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> Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

Enthusiasm for mobile money among the financial inclusion community is generally high, but like with most topics, when you pierce beyond the surface-level praises, the tone of the conversation becomes more mixed. As Harvard Business School professor Shawn Cole stated on day three of the HKS Executive Education course Rethinking Financial Inclusion, “Mobile money has been next year’s big thing for the last ten years.”

Comments on disappointing levels of mobile money services uptake are common, and are often paired with another dominant piece in the mobile money narrative: M-Pesa’s runaway success in Kenya. Since its introduction in 2007, M-Pesa has been taken up by 70 percent of the country’s population. And as the professors pointed out, of those who used M-Pesa in the last 12 months, 43 percent did not have formal bank accounts. This statistic exhibits how mobile money provides financial services to many who might not otherwise have them. The statistic also alludes to the question of whether the service is a good on-ramp to more financial services. Questions about on-ramps and services uptake are essential to the mobile money and financial inclusion conversations at the heart of discussions throughout the weeklong HKS program. Balancing such questions were conversations that illustrated clear, and perhaps surprising, benefits of mobile money.

Jenny Aker, a professor at Tufts University, cited a study that took place during a drought in Niger which showed that distributing government aid via mobile money versus cash not only cut costs, it increased diet diversity. In this case, when women received their government benefits through their phones, they had greater control over the use of the money, and this affected household decision-making. The study also demonstrated that with mobile money the distribution and receiving of funds was cheaper for government and the recipients.

In addition, mobile money helps users weather economic shocks. Tavneet Suri, MIT professor and scientific director of J-PAL Africa, presented the results of a study of several thousand Kenyans she conducted with William Jack of Georgetown University. It showed that M-Pesa users are better able to share risk through an increase in remittances received and a higher diversity of senders. A shock that reduces consumption of a non-user by 21 percent reduces consumption by M-Pesa users by only 11 percent. Mobile money dramatically increases the size and breadth of the user’s safety net: Suri estimates the insurance value of M-Pesa at around 3-4 percent of the user’s income.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

A few days ago news broke that Facebook, the social media giant with over a billion users worldwide, is making preparations to begin offering international money transfer services. Although the development has been dismissed by Facebook as rumor, the prospect of this enormous network enabled for money transfer and the huge global need for this service makes this a story worth following.

The news, initially shared by the Financial Times and sourced from individuals involved in the proceedings, indicates that Facebook is weeks away from securing regulatory approval from Ireland’s central bank to allow its users to store money on the site and use it to pay others. Facebook’s headquarters for Europe, the Middle East, and Asia is in Dublin. If approved, Facebook would be permitted to issue units of stored monetary value represented as “claims” against the company. Regulation in this area pertaining to Europe would allow approval in Ireland to green light services throughout the entire continent. The Financial Times also mentions that Facebook has had discussions about potential partnerships with several start-ups that offer international money transfer services through both smartphone and online platforms.

Facebook’s reach is massive, 1.23 billion at the end of last year, and it’s becoming increasingly diverse. Last week, thanks to increases in internet access and mobile penetration, the company achieved a milestone in India: 100 million users. Some analysts say by the end of this year India will surpass the United States (with 180 million) as the country with the most Facebook users. The social media site is big elsewhere in Asia, too. It is the most popular social network service in all but six of the region’s countries. After the US and India, Facebook’s largest countries by-users include Brazil, Indonesia, Mexico, Turkey, the United Kingdom, and the Philippines. Facebook has a large presence in Africa, as well, with 13 million users in Egypt, 9.4 million in South Africa, 5.3 million in Nigeria, 1.8 million in Kenya, and 1.4 million in Ghana.

Like Facebook, remittances volumes are increasing on the whole around the world. In a new brief on remittances and migration released last week by the World Bank, it’s shown that remittances to developing countries reached about $404 billion in 2013, an increase of 3.5 percent over 2012. Annual growth is expected to increase to an annual average of 8.4 percent over the next three years. In 2013, India received the most international remittances with $70 billion, followed by China with $60 billion, and the Philippines with $25 billion.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

M-Pesa, the mobile money service success story that began in Kenya in 2007 is continuing its march, this time into the surprising location of Romania, raising the questions, what will the product look like in this new European market and how will it fare. At the end of last month Vodafone, the operator behind the new service and one of Romania’s largest telcos, began operations using the country’s 300 Vodafone Romania stores, participating retail outlets, and authorized agents.

M-Pesa operates via SMS phone messaging and offers the ability to make deposits and send and receive payments to people and businesses – potentially an attractive prospect to the third of Romanians who don’t have access to formal banking services. Across the country there are about 7 million people who transact mainly in cash. The just-launched mobile service is estimated to be accessible to about 6 million people, and Vodafone plans to increase its in-country distribution points to a total of 2,000 by the end of the year. Vodafone has 8.3 million clients out of Romania’s 21.3 million population, the vast majority being active mobile phone users. The mobile money market in Romania is currently underdeveloped.

Of course, just because M-Pesa has achieved significant uptake elsewhere doesn’t mean that will happen here, too. Since the service first launched in Kenya, new M-Pesa outfits have been established in a number of other countries including Tanzania, Afghanistan, and South Africa. Within the past twelve months, the service also launched in Egypt, India, Lesotho, and Mozambique. Across these markets results have been mixed, with operators struggling to emulate the immense success achieved in Kenya.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

I was recently asked to give a talk at the University of Pennsylvania’s 8th (!) annual Microfinance Conference. This year’s theme, “Microfinance Beyond Its Roots” set me in search of ways in which the microfinance industry is moving into areas beyond its original microcredit core. Of course, this process has been going on for a long time, and so there are many topics to choose from.

I decided to look at health care, partly because, as every staff member of a microfinance institution knows, health setbacks are one of the most frequent sources of repayment problems among low income clients. As they learned about the health vulnerabilities of their clients, microfinance organizations began to invest in experiments, bringing their businesslike approach to bear on a challenge that is often dealt with in heavily subsidized, non-market ways. Today, many of these programs have matured and grown, even as new ideas are being tested.

I looked among the organizations belonging to the Microfinance CEO Working Group, and I found that nearly all have something exciting going on in health care. Approaches include some combination of direct health care service provision, health insurance coverage, and education. Many are using technology as a means of reaching people at scale and low cost.

The meetings associated with group lending provide a convenient and cost-effective platform for health services, and adding a health component to group microcredit is probably the earliest and most widespread model. Health education was perhaps the starting point, as pioneered by Freedom from Hunger and also implemented by Opportunity International. Today the services often reach farther (while health education continues to be important). ProMujer, for example, directly employs nurses and other health practitioners to staff fixed and mobile clinics available to ProMujer members. They focus on maternal and reproductive health, as well as screening for the chronic diseases that are increasingly major health issues in Latin America. Hundreds of thousands of women get access to health care through ProMujer’s efforts.

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> Posted by Sonja E. Kelly, Fellow, CFI

Big data is sexy. It’s new, it’s hip, and we’re only beginning to explore its uses for increasing financial inclusion. McKinsey calls it “the next frontier,” CGAP puts it in its “trends to watch” category, and we’ve talked about it on our blog. Big data is here to stay, and it’s changing the way that the financial inclusion industry operates. But as we proceed with big data, let’s exercise the caution required to ensure consumer protection.

Big data is starting to be used as an alternative to standard credit bureau data, with new scoring methods being created to construct credit ratings for those with thin or poor credit history. Proxies for credit history can be anything from how frequently a person “tops up” their mobile phone credit to the number of minutes spent looking at a loan product online. To determine creditworthiness, analysts look at larger trends in the data in the same way an insurance company might, comparing the individual to the average and looking for factors that correlate with creditworthiness. For example, on average, people who spend longer reading and understanding the terms of a loan online might be more likely to pay the loan on time.

Two groups of people currently share the bulk of potential benefits of big data applied to credit products. First, there are those who have previously been considered a credit risk who should not be classified as such. Perhaps these people have an unfairly low credit score, or perhaps past mistakes do not indicate future credit behavior. Second, there are those who have “thin files,” or not enough information available on them to enable a lender to make a determination of creditworthiness. For these two groups, additional data points could provide more indication about future credit behavior.

While recognizing that big data is an industry game-changer, we do need to keep in mind some critical questions. Big data has a great deal of power to transform financial inclusion efforts, but what are its downstream effects? What are the consumer protection and legal implications? Does big data allow for implicit new discrimination? And as it’s being used now, is it making life better for consumers?

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> Posted by Sonja E. Kelly, Fellow, CFI

What do you do if you’re trying to effect significant change in consumer protection in the financial industry but you have limited time and resources? You build a system that harnesses an army of consumers to do it for you!

This is the brilliantly simple strategy employed by the Consumer Financial Protection Bureau (CFPB), the United States government agency charged with protecting the users of financial services. The bureau’s consumer complaints system receives complaints from consumers and, after a process (described below), publishes all of the complaints in a public database. Much of this process is automated, and the beauty of the system lies in the fact that consumers do most of the heavy lifting, initially reporting their problem and then indicating whether it came to a satisfactory resolution at the end of the process.

To break things down a bit, here is a step-by-step picture of what happens to a complaint going through the CFPB system:

  1. The CFPB receives a complaint through its website, by email, phone, or fax.
  2. The CFPB reviews and routes the complaint.
  3. The company against whom the complaint is lodged has the opportunity to respond.
  4. The consumer has the opportunity to review the response.
  5. If the complaint is not resolved, the CFPB reviews and investigates.
  6. The CFPB publishes the complaint, response, and resolution in the database.

The bureau is quickly becoming a go-to source for disgruntled consumers, even though the bureau has hardly spent any resources on awareness-raising and education of the service. It probably helps that their website is unusually user-friendly, and their process of complaint resolution is centered firmly on the consumer. The consumer truly has the last word. Read the rest of this entry »

> Posted by Allison Ehrich Bernstein, Executive Communications Specialist, Accion

Quick: Pretend you’re a telecommunications operator in Africa. Which country would you choose for the launch of a new mobile money network?

Since the runaway success of Kenya’s M-Pesa system, banks and mobile service companies have been looking for the next big opportunity to bring cell phone-based financial services to a whole new client base. While we haven’t yet seen anything on the scale of M-Pesa, numerous companies (e.g. Easypasia in Pakistan, bKash in Bangladesh) have been chipping away at its number-one position.

So, what’s your pick?

You might say a fairly stable country that already has a reasonably strong banking sector, like Ghana. Or a high-population nation like Nigeria, or perhaps a place like Zimbabwe, where the financial system could use a jolt. And those wouldn’t be bad ideas.

Established African mobile-service providers Zain Group and MTN are taking a very different approach, however: they’re setting up mobile money networks in the world’s newest country, South Sudan.

Even if it weren’t a nation less than three years old, South Sudan might not strike the average observer as the next “it” spot for mobile money. Banking penetration in-country is negligible; there’s currently neither the central infrastructure nor leadership for it. And mobile penetration was somewhere around 13-15 percent in 2012, according to an International Finance Corporation study and other sources.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

How can governments best regulate to advance financial inclusion? Effective regulation is often brought up when discussing essential components for expanding banking services. Like all industries, the world of financial services requires rules to ensure protection and fair practices. However, when it comes to advancing financial inclusion, the most effective way to handle regulation is not unanimous or even widely defined.

In recent years, more governments have taken steps to advance financial inclusion. Many have developed national inclusion strategies. A number have enacted regulation pertaining to new products and services, like mobile money. For government payment systems, such as social welfare benefits, some have switched over to electronic methods. Though on the whole, regulation struggles to keep pace with the increasingly complex services landscape, and progress is limited.

In the following video, global leaders discuss the role of regulation in financial inclusion, and how coordination within governments and between sectors can lead to more informed and enabling regulation and services environments.

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> Posted by Adriana Magdas, Specialist, CFI

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.

Cryptocurrencies, especially Bitcoin, the most famous, are the hot topic of the moment. In light of the shutdown of the most popular Bitcoin exchange in the world, Mt. Gox, and a loss of an estimated US$ 400 million worth of Bitcoins, it’s important to take another look at digital currencies, their pitfalls, and their relevance for financial inclusion. Hailed by many as the greatest monetary innovation of our time and by others as nothing but “libertarian exuberance,” cryptocurrencies show the opportunity that exists for financial transactions, especially international transactions, to move from cash to digital form. As someone working in financial inclusion, I have been wondering whether cryptocurrencies have any role to play in the critical path toward greater inclusion, which ultimately requires lower dependency on cash for low-income consumers.

Other cryptocurrencies abound—Dodgecoin, Litecoin, and Ripple are a few of the others—but Bitcoin, which launched in 2009, is the first decentralized mainstream P2P payment network and digital currency. Independent from hard, government-backed fiat currencies, Bitcoin is an internet-based, software dependent, inflation immune currency that can be purchased with cash and exchanged for services or goods with merchants who accept it. The market supply of Bitcoin is fixed at 21 million, meaning that once 21 million “coins” are in existence, the cash value will be fully determined by demand. In the last four years, the popularity of Bitcoin in developed economies has increased considerably, not necessarily because it’s an easier medium of exchange but because it is new, interesting, a source of revenue for Bitcoin miners and speculators, and because it decreases the costs retailers incur from accepting credit card payments. For example, Overstock.com is the first large online retailer to accept Bitcoins, in an effort to minimize the costs incurred from credit card transactions.

Does Bitcoin have any relevance for low and middle-income countries? As in developed economies, for P2P and P2C payments, its greatest benefit is in significantly decreasing the cost of sending remittances to friends and family. Bitcoin transactions are free, meaning remittance senders do not incur significant money transmitter fees.

But what are the challenges?

The challenges to Bitcoin in particular, and cryptocurrencies in general, are substantial. It will be a while before Bitcoin and other cryptocurrencies will be able to substantially help advance financial inclusion in developing countries. In the short-term, Bitcoin might take a significant chunk out of the profits of money transmitters and will definitely underline the appetite for monetary and payments innovation.

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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP

World Consumer Rights Day is March 15. To celebrate, this week we’ll be sharing posts that explore the importance of client protection and initiatives that strengthen responsible practices in providing financial services. Given the tremendous growth of mobile phone-based financial services, it’s fitting that the theme of this year’s day is “fix our phone rights.”

The rapid expansion of mobile financial services in many emerging markets has created new consumer protection issues and challenges. One of these involves consumers’ digital data, and how this data is stored, used, and communicated to the consumer.

The implications of mobile financial services for data privacy are far-reaching and a topic of much recent conversation in the financial inclusion and consumer protection space. At a recent CGAP/Microfinance Opportunities/Citi Foundation roundtable on big data the discussion over privacy of mobile data and informed consent—making sure consumers truly understand and accept product terms before enrollment—proved to be one of the liveliest discussions of the day.

Focusing strictly on the behavioral dimensions of this debate, two important issues to consider are:

  1. How to effectively disclose to consumers in a salient way the complex subject of how their personal data will be used.
  2. Consumers often have a general preference for protection of their data, but this conflicts with the reality that in order to use a product they often must agree to let it track and share their information. So in practice, consumers will often consent to data sharing conditions that do not reflect their preferences because they do not want to be denied access.

Informing base-of-the-pyramid consumers on data privacy issues can be challenging because it requires educating individuals on their “digital footprints,” a topic that is both complex and, for many of these consumers, brand new. CGAP has been exploring this challenge in Tanzania with First Access through field testing of informed consent approaches. First Access is a data analytics firm that works with lenders to use financial and mobile data to predict credit risk for base of the pyramid financial consumers. Our research together is seeking to determine appropriate methods for informing borrowers in Tanzania how their data will—and will not—be used by First Access. Since few people understand that using their mobile phone creates data records, our research began by exploring how Tanzanians conceive of privacy in general, probing on financial, personal, and social information, and how individuals share and protect this information in their family, business, and community.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.
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