Every year, we send an intrepid group of volunteers to work with our partners around the world. We call them Accion Ambassadors. These passionate individuals document their journeys and report back with firsthand insights about financial inclusion and how it’s evolving. In the past, we’ve designed assignments based on the volunteers’ skills and interests, and on those of our partners — but this year, we’ll be doing things a little differently.

How does financial inclusion affect the lives of everyday entrepreneurs? How can technology play a part in economic development? What’s working on the frontlines, and what can we do better?

These are the questions we hope this year’s Ambassadors will strive to answer, through regular blogging and social media updates. We’re looking for writers, photographers, and content producers who are curious about the world economy, insatiable in their appetite for travel, and committed to reporting back on financial inclusion’s progress and challenges.

From microenterprises in Mumbai to fintech statrups in Zambia, this year’s Ambassadors will have the opportunity to see innovation for social good around the world through placements with our partners that last for a minimum of two weeks in the summer.

Learn more about the program requirements here, or read through some of the highlights from last year’s Ambassadors:

1. “Why are there so many slums in India?” // Mumbai
2. “The loan officer’s story” // Asuncion
3. “3 Reasons Microfinance Still Matters” // Bogota
4. “8 Lessons from Zoona, An African Fintech Startup” // Lusaka
5. “Is microfinance innovating enough?” // Bangalore

Looking back, I valued the ambassadorship on a professional level, more than on a cultural or personal level. Yes, I have seen some parts of the country during quick weekend trips. And yes, I have made some friends. However, it proved to be difficult to really get to know the people. In general, I found that the Paraguayans tend to keep to themselves. I have the feeling I only scratched the surface of the psyche of my colleagues, and only when I brought up the subject of football did they start to open up.

Olimpia or Cerro Porteño?

Every intern at Fundacion Paraguaya has to give a final presentation, summarizing the work that has been done and sharing final recommendations with the management and other interested colleagues. I decided to end my final presentation by finally disclosing my favorite Paraguayan football club. For two and a half months, I’ve been kindly pressured by the Fundación staff to choose either Olimpia or Cerro Porteño; by far the two biggest clubs in Paraguay. Despite being told that Olimpia was founded in the early 1900’s by a Dutch dude that brought the first football to the streets of Asunción while being cheered to by enthusiastic crowds Pope-style, I chose Cerro Porteño because of class acts Lugano & Santana. My final choice was received by cheers from half of the audience, booed by the other half. Perhaps one or two people were neutral, but of course, they were not Paraguayan.

In front of the head office on my last day.

The final presentation was yesterday. At the time of writing this, I’m waiting at the airport of Buenos Aires for my connecting flight to Amsterdam. I’m actually happy to go back to Holland, and see my girlfriend, friends & family. Back to the land of bicycles where you can also cross the street as a pedestrian without risking your life. Back to FMO where meetings start on time, where lunch includes vegetables and where working hours are flexible as long as you are productive.

Nevertheless, I will miss being at the forefront of microfinance and close to the clients. In the end, they are what it’s all about. I will miss the freedom I had in executing my projects and contributing on an organizational level with the limited working experience I have. I will miss the collective ‘brindis’ where everyone gives a little speech while sharing some beers. I will miss the empanadas, no explanation needed. Finally, I will definitely miss the passion that each one of the employees at the Fundación has to eliminate (extreme) poverty in Paraguay and in the rest of the world.

Overall, there are things about Paraguay that I love and there things that I hate. No country or culture is perfect. By living and working abroad now and then, I’m trying to take the positive things with me while staying true to my Dutch roots. It’s fun to be a global citizen.

Dennis van Erp was working out of Asunción, Paraguay, where he’s collaborating with Accion partner Fundación Paraguaya on developing a business plan for their microlending program.

One of the “Impulsoras” explaining the different microfranchise options to Nidia, a long-standing client of Fundación Paraguaya.

The World Wide Web tells us that: “traditional franchising is when a firm with an established product or service (the franchisor) enters into a contractual relationship with other businesses (the franchisees). Franchisees operate under the franchisor’s trade name and guidance — in exchange for a fee.”

Microfranchising is a business model that applies traditional franchising (e.g. McDonalds) to very small businesses or micro-entrepreneurs, like cleaning supplies, eggs, and reading glasses in the case of Fundación Paraguaya. Microfranchising is a concept that differs from microcredit in that it mainly provides a proven and successful business model for replication, rather than just startup capital.

Some of the microfranchises that Fundación Paraguaya is able to offer.

With the financial support of IDB, the Inter-American Development Bank, Fundación Paraguaya has been adjusting and expanding its microfranchise product offering. With this support, the Fundación has also been able to hire “impulsoras,” who are responsible for promoting the microfranchise program, informing and educating the clients that become a microfranchisee and act as a link between the franchisor and franchisee.

What’s in it for the franchisor?

Penetrating low-income markets in developing countries has proven difficult. Particularly in rural villages, corporations and NGOs struggle in four areas: distribution to retailers, understanding the end consumer, advertising to the end consumer, and winning the end consumer’s trust (Source: From access to finance to access to franchise – Scheffler 2010). The idea behind microfranchising is that the very low cost base of micro-entrepreneurs allows them to operate profitably in markets in which traditional sales channels of the franchisor cannot operate profitably due to high fixed costs. Therefore, microfranchising can be a way for organizations to reach those markets. The critical advantage of the partnership with Fundación Paraguaya is that the due diligence of potential franchisees is outsourced to the Fundación.

What’s in it for Fundación Paraguaya?

Fundación Paraguaya uses the microfranchise program to increase its product offering and distinguish itself from the competition. Most importantly, it provides its clients with additional sources of revenue (income diversification is also one of the indicators of the Poverty Stoplight). Potentially, the program could also generate a profit for the Fundación. At the moment, the microfranchise program is loss-making though, and the aim is to at least break even when the support from the IDB will stop early 2017.

What’s in it for the client?

Microfranchises go beyond loans. They provide full-service, pre-packaged business systems that can be replicated by those who have little or no formal education. Microfranchising is beneficial in the developing world primarily because of the shortage of basic education and well-developed infrastructure. In these countries, business idea creation is more difficult because the industry often lacks variation (shops are the same everywhere!) and for people whose primary activity is merely trying to survive, finding the time and effort needed to grow a profitable business is challenging and sometimes unrealistic. The existing microfinance model requires entrepreneurial talent. Microfranchises can be a solution to poor people that do not have that talent or not the time to exploit that talent (Source: Marriott School Magazine – Jason Fairbourne,– 2007). Basically, microfranchising reduces the risk for potential microentrepreneurs considerably, thereby also lowering the entry barriers to becoming an entrepreneur.

Nidia with her family. She is the star in the new microfranchise marketing campaign that will be launched in the near future.

Self-sustainability

Fundación Paraguaya is still a long way from creating a financially sustainable microfranchise program. In my view, they need to provide more financial training for clients starting a microfranchise, especially for those that lack experience in sales. Financial training should include basic things like administration of costs and revenues, preparing a budget, analyzing local competition, the importance of building up working capital, etc. This should help to reduce the high percentage of clients that early on decide not to continue the microfranchise program because of various reasons related to lack of understanding. Once the Fundación is able to tackle this, the amount of users will increase significantly, and this will increase its leverage to negotiate additional fees with the franchisor companies.

In my last weeks in Paraguaya, I have created an Excel tool that helps the Fundación in making decisions towards a sustainable microfranchise program. As the success depends on several factors that might have different effects for different microfranchises (e.g. the implementation of a new training approach as described above), the tool considers all these factors and calculates the expected costs and revenues for the coming quarters until the financial support from IDB ends. I hope they find it useful!

Dennis van Erp is working out of Asunción, Paraguay, where he’s collaborating with Accion partner Fundación Paraguaya on developing a business plan for their microlending program.

“Banco Occidente, Banco Caja Social, Citibank, BBVA…” Don Hugo listed off the banks he had taken loans from in the past. A microentrepreneur, José Hugo Beceira runs a construction shop in a neighborhood on the outskirts of Bogotá, and as he described, there is no shortage of credit for small business owners in the city. Entrepreneurs can walk into any number of NGOs, Colombian banks, or multinational banks, and walk out with a loan.

So if a microentrepreneur like Don Hugo can get the loans he needs to grow his business from so many providers, can’t we just consider this microfinance business a success and pat ourselves on the back?

Not so fast.

Though credit is widely available in major Latin American cities like Bogotá, we’re still very far from universal access, and moreover, easier access doesn’t necessarily guarantee better results for individuals or at the macroeconomic level. So, why do we need a continued focus on microfinance?

There’s a wrong way to do microfinance (and it’s all too common).

Overindebtedness, high default rates, excessive interest rates – these are all symptoms of irresponsible lending. Client protection standards and financial education are necessary, and, unfortunately, far from universal. Microentrepreneurs I interviewed in Bogotá told me about their experiences with banks where it wasn’t necessary to present any information about your income or your credit history, and you could still walk out with a loan that very day. Convenient for the microentrepreneur in the short term? Yes. Good for their long-term financial health? Not so much. To combat this, movements like the Smart Campaign are improving industry standards and helping to ensure that microentrepreneurs don’t become victims of predatory lending practices. The microfinance industry needs to continue to develop products and services that serve client needs and minimize potential harm.

Not everyone has access.

49% of Latin America’s population still lacks access to banking services. Despite the growth in microcredit, the poor are disproportionately excluded. Rural lending remains a major challenge, as the industry still needs to develop the appropriate methodology, channels, and infrastructure to serve rural clients. Moreover, regulatory and cultural barriers mean that in Latin America, mobile banking is not currently a feasible solution to present challenges. In addition to microcredit, there also remains room for growth in expanding access to and use of insurance products and savings accounts. Reaching excluded populations, and ensuring that products and services are accessible, usable, and targeted to their needs are important goals for the microfinance industry in reaching full financial inclusion.

Microfinance has unmet poverty-fighting potential.

Many microfinance institutions include statements about reducing (or even ending!) poverty in their mission statements. The evidence shows us that access to microfinance allows entrepreneurs to start businesses, improve incomes, and generate greater business activity than they would have otherwise been able to do. But in terms of its poverty-reducing effects, the evidence on microfinance is a mixed bag. In my view, responsibly providing someone with a needed loan is generally a net good. However, research can help us figure out how to make the impact of that loan even greater. Do certain text messages encourage clients to pay on time? How can we increase usage of savings accounts? What are the long-term effects of microfinance on educational attainment or even quality of life? There is so much more that we need to know about whether microfinance works, and how we can maximize its positive effects. This research also needs to be translated into practice on the ground.

I’m back at Stanford for my second year of studies, and I can genuinely say that I’ve never seen so much innovation in one place. It’s inspiring to be on a campus where engineers, doctors, lawyers, and policy students have the opportunity to engage and try to tackle the world’s problems together. It seems like practically every day you hear about the latest social enterprise or technology that’s going to end poverty. But microfinance? That’s old news. The low-tech microfinance movement just doesn’t grab students’ fleeting attention like mobile technologies, remote crop monitoring, or big data’s applications as a poverty-fighting tool.

Though it may no longer be trendy, microfinance still has room to grow in meeting its potential to reduce poverty and expand economic opportunity. In fact, promising innovations in financial inclusion, particularly around mobile money and financial technologies, are helping to keep microfinance relevant. In Colombia, the talented people I had the opportunity to work with at Accion and Bancompartir are also continuing to work on the critical issues I mentioned above. There, microcredit may seem ubiquitous, but critical needs persist in responsible lending, expanding access, and fighting poverty. Leveraging brain power and innovative thinking to tackle issues like client protection and rural access can further help the field of financial inclusion to realize impacts that we haven’t yet dreamed of.

Emma Kelsey is working out of Accion’s hub office in Bogota, Colombia on strategic planning for Accion’s activities in Latin America.

During my professional career, I have had the opportunity to work in microfinance across different places, including Latin America, Africa, the United States, and, more recently, India. Although each country and region has its own peculiarities, they all share very similar challenges to balance financial sustainability and financial inclusion, which requires continuous innovation to meet the needs of customers. In addition, providing financial services to very low-income households is just a gateway – but not a sufficient condition to – achieving financial inclusion. The role of governments and banks is increasingly important – governments through regulation, and banks through building and creating roads into markets. In this scenario, it is critical to continue innovating and learning more information about the impact that microfinance has on the lives of our customers and communities. This type of information will be useful to policymakers, donors, investors and financial services.

I would like to thank to all of the Swadhaar and Accion team, especially Preeti Telang and Nihar Jena. Also to my teammates Madhan and Pravash, thanks so much, I learned so much from you during these last eight weeks. Lastly, I would like to thank to my friends Apurva and Rathna who made my adaptation to living in India very easy and helped me so much to better understand the Indian culture. It will be impossible to remember India without a smile.

Pablo Nunez is working out of Mumbai, India, with Swadhaar FinServe, an Accion partner and microfinance institution, on a small and medium enterprise lending project.

The first thing I noticed when I arrived in Lilongwe was cash. While Zambia rebased its currency two years ago, there are still an inconvenient number of zeroes on Malawian Kwacha. The highest denomination note is worth less than $2 USD. This causes several inconveniences for ordinary Malawians, and Zoona agents, in particular.

The problem with cash

In my experience traveling in Malawi, there seemed to be a much stronger dependence on hard cash – far fewer places I visited accepted card payments than in Zambia. This made life difficult for three reasons:

• Security – at all times, my bag was full of cash. There’s no subtlety when you get to the check-out – even when paying for a few items in a store, I had to grab fistfuls of notes from my bag and count them out for all to see. I’m glad I didn’t have to do any big transactions like pay for rent or buy a car – you can imagine the inconvenience and security risk of obtaining that many notes and getting them from A to B.

• Inaccuracy – when you have to count out that much cash, how can you be sure you got the right amount? Often, my change was handed to me in wads, wrapped with another note. While I can quickly flick through and check it is as much as I was expecting, I’m sure I lost a few bills over time. Imagine being a Malawi business-owner – this could really add up over time.

• Inefficiency – I was only in Malawi for a couple of weeks, but I lost several hours to roaming around town in search of an ATM, or taking 20-minute detours in the car. There was also the novelty of how long a transaction takes – it feels strange withdrawing $20 from a cash machine and having to wait 3 minutes listening to the machine crunching and emitting between 45 and 80 bills.

Money is politics

Those more well-versed in Malawian politics will know that these three factors combined in 2013’s ‘Cashgate’. Several politicians were embroiled in a scandal of misused funds, including stealing wads of cash and hiding them in their homes. Malawi has been suffering from cancelled and restricted aid payments ever since.

A problem made worse for Zoona agents

For me – a visitor to Malawi – having a lot of cash was a frustration, but also a novelty. However, observing the differences between Zambian agents and Malawian agents brought home for me how this situation was much more serious for them:

• Security – the first few times I met Malawian agents, I was shocked to see how visible their piles of cash were to passers-by. Fortunately, there had not been any serious crimes although some agents spoke of attempted thefts on their way home after a busy day.

• Inaccuracy – one of my roles at Zoona was to help agents improve their ‘reconciliation’ (account balancing) technique. With larger volumes of cash, I noted how it was much more challenging for Malawian agents to keep on top of their cash-at-hand and ensure they didn’t encounter losses during the day.

• Inefficiency – this was by far the biggest challenge. Zoona agents need to keep track of how much of their float is ‘electronic’ and how much is cash. In rural areas, customers tend to be mostly ‘receivers’ – the agent hands out cash and therefore gains electronic money (the total float always remains the same). However, if they run out of cash they have to close their outlet and spend several hours travelling by bus, queuing at the bank, and withdrawing more bills. This is valuable time lost and also can deter potential customers if they get the impression the outlet is ‘always’ closed.

How Zoona is addressing the challenge

Fortunately, Zoona has found a way to mitigate some of these problems through establishing an altered business model in Malawi compared to its Zambian one. In Malawi, you’ll mostly see Zoona outlets outside “People’s” grocery store chains. These agents don’t need to visit a bank or risk carrying their cash home – they can lock their cash in the store overnight, and the People’s managers operate as ‘cash-wholesalers’ providing agents with hard cash in exchange for electronic payment into their account.

Zoona is still relatively new in the Malawian market. But if cash wholesaling proves successful and Zoona agents become known for their liquidity, it could prove crucial to Zoona’s success there. It will be interesting to observe how the mobile money industry can disrupt the Malawian economy over the coming years. Who knows – in the next five years, Malawians might no longer be carrying bags full of cash, but no paper bills at all.

Kirsty Gray is working out of Lusaka, Zambia, with fintech entrepreneur Zoona on an insights and agent reactivation project.

(Tip: If some of these names do not sound familiar, probably better to read the prequel first).

Planet Rating has been so nice to let me join them on one of the days, which at the time of writing was yesterday. We visited the branch of Villa Elisa, a city in the Central Department of Paraguay that borders with the capital Asunción. At the branch, Anali from Planet Rating conducted interviews with three focus groups:

1. Asesoras & Oficiales de Crédito
2. A group of 8 male clients
3. A group of 5 female clients (we hoped it would be more)

Some of the more interesting observations were:

• Almost every client has also taken out a loan with one or more other financial institutions. Cooperatives are the most popular one, followed by some of the more obvious competitors like Financiera El Comercio and Banco Familiar. Also the loan officers admitted that most clients do not exclusively take out a loan with Fundación Paraguaya. There are however some clients that are ‘married’ to the Fundación. Señor Santa Cruz was one of them, being already 27 years with the institution as a client. Nevertheless, based on this much too small sample, the urban microfinance sector in Paraguay seems rather saturated.

The male clients together with two Oficiales de Credito

• When the loan officers go out to promote the Fundación and its products, the first thing clients will ask is what the interest rate or the weekly payment will be. It seems that additional programs like the Poverty Stoplight could potentially increase loyalty of existing clients, but to attract new clients, it remains crucial to remain competitive in terms of pricing.

• Speed (maximum of two days between loan request and disbursement) and respectful, family-like treatment are the biggest competitive advantages according to the client groups. The slightly higher interest rate than the competition was mentioned as something the Fundación could improve. The shorter term of the loans were a competitive disadvantage according to the male group. Interestingly enough, the female group preferred shorter-term loans and more rollovers as they valued having the option to re-assess their situation and choose the next loan.

• Rosalino, one of the male clients, has heard that Fundación Paraguaya is receiving funding from international institutions that they don’t have to pay back (“grants”). He is wondering why the Fundación does not use those grants to lower the interest rates.

• The male group mentioned that they receive information about the interest rate at a very late stage in the process, namely at time of signing all the papers just before disbursement. As they are not mathematicians (quote), they are not able to do calculations on the spot and they will do this at home after receiving the loan. This was shocking to hear, because it means they do not know exactly how much they will pay for the loan until they have actually received it. There was also a definite lack of initiative from the client’s side to communicate this and other problems to their contact persons at the Fundación. In my opinion, this is where the Client Protection Principles play a crucial role; to protect the clients when they don’t have the tools and/or motivation to improve the situation themselves.

All in all, a super interesting day!

And on an unrelated note, here are some pictures of the breathtaking Iguaza Falls I visited last weekend:

Dennis van Erp is working out of Asunción, Paraguay, where he’s collaborating with Accion partner Fundación Paraguaya on developing a business plan for their microlending program.

I was never a big fan of vegetarian food. As part of my everyday diet since I was a child, I would consume at least some meat (either beef, pork or chicken). However, when I arrived in Mumbai, I found very few non-vegetarian places to eat, and learned that beef or pork is not sold in the markets. Only chicken is available for purchase at markets, and sometimes, fish.

Although I have been in Mumbai for almost two months now, I still find the respect cows receive here fascinating. In this city, they live freely in the streets and are not threatened by human presence.  Hinduism (which is the main religion in India) preaches that human beings should care for everything that lives and the cow falls into the highest honor category as a sacred beast. Some people believe that cows play a big role in daily life because the cow provides people with milk and the dung may also be dried and burned to cook or warm the house during cold season. Across the state of Maharashtra, indeed, selling beef is prohibited and killing cows is a major offense by law. Those who violate the law face up to five years in jail.

In these past two months in India, I have been eating very little chicken, and no beef at all. My appetite for eating chicken has substantially being fading over time, particularly after seeing a chicken butcher at work in a market near the place where I am staying. Contrary to my beliefs, I have noticed a substantial improvement in my health over the past weeks, although at the beginning I was feeling constantly weak. I have also learned to appreciate the large and exquisite variety of vegetarian food that is available in the streets of Mumbai, and now enjoy three vegetarian meals per day.

I do not miss eating beef, and I don’t know whether I’ll continue my vegetarian diet once I return to the United States. What I do know for certain, though, is that having an entirely vegetarian diet has allowed me to experience a new lifestyle that makes me feel stronger and healthier every day.

Pablo Nunez is working out of Mumbai, India, with Swadhaar FinServe, an Accion partner and microfinance institution, on a small and medium enterprise lending project.

I have always been a big fan of the old architecture and big ancient temples. Therefore, being in Asia, I had to visit Cambodia for at least a couple of days – especially because The Temples of Angkor were just named the best sight in the world for 2015 by Lonely Planet.

After a nine-hour flight from Mumbai, with a two-hour stop in Kuala Lumpur, I arrived at Siem Reap at noon on a rainy day. I was a little bit exhausted from the long trip and overwhelmed by the hot weather and humidity, but the excitement of visiting the Temples of Angkor quickly invigorated me. A tuk-tuk was waiting for me at the airport and took me to a small hotel near the central Pub Street.

My entire trip was set up for just three days, so I decided to start visiting the temples immediately. After a brief negotiation, I hired the same tuk tuk’s driver to take me around to visit all important sights near Siem Reap city. It is hard to describe in words how stunning and overwhelming the Temples of Angkor are.  The Bayon Temple, with its massive head carved images, is just exquisite.  The Banteay Srey’s miniature carvings are impressive from every angle. The Ta Prohm Temple, with all the massive roots of huge trees surrounding its walls and towers, is spectacular. And, lastly but even more impressive, is the Complex Angkor Wat – the largest religious structure ever built.

But Cambodia offers much more than just temples and beautiful architecture. Its culinary art is impressive, from fancy restaurants to street food. You can find vegetarian and non-vegetarian food alike with unparalleled freshness.

The short time I spent in Cambodia will remain in my heart forever. I spent three fantastic days there that were a perfect combination of spirituality and beauty. I will never forget the welcoming spirit and kindness of the Cambodian people, and this is definitely a place I look forward to visiting again in the future.

Pablo Nunez is working out of Mumbai, India, with Swadhaar FinServe, an Accion partner and microfinance institution, on a small and medium enterprise lending project.

Client Protection Principles

Fundación Paraguay would solve this as follows:

Not only will someone in the office read all documents (including the 1-2 page contract) for you out loud, but the Fundación will also ask you to bring a literate person along to the office, someone you trust (e.g. an educated family member), to confirm that what is being read and what you will have to sign, is correct.

This is in line with the Client Protection Principles.

The what now?

The Client Protection Principles are industry standards put forward by the Smart Campaign: a global initiative to improve client protection in the microfinance industry. According to the Smart Campaign, these principles are the minimum ethical standards that clients should expect to receive when doing business with a microfinance institution.

When stepping into one of the branch offices, you can ask yourself: “Are interest rates visible enough?” “Is the receptionist reading the contract out loud to the new client?” “How do loan officers interact with clients?”

There are seven principles, each consisting of underlying standards for which I will give a more concrete example per principle:

1. Appropriate product design and delivery channels
   Example of an underlying standard: Products should be easy for clients to understand and compare. Simplicity implies, for example, minimizing the use of bundled products (that is, requiring a client to buy a second product, such as credit life insurance, in order to use a first product, such as a loan).
2. Prevention of over-indebtedness
   For individual borrowers, an analysis of his or her repayment capacity should typically include a careful analysis of the borrower’s existing cash flow. Collateral and guarantees can be used as a secondary source of repayment and as confirmation of the borrower’s commitment to repay, but the lending decision should be made on the basis of repayment capacity.
3. Transparency
   The introduction to this blog entry is an example of where the transparency principle comes in. Transparency requires using plain wording and straightforward terms, in the client’s own language, wherever possible. Extensive use of footnotes and small font size in contracts should be avoided.
4. Responsible pricing
   It is recommended that financial service providers have a formal (internal) pricing procedure for each product that takes into account the cost of providing the product; affordability for the client; the desired profit for the provider; and any other objectives to be achieved by the product, such as serving very poor people, maximizing cross-selling opportunities, etc.
5. Fair and respectful treatment of clients
   Loan officers are influenced by the compensation policy (e.g. bonuses linked to new loans disbursed). It is therefore important to ensure that compensation is aligned with responsible behavior (e.g. by also linking compensation to quality of the loan portfolio) to prevent them from selling products that are unsuited to their clients’ circumstances and needs.
6. Privacy of client data
   In cases where financial institutions share client information with affiliates for cross-selling purposes, the client should be given the right to opt out of participating.
7. Mechanisms for complaint resolution
   Clients should be provided with clear and simple written and oral information about their right to complain, how to register a complaint, the steps that take place after a complaint is filed, the time frame within which clients should expect their complaint to be addressed, and the steps to follow if they are dissatisfied with how their complaint is handled.

One of my observations so far is that the clients I have visited feel very comfortable around the Asesoras.

Certification

When a financial institution believes it adheres to all the Principles, it can apply for certification. There are currently four independent certifiers that are allowed to perform a full-fledged assessment that, in case of compliance, leads to an institution becoming ‘Smart certified’. On August 18, 2015, the Smart Campaign announced that there are now 39 MFIs from 19 countries across Latin America, Africa, and Asia that have achieved Smart Certification, together serving more than 20 million clients.

My role in the grand scheme of things

Fundación Paraguaya hopes to soon become the first certified MFI in Paraguay. Over the years, it has worked sporadically to overcome the gaps in best practices with respect to client protection. Why sporadically? The problem is that 1) analyzing the gaps, 2) proposing recommendations and 3) subsequent implementation is a time-consuming project. This is not something that the microfinance staff in the head office has been able to do in between their daily tasks.

And that’s where I come in, with motivation and time as my most important tools.

I made a deep-dive into the seven principles, went through the credit manual of the Fundación, made a few branch visits to look around and talk to the loan officers (documented here and here), analyzed for each principle where the Fundación still has to improve itself and made recommendations to the manager of the microfinance area for the areas which show the biggest gaps.

The nice thing is that it required going through the entire credit process, from initial client contact to disbursement and monitoring of the loan. This is exactly the reason why I became an Accion Ambassador!

The 300-page thick credit manual

 Biggest gaps

Without giving too much away (the competition may be reading along), in my opinion, the biggest gaps can be found in:

• Transparency of pricing: Until now, Fundación Paraguaya has not been communicating how the weekly/bi-weekly/monthly payment is exactly built up, nor has it communicated a fair interest rate that is comparable to other products of the Fundación or with similar products of other institutions (although you need the competition as well to achieve the latter). They are definitely not the only ones in Paraguay that are not communicating the ‘global cost of credit’. I might dedicate another blog entry to this topic, as it is one of the most discussed themes in microfinance over the last decade.
• Complaint resolution: The Fundación did not have an effective mechanism yet to receive complaints, process them in a timely manner, or give appropriate feedback to the client.
• Guarantees: No formal policies existed with respect to which guarantees are not acceptable to confiscate (e.g. assets needed for the client’s business) or how to value these guarantees.

Please note that they have worked hard in the last 2 months to close these gaps.

Interesting dilemmas

I was positively surprised, almost shocked, that Omar Sanabria (the microfinance manager) was so open to immediately implementing most of the recommendations. It was a good feeling that I have not experienced in a while. I come from a bank in which these type of suggestions would first go to different rounds of discussions with different people in different departments.

There are, however, a few areas where the recommendations received pushback, because the Client Protection Principles collided with the business side. For example:

• There is a thin line between treating your clients fair and respectfully and at the same time being able to exert a certain pressure and make sure the clients pay back their loan when they are delayed in their payments.
• Being fully transparent in your pricing and all of its elements (administrative expenses, premiums, etc.) could fall in the hands of the competition while they might not have the same level of transparency.

A women solidarity group waiting outside of a branch to collect their loans because there is not enough room inside; acceptable or not?

In September, one of the certifiers (Planet Rating) will conduct an evaluation at the Fundación with respect to the Client Protection Principles. I am very curious to learn if they will come to similar conclusions.

Dennis van Erp is working out of Asunción, Paraguay, where he’s collaborating with Accion partner Fundación Paraguaya on developing a business plan for their microlending program.