The Africa Board Fellowship Program connects board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients. It's not your average corporate training. One aspect of our peer learning and exchange model are these graphic harvests, which help fellows visualize the governance and risk concepts discussed during in-person seminars.

Africa Board Fellowship Graphic Harvest

Africa Board Fellowship Program

Sub-Saharan Africa

Governance

Video

<h1>Challenge</h1>
In emerging markets across Africa, microfinance institutions (MFIs) and other financial service providers (FSPs) play a critical role providing financial services to people who are unable to obtain traditional finance. Despite its important role, this sector in Africa faces enormous challenges. In 2013, our <a href="https://www.centerforfinancialinclusion.org/microfinance-banana-skins-2014-the-csfi-survey-of-microfinance-risk/">survey of African FSPs</a> revealed governance and risk management as the primary vulnerabilities in the sector. Weak governance and risky behavior also <a href="http://www.cgap.org/publications/growth-and-vulnerabilities-microfinance">played a role in microfinance crises</a> in Nicaragua, Morocco, Bosnia-Herzegovina, and Pakistan. CFI decided to commit to helping African FSPs focus on governance and risk—and not just individually, but at a sectoral level—to avoid this fate.
<h1>Navigating Obstacles</h1>
We quickly realized we would be starting nearly from scratch. The handful of existing governance resources on the market at the time comprised generic, one-off trainings or were geared to corporate participants. We knew that this kind of classroom-based, lecture-heavy, training was not an effective strategy for senior board members, whose time was valuable and who were often in positions of authority in other walks of life.

We wanted to create something meaningful and effective, tailor-made for FSPs, and delivered in a manner that would stick with participants so that they could lead their organizations and their industry to grow and prosper.

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Governance Peer Learning and Exchange Program Strengthens Financial Institutions in Africa

Mastercard Foundation

Challenges and Crises

Microfinance Institutions

Risk Management

Trends

Case Study

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" /><em>The following is part of an Africa Board Fellowship </em><a href="/series/abf-spotlight/">blog series</a><em> spotlighting the experiences of participants and reflections from industry experts.</em>

In the previous blog in this series, we reframed external challenges as a “normal” part of doing business for financial service providers (FSPs) targeting the base of the pyramid. And based on insights from Africa Board Fellows, we looked at <a href="http://cfi-blog.org/2018/08/09/navigating-challenges-is-what-boards-are-all-about-part-1-anticipating-challenges/">specific ways board members can anticipate and even shape the challenging aspects of their operating environment</a>. However, while most boards have more potential for external influence than they often exercise, there are always external factors that cannot be controlled. Boards must also continually focus on reducing the FSP’s vulnerability and enhancing its resilience<img class=" wp-image-25794 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/31479737602_1ed7a2ba32_k.jpg" alt="31479737602_1ed7a2ba32_k" width="638" height="93" />
<h2>Reducing Vulnerability</h2>
Beyond external awareness and efforts to shape the operating environment, boards can direct their institutions to take internal steps to minimize exposure to external shocks and increase the FSP’s ability to withstand changes in the operating environment. These steps aim to secure adequate financial cushions and human resources to cope with shocks.
<ul>
 	<li><strong>Strategic Planning</strong>: As part of strategic planning<strong>, </strong>the board should review external factors, including client demand, current and future market penetration of its own institution and competitors, and market saturation by area. The strategic plan should include multiple scenarios (e.g., conservative, base case, and optimistic) as well as short, medium and long-term targets. The plan should be reviewed and revised on a regular basis.</li>
 	<li><strong>Capital Adequacy</strong>: Board members bear ultimate responsibility for ensuring that the institution’s capital and liquidity are adequate to surmount whatever disruptions can reasonably be anticipated, and – just as important – ensuring that management takes quick action to cut costs if capital starts eroding. Improvement in the economic environment is often just around the corner, but it can remain around the corner just long enough for the institution to become insolvent and fail. For regulated institutions, regulators set minimum capital adequacy and liquidity ratios, but this does not absolve directors from the responsibility to determine whether additional capital and liquidity would be prudent. Directors can work with management to evaluate how capital and liquidity will be affected in various scenarios.</li>
 	<li><strong>Asset–Liability Management</strong>: Like any financial institution, FSPs are exposed to balance sheet mismatches, such as currency mismatches when borrowing in dollars or euros. While avoiding hard currency loans may not always be feasible, CEOs and board members should scrutinize foreign currency exposure carefully and limit it to levels that the institution can absorb if currency devaluation does occur. To prepare for currency fluctuations, Vision Fund Zambia’s board instituted a policy against foreign currency denominated borrowing, as CEO Nkosilathi Moyo describes in <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">this interview</a>. Passing foreign exchange risk on to clients by denominating loans in foreign currency is usually not an effective risk management technique, as most clients are even less able to absorb such risk than the FSP lender.</li>
 	<li><strong>Staff Training and Incentives</strong>: As part of their fundamental responsibility for the viability of their institution, directors must closely scrutinize how management proposes to train and incentivize staff to ensure that they support strong operational procedures that appropriately retain and encourage staff. Staff knowledge and loyalty can be essential in a crisis situation.</li>
</ul>
<h2>Enhancing Resilience</h2>
[caption id="attachment_25799" align="alignright" width="226"]<img class="alignnone size-full wp-image-25799" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/paul-dileo.jpg" alt="Paul DiLeo" width="226" height="250" /> Paul DiLeo[/caption]

Inevitably, with all the best efforts and preparation, some external events cannot be avoided. But this doesn’t mean they cannot be planned for, even if they may take very different forms. Boards can be better prepared to recover from shocks if they take the following steps:
<ul>
 	<li><strong>Board Composition and Training</strong>: Board self-evaluations should be performed on at least an annual basis to ensure the right skills are represented and to identify gaps. Any areas of improvement should be addressed by training, bringing in experts, and field visits to other institutions that have successfully dealt with relevant challenges and opportunities. Proactively taking these steps can help directors be more prepared for the unexpected.</li>
 	<li><strong>Executive Committee of the Board</strong>: The ability to act quickly can be crucial to responding successfully to external shocks. Many boards have directors in far-flung locations, and it may be hard to assemble a quorum. Even when formal decisions are not required, the CEO and senior management will benefit from the counsel and insights of board members. Many boards designate a small executive committee, usually drawn from in-country directors, authorized to take decisions and provide counsel to management between meetings of the full board.\</li>
 	<li><strong>Disaster Planning and Recovery</strong>: Board directors should ensure that contingency plans addressing a variety of common challenges are prepared and kept up to date. These will cover matters ranging from “phone trees” indicating who calls who to confirm staff safety and whereabouts in the event of a natural disaster or security threat, to secure offsite data backup and recovery to succession planning in the event of loss of a key manager. As Resi Janssen of FFSL South Sudan <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen_fssl.pdf">notes</a>, the first priority in a serious crisis is to ensure that staff are safe.</li>
</ul>
FSPs operate in dynamic environments where challenges and opportunities are constantly changing. Board directors with a good understanding of the institution’s strengths and weaknesses and a grasp on the operating environment play a crucial role in helping shape the environment over the medium term, and ensuring that the FSP and its management are resilient and prepared.

<strong>CFI is currently recruiting fellows for the next cohort of the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.</strong>

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Navigating Challenges Is What Boards Are All About – Part 2: Vulnerability and Resilience

Zambia

Africa Board Fellowship Spotlight

Microfinance

Resilience

Blog Post

<em><img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.</em>

Far from being “extraordinary and rare,” challenging environments are a “normal” part of business for financial service providers (FSPs) targeting low-income populations. We tend to think that external environment challenges are extraordinary events that cannot be predicted or are too varied and diverse to prepare for—and therefore are best confronted as they arise. What do currency devaluations, deteriorating security, political interference or regulatory upheavals have in common? Can we can plan for them all and prepare effective responses in advance? Do responses need to be tailored to each circumstance?

Through the <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellows program</a>, we have reviewed a wide sample of the external threats faced by the boards of FSPs in recent years in Africa and globally: economic fluctuations, currency devaluations, violence and instability, abruptly announced interest rate caps and capital requirements, natural disasters, terrorism—it’s a long and heterogeneous list.

<img class=" size-full wp-image-25776 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/31589334426_3111c44396_z.jpg" alt="31589334426_3111c44396_z" width="640" height="377" />

Despite this diversity, an engaged FSP – led by an active board – can often do quite a bit to shape and influence the operating environment or ready the institution to survive shocks. Preparing for and responding to crises, threats and opportunities is, in fact, a core responsibility of senior executives and board directors. Conversations with Africa Board Fellows demonstrate that boards <em>can</em> prepare by:
<ul>
 	<li>Anticipating and minimizing the likelihood of adverse external developments</li>
 	<li>Reducing the vulnerability of the institution to such shocks</li>
 	<li>Enhancing the resilience (ability to recover) of the institution to the situations it will inevitably face</li>
</ul>
We’ll tackle the first point on anticipating and minimizing shocks here. We’ll cover the last two points in our next post in this <a href="https://cfi-blog.org/tag/abf-blog-series/">series</a>.
<h3>Anticipating Challenges with an Ear to the Ground</h3>
<img class=" wp-image-25790 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/how-to-anticipate-changes-as-a-board-member.png" alt="how to anticipate changes as a board member" width="196" height="330" />The first step is to anticipate – and hence be prepared to mitigate – challenges. To do this, board directors must keep abreast of new entrants, potential disruptions, and promising opportunities in the marketplace. Directors cannot rely solely on management for this information. Instead, they should develop their own sources to supplement and confirm management’s view, such as by networking with industry observers and analysts–with management’s knowledge, of course. Locally based board members have an advantage in developing and maintaining such networks, which is one reason it is important to recruit qualified local directors. For example, finding and retaining qualified local directors has been a priority for FSSL South Sudan, given the ongoing political disturbances in the country that make it difficult to maintain continuity of leadership.
<p style="text-align: left">Talking frequently with FSP staff and clients is another way board directors can anticipate challenges. Frontline staff are in a position to report on competition, clients and local happenings. And it should go without saying – but always bears repeating – that clients can provide ground-level insight. Clients may reveal such things as their vulnerability to displacement in government raids on the informal sector or the inability to import goods. When ABF fellows from the Ivory Coast conducted client visits, these were some of the specific challenges about which they learned.</p>

<h3>Getting Ahead of Operating Challenges with Active Participation</h3>
While they can never control the external environment, board members can help shape it to some degree through the following:
<ul>
 	<li><strong><em>Create and participate in industry associations; promote and follow codes of conduct</em></strong>. Industry associations establish frameworks for fair practices and client protection and help facilitate self-regulation and compliance with governance and transparency requirements. An active industry association can also work closely with regulators and other government actors to help shape legislation, regulation and perceptions of the industry, which are all key features of the operating environment. Board directors should support and encourage management to devote time to nurturing strong associations – a medium term project – and engage directly with other FSP board directors to make this an industry priority. As one example, Barnabe Francois, CEO of Microcred Ivory Coast, <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/barnabe_francois_microcred.pdf">has been an active member of banking associations</a>, first in Madagascar and subsequently in Ivory Coast.</li>
 	<li><strong><em>Develop relationships with regulators and government officials. </em></strong>To reinforce the efforts of industry associations, FSP management can also cultivate relationships with government officials to advocate and educate them (and the media) on operating environment challenges. Board directors, particularly well-regarded locally-based directors, can greatly enhance the effectiveness of such engagement. Or, like MicroCred Zimbabwe, the FSP can appoint an experienced bank regulator to the board (perhaps, a retired official or someone who worked in another country) who understands how regulatory bodies work and can connect on a peer-to-peer basis with regulators.</li>
 	<li><strong><em>Build clients’ financial capability</em></strong>. An important aspect of an FSP’s risk management responsibilities is ensuring that clients use financial services responsibly and productively. Misunderstanding how financial services work can lead to multiple borrowing, or mismatched cash flows which often threaten clients’ ability to repay their loans. To ensure good value to clients and the long-term viability of the FSP, board directors should encourage management to include initiatives in strategic plans to help clients build their financial skills and practice good habits.</li>
</ul>
<ol>
 	<li style="list-style-type: none"></li>
</ol>
Such efforts can, over the medium term, reduce the likelihood that an FSP or the entire sector will face certain types of challenges and will help position providers to take advantage of new opportunities.

<em>Stay tuned for the next blog in this series</em><em>, which will highlight reducing an FSP’s vulnerability to external shocks, as well as enhancing resilience.</em>
<h4><strong><i><span style="margin: 0;font-family: 'Calibri', sans-serif"><span style="color: #000000">CFI is currently recruiting fellows for the next cohort of the </span><a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a><span style="color: #000000">. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.</span></span></i></strong></h4>
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Navigating Challenges Is What Boards Are All About – Part 1: Anticipating Challenges

South Sudan

Zimbabwe

Enabling Environment

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" /><em>The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.</em>

In recent years, some African countries have experienced slower economic growth and less stability in their currencies. This deterioration in macroeconomic conditions has presented challenges for financial service providers (FSPs) seeking to serve the base of the pyramid and improve financial inclusion. Some ways macroeconomic conditions impact FSPs include:
<ul>
 	<li>Higher operational expenses (e.g., imported IT equipment and software; office leases and technical services invoiced in foreign currency)</li>
 	<li>Increase in non-performing loans as small businesses have had fewer growth opportunities</li>
 	<li>Higher cost of funds (both deposits and debt)</li>
 	<li>Reduced access to debt from international and local providers</li>
 	<li>Decrease in revenue or tighter margins</li>
</ul>
We're talking to <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> (ABF) alumni to share their experiences dealing with deteriorating macroeconomic conditions.

ABF alumnus Deji Fisho, Board Member of Fortis Microfinance Bank in Nigeria, provides insights into the implications for FSPs on the 2016 decision by the Central Bank of Nigeria to allow the exchange rate for the Naira to be market driven.

<em>It affects a microfinance bank’s exposure to dollar loans. When the currency devalues, MFIs have to spend three times more Naira to keep money in dollars. But with the oil market crash, there weren’t even enough dollars coming in for repayments, so people have to go outside the bank to the black market to get dollars. In a currency devaluation situation like this, MFIs won’t have money to lend. The bigger banks borrow from the government and the smaller banks borrow from the bigger banks. So there is no trickle down to MFIs if the larger banks don’t have the cash.</em>

Learn more in <a title="Deji_Fisho_Fortis MF Bank" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/deji_fisho_fortis-mf-bank.pdf">Deji's full interview</a>.

ABF Fellow Nkosilathi Moyo, CEO of VisionFund in Zambia, comments on how currency devaluations impact clients:

<em>Some of our clients are traders, so they buy goods from Democratic Republic of Congo, South Africa and Tanzania. Devaluation meant that our clients had limited foreign currency to meet their business needs, resulting in default.</em>

<em>After the fluctuations, we revised our risk appetite statement to ensure that it is aligned with prevailing market conditions. For instance, the board made a decision that we should not contract any foreign currency denominated loans. Additionally, we reviewed our risk concentration to ensure we do not have too much focus on any one region or industry. For example, we are shifting some of our focus away from traders in the mine areas to smallholder farmers.</em>

Read more in <a title="Nkosilathi _Moyo_VisionFund_Final" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">Nkosilathi's full interview</a>.

Regulators can sometimes respond to macroeconomic problems by imposing regulations designed to keep risks out of the financial sector. One response is to impose higher minimum capital requirements or higher reserve requirements. These may sometimes be imposed directly after a collapse of a similar type of financial entity due to a sudden bank run. Such restrictions can be debilitating for financial institutions, especially when they are imposed suddenly. Although meant to protect depositors, this type of regulation can push smaller FSPs out of the market.

In 2017, Mozambique recently faced challenges arising from multiple factors: political tensions and violent clashes, a debt scandal that resulted in the suspension of aid from key donors and endemic corruption. This affected macroeconomic variables, with a significant currency devaluation in 2016 and high inflation (15 percent) in 2017. These tough macroeconomic conditions led regulators to impose a higher minimum capital requirement on financial institutions. ABF Fellow Titos Macie, Socremo Board Chair, discusses the impact of that increase on the institution.

<em>The deteriorating macroeconomic fundamentals, along with the non-performance of two major banks (one liquidated and one placed under the central bank administration), caused the central bank to increase minimum capital requirements. Initially, the central bank had indicated that the new capitalization requirements would be 500 million meticais, an increase from MZM 70 million, so the board made plans to meet that requirement within three years by not paying out shareholder dividends [and using] share premium and retained earnings to capitalize the bank. When the official decree was actually issued by the central bank, the capitalization requirement was much higher: MZM 1.7 billion (US $26 million). Facing this requirement, the board had little room for maneuver. It took a decision to downgrade Socremo from a full commercial banking license to a micro bank license. Socremo can still do almost all financial services, except for forex business.</em>

<a title="Titos_Macie_Socremo" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/titos_macie_socremo.pdf">Titos' full interview</a> includes a discussion of the impact of currency devaluation on its clients. Accion discusses its recent investment in Socremo <a href="http://blogs.accion.org/features/plan-bring-small-businesses-in-mozambique-support/">here</a>.

Titos sums up how many FSPs operating in challenging macroeconomic and regulatory environments feel: <em>We are surviving and looking at a better future.</em>

<em><strong>CFI is currently recruiting fellows for the next cohort of the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.</strong></em>

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Dialogue With Africa Board Fellows: Navigating Challenging Macroeconomic Environments

Mozambique

Nigeria

Financial Service Providers

Policy, Regulation and Government Initiatives

<em><img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="78" height="97" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.</em>

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Few countries have escaped socio-political unrest, conflict or periods of crisis. As the consequences of such events can be severe for both financial service providers and their customers, it behooves every board and CEO to consider how they might prepare themselves to respond when the political environment around them deteriorates.

[caption id="attachment_25747" align="alignleft" width="169"]<img class=" size-full wp-image-25747 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/barnabe_francois-headshot-e1532552860511.png" alt="Barnabe_Francois Headshot" width="169" height="215" /> Barnabe Francois, ABF Fellow. Copyright Accion[/caption]

<a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> (ABF) alumnus Barnabe Francois, CEO of Microcred Ivory Coast, described a crisis his institution faced in early 2017 in which a range of events all struck at the same time:

<em>“In January 2017 former soldiers demanded money from the government and violence erupted. At the same time, there were strikes within the public administration that lingered for three weeks. The timing could not have been worse, since the government had recently kicked out as many as 500 of our customers who were selling on the streets. This affected us tremendously. We had been in the process of addressing issues related to repayment when the political unrest escalated.”</em>

The immediate effect was seen in Microcred’s portfolio at risk (PAR), which jumped from 3.8 percent in December 2016 to 5.1% in January 2017.Barnabe continues,<em> “Since then, we have struggled to get back to our target PAR of 3 percent. As for our clients, some of them are still facing problems. Many lost all their goods because they had to flee the area when the government kicked them off the streets. I should also mention that there were some who were not affected by the unrest, but took advantage of the situation by claiming they were impacted and refusing to pay.”</em>

The board was very concerned when this happened, and increased its attention to PAR targets. “<em>We had a high concentration of clients in one particular area. This prompted me to start an expansion plan and we have opened new branches in other areas in order to have a more diversified portfolio.” </em><a title="Barnabe_Francois_Microcred" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/barnabe_francois_microcred.pdf">Barnabe's full interview</a> goes into greater detail about lessons learned from ABF in navigating these challenges.

[caption id="attachment_25746" align="alignright" width="206"]<img class="alignnone size-full wp-image-25746" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen.png" alt="Resi Janssen Headshot" width="206" height="237" /> Resi Janssen, ABF Fellow. Copyright Accion[/caption]

ABF Fellow Resi Janssen, Board Chair of Finance, South Sudan Limited (FSSL) faced a more extreme situation due to political and economic chaos in South Sudan. Violence made it dangerous for many clients and staff, and at the same time South Sudan’s economy was hit with devaluation and inflation, making the currency nearly worthless. One predictable response was flight, as Resi explains:

<em>“In July 2016, some staff in one branch fled to Uganda and did not come back. Due to devaluation and inflation, the salaries of staff in terms of US dollars diminished some 25 times. We doubled the basic salary in January 2017, but this was still far from enough to earn a decent living…</em>

<em>Several clients lost properties. Businesses were looted (some tens, not hundreds). Because of the conflict, a few hundred clients fled to northern Uganda and DRC.”</em>

In her <a title="Resi_Janssen_FSSL" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen_fssl.pdf">full interview</a>, Resi offers the following concrete advice for MFI board members on how to support staff and clients during periods of unrest:
<ul>
 	<li>Make sure staff is safe.</li>
 	<li>Have a contingency plan, and make sure everyone is aware of the content. Staff need to know it.</li>
 	<li>Have as few costs as possible in foreign currency. Conflicts always cause devaluation.</li>
 	<li>Have as few expatriate staff as possible. They evacuate in times of crises and are too expensive.</li>
 	<li>Have offices in relatively safe areas, although “safe” can change quickly.</li>
 	<li>Have savings insurance.</li>
 	<li>Ensure some local board members who are committed, qualified, have authority to make decisions, and are not likely to go abroad.</li>
 	<li>Be in close contact with staff—at least weekly visits or calls with the CEO and monthly board meetings.</li>
</ul>
The services of financial institutions can be especially important for clients during difficult times. A wide range of financial services can support people at the base of the pyramid and small businesses to weather shocks from deteriorating economic conditions and social unrest. This underlines the need for financial institutions and their boards to anticipate and prepare to navigate challenging contexts. With the <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>, we strive to strengthen the capacity of financial institutions at the executive level so they can do just that.

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Financial Institutions in Times of Political and Social Unrest: Thoughts from Africa Board Fellows

Uganda

<em><img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="90" height="112" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.</em>

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The mention of overheated credit markets sends chills up the spine of anyone who lived through the crises in Bosnia, Andhra Pradesh, Morocco, or Nicaragua, where market saturation played a prominent role. While regulators and investors have key responsibilities in avoiding these crises, boards of financial service providers (FSPs) must also steer their organizations carefully when more companies enter the space to compete for the same customers. And since portfolio at risk at 30 days (PAR30) is a lagging indicator in the earlier stages of a <a href="http://www.cgap.org/publications/regulatory-options-curb-debt-stress">credit market cycle</a>—growth and high liquidity mask debt stress for a time—boards have to be more creative about how to understand what is actually happening.

We spoke with two <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> alumni from Uganda, ECLOF Board Chairman Vincent Kaheeru and UGAFODE Board Member Olive Kabatalya, to capture their insights on governing in a competitive environment. “There are about 2,000 institutions [in Uganda] that could pass for microfinance institutions,” explained Vincent. “It’s quite a complicated market because there are both big and small players. Even the big banks target the smallest savers and borrowers.”

Based on their experience, Vincent and Olive offered other board members the following guidance:

[caption id="attachment_25725" align="alignright" width="300"]<img class="alignnone size-medium wp-image-25725" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/abf-fellow-olive-kabatalya-at-table.jpg?w=300" alt="ABF Fellow Olive Kabatalya sitting at table." width="300" height="214" /> ABF Fellow Olive Kabatalya (left). Copyright Accion.[/caption]
<h2><strong>Anticipate Where the Market Is Going</strong></h2>
“For any strategic response to be meaningful, the conversation between board and management needs to happen early in the credit market cycle,” warns Olive. “Keep studying market trends in any way possible. Pay attention to the media, newspapers, central bank announcements and other sector players. Financial sector studies like <a href="http://www.finmark.org.za/publications/">Finscope</a> are very informative. Look for reports from and talk to microfinance associations.”
<h2><strong>Meet Your Customers</strong></h2>
“Bring the customer closer to you and listen to him or her,” said Vincent. “You can’t serve them generally. It doesn’t work. Client visits were an idea we picked from the <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>. We [the board] had done them occasionally, but we intensified the number of visits and changed the approach to make the visit more effective. When you visit customers, you understand the context of all that is going on. That helped me and my team.”

Olive added, “We are visiting clients to ensure that we are not just reading performance reports, which do not usually include anything to do with meeting the needs of the client.”
<h2><strong>Get Creative with Target Market and Product Differentiation</strong></h2>
[caption id="attachment_25726" align="alignleft" width="300"]<img class="alignnone size-medium wp-image-25726" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/abf-fellow-vincent-kaheeru-and-robert.jpg?w=300" alt="ABF Fellows Vincent Kaheeru and Robert Ongodia" width="300" height="214" /> ABF Fellows Vincent Kaheeru (right) With Robert Ongodia, Accion. Copyright Accion.[/caption]

“We have a situation of multiple borrowing,” explained Vincent. “Many people have three or four loans from different financial service providers. It burdens the clients. But I’m also aware that the target clientele is narrow. There are still many people at the bottom of the ladder who want to borrow. Lenders need to be more creative and develop products to bring more of the unserved ‘into the boat’…

We’re doing studies to be more responsive to the needs of our market. Everyone offers the common products. If we don’t differentiate, we’re the same. We’re looking at products that will appeal to the target market by helping the target market make money…

About half of our portfolio is urban and half is rural. Each carries different risks. In rural areas, we’re looking at agricultural value chains, helping the farmer bridge the gap between harvesting and processing; and [we look at] the market side, so farmers are not stranded with a crop and can fetch a good price. We’re also looking at microinsurance to protect our investment as well as [appeal to] the interest of the client in case of drought.”
<h2><strong>Pay Attention to Your Staff</strong></h2>
“We’ve had a challenge with our highest performing staff members being poached by bigger and better-paying microfinance organizations,” said Olive. “This has caused us to review staff benefits.”
<h2><strong>Ensure Effective Operational Controls</strong></h2>
In competitive environments, FSPs face all the risks of rapid growth, including a deterioration of operational controls, without actually growing. As loan officers become more desperate to achieve targets in a competitive space, shortcuts are taken and credit assessment becomes lax. Boards must ensure effective supervision as well as a robust system of checks and balances. “Although growth is what we really want, even as we thirst for growth, we need to be careful that we do not go down with the growth never to be seen again,” said Vincent.
<h2><strong>Improve Your Own Capacity to Manage Risk</strong></h2>
Olive and Vincent also both emphasized, and have exemplified, the importance of board members continually sharpening their own ability to manage risk. Vincent explained, “Things are changing. What worked yesterday won’t work tomorrow. As a board member, you have to keep reading, keep sharing experiences to stay on the cutting edge.”

For more details, read our complete interviews with <a title="Olive_Kabatalya_UGAFODE" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/olive_kabatalya_ugafode.pdf">Olive</a> and <a title="Vincent_Kaheeru_ECLOF" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/vincent_kaheeru_eclof.pdf">Vincent</a>.

<em><strong>CFI is currently recruiting fellows for the next cohort of the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.</strong> </em>

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The Board’s Role When Competition Heats Up

<em>The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting views from participants in the </em><a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf"><em>Africa Board Fellowship</em></a><em> (ABF).</em>

Two experiences with interest rate caps – in Kenya and Zambia – demonstrate the power of political forces to shape financial inclusion policies and may hold lessons for MSME lenders in other countries.

In a recent unpublished study, the <a href="https://responsiblefinancialinclusion.org/">Partnership for Responsible Financial Inclusion</a> (formerly the Microfinance CEO Working Group) examined commonalities in the origins of interest rate caps in these two countries. In both cases, signs were clear that the general public was upset about the current state of loans and interest rates. Approaching elections increased the will among political leaders to make regulatory changes that would appeal to the public.

In Zambia, a populist president, Michael Sata, was the surprise victor in 2011’s elections. In his first days in office, Sata announced his priority of cutting the cost of credit for Zambians, a move in opposition to the country’s dominant banks. His remarks sent the domestic currency into a spiral. Inflation soared, and interest rates rose. These events helped create a sense of urgency for both consumers and legislators, propelling the caps through the legislative process. In 2012, Sata led the government in successfully passing his proposed law, which capped commercial banks’ loan interest rates at 18.25 percent.

In 2013, the interest rate caps were also imposed on microfinance lending. The maximum rate was set at 42 percent for a select group of microfinance institutions and 30 percent for other non-bank financial institutions. Following Sata’s death in 2014 and the election of his replacement, the interest rate caps were removed in 2015. The government’s approach in this area now focuses on pricing transparency.

Zambia’s interest rate caps were not particularly effective. To compensate for lower interest income, the banks began to charge more fees, keeping effective prices more or less the same for consumers. The caps did not create an effective solution, and ultimately banks, microfinance institutions and regulators agreed on ending the caps. Instead, strong regulations on pricing transparency were put into law.

A similar story has been unfolding in Kenya, which introduced an interest rate cap of 4 percent above the Central Bank of Kenya Policy Rate for regulated financial institutions in September 2016. The measure was viewed as a populist move. However, in the short time since the law’s enactment, signs <a href="http://africanbusinessmagazine.com/african-banker/kenya-interest-rate-cap-coming-off/">suggest</a> it is doing more harm than good to the overall economy, including the exclusion of “higher risk” borrowers like MSMEs, decreased levels of lending, and lower profits and stock values among banks. It seems the government is now looking to remove the caps given the impacts on the economy and financial services sector.

However, there have been some positive outcomes for the Kenyan financial inclusion industry – such as more innovations, especially in digital lending, because the banks are restricted in lending, creating an opening for non-bank lenders. Some Kenyan banks have also started to buy MFIs in order to lend through them in smaller amounts. The caps have caused banks to diversify their product offerings more – to insurance and leasing.

We interviewed two alumni of the CFI’s Africa Board Fellowship (ABF) to share their experiences about the politics and practice of interest rate caps.

<img class="wp-image-25583 alignright" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/jacqueline_musiitwa.png" alt="" width="387" height="500" /><em>Jacqueline Musiitwa is the Executive Director of FSD Uganda and a board member of Microcred Zimbabwe and the Central Bank of the Republic of Zambia. </em>

<strong>ABF:</strong> Can you share your perspective on the decision to implement, and subsequently remove, the interest rate caps in Zambia?

<strong>Jacqueline Musiitwa</strong>: "The Zambian experience seems to be similar to Kenya’s case – a populist approach with the hopes of encouraging lending to the masses. Then, quickly learning that the opposite actually happens: interest rate caps cause banks to stop lending, and the people don’t benefit. The first thing the current governor of the Central Bank did in office was reverse the caps. Increasing lending was a top priority. The Central Bank also had conversations with banks at that time about keeping interest rates low. The Central Bank learned that rate cap regulation hasn’t worked well historically, so they wanted to figure out how to work together with banks to find a solution.

Stepping back, the question is: how do banks charge interest in a way that makes sense for the population being served? Some people are unbanked for fear of charges. The Central Bank in Zambia is looking at how to get banks outside their comfort zone to serve new clients. How can they create a system of mutual trust?

Ultimately, you take a few steps forward and then a few steps back. Public trust in banks has everything to do with the safety of savings. In Zambia, the numbers were going well in terms of signing clients up at non-banking financial institutions and then in December 2016, a bank closed for three months during which time shareholders injected money into it. Clients reacted with: ‘You see, this is why we are going to put our money under the pillow’. The bank is now back but now there is still a fear of depositing in banks, so it is hard to get people to increase savings.

Regulators wrestle with how to communicate market stability when there is even just one weak link. You saw it with banks in Kenya. Dubai, Imperial, and Chase banks all went down in Kenya, and the reaction was the same. People either don’t trust banks or move to the biggest banks. Zambia is pushing through a law for a deposit protection scheme."

<em>The full interview with Musiitwa can be read <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/jacqueline_musiitwa_interview.pdf"><strong>here</strong></a>.</em>

<img class="alignleft wp-image-25584" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/ivan-mbowa.png" alt="" width="317" height="476" /><em>ABF Alumni Ivan Mbowa, CEO of Umati Capital, offers a perspective on interest rate caps from his experience in Kenya.</em>

<strong>ABF:</strong> Kenya’s government introduced an interest rate cap for banks, but not for non-bank financial institutions like Umati. How has Umati been affected?

<strong>Ivan Mbowa</strong>: "At Umati we’re seeing a lot more interest in our services. About half of our clients are new to formal finance. They could never get money from a bank in the first place. The other half are coming to us for additional financing, because they don’t have the collateral to get more from banks.

The funny thing is that the clients don’t always understand the nuances between a non-bank financial institution and a bank, so when they see our rates, the first impression is, ‘You guys are just flouting the law—it’s supposed to be capped.’ We have to explain that the cap doesn’t apply to Umati. A good outcome has been that there seems to be a lot more awareness and questioning from clients on, 'What is the cost of your product?'

It’s also been easier to make the argument that even if you can access bank credit, it’s good to be multibanked, so that the next time there’s a freeze or a crunch, you’re not fully exposed. Savvy clients understand that working with Umati can be a hedging mechanism."

<em>The full interview with Mbowa can be read <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/ivan_mbowa_interview.pdf"><strong>here</strong></a>.</em>

In one more example, the West Africa Economic and Monetary Union (WAEMU) implemented more stringent caps in 2015, reducing the cap from 27 percent to 24 percent for MFIs and from 18 percent to 15 percent for banks. In the time before the new cap was implemented, the trend in bank interest rates had been downward, as a result of competition. According to reports from ABF Fellows on the ground, the lower caps did not have a very big impact on banks, especially considering all the fees they were generating. However, caps have inhibited lending to micro and small enterprises because, for the most part, banks were already limited in their lending to this customer segment. Private investors who are interested in serving micro and small enterprises have avoided the region, given that the caps lengthen the time to break even for a fledgling greenfield financial institution. Several studies indicated that many MFIs have been unable to achieve adequate scale and efficiency in their respective business environments to be profitable and sustainable.

Given the diverse outcomes interest rate caps can have, we’d love to hear more from our readers about their experiences with interest rate caps.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/02/01/are-banks-the-future-of-banking-africa-board-fellows-deliberate/">Are Banks the Future of Banking? Africa Board Fellows Deliberate</a>

<a href="https://cfi-blog.org/2017/10/20/the-board-should-not-be-the-last-to-know-why-mfis-need-independent-internal-auditors/">The Board Should Not Be the Last to Know: Why MFIs Need Independent Internal Auditors</a>

<a href="https://cfi-blog.org/2017/10/04/how-can-microfinance-institutions-in-the-middle-east-and-north-africa-manage-risk-and-meet-client-demand-governance-is-key/">How Can Microfinance Institutions in the Middle East and North Africa Manage Risk and Meet Client Demand? Governance Is Key!</a>

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&nbsp;

The Politics (and Varied Experiences) of Interest Rate Caps

Regulators

Partnership for Responsible Financial Inclusion

Kenya

Credit Provision

Interest Rates

Digital trends in the African financial inclusion sector are evolving quickly. With the entrance of fintech startups and a more tech savvy client base, the role of corporate governance is more important than ever. As David Kombanie, Board Member of VisionFund put it: <strong>“Disruptive innovations are here with us. It’s change or die.” </strong>

Kombanie, along with more than 50 CEOs, board members, investors, fintech leaders, and regulators from Africa’s financial inclusion industry, engaged in a peer-learning exchange roundtable, <em>Governing in a Digital World</em><em>.</em> This <a href="https://www.youtube.com/watch?v=g2zVq24iEes&amp;w=560&amp;h=31">video</a> provides an overview of discussions and key takeaways from the participants:
<h2>Governance for Financial Service Providers in a Digital World</h2>
The roundtable’s peer-to-peer exchanges provided three important governance considerations and recommendations for the boards of financial service providers (FSPs) as they evolve with the digital world:

<strong>Develop a Digital Strategy</strong>

Many FSPs aren’t adequately prepared for the disruption created as technologies enter the market. At the same time, it’s important not to digitize for the sake of digitizing. Boards of FSPs should have a clear strategy and understanding of how digitization can improve product offerings and back office operations. Their role is to provide leadership and expertise to guide the institution in developing and implementing a digital strategy. Change management and gaining knowledge about technology are key components for such success.
<h4><strong>Ensure Board Leadership and Expertise</strong></h4>
Understanding and filling technology knowledge gaps on the board is crucial for ensuring strategic leadership of the FSP. Boards should be evaluating their competitive advantage, rather than following trends. Rohit Acharay, co-founder of First Access says that answering the questions: <strong>“What are we good at, who are our customers, and how do we create products that really serve them...?”</strong> is the first evaluating step for FSP boards to take.

<strong>Better Utilize Data to Serve Clients </strong>

Fintech startups serving low-income clients use data to gain competitive advantage. In contrast, many FSPs have an abundance of underutilized data that could be leveraged to better segment clients. For example, different levels of human touch and support may be needed for different client segments.

[youtube https://www.youtube.com/watch?v=SRjEBXzDaEA&amp;w=560&amp;h=315]
<h3>Governance for Fintech Startups</h3>
For start-ups, building a technologically-advanced product isn’t enough. It’s also important to focus on building governance structures while navigating regulation and prioritizing client centricity. Key governance recommendations for fintech and innovative startups include:
<h4>Engage with Regulators</h4>
Regulation tends to lag new players entering the financial inclusion sector. However, regulations inevitably will catch up, and fintechs need to be proactive in doing things ‘right’ initially to avoid regulatory trouble later on. Paul Lamont, Director of Digital Services for Accion in Africa, noted that because some disruptive technologies <strong>“move faster than regulation”</strong> it’s important for fintechs to build close working relationships with regulators to stay aligned with evolving regulatory environments and provide perspective to regulators about pushing the boundaries that drive financial inclusion. Fintechs should ensure the lines of communication with regulators remain open so that there is a clear understanding of the products and services offered.
<h4>Ensure Board Independence and Diversity</h4>
It is crucial to have independent voices on the board with diverse perspectives and backgrounds who can provide insights, especially on what’s happening on the ground. It is also essential to have board members who are able to make important introductions and connections, and can provide a sounding board and checks and balances for the founder(s) or CEO.
<h4>Consider Partnership Opportunities</h4>
There are many partnerships opportunities – especially around data usage – for fintechs and FSPs. As mentioned, many FSPs are collecting a lot of data about clients but aren’t effectively using it. Some fintechs have developed a more streamlined and insightful process for utilizing client data that could greatly benefit FSPs. With financial inclusion-focused FSPs and fintechs aiming for the same goals for their clients, it’s important to establish an ecosystem through partnerships to better understand strengths, weaknesses and opportunities to work together.

[youtube https://www.youtube.com/watch?v=4dm7bWAR9VY&amp;w=560&amp;h=315]

By practicing good governance, FSPs and fintech startups have the opportunity to evolve with the digital world and continue to play an important role for the future of financial inclusion.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/02/01/are-banks-the-future-of-banking-africa-board-fellows-deliberate/">Are Banks the Future of Banking? Africa Board Fellows Deliberate</a>

<a href="https://cfi-blog.org/2016/04/25/is-weak-governance-to-blame-for-bank-collapses-in-kenya/">Is Weak Governance to Blame for Bank Collapses in Kenya?</a>

<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>

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&nbsp;

Governing in a Digital World

First Access

Fintechs

<em>&gt; Posted by Center Staff</em>

<img class="aligncenter wp-image-24627" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/hbs-banner.png" alt="" width="617" height="145" />Are you working to expand quality financial services access? The <a href="http://www.centerforfinancialinclusion.org/collaborators-a-sponsors/harvard-business-school-accion">2018 Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance</a> is accepting applications for what will be another exceptional week of learning and exchange among world leaders in financial inclusion. The program will take place March 25-30, 2018 at the HBS campus in Boston, Massachusetts. We hope you’ll join us!

The 2018 HBS-Accion Program builds on an extensive legacy: 12 successful years and over 800 alumni—including CEOs, presidents, executive directors, and other high-level professionals—from roughly 100 countries. The HBS-Accion Program was the world’s first education course to provide high-level management and leadership training for those shaping the inclusive finance sector.

The current landscape of financial services for low-income consumers is increasingly complex, with a diversity of products, providers, and support organizations extending services to previously excluded populations. Disruptive technologies and new business models are creating new possibilities for reaching more people with even more specialized products and services. It’s an exciting time for financial inclusion, though for leaders navigating their organizations through this landscape, the pace and magnitude of change may seem overwhelming.

Previous HBS-Accion Program participants have included leaders from microfinance institutions, commercial banks, technology firms, investment funds, and policymaking bodies. Financial service providers will benefit from the guidance of some of the world’s top thought leaders in business strategy and management and gain a deeper understanding of both the possibilities and the pitfalls of today’s financial services marketplace. Policymakers, regulators, and investors will find it valuable to get a closer look at how the financial inclusion space is evolving around the world.

The HBS-Accion Program is an intensive week-long immersive learning experience with highly participatory and engaging class discussions. At its core is the famous HBS case method approach in which participants work through real-life situations and decisions while exploring the key issues shaping financial inclusion. Case studies are drawn from impact investing, microfinance and inclusive finance industries and highlight examples of new and innovative business models that target clients at the base of the pyramid. The program is led by HBS faculty members <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6535">V. Kasturi Rangan</a>, co-chair of the HBS Social Enterprise Initiative, and <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=261321">Michael Chu</a>, Senior Lecturer at HBS and recognized microfinance leader, together with other HBS faculty members.

For more information, including details on how to apply, please visit the <a href="http://www.accion.org/hbs">program website</a>, or email <a href="mailto:hbsaccion@accion.org">hbsaccion@accion.org</a>. All applications are due December 15, 2017.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/04/27/celebrating-10-years-dispatch-from-the-2015-hbs-accion-program-on-strategic-leadership-in-inclusive-finance/">Celebrating 10 Years! Dispatch from the 2015 HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>

<a href="https://cfi-blog.org/2014/05/16/seventy-global-leaders-convene-for-hbs-accion-program-on-strategic-leadership-in-inclusive-finance/" target="_blank" rel="noopener">Seventy Global Leaders Convene for HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>

<a href="https://cfi-blog.org/2016/04/08/global-financial-inclusion-leaders-convene-for-hbs-accion-program/">Global Financial Inclusion Leaders Convene for HBS-Accion Program</a>

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Apply Today! The HBS-Accion Program on Strategic Leadership in Inclusive Finance Is Accepting Applications for 2018

HBS-Accion Program on Strategic Leadership for Inclusive Finance

Abhishek Agrawal

Chief Regional Officer, India

Brian Kuwik

SVP & Chief Regional Officer, Africa 

Gonzalo Gonzalez

Vice President, Global Advisory Solutions | CEO, DAWN Microfinance

Prateek Shrivastava

Vice President, Digital

Victoria White

Managing Director, Accion Global Advisory Solutions

Alice Tang

Dandan Wang

Kathleen Yaworsky

Michael Schlein

Nancy Widjaja

Radhika Shroff

Tahira Dosani

China

Colombia

Dominican Republic

Ghana

Guatemala

India

Mexico

Paraguay

Peru

Tanzania

United States

Advisory Services

Consumer Protection

Digital Credit

Digital Financial Services

Financial Inclusion Strategy

Financial Technology

Impact Investing

MSME/SME Finance

Article

Toolkits and Guides

This guide outlines how to build and structure a board, including tactics on effectively leveraging board member expertise and networks. Also included are tips on planning effective board meetings.

How to leverage a startup board

Entrepreneur

Accion Venture Lab

Since 2008, the Mastercard Foundation has supported several Accion initiatives, underscoring our shared commitment to building prosperity through financial inclusion and education. The Mastercard Foundation-Accion relationship has evolved over a decade, and each has enabled the other to explore new areas and reach underserved populations, especially in Africa.

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<strong>The Smart Campaign</strong>

The Mastercard Foundation was an early sponsor of the Smart Campaign, a global campaign committed to embedding client protection practices into the institutional culture and operations of the financial inclusion industry. Spearheaded by the Center for Financial Inclusion at Accion (CFI), the initiative is focused on creating an environment in which financial services are delivered safely and responsibly to low-income clients. The Foundation’s initial and continuing support for educating financial service providers and consumers alike has been central to the Campaign’s progress. The Mastercard Foundation enabled the Smart Campaign’s expansion into five focus countries in Africa, where it is addressing client protection and empowerment issues emerging from new technologies and seeking to affect change at a national level.

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<strong>Leadership Development in Financial Inclusion </strong>

In addition, the Foundation has helped fund two innovative Accion programs for leadership development in financial inclusion. Over the course of a decade, scholarship funding from the Foundation allowed for more than 340 leaders from financial institutions around the world to participate in the annual Harvard Business School-Accion Program on Strategic Leadership in Inclusive Finance. This unique executive education opportunity brings professionals together to learn about the latest challenges and breakthroughs in financial inclusion and develop their problem-solving skills. The Foundation also supports CFI’s Africa Board Fellowship, a peer learning, and exchange program for executives and board members from African financial institutions that focus on building capacity in governance and risk management. More than 230 fellows from approximately 60 African institutions have taken part in the program to date.

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<strong>Accion Venture Lab in Sub-Saharan Africa</strong>

Most recently, the Mastercard Foundation has been a key sponsor of Accion Venture Lab’s work in Africa. In addition to general support for Venture Lab’s efforts to identify, invest in, and support promising fintech start-ups in Africa, the Foundation is also sponsoring pilot projects, such as the new “Company Builder” initiative, which recruits experienced business executives with entrepreneurial aspirations to create fintech startups from scratch in Nigeria.

The Mastercard Foundation-Accion partnership has yielded multiple pioneering initiatives whose legacy is only beginning to take shape, as financial service providers and fintech entrepreneurs build a more inclusive economy in Africa and beyond.

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Mastercard Foundation and Accion: Building prosperity through financial inclusion and education

Institutional Funder

For more than twenty years, FMO, the Dutch development bank, has been a valuable financial and nonfinancial supporter of Accion’s work. Together, we have built a partnership based on a shared commitment to entrepreneurs, innovation, and strong governance of financial institutions. FMO is committed to becoming a “preferred partner to invest in local prosperity,” and alongside Accion, it has found unique opportunities to achieve that.

FMO and Accion: Empowering entrepreneurs, supporting innovation, and strengthening governance

<p class="graf graf--p graf--startsWithDoubleQuote"><em class="markup--em markup--p-em">“</em>We should go digital” is often proposed by financial service providers with the assumption that it will make life easier for everyone involved. But digital transformation is a challenging process, requiring both a strong structural and cultural foundation to be successful. To make the process as smooth as possible, lenders must take the crucial first steps of assessing and building their digital readiness, as we wrote in our recent publication <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/demystifying-digital-lending/" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">Demystifying Digital Lending</em></a>.</p>

<h2 class="graf graf--h4"><strong class="markup--strong markup--h4-strong">Build your digital readiness — and avoid a ‘digital mullet’</strong></h2>
<p class="graf graf--p">One of the most common mistakes financial service providers make when going digital is giving themselves a “digital mullet” — they look digital in the front, with fancy mobile applications or automated credit distributions, but they have a lot of labor-intensive work happening on the back-end, which fails to deliver on the expected benefit of greater operational efficiency.</p>
<p class="graf graf--p">Building digital readiness means putting in place the core processes and systems that will ultimately support end-to-end digitization of lending products and the customer experience as a whole. For example, to help streamline operations, reduce costs, and increase scale, financial service providers (FSPs) can deploy digital channels and tools, such as <a class="markup--anchor markup--p-anchor" href="https://www.centerforfinancialinclusion.org/new-case-study-provides-evidence-on-the-impact-of-digital-field-applications" target="_blank" rel="noopener noreferrer">digital field applications </a>(DFAs) or cloud-based core banking systems — but deploying such tools is just a small part of the broad range of activities required to build digital readiness.</p>
<p class="graf graf--p">A baseline of digital readiness can help mitigate common digital lending <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/5-key-principles-for-financial-service-providers-looking-to-go-digital-d9fb58b07816" target="_blank" rel="noopener noreferrer">implementation challenges</a>, including data quality and availability, building strong partnerships, and change management.</p>

<h2 class="graf graf--h4"><strong class="markup--strong markup--h4-strong">In digital lending, the whole is greater than the sum of its parts</strong></h2>
<p class="graf graf--p">To become a digital lender, a traditional financial service provider must undergo a comprehensive digital transformation to create an integrated digital product proposition that improves the customer experience. This draws a useful line in the sand — digital lending isn’t just doing the same thing better, but rather creating something new. It implies an end-to-end process of developing and delivering a data-driven financial product that is applied for, disbursed, and managed through digital channels, and ultimately improves the customer experience.</p>
<p class="graf graf--p">As we note in the report, FSPs should understand the distinction between digital readiness (the ability to offer existing products in a digital format, typically enabled by a number of digital tools) and a digital product proposition (the launch of an end-to-end digital product). Many FSPs plan to launch digital products <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/5-key-principles-for-financial-service-providers-looking-to-go-digital-d9fb58b07816" target="_blank" rel="noopener noreferrer">without realizing the time required to build their digital readiness first</a> — this often involves multi-year planning to develop systems and skills to enable the delivery of digital products before actual digital products are launched.</p>
<p class="graf graf--p"><strong class="markup--strong markup--p-strong">At its core, much of digital readiness is about building the institutional capacity to </strong><a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/implementing-big-data-10-tips-from-financial-service-providers-11b30dbee1a" target="_blank" rel="noopener noreferrer"><strong class="markup--strong markup--p-strong">use data effectively</strong></a><strong class="markup--strong markup--p-strong">, which is a prerequisite for launching a successful digital lending product.</strong> The diagram below, from our publication <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/unlocking-the-promise-of-big-data-to-promote-financial-inclusion/" target="_blank" rel="noopener noreferrer">Unlocking the Promise of (Big) Data to Promote Financial Inclusion</a>, depicts a simple diagnostic framework for understanding an institution’s data capacity.</p>
<p class="graf graf--p"><img class="alignnone size-large wp-image-8443" src="http://blogs.accion.org/wp-content/uploads/2018/07/Screen-Shot-2018-07-26-at-9.11.58-AM-1024x790.png" alt="Data continuum diagnostic framework for companies at different levels of data maturity and digitization." width="1024" height="790" /></p>
<p class="graf graf--p">As the diagram above illustrates, digital readiness can be broken down into three broad categories — people, systems, and strategy:</p>

<ul class="postList">
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">People — ensuring the business is ready for scale from an organizational culture and internal capacity perspective. </strong>This includes reviewing the skills, capacity, and commitment of the institution at all levels, and assessing whether existing team structures and individual incentives are suitable for delivering a digital proposition.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Systems — ensuring the core infrastructure is in place to scale the business, such that information flows smoothly and is used effectively across the organization. </strong>This includes an institution’s core banking system, electronic document management system (EDMS), data warehouse, middleware, and reporting dashboards. The systems required to offer digital lending are comparable to a CRM (customer relationship management) system in which the institution can disaggregate customer-level information from the lending process and ultimately build a comprehensive, 360-degree digital view of individual customers over time.</li>
 	<li class="graf graf--li"><strong class="markup--strong markup--li-strong">Strategy — ensuring the business is ready for scale from a strategic and operational perspective. </strong>This includes data and channels strategy, customer segmentation and understanding, and process reengineering. An essential step in building digital readiness is taking stock of current processes and identifying opportunities to streamline and leverage data.</li>
</ul>
<p class="graf graf--p">To quote J.R.R. Tolkien — “the road goes ever on and on…” — but by keeping this framework in mind, combined with a Bezos-like <a class="markup--anchor markup--p-anchor" href="https://www.cnbc.com/2016/05/13/5-key-business-lessons-from-amazons-jeff-bezos.html" target="_blank" rel="noopener noreferrer">obsession</a> with customer needs, financial service providers can position themselves for a successful digital transformation.</p>
<p class="graf graf--p"><em class="markup--em markup--p-em">This post is part of our </em><em class="markup--em markup--p-em">series on digital lending</em><em class="markup--em markup--p-em">.</em></p>
<p class="graf graf--p"><em class="markup--em markup--p-em">Accion has developed many tools and resources to support FSPs in these first critical steps to build digital readiness, including a </em><a class="markup--anchor markup--p-anchor" href="https://www.accion.org/content/new-case-study-impact-digital-field-applications" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">case study</em></a><em class="markup--em markup--p-em"> on the use of DFAs, </em><a class="markup--anchor markup--p-anchor" href="http://www.accion.org/content/tool-and-resources" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">tools</em></a><em class="markup--em markup--p-em"> on credit scoring and operational risk management, and a </em><a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/implementing-big-data-10-tips-from-financial-service-providers-11b30dbee1a" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">guide</em></a><em class="markup--em markup--p-em"> on developing the operational capability and infrastructure required for the strategic use of data.</em></p>

The biggest mistakes lenders make when going digital

Demystifying digital lending

<p id="2135" class="graf graf--p graf-after--figure"><a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="nofollow noopener noreferrer">Accion Venture Lab</a>’s mission is to support early-stage fintech startups in scaling innovations that enable underserved customers to access better and cheaper financial services. We work closely with the CEOs and management teams of these companies and are able to understand their day-to-day challenges. So in addition to providing them with much-needed capital, we also provide support in other non-monetary ways. One is bringing our CEOs together as peers to trade stories and share the solutions they’ve learned on their individual journeys.</p>
<p id="0331" class="graf graf--p graf-after--p">In June 2017, 40 executives from the companies we work with around the world gathered in The Hague, Netherlands. Startup founders face a journey of “figuring things out” (which is much less sexy than coming up with a great idea) with limited resources (funding, staff, business connections…). It’s a long road and it takes a village to make it through. Our recent CEO Forum was such a village.</p>
<p id="1bf9" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">Building a community of leaders</em></strong></p>
<p id="3ae0" class="graf graf--p graf-after--p">This was our second CEO Forum (<a class="markup--anchor markup--p-anchor" href="https://nextbillion.net/how-to-get-30-fintech-ceos-to-open-up-about-financial-inclusion/" target="_blank" rel="nofollow noopener noreferrer">the first took place in London in 2014</a>). We would like to thank <a class="markup--anchor markup--p-anchor" href="https://www.fmo.nl/" target="_blank" rel="nofollow noopener noreferrer">FMO</a>, the Dutch Development Bank, for their support in hosting and organizing the event, in collaboration with <a class="markup--anchor markup--p-anchor" href="http://www.quona.com/" target="_blank" rel="nofollow noopener noreferrer">Quona Capital</a>. <a class="markup--anchor markup--p-anchor" href="http://www.cgap.org/" target="_blank" rel="nofollow noopener noreferrer">CGAP</a>, sponsor of the 2014 Forum, was again a major supporter, joined by the <a class="markup--anchor markup--p-anchor" href="http://www.newventurefund.org/" target="_blank" rel="nofollow noopener noreferrer">New Venture Fund</a>, <a class="markup--anchor markup--p-anchor" href="http://catalyst-fund.org/" target="_blank" rel="nofollow noopener noreferrer">Catalyst Fund</a>, <a class="markup--anchor markup--p-anchor" href="http://www.citigroup.com/citi/inclusivefinance/" target="_blank" rel="nofollow noopener noreferrer">Citi Inclusive Finance</a>, <a class="markup--anchor markup--p-anchor" href="https://www.rabobank.com/en/home/index.html" target="_blank" rel="nofollow noopener noreferrer">Rabobank</a>, and <a class="markup--anchor markup--p-anchor" href="https://www.triodos.com/en/about-triodos-bank/" target="_blank" rel="nofollow noopener noreferrer">Triodos</a>.</p>
<p id="3c36" class="graf graf--p graf-after--p">The participating entrepreneurs represented pre-seed, seed, and growth-stage startups that cover a variety of financial inclusion themes and models, from credit building and rehabilitation services to agricultural input financing.</p>
<p id="9c49" class="graf graf--p graf-after--p">The Venture Lab team ran a pre-event survey to identify the most pressing challenges and issues to discuss. We then sorted the most commonly mentioned issues into three broad categories: Delivering value to customers, leading a growing team, and fundraising.</p>


[caption id="attachment_7834" align="aligncenter" width="613"]<img class="size-full wp-image-7834" src="http://blogs.accion.org/wp-content/uploads/2017/07/vlabquery.png" alt="CEO Survey" width="613" height="451" /> Responses from our CEO survey asking about their key challenges[/caption]
<p id="2919" class="graf graf--p graf-after--figure">Below are a few key takeaways from the discussions that took place at the Forum:</p>
<p id="7127" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">Delivering value to customers</em></strong></p>
<p id="2cd4" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Innovating from 0 to 2.0 and beyond</strong></p>
<p id="fbbf" class="graf graf--p graf-after--p">The power of startups lies in their ability to identify a consumer problem and come up with an innovative solution. CEOs discussed key questions around product and service innovation such as: How do you look at existing products and think about how to make them even better? What does your customer discovery process look like? How do you design and test a new innovation? Here are some of the insights shared:</p>

<ul class="postList">
 	<li id="cbf0" class="graf graf--li graf-after--p">A product should solve a real problem for customers. Therefore it’s key to have a human-centered design approach that places our target customers at the center of the design, innovation, and implementation processes.</li>
 	<li id="7f08" class="graf graf--li graf-after--li">User experience is not just about an app or a website itself, it’s the whole way a customer experiences the service or product, from point of purchase to using, renewing, and possibly even leaving.</li>
 	<li id="4b90" class="graf graf--li graf-after--li">Strong leadership and CEO-Board alignment are critical to creating a culture of design and innovation throughout the organization; design can’t sit alone in any one function or area.</li>
</ul>
<p id="59cd" class="graf graf--p graf-after--li"><strong class="markup--strong markup--p-strong">Winning customers</strong></p>
<p id="3a82" class="graf graf--p graf-after--p">The CEOs exchanged insights and tips on identifying, understanding, and engaging with target customers. Some of the key takeaways that we gathered were:</p>

<ul class="postList">
 	<li id="571d" class="graf graf--li graf-after--p">Startups targeting individual customers need a strong value proposition for target customers’ specific needs and should focus on niches that allow for low-cost acquisition strategies. Marketing partnerships with strategic partners (such as telecom businesses for mobile phone-based services) can enable scale, low-cost structure, and brand association.</li>
 	<li id="4ec1" class="graf graf--li graf-after--li">Startups targeting business customers face notoriously long enterprise sale cycles, which can be somewhat inversely related to market size. Companies need to set a clearly defined expectation: Set minimum revenue targets, get a product person to sit with the new customers early on, provide an implementation toolbox, consider a softer sell to set client expectations, ensure and maintain direct communication channels.</li>
</ul>
<p id="9f29" class="graf graf--p graf-after--li"><strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">Leading a growing team</em></strong></p>
<p id="7579" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Leadership</strong></p>
<p id="2ba7" class="graf graf--p graf-after--p">The CEOs discussed ways they can strengthen their leadership skills to maximize the well being of their businesses, and employees. Insights included:</p>

<ul class="postList">
 	<li id="760b" class="graf graf--li graf-after--p">Company culture is a product of how management reacts to challenges. Startups are often very task-oriented and anxious to scale. It’s necessary to step back, reflect on the journey so far, and think about the bigger picture.</li>
 	<li id="4b4f" class="graf graf--li graf-after--li">Startup leaders need to give employees the tools and resources they need to execute their responsibilities. Coach and develop others in order to build trust when delegating tasks.</li>
</ul>
<p id="f046" class="graf graf--p graf-after--li"><strong class="markup--strong markup--p-strong">Managing talent</strong></p>
<p id="f53b" class="graf graf--p graf-after--p">Sourcing and attracting the right people is every CEO’s number one responsibility and number one challenge. Some effective strategies discussed were:</p>

<ul class="postList">
 	<li id="5fb1" class="graf graf--li graf-after--p">Startups need to provide a differentiated mission and employee value proposition (EVP). This helps compensate for offering lower salaries than larger, more established institutions. A strong and compelling EVP is important for employee retention and engagement.</li>
 	<li id="d3ce" class="graf graf--li graf-after--li">When hiring, ensuring cultural fit is first and foremost. Link EVP to customer experience to drive performance and ensure that there’s a clear performance feedback process.</li>
</ul>
<p id="01f3" class="graf graf--p graf-after--li"><strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">Fundraising</em></strong></p>
<p id="26aa" class="graf graf--p graf-after--p">Attracting new investors and raising money is a never-ending process for a startup CEO. In emerging markets, raising money can be difficult as next round equity investors aren’t always easy to identify. CEOs discussed insights on the funding landscape, as well as how to be smart and strategic in the selection of the raise target, timing, and valuation according to their growth stage, and walked away with a couple of key takeaways:</p>

<ul class="postList">
 	<li id="7f35" class="graf graf--li graf-after--p">Attracting new investors and raising money is a never-ending process for a startup CEO. In emerging markets, raising money can be difficult, as next-round equity investors aren’t always easy to identify. CEOs discussed insights on the funding landscape, as well as how to be smart and strategic in the selection of the raise target, timing, and valuation according to their growth stage.</li>
 	<li id="642c" class="graf graf--li graf-after--li">Companies seeking to raise series A capital face a shift in investors’ expectations as they exit the seed stage. Common series A expectations include an emphasis on sustainable scalability, quality of credit, and having the right team in place to execute.</li>
 	<li id="6019" class="graf graf--li graf-after--li">For companies looking to raise a Series B, having the right investor come in is more crucial than ever. Companies need to be clear on their objectives before entering the round. The incoming investor should fit the company and should provide room to actually run the business.</li>
</ul>
<p id="06c1" class="graf graf--p graf-after--li"><strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">What’s next?</em></strong></p>
<p id="445b" class="graf graf--p graf-after--p">At the end of the Forum, we ran another quick survey and discussion on what the future holds for fintech for inclusion. Participants voted that artificial intelligence for data analytics and customer engagement, and open API are the key enabling technologies for driving innovation for inclusion. Participants also underlined that connectivity is fundamental to scaling these innovations.</p>
<p id="da11" class="graf graf--p graf-after--p">We were encouraged to receive feedback from participating CEOs that they found great benefit from being among peers “in the same boat.” One CEO mentioned that he was pleasantly surprised (stunned!) and energized by the sheer wealth of creativity represented at the event.</p>
<p id="d5ca" class="graf graf--p graf-after--p">Following the CEO Forum, we held a <a class="markup--anchor markup--p-anchor" href="https://www.fintechinclusionsummit.com/280037" target="_blank" rel="nofollow noopener noreferrer">Fintech for Inclusion Global Summit</a>, where the CEOs had the opportunity to showcase their companies' innovations to over 200 investors, entrepreneurs, funders, and other field builders in the space. Stay tuned for our recap of this event!</p>

When fintech founders get together

What are the greatest challenges that young businesses face?

Many might consider “getting funding” and “sales and marketing” to be most pressing of all.

However, a new report by Rippleworks confirms what we at <a href="https://www.accion.org/venturelab">Accion Venture Lab</a> regularly encounter as we invest and support early-stage financial inclusion companies across the world: finding and keeping good talent surfaces as the most critical challenge that early-stage companies face, particularly in emerging markets.
<h2>The Human Capital Crisis</h2>
Fittingly, Rippleworks released “<a href="http://www.research.rippleworks.org/">The Human Capital Crisis: How Social Enterprises Can Find The Talent to Scale” </a>during the <a href="https://medium.com/global-entrepreneurship-summit/future-of-fintech-for-financial-inclusion-seven-trends-were-watching-dc59aeae12ac#.4lbqavic4">7<sup>th</sup> annual Global Entrepreneurship Summit (GES)</a> in Silicon Valley. Built upon a global survey and a series of in-depth interviews of over 600 social enterprises and 47 impact investors and entrepreneurs, the report highlights that more than a quarter of early-stage entrepreneurs considered accessing talent to be very or extremely challenging. This does not get any easier as the business grows; almost half of later-stage entrepreneurs indicated similar problems with <a href="http://www.investopedia.com/terms/h/humancapital.asp">human capital</a>. Recognizing the importance of the issue, Venture Lab contributed to the development of the report and shared the insights and experiences from our work with our <a href="https://www.accion.org/content/venture-lab-portfolio">portfolio companies</a>.

Having the right talent is a key determinant for an early-stage company’s success in developing and scaling its business. The challenges around recruiting, developing, and retaining strong talent are extremely salient,  for entrepreneurs and their businesses.  We see this as we sit in board meetings with our portfolio companies and provide strategic advice and operational support for our companies, as well as in our conversations with other startup CEOs in the fintech for inclusion space.

<img class="alignnone size-full wp-image-7140" src="http://blogs.accion.org/wp-content/uploads/2016/07/human-capital-crisis-report-wordcloud-by-IIF-Accion-Venture-Lab.jpg" alt="human capital crisis report wordcloud by IIF Accion Venture Lab" width="831" height="549" />
<h2>Facing challenges</h2>
Early stage startups face a number of particular challenges in acquiring and developing talent:
<ul>
 	<li><strong>Baseline lack of talent in </strong>market<strong>:</strong> There are huge issues of talent availability at all levels in many markets. Moreover, regionally, there is often a concentration of talent in certain industries and cities. In particular, many emerging markets face a lack of experienced C-level and tech talent.</li>
 	<li><strong>Internal organizational limitations:</strong> Early-stage companies often lack a formal HR structure and standard HR processes and guidelines. This means that they don’t always have the resources to provide career advancement opportunities, including training and skill enhancement opportunities.</li>
 	<li><strong>Competing with established, large, brand-name companies:</strong> Difficulty to attract key talent as established companies tend to offer more attractive compensation, better job stability, and higher prestige. A young startup without an established brand can often struggle to attract talent.</li>
</ul>
<h2>Venture Lab Resources</h2>
The importance of these issues drove Venture Lab to provide support that could help our companies navigate these challenges – for example, through direct support such as advising companies on developing their organizational structure and hiring plans, facilitating connections with local recruiters, and posting portfolio companies’ vacancies on our website and newsletter as well as on social media. We also developed a set of <a href="https://www.accion.org/venturelab/resources">open resources</a> that we hope can benefit not only our portfolio companies, but also other seed-stage startups, particularly those in financial inclusion. These resources provide a practical starting point to address some of the challenges the Rippleworks report surfaced.
<h3>Our human capital resources include:</h3>
<ul>
 	<li><a href="https://www.accion.org/sites/default/files/Accion%20Venture%20Lab%20-%20Hiring%20Manager%20Guide.pdf">Hiring Manager Guide</a>: Helps hiring managers through the process of defining a role, creating a job description, screening and interviewing candidates, and conducting reference checks for hires of any level.</li>
 	<li><a href="https://www.accion.org/venturelab/resources/job-description">Job Description Bank</a>: Provides sample job descriptions for 15 key roles at early-stage financial inclusion startups and highlights best practices across the postings.</li>
 	<li><a href="https://www.accion.org/sites/default/files/Accion%20Venture%20Lab%20-%20ESOP%20Best%20Practices.pdf">Startup Employee Stock Options Plans (ESOPs): Overview and Best Practices</a> and <a href="https://www.accion.org/sites/default/files/Accion%20Venture%20Lab%20-%20ESOP%20Model%20Example.xltx">Model</a>: Provides information and examples around employees’ options plans, how much equity to offer, creating terms, long-term strategies, as well as an excel model to calculate ESOP allocation as presented in the best practices document.</li>
</ul>
While we are making a keen effort to help our portfolio companies tackle these human capital challenges, we recognize that the path remains difficult. There is a multitude of high-potential early-stage companies in need of strong talent. In emerging markets where the quality of education is still poor or where the entrepreneurship ecosystem is nascent, the problems are further accentuated.

We greatly commend Rippleworks’s thoughtful initiative in this space, and we were honored to be able to contribute. We will continue to make our resources open to all companies and share the lessons from our portfolio.

For aspiring entrepreneurs and individuals interested in exploring working in the startup space, there’s an abundance of <a href="http://www.fastcompany.com/1824235/8-reasons-choose-startup-over-corporate-job">lists</a> or <a href="https://techcrunch.com/2014/09/20/5-reasons-you-should-work-for-a-startup-at-least-once/">advice</a> on why you should take the plunge. As impact investors who work closely with our entrepreneurs, we can testify to how deeply inspired we have been by the intelligence, drive, and passion of the talent currently working in the space. Check out <a href="https://www.accion.org/venturelab/resources/job-description">open roles in our portfolio companies</a>. We look forward to seeing and working with you in this space.

Human capital and early-stage financial inclusion leaders

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

China’s economic growth rate has recently dropped to the lowest point in 25 years. As a result, the microfinance industry in China has faced unprecedented challenges in institutional growth and management, which many practitioners call the industry’s winter. The slowdown has affected the businesses of microfinance clients. In turn, demand for loans has drastically decreased and client over-indebtedness has skyrocketed.

Indeed, according to the head of China Microcredit Company Association, Mr. Luhao Min, “One-third of China’s microcredit companies (MCC) died in the past couple of years, one-third is struggling on the verge of bankruptcy, and only one-third performs well.”

To boost this weakened industry, Accion created the International Microfinance Management and Leadership Program (<a href="http://www.accion.org/metlife-foundation-and-accion-launch-new-management-training-program-to-provide-more-than-1-million-microfinance-clients-in-china-with-better-services/">MMLP</a>). One of several Accion programs in China, we recently hosted the second MMLP seminar April 7 - 9 in Shanghai, China’s financial hub.

[caption id="attachment_6921" align="alignnone" width="800"]<img class="size-full wp-image-6921" src="http://blogs.accion.org/wp-content/uploads/2016/05/MMLP-China-Accion-participants-in-session-with-facilitator.jpg" alt="MMLP-China-Accion-participants-in-session-with-facilitator" width="800" height="449" /> Chinese facilitator Ms. Wenfang Chen with Human Capital Management Track participants[/caption]

Launched in December 2015 with the support from the <a href="http://www.metlife.org/">MetLife Foundation</a>, the MMLP is a new Accion management and leadership program that fills in a gap in China’s microfinance industry. As the first holistic and systematic microfinance management capacity building initiative in the market, the MMLP aims to develop microfinance senior managers’ capacity to cope with day-to-day business challenges.

[caption id="attachment_6922" align="alignnone" width="665"]<img class="size-full wp-image-6922" src="http://blogs.accion.org/wp-content/uploads/2016/05/MMLP-China-Accion-drawings-by-participants-facilitators.jpg" alt="MMLP-China-Accion-drawings by-participants-facilitators" width="665" height="665" /> MMLP participants use drawings to describe institutional culture.[/caption]

Several participants described the program as a light shining through the darkness, leading them to see a brighter future.  “In my company, there have been internal debates on the strategic direction. We are not confident in ourselves and we are not clear about the future. Accion’s mission really touched us and the cases used in class inspired us,” shared one participant. The sessions provide participants with practical insights and tools, and, in a departure from the traditional Chinese approach to training, are highly interactive, employing a variety of training methods.

The April seminar was the second of three seminars taking place over the course of the nine-month program. This time, we had 31 participants representing 13 top-performing Chinese microfinance institutions (MFIs) located all over China, including An’hui, Beijing, Chongqing, Ningxia and Inner Mongolia.

[caption id="attachment_6924" align="alignnone" width="800"]<img class="size-full wp-image-6924" src="http://blogs.accion.org/wp-content/uploads/2016/05/MMLP-China-Accion-participants-facilitators.jpg" alt="MMLP-China-Accion-participants-facilitators" width="800" height="575" /> Participants and facilitators during the second MMLP seminar.[/caption]

This second seminar marks the midpoint for the MMLP. Our team here at Accion will continue in our work creating and carrying out a program to build the capacity of managers from top-performing MFIs, and strengthen local practitioners’ faith toward the microfinance industry in China as a whole. By stepping into the market at a time when the industry looks dormant, the MMLP is seizing a great opportunity to contribute to efforts to revitalize microfinance in China. The program strives to improve the confidence of those leading MFIs and inspire them to take the lead in addressing key business challenges and create more innovations in the field that will benefit microfinance clients in China for many more seasons to come.

<em>Amy An co-authored this post.</em>

MMLP and the winter of China’s microfinance industry

MetLife Foundation

MMLP

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.

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

The microcredit industry in China today is as diverse as it is large, and yet the country’s 56 million micro, small, and medium-sized enterprises (MSMEs) remain largely under or unserved. These businesses account for approximately 90 percent of all enterprises in China and serve as the engine for the country’s growth. So why aren’t they better served by China’s financial players?

The space is made up of three key categories: microcredit companies (MCCs), which are regulated differently from one province to the next; peer-to-peer (P2P) companies which are currently unregulated; and high-profile internet finance companies associated with tech giants like Baidu, Alibaba, and Tencent.

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[caption id="attachment_6754" align="alignnone" width="650"]<img class="wp-image-6754 size-full" src="http://blogs.accion.org/wp-content/uploads/2016/04/liping_li_amc_2013_10.jpg" alt="Liping Li sells a line of medicinal products made from donkey hide gelatin, helps customers in Songshan district, Chifeng, Inner Mongolia, China May 10, 2013. ( Photograph by Rohanna Mertens )" width="650" height="434" /> Liping Li, a client of Accion Microcredit Company, sells a line of medicinal products.[/caption]

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The number of microcredit companies (MCCs) is now close to 9,000, reaching almost $150 billion in outstanding portfolio. Peer-to-peer lending (P2P) companies, continue to grow in numbers (now estimated close to 2,500) and outreach, despite some relatively high-profile cases of fraud. Internet finance companies, riding the back of a booming e-commerce business, are driving innovation in payments and products for a population increasingly mobile-savvy and active on the internet. Yet demand remains sizable.

Enter Grassland Finance.

A Hong Kong-based holding company, Grassland Finance aims to found or invest in financial service institutions in China that provide loans, credit and other financial services to China’s vast numbers of MSMEs, serving a broad range of clients across the credit spectrum. Today, the company owns three microcredit companies, or MCCs (two are wholly owned, and one is a joint venture, with Grassland holding 80%), and is pursuing a number of other innovative business models to achieve scale and outreach. The first MCC acquired by Grassland was Accion Microcredit Company (AMC), which Accion launched in 2009 as the first foreign-owned MCC in Inner Mongolia and only the second in all of China. Three years after launching AMC, Accion embarked on an expansion strategy with its new partner, Sagamore Investments, by establishing Grassland.
<h2>Regulatory challenges</h2>
The Chinese government recently released draft regulations to govern the online P2P industry, which has historically had extremely low barriers to entry. In contrast, MCCs have always been highly regulated with inherent and systemic barriers to foreign investment, growth, and scale. Key regulatory restrictions include:
<ul>
 	<li><strong>Licensing:</strong> Most MCC investors must obtain a special license from district, city and provincial governments. The licenses themselves have strict geographic limitations (often only giving the operator the ability to serve clients in one or two districts) after which additional licenses must be obtained. Each license requires protracted negotiations before an official approval can be granted, often taking multiple years. Besides operating license, MCCs’ access to the country’s central credit bureau is subject to further review and approval by the central bank, which adds to their operational difficulties.</li>
</ul>
<ul>
 	<li><strong>Capital Requirements:</strong> Most provinces in China require high upfront registered capital for MCCs ranging anywhere from US$3mm to US$32mm. The upfront capital requirement makes it difficult for a start-up MCC to use its capital efficiently, and many struggle with depressed initial returns on equity due to the quantity of idle cash.</li>
</ul>
<ul>
 	<li><strong>Leverage Limitations:</strong> Lending businesses rely on the efficient use of capital, which requires a mixture of debt and equity. Most provinces in China have strict shareholding requirements and leverage limitations, particularly for MCCs with foreign ownership. The most leverage allowed by any province is 2-3 times, which is highly conservative when compared to leverage limits of 5-6 times for similar credit-only institutions in other Asian countries. With these limitations, many MCCs are forced to fund their businesses with increasing amounts of equity. Further, local debt is difficult, if not impossible to obtain.</li>
</ul>
<ul>
 	<li><strong>Local Partners:</strong> Often, provincial governments identify and select a local partner for a foreign investor who wants to establish an MCC. This may be done without any opportunity of mutual due diligence, thus potentially creating issues in expectations for business model, negotiations, and governance.</li>
</ul>
These factors cause the microcredit industry in China to be extremely fragmented with over 8,500 MCCs across the country. Many of those simply lend to suppliers and friends with no ambition or capacity of growing overall portfolio or client numbers. Significant room for even more MCCs remains and hundreds are established every year to serve the underserved or unserved MSMEs, with their need for a wide range of financial services.

[caption id="attachment_6752" align="aligncenter" width="434"]<img class="size-full wp-image-6752" src="http://blogs.accion.org/wp-content/uploads/2016/04/yuhua_wang_amc_2013_2.jpg" alt="Yuhua Wang in her laundry shop called &quot;Self Reliance&quot; in Pingzhuang, Inner Mongolia, China May 9, 2013. ( Photograph by Rohanna Mertens )" width="434" height="650" /> AMC client Yuhua Wang in her laundry shop called "Self Reliance."[/caption]
<h2>Grassland Finance’s strategy</h2>
Grassland’s strategy is to combat some of the inefficiencies inherent to China’s microcredit industry, which make it difficult for players to scale their operations.
<h3>Establishing a shared service platform</h3>
Established as a holding company, Grassland’s structure allows a group of MCCs to unify under one “head office” so each MCC operates essentially as a branch office. A shared service platform has been developed within the structure, where the head office sets up standard operating procedures across three MCC branches and shares senior management for all operations.

This structure allows Grassland to standardize operations and increase operational efficiencies, particularly the credit review process. The head office issues operating procedures and credit policies, conducts credit reviews at the headquarter level for certain SME loans, and provides knowledge sharing more effectively.
<h3>Partnering with trusts</h3>
Grassland’s team has identified a partnership with the China Foreign Economy and Trade Trust Company (“FOTIC”), a trust subsidiary of a Chinese state-owned enterprise that has the ability to act as a channel for credit products. Trust companies in China are unique by international standards as they are primarily engaged in two businesses: 1) providing financing to relatively high-risk borrowers with investor funding, and 2) providing a conduit to banks and other financial institutions that are restricted from investing into certain asset classes. A trust license is the only financial license in China that can invest in a wide range of asset classes including money market, capital markets and unlisted assets such as loans.

By using the FOTIC channel, Grassland is able to circumvent geographic restrictions to reach MSMEs located in any part of China. Grassland remains responsible for sourcing potential clients, reviewing loan applications, and bearing all risks associated with the loans, as they are issued through FOTIC with Grassland’s own capital and will remain on Grassland’s balance sheet, but Grassland only needs to establish representative offices in new cities to expand. Additionally, Grassland can potentially obtain funding from FOTIC in the future once it has developed a proven track record and will be able to act as a loan agent for sourcing and reviewing applications for FOTIC for off-balance sheet lending.

The partnership saves the Grassland team from devoting themselves to the very time-consuming legal work of obtaining MCC licenses while still allowing Grassland to reach more clients. Without the obligation to follow the high registered capital requirements for each MCC entity, Grassland is able to allocate its financial resources elsewhere.

[caption id="attachment_6751" align="alignnone" width="650"]<img class="size-full wp-image-6751" src="http://blogs.accion.org/wp-content/uploads/2016/04/wenjie_li_amc_2013_3.jpg" alt="Wenjie Li, supermarket owner in Chifeng, Inner Mongolia, China May 8, 2013. ( Photograph by Rohanna Mertens )" width="650" height="434" /> Wenjie Li, supermarket owner in Chifeng and AMC client.[/caption]
<h3>Leveraging WeChat and Alipay</h3>
Chinese internet giants Tencent and Alibaba have leveraged their strong internet presence while expanding their businesses into financial services. Grassland incorporates services and applications developed by Tencent and Alibaba’s finance arm, Ant Financial, to increase engagement and improve user experience.

Grassland has adopted Tencent’s instant messenger application, WeChat, as another channel for communicating with existing clients as well as a marketing tool to attract potential clients, as WeChat is reported to have 650 million monthly active users in China. With WeChat, Grassland can connect and engage with potential and existing clients in a more personal way, and existing clients can stay up to date on their loan status and repayment schedule.

Through Alipay, which has over 600 million monthly active users in China, existing clients can choose to make loan repayments through their Alipay accounts, which are linked directly to their bank accounts as.
<h3>Online platform growth</h3>
As internet penetration continues to increase in China, Grassland has established an online portal, <em>Grassland Online!</em>, to solicit loan applications. Meanwhile, the platform allows existing clients to check their loan status and repayment schedule.

[caption id="attachment_6753" align="alignnone" width="650"]<img class="size-full wp-image-6753" src="http://blogs.accion.org/wp-content/uploads/2016/04/xin_wu_guang_amc_2013_15.jpg" alt="Shuhua Chen makes steamed buns and Chinese wraps at her shop in Qianjin village, Pingzhuang county, Inner Mongolia, China May 9, 2013. ( Photograph by Rohanna Mertens )" width="650" height="434" /> AMC client Shuhua Chen makes steamed buns and Chinese wraps at her shop in Qianjin village.[/caption]
<h3>Exploring M&amp;A opportunities</h3>
In most contexts, an active roll up or acquisition strategy would seem appropriate with 8,500 operating MCCs and a fragmented market. Grassland quickly realized, however, that most local players are not seeking scale, majority investment, or any change in management. Due to the small scale of their businesses, they do not lack capital. Given this, Grassland is opportunistically seeking investments in, or acquisitions of, existing and like-minded MCCs. In addition, Grassland is seeking partnerships and investments that would leverage financial technologies to expand outreach more efficiently at a larger scale. Besides operational track record and financial performance, mission alignment is also an important area that Grassland examines while evaluating potential targets, given Grassland’s vision of creating a financially inclusive ecosystem in China that provides MSMEs better access to economic opportunities.
<h2>Looking forward</h2>
The Chinese government’s recent efforts to regulate the rapidly-developing P2P companies will require those players to align themselves with regulated financial institutions to continue operating and working to close the financing gap for MSMEs in China. However, a significant financing need remains, given the economy’s size and diversity. Credit providers like Grassland are still very much needed to assess the credit profiles of “difficult” clients, who are usually underserved or unserved by both traditional banking institutions and the peer-to-peer lending industry, and lend as appropriate.

With the new and innovative channels that Grassland is exploring, we remain confident that Grassland will be able to expand its reach quickly and effectively. We are hopeful for Grassland’s future as a leading provider of credit to MSMEs in China.

Grassland: Filling a gap in China’s microcredit industry

Grassland

Financial Inclusion 2020

Mapping the Invisible Market

Accion’s work in China began in 2009 with Accion Microcredit China. Located in the city of Chifeng, Accion Microcredit China represented the first wholly-owned foreign Micro Credit Company (MCC) in the province of Inner Mongolia, and only the second wholly foreign-owned MCC in the country. Since then, Accion transitioned ownership of AMC to <a href="http://grassfin.com/" target="_blank" rel="noopener">Grassland Finance Ltd.</a>, a Hong Kong holding company incorporated in 2011 with a focus on founding or investing in financial services institutions in China that provide loans and other financial services to China’s vast number of medium, small, and micro enterprises (MSMEs).

Since then, Grassland has grown with a new operation in Wanzhou, Chongqing, and is looking to expand to other high-growth areas in China. Accion is an investor in and operating partner for Grassland.  Co-investors include various Sagamore funds and the German Development Bank (DEG).

In April 2015, Grassland Finance Chairman and CEO Rodrigo Yang discussed the company’s history, impact, and future, as well as some of the trends taking place in China’s financial sector with Accion.
<h4>Q: How did you start working for Grassland, and how did you begin working with Accion?</h4>
<strong>A:</strong> Believe it or not, my introduction to Accion came through cashmere sweaters. My career started in the textile industry. The best white cashmere is from a prefecture near Chifeng. Our largest international buyers were from the UK’s Marks &amp; Spencer, and they wanted to know if the goats used to ultimately make cashmere were being treated humanely. I suggested that they travel to visit the herdsmen and see what’s going on at the farms. The local government wanted to meet the foreign visitors, and at those meetings the government representatives asked me to make some investments in Inner Mongolia – like a microcredit company (MCC).

At the time, I didn’t even know what that was, but I learned that Accion already had an operation [Accion Microcredit China] in Chifeng. I got Victoria White’s [Senior Vice President and Regional Head, Asia Accion Regional Office] phone number in Washington, D.C., and I cold-called her one day. We eventually worked out a plan with the government to partner with Accion rather than start a new MCC and expand the work that you were already doing.
<h4>Q: What are some of the main challenges that you face doing business in China?</h4>
<strong>A:</strong> There are many. The first is China’s size – China is a vast and diverse place. It’s three times the size of the European Union. And there are many differences in culture and government from province to province. It’s not like doing business in Massachusetts and California, where much of the infrastructure and expectations stay the same. We don’t think of China as one country – we even have Chinese nationals travel from one province to another and say that they can’t eat the local food. Things change drastically depending on where you go.

Operationally, our main challenge is human resources. We’re very lucky to have the staff we do, but microfinance and financial inclusion are still relatively new industries in China. Filling management positions can be difficult.

But there are also many opportunities: a minority of the country is doing very well and has been very successful. But the majority of the people are still striving to become a part of the middle class, and like in other countries, they rely on financing and loans to do so. That’s a problem that Grassland can solve.
<h4><strong>Q: Why do your customers come to you? Why don’t they go to some of the larger Chinese banks?</strong></h4>
<strong>A:</strong> China has a large banking system, and many of its banks are owned by the state. These larger banks are very selective about who they lend to – usually state-owned banks only lend to state-owned enterprises. And that makes sense from the bank’s perspective: there’s less risk, and it’s easy and efficient to make those loans. But that dynamic doesn’t really help the smaller, private entrepreneurs – particularly the medium, small, and micro enterprise (MSME) owners who don’t have much credit to begin with or don’t have the connections that they need to get their foot in the door at a larger bank.
<h4>Q: How many MSMEs are there in China? And what’s the demand for credit like there?</h4>
<strong>A:</strong> There are many MSMEs in China – more than 55 million of them as of 2014. But only 45% of them reported receiving a loan in 2014 – that’s a tremendous gap.
<h4>Q: That sounds like a very large market – are there other MCCs looking to make loans to MSMEs?</h4>
<strong>A:</strong> It is a large market, and certainly there are other MCCs doing business in China. In fact, the number of MCCshas boomed over the last four years – with over 2,600 of them in 2010 and more than 8,700 MCCs now.

But if you dig into those figures, you find that many MCCs are what I call ‘relationship MCCs.’ They’re run by former businesspeople who succeed in a given industry and have some of their own money to invest. They apply for an MCC license and make loans to their friends and former industry contacts – and that’s not always a great way to do business. Many MCCs in China are stagnant or in decline because there are so many ‘relationship MCCs’ that made loans based only on who their clients were.
<h4>Q: Does that affect the wider microcredit market? Does it affect the economy?</h4>
<strong>A:</strong> To a certain extent, yes. It’s not good for the industry when an MCC goes bust. It gives everyone a bad name, and it’s for that reason that we welcome more centralized regulation. Currently, every MCC is regulated by the local government – we hope that there will eventually be a ‘federal’ agency regulating MCCs.

The impact on the economy is harder to parse: if a state-owned bank lends to a state-owned enterprise, or if a ‘relationship MCC’ lends to one of their former business partners, it’s not going to necessarily make problems for the economy, but it’s also not going to contribute to real solutions, either. Lending to those businesses doesn’t address fundamental problems – doesn’t help the ‘middle market’ of MSMEs that want credit but can’t get it. Helping <em>those </em>customers obtain credit, expand their businesses, build homes, and ultimately move into the middle class, makes a much bigger impact.
<h4>Q: How does Grassland plan on doing that? What’s your strategy in China?</h4>
<strong>A:</strong> Our strategy is to invest in what we call ‘non-strategic essentials.’ In this case, ‘strategic’ industries refer to the sectors that the state supports and owns – such as petroleum and banking. Here, ‘strategic’ means ‘strategic to the Communist Party of China.’

There are other ‘essential’ sectors that aren’t state-supported or state-owned. These sectors – such as healthcare or agriculture – have fewer restrictions for private or foreign investments. Because there is no ‘China Health, Inc.,’ there are huge problems and needs in that industry – problems and needs that we want to address. <em> </em>
<h4>Q: What else is Grassland pursuing?</h4>
<strong>A:</strong> We’re trying to expand to Guizhou – a very poor province in western China – and Shanghai. We’re also looking at making investments in new P2P lending providers, point of sale lending, and a comprehensive online services provider for supply chain businesses. We’re also exploring mergers and acquisitions as a way to potentially collaborate with other organizations.
<h4>Q: As you said, financial inclusion and microfinance are still nascent industries in China. How is Grassland trying to develop and create innovations in the industry there?</h4>
<strong>A:</strong> There’s so much opportunity for innovation in China. China has the largest smartphone user population on earth. In fact, mobile internet users outnumber desktop internet users. That provides us with a very good tool for outreach. We’re working with WeChat now – that’s a Chinese social network that combines aspects of WhatsApp, Facebook, and Amazon. But it also has banking, so people can access Grassland through WeChat. It’s also a way for us to handle customer service and bring in loan applications; that’s where our customers are, so that’s exactly where we need to be.
<h4>Q: What kind of impact are you hoping Grassland makes over the long-term?</h4>
<strong>A:</strong> One thing that I think Grassland must do is contribute to the creation of the Chinese middle class. Today our customers are people who have just moved to cities from rural areas or are proprietors of MSMEs. Today, they’re not middle class. But we want to support these people, entrepreneurs, and families so that they will obtain middle-class status. That would be a very satisfying contribution to China’s economy, and its long-term stability.

Q&amp;A with Grassland CEO and Chairman Rodrigo Yang