MICROFINANCE
BAROMETER 2019
IN PARTNERHIP WITH

10th Edition

10 YEARS ALREADY!
A LOOK BACK AT THE TRENDS IN MICROFINANCE
Content
PAGES 2-3
KEY FIGURES OF FINANCIAL
INCLUSION IN THE WORLDPAGES 4-5
KEY FIGURES OF FINANCIAL
INCLUSION IN EUROPE & FRANCEPAGES 6-13
SPECIAL REPORT: TRENDS AND EVOLUTIONS OF MICROFINANCE OVER
THE LAST10 YEARSPAGES 14-15
MICROFINANCE AND RESILIENCE TO
CLIMATE CHANGEEDITORIAL
Despite positive transformations
in recent years, microfinanceis sometimes misunderstood orpoorly perceived by the public
opinion and by economists. Today,
for its 10th anniversary, the Microfinance Barometer proposes toconsider microfinance as an entire segment of development policies and as a pioneering sectorof responsible finance. In orderto understand the stakes of microfinance, let us shed light on its
history.
While the emergence of microfinance in the mid-2000s, led byNobel Peace Prize winner Muhammad Yunus, generated awave of optimism in the world,
the early 2010 marked a turning© Advans Group

PAGE 16
HOW DOES MICROFINANCE HELPREFUGEE INTEGRATION

point. Over-indebtedness of someof microfinance’s beneficiaries
and the excessive profits generated by microfinance institutions(MFIs) paved the way to wavesof criticisms against the sector.
These episodes have revealed thedangers of an unchecked microfinance and the impact it can haveon its beneficiaries when it is not
managed responsibly. Self-regulatory measures have since thenbeen developed and ameliorated,demonstrating a willingness to
professionalise this sector fromwithin.
Following these years, microfinance then entered a phase of
professionalisation and of institutional strengthening. This transformation can be broken downin three parts: the diversificationof investments, the increasing
and innovative use of new technologies and the development of

a number of financial and non-financial services. In 2016, one year
after the adoption of the Sustainable Development Goals (SDGs),
the Barometer points out thatmicrofinance promotes access tocredit, but also to health, agriculture, education, energy and housing services.
For 10 years, these Barometers
have focused on honestly analysing the transformation of microfinance. If the rise of impact
investing has seemed to overshadow microfinance, recent editions
instead present it as a pioneer ofimpact investing, with a varietyof crucial lessons to teach new
players of the responsible financesector. The fact that microfinanceno longer has a monopoly on impact investment is not bad news,
on the contrary. The efforts toachieve the SDGs by 2030, estimated at $5 trillion by the UN, re-quires all investors to mobilise tobuild a more sustainable world.
This new Barometer thus looks
back at the developments in microfinance over the past ten years
to highlight the evolutions of thesector. Expertise in creating tools
and indicators to measure social
performance, the responsible useof new technologies, the diversification of services (financial andnon-financial) to include the mostvulnerable populations: there aremany lessons to be learned fromthe changes in microfinance.
May they be useful in thegrowing field of impact investing.
CONVERGENCES

vvv

KEY FIGURES OF FINANCIAL INCLUSION | WORLD
Global microfinance figures What are the trends?

S

ince 2010, the Microfinance Barometer analyses key figures on
financial inclusion worldwide,using MIX Market figures on
the global microfinance market. Here is a look back at themain trends in the sector.

Focus on institutions andclients
In ten years, microfinanceinstitutions (MFIs) have lent
hundreds of billions of dollars,with an average annual growthrate of 11.5% over the past five
years. At the same time, thenumber of borrowers worldwide continued to increase- albeit at a slower pace thanin the 2000 to 2010 period - recording an average annual
growth rate of 7% since 2012,
compared to a rate of nearly
20% in the previous decade.
In 2018, 139.9 million borrowers benefited from the servicesof MFIs, compared to just 98
million in 2009. Of these 139.9
million borrowers, 80% are
women and 65% are rural borrowers, proportions that haveremained stable over the pastten years, despite the increasein the number of borrowers.
With an estimated credit portfolio of $124.1 billion, MFIs recorded another year of growthin 2018 (+8.5% compared to2017).

2

MICROFINANCE
BAROMETER 201920% 80%

Other MFI
24%

$124 BTop 100 MFI
76%

140 M

2016: +9.4%
2017: +15.6%
2018: +8.5%

Number of active borrowers(million)

120

Gross loan portfolio(USD billion)

90

916

65%

2016: +9.6%
2017 : +5.6%
2018: +9.5%

150

Evolution of the portfolio at risk > 30 days

8%
7%
6%
5%
4%

20
18

20
17

20
16

20
15

20
14

20
13

20
12

20
10

20
11

20
09

20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18

60
20
09
20
10

In 2018, 139.9 million
borrowers benefited
from the services of
MFIs, compared to only
98 million in 2009. Of
these 139.9 million
borrowers, 80% are
women and 65% arerural borrowers, proportions that have remained stable over the
past ten years, despite
the increase in the number of borrowers.

World Total 2018 & growth since 2009

Latin America and Caribbean
37%$10.3 B63%

129

$48.3 B
248

23%

22.2M

2016 : +3.1%
2017 : +1.1%
2018: -0.3%

2016: +8.1%
2017: +12.4%
2018: +5.7%

Number of MFIs reporting to the
MIX

Over the past decade, MFIs
have also improved their efficiency. Despite a decademarked by a sharp increasein the cost per borrower, froman average of $68.4 in 2009 to$106.7 in 2018 (+56%), the operating expense ratio decreasedby 2.7 points over the period.
Between 2009 and 2018, MFIs
also recorded an increase in
their returns on assets (+1.3
points) and equity (+2.9 points).
Nevertheless, there was aslight deterioration in the quality of the portfolio over the entire period, with the portfolio at
risk (PAR) over 30 days having
risen from 6.4% in 2009 to 7%
in 2018. After a decline in the
PAR > 30 days between 2010
and 2012, it rose again and sta-

2016: -0.6%
2017: +3.5%
2018: +5.5%

bilised between 2016 and 2018at around 7%.
Focus on the regions
South Asia continues to dominate global microfinance: itis the region with the largest

Portfolio sizeamount of borrowers (85.6 million in 2018), with this number
growing faster than in otherregions (+13.8% between 2017and 2018). It also has the top
three markets in terms of borrowers, India, Bangladesh andVietnam.

MFIs average performance ratios in 2017 (consolidated)

Portfolio yield

19.2%

Operatingexpense ratio
Portfolio at
risk 30 days
Return on
equity

10.6%

6%

11.5%

KEY FIGURES OF FINANCIAL INCLUSION | WORLD

only experienced weak growth
between 2017 and 2018 (+1%),
Eastern Europe and Central
Asia recorded an increase of
5%, an improvement after the
decline in 2015 and 2016.
Eastern Europe and Central Asia
51% 49%$5.7 B

136

2016: -11.1%
2017: +6.5%
2018: +13.1%

2,5 M

2016: -2.5%
2017: -2.3%
2018: +8.4%

South Asia

62%

40% 60%29

2016: +3.2%
2017: +13.5%
2018: +11.4%

2.5 M

2016: +7.1%
2017: +11.4%
2018: +9.5%

47%

Africa89%$36.8 B

Middle East and North Africa$1.5 B

11%

214

East Asia and Pacific

36% 64%

27%

6,3 M

2016: +2.3%
2017: +0.4%
2018: +0.3%

72%

85.6 M

2016: +13.4%
2017: +6.6%
2018: +13.8%

2016: +23.5%
2017: +24.2%
2018: +10.3%

60%$21.5 B160

2016 : +9.2%
2017 : +18.1%
2018: 14.6%

Number of borrowers

Proportion of rural borrowers(consolidated data for year 2018)

A notable feature of the region,
almost all borrowers are in fact
female borrowers (89% in 2018).
Although it represents almost
two-thirds of global borrowers,
South Asia is only second interms of credit portfolio, with anestimated outstanding amountof $36.8 billion in 2018.

characterised by a low penetration rate in rural areas. MFIs
in the region are the least rural-oriented, accounting for only
23% of their clients.

In contrast, Latin America andthe Caribbean alone account for
44% of the total microfinancesector portfolio, with $48.3 billion in outstanding loans (+5%per year on average since 2012).
This region is the second largest
in terms of number of borrowers, with 22.2 million customers
in 2018, a slightly lower figure(-0.3%) after years of growth.
The Latin America and Caribbean region also continues to be73%

In contrast to these leading regions, countries of Eastern Europe and Central Asia as wellas those of the MENA region
are smaller markets. However,they are growing both in termsof number of customers andcredit portfolio. In Eastern Europe and Central Asia, the number of borrowers has increasedby more than 30% since 2012,reaching 2.5 million in 2018.
The MENA region has the same
number of borrowers. MFIs in
these two regions also havethe lowest proportion of womenborrowers, with 49% of female

20.8 M

2016: +8.0%
2017: +10.6%
2018: 10.2%

79%borrowers in Eastern Europe
and Central Asia and 60% in
the MENA region in 2018. Credit
portfolios in these two regions
also increased during the period. While the MENA region

The total outstanding amountof African MFIs has increasedby 56% since 2012, while thenumber of borrowers increasedby 46% over the same period toreach 6.3 million people in 2018.
Despite a low quality portfolio(13.6% PAR > 30 days in 2017)and high costs per borrower,
the portfolio continues to show
a strong yield - 20% - but down
6.6 points. The return on assets
also remained positive - 1.9% but down (-1.4 points).
Finally, with 73% female clients and 79% rural borrowers, MFIs in East Asia and thePacific continue to grow witha portfolio of $21.5 billion in
2018, up 13.1%. The same year,
20.8 million beneficiaries borrowed from MFIs in this region(+10.2%). Since 2012, the total
outstanding amount of MFIs in
the region will has increased byan average of 16% per year, accompanied by a continuous but
more moderate growth in thenumber of clients (+6%/year).
BLAINE STEPHENS
CHIEF OPERATING OFFICER &MOHITA KHEMARASSOCIATE PRODUCT MANAGER
MIX

Methodology
Calculations are based on data provided by financial service providers through MIX Market (http://
www.themix.org/mixmarket). MIX makes every effort to collect the data from the dominant actorsof each market to ensure visibility into each market but does not collect data on every actor in
every country.
Total figures for borrowers and loan portfolio as of FY2018 are based on data provided by 916 institutions. For FY2018 data, we have considered data for all institutions that have reported through
MIX Market for any period in 2018. Where institutions reported annual figures for FY2017 but not fora date in 2018, those FY2019 figures were used to calculate the estimated total outreach for 2018.
Growth figures for borrower and loan portfolio values for FY2017 and FY2018 are based on a balanced panel data from the set of institutions that have provided both data fields through MIX Market for each of the fiscal years from FY2016 and FY2017.
Client segment, funding data, and institutional performance data come from MIX’s Global Outreachand Financial Performance Benchmark Report .

MICROFINANCE
BAROMETER 20193

FINANCIAL INCLUSION | EUROPE
Unlocking the potential of microcredit for a more inclusive and dynamic EuropeThirty years ago, when setting up the Association for the
Right to Economic Initiative (ADIE) in France, Maria Nowak
introduced in Europe an innovation that had already beensuccessfully developed in Bangladesh by Professor Yunus: microcredit. ADIE’s goal is to grant a genuine right to people whom thelaws of the market or personal misfortune prevent from developing
their projects or creating their businesses due to a lack of accessto conventional bank credit. Implementing this right requires the
granting of tailored loans, with personalised support to project
leaders.
This initiative quickly spread throughout Europe, in shapes andforms adjusted to the specific context of each country. The Microfinance Centre (MFC) was created in Warsaw in 1999, followed by
the European Microfinance Network (EMN) in 2003. There are now
some 450 microfinance institutions in Europe. According to the latest survey carried out by EMN and MFC, there were nearly one
million active borrowers in 2017, for a total outstanding amount of€3.2 billion.

Experience in Europe over the last 30 years
shows that the development of self-employment and micro-enterprises makes it possible
to transform vulnerable people into wealthcreators. Likewise, it can reduce poverty andsocial divides, while contributing to the achievement of the Sustainable Development Goals

Trends in microcredit activity and outreach
Number of microloans distributed
per year
800 000

Value of microloans distributed
per year
2,5

600 000

633 173664 000

2€ 2.07€ 1.86552 834€ 1.57400 000

1

200 000

0

2015

2016

2017

0

2015

+20%

+32%

3.16 B euro

993 182

Gross Microloan
Portfolio Outstanding

ActiveBorrowers

Growth 2015-2017

+24%

2017

2016

Growth 2015-2017+33%

What is the future of microfinance in Europe?
A new European Parliament has just been elected and a new Commission is being set up. At the same time, the Yellow Vests movement in France has shown the depth of social divides and the feelings of abandonment currently experienced by many of our fellow
citizens. It is therefore a particularly opportune moment to recall
the social impact and economic efficiency of microcredit, and toput proposals forward to remove obstacles or barriers to its development.

The number of microcredit beneficiaries and outstanding loans are
increasing steadily. However, this growth may still be considered
too slow given the microcredit “market”’s potential, as estimatedby the EMN/MFC study (two million borrowers, representing a potential annual demand of €17 billion). Unfortunately, in most countries, such development potential reveals the ongoing difficulties
that many people encounter in accessing bank credit to set up or
develop their micro-enterprise; to the worsening of inequalities
and social, regional and digital divisions; and to the development ofa social model that favours integration via wage labour rather thanself-employment and entrepreneurship.

This is the goal of the Working Group chaired by Maria Nowak under the umbrella of Paris Europlace. This Working Group, made ofexperts from ADIE and French banking groups, as well as representatives from Banque de France and the European MicrofinanceNetwork, has drawn up a White Paper on Microcredit in France
and in Europe1. This White Paper reviews the current state of microcredit and analyses the factors that led to the development of
microcredit in France. It also gives an overview of studies demonstrating the economic and social utility of microcredit, and sets out
proposals to encourage accelerated microcredit development bothin France and in the European Union.

Experience in Europe over the last 30 years shows that the development of self-employment and micro-enterprises, with the combined
support of microcredit and assistance to project leaders, makes it
possible to transform vulnerable people into wealth creators. Likewise, it can reduce poverty and social divides, while contributing
to the achievement of the Sustainable Development Goals. It has
also shown microcredit institutions’ long-term economic viability.

Microcredit’s social and economic utility owes everything to microcredit institutions’ stated desire to make it their primary businesspurpose; to translate it into their policies, internal procedures andproducts and services; and to periodically gauge the real-world
impact of their actions using recognised methods for measuringsocial impact. Social performance, social impact and long-term
economic equilibrium are the three pillars of what could be called
the “European model” for microcredit institutions.

European institutions have understood and supported the development of microcredit across the continent, particularly with the creation of the EU Programme for Employment and Social Innovation(EaSI) in 2014. As part of this programme, the European Commission
has provided a guarantee instrument with a budget of approximately €300 million for the 2014-2020 period. Its aim is to improve accessto financing for social enterprises, micro-enterprises and vulnerable groups. The Commission has also used this programme to set
up a grant instrument with a budget of €16 million over the same
period of time to strengthen the institutional capacities of microcredit and social financing providers.

4

MICROFINANCE
BAROMETER 2019

It is up to each of us to develop it for a more inclusive and dynamic
Europe.
1 The White Paper is available on the Paris Europlace website: https://www.paris-europlace.
com/fr/publications

JEAN-LUC PERRONVICE CHAIRMANCONVERGENCES &VICE CHAIRMAN
CENTRE YUNUS PARIS

FINANCIAL INCLUSION | FRANCE
From banking inclusion to financial education: trends in microfinance in FranceS

ince the start of its monitoring in 2013,
microcredit has grown at a fairly steadyrate in France. Yet, the amounts are still
modest given the role microcredit could play interms of financial inclusion.
With 244,000 microloans outstanding at the endof 2018, representing an amount of €1.359 billion, compared with nearly €1 billion in 2013, microcredit continues to grow steadily in France.
Most loans are professional in nature (55% of
the outstanding amount) or used to finance equity capital (40% of the outstanding amount). Only
5% of the outstanding amount is used to financepersonal projects (e.g. the purchase of a vehicle), but the personal microcredit still makes up
to 19% of the total number of loans.
In France, microcredit is supported by the state: itis used to pursue personal and professional projects with the help of specialised social workers
and organisations that support business creation. This enables borrowers to access financesthat would not otherwise be available to them.
In this respect, assisted microcredit constitutes
an excellent method for improving banking andfinancial inclusion. Though it is already promoted
by public authorities, the development of microcredit requires raising awareness among potential borrowers.

By making microcredit more visible and moreaccessible, and by bringing social stakeholders, associations, public institutions andbankers together with microcredit institutions, these types of products can be more effectively marketed. Banque de France and its
branches already manage over-indebtedness
and basic account rights, but also actively
promote microcredit by supporting discussions between stakeholders at the regionaland national levels through the Banking Inclusion Observatory, chaired by the Governor.
Since 2016, the bank has implemented a new
tool: the national strategy for financial, budgetary and economic education.
Communication and financial education, driver of microcredit growth
The aim of this strategy is to provide everyone
with practical knowledge and good financial
behaviours to help them make more informed
choices about repayments, loans, savings
and insurance. The objective is to ensurethat everyone can make decisions towards
financial well-being, that they do not misseconomic opportunities, and that they avoid
inappropriate choices given their needs andsituation and avoid scams.

In this respect, improving French citizens’ awareness of microcredit increases the use of this tool,
which is useful both economically and socially,
while at the same time reinforcing borrowers’
ability to repay loans, as microcredit represents
a binding commitment. The online platform of
Budgetary and Financial Education, “Questions
about Money” (www.mesquestionsdargent.fr)
offers simple, neutral and educational content
from national strategic partners, supported by
the Banque of France. An entire section is dedicated to microcredit.
In every French department, branches of theBanque de France offer social workers, employees and voluntary associations training sessions
on microcredit, as well as on other subjects: prevention of over-indebtedness, payment methods,
accounts and banking services, etc.
STÉPHANE TOURTEHEAD OF RETAIL BANKING &MARK BEGUERYDIRECTOR OF FINANCIAL EDUCATIONBANQUE DE FRANCE

Solidarity finance, a tool benefiting microfinanceI

n early 2019, nearly €13 billion1 were placedin socially responsible investments, enabling
activities with high social and environmental
value to be funded. Social savings deposits increased 8 times in 10 years and witnessed double-digit annual growth rates on average.
This rapid growth is primarily explained by French
regulations promoting employee savings, which
require all companies, since January 1st 2010,
to offer at least one social fund in all company
savings schemes. Other elements contributed
to the development of social resources, such as
the growing commitment of financial institutionsin promoting their ranges of social products.
The number of these funds is growing. In 2018,
the Finansol label, based on solidarity and transparency criteria, was awarded to 19 new, highly
varied savings vehicles, bringing the total to 161.
On the demand side, savers use investments togive greater meaning to their savings. Last year,
423,000 new socially responsible investment subscriptions brought the total to €2.8 million on 31
December 20182.
Microfinance in France, Europe and around theworld has a long-standing and preponderant
place in the social funding ecosystem. Social investments are often used to finance microfinanceinstitutions and, ultimately, microcredits. The microfinance component has been present since
the creation of the first investments, first offeredby pioneers such as CCFD-Terre Solidaire, Adieand Oikocredit, and then gradually included byother organisations such as Entrepreneurs duMonde and Fadev.
Over the years, these stakeholders have diversified their resources by developing new socially
supportive savings products, whether directly
using their own schemes to collect equity or debt
(issuance of equity shares, bonds, associative securities, etc.), but also through bank investments,
life insurance policies and, more recently, via
crowdfunding platforms. The first one created inEurope was Babyloan. Adie is the leading microfinance organisation in France.
Microfinance has always been a vector for
high-impact innovation in the fight against poverty and for social and professional inclusion. It
must now continue to grow while adapting to a
rapidly changing market (development of institutional investment, digitisation, impact finance,etc.). No doubt it will be a success.
1 Baromètre de la finance solidaire 2019 – Finansol/La Croix.
2 Ibidem.

FRÉDÉRIC FOURRIER
HEAD OF THE SOLIDARITYFINANCE OBSERVATORYFINANSOL

KEY FIGURES OFMICROFINANCEIN FRANCE

244,000

microcredits have been
distributed at the end of 2018

1.359

billion euros outstanding in 2018

+ 35.9%the evolution of outstanding
microcredits between 2013 et 201855%

the percentage of professional microcredit out of the total outstanding amount19%

the percentage that personal microcredit represents out of all loans

MICROFINANCE
BAROMETER 20195

SPECIAL REPORT
Look back at 10 years of evolutions in microfinance© Alain Lévy, BNP Paribas

Overview of the flagship articles of 10 years of Microfinance BarometerIn a context of renewed
economic and social policies aimed at combatting
poverty, the emergence of microcredit in the 1980s quickly
sparked a lot of interest. Development stakeholders saw inthis tool a means of reducing
poverty by financially empowering the poorest members ofsociety, and invested heavily
in the development of microfinance. The sector has significantly changed since then, withthe emergence of new services
and new stakeholders.

Microfinance is not auniversal solution to
the development sector, but it can usefully link up with otherdevelopment policies
and further increase its
contribution to the fight against poverty.
The Microfinance Barometer has consistently reflected
these changes. The Barometer
presents microfinance as an effective system when combinedwith responsible practices. As

6

MICROFINANCE
BAROMETER 2019

such, the articles of this publication are both enthusiastic
about the development of an essential development policy tool,
and aware of the limits and possible risks of microfinance. This
stance was reflected as earlyas 2010 by Alix Pinel, journalistat Mediapart: “Microfinance is
not a universal solution for thedevelopment sector, it is not on
its own a miracle answer. [Thatsaid, it] can usefully link up withother development policies andfurther increase its contribution
to the fight against poverty.” Financial inclusion, social performance management, economic
profitability: what have been
the flagship themes of the Microfinance Barometer since its
first release in 2009?
2010 to 2013: from criticism
to improvement.
“Microcredit, miracle or disaster?”, “microfinance in crisis”,“microcredit turns to tragedy”.
In the early 2010s, following thenumerous crises that damaged
the sector, the internationalpress painted a bleak picture of
microfinance. These criticisms
contrasted with the prevailing
optimism in the sector, where
microcredit was seen as a miraculous solution to poverty
for which its creator, Professor

Muhammad Yunus, received the2006 Nobel Peace Prize. Then,after years of hope and enthusiasm, over-indebtedness of beneficiaries and excessive profits
of unscrupulous microfinanceinstitutions (MFIs) showed microfinance in a whole new light.
The huge profits earned byCompartamos in Mexico, as
well as the crises in southern
India, Pakistan, Morocco, andNicaragua, highlighted thedangers microfinance could
pose to its customers in theabsence of responsible management. These crises were
the result of a three-fold problem, as summarised in the 2011
Barometer by Xavier Reille,
Microfinance Manager at theConsultative Group to Assist
the Poor (CGAP), for whom “themicrofinance crisis is due to an
excessive search for profit, theuncontrolled growth of MFIs,
and the lack of regulation.”
The sector then entered a phaseof profound reform. The second
edition of the Microfinance Barometer, in 2011, with the title“For a Return to More Social
Microfinance”, reflects wellthis process of self-criticism
that resulted from the crisis of
the 2010s. From then on, the Barometer dedicated a section onquestions of measuring social
impact and the dissemination ofgood practices in this area.

New
self-regulation
initiatives were gradually developed, demonstrating a genuine
desire to empower andprofessionalise
thesector.
This process marked a turning
point that gave rise to the development of new tools. New
self-regulation initiatives were
gradually developed, demonstrating a genuine desire toempower and professionalise
the sector. According to Cecile
Lapenu, the current director of
Cerise, it was in the early 2010sthat “the sector entered a period of maturity. The lessons
learned in recent years [contributed] to the establishmentof responsible, ethical and inclusive microfinance.” (2013
Barometer).
These years of introspection
saw microfinance stakeholders
come together under the banner of the “Social Performance
Task Force”, which now repre-

SPECIAL REPORT
Look back at 10 years of evolutions in microfinance
What have been the trends and evolutions of microfinance ?
sents over 3,000 organisations
working to promote responsible
practices. They also gave rise to
the development of the Universal
Standards of Social Performance
Management, published in 2012.
This period led to the creation of
the Smart Campaign - a global
campaign aimed at integrating
customer protection practices
into the activities of microfinanceinstitutions.
From then on, industry practices have generally stabilised.
These widely shared tools
brought greater transparency
to the measurement of social
performance, allowed for thedevelopment of more responsible practices, and offered a better customer protection. These
practices became widespread in
the sector.
2014 to 2016: professionalisation and digitisation of microfinance
After the wake-up call of theearly 2010s, the years 2014 to2016 saw the continuous professionalisation and improved
efficiency of microfinance.
The period was first characterised by a diversification of
investors in the sector. In 2014,
Christian Etzensperger, analyst
at ResponsAbility, noted that thearrival of pension funds marked
a turning point for the sector.
Pension funds are generally riskaverse, and only get involved in
sectors with proven profitability.
Their presence thus demonstrated that “the microfinance sector
has moved from the initial stageof subsidised programmes to thatof profitable retail banking.”
The professionalisation of thesector was also reflected in thegrowing and innovative use of
new technologies. The 2015 Barometer made this its central
theme, depicting an innovative
microfinance ambitiously entering into the digital revolution.
New technologies’ contribution to the sector was a sourceof great expectations, as Kalin
Radev, General Manager of Software Group, summed up in 2015:“technological innovations now
provide numerous solutions formost of the sector’s operational
challenges, including accessibility [services], efficiency, process
automation, security and cashless operations.”
But traditional microfinancestakeholders were not the only
ones to identify the potential of
new banking technologies. The
arrival of new players (in particular telephone operators andfintechs) offering mobile money
services shook up the market.
As of 2015, 34% of people living
in Sub-Saharan Africa had access to a banking service thanks
to mobile money.
Developments in mobile technology blurred the boundaries
between phone companies,
new digital stakeholders andtraditional financial institutions.
Partnerships between fintechs,
MFIs, phone companies, andpublic institutions became a
new formula for increasing boththe impact of microfinance andits scope.
In 2016, one year after the adoption of the Sustainable Development Goals (SDGs), the Barometer addressed the issueof diversification of the microfinance offer. Beyond simple
access to credit, the Barometer
showed that microfinance also
promotes access to essential
services and opens up new opportunities for its customers in
the areas of agriculture, energy
and housing.

Arrival of new investors, digitisation of
microfinance, diversification of the offer:
the sector underwent
rapid changes between
2014-2016.

For example, Sam Mendelson,
a consultant for the European
Microfinance Platform, reflected on the links between microfinance and education. In
addition to financial products tofund studies, MFIs also financethe construction of schools andinfrastructures facilitating access to educational centres.
They also offer non-financial
services (teacher training, support for developing curricula,improvement of safety standards in schools etc.), and provide employment training services.
Arrival of new investors, digitisation of microfinance, diversification of the offer: the sector
underwent rapid change sbetween 2014-2016.
From 2017 onwards: a sector whose influence extends
beyond its initial borders
Beyond microfinance, an entire
responsible finance sector istaking shape. The strong development of impact investing overthe past few years may give theimpression that microfinanceis no longer fashionable, that it
has been outdated by more efficient and ambitious players.
Yet, recent editions of the Barometer present a rather different image, with microfinancedepicted as a pioneer in impact
investing.
Creation of business models
combining social impact withfinancial stability, diversification of stakeholders’ resources,
tools and indicators for measuring social performance: microfinance actors have a unique expertise. Bonnie Brusky, Deputy
Director of Cerise, commented
on this last point in the present
edition of the Barometer: “Unlike the traditional development
actors that paved the way inmicrofinance, impact investors
rarely have strong monitoringand evaluation habits and know
little of the academic conceptsof impact assessment.”

As a result, microfinance, as
the only mature impact investing sector, has a lot to teach tothese newcomers, particularly
when it comes to impact assessment. In a 2017 article, Michael Knaute, Regional Director
for Africa and MENA for Triodos
IM, stated: “applying the lessons learned in microfinanceover the past three decades tothe impact investing sector will
help to pave the way towards
achieving the SDGs.”

While microfinance nolonger has a monopoly on impact investing, the lessons it haslearned can be usefulto other responsible
finance stakeholders.
These are welcome
news given the financial efforts required toachieve the SDGs by
2030.
Microfinance and SDGs
Microfinance continues togrow, with $124 billion in worldwide lending and 9.5% customer
growth in 2018. These positive
results are signs of an industry that has successfully grownfrom its mistakes and that willcontinue to develop and foster
financial inclusion around theworld.
While microfinance no longer
has a monopoly on impact investing, the lessons it haslearned can be useful to other
responsible finance stakeholders. These are welcome news
given the financial efforts required to achieve the SDGs.
BAPTISTE FASSIN
PUBLICATION AND
COMMUNICATION OFFICER &CARINE VALETTE
PUBLICATION AND
COMMUNICATION MANAGER
CONVERGENCESMICROFINANCE
BAROMETER 20197

SPECIAL REPORT
Look back at 10 years of evolutions in microfinanceSocial Performance Management is becoming mainstream:
An opportunity - or a threat - for the impact investment sector?

A

s a niche initially confined to distantgeographies and populations unattended by the mainstream financial industry, the microfinance sector has since longembraced the issue of social performance.
Promising the responsible inclusion of the excluded, and often vulnerable, populations into
the financial services space in order to develop and/or grow their economic activities andeventually lift them out of poverty, the industry
long ago realised that it had to demonstrate theachievement of its initial promise.
But how to evaluate the achievement of socialand environmental goals behind microfinancetransparently and coherently? How to ensure
the delivery of both responsible financial services and the financial objectives necessary
for a sustainable industry?
Over the initial years, the most voluntary organisations (investors and financial service providers – FSPs) developed in-house approaches. Their learnings were important, but these
individual approaches resulted in a confusing
landscape with about as many methodologies
as there were actors developing them. In 2005,
the need for greater cooperation between
these actors became obvious. That year, SPTF
in coordination with the Smart Campaign (Client Protection Principles) and other initiatives
launched a sector wide cooperation to create
a common language for social performance
evaluation. With great success.

KEY STEPS

Since 2012, the industry disposes of a truly global standard proposal – the Universal
Standards. Completed by and fully aligned with
CERISE’s social performance audit tool (SPI4)
in 2015, inclusive finance investors and FSPs
have since then the capacity to evaluate how
well they perform both financially and sociallybased on the agreed upon Universal Standards.
Today, over 600 FSPs use the SPI4, representing over 50% of MFIs, over 30% of clients andclose to 20% of total portfolio of MFIs reportingto the Mix Market1, and a larger number not
only evaluate and assess but also benchmark,and improve their social performance based onthese Standards.

8

Several years after this exciting period thatwitnessed the development and improvementof the first social audit tools, SPTF now works
to link social performance and outcomes management in inclusive finance to the Sustainable Development Goals. The Standards initiallydeveloped for microfinance are tested and applied to a larger section of the financial services
industry such as SME financing organisations,banks and fintechs. In addition, a 7th dimension
will be added to the Universal Standards to encompass environmental performance. This addition reflects growing demand from the sector
to evaluate financial, social and environmental
performances simultaneously and in an equallythorough way.
Our experience comes right in time...
Something is changing since the 2008/10 financial markets crisis. During its initial years, thesesocial and environmental measurement tools
were being used exclusively by microfinanceactors and a few responsible institutions. Morerecently, we have witnessed a new, promisingchange: under the pressure of clients, staff,
shareholders, directors, and the public at large
who are all more concerned about the socialand environmental consequences of a single(financial) bottom line, the financial sector has
begun to systematically adopt social and environmental language in its business models. To
go even further: financial-only, short-term focused result management is increasingly being
considered as non-optimal and not responding
to real fiduciary responsibilities.
A rapidly increasing number of mainstream financial organisations or corporates are completing communication in their annual reports,
websites or newsletters praising their socialand environmental responsibilities. Many ofthese actions are serious, committed to thehighest value of such a change to a global performance evaluation. Social and environmental
performance measurement has indeed begun
to penetrate the mainstream corporate and financial world.

these changes are not properly implemented by
all actors not only will free riders bring substantial reputational risk to the many who are implementing change, but also investors, asset owners and other actors could risk investing into
markets that do not deliver on the announced
promise. This is yet another lesson learned fromthe experience of the microfinance sector: regulations are necessary to ensure transparent
measurement by all actors.
…to push for further harmonisation regarding
social performance measurement
With the 1929 Big Crash, economic actors became aware of the necessity of harmonisationof language on financial reporting. Today, IAS/IFRS and GAAP help to understand financial
reporting and analysis and determine the reliability of a project’s financial health.
We now need to develop the equivalent of IFRS
for social and environmental performance. The
sector also needs to share its initial learnings
with the global economy: that putting customer
value in the center of its activities, focusing on
happy clients, satisfied staff, efficient and wellaligned governance and useful products are
the real long-term performance guarantors of
any economic endeavor.
Inclusive finance appears today like the laboratory that over some decades has allowed to test
how to cooperate in a competitive market environment, to learn how to share knowledge andsee this as an added value gain rather than arisk of losing a competitive advantage. We needto increase our joint efforts to promote highest
clarity of concepts, methodologies, tools andevaluations and demonstrate to the global financial markets that responsible investment
practices are the only guarantee for long-term
financial success. We are moving into the right
direction – but this change is now more urgent
than ever.
1 Study on Social Performance Management in Microfinance,
Cerise et ADA, 2019

JURGEN HAMMERMANAGING DIRECTORSPTF EUROPE

These positive changes should however notblind us to the real risks the sector faces. If

First social audit
tool (CERISE SPI)SPTF is created,first social
notation

Nobel Peace
Price isattributed to
M. Yunus

Launch of theSmart Campaign

Microfinancecrisis in Andhra
Pradesh, India

2002

2005

2006

2009

2010

MICROFINANCE
BAROMETER 2019

SPECIAL REPORT
Look back at 10 years of evolutions in microfinanceReusing the (Social Performance Management) wheel: what can impact
investing learn from microfinanceMaybe I’m just getting old, but it feels like hot
topics are often just the rehashing of an old
topic. Truly fresh ideas are hard to come by
and often, a big new thing is just the repackaging of some old thing. It’s not reinventing
the wheel, exactly. More like redesigning it.
It could be argued that impact investing is
one of those big new things that is reallyjust a redesign. The Global Impact Investing
Network (GIIN) 2018 annual Impact Investor
survey estimates fund managers will invest$225 billion during 2018, a 20% increase from20171. Clearly, impact investing is gaining
ground, or at least the number of actors calling themselves impact investors is increasing, despite the lack of clarity around what
exactly constitutes an impact investor.
Indeed, the lack of a “common understanding of definition and segmentation of the
impact investor market” is considered asignificant challenge by 40% of the 200+
respondents to the GIIN’s 2018 survey. It
is no wonder. So many of the new players,
corporate foundations, family offices, andcommercial banks, are altogether new tothe social investment sphere. The risk isthat anyone and everyone can be an impact
investor and that “impact-washing” undermines the credibility and integrity of what is
a potentially transformative form of finance.
Unlike the traditional development actorsthat paved the way in microfinance, impact
investors rarely have strong monitoring andevaluation habits and know little of the academic concepts of impact assessment. They
know they want to show “impact”, but do
not want to bother with the complexities ofadditionality, attribution, and the associatedcosts. And frankly, they are right.

Principles forinvestors ininclusive finance(PIIF)

2011“A great deal of money and time has been
wasted on poorly designed, poorly implemented, and poorly conceived impact evaluations,” point out impact experts Mary Kay
Gugerty and Dean Karlan. But if not impact
proof, then what?
The microfinance sector offers an answer.
Once a “hot topic” itself in the world of development finance, microfinance attracted
troves of donors in the early days, all looking
to prove that this market-based tool could
reduce poverty. Millions were spent, butdemonstration of results was mostly tepid(and almost always hotly debated due tomethodological issues).

Applying a SPM approach is not difficult,but it does require systematically looking at
one’s activities through the lens of one’s mission (or impact thesis, or theory of change…
pick your term). CERISE, in collaboration with
impact investor partners, has developed the
Impact-Driven Investor Assessment (IDIA)
to make this easier. IDIA is a rapid appraisal
tool for investors or funds to see if governance and internal systems are aligned withstrategic intent.

Impact assessment hit an impasse in microfinance. Eventually, thanks to the vocal
efforts of practitioners (like CERISE’s founding partners) and sector-level coordination(spearheaded by the Social Performance
Task Force), the sector shifted its focus from
impact measurement to performance management. This is no slight change.

But it would seem that CERISE is not alone
in promoting SPM among investors. In April
this year, International Finance Corporation(IFC) launched the Operating Principles for
Impact Management2 that largely follow a
SPM approach: define intent, set up internal systems to support that intent, monitor
progress and reflect on how to sustain impact. The Operating Principles show what
it means to be an impact investor, that is,the common elements that impact investors
should commit to if they want to incarnate
their label.

Today, rather than collect data to prove impact, stakeholders are more likely to collectdata aimed at holding microfinance institutions (MFIs) accountable to their social
mission. In practice, this means encouraging financial providers to integrate social intentions into their strategy and management
systems, and to monitor them with key performance indicators.

So far, they have garnered 60+ signatories.
What exactly this entails is not yet clear, although in theory, signatories commit to public disclosure and independent verificationof their practices, to demonstrate alignment
with the principles. IDIA offers a method to
do so. It draws microfinance’s lessons onwhat it takes to achieve one’s mission. Because there is no need to reinvent the wheel.

This is social performance management, andit has become mainstream in microfinancein the last 10 years, underpinned by the Universal Standards for Social Performance
Management (SPM), a set of collectively-defined, practitioner-driven management
practices considered essential to fulfilling
one’s mission. The SPM approach (commonly represented by the SPM Arrow) should beleveraged by the impact investing world. It
is pragmatic and unifying without being normative—the Universal Standards do not tell
you what your social mission should be, just
how to best achieve it.

1 https://thegiin.org/assets/2018_GIIN_AnnualSurvey_ExecutiveSummary_webfile.pdf
2 https://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/
IFC_External_Corporate_Site/Impact-Investing

BONNIE BRUSKY
DEPUTY DIRECTORCERISE

Universal
Standards for
performance
management

First MFI
certified by the
Smart Campaign

Creation of
IDIA, tool forassessing thesocial strategy
of investors

OperatingPrinciples for
ImpactManagement

2012

2013

2018

2019

MICROFINANCE
BAROMETER 2019

OF SOCIAL PERFORMANCE MEASUREMENTThe Microfinance Barometer is celebrating its 10 year anniversary. A
look back at the publication’s key
themes over the last decade reveals an interesting dynamic. Many of the “hot topics”
of the 2010’s, with the exception of digitalisation, could easily be placed in the 2000s, the1990s and even the 1980s.

9SPECIAL REPORT
Look back at 10 years of evolutions in microfinanceDo private microfinance stakeholders really care about Social Performance?

M

ore than 10 years ago, Nobel
Peace Prize Laureate Muhammad Yunus said “I firmly believethat we can create a poverty-free world
if we collectively believe in it. In a poverty-free world, the only place you would be
able to see poverty is in the poverty museums.” Unfortunately, poverty still exists.
Part of the reason for the survival of poverty is that a large number of people remainunbanked. Globally, about 1.7 billion adults
are financially excluded in 2017 comparedto 2 billion in 2014. China has the world’s
largest unbanked population, followed byIndia (190 million), Pakistan (100 million),and Indonesia (95 million). These four economies, together with three others — Nigeria, Mexico, and Bangladesh — are home
to nearly half the world’s unbanked population.
These figures show that the way towards
a world where everyone has access to financial services is still long. Microfinancesector’s stakeholders therefore have roomfor growth. Large private microfinance institutions and microfinance investment
vehicles (MIVs) can be instrumental in thefight against these inequalities.
But in a market as profitable as microfinance1, can their actions really be trusted
to be socially oriented? The microfinancesector was heavily delegitimised during
the 2000s because of the crisis of over-indebtedness impacting poor people, casting
doubts on the social aspect of microfinance. Is the current context better now?
Did private stakeholders find the right balance between financial return and social
performance?
Today’s investors generally care about theirsocial impact
Efforts have been made over the last years
for greater transparency and qualitativesocial assessment. Reports tend to showthat this concern is now well understoodby the sector. For instance, the 2018 Financial Inclusion Compass2 produced by theEuropean Microfinance Platform (e-MFP)
demonstrates that client protection is recognised by microfinance stakeholders as
the most important criterion in achieving
the objectives of financial inclusion whereas governance is ranked at the third position.
This concern is also true for investors. The
2018 MIV survey by Symbiotics 3 shows thatmost microfinance investors and fund managers are taking various aspects of social
performance into account 4. Most of the

10 MICROFINANCE
BAROMETER 2019

surveyed funds (77 out of 83 respondents)
mentioned that they target both financial
and social returns. What could only be astatement turns into a stronger commitment
when an assessment is performed.
And as a matter of fact, the majority of MIVs
measured both financial and social returns(64 out of 83), while a minority (6 out of 83)
focused exclusively on measuring financial
returns.
The survey also shows that MIV’s measurements mainly come from collecting andanalysing outreach indicators on their investees. Besides, 67% of them used in-housedeveloped tools to assess their investees’social performance management. Finally,
67% of MIVs conduct internal social ratings
on the MFIs of their portfolios.
BNP Paribas, like other funds, also assesses
the social performance of investees as partof its Corporate Social Responsibility. Pro
bono social due diligence missions are offered to the MFI we are working with. During
one week, a couple of high potential executives perform an SPI4 audit after they havebeen trained by the NGO Cerise. We benchmarked our microfinance portfolio with 286
other MFIs in the world assessed with the
SPI4 methodology and the results are conclusive: the MFIs financed by BNP Paribas
have a score significantly higher than the
average. Indeed, the 26 MFIs audited (out of
34 MFIs financed) reach the score of 79/100,
whereas the global score is 64/100 showingthat a large investor can truly make an impact with their investments in microfinance.
The triple bottom line

track to become a new standard for the
microfinance sector. And that triple bottom
line could just be the new opportunity forthe sector to show its relevance and impact.
1 MFIs portfolio yield was assessed at 20.9% in 2016
according to the 2018 Microfinance Barometer
2 www.e-mfp.eu/sites/default/files/resources/2018/11/emfp_Financial%20Inclusion%20Compass_A4_def3-web.
pdf an account, 56 percent of all unbanked adults globally(figure 2.2).
3 https://symbioticsgroup.com/wp-content/uploads/2018/10/
Symbiotics-2018-MIV-Survey.pdf
3 According to Symbiotics, the average number of active
borrowers financed by MIV was around 494 K by MIV for
91 MIVs.

ALAIN LÉVYHEAD OF MICROFINANCE & SOCIALENTREPRENEURSHIP FOR ASIA
AND AMERICAS
BNP PARIBAS

PRIVATE ACTORSAND SOCIALPERFORMANCE

In 2018, client protection isconsidered the most important criterion for MFIs, according to the Financial Inclusion Compass produced by
e-MFP. How does this translate into concrete action?

93%

Social performance is a key element of microfinance’s DNA. A large part of the mainstakeholders knows it and cares about displaying it to show their effective commitment
to achieving their social mission.

of MIVs studied by Symbiotics1
target both social and financial
returnYet, another challenge arises for the microfinance market. The issue of environmental
performance (see also p.14-15) is gaining
significant importance as 25% of MIVs’ investees are offering green loans specificallydesigned to finance the purchase of environmentally friendly products, such as solar
panels, biodigesters, or clean cookstoves.
BNP Paribas itself partnered with the UN environment and Yapu, a Berlin based start-up
which develops a digital solution for sustainable agricuture to allow two MFIs in Senegal
and Colombia to test a pilot for sustainableagriculture microloans.

of these MIVs have developped
tools of social performance
management

Together with financial and social dimensions, environmental performance is on

67%

67%

of them attribute a social rating
to MFIs in their portfolio

25%of these MIVs offer green credits to reinforce the resilienceof MFIs
1MIVsurvey,Symbiotics,2018

SPECIAL REPORT
Look back at 10 years of evolutions in microfinanceMicrofinance and financial inclusion: terminology aside, is there a realdifference between the two?

Over the past decade, microfinance has gradually evolved into the broader field of financial inclusion. But are these two terms interchangeable?
Renée Chao-Beroff, Director of Pamiga, and Isabelle Guerin, a researcher at the Institute of Research for Development (IRD), share their thoughts.

In recent years, major international organisations have increasingly referred to financial
inclusion rather than microfinance. Why thischange in terminology?
Isabelle Guérin (IG): First of all, this change
has a rhetorical justification. The microcredit
crises of the late 90s affected the sector’s reputation. This required a change of terminology to restore confidence and strengthen thecredibility of microfinance. Using an adjectivein the new expression itself emphasises the
positive dimension of finance.
Renée Chao-Beroff (RCB): Faced with a negative and controversial discourse, the change
in terminology was seen as a way of restoringa more universal dimension to microfinance.
This semantic change also reflects microfinance stakeholders’ desire, in particular thatof the Consultative Group to Assist the Poor
(CGAP) – a think tank of the world’s 32 largest microfinance donors – to bring the central
banks on board. However, the terms had to beadapted to the central banks’ priorities if they
were to be attracted to microfinance. From theyear 2010s on, it was the potential for financial inclusion (i.e. quantifying the number ofpeople with bank accounts) that drew them tomicrofinance.
In your opinion, what are the main differences
between microfinance and financial inclusion?
RCB: The main difference is in the implicit
goals underlying each of the terms. Financial
inclusion pursues a purely quantitative goal,
which points towards 100% banking inclusion.
But that tells us nothing about the use of bankaccounts. For microfinance’s pioneers, it is
not so much the access – of course you needaccess – but the impact that matters. That is,
the ability to change people’s lives through finance.
IG: Financial inclusion involves a greater number of stakeholders and services, including
fintechs, and also incorporates the traditionalbanking system.
In a number of countries, the last few years
have seen a considerable increase in banking inclusion. This has been achieved mainly
through social transfer policies, whether they
were conditional or not. Microfinance therefore no longer has a monopoly on financial
inclusion. In a general sense, however, microfinance pays greater attention to the social
issues linked to financial inclusion.

Does the arrival of new actors in the financial
inclusion sector, such as fintechs and mobilebanking operators, make a difference for microfinance?
IG: In theory, fintechs enable highly isolated
populations and regions to benefit from potentially cheaper financial services. When backed
by social policies, such as social transfer payments, this can be a way of facilitating transparency and limiting the risk of corruption.
RCB: Fintechs represent a real problem for traditional MFIs, and thus for microfinance. Until
the arrival of these new players, MFIs were theonly ones operating in isolated regions. They
set up local banks, trained local cashiers, etc.
This costs a lot of money and for several years
justified the fact that MFIs were subsidised.
Today, however, thanks to digitisation, fintechs
and banks can reach these customers without
the need for physical buildings. They can alsocollect savings in villages where there havenever been any banks.
Are there risks to replacing traditional microfinance actors with fintechs?
RCB: I would say that the main risk is the lossof meaning for financial inclusion. Technology
makes it possible to enroll people and givethem access to services without the need toreach them individually and spend time withthem. For example, the use of credit scoring
allows fintechs to create beneficiaries’ profile
without ever meeting them in person. However, there is no guarantee that the customer’s
needs will actually be identified, and this is
why MFIs remain relevant in this increasingly
digitised world.

The “high-tech/high-touch” approach allows people to benefit
from the advantages of technologies (“high-tech”) while gaining from the on-the-groundexperience (“high-touch”) acquired by MFIs over the years.
Personally, I am in favour of a “high-tech/high-touch” approach, which allows people tobenefit from the advantages of technologies(“high-tech”) while gaining from the hands on
experience (“high-touch”) acquired by MFIs
over the years that can ensure more impact
for the clients.
IG: I see three other major risks: the promise
to reduce costs for customers is still illusory,
while the fintechs’ profits are relatively high;the capture of personal data, with the prospectof including “poor” people in consumer society while basic services remain inaccessible
to them; and, finally, privacy control, which isstill very badly regulated. Microfinance wasalready struggling to keep its promises, andthis is even more true of financial inclusion.
We should not forget that for poor people, themain problem – more so than financial exclusion – is still monetary exclusion.
INTERVIEW BY BAPTISTE FASSIN
PUBLICATION OFFICER &GARANCE DIACONOCOMMUNICATION ASSISTANTCONVERGENCESMICROFINANCE
BAROMETER 201911

SPECIAL REPORT
A look back at 10 years of microfinanceMicrofinance digitalisation: risk or opportunity?

T

he digital revolution is profoundly transforming the world of finance and forcing financial service providers to adapt. In this interview, Graham
Wright, Executive Director of Microsave, discusses the challenges and risks of this necessary transition for microfinance.

For many experts, the digitalisation of microfinance is essential to the survival of thesector. According to you, what are the benefits of digitalisation to microfinance?
There are at least 4 main benefits to digitalisation.
First, it allows MFIs to increase revenues
and reduce costs. McKinsey estimate that
financial institutions’ digital transformation
could add 45% to their annual net revenues:
15% from enhanced product uptake and 30%
from reduced operational costs. The International Finance Corporation calculates thatit reduces the annual cost to serve a customer by 80%, and an 18% reduction in the
cost-to-income ratio (a classic efficiency
measure).
Second, it brings the opportunity to leveragerelationship banking. Traditional MFIs andbanks have important competitive advantages over fintech. They have valued, historical
relationships with millions of customers,
they have data on those customers’ financial behaviour, they have the infrastructure
to provide the human touch that low-income
customers crave. Furthermore, traditional
financial institutions have the right regulatory clearances and compliance to offer financial services – something that fintechs
often lack.

… And what are the main risks?
I would first like to dispel some of the mytharound digital transformation. It does not
solve all organisational problems and does
not suit all organisations. It is crucial for ab
organisation to truly assess its needs and how
technology can best respond to those.
Then there are obviously many risks associated with digital transformation, the main one
being that in the transformation process, MFIs
loose focus on the social reason for suchtransformation: improving the social role ofmicrofinance (by reducing borrowing costs,
improving user experience etc.).
Other risks include the unnecessary proliferation of products and services, as well as thetotal digitalisation of borrowing services without maintaining some human interactions.
Given the importance of digitalisation, is therea strategy to adopt to integrate more digital
tools in a relevant and effective way in the microfinance sector?

Key steps of digital transformation

Price

Products
andsolutions

ClientrelationsCustomerexperience

ChanneldesignCampaign
management

Source : Winter is coming: key lessons on digital transformation for financial
institution, Microsave, 2018.

freedom, choice, and control. In 2018, the Equity Bank Kenya customers carried out 97% of
their transactions outside the bank branches.
In your opinion, do MFIs necessarily have todigitalize in order not to disappear?

Ultimately, a financial institution needs a comprehensive, integrated strategy for digitalisation – and then to break it down into manageable pieces – so that digital transformation
is a journey. Just focusing on processes orchannels will not be enough.

MFIs face an existential threat from digitaltechnology. This is because fintechs are disrupting traditional financial services markets
by creating new financial services that are
more efficient and able to reach populations
generally served by MFIs.

Third, it allows MFIs to provide personalized customer experience. Traditional financial institutions need to be cognizant of thechanging demographic and cultural context, namely the rise of millennials and mobile-first generation, to develop and deliver
first-class personalized user-experience.
A great user experience involves solutions
adapted to the customers’ behaviours andattitudes.

Once the overall strategy has been defined,
there are many sub-strategies. The first might
be to digitalise processes – after all digitalprocesses are quicker, more efficient andcheaper than manual ones. A digital transformation of processes reduces the cost andfriction points of delivering services. It provides the data needed to supply a better service offering to end-users and increasingly tobusinesses.

So MFIs must embrace digital transformation.
They must harness the potential of their legacy of experience and relationships. They must
work with fintechs to deliver personalised,digitally-enabled services. And MFIs must
work through staff and agents to provide thehuman touch and assistance that so many still
seek.

Finally, it provides the opportunity to deliver services with a stronger social purpose.
Looking into the medium term, the tech revolution allows us to answer the “elephant in
the room”: financial inclusion, but to whatend? Tech allows us to link pure financial
services to the real-world economy.

A second sub-strategy lies in the digitisationof the products and services themselves. The
rise (and flexibility) of mobile banking for instance necessarily requires that MFIs adapt
their product to meet this new demand. Thatbeing said, new digital products should be developed in a flexible manner so as to respondto client’s preferences.

For example, MSC is working to develop“precision agriculture” in India. Under thisproject, data is collected on a farmer’s landholding and soil quality, as well as the seeds,
fertilizers and pesticides he or she has purchased. This allows AI-powered chat bots toprovide tailored coaching to optimize bothyields and the prices the farmer gets in themarket.

12 MICROFINANCE
BAROMETER 2019

A third sub-strategy consists of digitalizing
channels which involves using technology
platforms to improve customer acquisition
and user experience. The emergence of digital platforms and alternative channels has
profoundly changed the way customers dotheir banking. Customers now prefer self-service technology platforms that give them

The digital revolution offers the chance todeliver rapid, responsive and differentiatedfinancial and social services to low-income
people in a way that we have never been able
to do in the past. In this context, MFIs reallyhave an added-value, since they know very
well their clients and the regions where they
operate. Their future will now depend on theirability to bank on their expertise, so that thedigital revolution is both high tech and hightouch.
INTERVIEW BY
BAPTISTE FASSIN
PUBLICATION OFFICER &SARAH ZEKRICOMMUNICATION ASSISTANTCONVERGENCES

SPECIAL REPORT
A look back at 10 years of microfinanceDigitalisation: what’s at stake for microfinance? Advans point of viewThe booming digitalisationin developing countries,
especially on the African
continent, is one of the main factors behind the increase in financial inclusion witnessed in thepast ten years. In Sub-SaharanAfrica for example, 42.6% of theadult population had an accountin 2017 compared to just 23.2%
in 2011 with almost 21% of adults
having a mobile money account,based on data from the Global
Findex.
This trend represents a unique
opportunity for financial service
providers (FSPs) to better achieve
their mission and reach out tomore clients. Technology canhelp traditional microfinance institutions to overcome challenges
such as high operating costs (forcing MFIs to focus on high-density
urban centres) or high operational risks (due to manual and paper-based processes).
There is no doubt that digitalisation in today’s financial inclusion
market is not a choice but a necessity. One question remains though:how can microfinance providers
digitalise intelligently and, above
all responsibly?
Over the past ten years Advans
has had the chance to implement
and test multiple digital technologies to improve the financial inclusion journey for its clients. In
Côte d’Ivoire for example, a USSD
mobile banking solution has enabled access to saving accounts
to over 19,000 cocoa farmers inremote areas with 1,120 of theseclients also benefitting from digitalschool loans in 2018 for an amountof €180,000.
In neighbouring Ghana, digitalchannels have especially increased account usage, with 33%
of client interactions being madethrough the Advans USSD1 mobilebanking service and an averageof 4.3 transactions per month per
active client.
Meanwhile, in Cameroon, the implementation of an agent network
across the country has enabled
Advans to offer to its clients more
proximity and reduce congestionin branches. Finally, this year in
Nigeria and Cambodia, Advans
subsidiaries are launching mobile
applications allowing clients tomanage all of their transactions
instantly online. In Nigeria, mobilebanking services will help growthe portfolio by an estimated 5% in2020 to 10% per year from 2021.

stages, from thinking about developing a new service to roll it out,
and constant performance monitoring of any service is essential toidentify areas for improvement.

The path to success for
FSPs relies on the ability
to remain agile: listen
Client research and feed- to the market, listenback are key at all stages, to customers, react tifrom thinking about mely and grab opportudeveloping a new ser- nities when they arise.
vice to rolling it out, andconstant performance Secondly, microfinance clients
monitoring of any service remain a specific target withis essential to identify often lower use of technology,
lower financial literacy and trust
areas for improvement. issues to be considered. In light
These experiences have not been
without challenges and havetaught Advans a number of valuable lessons in terms of digitaltransformation.
Firstly, a one size fits all model is
not viable: each of our markets
and all our clients are evolving at
a different pace. Even though Advans shares experiences between
subsidiaries, it always follows amodel of piloting, testing then scaling products or channels, ensuringthat digital services take into account clients’ evolving needs andexpectations. Client research andfeedback are therefore key at allof this, digital tools alone are notenough to create a meaningful
and sustainable relationship withclients. Instead, it is crucial to takea high-tech and high-touch approach, with first and foremost anomni-channel offer for clients, andadditional services such as financial education, customer care (forexample through call centres) andon field agents as solutions to ensure that clients fully benefit fromfinancial services.

Advans digital transformation is
in motion. Now that the group has
developed a set of channels andbusiness models it can scale theactivities that work best. In all subsidiaries where the business casestacks up, Advans aims to launchor scale in priority a combinationof digital channels for client interaction. This will help Advans
to increase its outreach in a moresustainable manner, driving efficiency and encouraging client
usage based on convenience andlow transaction costs. As well as
mixing physical and digital touchpoints, Advans will create new digital propositions and partner withdigital players to seize upcoming
opportunities in its markets.
Given the pace of change aroundus, the path to success for FSPs
relies on the ability to remain agile: listen to the market, listen to
customers, react timely and grab
opportunities when they arise.
1 Unstructured Supplementary Service Data

FANNY SERREGROUP HEAD OF MARKETING
AND CLIENT EXPERIENCE &ANNE-LAURE ASBOTHGROUP HEAD OF BUSINESSADVANS GROUP

In short, any FSP that wants to digitalise responsibly has to start with
understanding customers’ needsin order to design and offer services which are in line with theireveryday reality.
MICROFINANCE
BAROMETER 201913

MICROFINANCE AND CLIMATE CHANGE RESILIENCE(Micro)finance for Resilience: Helping Clients Adapt to Climate Change
The challengechangeofclimatesolutions to mitigate its effects.
The European MicrofinanceAward 2019 on Strengthening
Resilience to Climate Change,
co-organised by European Microfinance Platform (e-MFP),
has invited applications fromorganisations working on thisproblem, and received themfrom 42 organisations from 27
countries, including 18 nonbank financial institutions, 5banks, 4 NGOs, and 15 from various other categories.

N

ew data on climatechange continues toemerge, and it is seldom good. CO 2 levels are at historic highs. Arctic ice continues to shrink. Climate-related
natural disasters such as hurricanes and drought increasein both frequency and severity.
Humanity, however, has always faced enormous challenges, from disease pandemics to global conflicts. Climatechange – while posing an existential threat to our species
and our environment – is slightly different: it’s a slow-moving
crisis that we can address
through innovations in science,technology and education.
Governments and companies
are taking the first, very slow
steps towards climate change
mitigation – most notably byswitching to cleaner and renewable fuels. But though thisis necessary, it is not sufficient.
We must also focus resourceson adaptation 1 leading to resilience 2 – which is particularly
crucial for those populations
most susceptible to climatechange’s effects: vulnerable(and particularly rural), financially excluded communities
living in low-income countries.
The problem is at least fourfold. First, these communities
earn their livelihoods from
activities most affected byclimate change (such as agriculture, forestry and fisheries). Second, their countries
and regions will be the mostaffected by climate stressors,
such as flooding, sea level rise,drought, extreme storms, erosion and pestilence. Third, thisdirect vulnerability is often exacerbated by the low economic and institutional capacitiesof the most affected countries.
And fourth, all these consequences are further multipliedby the growing risk of climatechange induced migration, displacing people to urban areas
and across borders as refugees.

14 MICROFINANCE
BAROMETER 2019

Within the agricultural, livestock, forestry and fisheries
sectors, there is a broad rangeof emerging solutions to help
vulnerable groups strengthen their resilience to climatechange via adaptation to permanently changed environments, for example a reduction
in rainwater, a shift in the seasons, or higher temperature extremes.
This can be achieved by promoting various activities andtechniques (such as innovative agricultural and husbandry techniques) that increase
productivity in challenging
contexts. It can also include
increasing preparedness for
future shocks, such as use ofresilient materials to protect
homes, businesses and land,
without resorting to costly coping strategies, such as taking
on unsustainable levels of debt,
or selling productive assets.
In both cases, access to financial and associated non-financial services can help households to adapt.
Microfinanceandchange resilience

climateThe microfinance sector’s rolein increasing this resilience isbroad. It can include providing
loans for investments in irrigation, drought resistant seeds
or other adaptive solutions;writing insurance policies tosupport greater resilience toshocks; using remittance andtransfer services to funnel aid
in the aftermath of climate-related natural disasters; or fa-

cilitating clients’ long-term financial planning, including via
savings products, to help thembuild more adaptable economic
activities.
Moreover, the institutions thatserve these clients are also
often vulnerable to the effects
of climate change. To build resilience among them, these institutions must also become resilient themselves. That means
adapting to the changing economic situations of their clients(including their debt-repayment
capacity), as well as building
systems that allow for rapid
and effective responses following weather disasters, such as
floods or hurricanes.
Finally, financial services may
be complemented by non-financial products and services that fill capacity gaps,
includingawareness-raisingand understanding of climate
risks through technical assistance and training; promoting
construction standards that
increase resilience to flooding and high winds; and incorporating climate risk assessments and forecasts of extreme
weather into institutional planning – then helping clients use
the data in their economic activities.
All of these activities can befurther leveraged through partnerships, such as with insurance companies, researchers,
fintechs or other technical services providers that specialisein the causes and consequences of climate change among
vulnerable populations, and theAmong them, there have been
innovations in index insurance,
improved agricultural practices, value chain development,enhanced nutrition, education,clean energy, use of technology
such as geo data, and disaster
preparedness etc.
Seeing the scope and depthof responses that these applications represent highlights
the broad and deep role thesector can play in helping thefinancially excluded adapt to achanging climate. This is justthe beginning.
1 The Intergovernmental Panel on Climate
Change (IPPC) defines ‘adaptation’ as “anyadjustment in natural or human systems in
response to actual or expected climatic stimuli or their effects which moderates harm or
exploits beneficial opportunities”.
2 ‘Resilience’ refers to systems being climate-proofed for the future. It is the capacity of ecological, social, or economic systems
to adjust in response to actual or expectedclimatic stimuli and their effects or impacts
and “…refers to changes in processes, practices, and structures to moderate potential
damages or to benefit from opportunities
associated with climate change”. (UNFCCC- United Nations Framework Convention on
Climate Change.

DANIEL ROZASSENIOR MICROFINANCE
EXPERT &SAM MENDELSONFINANCIAL INCLUSIONSPECIALISTEUROPEAN MICROFINANCE
PLATFORMMICROFINANCE AND CLIMATE CHANGE RESILIENCE
How can microfinance adapt to climate risk?

Before climate change even reached
top-priority level on the global agenda,
microfinance institutions have started totake local action against natural disasters.
As the 3rd highest risk area in the world, withmore than 60% of its land area exposed to multiple hazards and 74% of its population consideredvulnerable, the Philippines is one of the countries
where early attempts emerged to enhance thereadiness of people and institutions to natural
disasters.

Oikocredit chose the Philippines as its pilot areafor natural disaster management in 2014, after
years of supporting its affected local partners
through a solidarity fund. In partnership with
Corporate Network for Disaster Response, a
training on Disaster Risk reduction and Management (DRRM) was offered to volunteer microfinance institutions in the Philippines.
The pilot project was comprised of 2 capacity
building initiatives, the first part aiming at enhancing basic knowledge of DRRM concepts,
and the second part consisting in a training-workshop on basic continuity management,
to equip partner MFIs with tools they could
use to craft their own Business Continuity Plan
(BCP).

© Opmeer Reports

For local microfinance institutions, helping
strengthen their clients’ resilience while maintaining their own operational continuity wasa natural move towards a more proactive response to repeated calamities.

That dual capacity building pilot was rolledout to other countries in South-East Asia andled to the creation of a Roadmap for Disaster
Resiliency.
Several local MFIs and clients using thisroadmap already reported reduced losses,
faster assistance, and enhanced business
continuity in situations of disaster over the lastyears, as a result of the proposed risk reduction approach.
Late 2018 this work was made available to all
through the joint-publication with Philippine
MFI ASKI of A Guidebook on Disaster Risk
Reduction and Business Continuity Planningfor Microfinance institutions. The guidebook
sketches 12 key steps towards DRRM and
BCP, synthesized in a 5-phased Roadmap,
from understanding risks (1) to disaster contingency (2) and business continuity (3), totesting (4) and reviewing (5).
The more institutions make that and otherdisaster risk management tools their own, themore data will be available in the future to accurately measure the positive outcome on the
lives of exposed microfinance clients.
GAEL MARTEAU
DIRECTOR FRANCEOIKOCREDIT

Financiera FDL contributes to the spread of agroecology in NicaraguaF

aced with climate change that is already underway, Nicaragua, especially in its rural areas, is having to adapt
rapidly. Local temperature rises, for example,
are disrupting low-level coffee production
and having a direct impact on coffee farmers’
incomes. In this context, Financiera FDL is theleading financial microfinance institution addressing these issues. Nearly 80% of its customers live in rural areas, and 37% of its loan
portfolio is dedicated to agriculture. It decided to become involved in green microfinance
20 years ago.
The MFI has gradually developed a series of
products to support producers to adopt more
resilient cultivation practices. For instance,
it promotes the planting of fuel wood aroundplots and provides loans for solar photovoltaic equipment. Financiera FDL also offers
innovative products such as the “credito ambiental” (environmental loan). This long-term
credit, which also comes with technical support, has an interest rate which decreases

after one year if the producer adopts sustainable agricultural practices. The MFI considers this an incentive for the “environmental
services provided”.
The most recent credit product launched by
Financiera FDL, Ecomicro, specifically concerns customer climate risk mitigation measures. Such measures include the financing ofwater tanks, wells, micro-irrigation systems
or the planting of trees in pastures, known as
silvopastoralism.
Moreover, the MFI has adopted responsible
practices: it excludes the financing of projects
in protected areas, the acquisition of polluting
equipment, as well as the purchase of land,
in a context where many producers aim to increase their income by purchasing plots rather
than by improving yields. The MFI noticed that
extensive production requires deforestation at
the local level. Conversely, intensive models,such as agroforestry, are particularly productive and ecologically sustainable.

Since support for changing cultural practices is costly, one of the MFI’s main difficulties
is finding external financing. Despite thesechallenges, Financiera FDL has resolutely turned towards green finance in order totackle the causes of climate change, trying
to influence its customers’ environmental
impact as well as the consequences, withmeasures to adapt to climate risk.
In this case, Financiera FDL’s goal is to offer“win-win” solutions, since reducing climate
risk for producers leads to a reduction in risks
for the MFI. It even goes so far as to consider
that the ecological transition is necessary toensure the sustainability of its services, andtherefore its survival.
LAUERNT CHEREAUCOMMUNICATION MANAGER
SIDI

MICROFINANCE
BAROMETER 201915

MICROFINANCE AND REFUGEE ASSISTANCE
Serving refugees: 5 key recommendations for financial service providers*T

he number of forcibly displaced people worldwide
has hit a record high of 70.8
million in 2018, as showed by thedata recently released by UNHCR’s
annual Global Trends report. Within
this group, the number of refugees in
the world — defined as people displaced outside of their home country
due to war, persecution and conflict— reached 25.9 million, 500,000 morethan in 2017.
In this context, promoting positive
interventions that enable socioeconomic integration of refugees represents one of the main sustainable
solution to the refugee crisis. The
financial industry has a fundamentalrole to play to ensure that refugees
have access to a range of financial
and non-financial services. That said,very few financial service providers(FSPs) have so far been extending
their services to this underserved
population, often perceiving them asa “too risky”market segment.
To deepen the understanding of refugees’ financial needs, the Grameen
Credit Agricole Foundation commissioned a market study in Jordan and Uganda, conducted by the
consulting firm Microfinanza. Thesestudies constitute the first step in theimplementation of a joint program
between the Swedish International
Development Cooperation Agency,
UNHCR and Grameen Crédit Agricole
Foundation, designed to expand access to financial and non-financial
services for refugees and host communities in Jordan and Uganda.
The findings from these studies shedlight on five main recommendations
for financial service providers (FSPs)
willing to contribute to the financial
inclusion of refugees.
1. Do not develop specific financial
products for refugees.
This recommendation may seem surprising, as refugees are often seen
as a separate social category withspecific needs. Yet, the study demonstrates that many financial productson the market already meet the demands identified among refugee clients. FSPs may need to adjust theirinternal policies and procedures for

16 MICROFINANCE
BAROMETER 2019

identity and collateral requirements
but there is no need for exclusive“refugee products” to match demand.
2. Find out what type of credit refugees in a given area need, and how
much.
In Uganda and Jordan, we found thatwhile refugees were borrowing regularly from savings groups, friends
and family, they were not able toborrow enough to cover their business needs. Many wanted accessto formal credit, would prefer individual loans, and most were willingto pay interest. The survey also revealed a need for financing green
energy products in settlements, andhighlighted the potential of digital financial services, which are alreadyused by refugees in both countries.
In Uganda, where land is reasonably
available for refugees, there is also
a demand for agricultural products,
both for individuals and for companies
looking for raw agricultural products.
Much like with regular clients, it is essential that FSPs closely interact withrefugees to better understand theirneeds and preferences.
3. Screen refugees’ business ideas.
In Uganda, 78% of refugee respondents have plans to start or develop
their own businesses, and 60% havealready taken the first steps - usingsavings, borrowing informally andenrolling in vocational trainings. In
Jordan, most refugees prefer to start
their own business over seeking
employment in the limited available
sectors for non-Jordanians. In termsof gender segmentation, about one
out of every four women interviewed
in Jordan have strong plans to startor develop her own, mostly homebased, business, a proportion which
increases to one in every three women in Uganda.
4. Overcome the fear of flight risk, asdata shows that refugees rarely resettle.
Flight risk is an oft-mentioned concern for FSPs when it comes toconsidering refugees as a potential
target market. However, our studies
found that the vast majority of re-

spondents do not have plans to return to their countries or to relocate
to another country. Resettlements
are also rare within countries. Refugees’ aspirations were much more
related to gaining economic independency than to moving on to a newlocation. Between 2014 and the endof April 2018, only 5% of the registered refugee population in Jordan
and 1% in Uganda resettled1.

IN PARTNERSHIP WITH

5. Consider adding non-financial services to complement the credit offer.
In both countries, non-financial services – primarily financial education
and business management support –are particularly relevant for refugees
with limited or no prior experience
with credit or running a business.
FSPs should apply their client segmentation procedures to assess
which refugees may need non-financial service provision. In order tobetter comprehend refugees’ needs,
it is highly valuable for FSPs to partner with existing specialized NGOs
which offer these services.
The studies clearly demonstrate thatthe growing number of refugees
should be considered by all microfinance stakeholders as a new market
and a real opportunity to promote
financial inclusion. For the refugees
themselves it could be the insurance
to be fully integrated in the mainstream economy of their host country.
1 UNHCR resettlement data, http://
www.unhcr.org/resettlement-data.html#_
ga=2.19545528.1017050701.15403106071116228831.1539297281* This article is issued from a blog written by the authors
and published by the FindevGateway on their website

PHILIPPE GUICHANDUT
HEAD OF INCLUSIVE FINANCE
DEVELOPMENT
GRAMEEN CRÉDIT AGRICOLEFOUNDATION &MICOL PISTELLISENIOR FINANCIAL
INCLUSION COORDINATORUNHCR

WITH TECHNICAL SUPPORT FROM

Thank you to the members and conrtibutors of the 10th
Microfinance Barometer: Advans (Katherine Brown,
Aurélie de Fonvielle, Fanny Serre); Banque deFrance (Mark Béguéry, Marie-Laure Hie, Béatrice
Raoult-Texier, Stéphane Tourte); BNP Paribas(Claudia Belli, Alain Levy); Centre Yunus (Jean-Luc
Perron); CERISE (Bonnie Brusky); Crédit Coopératif (Cyrille Langendorff); Crédit Municipal de Paris(Sandra Bythell) ESC Dijon (Djamchid Assadi);e-MFP (Gabriela Erice García, Gemma Cavaliere,
Sam Mendelson, Daniel Rozas); Finansol (FrédéricFourrier); Fondation Grameen Crédit Agricole (Philippe Guichandut, Carolina Herrera); HCR (Micol
Pistelli); IRD (Isabelle Guérin); Microsave (Graham
Wright); MIX Market (Mohita Khamar, Blaine Stephens); Oikocredit (Gaël Marteau); PAMIGA (Renée
Charo-Beroff); SIDI (Laurent Chéreau, Dominique
Lesaffre); SPTF (Jurgen Hammer); Symbiotics (Sébastien Duquet).
Convergences:
Paul Constantin, Garance Diacono, Baptiste Fassin,
Alexis Hemar, Clara James, Thibault Larose, Gabrielle
Lecornu,JenniferLinares,LucasMagnani,SarahPlot,
EmiliePoisson,FannyRoussey,EstelleTeurquetil,Carine Valette, Manon Vigier, Sarah Zekri.
Microfinance Barometer 2019 / Convergences.
Editorial conception : Baptiste Fassin, Carine Valette
Graphic conception : Baptiste Fassin, Carine ValettePrinting : Imprimerie Centrale de Lens
About Convergences:
Launched in 2008, Convergences is the firstplatform for thought, advocacy and mobilisationin Europe to promote the Sustainable Development Goals and the development of a world“Zero Exclusion, Zero Carbon, Zero Poverty.” Its
mission is to organise debates, mobilise thoughts
and actions, spread good practices and encourage the co-construction of partnerships and innovative solutions.
Convergences relies on more than 200 partner organisations represented within its working groups
to co-organise the Convergences World Forum,
which gathered more than 5000 participants
every year, to write studies and publications, andto organise events throughout the year.
For further information: www.convergences.org
Copyright Convergences August 2018 – Convergences, 33 rue Godot de Mauroy, 75009 Paris– France // +33 (0)1 42 65 78 85
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or www.convergences.org