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> Posted by Center Staff

ICICI Bank and Stellar: A look at a transaction enabled by blockchain (click to enlarge)

Why are mainstream financial institutions and fintechs partnering to pursue financial inclusion? In the case of ICICI Bank and Stellar, it’s because combining forces enables them to reach clients with a free blockchain-backed mobile wallet that they could not sustainably offer on their own.

Last week we released a new joint report with the Institute of International Finance (IIF), How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines. As part of the report, CFI and IIF conducted in-depth interviews with over 30 industry participants. We discovered dozens of partnerships between mainstream financial institutions and fintechs in emerging markets, and we detailed the workings of 14 of them.

The story of ICICI Bank and Stellar began when an ICICI Bank senior executive read a book about new technologies. The book mentioned a blockchain company in Silicon Valley called Stellar. Fast forward to today, Stellar now provides ICICI Bank with an open-source online ledger, or blockchain, designed to oversee the movement of money. ICICI Bank customers in India and abroad can transfer money through a free mobile wallet over Stellar’s platform. These transfers are made in real fiat currency, but internally they are documented in cryptocurrency. While the transfers are recorded on Stellar’s ledger in a cryptocurrency called ‘lumens,’ ICICI Bank holds the value for these transactions in Indian rupees in a pooled account. Due to the open nature of Stellar’s platform, ICICI Bank customers can transfer money to customers at any other bank on the platform. Stellar’s open platform has allowed ICICI Bank to easily connect with financial institutions that it might not have connected with otherwise.

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> Posted by Allyse McGrath and Dennis Ferenzy, Analyst at CFI and Associate Economist at IIF

Contrary to popular rhetoric, banks do not view fintechs primarily as competitors. Increasingly, they seek them as partners. This is the message of How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlinesa new joint report from the Center for Financial Inclusion at Accion (CFI) and the Institute of International Finance (IIF). The report, launched today, finds that banks, insurers and payment companies don’t see fintechs as “little more than pinpricks for a banking mastodon with trillions in assets,” as The Economist colorfully described the fintech-bank relationship in 2015. The relationships between these players are more symbiotic than combative, because fintechs and mainstream financial institutions bring different strengths. With partnerships, fintechs get to scale their technology and access capital, while financial institutions gain assistance to improve product offerings, increase efficiency, and lower costs.

As it turns out, these are all goals with special relevance to low-income customers who look for products and services that are more convenient, less expensive, and higher quality. That makes financial institution-fintech partnerships a crucial strategy for meeting the financial needs of the unbanked and underbanked around the world. During our in-depth interviews with over 30 industry participants, both mainstream financial institutions and fintechs, CFI and IIF identified dozens of effective bank-fintech partnerships working at the base of the pyramid in emerging markets. The report highlights 14 of them.
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> Posted by Andrew Fixler, Associate, CFI

“Cautious optimism” was the overriding sentiment towards the Indian financial inclusion investment space at the fall 2014 Financial Inclusion Equity Council (FIEC) meeting in Zurich. Four years after the Andhra Pradesh crisis, in financial year 2014 the regulated microfinance market in India saw its loan portfolio grow by 35 percent and client outreach increase by 4.7 million individuals, achieving a record 28 million clients. Although, as FIEC member Christian Etzensperger of responsAbility Investments AG noted, this is “catch-up growth” for India, where only 35 percent of the adult population has a bank account. On an institutional level, the remarkable growth of Bandhan Bank, India’s largest microfinance institution, illustrates the successful scaling up of MFIs. While Etzensperger noted the “dynamic revival of the microfinance sector…partly due to the inertia of the Indian banks”, he also alluded to the significant role played by the policies of the newly elected Prime Minister, Narendra Modi, as well as those of the recently appointed Raghuram Rajan, Governor of the Reserve Bank of India. Indian investor sentiment in general soared on the news of these leaders taking the helm, a trend that clearly resonates in the Indian financial inclusion equity community.

What have these leaders done to inspire confidence in the trajectory of microfinance?

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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.