European Microfinance Week 2015

Blaine STEPHENS introduced the topic of the plenary by referring to the movie “Back to the Future”, which has 21st October 2015 as the date when Marty McFly visits the future. Stephens invited the audience to reflect on the movie’s predictions which were accurate and those which were not. Bringing the session back to microfinance, he used the outcomes of the closing panel of European Microfinance Week 2012 to take a look at predictions which became a reality in 2015.

The first prediction made in 2012 was that microfinance clients would be able to use a service analogous to Yelp, a website that connects people with local businesses, thus being able to look up specific MFIs and their price propositions and services. Stephens said that we are not quite there yet, but several enablers for that vision are in place. He rated each enabler with a number of stars, ranging from 1 (lowest) to 3 (highest). He rated smart phones with 1 star, emphasizing that it is a tool which is increasingly available in developed and developing markets, but that prices are still high. Geospatial information received 2 stars; it is becoming more and more prevalent in the context of financial inclusion, helping regulators to better understand reality. At the same time, it helps clients to find services such as providers and agents and helps businesses in expanding and finding opportunities. Stephens also emphasized that more than 42 governments have committed to mapping financial inclusion to date, despite the remaining challenges such as data standardisation and openness. The next enabler, client feedback, received 1 star. Stephens called attention to the importance of client feedback in the democratisation of expert advice. In microfinance, there has been a strong focus on connecting to client feedback, such as hotlines on financial service providers. However, Stephens stressed that such efforts remain tentative but we are heading in the right direction. Similarly to client feedback, mobile financial services also received 1 star. There has been an enormous growth in the usage of mobile wallets and other mobile-enabled services, but they have not yet moved to a broader spectrum.

Stephens then invited the audience for projections of the microfinance industry for 2018. Through the online polling system, the audience were able to vote on questions covering three areas: 1) the ecosystem; 2) the institutions; and 3) the clients. The questions and results, commented on by Marc LABIE, were:

1. What market infrastructure development underway today will have the greatest impact on financial inclusion in the coming years?

1. 1. Nigeria’s e-ID cards with embedded MasterCard payment technology.
   2. Cote d’Ivoire’s launch of multi-operator mobile registration and payment of school fees.
   3. India’s push for electronic social benefits transfers to Aadhaar (unique ID) linked accounts.

Item c received the highest percentage of votes (47%), followed by items b (10%) and a (43%). Labie commented that there is no doubt that technology has the potential to push the frontier, but that we have to learn from history that replication is not easy. He emphasized that, in order for replication to work properly, it must be socially and culturally embedded. In addition, Labie mentioned that the issue is not with the technology itself, but the level to which people will be able to incorporate and use it. In this light, we must think of objectives and risks in employing new technologies.

2. What is your opinion in terms of the potential crises that the microfinance sector could face in the future?

1. 1. The ones that have happened over the last ten years have generated enough knowledge for limiting the risk that others happen.
   2. The industry has not learned enough from previous crises and a similar situation could happen again.
   3. The crises that the sector has already experienced are very diverse; they do not help predict future crises.

Item c received 57% of the answers, followed by items b (30%) and a (13%). According to Labie, crises are inevitable. However, industry should ask itself whether it is normal that crises come from the same wrong decisions by the same stakeholders. He pointed out that many crises came down to the same causes, including inadequate governance, growth and competition and policies, as well as overloading good clients. In that respect, there will not be much change from what we already know.

3. Which of these statements will hold the most insight on funding of institutions in the sector in the coming years?

1. 1. Donor and development-oriented funding will continue the move away from ‘microfinance’ and towards SME finance, agricultural finance and basic account access.
   2. Social investor capital will increasingly focus on institutions that demonstrate responsible finance practices and client impact.
   3. Global social investors will tend to move away from microfinance, leading microfinance institutions to finance themselves on local markets (deposits, local debt, etc.).

Item b received half of the votes, followed by item a (31%) and c (17%). Labie agreed with the audience at first instance, but called attention to the timeframe of this question. Whereas microfinance was historically seen as socially positive, public opinion and markets nowadays are starting to develop more diverse viewpoints regarding its impact in the long run. He mentioned that the issue of double bottom line is essential, and that only a minority of institutions are really pushing for it. Labie said that the market and public opinion will eventually be able to distinguish between different segments and develop proper impact investment assessment alternatives.

4. What tools will prove most effective in increasing access to financial services by underserved segments (e.g. youth, elderly, and women)?

1. 1. Funding (e.g. targeted at developing products for segments, addressing financial capabilities)
   2. Product design
   3. Policy setting (e.g. targets, regulations)

Item b received 57% of the votes, followed by items a (28%) and c (15%). Labie mentioned that the three elements have a strong impact, and would like to share the optimistic view of the audience on product design. He questioned whether new products will mean better financial inclusion and whether the margin will be passed on to the consumer. In terms of policy setting, Labie called for stronger attention to the industry’s history, reminding the audience that savings as a way to improve service to client in terms of financial inclusion has not received enough attention.

Based on a question from the audience regarding technology ownership and service delivery decisions, Labie emphasized that the big issue is whether funds are delivered to people who need them, in an efficient manner, while making sure that the margin is reasonable. Another member of the audience called attention to mobile technology as a possible source for unexpected crises in the future of microfinance. Stephens closed by expressing his hope to check the results of the online poll in three years.