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> Posted by Elisabeth Rhyne, Managing Director, CFI
When my son Gordon went to the senior prom in his rented tuxedo, he and his girlfriend were a gorgeous sight (see photo). Next day, he was supposed to return the tuxedo, but he couldn’t find one of the patent leather shoes. On the day after that the rental shop called me to complain that the tuxedo was late. Gordon said he had already returned it. I told the shop there must be some mistake. This went on for several days, Gordon insisting he had returned the tux, while I defended him to an increasingly irate tux shop. After a week, I went looking and found the tux stuffed into the bottom of a backpack, along with the shoe.
I came down pretty hard on Gordon for that. Why would an intelligent young man lie repeatedly to his parents over a simple problem that was not going to disappear? Why didn’t he admit the problem on day one instead of digging himself into a deep hole? Why didn’t he take the obvious action of searching for the tux? He paid a big late fee, but the damage to our trust in him was far worse.
I’m telling this story because it reminds me of the executives at Wells Fargo Bank. The CFPB has just come down pretty hard on the bank for opening unauthorized bank and credit card accounts for 2 million customers in a practice involving over 5,000 members of its staff. As a result, the bank is now suffering a $185 million fine, the firing of thousands of staff, and, in all likelihood, a major loss of customer trust.
> Posted by Jeffrey Riecke, Communications Specialist, CFI
Last week the President of Mexico launched the country’s long-delayed National Financial Inclusion Strategy. The comprehensive plan engages the spheres of private banking, social welfare, public education, telecommunications, and more to extend quality financial services to the 56 percent of adults in the country who remain without a formal bank account. Although the plan was nearly full-formed three years ago and has since sat on the proverbial shelf, the enactment of the strategy represents a reaffirmed commitment to financial inclusion across the Mexican Government, including the Office of the President, the Central Bank, the Ministry of Finance, and the Ministry of Public Education.
The national strategy is structured as a six-pillared plan. The Ministry of Public Education (Secretaria de Educacion Publica) will promote financial education starting with children and youth by incorporating related content into the curriculum of public education. Financial education will also be embedded in government programs like Prospera, Credito Joven, and Mujeres PYME. Prospera is Mexico’s conditional cash transfer program, which has 6.5 million beneficiaries. Credito Joven is a youth inclusion program introduced in February 2015 that aims to empower young people, in part by providing credit to those with no credit histories. Mujeres PYME offers finance and business development support to small businesses led by women.
> 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 Sonja Kelly, Director, CFI
What are the biggest unanswered questions in financial inclusion? This isn’t rhetorical—we want your opinion.
In preparation for selecting three CFI Fellows for 2016-2017, we are developing a short list of questions whose answers would drive financial inclusion forward.
Our Research Fellows Program is an initiative intended to tackle the biggest questions in financial inclusion—in order for the industry to take action in new areas and in new ways. The current cohort of fellows is finalizing research ranging from big data to small enterprises to technology infrastructure to G2P payments.
The questions we put forward for this next cohort will only be relevant if they are essential to the financial inclusion community. So we’re coming to you (yes, you!) for your input.
To get the conversation started, here are some of the questions on our working list. Let us know below in the comments which you think are compelling, and please take the liberty of adding your own.
Read the rest of this entry »
> Posted by Susy Cheston, Senior Advisor, CFI
A lot of money is being spent on financial education—and we’d like to see it spent more effectively. We still don’t know all that is needed about what works, but based on our scan of the current landscape for financial capability-building innovations, we can already recommend six major shifts in how financial capability resources are deployed.
The first three recommendations relate to who is building financial capability.
1. Bring financial capability efforts closer to the actual use of financial services by enabling providers to take a greater role.
2. Shift the expectation that the government is responsible for financial capability to an expectation of shared responsibility among all stakeholders, including financial service providers and other institutions.
3. Engage organizations serving BoP constituencies, from government social service agencies to employers to non-profits.
This calls for “all hands on deck.” We argue, first and foremost, that providers can and should take a primary role in building financial capability, as they are best equipped to reach customers at teachable moments and to help them learn by doing. Many providers are already spending significant resources on financial education. They could have a much greater return on their investment if they focused those resources on embedding financial capability into product design and delivery, looking at all the touch points in the customer experience as opportunities to help customers use products more successfully.
> Posted by the Smart Campaign
For a brief moment on Monday, all eyes in Tbilisi, Georgia were on the Smart Campaign and its findings on the well-being of microfinance clients. The Campaign presented its Client Voices report in a high-profile event at the Georgian Parliament. Joining the event were 12 Members of Parliament from both majority and minority factions of the Government; leadership from the Central Bank, Ministry of Finance and Ministry of Agriculture; a multitude of microfinance practitioners; press and three television stations. This was the first time government representatives of the majority party, minority party, executive branch, industry, and Central Bank all got together to talk about how microfinance clients are treated. Needless to say, it was immensely encouraging to witness this demonstrated interest in the fair and responsible treatment of microfinance clients in Georgia.
The Client Voices project is a four-country research investigation that directly asked microfinance clients about their experiences and treatment. Along with Georgia, the studied countries are Benin, Pakistan, and Peru. Georgia was selected because its market hosts strong and representative institutions conducive to consensus building, and the industry’s decision-makers are currently working to update its regulatory and legal framework. The launch of the Client Voices report positioned the market to act on the project’s recommendations.
The event was co-hosted by the Business and Economic Center (BEC), a non-partisan, not-for-profit institution that works to facilitate understanding and discussion among MPs around financial, economic, and business topics. Following opening remarks by Natia Katsiashvili, Executive Director of BEC, and Giorgi Volski, MP and Chairman of the majority Georgian Dream faction (think Majority Leader in the U.S. House of Representatives), the main findings from the Client Voices project were presented. Here are a few of the key findings:
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
“Would you like to save $10 today?” In the United States, it seems you can’t shop anywhere these days without hearing this question at the checkout counter. According to Card Hub, there are at least 134 large retailers in the U.S. offering credit cards. And of course, these offers usually sound great. Who wouldn’t want to save money on purchases? All you have to do is fill out a short form on the spot… It’s easy.
These savings can come at a price. Here are a few of my concerns about credit cards offered by the likes of Target, Macys, Sears, TJ Maxx, and others.
- Confusion between Rewards and Credit Cards – Many retailers provide rewards or loyalty card programs. For instance, you can earn points at CVS with a card or get gas reward points at Stop and Shop. These rewards and loyalty cards are often similar to retail credit cards in that they are offered at the register, you fill out a short form to join, and you present the cards when checking out. For customers with limited financial literacy or limited English language skills, the difference between reward/loyalty cards and retail credit cards can be very confusing. It’s blurred even more by the fact that most credit cards also offer rewards – like cash back or bonus air miles. Of course, there are big differences between a card that one swipes to simply “earn points” and a card that allows one to make purchases on credit.
The Smart Campaign is thrilled to announce that a new milestone for client protection in microfinance has been reached: there are now 50 financial institutions that have been awarded Smart Certification, recognizing their commitment to fair client treatment and responsible practices. In total, these institutions serve roughly 25 million clients.
The threshold was crossed with a handful of recent certifications – Fortis Microfinance Bank and Grooming Centre in Nigeria; Banco ADOPEM in the Dominican Republic; Fundacion Paraguaya in Paraguay; Pro Mujer in Nicaragua; and AgroInvest in Serbia. Each of these institutions worked over a several month process to assess and upgrade their operations to meet every one of the indicators signifying strong consumer protection practices.
Grooming Centre and Fortis Microfinance Bank collectively reach over a half million clients. Founded in 2006, Grooming Centre operates in 22 states in Nigeria with a network of 376 branches. Grooming Centre offers a range of financial services, including savings and credit, small business loans, agricultural loans, and clean energy financing. Fortis Microfinance Bank, along with offering financial services, provides clients with business support in areas including management, marketing, and administration.
> Posted by Caitlin Sanford, Bankable Frontier Associates, and Alexandra Rizzi, the Smart Campaign
“You don’t understand anything [the microfinance staff members] says, because of how fast he talks. It is almost as if his tongue is twisted. You end up not understanding in the end. [He says] ‘But ma’am I’ve explained it to you, why can’t you understand? I’ve been very clear.’”
New Client Voices research from the Smart Campaign and Bankable Frontier Associates (BFA) finds that although microfinance providers may be complying with disclosure regulations, clients are not adequately absorbing information about their financial products. A regulatory compliance-based approach to consumer protection in which providers focus on meeting minimum disclosure requirements risks losing sight of the main objective of transparency— that clients understand what they are signing up for. With clients inadequately informed about many aspects of microfinance, even in countries with strong transparency regulations like Peru and Georgia, the Client Voices findings demand a radical rethinking of transparency. Namely, emphasis should widen from what information is provided to how much clients understand.
In the Client Voices project we solicited input from clients about what they consider good and bad treatment in their interactions with microfinance service providers, and assessed the prevalence of consumer protection problems in Benin, Pakistan, Peru, and Georgia. We found that clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products. Although most clients do receive some information about their loan products, overall they report low levels of understanding of their loan terms and conditions, regardless of education level. In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions. Read the rest of this entry »