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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP
It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.
The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on The WorldPost blog of The Huffington Post.
In a recent retrospective, Rich Rosenberg called Pancho Otero, the founding leader of Bolivia’s Prodem and BancoSol, a genius. With Pancho’s sudden death last month, I find myself surprised to speak with many people who work in microfinance or financial inclusion today but do not know about Pancho’s genius. And so, I would like to take this moment to tell the story of who Pancho was and what he accomplished.
Genius can be applied in many spheres, from art to action. But all notions of genius share the idea that a genius sees beyond the things ordinary people see and works in some extraordinary way to bring that vision into being, disregarding conventional boundaries. I think Pancho would have enjoyed this thought about genius, by seventeenth century English author Jonathan Swift, “When a great genius appears in the world you may know him by this sign; that the dunces are all in confederacy against him.” But that is the end of the story, not the beginning.
In 1986 Pancho was hired by Accion to start a microenterprise lending organization in Bolivia. His signal accomplishment was to create an organization that was so good at what it did that it gave rise to the idea – and then the reality – that a microfinance operation lending exclusively to the poor could become a full fledged commercial bank. And when Prodem launched BancoSol, Pancho became President of the first private commercial bank in Latin America dedicated to the microenterprises of the poor. BancoSol, in turn gave impulse to the transformation of microfinance NGOs into financial institutions all over the world and set the ball rolling for the widespread commercialization of microfinance.
> Posted by Joseph Smolen, Summer Associate, CFI
At this week’s U.S.-Africa Leaders Summit it was noted that even as sub-Saharan Africa (SSA) enjoys a period of unprecedented economic growth (GDP in developing SSA has increased from $43 trillion to $75 trillion since 2004), lack of financial inclusion remains an issue of paramount concern. In some ways this has been driven by a lack of foreign direct investment (FDI) in financial inclusion vehicles in SSA (primarily MFIs) – less than 10 percent of FDI in MFIs worldwide is earmarked for Africa-focused institutions. Historically, the disproportionately low amount of FDI in sub-Saharan African MFIs has been driven by a combination of the following factors:
> 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.
> Posted by Ignacio Mas, Independent Consultant
I guess it happens in all human endeavors; we sometimes get carried away wishing things were the way we think they ought to be. Let me provide three cautionary observations relating to financial inclusion: about how we measure it, how we talk about it, and how we assess it. The point is not to dampen enthusiasm about the possibilities, but to reflect on our progress in a more realistic way.
Industry Showcases and the Numbers Game
Through numerous industry conferences and blogs, certain players get put up as shining examples for the industry to follow. M-Shwari is perhaps the latest one, I guess because it delivers large customer numbers to an industry that is still largely focused on coverage rather than usage, and it represents the kind of telco-bank partnership that many have been fantasizing about.
> Posted by Anne Gachoka, Research Supervisor, Digital Divide Data
Thanks to mobile and agent channels, formal financial services in Kenya now reach millions of previously unbanked customers with new and innovative products. Just look at M-Shwari, the new banking product offered to M-Pesa customers enabling them to move beyond money transfer and epay to small, short-term loans with eligibility based on data about their savings, mobile usage, and debt repayment history. Globally, this is all very exciting and represents an important breakthrough in providing financial services to the poor.
But, after studying the interactions between the poor and the financial sector through the Kenya Financial Diaries, a joint-research initiative between Digital Divide Data and Bankable Frontier Associates, I have come to the conclusion that banking will fail to deliver on the promise of improving the lives of the poor unless providers do more to improve pricing transparency and communication on terms and conditions. The Diaries study tracked the cash flows of 300 Kenyan households over the period of one year.
> Posted by Somen Saha, Indian Institute of Public Health Gandhinagar, with inputs from Marcia Metcalfe, Freedom from Hunger and Sabina Rogers, Microcredit Summit Campaign
Microfinance institutions (MFIs) and self-help groups (SHGs) in India are increasingly recognizing the potential of offering both health and financial services. In a query of 25 MFIs across the country providing integrated services, the number of borrowers totaled nearly 18 million. A new report, Integrated Health and Microfinance in India, Volume II: The Way Forward, highlights best practices in integrating health and microfinance programs, particularly in light of India’s aim for universal health care, showcases potential interventions that can be adopted by microfinance institutions and NGOs that serve SHGs, and outlines the role of India’s existing livelihood promotion SHG initiatives in addressing access barriers to health services.
For the 1.3 billion people around the world who live on less than $1.25 a day, poverty means vulnerability. The poor face a disproportionate risk of disease and a heightened financial burden that includes both the direct costs of medical care and the indirect costs of work time lost. This financial impact also limits the ability of the poor to fully participate in financial services, as poor health is one of the most frequently cited reasons for loan default and drop-out. Because the poor are one illness away from losing everything, there is an increasing realization that countries need a pro-poor pathway towards universal healthcare.
> Posted by Joseph Smolen, Summer Associate, CFI
Are MFIs evolving enough to maintain relevance as a driving force in the sub-Saharan African (SSA) economy?
A recent survey of board members of microfinance institutions (MFIs) in SSA revealed two shortcomings at the governance level: 1) MFIs boards and leadership are not effectively incorporating new technologies and 2) there is a systemic lack of awareness related to market forces and competition. Taken together, these two areas of deficient governance suggest MFIs are not evolving quickly enough, and definitely not at the rapid pace of economic growth in SSA.
Which leads us to ask: are MFIs at risk due to their slowly evolving, and sometimes insular, business practices? The answer to this question is an emphatic no….for now. MFIs have been and will continue to be a key driver of economic growth, poverty alleviation, and financial inclusion in the region. However, sub-Saharan Africa is experiencing unprecedented growth, catalyzed by a variety of macro-level influences. This new dynamism in SSA (the second fastest region-wide growth, behind only developing Asia) brings with it faster change than previously seen in the SSA economy. What does this mean for microfinance? Simply that evolution has now become more critical than ever.
The economic changes in SSA bring with it myriad opportunities – both for domestic residents and foreign investors. Most striking is the increasing eagerness for foreign direct investments (FDI) in SSA. Currently, FDI has taken the form of large-scale investment in established institutional players with little effect on the lower income customer base of MFIs. As capital flows continue to seek opportunities, this could easily change, and other players could contest the space MFIs have historically occupied in the marketplace. While financial services to previously excluded individuals does not necessarily have to be provided by MFIs, there are significant risks that the microfinance space will be impinged upon by mainstream market players such as commercial or mobile banks as well as non-mission driven debt funds. The consequences of such changes include: