoglou played a key role in the data collection. We also thank Fabiola Diaz, Sara Gailly, Jesse Marsden, and Xochitl Sanchez for their contributions. We are blessed each year in the quality of interns that support the Campaign; we wish to thank Karis Ailabouni, Marion Cosquer, Alba Donis, Sarah Elborai, Théo Fievet, Paul Gostomski, Barakah Ibisomi, Maeve McHugh, Anabel Ruiz, Kristin Smith, Despoina Sakoglou, and Carley Tucker.
Jeanne Gessa, Martha Martinez, and Soussane Mrini have translated the report into French, Spanish, and Arabic (respectively). Kristin Hunter copy edited the report, and we have Dawn Lewandowski to thank for the design and layout of the report. Virgilia Kasbarian designed the report website, and Julia Wall edited the videos. Yeshvanth Kumar and Apex Media helped with the data collection. We are grateful for their contribution to this effort.
The Microcredit Summit Campaign is grateful to those individuals and organizations listed inside the back cover of this report; without their financial commitment, reaching our audacious goals would not be possible. Citi Foundation provided the support necessary to bring this document to life. The Arab Gulf Programme for Development (AGFUND) provided the funding to bring this report to our Arab speaking audience. We are truly grateful for their support.
Most of all we are grateful to the women and men who find ways to use financial services to support their journey out of poverty. It is their hard work, dedication, and resilience that we want to celebrate in this report. Our wish is that this report and the discussions it generates helps us better understand the challenges they face so that those working in microfinance and financial inclusion can provide the products and services that help make that journey easier.
This report is the result of the contributions and experiences of many people who shared them generously. The decisions about what got put in and what got left out were ours, and we take full responsibility for any errors that are found herein.
Larry Reed, Director
November 11, 2015
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