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> Posted by Center Staff
Unless you’re with one of the few organizations working to combat youth financial exclusion, you probably don’t hear much about the issue. A few weeks ago, the world celebrated Global Money Week, which is gaining encouraging participation and engagement. Sadly, aside from this annual blitz of activity, there isn’t much in the airwaves on expanding financial access to this hugely underserved client segment. According to the Global Findex, in higher-income countries, 42 percent of youth save in financial institutions. The next highest regions are East Asia & Pacific and sub-Saharan Africa, where this rate is 19 and 9 percent respectively. During our youth, financial services and financial education help us save for the future, form good money management behaviors, and navigate life transitions like getting an education and starting a family.
The MasterCard Foundation, as spotlighted in a recently released report, has been quietly busy these past seven years working to address this shortcoming. Since 2008, the Foundation in partnership with six organizations has worked with over 30 financial services providers and non-profits to expand youth access to banking services. The new report, Financial Services for Young People: Prospects and Challenges, reviews the MasterCard Foundation’s youth financial inclusion projects for insights and learning to inform future industry efforts.
The following post was originally published on the MasterCard Center for Inclusive Growth blog.
Reaching full financial inclusion by 2020 will require supportive policies in every country around the globe. The Economist Intelligence Unit’s “Global Microscope on Financial Inclusion, 2014” assesses the policy environment for financial inclusion in 55 countries. The Microscope examines 12 policy dimensions essential for creating an inclusion-friendly regulatory and institutional framework. The rigorous model incorporates input from hundreds of policy makers and participants in the financial sector and a review of existing policies and implementation. The resulting rankings represent the best readily available source for judging the state of financial inclusion policy around the world.
What’s surprising about the 2014 Microscope results is their wide range. Out of a possible 100 points, the top scorer (Peru) received 87 while the lowest (Haiti) earned only 16. If full inclusion requires good policies, it is disappointing to learn that the median score across all countries was a mediocre 46.
> Posted by Shaheen Hasan, Manager, FI2020 at CFI
The Center for Financial Services Innovation (CFSI) has been leading the charge in the U.S. to move beyond traditional financial education toward models that help consumers translate financial knowledge into better financial behavior in their everyday lives. CFI interviewed Josh Sledge of CFSI to understand the trends shaping capability-building efforts in the United States.
What are signs that a financial capability framework is gaining traction in the United States?
CFSI works with a vast and diverse network that includes banks, credit unions, non-profits, financial technology companies, government agencies, and academics. Over the past several years, we’ve seen a shift in focus and approach among these various groups of stakeholders that reflects adoption of the financial capability framework. In other words, organizations and companies are increasingly placing an emphasis on helping consumers achieve real and meaningful financial behavior change.
Nonprofits and philanthropic organizations are pushing themselves to create deeper impact and experimenting with new strategies to do so. A wave of recent start-ups is employing technology to give users new products and tools for saving and managing money. Innovative banks are creating budgeting tools, introducing refined messaging, and forming partnerships to help customers better manage their money. We’ve been encouraged to see these developments as they demonstrate that the financial capability framework is taking hold. However, there is still plenty of room to go further.
Where is momentum stalling?
Scaling effective strategies for building financial capability has certainly been a challenge. We’re seeing new high-potential strategies emerge and practitioners and researchers taking a focused approach toward evaluating programs and products for their impact on financial behavior. Taken together, we’re poised to see the emergence of innovative but proven models for improving financial capability. This is a tremendous development, but the next step is implementing these models at scale in order to reach the millions of households that are struggling to manage their finances.
> Posted by Sonja Kelly, Fellow, CFI
When I started my doctoral research on financial inclusion policy and regulation, I was secretly thinking, “Surely this cannot be too complicated—it’s just the regulator directing financial institutions to make services available for excluded people.” Now, five years into my PhD, I’ve finally admitted what I should have known from the beginning: regulation of financial services providers is almost impossibly complex, and making sense of financial inclusion policy and regulation requires a great deal of creativity, especially given all of the different factors that supervisors have to consider beyond prudential supervision.
A new publication on the range of regulatory issues that affect financial inclusion confirms this. Supervised by the Basel Consultative Group and researched by CGAP (in full disclosure, I was a part of the team), the publication describes the regulatory approaches to financial inclusion in 59 jurisdictions from all world regions.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Coinciding with this week’s Mobile World Congress in Barcelona, GSMA’s Mobile Money for the Unbanked (MMU) program released its fourth annual ‘State of the Industry Report on Mobile Financial Services.’ I talked with Jennifer Frydrych, Insights Coordinator for the MMU program and one of the authors on the report, about the project’s findings. The conversation touched on new markets, shifts in the mobile payments mix, successes with products beyond payments, the main hurdles facing mobile money ecosystems, and more.
1. The mobile money industry has grown rapidly in recent years. Can you bring us up to date with some of the growth figures and dynamics?
In the past five years, mobile money services have spread across much of Africa, Asia, Latin America, and the Middle East. At the end of 2014, there were 255 live mobile money services across 89 markets, 36 more than in 2013. Mobile money is now available in 61 percent of developing markets globally. In terms of adoption and usage growth, 75 million additional mobile money accounts were opened globally in 2014, bringing the total number of registered accounts to 299 million. Importantly, account activity increased faster than account registration in 2014, and the total number of active mobile money accounts is now 103 million (up from 73 million in 2013). An increasing number of services are reaching scale: 21 services now have more than one million active accounts.
2. As of the last State of the Industry report, half of all live mobile money deployments were in sub-Saharan Africa. How has this distribution changed? What were some new or emerging markets of the past year?
There were 22 new services launches in 2014, of which half occurred in sub-Saharan Africa. The mobile money industry in sub-Saharan Africa continues to grow, and the region still accounts for just over half of all live services globally, and 60 percent of all active accounts. Much of this success can be attributed to East Africa; however we are now seeing exciting growth in mobile money uptake and active usage in West Africa.
> Posted by Alexandra Rizzi, Deputy Director of the Smart Campaign, and Jami Solli, Independent Consultant and Founder of the Global Alliance for Legal Aid
When clients are facing loan default, they’re often in the most precarious financial position of their lives. As we detailed on this blog last week, navigating the default process can be exceedingly complex for clients. It can be complex for providers, too. No doubt, on both ends the stakes are high. In a new Smart Campaign research report released last week, What Happens to Microfinance Clients who Default?, we examined how providers behave at this juncture and the factors informing these practices.
The research team selected three very different markets to compare – Peru, India, and Uganda.¹ An analysis of three markets does not represent the entire sector. However these three countries represented great diversity in legal and regulatory systems, market infrastructure, in particular credit reporting, and use of group versus individual loans, among other factors. These three countries are also locations where the Smart Campaign has cultivated supporters and partners, which persuaded providers to share information on sensitive debt collection practices.
In total, we conducted interviews with 44 providers. In addition to MFIs, the most helpful interviews were with credit bureaus. Fonts of information, they helped us understand the topography of market debt as well as the information MFIs have when making decisions. And, as we came to understand, information was a critical determinant to what actions MFIs took when a client defaulted.
> Posted by Eric Zuehlke, Web and Communications Director, CFI
Financial inclusion stories and research are published daily, lauding various efforts to bring lower-income people into the formal banking fold. All progress deserves celebration, but also closer examination. When a new initiative takes effect, or a new service deployed, how does that advance us in achieving financial inclusion? A backdrop of sound measurement is critical. A BBVA research team, Noelia Cámara and David Tuesta, recently set out to construct an index that measures the extent of financial inclusion at the country or region level. The index is discussed and applied to 82 countries in the team’s new paper, Measuring Financial Inclusion: A Multidimensional Index. We were especially intrigued to learn that this research incorporates both supply and demand-side data. I recently sat down with Cámara to talk about the project, from challenges in measuring financial inclusion to the implications of the newly-available index.
1. What are the challenges in measuring financial inclusion?
Many issues arise when it comes to measuring financial inclusion. First, there is no single definition for financial inclusion universally accepted in the literature. Most definitions include three dimensions: use, quality, and access. However, when it comes to defining these dimensions, no consensus is found. For instance, the use of financial services is part of the financial inclusion concept, but it is not clear what “use of financial services” really means. Thus, several questions come to the fore: Do we consider having a bank account in the formal financial system to be a necessary condition for financial inclusion? Is having a pre-paid card or microinsurance enough to classify an individual as included? Is using electronic payment intermediation (e.g. paying bills with a mobile phone) a sufficient condition?
> Posted by Eric Zuehlke, Web and Communications Director, CFI
“I took today off because the stress is too high. I was going to borrow $200 from a friend and it fell through. I truly need it. I want to cry and can’t. I need it before the month is out. I had it and lent it to my family and I’m catching hell getting it back.”
— Tammy, age 60, U.S. Financial Diaries participant
According to the U.S. Census Bureau, the U.S. supplemental poverty rate is 15.5 percent, meaning that 48.7 million Americans live below the poverty line.¹ While poorer households face higher difficulties to make ends meet, households across the lower and middle-income spectrum in the U.S. struggle with income volatility, unplanned expenses, and finding ways to save and invest. But they also use creative ways to manage their budgets and money.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Obtaining a mortgage is often the single largest transaction a person will ever make. Despite this, about half of Americans actively consider only one lender or broker before taking out their mortgage. Why? A new report from the U.S. Consumer Financial Protection Bureau (CFPB) details this phenomenon and some of the factors in play, especially consumer confidence. Tuesday, at an event releasing the report, CFPB Director Richard Cordray put the reality into stark and relatable terms, positing that many individuals spend more time shopping around for a TV or other household appliance than they do looking for a good mortgage. He remarked, “When you are spending a lot of money, you are literally betting the house on the choices you are making.” At the event, Cordray launched a suite of tools from the CFPB to empower informed decision-making. The hope is that these tools will ultimately get Americans to… shop.
Cordray recommends that mortgage seekers fill out applications with multiple lenders to see which one offers the best deal. Filing multiple applications doesn’t hurt one’s credit score, contrary to popular belief; multiple credit checks from potential lenders within a certain time window (generally 14-45 days) are considered a single inquiry. The CFPB report, which is based on new data in the National Survey of Mortgage Borrowers, found that 77 percent of borrowers only apply with a single lender.