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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.

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> Posted by Susy Cheston, Senior Advisor, CFI

What financial inclusion stakeholders believe is most important in advancing client protection

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 Susy Cheston, Senior Advisor, CFI

Almost three decades ago, I walked into a meeting with a loan officer at a major bank in Boston. I was running a not-for-profit dance company that was well-respected, had good governance, and had a decent business plan—but hey, it was a not-for-profit dance company with no endowment and no certainty of surviving beyond its next show. We were not a good risk on paper. My job was to persuade the loan officer to give us an unsecured line of credit based solely on our business plan and his judgment of our ability to execute against that plan. He looked at our financials, but he also sized me up. This was not data analytics, this was the old-time community bank model of a decision based on a hand shake and a relationship, a sense of trust. Truth be told, the loan officer was biased in our favor. He really loved our work and believed in what we did. That plus a few well-placed board members had gotten me in the door where a company with a similar balance sheet and risk profile would have been left out in the cold.

A few years later, I landed in El Salvador where I formed lending groups among poor, illiterate women in the relatively early days of microfinance. “Ella es buena paga” was the phrase the women used to identify someone who was known as good for paying her debts. It meant that when a vendor in the marketplace or the owner of a corner store let a customer buy something on credit, she was good for it. On the basis of a reputation as “buena paga,” the lending group would allow a woman to join them. Needless to say, those who were known as “mala paga” would be blacklisted and not permitted to join the group.

Perhaps the greatest microcredit miracle of the last century was that, thanks to these lending groups, poor women who were credit invisible were revealed as credit worthy, identified as such through social relationships and their standing in the community. It was the kind of relationship-based credit decision that I and our dance company had benefited from in Boston, but that people at the base of the pyramid had always been excluded from.

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> Posted by Allyse McGrath, Senior Associate, CFI

The Facebook page of JPay, a Florida-based company that provides a range of services to inmates in the U.S. prison system, is calling for visitation pictures – photos of families and their incarcerated loved ones. Happy images seem to echo the company’s statement that JPay is “the most trusted source for connecting incarcerated individuals with family and friends”. Money transfers are one primary element of the connection that JPay and others like it provide. JPay is one of the largest providers in the burgeoning field of financial services for the 2 million-plus inmates in the U.S. prison system. These providers are changing the way that families send money to their incarcerated loved ones and also the way in which inmates receive money upon their release. But has this change been good?

For those that might not know, money sent to inmates can be used in prison for things like making phone calls, sending emails, and buying food, toiletries, and winter clothes. To give you a sense, at the Clallam Bay Corrections Center in Washington State, phone calls begin at $3.13, and emails are 33 cents. When prisoners are released, money accumulated from work in prison or sent from family and friends can be transferred onto stores of value like debit cards.

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> Posted by Debashis Sarker, Centre for European Research in Microfinance (CERMi) and University of Mons, Belgium

With estimates indicating that less than 1 percent of microfinance clients around the world are persons with disabilities (PwDs), it’s clear that sizable barriers exist to the financial inclusion of this largely unbanked population segment. One such barrier is discrimination on the part of microfinance institutions. Two features of microfinance lending make it especially hard to reach definitive statistical estimates of discrimination. One is the complex stages of the microfinance lending process. The second is the self-reinforcing cycle of exclusion that results from the legacies of discriminating microcredit organizations.

A pilot project conducted in Uganda in partnership with the Association of Microfinance Institutions in Uganda (AMFIU) and the National Union of Disabled Persons of Uganda (NUDIPU) demonstrates the discrimination that often occurs in microfinance practices. The project worked with AMFIU microfinance institutions, applying interventions to combat practices discriminatory to PwDs. Along with addressing PwD exclusion by microfinance staff, the initiatives targeted exclusion by other microfinance clients, low self-esteem, product design, and informational and physical barriers. In two years, since the sensitization and accessibility efforts began, attitudes of MFI staff towards PwDs improved and, across eight queried MFI branches, there was an average 96 percent per MFI increase in clients with disabilities. Another study, also based in Uganda with AMFIU and NUDIPU, examined biases against PwDs across different MFI staff. Surveying eight MFIs between 2008 and 2009, staff were asked questions on aspects including risk of loan default among PwD clients. The responses of credit officers indicated they were more biased against PwDs than other MFI staff.

Given these findings, what measures can be taken to combat this?

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> Posted by Center Staff

A new paper from MasterCard corroborates recent findings on persistent gaps in the financial inclusion of women, indicating that in India 58 percent of women report difficulty accessing credit, savings, or jobs because of their gender. The paper is part of MasterCard’s Connectors Project, which examines the migration of excluded populations into progressive economic inclusion. The recently-released Global Findex data found that between 2011 and 2014, the gender gap in access to financial services remained steady at 9 percent in developing countries.

The reported difficulty faced by women in India was higher than that of the paper’s other surveyed countries: Indonesia, Egypt, and Mexico. Across all four countries, 33 percent of women expressed these challenges. Across all genders, in India, 67 percent of respondents reported worrying about money they owe to others and 82 percent worry about their future prospects. Along with women, ethnic and religious minorities in India reported additional challenges in economic participation. Fifty-eight percent said it was difficult to get jobs or credit because of their ethnicity or religion – compared with 28 percent across the surveyed countries. Whether or not these women and ethnic/religious minorities do in fact face discriminatory treatment, awareness of their perception is critical. In accessing banking services for the first time, or pursuing economic opportunities, trust and confidence can be a make-or-break.

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> Posted by Center Staff

The scale of the unmet financing needs of older adults around the world – and especially in lower and middle-income countries – is so significant that if unaddressed, it won’t just be each generation as it enters the later years that pays the price. It’ll be their families, healthcare systems, governments, and societies writ large, too. In India, for example, only 12 percent of the population has any sort of pension. A rapidly growing demographic, within 25 years, the percent of the world’s population over 60 will nearly double.

Recent progress does deserve mention. Just a few days ago, on the heels of last year’s launch of the Jan Dhan Yojana national financial inclusion strategy, India’s central government unveiled three new contributory social security schemes for pensions, life insurance, and disability insurance. Our hope is that these new programs are hugely successful and prove demonstrative for other countries to follow.

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> Posted by Center Staff

What are the most important questions that need to be researched in the financial inclusion arena?

The Center for Financial Inclusion at Accion will soon launch a fellows program to support research and thought leadership in financial inclusion – and we are calling on you to help! The purpose of this program will be to encourage independent researchers and analysts to examine some of the most important challenges in the financial inclusion arena. We plan to select a few priority research topics for fellows to examine.

Here’s where you come in. Below is a list of research topics that members of our Financial Inclusion 2020 team believe need answering. We’re checking in with you – our blog audience – to find out which topics you think are the most important to investigate. Please consider this list a starting point. Give us thumbs up or down on the topics listed, and propose topics of your own. Once we select the top priority questions, we will issue a call for proposals. Meanwhile, we offer this list to provoke a broader conversation about research needed in the financial inclusion field.

You can respond either in the comment block below, or by email to erhyne@accion.org.

Technology-related topics

  1. Impact of ubiquitous internet access on the business models for financial inclusion. By 2020, the vast majority of the world’s people will have access to internet through smart phones and tablets. Internet access could transform the way financial service providers and customers interact and facilitate a richer interface with customers. What scenarios are possible and are providers ready to respond?
  1. Under what conditions do “on-ramps” lead to deeper inclusion? With the World Bank’s commitment to Universal Financial Access focused on connecting people to transaction accounts, the next question is how (and whether) such connections lead to active account usage or access to additional products. What are the cases of successful access expansion that have led to deeper inclusion and why did they succeed?

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> Posted by María José Roa Garcia, Researcher, Centro de Estudios Monetarios Latinoamericanos (CEMLA)

Reports on the financial stability of emerging countries indicate that non-traditional institutions advancing financial inclusion are increasingly important. The contemporary financial services landscape in many markets includes new financial inclusion instruments such as electronic and mobile phone-based banking. For these newer entrants and many credit-offering institutions, the governing regulatory frameworks are either non-existent or much looser than those for formally-constituted banking institutions.

Does this lack of oversight affect market stability?

In reviewing the recent studies on the possible links between financial stability and inclusion, although additional research and analysis is required, it is shown that greater access to and use of formal financial intermediaries might reduce financial instability. As for why, the studies point to six reasons:

  1. More diversified funding base of financial institutions
  2. More extensive and efficient savings intermediation
  3. Improved capacity of households to manage vulnerabilities and shocks
  4. A more stable base of retail deposits
  5. Restricting the presence of a large informal sector
  6. Facilitating the reduction of income inequality, thereby allowing for greater political and social stability

The principal definitions of financial stability support this notion. Institutions that carry out financial inclusion activities help develop effective intermediation of resources and diversify risk, which are essential elements in supporting sustainable markets.

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> Posted by Magauta Mphahlele, CEO, National Debt Mediation Association (NDMA)

Overall, 2014 was not a good year for South African consumers of credit. Evidence of this is based on statistics from the banking regulators as well as the casework compiled through the work of the National Debt Mediation Association (NDMA) with individuals and mineworkers employed by two of the largest mining companies in South Africa.

The South African economy has remained stagnant, contributing to strikes and retrenchments across the board, especially in the mining sector. For those consumers who were lucky not to be retrenched, factors, such as price inflation, a freeze on bonuses, reduced commissions, and personal circumstances like illness, divorce, and death in the family put pressure on their finances leading many to default on their debt repayments. Despite several regulatory initiatives and interventions, the results of the December 2014 National Credit Regulator (NCR) Credit Bureau Monitor showed that the number of credit active consumers was 22.84 million and of these, 10.6 million (46 percent) have impaired records.

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