You are currently browsing the category archive for the ‘Policy’ category.
> Posted by Elizabeth Davidson, Financial Inclusion 2020 Consultant
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Does Walmart pose a threat to banks? Some bankers are apparently worried the retailer indeed does. As Bloomberg recently uncovered, a group of bankers that advises the Federal Reserve asked U.S. regulators to keep Walmart out of the financial services business, or at least strictly limit and regulate their financial services-related products, including its established prepaid card business. Offered in partnership with American Express, the prepaid cards, known as Bluebird, are even marketed as a “checking and debit alternative.” The bankers’ group, called the Federal Advisory Council, thinks they are not just an alternative to traditional financial services, but a bona fide financial service in a “shadow banking” system that enjoys less regulation than traditional commercial banks.
So, is Walmart a real threat to the traditional sector? Maybe, but it and other big retailers could have the potential to reach those excluded from or underserved by traditional commercial financial services.
Consider the example of Banco Azteca in Mexico.
Banco Azteca, which CFI’s Elisabeth Rhyne called a “mega-success story” in terms of its reach and to whom the Inter-American Development Bank recently awarded its “equalBanking” prize for support of diversity and gender equality through financial services to the base of the pyramid, has a much different beginning than most banks: it grew out of one of Mexico’s largest consumer goods retailers, Grupo Elektra. After almost 50 years of experience offering consumer financing to its working class customers, the retail chain opened Banco Azteca branches—notably, after receiving a banking license—in all of its existing stores, establishing Mexico’s second largest network of bank branches almost overnight.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published in the Guardian Development Professionals Network DAI Partner Zone.
When the Global Findex, an unprecedented demand-side survey by the World Bank and Gallup, was released last year, it marked the first time financial inclusion statistics from the demand side were available on a globally consistent basis. The headline: 2.5 billion adults (including 59 percent of adults in developing countries) are “unbanked” — that is, they do not have an account at a bank or other formal financial institution.
Why is having a bank account the top indicator of financial inclusion?
Setting aside the obvious point that bank accounts are among the easiest indicators to track, the policy focus on “banking the unbanked” seems to rest on the premise that bank accounts have a special role in financial inclusion. Three important functions ascribed to bank accounts are: a place to save, a money management hub, and a way to establish an ongoing relationship with a formal financial institution (an “on-ramp” to other services). These assumptions appear to underpin much of financial inclusion thinking and policy.
If a bank account is a money management tool – a central node through which a person’s financial transactions flow – it will be used regularly. This is the way most people in the developed world (and, I suspect, most financial inclusion policy makers) use bank accounts. However, many accounts in the developing world are relatively inactive. Taking the frequency with which people make more than two withdrawals per month as a proxy for operating an account as a money management hub, the following chart divides the “banked” into low – and high – activity accounts.
> Posted by Elisabeth Rhyne, Managing Director, CFI
I don’t know how they will do it. Bank regulators, that is. How will they cope with the challenges coming their way throughout this decade of rapid financial sector change?
In the good old days, if there were such days, bank regulators operated inside their comfort zones in a world with known risks. A standard set of skills and knowledge saw them through. If I may indulge in stereotype (without being entirely unfair), the profile a bank supervisor needed was: good with numbers, cautious, a stickler for details, dedicated, often courageous, and having a strong sense of right and wrong. These are all wonderful qualities, and for prudential supervision of banks, there was a good fit between the task and this personal profile. Just as important, the bodies of knowledge regulators and supervisors needed was well understood.
Not today. The post-financial crisis world deeply challenges the comfort zone for banking authorities. In specific, I want to focus here on how financial inclusion challenges it. Changes associated with financial inclusion require banking authorities to move beyond their zones and develop a broader range of skills and qualities in at least three ways.
1. Adapting to continual technology change. Regulators around the globe are struggling today to create regulations that will bring the wonders of mobile money into their countries. But mobile money is only the technology du jour. Just as regulators get mobile money squared away, new technologies and business models are bound to appear and render regulations on the previous model outdated. I suspect, for example, that the spread of smartphones will upend SMS-based mobile money models, forcing regulators to shift focus from telecoms operators to cyber-security. Each new technology brings different players, new business models, and its own set of stresses on regulatory boundaries. While there are many with deep technical expertise among bank regulators, the pace of change is daunting, especially for organizations that must work within or seek to change legislative and regulatory constraints.
2. New mandates for consumer protection, especially at the base of the pyramid. Bank regulation is built around a time-honored and economic-theory-backed justification that includes financial system stability, and in many cases depositor protection, but not what we know as consumer protection (transparency, product suitability, fair treatment, recourse). Regulators now need to view consumer protection supervision as an equal and necessary compliment to prudential supervision. But legislative mandates for consumer protection are new and still incomplete, organizational structures are often missing or overlapping, and the body of knowledge that supports consumer protection regulation is still quite young. Prudential supervision is still seen as the “hard science” by numbers-driven supervisors, while consumer protection may be viewed as nice but not really essential. Very few countries currently have consumer protection regimes that are mature and successful enough to serve as models.
> Posted by Timothy Nourse, President, Making Cents International
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.”
Last week, I participated in a Youth Financial Inclusion workshop for the Middle East/North Africa (MENA) region, organized by Silatech and CGAP. Financial institutions in the MENA region are unfortunately the least inclusive in the world. Global Findex Data indicates that only 18 percent of the population has accounts at formal financial institutions, compared to a developing economy average of 41 percent, and among youth ages 15-24, the rate is even lower, reaching only 13 percent when the developing country average is 31 percent. The youth statistics are particularly distressing, considering that the Middle East’s youth bulge is quickly becoming a liability, rather than a demographic dividend.*
During the conference, participants debated how to respond. To what degree should the focus be on credit or savings, the policy environment or product delivery, and financial or non-financial services? In particular though, they wondered whether they should even make specific (and perhaps expensive) efforts to expand youth access. After all, microfinance institutions were already serving youth at a higher level than banks, why not just continue to grow broadly, and to use an economics metaphor – let the tide lift all boats?
Back in the office, I thought about how the youth-inclusive financial services field has been discussing these issues over the past few years, and I wanted to share some of the emerging recommendations that respond to these questions:
- Start with savings. USAID and other research indicates that teens and young adults in developing countries are already economically active, have financial resources, and demand tools to manage their money. Although credit is one of these tools, and is appropriate for young adults with entrepreneurial aspirations, savings should be the entry point for the vast majority. Besides encouraging asset accumulation and serving as an appropriate entry point for a relatively vulnerable population, savings has been linked to the development of critical long-term planning and goal setting skills in youth.
- Remove legal impediments to access. Many youth are left out of the financial system by laws that prevent them from opening accounts on their own and identification requirements that are difficult to fulfill. Revising these laws to reduce the age of majority or working with central banks to provide flexibility for proof of identification would improve youth access to financial services. For example, in Zambia, Natsave Bank, working with Making Cents, received a waiver from the Bank of Zambia to allow co-signers to help establish the legal identity of account holders under the age of 19. Read the rest of this entry »
> Posted by John Gitau, CEO, Kenya Financial Education Centre
The other day, I received a text message from an engineer keen on financial inclusion matters. He wrote:
“Morning Sir! I was just thinking. At what cost is financial inclusion? I have just read a big sign in Donholm: Redeem your airtime for cash. Does this add to financial inclusion? If I am stuck, someone can sambaza (share) airtime and then I can redeem it as cash and get fare to go home. In financial inclusion, since you are in this field, is it all about such access and convenience to financial services?”
I didn’t immediately have an answer to his question. It sent me thinking broadly and deeply. Through M-Pesa, Safaricom has a “financial inclusion” base of over 16 million Kenyans. Then I remembered that in the G20 Los Cabos Summit of June 2012,* mobile money use was left out as one of the measures of financial inclusion. Having a formal bank account was in. But this realization left me more confused. Safaricom mobile connectivity through its M-Pesa product is excluded as an inclusion parameter just because Safaricom isn’t a bank? Wait a minute, now we have M-Shwari, a bank account at Commercial Bank of Africa available to M-Pesa customers through Safaricom. How shall that be treated? Inclusion within a largely excluded service? Of all Safaricom M-Pesa customers, are only those with M-Shwari accounts counted as included?
This reminded me of a story in Chinua Achebe’s Things Fall Apart about a character called Dimaragana who could not give his knife to cut dog meat because dog meat was taboo, but he was ready to cut the dog meat with his teeth. So, Safaricom customers using M-Pesa are not included but perhaps if they go deeper into its system and buy a product called M-Shwari, they’ll get included? Unsatisfied, I thought about a few other financial services scenarios. If an M-Pesa customer were to close off her M-Shwari account while still using M-Pesa, would that be exclusion? Suppose instead of M-Shwari, she sends money to her retirement benefit scheme through her Mbao Pension scheme. Would she then be considered included? She could also buy an insurance policy from CIC Insurance using their Ksh 20 insurance-per-day scheme and make her payments through M-Pesa… Still excluded?
> Posted by Eric Zuehlke, Web and Communications Director, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
The world is undergoing a profound demographic shift with big implications for financial inclusion, according to the new CFI report, Looking Through the Demographic Window: Implications for Financial Inclusion. The report is the first from Financial Inclusion 2020’s Mapping the Invisible Market, sponsored by MasterCard. This research project examines forces that are instrumental in the world achieving full financial inclusion by 2020 including demographic change, economic growth, technology, and more.
Our new Mapping the Invisible Market website features two cool interactive data visualization tools that show the relationship between financial inclusion and demography. Data Explorer is a dashboard that displays the information from over 80 indicators and geographic areas in bar charts, bubble graphs, and maps. Country Profiles allows users to explore any country or region’s financial inclusion and demographic profiles.
So what does the first report have to say? Poorer countries are experiencing lower birthrates and longer life expectancies, leading to larger working-age populations (see figures below). As the share of the population below age 15 and above 65 lessens, a “demographic window” opens for social and economic opportunity since fewer resources are required to care for these “dependent” populations. The window presents a significant opportunity for the developing countries of middle income where most of the world’s population lives. But, benefitting from the demographic window depends on access to quality education and sufficient economic and employment opportunities – and financial inclusion.
It is well understood that more developed countries are already beyond this stage, facing different challenges as their populations age. The working-age population is decreasing, creating more dependency as caring for older people requires more public investment and individual resources through health care. Not only is the working-age population decreasing, but older populations are living longer due to health care advances. In the poorest countries, the window has yet to open, as birthrates are still high and life expectancies low.
So what does this all mean for financial inclusion?
The following post, written by Tilman Ehrbeck, CEO of CGAP, was originally published on the Huffington Post Business Blog, with the title Behavioral Insights to Advance Financial Inclusion — or Why Swedes Are Not Necessarily Better Human Beings Than Danes.
In Sweden, all new drivers start out registered to be organ donors in the event of their passing. They have the freedom to opt out without negative consequences. Fourteen percent decide to do so and 86 percent remain organ donors. Across the Oresund, less than 10 miles away, Danes have to proactively decide whether they want to become organ donors. Less than 5 percent do, and more than 95 percent don’t. On the global scale of things, Sweden and Denmark are culturally quite similar: generally credited with being open-minded, socially responsible, common-sense Scandinavians.
The vast difference between Swedish and Danish organ donor participation rates (technically “presumed consent”) despite all the cultural similarities is one of the most dramatic examples of the power of policy design that takes into account pervasive human cognitive and behavioral biases to help us do what we generally think is a good thing, but often have a hard time following through with. One such bias is that, when decisions are tough, we tend to prefer the status quo; and relatedly, it’s much harder to proactively opt for something, rather than to simply stick with the offered default choice. (The approach, popularized by the term ‘nudging,’ even led the UK Prime Minister to set up a ‘nudge’ policy advisory unit.)
> Posted by Vanesa Sanchez, Senior Analyst, Economist Intelligence Unit
The Economist Intelligence Unit’s 2012 “Microscope on Microfinance” benchmarking study – the sixth of the EIU’s annual microfinance markets assessments – features new indicators on responsible finance and client protection that cover two of the seven Smart Campaign Client Protection Principles. Transparency in pricing looks at the laws, regulations, and practices in place for interest-rate transparency among MFIs. And Dispute resolution evaluates whether a country has mechanisms for the timely resolution of disagreements, at a reasonable cost, between microfinance lenders and borrowers. These indicators were incorporated to recognize the growing importance of client protection and financial responsibility for the sustainable growth of the microfinance industry.
An empirical analysis of the Microscope by the World Bank’s research department found that after controlling for other potentially influencing factors, both of these indicators were positively correlated with market penetration measures, for example microcredit borrowers as a percentage of the country’s population or of the poor population. These indicators also correlate positively with the average loan portfolio size of MFIs at the country level. In other words, larger and more developed microfinance markets are also more likely to have consumer protections in place.
> Posted by Stephen Thomas, Director of Risk Management, Credit Suisse
Morocco has one of the most extensive and vibrant microfinance sectors in the Middle East/North Africa region, with roughly 800,000 clients and $60 million in outstanding loans. The country’s microfinance industry hasn’t always undergone steady growth. After years of early, strong growth in a relatively lightly regulated environment, Morocco’s microfinance industry underwent a period of crisis beginning around 2006. During this time default rates rose to worrisome levels and the financial soundness of a number of microfinance institutions became imperiled.
The country’s government moved swiftly, both over this period of time, and continuing to the present. It enacted a number of laws designed to improve industry regulation. In 2006, it formalized the country’s Central Bank’s regulatory authority over the industry through Law No. 34-03. The Bank then took a series of steps to effectively enforce the government’s laws and expand its oversight of the lending activities. These steps included enacting additional legislation, conducting on-site inspections, and, when necessary, intervening. In September 2009, additional regulatory requirements were issued through the Directive on the Governance of Microfinance Associations. The Directive provided further clarification of managerial obligations with regard to governance, internal controls, external audit, the management of credit, liquidity and operations risks, and transparency. Other government-led measures during these years following the 2006 crisis include enhancements to regulations regarding risk management practices and contract transparency, and formally defining industry client protection principles. Adopted in 2010, these client protection principles were outlined in the Microfinance Code of Ethics and incorporate the concepts that are enumerated in the Smart Campaign’s Client Protection Principles.
> Posted by Anita Gardeva, Senior Analyst, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
“Big data.” This is the buzzword for the use of the unprecedented amounts of information about individuals, their actions, and their preferences that is now becoming available through electronic transactions. This information has the potential to unlock powerful transformations in both the business and policy worlds.
At the Center, many members of our Financial Inclusion 2020 campaign point to the potential of “big data” throughout our consultative process to build a roadmap to inclusion. There is a general consensus that data analytics will change the face of financial inclusion in far-reaching ways. Analysis of big data can improve the operations of financial services providers to expand access, decrease costs, and improve products. It can also result in smarter policies. Below we break out four ways data analytics can play a role in advancing financial inclusion:
Facebook
Twitter
Recent Comments