December 17, 2015
Financial services for sustainable development
By Javier M. Flores Moreno, CEO BBVA Microfinance Foundation
Financial inclusion and microfinance play a critically important role in reducing poverty as well as ensuring economic and social development around the world. This has been strongly recognised by the 2030 Development Agenda. Indeed, the Sustainable Development Goals (SDGs) include access to financial services within its several targets. Furthermore, they state the relevance of ensuring that all people have full access to financial services, underlining in particular the importance of women’s access to financial opportunities.
Financial exclusion, inequality and poverty
Today 2 billion people in the world still have no access to financial services. Microfinance initially started as a result of a huge unsatisfied demand by people who were financially excluded. After more than thirty years of remarkable activity, microfinance´s global impact still has a long journey ahead, even though some institutions are rather successful. Undoubtedly, financial access is taking place in a very real and effective manner, and yet millions of low-income individuals are still excluded from the financial system and are therefore not experiencing social inclusion.
Latin America has a low level of access to financial services, and is particularly severe among the poorest sectors. While it is not the region with the largest number of people living under the poverty line, it is considered the one area with the most unequal income distribution, and therefore low-income people receive a smaller share of total national income compared to those in other regions. As a result, poverty rates in Latin America are systematically higher than would be expected compared with other countries with similar average incomes. These facts leave a huge amount of the population in poverty and about 40 per cent of Latin Americans remain vulnerable to falling back into poverty. Technically speaking, many of the citizens who escaped poverty did not enter the middle class, but are instead part of the vulnerable group which lives off approximately $4-10 a day and are consequently at risk of slipping back into poverty.
The BBVA Microfinance Foundation is a non-profit institution, created by the BBVA Group as part of its CSR and is committed to financial inclusion. The Foundation was set up in 2007, bringing a very innovative approach to the existing microfinance status quo and addressing the real needs of vulnerable people on a sustainable basis. This is an activity that is very closely linked to BBVA´s core expertise. BBVA has more than 150 years of banking experience and can offer the “know-how” of a successful financial institution with the aim of serving disadvantaged communities in a completely philanthropic manner.
The initial challenge that was faced by industry was to prove that these disadvantaged people are “bankable”, and so the challenge for us is to reach more vulnerable people with a complete range of financial and non-financial services that meet their real needs and to operate in a more sustainable way.
In order to fulfill this challenge, our view is that an industry-wide paradigm shift is required so that we can move from a product-oriented approach to a more client-based one. In other words, financial and non-financial services ought to be designed to support the real economic activity of these entrepreneurs and to deliver them in a more efficient and sustainable manner.
People living in poverty, like everyone else, need a diverse range of financial services to run their own businesses, build assets, soften consumption, and mitigate risk. One of the main problems that people in poverty face when we talk about credit is the asymmetries of information, which produce credit constraints that are particularly binding on the poor because they do not have the resources to fund their own projects, nor the collateral to access bank credit.
The poor confront the same risks faced by the non-poor and yet these risks do have greater financial impact on disadvantaged people, and occur with greater frequency. Moreover, their vulnerability is exacerbated every time they incur a loss, creating a vicious circle that precludes lasting improvements in human and economic welfare. The limited shock absorbing capacity on their part often results in a relapse into poverty or a downward spiral into deeper poverty.
Contrary to some beliefs, low-income people save an important portion of their income. With access to well-designed savings products, low-income people can also accumulate wealth.
The Microfinance Foundation is a non-profit entity with the mission of promoting the economic and social development of disadvantaged entrepreneurs, through the financing of their productive activities. We have developed two main lines of activity. First, the consolidation of a group of microfinance institutions in Latin America; and second, we help to transform the microfinance sector, in order to increase scale and reach, and support the industry evolution.
The BBVA Microfinance Foundation is developing and consolidating a group of sustainable microfinance regulated entities in Latin America, with a majority stake in all of them. Since its official launching, the Foundation has consolidated a group of eight financial institutions in seven different countries: Colombia, Peru, Chile, Dominican Republic, Puerto Rico, Argentina and Panama. With a network of 500 branches and total headcount of 8,000 employees, it is providing financial services to more than 1.7 million low income entrepreneurs, and has granted more than $ 7 billion in accumulated loans since 2008.
Responsible Productive Finance, an effective way to generate sustainable development
What we call“ResponsibleProductive Finance” is the core activity of the Foundation and our financial institutions, where financial products and services are provided to support our clients’ economic activity, pursuing their sustainable economic and social development. The aim of this model is that clients and their economic activities become successful, not only through financial services (credit, savings, insurance, remittances…), but also through comprehensive and continuous support, enhancing their business abilities and financial literacy.
We are focused on creating value for our clients and their growing wealth. Our credits are used only for entrepreneurial purposes. We support, just productive activities, because we believe that is the most effective way to generate sustainable wealth in disadvantaged communities.
Responsible Productive Finance means knowing our clients, their activities and their household needs, their different streams of income, and by doing so, we avoid over-indebtedness, which is one of the main threats in the sector today.
We also recognize the importance of consumer protection and the need of regulatory environments able to balance financial access with the stability of the financial system.
Our group of MFIs preserves their own brands and local identities, and the Foundation provides them with a common culture, as well as a common corporate governance system, ethical guidelines, IT platform, management and risk models, the benefits of sharing group synergies, and the experience gathered in different geographies. The scale of the operations becomes a key point in this sector, ensuring a significant economic and social impact and allowing this to happen in a sustainable way.
The Foundation publishes “Measuring What Really Matters”, an annual impact assessment report, that collects data about the clients and their progress throughout time, with a multidimensional dynamic analysis, and in-house developed metrics. This report is a reference in the sector, and contributes to the discussion on social impact measurement in microfinance.
Strategic public-private alliances for development
The Foundation is developing different strategic alliances with very relevant national and international institutions, that help us to strengthen our MFIs capabilities, as well as accelerating our learning process. This is the case of the Spanish Secretary of State for International Cooperation, the Inter-American Development Bank, the International Finance Corporation (World Bank), UN Women, CAF Development Bank, and different prestigious Latin American universities and local NGOs.
The BBVA Microfinance Foundation has worked hand in hand with these institutions to develop a growing number of initiatives to help the evolution of the microfinance sector favoring its growth and reaching more disadvantaged people.
The Foundation has a strong commitment to closing the gender gap in financial inclusion: women entrepreneurs represent 61% of total clients. The Foundation has partnered with the United Nations Agency for Gender Equality and Empowerment of Women (UN Women) with the objective to increase the quality of life for low-income women entrepreneurs. This agreement is the result of the shared conviction of both institutions about the important role of women in the economy and as pivotal figures in reducing poverty: their outstanding potential for entrepreneurship is a driver of prosperity and wellbeing both for their families and for the social development of their communities.
The Foundation published along with Inter-American Development Bank (IDB) a “Universal Corporate Governance Code for Microfinance Institutions”, a reference document for the sector, containing the principles and rules that any microfinance institution should follow, in accordance with the standards and good practices internationally accepted.
Moreover, the Foundation organises training workshops on this subject, for MFIs´ managers and board members of different practitioners in the region. Concerning human capital, both institutions developed along with prestigious local Universities “Training Programs for Microfinance Expert Executives” in several Latin American countries. In addition, many different projects and technical cooperation have also been developed jointly with our MFIs, which allowed our institutions to keep on improving and progressing in different fields.
The International Finance Corporation (IFC, World Bank) holds equity stakes in several MFIs of the Group. It also supports our operations with debt facilities and several technical assistance projects. Other relevant co-investors in our entities are local NGOs and relevant international social impact investment funds.
In short, the BBVA Microfinance Foundation is an independent, non-profit and philanthropic institution, set up to reinforce BBVA´s Corporate Social Responsibility and its commitment to Latin American countries and societies; a region which has contributed a great deal to the BBVA Group´s history, performance and identity.
We promote responsible productive finance committed with maximizing the welfare of vulnerable entrepreneurs and their families, as well as with the ethical behavior of the agents involved. By doing so, the BBVA Microfinance Foundation contributes to BBVA´s corporate reputation, and has become a relevant private philanthropic entity operating in Latin America. From an experienced non-profit organization, we also contribute to the growth and strengthening of the microfinance sector.
Being elected by the SDG-F Secretariat to be a Member of itsPrivate Sector Advisory Group and being recognized for the contribution of our activities to the SDGs in the report “Business and the United Nations: Working together towards the Sustainable Development Goals: A framework for Action”, encourages us to continue working, committed to the mission of BBVA Microfinance Foundation.
We work on a better future for the disadvantaged people, their families and their communities. This is our commitment and our challenge.
THE GLOBAL FINDEX DATABASE 2014. 2 billion adults remain without an account.
 Pg 15. Document of the World Bank. SHIFTING GEARS TO ACCELERATE SHARED PROSPERITY in Latin America and the Caribbean. June 2013.