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> 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 Michael Miebach, President, Middle East and Africa, MasterCard
FI2020 Week is a global conversation on the key actions needed to advance financial inclusion, grounded in the findings of the recently launched FI2020 Progress Report. From November 2-6, 2015, stakeholders around the world are participating in more than 30 events and sharing their voices over social media, with #FI2020.
FI2020 Week offers a good opportunity to review the findings in the FI2020 Progress Report and to consider actions the global community needs to take to advance financial inclusion. This is of particular interest to me as I work every day to expand MasterCard’s payments platform in the Middle East and Africa, and in a volunteer capacity, I also serve on the board of directors of Accion.
The report asserts that it’s not enough to “build the rails” to enable payment and transaction access, but that “providers, regulators and support institutions need to ensure that the financial services that follow provide value and quality to the passengers who climb aboard.” Here is where interoperability is essential—if last mile customers are to benefit. Banks, telcos, merchants, and governments must be connected—despite different rules and technologies—in a way that is seamless to the user. From a customer perspective, that means ubiquity, safety, and utility—the trifecta of success in financial inclusion. It won’t work if all the stakeholders are competing to create their own end-to-end solutions, or operating in silos. It won’t work if we are creating islands, where the unbanked transact with each other and where data is used in proprietary ways to support individual business models, rather than being shared as a public good.
Now, a parent in Zimbabwe sends money to his daughter studying at university in South Africa using a mobile money operator connected to the global banking system. All he needs to do is go to an EcoCash agent and top up his mobile money account. His daughter then accesses the funds using a MasterCard debit card linked to the same EcoCash mobile money account to purchase text books, and pay university fees as well as other day-to-day expenses while at university in South Africa. This is ubiquity, safety, and utility put into action.
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> Posted by Susy Cheston, Senior Advisor, CFI
Of the 700 million new accounts that the Global Findex reports were opened from 2011 to 2014:
- Banks and other financial institutions accounted for 550 million;
- Mobile network operators accounted for 100-240 million, depending on your source and methodology;
- Microfinance institutions accounted for 50 million.
These numbers are rough and involve some overlap—but they point to the continued importance of commercial banks in financial inclusion. Put another way, of the 3.2 billion accounts reported in the 2014 Findex, 3.1 billion were accounts with a financial institution.
That’s why I was so interested in hearing what the commercial bankers had to say at an Institute of International Finance (IIF) roundtable held in Lima on October 9 alongside the International Monetary Fund (IMF) / World Bank meetings. The strategies they discussed for reaching the BoP were not new to those immersed in the financial inclusion world, but it was heartening to hear their commitment to putting those strategies into operation. Here are a few of the points from the discussion:
Use data to understand customers. Now more than ever, there is a wealth of available data to help us better understand customers at the base of the pyramid. These new customer insights are opening up new practices – from on-boarding, to cross-selling, to risk management. Data analytics can also enable cost reductions on credit and insurance. For example, ecommerce platforms for small manufacturers can facilitate credit offers and then arrange for automatic repayment from the ecommerce activity itself. This innovative use of data allows financing at half the cost.
> Posted by Sonja E. Kelly, CFI
A couple months ago we announced a new program coming out of the Center for Financial Inclusion and Accion designed to produce actionable research for the microfinance and financial inclusion industry. We’ve been busy since, overwhelmed by the positive response we had to our announcement, and torn between many high-quality research proposals.
In recent days we selected four fellows to carry out research that we think will have an influence on the future of financial inclusion. Without further adieu, I would like to introduce you to…
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> Posted by Elisabeth Rhyne and Sonja E. Kelly, CFI
We are looking for four research fellows to explore some of the most relevant and exciting questions facing the financial inclusion community. Interested?
Before answering, some background. A few months ago we articulated some ambitious unanswered questions that we think will propel financial inclusion forward, and offered the space for you to contribute questions, too (many thanks to those of you who made suggestions!). Since the Center for Financial Inclusion at Accion is committed to figuring out what is working in financial inclusion and worth replicating, we have made it a priority to partner this year with researchers to explore some of these questions in greater detail.
And that’s where you come in.
We are looking for researchers who are interested in becoming fellows for the Center for Financial Inclusion at Accion’s brand new Fellows Program. The Fellows Program will empower independent researchers to systematically analyze some of the most important and critical challenges facing the industry. This year, we are selecting four fellows to explore the following topics:
- What are the conditions for “on-ramps” to lead to deeper inclusion? With the World Bank’s commitment to Universal Financial Access and the Better Than Cash Alliance’s pursuit of G2P payments, both of which focus on connecting people to transaction accounts, the next question is how (and whether) such connections lead to greater inclusion, through either active account usage or access to additional products. What cases demonstrate successful on-ramps and what factors or strategies enabled deeper inclusion to take place? Research could examine one or several examples.
> Posted by Sonja Kelly, Fellow, CFI
In 2013, Elisabeth Rhyne was asked what she was particularly excited about as she looked forward to the future of financial inclusion. Her response? “A second data point.”
Well, now we have that second data point. The 2014 Global Findex reports that 62 percent of people in the world have a bank or mobile money account, up from 51 percent in 2011, and those two points describe a line. Simply projecting that line forward takes the world to about 83 percent of people with accounts by the year 2020. But of course, that’s not the whole story…
The Global Findex encouragingly articulates some concrete steps that governments and providers can take to accelerate progress toward financial access. I would venture to guess that these steps would bridge the gap between the projected 83 percent and the full 100 percent by 2020 (you can read about the World Bank’s goal of universal access by 2020 here).
So let’s just assume that universal access will be a reality by 2020. We can envision a world in the near future where people receive wages, government payments, and remittances into their bank accounts. Businesses spend less on payroll and have fewer risks than if they paid out in cash. Governments avoid corruption associated with social benefit payments by having a cheaper G2P system that entails fewer human intermediaries. Remittances are cheap—or even free—and go directly into the recipient’s bank account. Cause for celebration, right?
Well, yes, but not so fast.
Jim Yong Kim, President of the World Bank Group
> Posted by Center Staff
Among the excitement of the World Bank Spring Meetings last week, key players in financial inclusion declared actionable commitments toward the goal of universal financial access by 2020 in a standout session. Those committing included banks, associations, payment companies, and telcos. The message of the commitments, and of the session’s panel discussion, was that we’ve achieved remarkable progress in the past few years, the goal of universal access by 2020 is very much in reach, and both of these are due in no small part to the aligning of stakeholder incentives and powerful partnerships. The panel highlighted that in three short years, the number of unbanked adults around the world dropped from 2.5 billion to 2.0 billion, according to the 2014 Global Findex.
The focus of the panel was mobilizing the public and private sectors to achieve the goal of universal financial access. Although achieving access is just the first step toward inclusion, it is a bridge to effective services usage, as well as to other development objectives like adequate housing, education, clean water, and healthcare. During the session, panelist Jim Yong Kim, President of the World Bank Group said, “If we reach universal financial access by 2020, we’re going to have a much better chance of getting to the end of poverty by 2030.” One particularly promising avenue to expanding access is digitizing government payments. Ajay Banga, CEO of MasterCard shared that 30 percent of the money that flows into the hands of the under-banked comes from governments. Delivering these payments into a mobile phone, card, or cloud-based account that can be accessed using biometric technology or other non-limiting customer-identification methods brings tremendous benefits. In this way, by migrating their social benefits from cash to electronic, Pakistan opened 3 million debit accounts in six months. Countries with national financial inclusion strategies achieve twice the increase in the number of account-holders compared to countries that don’t have strategies in place.
> Posted by Sonja Kelly, Fellow, CFI
Last week in Mexico City, tens of thousands of people took to the streets to voice their hope for a better Mexico. In a hotel that overlooked the demonstration, members of the World Savings Bank Institute met to talk about how to make a safer and more effective financial system for those at the base of the pyramid. In terms of inclusive finance, in recent months we’ve seen significant progress. During the meeting, Vice President of the National Banking and Securities Commission (CNBV) in Mexico, Bernardo Gonzalez, opened his remarks by putting up a list of the top 10 countries in this year’s Global Microscope. Modestly, he pointed out that five of the 10 were from Latin America. Perhaps more emphatically, he highlighted Mexico’s place—fifth on the list.
As a regulator, he should be proud. Mexico’s score this year is in part a reflection of the regulatory reforms that the country has been moving forward, with attention to customers at the base of the economic pyramid. While Mexico’s microfinance sector has been under scrutiny in recent years because of notoriously high interest rates, concerns of over-indebtedness, and commercial banks hesitant to go “down-market”, a new set of microfinance regulations attempts to change things.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Electronic payment systems are spreading so rapidly they’ve become a challenge to size up. Payment cards have been around in some form since the early 20th Century, but their outreach is still far from ubiquitous, even in countries like the United States. To get a sense of where we stand with the expansion of modern payment systems, I compiled some recent statistics from around the world.
In the United States, employers are increasingly using electronic payment cards to distribute compensation. As compared to checks that require processing, the cards receive funds immediately, and can be used like any other payment card to make purchases, transfers, and withdrawals. In 2012, more than $34 billion was loaded onto 4.6 million active payroll cards. By 2017, this is expected to grow to $69 billion over 10.8 million cards.
Electronic payments are experiencing rapid outreach in India in part through the government’s Aadhaar identification card initiative. Increasingly banks are accepting the biometric information-backed Aadhaar numbers as adequate Know-Your-Client information, and as part of its financial inclusion report released last week, the Reserve Bank of India (RBI) Committee on Comprehensive Financial Services for Small Businesses and Low Income Households recommends that every individual over the age of 18 receive an electronic bank account when they’re issued an Aadhaar number. As of December 2013, about half the country’s population had enrolled for the identification cards. The RBI plans to have the entire adult population enrolled in the system by January 2016. Among their utilities, the cards are being used to distribute social benefits of the government’s Direct Benefit Transfer scheme. A recent UBS Securities report estimates that the efficiencies gained from the card-based social benefit system could total up to 1.2 percent of India’s GDP.
> Posted by Sonja E. Kelly, Fellow, CFI
I was thrilled when I opened the paper this week to the news of Michelle Bachelet’s victory in Chile. The first female president in Chile, first elected in 2006, is back in office after a one-term break. I have long admired her advocacy for those living in poverty, her tenacity, and her activism. However, her victory also means a question of what will happen to the admirable financial inclusion initiatives begun by the Piñera administration.
In many of my conversations with government employees in Chile in the past year I have heard some caveat to the effect of, “I’m not sure what we’ll be able to do in the coming months given the upcoming election.” Initiatives like electronic government-to-person (G2P) payments, for example, were pushed forward by people connected with the Piñera government, and if the new administration does not prioritize such initiatives, financial inclusion may receive less policy attention.
This highlights a larger issue of who “owns” government-initiated financial inclusion efforts. The answer matters because the leadership structure of government-led initiatives determines longevity. If financial inclusion policy is spearheaded by the Central Bank, and the Central Bank ministry is largely independent, financial inclusion initiatives are unlikely to change course with an administration change. If it is a Ministry of Finance-led push, however, financial inclusion may indeed be an administration-specific initiative.
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