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

A few weeks ago, I attended the Global Forum on Remittances and Development sponsored by the International Fund for Agricultural Development (IFAD), the European Commission, and the World Bank. Much of the meeting was focused on two critically important questions:

  1. Are or could remittances be a major driver of financial inclusion?
  2. Is it possible (and desirable) for a greater percentage of remittances to be put to productive use as opposed to consumption once the funds arrive in the hands of the recipient?

First, a few facts to underscore why these discussions are so important:

  • In 2014 there were at least 240 million international migrants. That is a BIG number – bigger than the populations of all the countries of the world except China, India, the U.S., and Indonesia.
  • This year these migrants will send back to their countries of origin more than 440 billion U.S. dollars! This amount is more than three times the amount of foreign aid. It is estimated that $200 billion of this amount goes directly to rural areas in developing countries where the most poverty is.
  • Remittances can constitute up to 40 percent of GDP or more in some countries, often the most fragile, most conflict-ridden countries in the world.
  • Some 750 million people are estimated to receive remittances, the vast majority in developing countries. Forty percent live in rural areas.
  • The global average cost of sending this money home is 8.6 percent of the amount sent, so the potential customer benefits to cost reduction are very important. (In July 2009 the G20 set a goal of reducing the average cost from 10 percent to five percent in five years. Despite failing to achieve the objective, it recently established a new goal of three percent by 2030!)

Are remittances a driver for financial inclusion? Could they be? In a moment of frustration, Fernando Jimenez-Ontiveros, the Acting General Manager of the Multilateral Investment Fund said at the conference, “We’ve been working on these issues for some 15 years, and estimates are that 60 percent of senders and recipients still don’t even have an account! We’ve got to do better!”

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> Posted by María José Roa Garcia, Researcher, Centro de Estudios Monetarios Latinoamericanos (CEMLA)

Reports on the financial stability of emerging countries indicate that non-traditional institutions advancing financial inclusion are increasingly important. The contemporary financial services landscape in many markets includes new financial inclusion instruments such as electronic and mobile phone-based banking. For these newer entrants and many credit-offering institutions, the governing regulatory frameworks are either non-existent or much looser than those for formally-constituted banking institutions.

Does this lack of oversight affect market stability?

In reviewing the recent studies on the possible links between financial stability and inclusion, although additional research and analysis is required, it is shown that greater access to and use of formal financial intermediaries might reduce financial instability. As for why, the studies point to six reasons:

  1. More diversified funding base of financial institutions
  2. More extensive and efficient savings intermediation
  3. Improved capacity of households to manage vulnerabilities and shocks
  4. A more stable base of retail deposits
  5. Restricting the presence of a large informal sector
  6. Facilitating the reduction of income inequality, thereby allowing for greater political and social stability

The principal definitions of financial stability support this notion. Institutions that carry out financial inclusion activities help develop effective intermediation of resources and diversify risk, which are essential elements in supporting sustainable markets.

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> Posted by Monique Cohen, Independent Advisor, and Founder of Microfinance Opportunities

When an Equity Bank client in Kenya was asked if she saw value in financial education, she replied without hesitation, “Yes, but I thought it was only for rich people.” Delighted with this ringing endorsement the interviewer never asked her what financial education meant for her. If she had we might have gone down a different track.

Intuitively, financial education seems like a good thing. Many experts will tell you that it or financial capability are important for achieving financial inclusion. Yet, the research tells a contrary story: financial education, building financial literacy, or financial capability interventions in developing countries have little effect on changing financial behaviors, including the uptake and usage of formal financial services. I keep asking: What am I missing in this picture? Why doesn’t it add up? With 12 years of experience in this space I would argue that there is much confusion about what financial education is, what it can do, and what we want it to do.

Financial institutions have much to gain from effective financial education, as, of course, do clients. At present, however, the field is torn between two paradigms – a money management paradigm and a product usage paradigm. Though both have merits, neither gets it quite right. I propose a more client-led perspective as a way to ensure that financial education can become more meaningful for the user.

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> Posted by María José Roa Garcia, Researcher, Centro de Estudios Monetarios Latinoamericanos (CEMLA)

In the past decade, a group of key empirical studies have argued that a lack of education and financial knowledge can lead individuals to miss opportunities to benefit from financial services. Some may fail to save enough for retirement, others may over-invest in risky assets, while still others miss out on tax advantages, fail to refinance costly mortgages, or even remain outside of the formal financial sector completely. These studies suggest that such behavior is based on the reality that making financial decisions has become increasingly complicated. At the same time, as a result of sweeping changes in the economic and demographic environments, individuals have become increasingly responsible for their own financial decisions and the consequences of such decisions over the long-term. Changes in public pension plans, an increase in life expectancy, and an increase in the cost of health insurance have placed on the individual the weight of momentous decisions such as whether to take out private retirement insurance, or how much to save. Easier access to credit, a general increase in the accessibility and complexity of products and services, and a number of other factors make a range of financial decisions more consequential – and harder.

Governments, financial services providers, and related stakeholders have responded accordingly in recent years developing financial education programs and initiatives, but the results have been mixed. The bulk of the evidence available confirms that, in general, the level of financial literacy throughout the world is very low, especially among the more vulnerable groups: those with very low education or income such as senior citizens, young women, and immigrants. The lack of financial literacy within these groups has proven to extend beyond economic effects and produce negative consequences on health, general well-being, and life satisfaction. Many of the programs that have been introduced were part of empirical studies that evaluated the impact of financial education programs on subsequent financial behavior. There are many such studies that show that financial education improves financial decision-making.

Nevertheless, a body of work has opened an intense debate over whether financial education and information can truly affect the financial behavior of individuals (see here, and here). In many cases, despite the availability of financial education, persistently high rates of debt and default, and low rates of saving and financial planning for retirement have been shown to persist. The empirical evidence obtained from surveys and experimental work often shows that individuals pay little attention to the information and that their capacity to process it is limited. Most of the empirical literature to-date indicates that traditional financial education – clients receiving information in a classroom style setting or through printed materials – does not necessarily translate into behavioral changes, especially in the short-term.

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> Posted by Maria May, Senior Program Manager, BRAC

Babita Akhtar, BRAC customer service assistant, Kawalipara branch, Bangladesh

Babita Akhtar, BRAC customer service assistant, Kawalipara branch, Bangladesh

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.”

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> Posted by Center Staff

On Wednesday, a new joint-initiative was launched that puts free financial education lessons into the phones of Tigo’s seven million mobile subscribers in Colombia. The service, Su Dinero (Your Money), features online financial education content from Microfinance Opportunities (MFO) tailored to the local Colombian context. Supported by project partners DAI and Souktel, the financial education platform is housed on Facebook’s phone application. Though web-based, the app can be accessed by Tigo’s mobile subscribers without cost or data charges due to the businesses’ unique arrangement, aligned with’s social mission: extending affordable internet access to the five billion people around the world who don’t have it.

Less than a third of the global population use internet-based financial or commercial services. By and large this isn’t a reflection of a lack of connectivity, as mobile phone reception now covers about 85 percent of the inhabited world, although smart phones penetration is far lower., founded by Facebook in 2013, is out to make internet access 100-times more affordable and increase uptake worldwide by targeting the following barriers: cost of devices; cost of service plans; lack of content in local languages; limited availability of power sources; difficulty in networks supporting large amounts of data; lack of awareness of the value of the internet; and remaining gaps in mobile network connectivity.

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This is our first in a series of responses to the provocative post last week 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.

“There are three things none of these digital players want to deal with – and never will. They do not want to get a banking license that embroils them in onerous regulation. They do not want to conduct primary identity checks on their customers (Know Your Customer, or KYC), which require physical customer contact. And they do not want to touch their customers’ cash.”

What follows is a response from Tahira Dosani and Vikas Raj of Accion’s Venture Lab, which invests in new fintech start-ups.

While it is true that much of the current innovation in digital financial services has been focused on higher-end consumer segments and less on financial inclusion, in our view this has not been a result only of digital players’ intentions. In fact, mainstream digital financial service companies’ difficulties in serving the financially excluded arise primarily from three key factors – cost, connectivity, and capability. Simply put, these customers are more expensive to acquire, harder to access, and require targeted products, pricing, and distribution. Customers that are banked, connected, and well-understood are the low-hanging fruit today, and that is why they are targeted by large players.

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> Posted by Kaj Malden, Project Manager, PlaNet Finance China

Huimin Microcredit client engaging in budgeting exercise

Poor rural women in China face challenges not dissimilar to poor rural women in other developing countries. Many are homemakers and child rearers, with much of their work tied to the home, offering little social or professional mobility. However, there are some dynamics in China that make women’s conditions somewhat different. The Communist Revolution of 1949 promulgated an ideology that favored gender equality and claimed women “hold up half the sky” (半边天). According to a recent study by the World Economic Forum, gender inequality is more apparent in the developed economies of Japan and Italy than in China. Modern China’s One-Child Policy, however, leads to a cultural view that “values males and belittles females” (重男轻女). The fact that China’s gender ratio skews towards males may support this view and suggest that parents favor males. Additionally, China’s massive urbanization continues to create large flows of migrant workers, posing other challenges for women. Husbands often find work in neighboring provinces or eastern coastal cities, leaving their wives to manage the household’s finances and run the family business independently.

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> Posted by Eric Zuehlke, Web and Communications Director, CFI

Students in a technical education program

With 1.2 billion people, youth between the ages of 15-24 represent approximately 18 percent of the global population, and 87 percent of youth live in developing countries. Yet only 44 percent of 15-to-24-year-olds have an account at a formal financial institution globally compared to 55 percent of adults.

Last week, I had the privilege of moderating a panel discussion on youth financial inclusion, hosted by Credit Suisse and organized by the Microfinance Club of New York. The presenters shared important examples of what has worked in providing financial education and services to youth. Joining me were:

  • Barbara Magnoni, President of EA Consultants and co-author of CGAP’s “Analyzing the Business Case for Youth Savings
  • Maria Perdomo, YouthStart, Programme Manager, UNCDF
  • Scott MacMillan, Communications Manager, BRAC USA
  • Simon Bailey, Head of Learning, Research, and Network, Aflatoun
  • Nathan Byrd, Head of Education Finance, Opportunity International

Recently, our Financial Inclusion 2020 team worked with Making Cents International to look at the barriers to and drivers of youth financial inclusion. We found that the primary reasons that youth cite for not having an account at a formal institution are a perceived lack of money, the high costs of services, and challenges in having proper identification. In addition, youth often feel that their financial assets or businesses are too small to work with a bank, especially in situations in which the costs of getting to a bank are high.

Despite these challenges, there are a few areas of opportunity. One is the business case. Since financial needs of young people grow in volume and sophistication over time there is a business case for serving them even as their financial needs are initially limited. Serving youth can help build a longer-term and loyal clientele if products are appropriate and financial capability is fostered. Another important area is financial education/capability. Establishing financial literacy early in life will help foster positive financial habits and lead to longer-term asset accumulation and higher credit scores. This needs to take place in a regulatory environment that supports financial inclusion and coordination among various players.

These three areas – the business case, financial capability, and the policy perspective – were the focus of much of the discussion at the event. I noticed that a few themes cut across the presentations:

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> Posted by Guy Stuart and Eric Noggle, Executive Director and Research Officer, Microfinance Opportunities

In our first post in this series, we described the need for an approach to financial education that was both effective and scalable, and we offered embedded education as a potential solution. Our second and third posts described how the embedded education approach works and showed its potential effectiveness by describing the improved money management behavior displayed by clients in Zambia after participating in our program. We believe that these findings also revealed the potential for a business case for delivering financial education using the embedded approach.

For a business case to exist, two things have to be true: financial service providers (FSPs) need to see a positive, bottom-line impact from an embedded program and a financing mechanism needs to exist that can compete with the current grant-based model for funding financial education.

Bottom-Line Impact

Financial education can positively impact financial service providers in a number of ways (aside from knowing that they’re empowering individuals to take control of their financial lives). Offering training could improve client retention by strengthening loyalty. It could reduce customer service requests by increasing familiarity with a banking process. But our market research suggests that the biggest potential impact is lowering write-off ratios and increasing savings balances.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.


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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