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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 Isabel Whisson, Deputy Manager, Microfinance Programme and Ultra Poor Graduation Initiative, and Onindita Islam, Management Professional Staff, Microfinance Programme
This year BRAC in Bangladesh became the largest microfinance institution, in terms of number of clients, to be Smart Certified, signifying to our country market and to the industry writ large that we treat our clients with adequate care.
As a non-profit dedicated to poverty reduction, client welfare has been central to BRAC’s mission since its inception in 1972. In Bangladesh in general, almost all microfinance institutions are non-profits, and so microfinance has always been seen as a tool for alleviating poverty in the country.
> 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.
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> 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.