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> Posted by Carol Caruso, Senior Vice President, Channels & Technology, Accion

Isidro Medina Zapana, weaver, client of Accion partner Credinka in Peru

Peru’s pursuit of financial inclusion has set a standard, helping Peru capture the top ranking in the Economist Intelligence Unit’s Microscope for the last eight years. Accion’s Channels & Technology team, an advisory practice within Accion focused on digital financial services (DFS), recently returned from Lima, where we saw firsthand the exciting promise of digital payments in Peru.

Enabling Legislation

Innovations in financial technology are important to promoting financial inclusion, and the Peruvian government has passed critical legislation and regulations that enable developers to design and launch new products.

With almost 80 percent of Peruvians lacking access to a bank account, it’s clear why Peru’s government has committed so many resources to advancing financial inclusion. The government has launched diverse interventions in the past five years, and in August 2015 published a National Strategy for Financial Inclusion that outlines a more coordinated and cohesive approach to an issue that affects millions of Peruvians. The new strategy aims to provide access and responsible usage of a transaction account to at least 75 percent of adults by 2021.

The National Strategy’s focus on digital payments could bring about even greater impact, particularly in the harder to reach areas of Peru. Despite the fact that 80 percent of Peruvians are financially excluded, roughly 65 percent have mobile phones. Recognizing this, the National Strategy focuses on connecting those who have phones to financial services through digital payments adapted to the needs of the population.  Even as recent as last month, the Bank Superintendent provided new electronic money issuer licenses to three service providers: G-Money, Servitebca, and Jupiter.  This type of market stimulation is great news for Peruvian consumers and the payments ecosystem.

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> Posted by Carol Caruso, Senior Vice President, Channels & Technology, Accion

Providing micro financial services is often a costly endeavor. As practiced in most places today, it involves many manual processes which limit the potential for scaling up and expose vulnerability to poor service, errors, and fraud. Furthermore, as telco operators and fintech companies bring services to customers through new distribution mechanisms, microfinance banks (MFBs) need to explore innovative ways to competitively deliver their services. Hence, it is promising to see a rise in the use of tablets, smartphones, and other devices housing applications that digitize field operations. Digital field applications (DFAs) offer MFBs a way to take advantage of technology to solve some of these challenges. Globally MFBs have deployed DFAs in a wide variety of ways. For example, loan officers equipped with DFAs can process loan applications and answer client inquiries in the field, eliminating paper forms, digitizing data, and saving time and money for organizations and their clients. Bringing financial services out to clients can achieve a much-needed personal touch and can even increase the richness of the client interaction. For example, client education and consumer protection awareness can be more effective when digital messages are delivered by a field staff member. DFAs can also improve credit operations. When assessing loan applications and risks, field officers can operate more efficiently if digitally equipped.

In order for MFBs to successfully leverage these tools, both for their and their clients’ benefit, they must understand their business case, and incorporate best practices for implementation that have been derived from lessons learned by others. There is no shortage of pilots that have been halted due to challenges arising from lack of experience and understanding – despite hardware availability or subsidies.

With this in mind, Accion’s Channels & Technology group have published a case study aiming to provide some clarity on the impact of DFA use by examining the business case, implementation process, and effects for three MFBs: Ujjivan Financial Services in India, Musoni Kenya, and Opportunity Bank Serbia (OBS). Our case study presents a consolidated review of the findings from the three MFBs, with an accompanying Excel-based business case toolkit, available for MFBs to examine the potential impact a DFA might have on their business. Individual cases presenting the findings from each institution are also available – here, here, and here.

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> Posted by Jeffrey Riecke, Communications Associate, CFI

Albeit a relative newcomer to microfinance, China’s market has grown rapidly in recent years. In 2012 the country had 6,000 microcredit providers, but only 25 percent had been in operation for more than three years. Today the number of providers is a few thousand higher, spanning nonprofit institutions, government programs, microcredit companies, commercial banks, rural credit cooperatives and banks, village and township banks, and P2P lenders. Even Alibaba, China’s internet giant, is involved. It has offered loans to over 230,000 micro-entrepreneurs through its AliFinance arm, launched in 2011.

Earlier this year Accion’s Training and Capacity-Building team conducted a comprehensive assessment to determine the training and knowledge-sharing needs of the microfinance providers sustainably serving the poor in China. The assessment was carried out in partnership with the China Microfinance Institution Association, the China Association of Microfinance, and the PBC School of Finance Tsinghua, with support from the MetLife Foundation. As part of the assessment, the team compiled a landscape of the country’s microfinance institutions. Offering a snapshot of the state of the market and the challenges that lie ahead, here are some of its findings.

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> Posted by Carol Caruso, Senior Vice President, Channels and Technology, Accion

Guatemala presents great potential to advance financial inclusion through the adoption of digital financial services (DFS). Only 22 percent of the population has a bank account with a formal financial institution – in most cases one of the three largest commercial banks – while almost every Guatemalan household has a mobile phone (8.8 million unique subscribers among a total population of 15.5 million). Yet most financial transactions are still conducted at bank branches. The logistics challenge of reaching isolated rural communities results in high distribution costs for the banking sector, hence it is no surprise that in 2012 Fitch Rating described the banking system as highly inefficient.

Some innovation in delivering financial services has taken place in the last few years. A few banks have implemented agent networks and the three mobile network operators now offer mobile financial services. But the results achieved are far from what the players and the supervisory authority were expecting in terms of usage and increased financial inclusion. For example, the leading mobile money service, Tigo Cash, is being used by MFIs in a limited way. Instead of empowering clients to use the available mobile wallet, clients primarily use Tigo agents for cash-in/cash-out transactions. While this over-the-counter (OTC) service through an expanded distribution channel has benefits and works in nascent environments, it is far below the potential of DFS in Guatemala.

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> Posted by Alexandra Rizzi and Sonia Arenaza, Deputy Director of the Smart Campaign and Director of Accion Channels and Technology

This is the first of two blog posts about responsible digital financial services, on the occasion of the Responsible Finance Forum in Perth, Australia.

The Smart Campaign has watched with excitement as new forms of digital financial services (DFS) stand poised to bring financial access to millions of lower-income households previously excluded from the financial system. The potential benefits of this new ecosystem are enormous and include an array of positive outcomes ranging from lowered transaction costs to consumption-smoothing, among many others. Nevertheless, the excitement over new possibilities must not obscure the need to evaluate and respond to new risks to clients.

In an ongoing mapping exercise conducted by the Smart Campaign and Accion’s Channels and Technology team, we identified various things that can go wrong for clients of DFS, such as:

  • Clients lose their funds after an agent fails to take proper security measures or after a service outage
  • Agents charge unauthorized fees for transactions under guise of complicated pricing and fees
  • Clients lack or are not offered adequate customer care channels
  • Lack of data privacy due to clients not being informed or misinformed on how their data and history is being used or shared
  • Agents lacking liquidity serve only their favored clients

While these risks are grounded in anecdotes from the field, there is still much more evidence needed on the consumer harms that actually happen, including where they happen and how often. The Responsible Finance Forum in Perth will host several sessions that present demand-side evidence to help identify high priority risks.

But, what then? Once risks are known, how best to try to minimize them?

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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.