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> Posted by Greta Bull, CEO, CGAP
The following post was originally published on the CGAP blog.
Returning from the holidays, we at CGAP are turning our attention to the future. I used the down time over the break to reflect on the topics I believe are likely to shape the future of financial services for the poor. Building efficient, large-scale digital ecosystems that dramatically reduce the cost of delivering financial and other services has been an important focus of CGAP’s for many years. But what do we think will enable the emergence of such large ecosystems and ensure their broad accessibility?
I would posit that four factors are changing the landscape for financial inclusion before our eyes:
Technology and distribution
Technology is a clear enabler. None of what we have seen emerge in the last 10 years would have been possible without technology. But technology on its own is not the answer: distribution is the other side of the equation, and its importance is often overlooked in the excitement over new technologies. To access digital financial services, access to a mobile connection is important, but it is equally important to be able to convert cash to digital money and, at least for now, back into cash again. So mobile phones have been important in places like Kenya, but the real game changer has been the emergence of large and well-functioning agent networks. Until accounts are more widely available or people are willing to accept the leap into purely digital money, agents will remain a fact of life.
> Posted by Allyse McGrath, Senior Associate, CFI
The Affordable Care Act (Obamacare) has been at the center of the U.S. political discourse, and perhaps divide, since it was passed in 2010. Some measures show that Republican lawmakers in the House of Representatives and Senate have voted over 50 times in the past few years to try to repeal the sweeping legislation. As the country prepares for a changing of the guard, Republican lawmakers are already taking steps to put an end to the program.
In the following post, CFI Fellows Shreya Chatterjee and Misha Sharma of IFMR Lead offer an overview of their research project for CFI.
Background and Research Questions
India is at the cusp of a digital financial revolution. From payment banks to ‘India Stack’ to demonetization, policy makers and financial service providers are energetically pursuing digitization of financial services.
Yet, for certain segments in lower income household groups, going digital presents a series of challenges, given that:
- Only 17 percent of women and 27 percent of men use smartphones in India.
- Only 9 percent of those with lower education levels are online, compared with 38 percent of those with higher education levels, per a Pew Research Center survey.
- Forty-five percent of urban Indians and 51 percent of rural Indians have lower levels of digital literacy, according to the Financial Inclusion Insights Survey 2015, which defines digital literacy in terms of knowledge, skills, and behaviors used with a broad range of digital devices such as smartphones and laptops.
> Posted by Ram Narayanan, Market Research Analyst, Symbiotics
Microfinance, a lead sector within the larger impact investing spectrum, has gained prominence from development-minded investors over the past decades. Initially, international funding in microfinance was generated largely from donor organizations, including public development agencies and private foundations. As the market gained traction, the role of private capital grew in importance as not only a means for microfinance institutions (MFIs) to reach scale, but also to increase their social outreach beyond what was possible with donor money.
Private investors and donor agencies thus joined efforts in creating microfinance investment vehicles, better known in the industry jargon as “MIVs” or more simply “microfinance funds.” MIVs act as the main link between MFIs and the capital markets and usually provide debt financing, equity financing or a combination of both to MFIs located in emerging and frontier markets.
The Consultative Group to Assist the Poor (CGAP) began to take interest in MIVs in 2003, a time where several of these vehicles saw the light, and before the investment boom which was witnessed by the sector with the announcement of the United Nations “2005 International Year of Microcredit.” However, the industry was still lacking common definitions, terminology and performance standards. In order to bring forward improved transparency on MIVs’ financial and social performances, a first market report on microfinance funds was produced in 2007 by CGAP, in collaboration with Symbiotics. The inaugural MIV benchmarking tool was thus born – based on a market survey containing a common set of definitions and reporting standards – a landmark that set the stage for regular, annual surveys carried out every year since then.
Fast forward 10 years, Symbiotics and CGAP have yet again partnered to develop a new extensive report (white paper) reflecting back on a decade of MIV operations, shedding light on their progress during the period 2006-2015. The recently released white paper co-authored by both organizations and entitled “Microfinance Funds: 10 Years of Research & Practice” carefully details major market trends.
> Posted by Virginia Moore, Communications Director, CFI
For the last 10 years, the Global Microscope on Financial Inclusion has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest Global Microscope takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.
Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and the Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, the Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.
> Posted by Pablo Antón Díaz, Research Manager, CFI
Scott Graham, Daniel Rozas, and Pablo Anton-Diaz at the “Preventing Overindebtedness in the Microfinance Sector in Mexico” panel, XV National Microfinance Summit, Mexico City, Mexico, November 2016
For the past decade, in part fueled by regulatory changes in the financial sector, there has been an explosion in the availability of credit to low-income individuals in Mexico. The Mexican microfinance sector has become increasingly concentrated and highly competitive. In 2015, the 10 largest microfinance institutions (MFIs) in the country represented 81 percent of the total market size, with more than 1,500 smaller MFIs sharing the remaining 19 percent.
In the following post, John Owens offers an overview of his research project with the CFI Fellows Program.
Background & Research Questions
More and more online credit providers have started to offer loans to not only consumers but also to SMEs around the world.
Outside of digital banking platforms, new alternative online and digital platforms that target consumers and small SMEs include:
- Peer-to-peer (P2P) SME lenders
- Online balance sheet lenders
- Loan aggregator portals
- Tech and e-commerce giants
- Mobile data-based lending models
While the rise of alternative data-based lending has opened new and innovative credit opportunities for individuals and SMEs, these new technologies and providers also come with several consumer protection challenges. These can be categorized into seven main areas:
Read the rest of this entry »
> Posted by Center Staff
About this time of year, before we launch into the promise and the chaos of January, it is helpful to reflect on the past 12 months.
Like many of you, CFI in 2016 can be characterized by change. We released the first reports from CFI Research Fellows. We established a new priority area for the Center in financial capability and financial health. The Smart Campaign pivoted towards digital financial services. We partnered with the Institute of International Finance (IIF) to examine how banks in emerging markets are driving financial inclusion. The Financial Inclusion Equity Council (FIEC) distilled how MFIs and other mission-driven organizations can preserve double bottom lines in initial public offerings (IPOs). We said so long to some long-time CFIers. We said welcome to some new ones.
Amid all the new initiatives, 2016 was also a year of deepening efforts in many legacy initiatives at CFI. The year saw significant progress in the Africa Board Fellowship Program, the Banana Skins report series, the Global Microscope report series, the Governance Working Group, Financial Inclusion Week, the Harvard Business School – Accion Program on Leadership in Inclusive Finance, the Microfinance CEO Working Group, and Smart Certification.
We thank you for your support this year on these and on all our efforts to advance financial inclusion around the world. To recap the year, here’s a quick rundown of CFI in 2016 in pictures. And Happy New Year!
The Smart Campaign Breaks New Ground
This year marked a shift in strategy for the Smart Campaign, with a greater emphasis on client protection issues emerging from new technologies and effecting change at the national level. The Campaign examined the client protection risks in the provision of financial services via agent banking and digital credit. It also worked with the government of Myanmar to enshrine the client protection principles in the country’s new microfinance policy and with MFIN to develop a Grievance Redressal Mechanism Framework for the microfinance network in India. Read the rest of this entry »