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In the following post, CFI Fellows Shreya Chatterjee and Misha Sharma of IFMR Lead offer an overview of their research project for CFI.
Background and Research Questions
India is at the cusp of a digital financial revolution. From payment banks to ‘India Stack’ to demonetization, policy makers and financial service providers are energetically pursuing digitization of financial services.
Yet, for certain segments in lower income household groups, going digital presents a series of challenges, given that:
- Only 17 percent of women and 27 percent of men use smartphones in India.
- Only 9 percent of those with lower education levels are online, compared with 38 percent of those with higher education levels, per a Pew Research Center survey.
- Forty-five percent of urban Indians and 51 percent of rural Indians have lower levels of digital literacy, according to the Financial Inclusion Insights Survey 2015, which defines digital literacy in terms of knowledge, skills, and behaviors used with a broad range of digital devices such as smartphones and laptops.
In the following post, John Owens offers an overview of his research project with the CFI Fellows Program.
Background & Research Questions
More and more online credit providers have started to offer loans to not only consumers but also to SMEs around the world.
Outside of digital banking platforms, new alternative online and digital platforms that target consumers and small SMEs include:
- Peer-to-peer (P2P) SME lenders
- Online balance sheet lenders
- Loan aggregator portals
- Tech and e-commerce giants
- Mobile data-based lending models
While the rise of alternative data-based lending has opened new and innovative credit opportunities for individuals and SMEs, these new technologies and providers also come with several consumer protection challenges. These can be categorized into seven main areas:
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> Posted by Center Staff
About this time of year, before we launch into the promise and the chaos of January, it is helpful to reflect on the past 12 months.
Like many of you, CFI in 2016 can be characterized by change. We released the first reports from CFI Research Fellows. We established a new priority area for the Center in financial capability and financial health. The Smart Campaign pivoted towards digital financial services. We partnered with the Institute of International Finance (IIF) to examine how banks in emerging markets are driving financial inclusion. The Financial Inclusion Equity Council (FIEC) distilled how MFIs and other mission-driven organizations can preserve double bottom lines in initial public offerings (IPOs). We said so long to some long-time CFIers. We said welcome to some new ones.
Amid all the new initiatives, 2016 was also a year of deepening efforts in many legacy initiatives at CFI. The year saw significant progress in the Africa Board Fellowship Program, the Banana Skins report series, the Global Microscope report series, the Governance Working Group, Financial Inclusion Week, the Harvard Business School – Accion Program on Leadership in Inclusive Finance, the Microfinance CEO Working Group, and Smart Certification.
We thank you for your support this year on these and on all our efforts to advance financial inclusion around the world. To recap the year, here’s a quick rundown of CFI in 2016 in pictures. And Happy New Year!
The Smart Campaign Breaks New Ground
This year marked a shift in strategy for the Smart Campaign, with a greater emphasis on client protection issues emerging from new technologies and effecting change at the national level. The Campaign examined the client protection risks in the provision of financial services via agent banking and digital credit. It also worked with the government of Myanmar to enshrine the client protection principles in the country’s new microfinance policy and with MFIN to develop a Grievance Redressal Mechanism Framework for the microfinance network in India. Read the rest of this entry »
> Posted by Center Staff
After reviewing many high-quality proposals, we are excited to announce the second cohort of CFI Fellows. Like the inaugural cohort, the new fellows will explore and answer some of the most pressing questions in the financial inclusion industry. The six 2017 fellows will design and produce actionable research, focusing on the topics of responsible online credit, human touch in a digital age, and the business case for financial capability. Read more about the upcoming research below and join us for a webinar tomorrow, December 14 to hear from the fellows themselves.
John Owens, Independent Consultant
What does responsible online credit look like?
Online lending for consumers, and especially small and medium-sized enterprises (SMEs), is highly relevant and important to facilitating financial inclusion. However, trust, confidence, and responsible lending practices need to be in place to ensure that this industry is successful and that the customers are protected and empowered. CFI Fellow John Owens will examine the risks customers of online lending face and what best practices are, or should be considered, for setting consumer protection and risk mitigation standards for the emerging online financial services industry.
> Posted by Christy Stickney, Independent Consultant and CFI Fellow
After decades of directing financial services to micro-enterprise owners, many microfinance institutions are finding that some of these enterprises have grown and that they’re now serving an expanding number of small business owners. With increasing global attention being directed to small and medium-sized enterprises (SMEs), it is fitting to look more deeply at what can be learned from entrepreneurs whose businesses started as microenterprises, grew, and can now be classified as SMEs – with a substantial number of employees. More specifically: Who are these entrepreneurs? What kinds of businesses do they operate? What have been their growth patterns and hurdles? And how have they utilized financial services to further their growth aspirations?
These are the questions that guided my research fellowship for the Center for Financial Inclusion. As part of my study I gathered institutional data and conducted in-depth interviews with clients of three leading microfinance institutions in Latin America: MiBanco, Banco ADOPEM, and Banco Solidario. The clients I focused on had all experienced significant loan size growth over several years.
> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities
Can government-to-person (G2P) payments to low-income beneficiaries translate into their formal financial inclusion? This might happen if those beneficiaries can gain experience in dealing with a formal financial service provider (FSP) when they pick up their payments. This is especially the case where the government pays the beneficiaries of the program through a digital channel, such as a debit card or mobile money, and the payment pick-up process gives beneficiaries the chance to interact directly with this new technology. Furthermore, given that G2P programs are often targeted at women, there is the potential for these programs to increase the inclusion of the half of the population traditionally more excluded from formal financial services.
As part of the CFI Fellows Program, Microfinance Opportunities, in partnership with the Pakistan Microfinance Network and Centro de Formación Empresarial de la Fundación de Mario Santo Domingo, looked at the relationship between G2P payments and financial inclusion. For this project we analyzed global survey data and conducted field research in Colombia and Pakistan—two countries with large, well-established G2P programs.
The focus group discussions with the beneficiaries of the Familias program in Colombia showed the potential of G2P programs to have a direct effect on enabling women to become comfortable with using digital channels to receive money. The women unanimously reported that they used their Familias debit cards to withdraw their G2P payment from an ATM without any help from anyone else. They did report that, at first, they needed help, but soon learned how to use the cards themselves without any problem.
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> Posted by Elisabeth Rhyne, Managing Director, and Sonja Kelly, Director of Research, CFI
The following post was originally published on NextBillion.
As we approach the World Bank Annual Meetings this year in Washington, D.C., one topic world leaders will discuss is how to reach universal financial access by 2020. But there is a resounding dissonance between enthusiasm for one of the most-touted solutions to financial exclusion and the evidence to date.
We’re talking about the fervor with which shifting government welfare payments to electronic form (government-to-person or G2P payments) is put forward as a quick route toward universal access. The evidence we’ve seen suggests that while moving G2P to electronic form has important benefits, clients are not yet benefitting from meaningful increases in financial inclusion.
The argument in favor of G2P electronic payments for financial inclusion is simple. Many governments offer cash transfers to millions of people at or below the poverty line, most of whom are not connected to the formal financial system. If these cash transfers are funneled into bank accounts rather than paid directly out in cash, these people immediately gain an on-ramp to financial services.
> Posted by Christy Stickney, Independent Consultant and CFI Fellow
After decades of directing financial services to owners of micro-enterprises, many microfinance institutions are now finding themselves serving a growing population of small business owners. Thus, with increasing global attention directed to small and medium enterprises (SMEs) and their potential contribution to economic growth, it seems fitting to look more deeply into microfinance portfolios, and discover what can be learned from entrepreneurs whose businesses have arisen out of poverty and marginalization into what can be classified as emerging SMEs. My recent research as a CFI Research Fellow led me to delve deeply into the stories of entrepreneurs who have grown their businesses from micro-enterprises into SMEs.
As someone who has focused much of her career on pushing microfinance downward, towards smaller enterprises and those earning lower incomes, this focus on emerging SMEs both inspired and taught me a great deal. While the analysis of these stories is the focus of my report coming out next month, I’d like to share here two stories that inform our understanding of the nature, growth trajectories, and financial service usage of SMEs arising from within microfinance portfolios. They describe the experiences of two clients of Banco ADOPEM in the Dominican Republic – one of three microfinance banks I visited as part of this study. (All names have been changed to protect identities.) While these two stories may resemble the classic “client story” in that they show how people have moved up the economic ladder, pay attention to the markers of success – both financial and non-financial – that distinguish these clients from those that may have not grown.
> Posted by Sonja Kelly, Director, CFI
I’m thrilled to announce that we are now accepting proposals for 2016-2017 CFI Fellows! Maybe this is your year to consider having a little funding and space to take on a big financial inclusion question that could have a major impact on the industry.
We’re looking for researchers who are willing to undertake ambitious work that will advance financial inclusion. We’ve assembled a set of five questions that we think represent some of the most pressing concerns facing the industry, and we will be funding the most promising proposals that set out a plan for answering these questions. The topics we selected are ones that have been well-vetted. They were sourced from an internal Accion-wide exercise, discussions with the CFI Advisory Council, consultation with our friends across the financial inclusion space, and the solicitation of your comments on our “shortlist” of questions here on the blog (thank you so much for your input!).
The research questions this year cover a range of topics:
What does effective human touch look like in our digital age? Although financial services are rapidly going digital, some customers, especially those new to the formal financial system or with lower levels of education may still desire to interface with people—to build trust, to troubleshoot problems, and to receive advice on their financial lives. How are financial services providers integrating human touch into digital products? Is it working? Where is human touch critical throughout the delivery process? Who within the target population is going to want and need that human touch more than others? And how should financial service providers build it into their process?
> 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…