European Microfinance Week 2015

PRESENTATIONS

Bart DE BRUYNE introduced the topic of the session by sharing his recent impressions from Rwanda, with branches of banks and MFIs popping up at every corner. So who and where are those without access to finance? The Findex study shows that in the last three years, worldwide access to finance increased from 50 percent to 60 percent of the adult population having bank accounts. Nonetheless, De Bruyne called attention to the 40 percent of the population which remains unserved, bringing us to questions of who they are, what kind of services they need and how they can be reached.

In this context, Henry DOMMEL pointed out that reaching underserved markets is a challenge for everyone, including policy makers, also revealing that the key lies in obtaining good data and analysis. He revealed that, in order to tackle this issue, UNCDF launched a special initiative called Making Access Possible (MAP) in partnership with FinMark Trust and Cenfri. 

He explained that MAP is a global diagnostic and programmatic framework which relies on a holistic approach to financial inclusion; it is a stakeholder process carried out with other donors, ministries and government actors, as well as with the private sector. At the moment, maps have been completed in six different countries, with an expansion plan which will reach 25 countries in the next few years. Dommel explained that the meta-analysis reveals a few cross-cutting issues in the countries analysed. He firstly noted that, whereas societies are under stress due to issues such as epidemics or unequal growth, states do not have the capacity to provide services to their populations, thus creating difficulties to drive financial inclusion. Dommel also brought attention to the ongoing use of informal financial services, which calls for the adaptation of formal services to reflect the benefits of informal ones such as convenience and flexible terms. Finally, the data showed that one quarter of the people in the countries covered is dependent, and that young adults are often heads of household. Financial services to cover this population, such as savings accounts, remain limited. To conclude his presentation, Dommel emphasized that the analysis of data through MAP unlocked financial inclusion, helping the industry understand specific segments and how to generate growth and employment. He admitted that many of those findings were already known, but that MAP went into more detail to confirm and better analyse the needs of the sector as well as the clients.

Francis VAZHEPARAMBIL brought in the context of micro level data by introducing the case of the Standard Microfinance Bank Limited (SMBL), located in the Adamawa state, Nigeria. As a background note, he explained that Adamawa has 3.2 million inhabitants, of which only three percent has access to formal finance. It is also a region which has been hit hard by insurgency, which led to a ten percent increase in financial exclusion in the last two years. Vazheparambil emphasized that, in addition to the region’s distance and unstable political situation, Adamawa suffers from deficit of trust in financial institutions. As such, SMBL had to find soft solutions to overcome these attitude issues, such as the adoption of a village-centred approach. Vazheparambil explained that traditional systems are very active in Adamawa, thus the interaction with tribal chiefs was essential in influencing the population. In addition, the bank extended its programme on financial education, which increased trust and confidence in the financial institution. He also revealed that an important strategy was to offer savings before loans, which goes with the traditional system. 

From the investor’s point of view, Kaspar WANSLEBEN explained that LMDF works in isolated countries, covering markets where financial services are missing. He acknowledged that supporting underdeveloped actors brings about two corresponding assumptions: 1) an inherent risk, where infrastructure and human capacity are lacking; and 2) a high potential. He clarified that growth patterns are much lower in underserved contexts and that, when things go wrong, the response from the system is usually inadequate due to a weak regulatory framework. Accordingly, working in these circumstances requires a long-term perspective and high risk tolerance. Wansleben used three interesting examples: 1) the Atlantic coast of Nicaragua, an unserved niche within a country; 2) the underdeveloped support to micro-entrepreneurs in Uruguay, which is a fairly developed country; and 3) the improper financial services targeting school fees in Kenya, which is a microfinance and technology pinnacle. To conclude his presentation, Wansleben mentioned three underserved areas which deserve the attention of investors: 1) smallholder agriculture; 2) youth financial inclusion; and 3) ecological challenges, such as energy efficiency.

DISCUSSION

The first discussion point, directed to Vazheparambil, revolved around staff retention in a challenging environment such as Adamawa. Vazheparambil acknowledged that it is very difficult to recruit staff. Usually, the hired staff needs to be local due to their familiarity with the region and contact with local communities. He explained that the staff must be trained, which is done in-house and has received support from UNDP. Retention is the next challenge, since SMBL does experience large staff turnover. Through a performance management system, which is reviewed every quarter, the bank tries to link incentive to performance. 

A member of the audience confirmed that trust is a major issue in Nigeria, which makes it difficult to start client relationships through savings accounts. Vazheparambil responded that this approach is closely linked to traditional systems, and that it does help to start client relationships with a community-based approach. Dommel confirmed this approach by emphasizing that the MAP data showed that formal services which mimic, adapt and embed tradition can be very powerful. 

Another discussion point revolved around the process to identify specific investment opportunities. Wansleben explained that LMDF relies on its close cooperation with Luxembourg-based NGO ADA to assess opportunities on the field, a process which requires time and sufficient data. These scope studies reveal how the market works and what segments are available in a specific country or region.

Dommel addressed a question related to the engagement of investors and the public sector within MAP programmes. He emphasized that MAP should be seen as a public good, and that the programmes utilise complementary data from the public sector such as Central Banks and statistical offices. Dommel further clarified that it is the responsibility of the public sector to use the MAP data to create a roadmap in terms of policies. On the donor side, he brought attention to the need for collective efforts in terms of co-financing programmes, but also to use MAP data to strategize and implement. 

The panellists and the audience agreed that smallholder agriculture remains an immensely underserved sector, especially when it comes to specific services such as crop insurance. It was concluded that it is also necessary to change the expectations and terms of investors when it comes to smallholder microfinance, which is still perceived as a high-risk segment. 

The joint conclusions of the moderator and panellists revealed that there is an urgent need for the industry to come together so as to create solid partnerships and coordinate multi-actor interventions, thus promoting complementarity, ownership and holistic approaches. It was also noted that the collection and systematisation of data from the field play a crucial role in empowering and enabling organisations to make robust strategic decisions as well as to design sustainable interventions targeting underserved markets. The e-MFP Rural Outreach and Innovation Action Group can contribute to this development by further deepening access to finance and financial education for small holder farmers.