Papers Commissioned by the Microcredit Summit Campaign

Welcome to the new home of Microcredit Summit Campaign’s commissioned papers.

The following papers were prepared for the Microcredit Summit Campaign by leaders in the field of microcredit. Select a paper below to read the executive summary, then choose the format in which to read it. These papers are available as “.pdf” files that can be saved and viewed off-line. You will need Adobe Acrobat Reader to view these files. To download Adobe Acrobat Reader for free, click here, then return to this page to download the papers. You may also read the papers directly on your web browser or download the “.doc” format for a Word document of the paper. If you have difficulty accessing these papers, please contact the Microcredit Summit Secretariat by e-mail. The papers are now available in Spanish and French upon request.

Table of Contents

Downloadable PDFs of Commissioned Papers:

How MFIs and their clients can have a Positive Impact on the Environment

The Millennium Development Goals were promulgated by the United Nations for the purpose of eliminating poverty. The Microcredit Summit Campaign is concerned specifically about Goal #1, eradicating extreme hunger and poverty. But the Millennium Development Goals also include Goal #7: Ensure Environmental Sustainability. Our question is, can microfinance, which contributes to achieving Goal #1, harm the natural environment? Or, more positively, can microfinance be a means to achieve both Goal #1 and Goal #7 at the same time? This paper will discuss both sides of the argument, and hopefully convince our audience that microfinance can, and should, contribute to a healthier natural environment for the benefit of the poor.

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Effective MicroInsurance Programs to Reduce Vulnerability

The provision of insurance products to microfinance clients is becoming increasingly common and much has been learnt over the last ten years about how to design products to better meet the needs of clients. This paper sets out to provide an overview of some of those lessons learnt. The provision of any financial service to the poor must start with an understanding of client demand; the authors take this one step further and explain how client demand is tempered with other factors such as regulations, the operational environment and insurance supply. A product development process is outlined providing examples of how an effective product can be developed and implemented within a microfinance organisation. The paper continues to look at some lessons learnt and some common features that are found in effective products. This is conducted both at the generic level for those features that are common across different types of products and then in more detail for each type of product (e.g. life, property, health etc). Whilst the provision of insurance to the poor has mainly been via either mutuals / cooperatives or microfinance organisations using the “partneragent” model; the authors argue that in fact there are a myriad of ways to provide the poor with access. The distribution chain is broken into distributor, administrator and risk carriers so that the reader can consider potential options. The paper concludes by considering some of the issues that the industry faces as it seeks to expand beyond mainly life insurance via microfinance loans and into the provision of insurance to the mass market.

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The Microcredit1 Summit’s Challenge: Working Towards Institutional Financial Self-Sufficiency while Maintaining a Commitment to Serving the Poorest Families2

Institutional Financial Self-Sufficiency (IFS) is necessary for a Microfinance Institution (MFI) in order to obtain the large amount of funds required to reach and benefit truly large numbers of the poor and poorest households. There is no necessary trade-off between serving large numbers of the poorest households and the attainment of IFS by an MFI, as proven by the case studies in this paper. Cost-effective identification of the poor and the poorest women is essential to maximising the effectiveness and efficiency of providing microfinance services to them. If the service is not exclusively for the poor and the poorest, it should be operated separately for them to minimise leakage to the non-poor. The total cost of efficient microcredit to the poor, i.e., the appropriate interest rate, will vary between 35% to 51% of their average loans outstanding, depending on the conditions under which it is provided, and on the quality of the loan portfolio. The poorest women in Asia, Africa and Latin America are proving that they can and will pay the required cost of this opportunity to reduce their poverty and to provide a better future for their children. This is made possible by the impressive returns to their micro-enterprises, averaging normally more then 100%.

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The Impact of Microfinance on Employment: what do we know?

In Africa over 48% of the labour force is engaged in informal activities, in Central and South America 45% and in Asia 33%. They are own account workers or micro-enterprises engaged in a variety of survival activities. It is this clientele operating in the informal economy that use microfinance institutions (MFIs). How has microfinance – after several decades of successful, and often growing operations – changed the living and working conditions of the poor? Have loans and other financial services helped to create jobs? Is microfinance a strategy for job creation? Has it changed the demand for labour in the informal economy? Employment is key to the attainment of the Millennium Development Goals, without access to productive employment and decent work poverty will not be halved by 2015. Logically the question comes up: what can microfinance, the strategy for poverty reduction par excellence, can do to help job creation? After all, microfinance is attractive and in many cases superior to alternative anti-poverty strategies, for several reasons: it has rapid, massive and verifiable effects; it can be measured and evaluated; it can often be scaled up quickly; it can be targeted with precision at the poor and sometimes even the very poor; unlike grant or transfer-based programs in poverty reduction, microfinance recycles financial resources, they do not get lost but stay in the local economy. But above all: microfinance treats the poor as autonomous individuals who are expected and want to take charge of their lives.

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Taking Stock of the Microcredit Summit Campaign

The Microcredit Summit Campaign (‘the Campaign’) has played a lead role in advocating for microfinance as one of the most important strategies to reduce poverty. Campaign data indicate that while the initial ‘100 million’ goal of the Campaign was a mammoth vision, participating microfinance institutions (MFIs) have converted much of its original audacity into quantifiable progress—making it one of the rare instances in history that the international community, led by civil society, set a collective, quantifiable, time-bound goal with global impact and has come close to achieving it on time. Moreover, the Campaign has grown to become a complex and collective social movement that supports a platform for united action now and in the future. While three decades ago what we today call “microfinance” was still a small niche in the international development field, the Campaign has since helped to invigorate capitalism for the poor, providing many people access to financial services where free enterprise and opportunity would otherwise not exist. This is catalyzing a process which, when taken to scale, has the potential to transform the nature of gender and class roles as well as grassroots economies in a period of rapid globalization. The global Campaign deserves ample credit for helping to bring about –or come close to achieving – a ‘tipping point’ for the microfinance field. The Campaign represents a cooperative effort in leadership for the eradication of poverty worldwide through the use of microcredit.

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Small is Beautiful, Big is Necessary; Canada’s Commercial and Cooperative Answers to the Global Challenge of Microfinance Access

In the 1980s, Dr. Salehuddin Ahmed, of the Bangladesh Rural Advancement Committee (BRAC), declared that “small is beautiful” but “big is necessary.” He was referring to the beauty of the smallest of enterprises as an essential means for many of the world’s poor, particularly women, to make a living. At the same time he was challenging those concerned with poverty eradication to think big in terms of the enormous challenge of ensuring “Access for All” those who need microfinance services. “Big is necessary” is also the underlying mantra of the Global Microcredit Summit as its participating members, including Canada, strive to meet the goal1 of reaching 175 million of the world’s poorest families with microcredit by the end of 2015.

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Rural Remote Microfinance and Selfish Genes

Evolutionary biology and remote rural finance are not two disciplines that normally interact. However, selfish genes may provide an interesting metaphor for microfinance institutions particularly member-owned institutions in remote, rural areas. Richard Dawkins has written at length about what he calls the selfish gene. He used this term to explore the notion that certain genes are able to survive over time through seemingly conscious adaptive behavior. Particularly relevant for this discussion are the characteristics of selfish genes that allow them to learn and create stable systems over time that survive. This is especially true of rural areas where it is challenging for microfinance programs to survive in costly, unpredictable environments. Nevertheless, it is essential that solutions are sought in these contexts. The majority of the world, in particular the world’s poor, live in rural areas. In some areas such as Sub-Saharan Africa more than 80% of the population is rural. Microfinance cannot have a significant impact on poverty, nor can it claim to support inclusive financial systems, until it is able to significantly penetrate these areas and populations.

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Reaching the Poorest while Building Financially Self-Sufficient Institutions, and Showing Improvement in the Lives of the Poorest Women and their Families

This paper is about microfinance and its contribution to the eradication of poverty for millions of the world’s poorest people. It also recognises that microfinance is not a panacea and that expectations should not be built up so high that it is bound to fail. Microfinance is reaching and impacting on millions of poor people, predominantly women, but the boundaries of who microfinance can reach, and in what ways, have still to be explored. Many millions more can benefit. It is not the poverty level of potential clients that determines access and impact, but the design of the services provided. Not all people need microfinance, but most groups can benefit. The Millennium Development Goals, arising from the United Nations Millennium Summit, set a critical challenge of halving absolute poverty in the world by 2015.1 Governments and donors around the world responded with plans to work towards the realisation of these goals. Given the success of the microfinance industry in reducing the poverty of millions of people, it is surprising that there has not been a greater focus on microfinance in the Millennium Development strategies developed by donors2 . In this paper I present evidence of the important contribution of microfinance to the eradication of poverty, particularly through the empowerment of poor people to choose when and how to access other development services such as health and education, and reduction in vulnerability. Donors should be investing in poverty-focused microfinance as a key element in their strategies to achieve their Millennium commitments. As the Microcredit Summit campaign passes its half-way point, it moves on from promoting the goal of sustainable microfinance that results in significant positive change in the lives of the poorest women, to reviewing the evidence of its efforts and concluding that these objectives are more than worthy aims – they are being achieved by organisations around the world.

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Post-Disaster and PostConflict Microfinance: Best Practices in Light of Fonkoze’s Experience in Haiti

Haiti is the poorest country in the Western Hemisphere and has seen more than its share of both natural and man-made disasters. 80% of the population lives in abject poverty. In 2005, the UNDP ranked Haiti 153rd out of 177 countries on its Human Development Index.1 The following are some statistics from this report: • Life expectancy at birth is 51.6 years. • Adult literacy is estimated at 52%. • 65% of the population lives below the national poverty line. • 54% has no access to potable water. • 49% of the population is undernourished. • 5.6% of the population is estimated to be infected with HIV/AIDS in a country with 25 doctors per 100,000 people. The country’s economic growth has never been rapid, but since the 1970s the picture has generally gone from bad to worse. After growing at an average annual rate of 2.3 percent in real terms in the ‘70s, real per capita GDP fell an average of 2.4 percent per year in the ‘80s. The decline accelerated through the ‘90s to an average annual rate of 2.6 percent.2 Real GDP did not grow during the period 2000-2003, inflation averaged 17 percent (including increases in the price of basic products), and the fiscal deficit (excluding grants) averaged 3.1 percent of GDP. The absence of publicly-funded social programs and the dramatic contraction of donor

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Microfinance through the Next Decade: Visioning the Who, What, Where, When and How

This paper considers the key change agents and challenges that will shape the microfinance industry through the next ten years. The authors seek to anticipate the impact on the industry of various forces of change and to identify the key challenges facing suppliers of financial services to the poor. The paper encompasses the global microfinance industry, and highlights regional variations.

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Microcredit in Post-Conflict, Conflict, Natural Disaster, and Other Difficult Settings

Hurricane Mitch devastated much of Honduras, as well as other regions of Central America during late 1998. As a professor of social entrepreneurship and organizational behavior, I was scheduled to teach my regular load of MBA-type courses. But shocked by the unfolding havoc Mitch was unreeling as floods engulfed the area, I decided to teach a new elective for students from across the Brigham Young University campus. Called OB 490, “Becoming a Global Change Agent,” it was going to be an action research experience at mobilizing college students, training them how to change the world, organizing teams of practitioners who would help to plan and/or go to Honduras during the summer of 1999 to serve as relief and reconstruction volunteers as well as creators of new communal banks among the poor.

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Measuring Transformation: Assessing and Improving the Impact of Microcredit 2

This African proverb speaks well to impact assessment—it may seem as intractable as trying to embrace the trunk of a baobab tree. Yet the combined efforts of many can let us accomplish a goal that seems impossible for one or two. At the 1999 Microcredit Summit Meeting of Councils in Abidjan, Ivory Coast, we went out on a limb and tried to heed this proverbial wisdom. We urged practitioners, donors, consultants and academics to stay focused on our ultimate goal—substantially reducing or eliminating poverty among our clients. We also issued a call to action, challenging practitioners to take the lead and develop impact assessment and monitoring systems that use internal feedback loops to integrate field knowledge into management decision-making. Using the analogy of a financial audit, we outlined the concept of an impact audit that: • Provides analysis of trends over time and produces results comparable with previous impact data; • Integrates data collection with the regular information system of an institution; • Utilizes internal staff with a limited role for external experts; and • Costs no more than what it costs to track and audit financial information. One year later, we are pleased with significant progress in the industry. The Microcredit Summit Campaign continues to emphasize the issue through the updating of our original paper and by giving the topic priority at regional meetings in Africa, Asia, and Latin America. We also celebrate the publishing of the SEEP-AIMS Draft Impact Assessment Manual funded by USAID2 , the full-scale implementation of the tools in the Philippines and Peru, and the recent training sessions offered in the US and Kenya. We applaud the Ford Foundation for joining this effort with a new three-year grant project to assist practitioners in achieving their impact assessment goals. And we laud the renewal of the SEEP Impact Working Group to promote peer-learning exchanges. Together these efforts demonstrate that, just as one individual can’t embrace a baobab tree, practitioners can’t create these systems alone. Donors, practitioners, academics and consultants each have important roles to play.

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Measuring Transformation: Assessing and Improving the Impact of Microcredit 1

Overview: The question of impact assessment is one that continues to plague microcredit practitioners. Some contend that existing impact assessment studies are meaningless, while others maintain they are absolutely necessary. The authors of this paper advocate for a new paradigm for impact assessment. They outline the key principles for conducting impact audits that include measurement of transformation among clients. They also review a series of practitioner-oriented impact assessment tools and outline future challenges for practitioners, donors, and academics in advancing the usefulness of impact assessment efforts. Summary: The debate about impact assessment begs the question of “measuring impact for what purpose?” The authors support the use of impact measurement tools that incorporate financial measures and indicate transformation—that is, deeply rooted change in the lives of individuals or communities—among clients. This paper acknowledges the problems with measuring impact, including issues of academic rigor, cost, and required expertise. Nevertheless, the authors cite the weaknesses of assuming the marketplace is an adequate proxy for impact data and maintain that practitioners should measure impact in order to determine whether microcredit institutions have met their stated purpose—alleviating poverty.

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Leading Growth in MFIs: Key Attributes and Characteristics

At Unitus, we select high-potential microfinance institutions (MFIs) that we think have the capacity for rapid growth using the Unitus Acceleration Model. We then form a 5-7 year partnership with them to help reach their maximum growth potential. Unitus currently has 10 partner MFIs in 4 countries: India, Kenya, Mexico, and Argentina. Our partners were reaching 233,000 clients when they partnered with Unitus and are now reaching over 750,000 clients, representing 95% annualized growth. In 2005 alone, Unitus partners as a group grew at eight times the industry average in terms of client numbers. In addition to client growth, our partners are growing their assets at 118% per year. Potential partners are put through a stringent selection process to ensure that selected MFI partners can grow at such an accelerated rate. In developing this selection process, we used our experience to identify several criteria for selecting MFI partners. We have found “visionary leadership” to be one of the most important of these criteria. We describe this as leadership with a vision for growth and poverty alleviation, in which the management is skilled, committed and capable of overseeing growth. Over the past 5 years the Unitus team has learned a great deal about how to find “visionary leadership”, through identifying the characteristics, attributes and skills that are necessary to lead an MFI to sustainable growth. We want to share what we have learned to improve understanding of the vital role of leadership for growth as well Copyright 2006 Unitus, Inc. NonCommercial-Sharealike 2.5 4 as to provide a framework for assessing leaders and making necessary changes to leadership.

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INNOVATIONS IN MICROENTERPRISE DEVELOPMENT IN THE UNITED STATES

In the United States, the microenterprise development field and its trade association, The Association of Enterprise Opportunity (AEO), have defined a microenterprise as a business with five or fewer employees. Many of these businesses have no employees other than the self-employed owners. Additionally, such microenterprises generally need less than $35,000 in loan capital and do not have access to the conventional commercial banking sector. Most organizations in the field also focus their services on those microentrepreneurs who, as defined by federal government standards, are low-to-moderate income. By definition, most of these entrepreneurs are minorities, recent immigrants, women, disabled or for other reasons have special challenges that reduce their ability to access traditional credit and other services.

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How RESULTS Activists Collaborated With Microcredit Leaders and High Government Officials to Build the Microfinance Movement

A small grassroots citizens’ lobbying organization, appropriately named RESULTS, has been changing the direction of the political winds for over 25 years. In the microfinance movement, it is not an exaggeration to say that the role played by RESULTS has been crucial. Since 1985, this extraordinary organization has played a major role in every stage of development of the field. Its lobbying has brought over $2 billion in U.S. foreign aid into the field. In collaboration with its allies in the Anti-Poverty Coalition, RESULTS held a Microcredit Summit that launched the microfinance movement which now includes over 1,000 organizations and over 100 million borrowers. Its recent legislation has created the requirement that cost-effective poverty measurement tools be developed to ensure that the millions of very poor people are reached and brought out of poverty.

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How Donor Funds Could Better Reach and Support Grassroots Microcredit Programs Working Towards the Microcredit Summit’s Goal and Core Themes

In order to fulfill the Microcredit Summit’s goal of reaching 100 million of the world’s poorest families with microcredit by the year 2005, we must ensure not only that more resources are dedicated to promoting microcredit but also that resources are provided to the institutions in cost-effective ways. Donor agencies generally provide funds as grants or low-interest loans to microcredit programs, often with government involved as a guarantor. The administrative cost of providing these funds is often unacceptably high, and the amount that reaches the poor as loans is probably quite low. Donors should increase the percentage of funds used for microcredit that reaches the poorest to 70%. Several limitations exist in current methods of fund distribution by donor agencies. One significant limitation is an over-reliance on consultants, many of whom do not have the skills necessary to successfully advise and assist microcredit donors and practitioners. In order to strengthen their capacity to reach the poorest, donor agencies should declare what percentage of funds going to the microfinance sector will be committed to loans to the poorest and require each local office to produce annual reports on its contribution to achieving its country goal. A clear policy should be established to ensure that funds go to the poorest. This information should be circulated to CGAP members and to local microcredit/capital programs (MCPs), microcredit funds (MCFs) and NGOs. Moreover, agencies should create a country-level CGAP mechanism and hold at least one meeting each year to review progress and discuss upcoming plans. The Microcredit Summit estimated that US$11.6 billion would be needed as grants and soft loans to reach 100 million families. This additional US$11.6 billion could be mobilized by raising the percentage of ODA going to microcredit for the poorest from what is now up to 5%. Initiatives must be taken to build non-governmental, sustainable, wholesaler MCFs at the local level and channel donor funds to these institutions to initiate and support MCPs. Two examples of effective wholesaler MCFs are PKSF (Palli Karma-Sahayak Foundation), a national-level wholesaler of funds to MCPs in Bangladesh, and Grameen Trust, a funding and technical support provider to MCPs in Asia, Africa, Europe, and the Americas. PKSF and Grameen Trust demonstrate the capacity of in-country wholesaler MCFs to successfully and cost-effectively support microcredit programs. CGAP has a critical role to play as a catalyst in making the changes that I have outlined in this paper. With its stated commitment to reaching the poorest, and as an agency of which all leading donors are constituted, CGAP is uniquely positioned to assist in making these changes.

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How Can MFIs Best Work in Competitive and Saturated Markets?

The Microcredit Summit held in Washington in 1997 came up with the goal of reaching 100 million families with microfinance by the end of 2005. This figure has been attained thanks to the efforts of the entire microfinance community. Over the last few years, several countries have integrated microfinance into an economic and development process that has led to improved access to funding for millions of microentrepreneurs, who are mainly women. Microcredit has facilitated their autonomy, enhanced their integration and improved their status.

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GOVERNANCE: ORGANIZING, DEVELOPING AND EMPOWERING BOARDS TO OVERSEE MFI OPERATIONS

Governance is still a relatively new concept in microfinance and its evolution is characteristic of the challenges that industries face as they develop. Typically, emerging industries go through various stages of governance awareness. At start up, businesses are preoccupied with vision setting, setting up systems, mobilizing resources and developing market entry strategies. At this stage, scant attention is paid to governance. At the next stage organizations are concerned with balancing growth with profitability. As the organization matures and new owners enter the business, then governance issues begin to emerge. In many countries, the microfinance industry has evolved through these stages and has now entered the maturity stage where commercialization, regulation, consumer awareness and competition are creating pressure for more transparency and accountability. Whereas, there is growing awareness about the need for effective governance in microfinance institutions, it has not attracted the same level of concern and scrutiny as other issues that are considered critical to the development of microfinance development (growth capital, outreach, sustainability, impact). Governance is the least discussed, least researched and least funded issue in the microfinance development arena. Funding is available for product development, innovations, commercialization, transformation, regulation, capacity building, but virtually no funding dedicated to the strengthening of governance structures and systems in microfinance. There is virtually no research on the impact of governance on microfinance institutions (The last paper on governance was posted on the microfinance gateway in 2004 while the last authoritative publication on governance in MFIs institutions was in 1997. And yet, poor governance is the greatest risk that threatens the sustainability and viability of the microfinance industry. There is compelling evidence that poor governance is perhaps the major cause of the collapse of many MFIs in Africa. The following examples illustrate some of the common governance problems in MFIs.

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Good Practice in Business Development Services: How Do We Enhance Entrepreneurial Skills in MFI Clients?

After working for 10 years in the microfinance arena, both at the Calmeadow Metrofund and at the Alterna Savings Community Micro Loan Program (both based in Toronto, Ontario, Canada), it is my belief that it takes more than a loan to help a micro-business succeed and reach its goals. I believe a combination of financial credit and operational support is crucial to helping entrepreneurial clients succeed in today’s marketplace, regardless of the location where the micro-entrepreneur is competing. Any entrepreneur has to have a combination of technical, operational and strategic skills. The technical skills come with the commitment, creativity, experience and knowledge they have within their field. The operational skills (including accounting and finance, business planning, quality control, health and safety regulations, marketing and human resource management) can often pose a challenge and necessitate support. Finally, strategic skills can take an entrepreneur from the start-up phase to the next level in business management. Most entrepreneurs believe a lack of ongoing capital is the reason for stagnation within their businesses. While this can be an important factor, a lack of continual operational skills support also plays a strong role in Micro Small Enterprise (MSE) failure, or in MSEs not reaching their growth potential. In the 1990’s operational skill assistance was provided to microentrepreneurs through Business Development Service (BDS) organizations, which operated separately from the sources of financing for MSEs. BDS services were viewed as non-financial and were thought to be less challenging to deliver than financing, which has capital and other requirements. (BDS services include management and vocational skill 4 training, consultancy and advisory services, marketing assistance, access to information, technology development and transfer and business linkage promotion.) According to the article Bundling Microfinance and Business Development Services1 , there is a growing recognition in the microfinance community that to develop successfully low-income people need a wider range of integrated financial and non-financial services. A combination of expanded financial and non-financial services can help an entrepreneur succeed by: building their self-confidence; increasing their income, productivity, and employment; and ultimately facilitating the personal growth of the entrepreneur. Through the provision of more integrated services, microfinance institutions will no doubt benefit from better loan repayment and portfolio quality, client retention and the increased ability of the entrepreneur to access other financial products and services. To achieve these results, microfinance institutions need to ensure that the appropriate support is provided to clients, so they can gain the skills needed to successfully and continually operate their businesses. This support can be in close partnership with Business Development Service Organizations or within the microfinance institution itself. The question is: How do we enhance entrepreneurial skills in microfinance institution clients? This paper will answer the question by identifying best practices in Business Development Services offered in close partnership or integrated within microfinance institutions—both in developing and developed world settings.

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From Microfinance to Macro Change: Integrating Health Education and Microfinance to Empower Women and Reduce Poverty

Development priorities for governments, donors and practitioner agencies worldwide are guided by the Millennium Development Goals (MDGs)—a set of targets for reducing extreme poverty and extending universal rights by 2015. If the MDGs are achieved, it would represent enormous progress toward the United Nations Population Fund’s (UNFPA’s) vision that, worldwide, “every pregnancy is wanted, every birth is safe, every young person is free of HIV/AIDS, and every girl and woman is treated with dignity and respect.” As the Human Development Report 2005 (HDR 2005) warns, however, the promise of the MDGs will not be fulfilled if current trends continue. In fact, UN Secretary General Kofi Annan has said, “The Millennium Development Goals can be met by 2015— but only if all involved break with business as usual and dramatically accelerate and scale up action now.” The time has come for action. This document calls on development agencies, governments, microfinance institutions (MFIs), and donors to help realize the goal of health and equal opportunity for all by investing in strategies with proven impact on the problem of global poverty and poor health. It proposes one specific strategy that acknowledges the intimate relationship between poverty and poor health, and has proven impacts for very large numbers of the poor and very poor1. This proposed strategy is the combination of microfinance and reproductive health education. Dramatic findings are emerging on the macro level that support the importance of microfinance. A 14-year study by the World Bank of three MFIs in Bangladesh finds that 40 percent of the entire reduction of poverty in rural Bangladesh was directly attributable to microfinance2 . Juxtaposed with other countrywide data presented in the HDR 2005, this evidence is even more powerful. The HDR 2005 cites Bangladesh’s successes in human development by comparing it to India, a country with much higher income and economic growth, but lesser progress toward human development goals. It declares that, “Had India matched Bangladesh’s rate of reduction in child mortality over the past decade, 732,000 fewer children would die this year.” The HDR 2005 presents four strategies directly contributing to Bangladesh’s advances, including “expanded opportunities for employment and access to Microcredit.” Despite the impressive impacts of microfinance services on poverty, health, and empowerment, the development community realizes other services and strategies—besides credit—must be made available to create a web of support to help families lift themselves out of poverty. Two organizations in Bolivia, CRECER and Pro Mujer, are already successfully combining microfinance services with reproductive health education, while also reaching large numbers of poor clients and achieving financial self-sufficiency. Summaries of case studies on both institutions appear in the third section of this document. Many believe that microfinance could maximize its potential by integrating other complementary services within the infrastructure of the financial services. While others have taken the integration of microfinance and health education to profound levels within their own institutions, the U.S.- based non-governmental organization Freedom from Hunger has for years been leading the charge globally and, as a result, microfinance programs in many regions have successfully offered basic health information to clients along with financial services. If reproductive health education were to be integrated on a massive scale with microfinance services for the very poor worldwide, then the true potential of microfinance to empower women and offer a dignified route out of poverty could be realized. The final section of this document offers eight concrete recommendations for action to realize the potential of combined services. Inherent in all eight actions is the crucial role that development agencies, governments, MFIs and donors can play in supporting integrated reproductive health education and microfinance services, while also championing microfinance as one of the pillars for meeting the Millennium Development Goals.

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Five Cents a Day: Innovative Programs for Reaching the Destitute with Microcredit, No-interest Loans, and other Instruments: The Experience of Grameen Bank

The rural landless people who are desperately in need of credit generally remain outside the orbit of the banking system. Dr. Muhammad Yunus, Professor of Economics, Chittagong University, launched an action-research program in 1976 with the following objectives: i) to extend the banking facilities to the poor men and women. ii) to eliminate the exploitation of the moneylenders. iii) to create opportunities for self-employment for the vast unutilized and underutilized manpower resource. iv) to bring the disadvantaged people within the folds of some organizational format which they can understand and operate, and can find socio-political and economic strength in it through mutual support. v) to reverse the age-old vicious circle of “low income, low savings, low investment, low income” into an expanding system of “low income, credit, investment, more income, more credit, more investment, more income”.

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FINANCING MICROFINANCE FOR POVERTY REDUCTION

There is no doubt that strong demand exists for microfinance services, among the poor. More than nineteen million of the poorest households around the world now have access. That is encouraging because the number has increased substantially since 1997 when the Microcredit Summit Campaign (MSC) was launched. But it is daunting that there are still 81 million poorest families to be reached before the Campaign target of 100 million is achieved. There is no dearth of microfinance institutions (MFIs), but most of them are small. If only 10%of the 1,580 MFIs that have reported to the MSC and are serving the poorest could be scaled-up to serve an average of 500,000 very poor households each, then the shortfall of 81 million could be overcome. A lot of effort is being put into institutional capacity building for MFIs that have the vision and willingness to provide micro finance services to large numbers of poor households. New effective management tools are being created and disseminated to microfinance institutions. Training is being provided from the Consultative Group to Assist the Poorest (CGAP) training hubs around the world, and by networks of MFIs. Much less thought and effort has been put into sourcing the amounts and the right kinds of capital which will be required to scale up the next generation of microfinance leaders. The issue is not a lack of on lending funds, but the equity with which to leverage them – and financing to meet the inevitable operating deficits that arise with rapid scaling-up. To overcome this major hurdle, a new Financing Paradigm is needed. First, alternatives to traditional equity must be identified. Equity-like financial instruments, or quasi-equity, such as subordinated debt, convertible debt, preferred stock, and Special Drawing Rights (SDRs), likely more acceptable alternatives to traditional equity financing for many funders, may be a large part of the answer. Second, MFIs must adjust their balance sheets to present a truer and fairer picture of their financial health. Marking below-market rate borrowings, or soft loans, to market to capture the implicit subsidy inherent in its lower interest rates, and capitalizing that subsidy as a “grant” on the balance sheet as equity, is an important part of this solution. Finally, the prevailing microfinance standards on capital adequacy, that inflate the amount of equity (already in limited supply) MFIs should hold on their balance sheets, must be challenged. Readers should understand that this is not a call for the kind of “creative” accounting that is getting big business into dificulty these days. Rather it is a proposal for analysis of already audited financial statements, so as to present a truer and fairer 4 picture of the financial health and capital adequacy of MFIs.

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Financing Healthier Lives

This year marks the halfway point since the United Nations Millennium Development Goals (MDGs) were set in 2000 with a 2015 target date. This juncture is the perfect time to take a close look at how much progress has been made towards meeting the goals and how organizations like the United Nations Population Fund (UNFPA) and the Microcredit Summit Campaign (MCS) can make a significant contribution to accomplishing these audacious goals. It is also appropriate to assess which strategies have been most effective in achieving the apparent gains over the last seven years. In July 2008, the Group of Eight (G-8) countries met and took stock of where the world stands with regards to the MDGs. In what was a vote of confidence in the results achieved so far, the countries renewed their endorsement of the goals. They particularly noted that the least progress has been made in improving maternal health (MDG 5), with close to 500,000 women still dying each year due to pregnancy-related causes. All G-8 countries particularly underscored a commitment to improving in this area. Over the past seven years, the MDGs have shaped development priorities for governments, donors and practitioner agencies worldwide. There is no question that if the MDGs are achieved, it would represent enormous progress towards the UNFPA vision that every woman, man and child enjoy a life of health and equal opportunity. It would also reflect the enormous contribution of MCS and its members to the economic and social empowerment of women, especially those living in extreme poverty. The Millennium Development Goals Report published in 2007 cautions, however, that although significant gains have been made, much remains to be done. If current trends continue, there is a chance that the goals will not be fulfilled. There is an urgent need for all institutions involved to break with “business as usual” and devise strategies to scale up efforts to meet the targets. This document is an update of an earlier edition published in 2006 and primarily focuses attention on the strategy of integrating microfinance services with health education.1 Highlighted within are MCS and UNFPA’s joint global efforts to empower women using this strategy, employing methodology developed by and receiving training in its use by a key partner, Freedom from Hunger. Included is analysis from innovative work in Africa, Asia and Latin America. Of special note are the results from a pilot project in India that shows how local capacity can effectively be built to accelerate the large-scale global adoption of integration. The document also serves as a call to action for development agencies, governments, microfinance institutions (MFIs), and donors to invest in this strategy that holds the promise of making many of the MDG targets truly achievable. The final section offers eight concrete recommendations for action to realize the potential of the “combined services” approach of integrating microfinance services with health education. All eight actions rely on the development agencies, governments, MFIs and donors to promote integrated health education and microfinance while championing microfinance as one of the pillars for meeting the MDGs.

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Factors That Contribute to Exponential Growth: Case Studies for Massive Outreach to the Poor and Poorest

The argument for accelerated growth in microfinance is based on the persistence of mass poverty and the fact that microfinance has proven to be one of the few antipoverty approaches that is both effective and scalable. However, barriers to microfinance outreach remain and must be overcome if optimal levels are to be attained. Rapid growth (in terms of client outreach) should be pursued aggressively and with a sense of urgency wherever growth-ready microfinance institutions (MFIs) are operating in a reasonably enabling environment. Backing aggressive expansion plans of well-prepared MFIs will impacts those clients that are targeted who are reached and will also have a significant impact by demonstrating the growth potential of the overall sector while spurring innovation. Exponential growth can also enable MFIs to realize economies of scale, allowing for the lowering of interest rates.

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Evidence of Microfinance’s Contribution to Achieving the Millennium Development Goals

Modern microfinance has roots in the cooperative movement dating from the nineteenth century, in the rural finance experience post-World War II and in the microenterprise development sector starting in the 1970s. These diverse roots intertwine with at least five common objectives: a. microenterprise development: by providing financial inputs and services to informal-sector entrepreneurs building their tiny businesses to the point of employing not just family members but others as well. b. innovation/investment promotion: by offering credit as both incentive and enabler; for example, to small-scale farmers to adopt new inputs, practices and technologies to increase productivity of labor and land leading to more food production and/or farm income—or more broadly in the population, to promote behavior change for better health and nutrition. c. Consumption-smoothing: by providing poor families with relatively inexpensive credit and convenient savings services that effectively help the family have enough cash through the year to reduce the impact of the annual hungry season; major expenses, such as school fees or weddings; and/or the devastation of major economic shocks due to family illness, death of a breadwinner, loss of livestock or a crop, or a natural disaster. d. women’s empowerment, and more generally, building of social capital, to support self-help efforts at the family and community levels and to 2 strengthen the voice of women and other marginalized groups as rights holders and agents of local development. e. financial systems development, or financial sector deepening, both of which seek to lower the cost and increase the convenience of financial services so that the “unbanked”—even the very poor—can be reached by commercially viable enterprises.

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Entry of MFIs into the Remittance Market: Opportunities and Challenges

In 2005, migrant worker remittances – the portion of migrants’ earnings returned to their country of origin – totaled approximately US$232 billion globally – three times official development aide of US$78.6 billion dollars. In fact, formal remittances constitute the second largest source of external funding for developing countries behind Foreign Direct Investment. The $46 billion in remittances sent to Latin America and the Caribbean last year by 30 million migrants was nearly equal to all foreign investment in private companies! Moreover, migration and remittance experts argue that unofficial transfers could be almost as large as, if not larger than, the formal flows.3 The importance of the flow of remittances for developing countries cannot be underestimated. Remittances account for more than 10 percent of the gross domestic products (GDP) of 15 developing countries studied by the International Monetary Fund (IMF). This is true for some islands in the Caribbean and Pacific and for several labor-exporting countries such as Albania, El Salvador, Jordan, and the Philippines. Remittances account for over 29 percent of Nicaragua’s GDP.4 In Jamaica, remittances generate more revenues than foreign trade. In Haiti, in every year since 1996, remittances have been consistently greater than the total amount of revenue generated 3 Manuel Orozco, “Sending Money Home: Can Remittances Reduce Poverty?” id21 insights, #60, January 2006, p. 1. 4 Michelle Wucker, “Remittances: the Perpetual Migration Machine,” World Policy Journal, Summer 2004, p. 37. 4 by merchandise exports each year. In 2003, they represented more than 233% of merchandise exports.

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Empowering Women through Microfinance

According to the State of the Microcredit Summit Campaign 2001 Report, 14.2 million of the world’s poorest1 women now have access to financial services through specialized microfinance institutions (MFIs), banks, NGOs, and other nonbank financial institutions. These women account for nearly 74 percent of the 19.3 million of the world’s poorest people now being served by microfinance institutions. Most of these women have access to credit to invest in businesses that they own and operate themselves. The vast majority of them have excellent repayment records, in spite of the daily hardships they face. Contrary to conventional wisdom, they have shown that it is a very good idea to lend to the poor and to women. So, given these impressive statistics, can we pat ourselves on the back for our service to poor women and assume that women’s empowerment and other gender issues will take care of themselves? Although women’s access to financial services has increased substantially in the past 10 years, their ability to benefit from this access is often still limited by the disadvantages they experience because of their gender. Some MFIs are providing a decreasing percentage of loans to women, even as these institutions grow and offer new loan products. Others have found that on average women’s loan sizes are smaller than those of men, even when they are in the same credit program, the same community, and the same lending group. Some differences in loan sizes may be a result of women’s greater poverty or the limited capacity of women’s businesses to absorb capital. But they can also indicate broader social discrimination against women which limits the opportunities open to them, raising the question of whether microenterprise development programs should do more to address these issues. And looking at the leadership of many MFIs, we see very few women. Their contributions—whether setting the vision on a board of directors, designing products and services, or implementing programs—are missing. Thus, as the industry becomes more sophisticated in developing targeted products and services, it makes sense to look at both targeting women and empowering women. Microfinance programs have the potential to transform power relations and empower the poor—both men and women. In well-run microfinance programs, there is a relationship of respect between the provider and the client that is inherently empowering. This is true regardless of the methodology or approach (whether the institution takes a minimalist approach of delivering financial services only or a more holistic or integrated approach). As a consequence, microfinance has become a central component of many donor agencies’ and national governments’ gender, poverty alleviation, and community

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De las Microfinanzas al Macrocambio: Integrando la Educación en Salud con las Microfinanzas para Empoderar a la Mujer y Reducir la Pobreza

Este documento es un llamado a la acción para las agencias de desarrollo, gobiernos, IMF y donantes comprometidos a encontrar estrategias prácticas para cumplir la visión compartida del desarrollo humano. Con base en la columna vertebral de un mecanismo de alivio de pobreza que ya está sirviendo a más de 66.6 millones de las familias más pobres del mundo, la estrategia propuesta pide que se combinen la educación en salud reproductiva y los servicios microfinancieros en los países en desarrollo. La primera sección del documento reconoce y revisa el estrecho vínculo entre la pobreza, las consecuencias de la mala salud y la desigualdad. La siguiente sección presenta las microfinanzas como una estrategia efectiva para reducir la pobreza y revisa la evidencia de su impacto en la pobreza, así como otros impactos más amplios. La tercera sección propone a las microfinanzas como un vehículo para mejorar las consecuencias de la salud reproductiva, la prevención del VIH y el empoderamiento de la mujer mediante la combinación de la educación en salud con los programas de microfinanzas. Se presentan resúmenes de estudios de caso en Bolivia, donde ya se está empleando esta estrategia junto con evidencia del impacto de combinar los servicios de microfinanzas y educación en salud. Finalmente, se ofrecen recomendaciones de acción para las agencias de desarrollo, gobiernos, IMF y donantes para promover y expandir esta estrategia esencial.

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Corporate/MFI Partnerships that are Profitable for the Corporation, the MFI, and the Clients

The causes of global poverty can be broadly linked to barriers to access for health, education, employment, information, housing, human rights, clean and safe environment, and ecological stability, among others. Faced with the struggle about which issues to tackle, development agencies often take a “siloed” approach to providing aid and development resources. Too often these “siloed” approaches, whether among separate organizations or even within the same organization, do not effectively leverage operational cost structures to maximize impact, streamline processes, and reduce wasteful investment. Competing aid agencies have even been known to “carve up” the developing world which results in organizations with good intent, working against each other to the detriment of those in need. These approaches to development have created serious inefficiencies in the delivery of development services and limited success in alleviating poverty. In recent decades, private sector strategies to alleviating poverty have emerged to tackle issues of inefficiency and a need for truly sustainable solutions while providing market opportunities for business. These strategies include microcredit/microfinance, multi-national corporations targeting emerging markets, and social entrepreneurs utilizing practices to create replicable and scalable models. Many of the private sector strategies to poverty alleviation have generated great hope and, in many circumstances, measurable improvement in the alleviation of poverty. As a result, many partnerships between corporations and microfinance institutions have been developed to leverage these successes. The purpose of this paper is to present examples of how microfinance institutions, corporations, and private sector strategies can be applied to overcome the challenges of poverty alleviation. Examples from 3 corporate/MFI relationships will be provided as well as an in-depth analysis of how microfranchising, as a solution to poverty alleviation, can work and should work in concert with existing service and product platforms. These platforms include: microfinance institutions, consumer products providers, information services providers, among others. Examples will be drawn primarily from the experiences of Scojo Foundation, a leading social enterprise which utilizes a microfranchise approach to product and service distribution.

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COMPOUNDING COMMUNITY CAPITAL: Canada’s Credit Unions and the Untapped Assets of Poor Communities

This paper is about poverty, and the role Canadian credit unionists have played, and can play in helping poor people the world over to overcome it. At the heart of the Canadian credit union experience are two fundamental insights that are vital to the great task ahead of us: 1. Every village on the planet, no matter how poor or remote, has the basic financial and human resources it needs to build its own financial institution, and 2. Especially if it is poor and/or remote, it must have its own financial institution if it hopes to have adequate and uninterrupted access to financial services in the future. To accomplish any great task – and it is hard to think of a greater one than lifting 500 million people out of poverty – we must all try to learn from one another and embrace a long historical view that allows all to learn from the strengths and weaknesses of each other’s approaches. For this reason the paper will start by citing someone not generally associated with the credit union movement – Robert Peck Christen. Christen encourages us all to take the long view on the great task, citing practices of microfinance that go back 500 years in London. The long view can help us to make sense of our accomplishments and our challenges, and put the past 30 years in a clearer light. While Christen is a prominent microfinance specialist, he is particularly a friend of credit unions, and as he himself has attested, “[T] he only significant banking relationship I have is with my credit union.” (Christen, p. 154) This makes his observations about

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Community Investing in Canada

Community investing is a strategy to address unemployment, environmental degradation, economic restructuring, poverty and social exclusion. It is a way of generating resources and opportunities for people and communities who are underserved by mainstream financial institutions. This paper strives to describe the community investing sector in Canada. It will; 1. Explain the terminology used in Canada and the link between microlending and community investing in Canada 2. Describe the community investing sector in Canada 3. Describe innovations in the Canadian sector

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A Billion to Gain? A study on global financial institutions and microfinance

International banks have become engaged in microfinance and are not about to leave the stage. To date, international banks are modest players and only serve a few percent of the low-income and poor clients. However, they have become involved increasingly, particularly since 2005. International banks tend to provide their services in cooperation with microfinance institutions (MFIs) or through subsidiaries of their local commercial banks.

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“Just the Facts, Ma’am”: Gender Stories from Unexpected Sources with Morals for Microfinance

An American television detective of several decades ago was famous for reminding witnesses, “just the facts, ma’am.” The Microcredit Summit Campaign originally requested a paper called “How Microfinance Contributes to Gender Equality.” It’s a nice invitation to re-visit some of the 50-odd pages of reporting on empowering women through microfinance that the Campaign originally commissioned in 2002—but then again, you can read that paper in the book Pathways Out of Poverty or on the Microfinance Gateway. For this paper, we wanted to do something a little different—frankly hoping to attract readers beyond the women’s empowerment loyalists. The microfinance industry broke new ground by recognizing women as a market to be served and as a force in the development of their own communities. Yet questions remain. How well do we “see” this previously invisible market? Do we believe that it’s truly worth serving and that it can be a profitable market? And do we know the market as well as we should in order to serve it well? We decided to look for answers in a series of case studies that can be skimmed for lessons learned and that largely can each be read on its own.

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Downloadable PDFs of Uploaded Resources:

The Way Forward

The Health and Microfinance Alliance constituted by the Microcredit Summit Campaign and Freedom from Hunger has been making efforts in India to create an enabling environment towards integrating microfinance and health programme through financial service providers such as MFI and SHG-serving NGOs. MFIs and SHGs reach more than 90 million clients in India, many of whom are poor women. The rationale for integration of financial and health products and services, suitability of technology and know-how and challenges of up-scaling or replication on a larger scale based on the lessons of experiments undertaken were ably analysed in the first state of the field report published in 2012. The authors of this report have now prepared a second report to further inform and advocate for broader recognition by stakeholders and policy makers on the opportunity for improving access to health services using the very large channel that MFIs and SHGs offer to also reach poor families with simple but important health and nutrition interventions in a cost-effective manner. The current volume presents an unbiased picture of the evolution of the microfinance sector in India (MFIs and SHGs), its growth and challenges, as well as the ongoing challenges that face our nation in providing equitable access to all Indians to quality health services. The justification for a closer look and development of microfinance as a platform for health education and healthcare access has been presented with appropriate evidence along with an agenda for how to further develop this opportunity. The Government of India as a major provider of health and livelihood development services, the Reserve Bank of India, NABARD and other policymaking and regulatory institutions will find this volume useful and interesting as they continue to consider and re-define priorities and design programmes directed at poverty alleviation, sustainable income generation and universal health care. At the same time, the health sector may find much in here to consider with respect to the potential for expanding their capacity to reach the most underserved families. Finally, the financial services sector will find the case studies and lessons learned here by others to be exceptionally useful for consideration of how to strengthen their role in financial inclusion, increased productivity and more effective asset formation by poor clients for a winwin situation for them as well as their clients. The distinguished authors of this study deserve kudos for bringing out this publication. I am hopeful that this volume will be the harbinger of more such research in future.

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The Savings Groups Revolution Financial Inclusion without Financial Institutions

What if it were possible to achieve financial inclusion without financial institutions? This paper explores how small groups save and make loans to each other without the involvement of microfinance institutions, banks or credit unions. Thus the title: “Financial Inclusion without Financial Institutions.” The surprising finding is that while 190 million clients receive financial services directly through financial institutions, between the Self-Help Groups of India and the Savings Groups of Africa, more than 100 million villagers access financial services through groups trained by local NGOs involved in fields as diverse as health, agriculture and literacy— not finance. And since the NGO’s task is to train groups until they can operate independently, the difficulties encountered by MFIs in terms of managing and securing funds, operating according to regulation, controlling fraud and recovering loans, become irrelevant as each group administers its own fund. The second part of this paper shows how Savings Groups can serve as platforms to transform village economies at minimum cost through their empowered members taking the lead in development initiatives. In Africa, as in most of the developing world, microfinance reaches few of the hundreds of millions who live in villages, except for densely populated Bangladesh, India and Indonesia. Yet, in just six years, Saving for Change (SfC) in Mali is serving 388,000 women living in more than 4,500 villages, nearly half of the villages in the entire country. This program is witness that financial inclusion at national scale is possible even under the difficult conditions of rural Mali. SfC members in Mali are illiterate, most live on less than a dollar per day, and many walk more than an hour to reach a paved road or a market.

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Resilience in a Turbulent World

Each issue of Innovations consists of four sections: 1. Lead essay. An authoritative figure addresses an issue relating to innovation, emphasizing interactions between technology and governance in a global context. 2. Cases authored by innovators.Case narratives of innovations are authored either by, or in collaboration with, the innovators themselves. Each includes discussion of motivations, challenges, strategies, outcomes, and unintended consequences. Following each case narrative, we present commentary by an academic discussant. The discussant highlights the aspects of the innovation that are analytically most interesting, have the most significant implications for policy, and/or best illustrate reciprocal relationships between technology and governance. 3. Analysis. Accessible, policy-relevant research articles emphasize links between practice and policy—alternately, micro and macro scales of analysis. The development of meaningful indicators of the impact of innovations is an area of editorial emphasis. 4. Perspectives on policy. Analyses of innovations by large scale public actors—national governments and transnational organizations—address both success and failure of policy, informed by both empirical evidence and the experience of policy innovators. The development of improved modes of governance to facilitate and support innovations is an area of editorial focus

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Questions fréquemment posées

Non, RESULTS Educational Fund, l’organisation mère de la Campagne du Sommet du Microcrédit continuera le travail de la Campagne. RESULTS se concentre sur l’autonomisation économique comme l’un des piliers clé pour mettre fin à la pauvreté et élargira son accent sur les principaux services financiers. RESULTS réévaluera la façon dont cet ordre du jour est effectuée et identifier d’autres départements au sein de RESULTS pour prendre la direction sur les différents flux de travail. Lorsque nous faisons cela, nous rechercherons de nouvelles sources de financement et un modèle d’affaires qui peuvent soutenir et faire croître ce travail. En plus, Larry Reed sera un conseiller principal dans RESULTS. Il poursuivra la recherche et l’écriture sur des sujets tels que des services financières, en tant qu’outil au service de la lutte contre la pauvreté extrême. Le Conseil de direction continuera à explorer ces sujets aussi.

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Preguntas Frecuentes

RESULTS Educational Fund, la organización matriz de la Campaña de la Cumbre del Microcrédito, continuará con el trabajo de la Campaña. RESULTS ya se enfoca actualmente en el empoderamiento económico como uno de los pilares claves para acabar con la pobreza y ampliará sus actividades a los servicios financieros que pueden desempeñar un papel clave. RESULTS estará reevaluando cómo se llevará a cabo dicha agenda e identificará otros departamentos en la organización para tomar la iniciativa en las áreas de trabajo de la Campaña. Mientras tanto, la Campaña estará buscando nuevas fuentes de financiación y un modelo de negocio que pueda sostener y hacer crecer este trabajo. Adicionalmente, Larry Reed servirá como asesor a RESULTS Educational Fund, investigando y escribiendo sobre temas relacionados con servicios financieros como una herramienta para erradicar la pobreza.

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Number of Microcredit Clients Crossing the US $1.25 a day Threshold during 1990-2008 Estimates from a nationwide survey in Bangladesh

The main purpose of this study was to estimate the net number of microcredit client households in Bangladesh that crossed the US$1.25 a day threshold between 1990 and 2008.1 It is important to note that the findings in this report were significantly influenced by the period in which the data was collected. In 1998 Bangladesh suffered from what are often described as the most severe floods ever to hit the country. In 2008, a food crisis coupled with political instability in Bangladesh and the global economic crisis led to a general slack in economic activities. All these factors may have led to the depletion of assets that are commonly chosen as proxies to measure poverty status among the very poor in Bangladesh. This in turn may have led to under-estimation of the number of microcredit client households that may have otherwise crossed the threshold.

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Number of Microcredit Clients Crossing the US $1.25 a day Threshold during 1990-2008 Estimates from a nationwide survey in Bangladesh

The main purpose of this study was to estimate the net number of microcredit client households in Bangladesh that crossed the US$1.25 a day threshold between 1990 and 2008.1 It is important to note that the findings in this report were significantly influenced by the period in which the data was collected. In 1998 Bangladesh suffered from what are often described as the most severe floods ever to hit the country. In 2008, a food crisis coupled with political instability in Bangladesh and the global economic crisis led to a general slack in economic activities. All these factors may have led to the depletion of assets that are commonly chosen as proxies to measure poverty status among the very poor in Bangladesh. This in turn may have led to under-estimation of the number of microcredit client households that may have otherwise crossed the threshold.

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Harnessing the Strengths of Two Sectors to Improve Health and Alleviate Poverty in the Andes

Over the last few decades, microfinance has been considered one of the most important strategies in alleviating poverty and addressing food-security issues. For years, microfinance providers have recognized that poverty and poor health are so intimately connected that it is virtually impossible to distinguish between the causes of one and the effects of the other. Many microfinance leaders and field agents report that health problems are often given as the reason clients fail to repay loans or build and sustain successful income-generating activities. In recent years, we have begun to see how the microfinance sector is increasingly becoming recognized as an effective platform for providing vital health education, products and services. In the Andean countries of Bolivia, Ecuador and Peru, as well as in India and the Philippines, new learning communities of integrated microfinance and health are emerging. Within these communities of practice, microfinance providers, health practitioners and other stakeholders are working together to build capacity of participants to share experiences and lessons learned and to build the capacity of local organizations to develop and offer a range of integrated health products. This state-of-the-field report is the second in a series of publications aimed at highlighting the innovative work of the many microfinance organizations globally to use their existing infrastructures to deliver effective and sustainable health-protection services to their clients. We see how, in the Andes region of Latin America, a number of microfinance and health organizations are working together with facilitation from Freedom from Hunger as part of the Center for Health Market Innovations (CHMI) project. This project, started with Rockefeller Foundation support, has played an organizing role in successfully bringing together practitioners, social funders, researchers and academic institutions to form partnerships and advance the state of the practice in microfinance and health in the region. Information from a survey of MFIs, supplemented by much richer sharing of experiences and learning from national and regional meetings of microfinance and health leaders across the three countries, reveals a vibrant and growing landscape of integrated health and financial services with great potential for further innovation, scale and impact. Microfinance organizations in this region reach more than 7 million clients with loans and other financial services. Reports from MFIs summarized in this report indicate that more than 500,000 families are currently benefiting from some type of health program offered by their microfinance provider—an impressive step towards reaching many millions of families who, despite what national health indicators might suggest, continue to lack access to crucial health information, appropriate health services and the means to protect their families from all-toofamiliar health shocks. The potential in the Andes is especially robust; not only is the sector strong generally, but the field of integrated services is well-anchored with the experiences of MFIs that have been globally recognized for their success at placing financial services into a cohesive approach to development and poverty reduction. This work in many ways mirrors what is also occurring elsewhere in the world, most notably Asia. In India, MFIs currently serve about 71 million rural poor, many of whom also receive health services. Surveys of the sector conducted in 2009 and 2011, similar to the survey conducted in the Andes, show that approximately 25% of 134 MFIs in the country provide some type of health services to their clients. The Microcredit Summit Campaign and Freedom from Hunger have formed a Health and Microfinance Alliance that is working with 33 MFIs, self-help group promoting institutions (SHPIs) and networks in India that are reaching some 330,000 clients and 1.65 million family members with microfinance and health-protection services. This number continues to grow as the Alliance partners scale up their operations and new partners join the Alliance. The partners have set a goal to reach 3.5 million of the country’s poorest households by 2015. Likewise in the Philippines, Freedom from Hunger and the Center for Agriculture and Rural Development (CARD) are partnering to bring together 16 MFIs reaching 4 to 5 million families.

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Financial Literacy: A Step for Clients towards Financial Inclusion

These are tumultuous and exciting times for microfinance, marked equally by the stunning potential of the cell phone to change the face of financial services and disturbing reports of suicides linked to over-indebtedness. Against this backdrop, a shift in the industry is taking place, drawing our attention from the financial institution back to the client. Indicators of a renewed concern for clients include research to quantify the ‘unbanked’, rallying calls for consumer protection, and efforts to better meet customer needs with diversified products. A key driver of this change in focus is the now widely embraced goal of ‘financial inclusion’. Governments of developed economies, in G20 Summit agreements, have recognized financial inclusion and consumer protection as integral to achieving financial stability and integrity. Financial access has been highlighted as a ‘key accelerator’ to meet the Millennium Development Goals. Key to attaining this laudable goal is financial education (World Savings Bank Institute, 2010). Financial inclusion is a multi-dimensional, pro-client concept, encompassing better access, better products and services, and better use. Herein lies its challenge – without the third element, use, the first two are not worth much. Technological innovations are bringing both new customers, potentially including millions of unbanked cell phone owners, and new service providers –a diverse array of retail outlets, telcoms and others – into the market. Diversification of products and services has already resulted in rich, and complex, choices for consumers, especially compared to the early days of one-size-fitsall working capital loans. Yet, increased access and better choices do not automatically translate into effective use. The path from uptake (i.e. opening an account) to usage is still an uncharted course. Effective use is hampered by asymmetries of information and power between financial institutions and poor consumers, an imbalance which grows as customers are less experienced and the products they can choose are more sophisticated, 4 an imbalance which holds real potential for negative outcomes due to institutional abuses or ill informed client decisions.

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FAO

FAO, as the UN specialized agency for agriculture, considers that broad success to a wide set of financial services adapted to the needs of smallholder households and agricultural enterprises is one of the several important conditions required to attain sustainable agricultural development and food security.

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Counting the (net) number of people who crossed (from below) the USD 1.25 a day consumption threshold in India between 1990 and 20101

This study estimates how many continuing MFI clients in India have crossed the USD 1.25 PPP (per capita) a day consumption threshold from below. The time period considered for our study is 1990-2010. We find that, at an all India level, (approximately) a net of 12% ( (9 million) of all MFI clients have crossed the USD 1.25 a day consumption threshold from below. To arrive at the all India level estimate, we first divide the country into 6 distinct regions (North, South, East, West, Central and North East). We then identified the top 14 states whose MFI clientele is at least 1% or more of the all India total. These 14 states together have approximately 95% of the total MFI clientele in India. Thus the states are fairly representative of all the MFI clientele in India. MFIs in India are not homogenous. Significant differences exist across MFIs either because they have different organizational structure or they practise different lending models. Therefore, the MFIs are classified into 9 cells. Each cell is a combination of a loan type (joint liability, individual liability or self help group) with any one of the three organizational types (NGO, NBFC, others). For each of the states, MFIs were identified belonging to each cell. There were 18 cells considered for each State-9 in rural and 9 in urban. There were 27 MFIs and 6 SHG Bank linked NGOs who participated in the study. The two most populous cells are NGO-SHG and NBFC-JLG combination. Households were selected randomly from the clients list of the MFIs and surveyed. We surveyed 15,205 households. However, after omitting the missing observations, we were left with 14,746 households in all. The household questionnaire captured the current asset distribution as well as the asset distribution at the time of their joining the specific MFI. The latter was found out using the recall method. The estimates were obtained by scoring the population from the collected data. Different scorecards for rural and urban households were developed for each of the 14 States. These scores are calibrated to the person’s likelihood of being above or below a given consumption threshold. Once the estimates for each cell were obtained, the population estimates were arrived at by using the population for each cell as the multipliers. We used the Statistical package Strata 8.E for the entire analysis.

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Common questions

Is the work of the Microcredit Summit Campaign over? No, it will be continued on by RESULTS Educational Fund, the parent organization of the Microcredit Summit Campaign. RESULTS already focuses on economic empowerment as one key pillar for ending poverty and will expand its focus on how financial services can play a key role. RESULTS will be reassessing how that agenda is carried out and identify other RESULTS departments to take the lead on various work streams. As we do this, we will be looking for new sources of funding and a business model.

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An empirical review of the actual impact of financial crisisand recessions on MFIs, and other factors explaining recent microfinance crisis

Many, although not all, of the problems observed in microfinance sectors recently were triggered by the latest financial crisis and fluctuations in both food and fuel prices. At the same time, many problems began before the most recent financial crisis, or were intensified by other elements, including saturated microfinance markets, deficient credit policies and governance structures, and negative policy interventions. The goal of this paper is to identify and share lessons for strengthening microfinance institutions (MFIs) to weather the challenges of future financial crises, fluctuations in food and fuel prices, and other major risks. The impact of financial crises on both MFIs and their clients depends on several characteristics including: the macroeconomic environment, the level of integration of the country to the global economy, cost and funding structures for the MFI, and the ability of management to deal with crises. The aim of this paper is not to make specific recommendations for individual MFIs, but to identify general lessons for all MFIs. For these lessons to be useful, MFI boards and management have to identify the most important risks for their institutions in order to act on the most relevant lessons for them. For practical implementation, lessons are divided in two categories: before the next crisis and during the crisis. The paper is divided in five sections. In the first section the components of financial crises that are most relevant for MFIs are identified, and contrasted with exposure. The second section summarizes the most 1 I would like to thank Scott Gaul, Jesse Marsden and Sam-Daley Harris for useful comments and suggestions. All errors and omissions are mine. important consequences of financial crisis for MFIs, empirical evidence (when data is available), with particular focus on claims about liquidity crunches, increases in cost of funds and foreign exchange relating them to the components and sub-components of financial crises discussed in the first section. Section three reviews the performance of MFIs during the 2009 financial crisis and explores some of the reasons why the sector as a whole demonstrated less resilience than before. Section four discusses whether a focus solely on financial crises, may lead to underestimating other major risks of serious consequences for MFIs, particularly for portfolio quality. One of the most important new risks discussed in this section is market saturation. Finally, section five summarizes the main lessons for MFIs, donors and governments.

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Appendix 1

This is the third year in which the Microcredit Summit has attempted to verify the data reported by its largest members. Practitioner institutions that submitted a 2002 Institutional Action Plan reporting more than two thousand clients were asked to provide the Campaign with the names of donor agencies, research institutions, networks or other institutions that could corroborate their data. In the letter addressed to the potential verifiers, the Secretariat defined the process as follows: “By confirm, we mean that you have visited the program, met the senior officials, reviewed aspects of the operation, they have provided you with numbers, and you believe that the institution and the numbers listed below are reliable and credible. While we understand that no one can provide absolute certainty, we would appreciate your participation in this process.” As in years gone by, the Summitís greatest challenge is bridging the gap between its commitment to reaching the poorest, and the lack of effective poverty measurement tools in use. Therefore, every use of the term ìpoorestî in these appendixes should be read within the context of this dilemma. It is anticipated that, with every successive report, the use of quality poverty measurements will increase; therefore, so too will the quality of the data reported.

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A Case Study on Microfinance Interest Rates and Profits

On April 20, 2007, Banco Compartamos, a microfinance institution (MFI) that was launched in 1990 and originally funded by grants from various sources, including CGAP, completed a landmark initial public offering (IPO) of its stock. The IPO was 13 times oversubscribed and considered a huge success by any financial market standard.1 Pent-up demand caused the share price—representing 30 percent ownership in the bank—to surge 22 percent on the first day of trading. Demand was driven by the exceptional growth and profitability of Compartamos, a dearth of Mexican investments for emerging market portfolios, rarity value, strong management, and the appeal of microfinance.

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Village Savings and Loans: A Pathway to Financial Inclusion for Africa’s Poorest Households

For Africa’s poorest and most marginalized households, few financial institutions exist to serve them, and where institutions do exist they generally have inappropriate products and services. To address the issue of financial inclusion and reach poorer clients, CARE began promoting a savings-led microfinance model, called Village Savings and Loans Associations (VSLAs). The VSLA model is based on the belief that for the extremely poor, particularly women, the best approach is to begin by building their financial assets and skills through savings rather than debt. Through participation in a VSLA, members can diversify their activities, plant additional crops and even add new income-generating activities. At the same time, they are able to save and borrow in ways that allow them to smooth cyclical household consumption patterns. Now more than ever before, we see VSLAs as an important, and often necessary, rung on the ladder of financial inclusion.

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Challenges in Mobile Banking: Early findings from the field

According to the 2013 State of the Microcredit Summit Campaign Report, microfinance now provides over 200 million of the world’s poor with access to financial services. Many practitioners believe that technology can transform how current and potential microfinance clients do financial transactions by allowing them to use their computers or smartphones. Many expect that mobile banking will facilitate financial inclusion and give people at the bottom of the pyramid a tool to fight poverty. However, this promise has not been fully realized, and there is still a growing divide between the poorest households which are still operating in a cash economy and the formal economy that is increasingly digitizing transactions. If the poorest are not to be left behind again, we must connect them to the digital financial system.

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