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> Posted by Elisabeth Rhyne, Managing Director, CFI, and Michael Mori, Senior Designer, Dalberg Design Impact Group
The following post was originally published on NextBillion.
From a mathematical point of view, borrowing and saving are mirror images. In both cases many small payments allow for one or more large payouts. Only the sequence differs. Stuart Rutherford’s classic description involves “saving up” (saving) and “saving down” (borrowing), both for the purpose of assembling “usefully large sums.” When viewed in this way it is clear that saving and borrowing can serve much the same purpose, and at times can even substitute for each other.
This is true, as far as it goes, and it underscores the importance of disciplined payments of small amounts as a path to obtaining the lump sums needed for major purchases.
We recently traveled to India (Mumbai and rural Maharashtra) and Kenya (Nairobi and farming villages outside of Nyahururu) as part of a research project led by the Center for Financial Services Innovation and the Center for Financial Inclusion, and conducted by Dalberg. In speaking with a variety of residents, we were struck by vast differences in the way people make borrowing and savings decisions.
The people we talked with carried out most of their financial actions through informal instruments, though many were members of cooperatives and some did have (largely inactive) bank accounts. Instead of using these formal options, they borrowed mostly from friends, family and moneylenders. They saved in cash stashed at home, livestock, land and gold, amongst other assets. We asked how they decided where and how to save and borrow. They very willingly described their thought processes and the considerations that guide them in making decisions. As it turns out, their decisions about borrowing hang on surprisingly different criteria from those about saving, bearing on very different realms of their lives.
> Posted by Brian Kuwik, Chief Regional Officer, Africa, Accion
Today around the world, we celebrate our youth and their achievements and reflect on the goals of “eradicating poverty and achieving sustainable consumption and production” for the youth of this generation. To achieve these goals, a culture of saving money consistently over time will be important.
How can financial institutions, policy makers, and parents encourage the youth to save? A six-year project (2010-2015) across four countries, YouthSave, led by Save the Children and Washington University examined this question. Recently, I attended the project’s dissemination event in Accra, Ghana and learned about how, as part of the project, a bank partnered with middle and secondary schools to offer formal savings accounts to students 12-18 years of age.
Many Ghanaian students are saving money informally in their schools because they either lack national identification documents or cannot find an adult whom they trust to be the primary signatory to a bank account. Some entrepreneurial students act as “susus” collecting cash from their classmates on a daily basis and safe-guarding it. Since they often keep one day of savings as a fee for this service, this can be a costly way of saving.
> 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 Julia Arnold, Financial Inclusion Consultant
If I ask you to picture an American who is financially vulnerable, what do you see? Do you see someone living from paycheck to paycheck? Someone who patronizes a payday lender or car title lender? Perhaps a family struggling to decide which bill to pay at the end of each month? Someone with a high school degree working a few part-time, low-wage jobs? And how many people do you think fit into this category in the U.S.? Twenty percent? Thirty percent?
What if I were to tell you that in fact nearly half of Americans report that they could not come up with $400 in an emergency? That’s about 150 million people – a number so large you’re bound to know at least one person in this group. Financial insecurity or vulnerability isn’t just a concept discussed among development professionals looking to support a microfinance institution in Kenya or India; in the U.S., it’s a reality for millions of our neighbors and friends. Those living in perilous economic existences are not just the people we imagined above. The financially vulnerable are hiding in plain sight.
> Posted by Hannah Sherman, Project Associate, CFI
A financial shock can happen suddenly and at any time, and a single unexpected expense can push many American households into financial hardship. Something as straightforward as a car repair can have a snowball effect on a family’s finances if they are not prepared for it. A 2015 report from the Pew Charitable Trusts found that in 2014, 60 percent of American households experienced a financial shock, and that the average household spent half a month of income on its most expensive shock.
While most households have at least a loose budget for recurring expenses like housing, food, and transportation, most are not prepared for additional unexpected expenses, a study from the Center for Financial Services Innovation (CFSI) found. Consumers’ attitudes and behaviors are typically consistent with their financial health – i.e. those who are financially healthy are more likely to have recovery strategies available when setbacks strike.
> Posted by Jeffrey Riecke, Communications Specialist, CFI
This morning I had the luxury of splitting an Uber with my girlfriend for our to-work transportation. Neither she nor I are affluent by United States standards, but I would say we’re relatively financially healthy. Most months, our expenses like rent, food, medical bills, and student loans are low enough compared to our incomes that we have money left over for things like Uber rides, dinners out, and the occasional vacation. We have formal financial products and understand them well. Financial health for us means the combination of our financial flows and our financial products positions us for financial stability in the immediate and long-term, even as we grow older and our financial demands dramatically change.
Building financial health, for me, requires attention to my day-to-day financial activities that help build my resilience and allow me to take advantage of opportunities. It’s having savings quietly accumulating for a rainy day or for that bicycle purchase. It’s having access to loans that help if I want to go back to school, buy a house, or start a business. It’s the ability to pay up when an emergency visit to the hospital is necessary, and it’s the confidence that if my house is broken into I can replace my possessions.
My own financial health is very much related to the unique day-to-day financial needs, opportunities, and emergencies that exist in my life. Someone who is unemployed, or older, or supporting a child, or enrolled in school would have a much different assessment of their own health. Similarly, someone in a low or middle income country—where the Center for Financial Inclusion focuses most of its attention—would have different financial needs and therefore different financial health. Despite these differences, however, the thing I’ve noticed is that many of the big financial issues around the world are the same. As part of the Center for Financial Service Innovation’s (CFSI) financial health blog contest, I wanted to offer some observations along these lines.
> 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 Center Staff
Today, the global financial inclusion celebrity (and Prime Minister of India) Narendra Modi visits with United States President Barack Obama. The pair will discuss the deepening U.S.-India relationship, including progress on climate change and clean energy partnerships, security and defense cooperation, and economic growth priorities. As a reader of our blog, you’re likely aware of Prime Minister Modi and India’s commitment to advancing financial inclusion in the country. Indeed, at the close of 2015, we named India our Financial Inclusion Country of the Year. In honor of Prime Minister Modi’s visit today, we wanted to take a moment to spotlight some of the strides that India has taken to bank the unbanked. After a brief review of the broad initiatives, we identify some highlights from recent months.
> 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.