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> Posted by Sushmita Meka, Bankable Frontier Associates
Goldilocks never took a bank loan, never had a credit card, and never got into debt. But if she had, her exposure to the fairy tale credit market would have been “just right.” She’s the lucky one. Across Africa, people living on the “cusp” of poverty – getting by on $2 to $5 dollars a day – are experiencing credit markets that are often either “too cold” or “too hot.”
In Ghana, Loretta works as a cook at a hotel in Kumasi. Her life is no fairy tale. Loretta says her job is OK, but the best time of her life was when she was running her own restaurant. For three years, she and her sister ran the business together. But when her father became sick, her sister went to care for him and the business went to the wall.
Loretta wants to start again. But a lack of available and affordable credit in Ghana prevents her from doing so. She’s lost the freedom that came with having her own disposable income. She can’t rebuild her business without a loan and she can’t afford a loan in Ghana’s frozen credit market.
In South Africa, Kenneth tells a very different story. Kenneth, was raised in a township and when he got his first job he was keen to transform his lifestyle. He worked for several years as a branch manager at a microfinance institution and recounted how he saw many of his customers in debt: “Every time I would go through someone’s statement, I would say ‘I don’t want to be in this position.’”
> Posted by Jeffrey Riecke, Communications Specialist, CFI
It is hard to imagine who would scam an older adult over their hard-earned savings. But the reality is that as many as 17 percent of Americans aged 65 or older report that they have been the victim of financial exploitation. What’s more, only one in 44 of these cases are ever brought to the attention of protective services. In total, billions of dollars are lost each year due to the financial abuse of older Americans. Recently, the Consumer Financial Protection Bureau (CFPB) adopted a novel approach to combatting this trend, intervening with financial education … over a meal.
> Posted by Philip Brown, CFI Advisory Council Member and Managing Director Risk, Citi Inclusive Finance
As new opportunities for inclusive financial services continue to grow, they are accompanied by an array of risks, many of which are not fully evident today. Since 2008, the Banana Skins surveys have charted both known risks and those that have previously been overlooked or underrated. The recently released report “It’s all about strategy” is no exception — it surveys a spectrum of participants and gathers their perceptions of the risk in the provision of inclusive financial services.
What does this year’s survey tell us?
Continuous progressive change in service provider business models is not new. But the accelerated pace and diversity of change, coupled with extent of the redesign and transformation process across all aspects of the business model, are shifting inclusive financial service provision. There are changes across the creation and delivery of services, business economics and processes, delivery infrastructure, such as payment systems, mobile networks and agent networks, and strategies for customer acquisition and the targeted customer base. The inclusive finance sector is no longer defined around segment-specific institutions but around the end clients, services provided and the now diverse and growing universe of service providers.
Digital transformation is a pervasive theme in this year’s Banana Skins report, which is a call to recognise the risk of not thinking strategically about all aspects of financial service provision. Across the globe, mobile applications are adding millions of clients versus thousands for established models. Both non-credit products and new forms of credit such as instant nano-credit for pre-paid mobile phone users continue to grow. Rather than viewing disrupters as a threat, one cited respondent positively describes new competitors as facilitators of market development, improving the quality of services and creating pressure to reduce interest rates.
> Posted by Jeffrey Riecke, Communications Specialist, CFI
Are interest rates necessary for loans? What about strict repayment structures? Recently, a colleague emailed me about Zidisha, an online lending platform that’s harnessing expanding internet penetration rates to offer lower-cost peer-to-peer loans. Zidisha adopts a handful of approaches that depart from how loans are typically served to the base of the economic pyramid, including in terms of interest rates and repayment structures. I wanted to learn more, so I reached out to Julia Kurnia, Founder and Director of Zidisha, for a quick conversation. The following is an edited version of our exchanges.
First off, I’d like to say congratulations on all of Zidisha’s success. I understand that in its six years, Zidisha has disbursed roughly $6 million in loans to 40,000 people. By way of background, maybe you could start by offering a quick description of Zidisha?
Zidisha is a peer-to-peer (P2P) microloan crowdfunding platform that lets ordinary people like you and me send zero-interest microloans directly to lower-income people in developing countries.
What makes Zidisha unique is that we don’t work through local banks or other intermediaries. Instead, we target today’s generation of internet-capable microfinance borrowers, and connect them with the lenders directly. Borrowers post their own stories and loan proposals, and dialogue directly with their lenders via our website.
Eliminating local intermediaries allows us to provide loans at far lower cost to the borrower than traditional microloans. This amplifies the social impact of the loans, as borrowers keep the profits they generate instead of paying high interest rates to cover local banks’ operating expenses.
A new report from the Mastercard Center for Inclusive Growth, “From Middle India to the Middle Class of India: Inclusive Growth as the Path to Success”, uses detailed household survey data to highlight how the empowerment of “Middle India” – the middle 60 percent of Indian households which aren’t quite poor and aren’t quite middle class – is critical to ensuring the success of India’s economic takeoff. The report offers a snapshot on how these families live, work, earn, and save – revealing an enormous opportunity for inclusive finance. For example, while 87 percent of Middle India households have access to a bank account, only 13 percent have had a bank loan. For more on the report, the following is a post from the Center for Inclusive Growth originally published on Medium.
India’s economy is poised for takeoff. GDP is on the rise. Inflation is the lowest in decades. India’s doors are open to foreign investment. And earlier in the month, the Indian Parliament paved the way for the “mother of all economic reforms,” a new tax scheme to make it easier to do business across state lines, essentially creating a single economic zone. The World Bank predicts that India could be the world’s third-largest economy within 10 years.
These and other reforms introduced by the Modi government are desperately needed as one million enter the job market every month, and millions more knock on the door of the middle class.
India, says the author Aatish Taseer, may not yet be a middle class country, “but it [has] begun to think of itself as one.”
> Posted by Steve Waddell, Principal, NetworkingAction
Financial inclusion is a large systems change challenge – it’s one that integrates a basic new goal into the working of the financial system. This is a very different challenge than simply opening a new branch or even policy reform. What are the implications of large systems change for traditional governance structures? Put another way, if an industry is significantly disrupted, does this affect the way it is governed? I recently dived into the question looking at the impact of financial inclusion on financial sector governance, including central banks. The was done in collaboration with Ann Florini, a governance expert and professor at Singapore Management University, and Simon Zadek, a visiting professor there and Co-Director of the UNEP Inquiry into the Design of a Sustainable Financial System.
The three of us have common interest in how multi-stakeholder processes might impact governance. Such processes in the case of financial inclusion involve business, government and civil society interests. With many diverse parties at the table, and many more such multi-stakeholder processes, is financial sector governance also becoming more multi-stakeholder? We decided to investigate the question of financial inclusion with a descriptive analysis of what has been happening in Kenya. We came to the topic with the understanding that multi-stakeholder process governance in itself is not necessarily good or bad compared with traditional government-dominated governance, but experience might indicate that it is necessary for advancing public good. The Center for Financial Inclusion defines full financial inclusion as:
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> Posted by Kim Wilson
Many privileges require a license: driving a car, flying a plane, even scuba diving. Licenses ensure that you understand the consequence of driving too fast, flying too low, or diving too deep. All of these activities have systems to regulate how a service is supplied and how it is used. But when it comes to borrowing money, regulators usually regulate lenders (how the service is supplied), but rarely borrowers (how it is demanded).
Why add barriers, burdens, and bureaucracy to the credit market? Hasn’t credit famously been declared a right versus a privilege? Especially in sub-Saharan Africa, where in most countries the financial chokepoint is a lack of credit rather than an abundance?
Participating in Credit on the Cusp, a project that studied the credit experiences of those living on the “cusp” of poverty (between $2 and $5 a day) in urban Ghana, Kenya, and South Africa gave me a chance to think about these questions in depth. As it turns out, South Africa is ground zero – an African market that provided easy credit to millions of new customers in a very short time. In fact, South Africa struggles with an extensive debt problem.
> Posted by Elisabeth Rhyne, Managing Director, CFI, and Michael Mori, Senior Designer, Dalberg Design Impact Group
The following post was originally published on NextBillion.
From a mathematical point of view, borrowing and saving are mirror images. In both cases many small payments allow for one or more large payouts. Only the sequence differs. Stuart Rutherford’s classic description involves “saving up” (saving) and “saving down” (borrowing), both for the purpose of assembling “usefully large sums.” When viewed in this way it is clear that saving and borrowing can serve much the same purpose, and at times can even substitute for each other.
This is true, as far as it goes, and it underscores the importance of disciplined payments of small amounts as a path to obtaining the lump sums needed for major purchases.
We recently traveled to India (Mumbai and rural Maharashtra) and Kenya (Nairobi and farming villages outside of Nyahururu) as part of a research project led by the Center for Financial Services Innovation and the Center for Financial Inclusion, and conducted by Dalberg. In speaking with a variety of residents, we were struck by vast differences in the way people make borrowing and savings decisions.
The people we talked with carried out most of their financial actions through informal instruments, though many were members of cooperatives and some did have (largely inactive) bank accounts. Instead of using these formal options, they borrowed mostly from friends, family and moneylenders. They saved in cash stashed at home, livestock, land and gold, amongst other assets. We asked how they decided where and how to save and borrow. They very willingly described their thought processes and the considerations that guide them in making decisions. As it turns out, their decisions about borrowing hang on surprisingly different criteria from those about saving, bearing on very different realms of their lives.
> Posted by a Nairobi-Based Consultant
Kenya and Nigeria are often heralded as two of the most dynamic economies in Africa. They could soon have something else in common: interest rate caps.
Banks in Kenya have urged President Uhuru Kenyatta to dismiss a new bill which caps loan interest rates and provides for sanctions (fines and prison) directly to the CEOs of banks that fail to do so. This is not the first time such a proposal has come forward; the last one having come at a time the incumbent president was Minister for Finance. Should the President sign off on the bill it will become law, and lending rates will be capped at 400 basis points above the Central Bank discount rate which now stands at 10.5 percent.
Understandably, the prospect of such limits has caused anxiety amongst lenders. Through the Kenya Bankers Association, Kenya’s bankers immediately lodged appeals to the government arguing that capping interest rates is counterproductive and against the free market economy premises Kenya enjoys. We are yet to see how the financial markets react.
> Posted by Brian Kuwik, Chief Regional Officer, Africa, Accion
Today around the world, we celebrate our youth and their achievements and reflect on the goals of “eradicating poverty and achieving sustainable consumption and production” for the youth of this generation. To achieve these goals, a culture of saving money consistently over time will be important.
How can financial institutions, policy makers, and parents encourage the youth to save? A six-year project (2010-2015) across four countries, YouthSave, led by Save the Children and Washington University examined this question. Recently, I attended the project’s dissemination event in Accra, Ghana and learned about how, as part of the project, a bank partnered with middle and secondary schools to offer formal savings accounts to students 12-18 years of age.
Many Ghanaian students are saving money informally in their schools because they either lack national identification documents or cannot find an adult whom they trust to be the primary signatory to a bank account. Some entrepreneurial students act as “susus” collecting cash from their classmates on a daily basis and safe-guarding it. Since they often keep one day of savings as a fee for this service, this can be a costly way of saving.