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> Posted by Jamie M. Zimmerman, Senior Policy Consultant, CGAP
Achieving financial inclusion by 2020 will depend in large part on the proliferation of fast, affordable, and accessible digital financial services (DFS). Indeed these effective, scalable models were a clear theme at the FI2020 Global Forum hosted by CFI last fall. Yet as excitement for DFS dominated much of the public discussion, a small and diverse set of financial inclusion leaders convened a private side-meeting to discuss an often-overlooked question: what are the consumer risks to these new, innovative digital models?
The meeting, co-hosted by CGAP and UNCDF’s Better Than Cash Alliance, introduced the concept of “responsible digital finance” and revealed heightened awareness of and interest in an array of issues related to the potential consumer risks of digital financial services, including:
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> Posted by Eric Zuehlke, Web and Communications Director, CFI
Since launching microfinance activities in 1974, BRAC has grown to become one of the world’s largest financial services providers to the poor. BRAC’s microfinance operations, which include loans and savings, serve more than 5 million clients in eight countries. In 2012, BRAC started a financial education and client protection project that aims to help clients adopt financial behaviors that facilitate their well-being. Shameran Abed, Director of the BRAC Microfinance program, recently spoke with me to discuss BRAC’s work. Prior to joining BRAC, Abed served as an editorial writer at one of Bangladesh’s main English-language daily newspapers where he wrote primarily on politics. He also serves on the Board of Directors of bKash, a mobile financial services platform in Bangladesh.
Eric: Can you talk about BRAC’s client protection work and what you learned from your project pilots in 2012 and 2013?
Shameran: We wanted to make sure that any clients coming into the BRAC microfinance program could be very well catered to. They should understand what our products are, what our terms are, what our rates are, and they should make an educated decision on whether they want to take our products. And if they do become our members then they should be treated well, treated with respect, and have access to information. I’m not saying that BRAC didn’t have all these things before two or three years ago, but we really wanted to double-down our efforts on these fronts. So that’s why we decided to do more work around client protection, client customer service, and financial education.
Eric: What do you think are the biggest risks facing microfinance clients?
Shameran: From a financial point of view, there are two or three risks that we’re particularly concerned about. One, of course, is something that’s been talked about a lot, the risk of overindebtedness. Bangladesh, although quite a mature microfinance market, is, in terms of overindebtedness, thankfully still quite low. But still I think overindebtedness is something that you always guard against because there is a lot of demand for credit and if microfinance institutions are not careful they can always have issues around overindebtedness of borrowers.
There are a lot of financial institutions nowadays that are kind of fly-by-night institutions that set up shop… Institutions that are typically unregulated. They come in, they offer products, they lure in clients, and then they disappear. I think around these issues the clients need more awareness, and these are some of the things our financial education components try to address.
> Posted by Zahra Khalid, Social Analyst, Pakistan Microfinance Network
Pakistan’s financial sector is due for some client-centric changes. Over the past decade there has been rapid growth in consumer lending as well as an increase in the number of households that have taken on risks and obligations that they do not fully understand due to unfair and deceptive practices coupled with low levels of general and financial literacy.
These trends make the World Bank’s recently released industry-wide diagnostic review of the state of consumer protection and financial literacy in the country all the more relevant, and its recommendations targeting irresponsible practices, such as inadequate price disclosure, gender-based discriminatory lending practices, and lack of dispute resolution mechanisms, increasingly important. Offering key findings, recommendations, and comparisons against World Bank-developed best practices, the review is the first to cover the country’s legal, institutional, and regulatory framework from the consumer protection angle.
> Posted by Sonja E. Kelly and Ruben Marquez, CFI and Bancomer
“What’s in a name? That which we call a rose by any other name would smell as sweet.” – Shakespeare
While Juliet’s musings on the essence of her Romeo might be poetic, she is quite wrong. Words determine a great deal about how we think about things—and one word change could change hundreds of thousands of people’s use of financial products.
In Mexico, if you were to ask those at the base of the pyramid whether they save, they would likely tell you no. CFI’s Country Profiles show the Global Findex Data in the figure at right.
When asked whether they had saved any money in the past year, roughly 14 percent of people in the bottom 40 percent of the economy in Mexico answered yes. This same group of people in all upper middle income economies (of which Mexico was a part at the time of the survey) were about twice as likely to say yes to this question.
Does this mean that the poor in Mexico just don’t prioritize savings? Probably not.
In Mexico, there is a difference between the word for “saving” (ahorrar) and the word for “keeping” (guardar). When you ask people at the base of the pyramid whether they “keep” money for the future, they are much more likely to answer yes.
The Findex survey (the source of the above data) may have inadvertently run into this problem in Mexico. The difference between two words could explain the low incidence of saving reported at the base of the pyramid compared to countries with a similar income level.
When we take this language difference into account, there are implications for institutional knowledge, financial education, and product marketing.
On this front, Bancomer in Mexico has found that there is a reorientation to be done within the bank itself—while Bancomer is listening to clients, for listening to be effective it must be listening for the right language. Within the bank, integrating the vernacular of low-income clients has led to new views on this income segment. Past market research has included the question of whether potential clients are saving—with dismal results. With the recognition that this population is saving, but just calling it something else, there is a different perception of the kinds of products that customers might be interested in.
> Posted by Kim Wilson, Fellow, Center for Emerging Market Enterprises and the Feinstein International Center, Tufts University
A few months ago, the instructor of a user design workshop challenged the class to redraft the Healthcare.gov website, the official site of the Affordable Care Act.
In a flash, my 23-year old classmate and team member, Sam, deftly sketched out a new landing page and a few forms. We had time left over to chat. It was Sam’s chance to question the very existence of the site itself.
Sam complained that the Affordable Care Act seemed neither affordable nor about care. As a healthy freelancer he would be soon forced to purchase an expensive financial product – health insurance. And a quick search informed him that if he did not comply he could plan on spending $695 to opt out. Sam turned to me and said, “I don’t know where to begin.”
Projected to cost $1.36 trillion dollars by 2023, the Affordable Care Act is one of the biggest financial inclusion experiments in the world. It requires that every resident of the U.S. participate in a financial scheme to purchase health insurance.
In making the product fully inclusive, U.S. President Barack Obama and proponents of the bill could have followed the advice of many of the financial education skeptics I call “inclusionists”: The inclusionists dismiss high touch financial education as a key part of financial inclusion. The arguments against high touch education run thus.
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> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI
Javier moved from Honduras to the United States with his wife and their children in search of better work opportunities and to escape the violence in their community. His parents chose to stay behind. Luisa moved from the Philippines to Canada to pursue more lucrative opportunities as a nurse, hoping to support her family back home. Yousef fled from Syria to Lebanon, as a refugee, to escape civil unrest.
Javier, Luisa, and Yousef – fictitious characters – are only symbolically representative of some of the enormous global migrant population – estimated to total 232 million people in 2013. Certainly not homogenous, their reasons for leaving their home country can vary tremendously and may include economic opportunities, natural disasters, and security or political concerns.
In spite of the complications of migrating, there is an undeniable and increasing opportunity for financial service providers to serve migrants and their families. Today, I will focus primarily on migrants who move for economic and employment opportunities, though we recognize that these issues are more nuanced for migrants like Yousef who have fled their country of origin for the sake of their safety. I will save this smaller subset, 7 percent of all migrants, for another post. Though, I will mention that MasterCard has an innovative partnership with Banque Libano-Française for Syrian refugees in Lebanon, which you can read more about here.
> Posted by John Gitau, CEO, Kenya Financial Education Centre
I was once a seminarian. Had I followed that path successfully, I would most probably be a Catholic bishop today. I blame my wife for the failure, though she never admits it. She instead boasts of 27 years of successful marriage complete with two adults and a teenager as offspring. She says, in jest, that marriage is celibacy tweaked. I don’t like her bravado, especially when she recalls how she crafted the fall that felled me. Before you can throw a stone at her, know that we always unite against a common enemy.
During my seminary days and perhaps since time immemorial, religion was about preparing the soul for eternal life. It is a way of life, complete with doctrines, laws, dogmas, liturgies, beliefs, and ethos, all meant to cultivate spirituality. Most religions profess the existence of a deity and a final heavenly place where the souls of the departed rest in eternal peace. Religious orders were givers of hope and takers of monetary offerings.
Today, religious orders are working to change the perception that they are mere purveyors of hope and recipients of offerings. They are increasingly creating programs meant to empower their members in many ways, including economically.
Before we delve into what religion is doing for financial capability, it is important to understand some definitions. Monique Cohen and Candace Nelson in their paper Financial Literacy: A Step for Clients towards Financial Inclusion have given clear definitions of the constituent elements of financial capability as follows:
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> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”
If you are new to the financial inclusion industry, or just looking to uncover more about some of its key action areas, there’s a new online portal sharing resources that we at the Financial Inclusion 2020 project believe are essential: the FI2020 Resource Library.
The FI2020 team compiled some of its favorite resources on financial inclusion, including publications, blog posts, white papers, websites, data, and policy sources. The resources are organized around FI2020’s five focus areas – Financial Capability, Technology-Enabled Business Models, Client Protection, Credit Reporting, and Addressing Customer Needs – as well as the areas of policy, data, and general financial inclusion discussion.
We invite you to explore our suggestions, each featuring its own annotation, and contribute your own. In line with the consultative approach of the FI2020 movement, we are eager to hear what your recommended resources are and continue to build the library. You can submit them to us at the library webpage.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Financial capability is cornerstone to financial inclusion. After all, without the knowledge, skills, and attitudes to make good financial decisions, the utility of accessible financial services is greatly compromised. However, financial capability levels need addressing, even in countries that have relatively high services penetration such as the United States. Thankfully, the urgency is increasingly recognized, for example, through efforts such as Financial Literacy Month in the U.S. About a decade ago, April was designated as a month to call attention to financial literacy, and in 2012 the shift was made to include attitude and behavior change: President Obama proclaimed Financial Capability Month. To celebrate, here’s a rundown of where the United States stands with financial capability, and a few public and private efforts aimed at improving this financial inclusion area.
According to the National Foundation for Credit Counseling, about 40 percent of American adults report keeping close track of their spending and about 35 percent have a budget. In terms of effective money management, consumer debt in the U.S. totals more than $2 trillion. In perhaps the most alarming statistic of all, half of Americans indicate that they have less in savings than they would need to live for one month in an emergency and a quarter have less than they need for two weeks. Roughly 65 percent of American adults have not ordered a copy of their credit report in the past year and about 30 percent don’t know their credit score. When asked to grade their level of financial proficiency, 40 percent of Americans give themselves either a C, D, or F.
But Americans do recognize the importance of financial capability. Eighty percent of adults indicate that they would benefit from advice and answers from professionals on basic finance questions. Many would like to speak with financial education service providers, such as credit counselors, followed by banks, and then financial planners.