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> Posted by Jenn Beard, Global Learning Manager, Water.org
Nearly 800 million people lack access to safe water, and 2.5 billion people lack access to improved sanitation. As many NGOs and microfinance institutions are now discovering, the way forward will include lending to individuals for their water and sanitation (WASH) needs. WASH microfinance is making it possible for the poor to take control in instances where access is difficult. However, most providers in the position to meet this financing opportunity are not yet offering these services. One thing standing in the way is the tools to get institutions started.
The business case for financial institutions to add WASH financial products to their portfolios is significant. A study sponsored by the Bill and Melinda Gates Foundation estimated global demand for microfinance for water and sanitation at over US$12 billion between 2004 and 2015. After all, the poor are already spending money in these areas—both directly (purchasing water from vendors/kiosks or paying to use a community toilet) and indirectly (higher healthcare costs and/or lost time and wages while looking for or collecting water). Microfinance providers have highly relevant goals, experience, processes, and outreach activities to play a key role in increasing access to WASH facilities. As financial institutions broaden their services beyond business lending and develop products to more fully address their clients’ diverse financial service needs, WASH financing emerges as a clear opportunity.
> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
A Spanish-language version of this post follows the English version.
After five months of discussion, Colombia’s Financial Inclusion Bill has been approved by Congress, now only needing presidential sanction to become law. Earlier this year the country’s Minister of Treasury and Public Credit and Minister of Information Technologies and Communications filed the bill in Congress. The bill articulates a framework for the expansion of savings and payment services by engaging a wider range of providers in offering digital services.
The new law would allow for the creation of a new type of financial institution, Organizations Specialized in Electronic Deposits and Payments. These institutions can be established by individuals or legal entities, with a minimum capital requirement of $3 million, approximately 10 percent of the minimum currently required for commercial banks. The new electronic deposit and payment providers can receive capital investments from commercial banks and financial corporations.
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
Close to Washington, D.C.’s antipode in Perth, Australia I attended the Fifth Annual Responsible Finance Forum, which this year focused on responsible digital finance. The organizers assembled an impressive mix of representatives from all three legs of the responsible finance stool – industry, regulators, and consumers. A number of familiar risk areas were examined during the two great days of presentations, debate, and discussion, and three prominent themes emerged for me: the centrality of the service agent, the increasing importance of financial education, and considering responsible finance at the ecosystem level.
The first day of the forum focused on the identification of risks to consumers from digital financial services (DFS) and the second day was framed around how to mitigate and minimize those risks. An online “Global Pulse Survey” that CGAP conducted as well as some demand-side research conducted by MicroSave and Bankable Frontier Associates (BFA) brought both the practitioner and consumer perspectives on DFS risks to the forefront. The MicroSave and BFA research canvassed nearly 700 DFS users and 50 non-users through focus groups in Colombia, Bangladesh, the Philippines, and Uganda. While respondents of the survey and focus groups identified a wide variety of harms or worries, some common items emerged, listed in the table below. Though preliminary, this data is extremely important in helping us frame the areas where stakeholders could focus to mitigate against client harm and risk. These risks fall squarely into the framework of the Smart Campaign’s seven Client Protection Principles, furthering our belief that a principles framework can carry forward into digital financial services.
> Posted by Guy Stuart and Eric Noggle, Executive Director and Research Officer, Microfinance Opportunities
Last week’s post discussed how we implemented an embedded education program with VisionFund and Zoona in Zambia that leveraged touch points in an effort to improve clients’ financial capabilities. While we hope this blog series has begun to convince you that embedded education can help solve the financial capability gap, one important issue remains: where is the evidence of success? Does this approach really improve outcomes for clients and businesses?
Microfinance Opportunities (MFO) aimed to add to the knowledge base of “what works” in financial education with our evaluation of the Consumer Education for Branchless Banking (CEBB) project in Zambia. The evaluation applied a mixed-methods approach with multiple data sets. We analyzed information from in-depth interviews, focus groups, knowledge surveys, and transaction data from VisionFund and Zoona’s management information systems.
The data tell a compelling story. Qualitative interviews indicated that both clients and branch staff thought the education program was having a positive impact on how clients were interacting with the branchless banking service and on their overall financial capabilities.
> 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 Eric Zuehlke, Web and Communications Director, CFI
It’s a big couple of weeks for Africa here in Washington, D.C. On Monday, President Obama hosted a town hall meeting to welcome this year’s class of the Young African Leaders Initiative (YALI). Launched in 2010 by Obama, YALI supports young African leaders as they spur economic growth and prosperity, strengthen democratic governance, and enhance peace and security across Africa. These Fellows spend six weeks at one of 20 U.S. universities and colleges undergoing leadership training and mentoring in business and entrepreneurship, civic engagement, and public administration. Next week, the State Department will host the U.S.-Africa Leaders Summit with heads of state from 50 African countries to advance the U.S. Administration’s focus on trade and investment in Africa and discuss security and democratic development.
Nearly one-third of all Africans are between the ages of 10 and 24, and approximately 60 percent are below 35. YALI is tapping into the drive and energy of Africa’s youth to effect change. Many Fellows in the YALI network are focused on improving access to financial services, whether it’s encouraging a savings culture in Zimbabwe, establishing microfinance programs for women and youth in Kenya, or creating a microfinance program to help start medical supply stores in Kinshasa, Democratic Republic of Congo.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Rwanda has a lot to celebrate in terms of financial inclusion these days. Last week in Kigali the National Bank of Rwanda (NBR) hosted a conference in partnership with the World Bank, the African Development Bank, and the Alliance for Financial Inclusion (AFI) commemorating their 50-year anniversary. At the event, titled Financial Inclusion for Inclusive Growth and Sustainable Development, NBR Governor John Rwangombwa highlighted the country’s recent rise in access levels, from 48 to 72 percent between 2008 and 2012 across formal and informal providers. Rwanda now has the laudable goal of increasing this figure to 90 percent by 2020. To help it get there, on Friday the World Bank launched a $2.25 million program supporting key financial inclusion areas for the country.
Along with overall exclusion rates dropping from 52 to 28 percent over 2008 to 2012, formal services access increased from 21 to 42 percent during the same period, according to the 2012 FinScope Rwanda Survey. The new government goal of 90 percent access by 2020 is an extension of the country’s Maya Declaration Commitment of 80 percent access by 2017. Rwanda’s growth in formal access can be attributed to products offered by both banks and non-bank providers, like the country’s community savings and credit cooperatives known as Umurenge SACCOs. Over the past three years, Umurenge SACCOs have attracted over 1.6 million customers. Ninety percent of Rwandans live within a 5 km radius of one of the cooperatives. Countrywide, the number of MFIs, including Umurenge SACCOs, increased from 125 to 491 between 2008 and December 2013. Elsewhere in the sector, over the last three years, the number of banks increased from 10 to 14, the number of insurance companies increased from 9 to 13, and the number of pension providers increased from 41 to 56.
> 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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