> Posted by Susy Cheston, Senior Advisor, CFI

The Credit Reporting section of the FI2020 e-zine (click to read)

The Financial Inclusion 2020 Round-Up 2014 e-zine, found on the CFI website, takes a look at progress toward financial inclusion in the year following the FI2020 Global Forum. It was at the Global Forum that five Roadmaps to Financial Inclusion were presented after two years of being developed and debated by dozens of financial inclusion experts. Now, imagine the editorial challenge of collapsing a year’s worth of activity around each Roadmap into just two pages each.

While it’s a fun read, I admit to a little cognitive dissonance as I page through the Round-Up. The brief analyses of where we stand around each of the Roadmaps to Financial Inclusion can be summed up in the quote “we’re not as far along as we think we are.” While that quote was about the Technology Roadmap, it could just as easily be said of the other Roadmaps: Financial Capability, Addressing Customer Needs, Client Protection, and Credit Reporting.

Yet despite the clear-eyed look at the ongoing challenges, the e-zine also tells a story of intense and productive activity by a wide range of actors. Legacy financial service providers—the heavy hitters with big resources and even greater reach—are investing heavily in financial inclusion. It’s not just for corporate social responsibility any more; it’s part of a new business strategy inspired by the discovery of an untapped and (they hope) profitable new market. Sprinkled in and around those vignettes are stories of scrappy start-ups doing the social entrepreneurship thing. Some of those services may not make it past 2015, but some of them have a “why didn’t I think of that” inevitability about them. The diversity of actors and the energy are impressive.

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The following post was originally published on the Microfinance Gateway.

As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks.

The Center for Financial Inclusion at Accion has recently announced a partnership with The MasterCard Foundation to launch the Accion Africa Board Fellowship program. The new program will promote peer-to-peer learning on governance and risk management practices at financial institutions that serve low-income clients in sub-Saharan Africa, a region with more than 6.6 million microfinance clients.

We spoke with Beth Rhyne (left), Managing Director of the Center for Financial Inclusion at Accion, and Ann Miles (right), the Director of Financial Inclusion at The MasterCard Foundation, to learn more about their vision for the program.

Good governance helps an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. Why do you think the microfinance industry in Africa needs such a program at this time?

Miles: Good governance begins at the top of any organization. The policies that are set, and the signals that are sent, by board members and CEOs permeate throughout an organization. They are a major component, perhaps the major component, in determining how an organization succeeds in its given mission. So, how a board does its work is critically important, and it’s something that we at The MasterCard Foundation care about a lot.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

In addition to its other benefits, microfinance can be a vehicle for promoting environmentally sustainable development. Small-scale finance, when bundled with other services, can improve access to clean energy for people at the base of the pyramid, and can assist them to protect ecosystems, conserve biodiversity, and adapt to climate change. And for the poor, climate change mitigation and adaptation is critical. Although poor people have contributed the least to climate change, according to the United Nations, they will suffer its effects in the biggest way. Though still a burgeoning area, a number of microfinance institutions are effectively pairing microfinance and environmental action, including Kompanion Financial Group in Kyrgyzstan, ESAF Microfinance in India, and XacBank in Mongolia. A few weeks ago at European Microfinance Week (EMW) these three institutions were acknowledged for their work in this area, with Kompanion winning the 5th European Microfinance and Environment Award, and ESAF and XacBank placing as runner-ups.

The Microfinance and Environment Award, launched in 2005, recognizes institutions committed to serving the poor while contributing to environmental sustainability. It’s jointly organized by the Development Cooperation Directorate, the European Microfinance Platform (e-MFP), and the Inclusive Finance Network Luxembourg in collaboration with the European Investment Bank. Below is a snapshot of the environmental efforts of the three institutions, featuring the videos that were shown at EMW.

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> Posted by Center Staff

A mother and child stand outside a health clinic where they both received check-ups and necessary vitamins and vaccines. Great Rift Valley Region, Kenya

In Kenya, where public health insurance has been available since 1965 and access to health care is a constitutional right, only 20 percent of the country actually has access to some sort of medical coverage, according to the World Bank. With a population of 44 million, this means that 35 million are excluded from coverage and millions are unable to afford services at private or public health facilities. In terms of the money spent, about one quarter of health care services spending in Kenya comes out of pocket. Each year, about one million Kenyans fall below the poverty line because of health care related expenses. Recent investments in the industry indicate that this grim reality could be changing, however, and soon.

A few days ago fund manager LeapFrog Investments bought a majority stake in Resolution Insurance, Kenya’s fourth largest insurance provider, for $18.7 million. The new funds will go towards realizing Resolution’s growth strategy of diversifying product offerings and extending services access to more Kenyans and other East Africans. The investment comes at an exciting time for both investors and providers. Though coverage remains low overall, the industry is growing rapidly. The non-life insurance market in Kenya is expanding at 20 percent annually, with health insurance at 38 percent annually. The deal is currently undergoing final regulatory processes.

Beyond Resolution Insurance, LeapFrog recently raised $400 million which it says will go toward investments in financial services across Africa and Asia, with a quarter of funds reserved for East Africa.

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> Posted by Sonja Kelly, Fellow, CFI

Last week in Mexico City, tens of thousands of people took to the streets to voice their hope for a better Mexico. In a hotel that overlooked the demonstration, members of the World Savings Bank Institute met to talk about how to make a safer and more effective financial system for those at the base of the pyramid. In terms of inclusive finance, in recent months we’ve seen significant progress. During the meeting, Vice President of the National Banking and Securities Commission (CNBV) in Mexico, Bernardo Gonzalez, opened his remarks by putting up a list of the top 10 countries in this year’s Global Microscope. Modestly, he pointed out that five of the 10 were from Latin America. Perhaps more emphatically, he highlighted Mexico’s place—fifth on the list.

As a regulator, he should be proud. Mexico’s score this year is in part a reflection of the regulatory reforms that the country has been moving forward, with attention to customers at the base of the economic pyramid. While Mexico’s microfinance sector has been under scrutiny in recent years because of notoriously high interest rates, concerns of over-indebtedness, and commercial banks hesitant to go “down-market”, a new set of microfinance regulations attempts to change things.

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> Posted by Center Staff

The 2015 Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance is now accepting applications for what will be another exceptional week of learning and exchange among world leaders in financial inclusion. The program will take place April 6-11, 2015 at the HBS campus in Boston, Massachusetts.

The 2015 HBS-Accion Program builds on nine successful years and over 550 participants – CEOs, presidents, executive directors, and other high-level professionals – from roughly 100 countries.

Today’s landscape of financial services for the base of the pyramid is increasingly complex, with a diversity of products, providers, and support organizations extending services to previously excluded populations. Disruptive technologies and new ways of doing business are creating new possibilities for reaching more people with more types of services. It’s an exciting time for financial inclusion, though for leaders steering their organizations through this landscape, the pace and magnitude of change may look overwhelming. Financial service providers participating in the program will benefit from the guidance of some of the world’s best business minds to better understand the possibilities and the pitfalls of today’s financial services marketplace. Policymakers, regulators, and investors will find it valuable to get a closer look at how the industry is evolving in countries around the world.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

New data shows the Cambodian microfinance market disbursed $1.79 billion in loans over the first three quarters of 2014, amounting to a 51 percent increase over last year’s Q1-3 figures. The data comes from the Cambodia Microfinance Association (CMA) and includes loans issued by 45 of the country’s MFIs. Last year’s total for the same period was $1.18 billion from 39 institutions. In a country where fewer than 20 percent of the adult population has access to formal financial services, such expansion in activity might be exciting, but is it sustainable for borrowers and institutions?

Some individuals who are unfazed by the rapid growth point to the recent economic strengthening enjoyed by the country. Cambodia’s GDP increased annually on average 7.7 percent between 1994 and 2013, and it’s expected to maintain a nearly equivalent trajectory in the years to come. On distributing this wealth, the country achieved its Millennium Development Goal of halving poverty in 2009. Agriculture in Cambodia is big, constituting about 35 percent of the country’s GDP. About 90 percent of those who are poor or who are vulnerable to slipping into poverty live in rural areas. More small and medium sized entrepreneurs making investments in farming efforts, or other income-generating activities, aligns with an expanding economy.

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> Posted by Lindsey Tiers, Communications and Operations, the Smart Campaign

As successful business leaders know, regular evaluation is vital to ensure that improvements are made and growth continues. Here at the Smart Campaign, it is time to reflect on our impact and evaluate the Campaign’s global activities so that we continue to achieve the objective of embedding client protection into the fabric of the microfinance industry. For this reason, we are reaching out to all industry stakeholders for feedback via a short survey.

Launched in September of 2009, the Smart Campaign is already five years old. With over 4,200 endorsers—1,400 of which are financial institutions working to improve client protection practices—it’s clear the message is spreading, and support for keeping the industry on track is strong. Client Protection Certification, launched in January 2013, has already seen 24 financial institutions meet the requirements of adequate client protection. Across these institutions, over 8.7 million clients have access to quality services and treatment. In addition, dozens of other MFIs are in the pipeline working to become certified. With nearly 100 tools available in English, plus translations in Spanish, French, Russian, Portuguese, and Arabic, the Smart Campaign website has become a valuable resource for any institution looking to improve client protection practices. The Client Protection Principles have even been incorporated into legislation and regulations for financial service providers in some countries – such as the Industry Code of Conduct in India.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.

The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.

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> Posted by Stuart Rutherford and Paul Vander Meer

ROSCAs, or rotating savings and credit associations¹, have enjoyed good press lately in the United States. The New York Times just ran a story about ROSCA users in some states earning themselves formal credit scores; Kim Wilson at Tufts University tells of a New York banker who awarded an immigrant family a mortgage after reviewing their success in making ROSCA payments²; and the U.S. Financial Diaries research project notes that ROSCAs can be the “preferred” financial tool even for people using formal banks. eMoneyPool, based in Arizona, offers Americans the chance to join simplified online ROSCAs. There are online ROSCAs in India, too, and researchers from Ithaca College note that in India “ROSCAs remain strong despite greater financial inclusion.” Similar studies find the same in other developing countries and in this post we introduce the ROSCAs of Chulin, some of the best-structured ROSCAs on the planet.

The renewed interest in ROSCAs is welcome. They are arguably the world’s most elegant, most efficient, and most reliable informal financial device, capable, at their best, of transforming the economies of whole communities, as we show in this blog. After years of relative neglect from proponents of “financial inclusion,” why are they now getting the attention they deserve?

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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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