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> Posted by Virginia Moore, Communications Director, CFI

dialogue-on-business-clients-india-1-1024x683

For the last 10 years, the Global Microscope on Financial Inclusion has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest Global Microscope takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.

The Leaderboard

Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and the Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, the Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.

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  • Latin America and the Caribbean (LAC) and East and South Asia have the most conducive environments for financial inclusion. India stands out for the most progress in the last three years and is now ranked third
  • Further policy changes are needed if financial inclusion is to play the role envisioned in the Sustainable Development Goals
  • The digitization of financial services is key to increasing access to finance

The 2016 Global Microscope on Financial Inclusion shows that essential policies for bringing financial services to low-income groups are now widespread in the developing world. Nine of the 12 financial inclusion indicators covered in the benchmarking index improved globally in 2016, building on gains which have been made during the last decade. Even so, many countries have not moved significantly beyond basic policies, and greater focus is needed if financial inclusion is to play the critical role envisioned in the Sustainable Development Goals (SDGs).

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organisations in the field including the Center for Financial Inclusion at Accion. Now in its 10th year, the Microscope is the global standard for financial inclusion policy in developing economies.

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> 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.

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> Posted by Diana Taylor

The following post was first published by Emerging Markets magazine on April 8, 2016

Latin America’s financial institutions are microfinance and financial inclusion pioneers. Bolivia’s BancoSol was the first commercial bank focused on the base of the pyramid, helping establish a model that now serves 200 million people worldwide; in Mexico, Compartamos’ 2007 IPO remains the largest in microfinance’s history; and Peru has captured the top financial inclusion regulation rating for the last eight years.

Is Latin America’s innovator status fading? With only hundreds of high-quality microfinance institutions (MFIs) in the region, the industry has rarely needed to compete or innovate; in North America, thousands of banks fight to win and retain customers, and a host of emerging fintech players makes that competition even fiercer.

High-quality, independent MFIs focused on the base of the pyramid are already too rare in Latin America. And commercial banks are increasingly looking to acquire privately-owned MFIs and consolidate the sector further. In 2009, Scotiabank bought Peru’s Banco del Trabajo, and purchased Mexico’s Crédito Familiar in 2012. In 2014, Credicorp acquired a majority stake in MiBanco. These moves indicate microfinance’s successes creating scalable, well-governed institutions, but also pressure remaining MFIs to adapt, sell, or differentiate themselves.

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> Posted by Hannah Sherman and Jeffrey Riecke, Project Associate and Communications Specialist, CFI

fi2020_antilogo1In terms of financial inclusion, Haiti has much to be excited about. That might come as a surprise as it is considered to have among the worst environments for financial inclusion efforts, at least according to the Global Microscope. In the 2015 Microscope rankings, Haiti was at the very bottom of the list. Though this 2015 score reflected great progress compared to 2014. In fact, Haiti’s score improved year-on-year more than nearly any other country. This was due in large part to the development of a national financial inclusion strategy. However, Haiti’s path forward, including the implementation of this national strategy, is less than straightforward.

Haiti is still very poor. More than three-quarters of the population lives on less than $2 a day, and about two-thirds are unemployed. According to the Global Findex, in 2014 only 19 percent of Haitians aged 15 or above had access to a bank account, compared with 51 percent across all of Latin America and the Caribbean. Nine percent of the adult population had formal savings in 2014 (compared with 14 percent regionally), and 5 percent were formal borrowers (compared with 11 percent in the region). Small and medium-sized businesses and microenterprises make up the majority of the country’s jobs, and their access to finance is extremely limited.

But in recent years, Haiti has achieved impressive advances in its policy, regulation, and enabling infrastructure. About a year ago the Banque de la République d’Haïti (BRH, the central bank) passed the national financial inclusion strategy, which was supported by the World Bank and other international organizations. Among the strategy’s priority areas are financial education and consumer protection. In July of last year, USAID and Haiti’s Office of Economic Growth and Agricultural Development announced plans to work towards expanding financial access in support of this strategy. Their effort focuses on harnessing partnerships across stakeholder types to pilot and develop interventions.

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> Posted by Allyse McGrath, Senior Associate, CFI

Readers of the 2015 Global Microscope, which spotlights the quality of the policy environment for financial inclusion, often focus on the countries at the top of the pack. However, some of the largest improvements in this year’s report are happening towards the bottom of the ranks. This trend appears on a regional scale, with the Middle East and North Africa, the region with the collective lowest scores, showing the most improved scores in this year’s issue of the Global Microscope. In this region, Egypt serves as an example of a country making huge strides even though it’s not among the top 10 countries. In fact, it scores among the very lowest handful of countries.

Up two spots from 53 to 51 out of 55 total markets this year, Egypt improved its score in 7 of the 12 Microscope indicators. The 8-point jump overall can be attributed to many factors, most notably the government’s introduction of a new regulation which broadens financial supervisory to a burgeoning microfinance sector and its welcoming of new electronic payments experiments.

In November 2014, the Egyptian Government enacted  Law no. 141, more commonly known as the “Microfinance Law”, which created provisions for regulating MFIs in the country, previously excluded from the legal framework. This law expanded the reach of the Egyptian Finance Supervisory Authority (EFSA) which now has control over issuing licenses to microfinance institutions in Egypt. After the law’s issuance in 2014, the number of MFIs in Egypt rose from 400 to 640. By the end of 2015, EFSA reported that it had issued 253 licenses. The law which is aimed at ensuring efficiency, transparency, and risk management also includes a list of “Executive Decrees” by which licensed institutions must abide.

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> Posted by Carol Caruso, Senior Vice President, Channels & Technology, Accion

Isidro Medina Zapana, weaver, client of Accion partner Credinka in Peru

Peru’s pursuit of financial inclusion has set a standard, helping Peru capture the top ranking in the Economist Intelligence Unit’s Microscope for the last eight years. Accion’s Channels & Technology team, an advisory practice within Accion focused on digital financial services (DFS), recently returned from Lima, where we saw firsthand the exciting promise of digital payments in Peru.

Enabling Legislation

Innovations in financial technology are important to promoting financial inclusion, and the Peruvian government has passed critical legislation and regulations that enable developers to design and launch new products.

With almost 80 percent of Peruvians lacking access to a bank account, it’s clear why Peru’s government has committed so many resources to advancing financial inclusion. The government has launched diverse interventions in the past five years, and in August 2015 published a National Strategy for Financial Inclusion that outlines a more coordinated and cohesive approach to an issue that affects millions of Peruvians. The new strategy aims to provide access and responsible usage of a transaction account to at least 75 percent of adults by 2021.

The National Strategy’s focus on digital payments could bring about even greater impact, particularly in the harder to reach areas of Peru. Despite the fact that 80 percent of Peruvians are financially excluded, roughly 65 percent have mobile phones. Recognizing this, the National Strategy focuses on connecting those who have phones to financial services through digital payments adapted to the needs of the population.  Even as recent as last month, the Bank Superintendent provided new electronic money issuer licenses to three service providers: G-Money, Servitebca, and Jupiter.  This type of market stimulation is great news for Peruvian consumers and the payments ecosystem.

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> Posted by Center Staff

2015 was a year full of great reads (and listens). As we enter 2016, we wanted to take a look back at last year and what we were most excited to explore.  Through our work writing the FI2020 Progress Report, which assesses global progress in five key areas of financial inclusion, we benefited from important research from many in the financial inclusion field.  As part of this effort, we were eager to update our FI2020 Resource Library with the most informative reports and research outputs.  We encourage you to check it out – and in the meantime to review the highlights listed below.  The organizations responsible for these reports cover a wide array of stakeholder types, from support organizations, to telecommunication companies, to financial service providers – proof that progress in financial inclusion is being driven by many.

What Happens to Microfinance Clients Who Default? (January)
The Smart Campaign
Author: Jami Solli
This report looks in-depth at the enabling environment, the practices of providers, and customer experiences in Peru, India, and Uganda, to understand what happens when microfinance clients default on their loans. We were especially interested in the paper’s findings that demonstrate that effective credit bureaus give financial service providers the confidence to treat customers who default more humanely.

Money Resolutions: A Sketchbook (January)
CGAP
Author: Ignacio Mas 
This working paper explores the underlying logic for how people make money resolutions, including how people organize their money and make decisions about financial goals and spending. The paper focuses on peoples’ approaches to making financial decisions – rather than evaluating the decisions themselves – identifying the inner conflicts they face in the process.

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> Posted by Jeffrey Riecke, Senior Associate, CFI

India has received much fanfare for its financial inclusion efforts in recent years. A few weeks ago we declared it our Financial Inclusion Country of the Year for 2015 in recognition of the major steps it took, which resulted in achieving the greatest improvement in its Global Microscope score between 2014 and 2015. It recently granted new bank licenses that dramatically diversify and grow the country’s services landscape, widely applied new cost-saving technologies like biometric identification, and rolled-out historically ambitious public programs like PMJDY that dramatically reduce the portion of the population that is unbanked.

“Never waste a good crisis” said Royston Braganza, CEO of Grameen Capital India, at the Inclusive Finance Summit in Delhi last month, referring to the Andhra Pradesh crisis of 2010. The recently-released Responsible Finance India 2015 analyses the current state of practice on responsible finance and social performance management in India. In light of that report, Braganza questioned, “Have we learned from our mistakes?”

Responsible finance centers on client protection and market conduct, and has been extended in recent years to include many other good corporate citizenship issues such as employee management, governance, and social performance monitoring.

By way of context, here are a few numbers on the present-day BoP Indian finance landscape:

  • Across MFIs in India’s MFIN network, which represent roughly 90 percent of MFIs in the country, loan books grew by 64 percent in the last fiscal year, compared with 43 percent in the year prior and 4 percent in the year before that.
  • In total, MFI outreach in the country accounts for about 100 million clients.
  • Reportedly, through PMJDY 180 million new bank accounts have been opened over the past year, and adjacent schemes covering insurance, pensions, and credit have been implemented, as well.
  • For the first time in a decade, the RBI granted new bank licenses last year – to Bandhan Bank and IDFC. Bandhan now has 500 branches and over 2,000 service centers across 24 states. Sixty-five percent of IDFC’s first 23 branches are located in rural areas of Madhya Pradesh.
  • Under the RBI’s newly created categories of payment banks and small finance banks, 11 and 10 providers, respectively, have received new licenses, further expanding the network of providers serving the poor.

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> Posted by Sonja E. Kelly, Fellow, CFI

Time Magazine has just named Angela Merkel Person of the Year. In this post I hereby make CFI’s own designation: India is CFI’s “Financial Inclusion Country of the Year.” In the recently released Global Microscope 2015, India was the star performer. It improved its benchmarking score by more than any country (10 points on our scale of 1-100), rising in the ranking to fourth place overall.

The Microscope measures the quality of the policy, regulation, and institutional environment for financial inclusion, scoring 55 countries on 12 indicators, and then ranking them. The 2015 Microscope Benchmarking Model takes the report deeper, and shows year-over-year changes for individual countries (see table). While India is not the top scoring country (that honor has been held by Peru, Colombia, and the Philippines for several years), it is the country that has shown the most dramatic positive change, particularly in five areas: regulatory and supervisory capacity for financial inclusion, prudential regulation, regulation and supervision of credit portfolios, regulation of electronic payments, and market conduct rules.

Global Microscope 2015 Scores for India

2015_microscope_india

For more information see the 2015 Microscope Benchmarking Model. 

What did India do that increased its score in 2015? Building on important groundwork laid in 2013 and 2014, the Reserve Bank of India (RBI), the Prime Minister of India, and the financial sector worked together to implement important reforms.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.