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> Posted by Bindu Ananth, Chair, IFMR Trust

The following post was originally published on the IFMR Trust blog.

Yesterday, the Reserve Bank of India (RBI) announced in-principle Payment Bank licenses for eleven applicants. To put things in perspective, there were two new bank licenses in the last decade. The successful applicants include the largest telcos, corporate houses, business correspondents, a depository, and a mobile wallet provider. The number of licenses and the diversity of the pool bode well for the scale and scope of what will be pursued by this new category of banks in the years to come.

While previous licensing rounds were always for “full-service” banks, this represents the first round of licensing for a differentiated banking design following on RBI’s Discussion Paper on Differentiated Banking and the recommendations of the Committee on Comprehensive Financial Services for Small Business and Low-Income Households. To recap, a Payment Bank can provide deposit and payment products but cannot lend. This very important design feature has an important implication from a regulatory perspective – Payment Bank promoters now cannot “cross the floor” in terms of raising public deposits and lending these out. Therefore, the implications of “fit and proper” are now quite different for this group of promoters. This perhaps explains why this round produced eleven licenses against two in the last decade. And at this stage of development of the Indian banking sector, these eleven new entrants could be just what the doctor ordered for innovations on savings and payment services while not adversely impacting the stability of the banking system. An IFMR Finance Foundation working paper reported that the asset portfolio of the average rural household in India is composed almost entirely of two physical assets—housing and jewellery with little to no financial assets of any type.

Also from a financial system design perspective, this is a timely acknowledgement that the credit and payments strategy must evolve differentially within the broader financial inclusion strategy. While progress on credit would necessarily have to be much more measured and prudent no matter what strategies are adopted given the inherent risks and customer protection concerns, there is an urgent need to make access to payments ubiquitous. Yesterday’s announcement is an important step forward in that direction.

Why Being Customer-Centric Is a Supply Side Strategy…

> Posted by Evelyn Stark, Assistant Vice President, Financial Inclusion Lead, MetLife Foundation, and Graham A. N. Wright, Group Managing Director, MicroSave

Financial Inclusion 2020 Blog Series banner imageFinancial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.

In recent years Human Centered Design (HCD) became a buzzword in the financial inclusion world. It focused financial service providers on the design of products and services based on customer insights. Design firms became part of the technical provider fraternity, servicing financial service providers in the quest to improve inclusion. At the same time, the network of financial service providers broadened to include mobile network operators and retail chains, in addition to microfinance institutions (MFIs), banks, cooperatives, and a myriad of microfinance suppliers. With new entrants come new ideas – and repetition of old ones. One consistent, but underrated idea, is to focus on the customer.

Customer-centricity is not a new concept in the microfinance and financial inclusion world. In 1998, MicroSave was set up (by UNCDF/DFID who were then joined by CGAP, the Ford Foundation, and the Austrian and Norwegian governments) to promote savings in the microcredit landscape of East and Southern Africa. Initial research in Uganda revealed that although microfinance institutions (MFIs) did not have a legal mandate to collect savings, they did have another problem: drop-outs as high as 60 percent per annum. Further investigation revealed that much of the problem lay in poorly designed credit products. Much of 1999 and 2000 was spent understanding the problem, re-designing products, and developing the “market research for microfinance” tools and training.

This past experience resonates with the current realization among proponents of financial inclusion that customers are not using products. This is evident in the GSMA research that found that 68 percent of registered mobile money customers do less than one transaction in 90 days. No frills accounts in India, and transactional accounts in many other settings, are mostly dormant (GAFIS, 2011, DNA, 2015). The market-led research approaches aimed at microfinance, and the human centered design approaches of the recent years, did not fully succeed in focusing provider efforts on the customer, nor did they help to increase the use of financial products and services. In the quest to understand this, we return to the unfolding story of the early years of market-led approaches, based on the MicroSave experience.

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> Posted by the Smart Campaign

Momentum for Smart Campaign Certification is accelerating. Today, we’re thrilled to announce that there are now more than 20 million lower-income clients whose financial service provider has been certified as meeting the Campaign’s standards for consumer protection.

Since February 2015, the number of clients served by Smart-Certified financial institutions (FIs) has grown by 6 million, to a total of 21 million, with the certification of an additional 11 institutions. To date, 39 FIs, from 19 countries across Latin America to Africa and Asia, have achieved Smart Certification, including some of the world’s best-known institutions dedicated to serving the poor.

As you might be familiar, the Smart Campaign’s Client Protection Certification Program contains a core set of standards against which institutions are evaluated by independent, third-party evaluators. Smart Certification publicly recognizes those institutions providing financial services to microentrepreneurs with a standard of care that upholds the microfinance industry’s seven Client Protection Principles. Customers of Smart-Certified organizations can be confident that their financial service provider has policies and processes in place to ensure that they are treated responsibly.

“Twenty million clients is an exciting milestone – recognition of the fact that there’s growing momentum in the industry for client protection,” said Isabelle Barrès, Smart Campaign director. “These organizations are not just paying lip service to the concept of fair treatment, but actually working hard to improve practices,” she added.

In April 2015, having listened carefully to evaluation results and industry feedback, we launched certification program revisions to streamline the process while maintaining high standards. These revisions included an appeals and complaints system and a process for renewing certification validity. At the end of 2015, the Campaign will introduce an accreditation system to license existing and new certifiers, and a version 2.0 of the certification standards. Certification 2.0 standards remove duplication and ambiguity, and deepen standards for savings, insurance, and digital financial services.

Even as the coverage of the certification program approaches critical mass, the broader Smart Campaign continues to advance. For the Campaign’s next phase we are excited about working on the following:
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> Posted by Center Staff

Globally, the cost of fraud in the telecoms industry amounts to about 2 percent of total revenues, roughly US $46 billion. In the mobile money segment, it’s estimated that about 2 to 3 percent of revenues generated from phone-based banking are lost to fraudulent activity. In India, where the mobile subscriber base is over 980 million individuals, covering over 70 percent of the country’s population, mobile money presents a big opportunity for banking the unbanked. And awareness of this is catching on. Just this week Paytm, a mobile wallet service in India backed by Alibaba’s financial arm, announced that they’ve surpassed the 100 million client mark.

As more individuals are brought into the mobile banking fold, including those of lower income levels, it’s increasingly important that fraud risks are thoroughly managed. If they aren’t, clients will suffer, and so will their perceptions of formal banking services. A new report from Deloitte investigates the risks facing India’s mobile money market and how to best manage them.

The report outlines and offers the root causes of seven categories of fraud: phishing fraud; intrusion/ cyber attack; access to wallet through unauthorized SIM swap; fake KYC; commission fraud by agents; and application manipulation by authorized users. (The latter two are frauds carried out by internal stakeholders, like agents, employees, and third-party vendors.) As one example, in the case of phishing (when fraudsters dupe customers through phone calls/SMS/emails to share sensitive information), the root cause is inadequate customer awareness around information sharing and customer data theft.

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> Posted by Center Staff

Good morning! It’s the start of another week, which means there’s a new issue of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked. This week’s issue includes stories on the Islamic Development Bank supporting the Sustainable Development Goals (SDGs), the Bill & Melinda Gates Foundation’s research on bitcoin and blockchain technology, and the Reserve Bank of India (RBI) creating a new financial inclusion committee. Here are a few more details:

  • Last week the Islamic Development Bank’s Chief Economist asserted the importance of Islamic finance in achieving the SDGs and the Bank pledged over $150 billion over the next 15 years towards achieving them.
  • An interview with CoinDesk highlights the Gates Foundation’s recent research on how blockchain technology might be helpful as a means of settlement between payment systems and in international remittances.
  • The RBI created a committee to devise a five-year measurable action plan for financial inclusion covering areas such as payments, deposits, credit, social security transfers, pensions, insurance, and consumer protection.

For more information on these and other stories, read the sixth issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at ezuehlke@accion.org.

> Posted by Center Staff

What’s happening this week in the world of financial inclusion? Check out the second issue of our new weekly online magazine, the Financial Inclusion 2020 News Feed.

In case you missed the inaugural issue, each Monday the FI2020 News Feed will bring you the big news in financial inclusion. We’ll pull from all over to spotlight great new stories, initiatives, videos, podcasts, and more.

Here are some of the pieces featured in this week’s issue:

  • Business Today’s recent article on account inactivity in India’s Jan Dhan Yojana scheme
  • The Microcredit Summit Campaign’s post on the Government of Ecuador committing to disability inclusion
  • The Wall Street Journal‘s announcement of finalists in the Asia-Pacific Financial Inclusion Challenge
  • Agencia de Noticias Andina’s article on an Indian financial inclusion delegation’s recent trip to Peru

To read the second issue, click here, and make sure to subscribe by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at ezuehlke@accion.org.

> Posted by Alex Counts, President and CEO, Grameen Foundation

Account Use (Developing Economies) - Click to Enlarge

Account Use (Developing Economies) – Click to Enlarge

Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as defined by CFI. The Center’s new publication “By the Numbers” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.

Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”

While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent — quite a jump! — over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.

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> Posted by Shameran Abed, Director, BRAC Microfinance Program

Shameran Abed, BRAC’s Director of Microfinance, joined the Microfinance CEO Working Group in January. He joins the Working Group’s efforts to support the positive development of the microfinance industry and brings tremendous insight into the discussion on pathways out of poverty.

This month, the results from six randomized control trials (RCTs), published in Science magazine highlighted a model of development that is an adaptable and exportable solution able to raise households from the worst forms of destitution and put them onto a pathway of self-reliance. The graduation approach – financial services integrated within a broader set of wrap-around services – is gaining steady recognition for its astonishing ability to transform the lives of the poorest.

These findings can be contrasted with the results of six RCTs published in January by the American Economic Journal: Applied Economics, which cited limited evidence of “microcredit” alone transforming the lives of the poor.

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> Posted by Center Staff

A new paper from MasterCard corroborates recent findings on persistent gaps in the financial inclusion of women, indicating that in India 58 percent of women report difficulty accessing credit, savings, or jobs because of their gender. The paper is part of MasterCard’s Connectors Project, which examines the migration of excluded populations into progressive economic inclusion. The recently-released Global Findex data found that between 2011 and 2014, the gender gap in access to financial services remained steady at 9 percent in developing countries.

The reported difficulty faced by women in India was higher than that of the paper’s other surveyed countries: Indonesia, Egypt, and Mexico. Across all four countries, 33 percent of women expressed these challenges. Across all genders, in India, 67 percent of respondents reported worrying about money they owe to others and 82 percent worry about their future prospects. Along with women, ethnic and religious minorities in India reported additional challenges in economic participation. Fifty-eight percent said it was difficult to get jobs or credit because of their ethnicity or religion – compared with 28 percent across the surveyed countries. Whether or not these women and ethnic/religious minorities do in fact face discriminatory treatment, awareness of their perception is critical. In accessing banking services for the first time, or pursuing economic opportunities, trust and confidence can be a make-or-break.

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> Posted by Julia Arnold, Research Consultant

After two weeks of speaking with bank and microfinance institution staff, entrepreneurs, social investors, policymakers, and tech companies in India, my once clear understanding of how to build financial capability has now been completely scrambled. Building financial capability – that is, helping clients change (knowledge, skills, and ultimately behaviors) to make good financial choices – has taken on many layers of complexity and challenges in the context of, and in the face of, the realities of India’s poorest people.

But that is, of course, the fun of travel.

To briefly put India’s banking services in context – many villages in rural India still do not have a bank. According to the latest World Bank Findex data, half of rural Indians and nearly half of all Indians remain completely unbanked. Even if a bank exists in a village, social constraints often prohibit women from using it due to both limited mobility and lack of knowledge about and decision-making power over household finances. Basic access and usage of mobile phones remains limited. From my own earlier research with Cashpor Microcredit, I know that numeracy and literacy, as well as access, remain barriers for women to save with mobile technology.

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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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