Table of Contents
- Taking Steps to Target the Poorest
- A Global Context for Extreme Poverty
- Microfinance & Health Providers Can Partner for Greater Results
- Commercial & Social Businesses Can Expand Value Chains to Include Those in Poverty
- Mobile Network Operators Can Build Systems that Reach the Poorest and Most Remote
- Regulators & Policymakers Can Build a National Ecosystem for Inclusion
- Social Support Payments Can Become a Bridge to Financial Inclusion
- Being Accountable for Results
- A Commitment to End Extreme Poverty by 2030
The Center meeting in Tacloban of member clients and the CARD accounts officer started promptly at 8:00 AM. The roll call, though, showed that this meeting was not the same as most of those that came before. One man attended to represent his wife, who had recently died. Several absent members had left the city and would not return for a while. A few had not yet moved back to the barangay from the evacuation center and, due to the limited transportation, had trouble getting to the meeting on time.
Seventy-five days after typhoon Yolanda tore through the Philippines, destroying homes, robbing businesses, and taking lives, CARD’s member clients at the Center meeting were not interested in talking about their savings or loan payments. They spoke of fleeing their homes as water rushed in, able only to grab their children as they fled with just the clothes on their backs. They talked of neighbors who thought that their stronger cement homes would protect them—neighbors who perished when the storm surge rose too fast for them to get out.
They recounted harrowing hours huddled on a hillside, shivering in the rain and hiding behind rocks, as the 300 kilometer-per-hour winds felled trees and turned debris into missiles. They shared the empty feeling of returning to their neighborhood eight hours later and finding everything gone, with massive tanker ships driven onto the land where their houses had stood. And so began their scramble to survive, to find shelter and food, and to hope that outsiders would bring help soon. “We need rice and water (and yams),” they wrote in large letters in English on one of the stranded ships for the international aid organizations to see. Below it they wrote in their own dialect, “Don’t put trash here, this is our neighborhood.”
For a few days, they survived in an abandoned cement home in their neighborhood that still had a few rooms standing until aid agencies reached them and told them where evacuation centers were set up, offering food and cash-for-work programs. Some moved to these centers, while others went to family living far enough away to not be so badly affected by the storm.
They worked together cleaning their city, removing debris and dead bodies from the streets so that emergency workers could do their jobs. And, they used the relief supplies and the money they earned to restart their businesses, knowing that they would need money to start rebuilding. Those with food shared with those who had little. Those with shelter provided housing for those with none.
All of the member clients mentioned their surprise that their accounts officer had looked for them and found them. He visited the evacuation centers and the homes of relatives to locate each client. He explained when the Center meetings would begin again and where they could get the emergency rice, sardines, and vaccines that CARD provided to help them survive until they could start providing for themselves again. To those who had lost a spouse or children, he reviewed the simplified process for making claims, reminding them that CARD would maintain its 1-3-5 day payment-processing system once it could bring in cash to make the disbursements.
Slowly, they began reestablishing their businesses, buying a few extra items at inflated prices to sell in their sari-sari stores. They purchased rice seed to replant their fields because Yolanda hit just as the last crop had been harvested and set to dry. Many had started to rebuild their homes, while trying to run their business on the side. CARD also joined other microfinance organizations to provide teams of medical volunteers, nurses, doctors, and therapists to help clients with the physical and psychological traumas they sustained from the storm.
Today’s discussion at the Center meeting focused on the “calamity loans” that CARD offered to its clients who survived Yolanda. The accounts officer carefully explained the terms: 6- or 12-month repayment periods with a 1-month grace allowance, lower interest rate, and weekly payments. The women immediately probed for more details.
What if they did not have enough to make full payments at the end of the grace period?
Partial payments would be accepted
Would they be required to maintain a savings balance with this loan?
How much could they get?
Up to PHP 10,000 (Philippine pesos), or USD 220.
Could they use the loan for their businesses or was it only for rebuilding their homes?
They could use it for anything they needed to get back on their feet, including their businesses.
The women huddled together, calculating what they could afford and what they could do with the money. “We like this loan,” they told the accounts officer, “and most of us will take it. But we think you should call it a rebuilding loan rather than a calamity loan. We don’t want to be treated like victims.”
Later that afternoon, a line of people filled the lobby of the CARD offices and continued out the door, doubling back on itself three or four times until it reached the street. People waited patiently to receive their calamity loans. The doors of the office officially closed at 2:00 PM, but the staff let all those still in line outside come inside. After 9:00 PM, the staff made the last disbursement for the day and then began to quickly total the sums and balance the books, hoping to finish and get home by 10:00 PM.
In the 2013 State of the Campaign Report, we wrote about the vulnerability of people living in poverty. Living with little margin, they often suffer most when the economy fails, war erupts, or disaster strikes. Yet this experience with calamity can build resilience, as CARD’s clients in Tacloban demonstrate so clearly. A few weeks after the most devastating storm to ever hit land, the people there are rebuilding, stocking up their store inventories, selling to and buying from their neighbors, and sharing what little they have with those still in need. They pool the relief that has made it to them, turning it into assets they can use to reconstruct their community.
This response to Typhoon Yolanda also shows the transformational impact that a financial institution can have when it focuses first on getting clients back on their feet, rather than concentrating on recoveries and write-offs. CARD was the first financial institution to bring cash back into Tacloban. By injecting a mix of capital and care, they helped give their clients the hope, energy, and resources to get moving again. And CARD was not alone in this. Microfinance institutions (MFIs) in other parts of the Philippines provided similar supportive programs that included loan moratoriums, food and medical aid, quick insurance payouts, and new capital for rebuilding. This type of assistance has sped the recovery of Tacloban, where every neighborhood is busy with people working to rebuild their homes and businesses, while also taking care of everyday tasks, like washing their clothes and cooking their food. They suffered unimaginable losses, but working together, they have found the strength to get back on their feet and start over.
Taking Steps to Target the Poorest
How commonly is this aid, plus modified bank programs, offered by MFIs, like CARD, ASKI, OK Bank, HSPI, NWTF, and others in the Philippines? How often—and how well—do MFIs reach those living in extreme poverty and supply them the type of financial services that help build resilience to withstand economic, medical, and weather-related shocks? Our latest tally of microfinance borrowers suggests that it is becoming less common. I
n figure 1, the top line represents the total number of microfinance borrowers from 1997 to 2012. The line shows a steady climb from 13 million to 205 million in 2010. In 2011, it sank, when the total number of poorest clients reported being reached by microfinance organizations in India dropped by 15.4 million, and finally rebounded in 2012. The second line shows the number of clients who ranked among the poorest people in their country when they first became microfinance borrowers. This line has usually tracked closely with the top line, although the gap between them began widening in the last decade. The Andhra Pradesh crisis in India led to reductions in both numbers, but last year the number of poorest clients reported by microfinance providers continued to decline, while the total number of clients (top line) recovered its growth trajectory.
Figure 1. Growth of total and poorest clients (December 31, 1997, to December 31, 2012)
The easy assumption to make looking at figure 1 is that MFIs have decided to seek growth by recruiting or attracting clients who are less poor. However, a deeper analysis of the numbers tells a different and more interesting story. When the Microcredit Summit Campaign began collecting numbers on total clients and how many of these clients were among the poorest in their countries, few organizations used tools to measure poverty levels that could be benchmarked against the national poverty line. We accepted estimates on the percentage of poorest clients and then asked third-party evaluators to verify those results. Since then, benchmarking tools for measuring poverty levels, such as the Progress out of Poverty Index® (PPI®) and the USAID Poverty Assessment Tool (PAT), have become more widely adopted and, when applied, often show that MFIs did not reach as many people living in poverty as they thought they did.
Over the last few years, those organizations reporting to the Campaign and those verifying the results have become reluctant to give numbers of poorest clients because of the increasing prevalence of these tools and the evidence that commonly accepted practices of measuring poverty outreach were, in fact, inadequate and overestimating. For those who hesitated to detail their poverty outreach, we asked that they make a very conservative estimate based on what data they had on their clients. In recent years, we have seen dramatic drops in poverty outreach by some MFIs from one year to the next, and often the most common factor was implementing a benchmarking tool for the first time. The silver lining is that MFIs that employ poverty measurement tools and use the data to adapt their products and services to better meet the needs of those living in extreme poverty soon find the number of poorest clients they reach going up. The Philippines provides one clear example of this.
Figure 2. Microfinance clients in the Philippines (December 31, 1997, to December 31, 2012)
In 2010, the Microfinance Council of the Philippines, Inc., and Grameen Foundation began work to expand use of the PPI with 10 of the leading MFIs in the Philippines. As they applied this tool to measure the poverty levels of their clients, they found that they were not serving as many clients living in extreme poverty as they had believed. They spent the next few years redesigning their products, services, and systems to ensure that those in extreme poverty could access and make good use of them. The numbers reported from the Philippines (bottom line in figure 2) show the results of this work. Total poorest clients declined from 2.2 million in 2010 to 1.6 million in 2011, as the PPI reported more accurate results, and then grew to 1.9 million in 2012 as the revised products and services began attracting more people living in extreme poverty.
In box 1, Julie Peachey, director of the Social Performance Management Center at Grameen Foundation, explains the process of employing the PPI to assess and improve poverty outreach.
Box 1. The Progress out of Poverty Index
Julie Peachey most recently worked as country director for Grameen Foundation in the Philippines, managing a project focusing on microsavings product design and implementation.
Watch the interview online:
Grameen Foundation has developed the Progress out of Poverty Index (PPI) for nearly 50 different countries. We’ve been working since 2005 with Mark Schreiner to develop the PPIs and provide the documentation and support for organizations to be able to implement them, use the data for analysis, and drive towards what we really want, which is to use that information to serve more poor clients, as well as design more appropriate products and services for them.
The PPI can be used by any organization with a mission to serve the poor, so not just MFIs. It is common for MFIs to discover that their client portfolio is on average less poor than they had thought it was. There can be defensiveness or disbelief that that’s true. I think once they let it sink in, those that have a mission to really serve the poor will decide to take some action.
One main action is having a poverty outreach target and being able to measure how poor the clients are that they’re serving. The PPI can definitely be used for targeting, so if you’ve found that you haven’t reached as many poor people as you thought you would, you can use the PPI as a targeting tool. For prospective clients, you use the PPI make sure that you aren’t excluding the poor ones. You use it for targeting, but you can also use it for product design and making sure poorer clients aren’t excluded from your services based on how the products are designed.
We were taking the PPIs of all of [CARD Bank’s] customers of a new savings product. Wanting to make the product financially viable, we started out with a higher opening balance of 1,000 pesos (about USD 25.00). During the first few months of the pilot, we didn’t see as much take-up of the new product as we had projected and hoped for, so we decided to drastically lower that opening balance. We lowered it to 100 pesos (USD 2.50) and experienced a significant increase in people opening up accounts.
We looked at the PPI scores before and after. Before, around 27 percent of the clients were below the USD 2.50/day line. Afterwards, not only did we see an increase in the number of clients opening an account, but we saw about a 7 percent increase in that number that were below that USD 2.50/day line. It’s just really good information that this product is more attractive and appealing to the poorer segment with this lower opening balance.
The best practices that we would advocate for are to embed the PPI survey in the regular loan or service approval process, so that new clients have the PPI taken when they come on board and any time a loan is renewed. It’s ideal to be able to get that data into your database or have it be part of your core banking systems alongside all of the other data you have on a particular client. Once you have that, you can run reports. You can segment your clients. You can look at PPI by geography, by branch, by product, by gender. You could do really all sorts of analyses.
If you’re operating in a certain province and know that 50 percent of that province is poor, but you find that you’re only serving 2 percent of that 50 percent, that means you can find more poor clients. We’d like to get more people looking at penetration: what percentage of the really poor in an area is that institution serving?
A Global Context for Extreme Poverty
A family climbing out of poverty finds the journey not only steep but slippery; it is a Sisyphean task they may undertake many times, starting over again after being driven back to the starting point by events beyond their control. “
The roughly 2.5 billion people in the world who live on less than $2 a day are not destined to remain in a state of chronic poverty,” wrote Jake Kendall and Rodger Voorhies of the Bill & Melinda Gates Foundation in Foreign Affairs. “Every few years, somewhere between 10 and 30 percent of the world’s poorest households manage to escape poverty, typically by finding steady employment or through entrepreneurial activities such as growing a business or improving agricultural harvests. During that same period, however, roughly an equal number of households slip below the poverty line. Health-related emergencies are the most common cause, but there are many more: crop failures, livestock deaths, farming-equipment breakdowns, even wedding expenses.”
In this challenging environment, the world has made remarkable progress over the past decade in reducing extreme poverty. In its 2013 report on the Millennium Development Goals (MDGs), the United Nations (UN) stated, “The world reached the poverty reduction target five years ahead of schedule.” However, as figure 3 shows, most of the worldwide reductions in poverty have occurred in Asia, particularly China. Other regions of the world, notably sub-Saharan Africa, have far to go to achieve MDG 1. The 2013 MDG report continued: “1.2 billion people still live in extreme poverty,” “one in eight go to bed hungry,” “one in six children under age five are underweight,” and “one in four are stunted.”
The progress against extreme poverty has emboldened world leaders to envision a time when the world will have eliminated this level of poverty. In his 2013 State of the Union address, U.S. President Barack Obama declared, “Progress in the most impoverished parts of our world enriches us all—not only because it creates new markets, more stable order in certain regions of the world, but also because it’s the right thing to do. In many places, people live on little more than a dollar a day. So the United States will join with our allies to eradicate such extreme poverty in the next two decades.”
Speaking last year at Georgetown University, World Bank President Jim Yong Kim described the overarching goals and mission of the Bank’s work. “Our goals are clear at the World Bank Group. End extreme poverty by 2030. Boost prosperity and ensure that it is shared with the bottom 40 percent and with future generations. We have an opportunity to bend the arc of history and commit ourselves to do something that other generations have only dreamed of.”
In May 2013, the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, tasked with updating the UN MDGs, published its recommendations with a new vision for the development community. “Our vision and our responsibility are to end extreme poverty in all its forms in the context of sustainable development and to have in place the building blocks of sustained prosperity for all.”
The panel, co-chaired by Susilo Bambang Yudhoyuno, president of Indonesia; Ellen Johnson Sirleaf, president of Liberia; and David Cameron, prime minister of Great Britain, calls for five transformative shifts in the post-2015 development agenda. Describing the first of these, “Leave no one behind,” the panel wrote, “We must keep faith with the original promise of the MDGs, and now finish the job. After 2015 we should move from reducing to ending extreme poverty, in all its forms. We should ensure that no person—regardless of ethnicity, gender, geography, disability, race or other status—is denied universal human rights and basic economic opportunities.”
The Brookings Institution recently carried out a study of global poverty trends and the prospects of bringing the level of extreme poverty to zero by 2030. Figure 4 shows the range of possibilities in its projections. The overall conclusion is that the coming years will bring dramatic reductions in poverty, but extreme poverty will not be eliminated unless more is done to improve resilience for those living in the most fragile conditions. “Eliminating poverty,” stated the authors in the Brookings Institution policy paper “The Final Countdown: Prospects for Ending Extreme Poverty by 2030,” “hinges on a complex recipe: better-than-expected consumption growth and distributional trends in favor of the poor; country-by-country progress in transitioning fragile and conflict-affected states onto a stable path; strengthening the resilience of vulnerable households and economies to other kinds of shocks; the incorporation of isolated or excluded sub-national populations into the orbit of their economies; more deliberate and efficient targeting of the poor, including the poorest of the poor, at a country and sub-national level.”
Figure 4. Poverty range based on alternative scenarios for consumption growth and distribution combined
Source: Chandy, Laurence, Natasha Ledlie and Veronika Penciakova. The Final Countdown: Prospects for Ending Extreme Poverty by 2030. Fig.3, pg. 5. © 2013, The Brookings Institution. Used with permission of the Brookings Institution.
Financial services can play a key role in providing those in poverty with access to the benefits of growing economies and improving their ability to protect themselves against economic shocks. Kendall and Voorhies commented, “In many…situations, the most important buffers against crippling setbacks are financial tools, such as personal savings, insurance, credit, or cash transfers from family and friends. Yet these are rarely available because most of the world’s poor lack access to even the most basic banking services. Globally, 77 percent of them do not have a savings account; in sub-Saharan Africa, the figure is 85 percent. An even greater number of poor people lack access to formal credit or insurance products.”
Dr. Kim, addressing the Microcredit Summit delegates in the Philippines, spoke about the role of financial services in helping to end extreme poverty by 2030:
“The many organizations involved in the Microcredit Summit Campaign and the 100 Million Project are making important contributions to these goals. We value your dedication to reaching those who have no access to financial services. Financial services, such as savings and payments, can have an impact on poverty reduction. We need to increase citizens’ access to financial services to help us reach our goals. This is why we are committed to reaching the 2.5 billion adults who currently are financially excluded. When a poor family has access to something as simple as mobile phone payments or a savings account, it can open the door to services, such as water, electricity, and education.”
In the rest of this report, we will look at steps that MFIs, banks, mobile network operators (MNOs), policymakers, and regulators can take to expand the range of financial services to those living in extreme poverty in way that helps them address vulnerability and build resilience, and helps free the world of extreme poverty.
View Jim Kim’s video online:
Microfinance and Health Providers Can Partner for Greater Results
Those living in extreme poverty deal with multiple vulnerabilities, any one of which can impede their progress or pull them back into poverty. Health is one of the key constraints on everyday life and a primary cause of microfinance clients’ inability to repay loans and the catastrophic failure of their business. Combining basic health services with financial services can help clients build resilience. For health providers, MFIs offer a built-in delivery system that brings together hundreds of thousands, and sometimes millions, of clients every week. For MFIs there is a moral, or mission-driven, reason to address this problem, as well as compelling business reasons.
In India, the Microcredit Summit Campaign is partnering with Freedom from Hunger as the leaders of the Health and Microfinance Alliance to promote the dissemination and implementation of integrated health and microfinance. As of January 2014, the Alliance has partnered with 38 MFIs and self-help promoting institutions (SHPIs, which are Indian NGOs that support self-help groups) to reach 709,167 clients (mostly women) to provide them and their families with health-related knowledge and healthcare.
According to the forthcoming publication by Saha Somen et al. (2014), Integrated Health and Microfinance in India, Volume II: The Way Forward, there is growing body of evidence from around the world showing the efficacy of integrating health and microfinance:
Bandhan, an MFI serving nearly 4 million members in 18 Indian states, initiated health services in West Bengal, including monthly educational sessions reinforced by a network of Shastho Shohayikas [community health workers]…A longitudinal study of Bandhan’s program found evidence of improved health knowledge and behaviors that are directly related to improved survival and the health and nutrition of infants and children. The magnitude of the reported changes has also shown to be sustained over time (Metcalfe, Leatherman, and Gash, 2012)…
In Odisha, a cluster randomized controlled trial with members of BISWA was conducted to evaluate the uptake of insecticide treated bed nets (ITNs) through micro-consumer loans as compared to a control group in which the nets were distributed free. The trial found use of ITNs increased substantially in the group that had microloans for net purchase, with 16% of individuals using a treated net the previous night compared to only 2% in control areas where nets were distributed free (Tarozzi, 2011).
The Microcredit Summit in Manila featured a workshop on “Elements of Successful Financial Services and Health Partnerships.” John Alex, head of social initiatives for Equitas, commented, “We have reached 1.5 million in the [health] screening [in the past 6 years], so every client that joins us is assured of a health check-up. That’s a promise I want to make; we have committed to that. What we believe at Equitas is, if you can’t scale up, don’t do it. You have a plan; if it’s not scalable, don’t pilot it at all…No tokenism.”
Equitas, in partnership with Apollo Hospitals, is also investing in telemedicine, which can bring quality healthcare facilities for diagnosis, treatment, and prevention of diseases to underserved rural and urban slums for one-tenth the cost of visiting a hospital in India—or even less. Alex went on, saying:
At USD 1.00, we provide the same service on a computer (that costs USD 10.00 in the hospital). It has a small kit, which measures the BP [blood pressure], ECG [electrocardiogram] to check for problems with the electrical activity of your heart, and stethoscope—in fact the doctor can hear the sound, sitting in Jaipur or sitting in Chennai…And, we use an electronic pen to send a prescription. She [the client] takes the print-out, walks into a pharmacy, and walks away [with her medicine], taking healthcare beyond the walls of the hospital. And, my dream is to bring it to a mobile [phone] so that you can reach all people.
MFIs like Bandhan and Equitas have found that by providing clients with health education, health financing, and health products they can help their clients take the steps needed to prevent illnesses, which mean they have more time available to work and fewer medical expenses.
Box 2. Reaching Scale by Combining Financial and Social Services
John Alex conceptualized and set up Equitas’s team for Social Initiatives, focusing on addressing a large spectrum of requirements for clients in fields, such as health, education, skill development, food security, and placement for unemployed youth.
Equitas’s social mission includes improving the household asset value, and we do it through cutting-edge technology. We partner with anybody who helps improve the quality of life in the field of education, health, skill development, placement services for the unemployed youth, and food security. We were very clear, right from day one, about what we wanted, and we told our investors we would be spending on that. And that has paid off in terms of loyalty. We did multiple studies from the clients’ perspective, and we found that the client value for every 1 rupee that we invest is 25 times more. And, the staff feels great about doing it. We got an award in the “Great Places to Work.” That’s probably one of the reasons that Equitas scaled up: we focused not only on the financial side, but we focused equally on the social side too.
We have 1.5 million women, of whom about 200,000 are single mothers. If there is an emergency, she is not going to be getting income, so the whole family may go hungry. We said she should be provided a grocery store where she can walk in, get groceries for approximately 10–15 days (during the cash-flow crunch period). She will not go hungry and she can pay back after a period without interest. This business is sustainable. If we make a marginal profit out of it, we can expand or probably reduce the rates.
We are doing health screenings for free. We have a budget for every branch; it’s mandatory that 50,000 clients are screened each month across our 320 branches. The promise that we give clients is that when they join Equitas, they will have a free health checkup.
My advice to fellow practitioners is that you have a huge unmet client base and you have multiple ways of helping them. Be honest, be transparent, and be humane
CARD MRI in the Philippines is another leader in integrated health and microfinance. With Freedom from Hunger’s technical assistance, CARD started offering health education 15 years ago, using credit officers to deliver behavior-changing health lessons during credit-group meetings. They now have education modules covering nearly 40 health topics in Tagalog, plus many local languages. Marilyn Manila, community development group director at CARD MRI in the Philippines, revealed that “health is actually embedded in the vision and mission of CARD.”
Two million people across four financial institutions receive CARD’s health services, and CARD plans to scale this up to 5 million people by 2015. Several years ago, Manila remarked, “CARD embarked on deeper and broader health-services provision to our clients [beyond the health education],” partnering with the government to enroll CARD members in PhilHealth, the main government health insurance facility.
“We prepay the annual premium of the health insurance,” explained Manila, “and then we give that out as a health loan at a significantly lower interest rate than our business loans. We also partnered with service providers: doctors, clinics, dentists, hospitals, laboratories…We told the health providers, we’ll give you the numbers and you just give the discount to our clients.” CARD then educates their clients about the health services they can access from the network of partner healthcare providers. In addition, CARD has created its own pharmacy, BotiCARD, to provide “low cost, but high quality medicine.”
In the first half of 2013, 18 of the largest MFIs in the Philippines signed a memorandum of agreement to consolidate and share their resources to provide the best healthcare possible to their combined clients. The Joint Microfinance and Health Protection Program, or MFIs for Health, will make available to a total of 4.4 million clients the health resources of the 18 MFIs who signed. With this, their clients now have wider and easier access to quality and affordable health services.
The Health and Microfinance Alliance piloted a set of useful indicators for measuring client well-being, particularly in the area of health. These health indicators should provide an institution with a dashboard of health indicators that they can track in a way that makes sense for their organization. A successful application of the health indicators can provide an institution with actionable data over time. Results of the pilot will be reported at the end of 2014.
Commercial and Social Businesses Can Expand Value Chains to Include Those in Poverty
Businesses can play a key role on building resilience and creating opportunities for those living in extreme poverty, be it through market facilitation and value development or creating a whole new business paradigm with social businesses.
Value Chains that Reach Those in Poverty
Creative business leaders have begun to see how the value chains that they operate in can provide stable and growing incomes to small-scale producers. One of these creative businesses is the Jollibee Corporation, the largest fast-food chain in the Philippines.
Jollibee used to source most of its onions from imports. They found it too complicated to work with small-scale producers in the Philippines to get the quantity, quality, and on-time delivery of onions that they needed. Then they began working with a consortium of the National Livelihood Development Corporation (NDLC), Catholic Relief Services (CRS), and the microfinance institution ASKI. CRS provided training and support to a famers’ cooperative to begin growing onion. ASKI provided a loan for the fertilizer, seed, and equipment needed by the co-op. The NDLC provided funding to ASKI and a refrigerated truck for transporting the onions. Now the 53 farmers in the co-op earn their living supplying onions for Jollibee, many others in their community earn money by peeling them before they get transported, and Jollibee has high-quality onions at a good price. The San Miguel Corporation is employing a similar scheme with CRS and NDLC in obtaining cassava for its fruit drinks.
Muhammad Yunus, founder of Grameen Bank, presented social business as a way to use business principles to address the needs of those living in poverty. “A social business is a selfless business,” said Yunus, whose objective is to solve a social problem rather than to return profits to investors. Yunus recommended that MFIs stay focused on providing financial services to their clients, but that they help create other social businesses to address other challenges that their clients face. “When you break down big problems into their components, they become solvable,” Yunus continued, “and if you address it through the social business model, it becomes sustainable.”
Box 3. The Future of Poverty Eradication
Nobel Laureate Muhammad Yunus is the father of microcredit, the father of social business, and the founder of Grameen Bank. He is also the founder of more than 50 other companies in Bangladesh and has received numerous public recognitions for his work with the poor.
Microcredit is not just about giving a few dollars to help people start small businesses. The whole idea is to help people move out of poverty. The idea of microcredit also coincides with the Millennium Development Goals. The MDGs’ 2015 target date is approaching, and we can stand on the work done through microcredit and other efforts, such as healthcare, education, and technology.
Still, microcredit is not a single element. The overall goal is to lift the person and their family out of poverty, so partnerships are always important. How do you do that? How do you bring people together for this purpose? Microcredit needs to make sure that it specializes in its own work, but at the same time it needs to collaborate or create other institutions for health, education, and technology. For example, Grameen Bank concentrates on financial issues and financial services, but we created other companies and other organizations. We have health, we have education, we have technology, we have the environmental. We have created more than 60 companies, but we have not given up on our objective.
Changes in technology have also had an impact on everything we do. We should be inviting technology to facilitate this. Even if technology is modified, new technology should also be created. Most technology companies, particularly those with a global presence, are too big to consider poverty alleviation. We need to create our own separate technology companies and platforms as we go along.
A second generation is coming, within management and among borrowers. I think the Summit’s emphasis, or any other congregation, should concentrate on this second generation. We need to find new people to speak. New organizations are coming forth. How do we bring them into the fold of this discussion and expose them to new ideas from the outside? They should be invited as special guests. What is the second generation of organizations’ leadership doing? Who is bringing in technology so we can share it? They are the ones who really need the change.
Among borrowers, the parents of the second generation have extreme limitations. But Grameen Bank’s second generation is now 37 years old. They are articulate. They are not like their [parents]. Many of them went to school. They understand their mother’s condition, their father’s condition. What if something is wrongly done by a microcredit organization? Let these young people talk about it.
Mutually Reinforcing Institutions
Yunus sees two different type of social business. Type 1 is a no-profit, no-loss company to which the initial investment is paid back, but investors cannot receive dividends. Type 2 is a company owned by the clients it seeks to serve. In Jaime Aristotle Alip’s estimation, clients must have control over the resources because “he who has the gold will always rule”; therefore, “the number one manifestation for us is giving ownership.” Alip, founder of CARD MRI in the Philippines, has set up the various mutually reinforcing institutions in the CARD family of companies as type 2 social businesses, owned by their members.
Social business is transformational for the poor because through ownership, he noted, they “feel that they belong, that they are part of the institution. It also determines their destiny, while [at the same time] they determine and dictate their own products and services attuned to the needs of their members.”
CARD is “in the business of poverty alleviation,” said Alip, which means that it must also address some of the non-financial constraints faced by people living in the communities where it works. Similar to Yunus and Grameen, CARD does this by creating separate businesses to address each challenge. CARD today has 12 “mutually reinforcing institutions,” which are separate businesses whose managers meet together regularly to decide how they can support each other’s work. CARD’s MRIs include health facilities, (health insurance, a pharmacy, and a medical lab), five financial institutions (a microfinance NGO, a microfinance bank, a rural bank, an SME bank, and a leasing company), an insurance agency, a technology company, a marketing company, and a training institute.
Social Business Banks
The Arab Gulf Program for Development (AGFUND) has used the social business approach to open banks in the Middle East, Africa, and Asia. Nasser Al-Kahtani, executive director, described the appeal of the social business approach to investors from the Middle East and other parts of the world who do not feel comfortable earning a profit at the expense of the poor. With Yunus’s help and the intervention of the King and Queen of Jordan, Al-Kahtani remarked, “We opened the first bank in Jordan as a social business. When that was successfully done, we opened our bank in Yemen as a social business. And, this is how it started, bringing business people to the table.”
Since 2006, AGFUND has opened eight banks—it launched the most recent one in the Philippines this past February. “The good thing about how we make ourselves different is, first of all, that our investors are business people who believe in social work,” said Al-Khatani. “What makes us different from banks [is that] we have no pressure from our board or shareholders to issue dividends. We have one pressure: to solve social problems. You see, this is the point.” And AGFUND has proven that point in Yemen during the Arab Spring and now in Syria.
During the Arab Spring, our bank in Yemen didn’t close even one day. When the Arab Spring started, we had 11 branches serving 15,000 [people]. When the crisis ended, we had opened 17 branches [and] increased our numbers to 25,000 clients. We recruited more than 100 officers during the crisis…If we had been a for-profit bank, we would have [closed down] because of pressure from the shareholders… Now we are in Syria. We opened a new branch last month. One of our branches in Damascus collapsed, but we opened a new one. We are there to help people; we are not there to make money and withdraw. If we were a big bank or [needed to] make money for investors, we would leave right away with everybody.
In banking, pharmacies, insurance, and many other types of businesses, the social business model provides a new way to apply business skills to address social problems in a sustainable way.
Mobile Network Operators Can Build Systems that Reach the Poorest and Most Remote
Having access to finance at the time of economic, health, or weather-related shocks can greatly increase the resilience of those living in poverty. Yet transaction costs pose a significant challenge to those seeking to provide financial services to people transacting in very small amounts or living in remote areas. The cost of providing the service often exceeds the price that the client can afford to pay. People living in poverty must manage daily transactions with incomes that are small, inconsistent, and often unpredictable. They will spend just enough for each day, buying enough cooking oil for the evening meal or enough laundry soap for one wash. They need financial services that match their cash flows, which enable what Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation, calls “sachet-size transactions.”
Paying staff to manage transactions of this size becomes very expensive. “On average poor people pay up to 74 percent more for financial services than rich people. And the economics don’t work for providers either, except in microcredit because we could charge high rates of interest,” said Voorhies.
Ian Radcliffe, of the World Savings Bank Institute (WSBI) reported its research that calculates that people living in poverty can only afford to pay about USD 0.60 a month for financial transactions, an amount far lower than the cost to employ staff to manage the transactions. Moving transactions to mobile platforms can drastically reduce many of these costs. “Digitization can cut 90 percent of the cost of transactions, reduce paperwork, and increase the number of people reached by financial services,” stated Voorhies. The delivery of financial services over digital platforms is one of the most promising tools for achieving a cost-effective pathway to financial inclusion at scale. Globally, mobile phone use has grown at an explosive pace, and the ubiquitous use of mobile phones makes them an effective, cost-efficient, and scalable service delivery platform. But transferring money from one point to another is only part of the cost of providing the types of products and services that help those living in poverty build resilience. Organizing client groups, providing financial capability training, and connecting clients to social networks that provide support in times of trouble often requires a level of human connection that cannot easily be replaced with digital communication. The challenge for widespread adoption of a broader range of products will be in finding efficient methods to combine human and virtual connections that generate the scale needed to cover costs and the client-level results that lead to greater resilience.
Box 4. Accessible Technology for the Poor
Ian Radcliffe is responsible for institutional relations with member banks and key international stakeholders as well as the global training and consultancy activities at the World Savings Banks Institute (WSBI).
The poor have been saving for decades, if not centuries, using informal methods, such as savings clubs. In some ways, the poor are probably more sophisticated in their financial dealings than people from wealthier countries as a consequence of their circumstances. But, these informal methods are inherently unsafe and leave the poor exposed to excessively high risks, so WSBI supports initiatives that help to bring poor communities into the formal financial sector.
We now understand a great deal more about demographics in different countries. We have done a lot of work on how people cluster to see how far they will walk to save money. We came to the conclusion that the maximum you can assume is about 2 kilometers. It poses the question: how many locations with agents actually exist within a 2-kilometer radius of where people are prepared to walk? The answer varies from country to country.
In Kenya, the cut-off where clusters stop having the scale to reach a bank agency comes after about 1,000 urban or distinct rural centers that contain about 55 percent of the population. But with a mobile telephone you can reach out to populations that live within a 5-kilometer walking distance of a cash-in/cash-out facility, as people are prepared to walk further to pick up or send a transfer. As a result, mobile networks get out further; in Kenya they can reach about 85 percent of the population.
In Vietnam, our partner is working on an innovative approach where you can send money, but if the person does not have any type of account, then their telephone will automatically open a mobile wallet. If the person wants to keep it on their phone and send it on to somebody else, that it is possible. But if they want to do something else with the money, they will have to go to a bank to get the cash.
Our research tells us that in the poorest countries people can only afford to spend around 60 cents a month on bank charges. If a bank needs to service, say, five transactions a month and [will] only receive 60 cents each to cover costs, that is a major challenge. A bank has to work out what mix of channels—branches, small kiosks, ATMs, and mobile—can deliver that sustainably.
A bank is a business and has to make a profit. We are still raising awareness of the fact that it is possible to price aggressively low in order to make offering services to the poor affordable, yet still offer that service sustainably. By understanding the needs of poor communities, partnering with mobile network operators, and/or developing agency networks, plus getting the right pricing, it is possible to achieve a business case. Nevertheless, there are challenges.
We are now at the beginning of the next stage and have developed business models that show you can put on very large volumes by dramatically reducing prices. In fact, you can end up attracting more revenue, not less, and we have seen examples in Brazil and Tanzania. I would foresee going forward a sort of a hub and spoke-type structure where you have traditional branches physically present in urban areas with a surrounding network of agents to make affordable saving a reality.
Low-income clients have shown the ability to adopt new technology when it provides them with essential services at much lower cost or with much easier accessibility than the alternative. A study by William Jack and Tavneet Suri of the M-PESA mobile payment system in Kenya describes how their system grew from its launch in 2007 to cover 70 percent of the Kenyan population today. The study stated that “while M-PESA use was originally limited to the wealthiest groups, it is slowly being adopted by a broader share of the population,” including those in the bottom quartile of household expenditure. Compared to the option of receiving money from relatives far away only on their sporadic visits home, or through a USD 5 bus ride into the city, low-income people in rural areas quickly found out how to get access to a mobile phone, receive a funds transfer on it, and travel to the nearest agent to turn the digital funds into cash.
In addition, access to mobile payments can play a key role in reducing vulnerability and building resilience. Jack and Suri studied low-income families in rural Kenya who experienced economic shocks. Those with access to M-PESA received a greater number of remittances and more money from friends and family than those who did not have access to M-PESA. Access to mobile money gave them the ability to tap into a larger network and weather the economic crisis.
Banks, MFIs, and MNOs are still working to develop the types of products and services that will drive a rate of adoption similar to that of payment services. In an interview with the Microcredit Summit Campaign (box 3), Rodger Voorhies explained how payments could be used as a starting point to introduce a wider range of financial instruments to those who had previously been excluded from the formal financial system.
Box 5. Digital Cash to Expand Financial Access
Rodger Voorhies is director of the Financial Services for the Poor (FSP) initiative, leading the Bill & Melinda Gates Foundation’s effort to make high-quality financial services widely accessible to the poor throughout the developing world.
One of the most exciting things going on is the ability for mobile money to reach down into really poor households. In a country like Tanzania, 46 percent of households have a mobile money user. There may be one person in the household sending money to friends, but it opens up all kinds of innovations that before were previously unavailable. We [also] know savings have a big impact on poor people. We expect a lot of self-discipline if they are going to be able to save. Commitment accounts work, but poor people do not have a way to get them. We know that paying for insurance helps in a risky situation, so if we want to bend the economic curve, we need to focus on payments that both enable financial services that had previously taken too much self-control and, secondarily, allow us to carry out sachet-sized transactions, which fit the way poor people live. Poor people will adopt technology that works for them.
I cannot think of a more transformative thing microfinance could do than to figure out how to offer financial services to small-holder farmers. A lot of things have been tried: government programs, downscaling of banks, and de-risking of market players through subsidized credit. None of those have really worked sustainably. It is time for microfinance to be truly innovative about how they would reach this group. The impact would be substantial at the household level, and it shows up in different ways, including improved seed and improved soil nutrition.
Financial Services for the Poor tries to pick places where we can be more catalytic, and some of that is upstream innovation. How do we bring new business models and new technology into these communities? Part of our work is to develop public goods that get better data. Our goal is to work with the public and private sectors in deep partnerships where we can play a unique role at the upstream level, the data level, and at the crowding-in level. We hope these efforts leverage some of the resources that other organizations, multilaterals, and bilaterals can bring.
Another key to making the economics of mobile savings work for both clients and providers is to have aggregators who can build a large enough pool of clients in an area to make it cost effective for the MNO and/or bank to work with them. CARE has tested this by working with its clients to find ways to link village savings and loan groups with Equity Bank in Kenya via Orange Money, a mobile payment service of Orange Kenya.
Lauren Hendricks, executive director of CARE’s Access Africa program, explained how this works. “A savings group or their representatives can go to any Orange agent, sign up for a ‘Pamoja’ account, and that automatically opens a banking account for the group at Equity Bank. The accounts were designed by Equity especially for savings groups. They have no minimum balance, minimal withdrawal fees, and no deposit or ledger fees. Once the account has been created, it can be accessed using any mobile network, such as Vodacom or Airtel.”
Selling Insurance through a Mobile Phone,
Insurance builds resilience by providing funds when death or disaster strikes, but selling insurance can be a tough job, even when selling to wealthy people. It becomes even more difficult when trying to sell it to people living in poverty. Sendhil Mullainathan and Eldar Shafir, authors of the book Scarcity: Why Having So Little Means So Much, explain why:
When asked why they are uninsured, the poor often explain that they cannot afford insurance. This is ironic, since you might think the exact opposite: They cannot afford not to be insured. Here, insurance is a casualty of tunneling. To a farmer who is struggling to find enough money for food and vital expenses this week, the threat of low rainfall or medical expenses next season seems abstract. And it falls clearly outside the tunnel. Insurance does not deal with any of the needs—food, rents, school fees—that are pressing against the mind right now. Instead, it exacerbates them—one more strain on an already strained budget.
Afua Boahemaa Donkor, general manager of Star Microinsurance in Ghana, details in box 4 the challenge in Ghana of delivering insurance to those in poverty. Star Microinsurance serves more than 1.4 million clients with more than five microinsurance products designed specifically for the needs of the low-income Ghanaians: credit life, healthcare, funeral costs, child health, and education.
Box 6. How Microinsurance Can Work for the Poor
Afua Boahemaa Donkor is credited with setting up Ghana’s first locally owned microinsurance company and developing a set of products initially deployed into newly created markets for microinsurance products in 2008.
Microinsurance is supposed to be SUAVE—by that I mean it’s simple, understandable, accessible, fundable, and efficient—so exclusions are very limited. It will cost me more to take a customer to the hospital to test for diabetes than to simply issue the policy. The policy is so small, the premiums are so little, and the cost of doing what is necessary to exclude customers is too expensive. So with most of the microinsurance products, the exclusions are limited.
Because the cost of these products is quite high in terms of administration, it’s very important that you establish good distribution channels that can give you access to large numbers of people more easily in order to minimize costs. By collaborating with Ghana Post [the country’s postal service], community-owned rural banks, the Ghana Association of Microfinance Companies, and other networks, Star Microinsurance is able to expand access to its products to a large number of people quickly and at a lower cost.
Unlike microfinance, which is more demand-driven and where the customer understands how a loan works and what the benefits are, here, with insurance, you need to give me money and then, when something happens, I’ll pay you. What if that thing never happens? When you’re dealing with an informal person who has no education and is illiterate, it’s really, really difficult to sell to them. Even though they know that they need it, insurance is not a priority for them; their priority is more about what they need now, today.
In Ghana, it doesn’t make a difference whether a person is in an urban or rural area; insurance is a very difficult thing to sell. One way that Star Microinsurance effectively promotes its insurance products is by working with partners to provide financial literacy training. We do posters, brochures, and “team waves,” where we go out into the community and try to educate the people. Part of our profits goes into providing this service because if we don’t, we cannot sell our insurance product. Anything that will help us put financial literacy out there, we do it.
Richard Leftley, founder and president of MicroEnsure, faced this challenge in Ghana. In trying to design life and health insurance for people in poverty, he struggled to find a price point and a delivery system that would be affordable to the people he wanted to reach. “We realized that no one wakes up wanting to buy insurance,” said Leftley, “but people do wake up worried about the risks they face and that the mass market will radically change their consumer behavior in return for free insurance that addresses their risk.”
He decided to find a partner that would find enough value in the changed consumer behavior that they would subsidize the free insurance. Leftley turned to the mobile network operators, who face customer churn (subscribers choosing another operator for their next phone card because that company’s vendor was close by or they offered a special promotion that month). Could free insurance create more loyal customers at high enough rates to make offering the insurance cost effective?
Airtel Ghana, in partnership with MicroEnsure and Enterprise Life, found that this worked. After testing the product they have now rolled it out nationwide. “Any Ghanaian resident between the age of 18 and 75 years, in any region, can qualify for coverage, making it the most widely accessible insurance coverage in Ghana. Airtel Insurance rewards loyal Airtel customers with a renewable monthly life, permanent disability, and hospitalization coverage based on the amount of monthly airtime used.”
Leftley said that this experiment shows that “low- and middle-income people are willing to be much more loyal and spend more of their wallet on airtime from those telcos that offer free insurance in return for loyalty.” MicroEnsure is now implementing similar models in Tanzania with Airtel, in Senegal with Tigo, in Pakistan with Telenor, and in Bangladesh with Grameenphone.
Regulators and Policymakers Can Build a National Ecosystem for Inclusion
Government policymakers and regulators can play a key role in building a financial ecosystem that encourages innovation, competition, and diversity in offering the type of products and services that help to reduce the vulnerability and build the resilience of those living in poverty. The government and Central Bank of the Philippines (Bangko Sentral ng Pilipinas, or BSP) have taken this on as a mission, as described by Governor Amando Tetangco, Jr., speaking at the Microcredit Summit in Manila:
Through the creation of a system that benefits everyone, it is possible to empower people to move out of poverty. Moreover, by making the financial system more inclusive, it is possible to make it more stable. BSP has used microfinance since 2000 as its main vehicle toward poverty alleviation by issuing policies and regulations to guide those banks engaged in microfinance. BSP has created a system that allows for policymaking, stemming from dialogue with regulated entities, microfinance stakeholders, and bank associations.
In box 7 below, Pia Roman, deputy director of BSP, explains how they work with many stakeholders in the financial ecosystem to encourage the type of financial inclusion that reaches those in extreme poverty.
Box 7. Frameworks for Financial Inclusion
Pia Bernadette Roman Tayag is involved in the overall financial inclusion work of BSP, particularly in the areas of policy and regulation, capacity building, advocacy, and relationship building.
BSP, the Bangko Sentral ng Pilipinas, believes that financial inclusion is something that could be pursued side by side with more traditional responsibilities of financial stability and price integrity. Our strategy has been to enable the environment, the market players, to develop solutions to address access issues. We know that policymakers, even the government, are really not the most ideal providers of financial services. The private sector is best tasked to do this.
Our role is to create an environment that allows for innovation and lowers barriers of entry to new players and to new products, so we can see these solutions develop and flourish. We also make sure that everything is done in a solid and sustainable manner, so that the public is protected, and there is trust in the system.
Microfinance is the foundation of our work in financial inclusion. We developed enabling policies that give space and flexibility for innovations, for creativity, because we know that this is new territory for the banking sector. Partnerships are really very important in delivering what we want to deliver at so many levels.
Through the Maya Declaration and the Alliance for Financial Inclusion network, we have come up with very tangible commitments. One is to coordinate with other financial regulators, so that we can craft a holistic approach to financial inclusion. While the banking system is at the forefront of the financial system in general, there are other players [cooperatives and NGOs] that have significant potential in reaching the unbanked and the marginalized. This is why we are working towards a national strategy for microfinance with clear coordination mechanisms, clear responsibilities, and clear principles that will guide and hopefully coordinate all of the actions of government.
In the Maya Declaration, we also have a very tangible commitment of enabling all Filipino adults to have a deposit account. It need not be a savings account, but it can be a means to send and receive money more securely and more efficiently, or a means to access credit for business or other means.
We are also committed to making sure that the public is adequately protected and that financial services do no harm to those that it wishes to serve. We are also increasing our own capacities to understand the technical side of these innovations. If those [retail payments] providers can reach out to these last-mile clients, it can help in making the system more inclusive, efficient, and cost-effective. As a result, we are working with players that we never used to interact with before, such as telecommunication operators, payment system providers, and other technology companies.
It is really a frontier, pioneering area, and we are committed to increasing our own capacities to fully understand this, so that we can enable it further. We believe that innovations and the use of technology have the potential to unlock the promise of financial inclusion at a much broader scale.
By working with payment providers and MNOs, regulators can also help to create an interoperable payment system that works across networks and to make sure that this system can deliver appropriate products and services that can reach those at the bottom end. For financial inclusion to reach everyone, it must have a platform that can deliver financial services to the poorest clients at costs that they afford. It is much easier to build a platform that reaches those in extreme poverty, and then add additional products and services for those with more income, than it is to try to reduce costs in a system designed for those with more wealth in order to make it affordable to those in poverty.
BSP works with other central banks and ministries of finance in the Alliance for Financial Inclusion (AFI), a global association. AFI serves as a world-wide knowledge-sharing network of policymakers and regulators working to expand financial inclusion in their countries. Sung-Ah Lee, director of global partnerships for AFI, explained how they foster the formulation and implementation of effective policies for financial inclusion:
Countries that have set precedents in policymaking for the financial inclusion arena, such as the Philippines, can be mirrored by others. The Alliance for Financial Inclusion has taken the financial inclusion movement to an international industry-wide level. By creating a network where policymakers and regulators from developing and emerging countries can share, develop, and implement policies, businesses, NGOs, and consumers can be encouraged to provide and demand better quality financial services. AFI recognizes that policy is the right tool for various sectors in order to provide access, usage, and good service in the financial sector.
AFI members have developed a process for encouraging accountability for results in the peer-to-peer learning network. In 2012, the AFI members approved the Maya Declaration on Financial Inclusion, calling on “developing and emerging country governments to unlock the economic and social potential of the 2.5 billion poorest people through greater financial inclusion.” Over 90 countries have signed on to the Maya Declaration, and 45 have made commitments for the steps they will take to accomplish full financial inclusion in their countries. Lee described the role of Maya Commitments in building financial inclusion:
The process of publicly making a commitment creates peer pressure for members, especially in setting targets and accomplishing goals that are particular to their country contexts. In particular, AFI has recognized that there is a strong commitment towards national strategy development, demonstrating that policies involving financial inclusion should not be done on the side…The trend to also focus more on measurability, quality, and data to learn from each other has allowed AFI to create a peer group that can move financial inclusion in a global direction. AFI represents a way for policymakers and regulators to learn from each other as they build frameworks for fostering inclusion.
Social Support Payments Can Become a Bridge to Financial Inclusion
Government social development ministries can play a key role in reducing vulnerability and building resilience through the way they administer the transfer payment programs for people living in extreme poverty. Conditional cash-transfer (CCT) programs are initiatives that give cash to poor households on the condition that those families take specified actions, like keeping their children in school and taking the family for regular health checkups. Through these social safety-net programs, governments seek to reach the poorest households, help smooth consumption through a small infusion of cash, and stop poverty from passing to the next generation by improving the education and healthcare of participants’ children. These programs have been proven to improve the lives of poor households, raise consumption levels, and reduce poverty and to lead poor households to make use of health and education services for their children. The number of governments implementing CCT programs has risen dramatically from 3 countries in 1997 to over 40 countries today.
What impact do these programs have? Tina Rosenberg covered them for the New York Times:
Today, Brazil’s level of economic inequality is dropping faster than that of almost any other country. Between 2003 and 2009, the income of poor Brazilians has grown seven times as much as the income of rich Brazilians. Poverty has fallen during that time period from 22 percent of the population to 7 percent…
Several factors account for Brazil’s astounding feat. But a major part of Brazil’s achievement is due to a single social program that is now transforming how countries all over the world help their poor…
The program [is] called Bolsa Família (Family Grant) in Brazil…The generic term for the program is conditional cash transfers…The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow.
CCTs as a Tool for Financial Inclusion and Asset Building
Achieving full financial inclusion will mean reaching the 2.5 billion people who are currently unbanked. This requires large-scale schemes, large-scale targeting, and large-scale mobilization of funds. Conditional cash-transfer programs have the potential for scale through existing government payment infrastructure, they can effectively target households through data/mapping methods employed by the government, and they have the monetary backing of public funds. The governments of Brazil, Mexico, Peru, Chile, and many other countries have made CCTs a “kind of institutional vehicle for financial inclusion schemes,” as Yves Moury, founder and CEO of Fundación Capital, called it, by establishing accounts for recipients in banks, MFIs, and credit unions and routing the transfer payments through these accounts. In Latin America and the Caribbean alone, CCTs are serving 25 million poor families (110 million people).
At their core, CCTs are poverty-reduction programs that facilitate a family’s movement out of poverty through transfers of small amounts of cash to smooth consumption and allow investments in their healthcare and their children’s education. CCTs can also increase resilience when they are used to encourage regular saving. Moury shared an expression common among women in Bolivia: “when I have money in my hands, my money becomes water.” By connecting the cash-transfer scheme to bank accounts, recipients start to save and create an account history with the formal financial system.
Some governments provide more overt incentives for CCT participants to save, such as a lottery for CCT recipients who use the same bank branch. The winner receives 10 times the amount of whatever savings they have in their account. In more rural situations, CCT programs work with savings groups, and groups receive a bonus payment from the government if all members make all of their scheduled group-savings deposits.
Box 8. Going to Scale for the Poor
Yves Moury is the founder and CEO of Fundación Capital, a specialized nonprofit institution that focuses on asset-building for the by integrating community practice, public policy, and private markets in order to achieve mass-scale results.
Ten or twelve years ago, we developed extremely powerful tools to financially include the poor, women basically, through the opening of bank accounts in regulated institutions. Then we started thinking about how we could go to scale. We decided to use conditional cash transfer programs (CCTs) as a kind of institutional vehicle to articulate financial inclusion and savings mobilization with those social protection mechanisms. Poor people are dramatically exposed to adversities and risks, and a savings account helps them better manage risks, insurance, and improve social protection schemes. It’s also a good opportunity for CCT programs because it lowers drastically their operating costs.
We expect to have 5 million families fully financially included in 2016 and probably 8 million in 2018. We need huge, massive, financial capabilities programs, mostly using digital solutions, in order to go to scale. Buying 40 or 50 iPads and developing an interactive, digital, financial education system, we left the tablet computers in communities with no training. A month later, all those women knew perfectly well the content of this financial education program; even the kids knew the content. Their self-esteem was sky high because they got access to a fantastic technology, and we didn’t lose one tablet. We now work with tablet computers costing USD 150 each, and it’s much cheaper than any face-to-face financial education system because one tablet circulates among 200 to 300 families. We call this innovation LIFT (Leveraging Financial Inclusion with Technology). We are now using, or about to start using, this tool in Brazil, Guatemala, El Salvador, Colombia, the Dominican Republic, and Ecuador. We will soon have almost a million beneficiaries.
We believe that savings is the best starting point through which people can progressively access other financial services. And savings is for everybody. Credit is a fantastic and powerful instrument, but it’s probably not the best instrument as the first step to financial inclusion. We desperately need deposit-taking services to be massively available. We need to create a business case to convince banks, small business banks, and even MFIs to manage deposits of a lot of poor people with small deposit balances.
Even MFIs are not necessarily convinced that taking deposits is good business. If I am a general manager of an MFI, on one side, I can take deposits from my clients, but it costs me about 5–8 percent in operating and financial costs. On the other side, I can receive subsidized credit lines from external institutions. What do you think I will do? I believe I should mobilize savings, but it’s complicated. It’s a kind of sacrifice because you could refinance your credit needs at a much cheaper rate.
We are adapting, adjusting, and building on the BRAC*/Ford Foundation/CGAP** methodology, adapting it to the Latin American reality, but we added something new from the very beginning. We designed those interventions hand in hand with national governments because, again, we want to go to scale. The only solution is improving inclusive public policies. You cannot pilot test the graduation program in a country, and then afterwards tell governments, “Hey, this is working.” No, it’s easier to do that from the beginning, for policymakers to be convinced and to go to scale again. * BRAC is an international development organization based in Bangladesh. ** CGAP is the Consultative Group to Assist the Poor.
CCT program-impact evaluations have shown a significant change in consumption; for example, households increased food expenditures, opting for higher-quality and more nutritional value. This indicates that when beneficiaries have more resources, they may not always eat more, but they certainly do eat better, and this has an important positive effect on the well-being of their families. Imagine what they could achieve if the transfer were to initiate a process of asset accumulation that smoothes consumption in the short term and facilitates movement out of poverty in the longer term.
Graduating out of CCTs
Governments desire that over time CCTs will be able to reduce vulnerability and build assets and, further, that recipients will get to a point where they no longer need these transfer payments. Often this transition requires mentoring, financial capabilities, skills development, and a social network of support. BRAC in Bangladesh has designed its “graduation model” to combine all of these elements for those living in extreme poverty. BRAC designed the graduation model to give the ultra-poor some “breathing space” from their immediate challenges, so that they can focus on improving their welfare over the long term.
The May 2012 issue of the Economist covered a study by the Abdul Latif Jameel Poverty Action Lab at the Massachussetts Institute of Technology in the United States, which was supervised by Esther Duflo of the Bandhan graduation program in West Bengal. The Economist reported on the dramatic results:
Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the Bandhan programme were eating 15 percent more, earning 20 percent more each month, and skipping fewer meals than people in a comparison group. They were also saving a lot. So what could explain these outcomes? One clue came from the fact that recipients worked 28 percent more hours, mostly on activities not directly related to the assets they were given. Ms. Duflo and her co-authors also found that the programme had cut the rate of depression sharply. She argues that it provided these extremely poor people with the mental space to think about more than just scraping by. As well as finding more work in existing activities, like agricultural labour, they also started exploring new lines of work. Ms. Duflo reckons that an absence of hope had helped keep these people in penury; Bandhan injected a dose of optimism.
The graduation program’s holistic approach to poverty alleviation includes targeting, consumption support, savings, skills trainings, and a livelihoods asset transfer. Individuals “graduate” from safety nets, like consumption smoothing, to income-generating activities, giving them a stable livelihood, which can include accessing microcredit. In this way, graduation models forge pathways out of poverty by creating self-sufficiency. As we explained in the 2013 State of the Campaign Report, the Ford Foundation and CGAP have promoted the expansion of graduation programs to other countries.
Syed Hashemi, executive director of BRAC Development Institute, stated at the 2013 Partnerships against Poverty Summit that “CCTs are efficient as a short-term solution. Over the medium term, CCTs do not offer an exit strategy for the poor.” Hashemi said that linking graduation programs with microfinance provides an exit strategy: the participants not only receive consumption-smoothing support but also graduate at rates of 80 percent and higher. In this way, graduation programs can shorten the timeline for receiving CCTs.
Scaling up graduation programs will require collaboration with government-funded CCT or food-support programs. Partnering the two approaches has the potential not only to mitigate against shocks and create a habit of savings, but also to target the extreme poor with a holistic approach. “Through national governments, we can come up with an integrated, holistic, [and] national social-protection system that combines CCTs with graduation programs, so we can collectively achieve this commitment of eradicating extreme poverty by 2030,” concluded Hashemi.
Being Accountable for Results
Financial institutions with a mission to help build resilience for those living in poverty take on a huge task. To be accountable to their mission, they need to measure whether or not they are reaching their intended clients and track whether their clients are benefitting from the products and services they offer. They need to be able to listen to their clients, so that they can adapt their products, services, and delivery systems in order to meet their client’s needs and serve their aspirations. The financial community needs to be able to recognize those who do this well, so that we can learn from their example and apply their good practices.
The Microcredit Summit Campaign joined with other organizations with a mission of reducing poverty to form a process for recognizing and learning from organizations that can verify that they are reaching those living in poverty and are tracking the ongoing results of their work in the lives of their clients. This initiative goes by the name of Truelift (formerly the Seal of Excellence).
Measure, Learn, and Change
Truelift is a global initiative to promote accountability in pro-poor development and social business. It recognizes those practitioner institutions that are doing the most to reach people living in poverty and to create positive and enduring change in their lives. Truelift will collect and share effective practices of these practitioners and, in so doing, will promote a learning community of practitioners, networks, donors, investors, policymakers, regulators, researchers, and others who want to see measurable progress for poor families. All stakeholders stand to benefit by being able to identify and learn from those that are acting in the service of clients experiencing the conditions of poverty.
Truelift represents the first major initiative to focus on client outcomes and is complementary to the efforts of Smart Campaign, SPTF, MIX Market, and others working on accountability in the industry. The goal is to set a vision for the sector that prioritizes effective poverty outreach and quality data collection and analysis. Through its focus on successful models, Truelift defines pathways to better outcomes.
The Truelift framework creates accountability and credibility, focuses on the importance of learning and measuring outcomes, promotes the adoption of new practices, and facilitates the replication of scalable innovations across a large number of service providers.
In 2013 Truelift recognized the “Truelift Milestone Institutions” (see box 9). These MFIs have made measurable progress toward positive client outcomes, as measured along Truelift’s Pro-Poor Principles framework (figure 5), proving that microfinance is fully capable of creating positive and enduring change for people living in poverty. These MFIs set an example for other institutions in the Poverty-focused Community of Practice for how institutions can 1) conduct purposeful outreach to people living in poverty, 2) provide services that meet the needs of people living in poverty, and 3) track the progress of people living in poverty. Carmen Velasco, co-chair of Truelift and co-founder of Pro Mujer, Inc., commented on the Truelift honorees, saying that “the success achieved by these institutions provides the data and the evidence that microfinance is fully capable of creating positive and enduring changes for people living in poverty.”
Box 9. What We Can Learn from Truelift Milestone Institutions
An institution that, in addition to the ACHIEVER Milestone requirements (see below), must have earned Smart Certification.
Cashpor’s annual survey data aims to track change over time and is collected by their internal audit team to analyze PPI score by loan cycle. After six cycles, of the approximately 25 percent of clients who have borrowed continuously, about 59 percent are above the USD 1.25 line and about 44 percent are above the USD 1.50 line. In accepting the award, Mukul Jaiswal, managing director of Cashpor, explained, “Our commitment to reaching out to the poor, our commitment to client protection principles, our commitment to carrying out annual client satisfaction and impact surveys, our commitment to providing not only microcredit but all other microfinance products (like microinsurance, access to safe savings facilities)…has contributed” to their being recognized as a Truelift LEADER institution.
An institution that has shown strong performance following the Pro-Poor Principles, as validated by a Truelift assessor.
According to the 2011 client satisfaction survey, 89 percent of clients rated the financial services received from FINCA Perú as very good or good. For non-financial services, 82 percent of customers rate the quality of training as 16 or higher (out of 20). In offices with the highest concentration of poverty, satisfaction was 80 percent.
Microfund for Women (MFW), Jordan
MFW implemented new systems to include poor households. In particular, with each new loan it collects, it looks at its clients’ income levels and proxies, such as access to education, as part of its loan appraisal process. MFW was the only institution in the market that cancelled the upfront fee and voluntarily lowered interest rates, while maintaining an above average return on assets for Jordan at 7.4 percent.
Small Enterprise Foundation (SEF), South Africa
SEF excelled with the three Pro-Poor Principles and scored in the range of the Truelift LEADER milestone. However, this milestone requires Smart Certification, so for now SEF is recognized as an ACHIEVER. Upon successfully completing Smart Certification, SEF will automatically move to the LEADER milestone. John de Wit, SEF managing director, said, “When we began, we didn’t really have a very good idea about poverty. We didn’t really understand how you could have ‘very poor’ people, ‘poor’ people, ‘ultra-poor’ people and all the challenges people face. And as time went on, we just learned more and more. Eventually, we realized we would have to do targeting. We were running our program, we were delivering a product that we thought was ideal for the very poor, and we found we weren’t reaching the very poor. There was a big section of the population that simply wasn’t coming to us, wasn’t accessing our loans, wasn’t becoming part of the system. So, we developed a targeting methodology and used that.”
Negros Women for Tomorrow Foundation (NWTF), Philippines
NWTF shows the highest poverty rate of all the MFIs in the Grameen Foundation poverty-calculation research (64 percent). The board of directors receives a regular report showing poverty change based on PPI data. The board established a Social Performance Management Committee to work more on positive change in clients’ lives and provide direction based on the poverty-movement data received, including an increase in the activities of the Client Service Department for non-financial services. Executive Director Cecilia del Castillo explained, “When we started Negros Women for Tomorrow Foundation…we really wanted to do something for the very poor. We were working on this and we thought we were succeeding. But, when the PPI came about, we found out that we didn’t really reach as much as we wanted…After that, we made sure that we would reach who we wanted to reach. Since 2012, 82 percent of the newcomers to Negros Women are very poor, they’re below the poverty line. Our hope is that 50 percent can [move out of poverty] after three years and 30 percent [more] after five years.”
Grameen Financial Services Private Ltd. (“Grameen Koota”), India
Grameen Koota has used the PPI regularly since 2009 and provides comprehensive poverty outreach reports to senior management and its board of directors. Most importantly, routine collection of PPI data for all clients in every cycle allows comparison at later cycles for the same clients. Grameen Koota has seen the poverty rates of those living on less than USD 1.25 drop from 41 percent at “first PPI instance” (2009–2010) to 26 percent at “fourth PPI instance” (2012–2013).
An institution that has demonstrated reasonable performance and a minimum appropriate assessment score, as validated by an approved third-party verifier.
Banco FIE, Bolivia
Banco FIE represents an excellent example of a not-for-profit MFI that has transformed into a regulated bank, while maintaining its social focus on reaching and serving poor people. Forty-eight percent of Banco FIE’s savers and borrowers live below the national poverty line.
CAURIE is the only MFI in Senegal to offer credit and savings using the village banking methodology, which is more suited to the needs of the poorest households. It does not require a minimum amount for credit and savings, and savings collected in the group account can be given out as internal credit to generate profits, which can then be capitalized in the village bank or redistributed to members in the form of dividends. From its annual PPI survey on this same cohort of customers, the percentage of clients falling below the national poverty line is decreasing slowly over time: 46.9 percent for 1–3 cycles, 44.8 percent for 4–6 cycles, and 42.9 percent for 7+ cycles.
In addition to the three milestone levels above, there is also an ASPIRANT Milestone for institutions that have submitted the completed tool for verification to the Truelift Secretariat or an approved third-party verifier.
A Commitment to End Extreme Poverty by 2030
In this report, we have talked about many different actors that, working together, can help provide a range of products and services that assist hundreds of millions of people in their journey out of poverty. There is one more group, though, on whose dedication, creativity, and energy all of this depends.
John Hatch, founder of FINCA, highlighted this group in his closing address to the 2013 Microcredit Summit. “The clients are our biggest and most important partners,” said Hatch. “Getting out of poverty is not something we do. Getting out of poverty is something they do. And we have to honor their voice and their effort continually.” Hatch went on to describe how existing microfinance clients can be key partners in the work to reach those in extreme poverty:
Despite the great progress that has been made, the majority of the families we have served are not the poorest. The extreme poor can be and must be reached because severe poverty kills. Seven million children are dying every year around the world from chronic malnutrition and hunger-related diseases—the victims of extreme poverty. This is a global humanitarian disaster and it must be stopped. And while the development community has made great progress in reducing maternal and infant mortality, malnutrition, preventable diseases, and illiteracy, we are far from done.
Ending global poverty is not just about intensifying our current efforts. Rather, it is the specific, focused challenge of making sure that “nobody is being left behind.” This responsibility will not fall only on the shoulders of our field staff. It will mostly fall on the clients we have already reached. To each and every one of our 200 million clients, we need to ask, “Who among your neighbors has been left behind? On your street? In your neighborhood? In your village? Let us turn our tens of millions of current clients into a vast army for finding ‘those left behind’.” This will be the ultimate partnership of all—our current clients mobilizing their own neighbors.
Businesses (commercial and social), microfinance providers, banks, mobile network operators, digital payment providers, regulators, policymakers, and government social programs can all play important roles in providing access to financial and other services that help people living in poverty to reduce vulnerability and build resilience. Harnessing this potential into widespread action that reaches all those excluded from the financial system will require commitment to take specific steps to reach those in poverty and to provide them with access to products in services that will bring positive benefit.
Through the 100 Million Project, the Microcredit Summit Campaign is building a coalition of partnerships committed to reaching the extreme poor with useful financial tools and services to support their journey out of poverty. These commitments to helping 100 million families lift themselves out of extreme poverty function is a first and powerful step towards the larger goal of ending extreme poverty entirely by 2030.
A Campaign Commitment must be specific, have a measurable objective or an output, and have a near-term deadline (12–18 months) for accomplishment. The Campaign also works to develop Commitments that can serve as a means of support for the completion of existing long-term action plans by helping set year-by-year benchmarks, progress towards which can be reported at subsequent Microcredit Summits.
The 2013 Microcredit Summit marked a moment in history as the program was launched with the first 18 Campaign Commitments. Representatives from each of the committing organizations were invited to the closing ceremony to publicly declare their plans for the next year. As with the Maya Declaration and Alliance for Financial Inclusion’s member commitments, by publicly stating our actions to help reach the end of poverty, our coalition will build greater transparency and increase accountability in following through on the Commitments we’ve made.
Organizations that Have Made a Campaign Commitment
With this new vision of member engagement, the Microcredit Summit Campaign will work with new coalition partners to develop a Campaign Commitment and to facilitate new partnership and learning opportunities to support fulfilling each Commitment. We are inviting new organizations to join the movement by stating publicly the ways your organization is committed to taking specific, measurable, and time-bound actions to help achieve the end of extreme poverty.
To learn more about how you can formulate your own Commitment, visit http://www.microcreditsummit.org.
At the close of the Summit, the delegates rose and applauded to approve the 2013 Partnerships against Poverty Summit Declaration:
Manila, 11 October 2013: We, the participants in the Partnerships against Poverty Summit, state collectively and enthusiastically, that EXTREME POVERTY CAN AND WILL BE ENDED BY THE YEAR 2030!
To reach this goal, we declare the following four commitments:
1. First, we commit to putting the poor first! The voices of the poor and extreme poor must be heard in our movement, and they must be full participants in the process of improving their lives and our services. They are not only our clients but also our biggest resource.
2. Second, we commit to strengthening our services to the poor through strategic partnerships that offer new services and products. Poverty will not be ended by a single organization offering a new service or product. Rather, poverty will be ended by thousands of organizations working in partnerships that offer multiple new services and products needed by the poor.
3. Third, to better provide services and products for the poor, we commit to strengthening the openness of our organizations and institutions. We commit to actively implementing practices that ensure openness, accountability, transparency, inclusiveness, and fairness. We commit to openly sharing ideas and methods between partners and colleagues, to enhance and accelerate our movement’s capacity to serve the poor.
4. Fourth, we commit to developing an environment where the movement to end poverty will thrive and become widely recognized so that the vision of a world free of poverty will be achieved by 2030. We will lobby our governments for regulatory reform to permit financial and social support services for the poor. We will organize mass media campaigns, world summits, special forums, and mass citizen events to accelerate the movement to end poverty.
This is our vision: a world of partnerships we created together; a world with no child mortality; a world where all school-aged children can read and write; a world where every family has access to healthcare, housing, and working capital; a world in 2030 that is free of extreme poverty.
THIS IS A VISION WE CAN AND WILL ACHIEVE!
The Microcredit Summit Campaign will work with all those who want to implement these Commitments to help promote the knowledge and partnerships that will make them possible. Together we can provide the products, services, tools, and systems that unleash the hope, energy, and resilience of those living in poverty. It is their resilience that will help bring an end to extreme poverty in our world.
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. This year was no exception. Over 300 institutions and individuals submitted an action plan in 2013, and they are listed online in Appendix IV. The Microcredit Summit Campaign recognizes that without these institutions and the individuals within them, especially the practitioners, there would be no report.
To verify this data, we relied on more than 160 individuals and they are listed in Appendix III. Their assistance gives us confidence to report the data found in this report.
Our Summit in the Philippines generated over a week’s worth of recorded and annotated plenary sessions, workshops and interviews. We want to express our thanks to Holly Mosher and Vikash Kumar for making audio and video recordings of these events. Sabina Rogers, Camille Rivera, Jesse Marsden, and Amanda Ortega then sifted through these sessions and carried out additional research to draft major sections of this report. We are grateful for their invaluable support, making sure that we accurately represent the vision of the Campaign and the progress we have made toward the Campaign’s goals and core themes.
The following people provided interviews and/or written contributions for this report: John Alex, Afua Boahemaa Donkor, Julie Peachey, Yves Moury, Ian Radcliffe, Pia Roman, Rodger Voorhies, and Muhammad Yunus. We are grateful for their input to this report and for their ongoing contributions to the microfinance sector overall.
Microcredit Summit Campaign staff and interns have spent enormous amounts of time collecting, entering, and tabulating the data; calling practitioners and verifiers around the world; and reviewing drafts of the report. We would like to thank current and former Campaign staff members Fabiola Diaz, Bridget Dougherty, JD Bergeron, D.S.K. Rao, Xochitl Sanchez, and Alicia Tito for their contribution to this work. Interns played a key role in the call campaign, so we would like to thank Lea Antic, Michelle Byusa, Carolina Celnik, Daniel Cianci, Lee Duffy-Ledbetter, Leah Frazee, Haley French, Jasmin Herrera, Paige Kaufman, Nour Kuzbari, Sonha Ngum, Melanee Steadman, and Christelle Tshiala-Kazadi.
John Hatch, Nisha Singh, Carmen Velasco, and Roshaneh Zafar took time out of their busy schedules to review a late draft and give helpful suggestions for improvements.
Melanie Beauvy and Jeanne Gessa have translated the report into French, and Martha Martinez has translated it into Spanish. We are grateful for their contribution to this effort. Kristin Hunter copyedited the report, and we have Dawn Lewandowski (Partners Image Coordinators) to thank for the design and layout of the report. Virgilia Kasbarian designed the report website, and Yeshvanth Kumar and Apex Media edited the interviewee videos.
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 finds 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
April 28, 2014
To see the Appendices, click here.
To see the Tables & Figures, click here.