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How the government of India, Swiss Re, and others are collaboratively combating climate change-related risk

This post is adapted from the recently-released publication “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

As many know too painfully well, catastrophic events like climate change-related disasters can cause financial stress long after they have occurred. In fact, less than 30 percent of losses from catastrophic events are covered by insurance, which means the remaining 70 percent of the burden is carried by individuals, firms, and the “insurer of last resort,” governments. According to the Insurance Development Forum, a 1 percent increase in insurance penetration could reduce the disaster-recovery burden on taxpayers by 22 percent.

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The U.S. bail bonds system raises serious consumer protection concerns

> Posted by Allyse McGrath, Specialist, CFI

In a criminal justice system that accepts cash in exchange for temporary freedom, a predatory financial service has taken root and become yet another barrier. In the United States, bail bondsman and global insurance companies are netting between $1.4 billion and $2.4 billion annually from vulnerable people who are unable to pay the bail they need to remain out of custody before they are tried. This is not a new problem. It’s been going on since the early days of the modern U.S. criminal justice system.

Those accused of crimes are given an option to stay in jail or put up an amount of money (bail) for their release prior to trial. (It is important to note that people at this stage are presumed innocent under law.) The bail acts as a commitment device for people to show up to their court hearing. The bail amount is returned if the defendant shows up. If they do not, the court keeps it. Bail amounts vary greatly based on the severity of the crime in question as well as the potential flight risk of the accused party. The average bail amount for a felony arrest is about $10,000, roughly two months’ worth of the median annual income in the United States. In a study of nearly 30,000 cases where bail was set in New York City, only 37 percent of defendants could afford to pay bail.

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Country-specific scores across regulations that enable, promote, and prevent financial inclusion

> Posted by Liliana Rojas-Suarez and Lucía Pacheco

The following post was originally published on the Center for Global Development’s blog and has been republished with permission.

The most recent World Bank data on financial inclusion shows that by 2014, only 54 percent of the adult population in Latin America had an account at a financial institution. This compares to an average of 62 percent of adults worldwide and 70.5 percent for those countries with a similar level of income per capita (the region’s peers). In developed economies, 94 percent of adults have an account at a financial institution.

Many factors could be cited for the low ratios of financial inclusion in Latin America, but in a recent paper published at BBVA Research, that also came as a CGD working paper, we focus on the potential role of financial regulation. We assessed and compared the quality of the policies and regulations that impinge on financial inclusion in eight Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay). Peru and Mexico came out on top, with what appear to be the best regulatory frameworks for promoting financial inclusion. But even in these top performers, there is room for improvement.

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Consumer protection is a driver of revenue, and not a regulated compliance cost

> Posted by Dylan Lennox, Partner, MFX

Educating digital financial services (DFS) providers to understand that consumer protection is a core business strategy is as important – if not more important – than consumer protection regulation supervision if we hope to ensure that vulnerable consumers are well protected. For this reason, as I articulated in my last post, I would like to see DFS providers and their managers take the lead when it comes to driving consumer protection, and that consumer advocates and regulators’ efforts are aligned to make sure this happens.

There are many possible reasons why DFS managers are not taking the lead, however, beyond a general lack of awareness of consumer protection and its importance:

  • They might be driven to achieve short-term targets with limited resources, prioritizing their time, budgets and activities to meet high ROI expectations. Or they might be under pressure to launch innovations and take advantage of the “next big thing” like digital credit or data monetization.
  • They could lack the necessary knowledge and experience in their teams to properly address consumer protection. Such know-how involves truly understanding customers’ needs, developing intuitive user interfaces, designing appropriate sales incentive structures, assessing customers’ loan affordability, and implementing effective internal control frameworks to address security, loss of privacy, or fraud risks.
  • Or perhaps the technology they have implemented does not have the required functionality to properly implement basic consumer protection requirements – like those of data security, for example. In such a case, it is left up to the individual DFS managers to make specific technical developments to address consumer risks. Such an institution-by-institution approach increases the overall cost of consumer protection to the industry and decreases the likelihood that it will be implemented as these measures compete with other priorities.

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> Posted by Dylan Lennox, Partner, MFX

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After launching and operating mobile money businesses in a number of markets over the last ten years, I was aware of the necessity of protecting consumers. I knew it was a regulatory priority alongside important issues such as AML and interoperability, but that’s where I left it: in the compliance box, while I waited to be told what to do. All the consumer protection literature I read gave me the same heavy feeling, laden as it is with long lists of requirements: protect customer’s funds from loss and fraud, ensure proper disclosure and transparency, keep their data private, make sure customers can have their complaints resolved, and so forth. These looked like the core business processes I needed to implement anyway, so I felt we would be in fine shape if we were ever to have a supervisory inspection. I never looked any deeper.

In the days when enabling regulation meant “Please leave us alone to grow,” I kept my head turned firmly in the direction of my business goals, growing a base of active customers to reach scale, and then taking advantage of those network effects. After all, financial inclusion was also an objective we shared with the regulator, and as long as we were growing they maintained a light touch.

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> Posted by Sonja E. Kelly, Director of Research, CFI

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As we have watched events unfold in Iran, it has become increasingly clear that major problems with stability and security of funds in the financial system is a driver of civil unrest and political instability.

Over the last few weeks more than a dozen people have been killed and thousands have been arrested in demonstrations across the country. These demonstrations have involved tens of thousands of people in the most significant public display of opposition that the government has seen in a decade. The magnitude of this unrest is significant, and global concern is growing.

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New data from InterMedia breaks down the impact of demonetization on financial inclusion across gender, locality, income levels, account types, and more. 

> Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, InterMedia

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Demonetization had a strongly positive effect on financial inclusion, leading to increases in account registration and active and advanced use of registered accounts, according to our data. Perhaps surprisingly, given some of the discussion in the financial inclusion community over the last year predicting demonetization increasing electronic payments, these account registration increases were mostly among bank accounts rather than mobile wallets.

InterMedia’s fourth annual Financial Inclusion Insights (FII) survey was underway on November 9, 2016 when approximately 85 percent of the banknotes in circulation in India were invalidated by the policy known as demonetization. The invalid notes had to be deposited in a bank or exchanged for new ones at banks and other financial institutions. The timing of demonetization in relation to InterMedia’s activities presented an opportunity for us to measure the impact on financial inclusion using a panel survey of 1,600 randomly selected individuals in the states of Gujarat, Madhya Pradesh, and Rajasthan. These respondents were first interviewed for the FII survey roughly one month prior to Nov. 9, and then re-interviewed seven months later.

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> Posted by Aurora Bila and Kim Dancey, Director of Payment Systems at the Bank of Mozambique and Head of Payments at First National Bank

Of the 338 million citizens of the Southern African Development Community (SADC) member states, 138 million lack adequate official means of identification. This limits their access to and usage of many government services, as well as the range of services offered by financial service providers. This affects their wellbeing in a host of ways, which is why the U.N. Sustainable Development Goals include the goal of a robust “Identity for All” by 2030.

Some SADC countries lack a standardized form of identification, and citizens require various pieces of documentation to access financial services in the formal sector. And in some instances there are no legislative frameworks for issuing any form of formal identification document.

Even among those SADC adults who do have national IDs, documents are often not accepted across borders for opening bank accounts or sending remittances home. Banks and remittances agencies in SADC countries face more stringent Know Your Customer (KYC) requirements for cross-border than for domestic remittances. Therefore, if the identity source document is not easily verifiable to the level of assurance required, to manage both internal risk and to comply with Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements in force, the provider will not make the service accessible. Furthermore, global standard-setting bodies are increasing the pressure on local regulators regarding identity. For example, it is no longer sufficient to identify only the remittance-sending customer. Financial services providers are now compelled to also know the identity of the recipient and to hold these identities throughout the payment transaction. Consequently, only institutions willing and able to price and charge for the risk and cost will offer the services.

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Eradicating ultra-poverty for 394 million people globally will require urgent action across sectors. The recently-released Global State of Ultra-Poverty (GSUP) outlines concrete recommendations for each stakeholder group.

> Posted by Anne H. Hastings, Global Advocate, Uplift

When you hear the word “ultra-poverty”, what does it mean to you? Here’s how one woman described it, after she was able to make her way out of it:

“When you live in ultra-poverty, you are a person who has fallen into a hole with no light. No one recognizes you. You are humiliated. You endure all your pain by yourself. Society has forgotten you. If you don’t find someone to take your hand and help you out of that hole, that is where you will stay.”

Ultra-poverty is not the same thing as “extreme poverty” as defined by the World Bank, which includes anyone living under $1.90/day purchasing power parity. Rather, according to most of us who work on ultra-poverty, it looks like this: in ultra-poor families, everyone goes without food for days at a time, children aren’t in school and have no access to health care, and the family has no productive assets to make a living – no land, no livestock, no job, no small commerce.

Around the globe, 193 nations have committed to Sustainable Development Goal #1: ending poverty in all its forms by the year 2030. That means ending ultra-poverty too. Can we do it? There is a lot of evidence to suggest that we know how to do it. The evidence can be found in the Science magazine issue published 15 May 2015 or in the Policy in Focus issue of July 2017. The programs described in these documents, usually referred to as graduation programs for the ultra-poor, have been proven to work, especially when integrated into a country’s social protection strategy. Graduation programs are characterized by their: (1) time-bound nature, usually 24-36 months of direct assistance to a family; (2) carefully sequenced, holistic programming combining social assistance, livelihoods training and financial services; (3) the “big push” they provide the family, often in the form of a transfer of productive assets; and (4) the mentoring and staff accompaniment participants receive.

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> Posted by Ana Ruth Medina Arias, Lead Specialist for Latin America and the Caribbean, the Smart Campaign

“The risk is to regulate by anecdotes and not by evidence.” – Mariela Zaldivar, Deputy Superintendent, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru)

In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the most conducive environment for financial inclusion, but also for its historic collaborative effort to establish a fully-interoperable nationwide digital payments platform (Bim) to support the supply of financial services. But buckle up, there is more.

The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.

Client Voices was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.

Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.

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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.