Access to Finance

Unlocking the Power of Client Voice


By Tara Murphy Forde, Vice President of Impact and Research

 

At Global Partnerships (GP) we believe that with access to tools, resources, and information, people have the power to earn a living and improve their lives. We also believe that market-sustained solutions have an essential role to play in unlocking and sustaining opportunities for millions of people living in poverty. In turn, we invest in social enterprise partners that deliver transformative products and services to those traditionally excluded. And we don’t stop there. As an impact-led investor we dedicate resources to listen to, and learn from, the clients our partners serve.  

 

To that end we conducted a series of five case studies, interviewing over 1,250 clients. With grant support from the Swiss Confederation and JPMorgan Chase & Co., we worked alongside a select set of partners and Microfinance Opportunities, an expert in mixed-method field research, to capture client data across several of GP’s investment initiatives. Over the course of the work we had the privilege of meeting with grape farmers in Bolivia, female microentreprenuers in Peru, coffee farmers in Guatemala, and home improvement clients in peri-urban Nicaragua.

 

We conducted our first case study with our partner, Idepro. Idepro is a Bolivian microfinance institution (MFI) that is aligned with GP’s Rural-Centered Finance with Education investment initiative. Idepro takes an integrated and specialized approach to deliver credit and technical assistance (TA) to underserved producers. They have a strong impact measurement practice and partnered with us on the case study to inform their activity within the grape value chain.

 

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Grapes are a key cash crop and important source of income for smallholder farmers in the Tarija Central Valley. To meet grape farmers’ needs, Idepro provides working capital loans and two different technical assistance programs; one basic (Financia) and one in-depth (Impacta). In this case study we aimed to answer the following questions and evaluate differences between the Financia and Impacta programs:

  • What is the poverty profile of grape value chain clients?

  • Is the training delivered by Idepro increasing farmers’ agricultural knowledge and adoption of best practices?

  • Are clients demonstrating progress toward intermediate economic outcomes, such as improvement in yields, incomes, and the accumulation of assets?

  • Are clients making progress toward longer-term economic outcomes; specifically, are they displaying signs of improved economic resilience?

blawg2Our findings were both promising and informative. We confirmed our hypothesis that Idepro’s TA programs are effective at improving farmer knowledge and changing behavior, and that the Impacta program is more effective at eliciting these changes. Interestingly, these results didn’t correlate into differences between the two groups when it came to intermediate economic outcomes, such as increased yields and incomes, which lead to a rich set of conversations about the challenges of controlling for external factors and measuring causality.

 

We also learned that clients in both programs still struggle to be resilient to economic shocks. This suggests that while economic well-being may be improving, GP and Idepro’s work is far from done. It takes time, perhaps generations, for a household to progress out of poverty.

 

The Idepro case study is the first of five learning opportunities that are sharpening our work as an impact-led investor. They are unlocking the power of client voice – to strengthen our partners’ product and service design as well as our investment strategy. Stay tuned in the months to come as we share our ongoing learnings and insights.

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client voice

Why Careful Microfinance Works


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by Mark Coffey, chief investment & operating officer, Global Partnerships

Within the impact investing industry, microfinance has historically been viewed as a fine example of an investable, market-sustained solution to poverty. Hundreds of millions of dollars have flowed to microfinance institutions (MFIs) and microfinance investment vehicles—across asset classes—generating social impact alongside consistent and stable financial returns.

Yet despite the popularity of microfinance as an investment sector, recent press has questioned its social impact in the lives of the people being served. For example, a recent article in The Guardian argues that most microfinance loans are used for consumption—not income generation—and therefore "end up making poverty worse."

While Global Partnerships invests into many types of channels, such as agricultural organizations and solar businesses, our roots are in microfinance institutions (MFIs), and we continue to selectively invest through this channel. Over our 20+ year history, we have learned many lessons, and one guiding principle has been "it takes more than a loan to lift someone out of poverty." We observed, for example, that extending credit to someone living in poverty that led to over-indebtedness clearly had a negative social impact, and providing a loan for consumption or non-productive purposes at unnecessarily high costs did not lift people out of poverty, and might make their situation worse.

On the other hand, certain models can be highly effective. For example, the combination of women-centered credit and tailored education—especially when delivered through the group lending platform at a reasonable cost—can have a meaningful impact at the household level. Clients become empowered and informed decision makers and are able to smooth their incomes and consumption, build assets and increase their capacity to anticipate and deal with major expenses.

So, the question should not be whether microfinance as a whole results in positive or negative outcomes, but rather "what MFI models are most effective at the household level?" As with any product or service, we believe that the most positive impact occurs when the provider has the best interests of the household in mind. We work with a relatively select portfolio of MFIs, but have examined hundreds with which we have chosen not to work. We begin our process by understanding whether the institution is more focused on the household or on their own growth and financial returns, and to what extent their model delivers value in a sustainable and scalable way. We are wary of institutions that cannot provide meaningful metrics of how they evaluate impact, or that serve the interests of the owners and managers more than their clients.

Noting that many MFIs exclusively provide financial services and have moved up-market to better-off clients to enhance growth and returns, GP primarily seeks out small and mid-size MFIs that have a combination of solid financial performance and positive impact at the household level. We look for business models that have carefully been built to leverage and integrate various services that a person in poverty needs. Alternativa Peru, a GP partner since early 2014 and the featured partner in our most recent Investors Report, represents this type of model where we seek to invest, for highest impact and a well-managed fund investment.

Are there microfinance lenders interested primarily in maximizing profit? As in most industries, yes. However, there are also many dynamic social enterprises that recognize that microcredit is just one small piece of what people living in poverty need in order to improve their lives. These organizations are client-centered and understand their needs far better than anyone looking on from abroad. At GP, we work to identify and partner with the best of these organizations and learn from them what combination of goods and services has true impact at the household level. We then seek positive social returns at the household level by carefully directing our capital to these types of organizations.

Blog Tags: due diligence   impact   impact investing   investors report   microcredit   microfinance   poverty      

Microfinance that includes not just a loan but also integrated services like business education makes a major difference in the lives of people living in poverty.
An Alternativa Peru representative demonstrating a business education module. In GP's experience, integrated services like this, which not only provide loans but teach borrowers how to make the best use of loans and utilize other available resources, are essential to the long-term success of microfinance clients. Photo courtesy of Alternativa Peru.

Speed dating with purpose in Ecuador: 3 themes from the annual FOROMIC conference


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by Nathalia Rodriguez Vega, financial and economic analysis officer, Global Partnerships

Earlier this month, I was one of seven members from the GP team that flew to Ecuador to attend FOROMIC, an annual conference held by the Inter-American Development Bank. It’s the largest event about the financial inclusion industry in Latin America and the best occasion to meet – in just 3 days – most of our partners as well as other organizations that help us do our work in the region.

For me in particular, this event was a unique opportunity to step away from the spreadsheets and lengthy reports, fly all the way from cloudy Seattle down to sunny Guayaquil, and get a first-hand impression about the people we work with, what excites them about their latest achievements, what worries them about the future, and most importantly, hear how we can help them.

How to speed date at FOROMIC

I met with representatives from 20 of our current 46 partners, in meetings that lasted about one hour on average. If you want to know how this works, picture an area in the middle of a convention center called the “Meeting Point”, which is filled with about 50 tables that are conveniently numbered and that can seat about four people at a time. Before the annual conference begins, the FOROMIC website allows you to see who is attending and gives you the option to schedule meetings with as many people as your agenda and body can take. Therefore, once the conference starts, you just need to go to the meeting point and someone from the team running the event will take you to your table. Every hour either this same person will come to tell you your time is up, and that someone else is meeting at that table, or you can just walk to the next table where you have your next meeting. It’s basically speed dating with a purpose.

These meetings could go in many different ways depending on the type of partner and how many years we have worked together. However, most of the time we would ask them to highlight the most important things that happened over the past year, the challenges they anticipate for the next couple of months, and their funding needs.

To sum up, here are three broad insights from my conversations with our partners:

 

1. The marketplace is very crowded:

Likely reflecting ample global liquidity, I was surprised to see so many lenders offering funding at very low interest rates. Although this “buyer’s market” probably makes many of our partners happy, it’s worth noting that current market conditions are unlikely to be like this permanently.

Furthermore, this abundant liquidity worries me, as it might create the wrong incentives and cause our partners to deviate from their mission. Therefore, as an impact investor we need to do an even stronger screen of the people we work with in the region. We need to follow up closely on any changes in their strategy, including the type of products they offer and how they care about raising the quality of life of people living in poverty.

2. Paradoxically, over-indebtedness co-exists with low financial inclusion rates:

Over-indebtedness is one of the key concerns addressed by many of our partners. This reminded me of my last trip to Peru, when I visited the small town of La Merced that had streets lined with all types of financial institutions. Even though Peru ranks as the leading country enabling financial inclusion (prudent regulation, agents and branches, and dispute resolution), financial inclusion is still relatively low (only 20 percent of the adult population held an account at a formal financial institution in 2011, according to the World Bank’s Global Financial Inclusion Database (Global Findex).

This signals that our work is not done. Vulnerable populations – women, indigenous groups, etc. – remain without access to financial services. However, not all organizations have the cost structure to fulfill their needs. We need to work with them to find ways they can reach vulnerable populations and at the same time have the right policies, risk mitigants, and controls to prevent over indebtedness among their clients.

3. Changing legal climate:

Most of our partners are changing their legal structure; some are looking to become regulated entities while others are planning on converting into cooperatives. In Bolivia, the 2013 Law of Financial Services, still undergoing implementation, requires that all non-governmental organizations or Instituciones Financieras de Desarrollo (IFDs) obtain their license over the next two years. With this license, our partners will have access to additional sources of funding, including deposits from the public, which is likely to reduce the need for international investors.

Given this context, we discussed with our partners what the future of our relationship would be. Overall they highlight that we have worked with them for many years, even in periods when funding was scarcer and they were just starting to run their operations. They value our role in helping them be the type of organization they are now and we are exploring other ways to keep our partnership in the future. We’re going to need creative ways to achieve this, for sure.

After three days of “speed dating” my brain felt somehow bigger with all these new learnings. I felt re-energized from all the conversations I had and impressed with the talent I met. This trip gave me a new sense of responsibility; we have a strong commitment to our partners and they see us as people that can provide them guidance and advice beyond funding. I can’t wait to go back to FOROMIC next year.

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Blog Tags: Bolivia   due diligence   Ecuador   Foromic   Latin America   microcredit   microfinance   Peru   

The "Meeting Point" at FOROMIC 2014
The "Meeting Point" at the FOROMIC 2014 conference in Guayaquil, Ecuador. Photo © Global Partnerships.