> Posted by Elisabeth Rhyne, Managing Director, CFI

The following post was originally published on the MasterCard Center for Inclusive Growth blog.

Reaching full financial inclusion by 2020 will require supportive policies in every country around the globe. The Economist Intelligence Unit’s “Global Microscope on Financial Inclusion, 2014” assesses the policy environment for financial inclusion in 55 countries. The Microscope examines 12 policy dimensions essential for creating an inclusion-friendly regulatory and institutional framework. The rigorous model incorporates input from hundreds of policy makers and participants in the financial sector and a review of existing policies and implementation. The resulting rankings represent the best readily available source for judging the state of financial inclusion policy around the world.

What’s surprising about the 2014 Microscope results is their wide range. Out of a possible 100 points, the top scorer (Peru) received 87 while the lowest (Haiti) earned only 16. If full inclusion requires good policies, it is disappointing to learn that the median score across all countries was a mediocre 46.

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> Posted by Rishabh Khosla, Senior Investment Analyst, Accion Venture Lab

The following post was originally published on SocialStory.

The Indian financial services landscape is undergoing a tectonic shift. The last few years have seen a renewed public focus on expanding financial inclusion. Building off prior programs, the government has invested in regulatory reform, improvements to the banking system, payments, and ID infrastructure. They have also announced a series of programs targeting the bottom of the pyramid (BoP) and micro, small, and medium enterprises (MSMEs). Simultaneously, we are beginning to see real shifts in the adoption of digital technologies and banking services (such as basic savings accounts and smartphones), driven by compelling use-cases, such as government subsidies, delivered directly into bank accounts, and rickshaw-hailing apps that use mobile wallets. Together these trends are unleashing tremendous innovation with the potential to speed financial inclusion for millions.

As investors in early and growth stage “social” enterprises that are speeding financial inclusion around the world, we believe startups are uniquely positioned to navigate this shifting technological, regulatory, and competitive environment. Indeed, financial sector reform in India has had many false starts, and there are still many regulatory and structural hurdles to be overcome. However, we believe India is nearing an inflection point with changes playing out in three areas that are giving birth to exciting startup financial services models: MSME finance, digital payments, and consumer services.

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> Posted by Shaheen Hasan, Manager, FI2020 at CFI

The Center for Financial Services Innovation (CFSI) has been leading the charge in the U.S. to move beyond traditional financial education toward models that help consumers translate financial knowledge into better financial behavior in their everyday lives. CFI interviewed Josh Sledge of CFSI to understand the trends shaping capability-building efforts in the United States.

What are signs that a financial capability framework is gaining traction in the United States?

CFSI works with a vast and diverse network that includes banks, credit unions, non-profits, financial technology companies, government agencies, and academics. Over the past several years, we’ve seen a shift in focus and approach among these various groups of stakeholders that reflects adoption of the financial capability framework. In other words, organizations and companies are increasingly placing an emphasis on helping consumers achieve real and meaningful financial behavior change.

Nonprofits and philanthropic organizations are pushing themselves to create deeper impact and experimenting with new strategies to do so. A wave of recent start-ups is employing technology to give users new products and tools for saving and managing money. Innovative banks are creating budgeting tools, introducing refined messaging, and forming partnerships to help customers better manage their money. We’ve been encouraged to see these developments as they demonstrate that the financial capability framework is taking hold. However, there is still plenty of room to go further.

Where is momentum stalling?

Scaling effective strategies for building financial capability has certainly been a challenge. We’re seeing new high-potential strategies emerge and practitioners and researchers taking a focused approach toward evaluating programs and products for their impact on financial behavior. Taken together, we’re poised to see the emergence of innovative but proven models for improving financial capability. This is a tremendous development, but the next step is implementing these models at scale in order to reach the millions of households that are struggling to manage their finances.

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> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI

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“Customer-centric” is defined by businessdictionary.com “as creating a positive customer experience at the point of sale and post-sale.” Gerhard Coetzee, Senior Financial Sector Specialist at CGAP, and his team are exploring how customer-centricity can be best customized and then operationalized for low-income people, in particular the unbanked and clients of financial institutions (FIs), with a strong emphasis on “customer empowerment.” At a recent persuasive presentation at CFI, he discussed his approach.

The mandate of Coetzee’s study, launched last year, is to come up with a series of clear recommendations for financial service providers on how to give customers greater control over their financial destinies. Coetzee makes a strong case that “front-line staff” may do a poor job in communicating the advantages or disadvantage of one product over the other. But I believe that he should consider giving more weight to the pivotal role that well-trained and long-serving loans officers and other front line staff may play in an FI achieving customer-centricity.

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Gail Buyske, Advisory Committee, Microfinance Information Infrastructure Project

> Posted by Center Staff

Convening of Stakeholders

Several weeks ago we learned that MFT has suspended its operations. Moody’s has discontinued its Social Performance Assessment Program. The MIX is trying to increase revenue through its MixGold program. Should we care about these developments? What are they telling us about the state of microfinance’s information infrastructure?

The Center for Financial Inclusion undertook an analysis of these issues to follow up on Elisabeth Rhyne’s provocative blog of March 11, 2014, in which she argued that the microfinance industry needs an “infrastructure fix.” Today’s blog summaries the key issues, which will be discussed at a stakeholder discussion in DC on April 14, followed by one at a later date in Europe.

Let’s start by thinking about why we should care about microfinance’s information infrastructure. Information and its natural outcome, transparency, have been guiding principles of the microfinance industry practically since its inception. These are not just feel-good concepts: they played a fundamental role in the development of microfinance. Information and transparency were critical in microfinance’s early days in enabling donors and investors to identify promising MFIs that they could support. Readily available information enabled MFIs to benchmark their performance and set goals to improve their performance. And we can never forget that a commitment to transparency is a pact between MFIs and their clients.

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> Posted by Sonja Kelly, Fellow, CFI

Photography by John Cairns

Jean-Claude Masangu, Former Governor of the Central Bank of the Democratic Republic of Congo discusses outreach to persons with disabilities and the macroeconomics of financial inclusion with Sonja Kelly, Fellow, Center for Financial Inclusion.

Kelly: As someone who has worked in the commercial banking industry, what are some of the considerations that financial services providers should keep in mind when devising a strategy for engaging with person with disabilities?

Masangu: Financial institutions should make their decision to provide financial services to persons with disabilities (PWD) based upon market surveys and research information that describe, among other things, the needs and kinds of products and services. These can be obtained through specialized firms if they are not readily available.

A second consideration is a thorough analysis of the required internal staff capabilities and transaction processes that will deliver the needed products efficiently without losing money. And a third consideration is for the financial provider to have a policy commitment towards PWD as part of its social corporate responsibilities. Last but not least, is to have an action plan that includes the identification of stakeholders in the community (i.e., disabled peoples’ organizations) and the signing of a strategic partnership with them.

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> Posted by Eric Zuehlke, Web and Communications Director, CFI

3687338445_1579b76cceImagine you’re a young immigrant in the U.S. who’s been working for a few years in a series of low-wage jobs. Through discipline and determination, you’ve saved up some money for a down payment on a used car and you want to apply for a loan. You haven’t made many large purchases, you don’t have a credit card, and have few assets to your name. Chances are, your credit report is nonexistent and you won’t be able to access the credit you need to buy a car that will get you to your new job everyday. Tough luck.

It’s a familiar story for the “credit invisible” – tens of millions of Americans (possibly as many as 1 in 4) – some young, some elderly, and across income levels. For people without a detailed credit report or credit score, high cost lenders such as pawn shops, pay-day lenders, and check cashing services fill the void. The resulting inability to build assets, buy a home or start a business doesn’t just have implications for individuals; the lack of a ladder for climbing up the economic ladder helps entrench economic inequality.

A new research report from the Policy & Economic Research Council (PERC) indicates that the use of alternative data is presenting an opportunity for financial inclusion. A growing number of companies are using non-financial services data such as energy utilities, telecoms and cable TV history, and rent to determine credit worthiness and reach clients that typically would be financially excluded. Read the rest of this entry »

Smart Campaign> Posted by Center Staff

Big news from the Smart Campaign camp. Today, the Campaign, the global movement you’ve come to know for embedding a set of client protection principles into the fabric of the microfinance industry, is announcing enhancements to its Client Protection Certification Program designed to improve and accelerate the certification process.

The Smart Campaign’s Client Protection Certification Program contains a core set of standards against which institutions are evaluated by independent, third-party raters. Certification publicly recognizes those institutions providing financial services to low-income people whose standards of care uphold the seven Client Protection Principles. The certification process aids institutions in strengthening their practices, and becoming certified helps institutions demonstrate to industry stakeholders – including clients, investors, and other institutions – their commitment to responsibly serving their clients. The Client Protection Principles cover important areas such as transparency, fair and respectful treatment, privacy, and prevention of over-indebtedness.

The Certification changes will enable the program to better meet the growing global demand for certification among microfinance institutions, while ensuring that certified institutions demonstrate high standards and the program maintains strong governance and quality control. Several enhancements will take place immediately:

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> Posted by Center Staff

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Whether you’ve abstained from the act, or jumped on the trend of snapping selfies – photos of yourself typically taken using a smartphone or webcam and shared on social media – chances are you’ve been exposed to the phenomenon. (In 2013, Oxford Dictionaries named selfie word of the year. Here’s U.S. President Obama taking a selfie with U.K. and Denmark Prime Ministers Cameron and Throning-Schmidt.) What you probably haven’t been aware of is the ability of these selfies to work in your favor when it comes to affirming your credit-worthiness. That’s right: publishing lower-quality self-portraits online has the ability to support your case for receiving a loan from a formal lender. At least that’s the claim of Cheese4Credit, a software provider about to begin what’s predicted to be a robust round of Series A fundraising. Cheese4Credit, which extends their proprietary technology to a host of credit providers, bills themselves as next in line in the movement of harnessing nontraditional client data to support the credit-worthiness of low-file individuals.

For those with their eyes on trends in credit scoring, this won’t come as a big surprise. Over the past few years we’ve seen organizations professing their ability to discern credit-worthiness using psychometric testing, GPS activity, and data generated on Facebook, LinkedIn, and Twitter. As with these predecessors, the premise is that mainstream credit scores – for example FICA – unduly penalize potential borrowers with high interest rates or cut them out of the system altogether for the misgivings of missed payments or a lack of borrowing experience. Cheese4Credit does take into account individuals’ FICA scores, but only as one element in their formula to determine credit-worthiness and, as their website indicates, just to “identify any red flags.”

So, how does this vanity-fuelled credit unlocker work? To qualify, photos need to be taken on Instagram. Your social standing and reputation on the social media platform, which Cheese4Credit indicates factor heavily into your credit-worthiness, is assessed by your number and “quality” of followers, their followers, and the number of “likes” your photos receive. You get bonus points if your sphere of influence includes big names like The New York Times or Bill Gates, as well as popular celebrities like Canadian tabloid sensation Justin Bieber.

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> Posted by Center Staff

Many enterprises operating in the informal economy provide low-quality working conditions for their employees. Workers might be exposed to difficult or dangerous environments, and the formalities of labor law are missing. A new project from the International Labour Organization’s Social Finance Program and the University of Mannheim in Germany tested the hypothesis that microfinance institutions, given their unique and expansive connections to the informal economy, can successfully apply interventions aimed at improving their clients’ working conditions. The project spanned 2008 to 2012 and included collaborations with 16 microfinance institutions. The project results are shared in the recently released report, “Microfinance for Decent Work – Enhancing the Impact of Microfinance.” It suggests that microfinance institutions indeed have the potential to leverage their positioning and resources to improve their clients’ business environments.

The project was carried out in four steps. First, the participating MFIs conducted an internal diagnostic to identify the most pressing work-related challenges faced by their clients. Across the breadth of identified challenges, the issues that the MFIs chose to address were reducing child labor, promoting business formalization, enhancing business performance, and reducing vulnerability, particularly in regards to risk management and over-indebtedness. Each MFI created its own intervention with its unique institutional context in mind. These innovations included launching new financial services, introducing non-financial services, offering packages of financial and non-financial services, and restructuring institutional operations. The innovations were piloted with client impact tracked to enable before and after comparisons in control and treatment groups.

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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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