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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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> Posted by Jeffrey Riecke, Communications Specialist, CFI

Does a speeding ticket help predict whether you will pay back a loan? While this might seem like a stretch, it may not be as farfetched as it sounds, at least in China.

China’s government is piloting a new ‘social credit’ scoring system that takes into account a diversity of financial and nonfinancial factors and behaviors. The financial ones are familiar – being delinquent on payments for insurance or social security. The nonfinancial ones are potentially troubling, and include, to name a few, traffic violations, jaywalking, dodging metro fares, violating the country’s family planning rules, criticizing the ruling party, and neglecting your elderly parents.

The social credit system may be used to affect financial opportunities, like securing loans, as well as non-financial ones, like job offers, your child’s admission to schools, faster treatment at government offices, access to luxury hotels, and being able to buy transit tickets.

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> Posted by Alex Counts

During my final years as President of Grameen Foundation and Co-Chair of the Microfinance CEO Working Group (MCWG), I advocated that two papers be written that I had neither the time nor the expertise to do justice to myself.

The first paper was a distillation of lessons for practice from recent studies on the impact of microcredit and microfinance. Many papers that set out to determine whether microfinance worked stumbled on important insights about how it could work better. Unfortunately, those discoveries were buried in papers that people barely read beyond summaries and extracts. A paper that presented these “lessons for practice” in a form that was accessible to busy practitioners could make a big impact, by removing friction from the maddeningly difficult process of using research to positively influence policy and practice.

The second paper I advocated for was one that made the case for how philanthropy and social/impact investing, and more broadly, subsidy, could play a positive role in the microfinance industry today. Such a paper would need to start with making the case that such social investments had any role to play, as the conventional wisdom was settling on the idea that it did not have any.

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> Posted by Center Staff

portfolios-of-the-poorEditor’s Note: A previous version of this post has been one of the CFI blog’s all-time most popular posts. We thought we’d update it with a few more books, and put it front and center once more for readers who might be stocking their bookshelves.

From time to time, we are asked what our go-to books are for understanding financial inclusion and the financial lives of the poor. If we were to list the top three classics that should be on everyone’s shelves, we would recommend the following (feel free to put these on your gift list as we approach the holidays):

  1. Poor Economics by Abhijit Banerjee and Esther Duflo
  2. Portfolios of the Poor by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven
  3. The Poor and Their Money by Stuart Rutherford

What we love about these titles is the insight they provide into the client perspective, a foundational element for anyone working in or supporting financial services. If financial institutions approach their engagement with customers armed with an understanding of customer needs and customer behavior, the financial services industry can be both more responsive and more responsible.

As a refresher, the first five books on the last version of our must-read list were those cited by Stuart Rutherford as his top five on the subject of “The Poor and Their Money”. Rutherford has himself published some of today’s go-to references on this topic (which is why we added his titles above). Rutherford’s favorite books were chosen by him not only for their impact on his work, but also for their ability to place the client at the center of our conceptualization of microfinance. This is important because, as Rutherford himself explains, “microfinance has to find a way to adapt itself to the enormous complexity found in the lives of poor people, and not the other way around.” We continue to appreciate this sentiment, and still think the titles on his list are worth a read:
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> Posted by Ellen Metzger, CFI

Community savings groups are at the heart of successful rural banking

Before joining the Center for Financial Inclusion at Accion, I spent four years in rural East Africa managing an ultra-poor graduation program. At Village Enterprise, we focused on savings group creation and distributed conditional cash transfers rather than livestock (as is customary with graduation programs) in order to empower choice and facilitate ownership among our participants. Over years of traveling the bumpy back roads of Uganda and Western Kenya meeting with hundreds of savings group members, I met very few participants who went beyond their local savings groups to take loans from financial institutions such as MFIs. Those few who did created great success stories. In light of the recent article “Your Inflexible Friend” in The Economist, which offers a review of microlending’s history, I reflect on why we don’t see microlending in the rural areas of Uganda and Western Kenya and how that can change.

A good reputation is critical. In these areas, tragic stories of delinquencies and defaults travel faster and are remembered longer than stories of success. In Kenya especially, where there is more competition in rural areas among financial institutions than in Uganda, reputation precedes the products and services. These reputations can vary dramatically every 5 kilometers you travel. When groups are asked about being linked to a particular financial institution, one community will trust the organization, the next community a few kilometers away will cringe at the name. Microfinance institutions are extremely sensitive to fluctuations in trust, so it’s imperative for them to design trustworthy products and ensure adequate follow-through on their services every time.

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> Posted by Christy Stickney, Independent Consultant and CFI Fellow

After decades of directing financial services to micro-enterprise owners, many microfinance institutions are finding that some of these enterprises have grown and that they’re now serving an expanding number of small business owners. With increasing global attention being directed to small and medium-sized enterprises (SMEs), it is fitting to look more deeply at what can be learned from entrepreneurs whose businesses started as microenterprises, grew, and can now be classified as SMEs – with a substantial number of employees. More specifically: Who are these entrepreneurs? What kinds of businesses do they operate? What have been their growth patterns and hurdles? And how have they utilized financial services to further their growth aspirations?

These are the questions that guided my research fellowship for the Center for Financial Inclusion. As part of my study I gathered institutional data and conducted in-depth interviews with clients of three leading microfinance institutions in Latin America: MiBanco, Banco ADOPEM, and Banco Solidario. The clients I focused on had all experienced significant loan size growth over several years.

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> Posted by Center Staff

The 2017 Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance is now accepting applications for what will be another exceptional week of learning and exchange among world leaders in financial inclusion. The program will take place April 17 – 21, 2017 at the HBS campus in Boston, Massachusetts.

The 2017 HBS-Accion Program builds on 11 successful years and over 700 alumni – CEOs, presidents, executive directors, and other high-level professionals – from roughly 100 countries.

Today’s landscape of financial services for the base of the pyramid is increasingly complex, with a diversity of products, providers, and support organizations extending services to previously excluded populations. Disruptive technologies and new ways of doing business are creating new possibilities for reaching more people with more types of services. It’s an exciting time for financial inclusion, though for leaders steering their organizations through this landscape, the pace and magnitude of change may look overwhelming.

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  • Latin America and the Caribbean (LAC) and East and South Asia have the most conducive environments for financial inclusion. India stands out for the most progress in the last three years and is now ranked third
  • Further policy changes are needed if financial inclusion is to play the role envisioned in the Sustainable Development Goals
  • The digitization of financial services is key to increasing access to finance

The 2016 Global Microscope on Financial Inclusion shows that essential policies for bringing financial services to low-income groups are now widespread in the developing world. Nine of the 12 financial inclusion indicators covered in the benchmarking index improved globally in 2016, building on gains which have been made during the last decade. Even so, many countries have not moved significantly beyond basic policies, and greater focus is needed if financial inclusion is to play the critical role envisioned in the Sustainable Development Goals (SDGs).

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organisations in the field including the Center for Financial Inclusion at Accion. Now in its 10th year, the Microscope is the global standard for financial inclusion policy in developing economies.

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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.