> Posted by Larry Reed, Director, Microcredit Summit Campaign
This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.
Does the ambition of the Center for Financial Inclusion’s (CFI) Financial Inclusion 2020 initiative include reaching people with little income who live in remote places—places far from urban centers with their financial institutions and communications hubs? That’s what the website says; it states that (emphasis mine):
Full financial inclusion is a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, rural, and other excluded populations.
So what would full financial inclusion look like to a poor disabled woman, living in a rural area, trying to support her four children with what she can grow on a small plot of land? What would she list as her main obstacles to accessing a “full suite of quality financial services?”
Let’s use our imagination a bit to participate in this woman’s experience and try to understand what financial inclusion might feel like for her. Managing money is something she thinks about quite often because she has so little of it and must make it cover so many different expenses. Her husband works in the city and sometimes sends her money. However, the amount she receives is quite a bit less than what he says he sends, and he claims that the people delivering the money can’t be trusted. She grows crops on her small plot of land, but because of her disability her harvest is rarely as fruitful as her neighbors’. Sometimes she is able to scrape enough money together to send her oldest children to school, but in the hungry season—the months before the harvest—she struggles to feed her children, let alone educate them. She tries to save money with her neighbors for the hungry season—and sometimes that works—but when her neighbors are just as desperate as she is, they cannot seem to find the money she stored with them. Last month her son came down with malaria. It took her several days to borrow enough to take him to get help, and the doctor told her she should have come earlier, because her son might now have permanent damage.
If we were able to visit our friend and interview her about the obstacles to financial inclusion that she faces, what do you think she would say? Do you think she would respond that what she needs most is financial education? I doubt it. And yet that is what all of us “experts” said was the biggest need when CFI interviewed us last year.
If we did get a chance to talk with our friend, I think she would tell us that what she needs most to overcome these obstacles is access to appropriate products that are available when she needs them and do not require a long trip to get them. She would probably talk about needing a safe and quick way for her husband to send her money; a safe place to save her money so that it is available when she needs it; a way to finance her children’s education so she doesn’t have to take them out of school in the hungry months; and a way to access money quickly to handle unexpected medical emergencies. If these products were available to her, she might want some help in understanding how to best use them. And if someone she trusted offered to tell her how she could make her money go farther, she would probably be very interested. Financial education as a general topic might have little appeal to her, unless she can see how it will help her deal with the financial struggles she faces each day.
Maybe the first focus of financial education should not be at the client level. Maybe the appropriate starting point is for those of us employed by the microfinance industry to better understand our clients’ financial needs, capabilities, and aspirations. With this improved understanding, we will be able to provide the full range of financial services they need and deliver them in a way that makes them easy to understand and utilize.
So I agree that financial education is the greatest obstacle to financial inclusion, and it is time that we start educating ourselves. Only then will we be able to provide the financial services and education that have real value for our clients.
Larry Reed is the director of the Microcredit Summit Campaign. He has worked for more than 25 years in designing, supporting, and leading activities and organizations that empower poor people to transform their lives and their communities. For most of that time Reed worked with Opportunity International, including five years as their Africa Regional Director and eight years as the first CEO of the Opportunity International Network. Reed has taught at the Boulder Institute of Microfinance for 15 years, served as the chair of the SEEP Network, and consulted with industry-wide initiatives like the Smart Campaign for Client Protection and MicroFinance Transparency. He authored the State of the Microcredit Summit Campaign Report 2011 and has contributed to several books on finance and the poor including “The New World of Microfinance” (Rhyne et. al., 1996), “Serving with the Poor in Africa” (Yamamori, Myers, Bediako, and Reed, 1996), “Globalization and the Kingdom of God” (Goudzwaard, 2001), and “More Pathways Out of Poverty” (Harris et. al., 2006).
Have you read?
Accessing the Future: Beyond the Traditional Microfinance Space
The Smart Campaign to Launch a Certification Program for Client Protection in Microfinance
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February 15, 2012 at 5:37 am
Suvankar Mishra
Financial Inclusion is meeting the basic financial needs of the household that will provide leverage to the household, to lead a dignified life. As, a larger percentage of the rural population is still not covered under banking or financial facilities, it makes their conditions even more deplorable.
It is indispensable to understand the cash flow of the household (perennial or sporadic), the available avenues for saving money, the reachability to these avenues, and the security in safe-keeping money. A rural household will need this basic requirement to be fulfilled which shall help them to save money for contingencies, like in this case, for the son, who was malaria-stricken, and also facilitate education.
Yet, the scope and objective of Financial Inclusion is incomplete without proper understanding both at the customer and the client level. Increasing mass awareness, and educating the client and customer both will be able to derive fruitful results.
February 15, 2012 at 7:11 pm
Tom Coleman
Larry is quite right. More focus on client centered service is essential.
Is the client better off after using our microfinance services?
Of course we need to have sustainable and profitable MFIs, but the social bottom line is about making poor people better off.
BUT WHICH POOR PEOPLE?
As a profitable business, the “sweet spot” as one very successful MFI practitioner told me, is poor people living on $2/day or higher. In 2005 $2/day was roughly the median income for the 5.5 billion people in the “developing world”.
Let microfinance as a profitable business grow to serve the 2-3 billion poor people in the upper middle–between $2/day and $6-8/day.
BUT if financial inclusion means INCLUDING the bottom half of the developing world OR the most excluded or bottom quarter (those 1.4 billion people living on less than $1.25/day) to the the greatest extent possible, then we have to identify which MFIs actually serve the Bottom Billion, serve them effectively with the right products and services for their client needs and support this work.
Now that would be real broadening of financial inclusion for those who need it most.
This would not maximize MFI and MFIF profits, but it could maximize microfinance social return for the poorest with the greatest needs.
Tom Coleman, President & CEO
Bottom Billion Fund (BBF), a 501c3 nonprofit microfinance investment fund dedicated to pushing the envelope of microfinance that does the most microfinance can to help end extreme poverty
February 16, 2012 at 11:50 am
Kazi Abdur Rouf
The adult basic financial literacy informal learning strategy would be the best suitable learning style to micro-borrowers of the South People. Please develop a program to trained micro-loan officers on adult education techniques and conflict resolution popular education strategies for MFIs. It is urgent necessary for micro borrowers to learn basic financial literacy skills from their MFIs field officers.
I attended the MCS 2011 after several negotiations. I find it was very structured, many MFIs practitioners were unable to catch ideas from high level complex discussions in the main plenary sessions of the summit. Day long trainings were very effective to practitioners/participants, although the trainings were very expensive.
February 22, 2012 at 6:39 pm
Larry Reed
I appreciate your thoughts on the Microcredit Summit, Kazi. I am glad that you were able to attend. We are looking at the structure of future conferences to try to develop the right mix of high level discussions and practical training.
As to training for field officers, I recommend the tools that Freedom Hunger and Microfinance Opportunities provides that are mentioned below.
February 17, 2012 at 7:52 pm
Christian Loupeda
I agree with Larry, that the most important thing is that we service providers and service providers supporters have a good (and practical) understanding of what our clients needs so that we design right products and services. This requires for us to really put clients at the center of our work.
Kazi, we at Freedom from Hunger developed a variety of adult financial education products that include Training of Trainers guides aiming to enable MFIs trainers and staff to better deliver these education sessions to clients. You may check our web site if you are interested to learn more.
February 18, 2012 at 12:31 pm
Anonymous
Really interesting questions here: who are we serving and with what? And who are the ignorant ones here: us or our clients?
I’m sure the balance is somewhere in the middle.
One question I have, though, is how are we determining what it is that our clients? What if the problem is that our clients do not have the language and/or tools to educate US on what they need most? And what are the possible tools we can use to systematically determine client need?
February 21, 2012 at 12:55 pm
Monique Cohen, Founder and President, Microfinance Opportunities
I welcome Larry’s blog post, but I have to take issue with how it conflates the meaning of financial education for clients with education about client behavior for staff, managers and technical experts in the microfinance space.
Involved in both, I would argue that they are different and, more importantly, serve very different objectives. It is indeed important for those in the trade to have a better understanding of clients’ financial needs, capabilities, and the drivers of their financial behaviors and decisions. However, the drive for standardization and evidence has caused these to be largely ignored. Now, pushed by the agendas for financial inclusion and greater product uptake, attention has finally turned to recognizing that clients matter, and that many are ill-equipped to make financial choices, faced with a diversity of product offerings and little useful information offered by competing suppliers.
Tools to build financial capabilities offer financial service users the opportunity to level the playing field between provider and client. Although Larry did not mention it, we know that financial education for front line staff can be a win-win for both the financial service provider and their clients. What clients learn helps them to improve their money management skills, is transmitted by word of mouth, and can reduce delinquency rates and levels of at-risk portfolios.
As you read this, ask yourselves: how many of you have used a financial advisor? If you have, remember that the key aspect was that you had the information to ask questions and determine what was good for you. Poor people with fewer discretionary resources should have the same advantages.
To Mr Kazi Abdur Rouf: Please feel free to contact us via email or phone: http://microfinanceopportunities.org/contact-us. We would be happy to respond to your concerns about programs to train micro-loan officers on adult education techniques, as well as popular conflict resolution education strategies for MFIs.
February 22, 2012 at 6:34 pm
Larry Reed
Monique, thanks for your important distinctions here. I agree that education for clients and education about client behavior are separate things. My point is that most of us in the microfinance industry need a lot more of the second (education about client behavior) before we can presume we know how to do the first (educate our clients). I think your work at Microfinance Opportunities points this out — that when we know our clients, their needs and desires well, then we can design better products, services and training.
And to answer your question about financial advisors, I do have one, and I tend not to go to him for advice. I don’t think he knows much about me and my needs and goals with my money, and I know that he makes money every time he makes a trade with my money. So when I have a financial question I go to people I know and trust who have similar values to mine and I ask them what they do with their money.
I love your example about giving financial education to front line staff as win/win that helps both staff and clients. Where microfinance works well, these front line staff become the trusted advisors that clients go to with their financial issues. When these people have good training, they can pass on to their clients the practical lessons that they have applied in their own lives.
February 22, 2012 at 7:34 am
Fonahanmi Idris
Good write up and a wonderful/practical example from Larry`s blog. You and I know that the woman in contest will say or respond in similar way to her obstacles.
My concern as a Nigerian is that 90% of those residing in the city centre or urban area are from the interior village where Larry`s “ woman“ resides.
It is our duty as financial services providers to conceptualize portfolio of tailored made financial products/services, suitable and affordable from which the active poor woman can make her choice.
A woman who hitherto relies on selling $10 US dollar credit card sent to her for $6 US dollar shows she is desperate and in need of funds. But if there is an outreach/outlet of a MFI where she could claim the $10 sent to her by her husband through a Financial Service Provider or an Agent and paying a service charge or commission of $1 would be glad.
1_ There are several research that has shown that majority of the active poor, un-banked, under-banked, resides in the rural area but most of the organisation that lay claim to be servicing the needs of these poor are situated in Urban/City Centre.
2_ The informal sector as relieved in Larry`s blog example where the woman lost her hard earned money will continue to thrive until the void is filled by those focused MFI established to meet the saving needs of the woman.
3_ TRUST is of a great concern as every woman in the village look at the man living/working in city centre and who has come to offer her financial literacy and products/services as having ulterior motives/ “hidden agenda“.
2020 vision of financial inclusion is good and laudable, but, its achievement and assessment will be put to test by the end of 2015.
Good and thought provoking write up from Larry
Thanks
May 26, 2012 at 11:16 am
John Gitau
Larry, your response to Monique is spot on. At times the poor come out as more sophisticated in their financial juggling than those MFI staff who advise them how to handle their money. If a person earning an unpredictable $2 a day can allocate such money to all needs and even save, if that is not financial genius, i dont know what genius is. An MFI employee earning a consistent 1,000 times more than the client she advises may find it difficult to survive the way the poor client survives.
The other challenge I see in my country Kenya is that most staff of MFI take their assignments as mere jobs and feel bothered having to chase clients for payment. They associate dealing with them with pain, a job burden and that attitude may not be conducive to proactively suggesting suitable solutions for the poor in terms of products. Something more is needed in dealing with the poor clients. It could be passion, a calling some level of commitment to helping the poor improve their material lots. Perhaps MFi should pick and train some staff from among the poor, the opinion leaders who understand their plight and who would provide the needed bridging that would indeed address Monique’s and Larries aspiration to have the poor empowered through attention to the two ends(service provider and client.