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> Posted by Lynn Exton, Managing Partner, Exton & Partners Risk, Governance & Analytics LLP

With the benefits of digital financial services (DFS) for enhancing financial inclusion now widely accepted, many microfinance institutions (MFIs) have or are planning to add new digital products to their delivery channels. But just because the benefits of DFS are relatively straightforward doesn’t mean the calculus behind whether or not institutions should take the digital plunge is. Institutions encounter practical challenges when adopting DFS, like big up-front investments in resources, the need for buy-in from staff and management, and the necessity for clients to change their behavior and adopt new technology. As with any new product, DFS also can introduce a wide range of risks to the MFI.

The Digital Financial Services Working Group recently released its newest publication, entitled, “The Digital Financial Services Risk Assessment for Microfinance Institutions – A Pocket Guide.” The guide was developed to assist MFIs in understanding the risks and corresponding mitigation strategies associated with DFS as well as to support institutions in choosing among the diverse business models available for providing these services. The DFS Working Group is a virtual community of practitioners and organizations developing knowledge management products promoting inclusive finance.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Growing up, my father fixed cars in exchange for payment in whatever form his customers could afford – granite tables, sheep skin rugs, and so on. In our town, he was the king of barter. Unfortunately, it was rather difficult for my mother to re-barter these items for things our family actually needed, like food and clothes. The system was limited in participants and so in utility. But thanks to the internet, the art of barter is back.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

The CFI’s Financial Inclusion 2020 project team has been talking to the experts lately to get their views on the main recommendations that came out of our 2013 Roadmap to Inclusion process.

One of the high level recommendations was as follows:

Regulators need to craft regulation that allows technology-enabled business models to emerge, while balancing access and protection for base of the pyramid consumers.

We asked some of the experts to give their views on whether this recommendation is moving forward across the developing world. The general response was, “Not fast enough,” and so we probed to find out more about what is getting in the way.

Many of the players in financial inclusion envision a rich technology-enabled ecosystem in which customers can affordably use electronic means to make payments (inter-operably, of course) and to access savings, credit, and other financial services. In this vision, providers sometimes compete and sometimes partner to offer various services. Financial institutions, telecommunication companies, payment providers, governments, and others find themselves part of a complex network that seamlessly enables consumers to manage and enhance their financial lives.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

Albeit a relative newcomer to microfinance, China’s market has grown rapidly in recent years. In 2012 the country had 6,000 microcredit providers, but only 25 percent had been in operation for more than three years. Today the number of providers is a few thousand higher, spanning nonprofit institutions, government programs, microcredit companies, commercial banks, rural credit cooperatives and banks, village and township banks, and P2P lenders. Even Alibaba, China’s internet giant, is involved. It has offered loans to over 230,000 micro-entrepreneurs through its AliFinance arm, launched in 2011.

Earlier this year Accion’s Channels and Technology team conducted a comprehensive assessment to determine the training and knowledge-sharing needs of the microfinance providers sustainably serving the poor in China. The assessment was carried out in partnership with the China Microfinance Institution Association, the China Association of Microfinance, and the PBC School of Finance Tsinghua, with support from the MetLife Foundation. As part of the assessment, the team compiled a landscape of the country’s microfinance institutions. Offering a snapshot of the state of the market and the challenges that lie ahead, here are some of its findings.

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> Posted by Carol Caruso, Senior Vice President, Channels and Technology, Accion

Guatemala presents great potential to advance financial inclusion through the adoption of digital financial services (DFS). Only 22 percent of the population has a bank account with a formal financial institution – in most cases one of the three largest commercial banks – while almost every Guatemalan household has a mobile phone (8.8 million unique subscribers among a total population of 15.5 million). Yet most financial transactions are still conducted at bank branches. The logistics challenge of reaching isolated rural communities results in high distribution costs for the banking sector, hence it is no surprise that in 2012 Fitch Rating described the banking system as highly inefficient.

Some innovation in delivering financial services has taken place in the last few years. A few banks have implemented agent networks and the three mobile network operators now offer mobile financial services. But the results achieved are far from what the players and the supervisory authority were expecting in terms of usage and increased financial inclusion. For example, the leading mobile money service, Tigo Cash, is being used by MFIs in a limited way. Instead of empowering clients to use the available mobile wallet, clients primarily use Tigo agents for cash-in/cash-out transactions. While this over-the-counter (OTC) service through an expanded distribution channel has benefits and works in nascent environments, it is far below the potential of DFS in Guatemala.

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> Posted by Martin Burt, Executive Director, Fundación Paraguaya & Teach A Man To Fish

The following post was originally published on the World Economic Forum blog. 

If we’re aiming to not simply alleviate poverty but eliminate it altogether, we need to understand its causes. But we also need to know what non-poverty looks like.

Until recently, this has not been easy. Now, technological innovation is helping us achieve things that were once impossible, and the effects are far-reaching.

At Fundación Paraguaya, we have developed a methodology called Poverty Stoplight. To assess levels of poverty, we show people a series of three photographs and ask them to choose the one that best describes their situation. We do this in each of 50 “critical indicators,” such as access to water, levels of nutrition, dental care, and so on. These pictures are color-coded to represent degrees of poverty: red is critical, yellow is poor, and green is non-poor.

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> 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 participating in paper prototyping for new mobile app in Uganda

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.”

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> Posted by Jenn Beard, Global Learning Manager, Water.org

Nearly 800 million people lack access to safe water, and 2.5 billion people lack access to improved sanitation. As many NGOs and microfinance institutions are now discovering, the way forward will include lending to individuals for their water and sanitation (WASH) needs. WASH microfinance is making it possible for the poor to take control in instances where access is difficult. However, most providers in the position to meet this financing opportunity are not yet offering these services. One thing standing in the way is the tools to get institutions started.

The business case for financial institutions to add WASH financial products to their portfolios is significant. A study sponsored by the Bill and Melinda Gates Foundation estimated global demand for microfinance for water and sanitation at over US$12 billion between 2004 and 2015. After all, the poor are already spending money in these areas—both directly (purchasing water from vendors/kiosks or paying to use a community toilet) and indirectly (higher healthcare costs and/or lost time and wages while looking for or collecting water). Microfinance providers have highly relevant goals, experience, processes, and outreach activities to play a key role in increasing access to WASH facilities. As financial institutions broaden their services beyond business lending and develop products to more fully address their clients’ diverse financial service needs, WASH financing emerges as a clear opportunity.

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> Posted by Guy Stuart and Eric Noggle, Executive Director and Research Officer, Microfinance Opportunities

In our first post in this series, we described the need for an approach to financial education that was both effective and scalable, and we offered embedded education as a potential solution. Our second and third posts described how the embedded education approach works and showed its potential effectiveness by describing the improved money management behavior displayed by clients in Zambia after participating in our program. We believe that these findings also revealed the potential for a business case for delivering financial education using the embedded approach.

For a business case to exist, two things have to be true: financial service providers (FSPs) need to see a positive, bottom-line impact from an embedded program and a financing mechanism needs to exist that can compete with the current grant-based model for funding financial education.

Bottom-Line Impact

Financial education can positively impact financial service providers in a number of ways (aside from knowing that they’re empowering individuals to take control of their financial lives). Offering training could improve client retention by strengthening loyalty. It could reduce customer service requests by increasing familiarity with a banking process. But our market research suggests that the biggest potential impact is lowering write-off ratios and increasing savings balances.

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> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI

A Spanish-language version of this post follows the English version.

After five months of discussion, Colombia’s Financial Inclusion Bill has been approved by Congress, now only needing presidential sanction to become law. Earlier this year the country’s Minister of Treasury and Public Credit and Minister of Information Technologies and Communications filed the bill in Congress. The bill articulates a framework for the expansion of savings and payment services by engaging a wider range of providers in offering digital services.

The new law would allow for the creation of a new type of financial institution, Organizations Specialized in Electronic Deposits and Payments. These institutions can be established by individuals or legal entities, with a minimum capital requirement of $3 million, approximately 10 percent of the minimum currently required for commercial banks. The new electronic deposit and payment providers can receive capital investments from commercial banks and financial corporations.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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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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