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> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on the World Bank Private Sector Development Blog.
The issue of financial inclusion seems to be everywhere – from the World Bank Annual Meetings to the new UN post-2015 development goals. It’s got buzz in the private sector, public sector and development organizations big and small. Policymakers are increasingly making financial inclusion a priority through specific financial inclusion targets and commitments, such as the Alliance for Financial Inclusion’s Maya Declaration. In fact, World Bank Group President Jim Yong Kim recently launched an initiative “to provide universal financial access to all working-age adults by 2020.”
As we know from the Global Findex, more than 2.5 billion people lack access to even a basic bank account — a huge gap in inclusion and an enormous opportunity. Demographic changes, economic growth, and advances in technology are making global financial inclusion more possible than ever before. With a massive new market of people demanding new services as incomes rise among the bottom 40 percent, the stage is set for dramatic leaps in access in the next few years. Emerging technologies are bringing down costs and opening new business models while providing greater access to a range of services.
Recognizing that the time is ripe for significant progress on financial inclusion, the Center for Financial Inclusion developed a consultative process aimed to raise everyone’s sights about the possibilities of achieving full inclusion within a foreseeable timeframe – using the year 2020 as a focal point. The process sought to build a more cohesive financial inclusion “community” through the development of a common vision. It brought together experts from the World Bank, IFC, and CGAP along with many representatives of the private sector and the social sector. Financial Inclusion 2020’s Roadmap to Financial Inclusion is the result.
With all of the financial inclusion buzz, you would think that we would be closer to full inclusion. But if closing the gaps were easy, it would have happened already. Many factors still stand in the way. In the case of regulatory accommodation to new technology, for example, the gaps result from such factors as the pace of the spread of know-how among policymakers globally, national legislative and political processes, and uncertainty about the risks involved with new models. In the case of fully addressing the needs of customers at the base of the pyramid (BOP), gaps stem from a combination of doubt among providers about the likely profitability of these customers and limited knowledge inside institutions about the financial lives of the poor. In the case of client protection, providers face perverse incentives, while many regulatory bodies are only beginning the major task of establishing robust oversight of market conduct.
We see encouraging examples of financial inclusion in the most remote corners of the world, often done by surprising actors. However, the momentum is uneven. The Roadmap process included many of the thinkers and entrepreneurs behind such initiatives. Each of the five working groups — Addressing Customer Needs, Technology, Financial Capability, Client Protection and Credit Reporting — has developed a roadmap to direct the world community toward the actions most needed to achieve FI2020’s vision of full financial inclusion. Most of the recommendations are addressed either to governments or to providers, but they point the way to actions needed by a range of supporting organizations, including multilateral and bilateral organizations, donors, social investors and non-profits, at both the global and the national levels.
> Posted by Sonja E. Kelly, Fellow, CFI
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Since Sendhil Mullainathan is speaking at our Financial Inclusion 2020 Global Forum in two weeks, we ordered a few copies of his new book with Eldar Shafir to pass around the office. As a result, the hypotheses of Scarcity are informing our thinking both on our own habits and on financial inclusion.
The title of the session in which Mullainathan, a Professor of Economics at Harvard University, is speaking is “Why Financial Inclusion Means More Than We Ever Knew.” A mouthful, yes, and a bit mysterious. To unravel the mystery, one has to start with Mullainathan’s hypothesis that scarcity of some kind of resource—money, time, even social relationships—brings about an intense focus on the scarce resource, a focus that has negative effects on the way we think and act in areas of our lives outside that of the scarce resource. If this is true, financial inclusion is a game-changer that both prevents scarcity and alleviates its effects.
On first reading, Mullainathan and Shafir’s book seems to apply immediately to my own life. In my case, a scarcity of time means that I often adopt a focus on time and resulting tunnel vision for the task at hand. This focus has some positive effects—I produce work much faster than I would if I had more time. And it has some negative effects—I forget special events like my closest friend’s birthday (I’m sorry, Sarah! Does mentioning you in this blog post make up for it?). In essence, the authors contend that the single-minded focus that severe scarcity creates absorbs so much psychic energy, mindspace, bandwith, or whatever you may call it, that rational decision-making suffers.
This tunneling—devoting a great deal of bandwidth to a single resource—produces intense focus on the scarce resource, but also catastrophic failure on the things that get neglected to make “space” for such a focus.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on the CGAP Blog.
A great transformation is shifting the weight of global power, population, and economic growth from what was once called the first world to what can no longer be called the third, and more precisely toward the middle-income countries that are still, somewhat anachronistically, labeled emerging markets.
Through that shift, enormous numbers of people are moving out of poverty into the “vulnerable” class. Living on perhaps $4 to $10 per day, they are not quite middle class, but they possess, for the first time, a small amount of discretionary income above bare survival. In many countries, this group is, or will soon be, the largest segment of the population. For the first time, these hundreds of millions of households are starting to figure as prospective customers in the market analysis of companies around the world.
There is also a transformation going on in financial services, built on these rising incomes and fueled by information technology breakthroughs. Now is a time of creativity and experimentation with new products, providers, and delivery systems for financial services – and, importantly, outreach to previously excluded clients.
The responses of businesses and even nations to the opportunities presented by these demographic and technology shifts will create winners and losers. The winners will be companies that address this market while it is still relatively open, thereby securing their position in the world of the future. The winners will be nations that open their financial systems to the creative business models needed to serve these new customers, and thereby promote a productive and connected citizenry.
> Posted by Center Staff
A new private equity fund to back financial services providers targeting low-income clients in Africa, and South and Southeast Asia raised $204 million in its initial investment round and aims to amass another $200 million in the coming months. Managed by LeapFrog Investments, an emerging markets fund manager, the fund will invest in companies offering financial services such as general insurance, life insurance, savings, pensions, and investments products to low-income clients.
This is the second fund from LeapFrog. Its first, sized at $135 million, has a portfolio of seven investee companies whose financial products have reached over 18 million people across 13 countries. Many investors from the first fund have also contributed to this second venture. Investors of this initial investment round spanned major insurance groups, global banks, asset managers, and development finance institutions, including MetLife Inc., Prudential, Swiss Re, JPMorgan Chase & Co., CDC, and Oikocredit.
The demonstrated appeal of the new fund represents the enormous opportunity for the expansion of financial services in these emerging markets. “There are 1.9 billion emerging consumers in LeapFrog’s target regions, and their spending power is forecast to rise from $2 trillion today to $5 trillion in the coming decade,” LeapFrog’s President and Founder Dr. Andrew Kuper said of the fund.
> Posted by Center Staff
Today marks 2013’s International Youth Day, a day set aside for governments and individuals around the world to bring attention to youth issues. First designated by the United Nations in 1999, this year’s day is themed “Youth Migration: Moving Development Forward,” and seeks to raise awareness of the opportunities and risks associated with youth migration, share knowledge coming out of recent research and analysis, and engage stakeholders, including youth migrants, in discussing their experiences and in taking action.
Globally, there are about 214 million migrants, with more than 10 percent of these being youth. Like all who migrate, youth face serious rewards in departing their native country, such as economic opportunities and escaping persecution, as well as serious risks, such as discrimination and inadequate living conditions. Youth migrants also face particular challenges, like a heightened vulnerability to sexual abuse and exploitation.
In UN Secretary General Ban Ki-moon’s message for this year’s Youth Day, he indicated that too little is known about youth migrants’ struggles and experiences. For ways to get involved, including channels for sharing personal experiences, visit the UN website, here.
In the Roadmap to Financial Inclusion, the Financial Inclusion 2020 is creating an action agenda to advance financial inclusion for all client segments, including youth and migrants. To learn more about the Roadmap and to explore becoming a Roadmap reviewer, visit the FI2020 website, here. FI2020 also offers the opportunity to engage with financial inclusion among youth and migrant segments through the Mapping the Invisible Market initiative’s interactive data tools. With the Data Explorer, you can create visualizations illustrating how changing economics, technologies, demographics – including on youth and migration – and other variables are affecting financial inclusion. Check out the Data Explorer, here.
> Posted by Sonja E. Kelly, Fellow, CFI
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
As people age, their use of financial services changes. We explored this in detail when we published a lifecycle approach to financial services in Peter Kasprowicz and Elisabeth Rhyne’s Looking Through the Demographic Window. People of working age need to plan for the future while also providing for their families in the present. People who are elderly need to be able to draw on their savings, manage their wealth, and in many cases, draw on and use their pensions.
When we look at the world as a whole, we see little difference between bank account ownership among the working age population (defined as ages 25 to 64) and those who are older (age 65+):
Source: World Bank Global Findex Microdata, 2012
This global equality between the two age groups masks interesting variation in regions in account ownership by age. In Sub-Saharan Africa and East Asia and the Pacific, a much higher percentage of working age adults than older adults have accounts, while Latin America and the Caribbean shows little difference between those groups. Read the rest of this entry »
> Posted by Center Staff
It’s hard to replicate the learning value that comes from a good infographic. One such gem we were glad to recently come across is The Kenyan Journey to Digital Financial Inclusion from GSMA. Released shortly after GSMA’s 2013 Mobile Asia Expo, the infographic chronicles the development of mobile money in its flagship country of Kenya. Through the infographic you can trace how policy decisions and product innovations worked together to connect three quarters of the Kenyan people to electronic payments and other products. It shows clearly how one innovation paves the way for more, leading to a burst of innovations in the past two years.
> Posted by Sonja E. Kelly, Fellow, CFI
In our recent paper on income growth and financial services, Elisabeth Rhyne and I argued that as people’s incomes rise, so does demand. Soon after we published the paper, protests began in Brazil. Many are citing this social movement as the result of increased economic growth and prosperity. When we look closely at those protesting, we see that the majority of the protesters may not even be middle class. Instead many, if not most, are in the “vulnerable class,” with incomes between approximately $4 and $10 per day.
Last week, the Center for Global Development wrote a blog post that highlights the findings from their forthcoming paper on the growing vulnerable class in Brazil. Nancy Birdsall holds that this vulnerable class is demanding more and better public services such as infrastructure, education, and health, consistent with our own hypothesis linking income growth and demand.
The Center for Development blog post begins:
“Sorry for the nuisance: we are changing Brazil,” reads the sign carried by a young woman marching down the streets of São Paolo on June 17.
So who is this “we” she refers to? Fellow protestors, certainly. But “we” might also refer to the large, frustrated group of “strugglers” in Brazil—those who are no longer poor—but have income still too low to be part of Brazil’s new middle class. In a revolution of rising expectations they are demanding a better government. Their demands put Brazil’s still-young democracy (the military withdrew less than 30 years ago) at a crossroads. If their evolving needs and demands are met, they will have acted as agents of inclusive growth and change in their society. If their problems are neglected and they lack sufficient schooling, skills, and opportunities, they could become a restive underclass, and likely supporters of populism and civil strife.
On paper, the past two decades have brought significant improvements for Brazilians: Supported by good macroeconomics, median household income has more than doubled while income inequality has decreased. Brazilian President Dilma Rousseff likes to point out that the country has lifted millions of people out of poverty and into the “middle class.”
> Posted by Nate Gonzalez and Alina Kogan, Investment Officers, Accion Venture Lab
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Over the past year at Accion Venture Lab, a new program that invests in financial inclusion start-ups, we were initially surprised to see a rapid proliferation of online personal financial management (PFM) tools and rate comparison start-ups popping up across Latin America, particularly in Colombia and Brazil. These companies aim to present consumers with a consolidated view of their finances across various financial products (e.g., bank and investment accounts, loans, insurance products, credit cards), educate consumers on financial literacy, provide budgeting tools, and often, make money (through qualified leads to banks) by suggesting better products for consumers based on pricing and needs assessments. On the surface, this trend must seem premature, considering internet usage across the continent remains under 50 percent and online banking rates are even lower. But if you dig into the changing income distribution data across Latin America coupled with existing financial sector market dynamics, this trend toward increased financial education on available products and services begins to make a bit more sense. The rapidly evolving income shifts across the region highlight the importance of democratizing data as a means to further financial inclusion.
Latin America has experienced significant change over the past several years, which has resulted in millions of people moving into the ranks of the middle class. Between 2003 and 2009, Latin America’s middle class expanded by 50 percent, from 103 million to 152 million, accounting for roughly 30 percent of the total population in 2010. In Brazil alone, over half of Brazil’s 190+ million people are considered middle class, and a majority of them rose to middle class status in just the past five years. CFI just released a new report, Growing Income, Growing Inclusion: How Rising Incomes at the Base of the Pyramid Will Shape Financial Inclusion, which details changing income patterns across emerging economies and the subsequent implications for financial inclusion focused initiatives globally. In addition to the growth of the middle class, the report highlights that almost 40 percent of the current population in Latin America are considered part of the “vulnerable class,” defined as pre-middle class persons with incomes from $4-10 per day. This group has experienced similar high growth rates over the last five years. The CFI report predicts that this “rising tide” trend will continue.
> Posted by Amit Jain, Principal, Global Thought Leadership, MasterCard Advisors
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
As an avid advocate of financial inclusion, I am deeply saddened by the fact that several hundred years after the first bank opened, 50 percent of the global adult population still lacks access to formal financial services.
The good news is that this may not be the case any longer. So I eagerly read the recent paper from Elisabeth Rhyne and Sonja Kelly from the Center for Financial Inclusion at Accion that talks about how growing incomes could lead to growing inclusion. I am glad that the authors have brought this phenomenon to the forefront.
I agree that rising incomes could be a key catalyst for elevating financial inclusion globally. I have experienced firsthand the tectonic shift in the income profiles and demand for financial services in India reflected in data from the United Nations Statistics Division. It shows that the percent of the population below the poverty line in India has dropped from 45 percent in 1994 to less than 30 percent in 2010. Read the rest of this entry »
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