MICROFINANCE PUBLICATION ROUND-UP: Innovations in Building Financial Capability; BBVA Microfinance Foundation Social Performance Report; Growth, Evolving Trends in Financial Inclusion in India

“A Change in Behavior: Innovations in Financial Capability”; published by the Center for Financial Inclusion at Accion; April 2016; 47 pages; available at http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability

This document describes research aimed at identifying effective interventions for building the financial capability of microfinance customers, specifically as administered by three groups: financial service providers, governments and social service providers. Financial capability is defined as the “knowledge, skills, attitudes and behaviors a person needs to make sound financial decisions that support well-being.” The authors advocate seven interventions that can be delivered along with formal financial education: (1) “Teachable Moments”, reaching a consumer when he or she is about to make an important financial decision; (2) “Learning by Doing”, helping consumers practice sound decision making through simulations or group activities; (3) “Nudges, Reminders and Default Options”, sending regular reminders via mobile or in-person services; (4) “Rules of Thumb”, making traditional finance seem simpler with heuristics or mental shortcuts; (5) “Make it Fun”; teaching through games, drama and storytelling; (6) “Customize It”, tailoring interventions with technology, goals visualization and personal interviews; and (7) “Make It Social”, leveraging groups, social media and peer-to-peer support [1].

“Social Performance Report 2015, Measuring What Matters”; published by BBVA Microfinance Foundation; May 2016; available at: http://mfbbva.org/informe-2015/en/

The authors of this paper discuss initiatives taken in human capital, technology and risk management practices by Banco Bilbao Vizcaya Argentaria Microfinance Foundation (BBVAMF) and its eight affiliated microfinance institutions (MFIs), located in Latin America and Puerto Rico. Examples include expanding digital services for agricultural lending and other forms of financing, mobile banking, eco-efficiency programs, savings services, and entrepreneurial programs for homeless people. On average, microentrepreneurs served by the affiliates achieved 29-percent growth in assets, 16-percent in sales and 16-percent in profits. After two years, 32 percent of the clients who had been classified as poor or extremely poor were generating income above the poverty lines set by their respective countries. As of December 2015, the BBVAMF network had total assets worth USD 1.1 billion, serving 1.7 million clients, out of which 61 percent were women and 30 percent were from rural areas [2].

“Evolving Landscape of Microfinance Institutions in India;” published by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Ernst & Young; July 2016; 36 pages; available at: http://www.ey.com/Publication/vwLUAssets/ey-evolving-landscape-of-microfinance-institutions-in-india/$FILE/ey-evolving-landscape-of-microfinance-institutions-in-india.pdf

This report covers the growth of the microfinance industry in India, recent trends in domestic micro-lending and best practices emerging in the industry globally. The aggregate gross loan portfolio of the microfinance industry in the country reportedly increased from INR 111 billion (USD 2 billion) in 2012 to INR 532 billion (USD 8 billion) in 2016, including a rise of 84 percent in the last year due to the increase in the exposure the Reserve Bank of India (RBI) allows to a single borrower from INR 50,000 (USD 740) to INR 100,000 (USD 1,480). During the same four-year period, the reported client base increased from 14.8 million to 32.5 million. The authors attribute the corresponding increase in the loan balance outstanding per client from INR 7,500 (USD 111) to INR 16,000 (USD 236) to the easing of lending rules and rising income levels. They note that this higher amount of lending per client has led to increased risk in underlying portfolios. The authors also find that the number of urban customers surpassed the rural customer base in the year 2015. This has been attributed to factors such as higher operational efficiency among MFIs in urban areas. The government’s Micro Units Development and Refinance Agency (MUDRA) is credited with reducing the lending gap in the micro- and small enterprise (MSE) sector by providing loans to MFIs to on-lend to MSEs. The authors conclude by discussing best practices in risk management, lending models and technology applications from microfinance companies outside of India [3].

By Sharanya Madhavan, Research Associate

Sources and Additional Resources

[1] CFI at Accion: Innovations in Financial Capability

[2] BBVA: Social Performance Report

[3] Ernst & Young: Evolving Landscape of Microfinance Institutions in India

MicroCapital Universe: Center for Financial Inclusion at ACCION

MicroCapital Universe: BBVAMF

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