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> Posted by Kai Hsu, Director of Administration & Finance, Positive Planet China
Over the past five years, peer-to-peer lending (P2P) has grown rapidly. Now more commonly referred to as “marketplace lending” because of the large range of institutions, intermediaries, and non-“peer” parties involved, the industry is poised to continue its year-on-year triple-digit growth. The breakneck speed of P2P’s growth seems natural given the many advantages it offers. As an industry, focus has gradually moved from a community of individuals lending directly to other individuals (often within affinity groups), and has evolved into a powerful engine of technical efficiency. Today, P2P is viewed in many different ways: a potential agent of financial inclusion; an innovation in big data analytics and credit risk evaluation; an efficient mechanism for loan matching without the often burdensome capital and regulatory requirements of banks; an innovative operational model leveraging the cost savings of online platforms; a new asset class for retail and institutional investors; and the list goes on.
Change has been slow to come, with many banks questioning the P2P model’s long-term relevance and P2P lenders failing to capture the public eye for many years, but big banks have recently begun to show their appetite for the more robust of the online lenders. Banks have made equity stakes in P2P businesses in the past, such as Barclays’ 49 percent investment in South Africa’s RainFin. However, 2015 seems to be the breakout year for P2P into mainstream finance. In June, Goldman Sachs announced plans to enter the consumer lending space through an online platform, akin to what Lending Club and Prosper offer in the U.S. Several days later, Morgan Stanley featured an optimistic report on P2P lending on its home page. In August, Standard Chartered led a $207 million C-round of funding for Chinese P2P company Dianrong.
> Posted by Center Staff
Can the world achieve full financial inclusion by 2020? By the Numbers: Benchmarking Progress Toward Financial Inclusion, a new Financial Inclusion 2020 (FI2020) publication from CFI, offers a quantitative review of financial inclusion globally, using publicly available data to examine recent progress and projecting a scenario out to 2020.
Last month the development community emitted a collective cheer as the new Global Findex data revealed that the number of unbanked individuals around the world dropped from 2.5 billion to 2 billion between 2011 and 2014. This looks like huge progress. If the trends continue, the financial exclusion gap will close to 1 billion individuals without access to formal financial services by 2020.
However, know it’s not all about access. We promote financial inclusion to enable people to use financial services to better manage their lives. A fully included person is an active user of quality financial services that bring significant value. Expanding financial access is the first step towards financial inclusion, and it needs to be followed by an uptick in the frequency and ways in which people use services as well as strengthening of the financial ecosystem. By the Numbers explores progress in these areas along with access and estimates the potential for reaching full inclusion by 2020.
> Posted by Center Staff
The recently released Global Findex, revealing that the world’s unbanked population has dropped to 2 billion, gives us much to celebrate. But, as Sonja Kelly pointed out earlier this week, account ownership is just one dimension of financial inclusion. If the world’s unbanked are to realize the full benefits of financial services, it’s critical that an uptick in accounts is paired with quality services that meet clients’ needs. To meet the goal of financial inclusion by 2020 (FI2020), leveraging innovations in technology is essential.
In this podcast, CFI’s Susy Cheston is joined by Dr. Bejoy Das Gupta, Chief-Economist for the Asia-Pacific region at the Institute of International Finance, Ed Brandt, Executive Vice President for Government Services and Solutions at MasterCard Worldwide, and Paul Tregidgo, Managing Director at Credit Suisse. Together, they explore the importance of technology and innovative partnerships in making the vision of Financial Inclusion 2020 a reality, sharing key takeaways from a roundtable hosted jointly by CFI and the Institute of International Finance.
For more on technology and financial inclusion, read the FI2020 Roadmap to Inclusion on Technology-Enabled Business Models. And stay tuned to this blog for more on Monday’s roundtable event.
> Posted by Kaj Malden, Consultant, PlaNet Finance China
For China’s young microfinance sector, which could benefit from more regulatory oversight and transparency, ratings have the potential to catalyze healthy growth. Efforts to incorporate ratings throughout the country’s market, however, have so far been largely ineffectual. A new report from PlaNet Finance China and Planet Rating, The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector, part of PlaNet Finance and Credit Suisse’s “Microfinance Robustness Program”, outlines how ratings could provide welcome growth and strengthening for Chinese microfinance, and describes the current obstacles that stand in the way.
Mainstream ratings systems evaluate creditworthiness of debt and financial products for companies. They also contribute to setting benchmarks for the wider financial services industry. Specialized microfinance rating agencies evaluate some of the same qualities traditional rating agencies do, but they are trained in microfinance and investigate other financial inclusion-specific indicators, such as social performance. Microfinance ratings function as institutional ratings, not credit ratings, as in the case of mainstream ratings. These more nuanced ratings for the microfinance sector first emerged in Latin America, where microfinance boomed in the late 1990s.
> Posted by Bhuvana Ramakrishnan, Daniella Llanos Flores, and Singyew Foo, Credit Suisse
The Financial Inclusion 2020 project has been talking to the experts lately to get their views on the main recommendations that came out of the 2013 Roadmap to Inclusion process. A group of Credit Suisse Virtual Volunteers conducted interviews with various experts within Credit Suisse. Insights from those conversations helped shape this post.
What can a new shampoo formula teach us about financial services? Quite a bit, as it turns out.
Procter and Gamble (P&G), one of the world’s largest fast-moving consumer goods companies (FMCGs), has an annual research and development budget of $2 billion – with nearly a half a billion going towards consumer research. In emerging markets, this money funds field research that aims to identify how existing products are used and how a new product could become a part of someone’s daily routine. In China, P&G has a simulated Hutong (a typical Chinese home) where researchers can observe consumer behavior and make on-the-spot modifications to product prototypes. They have sent teams around the country to observe how women wash their hair. Such research yielded a shampoo that suds and washes out with little water – a response to the shortage of water and privacy in the villages visited.
> Posted by Emily Kunz, Financial Inclusion Analyst, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
Impact investing is becoming increasingly alluring. However, anyone who has tried to put their finger on the pulse of this trendy subject has likely been inundated with dense reports focusing on industry minutiae that would take weeks to read. Who has time for this? Not too many it would seem considering that the World Bank recently revealed that a third of the reports it produces have never been downloaded – not even once!
Accordingly, we challenged a team of Credit Suisse Virtual Volunteers (Credit Suisse staff members David Samach, Anne Levonen, and Surender Gounder) to research the world of impact investing – reading industry reports, talking with many of the relevant players, running the numbers – and synthesize this information into a brief and user-friendly overview of the current impact investing landscape.
The team’s findings were presented last month to the Financial Inclusion Equity Council in New York. The Prezi presentation the team gave is featured above, available by clicking the image or here.
Too many definitions fuel industry confusion. If you have trouble comfortably committing to one definition for impact investing, you’re not alone. While researching, the Virtual Volunteers identified a fundamental industry issue: there is no universally agreed-upon definition for impact investing. Competing definitions, as well as models and reports that aren’t aligned, continue to fuel misunderstandings about and within the sector. Ultimately though, the Virtual Volunteers proposed defining impact investing as “an investment approach that intentionally seeks to create both financial return and a positive social or environmental impact that is actively measured.”
> Posted by Siddhartha Chowdri, Program Manager, Disability Inclusion, India, CFI
How does the microfinance community view persons with disabilities (PWD)? This economically disenfranchised population makes up less than one percent of microfinance clients around the world, leaving the vast majority of PWD excluded. Many PWD would benefit from financial services. Yet even the most intense Google, Bing, or Yahoo search will yield almost no in-depth research into how persons with disabilities are perceived among the leaders and staff of microfinance institutions (MFIs). For my focus country of India, no research at all is related to this topic. We hope that a new CFI paper authored by Vipin Gupta of Credit Suisse, Making Microfinance Accessible to Persons with Disabilities: Awareness and Attitudes Among Indian Microfinance Institutions, will be the starting point for more research and action in this area.
Annapurna Staff Members and v-shesh Researcher with Focus Group Discussion Participants, Odisha
Over the last two years CFI has been working with three leading Indian MFIs – Equitas, ESAF, and Annapurna – to refine and develop tools that institutions across the world can use to make themselves more accessible to PWD. CFI also partnered with v-shesh, an India-based social enterprise with expertise in disability inclusion. At the start of this work, CFI and v-shesh decided to conduct research on the existing environments at these MFIs. The purpose of this research was two-fold:
- Learn which areas related to disability inclusion should be emphasized during the planned trainings and accessibility audits.
- Establish a baseline understanding of the existing views of disability inclusion at the MFIs for subsequent monitoring of changes.
Last November, the v-shesh team surveyed hundreds of MFI staff at all levels as well as MFI clients – both with disabilities and without. They also conducted intensive focus group discussions to gather additional qualitative information to prepare for the trainings.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
The following post is comprised of research from three Credit Suisse Virtual Volunteers, Vipin Gupta, Kajal Shah, and Jennifer Hughes.
Most persons with disabilities (PWDs) don’t have an account at a formal financial institution. In India, 5 – 6 percent of the population (roughly 66 million) are estimated to have a disability, and three-quarters of Indian PWDs live in rural areas where access to banking services is limited. In India on the whole, about 35 percent of the adult population has a formal bank account. In Mexico, about 10 percent of households have at least one member with a disability, and about 27 percent of the country’s adult population has an account at a formal financial institution. These two countries present huge financial inclusion opportunities for PWDs. Encouragingly, significant PWD inclusion in-roads in both are underway.
In India, low financial inclusion incidence among PWDs is connected with poverty and unemployment. A meager 0.14 percent of PWDs in India hold regular jobs. This employment statistic stands in spite of efforts from the National Centre for Promotion of Employment for Disabled People (NCPEDP) mandating that 3 percent of government jobs be reserved for PWDs, and incentivizing private employers to ensure that at least 5 percent of their workforce is comprised of PWDs. The same low fulfillment of positions reserved for PWDs has been seen in several of the government’s rural employment schemes. In a study examining labor-intensive agricultural occupations in India, it was found that the majority of PWDs were not chosen by potential employers, and that PWDs in rural areas mostly depend on non-agriculture-based-self-employment as a means of livelihood. For these individuals and others pursuing self-employment, a lack of adequate capital can be a critical roadblock to earning a livelihood.
There are a multitude of factors contributing to this situation, including low education (only half of Indian PWDs have any formal education), inability to afford health treatments, un-inclusive employment settings, un-inclusive surroundings, prejudice against PWDs, lack of awareness of support programs and other resources, and geographic remoteness to banking, education, employment, training, and rehabilitation facilities. Nearly any of these factors are enough to pose large, or in some cases insurmountable, challenges to accessing formal financial services. When combined, the task of accessing traditional avenues of financing can be overwhelming. For many PWDs, the only viable source of financing is money from friends and family, but in lower-income rural areas even that is difficult to come by.
Other challenges that stand in the way of greater inclusion of PWDs in India include lack of a standardized method for defining and evaluating disability, and lack of up-to-date data.
> Posted by David Wager, Change Business Analyst, Credit Suisse
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.”
This is the second in a series of several posts from this year’s Credit Suisse Virtual Volunteers, where research and insights across a variety of financial inclusion areas will be shared. The post begins:
What are fast-moving consumer goods (FMCG) companies, and what do they have to do with financial inclusion?
FMCG companies sell household and personal products – such as washing detergent, groceries, and toiletries – that are high in volume, low in profit, and normally purchased regularly. These products sell quickly and are relatively low in price. To sell them effectively, FMCG companies have distribution systems that penetrate nearly all parts of the community, including the base of the pyramid. Ensuring that their products are in the right place and appropriate to the consumers’ needs is pivotal to their success.
Financial service providers may be able to learn from the FMCG companies’ tactics and experience. What’s more, by leveraging their extensive networks and strong consumer knowledge, FMCG companies may themselves be able to advance financial inclusion in a way that is beneficial and scalable, providing services for the last mile.
The right product. FMCG companies realize that a variety of product options need to be offered to cater to different consumers. A good example of this is single-use packages for cleaning products. FMCG companies have realized that many lower-income consumers will purchase small packages although they may not be able or willing to pay for a larger box that would serve them for a longer time. In this instance, the product has been tailored to reflect the market. But while this lesson also applies to financial services, it does not always occur in practice. For example, as noted by Ali Ndiwalana of Grameen Foundation Uganda in a Grameen Foundation blog post, financial products have not been adequately adjusted for the market in western Uganda. Here the minimum amount required to open a bank account is the equivalent of $20, a sum accessible to few people. The FMCG companies in this area make their products available in smaller sizes, as small as a 16-cent sachet of the smallest quantity of cooking oil.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Much of the financial world’s attention is directed at China and the global impact of fluctuations in its banking and financial markets. Last week saw a sharp increase in the country’s short-term borrowing costs, and a record high in the country’s interbank (bank-to-bank) overnight rate – a rate that serves as a gauge of liquidity in a market. In a statement published on Monday, the People’s Bank of China asserted that the liquidity in the country’s banking system overall is at a reasonable level, but emphasized that financial institutions need to improve “awareness about preventing risks.”
Turning with impeccable timing to China’s small and micro lending sector, last week PlaNet Finance released its latest research report, Emerging Risks on China’s Path Towards Financial Inclusion.
China first began experimenting with microfinance in the late 1990’s, much later than many other countries. Since then, in part due to a policy environment aimed at supporting rural area and small enterprise development, the industry has grown rapidly, with over 6,000 microcredit companies as of June 2012. At this time of counting, only 25 percent of these companies had operating histories of longer than three years, and only 50 percent longer than two years. Of China’s current population of over 1.3 billion, an estimated 400-500 million live on only two dollars a day. As China’s microfinance industry continues to grow and serve more individuals, effective risk management becomes increasingly important. The PlaNet Finance report reviews the development of the Chinese microfinance sector and identifies four pertinent industry risk areas.
- Many microcredit companies mainly focus on credit risk, without reference to other risks, such as governance risk, external risk, operations risk, IT systems risk, and liquidity risk
- Restrictions in access to funding create obstacles for the scaling-up of operations
- Emerging market leaders are beginning to face the risks inherent in a rapid expansion strategy, including the challenges of maintaining control and standardization, particularly as portfolio monitoring, risk management, and IT systems have not kept pace with the increasing scale and complexity of operations
- A disproportionately fast increase in lending volume in certain urban markets raises concerns about potential future risks regarding market overcrowding, over-indebtedness, and inadequate consumer protection
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