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> Posted by Jeffrey Riecke, Communications Associate, CFI

Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.

The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.

The results?

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> Posted by Kim Wilson, Fellow, Center for Emerging Market Enterprises and the Feinstein International Center, Tufts University

“Everything should be as simple as it can be, but not simpler.” This aphorism credited to Albert Einstein inspires our call to Lean Research.

Two Fridays ago at MIT a group of 50 of us met to hash out some principles that, if followed, might generate better research in development and social science contexts. NGOs, universities, foundations, corporations, government, and multi-lateral agencies were represented in our group.

Our analogy of choice was Toyota. If “the Toyota way,” or lean manufacturing as it has come to be called, could cause profound and beneficial disruptions in production processes, might lean research cause equally profound and beneficial disruptions in research processes?

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> Posted by Anne Gachoka, Research Supervisor, Digital Divide Data

Thanks to mobile and agent channels, formal financial services in Kenya now reach millions of previously unbanked customers with new and innovative products. Just look at M-Shwari, the new banking product offered to M-Pesa customers enabling them to move beyond money transfer and epay to small, short-term loans with eligibility based on data about their savings, mobile usage, and debt repayment history. Globally, this is all very exciting and represents an important breakthrough in providing financial services to the poor.

But, after studying the interactions between the poor and the financial sector through the Kenya Financial Diaries, a joint-research initiative between Digital Divide Data and Bankable Frontier Associates, I have come to the conclusion that banking will fail to deliver on the promise of improving the lives of the poor unless providers do more to improve pricing transparency and communication on terms and conditions. The Diaries study tracked the cash flows of 300 Kenyan households over the period of one year.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Fifteen years ago in the microfinance space you may have been able to get away with understanding very little about your clients. Without much competition, MFIs could probably still make a decent profit by offering one product to all their clients using only one delivery channel. Thankfully, those days are gone.

The base of the pyramid is no longer a hidden or forgotten market segment. In fact, according to the recently-released 2014 Microfinance Banana Skins report, the pendulum is swinging in the opposite direction. Overindebtedness once again tops the charts as the biggest perceived risk, perhaps indicating that many clients are now able to gain access to multiple services providers. In some areas, an excess of providers may now be crowding the market.

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> Posted by Jamie M. Zimmerman, Senior Associate, Bankable Frontier Associates 

There is abundant enthusiasm for the promise of shifting social benefit payments from “cash transfers” to “e-payments for the poor.” E-payments are heralded as having great potential for advancing the effectiveness of social transfers via increased efficiency, more transparency, reduced leakage, and faster payments to recipients than antiquated cash-based options. Perhaps most significantly, electronic social transfers to the poor offer a gateway to financial inclusion for the poor. Indeed, as cash transfer social protection (G2P) and aid (D2P) programs proliferate globally, digitizing those transfers may offer the missing link to the bottom billion, the world’s poorest, most vulnerable, and most excluded populations.

However, while theory and some evidence strongly suggest that e-payments are a high leverage tool to reach the poor, new research recently released by CGAP, on behalf of the Better Than Cash Alliance, on the experiences of electronic G2P programs in low-infrastructure and low-income settings reveals that e-payments can also pose a series of risks to recipients. These risks include: loss due to agent or staff misconduct; lack of transparency and disclosure of terms and fees; lack of adequate or effective avenues for recourse and redress, and; data privacy and protection challenges.

For example, a core component of the new research – detailed in case studies written on programs in Haiti, Kenya, the Philippines, and Uganda and summarized in the CGAP Focus Note Electronic G2P Payments: Evidence from Four Lower-Income Countries – explored the recipient experience in interacting with electronic payments platforms to receive their cash transfers. It is important to keep in mind that the vast majority of recipients had no prior experience with digital financial services, and, in some cases, formal financial services at all. Here are some common quotes from recipient focus groups and interviews:
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> Posted by Alexandra Rizzi and Alyssa Passarelli, Deputy Director and Communications and Operations Assistant, the Smart Campaign

The Smart Campaign has worked tirelessly for over five years to embed the Client Protection Principles into the microfinance sector, and increasingly, the broader financial inclusion community. Yet until now, the Campaign has had minimal input from the very clients whose well-being drives the entire movement.

In order to better understand the concerns and experiences of the individuals who use microfinance, the Campaign has launched a client voice research and learning project. Through listening directly to clients, market stakeholders can raise awareness, dialogue with each other to identify potential issues, and in turn integrate this learning into their work. The Smart Campaign has a unique role in shining a light on potentially harmful or negative experiences that low-income users of financial services have had and bringing those experiences to the attention of those who can do something about them.

To conduct this project, the Campaign will be working with Daryl Collins and her team at Bankable Frontier Associates (BFA). BFA has conducted extensive global research with low-income households, including projects with an explicit focus on consumer protection. The client voice project will be conducted in four markets – Pakistan, Benin, and two others to be chosen this summer. The markets are selected based on geographic diversity as well as engagement by local stakeholders with the Smart Campaign. In Pakistan and Benin for example, the project is working closely with the Pakistan Microfinance Network and the Alafia Consortium, who have helped convene local stakeholders to give feedback on project design, research locations, and results. This ensures that the research has input and support at all stages from local expertise and will be used by those who are best placed to take action in response to the findings.

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> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI

Tomorrow, people around the world will celebrate International Women’s Day. In honor of the day, and the tremendous impact that financial services can have for women, we’d like to highlight some of the top resources from the past year that focus on financial inclusion of women. Though there are many great resources out there, below are a few that have caught our attention.

1. Findex Notes: Women and Financial Inclusion

Drawing from the Global Findex Database, the World Bank and the Bill and Melinda Gates Foundation created a briefing on the state of women’s access to and use of financial services globally. It’s a concise snapshot of financial inclusion data on women. It highlights gaps that persist for women, as compared to men, globally and across regions. It looks at variations in account ownership for savings and credit, as well as barriers to usage identified by women. And if you’re looking for more, I suggest exploring the Findex database or the CFI Data Explorer and conducting your own analyses!

2. Promoting Women’s Financial Inclusion: A Toolkit

DFID and GIZ on behalf of the German Federal Ministry for Economic Cooperation and Development prepared a toolkit aimed at policymakers, donors, and NGOs who want to learn how to design and implement programs to enhance the financial inclusion of women. It provides insight into factors that contribute to financial exclusion of women and offers recommendations to address access barriers. In addition, the toolkit provides methods for client segmentation as well as several illustrative case studies. Rather than suggesting focusing on women exclusively, the toolkit also recommends understanding the distinct needs of men.

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> Posted by David Porteous, Managing Director, Bankable Frontier Associates

In Beth Rhyne’s recent blog post (“Base-of-the-Pyramid Savings Among Accion Partners: Some News Is Bad and Some News Is Good”), she argues for the need to stratify deposits by size to understand what is happening inside a bank’s portfolio of depositors. We agree. We have just completed the four year GAFIS project, sponsored by Rockefeller Philanthropy Associates and funded by the Bill and Melinda Gates Foundation. Through GAFIS, we worked with five large commercial banks around the world (shown in the map below) to promote the development of appropriate savings products directed at low income people.

These five banks, which typically rank as largest or second largest retail banks in their domestic markets, collectively report 77 million customers. They too suffer from high rates of dormancy, ranging from 20 to 90 percent in different account categories. Yet they were willing to embark on a peer journey of learning and support to seek to overcome the channel and product issues which had limited the success of their savings products. And they were willing at the end to disclose in the public report, available here, some indications of the underlying stratification of their deposit. The chart below, extracted from the GAFIS report, compared median with average balances in the account categories which GAFIS supported, underlining the message in Beth Rhyne’s blog about the need to stratify savings. Read the rest of this entry »

> Posted by Caitlin Sanford, Lanna Lome-Ieremia, and Sameer Chand, Bankable Frontier Associates, Central Bank of Samoa, and Reserve Bank of Fiji

Another version of this post is published on the Alliance for Financial Inclusion website.

Sigatoka Market, Sigatoka, Fiji

Until now there have been few sources of publicly available data about financial access and usage in the Pacific Islands. Although individual central banks are measuring and tracking progress towards financial inclusion, the small island countries in the Pacific region have often been left out of international financial inclusion datasets, such as the Global FindexThe IMF Financial Access Survey captures some key financial inclusion indicators but this does not include all the countries from the Pacific.

The Pacific Islands Working Group on financial inclusion (PIWG) of the Alliance for Financial Inclusion came together this year to define and collect financial inclusion data specifically tailored to the region. Fiji, Papua New Guinea, Samoa, Solomon Islands, and Vanuatu participated in this data project. While the Alliance for Financial Inclusion (AFI) and the Global Partnership for Financial Inclusion (GPFI) have elaborated key sets of financial inclusion indicators to be used for global comparison, in some instances, individual countries such as Mexico, Brazil, Tanzania, and others have crafted broader sets of country-level indicators. This is the first time a broader set of common indicators have been developed at a regional level.

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> Posted by Jeremy Leach, Director and Head, Insurance, Bankable Frontier Associates

The global financial inclusion agenda continues to place insurance at the back of the queue when it comes to funding and broader financial inclusion strategies, despite the fact that the International Association of Insurance Supervisors (IAIS) has become the leading financial inclusion focused standard setting body with its own financial inclusion implementation arm, A2ii and the significant growth of microinsurance from a low base of 78 million people in 2007 to 500 million people in 2012.

My hypothesis is that this is because of a lack of understanding of the role of insurance in the value chain and the way that it can manage risk and provide benefits for the low-income markets, which includes:

  1. A misplaced view that insurance is the lowest priority in a hierarchy of consumer financial needs – thus less important than payments, savings, or credit.
  2. The desire to directly target the very bottom of the pyramid. Whilst there has been a global recognition that microcredit is aimed at the near-poor, not the absolute-poor, donors have typically focused at the very bottom of the pyramid, often in hard to reach areas sometimes called the “supra-market zone,” and yet expect market-based solutions to work. Whilst this may also have been exaggerated through an irrational optimism by some of the private actors, the impact has been somewhat predictable.
  3. The time it takes to create a viable and dedicated insurance business. As exemplified by the recent business case undertaken on specialist microinsurance intermediaries, there was an unrealistic view of how quickly and easily it would be to create a profitable microinsurance business. A founder of a multinational $1 billion insurer once said that it takes 10 years to create a viable and profitable insurance business in the traditional sector – and yet we have been trying to get there far sooner.
  4. The focus on driving retail-based insurance products, paid for by the consumer. The idealistic view is that through the poor paying the premium from their own pockets they will learn to trust insurance and therefore value it, which will create a market. However, the nature of insurance, with payments due now and returns in a possible future, makes it notoriously hard for a customer to test. This has led to discussions around the need to drive tangibility and in-life benefits in order to assist take-up. The focus could equally be revised to address the portfolio risks of the institutions that serve the low-income market.

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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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