Financial Inclusion and the World’s “Unbanked” Population

June 3, 2013 in Branchless Banking, Center for Financial Inclusion, Client Focus, Events, Financial Inclusion, Financial Inclusion 2020, Microfinance, Technology | Tags: , , , , , , , , , , , , , , , , , , , , | Leave a comment

> Posted by Isobel Coleman, Senior Fellow for U.S. Foreign Policy, Director of the Civil Society, Markets, and Democracy Initiative, the Council on Foreign Relations

The following post was originally published on Democracy in Development, Coleman’s CFR blog.

Imagine life without a bank account. Completing a simple financial transaction can require traveling a distance, incurring expenses, and losing precious income. Savings are more difficult to track and certainly don’t earn interest. Theft or loss of the proverbial “cookie jar” is a constant worry. Indeed, studies show that informal savers lose as much as 25 percent of their hard-earned cash each year due to theft and loss. Yet for over 2.5 billion people globally, this inconvenient, inefficient, and expensive reality is the case.

There are many reasons to believe that the number of unbanked people will shrink significantly in years to come, with important positive implications for economic growth and poverty reduction. First, grassroots and country-level efforts, both nonprofit and for-profit, are already showing how “unbanked” doesn’t have to be the status quo—and these efforts are greatly facilitated by mobile phones. Kenya is well-known for the widespread use of its mobile money system M-Pesa, which allows people to pay for goods and services through cell phones instead of with cash. Started in 2007, M-Pesa has already been used by the vast majority of Kenya’s adults.

Second, major financial institutions are supporting efforts to give more of the world’s population access to bank accounts and standard financial tools. Last summer, I wrote about Visa’s purchase of the mobile payments system Fundamo and the collaboration between USAID and Citi to expand financial inclusion, a promising instance of big financial institutions bringing their resources to bear on closing the financial inclusion gap.

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The Next Wave of Financial Capability Initiatives

May 31, 2013 in Center for Financial Inclusion, Client Focus, Financial Education, Financial Inclusion, Technology, Youth and Financial Inclusion | Tags: , , , , | Leave a comment

> Posted by Jeffrey Riecke, Communications Assistant, CFI

In school, my in-class instruction was mostly lectures from teachers and reading out of text books. In fact, before beginning other types of learning activities, such as games or role-plays, my teachers would often feel the need for a prefacing remark like everyone learns differently, so today we’ll be trying something new. My teachers were right. Everyone has their own learning style, and if we want everyone to learn, we need to adhere to this. Financial capability is no different. It isn’t enough to give someone a pamphlet or a fact sheet if we want them to be equipped with the knowledge and skills necessary for making sound financial decisions and for appropriately using financial services.

To this end, the Center for Financial Services Innovation (CFSI) is catalyzing advancements in financial capability through its Financial Capability Innovation Fund. The fund, now in its second iteration, selects non-profit led financial capability projects targeting low-income and underserved clients through a request for proposals process, and backs their development and testing through financial and non-financial support. Eight winning projects were selected in April for this round of the fund, receiving a total of $2.5 million in support. Paired with quality financial products and services, the selected projects leverage the power of new technologies and social networks to impart tailored, timely, and actionable guidance. A brief description of each project, in the words of CFSI, follows. Read the rest of this entry »

The Service Provider Spectrum – From Microfinance to Financial Inclusion

May 30, 2013 in Center for Financial Inclusion, Client Focus, Financial Inclusion, Microfinance, Savings | Tags: , , , , , , | Leave a comment

> Posted by Joanna Ledgerwood, Senior Advisor, Access to Finance, Aga Khan Foundation

The following post was originally published in the Guardian Development Professionals Network DAI Partner Zone.

The microfinance industry has come under withering attack in recent years, pilloried among other things for its high interest rates and its coverage, which is often estimated to reach less than 10 percent of the population. But practitioners, the media, and the public should understand that microfinance is a broad term for a highly differentiated financial sector that is not without its successes. Each type of provider — from banks to savings groups — plays a particular role in providing the continuum of services typically needed to promote “financial inclusion” in underserved areas.

My recently published book, The New Microfinance Handbook: A Financial Market System Perspective, addresses the need to broaden microfinance’s reach to meet the diverse financial service needs of clients. For financial inclusion to increase, each type of institution must be deployed in the contexts in which it works best. Together, funders and governments must take a holistic, context-driven approach to improving financial services in poor areas — referred to as the market systems approach. While the commercialization of microfinance has had its successes, we need to consider the entire system, especially community-based providers, if we are to reach the rural poor with appropriate financial services.

The Mountain Societies Development Support Programme (MSDSP), an NGO set up and supported by the Aga Khan Foundation in Tajikistan, is a good example of a market systems approach where a variety of financial initiatives work collaboratively. Launched as a relief and humanitarian initiative, MSDSP transitioned to become a development organization, promoting good governance and local economic development. Recognizing that the legacy of distrust in the formal financial sector has been particularly damaging to people living in mountainous areas — already subject to isolation, marginalization, and deep poverty — MSDSP aims to address the lack of accessible financial services.

In the remote rural areas where MSDSP works, community-based savings groups (CBSGs) are at the heart of a successful effort to bring financial services to the poor, supported by a broad spectrum of financial and social institutions. Based on tested models in Africa and South Asia, CBSGs are simple savings and borrowing associations. Under the direction of elected leaders, groups of 15 to 25 members gather biweekly to manage their financial activities. After two months of training followed by approximately seven months of close supervision, CBSGs continue to operate, without external support, for many years. Members access loans and pay interest of about three percent per month, and all interest received contributes to increasing the loan fund which is periodically, usually annually, distributed back to members. No external capital is required, making CBSGs transparent and profitable for the members.

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Your Neighborhood Bank, Walmart?

May 29, 2013 in Center for Financial Inclusion, Client Focus, Financial Inclusion, Financial Inclusion 2020, Policy | Tags: , , , , , , , , | 1 comment

> Posted by Elizabeth Davidson, Financial Inclusion 2020 Consultant

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.”

Does Walmart pose a threat to banks? Some bankers are apparently worried the retailer indeed does. As Bloomberg recently uncovered, a group of bankers that advises the Federal Reserve asked U.S. regulators to keep Walmart out of the financial services business, or at least strictly limit and regulate their financial services-related products, including its established prepaid card business. Offered in partnership with American Express, the prepaid cards, known as Bluebird, are even marketed as a “checking and debit alternative.” The bankers’ group, called the Federal Advisory Council, thinks they are not just an alternative to traditional financial services, but a bona fide financial service in a “shadow banking” system that enjoys less regulation than traditional commercial banks.

So, is Walmart a real threat to the traditional sector? Maybe, but it and other big retailers could have the potential to reach those excluded from or underserved by traditional commercial financial services.

Consider the example of Banco Azteca in Mexico.

Banco Azteca, which CFI’s Elisabeth Rhyne called a “mega-success story” in terms of its reach and to whom the Inter-American Development Bank recently awarded its “equalBanking” prize for support of diversity and gender equality through financial services to the base of the pyramid, has a much different beginning than most banks: it grew out of one of Mexico’s largest consumer goods retailers, Grupo Elektra. After almost 50 years of experience offering consumer financing to its working class customers, the retail chain opened Banco Azteca branches—notably, after receiving a banking license—in all of its existing stores, establishing Mexico’s second largest network of bank branches almost overnight.

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Layering Financial Inclusion, Informal on Formal

May 28, 2013 in Center for Financial Inclusion, Events, Financial Inclusion | Tags: , , , , , | 2 comments

> Posted by Ignacio Mas, Independent Consultant

That was a fun debate at Fletcher.

This or that? Formal or informal? Pro or con? Of course the answer always lies somewhere in the middle, it’s about and rather than or, to use the trite expression. It would certainly be ironic to seek to be inclusive by excluding options.

But in the case of financial inclusion, where a number of formal and informal services vie for relevance, what does this happy medium look like? I don’t see it as a bountiful fruit platter that people can pick from (now formal, now informal) as much as a richly layered cake.

The cake analogy is to represent the idea of platforms, of capabilities arranged horizontally and interworking with each other. Each layer brings a flavor, a texture, a color to the cake, but it is only when slices cut through the entire stack that the full cakeness comes through.

Let’s count the layers of financial inclusion. You need an identity layer, so that information can be traced back to individuals and histories can be constructed. You need an efficient money transfer layer, so that money can move efficiently and without delay between the various players when they are near or far. You need a cash distribution layer, with a multitude of localities where you can exchange various forms of money (cash to electronic, large bills into small change), on demand. You need enforcement mechanisms, so that IOUs can be trusted. You need a reliable accounting layer to keep track of all these contracts and IOUs. You need creative packaging of money transfers and IOUs into higher-level financial contracts (savings, credit, insurance, and combinations of all these) that connect more directly with people’s problems and needs. You need social connections and knowledge, so that people can variously give, lend, guarantee, and vouch for each other. You need people who can become evangelists, connectors, educators, marketers, to get others involved. You need, you need, you need…

I don’t mean to make it sound more complicated than it really is, or to bias the discussion towards formal just because I used some big words in there. Go through the list again: each of these functions can be done formally or informally, and in fact savings groups do all of the above in their own way. But we shouldn’t strive to create two layered cakes, the nutritious-but-wobbly and the glitzy-but-indigestible. The formal and informal layers need to mix in seamlessly.

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Smart Campaign Shaping the Landscape of Microfinance in Bosnia and Herzegovina

May 24, 2013 in Client Focus, Client Protection, Events, Financial Inclusion, Microfinance, Smart Campaign | Tags: , , , , , , | Leave a comment

> Posted by Alyssa Passarelli and Jeffrey Riecke, the Smart Campaign and CFI

One good deed often leads to another. Whether it’s by learning about new opportunities to do good or by an increase in peer pressure, positive changes are contagious. This also applies to business practices, including how financial institutions treat their clients. Still new on the microfinance scene, the Client Protection Certification program has certified six MFIs to date – three in India and three in Bosnia and Herzegovina. As more institutions become certified, it increasingly changes the expectations for how financial institutions are to serve the poor, especially the expectations in markets where groups of institutions have been certified, like those in India and Bosnia and Herzegovina.

Smart Campaign Director Isabelle Barrès recently traveled to Bosnia and Herzegovina for an event to publicly congratulate and recognize the country’s three MFIs that were certified earlier this year, EKI, Mi-Bospo, and Partner. Organized by stakeholders in the Bosnian market, in particular the IFC, the event also highlighted the significance of certification, for the institutions and for the market at large. Of the three Bosnian MFIs Isabelle said, “The three client protection certified financial institutions, EKI, Mi-Bospo and Partner, can distinguish themselves in a highly competitive market, as organizations that are meeting adequate standards of customer care. They deserve the spotlight, and the attention from responsible funders and from clients.”

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A Financially Capable Consumer Could Be Your Best Customer

May 23, 2013 in Center for Financial Inclusion, Client Focus, Financial Education, Financial Inclusion, Financial Inclusion 2020 | Tags: , , , , , , , , | 1 comment

> Posted by Jasmine Thomas, Program Officer for International Financial Capability & Asset Building, Citi Foundation

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.”

Lately, I’ve reflected upon the motto of a former clothing retailer that operated in the U.S.— “An educated consumer is our best customer.” In recent years, more NGOs, microfinance institutions, and financial service providers are beginning to embrace this notion. They are devoting more resources to building the financial skills of low-income microfinance clients and small savers, and increasing knowledge in the field about what helps them maintain positive financial behaviors.

Saving for the Big Day

So, does investing in the financial capability of clients really benefit both service providers and clients? Women’s World Banking and SEWA Bank in India believed that both investing in and ensuring that clients’ financial needs and goals were met would produce social and economic benefits for the institution and the clients. With our support, the organizations implemented Project Samruddhi to test this theory by embedding financial education within their core banking operations. To support clients’ efficacy, saathis, or bank agents, were taught how to embed short, concrete financial education messages in routine client banking interactions and services.

SEWA Bank and WWB also designed and launched a savings product that targeted clients’ specific financial goals, like paying for a daughter’s wedding. Each client established a savings plan, including the total amount needed as well as the frequency of deposits. A mobile phone app enabled clients with low literacy skills to visually see how their savings accumulated with each transaction. These regular graphic visuals of their progress fueled their motivation and sense of empowerment to continue saving to meet their goal. To measure client results, WWB assessed teller-client interactions, bank transactions, and client feedback.

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The Universal Standards, One Year Later

May 22, 2013 in Center for Financial Inclusion, Financial Inclusion, Microfinance, Microfinance CEO Working Group, Social Performance | Tags: , , , , , | Leave a comment

> Posted by Meghan Greene, Manager, Microfinance CEO Working Group

Last June, at the annual Social Performance Task Force meeting in Jordan, the members of the Microfinance CEO Working Group and their lead social performance directors announced their plan to conduct the first large-scale analysis of the Universal Standards for Social Performance Management (USSPM) in practice, a process we called “beta testing.” You may recall our blog post about the plan last summer.

After a year of work, we’re ready to share our results, as detailed in the new working paper, “Insights from ‘Beta Testing’ the Universal Standards for Social Performance Management.”

As many of you know, the Universal Standards for Social Performance Management are a set of 99 “Essential Practices,” organized into six sections:

  • Section 1: Define and Monitor Social Goals
  • Section 2: Ensure Board, Management, and Employee Commitment to Social Goals
  • Section 3: Treat Clients Responsibly (Essentially tracking the Smart Campaign)
  • Section 4: Design Products, Services, Delivery Models, and Channels that Meet Clients’ Needs and Preferences
  • Section 5: Treat Employees Responsibly
  • Section 6: Balance Financial and Social Performance

The Universal Standards are considered applicable to all double bottom line microfinance institutions, and meeting the Standards signifies that an institution has strong social performance management practices. Clearly, implementing all 99 Essential Practices requires careful thought, planning, and execution, but we wanted to learn more about the process of translating the Standards into action. We partnered with more than 20 MFIs to work to answer a number of questions, including: Read the rest of this entry »

Extreme Inclusion Debate Part II: Financial Inclusion is Informal Financial Inclusion

May 21, 2013 in Center for Financial Inclusion, Client Focus, Events, Financial Inclusion, Microfinance, Savings | Tags: , , , , , , | Leave a comment

> Posted by Jenny C. Aker, Assistant Professor of Economics, Tufts University

Today’s post continues the debate from the Extreme Inclusion conference at the Fletcher School at Tufts University. The proposition, as you will recall: “Financial inclusion means formal inclusion.” Yesterday, we heard from the Pro side of the argument (represented by green high heels), and today we hear from the Con side (pink flip flops). The Con team is represented here by Jenny C. Aker on behalf of herself and teammates Ignacio Mas and Daryl Collins.

What we have heard from the opposing team is that financial inclusion – real financial inclusion – means “formal” financial inclusion. We heard that in order to get out of the poverty trap, poor individuals want – and need – financial services that build financial security, manage risks against shocks, and invest in new business opportunities. In other words, things that the informal sector can’t fully provide.

But is formal always better? Formal services are often laden with fees (how many of you know the APR on your credit card?), unfamiliar, or simply unsafe. The 1999 banking crisis in Uganda depleted smallholder savings. It was a formal system. The collapse of the Russian banking system defrauded depositors. This, too, was a formal system. And as the financial sector has become wider and deeper in many countries, the effects of such volatility — boom one day, bust the next — are felt by more people, including the poor.

Even without these formal sector collapses, the poor must often choose between high-priced formal financial services or none at all. We often criticize the moneylenders for being usurers. But what about Banco Compartamos, which has interest rates well above 70 percent and still doesn’t offer savings services? Is that fair? Or the compulsory two savings account system of the Grameen Bank, each with separate rules? Is that useful?

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Green High Heels vs. Pink Flip Flops: The Extreme Inclusion Debate

May 20, 2013 in Center for Financial Inclusion, Events, Financial Inclusion, Microfinance | Tags: , , , , , , , , | 4 comments

> Posted by Elisabeth Rhyne, Managing Director, CFI

Kim Wilson, of the Fletcher School of Law and Diplomacy, is a consummate educator who knows that drama leads to learning. That’s why she staged a competitive debate to kick off her Extreme Inclusion conference.

The Proposition: Financial inclusion means formal inclusion.

On the Pro side were myself and my esteemed colleagues Marguerite Robinson, emerita extraordinaire, Lauren Hendricks, of Care’s Access Africa conference, with coaching from Ahmed Dermish of Bankable Frontier Associates.

Taking the Con side were Ahmed’s colleague from BFA, Daryl Collins, together with Ignacio Mas, unaffiliated innovative thinker, and Jenny Aker of Fletcher, coached by Nick Sullivan, author of Money Real Quick: The Story of M-PESA.

Peter Walker of Tufts wielded the gavel with wit and a tiny hint of malice. He symbolized the Pro side with a green spike heeled shoe, and the Con side with a pink flip flop.

Unaccustomed as I am to public speaking, I took up the last position on the Pro side, with three minutes to make my points. Here’s what I said:

1. Development is about building societies that offer opportunity and connection to everyone. The important word is building. Let’s look where we are going. While many low income people today use and possibly even prefer informal financial services, one cannot consider this the path to the future. If we want to see the bottom 20 percent of the population become economically successful, there must be a path to success. We need only look to the accomplishments of microfinance in bringing microcredit to hundreds of millions in the past two decades to be confident about the prospects for major change in the future.

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