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> Posted by Alexandra Rizzi and Sonia Arenaza, Deputy Director of the Smart Campaign and Director of Accion Channels and Technology
This is the first of two blog posts about responsible digital financial services, on the occasion of the Responsible Finance Forum in Perth, Australia.
The Smart Campaign has watched with excitement as new forms of digital financial services (DFS) stand poised to bring financial access to millions of lower-income households previously excluded from the financial system. The potential benefits of this new ecosystem are enormous and include an array of positive outcomes ranging from lowered transaction costs to consumption-smoothing, among many others. Nevertheless, the excitement over new possibilities must not obscure the need to evaluate and respond to new risks to clients.
In an ongoing mapping exercise conducted by the Smart Campaign and Accion’s Channels and Technology team, we identified various things that can go wrong for clients of DFS, such as:
- Clients lose their funds after an agent fails to take proper security measures or after a service outage
- Agents charge unauthorized fees for transactions under guise of complicated pricing and fees
- Clients lack or are not offered adequate customer care channels
- Lack of data privacy due to clients not being informed or misinformed on how their data and history is being used or shared
- Agents lacking liquidity serve only their favored clients
While these risks are grounded in anecdotes from the field, there is still much more evidence needed on the consumer harms that actually happen, including where they happen and how often. The Responsible Finance Forum in Perth will host several sessions that present demand-side evidence to help identify high priority risks.
But, what then? Once risks are known, how best to try to minimize them?
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
The Smart Campaign secretariat does a lot of things – manage a Certification program, provide technical assistance, develop and promote industry standards, and conduct research. Our small team is always putting on different hats, and we joke about trying to explain our jobs to friends. At the end of the day, the one thing many of our friends can understand is that we are an industry-facing organization offering a “public good.” The Smart Campaign’s public good is not a road or a lighthouse. It just happens to be standards and guidance on protecting clients. These standards are a public good because they belong to everyone, and one individual or institution’s use does not reduce the availability of the resources for others.
Some of our ever-thoughtful friends then ask if this means that we contend with other classic public goods challenges.
The answer is yes, absolutely. One of the biggest issues we struggle with is the lack of a market feedback mechanism. Industry stakeholders can use Smart Campaign tools and resources without paying and thus without providing feedback on their experience. Without a price signal, it can be difficult for the staff to assess demand and user experience. This makes it hard to know how to tailor, expand, or improve offerings. We are curious to hear examples from readers about how other similar organizations consistently improve their offerings without market feedback.
> 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 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?
> Posted by Jeffrey Riecke, Communications Associate, CFI
Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.
The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.
> 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.
> 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?