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> Posted by Saran Sidime, Operations Assistant, the Smart Campaign

Technology has brought safe and simple financial solutions to Somalia, a place where, until the past few years, they were completely non-existent. In June 2015, MasterCard became the first international payment network to enter Somalia, a country that hasn’t had a formal banking or financial system since the collapse of its government in 1991. MasterCard issued its first 5,000 debit cards to be used by Premier Bank, one of the few commercial banks in the country. The cards will be compatible with Premier’s ATMs, whereby customers can conduct cash withdrawals. MasterCard’s products will be the first domestically-issued debit cards in Somalia, the last remaining country in Africa not under sanctions that the company hasn’t worked in yet.

Somalia has been mired in decades of conflict since 1991, and the government continues to battle al-Qaeda-linked Al-Shabaab insurgents. Despite the formation of a federal parliament in 2012, creating a more stable government, turmoil continues to severely restrict development of the banking system. For example, the country installed the first ATM machines in the capital, Mogadishu, only last year.

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> Posted by Rafael Chapman, Analyst, UpSpring

Based on the latest report from the Giving USA Foundation, philanthropy efforts in the United States hit a record high in 2014 with total contributions reaching about $360 billion. Charitable giving is on the rise in the United States, as this figure represents a 7 percent increase over 2013. However, contributions to nonprofits serving Native American communities remain persistently low, representing well under 1 percent of philanthropy in the country.

The need is growing, however. The Native American population grew 27 percent from 2000 to 2010, almost three times the national average. Based on 2012 data, there are over 5 million people in the U.S. who identify themselves as American Indian or Alaskan Natives, and this number is expected to exceed 6.5 million by 2020.

More than 20 percent of Native Americans live on reservations where living conditions are far from tolerable. In these lands that have been inhabited for centuries, the average unemployment rate is well over 10 percent and nearly a third of reservations consider themselves considerably overcrowded. Moreover, due to lack of formal financial history records and conventional employment information, most residents in these reservations lack access to the traditional banking system, which has contributed to a severe unmet need for accessible capital among Native American communities.

All of this leads to the question: If living conditions are so deplorable in this growing community, why haven’t we increased our charitable contributions and attentions towards Indian country?

Myth #1: Indian gaming brings a lot of money to Native American communities

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> Posted by Jeffrey Riecke, Senior Communications Associate, CFI

The Helix Institute of Digital Finance recently launched the Kenya Country Report 2014 as part of their Agent Network Accelerator (ANA) project. The ANA project is aimed at increasing global understanding of how to build and manage sustainable digital financial services (DFS) networks by conducting large-scale research among DFS agents and issuing training to providers and other stakeholders. In this two-part interview, Dorieke Kuijpers, Research Project Manager at the Helix Institute and co-author of the report, provides insight into the ANA project and the Kenya Country Report. The following is part two. Part one can be found here.

One of the big findings of the survey is that banks’ agents now account for 15 percent of the agent banking market in Kenya – a threefold increase over last year. What are some of the other key developments in the market?

We have identified a number of market developments by comparing the Kenya 2014 survey findings with those of the Kenya 2013 survey. Mobile network operators (MNOs) have led the success in the digital financial services industry in Kenya and historically have been considered better in marketing and distribution than banks, which is not surprising given that many MNOs in East Africa have more clients than banks do. Nearly a decade of development later, we see this changing: banks are now making large investments in the DFS business and they are approaching it in a very different way.

An interesting finding is that although we observe a significant increase in the market presence of bank agents, the products and services they offer are in many ways additive as opposed to competing with those of MNO agents. While MNO agents are still conducting a higher number of transactions (almost twice as many as bank agents), bank agents are offering a greater and more sophisticated array of services, including bill payments, savings, and credits. Also, the median amount transacted among bank agents is roughly 50 percent higher, which means their revenue is now similar to that of MNO agents. This is reflected in the fact that out of the 32 percent of agents that report wanting to open a new till for another provider, the overwhelming majority of agents would like to join a bank’s network, with Equity Bank being the most popular option.

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> Posted by Bindu Ananth, Chair, IFMR Trust

The following post was originally published on the IFMR Trust blog.

Yesterday, the Reserve Bank of India (RBI) announced in-principle Payment Bank licenses for eleven applicants. To put things in perspective, there were two new bank licenses in the last decade. The successful applicants include the largest telcos, corporate houses, business correspondents, a depository, and a mobile wallet provider. The number of licenses and the diversity of the pool bode well for the scale and scope of what will be pursued by this new category of banks in the years to come.

While previous licensing rounds were always for “full-service” banks, this represents the first round of licensing for a differentiated banking design following on RBI’s Discussion Paper on Differentiated Banking and the recommendations of the Committee on Comprehensive Financial Services for Small Business and Low-Income Households. To recap, a Payment Bank can provide deposit and payment products but cannot lend. This very important design feature has an important implication from a regulatory perspective – Payment Bank promoters now cannot “cross the floor” in terms of raising public deposits and lending these out. Therefore, the implications of “fit and proper” are now quite different for this group of promoters. This perhaps explains why this round produced eleven licenses against two in the last decade. And at this stage of development of the Indian banking sector, these eleven new entrants could be just what the doctor ordered for innovations on savings and payment services while not adversely impacting the stability of the banking system. An IFMR Finance Foundation working paper reported that the asset portfolio of the average rural household in India is composed almost entirely of two physical assets—housing and jewellery with little to no financial assets of any type.

Also from a financial system design perspective, this is a timely acknowledgement that the credit and payments strategy must evolve differentially within the broader financial inclusion strategy. While progress on credit would necessarily have to be much more measured and prudent no matter what strategies are adopted given the inherent risks and customer protection concerns, there is an urgent need to make access to payments ubiquitous. Yesterday’s announcement is an important step forward in that direction.

> Posted by Jeffrey Riecke, Senior Communications Associate, CFI

The Helix Institute of Digital Finance recently launched the Kenya Country Report 2014 as part of their Agent Network Accelerator (ANA) project. The ANA project is aimed at increasing global understanding of how to build and manage sustainable digital financial services (DFS) networks by conducting large-scale research among DFS agents and issuing training to providers and other stakeholders. In this two-part interview, Dorieke Kuijpers, Research Project Manager at the Helix Institute and co-author of the report, provides insight into the ANA project and the Kenya Country Report. Part two will be published next week.

The new Kenya report focuses on the operational determinants of success in agent network management. By way of background, can you give an overview of these components and tell us about the scope of this survey?

The country report is based on 2,128 mobile money agent interviews carried out in 2014 across Kenya. For the survey, we partnered with Research Solutions Africa (RSA), a research firm that has vast experience working in several African countries. After undergoing an intensive training by MicroSave’s lead researchers, the team of enumerators recruited by RSA conducted the several-thousand interviews with mobile money agents spread throughout the country. The findings of the survey resulted in the Kenya 2014 Country Report as well as five (confidential) reports that present providers with an overview of provider-specific findings.

The questionnaire that we used focuses on five operational determinants of success in agent network management, or pillars, as we call them. Both our country reports and our provider reports are based on these pillars. The first pillar, agent and agency demographics, helps us develop an agent profile at the country level and covers indicators such as the age of an agency and the proportion of dedicated and exclusive agents. Core agency operations is the crux of the research as this pillar looks at the health of an agency—e.g. the products and services offered, the number of daily transactions, the types of transactions conducted, and the average value of transactions. Liquidity management looks at an agent’s liquidity practices and needs and how these affect their daily transaction levels. The pillar quality of provider support analyzes the extent to which service providers support their agents in terms of trainings and refresher trainings, monitoring visits, and availability of call centers. Lastly, business model viability assesses the financial strength of an agent.

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> Posted by the Smart Campaign

Momentum for Smart Campaign Certification is accelerating. Today, we’re thrilled to announce that there are now more than 20 million lower-income clients whose financial service provider has been certified as meeting the Campaign’s standards for consumer protection.

Since February 2015, the number of clients served by Smart-Certified financial institutions (FIs) has grown by 6 million, to a total of 21 million, with the certification of an additional 11 institutions. To date, 39 FIs, from 19 countries across Latin America to Africa and Asia, have achieved Smart Certification, including some of the world’s best-known institutions dedicated to serving the poor.

As you might be familiar, the Smart Campaign’s Client Protection Certification Program contains a core set of standards against which institutions are evaluated by independent, third-party evaluators. Smart Certification publicly recognizes those institutions providing financial services to microentrepreneurs with a standard of care that upholds the microfinance industry’s seven Client Protection Principles. Customers of Smart-Certified organizations can be confident that their financial service provider has policies and processes in place to ensure that they are treated responsibly.

“Twenty million clients is an exciting milestone – recognition of the fact that there’s growing momentum in the industry for client protection,” said Isabelle Barrès, Smart Campaign director. “These organizations are not just paying lip service to the concept of fair treatment, but actually working hard to improve practices,” she added.

In April 2015, having listened carefully to evaluation results and industry feedback, we launched certification program revisions to streamline the process while maintaining high standards. These revisions included an appeals and complaints system and a process for renewing certification validity. At the end of 2015, the Campaign will introduce an accreditation system to license existing and new certifiers, and a version 2.0 of the certification standards. Certification 2.0 standards remove duplication and ambiguity, and deepen standards for savings, insurance, and digital financial services.

Even as the coverage of the certification program approaches critical mass, the broader Smart Campaign continues to advance. For the Campaign’s next phase we are excited about working on the following:
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> Posted by Center Staff

Globally, the cost of fraud in the telecoms industry amounts to about 2 percent of total revenues, roughly US $46 billion. In the mobile money segment, it’s estimated that about 2 to 3 percent of revenues generated from phone-based banking are lost to fraudulent activity. In India, where the mobile subscriber base is over 980 million individuals, covering over 70 percent of the country’s population, mobile money presents a big opportunity for banking the unbanked. And awareness of this is catching on. Just this week Paytm, a mobile wallet service in India backed by Alibaba’s financial arm, announced that they’ve surpassed the 100 million client mark.

As more individuals are brought into the mobile banking fold, including those of lower income levels, it’s increasingly important that fraud risks are thoroughly managed. If they aren’t, clients will suffer, and so will their perceptions of formal banking services. A new report from Deloitte investigates the risks facing India’s mobile money market and how to best manage them.

The report outlines and offers the root causes of seven categories of fraud: phishing fraud; intrusion/ cyber attack; access to wallet through unauthorized SIM swap; fake KYC; commission fraud by agents; and application manipulation by authorized users. (The latter two are frauds carried out by internal stakeholders, like agents, employees, and third-party vendors.) As one example, in the case of phishing (when fraudsters dupe customers through phone calls/SMS/emails to share sensitive information), the root cause is inadequate customer awareness around information sharing and customer data theft.

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> Posted by Prateek Shrivastava, Global Director, Channels & Technology, Accion

The National Assembly of the Federal Republic of Nigeria passed the Central Bank of Nigeria (CBN) Act in 2007. The Act included provisions for the creation of the CBN to ensure monetary stability, issuing and maintaining legal tender, and promoting the implementation of best practices including the use of electronic payment systems in all banks across Nigeria.

In the same year, the CBN developed the Financial System Strategy 2020 wherein the need for electronic financial services (amongst many other reforms) to make Nigeria a competitive economy was identified. Since 2008, the CBN has been extremely active in developing and implementing guidelines and frameworks to support the digitization of financial services (for example, all banks and microfinance banks need to have core banking systems, and the use of ATMs is governed) including mobile money and agent banking. The Guidelines on Mobile Money Services in Nigeria were approved and published in June 2009. Most recently, the CBN has also released a licensing framework for “super agents” that banks and other regulated financial services providers can use to bring services to the markets and streets in Nigeria.

Nigeria’s mobile money market hosts about two dozen licensed mobile money operators (MMOs) that include banks and others, which, in spite of their array, have proven inadequate in terms of country coverage and active adoption.

In the recent words of Dipo Fatokun, Director of the Banking and Payment System Department of the CBN, “Expectations of mobile money [in Nigeria] have not fully been met.” Annual mobile money transactions in the country in 2014 exceeded N5 billion (US$25 million), while in Kenya and Tanzania total annual transactions in 2013 were US$22 billion and US$18 billion.

A report from EFINA published in 2014, a full five years after the CBN guidelines for mobile money were put in place, shows that only 800,000 Nigerian adults currently use mobile money, representing less than one percent of the adult population. Today, even arguably the most successful entity, Pagatech Nigeria with its innovative use of technology and strong management team, is advertised sporadically on the streets of Lagos and even less further afield. Awareness is low and therefore adoption is low.

In my opinion, this lack of progress can be attributed to two key issues:
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> Posted by Center Staff

The latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are the release of a New America Foundation report on account dormancy in youth savings, Yemen exploring mobile banking to combat the hardships of war, and Cambodia launching its first agricultural insurance programs. Here are a few more details:

  • The New America report considers how to understand the challenge of youth account dormancy in large-scale account-based initiatives and policy efforts, describing the range of issues related to account engagement from the perspectives of financial institutions, policymakers, and account-holders.
  • Yemen, following its central bank passing regulation on e-money and mobile money in December, is looking to the development of digital finance to cover critical services during wartime, as 30 to 40 percent of bank branches are closed.
  • The Cambodian Center for Study and Development in Agriculture (CEDAC) has launched the country’s first agricultural insurance programs, in the form of pilots for the next year and a half, protecting rice farmers against loss from drought and floods.

For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at ezuehlke@accion.org.

> Posted by Center Staff

Will microfinance continue to be relevant in 2020 and beyond? Should regulators or the industry lead on client protection? Will data analytics replace traditional credit reporting systems?

A new Financial Inclusion 2020 e-magazine explores these three essential questions debate-style, tapping industry leaders from around the world to weigh in with their perspectives.

Microfinance as a development strategy has in the past few years been eclipsed by the excitement around financial inclusion. This transition reflects the recognition that people need a full range of financial services. What does the future hold for microfinance institutions and other players like traditional banks and new fintech companies? Bindu Ananth, Chair of IFMR Trust and IFMR Holdings, Dean Karlan, President of Innovations for Poverty Action, and Liza Guzman, Vice President of Accion share their views.

The ideal balance in client protection is often conceived as a three-legged stool in which regulators, providers, and consumers work at equal levels of responsibility. Globally, regulators have often taken the lead, but initiatives such as the Smart Campaign prove that there is room for providers to move beyond compliance. Is a balanced three-legged stool realistic? Among the debaters are Alok Prasad, Principal Advisor of RBL Bank, Sanjay Sinha, Managing Director of M-CRIL, and Isabelle Barres, Director of the Smart Campaign.

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