Microfinance Focus, July 24, 2012: The European Microfinance Platform (e-MFP), a network of over 135 organizations and individuals active in the area of microfinance in Europe has announced the date of European Microfinance Week for the current year.  European Microfinance Week, an annual conference organized by e-MFP will take place in the Abbaye de Neumünster, Luxembourg, 14th – 16th November 2012. The theme of this year’s event is “Combining strengths – delivering results”.

It will be a two day of workshop and roundtable sessions. 14th November will be the Action Group and Training Day, with plenary, workshop and roundtable sessions taking place on 15th and 16th November. Over 370 participants from 60 countries have gathered in the in the last edition of European Microfinance Week.

During European Microfinance Week, 4th European Microfinance Award ceremony will also be hosted by the European Investment Bank. The European Microfinance Award is organized jointly by the Luxembourg Ministry of Foreign Affairs – Directorate for Development Cooperation, the Luxembourg Round Table on Microfinance and e-MFP to promote microfinance initiatives and highlight their contribution to the development of the sector.

The objective of the 4th European Microfinance Award “Microfinance for Food Security” is to highlight and stimulate initiatives that represent breakthroughs in promoting food security. The Euro 100,000 prize for the 4th European Microfinance Award will be given by Her Royal Highness the Grand Duchess Maria Teresa.

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• For Further details, click the link:  www.e-mfp.eu

• Registration to European Microfinance Week 2012 will be available online in August.

Microfinance Focus, July 24, 2012: The AlalaySaKaunlaran, Inc. (ASKI), a Philippine based development organization was awarded the first Environment, Social and Governance (ESG) Award for Outstanding Achievement in Social Performance by OikoCredit Southeast Asia in a simple ceremony held in Manila, recently. According to OikoCredit, the ESG awards are given to recognize their selected partners who have consistently exhibited exceptional institutional accomplishments in social performance.

ASKI is a member of the SPM Peer Learning Network organized by Microfinance Council of the Philippines. In 2009, ASKI received a social rating of A- from an international rating agency specializing in microfinance and rural finance. ASKI also received the certification from Grameen Foundation for its compliance in the basic, advanced, and tracking over time standards in its Progress Out of Poverty Index (PPI) use.

Aside from the plaque, ASKI received USD10,000 cash prize. The ASKI Skills and Knowledge Institute plans to conduct more trainings on social performance to utilize the award, said an official from ASKI.

Microfinance Focus, July 24, 2012: Accion, a Global Microfinance Conglomerate has invested US $1.9m in CrediConfia, an east-central Mexico based Microfinance Company, according to an official release. The investment provides Accion with a nine percent stake in CrediConfia, a board seat, and the opportunity to engage in a three-year service contract providing governance, management and technical support to the MFI.

A key element of that support will include deployment of Accion’s credit technology to expand and improve the scope of CrediConfia’s products, improve loan quality and profitability and, in turn, help position CrediConfia as a leading provider of microfinance products and services in Mexico.

CrediConfia’s goal is to serve the economically active poor in Mexico’s informal economy by offering microcredit loans to help expand their businesses and improve their living standards.  Currently, CrediConfia serves 21,500 clients through a network of 25 branches covering the states of Mexico, Puebla, Hidalgo and Michoacán.

Microfinance Focus, July 20, 2012: Microfinance has an argument in its favor, that poor who live in areas without banking services will gain higher returns on investments and increase their assets when provided with credit.  A research study from Consortium on Financial Systems and Poverty (CFSP) shows evidence of microfinance impacts and indicates that the true returns of expanding access to credit are much more complex. Some of the greatest benefits to alleviating poverty, the study suggests, may be in the impact the programs have on driving up wages.

Joseph P. Kaboski of the University of Notre Dame and Robert M. Townsend of the Massachusetts Institute of Technology, research examined changes in behavior resulting from the Thai Million Baht Fund. This initiative by the government in Thailand transferred one million Thai baht (about $24,000 at the time) to each of 77,000 villages throughout the country. The goal was to increase available credit and stimulate the economy.  

The CFSP study showed that the village fund had the desired effect of increasing overall credit in the economy, and, in fact, in the long run, the program led to an overall expansion of credit. More significant, the authors argue, is that that wages increased by approximately 7 percent in a typically-sized village during the first two years that were tracked.

Joseph P. Kaboski, noted, “This paper is the first real evidence we have on wage impacts of microfinance. The impact on wages is important in terms of the potential of microfinance as a poverty reduction program. Only a relatively small fraction of the poor want to borrow from microfinance, but a much greater share of the poor work, and might therefore benefit indirectly from an increase in wages.  We are far from understanding the mechanisms, but there is great potential here.”

The wage impacts may be because the fund led to a more efficient distribution of capital to entrepreneurs, which then increased the demand for labor. The study recorded that the wages increased for general non-agricultural labor, such as construction in the villages, but not for professional occupations or occupations outside of the village, suggested the authors.

The study also showed, other effects of the injection of credit were more short-lived, including a notable jump in consumption, and increases in borrowing, business and labor income, and investment in agriculture.

The authors report that further examination of the data is underway. Their findings are based on an economic model they developed, using data captured as part of the Townsend Thai Data project, a monthly household panel survey that Townsend has led since 1997. The paper, “The Impacts of Credit on Village Economies,” was published in the journal Applied Economics earlier this year.

Joseph P. Kaboski is David F. and Erin M. Seng Foundation Associate Professor of Economics at the University of Notre Dame and an affiliated researcher with CFSP. Robert M. Townsend is the Elizabeth and James Killian Professor of Economics in the Department of Economics at Massachusetts Institute of Technology, a Research Associate at the University of Chicago, and the faculty director of CFSP. He is a development economist whose recent work focuses on analyzing the role and impact of financial systems on developing economies by studying applied general equilibrium models and contract theory.

The Consortium on Financial Systems and Poverty (CFSP) is a private research organization of leading and emerging economists. Their goal is to improve the lives of the world’s poor and to reduce poverty through helping to identify, design, and implement more efficient financial systems.

By Chris Dunford, Senior Research Fellow, Freedom from Hunger

Microfinance Focus, July 18, 2012: In this, the last post of the series, I must deal with the debate between those who insist we can know nothing about impact without RCTs vs. those who reject the utility (even the validity) of RCTs for informing policy and practice.  Polemics are entertaining but make it very hard to strike a balance between the extremes without appearing to be someone’s opponent.

In the prior posts, it should be clear that I regard RCTs as essential to anchor our knowledge base in good science, to give us confidence in what we think we know.  It also should be clear that RCTs can’t be helpful to practitioners and those who support us without supplementation by other methods of evidence gathering and interpretation.

At the Opportunity Collaboration last October (2011), I had refreshing conversations about mixed methods with Kat Rosqueta of the Center for High Impact Philanthropy at the University of Pennsylvania and Melanie Moore, founder and leader of See Change in San Francisco.   Refreshing because they stand outside the surprisingly narrow worldview of those who focus on microfinance.  Kat’s group summarizes the mixed methods approach very well:

To meet our goal of providing smart, practical guidance to donors who care about impact, we synthesize the best available information from three domains: research, informed opinion and field experience. We believe the most promising opportunities exist where the recommendations of these three domains overlap. [the bolding is mine]

Exactly!  I’ve never read a more succinctly sensible statement of evaluation methodology.  For the purposes of this Evidence Project, however, I want to reframe the three domains slightly.  “Research” is what we learn from RCTs and similar experimental-design field research methods; “informed opinion” is what comes from non-experimental observation and correlation methods used by program evaluators and even practitioners.  “Field experience” means the subjective knowledge or intuition that comes from years of laboring in the vineyards of international development.  All three domains contribute toward building our confidence in what we think we know.

Before dismissing the value of “field experience” as good evidence, remember that the human mind is uncanny in its ability to make sense of very complex and imperfect information.  Our brains appear to have an evolved, intuitive grasp of probabilities, which allows us to employ Bayesian reasoning. This is a fancy way of saying that learning from experience leads to better predictions.  We estimate a correct answer or solution not just from the information flowing through our senses right now but also with reference to the relevant “priors” or beliefs derived from past information and experiences.  A head-to-head comparison by psychologist Wilson Geisler of the University of Texas at Austin (as reported in Science News) of real people vs. a mathematical model of the “ideal Bayesian observer” showed the “probabilistic minds” of real people were “almost perfect” in matching the performance of the Bayesian statistical model.  But “perfect” doesn’t allows mean being correct. 

As Richard Thaler and Cass Sunstein tell us so well in their book Nudge, our probabilistic minds have certain built-in biases (more positively they are also called “heuristics” or “rules of thumb” or “short cuts”), which serve us very well to deal with complex, imperfect information but also may mislead us in unusual circumstances.

Coping with this possibility that our experience or intuition may mislead us, we look for confirmation or counter-intuitive results from “objective” methods of perceiving and analyzing what is going on around us—other sources of good evidence we can use to triangulate with our direct experience to get at the truth of the situation. 

Field experience is really the starting point for what we think we know, the foundation upon which the other two domains build our confidence.  Let’s get back to the language of debate in microfinance.  We capture field experience in a succession of anecdotes.  If we rely on these alone, we have a rich body of evidence of what works and what doesn’t but also doubts about how badly we are misled by the biases of our probabilistic minds (and the distortions encouraged by conflicting motivations, like promoting our own institutions or worldviews). 

Melanie Moore is developing “story science,” which resonates with Freedom from Hunger’s project to develop a rigorous method of collecting in-depth life stories from randomly selected microfinance clients and then following up with the same people about three years later (see our preliminary report, Human Faces of Microfinance Impact).  This is not unlike the case study methodology that dominates the business schools, but at the level of individuals (who are more easily selected at random and in statistically powerful sample sizes than are companies or programs).  These and other efforts reflect a convergence of experimentation toward more rigorous, credible methods to generate “informed opinion.” 

Story science and other objective methods of observation and correlation increase or temper our confidence in what field experience leads us to think we know about the impacts of microfinance and related services. Not confidence in the formal statistical sense of confidence, but close to it.  We are engaged in probabilistic estimation of the truth; we can never be certain of the truth, but our confidence in our estimation is increased by more and varied good evidence that points in the same direction.  And our confidence is undermined when we have little to no objective evidence or we have a variety of evidence pointing in different directions.

However, even rigorous, credible methods of observation and correlation do not serve to demonstrate what causes or doesn’t cause the results we see.  We can do one excellent study after another that shows a strong correlation between being a microfinance borrower and being successful in starting or growing a microenterprise.  But without controlling for “self-selection bias” and “program placement bias” and other ways we allow our minds to be misled, we never show that borrowing itself causes better business.  We need a field experimental design that allows valid comparison of those who would borrow but can’t to those who would borrow and can (and do)—a randomized controlled trial or RCT.

Without an RCT that shows causality, we can still have some level of confidence derived from observations and correlations that mostly point toward borrowing as a cause of better business.  With an RCT, even better with two or more RCTs that point in the same direction as our field experience and our informed opinion, our confidence can soar.  But not too high!  It takes just one new study that contradicts what we think is true to send our confidence plummeting—as it should, if the study is valid, both internally and externally.  We have to “know” with humility about the prospect of being wrong.

The Evidence Project seeks to bring this knowing with humility approach to what we think we are learning about microfinance and world hunger.  We are trying to build theory from the building blocks of different cause-and-effect pathways, each with a certain level of confidence that comes from field experience, objective observation and correlation, and experimental-design research.

In the first series of posts (called Theme Two), The Evidence Project blog has looked into the proposed causal pathway from a microfinance institution providing financial services to groups of poor women to decreased costs of borrowing and saving to poverty reduction in the households of these women.  This pathway will serve to illustrate the method of this Evidence Project and to explore what may seem like a self-evident truth.  But is it true?

I invite you to join me in The Evidence Project, which seeks to tap into the global knowledge of people just like you.  Your comments to correct and add evidence and conclusions will be very welcome.

Microfinance Focus, July 18, 2012: Convergence 2015 has published 2012 Microfinance Barometer, in partnership with the Caisse des Dépôts, the Fédération Nationale des Caisses d’Epargne, Citi and Adie. The third edition of Microfinance Barometer examines the   global trends and key issues of the sector.

2012 Microfinance Barometer, offers a synthesis of the mains trends of microfinance in France and on the international scene. There are studies, surveys, clients portraits and interviews of microfinance key actors. Updated figures regarding microfinance actors in France and abroad are also available. It also has the results of an exclusive IPSOS opinion poll on what French people think of microfinance and a special report dedicated to microfinance in France.

Convergence  2015 statistics on  French microfinance actors on the international scene disclosed that in 2011, French investors spent 772 million euros in the microfinance sector (+33% compared to 2010). The number of French practitioners’ clients on the international scene continues to grow highly compared to 2010, with 563,000 borrowers, 616,000 savers and 159,000 people insured in 2011. French support organizations to microfinance devoted around 100,000 working days to assisting microfinance institutions (MFI) and MFI networks abroad in 2011.

Microfinance in France according to the Convergences 2015 statistics states that in 2011, professional microcredit made it possible to support 31,000 companies (including 12,000 new businesses) and create 57,000 jobs in France. Also in 2011, the goal of 88% of personal microcredits disbursed by Adie, Crédit Municipal de Paris and Restos du Coeur was essentially employment and mobility.

An opinion poll on “What do French people think of microfinance?” with a representative sample of 1006 people revealed that the reputation of microcredit has greatly improved: 84% of those interviewed were familiar with the term in 2012, compared to 71% in 2010. French people have a positive appreciation of microcredit: over 70% of those interviewed agree with the idea that microcredit is an innovating solution to fight against poverty and exclusion worldwide.

Jean-Michel Severino, President of Convergences 2015, Former Director of the French Development Agency, said, “For many years, microfinance was considered a panacea against poverty. In 2010 however, the sector was damaged by various localized crises (India, Morocco, Nicaragua, and so on). Therefore actors started to question, renew and innovate their practices in order to revert to the original social assignment of microfinance, while building more sustainable economic models.”

Convergences 2015 is a platform for thought in Europe that aims at building new convergences between public, private, and solidarity-based actors to promote the Millennium Development Goals and to alleviate poverty and privation in developed and developing countries.

By Sam M Mendelson,

Microfinance Focus, July 17, 2012: There have been three particularly fascinating books that have illuminated the microfinance industry in the past couple of years or so. Actually there have been more than three, but Confessions of a Microfinance Heretic is for me the third of a triumvirate that provide a genuine spectrum of analysis of what the purpose of microfinance is, what positive outcomes it leads to (if any) and what  - if anything – can be done to make it work better.

Most readers of this site will be familiar with the first two: Milford Bateman’s Why Doesn’t Microfinance Work, and David Roodman’s Due Diligence. These two men have engaged in pretty much ongoing public debate for the last two years over the central thesis of each other’s work: that (and forgive the inevitable over-simplification) ‘microfinance  not only fails to improve people’s lives but that it is inherently flawed and its foundation on half-truths makes it a barrier to development’ (Bateman); and ‘that microfinance is only now being subjected to genuine rigour in its analysis of outcomes, that there is little evidence that microcredit has a poverty-alleviating effect, but that there are foundations to be built upon’ (Roodman). Although I continue to generally agree more with Roodman than Bateman, I’ve been pleased with the intellectual momentum this debate has promulgated: the internet heaves with informed discussion on how to make microfinance work better for the poor.

Now, Hugh Sinclair has written a book very different than either of the others, but one which in its own way is just as important. Confessions of a Microfinance Heretic is part whistleblower, part autobiography, telling the story of Hugh’s decade in the microfinance industry, working in MFIs in Mozambique, Mexico, Nigeria and Mongolia, and his time at Triple Jump, the Dutch-based fund manager, and with several other high-profile funding organisations, leading up to the author’s role as an anonymous source for a New York Times exposé on corruption within the industry. Less academic than the other two, it is obviously intended to reach an audience beyond the industry people reading the Bateman-Roodman exchanges.

It is written with the evident frustration and disappointment of a man who has seen his faith in the industry and its lofty ideals shattered by a first-hand viewpoint of the disconnect between what microfinance is supposed to be doing (sustainably providing financial services to the poor to help alleviate poverty) and the incompetence, and – one gets the sense that his lawyers forced him to keep some of his powder dry – borderline criminal negligence by the funders of the industry to conduct proper due diligence of the institutions in which they invest. It is not an academic tome by any means. And it is flawed in several respects. But it is scathing without being unconstructive. And it is, I gather, already leading to some heads starting to roll.

Confessions has as its starting premise that the microfinance industry has adopted some of characteristics of a cult – the idolatry; the dogma; the resistance to criticism. Sinclair’s opening chapter is entitled “Thou Shalt Not Criticise Microfinance”, and speaks of a community of group-thinkers, wedded to the orthodoxy of microloans turning destitute women into burgeoning microentrepreneurs, and for whom questioning of the orthodoxy amounts to the heresy being confessed.

I think we have all met some such people at conferences and the like. And no doubt pre-2010 such unblinking supplication to microfinance as development panacea was widespread. But Sinclair’s description of the cultishness of the sector is probably the least interesting part of the book (I have had enough experiences to the contrary to feel that the industry is not so suffused with KoolAid-drinking automatons). The second least interesting parts of the book are some of the digressions into the personal narrative unrelated to the microfinance work itself: the back-and-forth alternation of personal memoir and serious presentation of important observations is a sometimes uneasy one, and while Hugh’s story is a good one (and he has crammed more experience into a decade than most people manage in a lifetime) this book would have been better with a more singular focus on the microfinance.

And here is where the book is genuinely important. He lambasts certain MFIs for their staggering incompetence: LAPO in Nigeria comes in for the strongest treatment, particularly on interest rates and his long-standing contretemps with Grameen Foundation and Calvert over their investment in LAPO. Their alleged failure to conduct a minimum of due diligence is an intriguing story. In fact, the majority of the book involves LAPO in one way or another, and although that opens up the legitimate question of representativeness, he portrays a pattern of behaviour among other parties in their involvement with this particular MFI that is very interesting indeed. It describes well the way the so-called ‘principal-agent problem’ manifests in this context, with the agent (the MIV) having more information than the principal (investor/donor) and able to leverage that advantage to its benefit. Perhaps it is the middle man – the fund – which is the biggest obstacle of all.

There isn’t space here to summarise everything Confessions touches upon. Some parts miss more than they hit, to be sure; some sections even have a slightly elegaic feel. The ‘recommendations’ to regulators, borrowers, investors are unsatisfying. I don’t share all of Hugh’s criticism of Kiva. But some of the stories are funny and engaging (the difficulty installing a computerised MIS at a rural branch in Mozambique is hilarious), some inspiring (he describes in detail his refreshing experiences in Mongolia – like “microfinance with a soul”), and some are ponderous and detailed by necessity: the presenting of the background and evidence of negligence or malfeasance surrounding LAPO and various of its funding organisations.

Ultimately, Confessions is frustrating and fascinating in equal measure. Sinclair goes to great ends to make clear he is not in the Bateman camp of seeking to undermine or destroy the industry to focus on alternative development pathways. Probably a half dozen times he refers to not wishing to “throw the baby out with the bathwater”, an over-repetition left unmolested by the editor’s red pen than can only indicate just how clear Sinclair is that he wants the industry to be saved, not destroyed. This, then, is laudable, as is his effort to head off at the pass the villains’ panic by publishing original materials at a website set up for this purpose. Despite the evidence he presents of malfeasance and incompetence, one feels he has pulled some of his punches (some of the more peripheral people have had their names changed, with cannot help but make the charges feel flimsier – whether they are or not) at the behest of the lawyers.

The remaining frustration comes from the paucity of recommendations for fixing the industry. Or rather, that the recommendations are too feeble or restrained that an opportunity for has been missed – ‘A Manifesto for a New Microfinance’, or the like.

Overall, though, as in the industry itself, one mustn’t let the perfect be the enemy of the good. This book is far from perfect. Some of what it says is news to nobody (there are MFIs charging extortionate rates with aggressive collection practices; there remains a failure to conduct adequate, rigorous due diligence by funders of MFIs before investing), but some of the stories he recounts tell a much broader story – one which it is important to hear. This story is that compounding the failures of individual people and institutions is a culture of paranoia and dishonesty among those being criticised. And that – perhaps due nod to Steven Levitt – incentives are key to behaviour, and the structures of incentives within the industry are some of the obstacles to achieving microfinance’s social objectives.

I’d like to say one final thing. I know Hugh a bit personally, and although we disagree on plenty, I can openly and publicly say I believe his motives in writing this book were as he claims them to be. He knew while writing it that upon publication he would be condemned, ostracised, fired and slandered by many who have been implicated or associated with those who have failed in their roles to make microfinance what it can and should be. He wrote this book at tremendous personal cost. So I’d like to commend his bravery in writing what is a flawed but nevertheless important book from an insider, for the outsider, and which hopefully could have positive consequences for the industry.

About the Author:

Sam Mendelson is co-author since 2009 of the Microfinance Banana Skins survey, and is the 2012 CSFI Citi/DFID Development Fellow.

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Microfinance Focus, July 17, 2012: IFMR Capital has recently closed an INR 77.2 million rated PTC securitization transaction (called Abeona SBL IFMR Capital 2012) with its partner; the India based NBFC, Vistaar Financial Services Private Limited, Bangalore.

The transaction was IFMR Capital’s first securitization of an exclusive SME loan pool and one among very few similar transactions in the past.  IFMR Capital’s transaction was the first transaction with a new and small originator in a space that is dominated by larger NBFCs having significant vintage. Vistaar operates in Tamil Nadu and Karnataka and has developed a lending model for the small business loan segment.

IFMR Capital builds small business loans as a mainstream asset class in the capital markets and therefore partner with innovative financial institutions that extend financing to this financially excluded segment.  They believe that they can leverage their expertise, credibility and investor franchise to systematically build this asset class backed by a strong underwriting framework.

IFMR hopes to follow this transaction with several more in this asset class and are in the process of building a pipeline of SME lenders.

Their next step would be to replicate the multi-originator securitization structure for small business lenders, just as IFMR Capital has done for microfinance institutions. Such a transaction would enable small business lenders to access capital markets at a reasonable cost.

IFMR Capital has facilitated about INR 20 bn (2000 crores) of financing for underserved asset classes such as microfinance, small business loans and affordable housing finance. They aim to extend this mainstream capital markets financing for all high quality institutions serving low income households.

IFMR Capital connects high quality originators impacting low-income households, such as, Microfinance Institutions (MFIs), Affordable Housing Finance companies, institutions lending to Small & Medium Enterprises (SMEs) and small farmers, with investors in existing and emerging debt capital markets.

Microfinance Focus, July 16, 2012: Janalakshmi Financial Services Pvt. Ltd., (Janalakshmi), an India based NBFC-MFI, said that it had closed its Series C equity raise of Rs 145 crore. Of this, Rs 65 crore was raised in the first tranche in June 2011 and Rs 80 crore has been raised in the second tranche in July 2012.

Private Equity (Citi Venture Capital International), which had led the investment in the first tranche and India Financial Inclusion Fund (IFIF) and GAWA Microfinance Fund (GAWA) lead the investment in the second tranche. Private Equity has further increased its stake in the company by infusing additional capital.

Line Asia Master Fund (Singapore) Pte. Ltd., an existing investor and Enam Shares & Securities Private Limited (ENAM) participated in this round. Unitus Capital was the lead financial advisor and arranger to Janalakshmi and its shareholders for the transaction.

V. S. Radhakrishnan, MD & CEO of Janalakshmi, said, “We are delighted to have raised these funds from new investors and from some of our large existing investors. It’s a validation of the business model that we have pursued relentlessly for the past several years, and which helped us weather the unprecedented crisis in our sector with minimal impact. The core pillars of our business model are a constant focus on the customer and her needs; the pervasive use of cutting edge technology; and a deep and disciplined management team. This capital infusion will help Janalakshmi to continue our path of growth and continue to innovateas we deepen our customer relationships through initiatives like JanaOne that we have just launched.”

Eric Savage, Co-Founder & President of Unitus Capital added, “Janalakshmi’s Rs.145 Crores capital raise from top global investors signals the end of the Indian microfinance crisis. Janalakshmi’s passionate, world-class leadership and comprehensive, client-centric product suite has allowed Janalakshmi to grow fourfold since the advent of the crisis 20 months ago. This phenomenal growth in the face of tremendous adversity is one of the great stories of the global social impact space.”

Janalakshmi Financial Services (JFS) is a financial institution servicing themicrofinance needs of the Urban poor in India, with a market-oriented focus.