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Insights from new CFI Fellows research on integrating human touch in Kenya’s digital financial services landscape.

> Posted by Alexis Beggs Olsen, CFI Fellow

Mbugua, owner of a restaurant, a butchery, and a dry goods store in Nairobi, Kenya has actively used financial services to grow his businesses from the meager beginnings of a small stall selling boiled cow heads. He is currently juggling four digital loans and two microfinance loans. Whenever possible, Mbugua prefers to interact with his financers digitally to save time. Yet, like most of the Kenyans my research associate and I spoke with as part of our CFI Fellows research project, Mbugua considers in-person interaction to be critical at certain stages. “Face-to-face is tiresome. There’s a time factor,” he said. “But it’s 100 percent perfect. Your questions will be exhausted. And you can’t negotiate with the phone.”

Our research seeks to understand when and why customers prefer human over digital interfaces across their financial services customer journeys – and vice versa. We focused on value-added financial services, including loans, savings, and insurance, and we chose Kenya because of the country’s deep penetration and market maturity of mobile phone-based financial services. We conducted in-depth qualitative interviews with 104 respondents.

We discovered that a “centaur” solution—one that unites the strengths of both tech and human touch—offers the most promise for both customers and financial service providers (FSPs) targeting the base of the pyramid.

Digital interfaces outperform human interaction in a number of areas: digital services are often more convenient (once you learn how to use them), more predictable and consistent (with the exception of loan approvals and rejections, which are often opaque), and less stressful for customers during collections. However, most Kenyans – even those who already use low-touch digital products – prefer to interact with a person face-to-face at key stages in their customer journey. We found that while Kenyans are very comfortable conducting transactions digitally, other key aspects of the financial service customer journey are not adequately handled by digital means alone.

Like most of our respondents, Mbugua wants to interact directly with a person to accomplish three critical tasks:

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> Posted by Jeremy Gray, Engagement Manager, Cenfri

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Why is it that 80 percent of bank account holders in Madagascar only use their accounts once a month or less?

What makes the parents of a child requiring unforeseen medical treatment in the DRC choose to approach their mutualitée (a local form of informal mutual aid society) for a loan despite access to a microfinance institution or local bank?

If a Zimbabwean has a mobile money account, why does he ask a family member to send him money in the care of a bus driver rather than through that mobile account?

The gap between uptake and usage is well documented in financial inclusion. But while these insights are important evidence of the gap, they tell us very little about why this gap exists. The result is that we know there is a problem, but without understanding why, we can do very little to change the problem.

To help us better understand the why, we at insight2impact (i2i) have been exploring the factors that affect usage. In doing so we have incorporated insights from across multiple fields on human decision-making and applied the most relevant aspects of existing models and understanding to the field of financial inclusion.

Decision-making is important for both financial service providers (FSPs) and policymakers to understand, but it isn’t simple, and, typically, our decisions are not based on one single factor. Furthermore, psychology and behavioral economics have illustrated that in some cases we are not even cognitively aware of many of the important factors that influence our decisions.

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> Posted by Kim Wilson

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How do refugees finance their journeys and which expenses need financing? This was the question that a team of us at Fletcher set out to answer in our study “The Financial Journey of Refugees.” We studied the routes and financial challenges of more than 100 refugees in Greece, Jordan and Turkey, between July 2016 and April 2017. The refugees we interviewed had traveled from South Asia, Central Asia, the Middle East, East Africa and West Africa.

Regardless of their country of origin, with the exception of Syria, a refugee’s biggest expense was the cost of hiring a smuggler. Smuggling expenses ran about 85 percent of the total cost of the journey. The smuggler’s fee included important services: travel by air or overland, depending on the refugee’s budget, guide services across borders, payment of bribes at border crossings, and documentation falsification expenses. Smuggling prices varied widely by country of origin (some borders being porous, others sealed tight), by how deluxe a trip was (air versus ground), by numbers of borders crossed (affecting the number of falsified IDs required). To give an example, journeying overland from Afghanistan through Pakistan, Iran, and Turkey to Greece might cost $7,500 per person, a price that went up or down based on shifting rules and border crackdowns. Traveling from Eritrea to Greece might cost the same amount. Traveling from Syria to Turkey could cost as little as $500.

The price of the journey was one factor in a traveler’s safety – the higher the cost, the better the traveling modes, and the safer the travel. While what refugees paid their smuggler was important, how they paid them was equally important. Did the refugee pre-pay the kingpin smuggler in advance of the journey? Did she post-pay him after arriving safely in Greece or Germany? Did she pay leg by leg? All these strategies were in play and we outline them in our report summary and they are detailed by the refugees themselves in a Compendium of Field Notes. Below we describe two of many strategies.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Client of Akiba Bank in Tanzania

Around the world today, financial service providers, technology entrepreneurs and policy makers are engaged in building a financial system that reaches out to previously excluded people, such as lower income people, very small businesses, rural dwellers, and women. Although this work is carried out in the name of the consumer, all too often, scant attention is paid to the real needs and desires consumers and very small enterprise owners have.

With that in mind, here is a thought experiment. A thought experiment is an “exercise of the imagination used to investigate the nature of things.” The question for this experiment is this:

Imagine that consumers were the creators of the inclusive finance system. What would such a system look like?

What characteristics would emerge if the needs, desires and preferences of the target customers of financial inclusion were the driving force to shape their services? The observations here are drawn from consumer research conducted or commissioned by the Center for Financial Inclusion, including research in Peru, Pakistan, Georgia and Benin for the Client Voice project of the Smart Campaign, in Kenya and India for our project on financial health, in India and Mexico for our study of financial capability, and again in Kenya and India for two CFI Fellows’ projects on the role of human touch in the digital age. I offer ten propositions based on this research.

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> Posted by Allyse McGrath and Dennis Ferenzy, Analyst at CFI and Associate Economist at IIF

Contrary to popular rhetoric, banks do not view fintechs primarily as competitors. Increasingly, they seek them as partners. This is the message of How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlinesa new joint report from the Center for Financial Inclusion at Accion (CFI) and the Institute of International Finance (IIF). The report, launched today, finds that banks, insurers and payment companies don’t see fintechs as “little more than pinpricks for a banking mastodon with trillions in assets,” as The Economist colorfully described the fintech-bank relationship in 2015. The relationships between these players are more symbiotic than combative, because fintechs and mainstream financial institutions bring different strengths. With partnerships, fintechs get to scale their technology and access capital, while financial institutions gain assistance to improve product offerings, increase efficiency, and lower costs.

As it turns out, these are all goals with special relevance to low-income customers who look for products and services that are more convenient, less expensive, and higher quality. That makes financial institution-fintech partnerships a crucial strategy for meeting the financial needs of the unbanked and underbanked around the world. During our in-depth interviews with over 30 industry participants, both mainstream financial institutions and fintechs, CFI and IIF identified dozens of effective bank-fintech partnerships working at the base of the pyramid in emerging markets. The report highlights 14 of them.
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> Posted by Chris Wolff

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At long last, Game of Thrones (GoT) has returned to our world!

Showing us ways the realm can collide with our realities, the cast’s appearance on Conan at last year’s Comic-Con drew attention to care for refugees fleeing Syria with the IRC. So here’s an allegory global citizens can follow: “Game of Thrones: Financial Inclusion edition!”

To play this game, start by identifying which character best embodies your own industry or strategy. Here’s a rundown of all the actors that can alleviate poverty in various manners.

Banks = Lannisters. As the major incumbents with the most money and power, in both worlds they’re a strong ally, but better make sure your interests stay aligned. I’m not referring to the villainy or goodness of individual characters, but as a family house you have to admit the kingdom hasn’t run without them. And as with the rivals who take Tyrion in and listen to his counsel, wouldn’t you want such a seconded expert able to understand multiple perspectives and models?

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> Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

In the aftermath of the Panama Papers, the words “offshore” and “tax-haven” are often taboo rhetoric within the investment industry. Perhaps even more so in the impact investing space, where fund managers have both fiduciary and social responsibilities. The Financial Inclusion Equity Council (FIEC; of which CFI is the secretariat) recently published the report Offshore Financial Centers for Financial Inclusion: A Marriage of Convenience to better understand attitudes and practices when it comes to how equity impact investors use offshore financial centers (OFCs). To dive into this topic CFI and consultants Daniel Rozas and Sam Mendelson interviewed FIEC members from the U.S. and Europe. Conversations resulted in varying opinions on the practice of using OFCs, with three key considerations for doing so: administrative efficiency; tax liabilities; and transparency and ethics.

Among all FIEC members interviewed, administrative efficiency was unanimously a primary driver in making the decision about where to domicile funds. Fund managers cited the importance of understanding local regulatory requirements, the presence of embassies, bank relationships, management facilities, remittance corridors, and convenience of location as important considerations in their decision. The reality is many low income offshore countries lack the infrastructure and capacity for supporting the administrative requirements of investments. Additionally, there are increasingly stringent AML/KYC requirements that disproportionately affect lower-income countries creating administrative burdens. The new CFI report states: “…this is at least one of the goals of using OFCs – not to avoid the regulators, but to outsource some of the reporting burden to entities that specialize in this service that have relationships to do it efficiently.”

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> Posted by Elisabeth Rhyne, Managing Director, CFI

At CFI we often talk about financial health as if it is a crisp, free-standing concept. Moreover, by connecting financial health to financial inclusion we imply – and hope – that we can affect financial health by offering the right kind of financial services and/or developing a person’s financial capabilities. However, while there is truth to this view, it is sometimes easy to overestimate the power of financial services. We need to think about how both financial and economic factors intertwine to create outcomes. If we compartmentalize financial actions, we ignore the very powerful economic factors that influence financial health.

As defined by the Center for Financial Services Innovation (CFSI) – and embraced by us at CFI – three elements must all be present to declare a person, family or microenterprise to be financially healthy:

  • Balanced day-to-day money management – outflows balanced with incomes over time.
  • Protection from shocks – ability to draw down, borrow or call upon resources to lessen the blow when bad things happen.
  • Pursuit of goals – ability to accumulate resources for medium to long-term purposes, whether personal or productive.

In speaking with low income people around the world, we find that many people intuitively define financial health in these terms, and nearly everyone tries to pursue financial health in their own lives. But achieving these three elements is not just a financial task. It requires both economic and financial actions. (It also hinges on personal choices and capabilities, but we will set these aside for now.)

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Last month CFI invited all of Accion’s staff, both inside and outside the U.S., to complete a questionnaire on their own financial health. Many of you have seen and even taken this survey (see blog post here). The survey is broadly based on the U.S. financial health framework developed by the Center for Financial Services Innovation (CFSI), which we believe is a better fit for Accion employees than the global financial health framework we developed with CFSI for base-of-the-pyramid markets. In this post we report on what we found when “Accionistas” took the survey.

It turns out that Accionistas are a pretty financially healthy bunch. Three quarters of the 122 people who took the survey scored in the good or excellent range. Given that Accion employees have steady employment with fringe benefits (pension savings plan, health insurance), this is not terribly surprising. As Jonathan Morduch and Rachel Schneider show in The Financial Diaries, income volatility is one of the biggest causes of financial stress among American families. Thankfully, Accion employees, like most employees of international development non-profits, can count on the same paycheck week after week, and this makes the task of staying financially healthy much easier. Health insurance is also an essential source of financial protection, as is car insurance.

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> Posted by Allyse McGrath, Specialist, CFI

How financially healthy are you? Financial health is a relatively new term in the financial inclusion community, and aims to provide a model for assessing how well one’s daily financial systems enable a person or household to build resilience to shocks and pursue opportunities and dreams. Last month, CFI in collaboration with The Center for Financial Services Innovation (CFSI) and Dalberg’s Design Impact Group (DIG) launched the results of a year-long study into how to adapt CFSI’s U.S.-based financial health framework to a developing country, BoP context. The study found that the concept of financial health can be applied to lower-income people in emerging markets, though the indicators and measures of financial health in this context were different. We encourage you to check out the full report, Beyond Financial Inclusion: Financial Health as a Global Framework, to learn more about our financial health framework for the developing world.

We also encourage you to engage with your own financial health in order to get a better grasp on the concept. To better understand the concept ourselves, CFI and Accion staff (building on the work of our year-long study and on the U.S. Financial Health Framework of CFSI) recently participated in an organization-wide financial health survey. Over 120 Accionistas took the survey and received assessments of their financial health. After reviewing the responses, we have uncovered some interesting insights into how people’s debts evolve as they age and the diverse set of tools they are using to manage their financial lives.

As a next step in the process of understanding, we want to share this survey with you. We hope it will help you both engage with the concept of financial health and potentially improve your own financial health. We also hope your feedback will help us strengthen our framework and this tool.  Finally, we look forward to reporting back soon on the financial health of CFI’s (anonymous) blog readers!

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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.