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> 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).

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

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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.

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> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI

Shamsin Ahmed of BRAC in her powerful piece, “The ‘Normal’ Ones”, makes an impassioned plea for greater tolerance and more treatment options and opportunities for those who suffer from some kind of psychosocial disability (mental illness). People with psychosocial disabilities make up at least 16 percent of the population in Bangladesh, and yet less than 1 percent of the national health budget is allocated to mental health care. For those of us who work on financial inclusion, I would argue that there needs to be much greater attention directed towards poor mental health as an obstacle to achieving economic citizenship.

Originally published on bdnews24, an online Bangladeshi newspaper, here is “The ‘Normal’ Ones”.

When I was eight years old I watched an Indian movie where the mother of the hero had gone mad, possibly from trauma of being tortured or having witnessed the death of the hero’s father by the villain. And in one scene this mad mother was running around the village in her white saree, disheveled, bushy hair, and villagers were running after her with sticks and stones, calling her “pagol”. I asked my father, “Why are the people stoning her? If she is the crazy one, shouldn’t she be the one stoning them?” My father was disturbed as well as deeply moved by my question as I was told years later.

People always say those who have mental illnesses are not “normal”. It’s funny how no one thinks it’s necessary to define “normal”. I grew up knowing anyone with some sort of disability, be it psychological or physical, was “not normal”. No one said they are unable to live like everyone else. No one said they are unable to lead “normal” lives not because of their disability but because of the “dis-enabling” environment that those without mental illness, who have a say in the making of our society, create for people with mental illnesses. No one admits that those of us who have a “sound mind” have continuously shunned, isolated, and stigmatized people with mental illnesses.

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> 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.

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> 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.

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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 Somen Saha, Indian Institute of Public Health Gandhinagar, with inputs from Marcia Metcalfe, Freedom from Hunger and Sabina Rogers, Microcredit Summit Campaign

Microfinance institutions (MFIs) and self-help groups (SHGs) in India are increasingly recognizing the potential of offering both health and financial services. In a query of 25 MFIs across the country providing integrated services, the number of borrowers totaled nearly 18 million. A new report, Integrated Health and Microfinance in India, Volume II: The Way Forward, highlights best practices in integrating health and microfinance programs, particularly in light of India’s aim for universal health care, showcases potential interventions that can be adopted by microfinance institutions and NGOs that serve SHGs, and outlines the role of India’s existing livelihood promotion SHG initiatives in addressing access barriers to health services.

For the 1.3 billion people around the world who live on less than $1.25 a day, poverty means vulnerability. The poor face a disproportionate risk of disease and a heightened financial burden that includes both the direct costs of medical care and the indirect costs of work time lost. This financial impact also limits the ability of the poor to fully participate in financial services, as poor health is one of the most frequently cited reasons for loan default and drop-out. Because the poor are one illness away from losing everything, there is an increasing realization that countries need a pro-poor pathway towards universal healthcare.

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This post was originally posted on the Grameen Foundation blog by Alex Counts, President and CEO of Grameen Foundation and a member of CFI’s Advisory Council.

Alok PrasadAs a result of a complex combination of unwarranted attacks and self-inflicted wounds, the microfinance sector in India experienced a crisis starting in late 2010 after many years of strong growth and recognition for its contribution to poverty alleviation and financial inclusion.  When I was asked to give a keynote address at a microfinance conference in India in 2012, I said that it was important to leverage the sector’s strengths and accomplishments, while also addressing its failures and shortcomings.

I visited India in May and July and found that these things were finally happening and leading to on-the-ground progress as well as tangible support from both the outgoing and the newly elected Indian governments.  And as this blog went to press, there was another promising development: the government published draft guidelines on creating a pathway for NBFC-MFIs to become specialized or “differentiated” banks, which would enable them to take deposits directly for the first time legally.  (Though not all NBFC-MFIs would likely be eligible unless the “stringent norms” proposed are made more flexible.)  

My May visit to Mumbai was centered around Grameen Foundation’s workshop “Designing for Adoption and Scale” (click here for highlights and here for my closing address).  

One of the highlights of the second trip was speaking with Alok Prasad, the CEO of theMicrofinance Institutions Network (MFIN), a respected microfinance industry association.  He spoke eloquently about the progress the industry has made recently and the reasons behind it.  Below are excerpts from our conversation. 

Alex Counts (AC): I sense a new optimism related to Indian microfinance after some difficult years.  Would you agree?  How would you characterize the last 12 months in terms of how the Indian microfinance sector has developed? What were some of the key contributions of MFIN?

Alok Prasad (AP): Clearly the mood is buoyant, but not in an irrational way! Looking at the last fiscal year (April 1, 2013 to March 31, 2014), much has gone well for the industry. Growth, both in terms of gross loan portfolio and clients, has been strong. Portfolio performance stays at levels which commercial banks can only dream of (for unsecured lending). Branch networks have expanded, and new geographies have been covered. Funding (both debt and equity) has improved markedly. The regulatory environment remains broadly positive, notwithstanding the Microfinance Bill falling by the wayside.

In specific terms, the aggregate gross loan portfolio of MFIN’s member institutions (Non Banking Financial Company-Microfinance Institutions or NBFC-MFIs) stood at Rs. 279.31 billion (US$4.63 billion), an increase of 35%, over the prior fiscal year. Clients covered stood at 28 million, representing growth of 20% over the previous year. Debt funding grew by 46%, along with a definite revival of investor interest.

MFIN, I believe, has played a key role in bringing stability to the sector. Deep and sustained dialogue with the government and the Reserve Bank of India (RBI) has resulted in regulatory changes that are conducive to growth; a much greater appreciation of our industry’s role in promoting financial inclusion; and, the recognition that the industry is an essential component of the national financial architecture. From a systemic standpoint, the development of the credit bureau ecosystem had been a big win. As of this date, more than 150 million client records are present on the databases of two national bureaus. These records are updated on a weekly cycle; and, all lending is only after a bureau check. This has given remarkable results in controlling multiple lending and over-borrowing by clients. Our recognition by the RBI as the self-regulatory organization (SRO) for NBFC-MFIs is a sign of both a certain maturing of the industry and the regulator’s acceptance of that reality. A nice ‘new normal’ for an industry which just 18 months ago appeared deep in the throes of a crisis!

AC: MFIs outside of Andhra Pradesh have begun growing again.  Can you give us a sense of this growth and how it compared to other parts of the financial sector?  What are the main reasons?  Are there risks?

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With under 40 days to go, the 17th Microcredit Summit is rapidly approaching. CFI’s Josh Goldstein will be speaking during a plenary session focused on new innovations for microfinance and other financial inclusion interventions to more effectively reach the excluded. With the theme “Generation Next: Innovations in Microfinance,” this should be a great opportunity to explore what is on the horizon to achieve full financial inclusion. In this post, Josh discusses industry context surrounding the Summit, and what he hopes he and those in attendance will be able to take away from the event.

I am a sometime skeptic about the proliferation of microfinance conferences, but the upcoming Microcredit Summit in Merida, Mexico seems particularly important and timely. Personally, I am very excited about it. (In the spirit of full disclosure, I should add that I will be a speaker, and of course piqued vanity can certainly lead to bias, but I don’t suspect this is the case here.)

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> Posted by Rishabh Khosla and Vikas Raj, Senior Investment Analyst and Senior Investment Officer, Accion Venture Lab

In May, India’s new government, led by Narendra Modi, was elected in a landslide. Popular frustration with the Congress Party’s increasingly ineffectual 10-year reign, made most visible by persistently low GDP growth, allowed for one of the most lopsided victories in Indian history, and the first time a non-Congress candidate had an outright majority in parliament. Wisely, Modi focused his election campaign rhetoric on economic issues and more efficient governance to revive GDP growth. The markets have reacted positively: the bell-weather BSE stock-index is up 20 percent since the start of the year. Two weeks ago, the government finally proposed a budget for the next year – the first real concrete recommendations for the economy since coming to power two months ago.

India is a key market for financial inclusion investors like Accion Venture Lab because of the size, depth, and strength of its entrepreneurial pool, as well as the persistent lack of financial services for the poor. Despite the huge success of microfinance in India, two-thirds of the working-age population lacks a bank account, mobile payments have yet to take off, and access to credit for small and medium enterprises (SMEs) remains abysmal.

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