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Kate McKee, Senior Advisor at CGAP, reflects on key issues raised during the FI2020 Global Forum’s panel discussion on ‘Why Financial Inclusion is More Important Than We Ever Knew,’ ending with an exciting prediction market from the panelists.
In this panel, which began with an emphasis on behavioral economics opened by Sendhil Mullainathan, co-author of the recently-published book Scarcity (reviewed on this blog by CFI’s Sonja Kelly here), who focused on how the reality of scarcity translates into a “bandwidth tax” on people who constantly live in poverty. Research by Sendhil and others has documented how the constant worry and distraction of living with too little – what Sendhil and his co-author Eldar Shafir refer to as “tunneling,” with its intense focus on making ends meet day-to-day – ultimately, affects poor people’s ability to make good decisions. Basically, this growing body of research shows that when people are in a situation of scarcity, they are not as smart, not as able to resist temptation, and are less likely to be able to make and stick to a plan, as compared to themselves in a time of less scarcity.
This scarcity framework and evidence has potentially powerful consequences for financial inclusion. The panel that followed focused on how scarcity, the bandwidth tax, and tunneling affect the relevance, uptake, and usage of financial services by lower-income people. Tine Wollebekk (Vice President of Telenor Financial Services and Board Chair of Tameer Microfinance Bank, the sponsor of Easypaisa in Pakistan) and Kamal Quadir (Managing Director of bKash in Bangladesh) reflected on the experience of these two fast-growing mobile money service deployments, including insights about customers’ underlying demands and how the mobile wallets and other services are designed to meet them, how to make the offerings intuitive and simple, and how to earn trust from customers new to formal finance. Bill Gajda (Global Head of Strategic Partnerships, Visa) rounded out the panel by bringing in findings from deep consumer research that Visa has supported in additional developing countries, as well as experience with different business models and customer interfaces including cards.
Entry products need to be ‘in the tunnel’
One of the key insights was that the entry product needs to meet a really immediate need. It needs to be ‘in the tunnel’ of what the customer is focused on to meet their day-to-day needs. Obviously mobile telephony is firmly in the tunnel virtually everywhere in the developing world. Person-to-person money transfer has also passed the “tunnel test” of rapid uptake in an increasing number of markets – Kamal noted that he felt the company had reached an important tipping point when “bKash” had become a verb commonly used across Bangladesh. Tine made the point of needing excellent execution and recruiting the right kind of agents that customers will trust, in order for customers not to have extraneous worries that would prevent them from really being able to make decisions.
Innocent Ephraim, M-PESA Product Manager, Vodacom, discusses some of the main concerns shared on the FI2020 Global Forum’s panel ‘Building Infrastructure & Spurring Innovation’, along with an overview of the challenges faced in rolling-out M-PESA’s product success in Kenya to Tanzania and South Africa.
Financial inclusion and technology innovation
The main concern of the forum panel was making sure that we bring in financial inclusion, and technology innovation is one of the key things for this. What I strongly believe in is the mobile money product itself. And mobile money products are being held up with a pillar, which is the agent distribution. Just like any other product that is mass distributed – Coca Cola and similar products – mobile money products need to be visible, available, and trusted. So once all of that is achieved, then innovation can chip in.
Listening to the customer
It’s important to listen to the customer because customers are the reason why we do this. We want to make sure that we don’t complicate their lives because the minute that we do that we already risk excluding them with our complicated innovation that we put in the mix. And we’ve got it wrong many times, we’ve learnt from our mistakes, and as a Product Manager, I know that it’s critical to listen to our customers.
Learning from mistakes
I’ll give you an example of a mistake we made with a product that we learnt from. We launched a life insurance product in Tanzania, and we expected millions to adopt it. We were actually shocked with the cultural behavior in Tanzania. Every customer that we communicated with to pick up the product kept saying: ‘You guys want me to die! Why do you want me to die?’ Here, we learnt that it’s not all about what we think is good for the customer. So we went back to the drawing board. Nevertheless, the product is used by hundreds of thousands in the country.
Now the team in Tanzania has done a study to see what type of insurance our customers need, and then reposition it. And one of the key findings from that study is that customers need a product they directly benefit from, health insurance was seen as ideal because then they feel they benefit out of it. They don’t want to buy an insurance cover that benefits somebody else – for example, the life insurance product where the customers felt it was just bad luck for them and that we just wanted them to pass away!
Kenya: the archetype of mobile payment
Kenya is a very good place to go and look at how mobile payments and technology has worked out. But you need to enter into different markets in different ways. If you look at Kenya, the population is dense and one agent would service hundreds of customers. When you go to Tanzania, where the population is much sparser, an agent would service fewer customers, and that makes it less attractive to an agent. Consequently, agents choose to invest in some other type of business instead of mobile money. (That’s only one of the differences between the two markets. A study has been done to highlight the differences of these two neighboring countries.) What we learnt in Tanzania is that we need to make sure that different products and services are integrated into the agent point-of-sale. So when you give an agent a tool to conduct mobile money services, allow them to do utility payment or airtime as well, so they actually aggregate from transactions from the same customer. That creates more incentive and profitability to the agent.
> Posted by Center Staff
The FI2020 Global Forum in London gets underway this Sunday with a pre-Forum side meeting on financial inclusion for persons with disabilities (PWDs). This client-centric start feels like a fitting precursor for an event to expand financial inclusion.
Financial inclusion requires that financial services meet the unique needs of all clients, especially the needs of the most underserved and vulnerable client groups. Sessions throughout the Forum reflect this key tenet. In addition, there are side meetings on the Financial Capability Roadmap and the Consumer Protection Roadmap, focused on moving these roadmap principles and recommendations to action. These and the other three financial inclusion roadmaps were developed through a consultative process that collected and incorporated the perspectives of specific client groups.
Among Forum participants are representatives of various client segments – such as PWDs, women, the elderly, youth, rural populations, and migrants – to help raise awareness of their unique needs and assets. Here’s a collection of pertinent statistics for financial inclusion on these client segments:
- 1.8 billion of the world’s population is between the ages of 10 and 24
- 87 percent of youth are concentrated in the developing world
- About half the world’s youth report being economically active
- 38 percent of young adults have an account compared to over 54 percent of older adults
- In 1950, globally, 1 in 20 people were elderly. By 2050, it will be 1 in 5.
- In 2000, only 6 percent of people in less developed countries were over 65 years old. By 2050, that number will grow to 20 percent.
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
A year ago, Nigeria put forward an ambitious financial inclusion strategy. This National Financial Inclusion Strategy (NFIS) is an exciting development, and with this post I want to take a closer look at it and spotlight some areas to watch as implementation progresses in the years to come.
So, what is it all about? In October 2012, President Goodluck Jonathan and the Central Bank of Nigeria (CBN) promoted the program as a key driver for achieving their larger Vision 20: 2020 strategy, an ambitious initiative aiming to make Nigeria one of the world’s 20 largest economies by 2020.
The CBN is already one of 36 national institutions that have signed the AFI Maya Declaration, a set of commitments from emerging economies’ governments’ designed to increase access to and lower the costs of financial services, and its governor often makes the case that financial inclusion benefits economic growth. After all, despite being West Africa’s largest economy and holding an impressive mass of natural resources, Nigeria is also home to 100 million people living on less than US$1.25 a day. In the financial sector, only 30 percent of adults have an account at a formal financial institution. Public sector borrowing crowds out private borrowers and lending institutions have become increasingly risk averse, reflecting recent crises and adjustments to new regulatory reform. Credit markets remain underdeveloped with limited products, short-term horizons, and high borrowing costs. Making the financial landscape even harsher, Nigerians must contend with inadequate physical infrastructure, ineffective legal institutions, and everyday challenges like distant bank branches, missing identification documents, and high fees.
> Posted by Lisa Kuhn Fraioli, Independent Consultant
When Meri was first interviewed by Freedom from Hunger for its impact stories research in 2008, she was a classic microfinance success story. This hard-working mother of five from Huancayo, Peru had a successful business buying grains in the local market, milling them, and processing them into a type of custard that she then sold in Lima at a good price. The loans that Meri received from her local microfinance organization allowed her to buy more grain, invest in new products, and transport them for sale in Lima. The loans had helped Meri grow her business beyond the subsistence level for the first time. She now had a profit that she invested in food, healthcare, and education for her children.
When interviewers returned to Meri in 2011, the story had turned into a tale of desperation and distress. Now, Meri says, “I try to sell underwear and socks, but it almost never goes well. We are hungry. Sometimes there isn’t enough food. It’s very rare that we buy meat, and what I prepare, I give to my daughters and hope that my husband brings something to eat.” She is no longer able to send all her children to school. What happened to Meri?
After the birth of her fifth child, Meri suffered an internal hemorrhage and was hospitalized. The doctor warned her that her condition was very delicate and that she could no longer make the eight-hour trip to Lima to sell her products. Unable to travel, she reluctantly shut her business down. Meri’s family’s sole source of income was now the few soles that her husband brought in as a shoeshine. Meri owes the hospital for her emergency treatment and used money from her business loan to help pay for it. Then she borrowed from a bank, the municipality, and two more microfinance organizations. Meri can’t find any new business that gives her stable income. Meanwhile, her debts weigh upon her heavily. She is still in pain, but she can’t afford the 15 dollars it would cost for an ultrasound. She says, “It seems that the stress is accumulating in my stomach. Every day it hurts me as if the anxiety were taking away my potential.” Meri, overdebted with no means to repay her loans, is now effectively excluded from the financial system as a poor credit risk. She is still struggling to get back to the economic position she was in 10 years ago. She needs to develop a new business, one less dependent on traveling, but she will have to do so without any help from microfinance.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Today, people around the world are celebrating World Population Day, a day that seeks to bring attention to the importance of population issues in the context of development. The focus of this year’s event is adolescent pregnancy, with the aim to catalyze progress in securing a world where every pregnancy is wanted, every childbirth is safe, and every young person’s potential is fulfilled.
There are currently roughly 600 million girls globally ages 10 to 19, 500 million of whom live in developing countries. Each year, 16 million teenage girls give birth, and an additional 3.2 million undergo unsafe abortions. Even though 90 percent of these teenagers giving birth are married, they still experience conditions contributing to challenging pregnancies: inadequate education, sexual coercion, violence, rights violations (including child- and forced-marriages), and gender inequality. In addition to lesser hardships that can come from unplanned or uninformed pregnancies, complications from pregnancy and childbirth are the leading cause of death among girls ages 15 to 19 around the world.
The United Nations is calling for commitments from countries, communities, and individuals to support the provision of quality education for girls from primary school through adolescence, including age-appropriate, comprehensive education on sexuality and health. It’s been found that when a girl is educated, she is more likely to marry later, have children later, have healthier children, and earn a higher income. The UN also emphasizes the necessity for comprehensive sexual and reproductive health services. Other areas that demand examination are the legal systems surrounding marriage (including minimum marriage ages) and women’s rights.
As we have posted about previously (see here, here, and here), the low level of financial inclusion among youth is a missed opportunity to contribute to their well-being. Starting youth out with financial services can be a good investment. A New America Foundation study suggests that instilling a habit of saving among youth sets them on a course for a lifetime of financial capability. According to Youth Economic Opportunities, girls who are less financially dependent are at lower risk for negative effects of early pregnancy and child bearing. In a recent World Bank paper on gender equality and development, it was found that lack of agency (that is, a person’s capability to advance goals she values) is a key factor driving poor reproductive health outcomes among women generally. For example, women in Bangladesh who had more decision-making power were more likely to access prenatal services and skilled birthing accommodations.
> Posted by Syed Mohsin Ahmed, Chief Executive Officer, Pakistan Microfinance Network
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
At the Pakistan Microfinance Network, we are always in search of more data on financial inclusion in Pakistan. So imagine my delight when I heard about the Country Profiles feature on the Center for Financial Inclusion’s Mapping the Invisible Market website that features data from the World Bank Global Findex among other sources. My exploration of the Pakistan country profile page gave me some new insights and raised a few questions for future research.
First, a very high proportion of the people who took loans (largely informal) in the past year in Pakistan took them to deal with health and emergencies. Seventeen percent of all adults in Pakistan borrowed in the past year for health and emergencies, while only about 10 percent of the people in other middle income economies did so, even though in Pakistan, people are less likely to take out loans overall.
This observation makes me wonder if there is a pent-up demand for insurance in Pakistan. For a country that has seen a number of major disasters in the last few years, no doubt there is a great need for insurance products in Pakistan to help prepare for emergencies.
When I looked further at who it was that was taking out these loans (again, both formal and informal) for health or emergencies, I noticed that they were disproportionately rural, or poor, or to have only completed primary school. These observations offer a picture of what vulnerability looks like in Pakistan, and where financial inclusion efforts might be targeted for maximum impact.
Looking specifically at formal financial services, I found that the percent of people who have an account at a formal financial institution in Pakistan is quite low—10 percent—compared to the rest of South Asia—33 percent. In both, the number one use of accounts is to receive wages. Unsurprisingly, in Pakistan, education and gender have a great impact on the use of accounts—25 percent of people whose education level is secondary school or higher have an account compared to only four percent of people who have just a primary school education. Seventeen percent of men have an account compared to three percent of women. Read the rest of this entry »
> Posted by Jeffrey Riecke, Communications Assistant, CFI
A few days ago the U.N. High Level Panel submitted its final report to the U.N. Secretary General on recommendations for the global development agenda to replace the current Millennium Development Goals (MDGs) when they expire in 2015. The High Level Panel, comprised of 27 individuals spanning leaders from civil society, private sector, and government, developed the recommendations in broad consultation with governments, organizations, institutions, United Nations entities, and individuals. People from more than 5,000 civil society organizations as well as roughly 250 CEOs of major corporations participated in the process.
The vision of the agenda, as stated in the report, is to end extreme poverty in all its forms in the context of sustainable development and to have in place the building blocks of sustained prosperity for all. The agenda is organized into five transformational shifts, and includes recommendations on establishing goals that translate these priorities into measurable targets and recommendations on effectively implementing the agenda. A list of the five transformational shifts follows. Read the rest of this entry »