> Posted by Center Staff

A mother and child stand outside a health clinic where they both received check-ups and necessary vitamins and vaccines. Great Rift Valley Region, Kenya

In Kenya, where public health insurance has been available since 1965 and access to health care is a constitutional right, only 20 percent of the country actually has access to some sort of medical coverage, according to the World Bank. With a population of 44 million, this means that 35 million are excluded from coverage and millions are unable to afford services at private or public health facilities. In terms of the money spent, about one quarter of health care services spending in Kenya comes out of pocket. Each year, about one million Kenyans fall below the poverty line because of health care related expenses. Recent investments in the industry indicate that this grim reality could be changing, however, and soon.

A few days ago fund manager LeapFrog Investments bought a majority stake in Resolution Insurance, Kenya’s fourth largest insurance provider, for $18.7 million. The new funds will go towards realizing Resolution’s growth strategy of diversifying product offerings and extending services access to more Kenyans and other East Africans. The investment comes at an exciting time for both investors and providers. Though coverage remains low overall, the industry is growing rapidly. The non-life insurance market in Kenya is expanding at 20 percent annually, with health insurance at 38 percent annually. The deal is currently undergoing final regulatory processes.

Beyond Resolution Insurance, LeapFrog recently raised $400 million which it says will go toward investments in financial services across Africa and Asia, with a quarter of funds reserved for East Africa.

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> Posted by Sonja Kelly, Fellow, CFI

Last week in Mexico City, tens of thousands of people took to the streets to voice their hope for a better Mexico. In a hotel that overlooked the demonstration, members of the World Savings Bank Institute met to talk about how to make a safer and more effective financial system for those at the base of the pyramid. In terms of inclusive finance, in recent months we’ve seen significant progress. During the meeting, Vice President of the National Banking and Securities Commission (CNBV) in Mexico, Bernardo Gonzalez, opened his remarks by putting up a list of the top 10 countries in this year’s Global Microscope. Modestly, he pointed out that five of the 10 were from Latin America. Perhaps more emphatically, he highlighted Mexico’s place—fifth on the list.

As a regulator, he should be proud. Mexico’s score this year is in part a reflection of the regulatory reforms that the country has been moving forward, with attention to customers at the base of the economic pyramid. While Mexico’s microfinance sector has been under scrutiny in recent years because of notoriously high interest rates, concerns of over-indebtedness, and commercial banks hesitant to go “down-market”, a new set of microfinance regulations attempts to change things.

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> Posted by Center Staff

The 2015 Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance is now accepting applications for what will be another exceptional week of learning and exchange among world leaders in financial inclusion. The program will take place April 6-11, 2015 at the HBS campus in Boston, Massachusetts.

The 2015 HBS-Accion Program builds on nine successful years and over 550 participants – CEOs, presidents, executive directors, and other high-level professionals – from roughly 100 countries.

Today’s landscape of financial services for the base of the pyramid is increasingly complex, with a diversity of products, providers, and support organizations extending services to previously excluded populations. Disruptive technologies and new ways of doing business are creating new possibilities for reaching more people with more types of services. It’s an exciting time for financial inclusion, though for leaders steering their organizations through this landscape, the pace and magnitude of change may look overwhelming. Financial service providers participating in the program will benefit from the guidance of some of the world’s best business minds to better understand the possibilities and the pitfalls of today’s financial services marketplace. Policymakers, regulators, and investors will find it valuable to get a closer look at how the industry is evolving in countries around the world.

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> 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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