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> Posted by Lindsey Tiers, Communications and Operations, the Smart Campaign
As successful business leaders know, regular evaluation is vital to ensure that improvements are made and growth continues. Here at the Smart Campaign, it is time to reflect on our impact and evaluate the Campaign’s global activities so that we continue to achieve the objective of embedding client protection into the fabric of the microfinance industry. For this reason, we are reaching out to all industry stakeholders for feedback via a short survey.
Launched in September of 2009, the Smart Campaign is already five years old. With over 4,200 endorsers—1,400 of which are financial institutions working to improve client protection practices—it’s clear the message is spreading, and support for keeping the industry on track is strong. Client Protection Certification, launched in January 2013, has already seen 24 financial institutions meet the requirements of adequate client protection. Across these institutions, over 8.7 million clients have access to quality services and treatment. In addition, dozens of other MFIs are in the pipeline working to become certified. With nearly 100 tools available in English, plus translations in Spanish, French, Russian, Portuguese, and Arabic, the Smart Campaign website has become a valuable resource for any institution looking to improve client protection practices. The Client Protection Principles have even been incorporated into legislation and regulations for financial service providers in some countries – such as the Industry Code of Conduct in India.
> Posted by Stuart Rutherford and Paul Vander Meer
ROSCAs, or rotating savings and credit associations¹, have enjoyed good press lately in the United States. The New York Times just ran a story about ROSCA users in some states earning themselves formal credit scores; Kim Wilson at Tufts University tells of a New York banker who awarded an immigrant family a mortgage after reviewing their success in making ROSCA payments²; and the U.S. Financial Diaries research project notes that ROSCAs can be the “preferred” financial tool even for people using formal banks. eMoneyPool, based in Arizona, offers Americans the chance to join simplified online ROSCAs. There are online ROSCAs in India, too, and researchers from Ithaca College note that in India “ROSCAs remain strong despite greater financial inclusion.” Similar studies find the same in other developing countries and in this post we introduce the ROSCAs of Chulin, some of the best-structured ROSCAs on the planet.
The renewed interest in ROSCAs is welcome. They are arguably the world’s most elegant, most efficient, and most reliable informal financial device, capable, at their best, of transforming the economies of whole communities, as we show in this blog. After years of relative neglect from proponents of “financial inclusion,” why are they now getting the attention they deserve?
> Posted by Sonja Kelly, Fellow, CFI
If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the Global Microscope 2014: The Enabling Environment for Financial Inclusion. The Microscope is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The Microscope evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?
We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the Microscope is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.
This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten. Read the rest of this entry »
> Posted by Bhuvana Ramakrishnan, Daniella Llanos Flores, and Singyew Foo, Credit Suisse
The Financial Inclusion 2020 project has been talking to the experts lately to get their views on the main recommendations that came out of the 2013 Roadmap to Inclusion process. A group of Credit Suisse Virtual Volunteers conducted interviews with various experts within Credit Suisse. Insights from those conversations helped shape this post.
What can a new shampoo formula teach us about financial services? Quite a bit, as it turns out.
Procter and Gamble (P&G), one of the world’s largest fast-moving consumer goods companies (FMCGs), has an annual research and development budget of $2 billion – with nearly a half a billion going towards consumer research. In emerging markets, this money funds field research that aims to identify how existing products are used and how a new product could become a part of someone’s daily routine. In China, P&G has a simulated Hutong (a typical Chinese home) where researchers can observe consumer behavior and make on-the-spot modifications to product prototypes. They have sent teams around the country to observe how women wash their hair. Such research yielded a shampoo that suds and washes out with little water – a response to the shortage of water and privacy in the villages visited.
> Posted by Center Staff
A new micro-pension platform targeting those working as domestic laborers, appropriately named Gift a Pension, launched in India last month. The platform is run by the Micro Pension Foundation (MPF) nonprofit and gives employers of domestic laborers a convenient way to support their workers in enrolling for the National Pension Scheme (NPS) Lite government product, a smaller version of the NPS offering. Across the country an estimated 40 million work for households in roles including maids, guards, cooks, and drivers. In the weeks since the program opened, over 1,000 domestic employers have registered themselves and gifted pensions to their workers. The platform offers more than its name suggests, as gifting workers five-year term life insurance is also available.
Here’s how the service works. First, MPF encourages employers ensure that their workers understand the structure and benefits of any accounts before enrollment happens. The Gift a Pension site includes a collection of educational tools and videos for employers to use to aid their workers’ familiarity with products and with the importance of managing finances for the long-term. Once this initial learning phase is complete, the employer registers themselves with the Gift a Pension site and enrolls their worker using information from the various documents that satisfy the necessary know-your-customer requirements. To open the account, the employer pays a one-time servicing fee (Rs 300) as well as the first contribution into the account. The worker then receives in the mail a guide to go along with their new account and their personal prepaid pension card. In a few weeks’ time the worker will also receive a government-issued Permanent Retirement Account Number (PRAN).
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
India’s new Prime Minister Narendra Modi created much fanfare and excitement upon the launch of a financial inclusion plan for the millions of unbanked Indians (currently estimated at 40 percent of the entire population). The Jan-Dhan Yojana (Scheme for People’s Wealth) will provide a free, zero-balance bank account and a debit card allowing for electronic payments, coupled with accident insurance and overdraft protection. Indian media went wild for the aggressive first day of the program wherein 15 million bank accounts were opened.
While all should cheer the intention of Prime Minister Modi to build a more inclusive financial system, there are some cautionary tales, both old and new, that the scheme should learn from. The tool of a basic savings account has been touted for close to a decade in India where, in 2005, the RBI promoted a ‘no-frills’ account scheme. While millions of new bank accounts where opened under this scheme, researchers found that many of the accounts were dormant, underutilized, and hence ineffective at ushering the formally excluded into the formal system. Even in districts dubbed 100 percent included, the reality on the ground was far less exemplary in terms of enrollment and usage of accounts.
Prime Minister Modi might also take heed of a much more recent cautionary tale added by researchers at IFMR, a business school in Chennai. Co-authors Amy Mowl and Camille Boudot wanted to understand whether there were hidden barriers to individuals interested in savings and investing using a basic savings account. That savings account, formerly called no-frills, and now called a BSBDA (Basic Savings Bank Deposit Account), are mandated by the Reserve Bank of India to be offered by all banks. Mowl and Boudot hired and trained a group of mystery shoppers to pose as low-income customers interested in opening a BSBDA at 42 branches of 27 large banks in metropolitan Chennai. The experiences of these mystery auditors was tracked, recorded, and analyzed by the researchers. The results were stark.
> Posted by Sonja E. Kelly, Fellow, CFI
In most places around the world the subject of pensions is a sore one. In 2012, for example, in looking at arguably the crème of private employers, Fortune 100 companies, only 30 offered their U.S. new hires pension plans, down from 47 in 2008. For public sector employees in the U.S. in the same year, the pension plans of 26 states were less than 70 percent funded. In lower and middle-income countries where financial security is weaker, the situation is even worse. In India, the pension system only covers roughly 12 percent of the population.
The severity of these figures is amplified when we look at demographic trends. Between 2010 and 2020, the population of older adults will almost double in middle-income countries. Worldwide over the decade, it will increase by 40 percent. By 2050, there will be roughly 1.5 billion older adults, 315 million of whom will be in India.
Aging presents unique challenges and opportunities to the financial inclusion industry. During a session at the Microcredit Summit in Merida, Mexico a few weeks ago, five panelists met to discuss this topic. John Hatch (FINCA), Pilar Contreras (HelpAge), Caroline van Dullemen (World Granny), Reynold Walter (REDCAMIF), and myself all acknowledged the demographic reality—as populations age, if countries have not helped their societies and economies to prepare, they will face a global train wreck in the form of older people without adequate means of support and support systems that are overwhelmed. Financial inclusion can and should play a unique role in helping both individuals and whole countries mitigate risks.
> Posted by Abhishek Agrawal, India Country Director, Accion
Over the past two years, CFI’s three MFI partners in India have included over 13,000 persons with disabilities (PWD) as clients in mainstream financial services, helping them become economically active. Almost all of these clients were first-time borrowers.
CFI and Accion, with our knowledge partner v-shesh and MFI implementation partners – Annapurna based in Odisha, Equitas based in Tamil Nadu, and ESAF from Kerala – have been working on the financial inclusion of persons with disabilities over the past two years. This working group created tools and an operating model for MFIs to incorporate PWD as staff and clients. The recommendations, which include policy changes in non-discrimination and other areas, are being piloted at the MFIs. Disability awareness trainings have been conducted for over 100 MFI staff across the country. Over the next several months these staff will train another 6,000 frontline MFI staff.
> 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.
Read the rest of this entry »