Plenary: Where next for microfinance: a view from The Founders

  • Bernd BALKENHOL, University of Geneva
  • Speakers
  • Essma BEN HAMIDA, Co-Founder of Enda Tamweel, Tunisia
  • Carmen VELASCO, Founder of Promujer, Bolivia
  • Hans Dieter SEIBEL, Professor Emeritus, University of Cologne

    Moderator Bernd BALKENHOL said that the purpose of the plenary session was to share the initial expectations of the founders when they started, what they considered as their greatest achievements - and disappointments - and where they would see the field in a decade or two from now. The current situation of microfinance is encouraging. According to the Findex, 63% of the people in low-income countries now have formal access to financial services. While this is a lot, there is still a huge demand for convenient, affordable financial services.

    First, the moderator presented the panellists. Essma BEN HAMIDA is co-founder of Enda Tamweel in Tunisia, the largest MFI in the MENA region with a number of programmes focused on women and youth. They recently started with digital applications. Carmen VELASCO is founder of Promujer in Bolivia, a replicate of the MFI Promujer Latin America, with a strong focus on including the poorest of the poor. Hans Dieter SEIBEL is Professor Emeritus at the University of Cologne and an expert in informal/semi-informal finance, savings groups and cooperatives from an historical perspective.

    The moderator invited the panellists to look back 20 years, taking into account what has been achieved today and where the field had failed. Ben Hamida stated that regulation was the biggest disappointment and they would have been better off without regulators. According to her, financial inclusion is a dream and dreamers should not be confronted with regulation. After 25 years, they are still fighting regulation. Regulators still don’t allow MFIs to take deposits in Tunisia. Velasco agreed with Ben Hamida on the regulatory barriers and mentioned commercialisation as another disappointment. When it became clear that microfinance could become big and a lot of money could be earned, new investors jumped in. She argued that the social mission of microfinance institutions was used as a justification to make profit. The moderator pointed out that excessive commercialisation could indeed be damaging, but a good measure of financial solidity would help microfinance institutions to continue operating and serve the poor and excluded in the long term.

    Seibel stated that he could not be disappointed, with one major exception. Since 1963 he has been involved first in financial self-help groups, at the bottom of the microfinance system, then microcredit institutions, microfinance institutions as financial intermediaries, agricultural development banks and commercial banks. In all these fields, tremendous progress has been achieved, but there has been one major disappointment: government interference, and this does not refer to regulation, the business of the central bank. Whenever government interferes in any of these fields, from self-help groups to agricultural banks and central banks, terrible things happen, and the clock is turned backwards.

    The moderator raised the question whether microfinance would be possible without microfinance institutions. Velasco replied by stating that it is important to pay attention to those who need microfinance to overcome the exclusion and poverty in which they live. According to her, we should not follow trends, the demand must be leading. Ben Hamida added that as long as there are poor people on the planet, microfinance is necessary. It doesn’t matter how you call it. It is still necessary to have institutions to provide poor people with finance. Technology cannot replace this because people still need the human touch. They need to talk to the bank officer and be able to ask questions. Seibel added that in 1990, at the Boulder Institute, he coined the term microfinance, inspired by Bob Vogel’s course on the importance of savings. Microfinance requires institutions; but coming from Germany, with a long tradition of savings banks and cooperative banks, it was inconceivable to him that institutions could be sustainable and have a wide outreach without offering voluntary deposit services.

    The discussion then turned to financial inclusion. According to Ben Hamida, microfinance is not only about financial inclusion, but also social and political inclusion. Seibel responded that microfinance has been more about financial exclusion: excluding men, the non-poor, small and medium enterprises. The big need in financial inclusion is finance for SMEs and for men, women and families. Ben Hamida agreed that men should also be included in microfinance, also because women want their men to work. Seibel then offered an electronic copy of “Financial Systems Development and Microfinance”, putting microfinance in the context of financial systems.

    The moderator then asked the panellists to name their biggest achievements. Ben Hamida saw that the women in her country were being empowered and that they changed their own lives. These women became more independent from their husbands and fathers because they earned their own money. Velasco agreed that women empowerment is an important achievement. Women started their own businesses, and this changed family dynamics. Seibel considered linkage banking his major contribution as a founder, starting with a pilot in Indonesia in 1988. Only India is providing current data: 9 million self-help groups savings-linked to banks, with a total of 100 million members, and 5 million groups credit-linked, Loans to members amount to USD 15 billion outstanding, comprising. USD 6 billion financed from internal savings and USD 9 million based on bank loans to the groups. There is now a new competition between a world of self-help groups linked to banks and saving groups facilitated by NGOs particularly in Africa, spreading from there. Seibel considers this a silly distinction, due to needs for branding – instead of sharing experience as a joint concern, for instance on the evolving digitisation of linkages.

    Finally, Balkenhol asked the panelists about their predictions for 2030. Seibel responded that the world of microfinance and inclusion is becoming very complex, He gave two examples: In 1963 he discovered the esusu in Nigeria, a financial self-help group dating back to the 16th century when it was carried with the slave trade to the Caribbean. In recent decades, immigrants without access to banks, have taken the esusu, or susu, to North American cities: a new frontier of microfinance based on a six-hundred year history. The second example refers to Bank Rakyat Indonesia established in 1895 as a local microfinance bank, today a national bank with USD 79 billion in assets. The strongest part are its 5400 microbanking units, with USD 19 billion in deposits and nearly the same amount in microloans outstanding. These are two examples of what is likely to be there in 2030. Digital money and digital linkages of self-help or savings groups with banks and MNOs will also be there. Seibel expects that perhaps one of his predictions will come true. When he first developed the linkage banking approach, he predicted three stages, all based on prior savings: first, the banks lend to NGOs, next to SHGs, and finally directly to the members. All this has happened. Direct access has not been monitored; but with digital finance, individual access will be universal in 2030. Will FinTechs replace microfinance?, asked Balkenhol. Seibel’s comment: No, people like institutions – as users or owners.


    A question from the audience was raised if impact investment is a risk or opportunity because impact investment uses the same tools to determine social performance and outcomes. Velasco answered that this is about accountability. She argued that often, a social mission is used as a market label. Investors, donors and civil society should ask for outcomes. When you claim you have a social component, you should be accountable for it. Talking about a complex world, Seibel added that there are no universal best practices, only good practices. For example, when international investors withdrew from Indonesia in the 1990s and the commercial banking sector collapsed, some 2,400 rural banks not only survived but emerged strengthened, because by law they had not been permitted to accept investments from abroad – clearly a good practice.

    Another member of the audience asked what is next for microfinance and what are the growth ambitions of the founders. Ben Hamida answered that technology is a great opportunity to reach those people who MFIs cannot reach. According to her, the future will be a mix of traditional MFIs and FinTechs. She warned about the risk of big FinTechs invading the country. The future of microfinance does not lie in technology only. Velasco added that financial inclusion is not about creating more clients for financial institutions, but about making people fully and sustainably included. Seibel suggested changing our focus. There are vast numbers of people who are owners of their financial institutions: most obviously in self-help groups and cooperatives; but there are also local banks, microfinance institutions and, most notably, the Grameen Bank which are owned by their members as shareholders. Member ownership deserves more attention.

    Another member of the audience wanted to know how to grow faster without making the investors richer, considering that the most inspirational founder of microfinance, Mohammed Yunus, moved away from microfinance which could be a sign of mission drift. Ben Hamida explained that they are an example of an NGO that transformed into a company. She was disappointed that investors did not bring that much money. She stated that she does not believe that investors will fix the problems of microfinance; they will need to find solutions in the country with local banks instead. Velasco answered that investors can also damage your institution when they change the rules of what you do. Exponential growth is dangerous when you provide services to the very poor because then you push creditors to do things they should not do. You will lose sight of empowering people. According to her, staying small and growing in a stable way is the best decision. Seibel added that a big challenge for many people is finding a safe place for their savings: safe from relatives and friends and their daily needs. This requires institutions that mobilise voluntary deposits. With support from donors and investors, the microfinance world has gone in a different direction; that world has to be turned around.

    See also the video recording