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This is our second response to the provocative post two weeks ago from Ignacio Mas. Ignacio asks why the “current innovation frenzy in digital financial services in the U.S.” does not translate into action in BoP markets across the world, and puts forth a number of hypotheses.

“In other words, why is there such an inherent innovation deficit within the very commercial ventures that we think are going to drive financial inclusion forward? Do market players really need this very granular level of handholding to get what academics, NGOs, and donors so clearly believe in? …Or is the problem, rather, that there isn´t enough of a competitive push to drive them to want to innovate as a key source of market advantage?”

What follows is a response from Gerhard Coetzee, who leads the CGAP Customers at the Centre Team.

In considering the question posed by Ignacio Mas, I am reminded of the work of business strategist C.C. Markides. He did not see it as “the great competition and innovation deficit” question, but rather, the challenge of how large institutions make two business models exist in the same organization. In fact, the question is how to serve two distinct market segments in the same institution. He notes that the large industry players that develop new radical business models are exceptions rather than the rule. Most innovations and market changing models are introduced by newcomers to that industry.

Why don’t we see the large financial service providers (FSPs), who have the ability to change things at scale, jump into this area of the market and deliver solutions to low-income and poor customers even where regulation may enable them to engage? In essence the argument focuses on product centricity, incomplete business cases, an over-emphasis on the supplier view of cost to serve, short-termism of incentive structures, and competition for resources in large organizations. Read the rest of this entry »

> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI

A Spanish-language version of this post follows the English version.

After five months of discussion, Colombia’s Financial Inclusion Bill has been approved by Congress, now only needing presidential sanction to become law. Earlier this year the country’s Minister of Treasury and Public Credit and Minister of Information Technologies and Communications filed the bill in Congress. The bill articulates a framework for the expansion of savings and payment services by engaging a wider range of providers in offering digital services.

The new law would allow for the creation of a new type of financial institution, Organizations Specialized in Electronic Deposits and Payments. These institutions can be established by individuals or legal entities, with a minimum capital requirement of $3 million, approximately 10 percent of the minimum currently required for commercial banks. The new electronic deposit and payment providers can receive capital investments from commercial banks and financial corporations.

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> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign

Close to Washington, D.C.’s antipode in Perth, Australia I attended the Fifth Annual Responsible Finance Forum, which this year focused on responsible digital finance. The organizers assembled an impressive mix of representatives from all three legs of the responsible finance stool – industry, regulators, and consumers. A number of familiar risk areas were examined during the two great days of presentations, debate, and discussion, and three prominent themes emerged for me: the centrality of the service agent, the increasing importance of financial education, and considering responsible finance at the ecosystem level.

The first day of the forum focused on the identification of risks to consumers from digital financial services (DFS) and the second day was framed around how to mitigate and minimize those risks. An online “Global Pulse Survey” that CGAP conducted as well as some demand-side research conducted by MicroSave and Bankable Frontier Associates (BFA) brought both the practitioner and consumer perspectives on DFS risks to the forefront. The MicroSave and BFA research canvassed nearly 700 DFS users and 50 non-users through focus groups in Colombia, Bangladesh, the Philippines, and Uganda. While respondents of the survey and focus groups identified a wide variety of harms or worries, some common items emerged, listed in the table below. Though preliminary, this data is extremely important in helping us frame the areas where stakeholders could focus to mitigate against client harm and risk. These risks fall squarely into the framework of the Smart Campaign’s seven Client Protection Principles, furthering our belief that a principles framework can carry forward into digital financial services.

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> Posted by Caitlin Sanford, Bankable Frontier Associates

As smart phones become much more affordable and digital solutions for the poor transition to app form, the burden is on new products to build trust and enable learning through intuitive interfaces designed particularly for this segment.

Marc Prensky coined the term digital immigrants to describe people who, as opposed to young digital natives, did not grow up immersed in technology from a young age. Mastering quickly changing technologies is a challenge for educated, fairly computer literate people. So, what is the experience like for digital immigrants who have learned all they know about technology from a basic Nokia phone?

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> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities

The past few decades have seen an impressive expansion of financial services to the world’s under- and unbanked populations. This expansion has not been without its challenges, including low-income customers of many financial service providers (FSPs) falling into considerable over-indebtedness¹ or signing up for services they do not use.² MFO’s own research³ and the research of others suggest that the limited financial capability of FSP customers is one of the factors behind these challenges. Hundreds of millions of people are gaining access to formal financial services with no education in basic money management principles and ways to maximize the usefulness of the new services to which they have access.4

Extending financial education (FE) to consumers is vital in empowering them to make informed decisions about the financial services they use and how they use them, including avoiding over-indebtedness and signing up for accounts they never use. But reaching the massive number of clients in need of FE in a way that is accessible and practical is a tall order. The Monitor Group report suggests it could cost from $7 billion to $10 billion using traditional, classroom-based approaches to provide education just to those who already have access now —a sum that is 10 to 15 percent of the total current asset base of microfinance institutions worldwide. If access to finance were extended to include the world’s 2.7 billion unbanked, the cost of building financial capability would rise further by a factor of at least three.
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> Posted by Jeffrey Riecke, Communications Associate, CFI

M-Pesa, the mobile money service success story that began in Kenya in 2007 is continuing its march, this time into the surprising location of Romania, raising the questions, what will the product look like in this new European market and how will it fare. At the end of last month Vodafone, the operator behind the new service and one of Romania’s largest telcos, began operations using the country’s 300 Vodafone Romania stores, participating retail outlets, and authorized agents.

M-Pesa operates via SMS phone messaging and offers the ability to make deposits and send and receive payments to people and businesses – potentially an attractive prospect to the third of Romanians who don’t have access to formal banking services. Across the country there are about 7 million people who transact mainly in cash. The just-launched mobile service is estimated to be accessible to about 6 million people, and Vodafone plans to increase its in-country distribution points to a total of 2,000 by the end of the year. Vodafone has 8.3 million clients out of Romania’s 21.3 million population, the vast majority being active mobile phone users. The mobile money market in Romania is currently underdeveloped.

Of course, just because M-Pesa has achieved significant uptake elsewhere doesn’t mean that will happen here, too. Since the service first launched in Kenya, new M-Pesa outfits have been established in a number of other countries including Tanzania, Afghanistan, and South Africa. Within the past twelve months, the service also launched in Egypt, India, Lesotho, and Mozambique. Across these markets results have been mixed, with operators struggling to emulate the immense success achieved in Kenya.

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> 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.

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> Posted by Jeffrey Riecke, Communications Assistant, CFI

The flagship mobile money service M-Pesa launched in India last month. The service, which started in Kenya in 2007 and has since expanded to eight countries and 17 million users, will be conducted in India by way of a partnership between Vodafone, India’s second largest mobile network operator, and ICICI Bank, India’s largest private sector bank. India’s unbanked population towers at roughly 700 million.

M-Pesa will roll-out in India in phases, beginning with a first effort in the eastern areas of the country. Across Kolkata, West Bengal, Bihar, and Jharkhand, this initial phase boasts a network of 8,300 agents. M-Pesa in India will include cash deposits and withdrawals, money transfers to any mobile device in the country, airtime top-ups, bill payment services, and the ability to make purchases at select stores. With an initial agent network in the thousands and an unbanked population making up the better part of a billion, the ambitions and scope of M-Pesa in India are indeed large. But before we start mentally converting chunks of India’s 700 million unbanked individuals to banked, let’s take a closer look at a few factors that will affect the service’s success.

Mobile Phone Penetration. India has the second largest mobile phone base in the world with over 900 million users. Though as the average Indian user has 2.2 SIM cards, the number of individual subscribers is actually about 319 million – a population penetration of about 25 percent, and rising quickly. However, subscriptions to M-Pesa are limited to clients of Vodafone. Although Vodafone is the second largest mobile network operator in India, it holds only 17 percent of the market. In comparison, Vodafone in Kenya services about 70 percent of the country’s mobile subscribers, and that market dominance is thought to be one of the major success factors, because it allows most cell phone users to connect with most other users.

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> Posted by Monique Cohen, Ph.D., Founding-President, Microfinance Opportunities

The following post was originally published on the Child and Youth Finance International Blog.

“I am not good at managing my money. I need some extra training so that I can know how to manage myself. Because you know money is like trouble. You get big money and it’s like big trouble, you know,” (A young man living in Nairobi, 2011).

Walk down any street in Nairobi, Dar es Salam, or Cairo, or in a small African town and it seems everyone, including teenagers, has a phone to their ear. Indeed, for those 18 and under, few have known a world without mobiles. Not surprisingly, school-age boys and girls (5-14), teens (14-18), and young people entering the labor force or tertiary education (over 18) are seen as a potential new market for the provision of financial services. While recent experimentation in this space has focused on savings, there is growing consensus that young people should be able to access a full range of financial services, with the priorities changing as they advance in their life cycle (see YouthSave, YouthStart, and Child and Youth Finance International). Not only are youth savings and youth financial education hot topics in the financial services space, but there is also a growing recognition that young people have money, and technology-based financial services offer a gateway for their financial inclusion. Read the rest of this entry »

> Posted by Hannah Henderson, Principal Director, Communications, Accion

The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.

In the United States, online banking has become the norm for many, with over 63 percent of U.S. households now using online financial services.* I recall ING Direct putting branchless banking on my personal finance radar back in September 2000 with its do-it-yourself, low overhead, higher interest bearing online savings account. Just the other day, I read about a new online banking platform called Simple, which bills itself as a “worry-free alternative to traditional banking.” Simple is a purely transactional web-based platform that partners with The Bancorp Bank where customer funds are held.

The concept that banking could be simple, or better yet, worry-free, seemed a remote possibility not so long ago. In my own experience, I’ve found relative simplicity in online banking but my personal finances are far from worry-free. These days, I can easily move funds between my savings and checking accounts—even though they are with different banks. I can pay all of my bills online and keep an eye on my balance in real time. My mobile phone allows me to stay on top of my bills even when I am traveling. And my credit score only stands to gain as my auto-paid recurring bills no longer rely on my memory to be processed on time. What do I worry about? Cash flow, fees, and trying to get to the bank or ATM when I need to deposit or withdraw cash. I am fortunate to rarely worry about safety—but I live in a virtually crime-free neighborhood.

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