> Posted by Center Staff

2015 was a year full of great reads (and listens). As we enter 2016, we wanted to take a look back at last year and what we were most excited to explore.  Through our work writing the FI2020 Progress Report, which assesses global progress in five key areas of financial inclusion, we benefited from important research from many in the financial inclusion field.  As part of this effort, we were eager to update our FI2020 Resource Library with the most informative reports and research outputs.  We encourage you to check it out – and in the meantime to review the highlights listed below.  The organizations responsible for these reports cover a wide array of stakeholder types, from support organizations, to telecommunication companies, to financial service providers – proof that progress in financial inclusion is being driven by many.

What Happens to Microfinance Clients Who Default? (January)
The Smart Campaign
Author: Jami Solli
This report looks in-depth at the enabling environment, the practices of providers, and customer experiences in Peru, India, and Uganda, to understand what happens when microfinance clients default on their loans. We were especially interested in the paper’s findings that demonstrate that effective credit bureaus give financial service providers the confidence to treat customers who default more humanely.

Money Resolutions: A Sketchbook (January)
CGAP
Author: Ignacio Mas 
This working paper explores the underlying logic for how people make money resolutions, including how people organize their money and make decisions about financial goals and spending. The paper focuses on peoples’ approaches to making financial decisions – rather than evaluating the decisions themselves – identifying the inner conflicts they face in the process.

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> Posted by the Smart Campaign

Transparency sounds simple – in business, government, relationships, and most areas of life. Take the business of offering financial products and services. As a provider, you inform prospective and current clients of everything they need to know about your product.  As a client, you use this information to make sound decisions about buying and using said product. Consequently, providers can claim full disclosure and hope to benefit from increased loyalty of clients. Clients have the information to make educated decisions and rest easy knowing exactly where that provider stands.

Similarly, in relationships, transparency (read: honesty) is always the best policy. The best practice is always to say everything that’s on your mind. After all, the truth will set you free… Except for maybe when your partner is already overwhelmed with information. Or when what you’re trying to share is incomprehensible. Or when your partner is trying to concentrate on something else. What I’m trying to get at is this: transparency may seem simple, but it’s not. Effective transparency provides information in a way that enables the person receiving the information to understand it and use it.

Inclusive finance providers need to hit the sweet spot – sharing the optimal amount of the most critical information with clients, in an understandable format, at appropriate times. To make matters more challenging, inclusive finance clients are often illiterate, poorly educated, or new to formal institutions.

The good news is that around the world, including in Mexico, the inclusive finance industry is hard at work to embed transparency effectively. In 2014, the Mexican government passed widespread financial reform that emboldened the role of the consumer protection agency, CONDUSEF, and made its rules mandatory for all credit institutions. CONDUSEF was enabled to issue and publicly publish recommendations to financial institutions. In the last year, CONDUSEF imposed important new regulations in areas of transparency and money laundering, and ended up revoking the operating permits of 1,449 non-regulated (SOFOM) institutions that did not meet the standards.

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Grameen Foundation Study, Measuring the Impact of Microfinance: Looking to the Future

> Posted by Kathleen Odell, Associate Professor of Economics at Dominican University’s Brennan School of Business

The following post was originally published on NextBillion.

Today we’re pleased to announce the release of Measuring the Impact of Microfinance: Looking to the Future, the third in a series of papers commissioned by Grameen Foundation. This series was initiated in 2005 to survey and contextualize the available evidence on the impact of microfinance. I got involved in the project in 2009, when I met Alex Counts, Grameen Foundation’s founder and then-CEO, at a conference in Chicago. We discussed the first Measuring the Impact paper, and the evidence on the impact of microfinance that had emerged in the intervening years. By the end of that conversation, I’d volunteered to write a second paper in the Measuring the Impact series, which was published in 2010. In early 2015, I was delighted to be asked to author the third paper in the series, Looking to the Future, as well. (For the record, my relationship with Grameen Foundation is limited to writing these two papers, which I do as a volunteer through the Bankers without Borders initiative, as part of my research agenda at Dominican University. I have complete editorial control over the content.)

When I returned to the microfinance literature last year, there were two key questions to sort out. First, what had happened in microfinance impact research since 2010? And second, what was going on with microfinance practice?

In answer to the first question, there was a lot of new research. The best-known papers were certainly the recent batch of microcredit randomized control trials that were published in the American Economic Journal: Applied Economics, in early 2015. The results from these studies have been widely discussed and summarized (on NextBillion and in numerous other places), and I’ve included detailed summaries of each in Looking to the Future as well. The research has shown (repeatedly) that while loans do not lead a typical family directly out of poverty, access to a broad range of reliable financial services, including loans, has an array of positive impacts on clients. Although these are, admittedly, selected examples, recent research presents strong evidence that access to credit yields increases in business creation, investment and expansion. There also is good evidence that access to credit leads to increases in occupational choice and consumption choice, including reduced impulse spending on goods like cigarettes. (See the table below from the paper.) Read the rest of this entry »

> Posted by Center Staff

“We would not be here without the visionary work of the pioneers who came before us, especially the women leaders who fought to build the very first banks for women in countries with seemingly insurmountable barriers,” writes Mary Ellen Iskenderian, President and CEO of Women’s World Banking in the forward of a new online book, Celebrating Women Leaders: Profiles of Financial Inclusion Pioneers. The book shares the stories of 31 women leaders from around the world who made the financial inclusion landscape what it is today.

Those recognized in the book include practitioners, academics, researchers, regulators, thought leaders, financiers, and more. Among them, the industry’s earliest pioneers, like Ela Bhatt, founder of Self-Employed Women’s Association (SEWA), as well as those who joined more recently, like Ruth Goodwin-Groen, Managing Director of the Better Than Cash Alliance, and Jennifer Riria, CEO of Kenya Women Holding. Full disclosure: of the 31 included in the book are also CFI leaders and partners, including Anne Hastings, Elisabeth Rhyne, Essma Ben Hamida, and Jayshree Vyas.

The book was the idea of Samit Ghosh, CEO and Founder of Ujjivan. Ujjivan and Women’s World Banking worked together on the project, with young women working in the sector researching, conducting interviews, and writing the leader profiles.

Read the rest of this entry »

> Posted by Jeffrey Riecke, Senior Associate, CFI

India has received much fanfare for its financial inclusion efforts in recent years. A few weeks ago we declared it our Financial Inclusion Country of the Year for 2015 in recognition of the major steps it took, which resulted in achieving the greatest improvement in its Global Microscope score between 2014 and 2015. It recently granted new bank licenses that dramatically diversify and grow the country’s services landscape, widely applied new cost-saving technologies like biometric identification, and rolled-out historically ambitious public programs like PMJDY that dramatically reduce the portion of the population that is unbanked.

“Never waste a good crisis” said Royston Braganza, CEO of Grameen Capital India, at the Inclusive Finance Summit in Delhi last month, referring to the Andhra Pradesh crisis of 2010. The recently-released Responsible Finance India 2015 analyses the current state of practice on responsible finance and social performance management in India. In light of that report, Braganza questioned, “Have we learned from our mistakes?”

Responsible finance centers on client protection and market conduct, and has been extended in recent years to include many other good corporate citizenship issues such as employee management, governance, and social performance monitoring.

By way of context, here are a few numbers on the present-day BoP Indian finance landscape:

  • Across MFIs in India’s MFIN network, which represent roughly 90 percent of MFIs in the country, loan books grew by 64 percent in the last fiscal year, compared with 43 percent in the year prior and 4 percent in the year before that.
  • In total, MFI outreach in the country accounts for about 100 million clients.
  • Reportedly, through PMJDY 180 million new bank accounts have been opened over the past year, and adjacent schemes covering insurance, pensions, and credit have been implemented, as well.
  • For the first time in a decade, the RBI granted new bank licenses last year – to Bandhan Bank and IDFC. Bandhan now has 500 branches and over 2,000 service centers across 24 states. Sixty-five percent of IDFC’s first 23 branches are located in rural areas of Madhya Pradesh.
  • Under the RBI’s newly created categories of payment banks and small finance banks, 11 and 10 providers, respectively, have received new licenses, further expanding the network of providers serving the poor.

Read the rest of this entry »

> Posted by Alvina Zafar, Deputy Manager, Microfinance, BRAC, and Monirul Hoque, Management Professional, Microfinance, BRAC

“I can’t thank BRAC enough for standing beside me when I needed help the most,” Rahela, 24, a microfinance borrower and recipient of BRAC’s credit shield insurance, tells us. She borrowed US$385 in January 2015 to invest in a small clothing business. Recalling her experience, she reveals “My husband was not interested initially in having a joint insurance policy, but when the customer service assistant explained it in detail, we decided that we should pay the small premium.”

Just a few months later, Rahela’s husband suffered a fatal cardiac arrest, leaving her to care for and support their child on her own. Her first step was to claim the insurance that they had wisely bought. Within two weeks, Rahela received the claim, of US$135, alongside an additional US$64 benefit provided as standard to cover funeral costs. She chose not to withdraw any of her savings of US$63.

In Bangladesh many people with low incomes are reluctant to take insurance products, like Rahela’s husband, due in large part to the lack of transparency in, and lack of understanding of many insurance products. There are no standards for how much insurers can charge and often the premium rates contain hidden charges. Project features can be rigid, making some features mandatory for the user, which reflect their typical supply side origins (i.e. convenient for providers but not necessarily for clients). Moreover, there are cases where clients complain about not receiving promised services, breaking the clients’ trust and generating healthy skepticism towards any promises of future benefits that have to be paid for in advance.

Most successful microinsurance schemes in Bangladesh, therefore, are involuntary – being provided alongside other services, such as telecommunications. In light of the seemingly low demand for microinsurance in the country, then, BRAC’s pilot experiment with credit shield insurance has been uniquely successful.
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> Posted by Hatem Mahbouli, Investment Officer, FMO

Social Impact Bonds

A lot has been said on social or development impact bonds (SIBs), and the instrument evidently has acquired enough vintage to be subjected to an insightful review by the Brookings Institute on the promises and limitations of its applications.

To give a short description, SIBs are not bonds (too late to change the name apparently), but sort of a public-private partnership, where investors are only repaid by the donors or government commissioners if and when pre-agreed social outcomes are achieved, transferring the risk of failure from donors/government (outcome payers) to investors.

SIBs can change perspectives where social issues move from being budget issues to business cases. The proposal is very appealing for impact investors as it offers new opportunities to deploy capital for social impact, with a strong focus on accountability and credible measurement of the achieved impact.

Applicability to the financial inclusion space

To date, very few SIBs have been launched in low income countries, despite many parties closely watching deployments elsewhere. Issues range from legal constraints to high transaction costs, but let’s assume for a moment that there is enough will, incentives, and capacity to overcome those limitations and launch a SIB in financial inclusion. What would this look like?

For a SIB to work, it needs to tackle what we call a “SIB friendly” issue or segment. You cannot apply it to any problem. The intervention – to put it very shortly – needs to be limited in time, have a specific scope, and an output (or outcome) that is relatively easy to measure and to value. Of course, for the whole structure to make sense, there needs to be an outcome payer who is willing to buy those outcomes, and an investor willing to take the risk.

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> Posted by Center Staff

The latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are: the Alliance for Financial Inclusion (AFI) released the 2015 AFI Global Policy Forum Report, distilling the happenings of the network’s largest and most diverse forum to date; new startup PayJoy is attempting to solve the financing problem surrounding the 2 billion individuals globally who have access to the internet but can’t afford a smartphone; The Guardian spotlights how mobile money supported healthcare workers during the fight against Ebola in Sierra Leone. Here are a few more details:

  • The 2015 AFI Global Policy Forum brought together over 500 senior financial inclusion policymakers, regulators, international organizations, and private sector partners in Maputo, Mozambique. Highlights from the forum include the adoption of the Maputo Accord, making SME finance a larger priority for the network, and sessions on green finance and gender.
  • PayJoy, beginning an initial roll-out in California, is offering an alternative to the tech industry’s equivalent of payday lenders who charge upwards of 500 percent interest on loans to buy smartphones. PayJoy covers 80 percent of the cost of a phone at 50 to 100 percent interest, and if individuals aren’t able to make their monthly installments, the phone locks until the payment is received.
  • In Sierra Leone, payment to healthcare workers combating Ebola was originally largely disbursed inefficiently in the form of cash, resulting in incidences of workers not being paid for months at a time, which caused disruptions to both healthcare and public trust in the system. NetHope, a consortium of NGOs working in IT, enrolled workers into an automated mobile money-based payment system using an open source facial recognition software.

For more information on these and other stories, read the latest issue of the FI2020 News Feed here. This is the final issue of the News Feed. Though if you have any stories or initiatives that you think we should cover on the blog or via our other social media channels, email your ideas to Jeffrey Riecke at jriecke@accion.org.

> Posted by Center Staff

> Posted by Ignacio Mas, Senior Fellow, Council for Emerging Market Economies at the Fletcher School

Here are my best wishes for the CFI community, to be sung to the tune of the last bit of the twelve days of Christmas:

On the twelfth day of financial inclusion my true donor sent to me:

Twelve human centered designers

Eleven groundtruths validated

Ten agent trainings

Nine peer networks learning

Eight logs a-framing

Seven innovation challenges

Six rapid prototypes

Five fast failings

Four big data thingies

Three evidence bases

Two RCTs evaluating

And an e-money issuer license.

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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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