Green High Heels vs. Pink Flip Flops: The Extreme Inclusion Debate

May 20, 2013 in Center for Financial Inclusion, Events, Financial Inclusion, Microfinance | Tags: , , , , , , , , | 2 comments

> Posted by Elisabeth Rhyne, Managing Director, CFI

Kim Wilson, of the Fletcher School of Law and Diplomacy, is a consummate educator who knows that drama leads to learning. That’s why she staged a competitive debate to kick off her Extreme Inclusion conference.

The Proposition: Financial inclusion means formal inclusion.

On the Pro side were myself and my esteemed colleagues Marguerite Robinson, emerita extraordinaire, Lauren Hendricks, of Care’s Access Africa conference, with coaching from Ahmed Dermish of Bankable Frontier Associates.

Taking the Con side were Ahmed’s colleague from BFA, Daryl Collins, together with Ignacio Mas, unaffiliated innovative thinker, and Jenny Aker of Fletcher, coached by Nick Sullivan, author of Money Real Quick: The Story of M-PESA.

Peter Walker of Tufts wielded the gavel with wit and a tiny hint of malice. He symbolized the Pro side with a green spike heeled shoe, and the Con side with a pink flip flop.

Unaccustomed as I am to public speaking, I took up the last position on the Pro side, with three minutes to make my points. Here’s what I said:

1. Development is about building societies that offer opportunity and connection to everyone. The important word is building. Let’s look where we are going. While many low income people today use and possibly even prefer informal financial services, one cannot consider this the path to the future. If we want to see the bottom 20 percent of the population become economically successful, there must be a path to success. We need only look to the accomplishments of microfinance in bringing microcredit to hundreds of millions in the past two decades to be confident about the prospects for major change in the future.

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Gabriel Davel Proposes Tests for Credit Bubbles

May 17, 2013 in Center for Financial Inclusion, Client Focus, Client Protection, Financial Inclusion, Microfinance | Tags: , , , , , , , | Leave a comment

> Posted by Elisabeth Rhyne, Managing Director, CFI

The following post was originally published on the CGAP Blog.

Gabriel Davel knows what he’s talking about, and so should you. Davel is the veteran bank regulator who helped create and lead South Africa’s National Credit Regulator, one of the most capable financial consumer protection agencies in the world. In CGAP’s new Focus Note, Regulatory Options to Curb Debt Stress, Davel draws on the experience of a number of debt crises in microfinance and consumer credit and distills his own hard-won experience into practical guidance aimed mainly at regulators, but also highly relevant for financial institutions.

A perennially intriguing – and urgent – question is how regulators can tell when a crisis of reckless lending and over-indebtedness is on its way. Before a crisis hits, everyone has interests in credit expansion: individuals want loans, lenders want to grow their client base and loan portfolios, and governments want credit expansion, especially for previously excluded clients. But at some point, the bubble over-inflates, highly-leveraged clients are living precariously, and even a modest economic shock can trigger the inevitable collapse. Davel recounts 11 such incidents in microfinance and consumer finance. In their book, This Time is Different, on banking panics, Reinhart and Rogoff document not dozens but hundreds of similar crises throughout history. Their point? It is never different. Credit markets fool themselves time after time.

Is there any way for financial sector participants, happily tipsy from an expansion of credit, to recognize when they need to slow down? Does it take a restrictive set of credit rules? What are the secrets to responsible credit?

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A Challenge to Flat-Earth Thinking in Microfinance

May 16, 2013 in Center for Financial Inclusion, Client Focus, Financial Inclusion, Microfinance, Social Performance | Tags: , , , , , | Leave a comment

> Posted by Center Staff

“The old ideas have become akin to the sixteenth century assertion that the world was flat; yet it did gradually became established that the earth was round after all. Microfinance needs to be rounded too.” – Sanjay Sinha

Sanjay Sinha, founder of Micro-Credit Ratings International Limited (M-CRIL), recently released a candid wake-up call for the industry in India to move beyond the now outdated microfinance principles initially propagated in the 1990s and employ a more diverse and client-friendly approach. In his note, A Challenge to Flat-Earth Thinking in Microfinance, Sinha cites four tenets he finds especially problematic, contextualizing their adoption and negative implications, and positing how the industry can better move forward in meeting the needs of the poor. Sinha’s note follows:

The intensive promotion of microfinance worldwide as a palliative if not a panacea for poverty started in the mid‐1990s with initiatives like the establishment of CGAP, the Microcredit Summit Campaign, and various national-level apex agencies often sponsored by multilateral or bilateral development agencies like the World Bank and the regional development banks. Led by CGAP, as the main international technical agency for the support of microfinance, a strong message on the principles of good microfinance practice was propagated worldwide. These principles included (but were not limited to) the following:

  • MFIs must adopt the principle of “zero tolerance of delinquency” in order to minimize default.
  • There must be a continuous effort to limit operating costs in order to deliver microfinance at the lowest possible price to low income clients.
  • Microfinance services must be offered by specialist MFIs in order to ensure that there are no conflicts of interest that confuse MFI managements, staff or borrowers.
  • MFIs should focus on growth in order to maximize outreach to the vast numbers of financially excluded families across the globe.

This note argues that while these principles may have been appropriate at the time when they were formulated (in the mid‐1990s) their time passed a few years ago and the entrenchment of these principles as microfinance orthodoxy is now damaging the development objective – financial inclusion to serve the needs of poor and low income people, and facilitating income enhancement – for which the microfinance movement was propagated. Therefore, the time has come for a concerted effort to swing the pendulum back to equilibrium.

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M-Pesa Launches in India

May 15, 2013 in Branchless Banking, Center for Financial Inclusion, Client Focus, Financial Inclusion, Technology | Tags: , , , , , , | Leave a comment

> Posted by Jeffrey Riecke, Communications Assistant, CFI

The flagship mobile money service M-Pesa launched in India last month. The service, which started in Kenya in 2007 and has since expanded to eight countries and 17 million users, will be conducted in India by way of a partnership between Vodafone, India’s second largest mobile network operator, and ICICI Bank, India’s largest private sector bank. India’s unbanked population towers at roughly 700 million.

M-Pesa will roll-out in India in phases, beginning with a first effort in the eastern areas of the country. Across Kolkata, West Bengal, Bihar, and Jharkhand, this initial phase boasts a network of 8,300 agents. M-Pesa in India will include cash deposits and withdrawals, money transfers to any mobile device in the country, airtime top-ups, bill payment services, and the ability to make purchases at select stores. With an initial agent network in the thousands and an unbanked population making up the better part of a billion, the ambitions and scope of M-Pesa in India are indeed large. But before we start mentally converting chunks of India’s 700 million unbanked individuals to banked, let’s take a closer look at a few factors that will affect the service’s success.

Mobile Phone Penetration. India has the second largest mobile phone base in the world with over 900 million users. Though as the average Indian user has 2.2 SIM cards, the number of individual subscribers is actually about 319 million – a population penetration of about 25 percent, and rising quickly. However, subscriptions to M-Pesa are limited to clients of Vodafone. Although Vodafone is the second largest mobile network operator in India, it holds only 17 percent of the market. In comparison, Vodafone in Kenya services about 70 percent of the country’s mobile subscribers, and that market dominance is thought to be one of the major success factors, because it allows most cell phone users to connect with most other users.

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In Defense of Formal Financial Services: Moving Beyond the Parking Lot and Onto the Highway

May 14, 2013 in Center for Financial Inclusion, Client Focus, Events, Financial Inclusion, Financial Inclusion 2020 | Tags: , , , , , , | 1 comment

> Posted by Sonja E. Kelly, Fellow, CFI

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Recently, as part of the Extreme Inclusion Conference at the Fletcher School at Tufts University, I watched a debate between industry leaders on whether financial inclusion means formal financial inclusion. It was a debate that had me slightly uncomfortable. To impose such a rigid definition of financial inclusion seemed cruel, given that there are informal products in existence that meet many financial needs. On the other hand, I myself have seen the superiority of well-designed formal financial products in better addressing the financial needs of people living in poverty.

There was one exchange during the debate that clarified the issue for me. In defense of informal financial services, Daryl Collins waved a $10 bill in the air and thanked a Tufts PhD student for lending her the money to pay her parking fee the day before. She remarked that without this informal financial service (a short-term, no-interest loan), she would have had to find an ATM—an inconvenience when she just wanted to leave the parking lot.

While the example was effective in showing the audience that they use informal financial services every day, there were a few things that do not allow us to generalize it to those who operate largely in the informal sector. First, it isn’t dependable. While convenient, the exchange relied on the fact that this was a one-time occurrence with a great deal of trust between the two parties. If Daryl were to ask to borrow $10 every day from this PhD student, the student would likely start to say no, or would charge some kind of a fee (I know that if I were a PhD student regularly lending money to Daryl Collins, I might ask what kinds of jobs she has open in her Financial Diaries work!). Second, it is a relatively small amount of money by U.S. standards—it isn’t an exchange that is scalable. $10 might buy lunch here in the U.S. or lattes for two. Finally, and most importantly, it ignores the possibilities of technological or environmental change. If, for example, Daryl could have paid with her credit card rather than with cash, she most likely would have chosen her credit card and not have consulted the kind student. I personally operate cashless whenever possible. Read the rest of this entry »

Untapped Potential: Women and Mobile Money

May 10, 2013 in Branchless Banking, Center for Financial Inclusion, Client Focus, Financial Inclusion, Technology, Women and Financial Inclusion | Tags: , , , , , , , , , , , , , , | 1 comment

> Posted by Brigit Helms, Director, Support Program for Enterprise and Economic Development (SPEED)

It’s hard to imagine a more explosive, transformative, and empowering trend than the growth of the mobile phone sector in Africa. In 1998 there were fewer than 4 million phones on the continent; today there are around 800 million—a whopping 80 percent penetration. Compare this to the meager 24 percent of African adults with bank accounts. Experts expect there will be around 1.1 billion mobile phone subscribers by 2017.

Women likely will be at the forefront of this future growth in mobile access in Africa (and elsewhere), globally accounting for two-thirds of new subscribers. According to the Cherie Blair Foundation, the gender gap in Africa alone is a $2 billion business opportunity.

At the same time, the potential for mobile money is indeed dazzling. The Kenya example continues to dazzle us, with 21 million active users, more than 60,000 agents (many of whom are women), and mobile money deposits of KSh 226 billion, surpassing the deposit base of the country’s largest commercial bank, Kenya Commercial Bank.

With all this promise, the potential is unrealized outside of a few countries. Why? The answer is complex, but fundamentally it’s because mobile money operators systematically underinvest in two things: understanding the market and building the agent network.

As it turns out, both of these things are critical for connecting women with mobile financial services. Once we crack the problem of women’s access to financial services, their households and communities will follow shortly thereafter.

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How Smart Assessments and Client Protection Certifications Work Harmoniously

May 9, 2013 in Center for Financial Inclusion, Client Focus, Client Protection, Events, Financial Inclusion, Microfinance, Resources, Smart Campaign | Tags: , , , , , , | Leave a comment

> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign 

Smart CampaignThe launch of Client Protection Certification in January 2013 is a significant milestone for the Smart Campaign and for the financial inclusion community. As an initiative that is the first of its kind, it shifts awareness of client protection in microfinance to an industry standard. The Smart Campaign and the licensed certifiers have been working diligently to get the word out about certification to help build engagement and a market for this important program.

A frequent request from participants in the certification webinar series was to clarify the difference between a Smart Assessment and a Client Protection Certification mission. While they differ in purpose, the important message is how they work hand-in-hand. Both assessments and certification are based on the 30 adequate standards of care rooted in the Smart Campaign’s seven Client Protection Principles (CPPs).

  • An assessment is a report for management. It used the standards as reference to give an in-depth-”diagnostic,” with a grade of the MFI’s practices. The Smart Campaign recommends Smart Assessments as an excellent way for an MFI to prepare itself for certification.
  • Certification is aimed at the stakeholders of an institution. It applies the standards as a firm benchmark for achievement that merits certification. With certification, a financial institution can tell clients, investors, and regulators that it takes adequate care to ensure that its clients are protected.

A Smart Assessment typically lasts four to five days and is conducted by two trained assessors who examine an MFI’s policies and procedures, as well as interview staff and clients. After the assessment field-visit, the MFI receives a lengthy and detailed confidential report that presents the assessors’ comments on each indicator, grading, and supporting evidence. As such, a Smart Assessment is a very useful opportunity for an MFI to see which areas of operations are in adherence with the standards and which need improvement. The cost of an assessment will vary depending on the MFI and the partner with which it collaborates. To date, the Smart Campaign has conducted over 75 assessments across the globe. Most of the organizations that are now Client Protection Certified first underwent an assessment to make sure they were prepared for the certification mission. You can learn more about Smart Assessments from Sergio Guzmán, Lead Specialist for the Smart Campaign.

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Fine-Tuning Money Management Concepts – From Income Shaping to Fuzzy Goals

May 8, 2013 in Center for Financial Inclusion, Client Focus, Financial Inclusion, From the Field | Tags: , , , | 2 comments

> Posted by Ignacio Mas and Premasis Mukherjee, Independent Consultant and Senior Analyst, MicroSave

We recently completed extensive field work on people’s money management practices in India and Bangladesh, funded by The Bill & Melinda Gates Foundation. Our ostensible purpose was to develop simplified metaphors that express vividly how people think about money. You can judge for yourself how close we came to that by viewing (here) 10 different outputs. While our intent was to simplify, we ended up evolving a more nuanced view of how poor people think about money management (see here for a fuller treatment).

We echo Collins and Zollmann’s observation from their research in Kenya that poor people’s financial talk tends to relate much more to short term income security than to longer term goals or risks. Their main concern is that they want to have enough recurrent income to meet routine expenses. We unpack this into three interlinked concepts which, while by no means new, deserve more attention.

Shaping income to increase income security

Unlike organized sector employees, the mass market lives on a diet of irregular and often unpredictable income flows. From this, some larger routine expenses like school fees need to be met and emergencies need to be dealt with. Stuart Rutherford has placed lumping of money – the accumulation of balances into useful lump sums – as the key financial mechanism people use. What is interesting is that so often people use those lumps to buy a cow (or a rickshaw, or some merchandise for trading), whose main attribute is that it produces small daily income rather than being a good store of value. So they go from collecting a meager stream of small daily cash flows, to building a lump sum, and from there to creating more small daily cash flows. What pushes them on this cycle of sacrificing, lumping, and regenerating daily income – which we call income shaping – is the desire to change not only the size but also the timing and predictability of cash inflows. They see that as the key to providing for daily expenses, and building the routine of setting money aside regularly to build further useful lumps.

Income shaping is people’s preferred mechanism to achieve consumption smoothing: by building a regular income profile.

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Age Ain’t Nothin’ But a Number

May 7, 2013 in Center for Financial Inclusion, Client Focus, Financial Inclusion, Financial Inclusion 2020, Mapping the Invisible Market | Tags: , , , , | 1 comment

> Posted by Meghan Greene and Sonja E. Kelly, Manager and Fellow, CFI

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

What’s in a number? Part of the Center’s Financial Inclusion 2020 work is to think about how global trends affect financial inclusion demand—we’ve been doing so in our Mapping the Invisible Market work and in our exploration of the client perspective.

In this work, it can be useful to think in terms of age. In our demographic work we examined how a person’s stage in life might affect his or her demand for financial services. We also discovered that many developing countries have rapidly aging populations. But just how rapidly the populations are aging depends on the definition of old. When calculating dependency ratios (the ratio of those who are dependent to those who are in the working age population), the UN recommends the following definitions:

Post-War Assistance, Microfinance and Health, Impact Evaluations – Top Picks of the Microfinance Blogosphere

May 3, 2013 in Blogosphere, Center for Financial Inclusion | Tags: , , , , , , | Leave a comment

> Posted by Center Staff

This edition of Top Picks features three posts that each highlight an initiative with the potential to further inform financial inclusion efforts. These initiatives include an entrepreneurial assistance program for women in post-war Uganda, a project that explored the effectiveness of microfinance providers offering health services, and an interactive workshop on impact evaluation.

  • What’s the best way to help the poor in the aftermath of war? A new post on the Innovations for Poverty Action (IPA) blog highlights the recent release of findings from a program that provided entrepreneurial assistance – business training, start-up money, ongoing support and monitoring – to women in northern Uganda. The assistance led to increases in business activity and decreases in poverty, but did not have an effect on non-economic areas, such as physical and mental health. The program was conducted by IPA, Italian NGO AVSI Uganda, and Chris Blattman of Columbia University.
  • In his latest post on The Evidence Project, Chris Dunford shares the results of Freedom from Hunger’s Microfinance and Health Protection (MAHP) initiative, which sought to test the feasibility and impact of offering microfinance clients health education, as well as access to health services and products. Five large-scale microfinance providers participated in the initiative, developing health protection packages for their clients. The results from the initiative support a case for the effectiveness of integrating microfinance and health services.
  • Re-Evaluating Impact Evaluation, a new Next Billion post from Hui Wen Chan of the Citi Foundation, revisits a recent impact evaluation workshop and shares some of the key discussion points from the event. Arguably the most salient of these being think beyond the financial, consider both the economic and non-economic impacts of your products or services. Another key point shared in the post is the integrity of data depends both on the questions asked and the manner in which they are asked. The workshop was provided by the William Davidson Institute (WDI) and hosted by the Citi Foundation in New York City.

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currently popular on the blog

  1. M-Pesa Launches in India
  2. Untapped Potential: Women and Mobile Money
  3. In Defense of Formal Financial Services: Moving Beyond the Parking Lot and Onto the Highway
  4. A Challenge to Flat Earth Thinking in Microfinance
  5. Gabriel Davel Proposes Tests for Credit Bubbles

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