InFiNe.lu Grantees Blog, Boulder Microfinance Training 2015, Week 2

InFiNe.lu Grantees Blog, Boulder Microfinance Training 2015, Week 2

After a selection process, InFiNe.lu has awarded 2 scholarships to its members to attend the Boulder Microfinance Training 2015 in Turin from July 20th to August 7th. During the 3 weeks of training, our grantees, Chiara Baldassare and Caroline Morilhat will share with us what they are learning.

Week 2: 30/07/2015 – Further insights from the Masterclass at Boulder

Further to the topics presented last week, we would like to cover the additional hot topics on inclusive finance.

Robert Christen is the main moderator of each session and hosts on stage professionals from different background. Topics can be extremely diverse each day and have the main objective to make participants more familiar with inclusive finance challenges of today and tomorrow.

For instance, this week we had the opportunity to listen to great insights on agricultural lending and micro-finance in rural areas. The market can be segmented by profile of poor agricultural households as follows:

– non-commercial smallholders

– commercial smallholders in loose value chains

– commercial smallholders in tight value chains Basing our analysis on the different characteristics of each profile we could understand their needs and therefore identify suitable financial products to serve these clients. The inherent benefits to each class would be:

– growing income of farmers and agricultural Small and Medium Enterprises

– increasing resilience

– smoothing the transition of non commercial farmers out of agriculture

Furthermore, we got acquainted with problems in post-disaster areas, where disaster is meant to be both provoked by mankind or natural catastrophe. The session started with a real time survey where participants were asked whether their countries have been affected by natural disasters or armed conflicts. Amongst the 150 surveyed, 70% answered to have faced natural catastrophes, whilst 55% underwent armed conflicts. 50% of the practitioners declared to have in place contingency measures to face such disruptions. Based on EM-DAT reports the cost of damage caused by natural disasters is estimated to be the highest in Asia and America, respectively amounting to USD 50 billion and USD 32 billion. The biggest source of damage in both areas are earthquakes and floods. The keynote speakers introduced the importance of identifying and promote disaster prevention as well as contingency plans in such areas. Moreover, it has been underlined that it is important to gather forces together with multiple players on the market in order to deliver complex services to such vulnerable end consumers. In fact, in such cases, ultimate clients not only require first aid financial and non-financial services, but often also need advise and psychological support.

Additionally, we covered the role of micro-finance in financial inclusion. The speaker debated on the value delivered to ultimate clients and the importance of relationships. MFIs need to shift from low-touch relationship to high-touch relationships by reducing transaction costs.

Petronella Chigara Dhitima has identified six pathways of financial inclusion to end extreme poverty:

– micro-finance and health

– saving groups

– graduation programs

– financial digital technology

– agricultural value chain

– cash transfer combined with asset building: better if in collaboration with government.

In another session, we covered the importance of digital financial services. It was noted that 49 out of 89 underdeveloped countries have the infrastructure to deliver mobile services. Nowadays, the region with the highest amount of mobile accounts is Sub-Saharan Africa. Across developing countries, according to GSMA 2014 there are 300 million of mobile money registered accounts, of which more or less 1/3 is active. In the region there are 2.3 million transaction agents. MFIs can engage with digital financial services (DFS) in the following ways: build system and promote DFS deployment on their own, use existing infrastructure or use mobile phones for collecting data.

Finally, 5 speakers covered the topic of deposit mobilization. The key takeaway of the class is that savings have a strong impact to alleviate poverty. However, despite highly demanded and easily adoptable, there is a shortage in the offering of such products in the context of financial inclusion. Proposing saving solutions would require the consideration of making the product accessible, affordable and durable.

Authors: Chiara Baldassare and Caroline Morilhat

Week 2: 27/07/2015 – Elective courses in English (author: Chiara Baldassare)

During the second week I have chosen to attend the following classes:

1. “How to set interest rates and analyze associated risks” taught by Sousan Urroz-Korori senior faculty in International Finance Development at Boulder and the University of Colorado and an Executive Administrator with over 20 years of experience in private and public sectors;
2. “Tools and techniques to manage Foreign Exchange and Liquidity risks” run by Karla Brom, an international development and finance expert with over 25 years of experience, formerly senior vice president in risk management of Citigroup responsible for oversight of 23 branches in Latin America.

1. “How to set interest rates and analyze associated risks” is a complete course which aims at providing students with a framework to understand and analyze all aspects of risk associated with interest rates. The main perspective adopted in the class is that of MFIs.

During the class, we examined liquidity management needs of MFIs and reviewed the opportunity cost of alternative capitalization strategies to the donor agencies, and private and public sector entities that are actively engaged in funding MFIs. Furthermore, we focused on the currency risk exposure faced by foreign investors and MFIs when investing in a hard currency such as U.S. dollars. This spanned from understanding risk associated with the institution’s financial management, assessing the impact of inflation on capitalization, and estimating the effect of a government’s budget deficit or monetary policy on the interest rate equilibrium. We concluded the session by looking at the product costing of many current MFIs and prepared a case study to evaluate the level of interest rate charged by selected MFIs on certain products versus market interest rates.

To sum up, beyond the course content, the main asset of this class has been the great knowledge of the professor who was capable of providing a holistic and well-structured explanation to many financial dynamics both at microeconomic and macroeconomic level. This ultimately offered the occasion to deep-dive into financial hot topics and exchange ideas amongst professionals of different background.

2. “Tools and techniques to manage Foreign Exchange and Liquidity risks” intended to provide participants with simple tools and structures MFIs can use to measure and manage liquidity, interest rate, and foreign exchange risk. Topics covered included creating internal risk policies and procedures, introducing supervising committees such as the Asset and Liability Committee (ALCO) or other risk management structures.

The class started with a brief introduction to risk management and set the common ground for the main definitions. Afterwards, the students were gradually guided through the foreign exchange, interest and liquidity risk mitigation strategies and tools. The teaching method drew on scenario-based case studies, such as contingency funding planning under stress-conditions and systemic capital rationing.

The true added value of the class has been the ALCO simulation, whereby participants have been asked to simulate an ALCO meeting and address all the issues related to an existing MFI.

Week 2: 27/07/2015 – Elective courses in French (author: Caroline Morilhat)

Cours “Méthodologie du microcrédit”

Intervenante : Sahar Tieby, directrice exécutive de Sanabel, le réseau en microfinance des pays arabes. Elle a plus de 20 ans d’expérience dans le secteur du développement durable au Proche-Orient et en Afrique du Nord, dont les 15 dernières années ont été consacrées au développement de l’industrie de la microfinance.

Selon Wikipédia, le microcrédit consiste en l’attribution de prêts de faible montant à des entrepreneurs ou à des artisans qui ne peuvent accéder aux prêts bancaires classiques.

Durant ce cours fondamental, nous avons identifié les différentes stratégies pour concevoir des micro-prêts adaptés à un environnement local et un segment de marché spécifique. Nous avons comparé les différents types de crédit, tels que les groupes de solidarité, les banques villageoises, les micro-prêts individuels et d’autres technologies du microcrédit.

Pour concevoir un produit adapté à une population pauvre, il faut d’abord identifier les informations disponibles des clients, la portée souhaitée, les garanties et les coûts liés. La mission des IMF est de ‘prendre le risque’, mais cela se calcule. Il faut trouver le bon équilibre entre les risques, l’intérêt pour les clients et les coûts. Le taux de remboursement est de plus de 90 %, plus élevé que le remboursement de crédit dans les banques.

Chaque méthodologie à ses propres particularités avec ses avantages et ses inconvénients, il n’y a pas de meilleure méthodologie. La première expérience de prêt d’un client passe généralement par un crédit de groupe, cela lui permet de se construire un ‘historique’ de crédit. De plus, ce premier prêt est généralement accompagné d’autres services non financiers comme la formation. Après avoir cumulé de l’expérience et une éducation financière, le client, souvent micro-entrepreneur, peut prétendre à un prêt individuel.

Cours “Risques opérationnels et gouvernance dans les institutions de microfinance”

Intervenant : Djibril Maguette Mbengue. Il est directeur pays de Oikocredit au Sénégal depuis février 2015. Avant de rejoindre Oikocredit, Djibril était spécialiste du secteur financier au CGAP/Banque Mondiale.

L’édition de 2014 de l’étude « Banking Banana Skins » a placé la gouvernance d’entreprise dans le top 10 des risques pour les institutions financières. Environ 80% des faillites sont dues à une mauvaise gouvernance. Cela démontre l’intérêt de bien définir et d’adapter le mode de gouvernance afin de faire face aux risques auxquels elles sont confrontées.

La gouvernance a une forte dimension humaine avec un jeu de pouvoir. En effet, différents acteurs interviennent dans la gouvernance, il est nécessaire de trouver une bonne balance entre chacun. Selon sa mission, sa nature, ses contraintes et ses sources de financement, l’institution peut déterminer son statut en association/ONG, coopérative ou société. Chaque statut possède ses caractéristiques propres, avec une répartition des rôles des acteurs externes et internes et induit des risques opérationnels différents.

Après avoir identifié les différents types de gouvernance et les risques liés, illustré par les nombreux exemples concrets de Djibril, le cours s’est terminé par un exercice en groupe. Sur base d’information commune d’une IMF, chaque groupe a pu se mettre à la place des administrateurs, des investisseurs, du régulateur et du personnel de celle-ci. Cet exercice a permis de mettre en pratique l’ensemble des éléments étudiés durant la semaine sur le rôle et les responsabilités des acteurs selon le statut et les contraintes d’une institution.

Une bonne gouvernance est un défi permanent, elle n’évite pas nécessairement les crises, mais permet de les traverser en limitant les dommages.