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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP
It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.
The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?
> Posted by Jeffrey Riecke, Communications Associate, CFI
Rwanda has a lot to celebrate in terms of financial inclusion these days. Last week in Kigali the National Bank of Rwanda (NBR) hosted a conference in partnership with the World Bank, the African Development Bank, and the Alliance for Financial Inclusion (AFI) commemorating their 50-year anniversary. At the event, titled Financial Inclusion for Inclusive Growth and Sustainable Development, NBR Governor John Rwangombwa highlighted the country’s recent rise in access levels, from 48 to 72 percent between 2008 and 2012 across formal and informal providers. Rwanda now has the laudable goal of increasing this figure to 90 percent by 2020. To help it get there, on Friday the World Bank launched a $2.25 million program supporting key financial inclusion areas for the country.
Along with overall exclusion rates dropping from 52 to 28 percent over 2008 to 2012, formal services access increased from 21 to 42 percent during the same period, according to the 2012 FinScope Rwanda Survey. The new government goal of 90 percent access by 2020 is an extension of the country’s Maya Declaration Commitment of 80 percent access by 2017. Rwanda’s growth in formal access can be attributed to products offered by both banks and non-bank providers, like the country’s community savings and credit cooperatives known as Umurenge SACCOs. Over the past three years, Umurenge SACCOs have attracted over 1.6 million customers. Ninety percent of Rwandans live within a 5 km radius of one of the cooperatives. Countrywide, the number of MFIs, including Umurenge SACCOs, increased from 125 to 491 between 2008 and December 2013. Elsewhere in the sector, over the last three years, the number of banks increased from 10 to 14, the number of insurance companies increased from 9 to 13, and the number of pension providers increased from 41 to 56.
> Posted by Emily Kunz, Financial Inclusion Analyst, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
Impact investing is becoming increasingly alluring. However, anyone who has tried to put their finger on the pulse of this trendy subject has likely been inundated with dense reports focusing on industry minutiae that would take weeks to read. Who has time for this? Not too many it would seem considering that the World Bank recently revealed that a third of the reports it produces have never been downloaded – not even once!
Accordingly, we challenged a team of Credit Suisse Virtual Volunteers (Credit Suisse staff members David Samach, Anne Levonen, and Surender Gounder) to research the world of impact investing – reading industry reports, talking with many of the relevant players, running the numbers – and synthesize this information into a brief and user-friendly overview of the current impact investing landscape.
Too many definitions fuel industry confusion. If you have trouble comfortably committing to one definition for impact investing, you’re not alone. While researching, the Virtual Volunteers identified a fundamental industry issue: there is no universally agreed-upon definition for impact investing. Competing definitions, as well as models and reports that aren’t aligned, continue to fuel misunderstandings about and within the sector. Ultimately though, the Virtual Volunteers proposed defining impact investing as “an investment approach that intentionally seeks to create both financial return and a positive social or environmental impact that is actively measured.”
> Posted by Tyler Owens, Management Intern, CFI
The Holy Grail of research for the global microfinance sector is incontrovertible proof that the provision of small loans generates real and lasting impact for borrowers. While Holy Grails are never found, new research from the World Bank offers more than two decades worth of evidence examining the impact of microfinance on households in Bangladesh. The question of whether it provides this incontestable proof of effectiveness warrants more than a yes or no answer.
There are different ways to define what works. Proof of positive impact encompasses a host of definitions, from general ones such as rising levels of GDP per capita or other measures of progress out of poverty, to narrower ones such as growing investment in education or certain health outcomes. Regardless, to those who practice microfinance or study the sector, there is consensus that impact means real and lasting benefits to people, society, and economy. For example, a growing number of people who have transcended the national poverty line and stayed above it for some years implies real and lasting impact.
> 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.
> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI
Javier moved from Honduras to the United States with his wife and their children in search of better work opportunities and to escape the violence in their community. His parents chose to stay behind. Luisa moved from the Philippines to Canada to pursue more lucrative opportunities as a nurse, hoping to support her family back home. Yousef fled from Syria to Lebanon, as a refugee, to escape civil unrest.
Javier, Luisa, and Yousef – fictitious characters – are only symbolically representative of some of the enormous global migrant population – estimated to total 232 million people in 2013. Certainly not homogenous, their reasons for leaving their home country can vary tremendously and may include economic opportunities, natural disasters, and security or political concerns.
In spite of the complications of migrating, there is an undeniable and increasing opportunity for financial service providers to serve migrants and their families. Today, I will focus primarily on migrants who move for economic and employment opportunities, though we recognize that these issues are more nuanced for migrants like Yousef who have fled their country of origin for the sake of their safety. I will save this smaller subset, 7 percent of all migrants, for another post. Though, I will mention that MasterCard has an innovative partnership with Banque Libano-Française for Syrian refugees in Lebanon, which you can read more about here.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on USAID’s microlinks.
Elisabeth Rhyne joined USAID shortly after the seminal PISCES (Program of Investment in the Small Capital Enterprise Sector) studies were completed in the 1980s. From 1994 to 1998, she was the Director of USAID’s Office of Microenterprise Development, where she developed and led USAID’s Microenterprise Initiative.
The breakthrough innovations that sparked the birth of microenterprise credit in Latin America occurred in the early 1980s, and USAID was very much the driving force. Through PISCES, the Program for Investment in the Small Capital Enterprise Sector, operational from 1979 to 1985, USAID and its partner organizations began to discover the principles of success for lending to the poor, opening the way for the microfinance industry.
To understand the origins of this microfinance strategy, it helps to visualize PISCES at a time when three streams of thought came together. First was the “Spring Review” on directed agricultural credit carried out by the rural finance gurus of Ohio State University, Dale Adams and Claudio Gonzalez Vega, with J.D. von Pischke of the World Bank. Their work revealed the waste and dysfunction of subsidized agricultural credit doled out by bankrupt government credit banks. These banks were swallowing hundreds of millions of development dollars annually. The Ohio State team’s manifesto was that financial institutions must make credit decisions based on risk assessments, not politics, and charge interest rates that would allow operations to be sustainable. That review launched a gradual shift by USAID, the World Bank, and other aid agencies away from public development banks. But, if public development banks were sidelined, who would serve the poor?
At the same time research mainly by the International Labor Organization (ILO) revealed the importance of the “informal sector,” small-scale businesses operated by low-income households. These were especially important in urban areas as a source of livelihood for a vast portion, and sometimes even the majority, of the poor in developing countries. (Why this was a revelation was a mystery to me – one has only to stroll through the poor areas of a developing country to see the scale of the informal sector.) The ILO’s work excited the interest of USAID’s Office of Urban Development. Michael Farbman and his colleagues there wanted to figure out how development organizations could assist the proprietors of small and microenterprises to improve their businesses and work their way out of poverty.
The huge potential for digital finance to reach the last mile of the financially excluded
> Posted by Peer Stein, Director, IFC Access to Finance Advisory
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”
Last week’s seminar on digital finance at the 2014 World Bank Group / IMF Spring Meetings convened innovators, private sector leaders, and government representatives to discuss the potential innovative business models and new technologies have in reaching and empowering the financially excluded poor and small businesses faster and with greater scale, while contributing significantly to the World Bank Group goal of universal access to finance by year 2020. The session highlighted the diversity of business models that use technology to reach the excluded market segment, showcased by innovators from bKash in Bangladesh, Airtel Money-Africa, and Berlin-based Mobisol operating in rural East Africa.
I’d like to share three key points that emerged from the forum.
First, multi-stakeholder collaboration is a must.
None of the featured innovators is a traditional bank or financial institution but each one realizes the importance of partnering with banks and other players in this dynamic space. For example, bKash was born from a fusion of BRAC Bank and Money in Motion, and continues to operate as a subsidiary of BRAC Bank, holding 80 percent of the mobile money market in Bangladesh. With such an adoption success within two and a half years, recording 90,000 digital money agents and 11.6 million registered users, in the words of Kamal Quadir, CEO, “bKash is now a Bengali verb [synonymous with ‘to send money’].” Chidi Okpala, Director of Airtel Money-Africa, a mobile money service with an active base of 5 million customers, reinforced that one of the factors of success in this diverse market is the need to position your mobile money service for stakeholder collaboration rather than competition. The real competitor is cash. Walt Macnee, president of the MasterCard Center for Inclusive Growth, emphasized the company’s connecting and collaborative role focused on ensuring interoperable platforms among a diversity of players.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Accurately assessing financial inclusion levels is fundamental for guiding inclusion efforts, but doing so on a large scale remains an issue, in spite of a growing supply of data and resources. A new composite index from the International Monetary Fund aims to change this. The new tool incorporates multiple inclusion dimensions and advanced methodologies, creating the ability to generate easily comparable inclusion calculations at the country, region, income, or even operational level.
The new index addresses criticisms of previous financial inclusion indices, particularly the inability to accurately incorporate multiple financial inclusion dimensions into one tool. The index was built using data from IMF’s Financial Access Survey and from the World Bank’s World Development Indicators dataset. Released late last month, along with the tool, the IMF published the results of running the index using the country information included in IMF’s dataset for 2009 to 2012.
The index is based on a definition of financial inclusion that incorporates the dimensions of outreach, usage, and quality of financial services. To capture outreach, the index employs the variables of number of ATMs and financial institutions per landmass or adult population. According to the World Bank Global Findex, out of the 2.5 billion people who are excluded from formal financial services, 20 percent cite physical distance from the point of service as the main reason for not having an account. For usage, the index incorporates the variables of percentage of adults with at least one type of regulated deposit account, and percentage of adults with at least one type of regulated loan account. Although the IMF recognizes services quality as cornerstone to inclusion, they indicate there is not yet ample data to enable its incorporation in the index. However, expanding the index in future iterations to include quality is indicated as a possibility.