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> Posted by Dave Grace, Managing Partner, Dave Grace & Associates
Several months ago I attended a seven hour annual general meeting (AGM) of a client-owned microfinance institution where I heard a long stream of angry and sad members recount stories of the potential loss of their life savings. The primary purpose of the AGM was for the regulator of this intervened institution to hear from the thousands of clients whether they wanted to collectively pay US$14.6 million to recapitalize their institution or to liquidate it and lose their money. This was not an insignificant question for the country as the defunct institution held deposits equal to 12 percent of the country’s GDP. The AGM went so late that most of elderly couples, who are the largest depositors, had long since left before the critical vote was taken to recapitalize the entity.
Although there was ample disclosure and discussion of the 30+ pages of financial statements distributed in advance and prepared by a top-notch big five accounting firm, few, if any, of the clients understood them. What every member did understand was that the regulator and its advisors (including myself) were offering two bad choices. Their raw emotions were a testament to that.
As we look at improving the consumer protection environment for institutions that serve the base of the pyramid (BoP) and try to define what “quality” financial services means, we need to give deeper thought to how savers are affected. At this intervened institution clients were required to save US$20 each month. If they did not save this amount their accounts became “delinquent.” Clients who had rejected or just couldn’t afford the mandatory savings were some of the hardest hit. They agreed to convert part of their savings to capital in the institution with the hope of better days and the ability to sell or withdraw their shares in the future.
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
If you answered yes to the title question, then you are better off than approximately one quarter of American families, according to a Brookings study that examines the financial fragility of U.S. households. Beg, borrow, or sell, a quarter of U.S. families do not have access to two thousand dollars within a month! They could not tap savings, ask friends or family, take out a loan, hawk jewelry, or pick up more hours at work.
Without savings, American families are incredibly vulnerable to life shocks. A lost job, hospital bills, or even car repairs, can have severe consequences – even as severe as hunger or homelessness. Another recent study by Doorway to Dreams (D2D) of families with $20-60K in annual income found that 62 percent of households experienced at least one financial shock in the last 12 months and 51 percent of households lacked any emergency savings to help them cope.
Despite being one of the wealthiest countries in the world, Americans just aren’t saving. Americans save an average of 4.4 percent of their disposable income, while Chinese households save between 25 to 50 percent of their total income, according to Forbes.
So what would encourage Americans to save more? That is a nut that D2D is trying to crack – and their answer involves video games and prizes. D2D looks for creative and scalable solutions to address America’s lack of savings. Their Financial Entertainment project is a fun, innovative way to learn about personal finances through game play. The financial literacy games range from “saving for retirement while running a vampire nightclub” to “managing farm resources to build savings and survive financial emergencies.” Think of Facebook’s FarmVille (which has 40 million likes) but as an opportunity to educate Americans about savings and managing finances. In terms of D2D’s prize-linked savings efforts, their Save to Win (STW) program, which enters participants into raffles for cash prizes each time they make a savings deposit of $25 or more, is being rolled out in credit unions nationally. A true example of behavioral economics in play.
> Posted by Center Staff
This year’s Alliance for Financial Inclusion (AFI) Global Policy Forum (GPF) at Sasana Kijang in Kuala Lumpur concluded today with the AFI network launching the Sasana Accord. We wrote about AFI network countries’ commitments to the Maya Declaration a few weeks ago. The Sasana Accord further strengthens the effectiveness of these commitments, adding the layer of systemic assessment of impact to ensure quantifiable and measurable financial inclusion targets.
The fifth annual GPF, the largest to date, brought together 400 participants from 80 countries, spanning senior policymakers, central bank governors, partners from international organizations, and key private sector players. Under the theme “Driving Policies for Optimal Impact,” participants discussed and deliberated on the optimal policy strategies by synergizing financial inclusion, financial stability, and consumer protection objectives. Here’s a video recording of the Forum’s final sessions – “Announcement of New Commitments to the Maya Declaration,” “Sasana Accord,” and “Closing Ceremony.”
In facilitating data-based and measurable results of financial inclusion policy and strategy, the Sasana Accord better positions countries to accelerate their progress towards full inclusion. The Accord lists out the following actions for countries to integrate into their commitments. Read the rest of this entry »
> Posted by Madeleine Dy, Program Specialist, 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.
“What does he know that I don’t know?” This is exactly the question proponents of peer learning want to provoke. In academia, peer learning has received significant attention and new peer learning communities are sprouting up around the world. From the virtual Peer 2 Peer University, or P2PU, which was founded in 2009, to the Indian non-profit Avanti with its peer Learning Centers in India, to more informal community-driven websites like Skillshare where anyone can teach anyone else about a skill.
The Center for Financial Inclusion at Accion (CFI), the Boulder Institute of Microfinance, and Calmeadow Foundation are applying the power of peer learning in our upcoming “Governance Leadership in a Competitive World” seminar in Mexico City on October 3-4, 2013. The seminar asks MFI board members and CEOs to come together to address governance and risk challenges microfinance institutions are facing. The seminar will employ a highly interactive combination of case-based peer discussion, experienced industry speakers, and problem-solving.
Peer learning actually isn’t a new concept. It had its birth around 1916 with education thinker John Dewey’s Constructivist Theory which asserts that knowledge is created through experience, rather than through the usual teacher to student lecture and memorization. Paulo Freire, the Brazilian development guru, took it a step further with his 1968 book Pedagogy of the Oppressed, which critiques traditional teaching frameworks that treat students as empty vessels into which knowledge is deposited. Freire challenged society to ensure that all participants in the classroom, both teachers and students, work together to create knowledge equitably.
> Posted by Vikas Raj, Senior Investment Officer, Accion Venture Lab
Last week, Raghuram Rajan was officially inaugurated as the 23rd Governor of the Reserve Bank of India. Rajan’s appointment has been greeted by a near obscene amount of excitement and adulation here in India, even by the standards of an often excessive Indian press. The front page of The Economic Times on Thursday (image at right) has Rajan sliding across the page, James Bond-style, rupee-barreled gun in hand. I am very much looking forward to seeing Janet Yellen or Larry Summers do the same.
Rajan’s academic credentials and work experience are indeed impressive – his previous position was chief economic adviser to the Prime Minister, and before that he was chief economist for the International Monetary Fund – but his main claim to fame is correctly predicting in 2005 that risky credit markets in the U.S. could lead to a global financial crisis. That position brought him much derision at the time, including from the likes of Larry Summers, but have of course since proven to be prescient.
But regardless of the strength of his professional and academic background, Mr. Rajan faces a herculean task as the new RBI Governor of a nation facing some serious economic crosswinds. India’s economy is growing at its most tepid pace in four years, its stock market has tumbled in recent months, and inflation continues to rise unabated. Perhaps most strikingly, the rupee has devalued versus the dollar by nearly 20 percent over the last four months. In the meantime, a national election is coming in the spring, which has effectively made consensus and compromise in the always partisan Indian government nonexistent. It will take all of Rajan’s skill to right the ship.
For those of us in the financial inclusion industry here in India, expectations are doubly high. India’s broader travails as an economic laggard affect us deeply, and Rajan’s initial statements and actions as Governor imply, at least, that he is willing to make big changes to help solve short-term monetary ills. If the initial reaction is any indication, Rajan’s presence and changes could actually help – the rupee rose 2.1 percent against the dollar and the Sensex index jumped 2.5 percent on Thursday. Getting India back on track is crucial for the financial inclusion space – low economic growth and persistent inflation hurt low-income populations in many different ways, including leading to fewer construction and manufacturing jobs and higher food prices.
> Posted by Center Staff
The FI2020 Global Forum in London is fast approaching. As we get closer to October 28, keep an eye on this blog as we’ll be posting periodically to share new event developments. Today, we’re excited to announce a number of newly confirmed speakers and agenda items. Here are the new speakers:
- Aigboje Aig-Imoukhuede, CEO and Group Managing Director, Access Bank Plc
- Tilman Ehrbeck, CEO, CGAP
- Nick Hughes, Director of Strategy, M-Kopa
- Gregory Keough, CEO, Mobile Financial Services
- Andrea Levere, President, CFED
- Imelda Nicolas, Chairperson of the Commission on the Filipinos Overseas
- Martyn Parker, Chairman, Global Partnerships, Swiss Re
- Duvvuri Subbarao, Former Governor of the Reserve Bank of India
Other recently announced speakers include Michael Corbat, CEO of Citi, and Ajay Banga, CEO of MasterCard. For the full list of Forum speakers to-date, click here.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
What personal information do you fear will become public? Your financial information? Your health records? Maybe you don’t want all your political leanings to be available for everyone’s gleaning?
Safeguards are taken in nearly all systems that handle personal information to try to keep confidential information confidential. But of course the success of these safeguards varies widely, as they’re contingent on any number of factors. Two such factors that are integral in considering the safety of information are the systems through which they travel and the places where they’re stored. Increasingly, the days of pen, paper, and filing cabinets are gone, and the days of computerized devices, satellites, and servers are here. For data enthusiasts, this creates an ocean of new opportunities. For privacy and security cautioners, this creates an equal number of new threats.
A recent report from the New America Foundation’s Open Technology Institute, Mobile Privacy and Information Security in Global Development Projects investigates concerns regarding personal information privacy and security, specifically within mobile phone-based development projects. The report asserts that by and large there are no best practices or guidelines in this development space, and that key risks here are rarely addressed.
In an effort to combat this, the report highlights pertinent privacy issues raised by such projects, investigates tangible privacy concerns in the developing world, and offers recommendations and best practices to support the integration of privacy safeguards into project planning and implementation.
As you might expect, the paper identifies some of the privacy risks of mobile financial services. Mobile money projects, like many other development initiatives, are often structured as public-private partnerships. As client data is shared between more project partners, the chances for it to be intercepted or leaked increases.
> Posted by Center Staff
This edition of Top Picks features a post that offers a fresh framework for examining savings groups, a post that synthesizes recent research on payments in South Asia, and a post on the relative effectiveness of aid approaches.
Steering the conversation on savings groups towards foundational concerns, or at least towards more interesting matters than the oft-trodden territory of model and methodology specifics (e.g. passbooks versus ledgers), Paul Rippey in a new Savings Revolution blog post offers six questions for potential consideration. Here’s a portion of one of the questions: “How big is the gap within the program between what is said and written, and what is done? Said another way, the casual disrespect and bending of procedures makes management incredibly difficult and inefficient.”
In South Asia, domestic remittances are conducted much more than international remittances, and they’re carried out mostly in cash through informal channels. These are two of the big findings from a recent Gates Foundation survey, highlighted by Jake Kendall in a new Next Billion blog post. The post provides a brief overview of the importance of digital payment options for the poor and shares the big findings from the Gates survey, which interviewed individuals in South Asia (Afghanistan, Bangladesh, India, Nepal, Pakistan, and Sri Lanka) and Indonesia on their experience with payments. Another key finding from the survey, demonstrating a big potential market for digital payments, was that the majority of those interviewed – who represent the majority of a population of 1.9 billion adults – reported having sent, brought, or received a domestic or international remittance in the past 12 months.
What’s better?: an organization giving money to the poor with no strings attached, or an organization giving the poor productive assets which require higher expenditures that hinder the organization’s scope? That’s one of the big questions presented in a new post, “Cash or Cows?“, on the Innovations for Poverty Action (IPA) blog. It’s a question getting a lot of attention recently thanks to the increasingly talked-about organization GiveDirectly that gives money directly to the poor in Kenya, with no associated conditions, via M-PESA mobile money transfers. To put this approach to the test, GiveDirectly agreed to allow IPA to conduct a public evaluation (which is currently underway) of the effectiveness of their work. In addition to exploring this question, the post takes an additional half-step of comparing the net impact of conditional and unconditional cash transfers, drawing on IPA research.
Image credit: Ianf
> Posted by Jimena Vallejos, Project Coordinator, Fundación Paraguaya
Non-discrimination is embedded in the fifth Client Protection Principle, Fair and Respectful Treatment of Clients. A microfinance institution (MFI) may work, knowingly or not, with clients that have particular disabilities or conditions. In order for MFIs to operate without discrimination, it’s essential that they are inclusive of persons with disabilities and that they offer services that account for these clients’ unique needs. Fundación Paraguaya (FP) is an MFI that operates in Asunción, Paraguay and employs an impressive non-discrimination policy and code of ethics, fully taking into account those with disabilities and physical conditions. These documents can be viewed on the Smart Campaign website:
- Non-Discrimination Policy of Fundación Paraguaya
- Code of Ethics for Fundación Paraguaya
Fundación Paraguaya and CFI are working together on a specific project, “Non-Discrimination: Making Microfinance Institutions Disability Inclusive and Smart Campaign Certifiable,” establishing and testing guidelines for a model comprehensive non-discrimination policy. As part of the project, Thomas Meriaux and Caroline Cervera from Handicap International are currently visiting Fundación Paraguaya to provide trainings on disability inclusion for clients and employees at the MFI. We recently spoke with Thomas about his visit, and he told us about an incident that brought it all home.
> Posted by Jeremy Leach, Director and Head, Insurance, Bankable Frontier Associates
The global financial inclusion agenda continues to place insurance at the back of the queue when it comes to funding and broader financial inclusion strategies, despite the fact that the International Association of Insurance Supervisors (IAIS) has become the leading financial inclusion focused standard setting body with its own financial inclusion implementation arm, A2ii and the significant growth of microinsurance from a low base of 78 million people in 2007 to 500 million people in 2012.
My hypothesis is that this is because of a lack of understanding of the role of insurance in the value chain and the way that it can manage risk and provide benefits for the low-income markets, which includes:
- A misplaced view that insurance is the lowest priority in a hierarchy of consumer financial needs – thus less important than payments, savings, or credit.
- The desire to directly target the very bottom of the pyramid. Whilst there has been a global recognition that microcredit is aimed at the near-poor, not the absolute-poor, donors have typically focused at the very bottom of the pyramid, often in hard to reach areas sometimes called the “supra-market zone,” and yet expect market-based solutions to work. Whilst this may also have been exaggerated through an irrational optimism by some of the private actors, the impact has been somewhat predictable.
- The time it takes to create a viable and dedicated insurance business. As exemplified by the recent business case undertaken on specialist microinsurance intermediaries, there was an unrealistic view of how quickly and easily it would be to create a profitable microinsurance business. A founder of a multinational $1 billion insurer once said that it takes 10 years to create a viable and profitable insurance business in the traditional sector – and yet we have been trying to get there far sooner.
- The focus on driving retail-based insurance products, paid for by the consumer. The idealistic view is that through the poor paying the premium from their own pockets they will learn to trust insurance and therefore value it, which will create a market. However, the nature of insurance, with payments due now and returns in a possible future, makes it notoriously hard for a customer to test. This has led to discussions around the need to drive tangibility and in-life benefits in order to assist take-up. The focus could equally be revised to address the portfolio risks of the institutions that serve the low-income market.
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