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Financial inclusion sector adapts to COVID-19 crisis

In the COVID-19 crisis, supporting microfinance institutions is of vital importance. After all, small businesses are essential for social and economic recovery. To better support the microfinance sector, Grameen Crédit Agricole Foundation, Cordaid Investment Management, and other key players in inclusive finance, established a set of principles in the form of a pledge.

In this pledge, signatories agreed to coordinate policies, technical assistance, and resources to help microfinance institutions in the most poverty-stricken parts of the world face the COVID-19 crisis. And through them, to protect the most vulnerable borrowers.

Microfinance institutions in Africa, Eastern Europe, Latin America, and Southeast Asia have taken measures to face the health risks, lockdowns, and the economic recession.

After several months, a working group evaluated the implementation of this pledge. It found that overall the pledge was followed, but also encourages lenders to continue focusing on client and staff protection in the months and years to come.

Facing health risks, lockdowns and recession

The pledge is part of a wider journey the financial inclusion sector has embarked on in the past months to face the Covid-19 crisis. Microfinance institutions in Africa, Eastern Europe, Latin America, and Southeast Asia have taken measures to face the health risks, lockdowns, and the economic recession.

In the meantime, lenders, investors, support organizations, and technical assistance providers had to adapt their intervention principles and coordinate their actions. By signing the Pledge on Key principles to protect microfinance institutions and their clients in the COVID-19 crisis (the “Pledge”), 30 organizations committed to complying with some key principles. Cordaid Investment management is one of them.

Six months after the signature of the Pledge, a working group of signatories (ADA, Cordaid Investment Management, Frankfurt School Impact Finance, Grameen Credit Agricole Foundation, Microfinance Solidaire, SIDI and the Social Performance Task Force) draws lessons from the implementation of the pledge principles. In a joint publication, the signatories present the progress on 10 principles mostly related to rollovers and early stages of voluntary debt workouts, as this is what we can observe in the first months of the crisis.

Lessons learned

Coordination between international lenders proved very good, often agreeing on terms of handshake agreements, avoiding lengthy restructuring discussions in the majority of cases. This has proved instrumental to avoid a liquidity crunch in the sector as most investees have maintained sufficient levels of liquidity. In rare cases when individual non-coordinated behaviors threatened the fair burden-sharing amongst international debt providers, peer pressure has been effective.

We have also seen unprecedented coordination on technical assistance that already resulted in some collaboration between technical assistance providers, such as the organization of a common webinar on liquidity management, the provision of tools on business continuity, and the implementation of field surveys on final clients. Coordination was however not up to our initial objective notably due to a need to prioritise issues that were more pressing. Given the important challenges that microfinance institutions will face, we believe that we should pursue our efforts on this front to avoid duplication and steer efficiency.

Our pledge to client and staff protection lives on. We have encouraged initiatives to promote continued client and staff protection in these times of crisis and need to pursue such efforts to make sure that they remain at the center of the table of discussions. Many microfinance institutions will have to turnaround a business intimately linked to the financial health of clients, staff behaviors, and staff treatment. For that purpose, we encourage a coordinated collection of information on staff treatment and client outcome throughout the crisis and beyond. We also encourage deepening sector initiatives that contribute to efficient reporting under these exceptional circumstances.

New debt funding has drastically slowed down during the crisis but has not completely stopped. As some economies begin to restart, many of our investees have shown promising signs of regrowth since July 2020, with significant differences among countries and sectors of activities.

In these challenging times, we commit to accompany and consolidate the economic recovery in a timely and responsible manner.

 

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