Emerging trends in microfinance

Financial inclusion continues to be one of the key challenges in the microfinance sector today that would play an integral role in shaping its performance in the future. At the Mexico G20 summit last summer, 17 countries led by the Presidents of Chile, Indonesia, and Mexico publicly committed to advance financial inclusion. Although the term microfinance has been associated with the working methodologies of Muhammad Yunus of Grameen Bank and with organizations such as Opportunity International, Accion and ASA, its employment as a tool to fight against poverty has always been debated, since its usage still lacks a necessary component to creating successful entrepreneurship values.
The concentration of MFIs have been growing in the regions of Africa, Latin America and Asia over the years, and this trend is attributable to the increasing below-poverty line population in those regions alongside the proliferation of the urban poor. Primary sources of funds for early MFIs were generated from savings of clientele and venture capitalist funding. However, the scenario has been changing rapidly. Nowadays, Central Banks across the globe have been taking initiatives to allocate financial services to the poorest of the poor; this in turn, has enabled hundreds of MFIs around the globe to become profitable in the long run. Commercial banks have begun to acknowledge the profits they can achieve from the low end of the retail market and mobile phone operators continue to discover innovative methods of allowing the poor to access mobile-based banking services.
Over the past year, there have been various trends that have emerged in the microfinance sector as businesses and individuals continue to realize the benefits of microfinance. Some innovative trends that have been adopted by microfinance institutions as they try to make their solutions more sustainable are listed below-
   Specialized Microfinance Institutions: Microfinance institutions are focusing on customer specific demands, which vary across a wide range of customers and according to the location. Last year saw an increasing progress in translating the needs of the poor into improved context-specific product offerings and policy approaches. A set of providers across the globe accelerated experimentation with innovative products that better match people’s savings needs and behaviors. For example, Jipange KuSave in Kenya tested the provision of interest-free loans with a third of the amount held back as savings. Opportunity Bank in Malawi has a commitment savings product for farmers that allow them to lock away their post-harvest payouts and distribute it over the year to smooth cash flows.
   Diversification of Microfinance Institutions: Microfinance institutions believe in offering broad range of products and services under an umbrella of microfinance that previously started with small loans, now offers money transfer, insurance and savings services as well.
    New channels: Branchless banking and franchisee-based services have become extremely effective and prevalent these days to approach potential clients who live in rural areas. One of the top developments in Kenya’s branchless banking industry was the launching of M-Shwari in Kenya, which provided access to savings and loans to M-Pesa customers. Through a partnership between Vodafone, Safaricom and the Commercial Bank of Africa, M-Pesa customers can now apply to CBA for a mini-loan and sign up for an interest bearing savings account, directly from their phones. Since its launch in November, M-Shwari now has 1million users.
   Turnkey Solutions: Most of the microfinance institutions have started offering services to their clients that differ from traditional services like savings, insurance and loans. Some MFIs offer services such as supply chain management or assisting with marketing infrastructure to grow micro-businesses.

Social Business Day 2012

Created in 2010, the Social Business day is a unique occasion to connect people all over the world, around innovation, empowerment, social entrepreneurship and other creative topics.It was held on June 28, 2012, which also happens to be Dr. Yunus’ birthday (no coincidence, this was intentionally chosen!). I remember being a part of the prestigious audience last year, which consisted of social business leaders in the globe today. I was only able to attend since I was working at a nonprofit organization in my country, Bangladesh for the summer but frankly, I was amazed at the passion and ardor these folks had in creating sustainable and effective social activities.
First off, it is imperative to digest the true meaning behind running a  ‘social business.’ Dr. Yunus coined the term in his book, ‘Creating a World without Poverty,’ where he explained it as the new kind of capitalism that would serve society’s pressing needs. Such a business is distinct from a non-profit due to its profit generation methods that are mainly used to expand the company’s outreach, improve the product or service in ways that will enhance the social objectives. This groundbreaking theory was essentially conceived by Dr. Yunus who thought that capitalism was narrowly defined and failed to capture human worth within its financial undertakings. Hence, a cause-driven business such as a social business will address these gaping issues where the purpose of the investment would be to achieve one or more social objectives through the operation of the company, since no personal monetary gain should be wanted by the investors.
One of Grameen’s most successful social businesses have come in the form of Grameen Danone, that creates subsidized yoghurt called Shokti Doi. This product basically contains numerous nutritional elements such as protein and calcium and is designed to fulfill the nutritional deficits of children in Bangladesh. Its overarching aim is to reduce poverty and to empower the local people with employment opportunities. Grameen Danone yoghurt was also rated by Businessweek to be one of the 25 products that might change the world. Such is the power of a social business that originated from a simple, thoughtful idea.
It was unfortunate not to have been able to attend this glorious event this year. For the 2012 edition, the Yunus Centre organized a 2 day conference in Dhaka with great speakers like Pr. Yunus, of course, his friend from NASA Ron Garan, Eric Lesueur from Veolia Water. The speeches that took place on Social Business Day 2012 have not been put up yet but this an amusing video created for this special occasion: