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In this thoughtful and provocative blog post Ignacio Mas lays down a series of challenges for everyone working on financial inclusion. We think that the questions he’s asking need to be talked about. We’re asking three experts — on customer-centricity, on fintech start-ups, and on regulation — to respond to his provocations, and for the next three Wednesdays we’ll publish one of them.

Have you noticed how narrow the interventions of the chorus of financial inclusion supporters have become? Academic researchers are immersed in proving whether an SMS message sent at the right time can push people to repay their loans more promptly (a.k.a. nudges), or whether someone with more savings is likely to be happier and more empowered in some way (a.k.a. impact evaluations). NGOs fund numerous papers and conferences to promote the idea of seeking early and frequent customer feedback in product design (a.k.a. human-centered design), or of looking into customer data for some clue as to what interests them and how they behave (a.k.a. big data). Donors set up round after round of tenders with subsidized funds to spur fully-grown banks and telcos to try out a new product feature (a.k.a. challenge grants), or to prop up the marketing and distribution wherewithal of selected players (a.k.a. capacity building).

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> Posted by Sonja Kelly, Fellow, CFI

2014 World Bank/IMF Annual Meeting

Sound financial inclusion regulation and policy does not an ethical financial system make. In financial inclusion, we often talk about the importance of consumer protection, industry transparency, and fair market conditions. In the absence of universal standards of what these principles look like in practice, we turn to regulators and policymakers. I contend that we cannot keep relying on regulation to make the financial system moral and just. Since much of my own research promotes financial inclusion policy and regulation, this is a fairly inflammatory statement for me to make. But when we look only to regulators to create a financially inclusive and fair marketplace, we miss the mark.

In my own life, I see an analogy to our family game night. I am a very competitive person. I confess that there are times (fairly frequent times) that I cheat. I can easily miscount the number of spaces my piece is moving in Monopoly, or I can set down three cards and make it look like one card in Uno. My husband sometimes catches me, or my efforts to cheat simply aren’t drastic enough, so very rarely do I change the outcome of the game. But no number of rules can keep me from trying. Nevertheless, I’m sure my husband would agree that rules and regulations are not sufficient. Game night would be far more ethical if, instead of relying on the game rules, we relied on our responsibility to one another (check back with me in a few months to ask how a recalibration of my own internal compass is going).

In his remarks to during the recent World Bank Annual Meetings, the Most Reverend Justin Welby (Archbishop of Canterbury) emphasized that ethics in finance is not about creating carrots and sticks, but about doing the right thing because it is the right thing to do. Welby’s charge to participants in the meeting, including Governor of the Bank of England Mark Carney and Managing Director of the International Monetary Fund Christine Lagarde, recognizes the necessity of the personal ethical compass—not solely a reliance on regulators.

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> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI

Last Friday I attended an event organized by The Guardian and sponsored by Visa called “How to Bank Billions: Exploring New Models for Financial Inclusion in Emerging Economies” at George Washington University. Speakers included Camille Busette, lead financial sector specialist at CGAP; Martha Brantley, director of business development at the Clinton Global Initiative; and Stephen Kehoe, head of global financial inclusion at Visa Inc.

The panelists shared new models for financial inclusion, emphasizing the need to truly address consumers’ needs and the importance of building a whole market ecosystem. Camille Busette affirmed that the intersection between these two approaches will truly advance financial inclusion. Other trends were highlighted, especially the need to have traditional financial services providers interested in financial inclusion in order to truly scale up its impact. Marin Holtmann from the IFC pointed out entirely new developments as mobile network operators (MNOs) acquiring banks or banks acquiring MNO licenses, as in the case of Equity Bank in Kenya.

The second half of the discussion was focused on barriers faced by the financial inclusion community. Most participants identified obstacles like regulation and traditional business models. However, the panelists agreed that these obstacles also present themselves as the greater opportunities. Stephen Kehoe illustrated both issues in a very insightful way. He stressed the need to develop public-private partnerships so that regulations are conducive to a growing ecosystem for digital financial services. Kehoe affirmed that the community doesn’t need to work on one particular business model but rather five different business models:

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> Posted by Elisabeth Rhyne, Managing Director, CFI

The CFI’s Financial Inclusion 2020 project team has been talking to the experts lately to get their views on the main recommendations that came out of our 2013 Roadmap to Inclusion process.

One of the high level recommendations was as follows:

Regulators need to craft regulation that allows technology-enabled business models to emerge, while balancing access and protection for base of the pyramid consumers.

We asked some of the experts to give their views on whether this recommendation is moving forward across the developing world. The general response was, “Not fast enough,” and so we probed to find out more about what is getting in the way.

Many of the players in financial inclusion envision a rich technology-enabled ecosystem in which customers can affordably use electronic means to make payments (inter-operably, of course) and to access savings, credit, and other financial services. In this vision, providers sometimes compete and sometimes partner to offer various services. Financial institutions, telecommunication companies, payment providers, governments, and others find themselves part of a complex network that seamlessly enables consumers to manage and enhance their financial lives.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Shakespeare asked, “What’s in a name? That which we call a rose by any other name would smell as sweet.” Having recently married and changed my last name, I can attest that there is a refreshing feeling that comes with a new name and clean slate. It is an opportunity to leave the past in the past and start anew.

Starting fresh with a new name must be especially freeing if the past was not a sweet smelling rose. According to a recent report, the Bank of Ghana (BoG) is cracking down on MFIs that repeatedly change their names to cover their tracks after they have duped members of the public. Raymond Amanfu, the Head of Other Financial Institutions Department of the Bank of Ghana reports, “Every day, I get at least five applications from companies wanting to change their names….Quite a number of them are actually messed up and want to clean up by changing their name.”

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> 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.

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Adam Mooney is the CEO of Good Shepherd Microfinance, Australia’s largest microfinance organization.

As the first day of spring arrives in the Southern Hemisphere, we see new buds emerging, fresh blooms, and a new sense of hope and optimism. In Perth, Western Australia, the Global Partnership for Financial Inclusion (GPFI) meets Monday, September 1 at a forum to stimulate, coordinate, and reflect on action to bring about financial inclusion. I am hopeful as the GPFI prepares recommendations for the G20 meeting in Brisbane in November this year, it will commit to powerful actions to boost the well-being of at least 2.5 billion people living in poverty around the world.

There is clear evidence that improving the economic well-being of the poorest third of the world’s population will have a profoundly positive impact on all people. Economic mobility and resilience at the family and community level directly leads to increased security, human connectedness, and hope for everyone. It also enables self-directed action to realize one’s own dreams and aspirations, however modest, leading to overall contentment. Yet despite such a compelling economic and social case, poverty and inclusion remain ideologically contested concepts where causality is often polarized into either inadequate human behavior or opaque environmental factors.

Speaking at the C20 Summit last month, I suggested that targeted inclusive finance around the world can and will be a key driver of economic growth, especially through production, employment, and education. It is not a coincidence that the number of people living in poverty is the same as those that are unable to access appropriate financial services, as measured by the World Bank’s Findex reports. These reports state that only half the world’s adults have bank accounts and of those, only 15 percent believe that their needs are understood and met by the products they have access to.

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> 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:

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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.

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> Posted by Rishabh Khosla and Vikas Raj, Senior Investment Analyst and Senior Investment Officer, Accion Venture Lab

In May, India’s new government, led by Narendra Modi, was elected in a landslide. Popular frustration with the Congress Party’s increasingly ineffectual 10-year reign, made most visible by persistently low GDP growth, allowed for one of the most lopsided victories in Indian history, and the first time a non-Congress candidate had an outright majority in parliament. Wisely, Modi focused his election campaign rhetoric on economic issues and more efficient governance to revive GDP growth. The markets have reacted positively: the bell-weather BSE stock-index is up 20 percent since the start of the year. Two weeks ago, the government finally proposed a budget for the next year – the first real concrete recommendations for the economy since coming to power two months ago.

India is a key market for financial inclusion investors like Accion Venture Lab because of the size, depth, and strength of its entrepreneurial pool, as well as the persistent lack of financial services for the poor. Despite the huge success of microfinance in India, two-thirds of the working-age population lacks a bank account, mobile payments have yet to take off, and access to credit for small and medium enterprises (SMEs) remains abysmal.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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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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