> Posted by Center Staff

Globally, the cost of fraud in the telecoms industry amounts to about 2 percent of total revenues, roughly US $46 billion. In the mobile money segment, it’s estimated that about 2 to 3 percent of revenues generated from phone-based banking are lost to fraudulent activity. In India, where the mobile subscriber base is over 980 million individuals, covering over 70 percent of the country’s population, mobile money presents a big opportunity for banking the unbanked. And awareness of this is catching on. Just this week Paytm, a mobile wallet service in India backed by Alibaba’s financial arm, announced that they’ve surpassed the 100 million client mark.

As more individuals are brought into the mobile banking fold, including those of lower income levels, it’s increasingly important that fraud risks are thoroughly managed. If they aren’t, clients will suffer, and so will their perceptions of formal banking services. A new report from Deloitte investigates the risks facing India’s mobile money market and how to best manage them.

The report outlines and offers the root causes of seven categories of fraud: phishing fraud; intrusion/ cyber attack; access to wallet through unauthorized SIM swap; fake KYC; commission fraud by agents; and application manipulation by authorized users. (The latter two are frauds carried out by internal stakeholders, like agents, employees, and third-party vendors.) As one example, in the case of phishing (when fraudsters dupe customers through phone calls/SMS/emails to share sensitive information), the root cause is inadequate customer awareness around information sharing and customer data theft.

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> Posted by Prateek Shrivastava, Global Director, Channels & Technology, Accion

The National Assembly of the Federal Republic of Nigeria passed the Central Bank of Nigeria (CBN) Act in 2007. The Act included provisions for the creation of the CBN to ensure monetary stability, issuing and maintaining legal tender, and promoting the implementation of best practices including the use of electronic payment systems in all banks across Nigeria.

In the same year, the CBN developed the Financial System Strategy 2020 wherein the need for electronic financial services (amongst many other reforms) to make Nigeria a competitive economy was identified. Since 2008, the CBN has been extremely active in developing and implementing guidelines and frameworks to support the digitization of financial services (for example, all banks and microfinance banks need to have core banking systems, and the use of ATMs is governed) including mobile money and agent banking. The Guidelines on Mobile Money Services in Nigeria were approved and published in June 2009. Most recently, the CBN has also released a licensing framework for “super agents” that banks and other regulated financial services providers can use to bring services to the markets and streets in Nigeria.

Nigeria’s mobile money market hosts about two dozen licensed mobile money operators (MMOs) that include banks and others, which, in spite of their array, have proven inadequate in terms of country coverage and active adoption.

In the recent words of Dipo Fatokun, Director of the Banking and Payment System Department of the CBN, “Expectations of mobile money [in Nigeria] have not fully been met.” Annual mobile money transactions in the country in 2014 exceeded N5 billion (US$25 million), while in Kenya and Tanzania total annual transactions in 2013 were US$22 billion and US$18 billion.

A report from EFINA published in 2014, a full five years after the CBN guidelines for mobile money were put in place, shows that only 800,000 Nigerian adults currently use mobile money, representing less than one percent of the adult population. Today, even arguably the most successful entity, Pagatech Nigeria with its innovative use of technology and strong management team, is advertised sporadically on the streets of Lagos and even less further afield. Awareness is low and therefore adoption is low.

In my opinion, this lack of progress can be attributed to two key issues:
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> Posted by Kevin Fryatt, Director, Risk management Initiative in Microfinance (RIM)

“We do not engage in risk management because our CEO tells us that every department should be a profit center.” “Risk management seems useful, but how can we afford to pay for it?” Such industry sentiments have been the norm, I’ve found, in my work at the Risk management Initiative in Microfinance (RIM). These statements and many others like them reflect the reality that the value of risk management and its role within microfinance institutions (MFIs) have not yet fully been realized. As the microfinance industry matures and reaching scale through growth continues to drive the strategies of inclusive financial service providers, ways to create sustained value for their clients and shareholders will be increasingly sought after and explored. Finding ways to create sustained value, however, can often be challenging.

Risk management, if carried out effectively, is one important aspect in creating sustained value. Well-executed risk management derives organizational value by ensuring decision-making is carried out within an agreed-upon acceptable level of risk, ultimately providing greater certainty about returns against double-bottom line objectives through reducing volatility of net income and strengthening its ability to meet necessary social returns. For example, decisions on the acceptable amount of credit risk to accept may impact the amount of future financial losses an institution may suffer (financial return) while potentially impacting the type of clients it is able to serve (social return). If risk management has such a high potential to create sustained value, what then has been standing in the way of MFIs effectively implementing it to date?

Many factors explain the challenges in realizing the full value risk management can provide, and much of which point back to the lack of an appropriate risk management framework. Consider the following key framework characteristics:
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> Posted by James Militzer, Editor, NextBillion Financial Innovation

The following post was originally published on NextBillion, in two parts, here and here

The Smart Campaign was born in the midst of extraordinary upheaval in the microfinance sector. Its launch in 2009 was sandwiched between the 2008 global financial crisis, repayment crises in several microfinance markets, and the 2010 debtor suicides in Andhra Pradesh. Yet the turmoil served to amplify the campaign’s main point: that microfinance needs to focus on customer protection. In the succeeding years, it has labored to unite microfinance leaders and practitioners around this goal – most notably through its efforts to convince microfinance institutions (MFIs) to undergo the process of Smart Certification, in which independent evaluators verify that they are “doing everything [they] can to treat [their] clients well and protect them from harm.”

Over time, these efforts have started to gain traction. The campaign – which is steered by a group of prominent leaders in the industry and housed at Accion’s Center for Financial Inclusion – has certified 39 microfinance institutions. (Note: Accion is a NextBillion Content Partner.) Certified institutions include a number of leading MFIs in markets around the world, from Equitas in India to Kompanion in Kyrgyzstan. And the campaign calculates that certified MFIs now serve slightly more than 20 million clients. In a recent interview with NextBillion, its director, Isabelle Barrès, called the 20 million client mark “an exciting milestone, recognition of the fact that there is momentum growing in the industry for client protection –  not just paying lip service to it, but actually working hard to improve practices.”

But achieving this momentum hasn’t been an easy task for the campaign – or for the industry whose practices it’s trying to improve. Barrès discusses the challenges it has faced – and the controversy it has sparked – in this two-part Q&A.

James Militzer: Do you have any data on which markets have the highest percentage of Smart Campaign-certified MFIs?

Isabelle Barrès: I think Kyrgyzstan probably is the one where we currently have the most right now – 60 percent of microfinance clients are served by organizations that have been certified. This shows that when there are some substantial efforts that are put towards improving client protection – whether it’s at the market level or at the regulatory level, or through market infrastructure, such as supporting a good credit bureau – it can make a difference for the entire industry.

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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 release of a New America Foundation report on account dormancy in youth savings, Yemen exploring mobile banking to combat the hardships of war, and Cambodia launching its first agricultural insurance programs. Here are a few more details:

  • The New America report considers how to understand the challenge of youth account dormancy in large-scale account-based initiatives and policy efforts, describing the range of issues related to account engagement from the perspectives of financial institutions, policymakers, and account-holders.
  • Yemen, following its central bank passing regulation on e-money and mobile money in December, is looking to the development of digital finance to cover critical services during wartime, as 30 to 40 percent of bank branches are closed.
  • The Cambodian Center for Study and Development in Agriculture (CEDAC) has launched the country’s first agricultural insurance programs, in the form of pilots for the next year and a half, protecting rice farmers against loss from drought and floods.

For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at ezuehlke@accion.org.

> Posted by Center Staff

Will microfinance continue to be relevant in 2020 and beyond? Should regulators or the industry lead on client protection? Will data analytics replace traditional credit reporting systems?

A new Financial Inclusion 2020 e-magazine explores these three essential questions debate-style, tapping industry leaders from around the world to weigh in with their perspectives.

Microfinance as a development strategy has in the past few years been eclipsed by the excitement around financial inclusion. This transition reflects the recognition that people need a full range of financial services. What does the future hold for microfinance institutions and other players like traditional banks and new fintech companies? Bindu Ananth, Chair of IFMR Trust and IFMR Holdings, Dean Karlan, President of Innovations for Poverty Action, and Liza Guzman, Vice President of Accion share their views.

The ideal balance in client protection is often conceived as a three-legged stool in which regulators, providers, and consumers work at equal levels of responsibility. Globally, regulators have often taken the lead, but initiatives such as the Smart Campaign prove that there is room for providers to move beyond compliance. Is a balanced three-legged stool realistic? Among the debaters are Alok Prasad, Principal Advisor of RBL Bank, Sanjay Sinha, Managing Director of M-CRIL, and Isabelle Barres, Director of the Smart Campaign.

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> Posted by Center Staff

Impact investing in East Africa has grown strongly over the past five years with over $9.3 billion disbursed, more than 1,000 deals, and roughly 150 investors managing about 200 active investment vehicles. These are among the findings outlined in a new report from the Global Impact Investing Network and Open Capital Advisors, which provides a state of the market analysis for impact investing in the East Africa region. The report examines the supply of global impact investment capital, the demand for investment resources, challenges and recommendations, and the country-level markets. What was found?

Here are a few of the report’s key messages:

  • Kenya dominates impact investing in the region, accounting for more than half of its deployed impact capital and having more than three-times the in-country fund staff of any other country.
  • Uganda ranks a distant second in capital received at 13 percent of that of the region, receiving support from its favorable business and regulatory environments.
  • Despite its GDP being 50 percent bigger than Uganda’s, Tanzania claims about 12 percent of the region’s impact capital, owing its stature in part to its low population density, weak transportation infrastructure, and relatively unpredictable government interjections.

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> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group

As a member of the Smart Campaign Steering Committee, I had the pleasure last week of attending the first ever Certification Summit held in Turin, Italy. The CEOs of 24 client protection certified microfinance institutions (MFIs) came together to discuss with one another their experiences with certification, their practices for preventing over-indebtedness, collections and grievance redressal, and their thoughts on how the certification process could be made more valuable.

I tried my best to talk with each and every participant there in order to get their honest thoughts about certification. I was surprised but pleased to discover that, without exception, every one of them said how happy they were that they had gone through the process and achieved the recognition. Some examples of the types of comments I heard are:

  1. Client protection has always been part of our DNA. It’s who we are. The certification process helped us align our practices with our values – and come closer to what we aspire to be.
  2. It has allowed us to improve our relations with the regulators in our country more than we imagined. They now turn to us for advice!
  3. It was great for our employees. It was a truly motivating exercise for them . . . and the recognition that comes with certification made them feel very special. Our employees are proud to be associated with a responsible institution.
  4. There was a cost to it, no question – but the process convinced us that it was well worth the investment.
  5. We wanted third-party validation of our practices, and this gave us that validation.
  6. The process was excellent. I have tremendous respect for the rating agency that conducted our mission. It was far more rigorous than I anticipated, and it did result in our making some very significant changes, especially to our disclosure practices.
  7. Our customers have told us that they appreciate the changes we made that were clearly visible to them. They especially like the improvements we’ve made to our grievance redressal mechanism.
  8. Certification must be seen as a risk management tool because that’s what it is. We need more MFIs to go through the certification process in order to control risk in our market. We need to engage more closely with investors and regulators about what it means and how it acts to mitigate risks.
  9. The process helped us to get back to our fundamentals, for the reason we were formed. This was something we had needed to do, without really realizing it, for a long time.
  10. There’s no question that it contributed to our ability to get new capital from our local bank.

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Apis Partners and Accion Frontier Investments Group publish an operational framework for measuring impact in inclusive financial services investing

> Posted by Apis Partners and Accion Frontier Investments Group

A key aspect of investing for social impact is being able to effectively measure impact, which has always been challenging. Whilst there have been several well-informed attempts to create uniform standards to address this challenge (such as IRIS and GIIRS Ratings), these have largely been intended to compare impact investments across multiple industries. This can be a valuable exercise for multi-sector fund managers, but the approach invariably leads to a trade-off: using the same scale to measure impact across a number of diverse industries leads to a lowest common denominator analysis. These standards seek to measure impact across industry sectors, but they do not provide information about the nature of social change created within each industry. At the other end of the spectrum, several fund managers have developed bespoke systems to measure the impact of their own portfolios. These systems have been tailored for insurance at the base of the pyramid or poverty alleviation progress, and they do a good job of accomplishing those goals. Unfortunately though, they are often too specialized to allow for any comparison across impact managers.

Therefore, the most optimal approach to impact measurement is that which: (1) surfaces the specific nature of impact created in a sector, (2) remains broad enough to allow for some objective comparison across managers, (3) but does not seek to compare the incomparable. Such an approach only seems possible when impact measurement is focused on specific industries.

It is with this approach that Apis Partners and Accion Frontier Investments Group have chosen to operate. Apis and Accion are fund managers investing specifically in inclusive and innovative financial services for the un- and under-banked. Like other impact focused investors, we have a dedicated mission to provide social as well as financial return on investments, which requires the measurement of social impact in a real, quantifiable way.

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> Posted by Center Staff

Freshly published is the latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked. Among the stories in this week’s edition are the launch of the Citi Mobile Challenge in the Asia-Pacific region, the kick-off of this year’s microTracker survey on the microenterprise industry in the United States, and a blog post series from Ericsson on financial inclusion in Iraq. Here are a few more details:

  • Following successful Citi Mobile Challenges in other regions, the Asia-Pacific iteration invites developers to submit innovative mobile banking solutions for a chance at taking their technologies into production with the support of Citi and its partners.
  • The U.S. Microenterprise Census’s online microTracker survey is open, collecting and counting data on the microenterprise industry in areas including client reach, lending volume, and performance efficiency.
  • A new post series on Ericsson’s “M-Commerce: the Call for Change Blog” spotlights the financing landscape in Iraq, which serves only 11 percent of adults in the country, targeting action areas like regulation, interoperability, and mobile money.

For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at ezuehlke@accion.org.

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