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> Posted by Center Staff

2015 was a year full of great reads (and listens). As we enter 2016, we wanted to take a look back at last year and what we were most excited to explore.  Through our work writing the FI2020 Progress Report, which assesses global progress in five key areas of financial inclusion, we benefited from important research from many in the financial inclusion field.  As part of this effort, we were eager to update our FI2020 Resource Library with the most informative reports and research outputs.  We encourage you to check it out – and in the meantime to review the highlights listed below.  The organizations responsible for these reports cover a wide array of stakeholder types, from support organizations, to telecommunication companies, to financial service providers – proof that progress in financial inclusion is being driven by many.

What Happens to Microfinance Clients Who Default? (January)
The Smart Campaign
Author: Jami Solli
This report looks in-depth at the enabling environment, the practices of providers, and customer experiences in Peru, India, and Uganda, to understand what happens when microfinance clients default on their loans. We were especially interested in the paper’s findings that demonstrate that effective credit bureaus give financial service providers the confidence to treat customers who default more humanely.

Money Resolutions: A Sketchbook (January)
CGAP
Author: Ignacio Mas 
This working paper explores the underlying logic for how people make money resolutions, including how people organize their money and make decisions about financial goals and spending. The paper focuses on peoples’ approaches to making financial decisions – rather than evaluating the decisions themselves – identifying the inner conflicts they face in the process.

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> Posted by the Smart Campaign

Transparency sounds simple – in business, government, relationships, and most areas of life. Take the business of offering financial products and services. As a provider, you inform prospective and current clients of everything they need to know about your product.  As a client, you use this information to make sound decisions about buying and using said product. Consequently, providers can claim full disclosure and hope to benefit from increased loyalty of clients. Clients have the information to make educated decisions and rest easy knowing exactly where that provider stands.

Similarly, in relationships, transparency (read: honesty) is always the best policy. The best practice is always to say everything that’s on your mind. After all, the truth will set you free… Except for maybe when your partner is already overwhelmed with information. Or when what you’re trying to share is incomprehensible. Or when your partner is trying to concentrate on something else. What I’m trying to get at is this: transparency may seem simple, but it’s not. Effective transparency provides information in a way that enables the person receiving the information to understand it and use it.

Inclusive finance providers need to hit the sweet spot – sharing the optimal amount of the most critical information with clients, in an understandable format, at appropriate times. To make matters more challenging, inclusive finance clients are often illiterate, poorly educated, or new to formal institutions.

The good news is that around the world, including in Mexico, the inclusive finance industry is hard at work to embed transparency effectively. In 2014, the Mexican government passed widespread financial reform that emboldened the role of the consumer protection agency, CONDUSEF, and made its rules mandatory for all credit institutions. CONDUSEF was enabled to issue and publicly publish recommendations to financial institutions. In the last year, CONDUSEF imposed important new regulations in areas of transparency and money laundering, and ended up revoking the operating permits of 1,449 non-regulated (SOFOM) institutions that did not meet the standards.

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> Posted by Jeffrey Riecke, Senior Associate, CFI

India has received much fanfare for its financial inclusion efforts in recent years. A few weeks ago we declared it our Financial Inclusion Country of the Year for 2015 in recognition of the major steps it took, which resulted in achieving the greatest improvement in its Global Microscope score between 2014 and 2015. It recently granted new bank licenses that dramatically diversify and grow the country’s services landscape, widely applied new cost-saving technologies like biometric identification, and rolled-out historically ambitious public programs like PMJDY that dramatically reduce the portion of the population that is unbanked.

“Never waste a good crisis” said Royston Braganza, CEO of Grameen Capital India, at the Inclusive Finance Summit in Delhi last month, referring to the Andhra Pradesh crisis of 2010. The recently-released Responsible Finance India 2015 analyses the current state of practice on responsible finance and social performance management in India. In light of that report, Braganza questioned, “Have we learned from our mistakes?”

Responsible finance centers on client protection and market conduct, and has been extended in recent years to include many other good corporate citizenship issues such as employee management, governance, and social performance monitoring.

By way of context, here are a few numbers on the present-day BoP Indian finance landscape:

  • Across MFIs in India’s MFIN network, which represent roughly 90 percent of MFIs in the country, loan books grew by 64 percent in the last fiscal year, compared with 43 percent in the year prior and 4 percent in the year before that.
  • In total, MFI outreach in the country accounts for about 100 million clients.
  • Reportedly, through PMJDY 180 million new bank accounts have been opened over the past year, and adjacent schemes covering insurance, pensions, and credit have been implemented, as well.
  • For the first time in a decade, the RBI granted new bank licenses last year – to Bandhan Bank and IDFC. Bandhan now has 500 branches and over 2,000 service centers across 24 states. Sixty-five percent of IDFC’s first 23 branches are located in rural areas of Madhya Pradesh.
  • Under the RBI’s newly created categories of payment banks and small finance banks, 11 and 10 providers, respectively, have received new licenses, further expanding the network of providers serving the poor.

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> Posted by Micol Pistelli, Social Performance Director, MIX

Customer retention is a key objective for any business, and microfinance institutions (MFIs) are no exception. Whether you are a shareholder, board member, CEO, or head of operations at a microfinance institution, your strategy must rely on retaining most of your clients that still need financial services. But what happens when many of your clients stop using your services? How do you determine whether they left because they no longer need financial services or because they prefer a competitor? How do you know whether they were dissatisfied with your customer service?

Answering these questions can be difficult. Some organizations conduct exit surveys over the phone or in-person through their customer service departments. However, due to the expense and time required to conduct such research, many MFIs are only able to reach a small number of clients, which may not be representative of the whole. Additionally, the quality of the data collected can be lacking due to inaccuracies because clients may not feel comfortable being candid with representatives of the MFI they are leaving.

Of the thousand-plus institutions reporting consumer protection data to MIX, 65 percent of them have set-up complaint mechanisms that offer some form of redress for clients, such as hotlines, call centers, or customer service representatives. However these feedback tools are functional only when clients proactively use them and when MFIs manage to gather data and solve issues in a timely fashion. What often happens is that MFIs are left with questions about their clients’ satisfaction and can only guess at the root causes for their drop-out.

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> Posted by Rafe Mazer, Financial Sector Specialist, CGAP

CGAP recently launched a Mystery Shopping Technical Guide, based on our experiences sending lower-income consumers to seek financial products in markets as diverse as Ghana, Kenya, Malaysia, Mexico, Peru, and the Philippines.

The method of training actual consumers to conduct mystery shopping has proven helpful to understand the challenges they face in achieving financial access and receiving quality product advice. In several markets we found that sales staff often restrict information on fees and charges and do not provide consumers with the lowest cost product option that matches their needs. For example, in Mexico and Peru we saw sales staff who neglected to offer low-fee savings products available at their institution, while in Ghana sales staff never mentioned the APR of a loan, as they are required by law to do. In Malaysia, insurance sales staff did not use the mandatory Customer Fact Find Form which helps assess customers’ needs and product suitability.

These findings are not surprising to those who study client protection and financial advice, and studies in markets such as the U.S. and India have found similar issues with sales staff. All of this raises a fairly important question of “Can we fix financial advice from frontline bank staff?” Or is the incentive to mis-sell too great and monitoring a sufficient number of individual sales practices too burdensome? This is a discussion I have had with regulators. How do you use policy to drive behavior change in a market? The short answer is that it’s not easy; the long answer is that behaviorally-informed policies, product regulation, and market monitoring tools can help.

But what about the committed leadership of organizations that have signed on to the Smart Campaign (which include providers we have visited during these mystery shopping exercises)? If mystery shopping shows that sales staff do not always keep the customer’s best interests in mind, can we fix this with provider or industry-level changes in sales practices or perhaps through sales staff training? I would like to take advantage of this forum to hear from providers who have implemented policies to fix sales staff misconduct so we can start to document good practices for monitoring sales staff behavior. To help kick things off, here are a few ideas from my side, based on our mystery shopping work:

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Sub-Saharan African countries may be leading the world in mobile money and growth in access to accounts, but the state of financial consumer protection in Africa is in urgent need of attention.

In the EIU Global Microscope’s 2014 overall rating of the policy environment for financial inclusion, African countries scored very close to the global average (44 SSA vs. 46 Global out of a possible 100). However, these countries were substantially below the average on consumer protection indicators – market conduct (27 SSA vs. 43 Global) and grievance redress (35 SSA vs. 45 Global).

These numbers have human consequences. The Smart Campaign commissioned research in two African countries – Benin and Uganda – which revealed the frequently harsh environment in which microfinance is conducted. In Uganda, research on what happens to clients who default showed that, lacking regulatory oversight and the calming influence of credit reference bureaus, lenders in Uganda feel compelled to resort to practices such as rapid confiscation of a borrower’s assets. They are afraid that if they do not act quickly, the borrower may flee. In the research on client experiences from Benin, clients reported major gaps in trust and transparency. For example, many reported being surprised by fees that were not explained or expected, having no place to turn when problems arose, or being publicly shamed for late payments.

The research pointed to very low trust on both sides between providers and customers. In fact, in Smart Campaign conversations with African microfinance institutions about consumer protection, one of the most frequently asked questions is, “Who will protect us (the lenders) from them (the borrowers)?”

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> Posted by the Smart Campaign

What are microfinance clients’ thoughts on fair treatment from financial services providers? We explored this question in the context of Benin in a previous post, spotlighting results from the Smart Campaign’s Client Voices project. Now, let’s turn to another country investigated in the project: Pakistan.

The Client Voices project went directly to current and former microfinance clients and asked them about their experiences with their financial providers as well as their thoughts on what constitutes good and bad treatment. The project included qualitative and quantitative research in four diverse markets: Benin, Pakistan, Georgia, and Peru. Research partner Bankable Frontier Associates (BFA) began its investigation in March 2014. It conducted surveys, focus groups, in-depth discussions, and photo association exercises.

So, what did we find in Pakistan?

Clients report satisfaction with financial providers, but do not have long-term relationships with them. In Pakistan, a country with a relatively advanced client protection environment, 85 percent of clients reported that they are either very or somewhat satisfied in their borrowing and savings experiences. In fact, only 5 percent of clients reported experiencing a consumer protection problem. (This compares to roughly 13 percent of clients in Benin.) However, clients in Pakistan usually only stay with their provider for a short period. On average, the studied clients had been borrowing with their current provider for just one year. Our research suggests that MFIs are weak at fostering long-term relationships with their clients compared to the other institutions, like savings groups, NGOs, and private schools. When asked about the future, clients indicated they’d rather start fresh with a new provider or discontinue borrowing altogether. Reasons cited included rigid repayment structures, lack of respect/empathy from loan officers, and being publicly disparaged in front of their neighbors.

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> Posted by Center Staff

Next week, CFI will launch the first-ever FI2020 Week. From November 2-6, 2015, over 25 partners across the globe will organize conversations exploring the most important steps to achieving financial inclusion.

FI2020 Week will bring together diverse stakeholders to conduct interactive and participatory events, each of which will produce calls to action. The range of participants will include banks, insurance companies, payment companies, telecommunication companies, policymakers, regulators, NGOs, microfinance institutions, investors, financial inclusion support organizations, financial capability experts, and fintech companies, from around the world. All of these participants will focus on the question, “What is an important action needed in your country (or industry segment) to advance financial inclusion?”

We want YOU to join us! Throughout the week, many FI2020 Week partners will hold webinars – an opportunity for those who will not be attending in-person FI2020 Week events to participate in a variety of interesting conversations. The webinars cover a full range of topics, from client protection in mobile money use, to incorporating financial capability into product design. Check them out below and register now to join hundreds of people around the world in FI2020 Week.

And for more information, check out our Storify feed of social media and blog postings on the FI2020 Week website here and follow #FI2020 on Twitter for the latest updates.

Client Protection and Technology: The GSMA Code of Conduct for Mobile Money Providers
Hosted by: GSMA
Date: November 4, 2015
Time: 9:00 am – 10:00 am EST

This session will discuss how the GSMA – the global association for mobile network operators – is working with its members to ensure that mobile money services are safe, reliable, and secure, and that customers are treated fairly. The Code of Conduct for Mobile Money Providers includes eight high-level principles addressing topics such as safeguarding customer funds, AML/CFT, training and monitoring of staff and agents, reliable service provision, security, and fair treatment of customers. This session will provide a brief background to the Code of Conduct initiative and outline the plan for implementation of the Code. It will be useful for regulators, financial inclusion specialists, consumer protection advocates, and any other stakeholders who are interested in understanding what mobile operators are doing to ensure the safety, reliability, and fairness of mobile money services.

Register now!

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> Posted by the Smart Campaign

What are microfinance clients’ thoughts on fair treatment from financial services providers? The Smart Campaign’s Client Voices project went to the source and asked clients what they think. Clients were consulted on what they believe constitutes good and bad treatment and their experiences with microfinance providers.

The Client Voices project, a qualitative and quantitative investigation, covers four country markets: Benin, Pakistan, Georgia, and Peru. Today we are releasing the results from Benin and Pakistan, and this post focuses on the results from Benin. Stay tuned for another post on Pakistan soon.

Over the past six years, the Smart Campaign has worked extensively with financial institutions, regulators, networks, rating agencies, and other financial inclusion industry actors to strengthen client protection policies and practices. But until now, we had not heard directly from clients. To embed the process in the local scene and ensure it would be actionable, in each country, the Campaign convened a group of researchers and market leaders to provide local insight and guide the research. In March 2014, the Campaign and its research partner Bankable Frontier Associates (BFA) began investigative efforts, which included focus groups, in-depth interviews, photo association exercises, and surveys.

So, what did we find in Benin?

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The government of China is launching a mandatory credit scoring system in 2020 and since the publishing of a piece on the system by the American Civil Liberties Union (ACLU) last week, it’s become a topic of passionate discussion. It remains to be seen how the system will work, but in reading a released State Council planning document, it seems likely that credit scores will be determined by more than just financial behaviors. While the creation of a country-wide credit reporting system potentially presents big benefits to lenders and borrowers, it’s essential that such a system doesn’t unfairly discriminate or breach citizens’ privacy. Below are the opening excerpts from the ACLU post and from a Tech in Asia post, which weighs in on the ACLU’s points and offers additional food for thought.

“China’s Nightmarish Citizen Scores Are a Warning For Americans”

> By Jay Stanley, Senior Policy Analyst, ACLU Speech, Privacy & Technology Project

China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator put it, “authoritarianism, gamified.” Read this piece for the full flavor—it will make your head spin. If that and the little other reporting I’ve seen is accurate, the basics are this:
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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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