The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

CARE International promotes microinsurance as part of the range of services and products that the poor need to help overcome poverty and reduce their vulnerability to shocks. However, we also know that as with all products, to be sustainable, any microinsurance model also needs to be profitable. Fortunately for the insurance industry and its clients, it’s being demonstrated that increasing profit and promoting financial inclusion do not have to be mutually exclusive. New research from our work in India shows that microinsurance distribution strategies that prioritize building clients’ financial literacy lead to almost three times as many new enrollments as those that do not.

There are a number of substantial challenges in marketing and distributing microinsurance products. Frequently, it is less a matter of marketing a product than building a new market from scratch, often in remote, hard-to-reach areas, with a client group without access to formal financial services. These factors make the costs of marketing to, distributing to and servicing clients disproportionate to the resulting margins. A number of strategies are being piloted globally to circumvent these challenges. For example, building off of growing mobile penetration rates among developing country populations, one initiative bundles an insurance product with the purchase of a SIM card. While this requires a lower initial investment, the jury is still out on the long-term value of such products. Unless clients receive thorough product education, such “blended approaches” might hinder awareness of the insurance product, as well as re-enrollment and the building of any brand loyalty.

Our analysis of microinsurance distribution took place in Tamil Nadu, India and considered three different marketing strategies: mass enrollment campaigns (e.g. public plays), group education through smaller self-help groups (SHGs), and one-on-one individual marketing. For individual marketing, agents from local NGOs sat down with women and walked them through the basics of insurance and how different policies work. Those who received individual marketing were selected through a variety of means, but primarily through their enrollment in SHGs. Because of the target market (rural, semi-literature, without access to formal financial services) these interactions involved not just salesmanship but also a mini course on personal finance.

After comparing costs, first time enrollment rates, and re-enrollment rates, we came to a surprising finding: one-on-one marketing provided the best return on investment. While this individual approach required higher initial investment in personnel time, it was much more successful in selling and re-enrolling consumers in policies, leading to a lower cost per policy. Individual marketing, which prioritized financial literacy through individual client education, enrolled almost three times as many new policy holders as the next most successful strategy of mass campaigns.

Simply put, customers at the base of the pyramid (BoP) have limited funds and need to invest them wisely. The best practice seems to be engaging with potential clients on a one-on-one basis to ensure that they fully understand how the product works – rather than just making advertising promises. This is a particular challenge for financial products like microinsurance, which ask clients to take the risk of making an investment which, if they don’t claim against the policy, they might see as a loss. One-on-one education on the basics of insurance goes a huge way to introducing the concept of microinsurance to new market bases, and to building enough consumer trust that they are willing to make the investment.

Implications for microinsurance:

1. Financial literacy isn’t charity, it’s a key part of any marketing strategy. The biggest implication of this research is that for microinsurance companies, financial literacy isn’t just corporate social responsibility, it’s core business. For BoP markets, financial literacy and marketing should be seen as synonymous. Given the generally negligible margins in microinsurance, any means of expanding the consumer base is no small feat.
2. Link with informal financial providers. CARE’s research through the Banking on Change partnership found that linking informal savings groups like SHG’s with formal sector banking could inject $145 billion into the global economy. The microinsurance industry can benefit from this. Strategically linking with SHG’s is an opportunity for the insurance industry to connect with groups that have the savings to invest in insurance products and further expand the potential market.
3. Draw on local partnerships. Incorporating financial literacy as core business benefits from local partners, like NGOs. CARE research identified local NGO staff members as the biggest influencers on whether or not clients signed onto a policy. These community-level interfaces distributed microinsurance to the “last mile” and were a crucial part of clients’ insurance experience.

For too long financial literacy has been viewed as charity, or the exclusive domain of the social bottom line. It is time to recognize financial literacy not just as a key element of financial inclusion, but as a key strategy in product creation, sales and distribution at the base of the pyramid.

Alexa Roscoe is a Private Sector Advisor at CARE International UK. This blog draws on research carried out on CARE India’s Insure Lives and Livelihoods project by Sigma Consulting, funded by the UK Department for International Development.

 Image credit: CARE International/ Helene Barnes

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Developing Financial Products Fit for the Poor

Kim Wilson, of the Fletcher School of Law and Diplomacy, is a consummate educator who knows that drama leads to learning. That’s why she staged a competitive debate to kick off her Extreme Inclusion conference.

The Proposition: Financial inclusion means formal inclusion.

On the Pro side were myself and my esteemed colleagues Marguerite Robinson, emerita extraordinaire, Lauren Hendricks, of Care’s Access Africa conference, with coaching from Ahmed Dermish of Bankable Frontier Associates.

Taking the Con side were Ahmed’s colleague from BFA, Daryl Collins, together with Ignacio Mas, unaffiliated innovative thinker, and Jenny Aker of Fletcher, coached by Nick Sullivan, author of Money Real Quick: The Story of M-PESA.

Peter Walker of Tufts wielded the gavel with wit and a tiny hint of malice. He symbolized the Pro side with a green spike heeled shoe, and the Con side with a pink flip flop.

Unaccustomed as I am to public speaking, I took up the last position on the Pro side, with three minutes to make my points. Here’s what I said:

1. Development is about building societies that offer opportunity and connection to everyone. The important word is building. Let’s look where we are going. While many low income people today use and possibly even prefer informal financial services, one cannot consider this the path to the future. If we want to see the bottom 20 percent of the population become economically successful, there must be a path to success. We need only look to the accomplishments of microfinance in bringing microcredit to hundreds of millions in the past two decades to be confident about the prospects for major change in the future.

2. Formal financial services have the power to do what financial services are designed to do at a level that accomplishes more for the people who use them: they pool and diversify more risks; bridge longer distances and time spans. Now, with technology helping, they can do this faster, safer, cheaper, and more conveniently. And for millions of people. As more people have higher incomes, they will need the extended capabilities of formal services. Informal services might be good for meeting small emergencies, but formal services will be needed for building a business, buying a home, or preparing for old age.

3. Informal services have their place as precursors, for those who cannot be reached formally, and they will continue to be used throughout a person’s transition from informal to formal. But ultimately, informal services will become marginal or supplemental. How many of us here today would want to turn back the clock in our own lives and revert only to informal services? (The room grew deathly still and not a hand was raised.)

4. Many of us are tempted to portray the best of informal (so friendly and social) versus the worst of formal. The best qualities of informal services stand as a challenge to formal providers – a bar providers must clear if people are going to use their services. On the other hand, informal services can be harsh and harmful, and people may choose formal services to avoid some of these problems. But in truth, all financial services have light and dark sides. That’s why it’s the duty of everyone working in financial inclusion to bring the power of formal services to people in a safe, prudent, and respectful manner.

5. The hundreds of millions of people around the world, many of whom are seeing their incomes rise and seeking formal services, deserve the chance to benefit from what such services can offer. We are here at a school dedicated to training development professionals who want to work for a better world. If we don’t work for formal financial inclusion, we are relegating today’s financially excluded to stay off the path of development and remain marginal members of their societies forever. (Applause.)

I’m sure after reading these remarks, you will cast your vote with the green high heel team.

Unfortunately, the audience went with pink flip flops.

Stay tuned and we will bring you the words from the winning side.

Image credits: The Fletcher School

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The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

CFI has rightly identified that having a range of financial products informed by client needs is a key priority area for achieving full financial inclusion. Through the Banking on Change Partnership, CARE, Plan, and Barclays have developed new savings-led products based on a link between informal savings groups and Barclays bank branches that have proven to be a good fit for low-income clients in the current financial services landscape.

To date, Banking on Change has developed three different types of savings accounts and an overdraft facility, connecting a total of 500 groups (that’s around 25,000 individuals) to Barclays branches. Together these groups have deposited $103,694 into accounts, showing that linkage with a global bank is possible when done in a controlled and responsible way.

Now, for the details…

The Uwezo savings product in Kenya is a good example of a Village Savings and Loan Association (VSLA) product designed with client needs in mind. The design process started with an assessment of the group’s needs, which clearly brought out the fact that members had greater financial services needs than the VSLAs could provide. We learnt that members could meet the obligations of these more formal financial services, provided they were packaged appropriately and delivered through the right kind of channels.

With this in mind, Barclays adapted its procedures to allow savings groups to open accounts easily. Before this initiative, formal registration with the Chamber of Commerce was required to open a group account. To simplify the process, Barclays agreed to accept a photocopy of the savings group’s constitution, signed by all members, as the necessary identification. By allowing group accounts, Barclays has lowered its transaction costs, as one group account is far more economical to administer than 25-30 individual accounts.

How is the Uwezo account different?

Uwezo (and the other products created by Banking on Change) are part of Barclays mainstream business at the country level, and are intended to become commercially viable sooner or later. Currently with the Uwezo account, withdrawals and deposits are free, there is no maintenance fee, and the opening balance requirement is 2,000 Kenyan Shillings (around US$23).

Barclays recognizes the real business potential presented by this largely unbanked, informal sector and the strategic importance of designing appropriate products that can support sustainable financial inclusion. The demand for linkage and potential for scale-up is enormous. Today there are about 6.3 million members of savings groups in Africa, most of whom need financial services that can complement the ones they can access in their VSLAs.

Guiding principles

This process of linking members of informal VSLAs with Barclays branches is guided by a set of principles, originally developed by CARE, which first began linking savings groups with other national, rather than global, financial service providers. These principles are essential to ensure sustainability and to ensure both the group members and the bank benefit from the experience. Some of these principles are:

• Linkage is demand-driven not supply driven: linkage relationship should be based on the needs and demands of the groups.
• Linkage is savings-driven and always starts with the offer of savings products.
• Minimize the use of savings as collateral: the flexibility and accessibility of savings is considered an important attribute by group members. Where possible, group savings should not be held as collateral by financial institutions.
• Groups are prepared before they are linked. This covers any basic financial literacy modules not already provided as part of the process of forming the group, as well as specific information about the proposed institution they will be linked with, the products the institution is offering, account opening requirements, and any other relevant information. This information allows the groups to be better prepared to enter the formal financial sector and use new types of financial services.
• A conservative savings to credit ratio is maintained.

(For the full list of principles, please click here)

What is needed for scale

To truly scale up a product, you need an appropriate delivery channel to reach an existing large-scale market. For formal financial providers to engage in this area, more research is needed on product development to help build the business case. It is also crucial to build public-private partnerships, involving both donor and developing country governments working alongside major mobile operators and financial institutions to develop and support products that can serve this market at scale.

The technology exists to significantly expand mobile banking, for example, but the business case for the private sector to invest in this market segment is not yet strong enough. Donors should seek to invest in innovative financial linkage models to help lower the risk for business.

For more information on Financial Inclusion 2020, sign up for campaign updates.

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Savings Groups and the MGDs

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The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Today marks the start of an important meeting in Monrovia, Liberia, where the UN High Level Panel will look at what might replace the current Millennium Development Goals (MDGs) when they expire in 2015. With a focus on economic transformation, the panel hopes that any future framework to reduce poverty includes increasing “jobs and growth,” and “tackling inequality.”

Those of us focused on financial inclusion believe increased access to finance can help achieve these admirable aims. But would the UN High Level Panel agree?

Last week the Banking on Change partnership between Barclays, CARE International, and Plan UK produced Banking on Change: Breaking the Barriers to Financial Inclusion, a report which, amongst other things, makes the case compellingly enough that we believe the UN High Level Panel should take note.

The Banking on Change partnership is committed to achieving financial inclusion by helping poor people access tailored services and products that match their level of economic development. Banking on Change is the world’s first savings-led program that combines the deep understanding of poor communities among two leading NGOs with the financial expertise of a global bank in order to encourage extremely poor people to begin their path to financial inclusion through savings-led microfinance.

Banking on Change has reached 513,000 people in 11 countries* in just three years. On average, each member has saved $58 per year through savings groups. Multiplying this figure by 2.7 billion unbanked people worldwide would represent $157 billion in potential savings annually. Where savings groups are then linked to the formal financial system, people are increasing their regular savings as they have the guarantee of its security. The expectation is that this will provide an influx in banking deposits, which could in turn be used to finance businesses and households.

After establishing a savings culture, the most entrepreneurial and active of savings group members go on to receive business skills and financial training and establish micro-enterprises before additional access to credit or more formal banking is considered. The partnership is paving the way for future NGO/private sector partnerships that can improve the lives of poor people, and also have a business benefit by opening up a new customer base at the bottom of the pyramid. The program has also had impressive social impacts. In Uganda for example, women increased their ability to influence their husband’s decisionmaking by 33 percent. And in Ghana savings groups, people regularly put money aside each month into a “social fund” which enabled them to buy National Health Insurance cover, even when they did not have access to a regular income throughout the year.

The report sets out the immense potential that this pool of savers represents, both economically and socially.

It therefore seemed obvious to us to question why financial inclusion had not and is not being talked about as part of the discussions surrounding the MDGs. We felt that the MDG process offers an opportunity to call for a new global partnership that commits governments, donors, and the private sector to take financial inclusion to scale. The MDGs would also provide a focus on including the very poorest, thereby complementing other emerging international efforts including the Maya Declaration on financial inclusion.

The report doesn’t argue that a new goal be created, but suggests that perhaps financial inclusion be used as a potential indicator of inclusive economic growth, with equity tracker measures that capture how far women and young people are financially included.

At the launch of the report, the Department for International Development’s (DFID) Chief Economist Stefan Dercon questioned the need for another MDG goal on this issue and felt that by putting too much emphasis on reaching targets, poor people might end up being forced to accept inappropriate products and services.

What is clear is that it is a missed opportunity that 2.7 billion people globally do not have access to formal financial services. This is a development challenge and an opportunity that the High Level Panel could embrace as they strive to achieve more inclusive economic growth. As the Governor of the Central Bank of Kenya has said, “Financial inclusion is no longer something that is ‘nice to do’ but is an essential part of the global economic development agenda.”

We welcome your views as to whether the MDGs should consider financial inclusion. You can also add your voice to the debate here.

For more information on Financial Inclusion 2020, sign up for campaign updates.

*Egypt, Ghana, Kenya, Mozambique, Tanzania, Uganda, Zambia, India, Indonesia, Vietnam, and Peru

Image credit: Banking on Change

Have you read?

Accumulating Financial Assets: Microfinance Ambivalence about Savings and the Poor

Support the Global Appeal for Responsible Microfinance!

“Can we make savings a little more interesting for people, please?”

In a challenge to luminaries gathered at the Clinton Global Initiative, President Clinton asked the following question: in a world where nearly everything has been solved by someone somewhere, why can’t we bring more solutions to scale?

Jim Yong Kim, the new President of the World Bank, had a great answer. We need to design for scale from the start. For example, one of the biggest breakthroughs in addressing HIV/AIDS on a global level has been the success in negotiating with pharmaceutical companies to bring drug prices down. Thanks to work spearheaded by the Clinton Health Access Initiative alongside UNITAID and the U.K.’s Department for International Development, companies were persuaded to dramatically change their business model from one of low volume/high cost to high volume/low cost. The cost of life-saving medication dropped from thousands of dollars to, in some cases, $50 to $75 per person per year. The number of people with access to the medication rose from 200,000 to millions over a decade. A radical change in the business model meant the providers remained profitable while millions more have been served with treatment that not only prolongs their lives but also has an impact on prevention.

The Better Than Cash Alliance, through a collaboration with seven powerhouse players, looks to be another example of building scale in from the start. At the launch event, Florencio Abad, Budget Secretary for the Philippines government, told of the mandate he received when President Aquino took office in 2010: to provide Conditional Cash Transfers (CCTs) to all indigent households—immediately! Mr. Abad oversaw a national household survey that facilitated an increase from 800,000 to 3.8 million households within a couple of years, and shortly will transition from ATM card payments to mobile cash payments for the beneficiaries. Similarly, the shift to an electronic-based salary payment system for the Philippines National Payroll not only expedited government salary payments but also eliminated ghost employees. These are stories of technology’s impact on transparency and efficiency—but they also show the potential for making big changes at national scale.

Also at the Better Than Cash launch, Doug Michelman of Visa described a key shift in mindset taking place throughout the company. Before, Visa’s vision was to provide the best way to pay and be paid.  Now, it’s to provide the best way to pay and be paid for everyone, everywhere. Their commitment to deliver value at scale is leading them into some new, technology-enabled business models.

Whenever we use technology to reach scale, we have to keep our sights on the human side, too. The pilot group lending project I ran in El Salvador way back in the early days of microfinance was so tiny that it would not be taken seriously today. With great effort, working long hours under difficult and sometimes dangerous conditions, my client base grew to 93 women. I knew every woman by name, and her children’s names as well. The thought of focusing on scale was so foreign to me that I could only think of one of my best clients, Rosa, and envision reaching Rosa’s sister in the next village.

But there are solutions that marry the grassroots with scale: witness CARE’s Access Africa project and the way village-based savings-led projects have grown to reach 3.1 million people, with a vision for reaching 30 million people and their families in the next decade.

Somehow, those of us in financial inclusion need to find the balance between innovative pilot projects that give us a glimpse of the way forward, and projects that are designed for scale. And, we need to remember that when we do that, services must be designed with grassroots realities in mind. From the start, as the Better Than Cash framework has outlined, there needs to be a multi-stage strategy to equip those at the bottom of the pyramid with the tools they need to slowly shift the way they run their financial lives toward a complete suite of services that meet their needs. See Beth Rhyne’s Huffington Post blog for more on this challenge.

Just before the CGI Opening Plenary on Sunday, I spoke at a breakfast hosted by Western Union—like Visa, a partner on our Financial Inclusion 2020 campaign. Their CEO, Hikmet Ersek, spoke of Western Union’s vision for serving the last mile.  He didn’t just talk about financial inclusion, he talked about financial dignity. When a major corporation transforms its business models by focusing on the last mile and putting forth a vision of financial dignity, perhaps we have hope for an answer to President Clinton’s question.

For more information, sign up for updates from the Financial Inclusion 2020 campaign.

Image Credit: ZIMBIO

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Last week, New York Times’ Nicholas Kristof spotlighted Village Savings and Loan Associations (VSLAs) and their power to give clients hope. He cites the story of one woman, Biti Rose, who gets a loan of $2 and starts selling doughnuts for 2 cents each. She makes a few dollars in profit each day and eventually begins to improve her life. Kristof admits that her story is not everyone’s. He does offer a nuanced picture of Biti’s story, however, using Banerjee and Duflo’s Poor Economics, positing that microfinance works because it offers the hope that people need to get themselves out of self-destructive pathologies.

The post begins: 

If you want to understand some of the best new ideas to chip away at global poverty, an excellent place to start is the Nasoni family hut here in the southern African nation of Malawi.

Alfred Nasoni and his wife, Biti Rose, have had seven children in this village of Masumba. Two died without ever seeing a doctor. Alfred and Biti Rose pulled their eldest son out of school in the fourth grade because, they said, they couldn’t afford $5 in school costs for a term. And they farmed only part of their 2.5 acre plot because they lacked money for seeds.

Yet poverty is sometimes romanticized, and it’s more complicated than that. Alfred, 45, told me that even as his children were starving, he spent an average of $2 a week on local moonshine and 50 cents on cigarettes. He added that he also spent $2 or more a week buying sex from local girls — even though AIDS is widespread.

All this hints at an uncomfortable truth: The suffering associated with poverty is sometimes caused not only by low incomes but also by self-destructive pathologies.

To continue reading on the New York Times, click please click here.

Image Credit: Public Domain

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Auntie-Need-a-Loan and Financial Education