Mercy Corps integrates financial inclusion into our multi-sector programming for greater impact and increased resilience.

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1 Financial Inclusion [CAPACITY STATEMENT] Mercy Corps strives for market-driven, full financial inclusion for the chronically underserved and in areas affected by conflict, natural disasters, and economic and political crisis. Mercy Corps embraces a broad definition of financial inclusion, seeking to improve access to, and uptake of, financial instruments, including savings, loans, remittances, payments, insurance, financial education, and equity investments, by utilizing appropriate delivery channels for the poor or unbanked. Mercy Corps works with market stakeholders at all levels to ensure financial products and services are accessible and affordable; age-, gender- and context-appropriate; and delivered in a sustainable, scalable manner. Integration of Financial Services into Multi-Sectoral Programing Mercy Corps integrates financial inclusion into our multi-sector programming for greater impact and increased resilience. Agricultural Markets Mercy Corps ensures access to financial services in agricultural markets for food security and income generation, utilizing technologies that promote reach to remote areas at scale. In Nepal, Ethiopia, Niger, Uganda, and Zimbabwe, amongst others, Mercy Corps selects high- impact agricultural value chains and ensures financial services delivered through private sector providers are appropriate and accessible to increase farmer productivity and incomes. In Zimbabwe, in partnership with leading mobile network operator, Econet, and government extension agents at Agritex, Mercy Corps facilitated the increase of crop production via access to agribusiness credit and market information. In Indonesia, through partner Bank Andara, Mercy Corps provides loans to MFIs that on lend to cacao farmers in close cooperation with agricultural input agents and wholesalers. In Uganda, Mercy Corps works with financial institutions to provide financial products targeting the agricultural sector from small holder farmers to large output buyers to strengthen external financing options as well as increase financing with specific market chains, all using a market facilitation approach. In Nepal, Mercy Corps supports nationwide ginger trade associations to promote trade and access to financial services and partnered with Nirdhan Utthan Bank Ltd, the country s largest microfinance Financial Inclusion Global Footprint (2014) Afghanistan Bosnia Central African Republic China Democratic Republic of the Congo (DRC) Egypt Ethiopia Guatemala India Indonesia Kenya Kyrgyzstan Liberia Mali Mongolia Myanmar Nepal Niger Nigeria Pakistan Philippines Somalia Sudan South Sudan Tajikistan Tunisia Uganda Zimbabwe provider, to expand their geographic reach in remote areas and develop savings and loan products suitable for poor farm households. Financial Inclusion: Capacity Statement MERCY CORPS 1

2 Energy Access Under our growing energy access portfolio, Mercy Corps designs loan products for clean energy devices and services, and energy-linked savings accounts. In rural East Timor, Mercy Corps has helped over 4,500 households access alternative energy cooking and lighting products by developing the product supply chain and partnering with local MFIs to offer specialized loans to make the products affordable to poor households. Mercy Corps is offering partial loan guarantees to reduce the risk MFIs are taking on new loan products and clients. In Myanmar, Mercy Corps provides client-centered financing and payment schedules for carbon-credit-eligible clean cook stoves. In Indonesia, Mercy Corps works with equipment suppliers and producer associations in an innovative lease-to-buy scheme for energy efficient and clean energy generation technologies for micro, small, and medium enterprises (MSME) in the soybean market chains, with associations serving as guarantors for the producers. These MSMEs are also linked to low interest loans from major financial institutions for energy-efficient or renewable energy technologies. In Jordan, Mercy Corps provides loan capital to community-based organizations to support loans for solar water heaters and water efficient technologies. Investments For Youth Entrepreneurs Capital, combined with business and life skills training, financial education, and professional mentoring, allows young entrepreneurs to create employment opportunities and reduce the growing unemployment rates plaguing countries worldwide. In post-revolution Tunisia, Mercy Corps increases the financial inclusion and employability of marginalized youth in four southern governorates through private sector links and direct access to savings-led financial and non-financial services, with a focus on increasing financial literacy. In Egypt, Mercy Corps has launched a social investment fund for tech start-ups through angel investors and capital raised from the Egyptian diaspora. In Kenya, where 65% of the country s unemployed are youth, Mercy Corps facilitates grants and loans for youth-led enterprises that are financially excluded from the formal financial systems. In Nigeria, Mercy Corps is launching activities to partner with several financial institutions to adapt and market savings products targeting a youth clientele. Technology to Enhance Financial Inclusion Mercy Corps supports technology providers, financial institutions, and mobile network operators (MNOs) to identify and expand access to financial services at scale through the use of mobile and cashless technologies. In conjunction with MNO Voila and Unibank, Mercy Corps helped to launch the first commercial mobile-money service in Haiti in Mercy Corps integrated mobile payments in postearthquake cash-transfer programming, demonstrating how to deliver payments through formal financial mechanisms in a post-disaster environment. In Indonesia, Mercy Corps and partners developed Andara Link, a shared payment platform that enables MFIs to offer real time financial services for their end clients through digital channels. MFIs now offer bill pay, domestic and international remittances, and remote savings and loan payment collection; in the future they will introduce additional services, including ATM services. Mercy Corps MFI affiliate Tenger/XacBank in Mongolia was one of nine institutions worldwide awarded a CGAP IT grant to expand its cutting edge use of technology to reach rural clients with mobile phone banking. 1 As a result, Tenger/XacBank launched an innovative m-banking service providing mobile 1 The Consultative Group to Assist the Poor (CGAP) is an independent policy and research center advancing financial access for the world s poor. Financial Inclusion: Capacity Statement MERCY CORPS 2

3 phone banking across Mongolia, including remote rural and nomadic areas which lack sufficient population to support a formal bank branch. In Indonesia, Uganda, and Zimbabwe, Mercy Corps uses mobile technology through the Agri-Fin model to provide small-scale farmers with bundled localized financial services, market information and agricultural expertise. Facilitating Access to Capital for Increased Incomes and Assets Mercy Corps utilizes a mix of context-specific financial and non-financial models that enable the formal financial sector to effectively serve low-income and under-banked populations. This includes retail, wholesale, equity investment, agent network, and mobile-payment support systems. Mercy Corps provides capital and bundled banking technology solutions to financial institutions and creates linkages with financial institutions for product development. Retail Microfinance Institutions (MFI) Mercy Corps network of eight MFI affiliates has reached millions of clients and provided over 1.5 million loans, all with the intent of maintaining sustainability and reaching scale by ensuring market-based interest rates and fostering commercialization. Currently, MFI affiliates have over 500,000 active borrowers representing $800 million in loan capital. Mercy Corps MFI affiliates include Bank Andara (Indonesia), Tenger/XacBank (Mongolia), Partner Microfinance (Bosnia and Herzegovina), and Kompanion (Kyrgyzstan); each has been recognized for extraordinary success in creating social impact and economic value and for promoting innovations to better serve their target clientele. In January 2013, Bosnia s Partner Microfinance became one of five MFIs globally awarded the label Client Protection Certified by the SMART Campaign. 2 Commercial Partnerships Loan guarantees employed in Ethiopia, Nepal, Uganda, Mongolia, Indonesia, East Timor, and Georgia have resulted in increased competition, new products, and alternative collateral requirements for borrowers. Via loan guarantees and technical assistance, Mercy Corps has partnered with financial service providers interested in moving down market, expanding to rural areas, and/or increasing their product offerings. In Mongolia, Mercy Corps Rural Agriculture Support Project (RASP) partnered with four local commercial banks providing loans for the establishment of new businesses and the scale-up of small agri-businesses across rural Mongolia. This supplemental cash collateral mechanism enabled program clients to secure $3.8 million in affordable commercial credit. Over the life of the program Mercy Corps-provided collateral fell to 32% from 84% of the total loan amount issued, while interest rates also declined. This growth in the percentage of risk that partner banks are willing to accept displays the high regard banks now have for participating clients as well as the competitive benefits of working with several banks. In Ethiopia, Mercy Corps provided a loan guarantee to a credit and savings company to facilitate loans, based on feasible business plans, for farmers and agriculture sector stakeholders. In Uganda, Mercy Corps has recently launched a partial loan guarantee with Post Bank Uganda under the Revitalizing Agriculture Incomes and New Markets (RAIN) initiative to drive demand for current and new bank products targeting the agricultural sector- developed in partnership with Mercy Corps - as 2 Financial Inclusion: Capacity Statement MERCY CORPS 3

4 well as formal savings and credit products for previously unbanked village savings and loan associations (VSLA) members. Mercy Corps also supports the bank in their efforts to bundle consumer education and financial literacy as part of their marketing efforts and encourage clients to open mobile wallets linked to savings accounts. In Nepal, Mercy Corps is expanding a successful co-financing model launching 12 new branches of four microfinance institutions into new, rural districts reaching over 12,000 marginalized Nepalese. Wholesale Capital and Bundled Technology Solutions In 2008, through financial investments from the International Finance Corporation (IFC), Cordaid, Hivos Triodos Fund, and support from the Bill and Melinda Gates Foundation, Mercy Corps acquired, restructured, and launched a commercial bank Bank Andara - to provide capital, innovative financial products, and branchless banking technology solutions to MFIs throughout Indonesia. Bank Andara acts as a dedicated wholesale bank, aggregator and strategic banking partner for the Indonesian microfinance sector. Bank Andara has reached 800 MFIs and 2.3 million end-borrowers to date. In 2009, also with support from the Bill and Melinda Gates Foundation, Mercy Corps began a strategic partnership with BPI-Globe BanKO, Inc. (BanKO), the first mobile-based, microfinance-focused savings bank in the Philippines. BanKO utilizes a hybrid retail-agent and wholesale MFI business model to provide low-income markets with secure and convenient access to affordable financial services. Mercy Corps formed a technical partnership with BanKO and assists with business strategy, product innovation, marketing and IT system implementation. BanKO will serve one million clients by the end of 2014 through networks of merchant agents and MFIs, all utilizing mobile banking platforms. In Nepal, Mercy Corps is working with over 260 community-level financial institutions to access wholesale capital as well as introduce new savings, affordable credit, remittances, and microinsurance products. This will include scaling Nepal s mobile payment platform to rural Nepal in partnership with banks and Nepal s largest branchless banking provider to reach thousands of new clients. Building Resilience Through Financial Inclusion Mercy Corps operates in some of the toughest operating environments such as Afghanistan, Somalia, Democratic Republic of Congo, and Iraq as well as other post-conflict, post-disaster, fragile and ongoing conflict environments. Mercy Corps views these locations and crisis situations as opportunities to increase financial inclusion and long-term economic resiliency. Mercy Corps responds to short-term needs while remaining focused on long-term development by leveraging the private sector as part of the initial early recovery response, minimizing market distortions to jumpstart the private sector and promoting the re-emergence of financial markets. Financial Protection through Microinsurance Mercy Corps believes access to affordable and appropriate risk management tools should be widely available for the poor, protecting them from the effects of catastrophic loss due to disaster, weather, crop failure, and illness. In Kenya, Mercy Corps launched the country s first Sharia-compliant index-based livestock insurance in partnership with Takaful Insurance of Africa (TIA) and the International Livestock Research Institute (ILRI) targeting over 10,000 livestock in the agro-pastoralist Wajjir region. First introduced in Haiti, Mercy Corps Financial Inclusion: Capacity Statement MERCY CORPS 4

5 and Fonkoze MFI 3, founded the Microinsurance Catastrophe Risk Organization (MiCRO), a globally oriented, fully-fledged commercial reinsurance company that provides microfinance borrowers an innovative blend of parametric and indemnity insurance coverage. In 2012, MiCRO provided mandatory group catastrophe insurance to 64,000 Fonkoze borrowers based on an early pilot conducted in tandem with post-earthquake emergency cash transfers and consumer education. By February 2013, MiCRO had released $8.8 million of parametric and basis risk insurance payouts to over 39,000 insured borrowers (all women), including elimination of borrower s debt (loan balance reimbursement to Fonkoze), emergency cash payments ranging up to $125, and new loans to recapitalize their businesses. Mercy Corps is moving forward to expand its MiCRO product offerings into the Caribbean, Central America and Africa in Mercy Corps has also facilitated the development of stand-alone and bundled insurance products (including via mobile technology) with private sector partners in Zimbabwe targeting small-holder farmers. In Indonesia, in partnership with Prudential Insurance, Mercy Corps will reach 300,000 low-income Indonesians by 2015 with consumer education on microinsurance coupled with financial literacy and financial management training as well as access to free or subsidized personal accident insurance. Post-Disaster Business Recovery Mercy Corps recognizes that financial institutions have a wealth of information, physical networks, and strong client relationships that can be leveraged in post-conflict and emergency situations. Within the context of market-integrated relief, MFIs often have a vested interest in supporting the recovery of their clients while ensuring the health of their companies. In post-tsunami Indonesia, Mercy Corps jumpstarted operations of affected businesses by placing capital in local banks to ease liquidity constraints, assisting with loan application procedures, providing individual loan guarantees, and supplementing loan monitoring to alleviate the banks human resource constraints. After the violence of June 2010 in southern Kyrgyzstan, Mercy Corps MFI-affiliate Kompanion offered a variety of credit relief mechanisms for its approximately 4,000 clients affected by the conflict, including cancelling late payment penalties and offering a one-month grace period. Kompanion forgave 220 loans, partially wrote-off 111, and restructured 2,140; 97% of clients whose loans were restructured remain Kompanion clients today. 4 With support from Muslim Aid, the Bill and Melinda Gates Foundation, and USAID, Mercy Corps and Kompanion offered cash grants to assist affected microentrepreneurs recapitalize their businesses. Facilitating Cash Flows in Emergencies In crisis environments inflation, limited availability of goods and services, and constrained cash flows can hamper household coping mechanisms. Mercy Corps recognizes that selected responses to this situation can bolster long-term financial inclusion. To that end, Mercy Corps is piloting innovative methods of distributing electronic cash payments, transfers, and vouchers in Nepal and DRC in partnership with MasterCard Worldwide. In the Philippines, Mercy Corps is providing unconditional cash transfers to 25,000 post-typhon Haiyan impacted households and businesses deposited in recipients mobile accounts. Mercy Corps is also a founding member of the Better than Cash Alliance 5 and active contributor to the Cash Learning Partnership (CaLP). 3 MiCRO s initial donors included DfID and SDC and is backed by Swiss Re, Caribbean Risk Managers Limited (CaribRM), and Guy Carpenter s GC MicroRisk Solutions Group (GC Micro). 4 Kompanion, a community development financial institution specializing in group lending, employs over 1,000 staff, has 94 branches and is Kyrgyzstan s largest micro-finance institution with over 109,000 clients nationwide. 5 Financial Inclusion: Capacity Statement MERCY CORPS 5

6 Financial Security and Expanded Opportunities Through Savings and Financial Education Community-Level Financial Mechanisms Mercy Corps promotes the development of community-managed savings groups to serve as informal social safety nets and household financial management strategies in countries as diverse as Somalia, Niger, Mali, Liberia, South Sudan, Myanmar, and DRC, and Kenya. Over 195 savings and loans committees (with over 4,000 members) operate in the Central Africa Republic to increase community access to credit and savings in an effort to mitigate the impact of food security shocks. In Nigeria, Mercy Corps is strengthening existing, and launching new, Savings Groups managed by adolescent girls to build economic assets and strengthen savings behaviors. In Nepal, Mercy Corps is strengthening the capacity of over 2,000 Savings Groups as well as facilitates access for Savings Groups to semi-formal Savings and Credit Cooperatives (SACCO) as an important intermediary step that allows informal sector workers to benefit partially from formal financial services, technical services, and social protection mechanisms. In Uganda, Mercy Corps successfully links Savings Groups to formal credit and savings products with PostBank Uganda. Mercy Corps is also building the capacity of Uganda s first private-model SACCO which forms Savings Groups directly as members open up termed-savings account and Savings Groups members have access to credit. Financial Education to Promote Sound Financial Decision Making and Asset Creation Mercy Corps incorporates financial education into financial services interventions to avoid client over-indebtedness, build resiliency, improve savings habits, increase economic assets, and facilitate positive interactions with financial institutions. We understand that true financial inclusion requires access to and the uptake of financial products but also personal financial skills, awareness of rights (through consumer education), and incentive-based behavioral changes. We increase the capacity of households and businesses to make sound financial decisions and plan for potential financial shocks through increased savings (cash and productive assets), understand cash flow, and increase loan repayment capacity. In the Rasht Valley in Tajikistan, Mercy Corps found many poor households accrued debts to supplement their limited income, yet often made unplanned expenditures, resulting in inefficient use of their resources. Mercy Corps helped households develop budgets and use their cash productively to encourage savings. Also in Tajikistan, we provide age-appropriate financial education to adolescent girls linked with health education. In India, Mercy Corps improves student performance in graduation exams and offer loans (linked to financial literacy) to low-income households to ensure marginalized students stay in school. In both Myanmar and Indonesia, women-owned enterprises receive financial and digital literacy to increase food security through innovative delivery channels. Also in Indonesia, Mercy Corps, in partnership with Citi Foundation, is reaching 5,000 small holder farmers with financial and digital literacy trainings. In the Philippines, post-typhoon Haiyan, Mercy Corps has built on emergency cash transfer programming to increase financial literacy skills bundled with links to formal savings accounts, insurance, and credit. In Nigeria, Mercy Corps will strengthen the financial literacy skills of over 18,000 marginalized girls and is working in partnership with the Central Bank of Nigeria to integrate the girl-centric financial education curriculum into the rollout of the country s Financial Inclusion Framework for large-scale impact. In Tunisia, Mercy Corps partners with a growing number of formal financial institutions to provide financial education through innovative delivery channels to meet their youth and young adult clientele. Financial Inclusion: Capacity Statement MERCY CORPS 6

7 ABOUT MERCY CORPS Mercy Corps is a leading global humanitarian agency saving and improving lives in the world s toughest places. With a network of experienced professionals in more than 40 countries, we partner with local communities to put bold ideas into action to help people recover, overcome hardship and build better lives. Now, and for the future. 45 SW Ankeny Street Portland, Oregon mercycorps.org CONTACT THEA ANDERSON Sr. Advisor, Economic and Market Development tanderson@dc.mercycorps.org STEVE MITCHELL Vice President, Financial Services smitchell@mercycorps.org Financial Inclusion: Capacity Statement MERCY CORPS