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> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities

The past few decades have seen an impressive expansion of financial services to the world’s under- and unbanked populations. This expansion has not been without its challenges, including low-income customers of many financial service providers (FSPs) falling into considerable over-indebtedness¹ or signing up for services they do not use.² MFO’s own research³ and the research of others suggest that the limited financial capability of FSP customers is one of the factors behind these challenges. Hundreds of millions of people are gaining access to formal financial services with no education in basic money management principles and ways to maximize the usefulness of the new services to which they have access.4

Extending financial education (FE) to consumers is vital in empowering them to make informed decisions about the financial services they use and how they use them, including avoiding over-indebtedness and signing up for accounts they never use. But reaching the massive number of clients in need of FE in a way that is accessible and practical is a tall order. The Monitor Group report suggests it could cost from $7 billion to $10 billion using traditional, classroom-based approaches to provide education just to those who already have access now —a sum that is 10 to 15 percent of the total current asset base of microfinance institutions worldwide. If access to finance were extended to include the world’s 2.7 billion unbanked, the cost of building financial capability would rise further by a factor of at least three.
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> Posted by Center Staff

This week, The Guardian Global Development Professionals Network launched its Financial Inclusion hub, featuring stories, infographics, videos, and other resources on financial inclusion issues worldwide. The hub will be updated regularly over the coming months with original content. The first collection of posts includes:

  • Using mobile money to buy water and solar power in East Africa
  • Funeral insurance in South Africa: counting the cost of life and death
  • Zimbabwe’s Econet Wireless and the making of Africa’s first cashless society
  • An interactive map on ATMs worldwide

Guardian Professional Network hubs are community-focused sites, where The Guardian brings together advice, best practice, and insight from a range of professional communities. With this week’s launch, financial inclusion is sharing the stage among global development issues such as climate change, global health and nutrition, and urbanization, with the goal of promoting understanding, dialogue, and debate among those working in global development. CFI is a knowledge partner with The Guardian for the Financial Inclusion hub, sharing story and topic ideas and facilitating connections with editors.

Visit the hub at www.theguardian.com/global-development-professionals-network/financial-inclusion. You can join the conversation on Twitter using #NOunbanked

Have some ideas for issues and stories that should be investigated as part of the hub? Let us know in the comments.

> Posted by Anne Hastings and Tyler Owens, Microfinance CEO Working Group

The following post was originally published on the Microcredit Summit Campaign’s blog, 100millionideas.org.

Since its inception in the spring of 2011, the Microfinance CEO Working Group has worked diligently and collaboratively to define the concept of Responsible Microfinance around the globe and lead by example to try to fulfill this vision. It has focused on three key pillars on which Responsible Microfinance is built: client protection, pricing transparency, and social performance management. A responsible microfinance institution (MFI) is one that, at a minimum:

  • Does all in its power to protect its clients from harm;
  • Is transparent about fees and interest rates; and
  • Implements best practices in social performance management including monitoring effectiveness in achieving desired client level outcomes.

An MFI can achieve this by complying with the industry-developed standards of the Smart Campaign, MicroFinance Transparency, and the Social Performance Task Force, known as the Universal Standards for Social Performance Management.

The Working Group is a collaborative effort of the CEOs of Accion International, FINCA International, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund, and Women’s World Banking. At the Microcredit Summit in Manila in October 2013, the Working Group publicly encouraged its collective 224 affiliated MFIs around the globe to embrace Responsible Microfinance by sharing a list of commitments. Since making those commitments, the group has made significant headway toward strengthening each one of the pillars of Responsible Microfinance.

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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP

It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.

The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?

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> Posted by Allyse McGrath, Senior Associate, FI2020, CFI

Once in a while, we in the Accion D.C. office gather in our state-of-the-art movie theater (a.k.a. conference room) for some collective viewing. Now that the World Cup has ended, this viewing has a lot less to do with fútbol and more to do with our day jobs. Last Friday’s feature was a recently-released documentary that highlights those who are left behind by the U.S. financial system. Spent: Looking For Change follows four households who represent the quarter of American households that are underserved and held back by the current financial system.

The film focuses on how families with precarious financial and economic lives end up using services like check cashers, title loans, and payday loans – the tools that those without bank accounts or with poor credit must rely on in the absence of affordable and accessible financial services. In one example, a former nurse and single mother had to stop working to care for an incapacitated family member. She turned to title loans to pay the bills and when she couldn’t keep up the loan repayments, the title company repossessed her car. Another family, which took out one $450 payday loan, is now stuck in a cycle of high interest rates and hidden fees because the family’s income is not high enough to pay off the debt altogether. Each narrative helps us understand why, in 2012, underserved Americans spent an estimated $89 billion on interest and fees.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

The following post was originally published on The WorldPost blog of The Huffington Post.

In a recent retrospective, Rich Rosenberg called Pancho Otero, the founding leader of Bolivia’s Prodem and BancoSol, a genius. With Pancho’s sudden death last month, I find myself surprised to speak with many people who work in microfinance or financial inclusion today but do not know about Pancho’s genius. And so, I would like to take this moment to tell the story of who Pancho was and what he accomplished.

Genius can be applied in many spheres, from art to action. But all notions of genius share the idea that a genius sees beyond the things ordinary people see and works in some extraordinary way to bring that vision into being, disregarding conventional boundaries. I think Pancho would have enjoyed this thought about genius, by seventeenth century English author Jonathan Swift, “When a great genius appears in the world you may know him by this sign; that the dunces are all in confederacy against him.” But that is the end of the story, not the beginning.

In 1986 Pancho was hired by Accion to start a microenterprise lending organization in Bolivia. His signal accomplishment was to create an organization that was so good at what it did that it gave rise to the idea – and then the reality – that a microfinance operation lending exclusively to the poor could become a full fledged commercial bank. And when Prodem launched BancoSol, Pancho became President of the first private commercial bank in Latin America dedicated to the microenterprises of the poor. BancoSol, in turn gave impulse to the transformation of microfinance NGOs into financial institutions all over the world and set the ball rolling for the widespread commercialization of microfinance.

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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

Serve clients with suitable products. Prevent over-indebtedness. Be transparent and price products reasonably. Treat clients respectfully, listen to their grievances, and protect their privacy.

The seven client protection principles make undisputedly good sense on paper. It’s hard to argue against any one of these practices, either normatively or from the perspective of the financial bottom line. We assume that well-treated, well-understood clients using appropriate products through the right delivery channels are more loyal, satisfied, and likely to refer their friends and family, provide useful feedback, and repay loans. Right?

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> Posted by Kim Wilson, Fellow, Center for Emerging Market Enterprises and the Feinstein International Center, Tufts University

“Everything should be as simple as it can be, but not simpler.” This aphorism credited to Albert Einstein inspires our call to Lean Research.

Two Fridays ago at MIT a group of 50 of us met to hash out some principles that, if followed, might generate better research in development and social science contexts. NGOs, universities, foundations, corporations, government, and multi-lateral agencies were represented in our group.

Our analogy of choice was Toyota. If “the Toyota way,” or lean manufacturing as it has come to be called, could cause profound and beneficial disruptions in production processes, might lean research cause equally profound and beneficial disruptions in research processes?

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Posted by Ignacio Mas, Independent Consultant

I guess it happens in all human endeavors; we sometimes get carried away wishing things were the way we think they ought to be. Let me provide three cautionary observations relating to financial inclusion: about how we measure it, how we talk about it, and how we assess it. The point is not to dampen enthusiasm about the possibilities, but to reflect on our progress in a more realistic way.

Industry Showcases and the Numbers Game

Through numerous industry conferences and blogs, certain players get put up as shining examples for the industry to follow. M-Shwari is perhaps the latest one, I guess because it delivers large customer numbers to an industry that is still largely focused on coverage rather than usage, and it represents the kind of telco-bank partnership that many have been fantasizing about.

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> Posted by Anne Gachoka, Research Supervisor, Digital Divide Data

Thanks to mobile and agent channels, formal financial services in Kenya now reach millions of previously unbanked customers with new and innovative products. Just look at M-Shwari, the new banking product offered to M-Pesa customers enabling them to move beyond money transfer and epay to small, short-term loans with eligibility based on data about their savings, mobile usage, and debt repayment history. Globally, this is all very exciting and represents an important breakthrough in providing financial services to the poor.

But, after studying the interactions between the poor and the financial sector through the Kenya Financial Diaries, a joint-research initiative between Digital Divide Data and Bankable Frontier Associates, I have come to the conclusion that banking will fail to deliver on the promise of improving the lives of the poor unless providers do more to improve pricing transparency and communication on terms and conditions. The Diaries study tracked the cash flows of 300 Kenyan households over the period of one year.

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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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