UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 12 / May 2005

Issue Table of Contents

Update

on the International Year of Microcredit 2005

Marketplace

Made by Microentrepreneurs

Upcoming Events

Conferences, events and trainings.

Links

New websites and publications.

Share your news!

If you have a current news story or know of an upcoming event that would be of interest to the network,
please email the Editor, Vanessa Ward.

Sign up

to receive Microfinance Matters by email

Past Issues

Innovation in microfinance is a hot topic, and generates a lot of excitement. We in the microfinance industry like to gush about just how cutting edge this field is. (Look! We have smart cards! And private investment funds!) But is microfinance as innovative as we think it is? Have we seen enough commercial banks jumping up and down and sharing the enthusiasm we think they should? Does providing remittances services, and taking some stabs at managing foreign exchange risk really add up to mass-scale, revolutionary change in the lives of poor people around the world? In his March 2004 paper "Financial Sector Policy and the Poor", World Bank Advisor Patrick Honohan argues:

Doctrinal debates over...the optimal design and mix of products to be offered by microfinance firms have tended to obscure the essential banality of microfinance. Indeed, the fact that successful MFIs are so diverse, and that, for all their diversity, none have introduced techniques or structures that are really new to finance strongly suggests that there is nothing special about microfinance.

An important question to ask is: does anyone outside our little universe (please don't call it a niche) really care about innovations in microfinance? Fortunately, the answer is yes. There are indications that the huge global institutions that could be the drivers of the mass scale we all hope these innovations will achieve are getting excited. This issue of Microfinance Matters looks at some of these efforts, as well as other recent developments.

This month's Featured Guest is Visa International President and CEO, and Advisor to the International Year of Microcredit, Christopher Rodrigues, who is leading what truly are innovative efforts by Visa to develop a platform to make financial services available on a mass scale through its electronic payment technology.

HP is another corporate giant at the forefront of serving the "bottom of the pyramid" and fighting global poverty in the process. HP's Remote Transaction System addresses the problem of scale in microfinance with technology that not only brings microfinance clients into the formal financial system, it provides precious and much-needed data to microfinance institutions.

In terms of product innovation, Chief Technical Advisor to the International Year of Microcredit Christina Barrineau observes that there are still tools to explore that go beyond the crucial (but not so new) areas of remittances, housing and education loans, et al. Micropensions are a product innovation that allow for greater diversification of assets and management of risk for the long term - and provide a still rare opportunity for poor people to truly plan for the future.

The advent of credit bureaus in the developing world is an extremely important development in the drive to make quality financial services available to microentrepreneurs. Robin Young of Development Alternatives looks at their role in expanding services to the bottom of the pyramid by allowing clients without assets to turn a good reputation into credit.

The United Nations Capital Development Fund (UNCDF) has used Internet technology to make basic knowledge about microfinance available anywhere in the world, contributing a highly valuable instrument to the effort to ensure the often-elusive good practice in microfinance.

The donor consortium The Consultative Group to Assist the Poorest (CGAP) has just come out with guidelines for donors wishing to invest in technology - with the crucial reminder that such innovations are not ends in and of themselves, but must be used appropriately.

With all of these strides being made in extending services, it is critical that consumers know what they're getting into - there is plenty of opportunity for exploitation when the customers are poor and illiterate. David Porteous of Recap International contends that consumer protection is critical as microfinance becomes more commercial and competitive.

Yet, the responses to this month's discussion question on important innovations ("Voices of Microfinance") bring us back to skepticism of current innovation in the microfinance sector: this question didn't provoke nearly as great a reaction as past queries, and none of the responses mentioned anything we hadn't heard before, while Maheshan R. Fernando, a consultant with MicroVest, urges capital markets experts to work harder to seek innovations (in this case, in managing foreign exchange risk) that will ultimately result in lowering costs passed on to poor clients.

One of the major goals of the International Year of Microcredit is to encourage innovation. Whether the ideas and initiatives presented in this issue get you excited, or send you back to the drawing board, we hope it will cause you to think 'out of the box' about how to achieve the goal we all share - finding ways for poor people to live better lives.

Vanessa Ward
Editor