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> Posted by Center Staff
This edition of top picks features posts highlighting initiatives to optimize smallholder finance data collection and usage, efforts to improve youth financial capability, and insights on how mobile money services can effectively reach women.
To better provide financing for the 450 million smallholder farmers around the world, there’s a big opportunity in developing shared knowledge bases and coordinated learning agendas for this topic area. A new post on the CGAP blog shares the work of Dalberg Global Development Advisors and the Initiative for Smallholder Finance to ascertain the state of the smallholder financing knowledge base and put in place a number of complementary tools so that those addressing this financing gap can work together, repurpose what others have already learned, and build off of the field’s scarce resources to drive it forward. The post highlights a smallholder impact literature wiki, an interactive map of smallholder finance tools, a framework for data collection that includes a shared learning agenda, and new briefings offering supply and demand side insights as well as indications of where data is lacking.
> Posted by Eric Zuehlke, Web and Communications Director, CFI
With 1.2 billion people, youth between the ages of 15-24 represent approximately 18 percent of the global population, and 87 percent of youth live in developing countries. Yet only 44 percent of 15-to-24-year-olds have an account at a formal financial institution globally compared to 55 percent of adults.
Last week, I had the privilege of moderating a panel discussion on youth financial inclusion, hosted by Credit Suisse and organized by the Microfinance Club of New York. The presenters shared important examples of what has worked in providing financial education and services to youth. Joining me were:
- Barbara Magnoni, President of EA Consultants and co-author of CGAP’s “Analyzing the Business Case for Youth Savings“
- Maria Perdomo, YouthStart, Programme Manager, UNCDF
- Scott MacMillan, Communications Manager, BRAC USA
- Simon Bailey, Head of Learning, Research, and Network, Aflatoun
- Nathan Byrd, Head of Education Finance, Opportunity International
Recently, our Financial Inclusion 2020 team worked with Making Cents International to look at the barriers to and drivers of youth financial inclusion. We found that the primary reasons that youth cite for not having an account at a formal institution are a perceived lack of money, the high costs of services, and challenges in having proper identification. In addition, youth often feel that their financial assets or businesses are too small to work with a bank, especially in situations in which the costs of getting to a bank are high.
Despite these challenges, there are a few areas of opportunity. One is the business case. Since financial needs of young people grow in volume and sophistication over time there is a business case for serving them even as their financial needs are initially limited. Serving youth can help build a longer-term and loyal clientele if products are appropriate and financial capability is fostered. Another important area is financial education/capability. Establishing financial literacy early in life will help foster positive financial habits and lead to longer-term asset accumulation and higher credit scores. This needs to take place in a regulatory environment that supports financial inclusion and coordination among various players.
These three areas – the business case, financial capability, and the policy perspective – were the focus of much of the discussion at the event. I noticed that a few themes cut across the presentations:
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
India’s new Prime Minister Narendra Modi created much fanfare and excitement upon the launch of a financial inclusion plan for the millions of unbanked Indians (currently estimated at 40 percent of the entire population). The Jan-Dhan Yojana (Scheme for People’s Wealth) will provide a free, zero-balance bank account and a debit card allowing for electronic payments, coupled with accident insurance and overdraft protection. Indian media went wild for the aggressive first day of the program wherein 15 million bank accounts were opened.
While all should cheer the intention of Prime Minister Modi to build a more inclusive financial system, there are some cautionary tales, both old and new, that the scheme should learn from. The tool of a basic savings account has been touted for close to a decade in India where, in 2005, the RBI promoted a ‘no-frills’ account scheme. While millions of new bank accounts where opened under this scheme, researchers found that many of the accounts were dormant, underutilized, and hence ineffective at ushering the formally excluded into the formal system. Even in districts dubbed 100 percent included, the reality on the ground was far less exemplary in terms of enrollment and usage of accounts.
Prime Minister Modi might also take heed of a much more recent cautionary tale added by researchers at IFMR, a business school in Chennai. Co-authors Amy Mowl and Camille Boudot wanted to understand whether there were hidden barriers to individuals interested in savings and investing using a basic savings account. That savings account, formerly called no-frills, and now called a BSBDA (Basic Savings Bank Deposit Account), are mandated by the Reserve Bank of India to be offered by all banks. Mowl and Boudot hired and trained a group of mystery shoppers to pose as low-income customers interested in opening a BSBDA at 42 branches of 27 large banks in metropolitan Chennai. The experiences of these mystery auditors was tracked, recorded, and analyzed by the researchers. The results were stark.
> Posted by Sonja E. Kelly, Fellow, CFI
In most places around the world the subject of pensions is a sore one. In 2012, for example, in looking at arguably the crème of private employers, Fortune 100 companies, only 30 offered their U.S. new hires pension plans, down from 47 in 2008. For public sector employees in the U.S. in the same year, the pension plans of 26 states were less than 70 percent funded. In lower and middle-income countries where financial security is weaker, the situation is even worse. In India, the pension system only covers roughly 12 percent of the population.
The severity of these figures is amplified when we look at demographic trends. Between 2010 and 2020, the population of older adults will almost double in middle-income countries. Worldwide over the decade, it will increase by 40 percent. By 2050, there will be roughly 1.5 billion older adults, 315 million of whom will be in India.
Aging presents unique challenges and opportunities to the financial inclusion industry. During a session at the Microcredit Summit in Merida, Mexico a few weeks ago, five panelists met to discuss this topic. John Hatch (FINCA), Pilar Contreras (HelpAge), Caroline van Dullemen (World Granny), Reynold Walter (REDCAMIF), and myself all acknowledged the demographic reality—as populations age, if countries have not helped their societies and economies to prepare, they will face a global train wreck in the form of older people without adequate means of support and support systems that are overwhelmed. Financial inclusion can and should play a unique role in helping both individuals and whole countries mitigate risks.
> Posted by Lisa Kienzle, Director, Mobile Financial Services, Grameen Foundation
The following post was originally published on the ImpactX blog of the Huffington Post.
Women are the backbone of the household in Africa — they manage the home, care for the children, are responsible for education and healthcare, and contribute to the household’s livelihood. Helping women helps the entire family. However, women continue to lag men in participating in the formal economy, including accessing financial services.
The Problem: The Poor — Especially Women — Are Excluded From Financial Services.
For the rural poor — especially women — accessing formal financial services is nearly impossible. Few have formal identification needed to open an account; others lack a stable job or collateral needed for a loan. Often bank branches are far from a rural village, making the trip to deposit or borrow funds too expensive and time-consuming.
Many of the rural poor have taken up an approach to support saving and borrowing by forming Village Savings and Loan Associations (VSLAs). Under this approach, 25-30 members of a community form a group. This group meets weekly and saves a fixed amount — at times, as little as 20 cents a week. The savings are lent out to members as loans. All money not lent out is stored by the group treasurer in a metal box secured with three locks and three keys, which are held by three separate key holders. It is, as some group members call it, the “Village Bank.”
> 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 Jeffrey Riecke, Communications Associate, CFI
Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.
The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.
> 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 Eric Zuehlke, Web and Communications Director, CFI
It’s a big couple of weeks for Africa here in Washington, D.C. On Monday, President Obama hosted a town hall meeting to welcome this year’s class of the Young African Leaders Initiative (YALI). Launched in 2010 by Obama, YALI supports young African leaders as they spur economic growth and prosperity, strengthen democratic governance, and enhance peace and security across Africa. These Fellows spend six weeks at one of 20 U.S. universities and colleges undergoing leadership training and mentoring in business and entrepreneurship, civic engagement, and public administration. Next week, the State Department will host the U.S.-Africa Leaders Summit with heads of state from 50 African countries to advance the U.S. Administration’s focus on trade and investment in Africa and discuss security and democratic development.
Nearly one-third of all Africans are between the ages of 10 and 24, and approximately 60 percent are below 35. YALI is tapping into the drive and energy of Africa’s youth to effect change. Many Fellows in the YALI network are focused on improving access to financial services, whether it’s encouraging a savings culture in Zimbabwe, establishing microfinance programs for women and youth in Kenya, or creating a microfinance program to help start medical supply stores in Kinshasa, Democratic Republic of Congo.