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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 Ros Grady

The following post was originally published on Ros’ website.

27204912422_277033d622_b2016 has seen a sharp-eyed global focus on clarifying what responsible digital financial inclusion means in practice. This is connected to the increasing recognition that digital financial inclusion brings new and significant risks for consumers, as well as considerable benefits.

The September 2016 McKinsey Global Institute Report – How Digital Finance Could Boost Growth in Emerging Economies – suggests that widespread use of digital finance (payments and digital services delivered via mobile phones and the Internet) could add $3.7 trillion to the GDP of emerging economies – or six percent – by 2025. Which in turn could create around 95 million jobs.

So responsible digital financial inclusion is important.

But what was new in 2016? Consider these important developments:

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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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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 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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> Posted by Mark Napier, Director, FSD Africa

The following post was originally published on the FSD Africa blog.

Yesterday, Zambia’s central bank announced it had taken over a commercial bank, Intermarket, after the latter failed to come up with the capital it needed to satisfy new minimum capital requirements. Three weeks ago, a Mozambican bank – Nosso Banco – had its licence cancelled, less than two months after another Mozambican bank, Moza Banco, was placed under emergency administration.

At the end of October, the Bank of Tanzania stepped in to replace the management at Twiga Bancorp, a government-owned financial institution which was reported to have negative capital of TSh21 billion. A week before that, just over the border in Uganda, Crane Bank, with its estimated 500,000 customers, was taken over by the central bank, having become “seriously undercapitalised”. In DR Congo, the long-running saga of BIAC, the country’s third-largest bank, continued in 2016, forced to limit cash withdrawals after the termination of a credit line from the central bank. And in Kenya, Chase Bank collapsed in April, barely six months after the failure of Imperial.

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> Posted by Center Staff

We’ve written about the unfolding demonetization situation in India a few times now (here and here). Demonetization, the government declaration on November 8, 2016 that Rs. 500 and Rs. 1000 notes would become void on midnight of the same day, aims to curb black money and corruption, and support the uptake of digital financial services. However, demonetization has caused a range of harms. These consequences should have been foreseeable because: the declaration was massive in scope, affecting 86 percent of the country’s currency in circulation; the country’s banking industry was given no time to prepare, as the plan was kept secret until November 8; and the vast majority of the country’s labor force works in the informal sector, dealing almost exclusively in cash.

Our previous posts focused on the financial inclusion implications of demonetization and how the government’s move affects Indians’ ability to conduct their finances. But our posts haven’t discussed the non-economic ways that demonetization is affecting citizens. Let us be clear, with the massive population in India living at or below the poverty line, the financial shock caused by demonetization has meant life or death for many. Here is a list of some of the ways demonetization is causing more than economic harm:
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> Posted by Sonja Kelly, Director of Research, CFI

A customer waits to collect money at the Juba Express money transfer company in Mogadishu, Somalia. 

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.

This is not a rhetorical question—I really do want to know. As we’ve put out a modest blog series about de-risking, I’ve been thinking about regulations on anti-money laundering and combating the financing of terrorism (AML/CFT). Are stringent regulations and dramatic consequences for non-compliance really necessary? Is it fair to expect the financial system to bear so large a burden? Would it be better for everyone if the onus were on law enforcement to detect and eliminate illicit activity and financial institutions just had to cooperate where necessary?

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> Posted by Jayshree Venkatesan, Financial Inclusion Consultant

On November 8, 2016, the Prime Minister of India made an announcement that notes of denominations Rs. 500 and Rs. 1000 would become illegal tender overnight in a move that was termed demonetization. In turn, the government would issue a note valued at Rs. 2000, which would replace the notes taken out of circulation. According to the RBI’s most recent annual report, the total currency in circulation in India was INR 16634.63 billion (~USD 256 billion). The withdrawn notes constituted nearly 85 percent of this currency.

Phasing out old notes and replacing them with new ones is a standard practice followed by central banks globally. In the Indian context, however, there were two factors that contributed to this standard practice resulting in chaos and an economic shock on the poor.

The first was the short span of time given to react. The announcement was made on television after business hours on November 8, and the affected tender was rendered illegal by midnight of the same day. As a result there is enormous pressure on the banking system, and a frenzy of citizens trying to make the necessary adjustments. The second factor was the disproportionately small share of Rs. 2000 notes ready to replace the phased out currency. While the short span of time resulted in an instant shock to several segments of the population that predominantly operate in the cash economy, the limited Rs. 2000 notes translated into a cash crunch that has brought large parts of the economy to a grinding halt.

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> Posted by Misha Sharma, Project Manager, IFMR LEAD

Last week was a rather challenging one for the Indian economy. On November 8, India’s Prime Minister Narendra Modi announced a dramatic demonetization exercise that rendered all Rs. 500 and Rs. 1000 notes void starting November 9, with the objective of curbing black money, corruption, counterfeit notes, and the financing of terrorism – all of which has leveraged these larger currency notes (with values equivalent to about US$7.50 and $15.00).

The next morning saw newspapers flooded with advertisements by e-wallet companies thanking the Indian Government for its visionary move and congratulating the Prime Minister on “taking the boldest decision in the financial history of Independent India.” They even claimed Indians to be the biggest beneficiaries in this exercise, indicating this was a positive step towards solving the problem of financial inclusion and encouraging more and more people to transition to the digital world. Several banks printed front page advertisements praising this move as progress towards a cashless India. A full-fledged commercial bank endorsed the move with the tag line –Who says you need cash to get by in life?

All I could think while reading these advertisements and endorsements is that we couldn’t be any more oblivious, as we are forgetting the plight of those who remain excluded from the formal economy.

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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.