> Posted by Kelley Mesa

We've given the blog a facelift! You can find us now at http://centerforfinancialinclusionblog.wordpress.com. Please be sure to update your bookmarks and feeds.

> Posted by David Levai

I’m on my way back from Uganda where I spent the last week working for the Energy Links project. Together with the Legacy Foundation, we were supporting a workshop to train members of a local NGO, UWESO (Ugandan Women’s Effort to Save Orphans) to produce biomass briquettes.

“What on earth is a biomass briquette you might say?” - a reaction which happened to be mine when I first heard about it. It’s a type of solid cooking fuel made out of organic waste material. With its round shape and a hollow core, it looks like a donut. So, what makes it so important? It is an environmentally friendly alternative to charcoal and a cheaper substitute for the billions of households that cook their meals everyday using the inefficient combustion of charcoal or firewood.

In the developing world today, charcoal and firewood are the primary cooking fuels. But as forests shrink and as the prices of raw materials and energy keep rising, cooking fuel expenses are a growing burden on low-income households in developing countries, monopolizing on average 8% of a family income, much more than in western countries. Just imagine an average U.S. household with a monthly cooking (cooking only – not heating or lighting) bill of over $300!

By definition, producing charcoal requires wood, which increases both deforestation and the stress on ecosystems, emits large amounts of CO₂ in the process and regularly ends up burning down entire chunks of forests. And apparently 10% to 20% of that very charcoal is lost in dust and fines along the distribution process. What a waste!

Therefore on top of protecting the environment, the advantages of biomass briquettes are threefold:

• Economies: Since briquettes can be made of almost any dry organic waste - from tree leaves to cereal husks, from scrap paper to banana peels, from saw dust to charcoal fines - input materials are free or quasi-free (the only cost might be that of collection). Producing one’s own briquettes can entirely replace charcoal or firewood purchase and induce substantive savings.
  
• Livelihood improvement: Women are traditionally those collecting firewood, transporting heavy packages on long distances everyday. With a painful, time-consuming and sometimes even perilous activity gone, women can now engage in other activities, particularly income generating ones.
  
• Income generation: A group of 6 people, with a small working capital start-up investment to buy the tools and the press (around $200), can easily produce fuel for 50 families. Selling the briquettes on the market can answer two needs: generate a substantial income to the producer and substantial savings for the end-user compared to charcoal and wood.

Thus, mastering the briquette-making technique and having access to credit are the both the requirements for this activity but also the enabler to a fundamental change at the country level through small-scale entrepreneurship. The scale of production is very small, and in order to replace charcoal a large number of producers and entrepreneurs are needed to flood the market with briquettes. Thus there is room for job creation.

Together with the Legacy Foundation – whose promotion, training of producers, and research of technological improvements worldwide spans two decades – the Center for Financial Inclusion’s Energy Links project organized this five-day workshop last week to train 30 individuals on how to make biomass briquettes and share this expertise in their communities. The participants were community leaders, trainers, and organizers from all around the country selected by our partner UWESO, a local NGO, which, among other programs, organizes savings groups. These savings groups, with a total membership of around 75,000, are a decisive channel to promote the knowledge about biomass briquette and help kick-start the activity.

Most participants had never heard about briquettes before and became really enthusiastic when they realized the economic and social impacts this activity can have on their family or their community. The purpose of this training was ultimately:

• to provide individuals with ways to produce low-cost environmentally-friendly fuel
  
• to allow income generating activity almost “in a box”
  
• to promote a “planned spontaneous” replication of the know-how and of small-scale local businesses.

But at the end of this inspirational week, one unknown remains: how many of the workshop participants will actually start a briquette making business when they go back to their village?  How many will take the time and the effort to explain the advantages of briquettes and train members of their community? Even though most participants ensured me of their desire to take on this activity and advance briquettes in Uganda, only further monitoring in three to six months will help us determine if the workshop was actually successful in achieving organic replication of this business model.

> Posted by Kelley Mesa

The current financial crisis is affecting us all - including the microfinance sector. Country and market differences, however, are resulting in differing outcomes.

Financial's Women's Association and Microfinance Club of New York are co-hosting a May 7 panel discussion in New York on the consequences of the financial crisis around the world and what that means for microfinance investments. The event will feature a number of investment and organizational representatives from the Grameen Foundation, FINCA International, Symbiotics, BlueOrchard Finance, and OPIC.

> Learn more here.

> Posted by Kelley Mesa

With social networking all the rage,  it's no wonder that more and more opportunities to harness collective knowledge are popping up around us. David Roodman (pictured right), a fellow at the Center for Global Development, is taking this to the next level, using the web to tear down the walls of the traditional manuscript conference and probe for input and comments from the online world.

Through his "open book" blog, David is writing from start to finish in public, posting draft chapters and posing questions for his audience at large to offer their thoughts and comments. His book is asking the "bottom-line questions" about the benefits of microfinance and what that implies for how we support it. It will probe the economics, ethics, politics, and history of microfinance. As he puts it, "This book is really a series of perspectives on microfinance: the historian's perspective, the microfinance manager's perspective, the economist's perspective, and so on."

To learn more about the book and participate yourself, click here.

> Posted by Kelley Mesa

In the latest issue of ReVista, the Harvard Review of Latin America, Center Program Manager Cara Forster reflects on her experience administering a microfinance program while working as a Peace Corps volunteer in La Trinidad, Nicaragua.

> Posted by Elisabeth Rhyne

I just read an excellent new report by the Monitor Institute, commissioned by the Rockefeller Foundation, on impact investing. What a pleasure to read. The report focuses on the range of investment activities that have emerged to channel investments into activities combining social/environmental and financial returns. Impact investing supports microfinance, community development, social enterprise and all kinds of renewable energy. The concept is to bring all these different investment types together under a common umbrella with a recognized place in the world of investing. A recognized framework for impact investing will allow more capital to flow in. The authors envision impact investing becoming a major force for social and environmental change. Such a concept has already been put forward by Prof. Mohammad Yunus in his book, Creating a World Without Poverty].


I find a key problem with impact investing is that investors have many minds when it comes to the balance between social and financial returns. Yunus favors a zero financial return (maintenance of original capital only): he believes any profit exploits the poor. At the other extreme are investors who seek socially beneficial activities that require little or no sacrifice in financial returns. Some of these investors, especially the big institutional kind, operate under rules that make it difficult to sacrifice financial return. The report claims that different preferences can be handled through what it calls “Yin-Yang deals” that blend investors from multiple points along the spectrum. We saw a lot of these deals when microfinance funds were busy creating collateralized debt organizations with stratified risk tranches.


I don’t think this challenge is so easily solved, because aligning investor preferences requires a continuous balancing act. A couple of recent conversations brought this home to me. I talked with a couple of mainstream investors who got into microfinance and to my surprise, were now backing away from microfinance because it had become too profit oriented. They cited microfinance institution leaders who, spotting profit potential, had tossed social goals into the back seat.


This change of heart highlighted the precariousness of the impact investing balancing act. An investor and investee who seemed like a good match found themselves with irreconcilable differences a couple of years later. This tension will always be there in the impact investing world, especially as entry and exit becomes easier and more frequent. A continual balancing act is infinitely more difficult to manage than a fixed position at one or the other end (non-profit or profit maximizer). I hope this balancing difficulty will not constrain the growth of impact investing, which has so much promise.

> Posted by Aban Haq

Aban Haq is a research analyst at the Pakistan Microfinance Network.

The 26 of January 2009 was a proud day for the entire team of the Pakistan Microfinance Network (PMN)! It was the day all our member institutions came together to publicly commit and sign onto the PMN Code of Conduct for Consumer Protection. The launching ceremony was the culmination of the spadework done during 2008 in deepening the Network’s capacity and understanding of consumer protection, cultivating advocacy with member institutions, drafting and re-drafting the Code, and mapping the way forward.


Surprisingly, and yet not so surprisingly, PMN members supported this initiative from day one. Given their commitment to positively contribute to the lives of their clients, it makes sense to support any initiative that aims to protect the rights of the clients. From a purely business point of view, a satisfied client is a loyal client. Also, consumer protection for the PMN is not just about rights of clients, but their obligations towards their service provider  –  transparent pricing ensures a client understands her true obligations and thus makes an informed choice, ultimately affecting portfolio quality.


The values of the Code extend not only to those who directly interact with the clients in terms of fair and dignified treatment of clients, but to each staff member – every individual in their capacity has to strive to ensure they are doing their best to deliver services in the most efficient manner and abide by the highest standards of governance.  


At the launch, we heard that is was easy to draft a Code, but what really matters is the implementation. Even during our background research, we came across many examples of Codes but few case studies on implementation. For PMN, launching the Code of Conduct was an important first step. Having a standard that the industry has formally agreed upon  provides a solid foundation on which to build   The road ahead is largely unexplored but we do have a plan – our implementation strategy revolves around a) ensuring the code is widely disseminated and understood by the clients and staff of MFIs, b) standardizing pricing formulae for transparency, c) putting monitoring systems in place through internal and external audit functions, and d) establishing an independent grievance redressal system for the sector.  


The concern with issues of consumer protection at PMN’s level stems from a number of reasons. Given the low financial literacy amongst the target clientele of microfinance, intensifying competition coupled with the lack of any noteworthy legislation on consumer protection clients may be vulnerable to undesirable practices by service providers. State intervention in such scenarios often leads to regulations that stifle the industry, cap interest rates, and retard growth. But perhaps the most important reason is our commitment to a microfinance double bottom line – we cannot forget the social objectives in our pursuit of sustainability or financial returns. Our ultimate objective remains improvement in the lives of microfinance clients, and safeguarding their rights is our responsibility.


 

> Posted by Kelley Mesa

ACCION International President and CEO Maria Otero will be live today on the BBC World Service’s radio program “World, Have Your Say” from 1:00-2:00pm (6-7pm GMT), discussing the commercial approach to microfinance with Muhammad Yunus. The show “What can the Rich World Banks Learn from the Poor?” can be heard worldwide.


To listen live, or to phone in with your comments, please go here: www.worldhaveyoursay.com


To call in on-air, dial +44 20 70 83 72 72; to text the show, dial +44 77 86 20 60 80. To email, it’s worldhaveyoursay@bbc.com

> Posted by Kelley Mesa

Elisabeth Rhyne will be a guest on the Kojo Nnamdi Show today from 1-2pm Eastern Time. The topic is microcredit – what it is, how/if it has been affected by the economic downturn and what lessons we (in the USA) can learn from microcredit.

Kojo Nnamdi's show is LIVE, with listener call-in and live streaming from their website. Listen in from your desks!


Kojo Nnamdi Show 
http://www.wamu.org/kojo   
http://www.kojoshow.org 

88.5 FM in Washington, DC

Comments

Listen to the recorded segment here.

- Kelley Mesa

> Posted by Micol Pistelli

This is a guest posting by Micol Pistelli, Manager of Social Performance Standards at the Microfinance Information Exchange (MIX).

Measuring financial performance is a natural piece of any organization’s self-evaluation and goal setting, and the measures of such performance have been pretty well defined.

Most microfinance providers, however, pursue a double bottom line: strong financial performance, of course, but ultimately in the service of a social mission. The development of ways to measure that social performance – a framework of comparable, standardized data analogous to the financial performance framework – has been the focus since 2005 of a global industry-wide Social Performance Task Force.

But how does one begin to measure this second “bottom line”?

Last week, MIX distributed The Social Performance Standards Report to more than 900 MFIs . MIX created the report to collect information on the 22 core indicators selected by The Social Performance Task Force.

Spanish and French versions of the report go out this week.

In order to make it into the report, indicators had to be:

• relevant,
  
• easy for the MFI to obtain,
  
• easy to verify,
  
• not confidential for the MFI

Indicators cover topics including social responsibility to staff, cost of products to clients, poverty outreach, and social responsibility to the community and environment. The Report incorporates input from the Campaign for Client Protection, following the six principles identified by the Campaign and incorporating learning to date from the Beyond Codes Project.

Less than 24 hours after release, responses from MFIs have already started coming in (and, considering the time zone difference, this is pretty amazing!). MIX will begin publishing this data as soon as we receive it, and in autumn 2009, we will incorporate these indicators into the data on MIX Market. In the future, social performance information will also be included as a factor in determining the number of diamonds an MFI is awarded on the MIX Market for transparency.

By reporting on social performance, MFIs demonstrate a commitment to transparency, social goals, and improving their clients’ lives. If  they can show tangible data on their achievements they can better position themselves to attract funding especially from socially responsible investors. We know that there is a huge interest from MFIs, networks, investors and donors for data on social performance, and we think this is where the microfinance industry is trending.

> Posted by Kelley Mesa

Check out the latest Center podcast on housing microfinance. The second in the series on business solutions to housing microfinance, in this podcast David Levai speaks with Willie Vos, managing director of SouthNet Cygnus. A branch of the South African property developer SouthNet, SouthNet Cygnus is a residential-property developer focusing on the lower-income groups of South Africa. They have taken a unique approach to solving the housing problems at the bottom of the pyramid, integrating differing components of the housing value chain by bringing together not only developers and financiers, but municipal stakeholders and services.

> Posted by David Levai 

Today, more than half of the world’s population lives in cities, and this trend is not about to change. Among those urban dwellers in the developing world, more than a third lives in a slum or extremely precarious conditions. But numerous socially minded individuals are uncovering new ways to provide decent quality homes at affordable costs to low-income populations - helping small property owners become landlords, providing standardized housing units in recycled shipping containers, lending building material for self-improvements, etc.

In late 2008, fourteen participants invited by the Center for Financial Inclusion and ACCION Global Investments gathered in Washington, DC, with two goals in mind - to dissect the bottlenecks in the provision of affordable housing to the bottom of the pyramid in emerging markets and to identify innovative private-sector-driven solutions.

Representing India, South Africa, Kenya, Mexico, Bolivia, and the United States, these practitioners confronted their analyses of the hurdles in reaching scale and quality in housing finance for the poor as well as their vision going forward. The profiles of the attendees were varied, encompassing real-estate developers, mortgage financiers, building material suppliers, or housing microfinance start-ups. Despite the diversity of their professional backgrounds and their international perspectives with regards to housing, practitioners acknowledged similarities in the problems they face and in the response they are using to address these challenges. Even though housing and habitat have large local constraints that deserve specifically customized responses, lessons learned, whether they are positive or negative, seem to be transferable.

You can find the list of the workshop participants and more information about their companies as well as the key lessons learned here.

For non-housing specialists like me, the workshop offered a unique opportunity to hear from the housing movers and shakers themselves their philosophies, rationales, successes, and challenges. For example, Por Fin Nuestra Casa (PFNC) is a company that Brian McCarthy, a young American, recently started to address the living conditions of Mexican workers employed in maquiladoras, those export focused industries lining south of the U.S.-Mexico border. Working with employers to ensure land tenure, PFNC provides standardized prefabricated housing units hosted in recycled shipping containers, that is to say, a quality home and a livelihood improvement at low cost found in quite an unconventional place!

During the day of the workshop, I was able to record more stories, which you’ll be able to listen to, yourself, in a series of podcast interviews that offer a sketch of these dedicated actors and their work for the “unhoused.”

In the first podcast, I speak with Guillermo Calderon, the founder and CEO of the Mexican building material provider MeXvi. His company’s model, loosely based on Cemex’s Patrimonio Hoy, provides prefabricated houses for the Mexico’s rural poor and specifically targets disaster areas frequently hit by hurricanes. Not only is MeXvi supplying building materials, it also offers credit facilities without need for any collateral to finance the acquisition of these brand new homes. But enough talking on our side; just check out what Guillermo has to say about MeXvi in his own words…

> Posted by Joshua Goldstein, Mr. Provocative

Looking through the mail yesterday, I came across a credit card application addressed to my teenage stepdaughter, who recently turned 18. It was one of the first in an avalanche of such offerings for financial services she will receive this year, indeed for the rest of her life. The seductive promise of the first credit card is a rite of passage into young adulthood and one fraught with untold risk for this generation of Americans - notwithstanding the fact that banks, and the financial services they provide, have led to phenomenal wealth creation and the most successful property-owning democracy in history.


This got me to pondering the extent of my stepdaughter’s financial literacy and her readiness to make a thoughtful evaluation of this and other such offerings. She certainly hasn’t received it from me. (In the spirit of full disclosure, I have never learned how to balance a checkbook or read and comprehended the boilerplate on my credit card statements.)

Sadly, my ignorance of the financial basics is hardly aberrant and may even be closer to the norm, as a little research quickly indicated. According to Niall Ferguson, author of the new book, The Ascent of Money, “a substantial proportion of the general public in the English-speaking world is ignorant of finance.”

Ben Bernanke sees this state of affairs as a critical threat to our nation’s health: “Financial literacy and consumer education - coupled with robust consumer protection - makes the financial marketplace effective and efficient, and better equips consumers to make tough yet smart financial decisions. Today, only eight states (not ours )across the U.S. require personal finance before middle or high school graduation.”

But would having a basic grounding in such topics as maintaining creditworthiness, borrowing on favorable terms, and managing debt really prepare my stepdaughter to make judicious decisions about her finances? I have my doubts.


Financial Literacy 101 would surely provide my stepdaughter (and me) with some useful guidance but will it protect her in the end from profligate spending and other financial folly? Intellectually understanding what we should do to protect our interests does not inevitably lead any of us to rational decision making. The proverbial masters of the universe, fooled by Bernie Madoff’s Ponzi scheme, are evidence enough that even the most financially sophisticated are sometimes making decisions based on something other than careful analysis and due diligence. We are not rational actors as Freud understood long ago and economists are belatedly concluding as well.


Then what hope is there for my stepdaughter wisely using her first credit card? Yikes. For it does seem clear that “intellectually, people value future consumption, but nonetheless give into the temptation to consume today. The internal tension is often depicted as a conflict between a patient “future self and an impatient “present self”…” If true for “grown ups” how much more true for teenagers whose brains are still in formation, with hormones surging. Impulsive, risk taking behavior is arguably the default position of adolescents. And from a very early age, our children have repeatedly seen commercials singing the siren song of the power of credit that can be boiled down to: buy what your heart desires now, and pay later.


It is quite unnecessary to inculcate children to pursue pleasure and instant gratification, because that comes naturally enough. Advertising merely reinforces these tendencies. Prudence and thrift seem quite unnatural and do need to be indoctrinated. Financial literacy will have no prophylactic power unless it is coupled with the restraint that is engendered by these virtues. And it may be that the “scared straight” approach, used with some success in drug prevention and drivers-ed courses in high schools around the country might be effective if incorporated into financial literacy programs as well.

The kindness of strangers and their silken promises are simply not to be counted on. Some credit card companies are not your friends. Their profit margins heavily depend on increasing your indebtedness, not timely repayment. In this topsy turvy world, the “good” customer is the one who doesn’t pay off the entire bill at the end of the month.

“Trust but verify” should be the centerpiece of your relationship with any financial institution you are considering entering into a relationship with. (Yes, like with potential boy friends.) But even if you find a great bank or credit card company to work with, you are not out of the woods yet, because you are probably not wired to make prudent decisions about your spending. Good luck. You will need it.

> Posted by Kelley Mesa

Center Managing Director Elisabeth Rhyne is the featured speaker in the 2008-09 Weissberg Residency of Beloit College's Weissberg Program in International Studies.

The Weissberg Professorship in International Studies, established in 1999, provides an on-campus residency each year for a distinguished individual who has made an important contribution to international understanding. It is designed to enrich the global perspective and international education programs at Beloit and allows for an extended period of exchange and interaction with respected active "players" on the international stage as they examine some of the key issues of our time.

This year is also the 10th anniversary of the Weissberg Program in International Studies. Events include a weeklong program from March 23-28 featuring practitioners implementing microfinance programs around the world as a means for empowering the poor to improve the economic and social health of their families and communities.

For more information: http://www.beloit.edu/oie/campus_internat/elisabeth_rhyne.html

> Posted by Brian Cox

This is a guest post by Brian Cox, executive director of Microfinance Currency Risk Solutions. MFX Solutions is the result of a collaborative effort to address the growing problem of currency risk in the microfinance industry. To learn more, visit their website at www.mfxsolutions.com.

Dear friends and stakeholders of MFX Solutions:

Happy New Year from all of us at MFX (something I can now say without having to invoke the royal We). I wanted give you a short update on our progress and introduce our new management team.


We remain on track to launch operations in early spring. The last piece of the puzzle for MFX to become fully operational is securing our OPIC guarantee. When that is finalized, we will make our investment in TCX and open our doors for business as the first currency hedging facility designed exclusively for microfinance. Our initial capital will allow us to hedge roughly $40M in microfinance loans through swaps and forwards in most emerging and developing market currencies.


MFX also recently secured a new $200,000 grant to support our educational program. we will be building a new web-based interactive tool for MFI managers to help them quantify their currency risk and compare hard and local currency funding options. We will look for partners who can help disseminate the tool which will be available free on our website. Overall MFX has secured $600,000 in grants in the last year.


I am very excited to introduce our new team members, Marti Tirinnanzi and Jorge Santisteban, who both bring extensive careers in currency derivatives. Marti is our new Director of Operations. She has 25 years of banking experience as a lender, investment banker, consultant, and regulator for the US Federal Reserve. She is a recognized expert in derivatives accounting and can help our clients integrate hedging contracts into their financials.


Jorge is our new Director of Hedging Services responsible for initiating trades and working with clients on their hedging requirements. He will also take a lead role in designing MFX's education and consultancy programs. Jorge comes from Citi and has 15 years experience trading currency derivatives and working with small businesses on their currency risk management needs.


2009 will be a big year for MFX as we begin to help the microfinance industry deal with currency risk in these volatile times. If you have specific questions about currency risk or how hedging with MFX works please visit our website at www.mfxsolutions.com or give any one of us a call at 202-527-9947.

We look forward to working with you in the coming year and appreciate your continued support.


Brian Cox

Executive Director, MFX Solutions

> Posted by Kelley Mesa

Paul Hudnut - Center Faculty Council member and co-director of Global Innovation Center for Energy, Environment and Health at Colorado State University - reflects on Elisabeth Rhyne's January 27 New York Times op-ed on microfinance's immitation-worthy sustainable banking practices in his post "Scaling back (or forward)?"

> Posted by Sergio Guzmán

Nearly 2,000 participants converged at the International Symposium on Microfinance as a Tool for Peacebuilding last week in Cali, Colombia, to discuss how microcredit could be used to rebuild the social and economic fabric in post conflict areas of the country.  When it comes to financial services many of the rural municipalities in Colombia are either completely lacking (67 municipalities) or have only the most rudimentary services.   The country’s ongoing political, social and economic conflict, which has lasted over 45 years, has severely damaged the country’s social tissue and broken trust between people. This makes it hard for any endeavor, microfinance included, to be successful.

Sponsored by the Alvaralice Foundation, the symposium highlighted various state projects, public-private partnerships, and private projects working on many of these issues, funded by domestic and foreign sources. A myriad of NGOs and regulated financial institutions like WWB Colombia, Finamérica, Banco Caja Social, and Bancamía provide financial services to the poor.  From the director of a small NGO in conflict ridden Barrancabermeja to the Miami-based NGO Give to Colombia, that channel's funding for projects in Colombia from US-based companies investing there, participants analyzed what it takes to succeed in tough, conflicted areas.  International participants brought in experiences as diverse as Kosovo, Palestine, Sierra Leone, and Cambodia, all with a message that microfinance can be an effective tool, because as conflict dies down people are eager to restart their lives and need financial services to help them do so.

Sometimes the connection between microfinance and peace building is more implicit than explicit. Many speakers pointed out that microfinance creates economic stability which paves the way for social advancement, upward mobility and cohesion; however there are many more elements to be thrown into the mix to achieve that objective. One key is to accompany financial services with education, training, and other forms of support through programs like ACCION’s Diálogo de Gestiones. Guillermina Hernandez, the director of a community kitchen in a poverty and conflict-affected area said, “being part of a Microfinance Organization or Cooperative provides people with more than just financial means to better themselves, but gives them trust to become part of something in a place where people are constantly in danger, and empowers them to follow their dreams.”

According to the panelists and conference-goers, Colombia needs to work on improving its regulatory framework to make it more supportive of microfinance, making it easier for international support to enter the country, promoting competition in the microfinance sector and ensuring that client protection standards are built in to the sector.

There is still a lot of work to be done. The conference provided an opportunity to reflect about the role of government, non governmental organizations and private sector players in the construction of a peaceful society, something we all have a role and a stake in.

> Posted by Kelley Mesa

Elisabeth Rhyne's op-ed ran in today's New York Times "Dealbook." A permanent link to the article may be found below.

Another View: A Local Fix for a Global Mess

Many of the participants at the World Economic Forum will be thinking about big, global solutions to the current financial mess. But should they also be thinking small?

With the conference set to begin, Elisabeth Rhyne, managing director of the Center for Financial Inclusion at Acción International, argues that the seeds of a more sustainable global finance industry might be found in microfinance, in which local lenders provide very small business loans and other financial services. Acción is a Boston-based nongovernmental organization that helps build microcredit institutions and gives them technical assistance.

Her view adds to what is bound to be a vigorous debate here in Davos about how to mend the world’s tattered financial system — and at what level the fix should be applied.

In many cases, Ms. Rhyne suggests, the creation of global financial behemoths eclipsed the kind of “relationship banking” that leads to prudent lending. Microlending, by contrast, is a highly personal business, and microlenders do not offload their loans to others after they have been made, she says, leading to a portfolio quality “that might make many mainstream bankers envious.”

We present her opinion piece, below the jump, as more grist for the mill as Davos gets under way.

Toward a “Distributed” Global Banking Grid
by Elisabeth Rhyne

In a rather remarkable collective mea culpa, the G-20 leaders, following their emergency summit in November, issued a joint diagnosis of “the roots of the current crisis” in world financial markets:

Market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system.

Now that the ‘vulnerable system’ has imploded, it’s natural to seek out any seeds of sustainable reconstruction. One of the seeds is microfinance, the provision of very small business loans and other financial services to the self-employed poor worldwide. Microfinance offers a refreshing contrast on many fronts with the practices criticized in the G-20 report.

For years, world capital markets pursued profit through leverage and efficiency — but at the same time, lost sight of accountability and risk diversification. Global financial institutions created structures that moved money around at lightning speed. The world financial grid, with its warp of securitizations and its woof of derivative contracts, proved akin to an overly centralized energy grid that crashes when overloaded. When the high voltage transmission lines went down, the whole system crashed.

A more durable approach could resemble a financial microgrid, with self-sufficient local power centers, drawing capital from local communities. These distributed financial centers would not be walled off from each other, but neither would they depend on the mainline current. Microfinance institutions (MFIs) would feature prominently in a financial microgrid.

In marked contrast to subprime lending in the U.S., microfinance institutions around the world follow the traditional principles of relationship banking. Developed as a means of helping the poor lift themselves out of poverty, MFIs around the world, from BancoSol in Bolivia to Bank Rakyat Indonesia, pioneered techniques that make lending simultaneously socially responsible and financially viable. These include character-based lending; stepped lending, where prompt repayment is rewarded with gradually larger loans; and group lending, where borrowers cross-guarantee each others’ loans.

MFIs approve loans based on face to face assessment of a customer’s ability to repay from existing income — not speculation on future asset value. Insulated in most cases from their countries’ formal economies, MFI clients — the self-employed poor — have proved resilient in previous crises. MFIs, for their part, remain well-grounded because they keep their loans on their own books rather than passing off risks to others who may not understand the market so well.

The resulting portfolio quality might make many mainstream bankers envious. Of the 890 MFIs reporting to the Microfinance Information Exchange, a benchmarking data source, the median loan loss rate in 2007 was 1 percent, and 75 percent of all MFIs had loan losses below 3.3 percent.

The freeze-up in capital markets does pose a challenge to the ambitious growth targets of the world microfinance community, which seeks eventually to reach all of the poor people worldwide who could profit by access to financial services. That’s why the global pullback is sending many MFIs to domestic credit markets and the mobilization of savings deposits to fund their growth. Savings, in concert with access to responsible lending, provide the working poor with a powerful one-two punch in the struggle to rise above a precarious existence.

Institutions like MFIs that grow through savings accounts and domestic capital markets while offering responsible lending could be the basis for a distributed, diversified and durable financial system. Community banking in developed countries offers another illustration of such a model. In the U.S. today, according to FDIC data, the failure rate among big banks is eight times greater than among small ones. Relationship banking in the U.S. still exists, and it’s poised for a comeback as the benefits of preserving mutual interest between lender and borrower once more become obvious.

A return to a banking microgrid, in which each institution operates a locally-grounded business, could help stabilize markets in many countries. This shift in focus could have a major side benefit of bringing the practices pioneered by MFIs to reach more of the people further down the economic ladder with financial services.

Financial institutions that grow their lending capacity organically through savings deposits and practice traditional relationship banking build on a solid foundation. A durable world banking system with more nodes will be well-equipped to stimulate economic growth from the ground up.

http://dealbook.blogs.nytimes.com/2009/01/27/another-view-a-local-fix-for-a-global-mess/

> Posted by Paul Rippey

Senior Fellow Paul Rippey and Program Manager David Levai are currently in Mali identifying the results of an initial test of the Energy Links firefly LED lamp. Here Paul describes his initial observations from Mali. To learn more about Energy Links and the earlier pilot project in Uganda, click here >

Just as in Uganda, the ladies in Mali loved the lamps. But I think they were even more transformative here than in Uganda. In Uganda, we found that people were changing their lighting source from terrible to better. Here, the lantern often makes the difference between being in the dark, and having some light. Almost in every case, the principal users of the lights in the evening were children, studying. But the light would be passed around: first the family eats with it, then the kids study with it, then the adults take it to their room, then in the morning, Mom uses it to get up and make breakfast. Sometimes there was business use included - someone selling or making something in the evening.


There were several cases of shared lighting that we didn't see in Uganda: in one case (in the picture) three families keep their lights together and light up an area where all the kids can study at night, essentially centralizing something that we had decentralized. In another, they had a wake for someone who had died and used the lights in a relay, turning one on when another had gone dim. I salute the collective intelligence of rural people!

• An intensive immersion into the microfinance industry and the operations of leading microfinance institutions. 
• Addressing key challenges of doing business at the base of the financial sector, including succeeding in highly competitive financial sectors, maintaining a social focus in a commercial setting, and evolving products and delivery channels. 
• Engaging participants in discussing the experience of leading institutions through the case method approach, pioneered by HBS. 
• Reviewing some of the most recent developments in microfinance, such as the Compartamos IPO and a video on the operations at ACCION partner, Mibanco, in Peru.

Executives from microfinance institutions, private sector commercial banks, service providers interested in expanding finance to underserved clients around the world are invited to apply now. Click here to learn more about the program details and admission requirements.

> Posted by Sergio Guzmán

“Every client sits at this table with me and has coffee,” said the branch manager of a microfinance institution Bogotá’s neighborhood of Patio Bonito, “from the $1,000 clients to the $35,000 clients.” It was my first field visit, and I was impressed with this branch manager who had been working in the financial industry for more than 28 years.

After a two hour session of learning about the institution’s products and services we set out to the field to see clients. Patio Bonito is adjacent to the city’s largest food wholesaler center, Corabastos, with a large variety of businesses and clients. During my visit, I met clients who borrowed from multiple banks at market rates as well as clients who had been faithful and borrowed exclusively from this Colombian MFI. What surprised, though, me was that none of them knew what interest rates they were paying. None. While the clients knew how much they were supposed to pay each month, they had no knowledge of the total annual cost of their loans.

Patio Bonito is home to branch locations for almost all of Bogotá’s financial institutions. One would think that with so much competition around, the clients could benefit from competing rates and services. Not knowing their interest rates doesn’t necessarily imply that the institution has failed to provide adequate information about costs, but rather displays the clients’ level of financial literacy. Competition alone will certainly not fill the financial-literacy gap clients face—transparency is the other side of the coin here. In fact, transparent and reasonable pricing is one of the six principles espoused by the new Campaign for Client Protection.

Only when clients are empowered to ask questions and demand more from their financial services providers, taking real advantage of the competition that exists, will there truly be improved services overall. Perhaps then, it will be the client who eventually can say, “All of the credit providers have coffee with me at this table.”

> Posted by Kelley Mesa

The Center for Financial Inclusion is teaming up with CGAP and industry leaders around the globe to launch a Campaign for Client Protection. The Campaign will build awareness, consensus, and commitment on client protection through a set of client-protection principles formulated as a Microbanker's Oath in the spirit of the Hippocratic Oath. 

The overall objective of the Campaign is to unify the industry around the principles' implementation - in effect turning client protection into a basic tenet of the industry. What would make YOU excited about the Campaign? Please weigh in here with your thoughts and suggestions for how the Campaign can become a truly industry-unifying force.

If you haven't signed up for our monthly Inclusions e-newsletter, then now is a great time to do so! Create a Center login account and check the Inclusions box.

> Posted by Kelley Mesa

Viewpoint: Standards for Microfinance Growth
American Banker
By Elisabeth Rhyne

As mainstream credit markets seize up, the world's microfinance organizations, or MFIs, have not yet felt much heat. If anything, the crisis of confidence has highlighted what a good credit risk most microfinance clients have proven to be.

Isolated in most cases from their countries' formal economies, the self-employed poor are also resilient during downturns. Indeed, microfinance may be a bright spot in the banking industry's future — a huge market of hundreds of millions, whom pioneering microfinance specialists are learning to serve in a sustainable way.

But the credit crisis highlights a threat of another kind. The subprime lending abuses that fueled the U.S. housing bubble demonstrate the dangers of financial services to the poor done wrongly. The subprime industry's core failures in consumer protection — tempting low-knowledge customers into overindebtedness, ignoring capacity to repay when approving loans, failing to clearly disclose and explain loan terms — are the fruits of intense competition and ineffectual regulation. Though these practices are not widespread in microfinance, competitive conditions in some markets could tempt providers to adopt some of them.

In some microfinance markets...

To read the entire article, click here (subscription required, free trial available).

> Posted by Kelley Mesa

Paul Rippey is at it again in the latest two Energy Links podcasts. First, he speaks with Patrick Avato of the World Bank Group's Lighting Africa Project, an initiative to provide up to 250 million people in Sub-Saharan Africa with access to modern, off-grid lighting products by 2030.

In the following podcast, Paul is joined by April Allderdice and James Dailey of Microenergy Credits, who discuss their efforts to link microfinance loans to carbon markets through a low-cost, web-based platform, reducing the cost of accessing base-of-the-pyramid markets.

View all Center for Financial Inclusion podcasts here.

> Cara Forster

The Microfinance Network’s annual conference brought me to India this year, as it was hosted by SKS Microfinance, which graciously arranged for us to visit some of their clients in Agra. I had been warned that the places we would visit were filthy and the poverty in India overwhelming. However, I found the homes of the SKS clients we visited to be rather decent, especially in comparison to what had been forecast. 

We visited one woman whose business is sewing bridal veils from crimson organza embellished with all manner of gold colored trim. She makes 3-4 veils a day, earning her about $1. The way I saw it, her problem was that she sells the veils to a middleman from whom she obtains her inputs. We asked her what it would take to free herself from the middleman, but she replied that the middleman was necessary, that the ladies themselves could not sell their work in the market because they couldn’t get a permit for a stall, that she was comfortable with the way things are. She was staunchly defending the status quo. 

The seamstress lived in two pink rooms in a cement apartment building with her husband and four children. From my perspective - based on years as a Peace Corps Volunteer in rural Nicaragua -painted cement walls indicate relative prosperity. I was somewhat surprised to see the painted walls, gas cooking stove, and wooden bed frames.

But more than their physical assets, I was surprised that this lady could spend 9 or 10 hours a day sewing lovely veils and make only $1 for her trouble. It seemed to me that if progress is to be made in expanding the income of people like the seamstress, it will take more than credit - some restructuring of the current value chain might be required. This is not the kind of assistance that is usually packaged with commercial microfinance, but it is receiving increasing attention. The whole third day of the MF India Summit, dedicated to livelihoods, focused on Inclusive Value Chains. Perhaps in the seamstress’ neighborhood there is an unemployed son or husband, or even one of the women, who could take over the responsibilities of the middleman. With some organizational assistance, someone from the neighborhood could obtain a permit and operate a stall, collect and transport the veils, etc. This could provide a living for that person as well as return more of the profits from their labor to the women.  Hopefully this increased emphasis on value chains by practitioners will translate into real increases in income for the laborers, like the seamstress, who work at the very end of the value chain.

> Kelley Mesa

If you haven't signed up for our monthly Inclusions e-newsletter, then now is a great time to do so! Create a Center login account and check the Inclusions box.

Along with updates on Center happenings, the e-newsletter will include a "Question of the Month," on which we'd love to hear your thoughts and comments. This month's question is on one of the Center's core projects - consumer protection:

Is there a business case for client protection in inclusive finance? Do you believe the implementation of client protection will improve the financial bottom line of microfinance institutions?

Weigh in with your thoughts here on our comments form.

Comments:

"The MFI market in Nicaragua is one of the most competitive ones in Latin America, with over 300 MFI’s. The presence of just about every donor, a large influx of international funding, and banks downscaling has created an environment of market saturation and over-indebtness of clients. MFIs have begun to see a significant increase in arrears and a decrease in margins. Some MFIs have toughened their collection methods, creating friction among clients. This, compounded with a more populist regime, interest-rate caps, and a very weak legal system, has resulted in a number of customer complaints being printed in the press. A group of people with criminal backgrounds and the backing of the political party have begun striking against MFIs and threatening employees, even setting one branch on fire.


Banex identified the risk in the middle of 2007 and made significant changes, including prevention, changes in its internal processes, the addition of appropriate collection technology, and, in general, a strong client focus. This included implementing a code of ethics for collectors and attorneys, training them on customer rights, preventing judicial collections whenever possible, adding an ombudsman to protect the customer, and giving a written statement to customers explaining their rights.


These steps have helped to reduce our political exposure and keep our arrears much lower than the industry average."

- Gabriel Solorzano, Banex

Audio comment

- Nejira Nalic, MiBospo

"We believe in protecting our customers in the following ways: avoiding overindebtedness, and educating them in the correct use of financial instruments, such as credit and deposits.


Protecting clientes, both depositors as well as borrowers will generate loyalty. This in turn will reduce the costs of losing customers, and thus improve the bottom line."

- Kurt Koenigsfest, BancoSol S.A.
 

> Sergio Guzman

During the past few months, the Colombian economic media have kept a close eye on the current financial crisis, but many people’s attention has been captured by a company with a mysterious money-making scheme called DMG, founded by David Murcia Guzmán, a twenty-something, who in 2003 started his company in a small town close to the Ecuadorian border. The company claims to pay clients for “personalized advertising” which really means client referrals. According to Dinero magazine, clients invest in pre-paid cards with which they buy goods from company stores. They are obligated to refer three people and in exchange the company pays them cash or merchandise honoraria in company stores.

A similar scheme, DRFE (Spanish for “Easy Money, Fast Cash”), collapsed last week. The government shut it down and is forcing it to return its “investors’” money. (Click here to read a Washington Post article on the riots caused by DRFE.)   

DMG claims that it has more than 70 thousand active members and that over 200 thousand people have participated in the scheme. The model is a grave concern for the banking authorities, tax collection agencies, and even the prosecutor general’s office. Many have signaled the operation to be an elaborate Ponzi scheme. There have been reports by president Uribe that police officers and even some senators have invested in the scheme. The government intervened DMG on Monday citing illegal deposit-taking.  

According to Maria Cristina Cortez, a senior director for Global Programs at ACCION International, some people have borrowed from microfinance institutions and cooperatives in order to invest that money in the pyramid schemes. Some savers have been tempted to take their savings elsewhere because of the juicy returns, which in turn dries up deposits.

The collapse of the pyramids could create serious consequences for microfinance. As Elisabeth Rhyne, managing director of the Center for Financial Inclusion says, “the big risk of pyramid schemes is that they cause serious and often long lasting damage to people’s willingness to trust financial institutions or in this case electronic cards as a means of exchange.” She adds that “a pyramid scheme collapse can also makes regulators more suspicious of new financial sector entrants, which can result in regulators raising higher barriers to entry.”

It is no surprise that poor people are investing in DMG. The trust in financial organizations, according to the Custumer Value Index as reported in Portafolio, has fallen. “In part due to the lack of transparency and compliance of banks, who make promises to clients and then fail to live up to their commitments.” Some clients complain that banks do not provide them the treatment they deserve and turn to organizations like DMG who seem to make a greater commitment to their growth and development.

Responses to the pyramid schemes include financial literacy to educate clients about how to recognize pyramid schemes and avoid offers that seem too good to be true. This episode is a wake-up call for financial institutions to step up their game in consumer protection initiatives in order to maintain client confidence in the financial sector.

> Posted by Kelley Mesa

The seven-day Harvard Business School-ACCION Program on Strategic Leadership in Microfinance offers finance leaders from around the world an exceptional opportunity to connect with peers while engaging with some of the HBS faculty's foremost thinkers in business strategy and management. It is a unique opportunity to expand strategic thinking. Offering a proven case-study approach, the program creates an energized environment in which to consider your role in finance at the base of the pyramid.

Building on three highly successful years, the 2009 course offers a curriculum for all financial institutions – from microfinance specialists to conventional commercial banks – engaged in expanding finance to underserved clients around the world. In 2006, 2007, and 2008, HBS and ACCION brought together microfinance practitioners from 61 countries – including 41 CEOs from some of the field’s leading microfinance institutions.

Past participants have said:

“The high quality of the materials, of the teaching, the participation of the participants - everything contributed to create a very stimulating environment for learning.”

“Excellent opportunity to understand the global state of the industry and what is possible.”

"The experiences in the cases, the wealth and competency of the lectures and contents of subject matter were not only relevant but very inclusive and gave me good tools to do a better job.”

Participants in the 2009 program can expect to leave the course with an enhanced perspective on their leadership roles as well as insights on commercial finance that will shape their strategies in a rapidly changing industry.

The 2009 Course will take place from April 13-18 at Harvard Business School in Boston, Massachusetts. The course details and applications are open now at www.accion.org/hbs.

For questions about the program, please email: hbsaccion@accion.org

> Posted by Joshua Goldstein

Joshua Goldstein is a director at the Center and our very own “Mr. Provocative.” In addition to his work with the Center, Josh is a writer and teaches a playwriting class in Boston University's Creative Writing Department. He’s published several of his plays, poetry, and prose. Josh will post here on topics of interest and debate. Feel free to add your comments by emailing webmaster@centerforfinancialinclusion.org.

The explosion of remittance transfers from people who have migrated to developed countries to their poor relatives back home has led to new wealth creation and a better standard of living for many. And this is, on the face of it, very positive.

But I believe that there is a particular sorrow behind a considerable percentage of remittances that demands greater scrutiny and perhaps some kind of remedial action. The transfer of money is often made by families living under the great stress of separation—such as an absent mother supporting the small children she has left behind—an abandonment from which some never recover.

Enrique’s Journey, (2006) by Pulitzer Prize winning journalist Sonia Mazarin, is the harrowing story of a teenage Honduran boy who embarks on a dangerous journey, riding the tops of freight trains, to reach the United States in search of his mother Lourdes, whom he has not seen since he was five years old. He is, says Mazarin, one of an estimated 35,000 migrant children each year who sneak into the United States (many others are turned away at the boarder) with the dream of reuniting with a mother they hardly remember.

Like countless other impoverished, single mothers, Lourdes left Honduras for the United States with the best interests of Enrique in mind. Hers is an agonizing decision, driven by economic necessity and the dream of a better future. Lourdes does find work, remits money regularly, and within a year or two plans to return to Honduras. But that last, critical piece of her plan is not possible.

As a five-year-old, all Enrique understood was that his mother had abandoned him. His loss ultimately drives him to risk everything and head north to find her. But, after years of separation, the kind of perfect bonding he longs for with his mother is not achievable, leaving him bitter and confused.

When impact studies are done about the value of remittances, it is inevitable that proxies for success like school attendance and increased consumption are used. And that makes sense. But poor people are as psychologically complex as the rest of us, and increased material well being afforded by remittances may be counteracted by the profound social dislocation and loss that children like Enrique suffer. (And what good is school attendance if a child cannot concentrate anyway?) As a first step, a public health campaign to educate migrant mothers about how best to communicate with the children they have left behind, in order to minimize the psychological damage, would be well advised.

Transfers of money are no substitute for the daily reassurance of parental love that allows children to flourish, and that means doing more to keep families together. Microfinance institutions focus on serving people where they are. Made explicit in the mission statements of microfinance institutions might be something like the following: Working capital loans to the self employed poor sector make it possible for mothers and fathers to stay with their children. This is a very impressive achievement of the microfinance revolution that, in my opinion, should be highlighted more and is surely an impact that we should design studies to measure. It certainly is another powerful argument for exponentially expanding the reach of microfinance.

Reading recommendation: Readers of this blog might also be interested in Edwige Danticat’s new memoir, Brother I’m Dying, which is filled with poignant passages about separation, loss, and the role of remittances in the lives of the Haitian poor.

> Posted by Kelley Mesa

Listen to episode two of the Energy Link's Podcast Series is available here.

This episode includes interviews with Harry Andrews of Barefoot Power and James Wire of Linux Solutions. As always, the Center for Financial Inclusion's Paul Rippey hosts the discussion which talks about the renewable energy products under production and distribution by Barefoot Power in Uganda as well as James' work supporting enhanced access to "light throughout the night" in rural Uganda.

The Center's Energy Links project aims to bring renewable energy to microfinance clients, contribute to reducing greenhouse-gas emissions and give MFIs a viable “business-in-a-box.” Read more about the project here.

> Posted by Sofia Leon

Following an all-star Opening Plenary, I walked upstairs at the 2008 Clinton Global Initiative to see Chris Crane of Opportunity International, Elizabeth Littlefield of CGAP, and Maria Otero of ACCION International. I work in microfinance and was clearly excited to hear this panel, but I was surprised to find such a packed room’s attention set on the microfinance discussion at hand.

Track director Jane Wales introduced the panel, and after individual project updates from each of the three panelists, Jane asked Maria Otero to announce a new CGI Commitment spreading across the microfinance industry: The Campaign for Client Protection in Microfinance.


Maria Otero set the stage, describing how the growing interest from commercial lenders in serving the markets at the BoP make it essential for MFIs, MFI networks, and in general, institutions serving low income markets to proactively embrace client protection rather than having it forced upon them by governments, donors, or as a compliance matter by investors.


She also underscored how crucial it is to move beyond a simple affirmation of high-level principles into the "nitty gritty" of practice. The lack of such industry behaviors can lead to undesirable outcomes, as we are now witnessing. (I don't have to remind you that the sub-prime lending crisis in the United States provides an example of an industry collapse due to risky behavior lacking proper mitigation or regulation.)


The relevance and the focus on the collaborative nature of the Campaign is what makes me passionate Maria's announcement at this CGI Poverty Alleviation track session. The Campaign for Client Protection in Microfinance is a Commitment made by our recently launched Center for Financial Inclusion at ACCION International in partnership with ACCION International, Opportunity International, Pro Mujer, Women's World Banking, Freedom From Hunger, Compartamos Banco, Al Amana, Women's World Banking Colombia, CIDR/PAMIGA, BANEX, Deutsche Bank, and CGAP.


The Campaign is just beginning, but looks to involve the largest 500 MFIs reporting to the Mix Market on initiatives that aim to tackle over-indebtedness, transparent and fair pricing, ethical collections practices, ethical standards for staff, client recourse, and privacy of client data.


There isn't a quick fix here, but these committed players recognize the need to start now along with the need to work together. (Even the New York Times came out with an article recognizing this effort, articulating the relevance this Campaign has for the industry.) Stay tuned for more to come as the coalition builds. A healthy microfinance industry affects all of us working on engaging the world's four billion low-income consumers.


We welcome your insights and comments on how to build a stronger campaign.

> Posted by Kelley Mesa

We are pleased to release the first episode of the Energy Links Podcast Series, hosted by Center Senior Fellow Paul Rippey. In this first episode Paul speaks with Beth Rhyne, managing director of the Center for Financial Inclusion. Beth discusses the motivation for the project and the progress of an initial pilot project to put affordable solar lamps in the hands of rural entrepreneurs and households. 

The Energy Links Podcast Series is brought to you by the Center for Financial Inclusion at ACCION International and the Academy for Educational Development FIELD Project, with the generous assistance of the United States Agency for International Development (USAID) and the Wallace Global Fund. Your comments and questions are welcome. Please send them to EnergyLinks2009@gmail.com. And, stay tuned for new episodes in the coming weeks.

> Posted by Brian Clancy

I’m delighted to welcome you to the Center for Financial Inclusion. The global microfinance movement is at a critical juncture in its evolution, and this initiative is an acknowledgment of both the opportunities and risks the current situation presents. The Center reflects an enhanced commitment to building coalitions to ensure our industry balances economic sustainability and social mission as it reaches scale.

We are pursuing this objective in several distinct ways. First, we have created two advisory groups to provide us with insights, direction and program support. I’m proud to join the Center as a member of its Advisory Council, where I am working with a distinguished group of major thought leaders in microfinance plus world-class talent from other disciplines who will play a major role in the industry’s development. We reached out to a truly remarkable group of people and were delighted and honored that they were willing to support this effort. Our Faculty Council is an equally distinguished group, made up of individuals who teach and pursue research in the field at top academic institutions.

Both of these groups are acutely aware that what got microfinance this far is not enough to move us to universal financial-services access for the world’s poor, and they are dedicated to working together to forge a path to that vital goal.

The Center for Financial Inclusion also includes a separate unit to support these efforts. This team includes project managers to address our first three focus areas: managing the double bottom line, opening capital markets to microfinance, and addressing service-delivery bottlenecks.

I want to thank everyone both inside and outside the Center and ACCION who have made this launch possible, and I am particularly excited about sharing with you our plans and deliverables as this important initiative gains momentum over the months and years to come.

> Posted by Elisabeth Rhyne

The idea for the Center for Financial Inclusion emerged within ACCION about a year ago. As you probably know, ACCION has been promoting the commercial model of microfinance ever since it created BancoSol in 1992. You might know that back then Maria Otero and I worked together to lay out a vision – we called it the Financial Systems Approach – for how microfinance could become part of the mainstream financial system. That vision has far exceeded our dreams.

Last year, the Compartamos IPO felt like a culmination of the vision in many ways. It was a strong validation of microfinance by the international markets. It was also a wake-up call on some of the thorny issues facing the field. The momentum is strong now for commercial microfinance. The financial crisis of the past week may interrupt that momentum, but microfinance is sound, and as markets recover they will stay with it. In the new environment we saw a need to take up a renewed focus: ensuring that the mission side remains an integral part of microfinance, even as the baton passes to more private sector players.

We hired Community Wealth Ventures, a consulting firm that assists nonprofit leaders to launch strategic ventures, helped us develop our thoughts about the Center and put them down on paper. Their enthusiasm and advice got us started, and we thank them heartily.

The Center’s mission statement involves a lot of my personal convictions:

The Center for Financial Inclusion is dedicated to the proposition that low income people deserve high quality financial services delivered through commercial models that incorporate social purpose.

The first few words are about financial inclusion. It is no longer just microloans for microenterprises, provided by specialized microfinance institutions. We crossed that bridge some time ago, but still have trouble getting beyond those roots.

More important, microfinance has focused so much on client numbers that quality has not received its due. What I mean by quality is that customers receive a full range of services, delivered in a responsible and customer-friendly way, at an affordable price.

The second part of the mission refers to commercial providers incorporating social purpose. The Center welcomes anyone who pursues a double bottom line, be they non-profits or banks. I feel despair about the way greed was allowed to run rampant in the U.S. financial sector, and I believe we are lost if we don’t incorporate social purpose more explicitly into business. Inclusive finance has great potential to demonstrate how this can be done.

For these reasons, consumer protection is emerging as the first major new area for the Center. We are working across the industry to launch an awareness raising campaign for consumer protection in microfinance. Stay tuned for more.

Which brings up the collaborative working model of the Center. For solving industry-wide challenges nothing is better than assembling small groups of people around burning issues. That’s how we intend to work. Some groups are at it already, including a terrific Advisory Council. And we have an energetic staff who are creating an atmosphere of fun and provocation, making the Center a place where ideas can be put forward and challenged.

Before we started we wondered whether people would trust the Center as working on behalf of the industry at large, without a separate ACCION agenda. I’ve been delighted at the warm reception the Center has received so far. If you have lingering doubts about independence of the Center, I ask you to give us a chance to prove ourselves, and then hold us to our word.

Creating the Center is a homecoming of sorts for me. I’ve always thought in terms of the industry as a whole. Thanks to ACCION for giving me this opportunity. The Center certainly shares ACCION’s philosophy regarding commercial microfinance, and it will benefit greatly from ACCION’s support.  But the intent is to serve industry as a whole, working with all players – inclusively.

> Posted by Sofía León 

Welcome to the Inclusive Finance Forum, the blog for the Center for Financial Inclusion at ACCION International. In this first post we’ll explain who we are and what we’ll be blogging about.

The Center for Financial Inclusion is working with microfinance experts and leaders from the private sector to advance the commercial model of microfinance, while upholding the interests and needs of poor clients worldwide. My name is Sofía León and I will be co-editor of this blog together with my colleague Kelley Mesa. My passion for poverty eradication and social enterprise makes me enthusiastic to raise key issues through this blog.

You’ll be hearing from the entire staff of the Center. Members of our Advisory and Faculty Councils will also make guest appearances. Fellows for the Center’s Energy Links and Beyond Codes projects will also join the discussion, together with other leading experts working in microfinance.

What will we blog about? We’ll cover the issues that are shaping the future of financial services for the poor, like fair pricing, competition, climate change, reckless lending, new financial products, corporate governance, and housing microfinance….just to name a few. We hope to provoke debate and fresh thinking.

Whoever you are, whatever role you play – at a development organization, in the private sector, as a student, or as a microfinance expert – your contribution to this site is welcome. Send us your comments, your ideas for posts, your interests, and your ideas for innovative projects you think should be highlighted.  (We will have comments enabled below each blog post as soon as possible. Until then, please e-mail us at webmaster@centerforfinancialinclusion with your thoughts!)