Archives

Blog Archives

Investing In Inclusion: How To Deliver Financial Services To The World’s Poor – Forbes

News0 comments

Editor’s Note: Michael Schlein brings more than 25 years of experience in international banking, management, and public service to his role as president and chief executive officer of Accion. Previously he served in senior executive roles at Citibank and the US Securities and Exchange Commission.

Modern financial markets exclude billions of the world’s poor. That’s a failure of those markets—and a failure of imagination. A more financially inclusive world would give billions of people living in poverty access to a full range of important financial services, yielding a high rate of return by economic, social, and societal measures. The challenge is how to achieve this in a responsible, sustainable way that provides the greatest number of people with the financial tools they need to improve their lives in the shortest amount of time.

That is precisely the mission of Accion, a global nonprofit dedicated to creating a financially inclusive world. We operate in poor communities throughout Latin America, Africa, India, and China and see firsthand how these services help transform lives, create opportunities, and build stronger, more resilient communities.

As nonprofits, Accion and our peers can take chances that the private sector cannot. Over our 50-year history, we have helped build 64 microfinance institutions in 32 countries that today serve millions. In the last few years alone, we have supported institutions in rural communities such as the Amazon and Inner Mongolia and expanded the array of financial services for the poor beyond credit to savings, insurance, and payments.

One point is clear: philanthropy, though critically important, is insufficient to achieve full financial inclusion. We need to harness the capital markets and create institutions that deliver both social and financial returns. Though we are a nonprofit, we work to build sustainable, scalable, for-profit companies dedicated to serving the financial needs of society’s most vulnerable members: those living in poverty.

Today, traditional lending institutions largely ignore the poor. And some nonprofit organizations discount the for-profit motives of the private sector, seeing them as exploitative and off-mission. Neither view is accurate. In fact, for-profit microfinance is sustainable, scalable, and socially progressive—complementing nonprofit services and creating an entire industry of institutions that can compete for clients, expand access, and accelerate innovation.

Twenty years ago, Accion helped create Bolivia’s BancoSol, which today is one of the world’s best-known microfinance institutions. Its creation as a commercial institution dedicated solely to serving the poor was controversial, unprecedented—and a rousing triumph. As the world’s first for-profit bank dedicated to serving the poor, BancoSol tapped the debt and equity markets, attracting both foreign investment and expertise. It focused on strong management and operations, better governance, innovation, and improved responsiveness to clients. To date, BancoSol has loaned more than $2 billion to more than 1.5 million clients. It has a 90 percent client-retention rate and a 99 percent repayment rate. Its success has spurred competition and innovation in what is now one of the most robust microfinance markets in the world.

Accion also helped build Peru’s Mibanco, which launched in 1998. Today Mibanco has more than 400,000 active borrowers and more than 100 locations throughout the country. Mexico’s Compartamos Banco, in which Accion was a major founding investor, is equally impressive. Its operations grew so quickly and efficiently that, in 2007, it launched an initial public offering with a monumental response. Thousands of other microfinance institutions were inspired by Compartamos’ success, which in turn creates more competition and better services for the poor.

Accion is proud to have helped launch and grow these pioneering institutions, which are models for the world and whose collective outreach has brought financial services to millions who would otherwise be left out.

For-profit microfinance is also promising for investors. Take Accion Investments in Microfinance (AIM), a for-profit equity fund created in 2003 to provide capital to microfinance institutions (MFIs) working in challenging markets where such funding was typically unavailable. AIM was designed as a “double bottom line” equity fund, one that measured success in both profitability and social impact.

Over the past decade, AIM has produced annual returns of nearly 16 percent, making it one of the most successful microfinance equity funds ever. In the process, it helped build some of the strongest MFIs in the world, including BancoSol, Mibanco, and the Accion Microfinance Bank—the leading microfinance bank in Nigeria. Before AIM’s investments, those institutions collectively served a total of 386,000 borrowers and 245,000 depositors. Today, they reach almost 1 million borrowers and 1.2 million depositors who might otherwise have no access to financial services.

The future of financial inclusion goes beyond traditional microfinance. We also embrace venture capital and technical assistance for start-ups, with bold, disruptive business models aimed at helping those living in poverty. For example, Accion is investing in companies such as DemystData, which leverages big data—huge sources of information that can be analyzed to help financial institutions broaden their outreach to poorer clients. Others, like Tiaxa, use mobile technology to make small “nano” loans over the phone, which can help reach people living in remote communities. Still others are pushing the boundaries of inclusion, offering financial products such as life insurance to South Africans living with HIV/AIDS—an idea that was unthinkable just a few years ago.

Although it is still too early to determine the impact of these brand-new companies, they have the potential to have a significant impact on the lives of our clients. We need to invest in more fast-moving, innovative ideas like these. Although the financial-inclusion movement is rapidly evolving, it remains young and has much to learn. Growing pains are normal, but they must be addressed head on to strengthen the industry and inspire the next generation of institutions that will create greater opportunities for the poor.

Accion’s Center for Financial Inclusion is a good start. It brings together industry players to tackle common challenges and create the conditions to achieve full financial inclusion on a global scale. For example, the center’s Smart Campaign promotes the protection of clients through greater transparency, prevention from overindebtedness, and the provision of means to address concerns. In just three years, its client-protection principles have been endorsed by more than 1,000 microfinance institutions in 130 countries representing more than 60 million clients.

By building competitive, commercially viable financial institutions that provide a healthy return on capital and by taking bold risks and investing in innovative ways to expand financial services to the poor, Accion and our partners are spurring new opportunities and sustainable progress throughout the developing world, and helping to bring billions more into the global economy. That is how change happens!

This article is part of “The Art and Science of Delivery,” an anthology of essays published by McKinsey & Company in honor of the 10th Anniversary of the Skoll World Forum. It is the most recent installment of McKinsey’s ongoing series, Voices on Society, which convenes leading thinkers on social topics. (Copyright (c) 2013 McKinsey & Company. All rights reserved. Reprinted by permission)

The Relationship Between Microfinance, Entrepreneurship And Sustainability In Reducing Poverty In Developing Nations

Main0 comments

Microfinance-African-Youths
Organization:

The African Youths Organization

Solution Description

The extent to which microfinance, entrepreneurship and sustainability are inter-related is dependent on the extent to which it addresses the economic development process for example. If we are looking for an action which will enable the poor to overcome their poverty, I would go for credit invested in an income generating enterprise as working capital or for productive assets leading to establishment of new enterprises or growth of an existing one, profit from the enterprise provides income and a general strengthening/A variety of financial institutions worldwide have found way to make lending to the poor sustainable and to build on the fact that even the poor are self employed repay their loans and seek savings opportunities. The challenge is to build capacity in the financial sector drawing on lessons from international best practices in micro enterprises and rural finance. However, ensuring environmental sustainability is equally important as sustaining micro enterprises financially. The Sustainable Financial Markets Facility (SFMF) recognizes the importance of promoting “environmentally and socially responsible lending and investment in emerging markets, thus stimulating sustainable markets and private sectors activity. The need to enhance other sustainable initiatives is also paramount thus the interrelated nature of microfinance entrepreneurship and sustainable development is evident, the extent to which microfinance, entrepreneurship and sustainability are interdependent in becoming increasingly recognized by experts in their respective fields of work assoc

How will it improve our quality of life?

The fundamental framework: The policy legal and regulatory framework that allows innovative financial institutions to develop and operate effectively. In institution building: Exposure to and training in best practices that banks and microfinance organization need to expand their outreach and develop sustainable operations, long with performance – based support for capacity building. Innovative Approaches: Leasing, lending and other products to increase access of small and medium size enterprises to financial services. Despite the apparent benefit of microfinance in reducing poverty, an inevitable controversy exists.

Triple Bottom Line Benefits

Entrepreneurship is the active process of recognizing an economic demand in an economy and supplying the factors of production (land, labour and capital) to satisfy the demand usually to generate a profit. High levels of poverty combined with slow economic growth in the formal sector have forced a large part of the developing world’s population into self-employment and informal activities. But this is not necessarily negative, micro enterprises contribute significantly to economic growth. Social stability and equity. The sector is one of the most important vehicles through which low-income people can escape poverty with limited skills and education to compete for formal sector jobs, these men and women find economic opportunities in micro-enterprises as business owners and employees. In most developing countries, micro-enterprises and small scale enterprises account for the majority of firms and large share of employment. In Ecuador, for example, forms with fewer than 50 employees accounted for 99 percent of firms and 55 percent of firms in 1980: in Bangladesh, enterprises with fewer than 100 workers accounted for 99 percent of enterprises and 58 percent of employment in 1986. Finally, it has been noted that small-medium enterprises constitute the most dynamic segment of many transition and developing economics. They are more innovative, faster growing and possibly more profitable as compared to larger sized enterprises. Hence, the role of entrepreneurship in reducing poverty in developing nation is promising. 

Issues, Barriers and Opportunities?

THE ROLE OF SUSTAINABILITY IN REDUCING POVERTY IN DEVELOPING COUNTRIES The concept of sustainability is difficult to define and its precise definition varies within different contexts. However regarding the development process, two primary aspects of sustainability emerge. Economic and environmental sustainability both tie in with the notion of sustainable micro-entrepreneurship, economic sustainability refers to a continual supply of finance to meet a person on community’s needs, usually in the for of secure and accessible loans from a microfinance institutions and environmental is the aim to preserve environmental resources for use by future generations providing financial services entails that they must be sustainable and that means charging interest rates that cover your costs. Microfinance institutions have convincingly demonstrated that they can become profitable and sustainable institutions while making major contributions to poverty reduction by increasing economic opportunities and employment. This affects them because the growing public awareness of corporate governance and of environmental and social issues is driving changes in consumers behaviour. Investment and policy or regulatory adjustments, all signs point to continued pressure on the private sector to demonstrate the economic growth and sustainability.