Innovation in microfinance, scope and challenges

The Andean Development Corporation (CAF) met with its microfinance clients for a workshop with the objective of designing strategies and lines of action to meet new challenges in the financing of sectors with limitations in access to capital. Held in Caracas on February 24 and 25, the event also served as discussion forum for development of new products and services, such as micro-insurance, education finance, productive use of remittances, and finance for the rural sector. Conversations were held on the importance of business social responsibility policies for microfinance institutions. The Latin American institutions are recognized for their capacity to deliver the most advanced financial services in the world of microfinance, and for having achieved permanence and sustainability.

In his opening remarks, CAF Executive Vice President Luis Enrique Berrizbeitia said: "We are honored and satisfied to have this audience to celebrate this event promoted by the CAF for our clients, who are our direct source of inspiration for moving ahead with better processes in the preparation of strategies that favor microenterprise in Latin America." He explained that the emergence and strengthening of the microenterprise sector in Latin America was a dynamic and important contribution to the economy of the countries. He added, "This sector is responsible for the creation of practically one out of three jobs in the Andean Community and employs over half the economically active population, in some of its most populated urban centers."

The leading personalities and experts in the area who spoke at the workshop included: Claudio González Vega, Ohio State University; María Otero, president of Acción International; Juan Carlos Ramírez, ECLAC economist; Damian von Stauffenberg, president of the Microrate rating agency; and Fernando Prado, general manager of ASOFIN (Bolivia). The main subjects covered were: Destino y Retos de las Microfinanzas (Future and Challenges for Microfinance); Las Microfinanzas como Herramienta en la Reducción de los Niveles de Pobreza y Nuevos Productos Microfinancieros: Experiencias Exitosas y Oportunidades. (Microfinance as a Tool for Reducing Poverty Levels and New Microfinance Products: Successful Experiences and Opportunities).

A gigantic event

This was how the participants in the workshop described the two-day event. The workshop analyzed the contribution of microfinance to stimulating economic development in our emerging markets; what the role of the State should be in this context; and, above all, the new role of the actors in meeting the challenges of the industry. The workshop also discussed the future and new trends in the sector aimed at offering services to many more clients in the most needy sectors of our societies, going beyond improving profitability and efficiency.

The specialized financial institutions were represented by their presidents and managers, who made a commitment to seek innovative methods of linkage in an effort to implement the development of new fields of action to serve the microentrepreneurs in the region more efficiently. The participants made specific proposals for CAF support for the regulated microfinance sector, with finance for new products and services, which would be conditional on training the institutions in the new fields.

In relation to microfinance as a tool for reducing poverty levels, participants answered questions such as: How much does microfinance contribute to overcoming poverty? What has its real impact been on poverty? Is it just a profitable business or does it really generate important social benefits?

The space devoted to the study of successful cases was an opportunity to promote financial initiatives that deepen the microfinance business and its benefits for popular sectors. As an example of the new initiatives, participants heard about the opportunities for micro-insurance in the region, successful experiences in productive remittances and education finance, and the rural development approach for regulated microfinance institutions.

Ten years developing microfinance institutions

The CAF’s objectives include improving the financial system that services the microenterprise sector by strengthening the intermediary institutions that offer financial support services to urban and rural microentrepreneurs. In CAF's view, the development of these financial markets requires support for the microfinance intermediaries that have the appropriate experience and capacity to offer deposit and loan services on a permanent and sustainable basis. After ten years supporting its microfinance clients, CAF’s objective is to promote the new initiatives that deepen savings services for microentrepreneurs who are willing to grow and stimulate the sustainable and equitable development of our countries.

The objective of this multilateral financial institution in the microfinance area is to expand the economic opportunities in its shareholder countries through the sustainable and dynamic development of microenterprises, promoting the conditions needed for the growth and development of the sector and the region. The CAF is also fostering regulatory and legal reforms to facilitate the entry of regulated financial institutions into the microfinance field and promote competitiveness.