MICROFINANCE AND
DIGITAL FINANCIAL SERVICES

AIMM Sector Framework Brief
Sector Economics and Development Impact Department
International Finance Corporation

March 2019

Development Impact Thesis – Promoting financial access and financial inclusion for un(der)served individuals, households and microenterprises is fundamental for individuals and companies to flourish. Financial inclusion is achieved when individuals andmicroentrepreneurs access and use a range of financial services that are available, affordable, convenient, and delivered responsibly.
IFC provides financing and advisory services to financial service providers targeting individuals and microentrepreneurs to:→ Increase access and usage of credit, deposits, andpayments→ Create opportunities for microentrepreneurs→ Improve skills and opportunities for employeesProject
Outcomes

Development Gaps Addressed

→
→
→
→

Promote competition in the market
Introduce business model innovations
Validate new financing models for providers
Leverage data linkages and technology for
improved service offerings→ Extend the geographic reach of financial services→ Promote adoption of best practices for risk
management and responsible finance standards→ Demonstrate viable solutions to reachunderserved segments

Contributions toMarket Creation

• Financial access gaps
• Limited range of financial andnon-financial services• Limited resilience and access toopportunities for individuals• Unsustainable business models
for financial service providers

Rating Construct – All AIMM sector frameworks include detailed guidance notes that help define project outcomes and contributions
to market creation, aggregating to an overall assessment of development impact.
•

For project outcomes, stakeholder effects are the key components for which industry-specific benchmarks define the context
in which an IFC operation seeks to drive changes. This gap analysis is combined with a separate set of impact intensity
estimates that specify the expected results using predefined indicators.

•

For contributions to market creation, industry-specific market typologies define stages of development for four market
attributes (or objectives): competitiveness, resilience, integration, and inclusiveness. These market typologies, whencombined with estimates of how much an intervention affects the development of a market attribute, provide thefoundation for IFC’s assessment of an intervention’s market-level potential for delivering systemic changes.
PROJECT OUTCOME INDICATORS

Stakeholders

Credit• Access: Number and volume of outstanding microfinance loans• Access: Accessibility (e.g. alternative credit scoring, lower collateral requirements)• Quality and Affordability: Quality improvements• Quality and Affordability: Affordability (e.g. pricing and terms)• Quality and Affordability: Non-financial services (e.g. business advisory or training)
Transaction and Deposit Accounts• Access: Number of deposit transaction accounts• Access: Accessibility (e.g. KYC, requirement for account opening)• Access: Number of access points (Branches, ATMs, Agents)• Quality: Digital channels (e.g. access to products and services via mobile banking)• Quality: Quality improvements (e.g. product design, pricing, disclosure, cross-selling)• Quality: Share of active users
Payments• Access: Access to digital payment services (e.g. card, internet payments, platform)• Access: Number of merchant acceptance points (POS)• Access: Data generation (e.g. transaction data to be leveraged for decision making)• Access: Access to digital economy (e.g. bill payments, e-commerce, other services)• Quality: Volume of non-cash transactions• Quality: Volume of cross-border payments• Quality: Quality improvements
Agents or Merchants• Number agents or merchants gaining access to new income opportunities• Number agents or merchants gaining access to financial data and services
Employees• Improved employee skills, capacity building• Women in management positions (%), employees (%), retention/promotion

CONTRIBUTION TO MARKET CREATION INDICATORS

CompetitivenessMarket Structure• Change in competitive market structure and behaviors
Price• Change in price through efficient business models
Product and Business Model Differentiation• Growth of new products, channels, business models in the market
Market Regulation• Promote competition by enabling a government framework

Resilience

Financial Stability and Consumer Protection• Adoption of best practices to improve credit quality and risk management• Promotion of practices that improve consumer protection and responsible finance• Promotion of local currency funding and increase market wide deposit baseIntegration

Financial Integration• Introduction or replicable instrument to raise funds for microfinance and fintech
Data Integration• Fostering data linkages and models across financial and non-financial sectors
Geographical Integration• Expand market coverage to unserved regions and promote regional integration
Channel and Value Chain Integration• Change in delivery of financial, non-financial and value chain payments

Inclusiveness

Inclusion• Adopt models/products/processes to reach un(der)served (vulnerable) groups

Sector Specific Principles or Issues – The following principles will be applied for projects rated under this framework:
Principle or
Issue

Treatment Under Framework

Financialinclusion

Financial inclusion expansion contributes to poverty reduction through its effect on economic growth and direct benefits to thepoor using financial services. This implies customers not only have access to accounts to store or transact money, but use a range ofservices that are available, affordable, convenient, and delivered responsibly. These range of financial services involved requires amenu of indicators to assess progress towards financial inclusion. The AIMM framework considers country and sector contexts,
benchmarking appropriate gap indicators, when assessing project outcomes and contribution to market creation.

Underserved andvulnerable populations

Even where financial access and inclusion may have reached high levels for a large portion of a country’s population, segments (e.g.
women, rural populations, refugees) remain excluded from, or substantially underserved by the financial sector and the economy.

Financialtechnologies

Innovative technologies can expand access and usage of financial services, by formalizing cash flows, addressing deficiencies in thefinancial infrastructure, and enabling the creation of new business models in the financial sector, and in the wider economy. The
surge in product innovation and new business models spawned by new technology can remove access barriers and reduce costs,
benefitting large segments of the economy. However, technology can also lead to new kinds of risks for consumers and businesses,
linked to data security and governance, financial literacy, and fraud.
Responsible finance is a key principle of all IFC investments in financial services as the financially underserved are often also among

Responsible finance and the most vulnerable segments of society. IFC conducts due diligence to ensure that its investees meet appropriate standards for
consumer protection and data privacy and is committed to promote fair and transparent pricing, prevent over-indebtedness,consumer protection
strengthen digital literacy, enhance customer services for problem resolution, and ensure data privacy and security. These
safeguards are an important element of ensuring responsible lending at IFC clients and promotion across the market.

Financial markets
stability

Financial market stability is a precondition for macroeconomic stability and economic growth. Risks to financial stability, on theother hand, also imply risks to the real economy and to overall economic stability. By promoting advanced risk management
strategies and reliable institutional governance, IFC ensures the soundness and appropriateness of a financial institution’s
operations. In addition, diversified sources of funding among financial service providers (FSP)s are essential to mitigate negative
outcomes of volatile markets.

Treatment ofnegative effects

There are a few potential negative effects from a microfinance and digital financial services operation, both on the project
outcomes and on market effects. In some cases, IFC may reinforce the position of the dominant player, thereby diminishing market
competition, or accelerate the growth of an innovative provider, challenging incumbent business models. Another could be lendingin hard currency to a financial institution, thereby exposing the client financial institution to currency risks where loans to end
borrowers are in local currency, thereby reducing project likelihood as well as market resilience. Where significant, these should beincorporated in project assessments.

Project Outcomes – The AIMM system considers the extent of the development gap and uses a gap analysis to classify project contexts
according to the size of the deficit/gap being addressed. For each indicator, the size of the gap is measured in relation to development
goals associated with the sector. Contexts are classified into very large, large, medium or low gap, for each performance dimension.
Development gaps are defined using a combination of qualitative and quantitative benchmarks, which leaves room to consider
context-specific attributes that drive investments in the sector. For this framework, access refers to availability of credit, transactional
accounts, and payment services for microenterprises or individual customers. This is measured as the number of accounts orcustomers accessing the services, improvements in removing key access constraints (e.g. lower requirements or improved accesspoints), access to other financial and non-financial services resulting from using a financial service (e.g. bill payments or access toloans resulting from data generated on payment flows). Quality refers to the extent to which a new channel, feature or productimproves the quality or value of the service for borrowers or account holders. This includes improvements in affordability and pricing,new channels to access financial services and to make payments, that may result in increased usage of these services.
COUNTRYCONTEXT

AccessLow Gap

Medium Gap

Large Gap

Very Large Gap- The following are >1 STD
above EM median:- The following are within 1
STD EM median:- The following are < 1 STD
below EM median:- The following are below EM
15th percentile:

Credit - Volume of credit tomicroenterprises and shareof adult borrowers
Accounts - Adult accountholders and penetration ofaccess points
Payments - Penetration of
payment cards andmerchant POS

Credit - Volume of credit tomicroenterprises and shareof adult borrowers
Accounts - Adult accountholders and penetration ofaccess points
Payments - Penetration of
payment cards andmerchant POS

2

Credit - Volume of credit tomicroenterprises and shareof adult borrowers
Accounts - Adult accountholders and penetration ofaccess points
Payments - Penetration of
payment cards andmerchant POS

Credit - Volume of credit tomicroenterprises and shareof adult borrowers
Accounts - Adult accountholders and penetration ofaccess points
Payments - Penetration of
payment cards andmerchant POS

COUNTRYCONTEXT

Low Gap

Medium Gap

Large Gap

Very Large Gap

Quality- Credit: Tailored products
widely available, limited
credit spreads for target
segment, complementary
products widespread- Accounts: Share of dormant
accounts or share of adults
not saved in past year <1
STD below EM median- Payments: Share adults
made/received digital
payment or used a card inpast year >1 STD above EM
median- Credit: Some tailoredproducts and features,
credit spreads significant
for target segment, somecomplementary products.
- Accounts: Share of dormant
accounts or share of adults
not saved in past year
within 1 STD EM median- Payments: Share adults
made/received digital
payment or used a card inpast year within 1 STD EM
median- Credit: Basic products
available, large credit
spreads for target segment,
few complementary
products available.
- Accounts: Share of dormant
accounts or share of adults
not saved in past year >1
STD above EM median- Payments: Share adults
made/received digital
payment or used a card inpast year <1 STD below EM
median- Credit - N/A- Accounts: Share of dormant
accounts or share of adults
not saved in past year
above EM 15th percentile- Payments: Share adults
made/received digital
payment or used a card inpast year below EM 15th
percentile“Core outcomes” for projects in microfinance and digital finance can span across three product/service segments: (1) credit, (2)transaction and deposit accounts (accounts), and (3) payments. Projects may yield outcomes across one or more of segments. Theremay be some projects with an additional component focusing on cross-selling which results in outcomes related to insurance, housing
finance or SME finance. These projects should refer to the other sector specific frameworks to assess project outcomes related to thecross-selling component and use the microfinance and digital finance framework to assess the core outcomes related to micro-credit,
accounts and payments. For each of these product/service segments covered in this framework, the core outcomes are divided along
two components: (1) an increase in access of the service, and (2) an improvement in the quality of the service.
PROJECTINTENSITY

Below Average- The following are < 1 STD
below IFC portfolio medianfor # and % growth in 5 yrs:

Access

Quality

AverageAbove Average- The following are within 1- The following are > 1 STD
STD IFC portfolio median forabove IFC portfolio median# and % growth in 5 yrs:
for # and % growth in 5 yrs:

Credit - # O/S microloans,no increase in accessibility
cf. market
Accounts - # transaction
accounts, no increase inaccessibility cf. market, #access points
Payments - # digitalchannels users, # merchantacceptance (POS)

Credit - # O/S microloans,small increase inaccessibility cf. mkt
Accounts - # transaction
accounts, small increase inaccessibility cf. market, #access points
Payments - # digitalchannels users, # merchantacceptance (POS),
introduces limited
beneficial user data at scale- Credit: no increase inaffordability or quality- No improvement- Accounts: limited growth (<10 pp) in active users (30days)- Payments: # and growth (5year) in transactions < 1
STD below IFC portfolio
median- Credit: small increase inaffordability and quality- Accounts: moderate growth(< 20pp) in active users (30days), small growth indigital channels, small
quality increase cf. mkt- Payments: # and growth (5year) in transactions within
1 STD of IFC portfolio
median, small quality
increase cf. mkt

Credit - # O/S microloans,large increase inaccessibility cf. mkt
Accounts - # transaction
accounts, large increase inaccessibility cf. market, #access points
Payments - # digitalchannels users, # merchantacceptance (POS), beneficial
user data at scale, access todigital services

Significantly Above
Average- The following are > IFC
portfolio 85th percentile for# and % growth in 5 yrs:
Credit - # O/S microloans,large increase inaccessibility cf. mkt
Accounts - # transaction
accounts, large increase inaccessibility cf. market, #access points
Payments - # digitalchannels users, # merchantacceptance (POS), beneficial
user data at scale, access todigital services- Credit: large increase in- Credit: exceptional quality
affordability and quality,
increase in several aspects,
substantial growth in nonsubstantial growth in nonfinancial services
financial services- Accounts: significant growth - Accounts: exceptional(< 30pp) in active users (30growth (> 30pp) in activedays), large growth in digitalusers (30 days), exceptional
channels, large quality
quality increase cf. mkt
increase cf. mkt- Payments: # and growth (5- Payments: # and growth (5year) in transactions > 85thyear) in transactions > 1
percentile IFC portfolio
STD below IFC portfolio
median, exceptional quality
median, large quality
increase cf. mkt
increase cf. mkt

The AIMM methodology considers the uncertainty around the realization of the potential development impact being claimed, making
a distinction between the potential outcomes that a project could deliver and what could be realistically achievable in the project’s
development context. The table below presents the key types of risk factors for microfinance and digital financial service operations.

3

PROJECT
LIKELIHOOD

Operational Factors

Sector Factors

Assessment
Considerations• Experience and track record of financial service provider (FSP)in target market• FSP's projected growth relative to recent history/capacity• Expansion into markets (e.g. new regions or countries),delivery using new channels or innovative product/design;• Growing new line of business (e.g. bank or payment provider
building a microlending operation)• IFC providing AS or is part of systematic WBG engagement in
the country that mitigates operational risks;• Project design and involvement of novel complexity,
innovations, implementation/execution risks (e.g. fintech)• Target sector’s market risks (e.g. low financial literacy)• Specific regulatory risks (e.g. interest rate caps)• Central bank supervision perimeter and capacity (e.g.
consumer protection, cost transparency, financial literacy)• Supporting government policies and programs (e.g. financial
inclusion, digital finance)• Market competition for micro lending, or for the target(specialized) market segment (e.g. micro-insurance)

Contribution to Market Creation – For the assessment of market creation outcomes, the “market” is defined as the
microfinance/digital financial services market in target countries, with focus on individuals and microenterprises. The microfinancemarket is supported by a variety of market participants including commercial banks, microfinance institutions (MFIs), specialized nonbank financial institutions (NBFIs) and fintech companies. Market typologies provide the building blocks in the AIMM system toconstruct a narrative for how much an IFC intervention is advancing a market objective. These typologies provide a description of themarket gap based on various stages of development for a given sector from least developed to most advanced and enable thelocation of the market before and after IFC’s intervention. The table below summarizes the characterizations of the market for thethree most important market attributes.
MARKET
TYPOLOGY

HighlyDeveloped

Moderately
Developed

Competitiveness− Market is distributed across
many actors; is competitive− Limited barriers in themarket and contestability− Microfinance sector robust
and mostly privately held
meeting needs of market− Financial services
transparent, price notsignificant barrier− Market has high level ofproduct differentiation andtailoring offering services
beyond credit to include
savings and insurance
products channels, models
and financial services
offered are highly digitized− Market concentrated;
substantial public presence− Significant barriers to entry− Limited lending fromnational developmentbanks and downscaling ofcommercial banks,
significant informality− Financial services expensive
but somewhat transparent− Price is significant barrier− Market offers range offinancial services, someproduct diversification− Financial services growing
digital channels− Market very well regulatedwith strong institutions− Market highly concentrated − Market has no regulatory
framework that enables− High barriers to entry
market entry and− Informality, NGOs, gov
competitionbanks dominate− Financial services
expensive, not transparent− Price is barrier to access fora majority of target clients− Market offers basic financial
services with lack of
product diversification− Financial services mostly
cash-based with businessprocesses limiting efficiency− Market lacks clear
regulations constituting
barriers to market entry
and effective competition

Integration− Developed capital market
with specialized
instruments, and attractive
to institutional investors,
both domestic andinternational− Financial and non-financial
sectors have significant data
integration and manybusiness models leveraging
this data exist in the market− Domestic financial services
have extensive coverage− Payments for financial, nonfinancial service providers
and along microenterprisevalue chains take place on
digital platforms− Some specialized
instruments exist, financing
through few local investors
with high costs as well as
donors and other social
investors− Financial and non-financial
sectors have some data
integration and a few
models leveraging data
− Concentrated geographicalpresence in urban areas− Market has establisheddigital payment channels or
platforms enabling
payments for financial, nonfinancial service providers
and along value chains− Market has an under− No access to capital market
developed / expensive
for local FSPs;
capital market and lacks− No data linkages exist
institutional investors
across financial and nonfinancial service providers;− Limited data linkages acrossfinancial and non-financial− No digital payment
service providers
infrastructure exists− Concentrated geographicalpresence with no/incipient
integration of financial
services across regions− Market has either limited
digital payment channels or
platforms enabling
payments for financial, nonfinancial service providers
and along microenterprisevalue chains

4

Underdeveloped

HighlyUnderdeveloped

MARKETTYPOLOGY

HighlyDeveloped

Moderately
Developed

Inclusiveness− FSPs in market offer wide
range of products andservices targeted towards
underserved groups− Awareness and establishedbusiness case for reachingunderserved groups

Underdeveloped− FSPs reach segments but− Few FSPs offer very limited,
offer significantly lower
low quality / high costquality and less accessible
products and/or processes
services than market;
to underserved groups− FSPs offer suitable services
but do not effectively target
underserved groups

HighlyUnderdeveloped− No FSPs have products
and/or processes to target
underserved groups

The market component rating is based on the current market stage and movement along the market typologies. For each relevantmarket outcome, the individual market creation assessment will identify where the magnitude of the movement falls in the
movement spectrum and will support one of the following movement options: “Marginal”, “Meaningful”, “Significant” or “Highly
Significant”. In general, most individual projects are not expected to make a significant and immediate systemic market change, unlessthe project is a pioneer in a non-existent or nascent market. Instead, most projects are expected to have incremental effects on themarket. In other words, it takes more than one intervention to move a market to the next stage. This means that integrated andconcerted efforts are often needed to generate substantial market effects. For example, cumulative World Bank Group efforts overtime will have a stronger effect on markets than non-integrated and non-concerted interventions. Where a project is explicitly part ofa programmatic approach, the expected movement induced by the program should be the basis for the assessment where timeboundmovements, market effects, and indicators are available. Examples of market movements include:
MARKET
MOVEMENT
CompetitivenessMarginal

Meaningful

Significant

Highly Significant− Entrance of financial service providers in the microfinance market, or strengthening non-dominate fostering competition− Introducing new products and business models for the financially underserved (e.g. home improvement loans, online
remittances, credit underwriting)− Improvements in pricing and quality of microfinance loans (e.g. unsecured loans)

Integration− Introduce local capital market vehicles to support microlending− Promote replication of business models to extend financial services to underserved regions− Service enabling use of non-traditional data (e.g. invoices, mobile payments transactions) for microenterprise credit delivery− Payment platform enabling delivery of financial (e.g. insurance) and non-financial services (e.g. bill payments, e-commerce), anddevelopment of new business models (e.g. supply chain finance for informal microentrepreneurs)

Inclusiveness− Demonstrate the viability of lending to underserved segments to commercial banks− New products and delivery channels enabling insurance offering to excluded segments;− New fundraising tools/products (e.g. social bonds, microfinance investment vehicles) to raise financing targeting underserved

The market likelihood adjustment follows the principles for the likelihood adjustment for project outcome potential. In general, thelikelihood assessment includes sector-specific, as well as broad country risks that may prevent potential catalytic effects fromoccurring, plus political economy or policy/regulatory risks that may constrain market systemic change. Due to the diversity of market
creation attributes and channels, most of the likelihood factors are expected to be sector, or intervention specific.
MARKET
LIKELIHOOD

Assessment
Considerations

Sector Factors

Political / Regulatory / Policy Factors• Concentration in the banking sector, or the microfinancemarket segment (e.g. barriers to entry)• Strength of the channel for competitive pressures andincentives to adopt innovations• Appropriate level of complementary and supporting
technologies available in the market (esp. for DFS)
• Responsible finance culture and transparent pricing• Joint WBG initiative on promoting financial access andinclusion in the country• Capital markets environment with an enabling policy,
regulatory framework, and institutional capacity• Uptake and product awareness by underserved segments

5• Government commitments and supporting policies/programs(e.g. financial inclusion)• Government capacity and willingness to implement policies
and program commitments• Regulatory scope and capacity, including new regulatory
framework for fintech innovators