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> Posted by Elisabeth Rhyne, Managing Director, CFI
I recently attended the annual meeting of the Microfinance Network (MFN), which was hosted by the Alexandria Business Association in Alexandria, Egypt. MFN is a global network of some of the largest and leading microfinance institutions, and its annual meeting has long been known for candid and in-depth sharing of experience among the leaders of these institutions, as this post demonstrates.
Ask a microfinance CEO what’s making his or her life hard these days, and the answer is likely to be politics.
That’s hardly surprising when the speaker is Motaz Tabaa, CEO of the Alexandria Business Association (ABA), one of the largest microfinance institutions (MFIs) in Egypt. On January 28, 2011, when the occupation of Tahrir Square in Cairo held the world’s attention and led to the resignation of then-President Mubarak, it became impossible for ABA to operate. But before the week was over, staff were back on the streets, collecting and disbursing loans, and sleeping at the office to guard the cash that couldn’t be deposited in banks, which remained still closed.
Nearly every MFI in the group had a similar encounter with crisis – consider the political violence (and/or natural disaster) that has touched Uganda, Nigeria, Armenia, Mexico, Haiti, and Bangladesh in recent years. Today, Al Majmoua in Lebanon and Tamweelcom in Jordan are overwhelmed with the attempt to serve the Syrian refugees that have crossed their borders. The CEOs who have experienced such upheaval agreed about the role of MFIs in responding quickly to help clients obtain cash, keep their businesses open, and then rebuild. Given how prevalent political and natural crises are, organizations have developed protocols for responding quickly. Even while we met, Enrique Majos of Compartamos received news of a tornado in Mexico, and sent the Compartamos natural disaster team into action.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
My proudest moments as a parent are when my 2-year-old son finds change lying around the house and runs excitedly to put it in his piggybank. We never consciously did anything to encourage this behavior. I like to think it is due to some small part of my DNA shining through.
The recent CFI and HelpAge report, Aging and Financial Inclusion: An Opportunity, highlights that most people expect to use accumulated savings and assets to fund their retirement, but in reality end up relying primarily on support from family, friends, and the government.
I’ve blogged in the past about how much trouble people have with saving. And it seems financial intuitions for their part use every imaginable mechanism to make it easy (pension contributions at 7/11, behavioral nudges for opting employees into retirement plans), fun (prize-linked savings, lotteries, and games), or obligatory (compulsory savings as a loan requirement) for their clients to save.
I have always believed that the ability to save is a key piece of financial security, and that building the financial capability to save at a young age has a profound impact on financial security throughout a person’s life, even into the retirement years. Recent research undertaken by CFED to “deepen our understanding of youth financial capability and explore the behaviors, types of knowledge and personality characteristics that help children and youth achieve financial well-being in adulthood” supports that belief. The research included an extensive literature review of consumer science, developmental psychology, and related fields to explore the factors that comprise youth financial capability, as well as how and when these abilities are developed.
PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. The following is part one.
Recently, a number of players have flaunted an impressive array of promising digital technologies to expand credit access, advertising nothing less than a full on revolution in financial inclusion. While the promise of many of these solutions is inarguable, in most cases they are limited to lower-value, higher-interest consumption loans at best, or, at worst, are at risk of being useless as they suffer from the classic error of putting the cart before the horse. The principle limitation on these solutions is a lack of access to sufficient quantities of regularly reported, high-quality, predictive data upon which to base credit decisions and develop credit products.
Consider the case of Safaricom, which revolutionized the payment systems market in Kenya with its M-Pesa offering. The rapid uptake of M-Pesa by lower-income Kenyans was proof positive of the value of digital financial services and spawned a wave of investment into hundreds of copycat service providers around the world.
> Posted by Center Staff
What’s happening this week in the world of financial inclusion? Check out the second issue of our new weekly online magazine, the Financial Inclusion 2020 News Feed.
In case you missed the inaugural issue, each Monday the FI2020 News Feed will bring you the big news in financial inclusion. We’ll pull from all over to spotlight great new stories, initiatives, videos, podcasts, and more.
Here are some of the pieces featured in this week’s issue:
- Business Today’s recent article on account inactivity in India’s Jan Dhan Yojana scheme
- The Microcredit Summit Campaign’s post on the Government of Ecuador committing to disability inclusion
- The Wall Street Journal‘s announcement of finalists in the Asia-Pacific Financial Inclusion Challenge
- Agencia de Noticias Andina’s article on an Indian financial inclusion delegation’s recent trip to Peru
To read the second issue, click here, and make sure to subscribe by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.
Have you come across a story or initiative you think we should cover? Email your ideas to us at firstname.lastname@example.org.
> Posted by Janet Redman, Director, Climate Policy Program, Institute for Policy Studies
We interrupt our normal financial inclusion blogging to bring you the most important messages from Pope Francis’ pathbreaking statement on climate change and the poor. The following post was originally published on the Foreign Policy In Focus (FPIF) site.
Pope Francis just released an “encyclical,” a letter meant to serve as a guide to understanding our personal relationship to some of the most complex issues of the day through religious doctrine.
This particular encyclical is on climate change and is addressed not just to the globe’s 1.2 billion Catholics, but to everyone of any — or no — faith. In it, Pope Francis boldly challenges us all to take an honest look inside our hearts and question the foundations of a society that’s created wealth for some at the expense of others and “our common home”— the planet earth.
Here are five key quotes from the encyclical that will shake up the global climate debate.
1. Climate change and inequality are inextricably linked.
“We have to realize that a true ecological approach always becomes a social approach; it must integrate questions of justice in debates on the environment, so as to hear both the cry of the earth and the cry of the poor.”
It’s not hard to see how climate change hits people living in poverty first and worst, and inevitably widens the gulf between rich and poor. After extreme weather washes away their homes or drought kills their crops, those living in poverty have a harder time bouncing back than those with savings accounts and sturdier houses.
But what’s really radical is how the Pope names inequality itself as an impediment to solving a looming planetary and human rights crisis. The encyclical calls out “masters of power and money” to stop masking the symptoms and address climate change in service of the common good.
> Posted by Andrew Fixler, Freelance Journalist
Atikus, a new financial inclusion-focused enterprise, is gearing up to launch an underwriting platform and a credit insurance product in Rwanda for micro, small, and medium enterprise (MSME) credit. The insurance product is designed and brokered by Atikus, and ultimately backed by a local insurance company. I recently sat down with Kate Woska, co-founder and CEO of Atikus, to discuss financial innovation and her company’s work.
Microfinance has long benefited from careful experimentation and innovation. Initiatives that are targeting the base of the pyramid tend to be consumer-focused (e.g. micro health insurance or mobile payments development); however, according to Woska, these initiatives may be populating an industry that also suffers from institutional and market-level inefficiencies.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
There is nothing like a corruption scandal to highlight the importance of good governance. FIFA, the governing body of world football, is currently in the midst of such a scandal which has indicted 14 people, so far, for an alleged scheme involving more than $150 million in kickbacks and bribes, forcing the resignation of long-time FIFA President, Sepp Blatter. FIFA has a unique governing structure. Its supreme legislative body is a congress of 209 members, each with one vote, and there are more than 27 committees and judicial bodies. However, regardless of the structure itself, FIFA’s recent corruption scandal and change of leadership still very much highlight important governance principles applicable for other organizations, including financial inclusion institutions, to take into account.
The old adage that “power corrupts” is especially true when leaders who lack integrity are left essentially unchecked over an extended period. As a recent Forbes article on FIFA observes, “Over the years, leaders who lack integrity gradually take control of the various levers of power, they surround themselves with acolytes, and they reduce the strength of the mechanisms designed to hold them in check.”
> Posted by Susy Cheston, Senior Advisor, CFI
Regulators take the lead in advancing client protection in financial services, we’ve heard. Providers “merely comply.”
If you are of the view that providers can, and should, take a leading role in client protection, then the results of a recent survey conducted by the Aspen Institute are discouraging. The survey, carried out on behalf of the Smart Campaign as part of its strategic planning, took a look at the three-legged stool of client protection—providers, regulators, and consumers—and asked which element was the most important. Of the financial inclusion stakeholders who were interviewed, only 24 percent said that provider-led initiatives were the most important element in client protection. By comparison, 39 percent thought regulation and governance were the most important, and 37 percent put their faith in consumer awareness and activism.
I disagree! We believe action from the financial services providers themselves is a vital missing link. But what is holding them back? In a consultative process carried out by the Financial Inclusion 2020 project over the past year, here are the top six reasons we heard for providers not taking the lead in consumer protection. Read the rest of this entry »
> Posted by Sonja Kelly, CFI, and Thierry van Bastelaer, Abt Associates, American University, and the Microinsurance Network
Even 10 years ago, most of us would never have thought that the words “insurance” and “low-income households in the developing world” would be heard in the same sentence. It would have been as strange as, say, hearing the words “really good coffee” and “Washington, D.C.” in the same sentence.
But times have changed. Thanks to tremendous innovation in product design, pricing, and distribution systems, insurance is increasingly affordable to low-income households that are looking for ways to protect themselves from daily risky events. We should take a few moments to stop and celebrate this development. (Pause for celebration.) Thank you.
At the same time, we should learn from the history of the broader financial inclusion field. It took many years for the majority of the field to admit that credit alone can’t meet all the financial needs of poor families. Hopefully the excitement over insurance will not similarly delay the realization that it alone can’t address all the financial protection needs of these families. A great variety of financial products is needed to address an even greater diversity of needs.
So, over a cup of really good coffee one afternoon in Washington, D.C., we sketched out a possible framework that articulates where insurance fits into the product spectrum for financial risk protection vis-a-vis savings and loans.¹
We thought of risk protection expenses along two axes: frequency and size, and plotted expenses on a 2×2 table (forgive our back-of-the-napkin scribble).
Financially inclusive products are best designed to finance risk management expenses in the top left and bottom right quadrants of the graph. High-frequency inexpensive outlays can, when accumulating over time, significantly disrupt the cash flows of low-income families. Similarly, low-frequency expensive payments can ruin years of carefully planned asset accumulation. Low-frequency and inexpensive events (bottom left) can usually be covered by cash, and high-frequency expensive events (top right) are usually beyond the reach of most financial inclusion products.