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> 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.

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> Posted by Center Staff

A mother and child stand outside a health clinic where they both received check-ups and necessary vitamins and vaccines. Great Rift Valley Region, Kenya

In Kenya, where public health insurance has been available since 1965 and access to health care is a constitutional right, only 20 percent of the country actually has access to some sort of medical coverage, according to the World Bank. With a population of 44 million, this means that 35 million are excluded from coverage and millions are unable to afford services at private or public health facilities. In terms of the money spent, about one quarter of health care services spending in Kenya comes out of pocket. Each year, about one million Kenyans fall below the poverty line because of health care related expenses. Recent investments in the industry indicate that this grim reality could be changing, however, and soon.

A few days ago fund manager LeapFrog Investments bought a majority stake in Resolution Insurance, Kenya’s fourth largest insurance provider, for $18.7 million. The new funds will go towards realizing Resolution’s growth strategy of diversifying product offerings and extending services access to more Kenyans and other East Africans. The investment comes at an exciting time for both investors and providers. Though coverage remains low overall, the industry is growing rapidly. The non-life insurance market in Kenya is expanding at 20 percent annually, with health insurance at 38 percent annually. The deal is currently undergoing final regulatory processes.

Beyond Resolution Insurance, LeapFrog recently raised $400 million which it says will go toward investments in financial services across Africa and Asia, with a quarter of funds reserved for East Africa.

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> Posted by Debashis Sarker, Senior Manager, BRAC Microfinance Program, Bangladesh

Microfinance institutions in Bangladesh have more than 30 years of glorious experience of serving poor people with the twofold objectives of women’s empowerment and poverty alleviation. The proven microfinance lending model has been replicated in many developing countries, and more people in Bangladesh have become financially included over time. But what about financial inclusion of a most vulnerable group, persons with disabilities (PWD)?

People with disabilities simply did not get access to the leading lending sources in Bangladesh because of discrimination and accessibility barriers. Regular discrimination, taking the forms of negative attitudes, social exclusion, lack of economic opportunities, and unpaid or underpaid work, has long been an integral part of the lives of PWD. Extremely poor disabled people in rural Bangladesh mostly work in the informal sector with minimum wage rates, reflecting severe discrimination in the workplace. Family members often see them as burden. They may be turned down when trying to rent houses in urban areas. People with disabilities, especially women, are disadvantaged when it comes to education, employment, and even marriage. They may be left out of decision-making and participation in social occasions. In fact, many Bangladeshi people see disability as a curse and cause of shame to the family, and at the national level, Bangladesh has not yet passed an anti-discrimination law.

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> Posted by Jeffrey Riecke, Communications Assistant, CFI


Last week Indian rating agency CRISIL, with support from India’s Ministry of Finance and the Reserve Bank of India, launched the CRISIL Inclusix index, a new tool for tracking financial inclusion throughout the country. Developed over the past two years from over two million data points collected from 165 banks, the index assesses financial inclusion at the district, state, and country level, as well as the reach achieved by individual banks.

The index is based on a scoring system from 0 to 100, incorporating branch, deposit, and credit penetration into one metric. As more data becomes available, the index will integrate additional areas, such as the availability of microfinance and insurance products. The aim of the index is to provide a means for financial inclusion stakeholders to monitor progress, identify priority areas, and inform future efforts.

The index was released in conjunction with a new report from CRISIL on the state of inclusion in India. Drawing from the data used to develop the index, the report’s gives the country as a whole a score of 40 for 2011, with a total of 624 million saving accounts and 160 million loan accounts. This equates to roughly one in two Indians having a savings account and one in seven having an outstanding loan. Inclusion in the country has expanded in recent years, however, as the country average for 2009 was 35.

Strong inclusion discrepancies were exhibited across different areas of India. At the region level, the southern portion of the country leads with a score of 62, followed by the west with 38, and the north and east with 37 and 29, respectively.

For more on the index and report, please see CRISIL’s website. For more ways to examine financial inclusion in India, check out MIX’s India Map of Financial Inclusion, or our Mapping the Invisible Market project’s interactive Country Profiles tool.

Image credit: CRISIL

Posted by Ignacio Mas and Premasis Mukherjee, Independent Consultant and Senior Analyst, MicroSave

We recently completed extensive field work on people’s money management practices in India and Bangladesh, funded by The Bill & Melinda Gates Foundation. Our ostensible purpose was to develop simplified metaphors that express vividly how people think about money. You can judge for yourself how close we came to that by viewing (here) 10 different outputs. While our intent was to simplify, we ended up evolving a more nuanced view of how poor people think about money management (see here for a fuller treatment).

We echo Collins and Zollmann’s observation from their research in Kenya that poor people’s financial talk tends to relate much more to short term income security than to longer term goals or risks. Their main concern is that they want to have enough recurrent income to meet routine expenses. We unpack this into three interlinked concepts which, while by no means new, deserve more attention.

Shaping income to increase income security

Unlike organized sector employees, the mass market lives on a diet of irregular and often unpredictable income flows. From this, some larger routine expenses like school fees need to be met and emergencies need to be dealt with. Stuart Rutherford has placed lumping of money – the accumulation of balances into useful lump sums – as the key financial mechanism people use. What is interesting is that so often people use those lumps to buy a cow (or a rickshaw, or some merchandise for trading), whose main attribute is that it produces small daily income rather than being a good store of value. So they go from collecting a meager stream of small daily cash flows, to building a lump sum, and from there to creating more small daily cash flows. What pushes them on this cycle of sacrificing, lumping, and regenerating daily income – which we call income shaping – is the desire to change not only the size but also the timing and predictability of cash inflows. They see that as the key to providing for daily expenses, and building the routine of setting money aside regularly to build further useful lumps.

Income shaping is people’s preferred mechanism to achieve consumption smoothing: by building a regular income profile.

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> Posted by Alex Counts, President & CEO, Grameen Foundation

An Important Book with Implications for Poverty Alleviation Globally

This post by Alex Counts was originally published on his blog, where he describes the process of writing a book on Haitian microfinance pioneer Fonkoze

It has been a few weeks since I have posted on this blog, but I have continued to study and to work inside Fonkoze all along. Now I feel like I finally have a juicy topic to write about and time to do so.

In response to my post on outcomes and impact (as opposed to inputs) in poverty reduction programs, Meredith Kimbell, a top-notch management consultant in the Washington, DC area whom I have known for years, mentioned the book Better by a physician named Atul Gawande, and in particular a chapter towards the end titled “The Bell Curve.” I read the entire book, which is basically about how the practice of medicine has been and can be improved (with lessons for other disciplines). I found that the book had some important lessons for the effort to end poverty through holistic approaches to microfinance such as those employed by Fonkoze.

The first third of the book is made up of some powerful examples of how medicine has improved, from the mundane (ensuring hospital staff wash their hands more frequently) to the dramatic (the story behind the massive improvements in battlefield medicine through trial and error-based innovation and rigorous quality control). The main lesson I took away from this section was that significant improvement in performance can be realized simply by more rigorously applying known best practices. Certainly this has applications to microfinance and poverty-fighting generally.

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>Posted by Sergio Guzman

Today, we link to Accion Ambassador Juan Rubio’s post describing a social rating by Planet Rating at El Comercio in Paraguay.

Juan starts out with an interesting question–is measuring social performance similar to measuring love?  How can it be quantified? Indeed, social performance can be an abstract concept and at times it seems a bit difficult to measure. However, there are Social Performance Standards have been specially designed in order to give us a better idea how MFIs are working not only towards the idea of improving clients life, but also making sure that their products are not making them any worse off.

Now, with some markets showing signs of saturation, managing social performance goals might be secondary for some bottom line focused institutions who might want to focus on their core business. Notwithstanding, this has proven to be a differentiating factor for many microfinance institutions like El Comercio who see this as a strategic objective. Or as we call it, Smart Microfinance.

Read the rest of Juan’s excellent post here and further stories from the field through the Accion Ambassadors blog.


Have you read?

The Universal Standards have been finalized!…What’s next?

Data with a Purpose: A Call for Creativity and Cooperation

> Posted by Saydra Battersby Quintanilla

Honduras has the basic institutional and legal building blocks needed to protect the client of microfinance. In recent years, institutional governance and consumer protection have risen in priority as microfinance institutions (MFIs) have become more prevalent and information becomes more accessible to microfinance clients.

Institutional Landscape. The two primary banks that support microfinance clients in Honduras are Banco Popular and Finsol, who along with all other Honduran microfinance providers, offered $222 million in loans to 161,447 active borrowers in 2012. The Central Bank of Honduras and the National Commission for Banks and Insurance Companies share responsibility for consumer protection by overseeing good governance, fairness, and protection, while Organización de Desarrollo Empresarial Femenino (ODEF), a Honduran NGO focused on improving socio-economic conditions of Honduran women and their families through technical assistance and capacity building. ODEF and other organizations such as credit bureaus have also focused on delivering stronger consumer protection practices in their businesses.
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Posted by John Gitau, CEO, Kenya Financial Education Centre

This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at Accion.

As I mentioned in a blog post yesterday, financial literacy is a recipe that does not come together automatically, even if you seem to have all the right ingredients. You may have funding, but the funding could come with unrealistic expectations. You may have students, but the students may not have a good reason to pay attention to the lessons financial literacy training offers.

While I am new to the Financial Inclusion 2020 campaign, I am certain that full financial inclusion, with fully financially capable clients, will not happen without a sound structure to support financial literacy efforts. Read the rest of this entry »

> Posted by John Gitau, CEO, Kenya Financial Education Centre

This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at Accion.

I have taught financial literacy in East Africa for the past eight years, and have managed my own firm for the past four.  And here is one thing I have noticed: the financial inclusion community as a whole does not have a common definition or goal for financial education. This lack of an agreed-upon definition makes difficult the process of creating financially capable populations.

Here is how I define key terms:

Financial education is the process of teaching the knowledge, skills and attitudes necessary in personal money management. The end result of financial education is financial literacy. Financial literacy is the ability to manage personal money well. But financial literacy is not an end in itself. It is a tool which when used well results in financial capability. Therefore, financial capability is the ability to apply financial literacy in personal money management to improve financial well-being. When a financially literate person takes action in a way that results in better money use, we say such a person is financially capable.

Not everyone maintains these definitions and goals, though. MFIs, corporations, NGOs, and SACCOs (savings and credit cooperatives) each come to me with different goals, some impossible to achieve. MFIs want me to teach their clients quickly so that they can improve on their loans repayments and increase saving. They are not keen on me teaching investment and some even warn me to be careful when handling the topic of the use of financial services. They want me not to dwell on costs but emphasize benefits. I sometimes find these requests quite amusing. Read the rest of this entry »

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.

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