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> Posted by Jeffrey Riecke, Senior Communications Associate, CFI
GSMA’s Mobile Money for the Unbanked (MMU) program recently released the report ‘Mobile Financial Services in Latin America & the Caribbean’, spotlighting the region’s booming mobile money activity. I talked with the report’s authors, Mireya Almazán and Jennifer Frydrych, to learn more about the project. The first half of our conversation follows. The second half of the conversation will be published in the coming days.
One of the headline messages of the new report is that the mobile money market in Latin America and the Caribbean (LAC) is the fastest growing of any region in terms of account ownership. How do the numbers look?
Collectively, the 37 mobile money services in the region account for roughly 15 million registered mobile money accounts and 6.2 million accounts that have been active within the past 90-days. Notably, LAC witnessed a 50 percent growth rate in the number of new registered mobile money accounts between December 2013 and 2014, making LAC the world’s fastest growing region in new accounts. LAC’s users are more active than the global average active customer rate (42 percent of all accounts are active, compared to 35 percent globally). Most encouragingly, there are now five deployments in LAC with over a million registered customers. Each of these deployments counts at least half a million 90-day active customers, and together they cover an extremely diverse set of markets.
The three markets that stand out in the region are Paraguay, Honduras, and El Salvador. These three markets all feature in the top 15 globally for mobile money account penetration (number of active mobile money accounts divided by total adult population).
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
My proudest moments as a parent are when my 2-year-old son finds change lying around the house and runs excitedly to put it in his piggybank. We never consciously did anything to encourage this behavior. I like to think it is due to some small part of my DNA shining through.
The recent CFI and HelpAge report, Aging and Financial Inclusion: An Opportunity, highlights that most people expect to use accumulated savings and assets to fund their retirement, but in reality end up relying primarily on support from family, friends, and the government.
I’ve blogged in the past about how much trouble people have with saving. And it seems financial intuitions for their part use every imaginable mechanism to make it easy (pension contributions at 7/11, behavioral nudges for opting employees into retirement plans), fun (prize-linked savings, lotteries, and games), or obligatory (compulsory savings as a loan requirement) for their clients to save.
I have always believed that the ability to save is a key piece of financial security, and that building the financial capability to save at a young age has a profound impact on financial security throughout a person’s life, even into the retirement years. Recent research undertaken by CFED to “deepen our understanding of youth financial capability and explore the behaviors, types of knowledge and personality characteristics that help children and youth achieve financial well-being in adulthood” supports that belief. The research included an extensive literature review of consumer science, developmental psychology, and related fields to explore the factors that comprise youth financial capability, as well as how and when these abilities are developed.
PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. The following is part one.
Recently, a number of players have flaunted an impressive array of promising digital technologies to expand credit access, advertising nothing less than a full on revolution in financial inclusion. While the promise of many of these solutions is inarguable, in most cases they are limited to lower-value, higher-interest consumption loans at best, or, at worst, are at risk of being useless as they suffer from the classic error of putting the cart before the horse. The principle limitation on these solutions is a lack of access to sufficient quantities of regularly reported, high-quality, predictive data upon which to base credit decisions and develop credit products.
Consider the case of Safaricom, which revolutionized the payment systems market in Kenya with its M-Pesa offering. The rapid uptake of M-Pesa by lower-income Kenyans was proof positive of the value of digital financial services and spawned a wave of investment into hundreds of copycat service providers around the world.
> Posted by Sonja Kelly, CFI, and Thierry van Bastelaer, Abt Associates, American University, and the Microinsurance Network
Even 10 years ago, most of us would never have thought that the words “insurance” and “low-income households in the developing world” would be heard in the same sentence. It would have been as strange as, say, hearing the words “really good coffee” and “Washington, D.C.” in the same sentence.
But times have changed. Thanks to tremendous innovation in product design, pricing, and distribution systems, insurance is increasingly affordable to low-income households that are looking for ways to protect themselves from daily risky events. We should take a few moments to stop and celebrate this development. (Pause for celebration.) Thank you.
At the same time, we should learn from the history of the broader financial inclusion field. It took many years for the majority of the field to admit that credit alone can’t meet all the financial needs of poor families. Hopefully the excitement over insurance will not similarly delay the realization that it alone can’t address all the financial protection needs of these families. A great variety of financial products is needed to address an even greater diversity of needs.
So, over a cup of really good coffee one afternoon in Washington, D.C., we sketched out a possible framework that articulates where insurance fits into the product spectrum for financial risk protection vis-a-vis savings and loans.¹
We thought of risk protection expenses along two axes: frequency and size, and plotted expenses on a 2×2 table (forgive our back-of-the-napkin scribble).
Financially inclusive products are best designed to finance risk management expenses in the top left and bottom right quadrants of the graph. High-frequency inexpensive outlays can, when accumulating over time, significantly disrupt the cash flows of low-income families. Similarly, low-frequency expensive payments can ruin years of carefully planned asset accumulation. Low-frequency and inexpensive events (bottom left) can usually be covered by cash, and high-frequency expensive events (top right) are usually beyond the reach of most financial inclusion products.
> Posted by Center Staff
Can you confidently speak to the financial inclusion of persons with disabilities (PwDs)? How about the proportion of PwDs that live below the poverty line? …The prevalence of disabilities?
The financial and economic hardships of PwDs don’t get much mainstream attention. You, if you’re like most, don’t know that in the United States, for example, about one-fifth of the population (roughly 60 million) has a disability, PwDs are twice as likely to use informal financial services like payday lenders and check cashers, the unemployment rate for PwDs is more than double the national average, and about one-third of adult PwDs live in poverty. These statistics are severe. Not to mention, current demographic shifts will result in larger older adult populations and position the incidence of disability, and the magnitude of these unmet inclusion needs, to grow.
Last week the Consumer Financial Protection Bureau (CFPB), a mainstream U.S. financial player, announced an initiative that will work in concert with financial empowerment and disability organizations to tackle these pressing issues.
> Posted by Alex Counts, President and CEO, Grameen Foundation
Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as defined by CFI. The Center’s new publication “By the Numbers” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.
Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”
While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent — quite a jump! — over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.
> Posted by ideas42
The following post was originally published on the ideas42 blog.
For many of us, saving enough for retirement remains a murky, unrealized goal. Behavioral science has already proven useful in some ways, but there are still many opportunities to apply a behavioral lens to better preparing for the future.
In Mexico, not putting aside enough for retirement is a persistent problem for many people. As a result, 27 percent of the nation’s elderly live in poverty. While recent reforms to the retirement system have provided more Mexicans with individual retirement accounts than ever before, mandatory contribution rates remain too low to provide for post-retirement living expenses. To cover the rest, the system currently allows people to make voluntary contributions to their individual accounts. The problem is that they don’t: currently, less than 1 percent of the 50 million account holders make at least one contribution each year.
> Posted by Center Staff
Can the world achieve full financial inclusion by 2020? By the Numbers: Benchmarking Progress Toward Financial Inclusion, a new Financial Inclusion 2020 (FI2020) publication from CFI, offers a quantitative review of financial inclusion globally, using publicly available data to examine recent progress and projecting a scenario out to 2020.
Last month the development community emitted a collective cheer as the new Global Findex data revealed that the number of unbanked individuals around the world dropped from 2.5 billion to 2 billion between 2011 and 2014. This looks like huge progress. If the trends continue, the financial exclusion gap will close to 1 billion individuals without access to formal financial services by 2020.
However, know it’s not all about access. We promote financial inclusion to enable people to use financial services to better manage their lives. A fully included person is an active user of quality financial services that bring significant value. Expanding financial access is the first step towards financial inclusion, and it needs to be followed by an uptick in the frequency and ways in which people use services as well as strengthening of the financial ecosystem. By the Numbers explores progress in these areas along with access and estimates the potential for reaching full inclusion by 2020.
> Posted by Shameran Abed, Director, BRAC Microfinance Program
Shameran Abed, BRAC’s Director of Microfinance, joined the Microfinance CEO Working Group in January. He joins the Working Group’s efforts to support the positive development of the microfinance industry and brings tremendous insight into the discussion on pathways out of poverty.
This month, the results from six randomized control trials (RCTs), published in Science magazine highlighted a model of development that is an adaptable and exportable solution able to raise households from the worst forms of destitution and put them onto a pathway of self-reliance. The graduation approach – financial services integrated within a broader set of wrap-around services – is gaining steady recognition for its astonishing ability to transform the lives of the poorest.
These findings can be contrasted with the results of six RCTs published in January by the American Economic Journal: Applied Economics, which cited limited evidence of “microcredit” alone transforming the lives of the poor.
> Posted by Sonja Kelly, Fellow, CFI
Thanks to a little coordination and a lot of creativity, you can now contribute to your pension in Mexico when you buy potato chips or top-up your mobile phone. Last year, to increase voluntary savings in Mexico’s pension system, the pension regulator teamed up with 7/11 retail stores and Telecomm to create channels for people to contribute to pensions, whether they receive an income within the formal labor market or not. The system added about 3,600 new contribution locations for the 53 million people in Mexico who have a public pension.
Imagine walking into your local convenience store to buy a pack of gum (or chips, or beer, or a newspaper) and deciding to contribute as little as $3 to your pension, just like you would top-up your mobile phone or buy a lottery ticket. You would give the cashier your citizen ID number (twice, just to make sure), and the cashier would give you a receipt for the transaction. The funds would travel to a centralized switch which holds the national database called Procesar and then be directed to one of 11 pension fund administrators. The funds would enjoy a 10 percent return over three years—a higher rate than savings accounts in Mexico offer—enabling them to double within 20 years.