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On August 4, the Brookings Financial and Digital Inclusion Project (FDIP) team held a public event to officially launch the second annual FDIP report. The report aims to assess country commitment to and progress toward financial inclusion across economically, politically, and geographically diverse countries. The 2016 report highlights recent developments across the financial inclusion landscapes of the 21 countries featured in the 2015 FDIP Report and provides detailed summaries examining the financial inclusion ecosystems of five new countries: the Dominican Republic, Egypt, El Salvador, Haiti, and Vietnam.
Together, the FDIP reports serve as a complementary resource to existing financial inclusion literature by providing detailed, annual snapshots of the financial inclusion environment in a diverse array of countries and by measuring country commitment to financial inclusion at the policy and regulatory levels, as well as the robustness of countries’ digital infrastructure and actual adoption of selected traditional and digital financial services.
The 2016 FDIP Report found that many countries across the geographic and economic spectrum are making progress toward financial inclusion. However, key data gaps, regulatory constraints, and capability limitations with respect to usage of formal financial services pose challenges for the acceleration of financial inclusion. Thus, to advance the availability and adoption of affordable, quality financial services, the 2016 FDIP Report highlights four priority action areas for the international financial inclusion community: identifying quantifiable financial inclusion targets; collecting, analyzing, and sharing data germane to countries’ financial and digital ecosystems; advancing enabling regulatory environments for traditional and digital financial services; and enhancing financial capability among consumers.
> Posted by Center Staff
What do industry leaders feel is the biggest risk facing their institutions in 2016? This question is the focus of the latest Banana Skins report for the financial inclusion sector, Financial Services for All: It’s All about Strategy. The report ranks the top perceived risks facing those providing financial services to un/under-served people in emerging markets. Produced by the Centre for the Study of Financial Innovation (CSFI), and sponsored by Citi and CFI, the study examines the rapidly changing and expanding financial inclusion landscape to better understand how providers view challenges like new technologies, new market entrants, client repayment capacity, and macro-economic risks.
This year’s report, the sixth in the series surveying risks facing the inclusive finance industry, embraces a broader scope than previous editions, which focused exclusively on microfinance institutions. The new report reflects the advances in the provision of financial services to the base of the economic pyramid and encompasses both established providers and newer entrants like commercial banks, technology companies, and telephone and communication companies. A survey with respondents spanning practitioners, investors, regulators, and other industry stakeholders comprise the report’s findings. It’s important to note that in addition to the Banana Skins report series on inclusive finance, there is also a Banana skins report series on insurance and on banking.
So, what were the results?
> 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.
> Posted by Christy Stickney, Independent Consultant
“Como tengo ya 57 años, ya no quiero más fuerte.” (Since I’m already 57, I don’t want [to work] any harder.) – A market vendor in Lima, commenting on her vision for her business’ growth.
“Tengo tantos planes, pero ya me siento cansado.” (I have so many plans, but I already feel tired.) — A 42-year-old owner of a bakery in Guayaquil.
“Después de pagar todo y sacar las hijas de la escuela puedo descansar.” (After paying off everything and getting my daughters through school I can rest.) — A 37-year-old paint store owner in Lima.
Entrepreneurs work hard—and when it comes to envisioning their older age they want to be able to have the luxury of slowing down. The above were common themes expressed by entrepreneurs in the three countries where I conducted my research as part of a CFI fellowship. “I’m tired.” “I never rest.” “We don’t take time off.” These are sacrifices associated with running one’s own business, especially among those who have grown their firms from a truly micro size, rising up from poverty and informality into what could be labeled as a “small enterprise” or SME (typically classified as those employing between 5 and 250 workers).
Throughout the developing world, active saving for retirement and participation in formal financial services for older age, like pensions, are minimal. Entrepreneurs of micro-businesses and SMEs face even fewer options than the formally employed, as they tend to operate outside the scope of either private or state-sponsored pension plans. The intention of my research was to learn about the nature of the micro-to-SME entrepreneurs and their businesses, as well as their experiences in growing their enterprises, overcoming hurdles, and utilizing available resources to their benefit. The goal of the research is to inform how to tailor financial services, which are key to enterprise growth, to this client niche. However, in studying these entrepreneurs and their businesses, I also encountered a pervasive alternative being pursued for the financing of one’s later years…
> 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?
> Posted by Hannah Sherman, Project Associate, CFI
To create sustainable impact in the financial inclusion landscapes of emerging markets, providers must engage, train, and/or learn from vast networks of customers. Prospective customers must develop the skills to effectively use financial products. Doing this well is both difficult and expensive. Arifu, based in Kenya, attempts to minimize this challenge by bringing together providers and consumers in a cheap, efficient way. Arifu is a new kind of platform that provides customer capability-building through mobile technology. Arifu tests, refines, and hosts content developed by various educational organizations via SMS on mobile phones. Arifu’s business model is designed with scalability in mind, and it claims that it can be 90 percent cheaper than conventional customer outreach programs.
Arifu’s digital learning experts work with providers to design and develop behaviorally-informed training, advertising, and data collection programs. Department-level financial accounts, budget controls, custom alerts, and cost-benefit analytics help organizations minimize, measure, and justify their programs down to each interaction.
Jayshree Venkatesan is a financial inclusion consultant focusing on innovative delivery models to serve the excluded. As part of the CFI’s recent financial capability-building project, Jayshree conducted a review of financial capability in the Indian context. India’s market is rapidly changing, with the influx of new banking licenses, government programs, technologies, and providers. In this podcast Jayshree discusses the state of financial capability-building in India, and in the post below, she offers some additional thoughts.
Recently the Reserve Bank of India (RBI) put forth draft guidelines on licensing universal banks. The RBI had already put forth a call for universal bank license applications and issued in-principle licenses to two applicants who then formed banks. In an industry where obtaining a license has not been seen as easy, the issuance of these guidelines is an unprecedented move and one that clearly aims at solving supply side challenges of financial access. In the last two years, competition between institutions has already begun increasing with the provision of the two universal bank licenses, 11 payment bank licenses, and 10 small finance banks. If one were to consider perfect conditions of demand and supply, this would be a fantastic situation and one would assume that the era of the customer had finally arrived. However, India also has one of the highest account dormancy rates in the world. Uptake and usage of financial services, especially those where usage is traditionally contribution-driven, such as insurance and savings accounts, continue to be low. For financial service providers, such behavior fails to build a strong business case.
> Posted by Saran Sidime, Operations Assistant, the Smart Campaign
Despite – or because of – economic growth, booming exports, and increased foreign investments in many African countries, income inequality on the continent, by many accounts, is increasing. As a region, sub-Saharan Africa has a higher level of inequality than the rest of the developing world. Globally, seven of the top 10 countries in terms of inequality are in Africa.
Contributing to the discrepancy is the lack of formal financial services within the region, according to Shaking up Finance and Banking in Africa, a policy brief produced by the Africa Progress Panel, which draws its analysis from the 2014 Africa Progress Report. Only one in five Africans have any form of account at a formal financial institution. Like most parts of the world, the poor, rural dwellers, and women are particularly excluded. The strategic deployment of sustainable and inclusive finance is a vital ingredient to ensuring that Africa’s long-term growth encompasses all individuals equitably.
Between 1990 and 2012, the proportion of Africans who were poor fell from 56 percent to 43 percent, according to the World Bank. However, when you account for population growth, the total number of individuals living in poverty increased. The most optimistic scenario, calculated by the World Bank, indicates that across this 22 year window, the number of Africans living in poverty increased from 280 million to 330 million. On the other side of the spectrum, Africa is now home to over 160,000 people whose personal fortunes exceed USD 1 million, which represents a doubling in the number of individuals of such wealth since the turn of the century.
> Posted by Center Staff
Remember the first time you tried to cook? Chances are you were nervous or at least apprehensive about how the food would turn out. If friends or family were in attendance, or, worse, were to eat what you were preparing, you were probably even less confident. Remember the second time you cooked? Or the third? Probably not. The more you actually got into the kitchen, the more your skills sharpened, and the more routine it became.
Using formal financial services for the first time, like cooking, can be intimidating – especially for people not used to interacting with formal institutions. Banks are big and complicated. A person of moderate means might feel that the bank will treat her as a low priority customer. And the notion of entrusting one’s livelihood to an unfamiliar entity is scary.
As part of CFI’s new financial capability project, we scanned the globe for the top innovations to help clients build their capability and make sound financial decisions. One of the behaviorally-informed practices we identified among these innovations as having great promise to affect changes in behavior is learning by doing, a strategy closely connected to effective, practical learning. Think of how much quicker your capability grew by actually cooking, than by reading a cook book.
Learning by doing, whether through technology-enabled simulations, or in real life with the supervision of front-line staff, enables customers to overcome the initial barriers to use that come with unfamiliarity and lack of confidence. Learning by doing offers customers the space to learn and get comfortable with financial products. This can be especially valuable for customer activation.