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> Posted by Jamie M. Zimmerman, Senior Associate, Bankable Frontier Associates 

There is abundant enthusiasm for the promise of shifting social benefit payments from “cash transfers” to “e-payments for the poor.” E-payments are heralded as having great potential for advancing the effectiveness of social transfers via increased efficiency, more transparency, reduced leakage, and faster payments to recipients than antiquated cash-based options. Perhaps most significantly, electronic social transfers to the poor offer a gateway to financial inclusion for the poor. Indeed, as cash transfer social protection (G2P) and aid (D2P) programs proliferate globally, digitizing those transfers may offer the missing link to the bottom billion, the world’s poorest, most vulnerable, and most excluded populations.

However, while theory and some evidence strongly suggest that e-payments are a high leverage tool to reach the poor, new research recently released by CGAP, on behalf of the Better Than Cash Alliance, on the experiences of electronic G2P programs in low-infrastructure and low-income settings reveals that e-payments can also pose a series of risks to recipients. These risks include: loss due to agent or staff misconduct; lack of transparency and disclosure of terms and fees; lack of adequate or effective avenues for recourse and redress, and; data privacy and protection challenges.

For example, a core component of the new research – detailed in case studies written on programs in Haiti, Kenya, the Philippines, and Uganda and summarized in the CGAP Focus Note Electronic G2P Payments: Evidence from Four Lower-Income Countries – explored the recipient experience in interacting with electronic payments platforms to receive their cash transfers. It is important to keep in mind that the vast majority of recipients had no prior experience with digital financial services, and, in some cases, formal financial services at all. Here are some common quotes from recipient focus groups and interviews:
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> Posted by Zahra Khalid, Social Analyst, Pakistan Microfinance Network

Pakistan’s financial sector is due for some client-centric changes. Over the past decade there has been rapid growth in consumer lending as well as an increase in the number of households that have taken on risks and obligations that they do not fully understand due to unfair and deceptive practices coupled with low levels of general and financial literacy.

These trends make the World Bank’s recently released industry-wide diagnostic review of the state of consumer protection and financial literacy in the country all the more relevant, and its recommendations targeting irresponsible practices, such as inadequate price disclosure, gender-based discriminatory lending practices, and lack of dispute resolution mechanisms, increasingly important. Offering key findings, recommendations, and comparisons against World Bank-developed best practices, the review is the first to cover the country’s legal, institutional, and regulatory framework from the consumer protection angle.

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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

According to a recent Overseas Development Institute (ODI) report, of every eight dollars sent to Africa, a whole dollar is lost to accompanying transaction fees. This loss, estimated by ODI to be between $1.4 and $2.3 billion annually, is particularly significant given that remittances comprise a significant share of African states’ economies and are rapidly increasing; the World Bank estimates they totaled around $32 billion in sub-Saharan Africa (SSA) in 2013 and may reach $41 billion by 2016. These numbers attracted The Economist to ask, “Do the middlemen deserve their cut?

Looking at these practices through the lens of the Smart Campaign’s Client Protection Principles, we question whether they are in keeping with responsible pricing. These charges can’t be explained by distance. In fact, large amounts of remittances are intra-country or intra-Africa, transmitted from urban to rural areas or by migrant workers from one country to another. Remittance corridors within Africa have some of the highest charge structures in the world. The 12.3 percent average charge for sub-Saharan Africa compares to a global average (without SSA) of 7.8 percent.

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> Posted by Hema Bansal, India Director, the Smart Campaign

As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

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>Posted by Center Staff

Microfinance Transparency recently released an interactive video designed to share information about flat and declining interest rates in an engaging new way. It tells the story of “Chantal” and “Auntie-Need-a-Loan.” Auntie doesn’t read the terms and con­di­tions of her loan. Unfortunately, her carelessness leads her to get tricked by loan predators, pay high fees, miscalculate her interest, and miss her loan payments. The concept was created to help in­dus­try stake­hold­ers to con­vey im­por­tant pric­ing transparen­cy and con­sumer pro­tec­tion mes­sages.

In ad­di­tion to this an­i­ma­tion, “Aun­tie-Need-a-Loan” will be fea­tured in radio pub­lic ser­vice an­nounce­ments, train­ing ma­te­ri­als and other print ma­te­ri­als throughout Rwanda and Malawi.

Check out the full animation here!

Image credit: 17triggers.com

Have you read?

A Call for Caution in Judging the Merits of Financial Education: A Review of ‘Bridging the Gap

Structure for Success: Lessons from a Kenyan Financial Literacy Teacher

Who Needs Financial Education?

> Posted by Rosita Najmi, Financial Inclusion Practice, World Bank

“Congratulations,” the young man said, as I entered a favela in Rio. Puzzled, I raised my eyebrows and shrugged my shoulders. “He was congratulating you because you’re a woman.” said the young woman accompanying me on a UNDP assignment.  My eyebrows migrated even further north. With a smile, she clarified, “Today is International Day of the Woman.” As we walked on, I turned and yelled over my shoulder with a wave, “Obrigada.”

While I’m passionate about a lot of things, since 2001, I’ve been thinking more about the concept of universal, financial citizenship and the role of women in poverty reduction. I’m sure my colleagues at the World Bank would each have a diversity of views on this topic. However, I think we would all agree upon certain core ingredients, such as (i) access to a suite of quality products and services (including savings, credit, insurance, remittances, payments and beyond), (ii) regulations that ensure consumer protection and transparency, and (iii) individual financial identities and histories that benefit from financial education and security. While this might easily resonate with someone who believes in the larger concept of democratizing development, at this point, you might be asking what “universal” means. That’s where the women (and other vulnerable populations like persons with disabilities, rural populations, and indigenous people) come in. Read the rest of this entry »

> Posted by Beth Rhyne

I had the opportunity last week to inform the philanthropic community about the Smart Campaign through a piece in the Philanthropy News Digest. For those of you who follow the Campaign, the piece may sound familiar.  Nevertheless, it’s exciting to be able to get the Smart Campaign message in front of the broad range of people who work in philanthropy.

To read the article, please click here.

> Posted by Siddhartha Chowdri

Over the last couple of months, I’ve noticed this advertisement by the State Bank of India in several newspapers (in many cases on the front page), billboards, and other media throughout the country. Take a minute to try to figure out how much this loan costs and then continue reading. (For those outside India, 1 Lac = 100,000 rupees.)

Over the last four to five years the microfinance industry has been aggressively pushing for greater client protection standards. One place where there has been very specific and measurable improvement is in pricing transparency.  This is large part due to the efforts of movements like the Smart Campaign and institutions like MFTransparency.

Although (as many people who work directly with clients know) no matter how well we as institutions disclose and explain prices in standard formats, the only thing that is of concern to the clients is how much they will have to repay on a monthly/weekly basis. Concepts of IRR, APR and time-value of money are not as much of a concern to them as how much money they are going to get and when. Regardless of whether the client is able to understand the full terms of their loan, it is extremely important that those who claim to be in the business of responsible finance stick to their guns and continue promoting full disclosure and transparency. Read the rest of this entry »

> Posted by Leah Wardle

A kid named Boyie is a popular radio disk jockey in Kenya. At 19 years old, he has a nationally syndicated radio show playing daily on 21 stations and half of Kenya’s mostly low-income youth say they’ve listened to him. He’s so popular that he also stars in his own monthly comic book series, Shujaaz (“Heroes”), read by about 10 million people in the past 20 months. The ladies love him and the guys copy his dreadlocks. But someone else answers his calls, texts, and Facebook messages (which flood in by the thousands), because Boyie is a cartoon character.

A cartoon character can be more powerful than a real person when it comes to influencing the thoughts and behavior of Kenyan youth, argues Rob Burnet, director of Well Told Story, the Kenyan communications company behind Boyie and Shujaaz.  He and his team are using virtual characters to reach Kenyan teenagers through comic books, radio shows, and virtual media with messages of social change. Their methods may hold creative new ideas for microfinance practitioners looking to connect with clients.

It’s something else to witness the compelling struggle of a teenage head-of-household, living in a slum, facing multiple challenges and pleading siblings, yet still setting aside a little bit each week. Now tell the story with colorful images and dramatic plots that resonate with the experience of the audience, and deliver through easily available media, and they readily absorb the messages as they follow the lives of the quirky characters.

Microfinance practitioners might take a page from Shujaaz to increase the transparency of financial information for clients. Transparency means providing full information (like detailed product terms and prices) in a way that is meaningful to the client. That means clients can absorb the information because it’s presented in their own language, and they feel comfortable with the medium. To reach this goal, Well Told Story’s model would suggest practitioners ask themselves three important questions: Read the rest of this entry »

> Posted by Leah Wardle

Last week, MFTransparency hosted the first “African Microfinance Pricing Transparency Leadership Forum” in Nairobi. The meeting was one of the more unique and encouraging microfinance events I’ve ever attended. About 130 regulators and policymakers from 24 African countries participated in spirited debate and idea sharing on the controversial issue of pricing transparency, and how to better regulate and support microfinance providers.

The meeting itself was a real success in that turnout was high and discussion was energetic—policymakers from all over Africa care enough about pricing transparency to assemble themselves for three intense days—awesome!  But the real triumph was the general agreement that service providers in our industry are not naturally incentivized to be transparent with clients, and regulators and policymakers play a vital role in making sure transparency is a priority.

Policymakers concluded that they:
1. Must create a level playing field in their respective countries, namely through standardized pricing calculation and disclosure requirements. This priority emerged through a discussion of the opaque pricing practices endemic to most countries and how few institutions want to be the first to self-regulate. A minister from the DRC told us about how his government has started requiring microfinance providers to state their prices as both the effective interest rate and the nominal interest rate. Additionally, all microfinance providers must publish these rates in the national newspaper so that consumers can compare prices and providers are incentivized to offer competitive rates. Read the rest of this entry »

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