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> Posted by Ben Mandell, International Programs Manager, Water.org
Access to safe drinking water and hygienic sanitation are true necessities for healthy families. Yet, access rates for water and sanitation remain stubbornly low in most low-income countries. The negative health implications can be dire and include diarrheal disease which can result in premature mortality and childhood malnutrition and stunting. From an economic perspective, “The health consequences of poor sanitation are substantial and contribute to over US$50 billion in GDP loss annually,” according to a new India focused learning note jointly developed by Water.org and the World Bank Water and Sanitation Program (WSP).
In the learning note, Water.org and WSP, both active globally in working to expand access to water and sanitation, collaborate to share their research and findings on how household lending can help drive improved water and sanitation uptake as well as provide economic and social benefits to local financial organizations.
Water.org, through its WaterCredit program, provides capacity-building grants and technical assistance to create, pilot, and scale water and sanitation financing. Currently, WaterCredit provides funding to microfinance providers and NGOs to support the creation of programs and these partners then leverage funding from banks and capital markets to disburse loans to people in need. Accordingly, “Water.org has provided US$11.3 million in subsidies to financial institutions and NGO partners worldwide, which in turn have disbursed over US$120 million in loans reaching 2.4 million people.”
> Posted by Susy Cheston and Sonja E. Kelly, CFI
Aging is an issue that we all hope to face personally, if we haven’t already. As we prepare to participate in European Microfinance Week, we are more convinced than ever that this is a critical topic for the financial inclusion community to address. (If you are planning to be at European Microfinance Week too, make sure to check out our panel on the Sustainable Development Goals and financial inclusion!) In Europe, the aging of the population is well acknowledged. With average life expectancy in Europe among the highest in the world, at 77 years, the proportion of the population reaching older age is naturally growing. About 25 percent of Europe’s population is now over the age of 60, and that percentage is set to rise. The aging of the population is well understood in Europe, but what is less recognized is that the middle and lower-middle income countries of the world – the countries that encompass most of the world’s population – are already beginning to experience the same older age population boom. In most middle income countries, from Mexico to China, over-60s are the fastest growing cohort of the population. Aging is a product of successful development. Increased life expectancy, better family planning mechanisms, and higher quality of life all contribute to growth in the proportion of the population that is older.
Aging is a reality, but can it also represent an opportunity for financial institutions? The smart money is on providers who recognize that the answer is yes, and work to figure out how to respond.
We’ve created a list of activities, some practical and some research-oriented, we think would be valuable to close the gaps in financial inclusion for older people and for younger people who want to prepare for their older age. And, frankly, we would love for you to steal these ideas!
> Posted by Susy Cheston, Senior Advisor, CFI
Data analytics is a big story these days, and we’re excited about its potential. In fact, we discuss its promise in the Technology, Addressing Customer Needs, and Credit Reporting sections of the FI2020 Progress Report. In terms of credit reporting, data analytics start-ups claim that their algorithms can cull information from Internet searches, social media, mobile apps, and so on to identify creditworthy people who might otherwise be left out of the system.
GO Finance, operating in Tanzania, and Konfio, in Mexico, are online lenders whose models are based on data analytics. GO Finance leverages digital data and mobile money channels to underwrite and manage loans for small and medium-sized enterprises (SMEs), particularly targeting farmer cooperatives and others in the agricultural value chain. Konfio uses credit algorithms based on alternative data to help micro and small businesses obtain working capital loans. Konfio’s digital platform allows for low-cost customer acquisition and rapid credit assessment, enabling the company to offer lower rates. Demyst Data, by contrast, partners with financial institutions – global banks, online lenders, and card issuers. It analyzes online, social, and internal data to help its partners lend to thin-file, underbanked customers. Alibaba’s Ant Financial and its new Sesame Credit use proprietary customer data drawn from non-banking transactions to support lending, with Alibaba’s e-commerce business, financial service provider (Ant), and credit reporting service (Sesame Credit) all arms of the same conglomerate.
For data analytics to reach its enormous potential for credit reporting, there are big questions that need to be worked out. Is it really predictive? Will it really enable more customers at the base of the pyramid to obtain credit? Will customers’ rights to data privacy be protected? How can data analytics be effectively regulated?
> Posted by Haset Solomon, Associate, the Smart Campaign, and Sonja E. Kelly, Fellow, CFI
Click for complete and full-size infographic
Earlier this year we shared a puzzle: microfinance institutions reported that they had age caps on credit products, but we couldn’t figure out what data or rationale was backing them. Leveraging the Smart Campaign’s endorser network of over 2,000 microfinance institutions, we set out to get to the bottom of this puzzle. What we found in our survey surprised us.
Consistent with our research in the Financial Inclusion 2020 (FI2020) publication Aging and Financial Inclusion: An Opportunity, 61 percent of respondents indicated that they have age caps at their microfinance institutions. Indeed, it is common-place for institutions to place age caps on their credit products. The practice is not limited to one country or region – respondents to the survey came from 45 different countries across every region. As we analyzed the survey, we figured there is either a global phenomenon of discrimination against older people or everyone has a very good reason for their actions that we have been missing.
When asked what the age cut-off is at each respondent’s institution, the responses ranged between 55-80 years, and the average age was 65. Our research earlier this year, however, found that this age cut-off is not always consistently applied within each institution. New customers may have an earlier age cut-off, whereas customers with an existing relationship with an institution may be given an additional few years to apply for a new loan.
So, why do institutions impose these age caps on credit products? We received two competing answers:
Read the rest of this entry »
> Posted by Eric Zuehlke, Web and Communications Director, CFI
One theme we come across repeatedly at CFI is the discrepancy between financial services access and usage. A central tenet of our vision of financial inclusion is that access isn’t enough; financial services need to meet client needs and actually be used. One example is mobile banking. As is now well known, millions are now accessing financial services for the first time with mobile payment platforms through telcos. As our By the Numbers report found, however, the proportion of financial services accounts that are mobile is much smaller for the world in general – East Africa is the outlier.
I just returned from an exciting two-week assignment through Accion’s Ambassador program with Akiba Commercial Bank in Tanzania. I met with Akiba staff, visited branch offices, and talked with clients. (You can read about my experiences, including a trip to Zanzibar and terrifying/awesome motorcycle taxi trips on the Ambassador blog.) Since I was in the region with the world’s highest adoption of mobile banking, I wanted to take the opportunity to learn more about how Akiba’s mobile banking experience has worked out, both from staff and client perspectives. Has adoption and usage met expectations? What kind of feedback was Akiba hearing from clients? What challenges was Akiba facing with their mobile platform?
Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.
PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. Part one and two can be found here and here; the following is part three.
Misperceptions abound about how to impact credit information sharing in emerging markets. Let me weigh in on this debate and set the record straight.
- Technology is not the problem. There are abundant and affordable platforms to enable robust information sharing in even the most extreme environments.
- Scoring models are not the problem. FICO, SAS, Dunn and Bradstreet, and a host of multi-national credit bureaus and lenders have plenty of smart mathematicians, computer scientists, statisticians, and others with lots of letters behind their surnames to ensure innovation in this space. The breakthrough that will move markets won’t be found here.
- End-user capacity and incentives are not the problem. Many pro-poor lenders are already using automated underwriting solutions and can quickly assimilate new data or new scoring models.
So if investing in the technology, risk modeling, and end-user trenches aren’t going to galvanize things, let alone revolutionize them, in which trenches will the revolution begin? The answer lies further upstream, in the consumer and commercial credit ecosystems.
The answer is data access.
This is a deceptively simple response and raises a number of related questions. Which data is both predictive of credit worthiness and covers broad segments of the unbanked and underserved populations? Who owns it? Can traditional credit bureaus access this data? Why haven’t they so far? Are other parties needed to provide lenders access to this data? How can data subjects (people) access and “port” their data from mobile payment systems the same way they can carry their credit report information?
> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group
A few weeks ago, I attended the Global Forum on Remittances and Development sponsored by the International Fund for Agricultural Development (IFAD), the European Commission, and the World Bank. Much of the meeting was focused on two critically important questions:
- Are or could remittances be a major driver of financial inclusion?
- Is it possible (and desirable) for a greater percentage of remittances to be put to productive use as opposed to consumption once the funds arrive in the hands of the recipient?
First, a few facts to underscore why these discussions are so important:
- In 2014 there were at least 240 million international migrants. That is a BIG number – bigger than the populations of all the countries of the world except China, India, the U.S., and Indonesia.
- This year these migrants will send back to their countries of origin more than 440 billion U.S. dollars! This amount is more than three times the amount of foreign aid. It is estimated that $200 billion of this amount goes directly to rural areas in developing countries where the most poverty is.
- Remittances can constitute up to 40 percent of GDP or more in some countries, often the most fragile, most conflict-ridden countries in the world.
- Some 750 million people are estimated to receive remittances, the vast majority in developing countries. Forty percent live in rural areas.
- The global average cost of sending this money home is 8.6 percent of the amount sent, so the potential customer benefits to cost reduction are very important. (In July 2009 the G20 set a goal of reducing the average cost from 10 percent to five percent in five years. Despite failing to achieve the objective, it recently established a new goal of three percent by 2030!)
Are remittances a driver for financial inclusion? Could they be? In a moment of frustration, Fernando Jimenez-Ontiveros, the Acting General Manager of the Multilateral Investment Fund said at the conference, “We’ve been working on these issues for some 15 years, and estimates are that 60 percent of senders and recipients still don’t even have an account! We’ve got to do better!”
PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. The following is part one.
Recently, a number of players have flaunted an impressive array of promising digital technologies to expand credit access, advertising nothing less than a full on revolution in financial inclusion. While the promise of many of these solutions is inarguable, in most cases they are limited to lower-value, higher-interest consumption loans at best, or, at worst, are at risk of being useless as they suffer from the classic error of putting the cart before the horse. The principle limitation on these solutions is a lack of access to sufficient quantities of regularly reported, high-quality, predictive data upon which to base credit decisions and develop credit products.
Consider the case of Safaricom, which revolutionized the payment systems market in Kenya with its M-Pesa offering. The rapid uptake of M-Pesa by lower-income Kenyans was proof positive of the value of digital financial services and spawned a wave of investment into hundreds of copycat service providers around the world.
> Posted by Andrew Fixler, Freelance Journalist
Atikus, a new financial inclusion-focused enterprise, is gearing up to launch an underwriting platform and a credit insurance product in Rwanda for micro, small, and medium enterprise (MSME) credit. The insurance product is designed and brokered by Atikus, and ultimately backed by a local insurance company. I recently sat down with Kate Woska, co-founder and CEO of Atikus, to discuss financial innovation and her company’s work.
Microfinance has long benefited from careful experimentation and innovation. Initiatives that are targeting the base of the pyramid tend to be consumer-focused (e.g. micro health insurance or mobile payments development); however, according to Woska, these initiatives may be populating an industry that also suffers from institutional and market-level inefficiencies.
> Posted by Sonja Kelly, CFI, and Thierry van Bastelaer, Abt Associates, American University, and the Microinsurance Network
Even 10 years ago, most of us would never have thought that the words “insurance” and “low-income households in the developing world” would be heard in the same sentence. It would have been as strange as, say, hearing the words “really good coffee” and “Washington, D.C.” in the same sentence.
But times have changed. Thanks to tremendous innovation in product design, pricing, and distribution systems, insurance is increasingly affordable to low-income households that are looking for ways to protect themselves from daily risky events. We should take a few moments to stop and celebrate this development. (Pause for celebration.) Thank you.
At the same time, we should learn from the history of the broader financial inclusion field. It took many years for the majority of the field to admit that credit alone can’t meet all the financial needs of poor families. Hopefully the excitement over insurance will not similarly delay the realization that it alone can’t address all the financial protection needs of these families. A great variety of financial products is needed to address an even greater diversity of needs.
So, over a cup of really good coffee one afternoon in Washington, D.C., we sketched out a possible framework that articulates where insurance fits into the product spectrum for financial risk protection vis-a-vis savings and loans.¹
We thought of risk protection expenses along two axes: frequency and size, and plotted expenses on a 2×2 table (forgive our back-of-the-napkin scribble).
Financially inclusive products are best designed to finance risk management expenses in the top left and bottom right quadrants of the graph. High-frequency inexpensive outlays can, when accumulating over time, significantly disrupt the cash flows of low-income families. Similarly, low-frequency expensive payments can ruin years of carefully planned asset accumulation. Low-frequency and inexpensive events (bottom left) can usually be covered by cash, and high-frequency expensive events (top right) are usually beyond the reach of most financial inclusion products.
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