> Posted by John Gitau, CEO, Kenya Financial Education Centre
The other day, I received a text message from an engineer keen on financial inclusion matters. He wrote:
“Morning Sir! I was just thinking. At what cost is financial inclusion? I have just read a big sign in Donholm: Redeem your airtime for cash. Does this add to financial inclusion? If I am stuck, someone can sambaza (share) airtime and then I can redeem it as cash and get fare to go home. In financial inclusion, since you are in this field, is it all about such access and convenience to financial services?”
I didn’t immediately have an answer to his question. It sent me thinking broadly and deeply. Through M-Pesa, Safaricom has a “financial inclusion” base of over 16 million Kenyans. Then I remembered that in the G20 Los Cabos Summit of June 2012,* mobile money use was left out as one of the measures of financial inclusion. Having a formal bank account was in. But this realization left me more confused. Safaricom mobile connectivity through its M-Pesa product is excluded as an inclusion parameter just because Safaricom isn’t a bank? Wait a minute, now we have M-Shwari, a bank account at Commercial Bank of Africa available to M-Pesa customers through Safaricom. How shall that be treated? Inclusion within a largely excluded service? Of all Safaricom M-Pesa customers, are only those with M-Shwari accounts counted as included?
This reminded me of a story in Chinua Achebe’s Things Fall Apart about a character called Dimaragana who could not give his knife to cut dog meat because dog meat was taboo, but he was ready to cut the dog meat with his teeth. So, Safaricom customers using M-Pesa are not included but perhaps if they go deeper into its system and buy a product called M-Shwari, they’ll get included? Unsatisfied, I thought about a few other financial services scenarios. If an M-Pesa customer were to close off her M-Shwari account while still using M-Pesa, would that be exclusion? Suppose instead of M-Shwari, she sends money to her retirement benefit scheme through her Mbao Pension scheme. Would she then be considered included? She could also buy an insurance policy from CIC Insurance using their Ksh 20 insurance-per-day scheme and make her payments through M-Pesa… Still excluded?
There are real implications to this label that affect our larger pursuit of financial inclusion. Safaricom is neither a financial institution nor an MFI. Who will protect consumers from exploitation in the name of financial inclusion if the telcos entering the field aren’t acknowledged as providing financial services? Appropriately recognizing financially inclusive services might make the difference between facilitating an inclusive mobile financial services field and leaving the ever-expanding sector to become a free-for-all in profit taking. On the other hand, aren’t they justified by reaching many consumers with financial services at a level that financial institutions haven’t so far?
Sorry engineer, I have no answer for you now, but through this post I am seeking help from my colleagues in this space. Please help me answer the engineer, otherwise he will lose confidence in me. Meanwhile, Sir, go ahead and redeem your airtime for cash. While airtime is not a formally recognized financial service, neither is your cash—not unless you use it to buy a financial service. You are lucky because I know you have a bank, and thus you are in the included statistics in Kenya. Otherwise you could use all kinds of services without being counted, according to G20 standards.*
John Gitau, a financial education consultant and trainer, is the CEO of Kenya Financial Education Centre, an independent centre that offers financial training to staff and clients of financial service providers. His passion is teaching financial literacy and designing financial products for the poor. From 1992 to 2010, he was a Capital Markets Authority regulated investment consultant with Bridges Capital Ltd. He is a master trainer of trainers with the Global Financial Education Program (GFEP), developed by Microfinance Opportunities in collaboration with Freedom from Hunger and Citi Foundation.
Image credit: AFRiTORIAL
*This post was modified from its original version on March 20, 2013. The original post cited the “Alliance for Financial Inclusion (AFI) Global Policy Forum in South Africa” and “AFI standards” in the third and sixth paragraphs, respectively. These mentions have been replaced with the “G20 Los Cabos Summit of June 2012″ and “G20 standards.”
Have You Read?
35 Central Banks Commit to Financial Inclusion
Facebook
Twitter
7 comments
Comments feed for this article
March 11, 2013 at 12:14 pm
S.Kelly
John, what an interesting question, one that I think can be broken up into two different sub-questions: “What is financial inclusion?” and “How do we measure financial inclusion?” It seems, indeed, that there is a frustrating disconnect between what we say financial inclusion is and how we go about operationalizing it. In blogs like these, we do talk a lot about mobile money as being in the “financial inclusion family.” But you’re right–mobile money doesn’t have a big presence in quantitative pictures of formal financial inclusion.
I can sympathize with organizations like AFI, who are trying to compare countries to one another. Some indicators just don’t have the same available data as others, and to measure we have to draw the line somewhere. Often when we draw lines such as these, however, we ignore the client voice.
Thanks for such a great post!
March 15, 2013 at 12:28 pm
John Jepsen
John – thank you for this honest post. I recently read GSMA’s State of the Industry: Results from the 2012 Global Mobile Money Adoption. Not only does it provide fascinating data and insights on mobile money and financial inclusion – it also provides a thoughtful framework for measuring adoption across countries, regions, delivery mechanisms (over the counter, wallet based) , and across service providers (MNOs, banks, etc). Best wishes!
Surveywww.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/MMU_State_of_industry.pdf
March 18, 2013 at 3:59 am
Peter W. Foster
John,
Financial inclusion is about much more then simply access, and it is about more than mobile services. Access to a formal financial system is certainly one criteria for determining levels of financially included, but the criteria includes far more than just access. Mobile services are a great tool for financial inclusion, but not the only tool, and not even always the best tool.
Wikipedia gives the following definition in its Financial Inclusion page “Financial inclusion or inclusive financing is the delivery of financial services, at affordable costs, to sections of disadvantaged and low income segments of society…” That is pretty good as a start point.
My own view in looking at financial inclusion would be to focus on a few broad areas.
Access is the first. If formal financial services are simply not easily accessible for whatever reason, then financial inclusion is not possible. Quality is second. If the services are easily available but they are poor, then they will fail in achieving financial inclusion goals. Cost would be another factor. Services need to be affordable to everyone, if not then it makes no difference if they are accessible or good quality. To this list I would also add Security and Clarity. The services provided must provide security assurances for the provider and the end user, if there is no trust, services will not be used. And finally, even if services are accessible, good quality, affordable and secure, if they are not understood by the users or if the users are unaware they even exist, then financial inclusion goals will never be achieved.
I am not sure where you got the impression that discussions at the Alliance for Financial Inclusion (AFI) Global Policy Forum, held in Cape Town (South Africa) in September 2012 did not focus on MFS. I was present in Cape Town for the forum and I cannot remember a single session where “mobile money use was left out as one of the measures of financial inclusion”. I would encourage readers to download the 2012 AFI Global Policy Forum report to read the full scale of the discussions that took place. (www.afi-global.org/gpf-2012-cape-town)
I also think S. Kelly, slightly misunderstands the Alliance for Financial Inclusion (AFI) and its overall mission in this area. AFI is not ‘comparing counties’, at least not in the sense of having one external answer to the financial inclusion issue and then seeing who is closest to reaching it. Instead, the members of AFI recognize that there is no single answer. Each nation and each region faces unique challenges and has unique opportunities. AFI members come together to share financial inclusion ideas from their own regions, capture the lessons from others that might be best used in their own efforts and come away with new ideas to make financial inclusion policy in their home counties more effective. AFI members all support the principles of the Maya Declaration and many have made specific commitments to achieving national policy objectives- but the commitments reflect the distinctive conditions and specific economic development plans for each nation.
Indeed, AFI is its members (A global network of policymakers and regulators from emerging and developing countries), and any answers to financial inclusion policy challenges will ultimately come from those members.
March 20, 2013 at 2:28 am
John Gitau
I am in agreement with you Peter on the fundamental and essential parameters for financial inclusion being access, quality, affordability, security, clarity and understanding ( financial literacy?) The CFI definition of financial inclusion is also apt! You describe mobile services as great tools for financial inclusion as they provide access to formal financial system. The challenge I have at this point is whether a person with a mobile phone and using financial services delivered through the phone is officially included or he or she needs to have a bank account with a formal financial institution to be considered included.
Thank you for your correction on AFI South Africa Summit. I got my facts wrong. I was referring to the G20 Los Cabos Summit of June 2012 where the G20 leaders endorsed the G20 Basic Set for Financial Inclusion indicators brought forward by the GPFI Data and Measurement Subgroup and its implementing partners, AFI, CGAP, IFC and World Bank In the summary, it is indicated ” The Basic Set builds on AFI’s core set of financial inclusion indicators developed by leading developing country policy makers (www.gpfi.org/basic-set-of financial -inclusion). The Basic set has four main categories of financial inclusion which are:
1. Formally banked adults
2. Adults with credit by regulated institutions
3. Formally banked institutions
4. Entreprises with outstanding loans or lines of credit by regulated institutions.
Under the four categories are indicated the parameters of inclusion and defines people who are considered financially included as those operating within the categories framework. Mobile money services as an indicator or parameter for financial inclusion is ignored with prominence given to regulated financial institutions as gateways to financial inclusion. This leaves out telcos, which are not financial institutions though they are delivering financial services to the excluded in line with the parameters of financial inclusion you so well articulated, Peter.
Jepsen, I appreciate your input. Global money adoption is without a doubt very impressive and gets better by day. Data measurement and comparison should be easy given the funnel model of business delivery that characterizes telcos. Isn’t it ironic then that mobile access is left out as a parameter at the level of G20? AFI can be excused for such an oversight in recommending to G20 mobile financial access as a vehicle of inclusion since AFI represents countries’ policy makers with strong advocacy for financial institutions. A financial sector regulator would indeed want to emphasize financial inclusion through regulated financial institutions, read banks. They may not be so particular with telcos perceived as providers of financial services through the back door(There was hue and cry in Kenya when Safaricom entered the financial services sector without being a bank).
Sonja, I see your point in that if G20 or AFI should play a leading role, then support for financial inclusion should not be lip service but real support through adoption of mobile services as a formal indicators of financial inclusion. It is a high time that owning a phone should be as good as opening a bank account. Like I indicated in this post, in Kenya, an excluded person starts by buying a phone, then registering for Mpesa and finally M-shwari, a bank account and a formal way of being counted as included. Many will continue buying insurance, contribution to their pension, investing through their saccos through Mpesa without ever opening M-shwari and in this case, they will continue to be officially excluded as long as they don’t have an account with a regulated financial institution. Will data on financial inclusion then ever be accurate?
March 21, 2013 at 2:27 pm
Jubli Makka
I thank all of you that have commented on this post and clarifications made. I have learned much more about financial inclusion than I had earlier known what the terms mean.
March 22, 2013 at 3:00 pm
John Jepsen
Hi all – This has been a very exciting and useful post and follow-up conversation. I thought you would all appreciate an article written by David Porteous that was recently posted to the Guardian’s New Development Hub. The article, titled “Beyond Financial Inclusion”, takes a step back from the terminology and paradigm and reminds us all to remember the goal – development in action. Enjoy the read – link below!
http://www.guardian.co.uk/global-development-professionals-network/dai-partner-zone/beyond-financial-inclusion
March 23, 2013 at 5:36 am
John Gitau
Jepsen, thank you for bringing to our attention this masterpiece from David Porteous. David, wherever you are, thank you for these enlightening insights in your must read post. This is what I have learned from that post:
1. Since formal financial systems are so prone to busts, it is healthy not to put all our eggs in one basket. We need to encourage the informal to thrive healthily in development. That way, we diversify financial systems( formal, quasi-formal and informal as a risk mitigation measure). It is risky to put everyone in the formal financial system through inclusion.
2. Agency banking is a good cross-pollination measure between formal and informal without seeking the formalization of the informal. Financial services enjoyment shouldn’t be an either or situation( fallacy of false dilemma or zero sum game). Women group can run their ROSCA and only open bank accounts when they see value or synergy. If they find bank accounts unnecessary, they should be free to do so. Bank accounts should not be dictated to them since financial systems have a level of democracy. My organization oversees some 369 economic groups in a rural part of Kenya. They do, among other activities, table banking, run ROSCAs, have FSAs and each group has two to three economic projects they do. It is a formidable economy and when I asked them to open bank accounts for their savings, they said they didn’t need them because whatever they save every month goes direct to investment in their projects.They said they got fed up with banks asking them to open accounts and save first for 6 months before they could get loans. Banks want them to save first and then lend them their own money. They have been saving in their own way and investing every month, with projects giving them income. Isn’t this home grown wisdom that should be encouraged and even borrowed? Loan officers from MFIs and Banks cavort the whole terrain asking women groups leaders to open bank accounts with their institutions but they have no time for that. They are so busy in their projects which they do at their own pace, time and resources. These 369 groups with a membership of over 8,000 rural folks spread across a district, mobilize among themselves around $ 42,000 every month and invest it in chicken farming, pig rearing, tree planting and some other 35 small projects that bring revenue to each group. As we talk about financial inclusion and all its shades and colours, those women are delivering mature pigs to buyers and chicken to towns and cities. They are busy using Mpesa to pay for supplies and they don’t care whether Safaricom is a formal or informal organization. What matters is that they can receive money from their children or relatives in urban areas through Mpesa agents spread across every village which they use to pay for ROSCA turns and buy animal feeds. The ROSCAs lump-sums are substitutes to bank loans and come with no cost and contributed around social warmth. With enhanced incomes from projects, they are able to meet household daily and life-cycle needs when they fall due. What is financial inclusion to them and does it matter how it is defined and by who?
3. My point exactly Mr. David Porteaus! You write, and I quote” evidence from places like Kenya, which has seen rapid increases in formal financial inclusion as the result of the application of mobile technology, suggests that mobile payments have not so far led to much greater use of other formal financial services but they have made a profound difference in people’s lives through enabling, supporting and resources familial and other social networks”. This is true, supported by reality on the ground. Going by current definition and parameters for financial inclusion, mobile technology has not increased financial inclusion. It is an excluded vehicle/parameter. Perhaps an excluded tool delivering inclusive services is a fraud or nullity? All Mpesa customers without M-Shwari accounts are excluded and they are over 16 million since mobile money transfer is not a financial inclusion parameter according to G20 Basic Set. But let me ask; why are partakers of mobile technology services not interested in formal financial services? My observation is that they don’t like the way their access is complicated and the tough conditions which do not resonate with how they think and do their financial affairs. Then the formal financial services providers are ignorant or too lazy to design financial services relevant to the customers they so much desire as customers. Therefore, to the groups I coordinate, they would say, “call financial inclusion whatever you want to call it, but you either give me the services as I want them or leave me alone to do my financial business the way I know best. Are they right or wrong?