After a selection process, InFiNe.lu awarded a scholarship to one of its member, Sarah Canetti, Senior Investment Officer in ADA, to attend the 5-day Programme on Strategic Leadership in Inclusive Finance organised by the Harvard Business School and Accion from March 28-April 2, 2016.
In this blog, Sarah Canetti will share her experience:
In the past, HBS and Accion have brought together leaders from roughly 100 countries – including over 300 CEOs, presidents, managing directors from some of the field’s leading microfinance institutions and financial service providers. Through more than sixteen practical and real case studies, the course is based on an immersion in the financial inclusion industry and the operations of leading financial institutions that serve lower income clients. Thought these case studies, we examine how new business models in this space, especially technology-enhanced models, succeed or flounder, and we addresse key challenges of doing business at the base of the pyramid, including succeeding in highly competitive markets, maintaining a social focus in a commercial setting, and evolving products and delivery channels.
69 leaders operating in the financial inclusion sector are attending the training, coming from 31 different countries. More than half of the participants are working in Africa and Asia. The distribution of the participants by industry is interesting, particularly with the proportion of regulators and technology providers, illustrating the new trend of the sector.
From Elektra Group’s case study, the class exchanges about the meaning of financial inclusion. What is financial inclusion? What is its definition and vision? In terms of financial service, can we restrict financial inclusion exclusively for productive loans, financing income generating activities? If financial inclusion aims at improving lives of people at the base of the pyramid, by providing consumer durables, as refrigerator to people who cannot access to it, is it financial inclusion? Does the financial inclusion can be defined by having access to quality financial services at affordable prices? Does the denomination of financial inclusion have to be exclusively given for actors presenting their intention to reach social goals or can be given according to the impact reached?
Defining the financial Inclusion appears more complex than expected, finally depending also from which point of view we are: Investors, financial institutions, regulators or clients.
After a first half of day questioning how can we define the financial inclusion, we spent our second day on studying and analyzing strategic decisions on three microfinance institutions : SKS, Edyfical & Mibanco and BancoSol.
We started with SKS in India and its IPO (Initial Public Offering) followed few month later by the Andhra Pradesh (AP) microfinance crisis. The crisis, involving the suicides of several MFI clients, was picked up by the media, followed by the public, and then finally by the government. The local government reacted by enacting an ordinance clamping down on MFI’s alleged reckless practices. A strict regulation was also put in place at that time. With this case, we started first by exchanging about the effective social value created by SKS. On which aspects an IPO can impact your social mission ? How to balance between growth with capital increase to serve more clients and/or limited growth to keep the social goal. We took time to discuss in depth the positive and negative aspects of the new regulation, stricter, put in place in AP state. What was the role of the regulator in this case? What impacts does have the new regulation on MFI business? Few month after its IPO, what should do SKS ?
With this case study, SKS and the AP microfinance crisis, we could approach various problematic that can face an institution : Growth : Yes or No ? If yes, how to keep your social goal? How to manage political risk ? How to deal with the regulation ?
After this very interesting case, we went through two others fascinating cases : Edyficar and Bancosol. Two case studies dealing about strategic decisions.
Regarding Edyfical, an microfinance institution in Peru, should they buy their main competitor, Mibanco, Yes or Not ? If Yes, at what price ? Why MiBanco, which was very successful in the past, was facing so much difficulties in the last years? What were the real reasons ?
Regarding BancoSol case, how this institution, with more than 30 years of operation can evolve with the new Bolivian banking law, involving interest cap, 60% investing in productive sector etc. Which strategic plan to adopt ? Does this strict banking law can represent an opportunity for BancoSol to be a leader by rethinking microfinance business model and improving microfinance efficiency ? For this last session, we had the pleasure to have the CEO of BancoSol, Kurt Koenigsfest, participating at the session. At the end of the session, he shared with us the strategic plan BancoSol decided to adopt, explaining us all the business model and operational changes that involved.
These three sessions, mainly dealing with strategic decisions of microfinance institutions were very intensive and enriching workshops! The three next days will be dedicated to the disruptions, impact investing and business analogies at the base of the pyramid.
We spent our third day by analyzing several examples of Financial Inclusion disruptors… How new technologies, Fin-tech, can change and push forward the worldwide financial inclusion ?
We start our day by studying M- Pesa (“M” for mobile and ”pesa” for cash in Swahili, Kenya’s main language) success in Kenya. This initiative, launched in 2007, allowed people to use short message service (SMS) on mobile phone to send money to relatives living in the countryside or even to pay for goods and services. We asked ourselves : What has been the key to M-Pesa’s success in Kenya ? What are the key challenges facing M-Pesa now ? Could M-Pesa replicate this domestic success formula overseas ? Was that Mobile Banking model successfully in others countries ? If not, why that model could not be replicated overseas ?
After M-Pesa case study, we went through interesting MasterCard projects in South Africa and Nigeria, understanding how MasterCard puts its technology to private/public programs aiming at driving Financial Inclusion. What were the key elements in case of successful projects ? And what were the elements in case of project failures ? What was the role of the governments in both case ? Even if Mastercard is not driving financial inclusion on itself, we were all interested to understand how, through these kind of programs and partnerships with governments, MasterCard was using its technology to build the base, the infrastructure, enabling a first step in the financial inclusion of the BOP people in some countries.
Since its founding, CreditEase had become an example of financial inclusion, with the world’s largest peer-to-peer (P2P) lending platform and disbursing more than a million loans a year totaling 5 billion USD. How this kind of new business model, involving Fin-Tech and new funding strategies, can push forward financial inclusion ? What are the major factors that will determine CreditEase’ success in the next decade ?
Ning Tang, CreditEase’s CEO, was with us, participating at the workshop, and sharing with us its experience.
After the Mobile Banking revolution, we are seeing the premises of new technologies that could, maybe sooner than expected, revolutionize the worldwide financial inclusion. It is most likely that you will hear about blockchain and bitcoin in the financial industry very soon…
We cannot speak about financial inclusion without speaking about impact investing. These funds, due to their social vision, accept to take more risk in order to support the financial inclusion industry.
We spent the day debating about the visions, methodologies and structure of these impact investors.
One point, among several, that I thought was quite interesting is the methodologies used by impact investors to estimate their investee’s performances in terms of social impacts.
How an impact investor can measure impact?
We discussed about the advantages and disadvantages of the BACO methodology, used by Acumen Fund. How an investment fund should evaluate and manage performance of its investments after the investment? Should metrics be standard across all investments, across sectors, or custom for each project? What reporting requirements can be put in place of the investees? Should an impact investor focus on output or impact?
From another perspective, we analysed some funds which decided to separate their supports : they asked higher return on investment but were willing to disburse grants to support non-financial services provided by the institution. Some funds, as Omidyar Network, provide a larger panel of financial supports, from the grant to the equity investment. In addition to their financial supports, they can also provide human and intellectual capital. In what key ways impact investor as Omidyar Network approach is the same or different than current existing alternatives? What impact these differences will have on the funding of social businesses at the Base of the Pyramid in general. Why ? These are all the fundamental topics we discussed today. And as new notion, we debated about Social Impact Bonds (SIB). When budget constraints are more relevant than ever, a new funding source has been developed this recent years : the Social Impact Bonds.
The Social Impact Bonds, also known by the names of “Pay for Success Bonds” or “Bonds Social Benefits”, are programmes raising private funds to finance public social actions. In other words, the SIB are a type of loans granted by private organisations to governments, in order to finance social projects.
In practice, when the funded projects reach a certain level of maturity, an independent evaluator is responsible for determining whether the objectives were achieved or not. If this is the case, the government repays investors their capital to which is added a proportional yield saved by the government. However, if the results have not reached the initial objectives, the government is not required to repay investors.
Like Fin-Tech yesterday, I found this innovative concept particularly interesting. It is likely to expand in developed and developing countries in the coming years….
What are the similarities about Unilever Shakti project in India, Farmacias Similares in Mexico, Manila Water Company in Philippines, The Aravind Eye Hospital in India ? Well, these businesses are all focusing on the population at the base of the pyramid.
These four case studies lead us to raise some questions. What are the advantages and disadvantages of large commercial banks as compared to MFIs that only serve the BOP? Are they a threat? What are the responses of the large branded companies (which can be compared to large commercial banks) to new social business or MFIs? In some cases studies, these new initiatives are more efficient than their peers. How did they reach this efficiency? How having a strong mission and a good human resource management can change all the dynamic of a business? Is it replicable? Can we replicate a successful microfinance business model overseas?
Leadership & Futur Directions
All these last cases lead us to think about the future of the financial inclusion in its globality. What can we do for the 3,6 billions people at the base of the pyramid ? In the last 30 years, the industry achieved to expand working capital loans and to reach easy to access clients but the industry is just beginning launching new services : saving, housing, insurance, retirement and the remote rural areas are still not reached.
Today, the industry assumes that around 20%-25% of potential credit clients have currently access to microfinance credit. How will the remaining 75-80% be reached?
As leaders of the industry, it is our responsibility to think about it and to implement innovative programmes and concepts in order to answer this question…
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