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> Posted by Alvina Zafar, Deputy Manager, Financial Education and Client Protection, BRAC Microfinance
Financial 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.
“I am not sure if I can repay more loans, and I don’t want to be overburdened by debt.” That was how Noyon, a small grocery shop owner with a physical disability, replied when BRAC asked whether he would like to take a loan to expand his business. This is a common response we hear from clients with disabilities when they’re offered credit products. Many prefer to avoid taking loans unless absolutely necessary. They guard their reputations closely against a society that sees persons with disabilities as less capable, and defaulting on a loan is not a risk they are willing to take. This insight raises an important question with regard to the financial inclusion of persons with disabilities: Is access the biggest barrier?
In 2015, BRAC scaled up its Engaging People with Disabilities project with ADD International, an organization that focuses on campaigning for equal rights and ensuring social justice for people with disabilities. The objective of this partnership is to leverage the access and coverage that ADD International has with people with disabilities in Bangladesh and provide financial services (e.g. savings, loans, insurance, etc.) to interested beneficiaries. As of May of this year, the project has a client base of over 7,000 people with disabilities, with an average loan size of US$ 282 and a repayment rate of 100 percent. Clients are saving on a regular basis, with an average saving account balance of US$ 50. The majority of the clients are entrepreneurs—they own and operate grocery shops, tea stalls, small vending businesses, and the like. One objective of BRAC’s is to empower all clients by building their financial capabilities. A by-product we see in many of our clients from this pursuit is, on top of enhancing their knowledge about financial management, it raises their confidence and self-respect. Read the rest of this entry »
> Posted by Tyler Aveni, Positive Planet China
In an industry that is constantly evolving due to new technology and abundant knowledge-sharing opportunities, practitioners of socially-driven microfinance and inclusive financial services are also helping to drive new innovation. Accompanying research critically assists this process, especially in evaluating the impact of these new methods and initiatives. This presents a problem for countries like China where a dearth of credible (or existing) data resources makes a critical review of practices far harder to manage. As such, researchers interested in the world’s second-largest economy often must settle with statistics that may suffice but rarely meet higher standards found elsewhere.
The work of Li Gan, a Texas A&M professor who also heads the Survey and Research Center for Household Finance at Southwestern University of Finance & Economics (SWUFE) in Chengdu, China, is helping to address the problem. Professor Li has spent much of the last four years spearheading an effort to gather more data on the financial condition of Chinese households and businesses. Through generous funding by SWUFE and support from the PBOC, China’s central bank, Professor Li has set into motion two key multi-year surveys: The China Household Finance Survey (CHFS) and the “ChinaPnR-SWUFE SME Index” which looks at small enterprises.
> Posted by Kettianne Cadet, Program Coordinator, CFI
It’s been a few weeks now since our return from Cape Town and the kick-off seminar of the inaugural Africa Board Fellowship, a six-month program launched this year to foster peer-to-peer learning and exchange on governance practices among board members and CEOs at financial institutions serving low-income clients in sub-Saharan Africa. The fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.
In early June, CFI’s Investing in Inclusive Finance (IIF) team and the fellowship’s seasoned faculty, advisors, subject experts, and inaugural class of fellows all came together in South Africa for the in-person kick-off seminar. This first seminar was very well received by both fellows and staff and here are some of the reasons I believe it went well.
Participant Diversity: The first cohort of fellows connects 30 board members and CEOs from 13 institutions throughout 11 countries, all with diverse backgrounds and experience. Each participating institution is required to send their CEO along with one or two board members. Having this mix of participants throughout the seminar led to numerous engaged, candid, and rich discussions about roles, board dynamics, and responsibilities. Had we only brought together one fellow from each institution, these conversations would have been far more one dimensional.
Structured Accountability: Having both CEOs and board members present supports accountability within each institution – to participate in each session and to take action afterwards. If only one member from each institution attended, would they be able to transfer their takeaways to their organization or actually implement any of the lessons learned? Additionally, given that the fellows either came from a different geographical location, offered differing products, or perhaps targeted a different niche market, it seemed that everyone got enormous value from their exchanges with one another.
> 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:
- Are or could remittances be a major driver of financial inclusion?
- 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!”
> Posted by Ros Grady, Senior Financial Sector Expert, the World Bank Group
The following post was originally published on the World Bank Private Sector Development blog.
The Client Protection Principles: Model Law and Commentary for Financial Consumer Protection (the “Model Law”), recently launched by the Microfinance CEO Working Group, has the potential to be a useful resource for the many developing and emerging economies that are seeking to design and implement international best practices in financial consumer protection, having recognized that consumer protection is a critical element in building and maintaining trust in the financial sector and achieving financial inclusion targets.
The Model Law was prepared on a pro-bono basis by the international law firm DLA Piper on the basis of the seven Client Protection Principles of the Smart Campaign. The project, which took place over a 15-month period and was managed by Accion on behalf of the Council of Microfinance Counsels, included consultations with financial inclusion stakeholders and legal experts, who undertook a review of existing legal frameworks in various countries. Reference was also made to international best practices and principles such as the World Bank’s Good Practices on Financial Consumer Protection and the G20 High Level Principles on Financial Consumer Protection.
The Model Law is a high-level, activities-based law that is intended to apply equally to all financial services providers. This includes “banks, credit unions, microfinance institutions, money lenders and digital financial service providers.” The apparent aim is to ensure an equal level of protection for all consumers and a level playing field. The consumers concerned may be an individual or a micro, small or medium-sized business, and so the law will apply equally to consumption and small-business facilities. Many of the provisions are framed in terms of principles, the detail of which would need to be filled out in related legislation.
> Posted by Elisabeth Rhyne, Managing Director, CFI
I recently attended the annual meeting of the Microfinance Network (MFN), which was hosted by the Alexandria Business Association in Alexandria, Egypt. MFN is a global network of some of the largest and leading microfinance institutions, and its annual meeting has long been known for candid and in-depth sharing of experience among the leaders of these institutions, as this post demonstrates.
Ask a microfinance CEO what’s making his or her life hard these days, and the answer is likely to be politics.
That’s hardly surprising when the speaker is Motaz Tabaa, CEO of the Alexandria Business Association (ABA), one of the largest microfinance institutions (MFIs) in Egypt. On January 28, 2011, when the occupation of Tahrir Square in Cairo held the world’s attention and led to the resignation of then-President Mubarak, it became impossible for ABA to operate. But before the week was over, staff were back on the streets, collecting and disbursing loans, and sleeping at the office to guard the cash that couldn’t be deposited in banks, which remained still closed.
Nearly every MFI in the group had a similar encounter with crisis – consider the political violence (and/or natural disaster) that has touched Uganda, Nigeria, Armenia, Mexico, Haiti, and Bangladesh in recent years. Today, Al Majmoua in Lebanon and Tamweelcom in Jordan are overwhelmed with the attempt to serve the Syrian refugees that have crossed their borders. The CEOs who have experienced such upheaval agreed about the role of MFIs in responding quickly to help clients obtain cash, keep their businesses open, and then rebuild. Given how prevalent political and natural crises are, organizations have developed protocols for responding quickly. Even while we met, Enrique Majos of Compartamos received news of a tornado in Mexico, and sent the Compartamos natural disaster team into action.
> Posted by Andrew Fixler, Freelance Journalist
Atikus, a new financial inclusion-focused enterprise, is gearing up to launch an underwriting platform and a credit insurance product in Rwanda for micro, small, and medium enterprise (MSME) credit. The insurance product is designed and brokered by Atikus, and ultimately backed by a local insurance company. I recently sat down with Kate Woska, co-founder and CEO of Atikus, to discuss financial innovation and her company’s work.
Microfinance has long benefited from careful experimentation and innovation. Initiatives that are targeting the base of the pyramid tend to be consumer-focused (e.g. micro health insurance or mobile payments development); however, according to Woska, these initiatives may be populating an industry that also suffers from institutional and market-level inefficiencies.
> Posted by Susy Cheston, Senior Advisor, CFI
Regulators take the lead in advancing client protection in financial services, we’ve heard. Providers “merely comply.”
If you are of the view that providers can, and should, take a leading role in client protection, then the results of a recent survey conducted by the Aspen Institute are discouraging. The survey, carried out on behalf of the Smart Campaign as part of its strategic planning, took a look at the three-legged stool of client protection—providers, regulators, and consumers—and asked which element was the most important. Of the financial inclusion stakeholders who were interviewed, only 24 percent said that provider-led initiatives were the most important element in client protection. By comparison, 39 percent thought regulation and governance were the most important, and 37 percent put their faith in consumer awareness and activism.
I disagree! We believe action from the financial services providers themselves is a vital missing link. But what is holding them back? In a consultative process carried out by the Financial Inclusion 2020 project over the past year, here are the top six reasons we heard for providers not taking the lead in consumer protection. Read the rest of this entry »
> Posted by Alex Counts, President and CEO, Grameen Foundation
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.