Social Performance Indicators Blog

Not Just Credit: Savings and Insurance Products through CRECER, Bolivia

Posted by: Katherine Oglietti

 A CRECER client in her restaurant

Interview with: Fabiola Céspedes Quiroga
Research Coordinator, CRECER, Bolivia

CRECER began in 1990, following a new management philosophy developed by Freedom from Hunger called Crédito con Educación (Credit with Education). Currently, CRECER facilitates financial services and products integrated with development services to 102,212 clients, of which 90% are women, 64% have only completed primary education, and 38% live in rural areas. As a non-regulated NGO, government policies prevent CRECER from accepting deposits or offering insurance products.  However, the organization has taken creative measures in order to facilitate these services to their clients. While commercial banks such as Parabank in Azerbaijan are downscaling in order to adapt their financial services to microfinance clients, NGOs such as CRECER are searching for ways to increase their institutional capacity in order to offer more financial services to their clients. In this interview, CRECER speaks about the various financial products it offers.

Downscaling Commercial Banks Can Offer High Quality Products to Microfinance Clients

Posted by: Katherine Oglietti

Information for this MFI profile was provided through an interview with Tofig Gasimov, Director of International Relations at Parabank, Azerbaijan; MIX Market; and the Parabank website.

Parabank is one of the oldest commercial banks in Azerbaijan; it was formed in 1991. Though it has been successful as a commercial bank, it is currently scaling down in order to also reach a low-income population that, according to the bank’s social mission, still faces difficulties in accessing financing. It initiated its microfinance component in 2004 with a venture in unsecured loans for cattle breeding in rural villages. The bank now supports businesses in any scale, from micro to large enterprises, and it has made a shift from lending not only to individuals but also through solidarity groups. While Parabank viewed this shift as a risk, the portfolio at risk over 30 days on its microcredit portfolio is actually a percentage point lower than its regular portfolio.

As a commercial bank, Parabank is able to offer a wide range of financial services to its clients in both rural and urban areas such as fixed term and checking accounts, educational loans, and insurance products; the social performance report indicates that it is able to offer more products than its peers. Clients have access to vehicle and real estate insurance through several different insurance companies in Azerbaijan. Last year, Parabank included Credit Life Insurance in their programming in order to protect the unsecured group loans (which are only 3% of the loan portfolio). This covers the full amount of the loan in cases where the client is unable to repay the loan due to serious health conditions or death. Though initiated for the purpose of reducing the risk of overindebtedness for its low-income microloan clients, Credit Life Insurance will soon be applied to all types of loans. Here we see an increased focus on client protection that occurred simultaneously with a shift towards microfinance.

Innovation Meets Financial Education: Swadhaar in India

Posted by: Katherine Oglietti

Interview with: Preeti Telang, General Manager – Programmes and Operations, Swadhaar FinAccess

Swadhaar FinAccess (SFA), which currently operates in Mumbai, India, was founded in 2005 with the objective of providing the urban poor increased access to financial services, bridging the gap with the formal banking sector. In  2008, the promoters of Swadhaar FinAccess transferred the existing microcredit portfolio of SFA to its newly created Non-Banking Financial Company, Swadhaar FinServe Private Ltd. (SFPL). SFA, the nonprofit entity, focuses on a financial education and savings program, facilitating savings accounts to its clients through Citibank. We spoke with Preeti Telang of FinAccess, who offered her insight as to the importance of combining financial education with the facilitation of savings products.

MIX: What are the major obstacles preventing women who live in urban informal dwellings from being able to save?

Preeti Telang: There are three major obstacles that prevent Indian women from saving:

1) Lack of knowledge about savings. I strongly believe that our female clients would like to save. It is not that they do not want to save; it is that they do not know how to save.  They find it very difficult to set aside money from their limited incomes and put it into savings. Savings essentially becomes the last thing on their agenda, as it is for most of us, so they have to learn that savings should be a high priority.

MFIs’ Financial Products and Services: An Overview of SP Report Data

Posted by: Taea Calcut

As mentioned in an earlier post, MFIs exist first and foremost to provide financial products and services to populations underserved or excluded by formal financial institutions. So, what have MFIs identified as the most important products and services to meet their clients’ needs?

Graph 1: Percentage of MFIs Offering Financial Products/Services (n = 166)

 

Using data from a sample of 166 MFIs that submitted social performance reports to MIX, we find that 100% of MFIs offer credit products to their clients, yet less than half currently offer additional products or services (Graph 1).  Of those MFIs that do offer additional products and services, insurance emerges as the most popular product type.

Innovating Microinsurance

Guest Post by: Craig Churchill - Head of the Microinsurance Innovation Facility, International Labour Organization (ILO)

 
MiBanco, Peru, and the insurance company it now owns, Protecta.

Craig Churchill is the head of the ILO's Microinsurance Innovation Facility, launched in 2008 with a grant from the Bill & Melinda Gates Foundation to promote better insurance products for more low-income households. In this post, he evaluates the pros and cons of implementing microinsurance policies, and offers specific guidelines that MFIs can follow to increase their leverage and negotiating power.

Many microfinance institutions (MFIs) are looking beyond credit to see what other financial services they can offer their clients, and in those discussions insurance invariably is raised as a possible option. But should an MFI get involved in offering insurance?

When microfinance institutions are interested in insurance, their primary motivation is often to reduce their credit risk in the event that borrowers or their family members experience death, illness or other losses. If insurance can help protect the households in such circumstances, it will indirectly safeguard the MFI’s portfolio.

Another significant motivation behind the interest in insurance is to improve the welfare of their clients. MFIs typically have dual missions to alleviate poverty or promote economic development while generating a profit (or covering their costs). The social mission of improving the welfare of poor households can be enhanced through the protection provided by insurance.

There are also a number of legitimately commercial reasons why MFIs might be interested in providing insurance, such as enhancing retention, improving product profitability, diversifying their income streams and reaching out to new markets.

Back to Basics: Financial Services and Social Performance

Posted by: Taea Calcut

The core function of microfinance institutions is to provide financial services to populations traditionally marginalized from countries' formal financial sector. Over the next two weeks, the Social Performance Indicators Blog will return to the basics of microfinance, examining its broad range of financial offerings through a lens of MIX Social Performance Report data and interviews with MFIs that have pushed the boundaries of product innovation to meet target clients' unique needs and constraints.