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A high-level business case for financial inclusion constructed using data on the impact of M-PESA on poverty in Kenya

> Posted by Ethan Loufield, Director of Strategy and Operations, CFI

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In making the case for financial inclusion, advocates often try to appeal to our business sense, rather than just speak to how it can improve people’s lives. In so doing, they often refer to the “business case,” which in some ways feels like an attempt to convince the disinterested or the skeptics. It’s an acknowledgement that in order to muster the resources needed to make the financial system work better for lower income market segments, there has to be a payoff for those who provide the services. The fact is that the future of financial inclusion depends greatly on there being a payoff. And when you stop and think about it, it shouldn’t be that hard to show that there is one.

As the title to this post suggests, the value that financial inclusion can help to unlock could very well be measured in the trillions of dollars. So, what we see is an enormous asset (arguably with the potential to surpass the value of all the gold in the world, for example), and it behooves those of us in the financial inclusion community to capitalize on this to expand our influence in the market.

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How partnerships are enabling insurers to profitably reach the base of the economic pyramid

> Posted by Center Staff

This post is adapted from the recently-released publication “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

Inclusive insurers cannot afford to go to market alone. They must attract and connect with new customers through distribution partners that already interact with those customers. Such partners can offer scale and cost efficiency, creating a solution that works for the insurer, distributor, and customer, even when premiums are very small.  In some eyes, this is the most critical piece of the inclusive insurance puzzle.

“Good distribution partners are by far the most important issue,” says Martin Hintz, former coordinator of microinsurance at Allianz.

As the inclusive insurance industry has bloomed over the last ten years, we’ve seen providers link with obvious distribution partners, like microfinance institutions, as well as with some surprising ones, like retailers and pawn shops.

As part of our latest report Inclusive Insurance: Closing the Protection Gap for Emerging Customers, we asked providers about their preferred distribution channels. Here’s what we found.

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Consumer protection is a driver of revenue, and not a regulated compliance cost

> Posted by Dylan Lennox, Partner, MFX

Educating digital financial services (DFS) providers to understand that consumer protection is a core business strategy is as important – if not more important – than consumer protection regulation supervision if we hope to ensure that vulnerable consumers are well protected. For this reason, as I articulated in my last post, I would like to see DFS providers and their managers take the lead when it comes to driving consumer protection, and that consumer advocates and regulators’ efforts are aligned to make sure this happens.

There are many possible reasons why DFS managers are not taking the lead, however, beyond a general lack of awareness of consumer protection and its importance:

  • They might be driven to achieve short-term targets with limited resources, prioritizing their time, budgets and activities to meet high ROI expectations. Or they might be under pressure to launch innovations and take advantage of the “next big thing” like digital credit or data monetization.
  • They could lack the necessary knowledge and experience in their teams to properly address consumer protection. Such know-how involves truly understanding customers’ needs, developing intuitive user interfaces, designing appropriate sales incentive structures, assessing customers’ loan affordability, and implementing effective internal control frameworks to address security, loss of privacy, or fraud risks.
  • Or perhaps the technology they have implemented does not have the required functionality to properly implement basic consumer protection requirements – like those of data security, for example. In such a case, it is left up to the individual DFS managers to make specific technical developments to address consumer risks. Such an institution-by-institution approach increases the overall cost of consumer protection to the industry and decreases the likelihood that it will be implemented as these measures compete with other priorities.

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Microfinance institutions are uniquely positioned to benefit from emerging technologies but one key input remains largely missing

> Posted by Jacqueline Urquizo, Principal, Sygoes

When most people talk about digital finance, they are referring to business-to-customer (B2C) solutions like mobile banking products and other digital payment mechanisms. E-payments undoubtedly have the potential to reach and benefit remote populations, but there are other fintech solutions that make me even more enthusiastic. Though perhaps less developed, innovative business-to-business (B2B) solutions represent a tremendous boon for microfinance institutions (MFIs) and other institutions looking to advance financial inclusion. Among their many benefits, new B2B solutions have the potential to improve internal operational efficiencies drastically, lowering the cost of doing business, which in turn supports lower prices for financial services and expanded access to excluded populations.

A few examples of B2B fintech applications are: artificial intelligence (AI) that provides cognitive analysis and advice to credit officers evaluating the creditworthiness of previously-unbanked individuals; distributed ledger technologies (blockchain) that enable the viability of new forms of collateral that wouldn’t be otherwise trusted or usable without digitizing them in a ledger of value; and data analytics to better predict risks such as liquidity issues, client desertion, or loan default.

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Insights from a global seed-stage investor in fintech for the underserved

> Posted by Amee Parbhoo, Director of Investments, Accion Venture Lab

The following post was originally published on the Accion blog.

We’re in the middle of a fintech boom that could change the world. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.

As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.

Digital neobanks

SmartMEI is a digital neobank serving small businesses in Brazil

In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include NOW Money, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and SmartMEI, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.

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Insurers are increasingly deploying “insurtech” innovations to connect with and serve lower-income customers

> Posted by Center Staff

This post is adapted from the recently-released publication “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

New technologies are dramatically changing the landscape for insurance around the world and enabling insurers to reach new mass market segments. New data sources and analytical tools are changing risk models by enabling new ways to create, capture, and analyze valuable information that can help insurers better calculate and manage the risk associated with customers. Machine learning applied to satellite imagery is changing agricultural and disaster insurance, allowing for more sophisticated claims management, even facilitating pre-loss payments that can help minimize the cost of a disaster before it is full-blown. The expansion of identity solutions and onboarding options is lowering operations costs and enhancing convenience. These innovations are helping the global insurance industry transform from a passive risk-transmission industry into an active risk mitigation and advisory partner for individuals, businesses, and governments.

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> Posted by Anisha Singh and Suraj Nair, Senior Research Associate and Research Manager, IFMR LEAD

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Patel, 62, father of two, spends an hour learning how to use mobile money wallet A from his daughter. The interface, navigations and services offered are all quite new to him. The next day, he tries to pay for a taxi but finds the taxi provider only accepts mobile money wallet B. He’s quite confident he should be able to use wallet B as the knowledge of how to use A is still fresh in his mind. However, he struggles with navigating the new platform and is unable to locate certain payment options. He’s also apprehensive to try out different keys as he wants to be careful not to transfer money incorrectly. Giving up, Patel pays in cash and waits for his daughter to return home to teach him how to use mobile money wallet B.

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> Posted by Dylan Lennox, Partner, MFX

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After launching and operating mobile money businesses in a number of markets over the last ten years, I was aware of the necessity of protecting consumers. I knew it was a regulatory priority alongside important issues such as AML and interoperability, but that’s where I left it: in the compliance box, while I waited to be told what to do. All the consumer protection literature I read gave me the same heavy feeling, laden as it is with long lists of requirements: protect customer’s funds from loss and fraud, ensure proper disclosure and transparency, keep their data private, make sure customers can have their complaints resolved, and so forth. These looked like the core business processes I needed to implement anyway, so I felt we would be in fine shape if we were ever to have a supervisory inspection. I never looked any deeper.

In the days when enabling regulation meant “Please leave us alone to grow,” I kept my head turned firmly in the direction of my business goals, growing a base of active customers to reach scale, and then taking advantage of those network effects. After all, financial inclusion was also an objective we shared with the regulator, and as long as we were growing they maintained a light touch.

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> Posted by Susy Cheston, Financial Inclusion Consultant

This post accompanies the release of “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a new joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

I have been an inclusive insurance enthusiast ever since I worked for Opportunity International and witnessed the experiments that later became MicroEnsure. In those early days, Richard Leftley framed insurance as the missing piece in the game of Chutes & Ladders (Snakes & Ladders for those outside the U.S.). He likened credit and savings to ladders that could provide a way up for those with lower incomes –but without insurance, each borrower or saver was just one disaster away from slipping back down into destitution. I remember his—at the time—revolutionary concept of paying insurance claims within 10 days or less. He would say that days-to-payout was the only report he wanted on his desk every morning. (Today, of course, payouts can be automatic or even come pre-loss.)

As is often the case with breakthroughs, Richard, of course, was not alone. Thanks to many innovators, an entire industry has emerged with profitable models reaching millions of people, and there is a growing understanding around the world, across social strata of the impact that insurance can have for families, communities and societies. The NGOs that pioneered microinsurance spurred the interest of commercial giants such as Allianz, AXA, MetLife, Swiss Re and Zurich, which have lent their considerable weight to solving the business challenges of extending insurance to underserved and unserved customers. Market catalysts such as A2ii, MicroInsurance Centre, MicroInsurance Network, ILO’s Impact Insurance Facility, and Cenfri have offered insights on everything from the customer experience, to good product design, to proving the business case, to creating an enabling regulatory environment for reaching new insurance markets.

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New report from CFI Fellows Program on effective agent banking

> Posted by Shreya Chatterjee and Misha Sharma, Senior Research Associate and Project Manager, IFMR LEAD

India’s financial services industry is poised for a digital revolution. From payment banks to India Stack to the recent expansion of mobile financial services, policy makers and financial service providers are energetically pursuing digitization of financial services. But the country still has a tremendous way to go. Roughly half the population has low digital literacy, and adoption of digital financial services (DFS) is skewed towards higher income population segments. For example, only 9 percent of those with lower education levels are online, as compared to 38 percent for those with higher education levels.

As CFI Fellows, we explored how frontline banking agents can advance the adoption of DFS by helping first-time DFS users become comfortable transacting in new ways. We evaluated the factors currently shaping the adoption of DFS by emerging consumers in India and assessed how well agents are playing their crucial role in helping customers successfully transition to digital platforms.

In the blog post we wrote at the outset of our project, we pointed out that there are benefits and drawbacks to deploying human touch in digital financial services, and that an optimal mix of human and technology-enabled customer touchpoints needs to be achieved. Over-reliance on banking agents could cause overdependence on the part of customers, possibly eliminating potential cost savings unlocked by technology. But banking agents may also present great benefits, including in assisting with product adoption, facilitating transactions, resolving problems, building trust, and supporting customers’ transitions to more advanced services.

However, not all agent banking services are created equal, and in India we observe a wide range of models in action. In our research we studied three types of agents, each with a different profile and relationship to their parent organization. We wanted to answer these questions:
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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.