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> Posted by Rafael Chapman, Analyst, UpSpring
Based on the latest report from the Giving USA Foundation, philanthropy efforts in the United States hit a record high in 2014 with total contributions reaching about $360 billion. Charitable giving is on the rise in the United States, as this figure represents a 7 percent increase over 2013. However, contributions to nonprofits serving Native American communities remain persistently low, representing well under 1 percent of philanthropy in the country.
The need is growing, however. The Native American population grew 27 percent from 2000 to 2010, almost three times the national average. Based on 2012 data, there are over 5 million people in the U.S. who identify themselves as American Indian or Alaskan Natives, and this number is expected to exceed 6.5 million by 2020.
More than 20 percent of Native Americans live on reservations where living conditions are far from tolerable. In these lands that have been inhabited for centuries, the average unemployment rate is well over 10 percent and nearly a third of reservations consider themselves considerably overcrowded. Moreover, due to lack of formal financial history records and conventional employment information, most residents in these reservations lack access to the traditional banking system, which has contributed to a severe unmet need for accessible capital among Native American communities.
All of this leads to the question: If living conditions are so deplorable in this growing community, why haven’t we increased our charitable contributions and attentions towards Indian country?
Myth #1: Indian gaming brings a lot of money to Native American communities
Beyond the Basics…
> Posted by Evelyn Stark, Assistant Vice President, Financial Inclusion Lead, MetLife Foundation, and Graham A. N. Wright, Group Managing Director, MicroSave
Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.
In the first part of this blog series, we saw how understanding customer demand is not enough to deliver mass financial inclusion … or even a successful product. Supply side factors are key … if rather more difficult than a quick market research exercise. Even after careful pilot-testing and a structured roll-out, all that preparation and keen balancing of client desires and institutional capacity to deliver sustainably didn’t necessarily work! Where were the clients? Why weren’t they storming the doors and asking for these wonderfully designed products? Weren’t our loan officers as excited as the project team? Did the CEO’s endorsement and great speech at the annual meeting make loan officers ready to sell the new products? Weren’t clients telling each other, and their cousins and friends?
No, they weren’t.
The supply side (staff) had not conveyed to the demand side (clients) that they had new products based on their feedback; they hadn’t convinced and trained staff, who were concerned that their jobs were about to get harder. Clients weren’t buying, and staff weren’t selling these new products. Once again, the action research partners* attacked the issues and MicroSave worked alongside, frantically learning and documenting.
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> Posted by Bindu Ananth, Chair, IFMR Trust
The following post was originally published on the IFMR Trust blog.
Yesterday, the Reserve Bank of India (RBI) announced in-principle Payment Bank licenses for eleven applicants. To put things in perspective, there were two new bank licenses in the last decade. The successful applicants include the largest telcos, corporate houses, business correspondents, a depository, and a mobile wallet provider. The number of licenses and the diversity of the pool bode well for the scale and scope of what will be pursued by this new category of banks in the years to come.
While previous licensing rounds were always for “full-service” banks, this represents the first round of licensing for a differentiated banking design following on RBI’s Discussion Paper on Differentiated Banking and the recommendations of the Committee on Comprehensive Financial Services for Small Business and Low-Income Households. To recap, a Payment Bank can provide deposit and payment products but cannot lend. This very important design feature has an important implication from a regulatory perspective – Payment Bank promoters now cannot “cross the floor” in terms of raising public deposits and lending these out. Therefore, the implications of “fit and proper” are now quite different for this group of promoters. This perhaps explains why this round produced eleven licenses against two in the last decade. And at this stage of development of the Indian banking sector, these eleven new entrants could be just what the doctor ordered for innovations on savings and payment services while not adversely impacting the stability of the banking system. An IFMR Finance Foundation working paper reported that the asset portfolio of the average rural household in India is composed almost entirely of two physical assets—housing and jewellery with little to no financial assets of any type.
Also from a financial system design perspective, this is a timely acknowledgement that the credit and payments strategy must evolve differentially within the broader financial inclusion strategy. While progress on credit would necessarily have to be much more measured and prudent no matter what strategies are adopted given the inherent risks and customer protection concerns, there is an urgent need to make access to payments ubiquitous. Yesterday’s announcement is an important step forward in that direction.
> Posted by Jeffrey Riecke, Senior Communications Associate, CFI
#166896431 / gettyimages.com
The Helix Institute of Digital Finance recently launched the Kenya Country Report 2014 as part of their Agent Network Accelerator (ANA) project. The ANA project is aimed at increasing global understanding of how to build and manage sustainable digital financial services (DFS) networks by conducting large-scale research among DFS agents and issuing training to providers and other stakeholders. In this two-part interview, Dorieke Kuijpers, Research Project Manager at the Helix Institute and co-author of the report, provides insight into the ANA project and the Kenya Country Report. Part two will be published next week.
The new Kenya report focuses on the operational determinants of success in agent network management. By way of background, can you give an overview of these components and tell us about the scope of this survey?
The country report is based on 2,128 mobile money agent interviews carried out in 2014 across Kenya. For the survey, we partnered with Research Solutions Africa (RSA), a research firm that has vast experience working in several African countries. After undergoing an intensive training by MicroSave’s lead researchers, the team of enumerators recruited by RSA conducted the several-thousand interviews with mobile money agents spread throughout the country. The findings of the survey resulted in the Kenya 2014 Country Report as well as five (confidential) reports that present providers with an overview of provider-specific findings.
The questionnaire that we used focuses on five operational determinants of success in agent network management, or pillars, as we call them. Both our country reports and our provider reports are based on these pillars. The first pillar, agent and agency demographics, helps us develop an agent profile at the country level and covers indicators such as the age of an agency and the proportion of dedicated and exclusive agents. Core agency operations is the crux of the research as this pillar looks at the health of an agency—e.g. the products and services offered, the number of daily transactions, the types of transactions conducted, and the average value of transactions. Liquidity management looks at an agent’s liquidity practices and needs and how these affect their daily transaction levels. The pillar quality of provider support analyzes the extent to which service providers support their agents in terms of trainings and refresher trainings, monitoring visits, and availability of call centers. Lastly, business model viability assesses the financial strength of an agent.
Why Being Customer-Centric Is a Supply Side Strategy…
> Posted by Evelyn Stark, Assistant Vice President, Financial Inclusion Lead, MetLife Foundation, and Graham A. N. Wright, Group Managing Director, MicroSave
Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.
In recent years Human Centered Design (HCD) became a buzzword in the financial inclusion world. It focused financial service providers on the design of products and services based on customer insights. Design firms became part of the technical provider fraternity, servicing financial service providers in the quest to improve inclusion. At the same time, the network of financial service providers broadened to include mobile network operators and retail chains, in addition to microfinance institutions (MFIs), banks, cooperatives, and a myriad of microfinance suppliers. With new entrants come new ideas – and repetition of old ones. One consistent, but underrated idea, is to focus on the customer.
Customer-centricity is not a new concept in the microfinance and financial inclusion world. In 1998, MicroSave was set up (by UNCDF/DFID who were then joined by CGAP, the Ford Foundation, and the Austrian and Norwegian governments) to promote savings in the microcredit landscape of East and Southern Africa. Initial research in Uganda revealed that although microfinance institutions (MFIs) did not have a legal mandate to collect savings, they did have another problem: drop-outs as high as 60 percent per annum. Further investigation revealed that much of the problem lay in poorly designed credit products. Much of 1999 and 2000 was spent understanding the problem, re-designing products, and developing the “market research for microfinance” tools and training.
This past experience resonates with the current realization among proponents of financial inclusion that customers are not using products. This is evident in the GSMA research that found that 68 percent of registered mobile money customers do less than one transaction in 90 days. No frills accounts in India, and transactional accounts in many other settings, are mostly dormant (GAFIS, 2011, DNA, 2015). The market-led research approaches aimed at microfinance, and the human centered design approaches of the recent years, did not fully succeed in focusing provider efforts on the customer, nor did they help to increase the use of financial products and services. In the quest to understand this, we return to the unfolding story of the early years of market-led approaches, based on the MicroSave experience.
> Posted by the Smart Campaign
Momentum for Smart Campaign Certification is accelerating. Today, we’re thrilled to announce that there are now more than 20 million lower-income clients whose financial service provider has been certified as meeting the Campaign’s standards for consumer protection.
Since February 2015, the number of clients served by Smart-Certified financial institutions (FIs) has grown by 6 million, to a total of 21 million, with the certification of an additional 11 institutions. To date, 39 FIs, from 19 countries across Latin America to Africa and Asia, have achieved Smart Certification, including some of the world’s best-known institutions dedicated to serving the poor.
As you might be familiar, the Smart Campaign’s Client Protection Certification Program contains a core set of standards against which institutions are evaluated by independent, third-party evaluators. Smart Certification publicly recognizes those institutions providing financial services to microentrepreneurs with a standard of care that upholds the microfinance industry’s seven Client Protection Principles. Customers of Smart-Certified organizations can be confident that their financial service provider has policies and processes in place to ensure that they are treated responsibly.
“Twenty million clients is an exciting milestone – recognition of the fact that there’s growing momentum in the industry for client protection,” said Isabelle Barrès, Smart Campaign director. “These organizations are not just paying lip service to the concept of fair treatment, but actually working hard to improve practices,” she added.
In April 2015, having listened carefully to evaluation results and industry feedback, we launched certification program revisions to streamline the process while maintaining high standards. These revisions included an appeals and complaints system and a process for renewing certification validity. At the end of 2015, the Campaign will introduce an accreditation system to license existing and new certifiers, and a version 2.0 of the certification standards. Certification 2.0 standards remove duplication and ambiguity, and deepen standards for savings, insurance, and digital financial services.
Even as the coverage of the certification program approaches critical mass, the broader Smart Campaign continues to advance. For the Campaign’s next phase we are excited about working on the following:
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> Posted by Center Staff
Globally, the cost of fraud in the telecoms industry amounts to about 2 percent of total revenues, roughly US $46 billion. In the mobile money segment, it’s estimated that about 2 to 3 percent of revenues generated from phone-based banking are lost to fraudulent activity. In India, where the mobile subscriber base is over 980 million individuals, covering over 70 percent of the country’s population, mobile money presents a big opportunity for banking the unbanked. And awareness of this is catching on. Just this week Paytm, a mobile wallet service in India backed by Alibaba’s financial arm, announced that they’ve surpassed the 100 million client mark.
As more individuals are brought into the mobile banking fold, including those of lower income levels, it’s increasingly important that fraud risks are thoroughly managed. If they aren’t, clients will suffer, and so will their perceptions of formal banking services. A new report from Deloitte investigates the risks facing India’s mobile money market and how to best manage them.
The report outlines and offers the root causes of seven categories of fraud: phishing fraud; intrusion/ cyber attack; access to wallet through unauthorized SIM swap; fake KYC; commission fraud by agents; and application manipulation by authorized users. (The latter two are frauds carried out by internal stakeholders, like agents, employees, and third-party vendors.) As one example, in the case of phishing (when fraudsters dupe customers through phone calls/SMS/emails to share sensitive information), the root cause is inadequate customer awareness around information sharing and customer data theft.
> Posted by Kevin Fryatt, Director, Risk management Initiative in Microfinance (RIM)
“We do not engage in risk management because our CEO tells us that every department should be a profit center.” “Risk management seems useful, but how can we afford to pay for it?” Such industry sentiments have been the norm, I’ve found, in my work at the Risk management Initiative in Microfinance (RIM). These statements and many others like them reflect the reality that the value of risk management and its role within microfinance institutions (MFIs) have not yet fully been realized. As the microfinance industry matures and reaching scale through growth continues to drive the strategies of inclusive financial service providers, ways to create sustained value for their clients and shareholders will be increasingly sought after and explored. Finding ways to create sustained value, however, can often be challenging.
Risk management, if carried out effectively, is one important aspect in creating sustained value. Well-executed risk management derives organizational value by ensuring decision-making is carried out within an agreed-upon acceptable level of risk, ultimately providing greater certainty about returns against double-bottom line objectives through reducing volatility of net income and strengthening its ability to meet necessary social returns. For example, decisions on the acceptable amount of credit risk to accept may impact the amount of future financial losses an institution may suffer (financial return) while potentially impacting the type of clients it is able to serve (social return). If risk management has such a high potential to create sustained value, what then has been standing in the way of MFIs effectively implementing it to date?
Many factors explain the challenges in realizing the full value risk management can provide, and much of which point back to the lack of an appropriate risk management framework. Consider the following key framework characteristics:
Read the rest of this entry »
> Posted by James Militzer, Editor, NextBillion Financial Innovation
The following post was originally published on NextBillion, in two parts, here and here.
The Smart Campaign was born in the midst of extraordinary upheaval in the microfinance sector. Its launch in 2009 was sandwiched between the 2008 global financial crisis, repayment crises in several microfinance markets, and the 2010 debtor suicides in Andhra Pradesh. Yet the turmoil served to amplify the campaign’s main point: that microfinance needs to focus on customer protection. In the succeeding years, it has labored to unite microfinance leaders and practitioners around this goal – most notably through its efforts to convince microfinance institutions (MFIs) to undergo the process of Smart Certification, in which independent evaluators verify that they are “doing everything [they] can to treat [their] clients well and protect them from harm.”
Over time, these efforts have started to gain traction. The campaign – which is steered by a group of prominent leaders in the industry and housed at Accion’s Center for Financial Inclusion – has certified 39 microfinance institutions. (Note: Accion is a NextBillion Content Partner.) Certified institutions include a number of leading MFIs in markets around the world, from Equitas in India to Kompanion in Kyrgyzstan. And the campaign calculates that certified MFIs now serve slightly more than 20 million clients. In a recent interview with NextBillion, its director, Isabelle Barrès, called the 20 million client mark “an exciting milestone, recognition of the fact that there is momentum growing in the industry for client protection – not just paying lip service to it, but actually working hard to improve practices.”
But achieving this momentum hasn’t been an easy task for the campaign – or for the industry whose practices it’s trying to improve. Barrès discusses the challenges it has faced – and the controversy it has sparked – in this two-part Q&A.
James Militzer: Do you have any data on which markets have the highest percentage of Smart Campaign-certified MFIs?
Isabelle Barrès: I think Kyrgyzstan probably is the one where we currently have the most right now – 60 percent of microfinance clients are served by organizations that have been certified. This shows that when there are some substantial efforts that are put towards improving client protection – whether it’s at the market level or at the regulatory level, or through market infrastructure, such as supporting a good credit bureau – it can make a difference for the entire industry.
> Posted by Center Staff
The latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are the release of a New America Foundation report on account dormancy in youth savings, Yemen exploring mobile banking to combat the hardships of war, and Cambodia launching its first agricultural insurance programs. Here are a few more details:
- The New America report considers how to understand the challenge of youth account dormancy in large-scale account-based initiatives and policy efforts, describing the range of issues related to account engagement from the perspectives of financial institutions, policymakers, and account-holders.
- Yemen, following its central bank passing regulation on e-money and mobile money in December, is looking to the development of digital finance to cover critical services during wartime, as 30 to 40 percent of bank branches are closed.
- The Cambodian Center for Study and Development in Agriculture (CEDAC) has launched the country’s first agricultural insurance programs, in the form of pilots for the next year and a half, protecting rice farmers against loss from drought and floods.
For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.
Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at .
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