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> Posted by Laurence Dare and Stephanie Hanson, East Africa Policy Manager and Director of Policy and Outreach, One Acre Fund
Expanding access to finance isn’t enough. Clients need access to financial products that they will actually adopt. That’s why addressing customer needs, one of the pillars of the Financial Inclusion 2020 Roadmap to Inclusion, is so critical for making finance more inclusive. For smallholder farmers in rural Africa, where inclusion rates are 19 percent compared to the urban rate of 34 percent, the financial services provided don’t come close to meeting the demand. Asset-based financing and loan products with flexible repayment schedules can help close this gap.
Among other financial services, smallholders desperately need access to financing for basic inputs—improved seed and fertilizer—that could dramatically increase their agriculture productivity. Properly designed, this financing could make an important contribution to growth and poverty reduction in Africa.
Unfortunately, microfinance products created for Africa’s poor do not necessarily meet such needs. Most microfinance institutions are concentrated in urban and peri-urban areas and primarily offer cash loan products on strict repayment schedules. These products meet the needs of the urban and suburban poor, most of whom receive small but frequent income from businesses or jobs. Smallholder farmers have different challenges.
Unlike urban clients, smallholder farmers receive the majority of their income all at once after harvesting. As small jobs come in, such as day labor on a neighbor’s farm or a local construction project, farmers can earn some extra income, but this is incremental and unpredictable. A cash loan product on a strict repayment schedule does not meet these financing needs.
How should a loan product be structured to meet the needs of smallholder farmers? At One Acre Fund, we designed a product pairing asset-based financing and a flexible repayment schedule that is working for 180,000 smallholder farmers in Kenya, Rwanda, Burundi, and Tanzania.
> Posted by Alexandra Fiorillo, Principal, GRID Impact
With more than 2.5 billion people around the world remaining un- or underbanked and major fluctuations in activity and usage among existing accounts, the financial inclusion industry still has work to do to increase the uptake and adoption of new products and services while also increasing the number of regularly active clients.
Many people understand the potential benefit of financial services and have the intention to use savings and loan products to improve their financial well-being. However, research shows that human beings do not always follow-through on their intentions. Frequently, we experience an intention-action gap due to psychological and external factors.
If we want to achieve full financial inclusion, we cannot simply offer more financial products and services to more people and hope they need, want, like, and use them. Instead, we should spend the necessary resources to ensure our products and services work for clients by doing two things:
1. Design products that meet the needs, desires, and preferences of our clients by collaborating with them on the design and delivery of these products.
2. Help our clients follow-through with the intentions and goals they have for their financial lives by focusing on taking action rather than just providing more information.
A new approach to product and service innovation, behavioral research and design, attempts to do just this. Drawing on insights from behavioral economics and principles from human-centered design, behavioral research and design attempts to uncover deep personal and contextual motivators and influencers to human behavior so we can better design products and services in a client-centered way. The goal of this method is not to focus on stated preferences and opinion or market research, but rather to develop deep empathy for human needs and desires while also making sense of observable behaviors – which may be contrary to people’s stated preferences. The tools often used in this approach involve in-depth interviews, behavioral and empathy mapping, customer journey maps, and other techniques focused on a small, indicative group of people. The multidisciplinary approach can help us better understand the motivations underlying people’s current behaviors and help us make more informed predictions about how people will behave when faced with new decisions in the future.
> Posted by Annalisa Bianchessi, Microinsurance Network
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.”
Although Africa has 17 percent of the world’s pastures and arable land, the value of premiums for agricultural insurance in Africa represents less than 0.7 percent of the world’s total. This remarkably low figure is deplorable when one considers that about 60 percent of the active population in Africa is working in the agricultural sector and that with the advent of climate change the risks in agricultural activities are becoming even more frequent and severe. The agriculture insurance sector in Africa is also unevenly distributed, with sector development in West Africa restricted to a handful of countries such as Nigeria, Benin, Senegal, Burkina Faso, Mali, and Ghana. Should governments intervene to support the development of the agricultural insurance sector in Africa?
For smallholder farmers, agriculture insurance offsets risks associated with weather fluctuations. This risk reduction can make it more likely that a farmer will qualify for credit and thus invest in the tools and resources (e.g. seed, fertilizer, labor) needed prior to harvest that would potentially increase crop yields. Furthermore, it also provides farmers with the peace of mind required to invest savings into businesses and increases their confidence to engage in contracts with buyers and processors.
According to Ismaïla Diakité, President of COPROCUMA, a farmer cooperative in Mali, and spokesperson for a network of 500 cooperatives representing over 500,000 Malian farmers, “Microinsurance is an avenue for the people of Mali to develop our country.” Ismaïla recalls that a few years back, COPROCUMA had taken out a loan to sow 10,000 hectares of sesame seed. However due to bad weather the crop failed, and the cooperative and farmers ended up in debt. It was then that they realized the value of insurance. While very lucky (the lending institution cancelled their debt), the farmers embarked on an agriculture insurance scheme, which today is compulsory for all members of their cooperative. Ismaïla says, “Our main objective is to ensure the survival of our farmers, their life and their livelihood.” To this end, he believes that insurance is an essential part of the benefits that the cooperative needs to offer the farmers. When asked whether all farmers are happy with the compulsory insurance scheme he says, “A farmer cannot see the importance of microinsurance until he can see the bigger picture. In the sector I work in there will never be unanimous agreement on anything. However a few years into the insurance scheme, 80 percent of farmers in Mali are now convinced of the importance of agriculture microinsurance.” Read the rest of this entry »
> 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.
ATM, Bangkok, Thailand
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.
> 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.
> Posted by Sonja E. Kelly, Fellow, CFI
What do you do if you’re trying to effect significant change in consumer protection in the financial industry but you have limited time and resources? You build a system that harnesses an army of consumers to do it for you!
This is the brilliantly simple strategy employed by the Consumer Financial Protection Bureau (CFPB), the United States government agency charged with protecting the users of financial services. The bureau’s consumer complaints system receives complaints from consumers and, after a process (described below), publishes all of the complaints in a public database. Much of this process is automated, and the beauty of the system lies in the fact that consumers do most of the heavy lifting, initially reporting their problem and then indicating whether it came to a satisfactory resolution at the end of the process.
To break things down a bit, here is a step-by-step picture of what happens to a complaint going through the CFPB system:
- The CFPB receives a complaint through its website, by email, phone, or fax.
- The CFPB reviews and routes the complaint.
- The company against whom the complaint is lodged has the opportunity to respond.
- The consumer has the opportunity to review the response.
- If the complaint is not resolved, the CFPB reviews and investigates.
- The CFPB publishes the complaint, response, and resolution in the database.
The bureau is quickly becoming a go-to source for disgruntled consumers, even though the bureau has hardly spent any resources on awareness-raising and education of the service. It probably helps that their website is unusually user-friendly, and their process of complaint resolution is centered firmly on the consumer. The consumer truly has the last word. Read the rest of this entry »
> Posted by Daniel Rozas, e-MFP
The following post was originally published on the e-MFP Blog.
For years, credit was the driving force behind microfinance. But times have changed. Instead of credit, we now speak of financial inclusion and expanding access to savings stands as one of the topmost objectives for the sector.
We also live in the age where it’s no longer acceptable to claim success without reliable metrics to back it. And on that front, the metrics applied to savings are woefully inadequate. According to a paper recently published by e-MFP, 50-75 percent of the savings accounts reported by MFIs stand empty. Like shadows cast by an evening light, the majority of savings clients are but illusions that obscure the real savers. We are thus doubly tricked – led to believe that more clients are saving than is the case, and that the clients who save are poorer than they really are.
This is both a problem and a symptom of a larger challenge. The problem is simply that we know surprisingly little about real savings outreach. Reporting the gross number of bank accounts and total deposits, whether for a single institution or an entire market, is a poor reflection of reality. As Elisabeth Rhyne put it succinctly: “possession of a bank account … should not be confused with genuine inclusion.” Yet that assumption lies behind most of the metrics used to report savings outreach.
In 2008, the microfinance sector in Bolivia, one of the case studies in our paper, reported 1.4 million savings accounts, with an average balance of $309. Bolivia is often regarded as one of the most mature microfinance markets, and the success of its savings outreach is one of the reasons why. However, our analysis shows that after excluding empty accounts, the actual outreach drops to some 366,000 active savers, with an average balance of $1,225. Instead of reaching millions of poor savers, Bolivian MFIs are serving a substantially smaller number of individuals, many of whom probably earn more than the MFIs’ traditional clients. Similar patterns show up at banks and credit unions. That’s the problematic outcome of how savings outreach is currently reported. Read the rest of this entry »
> Posted by Allison Ehrich Bernstein, Executive Communications Specialist, Accion
Quick: Pretend you’re a telecommunications operator in Africa. Which country would you choose for the launch of a new mobile money network?
Since the runaway success of Kenya’s M-Pesa system, banks and mobile service companies have been looking for the next big opportunity to bring cell phone-based financial services to a whole new client base. While we haven’t yet seen anything on the scale of M-Pesa, numerous companies (e.g. Easypasia in Pakistan, bKash in Bangladesh) have been chipping away at its number-one position.
So, what’s your pick?
You might say a fairly stable country that already has a reasonably strong banking sector, like Ghana. Or a high-population nation like Nigeria, or perhaps a place like Zimbabwe, where the financial system could use a jolt. And those wouldn’t be bad ideas.
Established African mobile-service providers Zain Group and MTN are taking a very different approach, however: they’re setting up mobile money networks in the world’s newest country, South Sudan.
Even if it weren’t a nation less than three years old, South Sudan might not strike the average observer as the next “it” spot for mobile money. Banking penetration in-country is negligible; there’s currently neither the central infrastructure nor leadership for it. And mobile penetration was somewhere around 13-15 percent in 2012, according to an International Finance Corporation study and other sources.
> Posted by Jeffrey Riecke, Communications Associate, CFI
How can governments best regulate to advance financial inclusion? Effective regulation is often brought up when discussing essential components for expanding banking services. Like all industries, the world of financial services requires rules to ensure protection and fair practices. However, when it comes to advancing financial inclusion, the most effective way to handle regulation is not unanimous or even widely defined.
In recent years, more governments have taken steps to advance financial inclusion. Many have developed national inclusion strategies. A number have enacted regulation pertaining to new products and services, like mobile money. For government payment systems, such as social welfare benefits, some have switched over to electronic methods. Though on the whole, regulation struggles to keep pace with the increasingly complex services landscape, and progress is limited.
In the following video, global leaders discuss the role of regulation in financial inclusion, and how coordination within governments and between sectors can lead to more informed and enabling regulation and services environments.
> Posted by Adriana Magdas, Specialist, CFI
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.”
Cryptocurrencies, especially Bitcoin, the most famous, are the hot topic of the moment. In light of the shutdown of the most popular Bitcoin exchange in the world, Mt. Gox, and a loss of an estimated US$ 400 million worth of Bitcoins, it’s important to take another look at digital currencies, their pitfalls, and their relevance for financial inclusion. Hailed by many as the greatest monetary innovation of our time and by others as nothing but “libertarian exuberance,” cryptocurrencies show the opportunity that exists for financial transactions, especially international transactions, to move from cash to digital form. As someone working in financial inclusion, I have been wondering whether cryptocurrencies have any role to play in the critical path toward greater inclusion, which ultimately requires lower dependency on cash for low-income consumers.
Other cryptocurrencies abound—Dodgecoin, Litecoin, and Ripple are a few of the others—but Bitcoin, which launched in 2009, is the first decentralized mainstream P2P payment network and digital currency. Independent from hard, government-backed fiat currencies, Bitcoin is an internet-based, software dependent, inflation immune currency that can be purchased with cash and exchanged for services or goods with merchants who accept it. The market supply of Bitcoin is fixed at 21 million, meaning that once 21 million “coins” are in existence, the cash value will be fully determined by demand. In the last four years, the popularity of Bitcoin in developed economies has increased considerably, not necessarily because it’s an easier medium of exchange but because it is new, interesting, a source of revenue for Bitcoin miners and speculators, and because it decreases the costs retailers incur from accepting credit card payments. For example, Overstock.com is the first large online retailer to accept Bitcoins, in an effort to minimize the costs incurred from credit card transactions.
Does Bitcoin have any relevance for low and middle-income countries? As in developed economies, for P2P and P2C payments, its greatest benefit is in significantly decreasing the cost of sending remittances to friends and family. Bitcoin transactions are free, meaning remittance senders do not incur significant money transmitter fees.
But what are the challenges?
The challenges to Bitcoin in particular, and cryptocurrencies in general, are substantial. It will be a while before Bitcoin and other cryptocurrencies will be able to substantially help advance financial inclusion in developing countries. In the short-term, Bitcoin might take a significant chunk out of the profits of money transmitters and will definitely underline the appetite for monetary and payments innovation.
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