Grameen Crédit Agricole Foundation’s role to respond to the crisis

©Godong

Soukeyna Ndiaye Bâ has been a Director of the Foundation’s Board since its creation. Engaged in the promotion of women entrepreneurs for more than 20 years, she is also Executive Director of INAFI (International Network of Alternative Financial Institutions) a global network of organisations that support microfinance programmes. Abdul Hai Khan is a Foundation’s Director and the Managing Director of Grameen Trust. He is also Board member of diferent microfinance and social business organisations in Australia, Bangladesh, China, France, India, Kosovo, Italy, USA and Yemen.

1/ Directors of the Foundation, you are also both international experts and microfinance practitioners. Can you share with us your analysis of the crisis and more particularly on the territories that you know well?

Soukeyna Ndiaye Bâ: In Africa, the current toll is close to 100,000 deaths and more than 3.7 million people infected, but these figures do not reflect the reality in the continent because there is no mass screening due to a lack of resources. Because of restrictions and border closures to contain the pandemic, the economic crisis has not spared the African continent. In this context, small-scale entrepreneurs, smallholder farmers and informal sector workers are directly afected. On the front line: women, both in rural and urban areas, who are very active in the informal sector. In Senegal, for example, about 94% of women entrepreneurs operate in the informal sector. In rural areas, in addition to the gravity of the economic situation, the already alarming health precariousness and dificulty in accessing healthcare may worsen.

Abdul Hai Khan: Current death toll in Asia is approximately 417,000, while the number of infected cases stands at more than 26 million. Schools in East Asia and the Pacific have been completely closed for more than 25 million children for almost an entire year. Covid-19 has slowed growth in East Asia and the Pacific (EAP) as it has significantly reduced economic activity, including tourism and trade. Growth in the AEP region, excluding China, is forecast to slow to 1.3% in 2020 from 4.7% in 2019. Millions of households have been afected by the loss of jobs and income (including remittances), while they still have to cover basic expenses or service debt. Consequently, the percentage of poor people has increased.

2/ How do microfinance and social business mitigate the efects of the economic crisis?

AHK: By improving access to essential services, microfinance institutions and social businesses strengthen the resilience of low-income populations, including small-scale entrepreneurs from the formal and informal sectors and smallholder farmers. They are therefore essential to protect the most vulnerable populations, severely afected by the efects of the economic and health crisis during the Covid-19 pandemic. To cope with this pandemic, many microfinance institutions have innovated and increased their support to their clients. For example, they have restructured loans to better support the most afected clients and accelerated their digital transformation, by introducing or improving cashless transactions through mobile banking channels and by creating virtual branches.

3/ What is the outlook for the years to come?

AHK: The magnitude of the damage that Covid-19 pandemic has brought in the world is huge. However, it ofers us a unique opportunity to improve, or even redefine, our economic structures by relaying on social and environmental consciousness. We should not call it a ‘recovery’ programme but a ‘reconstruction’ programme. In this comprehensive reconstruction plan, social entrepreneurship can play an essential role, as it can be a lever to transform unemployed people into entrepreneurs. Financial inclusion can help economic recovery go hand in hand with social development.

SB: The world is threatened with recession and food and social crisis. Building the «after Covid» world must therefore be multi-sectoral and focused on innovation. We must learn from the problems encountered during this crisis: better assess and anticipate risks, strengthen our socio-economic models and rethink our public policies to better protect the most vulnerable populations. Women entrepreneurs will have a key role to play in boosting the economy. Supporting female entrepreneurship will be a lever for women empowerment and the development of rural and urban economies. Digital will be a major tool to encourage entrepreneurship, modernise, develop and innovate.

[Covid-19] The Grameen Crédit Agricole Foundation in 2020

Eric Campos, Grameen Crédit Agricole Foundation

In 2020, the Foundation supported 80 microfinance institutions and social enterprises in 39 countries around the world. With the Covid-19 pandemic, the Foundation established a permanent dialogue with all the partner organisations and adapted its financial and technical support. The Foundation also coordinated with other key players of the inclusive finance sectors to develop commun solutions and better protect the microfinance institutions and their clients. Spotlight on an interview to Eric Campos, Managing Director of the Foundation, and some key figures of the activity in 2020.

The Covid-19 crisis has affected the microfinance sector around the world

Eric Campos: 2020 has been a very challenging year for the partners of the Grameen Crédit Agricole Foundation, microfinance institutions and social environmental impact enterprises. Very trying because the final beneficiaries, who are very dependent on sectors such as trade, agriculture and craft, had to deal with lockdown measures and therefore had the greatest difficulty in developing their income generating activities.

The Foundation has adapted itself to better support entrepreneurs in the field

EC: The Foundation’s teams focused on all actions that could allow these institutions, these enterprises to save time and adapt to the economic effects of this crisis. At the international level, we coordinated an agreement with international funders to avoid a liquidity crisis in the microfinance sector. At the Foundation level, we have granted a number of rollovers, we have supported institutions and enterprises by organising technical assistance missions to enable them to improve on risk management and on treasury management. We have been present throughout this year, alongside our long-standing partner institutions of the Foundation.

What prospects for 2021?

EC: In 2021, we are still in a crisis context. We are seeing some small signs of economic recovery in about a third of the countries in which the Foundation operates. In 2021, the Foundation will strengthen its technical assistance programme. We will continue to finance our partners, to support them, and we are cautious but confident in the economic recovery that we are already starting to see. Our commitment: help our partners get through this global crisis.

 

One Year On: What a Year of Surveys Tell Us About Covid-19 and microfinance

Maxime Borgogno, Grameen Crédit Agricole Foundation

Spotlight on the interview of Maxime Borgogno for FinDev. Maxime is Investment Manager for the Asia and Central Europe region at Grameen Crédit Agricole Foundation.

Since the beginning of the pandemic, Grameen Crédit Agricole Foundation has been monitoring how the microfinance sector is responding to the crisis caused by Covid-19. One year later, what have you learned?

Maxime Borgogno : While the immediate consequences microfinance institutions (MFIs) faced were an increase in portfolio at risk and a reduction in their portfolio, the operational crisis did not lead to a total failure of the sector as feared at the beginning. In fact, we have seen many MFIs proactively adapting to the new context: they took adequate management measures while maintaining a responsible approach with their clients. Only a small proportion of surveyed institutions had to lay off staff during the crisis, and the ones in the most affected countries have successfully transitioned to remote systems. Most MFIs implemented loan restructuring to relieve affected clients. Some, especially in Southeast Asia, provided customers with emergency kits (food, sanitary equipment, etc.). They even explored new opportunities such as digital channels for loan repayment to adapt to the situation.

In general, MFIs remain optimistic about the future, based on a good understanding of current challenges and the experience built in 2020. While the crisis is not over and there are still challenges ahead, the sector has the capacity to meet them.

What are some of the key challenges that lie ahead? Why do you think the sector has the capacity to overcome them?

MB: The situation remains unpredictable and depends on the country. A MFI may come to face significant operational constraints very quickly, which will limit its activity. The latest data shows that nearly 75% of MFIs are facing a higher risk portfolio than before the crisis. Therefore, they will have to find a balance between carefully managing this risk while continuing to disburse new loans to their clients. It is now clear that the Covid-19 crisis has disrupted certain sectors, companies’ structures and ways of doing business. MFIs will need to account for these major changes in their strategy for the coming years.

Over the past year, we have seen MFIs remain fully committed to their social mission. They have proven their resilience and capacity to adapt during an unprecedented crisis. With poverty levels increasing due to the crisis, the mission of microfinance is more relevant than ever.

How did you monitor the situation over the past year?

MB: We launched the first monthly survey in March 2020 with 75 MFIs we support. The objective was to gather first impressions on the situation as well as the potential impact on their activities and their clients. In June 2020, we joined forces with ADA and Inpulse to expand the reach of the survey to more than 100 MFIs, including in Latin America and the Caribbean, where the Foundation does not have a presence. Since September, we have moved towards a quarterly format to avoid overloading the institutions in a period of resumption of their activities. The next survey will be in March.

The survey results, as well as other articles related to the Covid-19 crisis, are available on The Covid-19 Observatory, a space created by the Foundation at the onset of the pandemic.

Microfinance institutions often don’t have the capacity to respond to surveys, especially when they have a major crisis to deal with. What helped you to continue gathering data among them?

MB: From the very beginning, we chose not to ask MFIs detailed financial information, but rather to gather their impressions and observations on the impact of the crisis. We deliberately kept the number of questions low and made sure they were as clear as possible. We also avoided requesting the same information they send us in their regular monthly reports.

We insist on a high level of communication with our partners, so we share the results of the surveys with them as soon as they are available and remain open to their feedback in this process. Comments from our respondents have helped us to adapt the wording of the questions and the content of the questionnaire. We believe that their involvement in the process is a key motivator for our partner MFIs to continue participating in the survey.

How do you see this crisis shaping the future of microfinance? Are you worried about the future of the sector?

MB: 2020 was a historic year that demonstrated the resilience of the microfinance sector. MFIs innovated and strengthened their services to protect their clients. At the same time, lenders and other stakeholders coordinated among themselves to adopt the most suitable measures to support MFIs. The last survey we conducted on the impact of the Covid-19 crisis reveals that most institutions expect their activity to grow in 2021, in terms of both portfolio volume and number of clients.

However, many of the most affected institutions will need support from their shareholders and lenders. As credit risk gradually translates into losses in 2021, the responsiveness of investors will be fundamental and is a forthcoming topic for the Foundation’s Covid-19 Observatory.

The crisis is not yet behind us, but we are encouraged for the future of the sector. Digital transformation, coordination between stakeholders and innovation will be essential to strengthen the resilience and impact of microfinance.

Source: FinDev

Ugafode and the financial inclusion for refugees

Supported by the Grameen Crédit Agricole Foundation since 2015, UGAFODE Microfinance Limited is a microfinance institution that offers inclusive financial and non-financial services to low income, but economically active populations in Uganda. UGAFODE is one of the three organisations supported by a programme launched by the Foundation, The Swedish International Development Cooperation Agency (Sida) and the UN Refugee Agency to support the financial inclusion of refugees. Thanks to the financial and technical support, UGAFODE opened a branch in Nakivale Refugee Settlement in Uganda. Spotlight on an interview to Shafi Nambobi, CEO of UGAFODE.

1. In a few words, what is UGAFODE Microfinance Limited?

UGAFODE Microfinance Limited began in 1994 as an NGO focused on group credit for women and has since transformed into a Microfinance deposit-taking institution regulated by Bank of Uganda. The institution specifically targets low income but economically active population in the country through 7 urban and 12 rural branches, serving over 110,000 savings customers and 8,000 loan clients. We offer a variety of financial services, which include savings, loans and money transfer services with a loan portfolio of €12.1 million and savings volume of €6 million.

2. UGAFODE received an innovative support from the Grameen Crédit Agricole Foundation, the Swedish International Development Cooperation Agency (Sida) and the UN Refugee Agency in 2019, when it was selected as beneficiary of a programme to support financial inclusion for refugees. Can you explain the initiative and the support UGAFODE received?

Most of the refugees have been discriminated against and denied credit facilities from financial institutions as they are viewed to be too risky, despite being engaged in agriculture plus retail trade and commerce. In March 2020, UGAFODE was the first financial services institution to set up a physical branch in a refugee settlement in Uganda thanks to the programme. Nakivale refugee settlement is the 8th largest in the world hosting over 134,000 refugees from 13 countries. The total project budget is €536,780 with €396,882 coming from Sida and €139,810 contributed by UGAFODE in three years. Furthermore, the Foundation also granted a new loan of €540,000 in July 2020, of which 50% will be used in the framework of the refugees programme, to lend to refugees and host populations.

3. What are the first outcomes of the project?

Clearly, the project has passed the proof-of-concept stage. Since the opening of the Nakivale’s branch, 505 loans totalling to €383,596 have been disbursed between 2nd March 2020 and 31st December 2020, mainly to support small and medium enterprises and agriculture individual loans. It is important to note that all this has been achieved under Covid-19 crisis. The Portfolio At Risk (PAR) is at 1.65% for 1 day and 0% for 30 days, which is remarkable and appreciated. Moreover, we have reach over 5,000 refugees with financial literacy messages and 2,534 clients have opened savings with a total of €65,112. A total of 5,301 refugees have received €776,345 through money transfer services from friends and relatives at the Nakivale branch in the nine months since the branch was opened. We currently employ 21 staff with 8 refugees at Nakivale plus 4 in the Call Centre in Kampala to manage customer complaints in the major refugee languages.

4. How did Covid-19 pandemic affect the project? What measures have been taken to face the crisis?

The project implementation and opening of the branch happened at the beginning of the Covid-19 crisis. Fortunately, as government rendered financial services as essential, the Nakivale branch was able to offer needed services to the settlement clients on a very positive note. UGAFODE has been able to adjust its policies and procedures to serve refugees within the regulation guidelines. We recruited refugee staff at the Call Centre to provide guidance and information to the clients. We also built a branch extension to provide sufficient space to ensure safety of both staff and customers. Furthermore, we granted rescheduling options to the clients with loans to support them in this period of crisis. The Grameen Crédit Agricole Foundation and KIVA supported us to face the crisis. The Foundation granted us flexible budget lines within core lines to cater for crisis’ uncertainties. The Branch operates under strict COVID 19 SOPs (Standard Operating Procedures) instituted by the Ministry of Health and Government. We will also be able to buy 3 more motorcycles to enable the branch staff reach out to more clients, easily and faster.

5. What are now the priorities of the project?

There are three priorities :

  1. Scale up financial literacy trainings to raise awareness of at least 8,800 refugees and 8,000 host communities in year 2 and 15,500 refugees and 14,000 host communities in the last year of the project.
  2. Conduct a customer survey to facilitate informed decisions and develop products tailored to refugees.
  3. Roll out the project model to other settlements. After Nakivale, the project is going to be replicated to other refugee settlements at the earliest. Initial feasibility studies have been conducted for Kyaka, Kyangwali and Rwamwanja refugee settlements.

OXUS Kyrgyzstan and its six commandments for the Covid-19 crisis

Interview with Denis Khomyakov, CEO, OXUS Kyrgyzstan

Since the beginning of the Covid-19 crisis, the Grameen Crédit Agricole Foundation has worked on several initiatives to better support the microfinance sector. OXUS Kyrgyzstan is one of the microfinance institutions that has benefited from the Foundation’s response to the crisis. Five questions to Denis Khomyakov, CEO of OXUS Kyrgyzstan (OKG)
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The Covid-19 crisis has strongly influenced Kyrgyzstan’s economy and your organisation. What measures have you adopted to cope with it?

The crisis has hit the economy and the health system of Kyrgyzstan hard. With border closures and lockdowns, industry and agriculture declined, and transport services collapsed. Although new activities emerged (such as delivery services), Covid-19 affected the country’s economy and by extension our clients and business.

In this context, we were well prepared at OKG. As early as February, we first protected our staff with home-based work or short time working at 2/3 of the salary; which involved the digitalisation of our activities. In May, we adopted both remote and on-site work, thanks to the required anti-Covid measures foreseen in the Covid-19 Business Continuity Plan (BCP), which quickly became operational.

We always made sure to communicate well. To achieve this, we first set up a Covid-19 Committee consisting of members from different departments and myself to structure communication and define operational measures. Several actions were taken: we organised communication with agencies and clients, established loan restructuring and client support, and decided to negotiate with lenders to obtain a grace period on repayments. We also had regular exchanges with various stakeholders: the governance that guided and advised us, the lenders who have done coordinated actions to ensure the continuity of our activities, and the National Bank that provided us with clarifications on the restructuring and exemptions possibilities.

What was the Foundation’s support to strengthen OKG’s response?

The Covid-19 surveys carried out by the Foundation were well organised and always took place at the right time. The Covid-19 Observatory launched by the Foundation, where the results of the surveys and other useful articles are published, has been valuable to us in assessing our situation and position in the region. The Foundation also led OKG’s group of lenders to implement the coordinated restructuring measures and extensions; at the Foundation’s instigation, with regular monitoring by Julie Serret, a Foundation’s Investment Manager, we acted immediately to prepare for the worst-case scenario and agreed terms with the lenders all together.

Which were the main measures implemented by this group of lenders?

The group of lenders decided to extend all payments payable between May and December 2020 for 12 months. The lenders also simplified reporting by collecting information through a common document, which gave us more time to focus on other issues. They also provided us with tools to create a BCP, to restart the business while protecting staff. As a result, we did not really worry about the liquidity situation. We were able to pay our staff salaries and benefits immediately.

What lessons do you draw from this period for the evolution of microfinance?

Here are my six commandments:

  1. Anticipate. Every business should have a BCP for these kind of events. Having an IT disaster recovery plan is very useful – it helped us a lot in reacting to the crisis and keeping the system running.
  2. Take care of the staff; inform them of the situation and the measures decided.
  3. Make decisions. Do not be too late but think twice.
  4. Inform investors and lenders of the situation and provide forecasts (detailed, even if you do not know how things will develop) for the coming months.
  5. Contact your Board of Directors often. Its composition and experience will enable you to get through any type of crisis.
  6. Be digital. Digital channels are valuable for communicating with clients and staff. Covid-19 has pushed us to think and to be more digital.

What are the prospects for OKG in 2021?

The company continues its development and growth. We plan to open two new branches in rural areas and to serve low-income clients. We plan to introduce tablets to speed up loan disbursement, but also to collect less paper and be more environmentally friendly. We also aim at developing green loans to help combat air pollution and intensive energy use in Kyrgyzstan.

Other initiatives such as our work on customer loyalty and the project to support women entrepreneurs initiated in early 2020 have been slowed down by the health crisis. We will take them up again. We will remain a reliable company for our clients, with a zero-exclusion approach!

The will of microfinance institutions to maintain their activities during Covid-19 crisis

ADA, Inpulse and the Grameen Crédit Agricole Foundation have collaborated to monitor and analyse the effects of the Covid-19 crisis for their partner microfinance institutions worldwide. This monitoring was carried out regularly throughout the year 2020 in order to have a better vision of the situation’s evolution. Through this regular and in-depth analysis, we hope to contribute, at our level, to the construction of strategies and solutions tailored to the needs of our partners, as well as to the diffusion and exchange of information between the different players in the sector.

In summary

The results reported in this article come from the fifth survey jointly (1) conducted by ADA, Inpulse and the Grameen Crédit Agricole Foundation. Responses were collected in the second half of December from 74 microfinance institutions (MFIs) located in 42 countries in Eastern Europe and Central Asia (EAC-28%), Sub-Saharan Africa (SSA-26%), Latin America and the Caribbean (LAC-23%), South Asia (14%), and the Middle East and North Africa (MENA-9%) (2).

At the same time, the major constraint that remained was the difficulty in collecting loan repayments, which implied increasing the portfolio at risk. This last point is still valid at year-end, and three quarters of respondents still report an increase in RAP. In added to this is the deterioration of the epidemiological situation in the world in the fall of 2020, as evidenced by the responses gathered in December 2020. The epidemic containment measures taken according to local contexts may once again have consequences on the activities of MFIs and their clients, and a return to normalcy is not yet on the agenda.

However, these new complications and their implications are not new. Thus, they have limited impact on MFIs’ risk indicators. The stability of the increase in PAR, as well as in recovery levels, does not reflect a further major deterioration in MFIs’ financial situation. This relative balance also corresponds to the MFIs’ state of mind as they approach 2021. Despite an unstable context and all the obstacles it entails, the vast majority of our partners expect their activity to grow in the new year, in terms of both portfolio volume and the number of clients. This confidence, which was already evident in the surveys conducted over the summer, is a further sign of the resilience of these institutions.

1. MFIs are always operating in unstable and difficult conditions.

Our last survey, conducted in October, showed a great improvement in the operating environment for MFIs and a gradual recovery in activity in all regions of the world. However, in a large number of countries, even those that appeared to be managing the virus’ spread well, new, more restrictive measures to contain the epidemic were taken in the last quarter of 2020 in response to the new increase in cases. This deterioration is particularly confirmed by our partners in Europe and Asia, where MFIs in South and Central America, Southern Africa and North Africa are reporting an improvement in the situation.

Comparing the responses of our 38 partners who participated in the October and December (3) surveys in the following paragraphs confirm the observation of a return of certain difficulties for MFIs, and are in line with the general results obtained at the end of the year.

First, the virus continues to rapidly spread in some parts of the world, and MFIs are not exempt from it. Thus, we can note an increase in the proportion of MFIs reporting that clients and staff have been infected with Covid-19. This can be seen in the drop from 47% to 32% (17 to 12 MFIs) of MFIs whose clients and staff are not reached by Covid-19. In October, this category included two thirds of the MFIs in Sub-Saharan Africa (10/15) and the vast majority of those in South Asia (5/6). In December, the share of MFIs in Sub-Saharan Africa was almost stable (9/15), while those in Asia dropped to 50% (3/6). Finally, the category “more than 20% of staff were infected” rose from 0% to 13% (5 MFIs) over the period, with the vast majority in the Europe and Central Asia region (4 MFIs).

In terms of operational constraints, results are relatively stable between the two periods. The list of MFIs indicating that they no longer face operational constraints remains more or less the same (39%), and is concentrated in Central Asia and West Africa. It should be added that collecting loan repayments (42% of the sample) and disbursing new loans (32%) remain the two main difficulties encountered by MFIs.

Difficulty getting in touch with clients, both in branches and in the field, was considered a consequence of the crisis for only 16% (6 MFIs) of this sample in October, and this figure increased in December (24%, 9 MFIs). In detail, it should be noted that the location of MFIs that highlight this constraint has evolved over

the last two months. Thus, they were particularly located in Latin America and the Caribbean and East Africa in October. In December, this point was raised by MFIs in Southeast Asia (3/6), Eastern Europe (2/5) and West Africa (2/8). At the general level of the survey, 30% of the MFIs indicated that they were once again limited in their activities, despite a gradual recovery.

2. Therefore, customers remain exposed

As the MFIs testify through these surveys, the uncertain and particularly unstable context also weighs heavily on MFI clients. Logically, the difficulty in collecting reimbursements for MFIs, for example, is closely linked to the difficulties encountered by the clients themselves. The activity of a large part of them has still not restarted or remains slowed down by the crisis context: our last survey highlighted in particular the tourism and trade sectors as the most affected sectors (4). In December 2020, the proportion of MFIs indicating that more than 90% of their clients have restarted their activity remains in the minority (23%, 17 MFIs). However, 46% (34 MFIs) of MFIs indicate that clients who have resumed their activity represent between 70% and 90% of their portfolio. Only 11% (8 MFIs) of respondents indicated that less than 50% of their clients are able to work again. There are, however, some regional disparities in these results: in South Asia, Europe and Central Asia, and Sub-Saharan Africa, at least 80% of respondents report that more than 70% of clients have returned to work. In the MENA and Latin America and the Caribbean regions, this share decreases to 43% and 41% respectively.

Our partners’ responses also make it possible to continue profiling the customers most affected by the crisis. First of all, it should be noted that a large proportion of the MFIs surveyed rule out the possibility that there is a category of clients that is more affected than the others, whether in terms of gender, location (urban or rural) or age. In detail, 42% (31 MFIs) of respondents believe that all of their clients are impacted identically, and 51% (38 MFIs) indicate that there is no significant difference in repayments based on these criteria. Overall, the idea that there is a difference in exposure to the impact of the crisis according to age is also dismissed. While some MFIs say they see differences according to age categories (-30, 30-50, 50+), none of them stand out.

Among the MFIs that perceive a difference in the impact of the crisis on their clients (36 MFIs), one criterion stands out for the most part: 76% (27 MFIs) believe that the most impacted populations are urban populations. The same proportion claims that this difference is reflected in loan repayments. These responses confirm our previous results for the most affected sectors, which are definitely urban. The fact that the criterion of rurality is hardly mentioned goes in the same direction, and echoes the agricultural sector, revealed during the surveys by our partners as a sector less affected by the crisis linked to Covid-19 than the others, and towards which a certain number of MFIs imagined they wanted to move. Finally, a last characteristic is mentioned by MFIs reporting disparities in the impact of the crisis: 36% (13 MFIs) perceive that women are more affected than men and therefore by default may have more difficulty repaying their loans. It should be noted that a portion of the respondents serve only women clients, which logically makes them the most affected population in the sector.

3. Now well-identified challenges for MFIs

MFIs are now aware of activity levels that are still at half-mast or of the measures implemented by the local authorities to contain Covid-19. In addition, to which they are adapting. Thus, the financial difficulties mentioned by the MFIs are very stable from October to December 2020 and do not highlight any new trends. Two of the four most cited difficulties remain linked to the MFIs’ declining profitability, due to the increase in provisioning expenses (45% of the respondents, 33 MFIs) and the non-collection of interest (55%, 41 MFIs). These two points are closely linked to the most striking difficulty of the crisis for MFIs during this period: the increase in portfolio at risk (74%, 55 MFIs).

In December 2020, 74% (55 MFIs) of respondents indicated that more than 70% of clients were repaying their loans, and 37% reported client repayment levels above 90%. On the other hand, only 9% report that less than 50% of clients are able to repay their loans, which is in line with clients’ recovery levels. These levels are reflected in the level of portfolio at risk of MFIs: in December 2020, 47% of respondents (35 MFIs) indicated that PAR 30 had increased without doubling, 16% that it had doubled, and 12% that it had more than doubled.

Nevertheless, this risk configuration seems to have broadly stabilized in the last quarter of 2020, despite the additional constraints presented above (see Fig. 7). In the common sample for the October and December surveys, we still find a quarter of MFIs that are not affected by this increase in portfolio at risk. At the same time, there are no MFIs added to the list of MFIs whose PAR 30 has more than doubled. Transfers from one category to another over the October-December period are for the vast majority between a stable PAR and a PAR that increases without doubling. This indicates that the deteriorations in the local contexts previously presented would therefore not affect all clients, thus having only a moderate impact on the MFIs’ risk indicators.

This stability coincides with the MFIs’ new objectives at the beginning of the new year. The crisis has disrupted their operations, and has inevitably had an impact on their projections. Thus, 58% of MFIs report having updated their business plans and growth objectives for the coming months and years. On the strength of these crisis gains and a better understanding of the context, the vast majority of MFIs still plan to continue to develop in 2021. Thus, 80% of those surveyed expect their portfolio volume to increase this year, while 15% expect it to stagnate and 5% expect it to decline. In addition, this portfolio increase should also be followed by an increase in the number of clients for 75% of the MFIs expecting growth in the new year. A new hopeful signal, therefore, but also a sign of ambition on the part of institutions determined to continue moving forward in 2021.

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(1) The first four surveys of ADA’s partners, Inpulse and the Grameen Agricole Foundation are available here : //www.gca-foundation.org/observatoire-covid-19/, //www.ada-microfinance.org/fr/crise-du-covid-19 and //www.in¬pulse.coop/news-and-media/
(2) The number of responding MFIs by region is the following: SSA 19 MFIs; LAC 17 MFIs; EAC 21 MFIs, South Asia 10 MFIs; MENA: 7 MFIs
(3) The sample size is 38 MFIs: 6 in South Asia, 10 in Eastern Europe and Central Asia, 6 in Latin America and the Caribbean, 1 in MENA, and 15 in Sub-Saharan Africa.
(4) //www.gca-foundation.org/espace-medias/#covid-19-une-reprise-des-imf-progressive-au-rythme-de-celle-de-leurs-clients; //www.ada-microfinance.org/fr/crise-du-covid-19/fiche-crise-covid-19/2020/11/4e-vague-enquetes

[INTERVIEW] The Foundation’s actions to face the Covid-19 crisis

Hélène Keraudren Baube & Edouard Sers, Grameen Crédit Agricole Foundation

To overcome the effects of this unprecedented health and economic crisis, the Foundation has had to innovate, adapt and coordinate with other key players in the sector of inclusive finance and social impact entrepreneurship. Transversal work that involves the whole Foundation team. To find out more, spotlight on the testimonials of two Foundation experts, Hélène Keraudren-Baube, Administrative and Financial Director, and Edouard Sers, Risk, Compliance and Social Performance Director.

1.How has the Covid-19 crisis impacted the internal organisation of the Foundation and that of supported organisations?

Hélène: We used telework overnight, but since it was already a possible modality at the Foundation, the transition was very fluid. In addition to providing the equipment for teleworking, we have also adapted the schedules to take into account the context of confinement with children at home. We have had a very special year, with no field mission for the team based in France since February, as usually investment officers all go on field missions several times a year. The Foundation’s Board of Directors conducted regular updates to monitor the situation and determine the best measures to support the teams and organisations funded. In addition, we spoke on a more regular basis with our governance to keep them informed of developments in the situation and activity.

2. What responses did the Foundation give to deal with it?

Edouard: The Foundation’s first response was to establish a rapid and permanent dialogue with the organisations it supports to understand the effects of the crisis, the measures implemented and their needs. The investment manager teams have remained in very close contact with all the organisations we support, and we have conducted regular surveys with them to understand the impacts of the crisis in the various countries of intervention. In addition, we launched the Covid-19 Observatory in which we regularly publish articles in order to share our analyses and inform stakeholders of developments in the situation. At the same time, we led an international coordination of lenders and inclusive finance players to act in close cooperation, to protect microfinance institutions and their clients and prevent any liquidity shock that would have destabilised the sector.

Hélène: We have adapted our monitoring and analysis tools and our requests for information, particularly with regard to business continuity plans and short-term cash flow plans. On the financial front, we have granted deadline extensions to around 30 Foundation partner organisations, mainly microfinance institutions. These extensions, from 6 to 12 months according to the different cases, took the form of amendments to loan contracts, and revised deadlines. This volume of postponement requests is completely unprecedented and has “stressed” our liquidity. We have refined our projection and monitoring tools to track the financial impact for the Foundation.

3. Regarding the international coalition, what are the first results?

Edouard: Six months after the signing of the Commitment, along with all the signatories, we drafted a joint publication presenting the status of implementation of 10 principles of the Commitment. Among the conclusions of the publication, we can highlight the strong coordination between international funders to agree in terms of extension of deadlines, avoiding a liquidity crisis in the microfinance sector. We have also made progress in the area of ​​technical assistance, including webinars and joint field surveys with end customers. Finally, we have encouraged the coordinated collection of information on staff management and client monitoring of microfinance institutions and are promoting initiatives to strengthen the protection of clients and staff. In 2021, we will pursue our efforts to support the gradual recovery of microfinance institutions supported with technical assistance, appropriate financing and regular exchanges between the various players in the sector.

4. In relation to the Foundation’s donors, what common actions have been taken?

Hélène: We very quickly kept our funders informed of developments, with detailed presentations. Since the strat of the crisis, we understood that the main impact in 2020, for the Foundation, would be on our liquidity management. The requests for extensions from our partners weigh on the Foundation’s cash flow, and we wanted to preserve our ability to support our partners and avoid a liquidity crisis at all costs. To do so, we have asked for extensions of delays from our funders, and envisaged new “special Covid-19” financing lines to support the resumption of the activity of the microfinance institutions that we support.

5. Finally, what are the prospects for 2021? What will the Foundation’s priorities be?

Hélène: After a year 2020 marked by an operating result supported by the growth of the portfolio in previous years and substantial savings in 2020, particularly on travel costs, the year 2021 will be severely impacted by the contraction of the loan portfolio of the Foundation, following the crisis. The Foundation’s activity should continue its gradual and cautious recovery that began in recent months.We believe that the first semester will still be strongly constrained by the pandemic and its consequences, and hope to be able to resume our trips in the field, as close as possible to our partners, beggining from the second half of ther year. It will probably take another year for the Foundation to return to the level of activity it had before the crisis.

Edouard: A large part of the organisations supported have been able to cope with the crisis and are eligible for the funding offered by the Foundation according to standard risk criteria. On the other hand, a significant portion of them still carry a significant risk inherited from 2020 in their balance sheets. It is crucial that we continue to strengthen our support system to offer solutions adapted to the different levels of risk, combining new financing, technical assistance, deadline extension or, more exceptionally, debt restructuring.

At the sector level, lenders coordinated in 2020 in order to avoid a liquidity crisis and we will continue on this path in 2021. This year will also be crucial for investors to support microfinance institutions in accordance with their shareholder responsibility. Finally, we will continue to promote initiatives to protect the clients and staff of microfinance institutions in these times of crisis. For example, we actively participate in the Social Performance Task Force (SPTF) working group to define new certification criteria relating to customer protection in the sector. A permanent dialogue with our partners and coordinated actions will be key factors for the success of our commitments.

Microfinance In India: The Story of Resilience

By Devesh Sachdev, CEO, Fusion

©FGCA

The microfinance model of providing small collateral free loans to the ‘bottom of pyramid’ clients hitherto overlooked by the formal sector, has established itself as an effective & sustainable model for financial inclusion. Financial inclusion has rightfully been the key focus area for policy makers in the last few decades given the sheer size of our population that remained unserved and underserved. It needs no complex analysis to know that if India as a country has to improve its per capita income and graduate people above the poverty line – then access to finance has to be the key.

Despite policy push through the mainstream banking system, few factors acted as impediments to this critical national objective of financial inclusion. First and foremost being the fact that our formal Banking system largely designed its policies and reach (be it brick and mortar or digital) to cater to the urban/semi-urban population with established track record/income and collateral that fit into their defined Risk/Reward matrix as an Asset Class. Secondly, the ‘cost of delivery’ for bite size transactions in BOP market became a dampener for the Banks. Lack of financial literacy also acted as a constraint.

The microfinance model of providing small collateral free loans to the ‘bottom of pyramid’ clients hitherto overlooked by the formal sector, has established itself as an effective & sustainable model for financial inclusion. It was conceptualized to transparently deliver financial services and products at the doorstep of these very customers in a very simple to understand manner. The concept of Joint Liability leveraging social capital combined with doorstep delivery has helped microfinance gain trust & acceptability.

The Microfinance ‘journey’ of the last decade has run on two broad themes. On one side, it has weathered serious setbacks like the one of 2010 Andhra crisis, 2016 Demonetization crisis, the NBFC liquidity and credibility crisis and is currently battling the Covid-19 global pandemic. All these events created a perception in the minds of stakeholders that microfinance per se is a risky asset class because unfortunately for the sector – it has been impacted by such unforeseen events once every 3-4 years.

However, there is another side to the sector which is its brighter side:

  1. Today, the sector serves around 6 crore unique customers with a combined portfolio size of Rs 2,31,000 Crore across 620 districts in 28 states and 8 UTs. This makes it the 2nd largest sector after Mortgages. However, what has been even more commendable is that the sector has grown @30% CAGR in the last 3 years vs the overall Retail Sector’s 17% CAGR
  2. Another highlight of the Microfinance sector has been delivering financial products and services via a prudent amalgamation of ‘Touch and Tech’ at the lowest cost amongst all its global peers. The sector leverages advances in technology to constantly deliver greater transparency, data security and privacy and affordability for its rural customers at their doorstep.
  3. With both reach and operational effectiveness, Microfinance today is a sustainable business model, calibrated to leverage its network to deliver other goods and services to the rural masses contributing to India’s phenomenal growth story
  4. The sector also generates significant employment opportunities not only by hiring from the hinterland but also enabling its customers provide employment opportunities to others via financial support extended.

The sector has demonstrated remarkable resilience across the last decade and this has been made possible due to some key contributory factors:

  • The ‘inherent’ need for such a model in aspirational India where a large unserved /underserved population still needs to be brought onto the financial bandwagon, ensured that Microfinance remained a ‘preferred’ vehicle for both the policy planners and the practitioners across the years
  • The phenomenal support and conducive policy framework provided by the RBI which has been a catalyst in furthering Microfinance’s mission of financial inclusion. The sector has been accorded a special category under the larger NBFC category of RBI – lending it a distinct identity and strong credibility by having country’s first RBI recognised Self-Regulatory Organisation.
  • The functioning of MFIN (the sector association) as an SRO since 2010 has enabled the sector to build its growth on strong pillars. Key pillars of MFIN’s work have been customer protection, industry code of conduct and policy advocacy, all of which contribute towards building of a Responsible Finance ecosystem.
  • Microfinance being a high touch model, it has ensured highest degree of customer centricity and familiarity. Response time in crisis situations is much quicker and the resolutions proposed are very focused. This aspect helped the sector tide over the challenges brought about by Demonetization in 2016 but more recently this model has proven its resilience and sustainability in the ongoing Covid 19 crisis. The frontline soldiers ensured that the wheels of financing kept moving when the customers needed them the most during pre and post lockdown periods. Operating platforms were quickly modified to work on remote basis delivering loan services digitally Field processes were altered to incorporate all health and hygiene guidelines.

The strong bond with customers stood the test of time and brought about a high degree of mutual understanding and cooperation. Most of the financial pundits were proven wrong when the microfinance portfolio delivered better than expected portfolio metrics post Covid and RBI mandated moratorium period.

Today, the Microfinance Sector is partnering with the government to roll out various social schemes be it Shishu loans under Mudra or Pradhan Mantri Svanidhi scheme. The importance of the sector has been recognised by PM in his United Nations General Assembly speech by terming it as instrumental in furthering women entrepreneurship.

As they say “It’s not the number of punches that you land that make you a winner, it’s the fact that you still get up strong after taking a lot of punches and emerge a winner” and this is an apt description of a ‘Resilient’ Microfinance Sector in India thus far ……but the journey has just begun!!

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Source: BW Businessworld

COVID-19: a gradual recovery of MFIs in sync with their clients’ recovery

ADA, Inpulse and the Grameen Crédit Agricole Foundation have joined forces to monitor and analyze the effects of the Covid-19 crisis on their partner microfinance institutions around the world. This monitoring is done on a regular basis and will be carried out throughout 2020 in order to obtain better insights of developments. We hope this regular and in-depth analysis will contribute to building strategies and solutions adapted to the needs of our partners, and also to the dissemination and sharing of information among the various players in the industry.

In Summary

The results presented in this article are drawn from the fourth survey [1] in a joint series by ADA and the Grameen Credit Agricole Foundation, Inpulse having chosen to join the initiative one time out of two. Responses were collected between October 1st and October 20th from 73 microfinance institutions (MFIs) in 38 countries in Sub-Saharan Africa (SSA-37%), Latin America and the Caribbean (LAC-25%), Eastern Europe and Central Asia (ECA-18%), Asia (15%) and Middle East North Africa (MENA-4%) [2].

Given that previous surveys had revealed that the main financial difficulty for MFIs was the increase in their Portfolio at Risk (PAR), the new survey took a closer look at how MFI clients and their businesses were doing as this is what MFIs mainly depend on. Above all, the results of this survey confirm the gradual resumption of MFI activity, along with a reduction in most of the operational constraints initially encountered. The major remaining constraint has to do with loan recovery which explains the increase in PAR as the main financial difficulty for MFIs.

This difficulty in loan recovery may be due to external constraints, such as mobility or moratoria imposed by authorities, or to difficulties encountered by the clients themselves whose activities have not yet restarted or are slowed down by the impact of the crisis. Indeed, even if the peak of the health crisis has passed and it has affected to a lesser extent regions such as sub-Saharan Africa or South-East Asia, thus allowing a number of business sectors to restart, it is all too soon to expect a return to normal. Especially, the restrictive measures and the overall economic situation have negatively impacted — and still do — activities in a certain number of industries, thus restricting the sources of income of the populations. Consequently, this affects MFIs and their financial situation which is why it seems crucial to monitor closely how the crisis is experienced by their clients in order to be responsive in adapting to their needs by offering solutions allowing everyone — clients and MFIs alike — to survive this crisis.

1. THE RECOVERY OF MFIS IS STILL CONSTRAINED BY THE DIFFICULTY IN COLLECTING LOANS

The responses collected during the month of October show that most MFIs are gradually resuming their activities (Fig. 1). Only those of some MFIs in Myanmar remain very limited by the constraints represented by containment measures currently in place in the country, as are the activities of a minority of MFIs in sub-Saharan Africa (one MFI in Mali and one in Malawi). In Europe and Central Asia, the share of MFIs having achieved their normal activity level is most significant.

 

One of the constraints being encountered by MFIs that previous surveys have revealed was that part of their staff and client base were affected by Covid-19. Hence, we focused on the prevalence of the Covid-19 disease among staff and clients. Fig. 2 and 3).

The situation is mixed in this respect: The Sub-Saharan Africa region appears as the least affected with just a small proportion of MFIs reporting that their staff (15%) or their clients (22%) are affected. Moreover, this proportion remains very small (between 0.1 and 5%) with 70% of the region’s MFIs reporting that neither their clients nor their staff have been affected by the virus. On the other hand, the Latin America and the Caribbean region is the most affected, followed by Europe and Central Asia with a larger share of MFIs concerned by the virus (just 11% of MFIs in the LAC region reporting that neither their staff or clients were affected), and it shows a larger prevalence rate for some of those MFIs [3]. Nevertheless, even if the health situation is more problematic in those regions, it still remains for the time being a relatively minor constraint for MFIs.

Moreover, on a global scale a relatively important proportion of MFIs report that they do not encounter any constraints. (Fig.4), mainly in the Europe and Central Asia regions (62%), while those facing some constraints are fewer with every survey, thus showing a gradual recovery.

The major remaining constraint (32% of MFIs in the sample) is about the difficulty in collecting loan repayments. This implies an increase in the portfolio at risk which is the main financial difficulty encountered by MFIs everywhere. It is reported as such by 77% of MFIs while other difficulties show a diminishing pattern in every survey.

This difficulty or impossibility of collecting loan repayments can be explained by mobility constraints, mainly in countries or internal regions where containment measures are still in place, but also by the implementation of moratoriums – be they initiated by authorities or by the MFIs themselves if the clients needed them. Indeed, these moratoriums concerned the majority (84%) of MFIs surveyed in the sample (Fig. 5), and they are still in place for almost a half of MFI clients (48%) in total. Asia is the region where this situation is more frequent (83% of MFIs included in the sample).

Among clients having benefited from a moratorium, those repaying normally their loans once it ended are a minority (Fig. 6). The majority of MFIs (86% of the sample) report that some or all of the clients needed a new moratorium, or even ended up in the portfolio at risk with 39% of MFIs in the sample affected by the latter situation. In Europe and Central Asia, and in Sub-Saharan Africa, more than half of MFIs report a move to their portfolio at risk of part of their clients having benefited from moratoria.

 

Nevertheless, globally speaking, the majority of MFIs in every region report that at least 70% of clients repay their loans. (Fig. 7). In South and Central Asia and Europe, more than 80% of respondents show repayment levels above 70%. On the other hand, the situation is not as good in Latin America and Caribbean and Sub-Saharan Africa regions: 34% and 45% of MFIs respectively with less than 70% of clients repaying their loans, and 17% and 15% where this proportion is less than 50%.

2. THE RECOVERY OF MFI CLIENTS IS FACING CONSTRAINTS

These repayment levels, being both volatile and lower than the pre-crisis normal, can be explained partially by the fact that not all customers are still able to resume their activities: Once again, excepting the Europe and Central Asia regions, only a minority of MFIs report that 90% or more of their clients have resumed their activity. However, for a majority of MFIs in the sample (54% in total), between 50 and 90% of clients have resumed their activity. The overall trend therefore points towards gradual recovery.

However, even if customers do resume their activities, some sectors are more affected by the crisis than others. The business activity most often mentioned as being most affected is tourism in regions other than sub-Saharan Africa, where it is retail (reported by 48% of MFIs in the region). The services sector is second in most regions except in Asia where the production and crafts sector is more affected. On the other hand, agriculture is reported only once. Overall, the agriculture sector appears to have been less affected than others by the Covid-19 crisis, as our previous work already showed, where a number of MFIs stated that they wanted to focus more on agriculture as it was less affected by the crisis.

When looking at the constraints faced by customers, by sector, it appears that these constraints are specific to each of them (Fig. 10). Regarding the tourism industry, it is the decrease in the number of clients of entrepreneurs working in it that is the main source of difficulty, followed closely by the loss of employment, mentioned by 60% of MFIs who identified tourism as the most affected sector. On the other hand, in other sectors, the loss of jobs by clients does not appear to be among the main constraints identified. The decrease in the number of customers remains one of the major constraints, for the retail sector as well as for services or production and crafts. The same result is found in other surveys directly targeting MFI customers, such as those using the tool developed by SPTF where the reduction in demand is identified as the main reason for the decline in revenues [4]. Finally, the lack of business opportunities is the first constraint for the retail sector (reported by 72% of MFIs identifying this sector as being the most affected), while the difficulty in producing or offering products is typical of the production and crafts sector.

By focusing on the specific constraints faced by their clients depending on their industry, but probably too on other factors, MFIs would thus be able to better anticipate their financial situation in the short term, and respond appropriately to the needs of their different customer segments: This would allow them all to better navigate this crisis. This responsiveness seems to have already been adopted by some MFIs, given that, and beyond the priority given to the repayment of credits or their restructuring, some of them have introduced not only new channels of digital communication and distribution, but also new credit policies or new products (Fig. 11).

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[1] The results of the first three surveys of ADA partners, Inpulse and the Grameen Agricole Foundation are available here: //www.ada-microfinance.org/fr/crise-du-covid-19 and //www.gca-foundation.org/en/covid-19-observatory/
[2] The number of MFIs responding by region is as follows: SSA: 27 MFIs; LAKE: 18 MFIs; EAC: 13 MFIs, Asia: 12 MFIs; MENA: 3 MFIs. In spite of the small number of MFIs participating in the MENA region, we considered useful to share the inputs of MFIs that took the time to respond to these surveys. However, we urge caution in interpreting the results in this region, which might have limited representativity.
[3] As the MENA region is represented by only 3 MFIs in the sample surveyed, the high numbers in this region should be considered with caution.
[4] The results of these surveys are available here: //app.60decibels.com/covid-19/financial-inclusion#explore

Kafo Jiginew, resilient in the face of the Covid-19 crisis in Mali

© RFI Savoirs

The Covid-19 crisis has impacted the activity of Kafo Jiginew, a microfinance institution funded by the Grameen Crédit Agricole Foundation since 2018. Firstly due to the slowdown in international economic activity which impacted the growth of savings, but also in relation to the demand for loans which has also decreased. This panorama was presented by David Dao, Director of Kafo Jiginew, during an interview given on the occasion of the presentation of donations worth 25 million FCFA to the widows and orphans of the Malian soldiers who are part of the membership. of the institution.

The Covid-19 has also affected the Malian cotton sector, largely financed by the institution, which has seen its demand drop on the international market. Credit demands from cotton producers have decreased, which for the institution represents a significant drop in financial income. Another consequence is the increased risk of non-repayment of loans which could weigh on Kafo’s financial profitability in 2020. David Dao, however, expects a positive result for 2020 and asserts that the situation will not weigh on the existence of the institution that is strong.

Kafo Jiginew remains the leader in the microfinance field in Mali with at least 40% of the market share, 430,000 clients and a portfolio worth FCFA 68 billion. Since 2014, the institution has entered a phase of profitability which still continues. In 2015, Kafo Jiginew also initiated a global rating operation with MFR – Microfinanza Rating, an international audit firm that assesses and scores its financial and social performance. These good practices ensure transparency towards international funders such as the Grameen Crédit Agricole Foundation, which will continue to support its partners to face the current crisis.

Source: Bamada.net