The following post was originally published on the ImpactX blog of the Huffington Post.

Women participating in paper prototyping for new mobile app in Uganda

Women are the backbone of the household in Africa — they manage the home, care for the children, are responsible for education and healthcare, and contribute to the household’s livelihood. Helping women helps the entire family. However, women continue to lag men in participating in the formal economy, including accessing financial services.

The Problem: The Poor — Especially Women — Are Excluded From Financial Services.

For the rural poor — especially women — accessing formal financial services is nearly impossible. Few have formal identification needed to open an account; others lack a stable job or collateral needed for a loan. Often bank branches are far from a rural village, making the trip to deposit or borrow funds too expensive and time-consuming.

Many of the rural poor have taken up an approach to support saving and borrowing by forming Village Savings and Loan Associations (VSLAs). Under this approach, 25-30 members of a community form a group. This group meets weekly and saves a fixed amount — at times, as little as 20 cents a week. The savings are lent out to members as loans. All money not lent out is stored by the group treasurer in a metal box secured with three locks and three keys, which are held by three separate key holders. It is, as some group members call it, the “Village Bank.”

The Benefits And The Challenges Of The “Village Bank”

Group savings is wildly successful, with millions of individuals across Africa reporting themselves enrolled in VSLAs or other forms of savings groups. In Uganda alone, where Grameen Foundation works closely with savings groups, the FinScope 2013 survey revealed that nearly two in three adults save in some sort of group. Savings can yield big money over time — by the end of a one-year cycle, some groups have thousands of U.S. dollars locked in the box.

The challenge, however, is that cash is risky, and the group’s success can be tempting for local thieves who may target a treasurer’s home. Storing these funds as cash also means that the group’s rich transaction history is invisible to formal institutions that might be able to provide more services to groups if they had insight into transaction activity. While some banks offer formal products to groups — like group savings accounts offered by Barclays’ Banking on Change program — many groups find that they are located too far from a bank branch.

Solving The Cash Challenge: Mobile Solutions

These issues — the insecurity of cash, and the challenge in accessing cash-in/cash-out points like bank branches — are issues that mobile money has been tackling across Africa for years. Mobile money allows individuals to deposit money on an electronic wallet (e-wallet) associated with their SIM card using their basic feature phone at any local agent location, which is often a shop in a local village. They can then send money to friends or family or transfer the funds to their bank account.

This infrastructure is already in place and could be used to help groups. The problem to-date, however, is that mobile financial services are tailored to individuals and secured by a single PIN number. For a group to feel secure depositing money into this virtual system, they need group-level security.

Grameen Foundation and Airtel, one of the leading mobile operators in Uganda, partnered to develop a solution called Airtel Weza. This new wallet took the analog product — a box with three locks — and digitized it. The product features a three-PIN system requiring approval from three group members before funds could be removed from the group’s account. To ensure that three members cannot collude, additional text messages are sent to other members in the group as well. Instead of a box for physical storage, funds are stored virtually. Instead of three locks, there are three PINs. The product was launched in the Kamuli region of Uganda earlier in August, and Airtel will continue expanding across the country in the coming months.

An Upside For Both Customers And Providers

The product serves a major social need for women involved in savings groups by giving them a safe place to store excess funds. It stimulates the local economy – over 40 percent of women report that having access to a phone provides greater access to income-generating opportunities. However, attracting women to mobile services is not just a local good; it is also a boon for mobile operators and financial institutions. According to research by the GSMA mWomen team, 21 percent fewer women than men own mobile phones in middle and low-income countries. This translates into a gender gap of 300 million women and a revenue loss of $13 billion for operators. For banks, individual small savers and borrowers can be too costly to serve; offering group products provides an efficient way to serve the poor.

Developing products tailored for this market, such as products tailored for women-dominated savings groups, helps operators reach out with an offer that resonates and encourages uptake. For women, it is an important opportunity to start participating in the formal sector through the use of mobile financial services and to start slowly closing the gender gap.

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The following post was originally published on the Huffington Post World Blog.

The High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, led by David Cameron, Ellen Johnson Sirleaf, and Susilo Bambang Yudhoyono, has released its recommendations for the next round of world development goals. This document launches what is sure to be a lively debate that will take place in the coming months, as the United Nations considers this report and prepares for the Secretary General to announce the official U.N. recommendations later this fall.

The Eminent Persons panel put forward twelve illustrative goals, ranging from 1) End Poverty to 12) Create a Global Enabling Environment, and touching in between on health, education, water, energy, and other priorities.

For those in my line of work, the immediate question is: How does the report position financial inclusion?

In recent months, when the subject of financial inclusion and the Post -2015 Global Development Goals (GDGs) comes up, someone is sure to say, “Financial services aren’t development goals; they’re enablers.” And this is the crux of a dilemma. The importance of financial inclusion is increasingly recognized. But if financial services are seen through an “enabler” lens, they would not appear in the top tier of GDGs, which revolve around outcomes of intrinsic value to people and nations. What is the role of an enabler like financial inclusion in a development framework that focuses on outcomes?

It looks like the Eminent Persons recognized this dilemma, and as a result, they had a hard time finding the right place for financial inclusion. They did address it, finally, by tucking it under proposed goal 8) Create Jobs, Sustainable Livelihoods, and Equitable Growth. Specifically, sub-goal 8c says, “Strengthen productive capacity by providing universal access to financial services and infrastructure such as transportation and ICT.” They put it into a section that is mainly about job creation, and then linked it to physical and communications infrastructure. Another sub-goal (2c) calls for equal rights for women to open bank accounts (along with the right to own property and sign contracts), implying that financial services are a necessary part of an economic identity.

In my view, the panel got it partly right and partly wrong. It was right when it placed financial inclusion alongside other forms of infrastructure. Financial services are perhaps most comprehensively viewed as providing the infrastructure that, as the panel states, enables people “to make the most of their resources.”

Making the most of one’s resources captures the power and role of financial services at the base of the economic pyramid. A microfinance loan does not create a vegetable vendor’s customer market, but the working capital it provides may enable her to arrive in the marketplace with vegetables to sell. A savings account does not get a youth into a preparatory school, but it may enable the youth’s parents to stockpile the money for school fees. Electronic money transfer services do not change the amount a worker can set aside to send home to his parents, but they enable the money to move faster and cheaper, and they may ensure that more of it actually reaches the parents. Financial services assist people to manage their economic lives across the barriers of time and space and in the face of risks. Infrastructure is an apt description of this role.

The panel got it wrong, however, in pegging financial services only to economic growth and productive capacity. The facilitating role of financial services is potentially so pervasive that it underpins several — possibly the majority — of the proposed GDGs.

• Empower Girls and Women? A loan to a woman, in her name, gives her increased economic status in the family and possibly in the community.
• Provide Quality Education? Savings and credit help families pay for school.
• Ensure Healthy Lives? Health insurance is integral to enlarging access to health care.
• Ensure Food Security? Farmers need financial services to purchase inputs, manage the seasonal flow of their incomes, and cope with agricultural risks.

For governments charged with meeting the GDGs, the long list of goals represents a daunting fiscal challenge. Goals predicated on massive government expenditure are unrealistic for many nations. Financial inclusion can lighten the load. When a person uses financial services as a means to achieve any of these goals, government’s burden falls. If a poor family steadies its economic life using financial services, its need for conditional cash transfers decreases. The same goes for health, housing, education, and even pensions. Financial services that help people become more self-sufficient reduce the need for government subsidies. This is one more way in which financial services act as an enabler.

The GDGs that are ultimately adopted will embody humanity’s aspirations in this part of the 21st Century, and as such, they will portray the world in terms that resonate with our deepest values. Perhaps financial services are too utilitarian to inspire the kind of fervent hopes associated with many GDGs. But when it comes to the practicalities, when we start to ask how to bring these hopes into reality, we will find ourselves turning to financial services again and again.

It is important that the GDGs adequately articulate the multifaceted role of financial services. The world needs to set and track ambitious targets for financial inclusion. One solution would be to highlight financial services and inclusion in a single prominent place, with a comprehensive explanation that financial access for all the world’s people is critical to the success of many of the GDGs.

If ultimately the GDGs do not become the focal point for tracking progress toward financial inclusion, however, then another focal point is needed. Today the best candidate for that focal point is the Global Partnership for Financial Inclusion (GPFI), created as part of the G-20 process. The GPFI has developed a G-20 Basic Set of Financial Inclusion Indicators by which it and individual countries will track progress, and it is working on an expanded set that will measure not only access and usage, but also quality of financial services. As the GDG process moves forward, the GPFI — and the broader community of those working on financial inclusion — should strive to set targets and indicators for financial inclusion with the GDGs in mind, ensuring that efforts to create a financially inclusive world will also support achievement of the goals that humanity most strongly embraces.

Have you read?

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The following post, written by Tilman Ehrbeck, CEO of CGAP, was originally published on the Huffington Post Business Blog, with the title

In Sweden, all new drivers start out registered to be organ donors in the event of their passing. They have the freedom to opt out without negative consequences. Fourteen percent decide to do so and 86 percent remain organ donors. Across the Oresund, less than 10 miles away, Danes have to proactively decide whether they want to become organ donors. Less than 5 percent do, and more than 95 percent don’t. On the global scale of things, Sweden and Denmark are culturally quite similar: generally credited with being open-minded, socially responsible, common-sense Scandinavians.

The vast difference between Swedish and Danish organ donor participation rates (technically “presumed consent”) despite all the cultural similarities is one of the most dramatic examples of the power of policy design that takes into account pervasive human cognitive and behavioral biases to help us do what we generally think is a good thing, but often have a hard time following through with. One such bias is that, when decisions are tough, we tend to prefer the status quo; and relatedly, it’s much harder to proactively opt for something, rather than to simply stick with the offered default choice. (The approach, popularized by the term ‘nudging,’ even led the UK Prime Minister to set up a ‘nudge’ policy advisory unit.)

Based on the earlier path-breaking work on human decision-making by psychologists, an increasing number of economists have pushed and developed the notion of behavioral finance over the last decade, and increasingly business leaders, policymakers and regulators are picking up on these ideas to advance financial access for the poor and to improve consumer protection that actually works in financial services. New products are being developed and new policies are being formulated not on the basis of how people ought to behave, but based on what they actually do and not do.

In Malawi, Opportunity Bank observed that farmers had a hard time holding onto to post-harvest cash and often reached the next planting season without the required resources. Based on this observation, the bank developed a commitment savings product that allows farmers to stash away post-harvest payouts and distribute them over the year to smooth cash flows. The introduction of this project was accompanied by a randomized impact evaluation. The effects were significant. Farmers with access to the new product managed their savings and cash flow better, and in the subsequent season used more agricultural inputs (a 26 percent increase), had higher crop sales (a 22 percent increase in value of crop output) and a 17 percent increase in household expenditure relative to a control group without such access.

There are other such examples of behaviorally-informed product innovations. Green Bank in the Philippines offers a SEED (Save, Earn, Enjoy, Deposit) commitment savings product, which enables clients to withdraw from the account only once their goal date or amount is reached. Jipange KuSave in Kenya has tested the provision of interest-free loans with a third of the amount held back as savings. And Bancomer in Mexico has developed a savings product concept that mirrors the savings behavior of low-income Mexican households who literally use different cookies jars to separate savings for different future purposes.

Similarly, policymakers have begun recognizing that statutes on the books that ignore the reality of low-income families are of limited value. They have started to incorporate demand-side insights into their approaches. In Mexico, for example, the financial consumer protection agency “mystery shopped” financial services to assess how well bank staff were conveying disclosure norms to consumers. They found widespread misinformation and biases towards different types of personalities and even styles of dress that prompted them to rethink their approach to disclosure.

In the Philippines, consumer testing of credit contracts has led to reforms to the Truth-in-Lending Act. And in Senegal, policymakers have used consumer surveys to test and improve the functioning of dispute resolution mechanisms.

To read the rest of the post, visit the Huffington Post Business Blog.

Image credit: Paragon Wealth Management

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What is “money management”? And how is it significant for low income individuals? In a recent blog post on Huffington Post, CFI’s Managing Director, Elisabeth Rhyne, tackles these important questions and discusses their implications for providing effective financial tools and services to the poor. 

The post begins:

It’s traditional for bankers and their customers to think about banking as centered on the bank account. Even policy makers talk about “banking the unbanked” as if opening a bank account immediately changes a person from financially excluded to included. The bank account is the top line indicator examined by the Global Findex, the new survey of financial access by 150,000 adults from over 148 countries. The finding that 43 percent of adults in the developing world have bank accounts has quickly become the reference point for financial inclusion.

For decades, balancing one’s checkbook has been the cornerstone of personal finance for conscientious adults in the developed world. When I first opened an account of my own, I received a little checkbook-sized booklet in which to write down every deposit and withdrawal. I learned that keeping track of the bank balance was like the personal hygiene of finance, like brushing your financial teeth.

The implicit message, not just for me, but I think for society at large, was that the bank account was the locus of money management. All one’s main financial transactions would pass through the account, and the account would serve as a kind of running financial statement, showing not only income and expenses but also personal solvency. (I’m setting aside for now the very important function of accounts as savings vehicles. That’s a story for another day.)

To read more of this piece on Huffington Post, please click here.

Image Credit: londonrelocationservices.com

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