This <a href="https://centerforfinancialinclusion.org/financial-inclusion-week-2019/">Financial Inclusion Week</a>, we’re asking ourselves what the purpose of our work is. For those of us who work with refugees, financial inclusion is often for rebuilding sustainable livelihoods, resilience, and self-reliance.

Driven by necessity and limited employment choices, many refugees decide to start a business once they settle in a host country. However, lack of financial capital represents a major stumbling block on the way to business success. Financial service providers (FSPs) in a number of countries are starting to become aware of the potential of this underserved market, but much of the work is still at an incipient phase. FSPs often have questions related to whether operations adjustments may be required, strategies to follow to reduce credit risk, and supporting non-financial services. While every context is different, some good practices are emerging among a number of FSPs, which have been extending credit and other financial services to refugees. Drawing on their experiences, here are four recommendations for FSPs on how to start including this underserved market in their microfinance portfolio:
<h2>1. Analyze market data for better targeting.</h2>
Refugees aren't a homogeneous group, so FSPs first need to understand the differences of their socio-economic characteristics to be able to make an informed decision regarding which sub-segments they wish to serve. Relevant data for a first screening may be offered by local development and humanitarian agencies, and – in addition to basic demographic information – should ideally include data such as vocational or business training received, access to start-up financing, access to bank accounts, description of enterprises, and membership to any existing saving groups. Sometimes this data may be unavailable or insufficient, and market feasibility studies may be required. Especially in countries with high concentration of refugees living in settlements where FSPs have no presence, this would require set-up costs for branches or delivery channels.
<blockquote>A study revealed that refugee communities had enough financial capacity to be good clients.</blockquote>
To identify the potential market of serving refugee entrepreneurs in the West Nile region, <a href="http://www.visionfund.org/2095/where/africa/uganda/">VisionFund Uganda</a> conducted an <a href="http://www.visionfund.org/222/media/news/article/report---serving-refugee-communities-in-uganda/">assessment</a> of 6,700 refugee members of existing saving groups. The study revealed that the refugee communities had enough financial capacity to be good clients, given the presence of daily and weekly markets in the camps, availability of fairly good network coverage, and mobile money agents and existence of entrepreneurial groups and business activity. The results from this assessment, when considered alongside data collected from a broader <a href="https://www.findevgateway.org/blog/2018/oct/getting-it-right-providing-financial-services-refugees">market survey</a> previously conducted by Microfinanza, convinced the MFI to set-up their first branch in the West Nile and start serving refugees.
<h2>2. Widen the range of acceptable forms of IDs while complying with regulation.</h2>
Depending on FSPs’ internal policies and the host country’s regulatory framework, adjustments to FSPS’ internal procedures may be required to serve refugees clients. <a href="https://corporate.mybucks.com/articles/worlds-first-refugee-camp-bank-a-resounding-success/13TBmOsflyCQsUqyeQoSMI">MyBucks in Malawi</a> is the first financial institution to provide a full range of financial services to clients at a refugee camp. Refugees in the Dzaleka camp had no access to FSP providers until last year and had to travel roughly 40 kilometers to the nearest city of Lilongwe to access financial services. The bank saw the business potential of this untapped market, but in order to serve refugees, MyBucks needed to tailor its offering by widening the acceptable forms of identification. Refugee clients often don't meet KYC policies required by the bank – such as a passport or national ID – and don't own land properties that the bank can use as securities. Therefore, in order to comply with the country’s regulations, MyBucks sought a waiver from the central bank to use refugee forms provided by UNHCR to allow refugees to open bank accounts. Today, the bank, which opened its first branch in April 2018, is offering a full range of banking services to refugees.

As of July 2019, 153 refugee entrepreneurs have received business loans from the bank, which relies on group lending methodology to lower credit risks in extending collateral-free loans to refugees. Each individual has to repay according to his/her amount and repayment schedule. The group guarantees for the members, in case a member can't repay on time. Repayment rates to date are 100 percent. MFIs in other countries which don't have to comply to stringent banking regulations, have also been accepting old refugee IDs and expired passports as means to verify identities. A number of new identification and verification measures through blockchain are also starting to emerge which provide innovative tools to verify people’s identities and monitor risk in financial transactions.

A <a href="https://www.makingcents.com/hawiyati-english">digital identity</a> for refugees has been piloted in Jordan and Lebanon by local MFIs. This provides their clients with a “portable identity” that verifies their foundational identification (government or UNHCR issued) digitally, records their credit history, and uploads other important documents. This identity will be especially useful in case a refugee wishes to access banking services upon return to the home country or in case of resettlement, and can also work as an incentive to repay the loan on time.
<h2>3. Establish alternative procedures to mitigate credit risk.</h2>
FSPs are used to the conventional eligibility requirements that proof of citizenship, identity, and residency cards reduce credit risk. Nevertheless, there can be other ways to monitor risk and to verify IDs by adding some flexibility to documentation required. <a href="https://www.almajmoua.org">AlMajmoua</a> is the biggest MFI in Lebanon, the country with the highest number of refugees relative to its population. The MFI serves over 9,000 refugee borrowers with a loan portfolio of over $9 million and repayment rates of almost 100 percent, making it the financial institution with the highest number of refugee borrowers served in a country. More than half of the loans disbursed by AlMajmoua to refugees are for income generation in the limited sectors were refugees are allowed to work in the country, such as field crops, cleaning services, sewing, selling clothes and hairdressing.
<blockquote>AlMajmoua serves over 9,000 refugee borrowers with a loan portfolio of over $9 million and repayment rates of almost 100 percent.</blockquote>
How did this MFI succeed in reaching thousands of refugee clients – many of which through individual loans, so where no social guarantee can be applied – with excellent repayments? To mitigate credit risk, the MFI primarily relies on a strong communication channel between their loan officers and clients by conducting regular business visits, which also allow it to find out whether refugees may have imminent plans to return to their home country or relocate. Additionally, AlMajmoua exceptionally provides loans up to $1,500 to refugees who don’t hold an active residency permit as long as they have a Lebanese, Palestinian or Syrian guarantor with a valid residency permit.
<h2>4. If you provide enterprise support services, consider what would be relevant for refugees new to business.</h2>
Sometimes credit isn't sufficient to initiate and scale up a business activity and refugees may need the support of incubators and start-up technical assistance. Some FSPs might already have their training curricula well developed, which might have to be adapted to the needs of the foreign-born clients. <a href="http://www.microfund.org.jo/">Microfund for Women</a> (MFW), Jordan’s largest not-for-profit microfinance institution, serves over 7,500 Syrian refugees, approximately 40 percent of whom are involved in income generation activities, mostly commercial and home-based services. For MFW, it proved particularly important to accompany loans with non-financial services tailored around refugee women’s specific needs (most of their Syrian refugee women clients were not working before the war started). The MFI has established a learning academy and developed training curricula for both beneficiaries and staff members related to market ofrientation, business management skills, financial literacy, and marketing. In addition. MFW offers free feasibility studies for start-up entrepreneurial businesses with loan amounts higher than $4,000.

When FSPs don't offer such services, they may be able to partner with organizations offering that do. For example, <a href="https://www.ilo.org/global/lang--en/index.htm">ILO</a> is adapting its <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_560493/lang--en/index.htm">business skills development training tools</a> to the needs of the displaced population and the local context, and is now planning to train refugees and host communities to develop their own enterprises and facilitate access to finance. A first training has already been deployed in Kenya through the Danish Refugee Council in the Dadaab refugee camps.
<blockquote>When FSPs don't offer such services, they may be able to partner with organizations that do.</blockquote>
Hopefully, this post will spark FSPs to realize the important role they have in finding solutions to the refugee crisis. By extending their services to the refugee population in their country, FSPs won't only support the resilience and self-reliance of this widely underserved market, they will also assist in overcoming stigma and helping refugees contribute economically and socially to host communities.

How to Include Refugee Entrepreneurs in Microfinance

Jordan

Lebanon

Malawi

Middle East and North Africa

Sub-Saharan Africa

Uganda

Financial Inclusion Week 2019

Financial Service Providers

Microfinance Institutions

Refugees and Migrants

Underserved Groups

Blog Post

After great anticipation, three years’ worth to be exact, the 2017 Global Findex Database was officially released this morning. The Global Findex is the authoritative data source on global progress toward financial inclusion. Released every three years, the Global Findex surveys more than 150,000 adults in 144 economies to better understand how people access and use financial services to make payments, and also to save and borrow.

Since the 2014 Findex, the percent of the global population that has a bank account with a financial institution or mobile money service rose from 62 percent to 69 percent. Five-hundred and fifteen million individuals opened an account for the first time over the past three years, reducing the unbanked population to 1.7 billion adults worldwide. However, the new data also reveal critical shortcomings in progress. For instance, the financial inclusion gender gap didn’t improve. Globally, women remain 7 percent less likely to own a bank account than men.

Here are a few of the 2017 Global Findex’s high-level statistics:
<ul>
 	<li>Half of the 1.7 billion unbanked individuals worldwide live in just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.</li>
 	<li>In higher-income countries, 94 percent of adults have a bank account, while in developing countries this figure is 63 percent.</li>
 	<li>The proportion of individuals globally who send or receive digital payments increased from 42 percent to 52 percent; this figure is 76 percent for those who have a bank account.</li>
 	<li>In Sub-Saharan Africa, the proportion of individuals with a mobile money account nearly doubled to 21 percent, while bank account ownership increased by only 4 percent.</li>
 	<li>Globally, roughly two-thirds of those who are unbanked have a mobile phone, but Sub-Saharan Africa is the only region where mobile money penetration is greater than 10 percent.</li>
 	<li>In addition to the persistent gender gap, the difference in bank account ownership rates between the rich and the poor has not improved, with those living in the wealthiest 60 percent of households in the poorest 40 percent of economies 13 percentage points more likely to have a bank account.</li>
 	<li>The accounts of one-fifth of banked individuals worldwide are inactive.</li>
 	<li>The Findex’s financial resiliency question revealed that individuals in higher-income economies would be far more likely to be able to come up with emergency funds than those in developing economies.</li>
</ul>
For more findings, you can access the <a href="http://globalfindex.worldbank.org/">2017 Global Findex Database report</a>, <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/29510/211259ov.pdf">an abridged overview report</a>, and <a href="http://globalfindex.worldbank.org/sites/globalfindex/files/2018-04/Global%20Findex%20database_0.xlsx">the full dataset</a>.

In several weeks, the CFI will release a brief distilling our key takeaways from the 2017 Global Findex.

&nbsp;

&nbsp;

New Global Findex: 69 Percent of Global Population Is Banked

East Asia and Pacific

Europe and Central Asia

Latin America and The Caribbean

South Asia

Global Findex

Access Usage Gap

Enabling Environment

Mobile Banking

Payments

Trends

Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.

This webinar will explore how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It will share insights from a recent report from the Center for Financial Inclusion and the Institute of International Finance.

The report incorporates 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion that we think exemplify best-case scenarios and good practice.

Webinar: How Financial Institutions and Fintechs Are Partnering for Inclusion

Mainstreaming Financial Inclusion: Best Practices

Banks

Digital Financial Services

Fintechs

Partnerships

Webinar

<em>&gt; Posted by Iftin Fatah, Investment Officer, Overseas Private Investment Corporation</em>

The <a href="https://thegiin.org/knowledge/publication/annualsurvey2017">2017 Annual Impact Investor Survey from the GIIN</a> showed that respondents, which make up a diverse and active group of impact investors, committed more than $21 billion to impact investments in 2016 and planned to commit 17 percent more capital than that in 2017. Geographically, however, the Middle East and North Africa (MENA) only makes up 2 percent of assets under management.

Islamic finance is largely concentrated in three markets – Iran, Malaysia, and Saudi Arabia – but it spans nearly every part of the world, including MENA, Asia, and sub-Saharan Africa. For its part, Islamic finance has grown over the past two decades, with total assets reportedly totaling roughly <a href="http://sunnewsonline.com/islamic-finance-assets-leaps-to-2-trillion/">$2 trillion</a>. Despite this growth, Islamic finance still makes up a small share of the global financial market. These two areas of Islamic finance and impact investing are ripe for potential collaboration. Out of the 1.6 billion Muslims in the world, <a href="https://www.cgap.org/publications/trends-sharia-compliant-financial-inclusion">650 million</a> are living on less than 2 dollars a day.

For starters, for those who aren’t familiar, let’s quickly go over how Islamic finance works. Islamic finance is derived from principles rooted in the rulings of Sharia law. The key principles of Islamic finance include: prohibition of interest, profit and loss sharing, and prohibition of<em> gharar </em>(excessive uncertainty, deception and risk). At its core, Islamic finance is centered around mutual well-being for banks and clients. The most notable difference between Islamic finance and Western finance is that interest or <em>riba</em> is forbidden. Rather, banks sustain themselves by sharing in the risk of their financial services with clients, operating on a profit-loss basis. For example, one of the most common Islamic finance products is <em>murabaha</em>, which is a cost-plus-mark-up (non-interest-bearing) loan. Financers bear the cost of the loan, and instead of charging clients interest, clients are charged a mark-up. Accordingly, banks act as investors rather than creditors.

Globally there are largely untapped markets that show immense potential for Islamic finance, such as sub-Saharan Africa, which is the world’s fastest-growing population and has a large Muslim contingent. According to a 2015 Economist Intelligence Unit (EIU) report entitled <a href="https://www.eiuperspectives.economist.com/sites/default/files/MappingAfricasIslamicEconomy.pdf">Mapping Africa’s Islamic Economy</a>, to date, Islamic finance has a presence in 21 African countries. Perhaps counter-intuitively, the EIU report notes that while Sharia-compliant goods and services appeal to the values of Muslims, majority Muslim populations are not essential for a vibrant Islamic economy sector.

In the case of sub-Saharan Africa, one of the primary drivers of the region’s Islamic economy is the need for quality infrastructure. An inadequate supply of roads, railways and ports, and insufficient energy supplies and housing shortages are among the challenges facing the continent. Further, an urbanizing population will drive demand for even more infrastructure. <em>Sukuk</em>, Islamic bonds structured in such a way to generate returns to investors without infringing upon Islamic law, are of growing interest to governments trying to raise capital for such projects. For example, the Nigerian government, <a href="https://www.premiumtimesng.com/business/business-news/243336-nigeria-starts-sale-n100-billion-sukuk.html">recently announced</a> the sale of a N100 billion ($326 million) debt sovereign sukuk on the local market, meant to fund road infrastructure in the country.

The <a href="http://www.undp.org/content/undp/en/home.html">United Nations Development Programme</a> (UNDP) rightly recognizes the potential of this untapped market and in May 2017 collaborated with the <a href="http://www.irti.org/English/Pages/default.aspx">Islamic Research and Training Institute</a> (a member of the <a href="https://www.isdb-pilot.org/">Islamic Development Bank Group</a>) and the <a href="http://www.iicpsd.undp.org/">Istanbul International Center for Private Sector in Development</a> in producing a joint report entitled <a href="http://www.iicpsd.undp.org/content/dam/istanbul/docs/IslamicFinance_BroWEB.pdf">I for Impact</a>. The report focuses on recommendations for growing Islamic impact investing. Among these recommendations include creating an environment that promotes Islamic finance alongside the larger ecosystems of inclusive finance and responsible investing. Support should be offered to the creation and functioning of an effective capital market system for Islamic finance impact investing, including supporting existing and new actors in this space.

To further these recommendations, UNDP and the IDB established the Global Islamic Finance and Impact Investing Platform (GIFIIP) in 2016. The GIFIIP serves as a hub for Islamic finance impact investing actors. The aim of the GIFIIP is to be a collaborative working space that: supports the development of Sharia-compliant impact investing tools; serves as a forum for knowledge-sharing, policy dialogue and advocacy; and functions as a marketplace for deal sourcing and matchmaking. The GIFIIP strives to position Islamic finance impact investing as one of the leading enablers of Sustainable Development Goals implementation around the world, through private sector engagement.

With their rigorous moral and social criteria and emphasis on business-society relations, the principles of Islamic finance and impact investing have many areas of overlap. Bridging the two sectors and leveraging their ideological similarities is a natural response to the growing challenges related to development financing, particularly in Muslim-majority countries. Islamic finance can be a strong and virtually untapped source to finance sustainable development in many areas around the world.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="https://cfi-blog.org/2013/01/15/continuing-the-conversation-on-inclusion-in-the-arab-world/" target="_blank" rel="noopener">Continuing the Conversation on Inclusion in the Arab World</a>

<a href="https://cfi-blog.org/2016/11/08/islamic-microfinance-advances-and-converges-with-fintech/">Islamic Finance Advances and Converges with Fintech</a>

Bridging Islamic Finance and Impact Investing

Iran, Islamic Rep.

Malaysia

Saudi Arabia

Turkey

Agent Banking

Impact Investing

Policy, Regulation and Government Initiatives

<div class="getty embed image">

[caption id="attachment_24184" align="alignright" width="621"]<img class="wp-image-24184" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/10/mena-tnda.png" alt="" width="621" height="267" /> Board members and CEOs of MFIs in the MENA region met at the MENA Governance and Strategic Leadership Seminar hosted by CFI, Calmeadow and the Sanabel Network, in Jordan. March 2017.[/caption]

Over the past few years, the financial inclusion landscape in the Middle East and North Africa (MENA) region has rapidly evolved with new market entrants, changing regulations and increased financial risks. The industry aims to expand access to formal financial services and achieve much needed economic stability, and yet the financial inclusion ecosystem in MENA has experienced slower growth over the last 10 years compared to their peers in other parts of the developing world. According to <a href="http://documents.worldbank.org/curated/en/187761468179367706/pdf/WPS7255.pdf#page">reports</a> by the World Bank and CGAP, microfinance institutions (MFIs) in MENA are currently reaching approximately 3 million borrowers, with a loan portfolio of over $2 billion -- far below the market potential estimated at 56 million borrowers. The stakes are getting higher and MFIs need to reconsider their strategic directions in order to reach the unmet clients at the base of the economic pyramid.

</div>
The ability of MFIs to manage market and financial risks in a perpetually unstable economic environment will depend on the strength of their risk strategies, corporate governance structures and board dynamics. The Center for Financial Inclusion at Accion, Calmeadow, and the Sanabel Network, with support from the Dutch Development Bank (FMO), sought to understand key governance challenges facing MFIs in the MENA region by conducting a technical needs and demand assessment (TNDA). This assessment examined the challenges as perceived by board members and CEOs of MFIs, with an emphasis on the question of whether boards are well-equipped to steer their organizations onward to both stability and growth. The TNDA surveyed and interviewed 140 CEOs and board members of MFIs in the region, indicating their least effective technical areas and their largest governance concerns are:
<ul>
 	<li><strong>Managing market and financial risks </strong></li>
 	<li><strong>Assessing technology and new business models </strong></li>
 	<li><strong>Board dynamics</strong></li>
 	<li><strong>Diversity</strong></li>
</ul>
<strong> </strong>A majority of respondents to the TNDA felt that their boards lacked the diversity, skills, dynamics, and microfinance knowledge needed to effectively govern their institutions.

In terms of diversity, a key governance concern is the infrequent rotation of MFI board members. Most boards have an average three-year term that is often renewed. As a result, most board members have seats on their boards for a decade or more, and in some cases since the founding of the institution. While this ensures continuity in leadership, it sometimes poses challenges if special skills and fresh perspectives are needed to make decisions that effectively serve the MFI.

Board members and CEOs felt that their boards lacked effectiveness in monitoring market and financial risks. What’s more, only a handful of institutions across the region have board members that actively participate in external training events. The sociopolitical turmoil that has afflicted the region in recent years has had severe implications for financial service providers. Some have faced widespread defaults as their clients’ economic lives have been disrupted. Others have faced liquidity challenges. As recent <a href="https://www.cgap.org/sites/default/files/Brief-Lessons-Learned-from-the-Moroccan-Crisis-July-2013_0.pdf">evidence shows</a>, weak governance at a leading MFI in Morocco was a significant contributor to the 2008 Moroccan repayment crisis, where rapid growth led to unsustainable stress for many MFIs. The crisis ended when the top three MFIs in the country started making efforts to improve long-term institutional development, including by implementing new training methodologies, assessing risk management and governance practices, and improving the overdue recovery process.

Many MFIs in the region are facing financial risks because of their non-profit status. They struggle to raise enough capital to support growth and deepen equity cushions during difficult times. In response, and as regulation evolves, more MFIs are transforming to for-profit, non-deposit taking financial institutions, which is creating a greater need for investors and consequently a need for sound corporate governance with these partnerships.

Digital financial services offer great potential for MFIs to expand their delivery channels and increase access to financial services for excluded populations. Although many players in the region see new market entrants as competition, only 4 percent of TNDA respondents indicated that their boards were effective in assessing technology and new business models. As competition from fintechs increases, MFIs in the region will need to think strategically about establishing innovative business models and developing partnerships with these non-traditional players.

Going forward, strong governance structures will play a critical role to help MFIs in MENA sustainably grow and meet the client demand as the sector evolves. There will be no shortage of risks confronting inclusive finance providers in the region. MFIs in MENA will need to think seriously about their future strategic direction and how to address their identified shortcomings and bring their governance structures to the level needed to achieve their strategic goals.

To learn more about the results of the regional TNDA assessment, reach out to Lizzy Bolze at the Center for Financial Inclusion: <a href="mailto:lbolze@accion.org">lbolze@accion.org</a>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

<a href="https://cfi-blog.org/2017/07/24/uber-governance-fails/">Uber Governance Fails</a>

&nbsp;

&nbsp;

How Can Microfinance Institutions in the Middle East and North Africa Manage Risk and Meet Client Demand? Governance Is Key!

This study seeks to understand the key governance challenges facing microfinance institutions (MFIs) in the Middle East and North Africa (MENA). It examines the challenges that board members and CEOs see for MFIs operating in the region with a focus on whether boards are well-equipped to stabilize and grow their institutions. 140 executives and board members were interviewed about the governance opportunities and challenges their institutions face, and how effectively their boards operate.

The report further explores opportunities for MFIs to improve governance practices, reach a larger client base, and stay ahead of the evolving microfinance industry.

This report is also available <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/11/CFI_Brief_MENA_TNDA_Final_Arabic.pdf">in Arabic</a>.

&nbsp;

Governance and Strategic Leadership of Microfinance Institutions in the MENA Region

Calmeadow

SANABEL

Governance

Brief

[caption id="attachment_23436" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33301263350/in/album-72157678506203794/"><img class="wp-image-23436" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33301263350_ab536c426a_k-1.jpg" alt="" width="615" height="410" /></a> Alex Silva, Executive Director, Calmeadow[/caption]

Governance is a business imperative, and investors are willing to pay a premium for effective corporate governance. This was one of the key takeaways from the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/mena-leadership-seminar">Middle East and North Africa (MENA) Governance and Strategic Leadership Seminar</a>, held recently in Amman, Jordan. We’ve seen this stated priority of governance in the MENA microfinance market exhibited elsewhere, too. A joint <a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">IFC-Sanabel report</a> assessing the top perceived risks facing the microfinance industry in the Arab world uncovered that the market’s stakeholders viewed weak corporate governance structures as one of the more threatening risks out of roughly 30 risk categories. Financial service providers in particular perceive this risk to be rising.



[caption id="attachment_23433" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33301262930/in/album-72157678506203794/"><img class="wp-image-23433" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33301262930_46467c6ac5_o.jpg" alt="" width="615" height="482" /></a> Hany Assaad, Co-Founder and Chief Portfolio and Risk Officer, Avanz Capital[/caption]

This seminar was the first time senior leadership from across the MENA region’s microfinance industry convened to discuss their experiences with governance and strategic leadership. A total of 41 participants from 19 MFIs came together for three days of peer learning and exchanges. The seminar, modelled after CFI’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>, was hosted by CFI, <a href="http://www.calmeadow.com/">Calmeadow</a>, and <a href="http://www.sanabelnetwork.org/home/default.aspx">Sanabel (the Microfinance Network of Arab Countries</a>), with support from the <a href="https://www.fmo.nl/">Dutch Entrepreneurial Development Bank (FMO)</a>. The Arabic Microfinance Gateway was also among the partners to help facilitate the event, and we are thrilled to share the main takeaways in this post.

“As an investor, I look for adding value and reducing risk,” shared Hany Assaad, Co-Founder and Chief Portfolio and Risk Officer at Avanz Capital. “Effective corporate governance increases the value of businesses,” he added.

[caption id="attachment_23438" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/32842329964/in/album-72157678506203794/"><img class="wp-image-23438" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/32842329964_a25170c838_k.jpg" alt="" width="615" height="410" /></a> Mohammed Khaled, Senior Microfinance Operations Officer for MENA, IFC[/caption]

Mohammed Khaled, IFC’s Senior Microfinance Operations Officer for MENA, noted that most MFIs in the region are NGOs, and as such have largely volunteer board members, which can contribute to limited effectiveness. The commercial development of the sector in the region has been hindered by the lack, until recently, of legal pathways for transforming NGOs. As laws evolve in the region, MFIs may be allowed to register as non-bank financial institutions, which would change the institutions’ financial structures and create a need for investors and, as such, an increased need for sound corporate governance. Board responsibilities and dynamics are different for investor-owned financial institutions than they are for NGOs, requiring board members to acquire new skills, according to Alex Silva, Executive Director of Calmeadow.

The stakes are getting higher in the region as the overall industry is growing in complexity. Deborah Drake, Vice President, Investing in Inclusive Finance, CFI, spotlighted the changing sector risks as charted by the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/risk">Banana Skins report series</a> from 2008 to 2016.

The Banana Skins reports are based on the views of sector participants of the most pressing risks and challenges, like new technologies, new market entrants, client repayment capacity, and macro-economic risks. The <a href="https://www.microfinancegateway.org/library/financial-services-all-csfi-banana-skins-survey-risks-financial-inclusion">2016 Banana Skins report</a> pointed to the importance of governance, finding that nine of the top ten risks were “internal” and that institutions without a sound strategy could face marginalization.

[caption id="attachment_23444" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/32842330394/in/album-72157678506203794/"><img class="wp-image-23444" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/32842330394_de9f46adb4_k.jpg" alt="" width="615" height="410" /></a> Suha Ennab Tleel, Board Member, Vitas, Jordan[/caption]

Competition from new market entrants in the region, in particular fintech companies, is a prominent concern expressed by participants. According to a <a href="https://www.microfinancegateway.org/library/fintech-mena-unbundling-financial-services-industry">recent report</a>, the number of fintech companies in the region offering financial services has doubled from 46 to 105 in the past three years. Half of these offer payment solutions, and one-third offer lending and financing services. MFIs in the region are now estimated to reach out to <a href="http://www.cgap.org/blog/20-years-financial-inclusion-arab-world">approximately 3 million borrowers</a> with an outstanding portfolio over $2 billion – far below the market potential. Slow growth is due to both internal factors such as slow expansion and the lack of product diversification and external factors including political instability and regulatory barriers. MFIs in the region need to think deeply about the different risks and opportunities in order to adapt to change.

[caption id="attachment_23448" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33528835012/in/album-72157678506203794/"><img class="wp-image-23448" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33528835012_a2d936d0e9_k.jpg" alt="" width="615" height="410" /></a> Eyad Nino, Deputy General Manager, Microfund for Women[/caption]

Keeping the client at the center is one of the keys for sustainable and responsible growth. <a href="http://www.cgap.org/publications/business-challenges-booklet">Recent research</a> shows that customer centricity not only allows organizations to better serve customers but also solves the common business imperatives of acquisition, retention, and expansion.

When considering commercialization, concerns about drifting away from the social mission grow larger. One way to preserve the social mission is to ensure that management and boards consider both social and financial performance indicators. For example, the Microfund for Women in Jordan created the position of Social Performance Manager and Al Amana in Morocco established a Social Performance Committee that reports to the board.

[caption id="attachment_23440" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33528835252/in/album-72157678506203794/"><img class="wp-image-23440" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33528835252_48d18f34df_k.jpg" alt="" width="615" height="410" /></a> Jane Giacaman, Director of Microfinance, UNRWA[/caption]

Both the <a href="https://sptf.info/universal-standards-for-spm/start-here">Universal Standards for Social Performance Management</a> and <a href="http://www.smartcampaign.org/certification">Smart Certification</a> also provide guidance on best practices to help financial service providers put clients at the center of all strategic and operational decisions and align their policies and procedures with responsible business practices.

The seminar’s discussions engaged and enriched participants, who returned home with stronger masteries of good governance and leadership. Going one step further, many participants made specific commitments: to form board committees; to provide board training; to recruit more diversified and experienced talent for their boards; to better define risk appetites; to seriously explore technology and adaptations to their business models; to incorporate social performance and client protection practices; and finally to adequately prepare for succession planning. We, the seminar organizers, will be checking in with the participants to see how they are faring, and we hope these are just the first steps of many to further the dynamic microfinance market in the Arab region.

<em><a href="https://www.flickr.com/photos/cfi_accion/33644035656/in/album-72157678506203794/"><img class="aligncenter wp-image-23431" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33644035656_186e4ea05f_k.jpg" alt="" width="615" height="410" /></a>The Arabic Microfinance Gateway served as the Outreach Partner for the MENA Governance and Strategic Leadership Seminar. You can learn more about governance and other topics on the Gateway in </em><a href="https://goo.gl/y4gpXz"><em>Arabic</em></a><em>,</em><a href="http://www.microfinancegateway.org/topics/governance"><em> English</em></a><em>, </em><a href="http://www.microfinancegateway.org/fr/sujets/gouvernance"><em>French</em></a><em>, and</em><a href="http://www.microfinancegateway.org/es/temas/gobernabilidad"><em> Spanish</em></a><em>. </em>

<em>And for more photographs from the seminar, the full album is available </em><a href="https://www.flickr.com/photos/cfi_accion/albums/72157678506203794"><em>here</em></a><em>. </em>

<em>This blog post is also available in Arabic <a href="https://goo.gl/V5s0Mt">here</a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

It’s All About Governance!

Risk Management

<em>&gt; Posted by Elissa McCarter-LaBorde, CEO, Vitas Group</em>

<a href="https://www.flickr.com/photos/126278138@N03/17096832777/"><img class="alignright wp-image-23408" style="margin-top: 0;border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/17096832777_b86f614a70_z1.jpg" alt="" width="315" height="178" /></a>Alex Silva and Jeffrey Riecke’s recent blog post entitled “<a href="https://cfi-blog.org/2017/03/17/whats-responsible-about-impact-investing-exits/">What’s 'Responsible' about Impact Investing Exits?</a>” hits squarely on the head a critical issue facing our industry. But it doesn’t go far enough. They ask “What if responsible investors sell their stake to an investor that doesn’t place priority on the social mission?” They argue for investors to take a “pragmatic” course and find “a buyer in the middle,” meaning something in between the “high-priced but questionable offer” and the “capital-starved social investors.” This left me wondering, who exactly is in the middle?

In the past, the NGO founders of what are today profitable microfinance banks were expected to be the keepers of a social mission, if not through ownership then through some form of continuing sponsorship or governance role. Compared to five years ago, today we see term sheets that force NGO shareholders out in the name of successful exits. In fact, even the large open-ended funds, presumably more socially-responsible leaning ones, and the development finance institutions (DFIs) that technically don’t require tighter exits of 5-7 years, are coming with term sheets that require a put option (an option contract giving the owner the right to sell assets at an agreed price) in 5-7 years back to the NGO founder or the company, or that include a drag-along right that forces a majority sale to a future “strategic buyer.” In other words, if the minority investor finds a strategic buyer who wishes to buy a majority stake or to acquire the whole company, the investor can drag other shares along to constitute a majority sale.

This seems to be the outcome of lessons that exits are still incredibly difficult in our industry. With IPOs hard to count on, the equally opaque and far off “strategic buyer” seems the other plausible solution. But just who is this strategic buyer? It is not another microfinance investment vehicle (MIV), DFI, or other player on the spectrum of social responsibility. Few of these want to buy secondary shares. A strategic buyer is a commercial bank, a telecommunications company, a consumer finance company, or other commercial entity that will want to get in on the base of the pyramid market.  Hopefully the managers of these businesses might have sympathetic feelings about the business and appreciate that it is social because it reaches lower-income customers, but at the end of the day, social is not in their lexicon.

Is this a bad thing? I agree with Silva and Riecke that if lower-income customers are served well, then it shouldn’t matter. But in reality, it does often matter because there are tradeoffs. We in the financial inclusion industry are working very hard to demonstrate returns and prove that exits are possible in order to build an impact investing community of buyers and sellers. But it can be at the expense of the investees – the financial service providers. We need more of the focus to be on what these financial service providers need and how to tailor the right kind of capital to fit those needs. Where are the (affordable) investment bankers who can identify buyers and structure appropriate capital at the right stage to match those needs?  Managing a double bottom line is never an even balance when shareholders are sitting at different stages of investment. There are always trade-offs. Riskier market segments, harder to reach geographies, capacity building or expansion that is good for the investee and its customer base, but will reduce book value and returns in the short run, are often at the losing end of those trade-offs. They are casualties when the dominant need is to push the price up.

Who is responsible for the responsible exit? We need shareholders to act responsibly together, to sequence investments in a way that helps the business pursue its goals and leads to the success of the business, not just the success of the impact fund. The fund managers who often sit on boards are not in the right place to do this. There are too many pressures to demonstrate a return for the next fund they are raising. Should the onus be on the anchor investors, many of whom are still DFIs and large institutional investors? The alternative is that “pragmatic” decisions taken by shareholders could force a sale to a commercial buyer when the institution might not be ready or not find such a sale in its best interest at that point in time.

In full disclosure, I am not opposed to commercial investors and ironically, I am finding the purely commercial investors easier to negotiate with, than the socially responsible ones who in theory are “like-minded.”

Vitas Group, established by Global Communities as a for-profit vehicle to advance its work in financial inclusion, operates a network of financial services companies that lend to small enterprises across the Middle East. Over the last decade, Vitas companies have disbursed more than $1.6 billion to 614,000 customers with an annual default rate below one percent in Iraq, Palestine, Lebanon, and Jordan. Vitas employs more than 1,500 young professional staff and has sustained more than 214,000 jobs by lending to small business owners. Despite the volatility that has defined this region, even before ISIS or the Syria conflict emerged, Vitas has continued to earn double digit returns and has been a solid investment for its shareholders, illustrated by the fact that this year Vitas will close its first transactions with two purely commercial, private equity investors in the region.

To my point above, Vitas could not have arrived at this point without the right kind of capital at the right time. With new commercial partners and technological innovations coming into our industry, we have an even greater opportunity to achieve that larger goal of financial inclusion for every citizen. But that makes it all the more important for the development-focused founders, sponsors, investors, and other shareholders to govern well and to work together responsibly to shepherd the process.

<em><a href="http://www.vitasgroup.com/summary/leadership/#">Elissa McCarter-LaBorde</a> is Chief Executive Officer of Vitas Group and Vice President of Development Finance for Global Communities, where over the last 12 years she has built the technical department that manages Global Communities’ microfinance, SME, and housing finance operations. Ms. LaBorde has 18 years' experience as a microfinance practitioner.</em>

<em>Image credit: <a href="https://www.flickr.com/photos/126278138@N03/17096832777/">Pictures of Money</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/03/17/whats-responsible-about-impact-investing-exits/">What's "Responsible" about Impact Investing Exits?</a>

<a href="https://cfi-blog.org/2013/03/20/four-challenges-for-impact-investing/" target="_blank" rel="noopener">Four Challenges for Impact Investing</a>

<a href="https://cfi-blog.org/2015/03/03/what-impact-investors-could-learn-from-microfinance/">What Impact Investors Could Learn from Microfinance</a>

Who's “Responsible” for Responsible Impact Investing Exits?

Investors

Iraq

Syrian Arab Republic

Initial Public Offering

Responsible Exit

[youtube https://www.youtube.com/watch?v=8flyHNiuKJY]

Time flies. It’s hard to believe that the Africa Board Fellowship (ABF) program will soon begin its fifth cohort of fellows. Over the past few years and four cohorts, the ABF program has included more than 125 CEOs and board members from over 40 financial inclusion institutions across 35 countries in sub-Saharan Africa. If you’re an inclusive finance leader in sub-Saharan Africa, now’s your chance to join the governance and strategic leadership program. Applications are now open for the fifth cohort.

ABF recently held two seminars in Cape Town, welcoming the fourth cohort of fellows and graduating the third cohort. With new case studies on disruptive technologies, and an emphasis on interactive role plays and simulations, the seminars proved once again that peer-to-peer exchanges are an effective way to examine best and worst governance practices. To hear the fellows’ takeaways from the two seminars, watch our new video above.

The fifth cohort will kick-off with an opening seminar May 3-5 in Cape Town. The six-month fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.

The ABF program has demonstrated that many of the fellows are clearly struggling with the same challenges at their respective institutions and have a lot to share with each other. Though each ABF fellowship is only six months long, it is our hope that the connections forged among fellows create a durable network of leaders throughout sub-Saharan Africa in the financial inclusion sector.

This year, with Calmeadow and Sanabel, CFI is also hosting a Governance and Strategic Leadership Seminar for inclusive finance CEOs and board members of the Middle East and North Africa (MENA) region. The seminar will be held March 7-9 in Amman, Jordan. The highly-interactive two and a half days include discussions guided by industry leaders, case-based dialogues examining pressing sector risks, collaborative simulations, and opportunities for peer exchange and learning.

<em>To learn more about ABF, and to apply, <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">click here</a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/07/23/lessons-learned-from-abfs-convening-of-microfinance-leaders-in-cape-town/">Lessons Learned from ABF's Convening of Microfinance Leaders in Cape Town</a>

<a href="https://cfi-blog.org/2017/01/10/calling-all-financial-inclusion-leaders-in-mena-registration-is-open-for-the-mena-governance-and-strategic-leadership-seminar/">Calling All Financial Inclusion Leaders in MENA! Registration Is Open for the MENA Governance and Strategic Leadership Seminar</a>

<a href="https://cfi-blog.org/2016/12/08/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/">Harbingers of Doom? Bank Failures in Africa - How to Interpret These</a>

Join the Africa Board Fellowship Program

Africa Board Fellowship Program

South Africa

<em>&gt; Posted by Center Staff</em>

<img class="alignright wp-image-22706" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/01/meetingroom_mena.png" alt="MeetingRoom_MENA.png" width="330" height="218" />You’d be hard-pressed to list <a href="http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+cg/resources/guidelines_reviews+and+case+studies/mena+corporate+governance+success+stories">all the ways</a> corporate governance can make (or break!) an organization. In the financial inclusion sector, strong boards ensure effective strategic planning, manage sustainable growth, bolster attractiveness to investors, balance risks, develop client centric products and delivery channels, and, increasingly, act as “<a href="http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/adapting-your-board-to-the-digital-age?cid=other-eml-alt-mkq-mck-oth-1609">strong digital sparring partners for management</a>.”  Yet, a <a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">recent study</a> sponsored by the Sanabel Network and the IFC that inspected risks confronting the microfinance sector in the Middle East and North Africa (MENA) found that half of their interviewees perceived corporate governance risk as “high” or “very high.”

Being a board member or CEO of a financial inclusion institution is a great responsibility, and can also be a complex task. All boards have different dynamics and governance best practices can sometimes be nebulous. To address these challenges, Calmeadow, FMO, Sanabel and the CFI are hosting a “<a href="http://bit.ly/MENA-leadership">Governance and Strategic Leadership Seminar</a>” this March in Amman. This seminar brings together CEOs and board members of leading financial institutions serving the financially excluded in the MENA region to strengthen board capacity through peer learning and exchange. If you’re a leader in MENA’s inclusive finance sector, please consider attending this seminar to contribute your unique experiences and perspectives, and also to learn from the experiences of your peers.

The seminar will be held March 7-9 in Amman, Jordan. The highly-interactive two and a half days includes discussions guided by industry leaders, case-based dialogues examining pressing sector risks, collaborative simulations, and opportunities for peer-to-peer exchange. A diversity of topics will be covered, not limited to managing risk, board roles and responsibilities, managing sustainable growth, navigating challenging environments, client centricity, governance dynamics, and strategic leadership.

Why attend? Seminar takeaways include:
<ul>
 	<li>A greater understanding of the key trends, challenges, and risks facing MENA’s inclusive finance sector – and how to manage them.</li>
 	<li>An opportunity for participants to interact and network with representatives of other MFIs operating in the MENA region, working under similar geographic and social contexts.</li>
 	<li>Access to first-class experts and industry leaders in microfinance with expertise in corporate governance and risk management.</li>
 	<li>The ability to recognize early warning signals and key risk indicators.</li>
 	<li>An increased awareness of corporate governance and risk management best practices and how to implement them.</li>
</ul>
The program builds on the successes of the Center’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/">Africa Board Fellowship (ABF) program</a>, which works to strengthen the governance and risk management capacity of CEOs and board members of financial institutions serving lower-income clients in sub-Saharan Africa.

Register today! There are a limited number of seminar spots. To learn more about the MENA Governance and Strategic Leadership Seminar, and to register, <a href="http://bit.ly/MENA-leadership">click here</a>.

<em>*This post was modified from its original version on January 11, 2017. The original posting incorrectly indicated that one has to apply for the seminar, while one simply has to register. However, it's important to reiterate that the seminar is only open to CEOs and board members of financial institutions serving lower-income clients in the Middle East and North Africa region.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

Calling All Financial Inclusion Leaders in MENA! Registration Is Open for the MENA Governance and Strategic Leadership Seminar

Egypt, Arab Rep.

United Arab Emirates

Mayada  El-Zoghbi

Managing Director, Center for Financial Inclusion

Amee Parbhoo

Ashley Lewis

Emma Morse

Leora Klapper

Priya Punatar

Rob Stevens

Vikas Raj

Ethiopia

India

North America

Sri Lanka

Challenges and Crises

Consumer Credit

Credit

Customer Centricity

Delivery Channels

Digital Credit

Financial Capability

Financial Health

Financial Inclusion Strategy

Financial Technology

Inclusive insurance

Insurance

Insurance Companies

Microfinance

MSME/SME Finance

Personal Financial Management

Remittances

Resilience

Saving

Women

Article

The humanitarian and economic toll of the COVID-19 pandemic presents unprecedented challenges for leaders in all industries. Businesses are grappling with how to respond to a situation that is constantly changing. While everyone will feel the impacts of the pandemic, low-income communities and microbusinesses are especially vulnerable to the business interruptions likely to result from COVID-19. They are less likely to have adequate savings, insurance, or credit that can help them to weather this downturn. Given the speed at which the virus has spread, a passive response is not an option. Financial service providers, particularly those serving low-income individuals and underserved micro, small, and medium enterprises (MSMEs), need to act now to ensure that individuals and communities are supported.
<h2>A myriad of challenges for businesses</h2>
For small and growing businesses, the impact of COVID-19 cannot be understated. As economic growth comes to a near standstill and prices for basic supplies increase, MSMEs are facing severe financial hardships. Those that depend on global supply chains can’t purchase new inventory. Businesses in industries deemed “non-essential” — such as travel, restaurants, schools, salons, and garment production — have been forced to close. MSMEs that provide essential products, like agricultural goods and sanitation supplies, have been less impacted.

Building strong bonds between clients and relationship officers has been a mainstay of the financial inclusion industry. The inability to hold physical meetings during this time, especially for group lending clients who are used to transacting in cash and interacting directly with staff, will make receiving or paying back credit challenging. Even where digital channels are in place, these are not always widely accepted or understood.

Financial service providers are feeling significant pressure on their loan portfolios as disrupted supply chains and drops in business lead to a lack of demand for credit and ability to repay — especially where digital channels are not available. This affects the portfolio quality of financial institutions worldwide, making it difficult to deal with reduced revenues, stagnant costs, and delayed funding. Many governments and regulators have not yet reached consensus on what policies they will use to provide support to the sector while others have moved ahead with repayment holidays and tax breaks. It’s still too early to tell what approach will be the most impactful in reducing economic losses.
<h2>An action plan for financial service providers</h2>
With all these challenges to consider, it can be difficult for leaders of financial service providers to determine how to respond and what initiatives to prioritize. To support these efforts, we created a plan that explains what actions leaders should be taking now across four key priorities: clients, staff, business continuity, and financial readiness. These recommendations draw on the experience of financial service providers globally, acknowledging that differences exist in economic, political, and social structures, as well as digital penetration, across regions.

As a first step in the immediate response, institutions should set up a senior, cross-functional COVID-19 task force team to create a plan that considers the entire organizational footprint with a view of all stakeholders.
<h2>Supporting clients: identify acutely impacted segments and build trust in digital channels</h2>
Financial service providers need to continue to serve clients in ways that support their wellbeing, families, and businesses during this trying time. Given that some clients may be disproportionately affected, institutions should develop different response and support plans specific to the segmentation of their existing clients’ businesses and take a customer-centric approach that focuses on maintaining trust with clients. As much as possible, institutions should encourage clients to use digital channels that reduce their dependence on cash. In China, the <a href="/five-crucial-insights-from-china-for-facing-the-pandemic">robust digital ecosystem</a> enabled repayments to continue while the country was in lockdown and allowed loan disbursements to restart quickly after the outbreak’s peak. However, in-person transactions may be difficult to avoid for some regions and segments. In-branch assistance should prioritize elderly or at-risk clients to ensure that they feel safe and their needs are met. In cases where digital channels are limited, some institutions have granted grace periods to minimize in-person transactions.
<h2>Enabling staff: Build morale and enable remote work</h2>
To support staff who may feel uncomfortable coming into work or who are experiencing declining morale due to uncertainty, institutions must demonstrate their commitment to staff safety and security. Institutions should take measures to ensure that staff salaries will continue to be paid and revisit any performance targets that exist considering travel and in-person meeting limitations. Where possible, institutions should enable staff to work remotely by offering secure access through tools such as VPN, data plans, and laptops.
<h2>Continuing business operations: Test disaster plans and support digital channels</h2>
To best support business operations in this uncertain environment, companies should go through the exercise of testing their operations for possible worst-case situations and determine action plans for these scenarios. These should be based on a range of expectations for the progression of the pandemic, government response, and supply and demand shifts. To ensure business continuity, institutions should ensure that all digital channels are operational and continually test the ability of channels to handle increasing volumes of transactions as in-person transactions switch to digital.
<h2>Building financial readiness: Recalibrate risk limits</h2>
Finally, as financial institution performance will be affected across all dimensions— including, interest and fee revenue, loan losses, and operational expenses — institutions should conserve cash and recalibrate risk limits to focus on loan disbursement to known geographies and client segments.

This crisis is likely to reinforce significant shifts in customer routines and expectations, both in terms of digital savviness and expectations for proactive communication. Business operations continuity and financial readiness will continue to be critical to the future capacity of institutions to weather crises as the risks of pandemics, geopolitical tensions, and climate change escalate.

For more guidance, see the toolkit: <a href="/responding-to-the-pandemic-guidance-for-financial-service-providers">Responding to the COVID-19 pandemic</a> and view a recording of our webinar: <a href="/webinar-leadership-in-the-time-of-covid-19">Leadership in the time of COVID-19: Guidance for FSPs</a>.

If your company is experiencing challenges related to the COVID-19 global pandemic and needs personalized support from our team of experienced advisors and investors, please <a href="mailto:GLASSupport@accion.org">contact us</a> to determine how we can support your COVID-19 response efforts.

We must act now to prepare for challenges arising from COVID-19

Financial Inclusion Practitioner

Financial Service Provider

Institutional Funder

Accion Global Advisory Solutions

COVID-19: Economic response and resilience

<a href="https://www.forbes.com/sites/vikasraj/2020/03/13/coronavirus-will-be-even-worse-for-low-income-people-and-businesses-but-fintechs-can-help/#13418bee2116"><em>This article originally appeared on Forbes</em></a>.

As the world reacts to the novel coronavirus — now officially a pandemic according to the World Health Organization — many countries are beginning to suggest ways to help the citizens hurt by the virus. Quantitative easing to bolster the stock market, tax breaks and extensions for the sick, and stimulus for industries affected by the crisis are all on the table, from across the political spectrum. But coronavirus isn't just an issue for people who are infected and those hurt by stock market declines. With many offices shut down, tourism grinding to a halt, and yes, even the NBA on indefinite suspension, we are beginning to see how spurts of economic inactivity are particularly difficult for the economically vulnerable and may have long-lasting effects.

Around the world, financially insecure people are fundamentally more susceptible to financial shocks like coronavirus, and the current crisis is bringing the challenges this population faces into stark relief. Lower-income and underserved individuals are less likely to have access to quality, affordable health insurance that would help them get better quickly. Their livelihoods are particularly vulnerable to business interruptions. Small businesses, with their thin capital bases and difficulty borrowing, are especially affected by shifts in supply and demand in the economy. Even here in the U.S., nearly half of people do not have $500 in savings. And a mind-boggling number of people do not have paid sick leave to enable their own recovery or care for loved ones. The financially excluded, many of whom live on the fine line between stability and poverty, are facing a terrifying next several months.
<h2>Innovative, inclusive fintech is crucial for weathering this pandemic</h2>
At times like this, it is good to know there are fintech startups around the world that are part of the solution. Companies like <a href="https://digit.co/">Digit</a> and <a href="https://even.com/">Even</a> are helping Americans to save their money more effectively and deal with working capital imbalances. Companies like <a href="http://www.bimamobile.com/">Bima</a> globally and our portfolio company <a href="https://toffeeinsurance.com/">Toffee</a> in India are helping people access critical insurance for the first time. Companies in our portfolio like <a href="https://www.lidya.co/us/en/home/">Lidya</a> in Nigeria and <a href="https://www.firstcircle.ph/">First Circle</a> in the Philippines are ensuring small businesses have access to the short-term financing they need to weather tough times.

Many of these companies are themselves early in their journeys and are susceptible to the global shocks of this pandemic. At this point, <a href="https://www.accion.org/coronavirus-response-recommendations-for-the-accion-venture-lab-portfolio">we are counseling them</a> to stay the course but to be extra cautious, and most importantly, remember the people they work with—their employees and their customers. Our portfolio companies’ customers are going to be facing severe challenges, and we are working with our companies to ensure they are able to serve as allies and sources of support during these unstable times. Tweaks to product design, like repayment schedules for loans, can truly help consumers during this period of volatility. Those changes can also be helpful in building long-term customer loyalty and driving lifetime value. From a team perspective, we are encouraging our companies to minimize or avoid travel, get set up for a long period of remote work, and keep a close pulse on team morale during this time of stress.

From a business perspective, disruption is inevitable. Early-stage fintech for inclusion startups in emerging markets that have less than 18 months of runway (and that is most of them) should start planning now for higher burn rates and longer fundraise cycles. Cash burn will go up as revenues come down and, in many cases, expenses go up. This may be particularly acute for lending startups that could face higher write-offs and higher costs of capital as institutional investors move out of emerging markets. Companies that are in the process of raising capital should push to close rounds as quickly as possible. Companies seeking to raise money in the next 12 months should start thinking about managing burn to extend runway.

We have a challenging several weeks, and likely months, ahead of us, but inclusive fintech startups are still doing the important work of making sure the most vulnerable among us continue to have the access to services they need through this crisis. Regulators and governments would be well-served to remember the importance of innovators in financial inclusion and other critical areas and ensure they are able to continue their work. For example, we would like to see more liquidity facilities set up by development banks to support early-stage startup innovators. These innovators are crucial for supporting the people and small businesses that are most vulnerable during this perilous time, and they deserve support in turn.

Coronavirus will be even worse for low-income people and businesses, but fintechs can help

First Circle

Lidya

Toffee Insurance

Social Good

Until now, we've never invested in any Egyptian companies at Accion Venture Lab, but we've been watching for promising fintechs. After all, there's a real opportunity to make a difference in the country. Only one-third of Egyptian adults have bank accounts, according to the World Bank's Global Findex. That means the majority of Egyptians have to pay every bill in cash and turn to family and friends for emergency funds or when they need a loan. Without cards and savings accounts, people are left living paycheck-to-paycheck, and managing life expenses is a struggle. But there's hope that technology can change that since millions of underserved Egyptians are already actively using smartphone. By developing an easy-to-use mobile app, we believe our first investment in Egypt, <a href="https://khazna.app/">Khazna</a>, can bring accessible credit and savings product to financially excluded Egyptians.

Khazna is a fintech company developing a holistic, app-based banking solution, including savings, loans, insurance, and access to a pre-paid card, for the underserved. Khazna is looking to provide an affordable alternative to credit while helping Egyptians save and manage their longer-term financing needs. Its first product is an earned salary cash advance, which works through an employer partnership model. Today, the company partners with small, medium, and large enterprises to reach their employees and provide an alternative short-term loan for these individuals.

Venture Lab is excited to support the Khazna team at this early stage and to have them as our first investment in Egypt. While we see a tremendous opportunity in the financial inclusion space in Egypt, we were particularly interested in investing in Khazna for the following reasons:

<strong>Large, unaddressed, and digitally native population ripe for digital financial services:</strong> We believe that early-stage fintech businesses are primed to address Egypt’s financial inclusion challenges. In addition to being one of the most populous countries in the region, it's also one of the youngest countries in Africa, with an average age of 24 years old. The World Bank estimates that just 10-15 percent of Egyptians have bank accounts, which is one of the lowest penetration rates in the world. At the same time, Egypt has one of the most digitally native and active consumer bases across Africa. This creates a unique opportunity because the population has access to smartphones and the internet, and has experience using digital platforms, such as Careem, Swivl, Halan, and Uber. Given these market dynamics, we believe that Egypt is a prime environment for digital financial services.

<strong>“New asset lending” as an alternative to traditional consumer loans:</strong> Credit penetration rates in Egypt are strikingly low with just 6 percent of adults having borrowed from a formal institution. Khazna enables low- and middle-income customers with little to no credit history to access funds to help manage day-to-day needs and emergency expenses. Customers’ paychecks don't always cover everything they need, so having access to credit via income streaming for bills, family expenses, and medical emergencies allows them to avoid taking out expensive debt, going into collections, and paying late fees. It also gives them greater financial flexibility. Khazna credit products are more affordable than informal lenders and target underserved customers. Khazna focuses its solution on employers that work with lower and middle income workers to help these populations gain access to services. Additionally, the tier-based fee model allows borrowers to select loan amounts according to what they can afford, and pricing is communicated clearly upfront.

<strong>Leveraging business partnerships to de-risk lending operations and reach scale: </strong>Khazna is targeting both business and end consumers with its products, starting with businesses first. While selling to businesses can be a long process, Khazna is leveraging strong partnerships to deploy their solution into one large enterprise to access their employee population. We’ve heard in several of our markets that employees often demand an advance on their salary , and employers don't want to provide it themselves, which makes this issue a pain-point for both employers and employees. This is a critical need for those employees who are trying to manage financial shocks but are unable to access formal credit. While many startups, including in Venture Lab’s portfolio, have struggled to sell into employer channels, we believe that the Khazna team has a unique ability to connect with decision-makers within established businesses. We believe by leveraging the employer channel, Khazna will be able to de-risk their lending portfolio, develop relationships with customers, and reach scale more quickly.

As is the case for all of our seed investments, Khazna is early in its journey. However, as investors in the company and advocates for a more financially inclusive world, we couldn’t be more excited to support Khazna's growth and ensure that more Egyptians gain access to the critical financial services so they can manage their financial needs and improve their lives.

A new way to help people living paycheck-to-paycheck in Egypt

Khazna

Impact Investor

Accion Venture Lab

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

As I worked on the latest update to the World Bank’s <a href="https://globalfindex.worldbank.org/">Global Findex database</a>, I was pleased to see some significant progress in account ownership and digital finance. However, I was disheartened — if not surprised ­— to find that we’re still stuck in 2011 when it comes to the stubborn gender gap in financial services.

Closing the gender gap remains the grand prize for financial inclusion advocates — a truly inclusive financial system should break down barriers and bring opportunities to all people. But women in developing countries are still 9 percentage points less likely than men to have an account. That gap has not improved since the Findex began in 2011, and it’s just an average — scores are even worse in some countries. For instance, in Pakistan, men are five times as likely as women to have an account.

Why are women left out to a greater degree than men? One reason is there’s also a persistent digital divide when it comes to access to technology. According to the Gallup World Poll survey, Men are 10 percentage points more likely than women to report owning a phone. In Egypt, Ethiopia, and India, men are 20 percentage points more likely than women to have their own phone.

We need to better identify the underlying causes of digital exclusion, such as social norms. For example, it may not be acceptable for women to give their phone numbers to male bank agents — meaning women are missing out on the opportunities of mobile money accounts.

But it’s not just technology — we need more data on how women experience financial inclusion broadly, and how social norms may keep women excluded from the financial system. We'd be in a better position to close the gender gap if we had more data. I’d like to see more research exploring how and if the gender of agents influences financial inclusion. Would more female mobile and merchant agents mean more financial access and activity? It would be good to know one way or the other.

I’m also interested in whether we can establish a link between electronic wage payments and higher productivity. This relationship could affect the financial inclusion gender gap: the World Bank is starting new work with tea pluckers in Sri Lanka. In the past, many of these women’s husbands might have claimed their salaries. I’d like to know if a woman receives payments into her own account, and if she gets the full pay-off for her labor, will she work harder? Will she be more productive? Will job retention at her employer increase? These questions represent an exciting new road of research to motivate the private sector to expand financial inclusion and digital payments, particularly for women.

We need more information. We know that inclusive financial services can help women gain more autonomy; moreover, by supporting women, we might also catalyze social and economic progress. But we need to know more about how and why women use or are prevented from accessing financial services to shape our efforts going forward. I hope we begin asking these questions and pursuing real answers soon.

Want to fix the financial inclusion gender gap? Ask better questions

<p class="graf graf--p">Despite the fact that they are wealthy and modern, cities like Dubai in the Gulf Cooperation Council (GCC) actually face a big financial inclusion challenge. There are 8 million foreign-born migrant workers in the United Arab Emirates (UAE) alone, making up some 88% of that country’s total population. These workers come primarily from India, Pakistan, Bangladesh, and the Philippines, and are mostly in low-paying jobs such as construction or domestic labor. Across the Gulf region, migrants have faced tough working conditions and have been historically ignored by financial institutions. They lack access to basic financial services, including bank accounts and fast, convenient remittance channels for sending money to their families back home.</p>
<p class="graf graf--p">This is where <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="noopener noreferrer">NOW Money</a>, <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/uae-based-fintech-start-up-secures-700k-investment-to-advance-financial-services-access-for-underserved-migrant-workers/" target="_blank" rel="noopener noreferrer">Accion Venture Lab’s newest portfolio company</a>, comes in. NOW Money was founded in 2015 by Katharine Budd and Ian Dillon, who were inspired by the digital-only <a class="markup--anchor markup--p-anchor" href="http://www.businessinsider.com/the-digital-only-challenger-banks-explaine-2017-5" target="_blank" rel="noopener noreferrer">“challenger banks”</a> that had begun to emerge across the US and Europe. While the UAE has over 50 banks in operation, none of them are able to reach the country’s massive and underserved low-income migrant population effectively. NOW Money provides a suite of products to its customers: current accounts for depositing and withdrawing wages; debit cards for use at ATMs and for merchant transactions; and a marketplace of online remittance platforms for cheaper and more convenient money transfer services. By reducing the cost of customer acquisition and reaching a relatively untapped market, NOW is able to offer these services (and eventually others) and cost-effectively serve customers that would otherwise be considered unprofitable by traditional banks.</p>
<p class="graf graf--p">NOW partners and integrates with large employers to pay workers’ salaries directly into NOW Money accounts. The value proposition is strong for both end customers and employers. For customers, NOW offers a suite of products otherwise unavailable in the market. In particular, during our due diligence we saw customers incredibly excited about the digital interface for access to remittances. In the UAE today, some 95% of remittances are cash-based transactions. The workers we spoke with remit 60% or more of their wages to family members in their home countries, and typically have to take time off work, wait in long lines at remittance houses, and pay high fees in order to make these regular transactions.</p>
<p class="graf graf--p">For employers, NOW provides a less expensive solution for payroll. In addition, the employers we spoke with were motivated to give their employees the benefits NOW offers for both moral and economic reasons. Some employers see a spike in absenteeism the day after pay is disbursed, as employees go to remittance houses. Lastly, many employers, especially in more skilled and technical professions, value NOW as a way to increase employee retention.</p>
<p class="graf graf--p">Venture Lab is excited to be supporting the NOW Money team as they grow and scale. We invested in the company — our first in the GCC and one of the first early-stage VC deals in the region — for a number of reasons:</p>

<ul class="postList">
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Clear social impact</strong>: The migrant population in the GCC is historically underserved by basic financial services. The wages these workers earn are low ($200–300 per month, depending on occupation). Due to banking standards in the UAE, it is very difficult and costly for a customer to open an account if they earn less than $1,300 per month, thereby excluding a vast majority of the migrant worker population.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Large market with unmet need</strong>: The UAE is the third largest market in the world for remittances, trailing only the US and Saudi Arabia. Across the GCC (UAE, Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman), the total addressable market is some 25 million low-income migrant workers believed to be remitting about $50 billion annually. The remittance corridors used are some of the most active in the world, and NOW fills a crucial gap by providing customers ease of access and lower costs.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Innovative “neobank” model</strong>: Accion Venture Lab looks to support fintech companies that have innovative approaches to increasing access to and quality of financial services for underserved markets. We have been actively watching the digital-only neobank/challenger bank models around the world and are excited about NOW Money, our very first neobank investment. We’re thrilled to be part of NOW as it expands and aims to become the financial service platform of choice for migrant workers. As NOW truly owns the customer relationship, it will be able to provide incremental value to customers’ financial lives with each further partnership, beyond simply account access and low-cost remittance tools.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Opportunity to learn from new customers, market, and product</strong>: NOW Money would be a first for Venture Lab in a number of ways. Venture Lab has never invested in the Gulf region, and NOW Money could serve as a way to learn about this fast-growing region and its market dynamics. In addition, Venture Lab has investments reaching many kinds of underserved customers, but we have limited experience serving migrant workers, which is a huge market with demonstrated, specific, and relevant financial needs. NOW Money would help us better understand this vast and growing population of underserved customers.</li>
</ul>
<p class="graf graf--p">As is the case for all of our seed investments, NOW Money is early in its journey, but as investors in the company and proponents of financial inclusion for underserved populations, we are excited about their progress so far and the company’s plans going forward.</p>
<p class="graf graf--p"><a class="markup--user markup--p-user" href="https://medium.com/u/c50787175cb7" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">Rob Stevens</em></a><em class="markup--em markup--p-em"> contributed to this article. </em></p>

Why Accion Venture Lab invested in NOW Money