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> Posted by David Porteous, Managing Director, Bankable Frontier Associates
In Beth Rhyne’s recent blog post (“Base-of-the-Pyramid Savings Among Accion Partners: Some News Is Bad and Some News Is Good”), she argues for the need to stratify deposits by size to understand what is happening inside a bank’s portfolio of depositors. We agree. We have just completed the four year GAFIS project, sponsored by Rockefeller Philanthropy Associates and funded by the Bill and Melinda Gates Foundation. Through GAFIS, we worked with five large commercial banks around the world (shown in the map below) to promote the development of appropriate savings products directed at low income people.
These five banks, which typically rank as largest or second largest retail banks in their domestic markets, collectively report 77 million customers. They too suffer from high rates of dormancy, ranging from 20 to 90 percent in different account categories. Yet they were willing to embark on a peer journey of learning and support to seek to overcome the channel and product issues which had limited the success of their savings products. And they were willing at the end to disclose in the public report, available here, some indications of the underlying stratification of their deposit. The chart below, extracted from the GAFIS report, compared median with average balances in the account categories which GAFIS supported, underlining the message in Beth Rhyne’s blog about the need to stratify savings. Read the rest of this entry »
> Posted by Elisabeth Rhyne, with input from Liza Guzman and Leonardo Tibaquira of Accion
Accion has made a concerted effort over the past few years to promote savings among its partners and affiliates around the world, and those organizations have racked up some impressive statistics. There are 2.9 million savers using the 17 financial institutions associated with Accion that have savings operations, and the total amount on deposit is nearly $4 billion (data as of September 2013). The average savings amount, at $1,376, is uncannily similar to the average loan, $1,460.
But behind these numbers lies a very different story that reflects deep-seated cultural differences in the approach to savings among Latin American and African microfinance institutions – and their customers.
Several of Accion’s Latin American partners are mature commercial banks or finance companies that started with a strong microcredit orientation and subsequently gained the approval to accept deposits. At this point, several have somewhat more savers than borrowers, and loan portfolios mainly funded by deposits. As would be expected, average loan sizes are several times the size of average savings.
On the surface, Accion’s four newer and smaller partners in Africa look similar, though the ratio of savers to borrowers is higher (5-10 times as many savers as borrowers), and average savings balances are a smaller fraction of average loan sizes. The loan portfolios of two of the four are fully savings-financed; the other two require some outside funding.
Looking more closely at the Latin American institutions, one might at first think that they have reached the elusive goal of offering a balanced set of savings and credit services to their base-of-the-pyramid clients. However, a large portion of the accounts included in the total above are dormant, with balances less than $1. In half the institutions, over 70 percent of the accounts are dormant. Dormancy is prevalent among savings accounts in banks everywhere, but in these institutions the level is higher because many of the accounts were created as loan disbursement and repayment accounts. They were not regarded by either provider or customer as saving vehicles. Despite the large number of accounts, most of the actual savings comes from a relatively small number of term deposits, including large deposits from institutions.
> Posted by Mary Hansen, Organizational Development and Training Associate, Accion
842 million people struggle through the hunger games yearly. The games begin as food and money run low sometime before harvest and last until the first ripe crops. This is better known as los meses flacos, the thin months, in Latin America. Or as I knew it in East Africa, wanjala in Swahili and nyengo yonjala in Chichewa (the hunger season). These recurring hunger games are not state sponsored and the participants do not fight each other to the death, but they do fight individuals, families, or communities to survive. Every day, 25,000 people around the world die from hunger-related causes, including 16,000 children. That’s one child every five seconds.
The regions deeply affected by hunger depend heavily on smallholder farming. Around 75 percent of the world’s poor are smallholder farmers. Half of the world’s undernourished people, including three-quarters of Africa’s malnourished children and the majority of those living in absolute poverty live on small farms.
Personally, I struggle with budgeting when paid twice a month. When I was in the Peace Corps in Malawi and was paid monthly, I struggled even more. Yet, smallholder farmers often receive payment only during harvest, or twice a year. I still do not fully understand how families survive with this income structure, even though I lived in a rural town in Malawi for two years. Yet, this is the reality for many of the 2.5 billion people that depend on smallholder agriculture for their livelihoods.
> Posted by Véronique Faber, Executive Director, Microinsurance Network
Three months ago, Jeremy Leach from Bankable Frontier Associates rightly asked in this same forum: “Microinsurance: Can the Cinderella of Financial Inclusion Join the Global Ball?” This question rang a bell with many practitioners and advocates in this field. Microinsurance is often the last service listed when talking about financial inclusion tools. However, credit, savings, and insurance work more effectively in combination rather than in sequence. In stimulating and maintaining financial inclusion, it is crucial that those with a limited income have a safety net preventing them from falling into poverty when hit by a crisis, catastrophic or lifecycle related, and become more resilient against future risks.
Since Leach’s blog post, the sector has been granted three wishes (by its fairy godmother or perhaps as a result of good common sense). If these wishes are used well, insurance for low-income people will be an integral part of any global financial inclusion strategy from now on.
The first wish came in the form of visibility and awareness raising. The opening panel at the Financial Inclusion 2020 Global Forum had representatives from MetLife and Swiss Re debating how financial inclusion factors like income growth, new technologies, and government prioritization play out in the context of insurance. For the rest of the conference, insurance was on every participant’s mind when thinking about the possibilities of what can be achieved in the next seven years. This is important because insurance is essential for sustainable development and financial inclusion.
> Posted by Dave Grace, Managing Partner, Dave Grace & Associates
This week I received my self-addressed postcard from the Financial Inclusion 2020 Global Forum reminding me of my personal commitment to help ensure the safety of consumers’ savings and rights as they join the financial system. My first reaction was how slow the post is, but on deeper reflection I recognized that the postcard arrived just at a time when I needed a reminder of my commitment.
In addition to the new connections made at the Global Forum, two comments stood out for me; one was rooted in the past and the other in the future.
Remembering the Past
When Michel Khalaf from MetLife described the company’s roots as an insurer for the working class and the legions of agents who went door-to-door collecting weekly premiums of $.05 or $.10 and dispensing financial advice, I instantly understood something important about my grandfather. Until then, I had just thought of him as a MetLife agent in the steel belt towns of the northeastern U.S. in the 1920s and 1930s. He left school at age nine to help the family make ends meet when his own father prematurely passed away. He first worked shoulder-to-shoulder in the coal mines with many other immigrants. His math skills and ability to work across ethnic groups enabled him to leave the mines and become a top agent for MetLife. He knew firsthand how dangerous the mining work was and how a temporary or permanent injury could be a huge setback for these vulnerable families. Once the Great Depression hit and people could not access their deposits in banks, many of his clients turned to my grandfather for financial help. He had some liquidity and became a de facto deposit insurer, paying people what he could and in the process becoming a larger creditor of the illiquid banks.
Anticipating the Future
While Michel Khalaf’s comments helped me piece together my own family history, what stood out more was the collective prediction by attendees in London that the most important story in the next five years will be the presence of a “bank run” on mobile money.
> Posted by Center Staff
You’d be forgiven for not noticing, but last week, the CFI Blog published its 1,000th blog post. We started this blog in September 2008 in conjunction with the Center’s launch, as a forum for discussion, analysis, and even debate on the many issues facing financial inclusion. A lot has changed since 2008. The past few years have seen a shift in focus toward wider financial inclusion, moving beyond microcredit to include services such as savings and insurance. Technology, through mobile banking, big data, and other developments has made greatly expanded access to financial services. Client protection has become more firmly embedded into the microfinance industry. And yet, the quality of services and effective regulation continue to be as important as ever before. Going through our archives, you can see these shifts before your eyes. As this blog goes on, in addition to being a platform for sharing the latest developments and insight, it has become a historical record of how the microfinance industry has developed and changed.
This blog couldn’t be successful without the input of our many guest bloggers over the years who have leant their insight and expertise. If you ask us, it’s this range of outside expertise that makes this blog successful. We thank all of you who have written for us over the years and all of you who have shared your thoughts by commenting on our posts (5,557 comments and counting!).
Feel free to browse through our posts throughout the years via the “Archives” drop-down menu on the left-hand side. Here’s to the next 1,000!…
All-time most-read blog posts:
5 Great Books About Microfinance and How the Poor Use Money (August 23, 2011) by Yvonne Chen
5 Countries Where Microfinance Works (February 18, 2011)
Nicaraguan Microfinance in Crisis (November 5, 2009) by Sergio Guzmán
Interest Rates 101: APR vs. EIR (June 8, 2010) by Courtney Piper
Microfinance vs. Financial Inclusion: What’s the Difference? (February 27, 2013) by Susy Cheston and Larry Reed
> Posted by Center Staff
This edition of Top Picks features posts highlighting findings from new research on the global mobile money industry and on remittances in Africa and Asia, as well as a post on how innovation can encourage savings at the base of the pyramid.
A new post on GSMA’s Mobile Money for the Unbanked Blog shares preliminary findings from the MMU 2013 Global Mobile Money Adoption Survey. The Adoption Survey, which offers insights on the development of mobile money services and how they’re enabling the expansion of financial inclusion, will be published at the 2014 GSMA Mobile World Congress, February 24-27 in Barcelona. These preliminary findings included a few industry milestones. A few weeks ago the global industry surpassed 200 mobile money service deployments to total 208 services spread across 83 developing countries. Mobile money services are become a mainstay among mobile network operators, rather than a differentiator. In Sub-Saharan Africa, for example, mobile money is available in 36 out of the 47 countries in the region.
In Africa and Asia, domestic remittances may far surpass international remittances in both frequency and magnitude, two recent joint-reports from the Gates Foundation and Gallup found. That’s the subject of a new post on the Financial Access Initiative Blog, which details the reports’ key results and provides a brief overview of domestic remittances, internal migration, and how they relate. The reports revealed that across the 11 surveyed countries, 14 percent of people had sent money to family or friends within the country within the previous 30 days, and that 32 percent of these respondents had been on the receiving end of such a money transfer. In contrast, one to two percent of people reported sending an international remittance, and about three percent reported receiving an international remittance, in the previous 30 days.
> Posted by Ignacio Mas, Independent Consultant
Remote payments usually are the beachhead for mobile money as it struggles to create a role for itself alongside cash in developing countries. It’s easier to create customer awareness, induce customer experimentation, and generate customer willingness to pay when you are addressing situations in which cash presents the biggest pain points – sending money home, paying bills at distant and busy utility offices, travelling with or delivering larger stashes of money.
But that’s a limited market. Those are not daily occurrences for most people. And in many markets, especially outside of Africa, the reality is that people already have decent domestic remittance or bill payment mechanisms – through networks of pawnshops in the Philippines, courier companies in Colombia, or Hawala in Afghanistan.
Now mobile money providers are itching to get into the merchant (i.e. in-store) payment space. That’s where you can drive daily as opposed to monthly usage, so that’s where the volume is.
Of payment volumes and value
Much of the discussion on mobile retail payments centers on pricing models (merchant fees, interchange, potential cannibalization of P2P pricing), usability issues (customer convenience, speeding up transactions at the store), and acquiring strategy (how to roll out devices at stores and at what cost). These issues arise because cash is a much stronger competitor here than in a remote setting: paying some cents and waiting some seconds for an SMS confirmation are an irrelevance when you are sending money halfway across the country, but can tax people’s sense of fairness and patience in a retail setting. The less value people and stores see in electronic payments the larger these issues will loom.
But treat these as hygiene factors. Imagine that you could buy half a kilo of rice at any corner store from your mobile wallet at no cost and as conveniently as you flash out a banknote. Still, the fundamental question remains: why would you take out of your pocket your mobile phone rather a banknote?
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
If you answered yes to the title question, then you are better off than approximately one quarter of American families, according to a Brookings study that examines the financial fragility of U.S. households. Beg, borrow, or sell, a quarter of U.S. families do not have access to two thousand dollars within a month! They could not tap savings, ask friends or family, take out a loan, hawk jewelry, or pick up more hours at work.
Without savings, American families are incredibly vulnerable to life shocks. A lost job, hospital bills, or even car repairs, can have severe consequences – even as severe as hunger or homelessness. Another recent study by Doorway to Dreams (D2D) of families with $20-60K in annual income found that 62 percent of households experienced at least one financial shock in the last 12 months and 51 percent of households lacked any emergency savings to help them cope.
Despite being one of the wealthiest countries in the world, Americans just aren’t saving. Americans save an average of 4.4 percent of their disposable income, while Chinese households save between 25 to 50 percent of their total income, according to Forbes.
So what would encourage Americans to save more? That is a nut that D2D is trying to crack – and their answer involves video games and prizes. D2D looks for creative and scalable solutions to address America’s lack of savings. Their Financial Entertainment project is a fun, innovative way to learn about personal finances through game play. The financial literacy games range from “saving for retirement while running a vampire nightclub” to “managing farm resources to build savings and survive financial emergencies.” Think of Facebook’s FarmVille (which has 40 million likes) but as an opportunity to educate Americans about savings and managing finances. In terms of D2D’s prize-linked savings efforts, their Save to Win (STW) program, which enters participants into raffles for cash prizes each time they make a savings deposit of $25 or more, is being rolled out in credit unions nationally. A true example of behavioral economics in play.
> Posted by Center Staff
The total savings portfolio of the Philippine microfinance industry is greater than its total loan portfolio for the first time. News of the achievement came in an announcement last week from Amando M. Tetangco, Governor of the country’s central bank at the launch of the 11th Citi Microentrepreneurship Awards. During the first quarter of this year, the total savings of the country’s microfinance clients reached P8.2 billion (US$ 189 million), while their total loans were P8 billion (US$ 184 million). This is a dramatic surge in savings compared to the end of 2012, when industry totals were P6.4 billion in savings, and P8.4 billion in loans. These numbers suggest that as clients take out and repay loans, they’re able to sustain savings levels.
In The Economist Intelligence Unit’s 2012 Microscope on Microfinance, the Philippines was ranked as the fourth best microfinance business environment in the world, and as the microfinance environment with the best regulatory framework and practices. Last month the government enacted new legislation allowing foreign entities to hold up to 60 percent equity in the country’s government-sponsored rural banks, with the aim to further promote economic development in rural areas. The opportunity for expanding microfinance outreach in the Philippines remains great. Out of the Philippines population of 95 million, 33 percent live below the poverty line, and only 27 percent have an account at a formal financial institution.