In 2020, the Foundation strengthened its technical assistance activity

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By Violette Cubier, AT Manager, Grameen Crédit Agricole Foundation

In 2020, we continued to develop our third core business: technical assistance for our partners. Our technical assistance missions have contributed to institutional strengthening and the resilience of our partners during this time of crisis.

The Foundation supports its partners through various technical assistance programs. This support covers a variety of topics, including operations and human resources management, governance, financial management, strategic planning, the digitalization of operations and products, the launch of new services, risk management, and social and environmental performance management.

The Foundation mobilized throughout 2020 to provide close support to its partners. Technical assistance missions were thus adapted to respond to the priorities and emergencies that partners had to face (liquidity management and portfolio quality, business continuity plans), but also to support them in their business recovery, their strategic thinking, and the transitions necessary to face the crisis (digitalization, strengthening activities in rural areas). We also implemented joint actions with other actors such as SIDI and the Fefisol Fund, with which we organized training for around fifty organizations in Africa.

The year 2020 also saw a significant expansion of our technical assistance activities, with a ramp-up of existing programs and the launch of new ones. Thanks to the new programs, the Foundation expanded the geographical areas of technical assistance intervention and more actively addressed key issues such as the development of rural economies, adaptation to climate change, and the financial inclusion of refugees.

The coordination of technical assistance activities now constitutes a major area of intervention for the Foundation, to contribute to the institutional strengthening of its partners and to support them in their economic, ecological and digital transitions and thus multiply their impact on the ground.

More information: //www.gca-foundation.org/technical-assistance

Download the 2020 Integrated Report

Persistent credit risk: a threat to the solvency of microfinance institutions?

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ADA, Inpulse, and the Grameen Crédit Agricole Foundation partnered in 2020 to monitor and analyze the effects of the Covid-19 crisis on their partner microfinance institutions around the world. This monitoring was carried out periodically throughout 2020 to gain a better understanding of the crisis's international developments. We are extending this work this year, on a quarterly basis. The findings presented in this article follow the first quarter of 2021. With this regular analysis, we hope to contribute, at our level, to the development of strategies and solutions tailored to the needs of our partners, as well as to the dissemination and exchange of information between the various stakeholders in the sector.

In summary

The results presented in the following pages come from the sixth survey in the joint series (1) of ADA, Inpulse and the Grameen Crédit Agricole Foundation. The responses from our partner microfinance institutions were collected during the second half of April 2021. The 87 responding institutions are located in 47 countries in Eastern Europe and Central Asia (EAC-25%), Sub-Saharan Africa (SSA-29%), Latin America and the Caribbean (LAC-25%), South and Southeast Asia (SSEA-13%) and the Middle East and North Africa (MENA-8%) (2).

While the general improvement in local contexts related to COVID-19 is enabling microfinance institutions to better conduct their activities, our latest survey shows that MFIs nevertheless had considerable difficulty achieving their development objectives in the first quarter of 2021. The reasons given are mainly linked to the difficulties encountered by MFI clients. The latter are reluctant to commit to new loans, and if they do, it is with smaller amounts than in the past. At the same time, their risk profile has deteriorated due to the crisis, and MFIs will have more difficulty financing them.

This general trend of rising risk has materialized in a decline in the quality of MFI portfolios. In 2020, this ultimately had an impact on institutions' income statements with an increase in provisioning expenses. This will likely be the case again this year, with additional reserves but also loan write-offs.

In fact, MFI operations have been reduced or slowed, generally with a decline in their capital levels. Indeed, one in two MFIs, regardless of size, reports capital needs in 2021. Two trends are emerging: MFIs are counting on their current shareholders to cover losses related to the crisis. On the other hand, international investors are expected to support their development this year. The responses from our partners therefore highlight the need for recapitalization this year, which will involve all stakeholders in the sector.

1. Despite the reduction in constraints, disbursement levels are mixed

While we have been seeing a gradual but definite decline in operational constraints for MFIs since the summer of 2020, this phenomenon continues in the first quarter of 2021. In total, 50% of MFIs indicate that the measures in place in their countries are less restrictive in April compared to the end of 2020. This point is particularly marked in sub-Saharan Africa (64% of respondents in the region) and Latin America and the Caribbean (59%). This is found to a lesser extent for MFIs in Europe and Central Asia, where the situation is either improving or stable. Finally, the situation is opposite in South and Southeast Asia, with 45% of respondents in the region reporting a more difficult context, with the Cambodian and Burmese situations weighing in particular on results.

 

Overall, nearly half of those surveyed report no longer encountering any operational constraints in carrying out their activities. This is reflected in the resumption of MFI activity: 52% of those in sub-Saharan Africa can operate as before the crisis. In Latin America, the vast majority of them are gradually resuming activity since the first difficulties encountered. In Europe and Central Asia, the situation is again divided between gradual or almost complete recovery. Conversely, for MFIs in the SSEA region, the deteriorating context is materializing in activities that are either still constrained or once again affected by new measures to contain the epidemic.

Despite these continued positive signals regarding our partners' activity levels, it appears that the level of loan disbursements expected for the quarter is still difficult to achieve. Thus, 55% of respondents indicate that they did not meet their loan disbursement targets in the first quarter of 2021. Only 10% of respondents exceeded their expectations, while 35% managed to meet their targets. The responses do not appear to be solely linked to the resumption of activities: for example, 80% of MFIs in sub-Saharan Africa did not meet their disbursement targets in the first quarter, while half report having resumed activity close to pre-crisis levels.

When MFIs failed to achieve their growth targets at the beginning of the year, three reasons emerged to explain this phenomenon. First, the fact that clients are still reluctant to take out new loans (58% of this group), particularly in a still rather uncertain context. Second, this is explained by the risk profile of clients that has deteriorated (50%), and who are no longer eligible for loans, or are only eligible for smaller amounts (38%).

These last two arguments are also mentioned by MFIs that have achieved their objectives without exceeding them. However, this dynamic is partly offset by the fact that institutions have adjusted to the crisis and have implemented products adapted (digital, targeted sectors, etc.) to the current contexts to meet demand (47%).

Finally, the trend is quite different for MFIs that have exceeded their disbursement targets: the main factor is the strong demand received (78%), while the adjustment of supply (33%) and the increase in the amounts requested (22%) support this trend.

2. A persistently high credit risk continues to have a significant impact on the profitability of institutions

Alongside these loan disbursement issues, the issue of credit risk remains a major challenge for 64% of our partner MFIs, as we have observed since the beginning of our survey series. While late payments by clients can still stem from ongoing moratoria (20% of respondents, particularly in the South and Southeast Asia, and Latin America and the Caribbean regions), the end of the moratorium has mainly resulted in a shift from the "moratorium" portfolio to the risky portfolio, either as unpaid loans or as restructured loans. In total, 61% of respondents indicate that fewer than 90% of their clients are repaying their loans, and 25% are affected by repayment rates lower than 70%.

Another major challenge is the decline in MFI profitability since the start of the COVID-19 crisis. At the end of Q1 2021, 55% of our partners raised this point. In detail, we discover that a proportion of respondents managed to maintain a certain profitability in 2020, thanks to certain measures (33% – indicated in green in the graph below). We then find a group of institutions (49% – indicated in orange) for which an impact on profitability was felt, but without endangering the institution. Finally, a last group stands out (18% – indicated in red), in a less favorable position since the losses incurred in 2020 have direct consequences on the institutions' equity. Among these, this even implies for some that the company's capital falls below the minimum levels required by the regulator or financiers.

 

The provisioning of the risk portfolio actually emerges as the main factor impacting profitability (61%). This may have led to a breach of contractual commitments with its lenders for some institutions (26%). At the same time, there are still few massive loan write-offs, since only 13% of those surveyed have already resorted to debt cancellation to a greater extent than in previous years.

However, the impact of credit risk on MFI profitability is expected to continue in the coming months. Loan write-offs in large proportions, above usual standards, are expected to affect 25% of our surveyed partners. At the same time, 24% anticipate that PAR provisioning, particularly through the moratorium exit, will continue to have significant consequences on their financial results. Finally, it should be noted that the aging of the current risk portfolio could also lead to additional provisioning expenses.

3. Strained equity leads to search for investors

The decline in profitability, which could therefore continue in the near future without any improvement in credit risk, must be analyzed in both the short and long term. In the short term, controlling the risky portfolio is a major challenge to avoid a (further) deterioration in profitability. This then has a direct impact on MFI operations. According to our partners, this observation has in fact led to a downward revision of growth projections (55%) for the coming years. It also appears that risk management requires particular attention to the type of client activity (31% have suspended disbursements to certain sectors – often tourism, international trade, etc.) and to eligibility criteria (29%). This increased caution reflects the current emphasis on risk management.

The other, longer-term perspective raises the question of the solvency of microfinance institutions in the face of declining revenues or losses. Currently, a majority of institutions (61%) have not taken any action regarding their equity since the beginning of the crisis. When this was the case, existing shareholders provided support to MFIs, while subordinated debt (tier 2 equity) was also implemented, to a lesser extent.

However, a very large proportion of these institutions (48%) reported a need for equity capital in 2021. This significant proportion reflects the extent of support needed within the sector to ensure its development. Moreover, there is no real archetype of the MFI that highlights this expectation of support for the balance sheet in 2021: regardless of the size of the MFIs, approximately half of each category of Third Parties expresses capital needs.

To meet these capital expectations, the types of shareholders microfinance institutions wish to turn to depend on the reason why this support is necessary. Thus, regarding the institutions mentioning a need for support at the 2021 equity level, we note that when the MFI needs help to cover losses, it then turns overwhelmingly to its existing shareholders (83% of cases, 10/12). On the other hand, when MFIs seek support to continue to develop, they will then call more on international investors (56% of cases, 14/25), beyond the potential contribution of existing shareholders. Finally, note that subordinated debt may be favored over a capital injection, this option being mentioned by 5 institutions.

 

All of our partners' responses therefore suggest that the impact of the crisis, through credit risk, logically creates capital needs for a large proportion of entities, since they are facing either financial losses or a limitation of their recovery capacity. While 41% of those surveyed say they want to focus primarily on improving portfolio quality this year, our partners here reiterate the essential role that international and current investors will have to play in maintaining a satisfactory level of capitalization conducive to their development.

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(1) The results of the first five surveys are available here: //www.gca-foundation.org/observatoire-covid-19/, //www.ada-microfinance.org/fr/crise-du-covid-19/ And //www.inpulse.coop/news-and-media/
(2) Number of responding MFIs by region: EAC 22 MFIs; SSA 25 MFIs; LAC 22 MFIs; SSEA 11 MFIs; MENA: 7 MFIs.
(3) Tier 1 means that the MFI manages a portfolio greater than $50 million, Tier 2 applies to portfolios of $5 million to $50 million, and Tier 3 applies to portfolios less than $5 million.

Cross-perspectives: 2020, a year marked by the Covid-19 crisis

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By Jean-Marie Sander, President of the Grameen Crédit Agricole Foundation until March 2021 and
Raphaël Appert, President of the Grameen Crédit Agricole Foundation since March 2021 &
Vice-President of Crédit Agricole SA and National Federation of Crédit Agricole

A little over 30 years ago, Michel Serres shared with us the need for a "Natural Contract" analogous to the "Social Contract," which called for reconciliation between humans, nature, and all living things. The year 2020 was a terrible one for fragile economies.

The good health of the Foundation, which has adapted throughout the year to the economic effects of this crisis, does not reflect the tragedies that have played out and are still playing out in the territories of our partners where social safety nets are almost non-existent. Faced with the pandemic and its impact on daily life, family solidarity was often the rare relief found by populations on very low incomes.

Although its anthropocentric origins remain to be demonstrated, this health crisis invites us to become aware of our inclusion in nature, reminds us of our humility in the face of the natural order and entrusts us with the care not only of developing humanity but also of maintaining it.

The economic effects of the pandemic have affected the entire world, but particularly vulnerable populations: according to World Bank figures, they could quickly push 150 million people into extreme poverty. As far as we are concerned, we must avoid complacency about the likely ability to regain some semblance of economic growth, which we all know will not quickly and equitably reach the most vulnerable populations.

In this economic recovery, the Foundation will mobilize its entire force in 2021, as much work remains to be done to try to change the machine that creates inequality in the face of tragedy. To achieve this, we will need to rely on our professionalism, our determination, and the values that guide our daily actions.

It is with this ambition that we created the Foundation with Professor Yunus in 2008. It is with this same ambition that we will continue to engage in the coming months.

The role of the Grameen Crédit Agricole Foundation in responding to the crisis

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©Godong

Soukeyna Ndiaye Bâ has been a member of the Foundation's Board of Directors since its inception. Committed to promoting women entrepreneurs for over 20 years, she is also the Executive Director of INAFI (International Network of Alternative Financial Institutions), a global network of organizations supporting microfinance programs. Abdul Hai Khan is a member of the Board of Directors and Managing Director of Grameen Trust. He also serves on the boards of various microfinance and social enterprise organizations in Australia, Bangladesh, China, France, India, Kosovo, Italy, the United States, and Yemen.

1/ As Foundation directors, you are both international experts and microfinance practitioners. Can you share with us your analysis of the crisis, particularly regarding the areas you know well?

Soukeyna Ndiaye Bâ: In Africa, the death toll today stands at nearly 100,000 and more than 3.7 million people infected, figures that do not reflect the reality on the continent because there is no mass screening due to a lack of resources. Due to restrictions and border closures to contain the pandemic, the African continent has not escaped the crisis. In this context, small entrepreneurs, farmers, and informal sector actors are obviously directly affected. On the front line: women, in both rural and urban areas, who are very active in the informal sector. In Senegal, for example, 94% of women entrepreneurs operate in the informal sector. In rural areas, in addition to the seriousness of the economic situation, the already alarming health precariousness and difficulty accessing healthcare are likely to worsen.

Abdul Hai Khan: The death toll in Asia is currently estimated at around 417,000, while the number of infections stands at over 26 million. Schools in East Asia and the Pacific have been completely closed for over 25 million children for almost an entire year. Covid-19 has slowed growth in East Asia and the Pacific (EAP) by significantly reducing economic activity, including tourism and trade. Growth in the EAP region, excluding China, is forecast to slow to 1.31t/yr in 2020, down from 4.71t/yr in 2019. Millions of households have been affected by the loss of jobs and income (including remittances), while they still have to cover their basic necessities or service their debts. As a result, the percentage of poor people has increased.

2/ How do microfinance and social entrepreneurship mitigate the effects of the economic crisis?

AHK: By facilitating access to essential services, microfinance institutions and social enterprises strengthen the resilience of low-income populations, particularly small entrepreneurs working in the formal and informal sectors and smallholder farmers. They are therefore essential for protecting the most vulnerable populations, who have been severely affected by the effects of the economic and health crisis during the Covid-19 pandemic. To cope with this pandemic, many microfinance institutions have innovated and strengthened their support for their clients. For example, they have restructured loans to better support the most affected clients and accelerated their digital transformation, introducing or improving cashless transactions via mobile banking channels and creating online branches.

3/ What can we expect in the coming years?

AHK: The extent of the damage caused by the Covid-19 pandemic worldwide is considerable. However, it offers us a unique opportunity to improve, even redefine, our economic structures by building on social and environmental awareness. We should not speak of a “recovery” program, but of a “reconstruction” program. In this comprehensive reconstruction plan, social entrepreneurship can play a vital role, as it can be a lever to transform unemployed people into entrepreneurs. Financial inclusion can help ensure that economic recovery is accompanied by social development.

SB: The world is threatened by recession and food and social crises. Building the "post-Covid" world must therefore also be multisectoral and focused on innovation. We must learn from the problems encountered during this crisis: better assess and anticipate risks, strengthen our socioeconomic models, and rethink our public policies to better protect the most vulnerable populations. Women entrepreneurs will have a key role to play in boosting the economy. Supporting female entrepreneurship will be a lever for strengthening women's empowerment and the development of rural and urban economies. Digital technology will be a major tool for promoting entrepreneurship, modernizing, developing, and innovating.

[Covid-19] The Grameen Crédit Agricole Foundation in 2020

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Eric Campos, Grameen Crédit Agricole Foundation

In 2020, the Foundation supported 80 microfinance institutions and social enterprises in 39 countries worldwide. With the COVID-19 pandemic, the Foundation established an ongoing dialogue with all partner organizations and adapted its financial and technical support. The Foundation also collaborated with other key stakeholders in the inclusive finance sector to develop joint solutions and better protect microfinance institutions and their clients. Spotlight on the Eric Campos interview, General Delegate of the Foundation, and some key figures for the activity in 2020.

The Covid-19 crisis has affected the microfinance sector worldwide

Eric Campos : The year 2020 was a very challenging year for the partners of the Grameen Crédit Agricole Foundation, microfinance institutions, and environmental social impact businesses. It was very challenging because the end beneficiaries, who are highly dependent on sectors such as trade, agriculture, and crafts, had to cope with lockdown measures and therefore struggled to develop their income-generating activities.

The Foundation has adapted to better support entrepreneurs in the field

EC : The Foundation's teams focused on all actions that could help these institutions and businesses gain time and adapt to the economic effects of this crisis. At the international level, we coordinated an agreement with international donors to avoid a liquidity crisis in the microfinance sector. At the Foundation level, we granted numerous deadline extensions and supported institutions and businesses by sending technical assistance missions to enable them to improve their risk management and cash flow management. We were present throughout this year, alongside the Foundation's long-standing partner institutions.

What are the prospects for 2021?

EC: In 2021, we are still in a crisis context. We are seeing some weak signs of economic recovery in approximately one-third of the Foundation's countries of intervention. In 2021, the Foundation will strengthen its technical assistance program. We will continue to finance and support our partners, and we are cautious but confident about the economic recovery that we are already beginning to see. Our commitment: to help our partners get through this global crisis.

 

One Year Later: What a Year of Investigations Teaches Us About Covid-19 and Microfinance

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Maxime Borgogno, Grameen Crédit Agricole Foundation

Spotlight on Maxime Borgogno's interview for FinDev. Maxime is an Investment Officer for the Asia and Central Europe region at the Grameen Crédit Agricole Foundation.

Since the beginning of the pandemic, the Grameen Crédit Agricole Foundation has been monitoring how the microfinance sector is responding to the Covid-19 crisis. One year later, what have you learned?

Maxime Borgogno: While the immediate consequences faced by microfinance institutions (MFIs) were an increase in their portfolio at risk and a reduction in their portfolio, the operational crisis did not lead to a total failure of the sector as initially feared. In fact, we saw many MFIs proactively adapt to the new context: they took adequate management measures while maintaining a responsible approach to their clients. Only a small proportion of the institutions surveyed had to lay off staff during the crisis, and those located in the most affected countries successfully transitioned to remote access systems. Most MFIs implemented loan restructuring to provide relief to affected clients. Some, particularly in Southeast Asia, provided clients with emergency kits (food, sanitation equipment, etc.). They even explored new opportunities such as digital loan repayment channels to adapt to the situation.

Overall, MFIs remain optimistic about the future, based on a good understanding of current challenges and the experience gained in 2020. While the crisis is not over and challenges remain, the sector has the capacity to address them.

What are the main challenges ahead? Why do you think the sector has the capacity to overcome them?

MB: The situation remains unpredictable and depends on each country. An MFI can quickly face significant operational constraints, which will limit its activity. The latest data shows that nearly 751,000 MFIs are facing a higher risk portfolio than before the crisis. Consequently, they will have to find a balance between prudently managing this risk and continuing to grant new loans to their clients. It is now clear that the Covid-19 crisis has disrupted certain sectors, business structures, and operating methods. MFIs will need to factor these major changes into their strategy for the coming years.

Over the past year, we have seen MFIs remain fully committed to their social mission. They have proven their resilience and adaptability during an unprecedented crisis. With poverty levels rising as a result of the crisis, the mission of microfinance is more relevant than ever.

How have you been monitoring the situation over the past year?

MB: We launched the first monthly survey in March 2020 among the 75 MFIs we support. The goal was to gather initial impressions of the situation and the potential impact on their operations and clients. In June 2020, we partnered with ADA and Inpulse to expand the survey to more than 100 MFIs, including in Latin America and the Caribbean, where the Foundation does not have a presence. Since September, we have switched to a quarterly format to avoid overloading institutions as they resume operations. The next survey will take place sometime in March.

The survey results, along with other articles related to the Covid-19 crisis, are available at the Covid-19 Observatory, a space created by the Foundation at the start of the pandemic.

Microfinance institutions often lack the capacity to respond to surveys, especially when facing a major crisis. What helped you continue collecting data from them?

MB: From the outset, we chose not to request detailed financial information from MFIs, but rather to gather their impressions and observations on the impact of the crisis. We deliberately limited the number of questions and ensured that they were as clear as possible. We also avoided requesting the same information they send us in their regular monthly reports.

We insist on a high level of communication with our partners, so we share survey results with them as soon as they are available and remain open to their feedback during this process. Our respondents' feedback helped us adapt the wording of the questions and the content of the questionnaire. We believe that their involvement in the process is a key motivation for our partner MFIs to continue participating in the survey.

What are your feelings about how this crisis is shaping the future of microfinance? Are you worried about the future of the sector?

MB: 2020 was a historic year that demonstrated the resilience of the microfinance sector. MFIs innovated and strengthened their services to protect their clients. At the same time, donors and other stakeholders coordinated with each other to adopt the most appropriate measures to support MFIs. The latest survey we conducted on the impact of the Covid-19 crisis reveals that most institutions expect their activity to increase in 2021, in terms of portfolio volume and number of clients.

However, many of the hardest-hit institutions will need support from their shareholders and lenders. With credit risk gradually translating into losses in 2021, investor responsiveness will be critical and will be the next topic of the Foundation's Covid-19 Observatory.

The crisis is not yet behind us, but we are confident about the future of the sector. Digital transformation, coordination between stakeholders, and innovation will be essential to strengthening the resilience and impact of microfinance.

Source : FinDev

Ugafode and the financial inclusion of refugees

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Supported by the Grameen Crédit Agricole Foundation since 2015, UGAFODE Microfinance Limited is a microfinance institution that provides inclusive financial and non-financial services to low-income but economically active populations in Uganda. UGAFODE is one of three organizations supported by a program launched by the Foundation, the Swedish International Development Cooperation Agency (Sida), and the United Nations Refugee Agency to support the financial inclusion of refugees. With this financial and technical support, UGAFODE opened a branch in the Nakivale refugee camp in Uganda. A spotlight on an interview with Shafi Nambobi, Executive Director of UGAFODE.

1. In a few words, what is UGAFODE Microfinance Limited?

UGAFODE Microfinance Limited began in 1994 as an NGO specializing in group lending for women and has since evolved into a deposit-taking microfinance institution regulated by the Bank of Uganda. The institution specifically targets the country's low-income but economically active population through seven urban and 12 rural branches, serving over 110,000 savings clients and 8,000 credit clients. It offers a range of financial services including savings, loans, and money transfer services, with a loan portfolio of €12.1 million and savings volume of €6 million.

2. UGAFODE received innovative financial support from the Grameen Crédit Agricole Foundation, the Swedish International Development Cooperation Agency (Sida), and the United Nations Refugee Agency in 2019, when it was selected as a beneficiary of a program to support financial inclusion for refugees. Can you explain this initiative and the support UGAFODE received?

Most refugees have faced discrimination and have been denied credit facilities by financial institutions because they are considered too risky, despite being engaged in agriculture and retail. In March 2020, UGAFODE became the first financial services institution to establish a branch in a refugee camp in Uganda through this program. Nakivale refugee camp is the 8th largest camp in the world, hosting more than 134,000 refugees from 13 countries. The total project budget is €536,780, of which €396,882 comes from Sida and €139,810 from UGAFODE over three years. In addition, the Foundation also granted a new loan of €540,000 in July 2020, of which €50% will be used for the refugee program to provide loans to refugees and host populations.

3. What are the first results of the project?

The project has already begun to prove its worth. Since the opening of the Nakivale branch, 505 loans totaling €383,596 have been disbursed between March 2, 2020, and December 31, 2020, primarily to support small and medium-sized enterprises and individual agricultural loans. It is important to note that all of this was achieved in the context of the Covid-19 crisis. The portfolio at risk (PAR) is at 1.65% for 1 day and 0% for 30 days, which is both considerable and welcome. In addition, we have raised financial awareness among more than 5,000 refugees, and 2,534 clients have opened savings accounts totaling €65,112. A total of 5,301 refugees received €776,345 through the Nakivale branch's friends and relatives money transfer services in the nine months since the branch opened. We currently employ 21 people, including eight refugees in Nakivale and four at the Kampala call center, to handle customer complaints in the main refugee languages.

4. How has the Covid-19 pandemic affected the project? What measures have been taken to address the crisis?

The project was implemented and opened at the beginning of the Covid-19 crisis. As the government declared financial services essential, the Nakivale branch was able to offer the necessary services to its clients on a very positive note. UGAFODE was able to adjust its policies and procedures to serve refugees in compliance with regulatory guidelines. We recruited refugee staff at the call center to provide advice and information to clients. We also built a branch extension to provide sufficient space to ensure the safety of staff and clients. In addition, we provided loan rescheduling options to clients to support them during this time of crisis. The Grameen Crédit Agricole Foundation and KIVA also supported us in addressing the crisis. The Foundation granted us flexible budgetary allocations within main lines to cope with the uncertainties of the crisis. The branch is operating according to the Covid-19 Standard Operating Procedures (SOPs) established by the Ministry of Health and the Government. We will also be able to purchase three additional motorcycles to enable branch staff to reach more clients more easily and quickly.

5. What are the project priorities now?

There are three priorities:

  1. Intensify financial education training to reach at least 8,800 refugees and 8,000 host communities in the second year and 15,500 refugees and 14,000 host communities in the final year of the project.
  2. Conduct customer surveys to facilitate informed decision-making and develop refugee-friendly products.
  3. Roll out the project model in other settlements. After Nakivale, the project will be replicated as soon as possible in other refugee camps. Initial feasibility studies have been conducted for the Kyaka, Kyangwali, and Rwamwanja refugee camps.

 

OXUS Kyrgyzstan and its six commandments for the Covid-19 crisis

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Interview with Denis Khomyakov, DG, OXUS Kyrgyzstan

Since the start of the Covid-19 crisis, the Grameen Crédit Agricole Foundation has worked on several initiatives to better support the microfinance sector. OXUS Kyrgyzstan is one of the microfinance institutions that benefited from the Foundation's response to the crisis. Five questions for Denis Khomyakov, Director General of OXUS Kyrgyzstan (OKG).
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The Covid-19 crisis has had a significant impact on the economy in Kyrgyzstan and on your organization. What measures have you adopted to address it?

The crisis has hit Kyrgyzstan's economy and healthcare system hard. With border closures and lockdowns, industry and agriculture have declined, and transportation services have collapsed. Although new activities have emerged (such as delivery services), Covid-19 has impacted the country's economy and, by extension, our customers and our business.

In this context, we at OKG were well prepared. Starting in February, we first protected our staff by teleworking or short-time working at two-thirds of their salary, which involved digitizing our operations. In May, we adopted in-person and remote working thanks to the anti-Covid measures included in the Covid-19 Business Continuity Plan (BCP), which was quickly operational.

We have always ensured good communication. To this end, we first created a Covid-19 Committee composed of members from different departments and myself to structure communication and define operational measures. Several actions were undertaken: we organized communication with branches and clients, established loan restructuring and customer support, and decided to negotiate with lenders to obtain a grace period on repayments. We also regularly communicated with various stakeholders: the governance, which guided and advised us, the lenders, who coordinated to ensure the continuity of our activities, and the National Bank, which provided us with clarification on the possibilities for restructuring and exemptions.

What support did the Foundation provide to strengthen OKG's response?

The Foundation's Covid-19 surveys were well organized and always timely. The Foundation's Covid-19 Observatory, which publishes survey results and other useful articles, was invaluable in assessing our situation and position in the region. The Foundation also led OKG's lending group in implementing the coordinated restructuring measures and extensions; under the Foundation's leadership, with regular monitoring by Julie Serret, the Foundation's Investment Officer, we acted immediately to prepare for the worst-case scenario and agreed on terms with the lenders together.

What were the main measures implemented by this group of lenders?

The lending group decided to roll over all payments due between May and December 2020 for 12 months. The lenders also simplified reporting by collecting information through a common document, which gave us more time to focus on other issues. They also provided us with tools to create a PCA, to restart business while protecting staff. As a result, we didn't really have to worry about the liquidity situation. We were able to pay our staff salaries and benefits without delay.

What lessons do you draw from this period for the evolution of microfinance?

Here are my six commandments:

  1. Plan ahead. Every business should have a business continuity plan (BCP) for these types of events. Having an IT disaster recovery plan is very useful—it helped us greatly respond to the crisis and keep the system running.
  2. Take care of the staff, inform them of the situation and the measures decided.
  3. Make decisions. Don't be too late, but think twice.
  4. Inform investors and lenders of the situation and provide a forecast (detailed, even if you don't know how the situation will evolve) for the coming months.
  5. Communicate often with your board of directors. Its composition and experience will help you navigate any type of crisis.
  6. Be digital. Digital channels are invaluable for communicating with customers and staff. Covid-19 has pushed us to think and be more digital.

What is the outlook for OKG in 2021?

The company continues to expand and grow. We plan to open two new branches in rural areas and serve low-income customers. We plan to introduce tablets to speed up loan disbursements, but also to collect fewer paper documents and be more environmentally friendly. We also plan to expand green loans to help combat air pollution and intensive energy use in Kyrgyzstan.

Other initiatives, such as our work on customer loyalty and the project to support women entrepreneurs launched in early 2020, were slowed by the health crisis. We will resume them. We will remain a reliable company for our customers, with a zero-exclusion approach!

The desire of microfinance institutions to maintain their activities in the face of the Covid-19 crisis

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ADA, Inpulse, and the Grameen Crédit Agricole Foundation have partnered to monitor and analyze the effects of the Covid-19 crisis on their partner microfinance institutions around the world. This monitoring was carried out periodically throughout 2020 to gain a better understanding of how the situation was evolving. With this regular and in-depth analysis, we hope to contribute, at our level, to the development of strategies and solutions tailored to the needs of our partners, as well as to the dissemination and exchange of information between the various stakeholders in the sector.

In summary

The results presented in this article come from the fifth survey in the joint series (1) of ADA, Inpulse and the Grameen Crédit Agricole Foundation. Responses were collected in the second half of December from 74 microfinance institutions (MFIs) located in 42 countries in Eastern Europe and Central Asia (EAC-28%), Sub-Saharan Africa (SSA-26%), Latin America and the Caribbean (LAC-23%), South Asia (14%) and the Middle East and North Africa (MENA-9%) (2).

Our latest work confirmed the gradual resumption of MFI activity in the summer of 2020, for which most of the operational difficulties encountered in the context of the COVID-19 crisis were fading. At the same time, the major constraint that remained was the difficulty in collecting loan repayments, and implied the increase in the portfolio at risk. This last point still holds at the end of the year, and three-quarters of respondents still note an increase in the PAR. Added to this is the deterioration of the epidemiological situation in the world in the fall of 2020, as evidenced by the responses collected in December 2020. The epidemic containment measures taken according to local contexts may once again have consequences for the activities of MFIs and their clients, and a return to normal is not yet on the agenda.

However, these new complications and their implications are not new. As such, they have little impact on MFIs' risk indicators. The stability of the PAR increase, as well as the recovery levels, does not reflect any major new worsening of the MFIs' financial situation. This relative balance also reflects the MFIs' state of mind as they approach 2021. Despite an unstable context and all the obstacles it brings, the vast majority of our partners anticipate growth in their business in this new year, both in terms of portfolio volume and the number of clients. This confidence, which was already evident in the surveys conducted over the summer, is a new sign of the resilience of these institutions.

1. MFIs always operate in unstable conditions

Our latest survey, conducted in October, demonstrated a significant improvement in the operating environment of MFIs and demonstrated the gradual resumption of their activities in all regions of the world. However, in a large number of countries, even those that appeared to be managing the spread of the virus well, new, more restrictive measures to contain the epidemic were taken in the last quarter of 2020 in response to the renewed rise in cases. This deterioration is particularly confirmed by our partners in Europe and Asia, while MFIs in South and Central America, Southern Africa, and North Africa report an improvement in the situation.

The comparison of the responses of our 38 partners who participated in the October and December surveys (3) in the following paragraphs confirms the observation of a return of certain difficulties for MFIs, and reflects the general results obtained at the end of the year.

First, the virus continues to spread rapidly in some parts of the world, and MFIs are no exception. Thus, we can see an increase in the share of MFIs reporting that clients and staff have been infected with COVID-19. This is reflected in the decline from 47% to 32%, (17 to 12 MFIs) of MFIs whose clients and staff are not infected with COVID-19. In October, this category included two-thirds of MFIs in sub-Saharan Africa (10/15) and the vast majority of those in South Asia (5/6). In December, the share of MFIs in sub-Saharan Africa is almost stable (9/15), while those in Asia decline to 50% (3/6). Finally, the category “more than 20% of staff were infected” went from 0% to 13% (5 MFIs) over the period, the vast majority in the Europe and Central Asia region (4 MFIs).

In terms of operational constraints, the results are relatively stable between the two periods. The list of MFIs that indicate they no longer face operational constraints remains essentially the same (39%), and is concentrated in Central Asia and West Africa. It should be added that collecting loan repayments (42% of the sample) and disbursing new loans (32%) remain the two main difficulties encountered by MFIs.

Difficulty in contacting clients, both in branches and in the field, was considered a consequence of the crisis by only 16% (6 MFIs) in this sample in October, and this figure increased in December (24%, 9 MFIs). In detail, it should be noted that the location of the MFIs highlighting this constraint has changed over the last two months. Thus, they were notably located in Latin America and the Caribbean and East Africa in October. In December, this point was raised by MFIs in Southeast Asia (3/6), Eastern Europe (2/5) and West Africa (2/8). At the overall level of the survey, it is ultimately 30% of the MFIs that specify that they are once again limited in their activities, despite a gradual recovery.

2. Customers therefore remain exposed

As the MFIs demonstrate through these surveys, the uncertain and particularly unstable context also weighs on MFI clients. And logically, the difficulty in collecting repayments for MFIs, for example, is closely linked to the difficulties encountered by the clients themselves. The activity of a large proportion of them has still not restarted or remains slowed down by the crisis context: our last survey highlighted in particular the tourism and trade sectors as being the most affected (4). As of December 2020, the proportion

of MFIs indicating that more than 90% of their clients have resumed their activity remains a minority (23%, 17 MFIs). However, 46% (34 MFIs) of the MFIs indicate that clients who have resumed their activity represent between 70% and 90% of their portfolio. And only 11% (8 MFIs) of the respondents indicate that less than 50% of their clients can resume work. However, there are some regional disparities in these results: in South Asia, Europe and Central Asia, and Sub-Saharan Africa, at least 80% of the respondents indicate that more than 70% of clients have resumed their activity. In the MENA and Latin America and the Caribbean regions, this share is reduced to 43% and 41% respectively.

Our partners' responses also allow us to continue profiling the clients most impacted by the crisis. First, it should be noted that a large proportion of the MFIs surveyed exclude the possibility that there is a category of clients more affected than others, whether in terms of gender, location (urban or rural), or age. In detail, 42% (31 MFIs) of those surveyed believe that all their clients are impacted equally, and 51% (38 MFIs) indicate that there is no notable difference in repayments based on these criteria. Generally speaking, the idea that there is a difference in exposure to the impact of the crisis based on age is also dismissed. And while some MFIs say they see differences based on age categories (-30, 30-50, 50+), none of them stand out.

Among the MFIs that perceive a difference in the impact of the crisis on their clients (36 MFIs), one criterion stands out most: 76% (27 MFIs) believe that the most impacted populations are urban populations. The same proportion states that this difference is felt in loan repayments. These responses confirm the previous results we obtained concerning the most affected sectors, decidedly urban. The fact that the rurality criterion is rarely mentioned points in the same direction, and echoes the agriculture sector, revealed over the course of the surveys by our partners as a sector less affected by the Covid-19 crisis than the others, and towards which a certain number of MFIs imagined wanting to move. Finally, one last characteristic is mentioned by the MFIs noting disparities in the impact of the crisis: 36% (13 MFIs) perceive that women are more affected than men and therefore by default could have more difficulty repaying their loans. Note that some of the respondents only serve female clients, which logically makes them the most affected population in the sector.

3. Challenges now well known to MFIs

Continued low activity levels and COVID-19 containment measures implemented by local authorities are now factors that MFIs are aware of. And to which they are adapting. Thus, the financial difficulties mentioned by MFIs were very stable from October to December 2020, and did not reveal any new trends. Two of the four most cited difficulties remain linked to the decline in MFI profitability, due to the increase in provisioning expenses (45% of respondents, 33 MFIs) and the non-collection of interest (55%, 41 MFIs). These two points are closely linked to the most significant difficulty of the crisis for MFIs during this period: the increase in the portfolio at risk (74%, 55 MFIs).

As of December 2020, 74% (55 MFIs) of respondents indicate that more than 70% of clients are repaying their loans, and 37% report a client repayment level above 90%. On the other hand, only 9% report that less than 50% of clients are managing to repay their loans, which coincides with the levels of client activity recovery. These levels are reflected in the MFIs' portfolio at risk level: as of December 2020, 47% of respondents (35 MFIs) indicate that PAR 30 has increased without doubling, 16% that it has doubled, and 12% that it has more than doubled.

Nevertheless, this risk configuration appears to have generally stabilized in the last quarter of 2020, despite the additional constraints presented previously (see Fig. 7). In the sample common to the October and December surveys, we still find a quarter of MFIs that are not affected by this increase in the portfolio at risk. At the same time, no MFI is added to the list of MFIs whose PAR 30 has more than doubled. The vast majority of transfers from one category to another over the October-December period are made between a stable PAR and a PAR that is increasing without doubling. This is therefore a sign that the deteriorations in local contexts presented previously would not affect all clients, thus having only a moderate impact on the MFIs' risk indicators.

This stability coincides with the MFIs' new objectives at the start of the new year. The crisis has disrupted their operations and inevitably impacted their projections. Thus, 58% of the MFIs report having updated their business plan and growth objectives for the coming months and years. Armed with these lessons learned from the crisis and a better understanding of the context, the vast majority of MFIs still plan to continue growing in 2021. Thus, 80% of the respondents expect their portfolio volume to increase this year, while 15% expect it to stagnate and 5% anticipate a decline. Moreover, this increase in the portfolio should also be accompanied by an increase in the number of clients for 75% of the MFIs that anticipate growth in this new year. A new sign of hope, therefore, but also of ambition on the part of institutions determined to continue moving forward in 2021.

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(1) The results of the first four surveys of ADA partners, Inpulse and the Grameen Agricultural Foundation are available here: //www.gca-foundation.org/observatoire-covid-19/, //www.ada-microfinance.org/fr/crise-du-covid-19 And //www.in-pulse.coop/news-and-media/
(2) The number of responding MFIs per region is as follows: SSA 19 MFIs; LAC 17 MFIs; EAC 21 MFIs, South Asia 10 MFIs; MENA: 7 MFIs.
(3) The sample is 38 MFIs: 6 in South Asia, 10 in Eastern Europe and Central Asia, 6 in Latin America and the Caribbean, 1 in MENA and 15 in sub-Saharan Africa.
(4) //www.gca-foundation.org/espace-medias/#covid-19-a-progressive-recovery-of-IMFs-at-the-pace-of-that-of-their-clients

[INTERVIEW] The Foundation's actions in response to the Covid-19 crisis

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Hélène Keraudren Baube & Edouard Sers, Grameen Crédit Agricole Foundation

To overcome the effects of this unprecedented health and economic crisis, the Foundation has had to innovate, adapt, and collaborate with other key players in the inclusive finance and social impact entrepreneurship sectors. This cross-functional effort involves all of the Foundation's teams. To learn more, we highlight the testimonies of two Foundation experts: Hélène Keraudren-Baube, Administrative and Financial Director, and Edouard Sers, Director of Risk, Compliance, and Social Performance.

1. How has the Covid-19 crisis impacted the internal organization of the Foundation and the organizations it supports?

Helen: We resorted to teleworking overnight, but since it was already a possible option at the Foundation, the transition was very smooth. In addition to providing the equipment for teleworking, we also adapted the schedules to take into account the context of confinement with children at home. We have experienced a very unusual year, with no field missions for the team based in France since February, while the Investment Officers all go on field missions several times a year. The Foundation's Steering Committee held regular updates to monitor the situation and determine the best measures to support the teams and funded organizations. In addition, we have been communicating more regularly with our governance to keep them informed of the evolution of the situation and activity.

2. What responses did the Foundation provide to address this?

Edward: The Foundation's first response was to establish a rapid and ongoing dialogue with the organizations we support to understand the effects of the crisis, the measures taken, and their needs. Our investment management teams remained in very close contact with all the organizations we support, and we conducted regular surveys with them to understand the impacts of the crisis in the various countries where we operate. In addition, we created the Covid-19 Observatory, in which we regularly published articles to share our analyses and inform stakeholders of developments in the situation. At the same time, we led an international coordination of lenders and inclusive finance stakeholders to act together, in consultation, to protect microfinance institutions and their clients and prevent any liquidity shock that would have destabilized the sector.

Helen: We have adapted our monitoring and analysis tools and our requests for information, particularly regarding business continuity plans and short-term cash flow plans. On the financial front, we have granted deferrals to around thirty of the Foundation's partner organizations, primarily microfinance institutions. These deferrals, ranging from 6 to 12 months depending on the case, have been materialized by amendments to loan contracts and revised payment schedules. This volume of deferral requests is completely unprecedented and has put stress on our liquidity. We have refined our projection and monitoring tools to track the financial impact on the Foundation.

3. Regarding the international coalition, what are the first results?

Edward: Six months after signing the Commitment, we and all the signatories produced a joint publication presenting the status of implementation of the Commitment's 10 principles. Among the publication's conclusions, we can highlight the strong coordination between international donors to agree on payment deferrals, avoiding a liquidity crisis in the microfinance sector. We have also made progress in the area of technical assistance, including joint webinars and field surveys with end clients. Finally, we have encouraged the coordinated collection of information on staff management and client monitoring of microfinance institutions and are promoting initiatives to strengthen client and staff protection. In 2021, we will continue our efforts to support the gradual recovery of the microfinance institutions we support with technical assistance, tailored financing, and regular exchanges between the various stakeholders in the sector.

4. In relation to the Foundation's donors, what joint actions have been taken?

Helen: We very quickly kept our donors informed of the evolving situation, with detailed presentations. We understood from the start of the crisis that the main impact for us in 2020 would be on our liquidity management. Requests for deferrals from our partners are putting a strain on the Foundation's cash flow, and we wanted to preserve our ability to support our partners and avoid a liquidity crisis at all costs. To this end, we requested deferrals from our donors and considered new "special Covid-19" financing lines to support the resumption of activity of the microfinance institutions we support.

5. Finally, what are the prospects for 2021? What will be the Foundation's priorities?

Helen: After a year 2020 marked by an operating result supported by portfolio growth in previous years and substantial savings in 2020, particularly on travel expenses, 2021 will be directly impacted by the contraction of the Foundation's loan portfolio following the crisis. The Foundation's activity should continue its gradual and cautious recovery begun in recent months. We believe that the first half of the year will still be heavily constrained by the pandemic and its consequences, and we hope to be able to resume our field trips, as close as possible to our partners, from the second half of the year. It will probably take another year for the Foundation to return to the level of activity it had before the crisis.

Edward: A large proportion of the organizations we support have successfully weathered the crisis and are eligible for the Foundation's funding based on standard risk criteria. However, a significant proportion of them still carry significant risk from 2020 on their balance sheets. It is crucial that we continue to strengthen our support system to offer solutions tailored to different levels of risk, combining new financing, technical assistance, loan deferrals, or—in more exceptional circumstances—debt restructuring.

At the sector level, lenders were able to coordinate in 2020 to avoid a liquidity crisis, and we will continue on this path in 2021. This year will also be crucial for investors to support microfinance institutions in accordance with their responsibility as shareholders. Finally, we will continue to promote initiatives to protect the clients and staff of microfinance institutions during this time of crisis. For example, we are actively participating in the Social Performance Task Force (SPTF) working group to define new certification criteria for client protection in the sector. Ongoing dialogue with our partners and coordinated actions will be among the keys to the success of our commitments.

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