Paul DILEO, of Grassroots Capital Management, opened the session by thanking e-MFP, the hosts and the audience for the European Microfinance Week 2017. DiLeo explained that this last plenary aimed to shed light on the role of microfinance in a future context of five to ten years and then he proceeded to introduce the panellists. He also addressed each of these panellists with a number of critical questions that fuelled the debate.
Timothy N OGDEN, from the Financial Access Initiative, was asked to provide his insight into what differentiates MFIs from other commercial companies in digital finance. Ogden explained that the way in which MFIs are providing a service is what counts. Commitment to address the specific needs of the poor is crucial to delivering quality services and quality access. Ogden explained that the MFI movement began with the needs of the poor at the centre, whilst the digital finance movement is driven by the need to maximise transactions, extracting value from customers and excluding less profitable ones. Ogden concluded that MFIs run the risk of losing their initial purpose of serving the poor if they only focus on extracting value. While FinTech is providing great contributions to microfinance, it is not a silver bullet.
Renee CHAO-BÉROFF, of PAMIGA, stated that a major shortcoming of MFIs is that they tend to stick to traditional dogmas and past successes. She shared that it is crucial for MFIs to progress to smart financial solutions that are client-centric and impact-led. Chao-Béroff also introduced the ecosystem approach as a way forward, in which MFIs are part of a larger system, seeking partnerships and complementing other market players to ensure impact at the client level.
DiLeo introduced John ALEX, from the Equitas Group, which is a revolutionary MFI in India, having a license as a small finance bank and having gone through a successful IPO. DiLeo asked if the journey of the Equitas Group is an example of where most MFIs are heading to. Alex expressed that this was a welcomed shift, because MFIs can now offer more and better financial services, allowing for greater impact at the client level. He added that MFIs need to find products that match the income levels of different clients, and that clients need to be helped as an ecosystem.
Ogden praised commercial banks that have learned and innovated on how to include the poor at scale, but remained somewhat sceptical of how committed banks would remain to serving this risky market. He agreed with Chao-Béroff that a lot of innovation is required, but that innovation needs subsidies to mitigate risks. Chao-Béroff agreed, and encouraged investors and donors not to be afraid of old problems, because we are in a completely new era. Beyond digital innovation, she added that innovation in mind-set and attitude is just as important for fostering new partnerships and growing the impact-led ecosystem.
DiLeo asked Ogden to explain why subsidies should still be given to microfinance if impact investment is delivering return on investment. Ogden's view is that it is now more crucial than ever that subsidies are used in microfinance, as this ensures that the poorest are included. Microfinance is the best suited delivery channel to reach these people. Ogden concluded that, when the focus is on profit, there are always trade-offs to be made between who to serve or not.
Alex added that Equitas is building its ecosystem without subsidies and is having ROI as well as social impact. Chao-Béroff explained how ecosystem finance does not need to be either-or, but instead can be led by impact investors, donors and private sector as long as it focuses on positive impact for the client. Whilst Ogden agreed to this, he warned of the dangers of moving too quickly to private driven models, as these could potentially cut people out of financial and other services. He stressed that social protection and pro-poor mandates should not be neglected, even if it puts pressure on the profits.
A member of the audience questioned the panellists on the future of savings groups, and why subsidies should continue going into microfinance and not into creating jobs. Alex stated that, in order to create jobs, the tertiary sector must increase, and clients need options to expand. He added that microfinance alone will not create many jobs, and that only 15% of members in microfinance groups graduated to higher-level loans, meaning that commitment and time are necessary. Ogden added that creating jobs is very challenging, and that microfinance is a needed platform because finance is a tool that everybody needs, including the poor.
DiLeo then finalised the session by asking the panel to summarise how they predict the next five years at the European Microfinance Week. Chao-Béroff envisioned that e-MFP will be a group of impact promoters, where microfinance is only a means to reach impact at the client level. She further stated that all different sectors will come together for this purpose. Alex expressed that future conferences will have to focus on socially-integrating finance. Ogden stated that in five years from now probably most of the topics will be the same, as they will be evidence of our shared commitment to diminishing poverty.