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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.
> Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School
Often, we hold out hope that innovation will happen through the great leap forward, the stroke of luck, the miracle cure – and when one candidate fails, we go off in search of another.
There is justifiable concern that this yes-or-no approach hampers international development. A recent article in the New Republic listed “big ideas” in international development that failed – not because they were bad, but because they were big. The article describes a $15 million-plus project to install thousands of water pumps attached to merry-go-rounds in sub-Saharan Africa, as well as Jeffrey Sachs’s Millennium Villages which sought to overhaul entire villages by building housing, schools, clinics, roads, and other key infrastructure. In these and the article’s other cases, with expectations high and money and attention flowing in, the projects sank, often because they outgrew the scale at which they had proven to work. Yet some of a project’s apparent lack of success may simply come down to the measurement you’re using. Many of the world’s most successful development efforts – deworming campaigns, for example – only improve the average life in tiny increments.
> Posted by Maria May, Senior Program Manager, BRAC
Even when introducing herself, Babita’s enthusiasm is contagious. “Maybe you think that you can’t change how you manage your money. It’s too hard. Well, I used to think that I could never get up in front of a group of people and give a presentation. But here I am. BRAC taught me how. So if I can do this, then you can do anything.”
Babita Akhtar is one of 900 women recruited by BRAC as a customer service assistant. She greets every person who walks into the branch office—people coming for loans, seeking support from BRAC’s legal aid clinics, teachers or community health promoters coming for training, and even visitors. Before loan disbursement begins, she runs a short orientation session for all borrowers that covers important information about the loans, BRAC’s services, and good financial practices. The branch manager comes in at the end to answer any questions and greet the clients personally.
The messages provided in this orientation are timed for maximum impact. Pranab Banik, who heads BRAC’s Financial Education and Client Protection Unit, said, “The time when clients are waiting at the branch to take a loan seems the best moment to deliver basic financial awareness at scale and cost effectively. Our pre-disbursement orientation is an integral precondition for comprehensive client protection; it is intended to empower all clients to better understand their options and manage their finances responsibly.”
> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI
Last June, in my hotel room in Delhi, I read in the Sunday edition of the Times of India that hiring white girls to work wedding parties is the new status symbol in Bangalore. Though this might sound surprising, alabaster skin as the ideal of beauty (and the status that goes with it) is neither new to nor specific to India. This is not a trivial matter but a deadly serious business.
One need only look at skin whitening products, like Unilever’s “Fair and Lovely”, which are great sellers in the beauty product category in India, Bangladesh, and Thailand—indeed, in 30 countries around the world. The Unilever Sri Lanka website reads: “Today, 250 million consumers across the globe strongly connect with Fair and Lovely as a brand that stands for the belief that beauty empowers a woman to change her destiny.”
> Posted by Jeffrey Riecke, Communications Associate, CFI
Islamic finance is expected to expand substantially in 2015, from 2014’s total of $2.1 trillion to $2.5 trillion, according to figures released last week by the Al-Huda Centre of Islamic Banking and Economics. In 2011, the industry had assets of about $1 trillion. Islamic microfinance, the segment of Sharia-compliant services targeting clients at the base of the pyramid, only occupies a small slice of the pie, at 1 percent of all Islamic finance globally. However this uptick in Sharia-compliant finance, as well as encouraging recent support for the 650 million Muslims living on less than 2 dollars a day, suggest a rising tide for Islamic microfinance.
The industry findings indicate that not only did Islamic finance surpass the $2 trillion landmark in 2014, it gained traction in nascent markets and entered new ones. Markets still green in offering Islamic finance that showed growth in 2014 include Morocco, Tunisia, Azerbaijan, Libya, and several non-Muslim-majority countries including Nigeria, Tanzania, and South Africa. Among the new markets where Islamic finance took root last year are Australia, Brazil, and China. Globally, there are 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries. The expansion of Islamic finance opens the door for the many Muslims whose beliefs preclude them from accepting finance with interest rates and fee structures outlawed by Sharia doctrine.
> Posted by Sonja Kelly, Fellow, CFI
If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the Global Microscope 2014: The Enabling Environment for Financial Inclusion. The Microscope is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The Microscope evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?
We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the Microscope is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.
This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten. Read the rest of this entry »
> Posted by Eric Zuehlke, Web and Communications Director, CFI
Since launching microfinance activities in 1974, BRAC has grown to become one of the world’s largest financial services providers to the poor. BRAC’s microfinance operations, which include loans and savings, serve more than 5 million clients in eight countries. In 2012, BRAC started a financial education and client protection project that aims to help clients adopt financial behaviors that facilitate their well-being. Shameran Abed, Director of the BRAC Microfinance program, recently spoke with me to discuss BRAC’s work. Prior to joining BRAC, Abed served as an editorial writer at one of Bangladesh’s main English-language daily newspapers where he wrote primarily on politics. He also serves on the Board of Directors of bKash, a mobile financial services platform in Bangladesh.
Eric: Can you talk about BRAC’s client protection work and what you learned from your project pilots in 2012 and 2013?
Shameran: We wanted to make sure that any clients coming into the BRAC microfinance program could be very well catered to. They should understand what our products are, what our terms are, what our rates are, and they should make an educated decision on whether they want to take our products. And if they do become our members then they should be treated well, treated with respect, and have access to information. I’m not saying that BRAC didn’t have all these things before two or three years ago, but we really wanted to double-down our efforts on these fronts. So that’s why we decided to do more work around client protection, client customer service, and financial education.
Eric: What do you think are the biggest risks facing microfinance clients?
Shameran: From a financial point of view, there are two or three risks that we’re particularly concerned about. One, of course, is something that’s been talked about a lot, the risk of overindebtedness. Bangladesh, although quite a mature microfinance market, is, in terms of overindebtedness, thankfully still quite low. But still I think overindebtedness is something that you always guard against because there is a lot of demand for credit and if microfinance institutions are not careful they can always have issues around overindebtedness of borrowers.
There are a lot of financial institutions nowadays that are kind of fly-by-night institutions that set up shop… Institutions that are typically unregulated. They come in, they offer products, they lure in clients, and then they disappear. I think around these issues the clients need more awareness, and these are some of the things our financial education components try to address.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
If you regularly follow financial inclusion news, you probably come across articles on the financial inclusion progress of particular countries all the time. Just today I read headlines on the extent of inclusion in Bangladesh as compared to other South Asian countries, on the growing mass of mobile money subscribers in Kenya, and on life insurance penetration in India. Last week we added to the conversation with a post on Nigeria’s financial inclusion strategy. Keeping track of all these national developments is a challenge, even for those of us who have the opportunity to focus much of our attention on financial inclusion.
Earlier this month AFI released the National Financial Inclusion Strategy Timeline, a document that chronicles the steps AFI member institutions have taken in recent years to develop and implement national financial inclusion strategies in their countries – a resource any of us financial inclusion media junkies can embrace. Created by AFI’s Financial Inclusion Strategy Peer Learning Group (FISPLG), the timeline is organized by region and lists national-level developments for 28 countries from 2007 to the present. Here’s the Sub-Saharan Africa region section.
In looking at the timeline, a few trends quickly come to the surface. Not surprisingly, there’s been an increase in inclusion activity among central banks and financial regulatory institutions in the past few years. Specifically in 2013, a number of countries have drafted or implemented national strategies, including the Philippines, Thailand, Belarus, Turkey, Nepal, and Tanzania. Another trend expressed in the timeline is the rise of branchless banking, with many countries developing guidelines for agent and mobile banking.
> Posted by Ignacio Mas and Premasis Mukherjee, Independent Consultant and Senior Analyst, MicroSave
We recently completed extensive field work on people’s money management practices in India and Bangladesh, funded by The Bill & Melinda Gates Foundation. Our ostensible purpose was to develop simplified metaphors that express vividly how people think about money. You can judge for yourself how close we came to that by viewing (here) 10 different outputs. While our intent was to simplify, we ended up evolving a more nuanced view of how poor people think about money management (see here for a fuller treatment).
We echo Collins and Zollmann’s observation from their research in Kenya that poor people’s financial talk tends to relate much more to short term income security than to longer term goals or risks. Their main concern is that they want to have enough recurrent income to meet routine expenses. We unpack this into three interlinked concepts which, while by no means new, deserve more attention.
Shaping income to increase income security
Unlike organized sector employees, the mass market lives on a diet of irregular and often unpredictable income flows. From this, some larger routine expenses like school fees need to be met and emergencies need to be dealt with. Stuart Rutherford has placed lumping of money – the accumulation of balances into useful lump sums – as the key financial mechanism people use. What is interesting is that so often people use those lumps to buy a cow (or a rickshaw, or some merchandise for trading), whose main attribute is that it produces small daily income rather than being a good store of value. So they go from collecting a meager stream of small daily cash flows, to building a lump sum, and from there to creating more small daily cash flows. What pushes them on this cycle of sacrificing, lumping, and regenerating daily income – which we call income shaping – is the desire to change not only the size but also the timing and predictability of cash inflows. They see that as the key to providing for daily expenses, and building the routine of setting money aside regularly to build further useful lumps.
Income shaping is people’s preferred mechanism to achieve consumption smoothing: by building a regular income profile.