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Governance, technology, youth, and microinsurance: Exploring the frontiers of financial services

by on Dec 9, 2011  |  posted in Microfinance  |  0 Comments
In the past year, situations such as political uprisings, borrower defaults and over-indebtedness, MFI mismanagement, and usury, among other things, have challenged the microfinance industry to expand to new frontiers in defining its role in access to finance and economic development. At the 2011 SEEP Annual Conference, workshops in the Frontiers in Financial Services track explored the cutting edge of audit and governance, financial education and youth, alternative delivery channels, and microinsurance. The workshops also explored the roles of these financial services in strengthening institutions, expanding outreach, building a safety net for the poor beyond credit, and restoring consumer and investor confidence. The presentations referenced below are available in PDF form here, under Track 3.

Audit and Governance – Use of Board of Directors’ Internal Audit Guide

This workshop engaged the audience in a mock MFI board meeting, allowing the audience to test the newly developed Pocket Guide to the Internal Audit Activity Guide for Board of Directors and Microfinance Institutions. The session was facilitated by Tom Shaw, and included Charles Rurahoze Lwanga, Chairman of RAMIF Network’s Board, Kenlor Howells, President and Director of REDCOM, and Bandith Sisoukda, Chairman of the Board of Microfinance Working Group for Lao PDR. The five scenarios covered code of ethics violations, internal controls systems, and risk management--three issues that are most pertinent to MFI boards. As detailed in the Pocket Guide, the scenarios illustrated the differing roles and responsibilities of the internal audit department, management, and the board. It is the responsibility of internal audit to raise any potential issues or violations with management, which are then shared with the board. If the issues are serious, systemic, or include multiple violations, it is the board’s responsibility to develop or revise policies and create a risk management framework that can be implemented within the organization.

The Future of Microfinance in the New Era of Technology-Enabled Alternative Delivery Channels

[caption id="attachment_881" align="alignleft" width="300" caption="Image by Melanie Colosimo, SimpleIllustrations"][/caption] This workshop addressed the changing realities of how microfinance institutions must consider and approach their “market,” especially with the development of technology-enabled alternative delivery channels (ADCs). The workshop outlined the latest developments in ADCs and sought to come to an understanding of the future possibilities for MFIs. The speakers, which included Jesse Fripp, Vice President at ShoreBank International, Jim Hokans, Director at Bankable Frontier Associates, Ryan Falvey, Manager of ADC Strategy at ShoreBank International, and Syed Mohsin Ahmed, CEO of Pakistan Microfinance Network, addressed the issues around regulation and the enabling environment related to MFIs. They also discussed the changing market and challenges with technology, commercial models, and new product dynamics based on existing experiences with branchless banking. The workshop also included a discussion with participants on current trends, considerations, and future prospects for the MFI industry in the context of ADCs. The speakers cautioned MFIs to take time and fully understand the industry, consider whether the MFI would be able to benefit sustainably from ADCs, and also consider whether ADCs would be in line with their strategy. Technology-enabled ADCs are a promising and exciting prospect for MFIs, given the right conditions for both the institution and the market in which they operate.

Financial Education for Youth: From Start-up to Scale-up

This workshop looked at the intersection of youth and financial education through youth financial literacy programs in Mongolia, Sri Lanka, El Salvador, and Uganda. Looking at the XacBank Aspire program for adolescent girls in Mongolia and the SEEP Innovations in Youth Financial Services Practioner Learning Program (PLP), panelists Julie Lee, Training Officer of Microfinance Opportunities, Jennifer Denomy, Director of Youth Financial Services at MEDA, and Oyunchimeg Siisel of the Golden Fund for Development Association in Mongolia discussed market research, curriculum and program design, partnerships, and lessons learned from the pilot programs. For financial institutions, financial education programs are a way to develop future educated, financially responsible, and reliable customers; furthermore, anecdotal evidence shows a direct correlation between financial education programs and product growth. The audience raised several pertinent questions: [caption id="attachment_909" align="alignright" width="300" caption="PLP partner Enlace's youth savings group in El Salvador"][/caption]
  • How can these programs be sustainable in the absence of donor funding?
  • How do you manage the conflict between a financial institution’s motivation to push a product and the need for objective financial education?
  • How can financial education programs reach scale?
These are questions with which the industry is still grappling, and that are currently a part of the SEEP PLP’s learning agenda. However, for now, lessons learned from the pilot programs emphasize the importance of partnerships with actors such as local NGOs, after-school programs, high schools, and governments. These partnerships provide a way to bring financial education programs to scale nationally ensure objectivity of the curriculum, and pool resources to lead to sustainability.

Microinsurance: Delivery Channels and Partnerships

Microinsurance is an emerging frontier of microfinance, and a tool that can provide an additional safety net to the poor. The panelists in this session—Javier Vaca, Executive Director of Red Financiera Rural, Denis Garand, President of Denis Garand and Associates, and Richard Leftley, President and CEO of MicroEnsure—discussed the current trends, models, and challenges in microinsurance, and the key considerations for MFIs wishing to enter this space. Currently, the supply of insurance products does not match the demand:  while there is a ready supply of life insurance products, the products that the poor need to mitigate the most debilitating risks, such as health, weather, and agriculture insurance, are not widely offered. Financial institutions are reluctant to offer products that do not directly result in revenue or reduce loan loss risk, and insurance companies do not understand the risk profile of the poor. [caption id="attachment_884" align="alignleft" width="300" caption="Juliana O. Boye, a MicroEnsure client in Ghana. | From the video "Distributing Microinsurance""][/caption] Moreover, there is still a great need to educate consumers on insurance products, their importance, and the insurance process. As such, it is important for institutions wishing to enter this space to assess their motivation, commitment, and capabilities. Insurance products by nature are long-term commitments and require frequent customer interaction and high satisfaction in order to be successful.  Institutions have the option of engaging at the front office, back office, or as carriers; but in choosing a role and business model, an institution must decide on the most appropriate partnerships, delivery channels, marketing strategy, and products that will ensure profitability and success.

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