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> Posted by Amanda Lotz, Financial Inclusion 2020 Project Coordinator, CFI 
The following post was originally published on the Youth Economic Opportunities blog.
The Financial Inclusion 2020 campaign 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.”
In 2011 only 17 percent of young adults (ages 15-24) saved in a formal institution in Nigeria, only 9 percent in Tanzania, and only 1 percent in the Democratic Republic of the Congo. These numbers remind us that youth financial inclusion is far from reality in many countries, especially low income countries with rapidly expanding youth populations (as indicated in CFI’s report Looking Through the Demographic Window: Implications for Financial Inclusion.)
Financial Inclusion 2020 (FI2020) at the CFI is building a movement that mobilizes stakeholders around the globe to achieve financial inclusion by the year 2020. As a part of this global campaign, we are focusing on client segments that have specific needs, including youth. FI2020’s working group on Financial Capability, one of five expert working groups creating a Roadmap to Financial Inclusion, shares insights into the group’s findings on youth and financial services:
1. Incorporate what we know about youth learning and behavior change into financial capability intervention design. Habit formation is important – for example, learning to look both ways before crossing a street. Establishing the savings habit early could set youth on a path to lifetime financial capability, according to a report from the New America Foundation. This report outlines the virtuous chain of connections from savings, to asset ownership, which leads to positive emotions and that promotes further sound financial behavior.
2. Providers are well-placed to contribute to youth financial capability building. Providers are uniquely positioned to help young clients develop financial capability. They have access to customers at the teachable moments when information matters most. They already invest in marketing, and a range of client interfaces can be adapted at low cost to provide financial capability messaging, potentially at significant scale. Further, they can design products that incorporate insights from behavioral economics, with features like automatic reminders or rewards. Read the rest of this entry »
> Posted by Jeffrey Riecke, Communications Assistant, CFI
When you receive a paycheck, what are your next steps? Do you have set amounts that you allocate to certain bank accounts? Do you specify how much you’ll be allowed to spend across a set of expense categories? Maybe you even have analysis programs that help you track your recent financial activity and their relation to your goals? Since you’re reading a financial inclusion blog, I’m guessing you fit into one if not all three of these money management groupings. But of course this isn’t the case for everyone.
For many, receiving a paycheck isn’t followed by examining a financial analysis program’s dashboard, making adjustments to a financial plan for moving forward, and carefully dispensing funds. It’s followed by the elation that comes from knowing that you’ll be able to pay your rent this month. By the relief that you’ll be able to pay back the family and friends who lent you money. Maybe even by a slightly frivolous purchase to help wash away the sting of financial stress. Money management in one of its many forms likely comes, but it’s often that it comes much after the paycheck. And it’s reasonable to assume that this separation gets in the way of more holistic money management.
With the help of a $350,000 grant from the Center for Financial Services Innovation (CFSI), the Neighborhood Trust Financial Partners will soon launch PayGoal, an employee payment program that’s coupled with an array of financial services. The program provides on-site, individual financial counseling to companies’ employees, facilitates their participation in formal financial services, offers them financial capability tools, and assists in their establishing financial plans and goals – all while integrating the companies’ payment system. Workers will predetermine how much of their wages will be allocated across spending and savings buckets, and instead of a traditional paystub, employees receive their pay with a report on their financial progress over the pay period (money saved, debt reduced, financial milestones reached, etc.) as well as educational messaging, such as the difference between gross and net pay.
> Posted by Allison Ehrich Bernstein, Executive Communications Specialist, Accion
Of the 2.7 billion people living in poverty around the world, an estimated 650 million of them are Muslims living on less than $2 a day. But in countries with significant Muslim populations like Afghanistan, Jordan, and Sri Lanka, microfinance institutions have to position themselves relative to Sharia doctrine, which outlaws accepting interest or fees. As such, banks act as investors rather than creditors. This arrangement shares the risk but results in institutions’ having a harder time guaranteeing returns, making attracting investors and sustaining operations difficult.
That challenge has given rise to an Islamic microfinance sector, an offshoot of mainstream Islamic finance, which marries financial services and inclusion with Sharia-compliant operations and policies. The sector now boasts an estimated 1.28 million clients (up from about 380,000 in 2007), but adapting traditional microfinance products for Muslim markets has proven challenging: Practitioners continue to struggle with establishing models that are diverse and financially sustainable.
A recent CGAP survey identified three main hurdles to the expansion and viability of Islamic microfinance, which highlight both the challenge this sector faces as well as a preview of where it may be headed:
- We need to better understand demand for Islamic microfinance products, in terms of both what products will be used and how best to offer them to Muslim clients. CGAP and others have noted gaps between what microfinance clients say they want and what they actually use. Additionally, most institutions can only offer a couple of products and lack evidence on how to adapt traditional Islamic finance models for a different scale and client base.
- We need to better understand what viable Islamic microfinance business models look like. As Michael Tarazi, one of the CGAP survey authors, noted in a recent web chat, “At the end of the day, what you or I or banks or MFIs or regulators think is authentic is irrelevant – our target clientele has to believe the product is Sharia compliant. Who or what they look to for an answer to this question no doubt changes by region or perhaps even education level.”
- We need to create a stronger market infrastructure to measure performance and better assess how different products are faring and what impact we have on our clients. In the same web chat, survey co-author Mayada El-Zoghbi noted that the CGAP report aimed to address this problem – and even then, the report notes low response rates and certain institutions and locations where no data is available at all.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
It’s well acknowledged that in designing financial products, service providers should connect with prospective clients and their needs. Though the extent to which this actually happens remains a cause for concern. That’s a big part of why AgriLife, a new mobile-based financial services platform for smallholder farmers, intrigues me.
AgriLife is open-ended, built as a platform with integration points through which providers can “plug in” and deliver their services. These include financial services providers, mobile network operators, and a variety of agricultural players. On the client side, the farmers use the services available through AgriLife – like crop insurance, input payments, and savings accounts – and in turn provide information through the platform on their own farming activities. Farmers can provide information on their crops – what they’re producing, how much, and what they’re yielding. This user data is collected and analyzed by the providers and used to better shape their offered services. Over time, the user information amasses to establish a farmer’s production capabilities. These production capabilities can be used by farmers to access credit through AgriLife’s associated services. Additionally, the resulting electronic transaction records for many of these farmers helps them build a credit history that can be used, via AgriLife services or otherwise, for financing throughout the value chain.
AgriLife recently launched in Uganda. One of its early adopters is the Farmers Centre, a farmer-centric agribusiness in Northern Uganda, and its thousands of affiliated farmers. These individuals often travel long distances to the Centre’s warehouses to purchase inputs and aggregate their produce for processing and selling. Previously, these transactions had been done on paper with data stored on a single computer. AgriLife makes it possible for these processes to be done much quicker and, as it’s cloud-based, more securely. With more robust records on their farmers, the Centre is able to make informed recommendations on what farmers should plant and which inputs they should obtain, and make informed linkages between farmers and buyers.
> Posted by Loretta Michaels, Partner, HMS Wireless Consulting
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.”
A good webinar yields more questions than there is time to answer, and the Financial Inclusion 2020 launch webinar was a case in point. Participants asked some excellent questions we couldn’t address during the webinar, so we are now following up on some of the questions about technology. For answers, we turned to Loretta Michaels, who facilitates our FI2020 Technology Working Group.
Q: Andrew Pospielovsky (Egypt): Clearly technology will dramatically increase access to financial services, and this process of technological development is self-sustaining even without funder intervention. I believe the real challenge for development agencies and regulators is protecting the bottom of the pyramid from technology being exploited by predatory practitioners (such as payday lenders charging four and five digit effective interest rates). How can we tackle this challenge?
A: You bring up an important point that connects to FI2020’s focus on quality, not just access. CFI believes that advances in financial inclusion need to go hand-in-hand with adequate protections. In my experience, while there will always be “predatory practitioners,” new technologies help reduce the opportunity for fraud and exploitation by providing an electronic record of all transactions, automatic rather than arbitrary calculations of interest rates and charges, and greater overall accountability compared to manual operations today.
Technology per se will not solve all problems out there, but it does provide tools that make it easier to prevent and resolve the issues that come up. Many of the broader responses to predatory practices remain the same whether there’s technology involved or not: user literacy and education, training, proper oversight and regulation, and greater transparency.
> Posted by Philip Brown, Managing Director Risk, Citi Microfinance
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.
It may not be explicitly articulated and may be just “what we do” but all MFIs have a risk strategy and risk appetite. Board members have a responsibility to become active shapers of their organizations’ risk strategies and appetites, so that they can guide their institutions into waters of appropriate depth.
Each board member brings different perspectives to the table, but collectively, the board needs to have a view on the key macro and micro entity and performance risks and their possible impact on the MFI. At a high level these risks can be broken down into strategic/business model risks (clients, products, and delivery channels), operational risks (i.e., how the MFI functions), financial risks (funding, liquidity, FX risk), and compliance risks (adherence to regulations, client code of conduct). However, setting and monitoring risk strategy and appetite is not a checklist exercise. There are some on-going broader risk guidance principles that boards might utilize as part of being explicit about risk strategy and appetite.
Set Risk Culture/Tone at the Top:
Risk management is about managing MFI performance against expected performance. Boards represent shareholders and stakeholders who have an established view on the MFI’s expected performance and business and risk boundaries. This view is evidenced in plans, guidelines, minutes, and the focus of on-going board agendas. New investors, who signify change, can alter this consensus around expected future risk, profile, and performance. In any event the view of risk is dynamic. Market vagaries and operational performance will inevitably require on-going risk profile adjustments to strategic, operational, financial, and compliance risks, and lending models. This degree of risk tolerance, “how we operate,” will trickle-down throughout the entire institution from the board to the management to individual, daily staff decisions.
> Posted by Monique Cohen, Ph.D., Founding-President, Microfinance Opportunities
The following post was originally published on the Child and Youth Finance International Blog.
“I am not good at managing my money. I need some extra training so that I can know how to manage myself. Because you know money is like trouble. You get big money and it’s like big trouble, you know,” (A young man living in Nairobi, 2011).
Walk down any street in Nairobi, Dar es Salam, or Cairo, or in a small African town and it seems everyone, including teenagers, has a phone to their ear. Indeed, for those 18 and under, few have known a world without mobiles. Not surprisingly, school-age boys and girls (5-14), teens (14-18), and young people entering the labor force or tertiary education (over 18) are seen as a potential new market for the provision of financial services. While recent experimentation in this space has focused on savings, there is growing consensus that young people should be able to access a full range of financial services, with the priorities changing as they advance in their life cycle (see YouthSave, YouthStart, and Child and Youth Finance International). Not only are youth savings and youth financial education hot topics in the financial services space, but there is also a growing recognition that young people have money, and technology-based financial services offer a gateway for their financial inclusion. Read the rest of this entry »
> Posted by Jeffrey Riecke, Communications Assistant, CFI
The majority of girls in the United States recognize the importance of money management and are interested in becoming financially empowered. But, even without perceived gender barriers, only 12 percent of girls in the country feel very confident in their ability to make financial decisions. These are some of the big takeaways from a new Girl Scouts of the USA research report, Having It All: Girls and Financial Literacy. Released this past Tuesday in coincidence with Financial Capability Week (it’s also Financial Literacy Month), the report shares findings from a nationwide survey of 1,000 girls aged 8-17 and their parents to better understand girls’ levels of financial literacy, and their attitudes and experiences with money.
The survey revealed that the majority of girls feel most knowledgeable about savings, budgeting, and paying bills, and less so about using credit and investing. On the whole, 90 percent of the surveyed indicated that it was important for them to learn how to manage their money. In spite of their stark lack of confidence, the girls expressed great optimism that they would become financially independent and successful, indicating that they would rather make their own money than have to rely on their significant other, that both household heads should manage the family’s finances, and that throughout their life they would be able to save a lot of money, and be able to retire comfortably. Little relationship between gender and money management was expressed by the respondents. 73 percent reported that men and women are equally likely to be financially responsible, and only 13 percent reported the belief that men are better with money than women. This same 13 percent was mirrored in the responses of the parents.
> Posted by Julia Arnold, Research Fellow, New America Foundation
Many of the challenges to saving faced by the world’s poorest people were highlighted in the recent Washington Post article “Microsavings Programs Build Wealth, Pennies at a Time.” Among others, the article articulated two especially salient points around microsavings: 1) we know the poor save, and 2) savings can help poor people withstand shocks to their income (such as unexpected medical emergencies or job loss) without going further into debt and poverty. However, low-income people tend to rely on informal methods of savings, often putting their money at risk of being lost, stolen, or ruined by floods or rodents. Having a safe, reliable place to save is both beneficial to and desired by the world’s poorest people.
The Washington Post article included a link to a research study on savings I conducted while at the Grameen Foundation last July. I spent a month in hot, humid, and rainy Varanasi, India, on behalf of Grameen’s Microsavings Initiative, where I had the privilege to meet dozens of Cashpor Microcredit borrowers and savers. Cashpor Microcredit began offering microsavings in July 2011, using mobile phones to bring savings services to its poor, female clients. Curious about whether the mobile phone acted as a barrier to the savings services, I spoke with 65 women who either were current savers or wanted to become savers with Cashpor. My research revealed that Cashpor’s savers faced many challenges to saving, and one of these challenges was the mobile phone. Most women had limited or no access to a phone and many had limited numeracy and literacy. This, combined with low self-confidence, meant that they turned to others, often family members, including children, for help using the devices.
It’s not just low-income adults who can benefit from formal savings mechanisms. Youth can as well. Many youth around the world have access to small, erratic incomes, either as an allowance from their parents or from odd jobs — particularly if those youth are not in school. Low-income youth face many of the same challenges as adults face in terms of informal saving, but in seeking formal savings services, youth face unique regulatory barriers and knowledge deficits that keep them from being able to use formal services when they’re available. These problems are particularly pressing when considering the potential for impact. It is a given that learning to save early and having formal savings accounts help youth manage their income flows and transition into adulthood more easily.
> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities and Fellow, Ash Center, Harvard University
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.”
In the United States, it is financial literacy month, but all the talk these days is of financial capability. Why? Is this another fad to make the topic of financial literacy a little more interesting? Is it an effort by one group or another to differentiate themselves? Maybe. But there are also important, substantive, and practical reasons to be talking about financial capability, which means having the ability and opportunity to manage your money well. And there is no better way to understand this than to look to the pioneer of the capabilities approach, Amtya Sen, to see why it is important, both in the developed and developing world.
In brief, Sen’s capabilities approach:
- Forces a discussion of a multi-dimensional understanding of what it means to be a fully functioning member of society that takes into account not only what a person knows, owns, and earns, but also what they can do, and what they actually do
- Opens the door to thinking about financial capability in the broader development context that encompasses other capabilities such as being healthy, educated, and earning a sufficient income to support an individual and their family
- Recognizes that what it takes to be capable in one context is different from what it takes to be capable in another
The practical implications of this are important:
- A multi-dimensional understanding of what it means for an individual to manage their money well goes beyond being “literate” (having the right knowledge and skills). It also includes having an individual be able to act on that literacy (financial behavior) and having access to the appropriate financial instruments to fully realize their aspirations. In other words, the capability approach to money management includes a discussion of behavior and access. This means, practically, we have to understand the connection between financial literacy and financial behavior in all its complexity. It also means that talk of financial inclusion and increased access should focus on how they increase financial capabilities, which means a focus on financial service use, not just uptake. Read the rest of this entry »
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