&gt; Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

How does a microfinance institution know what transformation will be like from an NGO to a formal financial institution? In an increasingly complex industry with competition from commercial banks and the entrance of fintechs, many microfinance NGOs are considering transformation to realize their growth potential and help attract investment. However, the road to transformation can often be bumpy, as noted in the Center for Financial Inclusion’s publication <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/79-aligning-interests-addressing-management-and-stakeholder-incentives-during-microfinance-institution-transformations">Aligning Interests: Addressing Management and Stakeholder Incentives During Microfinance Institution Transformations</a>.  Regulatory compliance issues, information technology hurdles, and aligning with the needs of the NGO and investors can often complicate the process. For <a href="http://www.endatamweel.tn/">Enda Tamweel</a>, the largest and oldest microfinance organization in Tunisia, the decision to transform has come with external pressures, operational challenges, and a focus on maintaining their mission.

Essma Ben Hamida and Michael Cracknell founded Enda Tamweel in 1990, “to become actors and not just talkers about development.” They began by offering health education for women and training classes for children and started offering microcredit in 1995. They haven’t stopped growing since—despite government and economic instability in Tunisia. By the end of 2016, their portfolio was TND 372 million (USD 190 million), serving 300,000 micro-entrepreneurs via 80 branches.  In 2015, Enda became the first microfinance institution in the Middle East and Northern Africa (MENA) region to be <a href="http://www.smartcampaign.org/index.php">Smart Certified</a>, demonstrating their commitment to treating their clients with adequate care.

Transformation has been a consideration for Essma and Michael since Enda’s founding. They’ve spent years reading about and visiting large foreign microfinance NGOs that transformed into banks. They also sought advice from Ajay Bhandoola, former Senior Director with HSBC in MENA. Ajay notes, “Transformation is not a one size fits all. In Enda’s case, it was absolutely the right thing to do.” As confident as they were in the decision to transform, Enda faced some challenging realities.

Navigating Competitive Environments

In 2011, the Tunisian government instated a microfinance law that aimed to attract capital and expand the commercial microfinance market. It allowed new entrants into the market and raised the loan ceiling from TND 5000, for microfinance associations, to TND 20000, for microfinance companies. This was particularly relevant for Enda’s involvement in the agricultural sector (where higher loan amounts are often needed) and for long-standing clients whose businesses had grown. Competitors targeted Enda’s clients, and by 2013, Enda was close to their debt-to-equity ratio limit and needed more capital to move forward. By creating operational pressure and increasing competition, this law encouraged Enda to pursue its transformation plan.

[caption id="attachment_23685" align="alignright" width="300"]<img class="wp-image-23685 size-medium" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/06/essma-ben-hamida-headshot.png?w=300" alt="Essma Ben Hamida Headshot" width="300" height="237" /> Essma Ben Hamida, C-founder, Enda Tamweel[/caption]

Searching for Like-Minded Investors

Having run Enda as a socially-focused NGO for so many years, it’s been hard for Essma and Michael to consider profit expectations, short investment timeframes, and finding the right investors. Essma likens it to arranging the marriage of your child, and making sure they find the right partner. “We are so scared of leaving this beautiful institution in the hands of someone who’s not right. There’s a problem of trust. You don’t know how people will react.”

Enda has always had a strong emphasis on social change and women’s empowerment. Essma recalls, “My mother used to weave carpets, but never went to the market to sell them. There was a middle man who came to take the carpets and sell them for a big profit. She knew nothing about negotiating or about how much he actually sold the carpets for.” She notes, “Earning their own money, together with financial education, empowers women and lets them contribute in decision-making.” Finding the right investors has involved an investor agreement that gives Enda the veto power over issues specific to mission-adherence when they are no longer the majority shareholder. The IPO of Compartamos in Mexico saw a similar “poison pill” to protect their social mission.

[caption id="attachment_23686" align="alignleft" width="300"]<img class="wp-image-23686 size-medium" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/06/michael-cracknell-headshot.png?w=300" alt="" width="300" height="228" /> Michael Cracknell, Co-Founder, Enda Tamweel[/caption]

Moving a Giant


When Enda began to transform in 2015, they had 200,000 active clients and were well over the average client size of 30,000 – 50,000 when MFIs usually transform. The size was a logistical challenge, Michael states: “Every client had to sign an agreement for the transfer of their account from the NGO to the company. Some had problems understanding the process. A few refused. All of the 1,300 staff members had to sign new contracts with the company, except 20 who remained with the NGO. All other contracts had to be transferred, including the rental of branches and loans from our financial partners.” Taking steps to transform earlier, as a smaller and more nimble organization, is a consideration Enda has learned from, and would advise other organizations to think about.

The realities of Enda’s transformation are just a few considerations for aligning interests during this process. Their story was recently shared as a case study at the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/mena-leadership-seminar">MENA Governance and Strategic Leadership Seminar</a> in Amman, Jordan. The seminar was modeled after the Center for Financial Inclusion’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship Program</a>, and brought together over 40 CEOs and board members from 19 leading MFIs in the MENA region to strengthen board capacity through peer learning and exchange. A technical needs and demand assessment (TNDA) was also conducted with MFIs in the MENA region, and revealed approximately 25 percent of institutions are considering transformation in order to grow and attract investments. The Enda Tamweel story is applicable to some, but does not cover all of the issues microfinance institutions must consider when transforming into a formal financial institution.

Stay tuned for regional governance findings in the upcoming TNDA report. In the meantime, we’ve love to hear your transformation stories and any words of advice you would share with others considering a transformation. Please share in the comments section!

Microfinance NGO Transformation—The Enda Tamweel Story

Tunisia

Credit

Policy, Regulation and Government Initiatives

Blog Post

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="142765195?et=R5H1wf3HRzVY85zP-SHj7A&amp;socialOnLoad=off&amp;sig=MCzrHiaz1fbKeXXBgrpdooZt9BGrF3EX8HvxLFGuv-s=" width="506" height="339"]

Islamic finance is expected to expand substantially in 2015, from 2014’s total of <a href="http://www.brecorder.com/money-a-banking/198/1138766/">$2.1 trillion to $2.5 trillion</a>, according to figures released last week by the Al-Huda Centre of Islamic Banking and Economics. In 2011, the industry had assets of about <a href="http://www.cgap.org/topics/islamic-products">$1 trillion</a>. Islamic microfinance, the segment of Sharia-compliant services targeting clients at the base of the pyramid, only occupies a small slice of the pie, at 1 percent of all Islamic finance globally. However this uptick in Sharia-compliant finance, as well as encouraging recent support for the 650 million Muslims living on less than 2 dollars a day, suggest a rising tide for Islamic microfinance.

The industry findings indicate that not only did Islamic finance surpass the $2 trillion landmark in 2014, it gained traction in nascent markets and entered new ones. Markets still green in offering Islamic finance that showed growth in 2014 include Morocco, Tunisia, Azerbaijan, Libya, and several non-Muslim-majority countries including Nigeria, Tanzania, and South Africa. Among the new markets where Islamic finance took root last year are Australia, Brazil, and China. Globally, there are 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries. The expansion of Islamic finance opens the door for the many Muslims whose beliefs preclude them from accepting finance with interest rates and fee structures outlawed by Sharia doctrine.

Islamic microfinance, which has typically grown slower than its mainstream microfinance counterpart, could be in for a big year. In 2013, Islamic microfinance had an estimated <a href="http://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">1.28 million clients</a>, about 82 percent of whom lived in three countries – Bangladesh, Indonesia, and Sudan. (Nevertheless, the number of Islamic microfinance clients in Muslim-majority Bangladesh is dwarfed by the 8 million conventional microfinance borrowers in the country.) Along with the Al-Huda estimation of 19 percent growth in 2015 for all Islamic finance, a report by TechNavio from November found that the Islamic microfinance market would grow at a compound annual growth rate of about <a href="http://www.prnewswire.com/news-releases/global-islamic-microfinance-market-2014-2018-281593461.html">20 percent</a> between 2014 and 2018. The current Microfinance Market Outlook forecasts <a href="http://www.microfinancegateway.org/library/microfinance-market-outlook-2015">15-20 percent</a> growth for 2015.

Strong government support, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">instrumental for financial inclusion efforts</a>, has been <a href="http://www.emirates247.com/business/economy-finance/islamic-banking-finance-set-to-reach-dh9-1trn-in-2015-2015-01-01-1.575128">demonstrated</a> for Islamic microfinance in countries including Yemen, Afghanistan, Sudan, Malaysia, and Pakistan. As part of its larger Financial Inclusion Program, the State Bank of Pakistan launched the partially U.K.-funded <a href="http://www.sbp.org.pk/AC&amp;MFD/events/FICF-Round-3-Guidelines.pdf">3rd Financial Innovation Challenge Fund</a>, which focuses on Islamic microfinance. Until the application deadline of February 20, 2015, the bank will accept proposals for grants to test solutions for delivering low cost Islamic microfinance services to more markets. One aim of the challenge is to develop Pakistan’s base of Islamic finance professionals.

GIZ, the German government’s international development agency, is <a href="http://www.reuters.com/article/2014/11/05/islam-microfinance-idUSL6N0SH04020141105">working with CGAP and others</a> to develop model regulations, education, and trainings to expand Islamic microfinance in developing countries. A current GIZ study is exploring demand factors, while another is comparing Islamic finance regulations in five countries. A study by GIZ and CGAP on Islamic microfinance aims to find ways to lower costs – a key obstacle for product adoption. Difficulties in adapting traditional microfinance products to Islamic microfinance have limited product offerings, with the <a href="http://www.cgap.org/news/innovation-islamic-microfinance">most popular</a> being murabaha, a cost-plus-markup product for asset purchases. Last year’s CGAP <a href="http://www.cgap.org/news/pakistan%E2%80%99s-wasil-foundation-wins-islamic-microfinance-challenge">Islamic Microfinance Challenge</a>, a global contest to identify innovative Sharia-compliant products, was themed “Beyond Murabaha.”

We look forward to following the developments in Islamic microfinance throughout the year.

Have you read?

<a href="http://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="http://cfi-blog.org/2013/01/15/continuing-the-conversation-on-inclusion-in-the-arab-world/" target="_blank" rel="noopener">Continuing the Conversation on Inclusion in the Arab World</a>

<a href="http://cfi-blog.org/2014/08/07/financial-inclusion-of-disabled-people-in-bangladesh-the-broken-promises-of-mfis/" target="_blank" rel="noopener">Financial Inclusion of Disabled People in Bangladesh: The Broken Promises of MFIs</a>

&nbsp;

Set to Grow in 2015: Islamic Microfinance

Regulators

Financial Inclusion 2020

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

Afghanistan

Australia

Azerbaijan

Bangladesh

Brazil

China

Colombia

Dominican Republic

Ghana

Guatemala

India

Indonesia

Libya

Malaysia

Mexico

Morocco

Nigeria

Pakistan

Paraguay

Peru

South Africa

Sudan

Tanzania

United States

Yemen, Rep.

Zambia

Aging and Older Adults

Consumer Protection

Financial Capability

Financial Inclusion Strategy

Fintechs

Housing Finance

Impact Investing

Microfinance

Persons With Disabilities

Risk Management

Saving

Social Performance

Women

Youth

&gt; Posted by Center Staff
<img class="alignright size-medium wp-image-2603" title="tunisia" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2011/01/tunisia.gif?w=139" alt="" width="139" height="300" />Tunisia’s regime change is creating immediate challenges for everyone who lives there, but also hopes for political reform and new opportunities. It may be possible for microfinance to contribute to a new Tunisia offering greater freedom and economic opportunity.
The events of the past week have been difficult for everyone.  Michael Cracknell, of Enda Inter-Arabe (enda-ia), the only best-practice microfinance institution in Tunisia, reports that several clients have lost their lives.  Beyond that, some of the MFI’s branches have been damaged. Throughout, <a href="http://www.endarabe.org.tn/" target="_blank">Enda Inter-Arabe has continued to operate</a>, in recognition that clients, especially some whose businesses have been damaged, need access to services more than ever.
Press reports indicate that the latest turn of events seems to be for the better – a calming of the streets, and more peaceful demonstrations for change.  Meanwhile, markets have remained open, and public services such as electricity, gas, water, and transportation have continued to function.

Tunisia’s crisis was prompted in part by economic problems, especially unemployment among youth.  Microfinance services can help people rebuild after the damage to shops, small factories, and other businesses. Enda Inter-Arabe’s website comments, “As a civil society organisation, enda-ia undertakes to do everything in its power to contribute to the national reconstruction effort and to job creation, especially for young people.”
Looking to the longer run, a political opening could provide a chance to reform Tunisia’s restrictive regulations that have made it difficult for microfinance institutions to operate.  The people of Enda Inter-Arabe are valiant defenders of low-income entrepreneurs, especially women, in Tunisia. Perhaps the day will soon come when they will be joined by a new group of MFIs.

Unrest in Tunisia: Can Microfinance Make a Difference?

&gt; Posted by Jon Pattee
<img class="alignright size-full wp-image-2280" title="Essma Ben Hamida_200w" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2010/11/essma-ben-hamida_200w.jpg" alt="" width="160" height="239" />Why do so many capable people put their lives into building the microfinance industry? What do they hope to accomplish? What motivates them? Why do they think microfinance is a solution? Are they pleased with the results? The Center for Financial Inclusion is interviewing founders, pioneers, and entrepreneurs in order to answer these questions and capture the scale and impact of microfinance in today's world.
Over the course of 2011, we will bring you a score of such interviews from microfinance leaders around the globe. These authentic voices will speak about what is most meaningful to them in their work. We begin with a Tunisian trailblazer...
<h1 style="padding-left:30px">Essma Ben Hamida</h1>
<h3 style="padding-left:30px">Opening Minds and Empowering Women with Microfinance</h3>
In the early 1990s, after returning from Europe to her native Tunisia, Essma Ben Hamida felt it a revelation to notice something that had always been part of her world: When she walked through the poor neighborhoods of Tunis, there were very few women who had a business.
As the co-founder of Enda Inter-Arabe, a non-governmental organization promoting vocational training for school drop-outs and health orientation for women, Essma met regularly with small groups of women to learn their views and see how best to serve them. In one of these Enda discussion circles, Essma asked the women if they were busy. In unison, they said no. They explained that they were occupied caring for their families, but could not work because they had no capital.  The women’s response carried Essma back to scenes of her family home. Growing up in Kairouan, Essma observed how non-working women like her mother didn’t have access to money.
“The women were always dependent on their fathers or husbands to give them money for housekeeping. This situation struck me as almost a form of begging,” she remembers.
To read more of the interview with Essma Ben Hamida, click<a href="http://bit.ly/bMWz9I" target="_blank"> here</a>.

Where is Microfinance Headed? Essma Ben Hamida Interview Kicks Off ‘Microfinance Matters’ Series

Mayada El-Zoghbi'ff "Quotes"

Managing Director

Jeffrey Riecke

Lizzy Bolze

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

Jon Pattee