> Posted by Jeffrey Riecke, Communications Associate, CFI

New data shows the Cambodian microfinance market disbursed $1.79 billion in loans over the first three quarters of 2014, amounting to a 51 percent increase over last year’s Q1-3 figures. The data comes from the Cambodia Microfinance Association (CMA) and includes loans issued by 45 of the country’s MFIs. Last year’s total for the same period was $1.18 billion from 39 institutions. In a country where fewer than 20 percent of the adult population has access to formal financial services, such expansion in activity might be exciting, but is it sustainable for borrowers and institutions?

Some individuals who are unfazed by the rapid growth point to the recent economic strengthening enjoyed by the country. Cambodia’s GDP increased annually on average 7.7 percent between 1994 and 2013, and it’s expected to maintain a nearly equivalent trajectory in the years to come. On distributing this wealth, the country achieved its Millennium Development Goal of halving poverty in 2009. Agriculture in Cambodia is big, constituting about 35 percent of the country’s GDP. About 90 percent of those who are poor or who are vulnerable to slipping into poverty live in rural areas. More small and medium sized entrepreneurs making investments in farming efforts, or other income-generating activities, aligns with an expanding economy.

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> Posted by Lindsey Tiers, Communications and Operations, the Smart Campaign

As successful business leaders know, regular evaluation is vital to ensure that improvements are made and growth continues. Here at the Smart Campaign, it is time to reflect on our impact and evaluate the Campaign’s global activities so that we continue to achieve the objective of embedding client protection into the fabric of the microfinance industry. For this reason, we are reaching out to all industry stakeholders for feedback via a short survey.

Launched in September of 2009, the Smart Campaign is already five years old. With over 4,200 endorsers—1,400 of which are financial institutions working to improve client protection practices—it’s clear the message is spreading, and support for keeping the industry on track is strong. Client Protection Certification, launched in January 2013, has already seen 24 financial institutions meet the requirements of adequate client protection. Across these institutions, over 8.7 million clients have access to quality services and treatment. In addition, dozens of other MFIs are in the pipeline working to become certified. With nearly 100 tools available in English, plus translations in Spanish, French, Russian, Portuguese, and Arabic, the Smart Campaign website has become a valuable resource for any institution looking to improve client protection practices. The Client Protection Principles have even been incorporated into legislation and regulations for financial service providers in some countries – such as the Industry Code of Conduct in India.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.

The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.

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> Posted by Stuart Rutherford and Paul Vander Meer

ROSCAs, or rotating savings and credit associations¹, have enjoyed good press lately in the United States. The New York Times just ran a story about ROSCA users in some states earning themselves formal credit scores; Kim Wilson at Tufts University tells of a New York banker who awarded an immigrant family a mortgage after reviewing their success in making ROSCA payments²; and the U.S. Financial Diaries research project notes that ROSCAs can be the “preferred” financial tool even for people using formal banks. eMoneyPool, based in Arizona, offers Americans the chance to join simplified online ROSCAs. There are online ROSCAs in India, too, and researchers from Ithaca College note that in India “ROSCAs remain strong despite greater financial inclusion.” Similar studies find the same in other developing countries and in this post we introduce the ROSCAs of Chulin, some of the best-structured ROSCAs on the planet.

The renewed interest in ROSCAs is welcome. They are arguably the world’s most elegant, most efficient, and most reliable informal financial device, capable, at their best, of transforming the economies of whole communities, as we show in this blog. After years of relative neglect from proponents of “financial inclusion,” why are they now getting the attention they deserve?

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This is our second response to the provocative post two weeks ago from Ignacio Mas. Ignacio asks why the “current innovation frenzy in digital financial services in the U.S.” does not translate into action in BoP markets across the world, and puts forth a number of hypotheses.

“In other words, why is there such an inherent innovation deficit within the very commercial ventures that we think are going to drive financial inclusion forward? Do market players really need this very granular level of handholding to get what academics, NGOs, and donors so clearly believe in? …Or is the problem, rather, that there isn´t enough of a competitive push to drive them to want to innovate as a key source of market advantage?”

What follows is a response from Gerhard Coetzee, who leads the CGAP Customers at the Centre Team.

In considering the question posed by Ignacio Mas, I am reminded of the work of business strategist C.C. Markides. He did not see it as “the great competition and innovation deficit” question, but rather, the challenge of how large institutions make two business models exist in the same organization. In fact, the question is how to serve two distinct market segments in the same institution. He notes that the large industry players that develop new radical business models are exceptions rather than the rule. Most innovations and market changing models are introduced by newcomers to that industry.

Why don’t we see the large financial service providers (FSPs), who have the ability to change things at scale, jump into this area of the market and deliver solutions to low-income and poor customers even where regulation may enable them to engage? In essence the argument focuses on product centricity, incomplete business cases, an over-emphasis on the supplier view of cost to serve, short-termism of incentive structures, and competition for resources in large organizations. Read the rest of this entry »

> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI

Last August, I visited Wilmington, North Carolina to roast a friend on his sixtieth birthday with every intention of not thinking about financial inclusion or my work. Pure escapism was the only agenda and my complete itinerary. But on driving from the Wilmington Airport to his seaside home, my senses were assaulted by a series of gaudy, often neon-signed pawn shops named with pizazz like “Picasso Pawn” and “Flash Cash Jewelry and Pawn.” My professional curiosity had been piqued and it was inevitable that before reaching the beach paradise I would be taking an unexpected detour from my vacation.

You see, where I live in Boston, pawn shops are a relative rarity, so I had to take advantage of this opportunity. (And I have never watched any of the cable TV shows on pawn – which may put me in the minority.) The next day, I stopped at Pawn South on Oleander Avenue, and the perky staff guy was more than happy to talk of the role pawns played in his community. He told me some basic facts about this regulated industry:

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> Posted by Center Staff

The microfinance industry in sub-Saharan Africa, boasting roughly 6.6 million clients, is growing fast. This expansion of financial services to the base of the pyramid, bolstered by an increasingly diverse array of providers and products, is enabling many lower-income individuals, entrepreneurs, and households to access and use essential tools like loans and savings accounts for the first time. To ensure the stability and success of the institutions that provide services, however, strong institutional governance and risk management needs to be a core priority. A new CFI initiative, generously supported by The MasterCard Foundation, sets out to address this.

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> Posted by Sonja Kelly, Fellow, CFI

If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the Global Microscope 2014: The Enabling Environment for Financial Inclusion. The Microscope is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The Microscope evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?

We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the Microscope is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.

This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten. Read the rest of this entry »

> Posted by Michiel Sallaets, Communications Manager, Incofin Investment Management

To continue Sri Lanka’s development in its post-war, post-tsunami era, it’s essential that greater investments be made in the country’s agriculture sector and in its financial services for the base of the pyramid.

In Sri Lanka, about 80 percent of the population lives in rural areas. Agriculture is the main source of income for these people and many of them work at the smallholder level. Loans are necessary for farmers to adequately invest in seeds, fertilizers, tools, and other productive inputs. Loans can also prove instrumental in compensating for the occasional inadequate harvest. Yet, the proportion of people who have taken out loans in Sri Lanka in the past year is a dismal 9 percent. Only 22 percent of the population in the past year has saved in a financial institution.

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> Posted by Center Staff

Welcome to the second Financial Inclusion 2020 e-magazine!

It’s been a year since the Financial Inclusion 2020 Global Forum. The Center for Financial Inclusion at Accion is taking this moment to review how the drive for financial inclusion is faring. With this e-zine we bring you highlights of the past 12 months from around the financial inclusion world – new ventures, milestones, and ongoing debates. Inside, you’ll find a snapshot of progress in each of our five “Roadmap to Inclusion” areas, from technology-enabled business models to consumer protection. Over the past months we spoke with dozens of industry participants to gauge their views of the progress of each major recommendation presented at the Global Forum, and we’ve distilled their responses here. We learned of many exciting initiatives, though we have room to cite only a few.

To read the e-zine online, click the cover above or here. Although the e-zine is best viewed online, a PDF download is also available, here.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.
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