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The most exciting trends and startups in inclusive finance this year
> Posted by Vikas Raj, Director of Investments, Accion Venture Lab
There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility – just this month, Australian Wealth Index (AWI) listed the , and CFI’s Elisabeth Rhyne the list so it’s easy to see at a glance where the innovations are.
At Venture Lab, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Obtaining a mortgage is often the single largest transaction a person will ever make. Despite this, about half of Americans actively consider only one lender or broker before taking out their mortgage. Why? A new report from the U.S. Consumer Financial Protection Bureau (CFPB) details this phenomenon and some of the factors in play, especially consumer confidence. Tuesday, at an event releasing the report, CFPB Director Richard Cordray put the reality into stark and relatable terms, positing that many individuals spend more time shopping around for a TV or other household appliance than they do looking for a good mortgage. He remarked, “When you are spending a lot of money, you are literally betting the house on the choices you are making.” At the event, Cordray launched a suite of tools from the CFPB to empower informed decision-making. The hope is that these tools will ultimately get Americans to… shop.
Cordray recommends that mortgage seekers fill out applications with multiple lenders to see which one offers the best deal. Filing multiple applications doesn’t hurt one’s credit score, contrary to popular belief; multiple credit checks from potential lenders within a certain time window (generally 14-45 days) are considered a single inquiry. The CFPB report, which is based on new data in the National Survey of Mortgage Borrowers, found that 77 percent of borrowers only apply with a single lender.
> Posted by John Gitau, CEO, Kenya Financial Education Centre
Written in 1910, a tiny book, The Science of Getting Rich by Wallace D. Wattles has relevance today in our financial inclusion efforts.
In one of the chapters, “How To Use the Will,” the author writes, “What tends to do away with poverty is not the getting of pictures of poverty into your mind but getting pictures of wealth into the minds of the poor. You are not deserting the poor in their misery when you refuse to allow your mind to be filled with pictures of that misery. Poverty can be done away with, not by increasing the number of well to do people who think about poverty, but by increasing the number of people who purpose with faith to get rich. If you want to help the poor, demonstrate to them that they can become rich; prove it by getting rich yourself.”
These words were written at a time when the American Titans of Industry – Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller – were generating millions of dollars from oil, steel, and commodities trading. The existence of poverty alongside such epochal abundance must have shocked Wallace Wattles deeply. He must have also witnessed the proliferation of poverty eradication efforts through charity and noted their failure or absence of impact.
> Posted by Alissa Fishbane and Allison Daminger, Ideas42
What does it take to successfully design, pilot, and scale an effective new financial product or service? Much more than most would realize! That’s why CFI’s recent behavioral insights workshop in Bogota, Colombia, had a clear focus: understanding the challenges of applying behavioral science to the operations of Latin American financial institutions. CFI asked ideas42 to kick off the day with an overview of behavioral science and its implications for the design and scale-up of financial products.
At ideas42, we use insights from behavioral science to diagnose behavioral bottlenecks preventing people from taking their desired actions, and design remedies that help organizations overcome them. We then measure the impact of these remedies through a randomized evaluation before they are fully scaled. Any successful program that hinges on people’s decisions and actions, as nearly all consumer finance initiatives do, requires a behavioral approach. Read the rest of this entry »
> Posted by Jeffrey Riecke, Communications Associate, CFI
Last week the Bangko Sentral ng Pilipinas (BSP) announced substantial increases throughout the country’s microfinance market: growth in the volume of loans dispersed to microentrepreneurs, in the number of microcredit institutions offering savings services, and in the return on equity of rural banks with microfinance operations. Concerning regulation and institutional support, the recently released 2014 Global Microscope found that the Philippines has the best environment in Asia for financial inclusion.
In 2014, loans extended to microentrepreneurs in the Philippines totaled P9.3 billion (US$209 million) as of June, according to figures reported by BSP Governor Amando M. Tetangco Jr. at the recent Citi Microentrepreneurship Awards in Manila – a roughly 7 percent increase over last year’s figure. On savings, in early 2012 only 22 banks in the country offered micro-deposit accounts. Now, 69 of the Philippines’ 183 banks with microcredit operations take deposits, with a total of 1.7 million micro-deposit accounts. Beyond credit and savings, 86 of the country’s institutions offering microcredit also provide microinsurance and 26 provide electronic banking services.
> Posted by John Gitau, CEO, Kenya Financial Education Centre
What are the sources of income for the poor surviving on two dollars a day? While every financial inclusion advocate wants to recommend savings, credit, and insurance products to the poor, offered by the formal financial institutions, there is a loud silence on the earning component of financial capability.
Could the silence be judged as complacent satisfaction that the earnings currently available are good enough? Suffice it to say that even though the current financial products do not produce income for the users, if they are well designed, they should facilitate the earning of income and certainly the use of income in money management. However, we do realize that if we want to talk of increasing income, we are onto a whole different development agenda: livelihood.
> Posted by Sonja Kelly, Fellow, CFI
Last week in Mexico City, tens of thousands of people took to the streets to voice their hope for a better Mexico. In a hotel that overlooked the demonstration, members of the World Savings Bank Institute met to talk about how to make a safer and more effective financial system for those at the base of the pyramid. In terms of inclusive finance, in recent months we’ve seen significant progress. During the meeting, Vice President of the National Banking and Securities Commission (CNBV) in Mexico, Bernardo Gonzalez, opened his remarks by putting up a list of the top 10 countries in this year’s Global Microscope. Modestly, he pointed out that five of the 10 were from Latin America. Perhaps more emphatically, he highlighted Mexico’s place—fifth on the list.
As a regulator, he should be proud. Mexico’s score this year is in part a reflection of the regulatory reforms that the country has been moving forward, with attention to customers at the base of the economic pyramid. While Mexico’s microfinance sector has been under scrutiny in recent years because of notoriously high interest rates, concerns of over-indebtedness, and commercial banks hesitant to go “down-market”, a new set of microfinance regulations attempts to change things.
> Posted by Elisabeth Rhyne, Managing Director, CFI
In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.
The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.
> Posted by Center Staff
Welcome to the second Financial Inclusion 2020 e-magazine!
It’s been a year since the Financial Inclusion 2020 Global Forum. The Center for Financial Inclusion at Accion is taking this moment to review how the drive for financial inclusion is faring. With this e-zine we bring you highlights of the past 12 months from around the financial inclusion world – new ventures, milestones, and ongoing debates. Inside, you’ll find a snapshot of progress in each of our five “Roadmap to Inclusion” areas, from technology-enabled business models to consumer protection. Over the past months we spoke with dozens of industry participants to gauge their views of the progress of each major recommendation presented at the Global Forum, and we’ve distilled their responses here. We learned of many exciting initiatives, though we have room to cite only a few.
This is our first in a series of responses to the provocative post last week from Ignacio Mas. Ignacio asks why the “current innovation frenzy in digital financial services in the U.S.” does not translate into action in BoP markets across the world, and puts forth a number of hypotheses.
“There are three things none of these digital players want to deal with – and never will. They do not want to get a banking license that embroils them in onerous regulation. They do not want to conduct primary identity checks on their customers (Know Your Customer, or KYC), which require physical customer contact. And they do not want to touch their customers’ cash.”
What follows is a response from Tahira Dosani and Vikas Raj of Accion’s Venture Lab, which invests in new fintech start-ups.
While it is true that much of the current innovation in digital financial services has been focused on higher-end consumer segments and less on financial inclusion, in our view this has not been a result only of digital players’ intentions. In fact, mainstream digital financial service companies’ difficulties in serving the financially excluded arise primarily from three key factors – cost, connectivity, and capability. Simply put, these customers are more expensive to acquire, harder to access, and require targeted products, pricing, and distribution. Customers that are banked, connected, and well-understood are the low-hanging fruit today, and that is why they are targeted by large players.