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> Posted by Center Staff
You’d be forgiven for not noticing, but last week, the CFI Blog published its 1,000th blog post. We started this blog in September 2008 in conjunction with the Center’s launch, as a forum for discussion, analysis, and even debate on the many issues facing financial inclusion. A lot has changed since 2008. The past few years have seen a shift in focus toward wider financial inclusion, moving beyond microcredit to include services such as savings and insurance. Technology, through mobile banking, big data, and other developments has made greatly expanded access to financial services. Client protection has become more firmly embedded into the microfinance industry. And yet, the quality of services and effective regulation continue to be as important as ever before. Going through our archives, you can see these shifts before your eyes. As this blog goes on, in addition to being a platform for sharing the latest developments and insight, it has become a historical record of how the microfinance industry has developed and changed.
This blog couldn’t be successful without the input of our many guest bloggers over the years who have leant their insight and expertise. If you ask us, it’s this range of outside expertise that makes this blog successful. We thank all of you who have written for us over the years and all of you who have shared your thoughts by commenting on our posts (5,557 comments and counting!).
Feel free to browse through our posts throughout the years via the “Archives” drop-down menu on the left-hand side. Here’s to the next 1,000!…
All-time most-read blog posts:
5 Great Books About Microfinance and How the Poor Use Money (August 23, 2011) by Yvonne Chen
5 Countries Where Microfinance Works (February 18, 2011)
Nicaraguan Microfinance in Crisis (November 5, 2009) by Sergio Guzmán
Interest Rates 101: APR vs. EIR (June 8, 2010) by Courtney Piper
Microfinance vs. Financial Inclusion: What’s the Difference? (February 27, 2013) by Susy Cheston and Larry Reed
> Posted by Calum Scott, Program Impact Director, Opportunity International
An Opportunity International client talks with her loan officer while examining her cocoa beans.
As a network of 40 microfinance institutions in 22 countries, Opportunity International is well positioned to play a powerful role in supporting the positive development of the microfinance industry. For client protection, we believe that the Smart Campaign’s Client Protection Certification represents the highest standard of assurance that an institution’s practices are responsible.
To promote client protection and certification among our network, we’ve engaged the support of MicroFinanza Rating – a specialized microfinance rating agency and one of the Smart Campaign’s licensed certifiers.
The agreement with MicroFinanza will facilitate our network partners to undergo certification missions, and promote the sharing of lessons learned from certification experiences across our network of institutions. This agreement also demonstrates our confidence in the quality of the work that MicroFinanza does.
> Posted by Gino Picasso, CEO, GloboKas
Sendhil Mullainathan, Professor of Economics at Harvard
First and foremost I would like to thank all that were involved in organizing and sponsoring the FI2020 Global Forum. It was really an excellent conference.
Like all the others who attended this conference, I have attended dozens of conferences and they are all pretty much the same. I get to see old friends, make some new friends, and exchange some ideas, but usually there is very little that is fresh. The FI2020 Global Forum stands out in my mind because I walked away with a fresh perspective on the work we are all doing.
Dr. Sendhil Mullainathan’s presentation was a highlight because he provided a fresh perspective on what I consider the most important issue we touched on at the conference: we need to know our customer. I do not want to minimize the many other speakers and discussions, because all of these helped advance our work in some way. However, I think that a key takeaway is that we all must learn a lot more about the real needs, wants, and drives of our customers. We cannot talk about the BoP and forget that just like any other large demographic, there are many things that segment this group into differentiated consumer groups. And, like Sendhil taught us, some consumer behaviors are driven by factors that we are only beginning to understand.
> Posted by Bailey Klinger, Asim Ijaz Khwaja, and DJ DiDonna, Co-Founders and COO, Entrepreneurial Finance Lab
The recent Financial Inclusion 2020 conference took a very private-sector focus to financial inclusion, with headliners such as Citigroup and MasterCard CEOs, demonstrating the shared importance of financial inclusion across all types of institutions. It also illustrated the enormity of the problem at hand, and subsequently the proximity of the year 2020 by which to address it. Participants agreed that an integral aspect of this gap is solving the puzzle of how financial institutions can evaluate risk for information-scarce micro, small, and medium-sized enterprises (MSMEs), and do so while keeping transaction costs low.
Industrial and organizational psychology has been working for decades on a problem with similar characteristics: how to screen people applying for jobs. Firms must decide which individuals to hire, often based on little available information. Moreover, firms must evaluate a large number of applicants in a low-cost way, particularly for entry-level positions. In response to this challenge, industrial psychology has developed a series of assessments of individuals that predict a person’s future success in a job in an objective, quantitative, scalable way. This field, which assesses skills, abilities, personalities, and intelligence, is known as psychometrics.
Our innovation at the Entrepreneurial Finance Lab (EFL) is to use psychometrics to assess an assortment of features of potential entrepreneurs and to bring this testing method to developing countries. Starting as a research project at Harvard in 2010, we have developed a 30-60 minute automated psychometric application that incorporates the potential borrower’s attitude and outlook, ability, business acumen, and character. It can measure risk without relying on business plans, credit history, collateral, or group liability.
> Posted by Paul Breloff and Nate Gonzalez, Managing Director and Investment Officer, Accion Venture Lab
The following post was originally published on the CGAP Blog.
If we asked you to name a successful startup, who would you say?
Chances are you’ll think of a company like Google, Facebook, or Twitter, all of which followed the classic ideal for a startup trajectory: start small (ideally a garage or dorm room), get big, go public, and make people rich along the way. Who can argue with that?
Or perhaps you think of Instagram, which launched in 2010, never made a dime in revenue, but still managed to sell itself to Facebook for just over $1 billion. Also not a bad path: start small, become a little less small, and then let someone else buy you and scale. (Of course, this also made some people rich.)
In both stories, an idea conceived and hatched by a startup leads directly to big growth and widespread usage, hopefully making users’ lives better in the process. But can a startup “fail” and yet “succeed” at the same time? We think so – but you need to think a bit differently about what success looks like.
Consider Jipange Kusave (JKS). In 2010, a startup called Mobile Ventures Kenya (MVK) launched JKS, a flexible savings product aimed at solving a persistent financial problem faced by poor people: how to build sizeable savings on irregular, unpredictable incomes? (For a more detailed account of JKS, see this case study by CGAP.) Leveraging the mobile banking platform, JKS gave each customer a nominal, interest-free loan, and held back a portion of the loan in a newly-established savings account. The use of the mobile channel enabled a quick yes/no decision about loan eligibility and immediate disbursement. Customers loved this point, especially when compared with the traditional microfinance institution, which can often take two weeks or more to approve and disburse loans. The customers could also pay back their loans as they saw fit – there were no regular installments. After repayment, they were automatically granted a larger loan (with part of the loan again diverted to the savings account).
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
Over 165 investors and donors have endorsed the Smart Campaign and the Client Protection Principles. But our Campaign staff wanted to dig deeper: what does this support mean in practice? Are investors using the Client Protection Principles in their everyday work? How? Earlier this year, we embarked on a project to find out.
The Campaign worked with three Virtual Volunteers from Credit Suisse – Lloyd Yetton, Meha Jain, and Nicolas Vucekovic – to create a short survey aimed at understanding how investors incorporate client protection into their due diligence, post-investment monitoring, and reporting. The virtual volunteers spoke with representatives from 12 of the leading microfinance investors.¹ The findings, highlighted below, will help the Campaign shape its engagement with this pivotal stakeholder group.
Client Protection Universally Important But Not Uniformly Applied
All the investors interviewed stated that client protection was important to them from both a social perspective and for their bottom line. Most had seen first-hand the positive influence from strong client protection practices as well as the problems and instability that sprang up in their absence. Such universal recognition is an encouraging step forward from earlier days of the Campaign. In addition to understanding the importance of client protection, nearly all respondents said that client protection was already explicitly incorporated into due diligence. Investors are indeed scrutinizing a microfinance institution’s client protection practices before investing in it.
> Posted by Monique Cohen, Independent Advisor, Founder and Past President, Microfinance Opportunities
Martyn Parker, Swiss Re; Michel Khalaf, MetLife; Alexia Latortue, U.S. Treasury
Addressing client needs, delivering appropriate products, ensuring consumer protection, and building people’s financial capabilities were themes repeatedly heard during FI2020. Taken together they represent important progress in the discourse around financial services for the poor. Not so long ago the mention of clients was limited to statistics; in particular, numbers of accounts. If you were in luck this data was differentiated by gender.
This new recognition that our clients are active not just passive players in our industry marks an important step forward. The concept of active clients emerged in numerous sessions during the FI2020 meeting. Alexia Latortue, formerly of CGAP, began by noting that designing products that would help clients mitigate shocks and loses is very important. For the poor to cope effectively with risk, physical presence, timeliness, and proximity to financial services is vital for enabling access. In one of the final sessions of the meeting, Innocent Ephraim from Vodacom echoed statements by others noting that listening to the clients is critical. Not doing so can be costly. He had been involved in launching a product based on what the provider thought was useful. The product bombed, forcing his team back to the drawing boards and to the identification of a product which made sense to the consumer because it reflected both their contexts and priorities.
While the client agenda in financial services is not new, it has only recently gained real traction. Despite the new thinking on this topic, the industry is still searching for common ground about what to do to become more client focused. Currently the stakeholders are struggling to define a common phrase book; our lexicon of many of the terms continues to be a work in progress. Everyone has her/his own meaning for financial capability and financial inclusion. The result can be confusing.
> Posted by Center Staff
After eight programs spanning over 500 participants from roughly 100 countries, we are proud to announce that the annual executive education program jointly run by Harvard Business School (HBS) and Accion is now accepting applications for 2014. The program will take place April 21-26, 2014 at the HBS campus in Cambridge, Massachusetts.
This year, the program has a new name. It is now the HBS-Accion Program on Strategic Leadership in Inclusive Finance. This name change confirms a shift in course focus and approach that has been underway for some time, from an exclusive focus on microfinance to a broader financial inclusion scope.
Today’s financial inclusion landscape is changing rapidly, as new entrants, disruptive business models, and deeper understanding of client needs all challenge conventional wisdom. It is an exciting time, with new possibilities for reaching more people with an increasing array of financial services. For leaders steering their organizations through this landscape, the pace and magnitude of change may look overwhelming. In this program senior financial service providers will benefit from the guidance of some of the world’s best business minds to better understand the possibilities and the pitfalls of a more complex financial services marketplace. Policymakers, regulators, and investors will find it valuable to get a closer look at how the industry is evolving in countries around the world.
> Posted by Ajay Banga, President and Chief Executive Officer, MasterCard
The following post was originally published on LinkedIn.
Organizations like the Center for Financial Inclusion at Accion and the World Bank have recently set a goal by 2020 of achieving full financial inclusion for the 2.5 billion people – about half the planet – who don’t participate in the financial mainstream. Bringing one in two people across the globe into the financial fold is a formidable challenge. Can it be done? I don’t know. But if you don’t set a goal, you won’t start moving towards it. That’s the advantage of an aspiration like this: it fires everybody’s imagination and puts some energy into the system.
If you think about it, it’s not unlike another ambitious goal that was had a couple of generations ago in the early 1960s. For me, full financial inclusion by 2020 is our generation’s equivalent of putting a man on the moon. Just as space flight and research transformed science, telecommunications, transportation, and more, I believe financial inclusion has the potential to be just as transformative. But a lot needs to happen to meet this challenge. I’ll focus on four things that I believe will help.
- Reducing cash-dependency around the globe;
- Leveraging the scale and reach of public-private partnerships;
- Making economic growth more inclusive; and
- Building a global economy that’s closer to being truly global.
Reducing cash-dependency around the globe
Any conversation about reducing cash-dependency has to start with addressing some longstanding myths about cash. Read the rest of this entry »
> Posted by Rani Deshpande, YouthSave Project Director, Save the Children
Two big financial inclusion gatherings in Europe a few weeks ago turned up the volume on bringing more people into the formal financial system — safely, meaningfully, and fast. With big trends poised to change the financial inclusion landscape, how can we harness them to expand savings opportunities for young people?
In London, the FI2020 convening brought together a who’s-who of leaders from the worlds of politics, banking, and microfinance as a culmination of the 18-month “roadmap to financial inclusion” process led by CFI. Discussions here centered largely on the biggest disruptive trends ensuring that, to paraphrase one speaker, financial inclusion will change more in the next 7 years than it has in the last 30. The comment reflects the general tone of the conversation, which was one of impatience or perhaps anticipation at this “inflection moment” created by the convergence of technological development and market dynamics.
According to CFI’s “Mapping the Invisible Market” study, the income of the bottom 40 percent of the world’s low- and middle-income economies will grow from $3 trillion to $5.8 trillion from 2010 to 2020. At the same time, other panelists pointed out that access to information (through mobile phones), the use of big data, and customer-centricity are creating game-changing new ways to reach and serve poor customers. In order to take advantage of this opportunity, one panelist urged the audience to “stop ‘innovating’ and start listening to clients” or to keep innovation “brain-dead” simple so that it can easily scale (critical given generally thin margins for BoP services). Usage, as opposed to access, was also highlighted as the new frontier of inclusion, with almost 50 percent of adults possessing accounts but only 7 percent in the developing world using them actively (> 2 transactions per month).
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