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> Posted by Vitas Argimon, Credit Suisse Global Citizen Volunteer
With financial technology disrupting the industry, banks are turning to startups to help them innovate, and startups are turning to banks to help them scale. Banks are increasingly connecting with financial technology startups to reach the unbanked and underbanked. In the report, The Business of Financial Inclusion: Insights from Banks in Emerging Markets, CFI and the Institute of International Finance (IIF) found that many banks are building a vast ecosystem of partnerships to expand their reach and service offerings and to improve internal processes. This growing interaction between legacy providers and new providers is taking a variety of forms. Many larger banks are engaging with startups in multiple ways, from partnering with the firms to providing support to incubate new firms. In my deep-dive into the ecosystem of this engagement, I discovered three primary types of interaction.
> Posted by Center Staff
What do industry leaders feel is the biggest risk facing their institutions in 2016? This question is the focus of the latest Banana Skins report for the financial inclusion sector, Financial Services for All: It’s All about Strategy. The report ranks the top perceived risks facing those providing financial services to un/under-served people in emerging markets. Produced by the Centre for the Study of Financial Innovation (CSFI), and sponsored by Citi and CFI, the study examines the rapidly changing and expanding financial inclusion landscape to better understand how providers view challenges like new technologies, new market entrants, client repayment capacity, and macro-economic risks.
This year’s report, the sixth in the series surveying risks facing the inclusive finance industry, embraces a broader scope than previous editions, which focused exclusively on microfinance institutions. The new report reflects the advances in the provision of financial services to the base of the economic pyramid and encompasses both established providers and newer entrants like commercial banks, technology companies, and telephone and communication companies. A survey with respondents spanning practitioners, investors, regulators, and other industry stakeholders comprise the report’s findings. It’s important to note that in addition to the Banana Skins report series on inclusive finance, there is also a Banana skins report series on insurance and on banking.
So, what were the results?
> Posted by the Smart Campaign
When most microfinance clients start out they’re first-timers at a formal financial institution. Like anything unfamiliar, a first foray with banks can be intimidating. You don’t want to be duped or make a mistake and lose precious savings. Peace of mind was granted to clients of two microfinance institutions, one in Paraguay and the other in the Dominican Republic recently as the first Smart Certifications in those countries were awarded. Fundacion Paraguaya and Banco ADOPEM were certified as meeting all the standards needed to treat their clients with adequate care. This certification demonstrates to prospective clients as well as investors and other industry stakeholders that their institutions are operating responsibly.
Fundacion Paraguaya and Banco ADOPEM are both market leaders in their own right. Banco ADOPEM is one of the largest microfinance institutions in the Dominican Republic. According to the MIX, 351,000 depositors in the Dominican Republic bank with Banco ADOPEM. When Banco ADOPEM pursues and achieves Smart Certification, that sends a message to MFIs and other stakeholders in the country that client protection is a key priority. In 2014 ADOPEM was named “Most Innovative Microfinance Institution of the Year” by Citi, in part because of ATA-Movil, a portable electronic application that allows credit advisers to assess customers in their businesses or in their homes. The mobile information system also allows for convenient and direct communication with clients.
> Posted by Bruce J. MacDonald, Vice President, Communications & Operations, CFI
In New York yesterday to celebrate the launch of the FI2020 Progress Report (and Accion’s and Citi’s 50-year partnership, and the awarding of the first Accion Edward W. Claugus Award – Accion never does anything by halves…), we had the privilege of an audience with Dr. Daniel Schydlowsky.
Dr. Schydlowsky, recipient of said award, hardly needs introducing. As Superintendent of Banking, Insurance & Private Pension Fund Administrators for Peru, and as chair of the Alliance for Financial Inclusion, he symbolizes the gold standard of financial inclusion regulation. Scratch that – he is the gold standard. Peru has ranked at the top of the Economist Intelligence Unit’s Global Microscope report for seven consecutive years. And to paraphrase the old E.F. Hutton TV ad, when Daniel Schydlowsky speaks, people listen. “We can perfectly well keep banking systems safe, and still do something for inclusion,” he said, explaining his philosophy of regulation (and thereby, perhaps, Peru’s standing). “Indeed, the more we include, the safer we’re making the banking system.”
Like our new Progress Report, Schydlowsky outlined his view of what lies ahead and what he’s excited about. First up: The promise of new loan-origination techniques. Making microloans is an artisanal craft, and thus expensive. But he is optimistic about the promise of new developments: big data, customer-relationship tools, and psychometric training (again, as is our Progress Report). Come to Peru, he urged innovators, where you will find a willing partner and audience.
> Posted by Center Staff
Freshly published is the latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked. Among the stories in this week’s edition are the launch of the Citi Mobile Challenge in the Asia-Pacific region, the kick-off of this year’s microTracker survey on the microenterprise industry in the United States, and a blog post series from Ericsson on financial inclusion in Iraq. Here are a few more details:
- Following successful Citi Mobile Challenges in other regions, the Asia-Pacific iteration invites developers to submit innovative mobile banking solutions for a chance at taking their technologies into production with the support of Citi and its partners.
- The U.S. Microenterprise Census’s online microTracker survey is open, collecting and counting data on the microenterprise industry in areas including client reach, lending volume, and performance efficiency.
- A new post series on Ericsson’s “M-Commerce: the Call for Change Blog” spotlights the financing landscape in Iraq, which serves only 11 percent of adults in the country, targeting action areas like regulation, interoperability, and mobile money.
For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.
Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at firstname.lastname@example.org.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Last week the Bangko Sentral ng Pilipinas (BSP) announced substantial increases throughout the country’s microfinance market: growth in the volume of loans dispersed to microentrepreneurs, in the number of microcredit institutions offering savings services, and in the return on equity of rural banks with microfinance operations. Concerning regulation and institutional support, the recently released 2014 Global Microscope found that the Philippines has the best environment in Asia for financial inclusion.
In 2014, loans extended to microentrepreneurs in the Philippines totaled P9.3 billion (US$209 million) as of June, according to figures reported by BSP Governor Amando M. Tetangco Jr. at the recent Citi Microentrepreneurship Awards in Manila – a roughly 7 percent increase over last year’s figure. On savings, in early 2012 only 22 banks in the country offered micro-deposit accounts. Now, 69 of the Philippines’ 183 banks with microcredit operations take deposits, with a total of 1.7 million micro-deposit accounts. Beyond credit and savings, 86 of the country’s institutions offering microcredit also provide microinsurance and 26 provide electronic banking services.
> Posted by Sonja Kelly, Fellow, CFI
If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the Global Microscope 2014: The Enabling Environment for Financial Inclusion. The Microscope is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The Microscope evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?
We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the Microscope is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.
This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten. Read the rest of this entry »
> Posted by Tyler Owens, CFI Staff
The current era of financial services for the poor is marked by the growth of high-tech delivery mechanisms, innovative start-ups, new socially responsible investing models, and more traditional banks growing their portfolios of base-of-the-pyramid clients. Different players in increasingly crowded markets often collide in trying to win over more clients. Just one recent example is the newly public Alibaba, which has issued more than $16 billion in small loans over the last three years through its SME loan company AliFinance. The result of all this can lead one to question the role that traditional MFIs will play in the years and decades ahead. What will be their unique value proposition and how will they earn and maintain market share and the loyalty of their clients?
There is evidence that microfinance industry practitioners and stakeholders are not prioritizing questions of relevance and long-term customer retention. All too often, thinking strategically about the place of an MFI in a rapidly changing financial services landscape takes a back seat to the daily crush of competition and loan book performance. The 2014 Microfinance Banana Skins report—which is built on surveys of industry practitioners and insiders—concluded that the most urgent risks the industry faces are those of day-to-day business operations, such as credit control, competition, and management quality. The report went on to say that “longer term risks associated with the survival and evolution of the industry such as technological change, product development and funding are considered to be less urgent – and are less well defined.” It concluded that paying scant attention to long-term risks in the industry—at a crucial point in its development—may be a serious risk in itself.
> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
A few weeks ago J.P. Morgan made a $30 million commitment to create the Financial Solutions Lab, a move representative of the growing recognition among all financial stakeholders of the importance of financial capability.
The Financial Solutions Lab, a five-year initiative, will be managed by the Center for Financial Services Innovation (CFSI) and it seeks to bring together experts in behavioral economics, design, technology, and nonprofit services in order to develop innovative and scalable financial products and services that strengthen client financial capability and well-being. Ideo.org and ideas42 are to serve as strategic partners on the initiative. By bringing these stakeholders together, the Lab aims to identify new ways in which customers can improve credit behavior, increase savings, and build assets.
> Posted by Jeffrey Riecke, Communications Associate, CFI
What’s the percentage of MFI clients worldwide that are LGBT? How about the percentage of staff at MFIs? Broader yet, how inclusive is the financial services industry of queer and trans people?
As you’d probably guess, concrete answers to these questions aren’t available. And even raising the issue is controversial in many countries. Over the past year anti-gay legislation was enacted in Russia, Nigeria, Uganda, and India. The notion of financial institutions working towards LGBT-inclusive operations is far off in many countries.
But here in the U.S. (and in other areas worldwide) change is happening, as demonstrated at the Out on the Street Summit last week in New York City. The event, part of the Out on the Street initiative, featured senior leadership from some of the largest financial services providers in the world, including Michael Corbat, CEO of Citigroup, and Ajay Banga, President and CEO of MasterCard. Held on May 1, the event focused on business opportunities and leadership strategies for and within the LGBT community, as well as the financial services industry’s role in advancing LGBT equality.