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> Posted by Vinita Godinho, General Manager – Advisory, Good Shepherd Microfinance

You might not know it, but one in every five Australian adults (3.3 million people) is financially excluded, unable to access safe, affordable, and appropriate financial products and services when they need them. This increases their likelihood of experiencing financial hardship and poverty. Two million people in the country also experience high to severe financial stress, reducing their resilience or ability to recover from financial shocks. Those impacted, particularly women, also experience poorer socioeconomic and health outcomes, especially lower education, employment, and income status. Whose problem is this to solve?

Against the backdrop of ongoing global financial and political uncertainty, financial inclusion challenges exacerbate the divide between the ‘haves’ and the ‘have-nots’. In Australia for example, those holding the top 20 percent of wealth have around 70 times more than those in the bottom 20 percent. The country’s growing income inequality does not reflect changes in household characteristics, rather changes in the size of persistent and transitory income shocks. Lack of inclusion and resilience via insurance, savings, credit, and payments therefore compound the impacts of growing inequalities of opportunity, stifling upward mobility between generations, increasing social tensions, and reducing economic growth.

So who’s best placed to respond to this growing problem – the government with its policy vision for financial well-being and capability; business which designs product offerings and offers employment; researchers who study inequality, gather evidence and create theories; or the community sector, which is usually the first line of defense for excluded and vulnerable Australians?

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> 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.

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> Posted by Virginia Moore, Communications Director, CFI

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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.

The Leaderboard

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.

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> Posted by Pablo Antón Díaz, Research Manager, CFI

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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.

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> Posted by Jeffrey Riecke, Communications Specialist, CFI

Does a speeding ticket help predict whether you will pay back a loan? While this might seem like a stretch, it may not be as farfetched as it sounds, at least in China.

China’s government is piloting a new ‘social credit’ scoring system that takes into account a diversity of financial and nonfinancial factors and behaviors. The financial ones are familiar – being delinquent on payments for insurance or social security. The nonfinancial ones are potentially troubling, and include, to name a few, traffic violations, jaywalking, dodging metro fares, violating the country’s family planning rules, criticizing the ruling party, and neglecting your elderly parents.

The social credit system may be used to affect financial opportunities, like securing loans, as well as non-financial ones, like job offers, your child’s admission to schools, faster treatment at government offices, access to luxury hotels, and being able to buy transit tickets.

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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:
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> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign

A keynote speaker at a recent conference I attended described consumer protection as “incredibly important,” before adding that it was also “boring.”  Palpable excitement buzzes around new products or technologies, but consumer protection can be a real buzzkill. After all, it is often viewed as a dry, bureaucratic subject, costly for providers, and entailing barriers to pace of change and convenience.

As the Smart Campaign’s Africa team lead, I’m excited about client protection! And that’s not because it’s my purview. First, I think that client protection should not be seen as pumping the breaks on financial inclusion’s momentum. Rather, it guarantees a longer, more enjoyable ride. Secondly, client protection need not be a dull compliance exercise. It too can crowdsource, beta-test, gamify, and so forth to hack innovative, agile, disruptive approaches. But seriously, as an industry we can consider and engage in client protection practices that are data-driven, and that use behavioral economics, human-centered design, fintech, and other disciplines to not only ensure fair consumer treatment but strengthen financial bottom lines.

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> Posted by Alex Counts

During my final years as President of Grameen Foundation and Co-Chair of the Microfinance CEO Working Group (MCWG), I advocated that two papers be written that I had neither the time nor the expertise to do justice to myself.

The first paper was a distillation of lessons for practice from recent studies on the impact of microcredit and microfinance. Many papers that set out to determine whether microfinance worked stumbled on important insights about how it could work better. Unfortunately, those discoveries were buried in papers that people barely read beyond summaries and extracts. A paper that presented these “lessons for practice” in a form that was accessible to busy practitioners could make a big impact, by removing friction from the maddeningly difficult process of using research to positively influence policy and practice.

The second paper I advocated for was one that made the case for how philanthropy and social/impact investing, and more broadly, subsidy, could play a positive role in the microfinance industry today. Such a paper would need to start with making the case that such social investments had any role to play, as the conventional wisdom was settling on the idea that it did not have any.

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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Those who work in the financial inclusion space need a deep understanding of how low income people manage their money, and there is no better guide to develop this understanding than Ignacio Mas, who recently spoke at the Africa Board Fellows seminar in Cape Town. Here are some of his insights.

Unused money is vulnerable if you are poor. You have to protect it from a lot of things – theft, friends and family, and, also, your future self… (Let’s not underestimate the threat of the future you as someone who has the most access to, and authority over, those funds.) And there is no saying how resolved you will stay toward your savings goals. One way to protect any unused money against these threats is to make it less liquid. For example, you could convert your savings into a goat. In many countries, a goat can be sold if an emergency should arise, but you certainly wouldn’t sell or trade it to make an impulse purchase. Or as the vendor I just bought holiday jam from put it: “Making jam is like forced savings for me. I spend it in the summer on jars and sugar and fruit and get it back in December for Christmas shopping money!” These are examples of self-nudges that enable clients to better stick to their goals – one of the seven behaviorally-informed practices for financial capability. These approaches create behavioral roadblocks, so that individuals are able to save with less effort.

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> Posted by Tess Johnson, Project Associate, CFI

This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a literature review and conduct interviews with key players in the conversation on de-risking.

NGOs, both large and small, are often on the front lines of humanitarian efforts, assisting people who are affected by conflict and terrorism. It is troubling that so many of these organizations’ efforts are hampered by de-risking. The funding and other forms of non-monetary aid that NGOs provide are directed towards addressing seemingly intractable problems – such as humanitarian conflict, forced displacement, natural disaster, and violent extremism – and yet, the de-risking behavior of banks, brought on in response to anti-money laundering and combatting the financing of terrorism (AML/CFT) regulation, often makes it difficult for these organizations to function and serve those who are most in need.

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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.