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> Posted by Akhand Tiwari, Bhavana Srivastava, and Vijay Ravi, MicroSave

Loyalty Programs

In today’s world, loyalty programs are a dime a dozen, with everyone from retail stores to luxury hotels offering membership for even the smallest of transactions. A publication from Smith School of Business suggests that the average Canadian household is enrolled in no less than eight loyalty programs. In this context, it is pertinent to examine if loyalty programs actually serve their intended purpose. If yes, how specifically do they impact a company’s business?

The premise of all loyalty programs is that they promote continued patronage. In a world where there is often little variation between competitors’ offerings, a well-designed loyalty program could make all the difference for your business. After all, a good loyalty program could very well decide which airline you choose for your next business trip!

We make an important distinction here – between loyalty programs and rewards. While loyalty programs aim to instill continuous engagement, the focus of rewards is on pushing specific action. Rewards are target-oriented and last only for a limited period. To illustrate this, think of offers, such as zero-processing fees, which are designed to increase adoption of a credit product, and higher interest rates on term deposits, which promote savings.

Based on MicroSave’s experience on how low-income households exhibit loyalty towards their financial service providers – we have some useful insights.

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> Posted by Sonja Kelly, Director of Research, CFI

In ethics, there is a commonly shared thought experiment called the trolley problem. You are standing next to trolley tracks, and a trolley is coming. In its current trajectory, it is going to run over five people who are tied to the tracks. You could divert the train using a lever in front of you, but then the trolley would hit one person tied to the tracks. Do you become active in this scenario and sacrifice the one person? Or do you abstain from involvement and watch the five people get run over?

I don’t mean to be morbid here, but this is a thought experiment that I have been mulling over when it comes to financial inclusion.

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> Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, Intermedia

The State Bank of Pakistan’s (SBP) National Financial Inclusion Strategy (NFIS), launched in May 2015, set an ambitious goal of expanding access to financial services from 10 percent of adults to at least 50 percent by the year 2020. Intermedia’s newly-released Financial Inclusion Insights (FII) data suggests that, as of 2016, Pakistan’s progress was not yet on a trajectory to get to 50 percent. It also suggests ways Pakistan could improve the rate of progress.

FII’s new 2016 Pakistan Annual Report and Survey Data finds that financial access rose only incrementally, from 15 percent to 16 percent, in 2016. More than 45 million more adults would need to take up a formal financial account for the country to achieve 50 percent financial inclusion as defined by the NFIS. Further, even if access is improved, registration and regular use of accounts may lag and prove a steeper climb. The percentage of adults holding registered accounts with a full-service financial institution did not increase at all over the last year, measuring 9 percent in 2015 and 2016. Similarly, active registered users over the same period remained unchanged at 8 percent.

However, these figures could be improved if the gap between the formal products on the market and Pakistanis’ actual, day-to-day financial needs and preferences is addressed, FII data indicates.

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> Posted by Rachel Morpeth, Analyst, CFI

People make their way out of a flooded neighborhood after it was inundated with rain water following Hurricane Harvey.

The devastating effects of Hurricane Harvey colored headlines across the nation. Two weeks later, Houston, Texas remains partially submerged. The resulting financial damage will likely exceed that of Hurricane Katrina, which struck the Louisiana coast in 2005. Harvey is taking Katrina’s title as the most catastrophic storm in America’s history. A Politico headline, however, poignantly suggests another message that perhaps we should all be taking away: “Harvey Is What Climate Change Looks Like.” Harvey is classified as a “500-year flood,” meaning a flood of this magnitude has a 1-in-500 probability of occurring in any given year. Yet this is Houston’s third 500-year flood in three years. Harvey’s successor, Hurricane Irma, has also caused death and devastation, while heavy flooding in South Asia has resulted in the deaths of over 1,200 people across India, Bangladesh, and Nepal.

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> Posted by Hannah McCandless, Program Support Associate, Village Enterprise

Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. The program combines these grassroots interventions with linkages to financial institutions, increasing the financial capability of the extreme poor. In the second part of this series, Village Enterprise reflects on some of the learning gained through these interventions, focusing on amplifying progress made at the grassroots level through linkages to formal institutions.

The adoption of attitudes, habits, and behaviors needed for healthy financial decision-making is an essential first step in preparing individuals to be consumers of financial services. But just because households regularly save money or understand the risks of microloans does not necessarily mean that they are ready to evaluate and take-up formal financial services on their own. To be effective, financial inclusion interventions for those living in extreme poverty, at the base of the pyramid, need to both foster financial capability and facilitate healthy linkages to financial institutions.

Recognizing this need, Village Enterprise is working to establish linkages between our Business Savings Groups (BSGs, our version of VSLAs) and formal financial institutions. However, as we have learned, linking our BSGs to the right financial institution is easier said than done. We have found that creating healthy linkages is a multi-step process, rather than a one-time event.

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> Posted by Center Staff

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The volume of data in the digital universe doubles in size roughly every two years, estimates indicate. The phrase “data rich” has become common business parlance. In the financial inclusion sector, big data is revolutionizing credit underwriting, product development, client segmentation, financial capability-building, and more. But how is this revolution actually happening? For many banks, it’s through partnerships with fintechs. Ujjivan, one of the largest microfinance institutions in India, recently chartered as a small finance bank, had until recently a limited portfolio at the SME level, which was hindered by high operating costs. This changed thanks to a partnership with the Bangalore-based fintech Artoo.

This partnership is described in CFI’s new joint-report with the Institute of International Finance (IIF), How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines. We discovered dozens of partnerships between mainstream financial institutions and fintechs in emerging markets, and we detailed the workings of 14 of them. The partnership between Ujjivan and Artoo is just one example among many of how financial institutions are increasingly turning to fintechs to improve how they effectively collect, use, and manage data.

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> Posted by Hannah McCandless, Program Support Associate, Village Enterprise

Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. In part one of this series, Village Enterprise reflects on some of the learnings gained through these interventions, focusing on facilitating behavior and attitude change to increase financial capability.

In a recent CFI blog post, Robert Stone of Savings at the Frontier reflects that technology can serve as a valuable tool, but not a silver bullet, in the quest to improve well-being through expanding financial capability. As tech-thinker Kentaro Toyama notes, “Even in a world of abundant technology, there is no social change without change in people.” Toyama’s words resonate with Village Enterprise’s approach to financial inclusion for the extreme poor. Stone argues that effective change will occur when interventions that create change in people are connected to systems that amplify the effectiveness of these changes. This is a good description of what Village Enterprise is about.

Village Enterprise’s graduation program instills behavior change in people by providing a package of supports that enable them to move forward: access to savings networks, an asset transfer, skills training, and mentoring. Then, we capitalize on these changes by connecting participants to formal financial services. The combination of these services dramatically increases financial capability–the knowledge, skills, attitudes, and behaviors needed to facilitate healthy financial decision making–in the extreme poor.

Capitalizing on behaviorally informed practices

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> Posted by Nancy Widjaja and Maelis Carraro, Accion Venture Lab and BFA

When we met Miguel Duhalt, CEO of Comunidad4Uno in Mexico City, he was working day and night to launch a company that sought to change the financial lives of domestic workers. His goal was building a platform that could offer financial services such as insurance, direct payments, and bank account access to low-income domestic workers in Mexico. With Comunidad4Uno, people who employ domestic workers in their homes would be able to sign up for the service and, with a small annual fee, insure their domestic workers and give them access to medical check-ups. They would be able to pay their employees electronically via a smartphone app into a newly-opened bank account. Leveraging technology and the personal relationships between workers and employers, Miguel wanted to formalize access to insurance and other financial services for domestic workers in Mexico.

But to achieve his ambitions, Miguel needed two things: to raise enough capital to take his enterprise off the ground and to validate his idea in the market with more users. Like many other startup founders, he faced a Catch-22. Investors wanted to see traction and a proven business model before endorsing his company, but his small team had a hard time focusing on reaching proof points because they needed to raise capital to keep the lights on. Raising seed funding is particularly challenging in Mexico and many other emerging markets. Moreover, challenging regulatory environments, inefficient infrastructure and connectivity, costly supply chains, and consumer distrust add to the operational difficulties.

So Miguel, like other talented entrepreneurs, needed to find an aligned investor who could look beyond quick financial returns and help meet important milestones to attract institutional funding at a later stage.

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> Posted by Dr. Katharine Kemp, Research Fellow, UNSW Digital Financial Services Regulation Project

The following post was originally published on the IFMR blog. 

Financial inclusion is not good in itself.

We value financial inclusion as a means to an end. We value financial inclusion because we believe it will increase the well-being, dignity and freedom of poor people and people living in remote areas, who have never had access to savings, insurance, credit and payment services.

It is therefore important to ensure that the way in which financial services are delivered to these people does not ultimately diminish their well-being, dignity and freedom. We already do this in a number of ways – for example, by ensuring providers do not make misrepresentations to consumers, or charge exploitative or hidden rates or fees. Consumers should also be protected from harms that result from data practices, which are tied to the provision of financial services.

Benefits of Big Data and Data-Driven Innovations for Financial Inclusion

“Big data” has become a fixture in any future-focused discussion. It refers to data captured in very large quantities, very rapidly, from numerous sources, where that data is of sufficient quality to be useful. The collected data is analysed, using increasingly sophisticated algorithms, in the hope of revealing new correlations and insights.

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> Posted by Center Staff

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BBVA Bancomer in Mexico and Bancolombia in Colombia partner with Juntos, a fintech startup, to deepen their customer engagement and product usage. Why wouldn’t the two banks just strengthen their customer engagement capabilities in-house?

A few weeks ago, we released a joint report with the Institute of International Finance (IIF), How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines. As part of the report, CFI and IIF interviewed over 30 individuals from across the industry, including representatives from Juntos, BBVA Bancomer, and Bancolombia. Here’s what their story taught us about the value of successful customer engagement partnerships.

Engaged customers are better customers. Because large portions of the populations in the emerging markets in Mexico and Colombia are outside the formal financial sector, bringing them into it requires financial education and well-designed products and services. Simply providing products and services is often ineffective, as people also need to understand how they work and develop confidence using them. Several financial institutions we interviewed echoed the importance of frequent interactions with new low-income customers to build stronger relationships and increase loyalty, trust, satisfaction, and retention. They hope this kind of engagement will improve public perception and understanding of financial products and services, and ultimately increase the demand for such offerings.

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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.