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> Posted by Michael Schlein, President and CEO, Accion

Over the last few years, we’ve made great progress in expanding financial access for those left out of the economic mainstream. From 2011-2014, more than 700 million people gained access to new financial accounts. If you’ve just been reading the headlines, you might assume that telcos and fintech start-ups are the primary forces driving that progress.

But the newest study from the Center for Financial Inclusion at Accion and the Institute of International Finance, “The Business of Financial Inclusion: Insights from Banks in Emerging Markets”, found that of the 721 million adults who gained access to new financial accounts between 2011-2014, 90 percent of them did so at more traditional financial institutions.

Telcos and fintech start-ups have been getting the headlines; the banks have been getting the job done. That’s important, exciting news.

This report shows that, for the first time, banks, all around the world, are seeing financial inclusion as a core business function. The Business of Financial Inclusion report shows that banks are creating lean, viable business models to reach customers they have never reached before. Digital payments are the main gateway for commercial banks to reach underbanked customers. They take many forms – transactional accounts, salaries and bill payments, G2P, and P2P. This means cheaper, more secure, and more convenient payments. Instead of spending hours traveling to make a single utility payment, mobile money allows you to push a button.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

When it comes to financial inclusion, as is true in many sectors these days, sexy start-ups and disruptive innovators often occupy the spotlight. But away from the glare, traditional banks are getting on with the work and making an enormous difference. In The Business of Financial Inclusion: Insights from Banks in Emerging Markets, produced in a partnership between the Institute of International Finance (IIF) and CFI, we explore how banks are innovating to include new customers.

Given the headlines, it may be a surprise to hear that even today the overwhelming majority of new accounts are opened at formal financial institutions, not mobile money outlets. Thanks to the Global Findex, we know that over 720 million adults accessed formal financial services for the first time between 2011 and 2014, 90 percent of these new accounts were opened at formal financial institutions. Of the 720 million total new accounts, only 54 million used mobile money as their primary account.

How are banks expanding customer outreach?

Through in-depth interviews, leaders from 24 national, regional, and global banks told us about the opportunities and challenges they face while reaching the unbanked and underbanked. Each bank has its own particular story. In the aggregate, their stories give insight into how banks are evolving to meet people where they are and serve population segments that have been traditionally excluded.

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> Posted by Allyse McGrath, Senior Associate, CFI

Lawsuits and court ordered wage garnishment are becoming an increasingly common phenomenon for those in the United States who are unable to pay back their debts on time. With little regulation and consumer protection in the legal realm of debt collection, consumers are often left with few resources to fight in court and consequentially little control over the repayment of their debts.

Wage garnishment is the direct seizure of wages to repay a debt, as permitted by a court order. For years in the United States, the practice of wage garnishment was reserved for collecting child support, student loans, and back taxes. During the recession that began in 2008, debt collectors increasingly turned to the courts as a channel to collect, and the practice of wage garnishment expanded rapidly, including to consumer debts. Rates of wage garnishment have sky-rocketed, more intensely in some regions and cities than others. In Phoenix wage garnishment rates increased 121 percent from 2005 to 2013, Atlanta saw a 55 percent hike between 2004 and 2013, and Cleveland saw a 30 percent jump between 2008 and 2009 alone.

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> Posted by Jeffrey Riecke, Communications Specialist, CFI

Over the past few decades, across demographics and regions, the proportion of people in the United States with bank accounts has increased steadily, a new report from the White House details. More specifically, the report found that between 1989 and 2013: the percentage of U.S. households with bank accounts increased from 86 percent to 93 percent; the percentage of households in the bottom income quintile with bank accounts increased from 56 percent to 79 percent; among racial minorities, the percentage of households with bank accounts increased from 65 percent to 87 percent; and regional disparities have diminished, with financial inclusion increasing across all geographies. All of this progress in financial services access warrants acknowledging, of course, yet there remain sizeable gaps toward financial inclusion that call for immediate action.

For example, like most countries that enjoy high access rates, many banked Americans remain underserved. Twenty percent of households in the U.S. with bank accounts also rely on alternative/informal financial services. In 2013, roughly 5 percent of unbanked or underbanked households turned to payday loans, the White House report found. Indeed a few weeks ago we spotlighted new proposed regulation from the Consumer Financial Protection Bureau (CFPB) to rein in the growing high interest rate/fee-laden payday loan and short-term credit markets.

The United States also ranks dismally when it comes to financial literacy. In the S&P Global FinLit Survey, it was determined that 57 percent of the American population is financially literate, which puts the country at 14th globally, according to the S&P.

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> Posted by Center Staff

We are excited to announce the dates for the second annual Financial Inclusion Week, which will take place during the week of October 17-21, 2016. That week organizations around the globe will host conversations focused on how to ensure that clients are empowered and protected in a financial ecosystem that has moved beyond brick and mortar to cell phones and internet delivery channels. Last year, from November 2-6, 34 partner organizations engaged in conversations worldwide to discuss the most pressing actions needed to advance financial inclusion globally. In 2016, we aim to continue these conversations and engage an even wider community of stakeholders to discuss this year’s theme: keeping clients first in a digital world.

With rapidly expanding use of mobile and smart phones, an unprecedented number of traditionally excluded or underserved people are accessing financial services for the first time. While this presents an amazing opportunity for providers, regulators, and consumers alike, clients must remain first in this newly digital world for benefits for all sides to be attained. Financial Inclusion Week will give the sector an organized framework to step back and ask what needs to happen for clients.

How can you get involved?

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> Posted by Center Staff

Today, the global financial inclusion celebrity (and Prime Minister of India) Narendra Modi visits with United States President Barack Obama. The pair will discuss the deepening U.S.-India relationship, including progress on climate change and clean energy partnerships, security and defense cooperation, and economic growth priorities. As a reader of our blog, you’re likely aware of Prime Minister Modi and India’s commitment to advancing financial inclusion in the country. Indeed, at the close of 2015, we named India our Financial Inclusion Country of the Year. In honor of Prime Minister Modi’s visit today, we wanted to take a moment to spotlight some of the strides that India has taken to bank the unbanked. After a brief review of the broad initiatives, we identify some highlights from recent months.

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> Posted by Jeffrey Riecke, Communications Specialist, CFI

Access to credit is essential. But when lenders operate through a business model that overwhelmingly turns small loans (think $500) into insurmountable cycles of debt, they are not providing an essential service and are instead profiteering. Such is the case with the payday loan and related short-term credit markets in the United States. Today, the Consumer Financial Protection Bureau (CFPB) unveiled new proposed rules designed to improve the practices of these lenders that draw customers into cycles of debt. The aim of the rules isn’t to kill essential access to credit, but to rein-in the payday loan industry’s reliance on having a high percentage of borrowers who are unable to repay their loans and are drawn-in to repeat borrowing at higher rates and with additional fees.

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> Posted by Bruce MacDonald, Vice President, Communications and Operations, CFI

The following post was originally published on NextBillion.

As 2016 New Year’s resolutions went, few matched the enthusiasm, ambition and fragility of the commitment made by the Association of Southeast Asian Nations (ASEAN). On Jan. 1, its 10-member countries – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – inaugurated the ASEAN Economic Community, a common market whose goal is to forge a prominent regional bloc to rival China and Japan, and bring economic well-being to its 625 million citizens.

Some 13 years in the making, the Community promises an increasingly free flow of services, investment, skilled labor and capital to a market that is now larger in terms of population than either North America or the European Union. Such a single market, its creators envision, will increase intra-ASEAN trade and justify greater spending on infrastructure. Currently, the six leading nations in the group (Indonesia, Malaysia, Thailand, Singapore, the Philippines and Vietnam, a.k.a., ASEAN-6) allocate an average of 26 percent of their GDP to investment, which any recent visitor to Manila or Jakarta might argue is nowhere nearly enough.

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

In recent months several prominent banks in Kenya have collapsed, with Chase Bank (no relation to JPMorgan Chase) most recently placed under receivership by the Central Bank of Kenya (CBK) earlier this month. Additionally, this month it was announced that three majority government owned banks will be consolidated, and that voluntary mergers and acquisitions in the banking industry will be encouraged as a way to strengthen institutions. To better understand what this all means, I sat down with John Lwande, Director of the Africa Board Fellowship (ABF) program.  

DP: From your perspective, can you update us on what is happening?

JL: It appears that following an extended audit tussle last month, Chase Bank, which had established itself as the jewel among small and medium-sized enterprise (SME) lenders in the market, and attracted funding from big name international investors, collapsed on the 7th of April. While Chase pushed the blame towards the accounting surrounding the bank’s Islamic banking assets, more serious implications point towards governance problems. To illustrate the severity of these governance issues, for instance, we are told that the bank made a staggeringly large amount of loans to its directors, an average of KES 1.35 billion per director (USD 13.5 million). This is not a routine staff and associate loan. Actually, Chase had a loan program for staff. Its average loan size was KES 1.9 million (USD 19,000). How could an SME bank, a financial inclusion flag bearer, allow its directors to lend tens of millions of dollars to themselves?! In a recent interview, three leading Kenya bank executives decried the lack of governance and fiduciary responsibility of bank directors in the country and called upon auditors to be firm in their opinions to mitigate the risk of bank failures and avoid panic.

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> Posted by Susy Cheston, Senior Advisor, CFI

A lot of money is being spent on financial education—and we’d like to see it spent more effectively. We still don’t know all that is needed about what works, but based on our scan of the current landscape for financial capability-building innovations, we can already recommend six major shifts in how financial capability resources are deployed.

The first three recommendations relate to who is building financial capability.

1. Bring financial capability efforts closer to the actual use of financial services by enabling providers to take a greater role.

2. Shift the expectation that the government is responsible for financial capability to an expectation of shared responsibility among all stakeholders, including financial service providers and other institutions.

3. Engage organizations serving BoP constituencies, from government social service agencies to employers to non-profits.

This calls for “all hands on deck.” We argue, first and foremost, that providers can and should take a primary role in building financial capability, as they are best equipped to reach customers at teachable moments and to help them learn by doing. Many providers are already spending significant resources on financial education. They could have a much greater return on their investment if they focused those resources on embedding financial capability into product design and delivery, looking at all the touch points in the customer experience as opportunities to help customers use products more successfully.

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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.
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