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> Posted by Sonja E. Kelly, Fellow, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Recently, as part of the Extreme Inclusion Conference at the Fletcher School at Tufts University, I watched a debate between industry leaders on whether financial inclusion means formal financial inclusion. It was a debate that had me slightly uncomfortable. To impose such a rigid definition of financial inclusion seemed cruel, given that there are informal products in existence that meet many financial needs. On the other hand, I myself have seen the superiority of well-designed formal financial products in better addressing the financial needs of people living in poverty.
There was one exchange during the debate that clarified the issue for me. In defense of informal financial services, Daryl Collins waved a $10 bill in the air and thanked a Tufts PhD student for lending her the money to pay her parking fee the day before. She remarked that without this informal financial service (a short-term, no-interest loan), she would have had to find an ATM—an inconvenience when she just wanted to leave the parking lot.
While the example was effective in showing the audience that they use informal financial services every day, there were a few things that do not allow us to generalize it to those who operate largely in the informal sector. First, it isn’t dependable. While convenient, the exchange relied on the fact that this was a one-time occurrence with a great deal of trust between the two parties. If Daryl were to ask to borrow $10 every day from this PhD student, the student would likely start to say no, or would charge some kind of a fee (I know that if I were a PhD student regularly lending money to Daryl Collins, I might ask what kinds of jobs she has open in her Financial Diaries work!). Second, it is a relatively small amount of money by U.S. standards—it isn’t an exchange that is scalable. $10 might buy lunch here in the U.S. or lattes for two. Finally, and most importantly, it ignores the possibilities of technological or environmental change. If, for example, Daryl could have paid with her credit card rather than with cash, she most likely would have chosen her credit card and not have consulted the kind student. I personally operate cashless whenever possible. Read the rest of this entry »
> Posted by Meghan Greene and Sonja E. Kelly, Manager and Fellow, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
What’s in a number? Part of the Center’s Financial Inclusion 2020 work is to think about how global trends affect financial inclusion demand—we’ve been doing so in our Mapping the Invisible Market work and in our exploration of the client perspective.
In this work, it can be useful to think in terms of age. In our demographic work we examined how a person’s stage in life might affect his or her demand for financial services. We also discovered that many developing countries have rapidly aging populations. But just how rapidly the populations are aging depends on the definition of old. When calculating dependency ratios (the ratio of those who are dependent to those who are in the working age population), the UN recommends the following definitions:
- “Child” is a person under the age of 15
- “Youth” is a person aged 15-24
- “Old age” is age 65 and above Read the rest of this entry »
> Posted by Amanda Lotz, Financial Inclusion 2020 Project Coordinator, CFI
The following post was originally published on the Youth Economic Opportunities blog.
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
In 2011 only 17 percent of young adults (ages 15-24) saved in a formal institution in Nigeria, only 9 percent in Tanzania, and only 1 percent in the Democratic Republic of the Congo. These numbers remind us that youth financial inclusion is far from reality in many countries, especially low income countries with rapidly expanding youth populations (as indicated in CFI’s report Looking Through the Demographic Window: Implications for Financial Inclusion.)
Financial Inclusion 2020 (FI2020) at the CFI is building a movement that mobilizes stakeholders around the globe to achieve financial inclusion by the year 2020. As a part of this global campaign, we are focusing on client segments that have specific needs, including youth. FI2020’s working group on Financial Capability, one of five expert working groups creating a Roadmap to Financial Inclusion, shares insights into the group’s findings on youth and financial services:
1. Incorporate what we know about youth learning and behavior change into financial capability intervention design. Habit formation is important – for example, learning to look both ways before crossing a street. Establishing the savings habit early could set youth on a path to lifetime financial capability, according to a report from the New America Foundation. This report outlines the virtuous chain of connections from savings, to asset ownership, which leads to positive emotions and that promotes further sound financial behavior.
2. Providers are well-placed to contribute to youth financial capability building. Providers are uniquely positioned to help young clients develop financial capability. They have access to customers at the teachable moments when information matters most. They already invest in marketing, and a range of client interfaces can be adapted at low cost to provide financial capability messaging, potentially at significant scale. Further, they can design products that incorporate insights from behavioral economics, with features like automatic reminders or rewards. Read the rest of this entry »
> Posted by Loretta Michaels, Partner, HMS Wireless Consulting
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
A good webinar yields more questions than there is time to answer, and the Financial Inclusion 2020 launch webinar was a case in point. Participants asked some excellent questions we couldn’t address during the webinar, so we are now following up on some of the questions about technology. For answers, we turned to Loretta Michaels, who facilitates our FI2020 Technology Working Group.
Q: Andrew Pospielovsky (Egypt): Clearly technology will dramatically increase access to financial services, and this process of technological development is self-sustaining even without funder intervention. I believe the real challenge for development agencies and regulators is protecting the bottom of the pyramid from technology being exploited by predatory practitioners (such as payday lenders charging four and five digit effective interest rates). How can we tackle this challenge?
A: You bring up an important point that connects to FI2020’s focus on quality, not just access. CFI believes that advances in financial inclusion need to go hand-in-hand with adequate protections. In my experience, while there will always be “predatory practitioners,” new technologies help reduce the opportunity for fraud and exploitation by providing an electronic record of all transactions, automatic rather than arbitrary calculations of interest rates and charges, and greater overall accountability compared to manual operations today.
Technology per se will not solve all problems out there, but it does provide tools that make it easier to prevent and resolve the issues that come up. Many of the broader responses to predatory practices remain the same whether there’s technology involved or not: user literacy and education, training, proper oversight and regulation, and greater transparency.
> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities and Fellow, Ash Center, Harvard University
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
In the United States, it is financial literacy month, but all the talk these days is of financial capability. Why? Is this another fad to make the topic of financial literacy a little more interesting? Is it an effort by one group or another to differentiate themselves? Maybe. But there are also important, substantive, and practical reasons to be talking about financial capability, which means having the ability and opportunity to manage your money well. And there is no better way to understand this than to look to the pioneer of the capabilities approach, Amtya Sen, to see why it is important, both in the developed and developing world.
In brief, Sen’s capabilities approach:
- Forces a discussion of a multi-dimensional understanding of what it means to be a fully functioning member of society that takes into account not only what a person knows, owns, and earns, but also what they can do, and what they actually do
- Opens the door to thinking about financial capability in the broader development context that encompasses other capabilities such as being healthy, educated, and earning a sufficient income to support an individual and their family
- Recognizes that what it takes to be capable in one context is different from what it takes to be capable in another
The practical implications of this are important:
- A multi-dimensional understanding of what it means for an individual to manage their money well goes beyond being “literate” (having the right knowledge and skills). It also includes having an individual be able to act on that literacy (financial behavior) and having access to the appropriate financial instruments to fully realize their aspirations. In other words, the capability approach to money management includes a discussion of behavior and access. This means, practically, we have to understand the connection between financial literacy and financial behavior in all its complexity. It also means that talk of financial inclusion and increased access should focus on how they increase financial capabilities, which means a focus on financial service use, not just uptake. Read the rest of this entry »
> Posted by Alice Allan, Head of Advocacy, CARE International UK
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
CFI has rightly identified that having a range of financial products informed by client needs is a key priority area for achieving full financial inclusion. Through the Banking on Change Partnership, CARE, Plan, and Barclays have developed new savings-led products based on a link between informal savings groups and Barclays bank branches that have proven to be a good fit for low-income clients in the current financial services landscape.
To date, Banking on Change has developed three different types of savings accounts and an overdraft facility, connecting a total of 500 groups (that’s around 25,000 individuals) to Barclays branches. Together these groups have deposited $103,694 into accounts, showing that linkage with a global bank is possible when done in a controlled and responsible way.
Now, for the details…
The Uwezo savings product in Kenya is a good example of a Village Savings and Loan Association (VSLA) product designed with client needs in mind. The design process started with an assessment of the group’s needs, which clearly brought out the fact that members had greater financial services needs than the VSLAs could provide. We learnt that members could meet the obligations of these more formal financial services, provided they were packaged appropriately and delivered through the right kind of channels.
With this in mind, Barclays adapted its procedures to allow savings groups to open accounts easily. Before this initiative, formal registration with the Chamber of Commerce was required to open a group account. To simplify the process, Barclays agreed to accept a photocopy of the savings group’s constitution, signed by all members, as the necessary identification. By allowing group accounts, Barclays has lowered its transaction costs, as one group account is far more economical to administer than 25-30 individual accounts.
> Posted by Barbara Magnoni, President, EA Consultants and Client Value Project Manager, MicroInsurance Centre MicroInsurance Learning and Knowledge (MILK) Project
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
Is there a business case for microinsurance? Does it provide value for clients?
We began the MILK Project by mapping existing research on these two questions. We were surprised to see that very few studies were on life microinsurance, particularly because life products are the most commonly sold type of microinsurance. A well-known study also suggests that the poor are very concerned about the financial risks of death, nearly as much as they are about health events.
Given that life microinsurance is both common and potentially greatly needed, why was there so little research on this topic? Life insurance is difficult to study because in any group, only a few deaths will occur in a given span of time, making it a very infrequent and random event. The policy world has also, perhaps, been skeptical about its value. Life microinsurance lacks the glamour of the promise of microcredit and the clear social good of savings. While health and agricultural microinsurance products are often developed with donor support as part of larger investments in health services, infrastructure, or agricultural inputs, life microinsurance is more often commercially driven.
We too began our research on the value for clients of life microinsurance with healthy skepticism, asking whether there really is financial value for clients from these products and if so, whether clients perceive them as valuable. Two years into our project, our results are promising, and even to ourselves, surprising. Read the rest of this entry »
> Posted by Sonja E. Kelly, Fellow, CFI
There’s a lot of data out there. And some of us are brave enough to use it (including you, my friend).
Recently we released an interactive Data Explorer tool and individual Country Profiles, allowing users to visually explore financial inclusion data in comparison with other development indicators in one central location. You can see our analysis of some of the data, but more importantly, we would like to invite you to explore the data for yourself.
For those interested in financial inclusion figures in specific countries, regions, or income groups of interest, visit Country Profiles. There we display data from the Global Findex along with demographic data relevant to understanding financial inclusion across the lifecycle. As we continue our own analysis of global trends, we will add figures on income, urbanization, technology, and more for each country.
Click on the financial inclusion bars to see a breakdown of the data by client segment, and use the tool to understand why or how people use financial services in particular countries. At the bottom of the page, you can interact with the demographic data by scrolling through the years to see past and projected population trends from 1950 to 2100. (This is very cool.)
> Posted by Timothy Nourse, President, Making Cents International
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
Last week, I participated in a Youth Financial Inclusion workshop for the Middle East/North Africa (MENA) region, organized by Silatech and CGAP. Financial institutions in the MENA region are unfortunately the least inclusive in the world. Global Findex Data indicates that only 18 percent of the population has accounts at formal financial institutions, compared to a developing economy average of 41 percent, and among youth ages 15-24, the rate is even lower, reaching only 13 percent when the developing country average is 31 percent. The youth statistics are particularly distressing, considering that the Middle East’s youth bulge is quickly becoming a liability, rather than a demographic dividend.*
During the conference, participants debated how to respond. To what degree should the focus be on credit or savings, the policy environment or product delivery, and financial or non-financial services? In particular though, they wondered whether they should even make specific (and perhaps expensive) efforts to expand youth access. After all, microfinance institutions were already serving youth at a higher level than banks, why not just continue to grow broadly, and to use an economics metaphor – let the tide lift all boats?
Back in the office, I thought about how the youth-inclusive financial services field has been discussing these issues over the past few years, and I wanted to share some of the emerging recommendations that respond to these questions:
- Start with savings. USAID and other research indicates that teens and young adults in developing countries are already economically active, have financial resources, and demand tools to manage their money. Although credit is one of these tools, and is appropriate for young adults with entrepreneurial aspirations, savings should be the entry point for the vast majority. Besides encouraging asset accumulation and serving as an appropriate entry point for a relatively vulnerable population, savings has been linked to the development of critical long-term planning and goal setting skills in youth.
- Remove legal impediments to access. Many youth are left out of the financial system by laws that prevent them from opening accounts on their own and identification requirements that are difficult to fulfill. Revising these laws to reduce the age of majority or working with central banks to provide flexibility for proof of identification would improve youth access to financial services. For example, in Zambia, Natsave Bank, working with Making Cents, received a waiver from the Bank of Zambia to allow co-signers to help establish the legal identity of account holders under the age of 19. Read the rest of this entry »
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
Many retirement plans in the United States ask, “What is your number?” Meaning, at which age do you wish to retire? It’s a question that implies it will be up to you – that you will decide when the time has come for you to leave the workforce. However, according to recent reports on National Public Radio (NPR), many older workers, especially in the United States, are being pushed out of the workforce and finding it increasingly hard to find employment. Perhaps retirement plans need to start asking, “At which age will you be forced to retire?”
The Center recently published Looking Through the Demographic Window, which highlights that in many middle income countries a demographic window is opening where there will be more workers than dependents, creating an opportunity for economic growth. One of the reasons there will be more people in the workforce is because people are living longer, and therefore, it is expected, working longer.
A recent blog post by Yuwa Hedrick-Wong of MasterCard points out that countries cannot always take advantage of demographic opportunities. He comments that in sub-Saharan Africa, where youth are the dominant demographic group, “without adequate investment in educating and providing health care for the young…all that a society can expect are demographic burdens of mounting youth unemployment and underemployment.”
Arguably, the same thing is true when the elderly become the dominant demographic group, especially in developed countries where jobs are becoming more and more specialized and technology focused. People are living longer and therefore are willing and able to work longer, but will they actually be a valued and welcomed segment of the workforce?
It seems that a few other trends may need to be considered when talking about an aging population and workforce, and chief among them are the rapidly increasing pace of technological changes, and the possible “ageism” that might accompany those rapid changes in technology.
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