Reaching the Hard to Reach Global Study on Member Owned Financial Institutions (MOIs) in Remote Rural Areas Coady International Institute, Canada

Background - Coady International Institute International and community development - St. Francis Xavier University, Nova Scotia Antigonish Movement - Cooperative Movement since 1932 Partnerships – India, Ethiopia, Egypt, Kenya, South Africa, Research - Over nine countries Training and education - campus and off campus

About the Study Objective - understand potential outreach of different types of MOIs in remote rural areas and how we might help MOIs achieve this potential. Seven in depth institutional cases - Mexico, Ecuador, India, Indonesia, Niger and Cameroon - What types of MOIs and support structures might best serve remote rural, in particular, the poor. Thematic articles on drivers of outreach - Networking and Linkages, Governance and Regulation and Supervision Synthesis report and literature review

Key definitions Member owned financial institutions - Owned, governed by all or many of their members Use member equity and savings as a key source of capital Remote rural - markets that are not served by other types of financial institutions Outreach - scale, depth, range of service offerings, worth or value to members and sustainability

Our case institutions Large decentralised financial cooperatives Juardin Azuayo, Ecuador Networks of credit unions - Mixtlan, Mexico; MC2 Cameroon SHG (associations with members) linked to Primary Agriculture Credit Societies, India SHGs networked into cooperatives, India Savings led village owned associations - Lembaga Perkreditan Desas, Indonesia Decentralized small associations - Mata Masu Dubara - Niger

“Member owned financial institutions are pervasive”: Types of MOIs and Breadth of outreach LPD Indonesia: Over 300,000, 90% market penetration VSLAs in Niger: 200,000, approx. 5% market penetration SHGs in India: Over 30 million (over 90% women) through 4.1 million groups MACs: 3% market, network of 91 SHGs total outreach of 1020 members Total in Africa: 526,000 members MC2 Cameroon: 4-8% market, app clients each outreach of 1020 members Mixtlan: 90% market, total outreach of 3492 members Juardin Azuayo: Approx. 35% market, total outreach of 80,678

“MOIs systems are deep” MOIs comparative service to remote rural and relatively poor For remote outreach size matters - largest and smallest most effective MMD, Niger - serving areas where nearest financial service provider was 160 Kms away Juardin Azuayo - 86% of branches rural, helps keep resources local, most remote branches also best performing

“MOIs systems are deep” MOIs comparative service to remote rural and relatively poor For depth of outreach (priority market) all MOI types contribute: In Indonesia average savings balances of LPDs (USD 66) much less than even Bank Rakyat Indonesia (USD 92) 2004 data In India PACs reached deeper that rural and commercial banks. Av. Loan balance I/5th (USD 154) the size of commercial banks (USD 735). Extreme poverty rates higher amongst members than overall in selected villages. Nearly 50% Mixtan’s outreach to women In India Case MACS reach unserved dalit (lower caste) including in positions of leadership

But issues persist: Juardin Azuayo, Ecuador, MC2 Cameroon and LPDs, Indonesia weak on reaching women Members poverty rates in Mixtlan higher than national average but lower than the regions they worked in (average performance) “MOIs systems are deep” MOIs comparative service to remote rural and relatively poor

MOI Sustainability - Mixed results Length 2 MC225 MMD1 MAC1 PAC1 LPDMixtlanJA Operational self-sufficiency136%3%113%98%200% (2005) 35.8%104.3% Financial self-sufficiencyNA 95%NA195%NA100.6% Portfolio at risk > 30 days24%Past due loans: 7% Repayme nt rate: 96% Repaym ent rate: 82% Repayme nt: 90% (2005) 7.9%4.81% Total operating expenses / avg. total assets 13.8%NA7.9%6.99%4%65.8%4.35% Average staff remuneration / PC GNI 1331 % NA88%30%5.5%66%266%

Governance Structures Different MOI models were marked by different governance approaches and challenges: In autonomous groups, simplified processes, “orality” enabled members to “bear witness” In groups that were networked and linked, governance was more challenging except Mixtlan - strategic network relatively centralized In larger MOIs such as JA, creative decentralization allowed members to “watchdog” Governance was also more challenging in community-based models grafted onto local governance structures (MC2, LPD)

Governance Challenges and Successes at Addressing Them Inherent challenges: Participation of remote rural in standardized sys. (Mixtlan) Borrower and elite domination (Indonesia, Cameroon) Conflict of interest, Cameroon Weak governing bodies (Indonesia) Key solutions: Understanding ownership - internal funds key Creative decentralization, incentivising participation - (Juardin Azuayo) Simplifying systems at group level (MMD, SHGs) Delinking loans and shares, creating adequate cross checks (MC2)

Networking and Linkages Mixtlan one of few successful entries into a network called UNISAP Mixtlan only cooperative in UNISAP reaching rural remote UNISAP enables Mixtlan to offer an extremely low- cost remittance service and a utility bill payment facility Potentially high costs for both - Mixtlan being encouraged to merge with other cooperatives

Regulation and Supervision - Steps Forward In most countries regulation and supervisory framework has potential to support MOI sector - key constraints are cost of regulation Ecuador - Superintendency of Banking and Insurance regulates all entities with assets more than USD 10 million. 14 cooperatives under this law. In Mexico National Commission on Banks and Values (CNBV) and Law of Popular Savings and Credit (2001) has made it mandatory for SACCOs to be networked to raise deposits and on-lend Creates potential for strong oversight and standardization Indonesia 5% of LPD surpluses are allocated to costs of Supervision

Regulation and Supervision - Steps Forwards Ecuador leaves out 400 SACCOs under Cooperative/Societies regulation Expensive to move from cooperative to banking framework - JA self regulated with external control (RFR, Swisscontact) helped in graduation In Mexico the effort to standardization may leave out smaller MOIs In Indonesia, India little potential for graduation as MOI increases in size and complexity. In the West African Monetary Union, and Indonesia small and large MOIs treated with similar degree of stringency Where refinanciers are supervisors, Indonesia and Mexico - conflict of interest, costs may impede

Key Messages MOIs are reaching scale and meeting needs of populations in remote areas For transparency, member led governance and depth size matters - The smallest most decentralized and largest institutions most effective Sustainability not necessarily supported by networking unless networking is strategic such as in Mixtlan

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