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> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
India’s new Prime Minister Narendra Modi created much fanfare and excitement upon the launch of a financial inclusion plan for the millions of unbanked Indians (currently estimated at 40 percent of the entire population). The Jan-Dhan Yojana (Scheme for People’s Wealth) will provide a free, zero-balance bank account and a debit card allowing for electronic payments, coupled with accident insurance and overdraft protection. Indian media went wild for the aggressive first day of the program wherein 15 million bank accounts were opened.
While all should cheer the intention of Prime Minister Modi to build a more inclusive financial system, there are some cautionary tales, both old and new, that the scheme should learn from. The tool of a basic savings account has been touted for close to a decade in India where, in 2005, the RBI promoted a ‘no-frills’ account scheme. While millions of new bank accounts where opened under this scheme, researchers found that many of the accounts were dormant, underutilized, and hence ineffective at ushering the formally excluded into the formal system. Even in districts dubbed 100 percent included, the reality on the ground was far less exemplary in terms of enrollment and usage of accounts.
Prime Minister Modi might also take heed of a much more recent cautionary tale added by researchers at IFMR, a business school in Chennai. Co-authors Amy Mowl and Camille Boudot wanted to understand whether there were hidden barriers to individuals interested in savings and investing using a basic savings account. That savings account, formerly called no-frills, and now called a BSBDA (Basic Savings Bank Deposit Account), are mandated by the Reserve Bank of India to be offered by all banks. Mowl and Boudot hired and trained a group of mystery shoppers to pose as low-income customers interested in opening a BSBDA at 42 branches of 27 large banks in metropolitan Chennai. The experiences of these mystery auditors was tracked, recorded, and analyzed by the researchers. The results were stark.
> Posted by Hillary Miller-Wise, CEO, Africa Region, Grameen Foundation
Veteran journalist Walter Cronkite once said of America’s health care system that “it is neither healthy, caring, nor a system.” Imagine what he would have thought about some of the public health care systems in the developing world.
Consider Kenya, which is now a middle-income country, due to recent rebasing of the economic calculations. Public expenditure on health care is about 6 percent of GDP, compared to 9.3 percent in OECD countries. About 33 million Kenyans – or nearly 75 percent of the population – are uninsured, of whom 70 percent live on less than $2 per day. And there is no Obamacare on the horizon.
CFI and HelpAge’s New Research Initiative Examines the Financial Needs of Older Persons
> Posted by Eric Zuehlke, Web and Communications Director, CFI
A few years ago, my 90-year-old grandfather moved from Japan, where he had lived his entire life, to live with my parents in Virginia. Although he was retired and living comfortably, the death of my grandmother left him without an adequate support system. With his healthy pension and public assistance from the Japanese government, mixed with the security of living with my parents, he is well cared for. I’d say he is financially included. But on a global scale, he’s one of the lucky ones. All his supports – close family, a pension, good health care, and insurance – are inadequate for many. And the need for appropriate services is growing.
The facts speak for themselves. Between 2010-2020, the population of older persons will almost double in middle-income countries and increase by 40 percent worldwide. Yet despite this growing population, the provision of financial services is woefully inadequate. One in four older people in low and middle-income countries do not have a pension, and most pensions are inadequate to meet individual needs. Not only are financial services lacking, we don’t even fully understand financial inclusion in older age. The mismatch between the scale of the need and the attention devoted to it is staggering.
> Posted by Lynn Exton, Managing Partner, Exton & Partners Risk, Governance & Analytics LLP
With the benefits of digital financial services (DFS) for enhancing financial inclusion now widely accepted, many microfinance institutions (MFIs) have or are planning to add new digital products to their delivery channels. But just because the benefits of DFS are relatively straightforward doesn’t mean the calculus behind whether or not institutions should take the digital plunge is. Institutions encounter practical challenges when adopting DFS, like big up-front investments in resources, the need for buy-in from staff and management, and the necessity for clients to change their behavior and adopt new technology. As with any new product, DFS also can introduce a wide range of risks to the MFI.
The Digital Financial Services Working Group recently released its newest publication, entitled, “The Digital Financial Services Risk Assessment for Microfinance Institutions – A Pocket Guide.” The guide was developed to assist MFIs in understanding the risks and corresponding mitigation strategies associated with DFS as well as to support institutions in choosing among the diverse business models available for providing these services. The DFS Working Group is a virtual community of practitioners and organizations developing knowledge management products promoting inclusive finance.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
Growing up, my father fixed cars in exchange for payment in whatever form his customers could afford – granite tables, sheep skin rugs, and so on. In our town, he was the king of barter. Unfortunately, it was rather difficult for my mother to re-barter these items for things our family actually needed, like food and clothes. The system was limited in participants and so in utility. But thanks to the internet, the art of barter is back.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Albeit a relative newcomer to microfinance, China’s market has grown rapidly in recent years. In 2012 the country had 6,000 microcredit providers, but only 25 percent had been in operation for more than three years. Today the number of providers is a few thousand higher, spanning nonprofit institutions, government programs, microcredit companies, commercial banks, rural credit cooperatives and banks, village and township banks, and P2P lenders. Even Alibaba, China’s internet giant, is involved. It has offered loans to over 230,000 micro-entrepreneurs through its AliFinance arm, launched in 2011.
Earlier this year Accion’s Channels and Technology team conducted a comprehensive assessment to determine the training and knowledge-sharing needs of the microfinance providers sustainably serving the poor in China. The assessment was carried out in partnership with the China Microfinance Institution Association, the China Association of Microfinance, and the PBC School of Finance Tsinghua, with support from the MetLife Foundation. As part of the assessment, the team compiled a landscape of the country’s microfinance institutions. Offering a snapshot of the state of the market and the challenges that lie ahead, here are some of its findings.
> Posted by Martin Burt, Executive Director, Fundación Paraguaya & Teach A Man To Fish
The following post was originally published on the World Economic Forum blog.
Until recently, this has not been easy. Now, technological innovation is helping us achieve things that were once impossible, and the effects are far-reaching.
At Fundación Paraguaya, we have developed a methodology called Poverty Stoplight. To assess levels of poverty, we show people a series of three photographs and ask them to choose the one that best describes their situation. We do this in each of 50 “critical indicators,” such as access to water, levels of nutrition, dental care, and so on. These pictures are color-coded to represent degrees of poverty: red is critical, yellow is poor, and green is non-poor.
> Posted by Jeffrey Riecke, Communications Associate, CFI
New World Bank analysis indicates that along with the already devastating loss of life, the Ebola outbreak could cause “potentially catastrophic” economic effects on West African countries, especially in the three hardest hit. According to the analysis, Liberia’s GDP could fall by 12 percent, Sierra Leone’s by 9 percent, and Guinea’s by 2 percent.
Efforts to contain the epidemic are fueling much of the economic slowdown, like the closings of businesses, transportation infrastructure, and critical air and sea links with other nations. As mentioned in a post on this site a few weeks ago, microfinance institutions are being affected, too.
Between 80 and 90 percent of the economic losses suffered from Ebola are related to containment behavior, a dynamic consistent with recent SARS and H1N1 outbreaks. A lower supply of available workers – due to employee illness, death, and caregiving – is a smaller factor. At the same time, health systems are collapsing under the onslaught of the epidemic, leaving those with other serious illnesses unable to receive treatment. These conditions cause shortages, panicked buying, and speculation, which lead to rises in food prices and inflation. Economic life in the affected areas was already extremely tough to begin with. In Liberia, Sierra Leone, and Guinea, more than 50 percent of the population lives below the poverty line.