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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.

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> Posted by Jeffrey Riecke, Communications Assistant, CFI

A few days ago news broke that Facebook, the social media giant with over a billion users worldwide, is making preparations to begin offering international money transfer services. Although the development has been dismissed by Facebook as rumor, the prospect of this enormous network enabled for money transfer and the huge global need for this service makes this a story worth following.

The news, initially shared by the Financial Times and sourced from individuals involved in the proceedings, indicates that Facebook is weeks away from securing regulatory approval from Ireland’s central bank to allow its users to store money on the site and use it to pay others. Facebook’s headquarters for Europe, the Middle East, and Asia is in Dublin. If approved, Facebook would be permitted to issue units of stored monetary value represented as “claims” against the company. Regulation in this area pertaining to Europe would allow approval in Ireland to green light services throughout the entire continent. The Financial Times also mentions that Facebook has had discussions about potential partnerships with several start-ups that offer international money transfer services through both smartphone and online platforms.

Facebook’s reach is massive, 1.23 billion at the end of last year, and it’s becoming increasingly diverse. Last week, thanks to increases in internet access and mobile penetration, the company achieved a milestone in India: 100 million users. Some analysts say by the end of this year India will surpass the United States (with 180 million) as the country with the most Facebook users. The social media site is big elsewhere in Asia, too. It is the most popular social network service in all but six of the region’s countries. After the US and India, Facebook’s largest countries by-users include Brazil, Indonesia, Mexico, Turkey, the United Kingdom, and the Philippines. Facebook has a large presence in Africa, as well, with 13 million users in Egypt, 9.4 million in South Africa, 5.3 million in Nigeria, 1.8 million in Kenya, and 1.4 million in Ghana.

Like Facebook, remittances volumes are increasing on the whole around the world. In a new brief on remittances and migration released last week by the World Bank, it’s shown that remittances to developing countries reached about $404 billion in 2013, an increase of 3.5 percent over 2012. Annual growth is expected to increase to an annual average of 8.4 percent over the next three years. In 2013, India received the most international remittances with $70 billion, followed by China with $60 billion, and the Philippines with $25 billion.

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> Posted by Sonja E. Kelly and Veronica Trujillo, Fellow and Consultant, CFI and MIF/IDB

Where can you find up-to-date and comparable information on the state of microfinance and financial inclusion? Which are the most trusted sources? These issues were recently explored in a research effort designed to lay the groundwork for broadening the scope of the EIU Global Microscope on the Business Environment for Microfinance from an emphasis on microfinance to financial inclusion. As part of this process, Fusion Research conducted a detailed assessment on the relevance of the Microscope.

As sponsors of the Microscope, what we found through the study was a pleasant surprise. Seventy-nine percent of people surveyed (more than 500 microfinance sector stakeholders from different countries around the world, with a high proportion of participants coming from Latin America and the Caribbean) were at least aware of the Microscope, and most of these people have used or consulted it. Closely trailing the Microscope, 76 percent of people surveyed were aware of the MIX Country and MFI Benchmark Reports.

Market Analysis of Microfinance Resources

In terms of actual use of the tools, the MIX leads the way, almost tied with the Microscope. When we look at use of the tools by stakeholder type, we see a greater diversity in which tools different kinds of people use.

Investors are most and equally likely to use the EIU Country Reports and the Microscope. Their need to know the country microfinance context and level of market development to make better decisions is likely to explain such preference. Those who work for financial services entities seem to like the detail and competition data that the MIX provides. Their second most used source is the Microscope, revealing the importance for them of country regulatory and operative environment. Foundations appear to use the Microscope and MIX data in tandem. The Global Findex (The World Bank Global Financial Inclusion Index) is most used by regulators/policymakers and DFIs/foundations, while academics, think tanks, and those working in business or consulting are most likely to use the Global Microscope.

Respondents to the survey, on average, reported using between three and four resources in their work. In terms of usefulness, MIX reports and the Global Microscope on Microfinance were rated as very useful for more than 55 percent of the people interviewed.

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> Posted by Center Staff

Expanding financial inclusion to the 2.5 billion unbanked individuals around the world is essential, but why does it matter, and is it possible in the next six years?

In recent years, the inclusion movement has achieved critical support and rapid progress. Last year universal financial access by 2020 was endorsed by World Bank President Jim Kim. Technology-enabled business models are catalyzing outreach, building on infrastructure like the mobile phones now accessible to six of the world’s seven billion people.

In the following video, global financial inclusion leaders explore the questions of whether financial inclusion is possible by 2020, and why we should work towards that goal.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

The following post was originally published on the World Bank Private Sector Development Blog.

The issue of financial inclusion seems to be everywhere – from the World Bank Annual Meetings to the new UN post-2015 development goals. It’s got buzz in the private sector, public sector and development organizations big and small. Policymakers are increasingly making financial inclusion a priority through specific financial inclusion targets and commitments, such as the Alliance for Financial Inclusion’s Maya Declaration. In fact, World Bank Group President Jim Yong Kim recently launched an initiative “to provide universal financial access to all working-age adults by 2020.”

As we know from the Global Findex, more than 2.5 billion people lack access to even a basic bank account — a huge gap in inclusion and an enormous opportunity. Demographic changes, economic growth, and advances in technology are making global financial inclusion more possible than ever before. With a massive new market of people demanding new services as incomes rise among the bottom 40 percent, the stage is set for dramatic leaps in access in the next few years. Emerging technologies are bringing down costs and opening new business models while providing greater access to a range of services.

Recognizing that the time is ripe for significant progress on financial inclusion, the Center for Financial Inclusion developed a consultative process aimed to raise everyone’s sights about the possibilities of achieving full inclusion within a foreseeable timeframe – using the year 2020 as a focal point. The process sought to build a more cohesive financial inclusion “community” through the development of a common vision. It brought together experts from the World Bank, IFC, and CGAP along with many representatives of the private sector and the social sector. Financial Inclusion 2020’s Roadmap to Financial Inclusion is the result.

With all of the financial inclusion buzz, you would think that we would be closer to full inclusion. But if closing the gaps were easy, it would have happened already. Many factors still stand in the way. In the case of regulatory accommodation to new technology, for example, the gaps result from such factors as the pace of the spread of know-how among policymakers globally, national legislative and political processes, and uncertainty about the risks involved with new models. In the case of fully addressing the needs of customers at the base of the pyramid (BOP), gaps stem from a combination of doubt among providers about the likely profitability of these customers and limited knowledge inside institutions about the financial lives of the poor. In the case of client protection, providers face perverse incentives, while many regulatory bodies are only beginning the major task of establishing robust oversight of market conduct.

We see encouraging examples of financial inclusion in the most remote corners of the world, often done by surprising actors. However, the momentum is uneven. The Roadmap process included many of the thinkers and entrepreneurs behind such initiatives. Each of the five working groups — Addressing Customer Needs, Technology, Financial Capability, Client Protection and Credit Reporting — has developed a roadmap to direct the world community toward the actions most needed to achieve FI2020’s vision of full financial inclusion. Most of the recommendations are addressed either to governments or to providers, but they point the way to actions needed by a range of supporting organizations, including multilateral and bilateral organizations, donors, social investors and non-profits, at both the global and the national levels.

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> Posted by Sebastian Groh, Project Manager, MicroEnergy International

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

United Nations Secretary General Ban Ki-moon recently called upon the international community to commit to a new groundbreaking initiative seeking Sustainable Energy for All (SE4A) by the year 2030. At MicroEnergy International (MEI) we have been working towards this goal since 2002 by supporting microfinance institutions (MFIs) in the process of developing and providing “green microloans,” financial products that help clients finance a renewable or efficient energy system for their home or business. Our work is based on the fundamental belief that the relationship between energy inclusion and financial inclusion is a critical impact point that has positive effects on the poverty levels of low-income clients.

Perhaps the linkage isn’t immediately clear, so a few examples will help us explain.

Financial inclusion leads to energy inclusion. Access to finance can lead to energy inclusion simply in terms of affordability and financial means. People who have access to financial services are able to finance their basic energy needs and either pay for grid-supplied electricity or purchase a distributed energy generation system of their own. These systems have a prohibitive initial investment burden that usually cannot be covered by those at the base of the pyramid (BoP). Innovative green credit design allows clients to pay in monthly installments that correspond to their current expenditures on energy appliances and sources as well as potential savings and income generation opportunities. A scheme of that type has paid off for about two million Solar Home System users today in the country of Bangladesh, according to the World Bank’s IDCOL Solar Home Systems Project.

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> Posted by Sonja E. Kelly, Fellow, CFI

Remember when you were young, and a sandbox presented an opportunity to build your own castle? The GPFI (the Global Partnership for Financial Inclusion) Basic Set of Financial Inclusion Indicators and its accompanying website is kind of like that—it offers a space in which users can customize and test their own definitions of financial inclusion through an interactive platform, building off of a set of key “ingredients” in the data world.

We’ve talked before about the GPFI’s “Basic Set,” but we wanted to be sure to highlight it again, given the attention that it has received over the past few weeks alongside its official release on April 21 at the 2013 World Bank Spring Meetings.

In offering this service, the GPFI addresses one of the biggest challenges in financial inclusion: measurement. We all seem to have a general definition of financial inclusion, but when it comes to operationalizing this definition, things get complicated. Should the use of financial services be an individual or a household measure? How can we parse out (and should we parse out) financial tools used for businesses from tools used for personal things? Are surveys run by international organizations the best source of data or are numbers reported by central banks more reliable? The Basic Set remains fairly agnostic on these questions, instead giving highlights from all of the data—SME, personal, supply-side, demand-side, international organization-led, and government-reported.

See, for example, the diversity of indicators in the GPFI Basic Set as applied to sub-Saharan Africa. “Accounts” includes a demand-side (individual) measure of accounts, SME accounts, and both measures for women in particular. Read the rest of this entry »

> Posted by Elisabeth Rhyne, Managing Director, CFI

The following post was originally published in the Guardian Development Professionals Network DAI Partner Zone.

When the Global Findex, an unprecedented demand-side survey by the World Bank and Gallup, was released last year, it marked the first time financial inclusion statistics from the demand side were available on a globally consistent basis. The headline: 2.5 billion adults (including 59 percent of adults in developing countries) are “unbanked” — that is, they do not have an account at a bank or other formal financial institution.

Why is having a bank account the top indicator of financial inclusion?

Setting aside the obvious point that bank accounts are among the easiest indicators to track, the policy focus on “banking the unbanked” seems to rest on the premise that bank accounts have a special role in financial inclusion. Three important functions ascribed to bank accounts are: a place to save, a money management hub, and a way to establish an ongoing relationship with a formal financial institution (an “on-ramp” to other services). These assumptions appear to underpin much of financial inclusion thinking and policy.

If a bank account is a money management tool – a central node through which a person’s financial transactions flow – it will be used regularly. This is the way most people in the developed world (and, I suspect, most financial inclusion policy makers) use bank accounts. However, many accounts in the developing world are relatively inactive. Taking the frequency with which people make more than two withdrawals per month as a proxy for operating an account as a money management hub, the following chart divides the “banked” into low – and high – activity accounts.

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> Posted by David Grace, Managing Partner, David Grace & Associates

As noted in a recent blog post by Beth Rhyne of CFI, supervisors need to upgrade their skills if they are going to keep pace with an additional 2-3 billion people over the next decade potentially entering financial services for the first time.

The financial inclusion movement is taking shape at the same time that banking supervisors globally are searching for more “forward-looking” indicators to help them detect early problems in institutions and financial systems. Whether it’s the subprime crisis in the United States and Europe, or over-indebtedness problems in Bosnia and Southern India, many of the early warning signs were evident in consumer abuses before they showed up on the balance sheets and capital ratios of institutions. As such, one of the best avenues for supervisors to improve their quantitative-focused prudential oversight is to start putting greater emphasis on qualitative-based consumer protection indicators.

Through a World Bank-sponsored program in the Eastern Caribbean to improve the quality of supervision of non-bank financial institutions, the Smart Campaign inspired consumer protection supervision to become integrated into new prudential examination procedures.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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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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