A micro-entrepreneur client of MicroCred Côte d’Ivoire © MicroCred

AFD AND FINANCIAL INCLUSION

A 25-year long commitment to microfinance

ACCESS TO FINANCE: GLARING INEQUALITIES According to the latest estimates, some 2.7 billion adults worldwide are still deprived of access to formal financial services for credit, insurance and savings accounts. The map below shows these glaring inequalities. Yet access to financial services plays a key role in reducing

vulnerability to the hazards of life and boosts the local economic base by providing the opportunity to start or scale up job-creating activities. Recent studies show that access to credit has a direct impact on both economic growth and the reduction of income inequalities.

Adults (15 and over) with an account in a formal financial institution in 2011 (%)



  No Data   0 - 16.5   16.5 - 28.5   28.5 - 50.3  50.3 - 81.2   81.2 - 99.8

© Demirguc-Kunt, A. and L. Klapper, 2012. “Measuring Financial Inclusion: The Global Findex Database.” Policy Research Working Paper 6025, World Bank, Washington, D.C.

FROM MICROFINANCE TO FINANCIAL INCLUSION

AFD accompanies these developments by supporting all the stakeholders and market infrastructure required for a reliable and responsible provision of these financial services.

For forty years now, microfinance has focused on providing financial services to communities excluded from the classic banking system. However, it still needs to extend the range of people served and scope of services. Studies show that low-income communities use a whole host of informal financial instruments. They are generally either costly or risky (loan sharks, tontines, pawn shops, etc.). Consequently, if microfinance is to effectively fulfill its social mission, it needs to offer diversified financial services tailored to demand and distributed to as many people as possible in a responsible manner. The current challenge is to evolve from the minimalist vision of simply supplying microcredit, which dominated the sector in its early days to promoting financial inclusion in the broad sense of the term. This new comprehensive approach has come about as a result of two evolutions:

T  he providers of microfinance services take on many legal forms: Non-governmental organizations, associations, mutual associations, cooperatives, private limited companies, microbanks… but there are also postal networks, branchless banking via mobile phones and banking correspondents.

© Viewpress for AFD

T  he products and services provided have been diversified: The traditional range of credit on offer has now been enhanced with savings, microinsurance, electronic transfers, specific SME and housing loans, leasing, and payment services.

A microentrepreneur in the Dominican Republic

PROMOTING FINANCIAL INNOVATION Microfinance Institutions (MFIs) that have reached a certain level of maturity are now optimizing and extending the services they offer their clients by developing innovative approaches. AFD promotes innovation in financial services by helping these stakeholders to define and implement products and distribution channels tailored to their beneficiaries’ needs: microinsurance, mobile banking, green microfinance, as well as access to housing and home improvements. AFD helps pilot projects come into being, thanks to its wide range of financial tools. In 2010, AFD supported the creation of an innovative mutual health insurance scheme in Madagascar, which gives micro and small entrepreneurs better access to healthcare and coverage in the event of an accident or illness. It is now also contributing to the development of mobile banking in the country for communities excluded from the traditional financial system in rural areas. In Cambodia and India, AFD is conducting strategic research on the development of microfinance products for the acquisition of renewable energy equipment to increase access to electricity for rural households.

Telecenter, Burkina Faso © AFD

Finally, because providing access to housing is a crucial way to improve the living conditions and safety of communities, AFD also supports the development of products to finance housing construction, extension or improvement. Examples include the Dominican Republic, Kenya, Mali, Morocco and Nigeria.

AFD’S 25-YEAR LONG COMMITMENT TO MICROFINANCE

2009:

1995: CGAP membership

From 1988:

AFD’s first microfinance operations as part of its rural development activities 

From 2002: Microfinance team set up in the Financial Sector Division (IFI)

2003:

2005:

Participation in CGAP peer review process

“Year of Microcredit”; organization of the Paris Conference

From 2004:

The ARIZ guarantee scheme aims at: - Encouraging local banks to extend financing for MFIs (single-deal guarantee) - Supporting mature MFIs for the development of a loan portfolio for microenterprises and small enterprises (portfolio guarantee)

From 2004:

Creation of the microfinance facility: a grant facility allowing loans to be allocated in local currency and providing equity investments

- Endorsement of the Client Protection Principles promoted by CGAP and ACCION International - First participation in the CGAP Smart Aid program to rate donor members

From 2007:

PROPARCO starts operating in the microfinance sector

AN INTEGRATED APPROACH AFD works to promote financial inclusion by supporting the development of appropriate public policies, efficient regulatory and institutional frameworks (consumer protection, safeguard of deposits) and market infrastructure (professional associations, credit bureaus, refinancing apex entities). It also supports financial operators (banks, MFIs) and non-financial operators (telephone operators, payment platforms) that are seeking to diversify the range of financial services and to market products efficiently, including through new technologies.

MACRO LEVEL

Regulatory and supervisory environment

MESO LEVEL

AFD can contribute to the creation of integrated ecosystems where all market players are geared towards financial inclusion, thanks to its wide range of financial tools and with the support of its affiliate PROPARCO, which is specialized in financing the private sector on market terms.

Financial infrastructure

Since 2002, AFD has mobilized EUR 413m to support financial inclusion. There has been a sharp rise in commitments since 2008. PROPARCO’s entry into the microfinance sector and the development of guarantee schemes for banks aiming to finance MFIs (ARIZ instrument) have widely contributed to this growth.

Financial service providers

Central banks, ministries, etc.

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Credit bureaus refinancing entities, professional associations, etc.

MICRO LEVEL

MFIs, banks, postal networks, etc.

CLIENTS

AFD GROUP’S MICROFINANCE PORTFOLIO REVIEW 2013: 2010:

Co-organization of the Convergences 2015 Forum in Paris

Second participation in CGAP Smart Aid program to rate donor members (rating of 70%)

A six-month audit of AFD Group’s microfinance portfolio was conducted by independent individual consultants in 2010-2011. The objective was to obtain recommendations for a review of the Group’s financial inclusion strategy. It was intended to provide, for the first time, an external and critical viewpoint on the performance of the Group’s microfinance projects. The review involved using a predetermined methodology to rate a representative sample of active projects and was based on documents and fields visits in the countries where there are a large number of projects (subSaharan Africa and the Maghreb region). The findings, which comprised specific recommendations for each Group entity working in the microfinance sector, made a decisive contribution towards the definition of AFD’s new financial inclusion strategy. This operational diagnostic made it possible to identify several strategic priorities, which are based on the following objectives:

 Increase the share of rural microfinance in the portfolio;

From 2009:

 Strengthen market infrastructure;

-C  reation of FISEA (Invest and support Fund for Businesses in Africa) -M  anagement of the mechanism to support French NGOs entrusted to AFD

 Strengthen the support to medium-sized MFIs;  Promote innovative projects;  Build a doctrine for responsible (micro)finance.

IMPACT MEASUREMENT AND KNOWLEDGE DISSEMINATION Since 2002, AFD Group has directly supported 48 microfinance institutions, which serve over 3.8 million clients. AFD endeavors to measure the impact of its operations in order to analyze the results of its microfinance projects and disseminate them for accountability purposes. While few rigorous studies on the measurement of the impact of microfinance have been conducted, AFD has financed two large-scale impact evaluations in Morocco – in partnership with the MFI Al Amana – related to the ongoing international debate in the sector over the capacity of microfinance to support poverty reduction: A  FD Ex Post Series Impact Analysis n° 6 | Analysis of the Determinants of the Demand for Financial Services in Rural Morocco, October 2011.

© Advans

A  FD Ex Post Series Impact Analysis n° 7 | Impact of Microcredit in Rural Areas of Morocco: Evidence from a Randomized Evaluation, October 2011. This objective of sharing knowledge on microfinance also leads AFD to support initiatives that disseminate information and good practices in the sector. This is the reason for its support for the first French-language microfinance website, Le Portail de la Microfinance. An Advans client, Côte d’Ivoire

AFD GROUP: A WIDE RANGE OF TOOLS Beneficiaries

Available tools and objectives

MICRO LEVEL

Grants

Financial service providerss

Capacity building for MFI start-ups, fledgling MFIs, or mature institutions with a diversification or innovation project

Loans Financing of MFIs (general or targeted)

Guarantees For banks, to refinance MFIs For MFIs working in the microenterprise/SME segment

Equity (PROPARCO) MFI start-ups Support for growth in mature MFIs

MESO LEVEL Financial infrastructure

Grants Capacity building for organizations that provide technical and professional assistance and for intermediate refinancing entities

Loans Financing for intermediate refinancing entities

Equity Creation of intermediate refinancing entities

MACRO LEVEL Regulatory and supervisory environment

Grants Capacity building for authorities in charge of regulating and supervising the sector

CAMBODIA: SUPPORT FOR THE SECTOR AT EVERY STAGE OF ITS HISTORY The example of Cambodia is emblematic of AFD’s capacity to support the microfinance sector at the various stages of its development, thanks to its wide range of financial tools. AFD helped the microfinance sector to come into being back in 1993, by providing grants to finance several rural credit programs, whereas the banking system had been severely weakened following the protracted civil war. In 1995, it continued structuring the sector by assisting the Government in the definition and implementation of appropriate regulation, while supporting the institutional and financial consolidation of MFIs. Since 2008 – and as the sector has reached maturity – PROPARCO has also been supporting the growth and diversification of these stakeholders’ activities via debt and equity investments. As AFD is today aware of the increasing risk of cross-­ indebtedness in Cambodia’s microfinance sector, it is supporting CMA, the representative association of MFIs, in order to disseminate principles of responsible finance. Since 2012, it has been contributing to financing a large number of MFIs for their processes to be certified under the Smart Campaign’s Client Protection Principles and their participation in the recently created credit bureau.

© Nyèsigiso

A microfinance client in Cambodia

A Nyèsigiso collector goes to the markets, Mali

© CMA

PROMOTING RESPONSIBLE FINANCE

“AFD has been providing comprehensive support to the sector since the very beginning of its operations, through its long-standing involvement and its wide and complete range of financial tools. It is one of the main aid donors for the development of microfinance in Cambodia”. Hoy Sophea, Secretary General of the Cambodia Microfinance Association (CMA)

The sector’s image has been tarnished in recent years by certain cases of indebtedness, abusive practices towards clients, overcharging for services and non-transparent billing. Since 2009, AFD has been working to promote the principles of responsible finance in its operations. As a member of both the Social Performance Task Force and the Smart Campaign to protect microfinance clients, AFD promotes the dissemination of these principles in three ways: It uses an Environmental and Social rating scorecard during the appraisal and implementation of all its new projects. It assesses the extent to which these principles are actually implemented in the MFIs, with a view to possible upgrading measures; W  hen the financing is set up, the agreements comprise undertakings with regard to responsible finance (adherence to the Client Protection Principles, social reporting to the information-sharing website MixMarket, conducting of a social rating); B  y financing projects that are exclusively dedicated to promoting responsible finance. For example, in 2011, AFD financed the activities of the NGO MicroFinance Transparency to promote a fair and transparent pricing system in sub-Saharan Africa.

© Pablo Ordonnez

SUPPORTING MEDIUM-SIZED MFIs VIA INVESTMENT FUNDS

Tunisia

PROMOTING AN APPROPRIATE REGULATORY FRAMEWORK An appropriate legal and regulatory framework is essential for the professional development of microfinance. It must also be combined with supervision in order to ensure the stability and sustainability of the sector. AFD supports national authorities, central banks and Ministries of Finance in many countries by financing support-consultancy missions on microfinance regulation or supervision.

AFD promotes the development of specialized financial vehicles that have a capacity to operate in areas or with institutions where traditional donors and investors are less active. For example, AFD has supported several initiatives that aim to scale up financing for small MFIs: T  he creation of Jaïda, a refinancing fund for Moroccan small and medium-sized MFIs, in which AFD is a shareholder; T  he creation by SIDI (International Solidarity for Development and Investment) of the FEFISOL fund, which supports rural MFIs in Africa. AFD partially covers the fund’s exchange losses and has provided EUR 3m of refinancing; T  he creation of a “Facility for Microfinance in Africa” by the Grameen Crédit Agricole Foundation. AFD has provided a EUR 7m guarantee for part of its credit portfolio and, at the same time, is financing a EUR 1.3m technical assistance program for around twenty small rural MFIs in sub-Saharan Africa. Self-Managed Village Savings and Credit Bank (CVECA) in Goumera, Mali

For example, in the aftermath of the “Arab Spring” in Tunisia in 2011, AFD financed the transition Government’s definition of a national strategy for the microfinance sector, which led to the adoption of a law offering new prospects for the development of the sector.

© AFD – Jean-Nicolas Béasse

Similarly, in the Democratic Republic of Congo, AFD is supporting the Central Bank’s work to overhaul the regulatory framework for microfinance. In Haiti, AFD is supporting the Bank of the Republic of Haiti for the definition of a regulatory and supervisory framework for non-mutualist MFIs, which is as yet non-existent. Finally, in Vietnam, AFD works with the State Bank of Vietnam to support reforms that aim to promote the financial inclusion of communities.

A market in Cameroon © AFD – Raphaël de Guerre

SUPPORTING AGRICULTURAL MICROFINANCE One of the priority focuses for AFD’s operations is to promote access to financial services for vulnerable rural dwellers. It supports the development of microfinance in these regions, which are often remote or lack infrastructure, by mobilizing appropriate financial tools. Agricultural financing particularly requires specific expertise in tailoring financial services to seasonal changes and to the characteristics of crop farming and livestock raising. By developing products tailored to agricultural cycles and financing the many stakeholders involved in the agriculture value chain, microfinance is today making financial innovation work towards the objective of food security. In Cameroon, the MFI ACEP benefits from AFD support for the development of activities outside large urban areas. This support has contributed to the establishment of five new branches in secondary cities and to financing agricultural smallholdings. In Tunisia, AFD is supporting the MFI ENDA in financing small-scale farming using a customized range of loans. The MFI’s “Mawsem” and “Mechia” loans have been specially designed to finance crop seasons, the purchase of livestock and inputs, and the installation of irrigation systems.

© DID – A. Beauregard

A Nyèsigiso employee makes a transaction using a mini-computer, Mali © A Beauregard, DID.

AFD is present on four continents where it has an international network of seventy agencies and representation offices, including nine in the French Overseas Provinces and one in Brussels. It finances and supports projects that improve people’s living conditions, promote economic growth and protect Earth, such as schooling for children, maternal health, support for farmers and small businesses, water supply, tropical forest preservation, and the fight against climate change. In 2012, AFD approved EUR 7 billion to finance activities in developing countries and the French Overseas Provinces. Main outcomes of AFD’s funding are monitored every year. For instance, money delivered will help get 10 million children into primary school and 3 million into secondary school; they will also improve drinking water supply for 1.79 million people. Energy efficiency projects financed by AFD in 2012 will save nearly 3.6 million tons of carbon dioxide emissions annually.



www.proparco.fr

PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

FFEM



www.ffem.fr

FFEM is a bilateral public facility set up by the French Government in 1994 following the Rio Summit. It aims at promoting global environmental protection via sustainable development projects in developing or transition countries. The French Global Environment Facility supports physical projects in recipient countries. Its operations are learning-based and support experimental, innovative or exemplary approaches.

This publication was printed in an environmentally responsible manner using vegetable-based ink and PEFC™ paper, chain of custody n° 10-31-945 (sustainable forest management).

AGENCE FRANÇAISE DE DÉVELOPPEMENT (AFD) 5 rue Roland Barthes 75598 Paris Cedex 12 – France Tél. : +33 1 53 44 31 31 Fax : +33 1 44 87 99 39 www.afd.fr PRIVATE SECTOR, BANKS AND LOCAL AUTHORITIES DEPARTMENT (EBC) FINANCIAL INSTITUTIONS AND PRIVATE SECTOR DIVISION (IFP)

Creation: Planet 7 – July 2013

Agence Française de Développement (AFD) is a public development finance institution that has been working to fight poverty and foster economic growth in developing countries and the French Overseas Provinces for seventy years. It executes the policy defined by the French Government.