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> Posted by Ignacio Mas and Claire Alexandre
A policymaker’s dilemma: how to pursue a policy of access to a bank account for everyone, while at the same time erecting regulatory barriers to the opening of those accounts to prevent their misuse. It’s like pushing the accelerator and putting on the brakes at the same time. This is not to belittle law enforcement concerns, chiefly the need to prevent or detect money laundering. But as we argued in a previous blog post, neither financial inclusion nor law enforcement are well served by keeping the bulk of the population away from modern digital — and hence, inherently more traceable — payment systems.
These objectives can be easily reconciled by making account opening trivially easy at first, and tightening the requirements for documentation and record-keeping progressively as the accounts become larger and more active. With this approach, everyone wins. New-to-banking customers can learn about how to use the account before they are asked to submit to onerous Know Your Customer (KYC) obligations. Banks don’t need to put in place costly KYC processes for customers that are not yet profitable. And law enforcement agencies can get relevant information on accounts commensurate with the risks involved. Read the rest of this entry »
> Posted by Ignacio Mas
The pendulum is swinging: after a couple of decades when microfinance was equated with lending, now more and more voices are raising the savings agenda. This trend has been fed in recent times by the consistently ambiguous evidence coming out of microcredit impact studies (which is giving pause to donors), and further, by the need for local financial institutions to stabilize funding in the wake of the global financial crisis. Finally, savings appears to respond to the political backlash against what some see as usurious microcredit rates in some countries.
I’m on that bandwagon. I believe that everyone should at least have the option of self-funding their activities. If you think microcredit at a cost of 30, 60 or 90 percent spurs entrepreneurship, imagine what people could pull off if they could fund their businesses without paying (or even receiving) interest.
But I’m not encouraged by what I see. The fraction of poor people who have savings accounts in most developing countries is small, and among those with accounts, the majority have tiny savings balances. (Forget the widely reported averages; they are dominated by the top 10 percent of the distribution.) From what I have seen, the median saver in most savings institutions that serve the poor doesn’t have more than $20 or even $10 in there.
Read the rest of this entry »
> Posted by Claire Alexandre and Ignacio Mas, Bill & Melinda Gates Foundation
It is commonly perceived that there is tension between the goals of financial inclusion and those of law enforcement. Many people point at the enhanced money laundering and terrorist financing risks which would arise if two to ten times more people were able to do financially what you and I can already do. (A little help on the math: That’s what it means to achieve universal financial inclusion in developing countries that currently have coverage rates in the 10-50 percent range.)
Enlightened policy makers on both sides talk about the need to be reasonable, to find the right balance between these two objectives through risk-based regulations.
This plea for balance is nice, and it’s nicer still to see more and more policy makers striving to be aware of the multiple agendas. But the trade-off isn’t between these two objectives, it’s elsewhere. Read the rest of this entry »
> Posted by Ignacio Mas, Senior Advisor, Bill & Melinda Gates Foundation
Ignacio Mas of the Bill & Melinda Gates Foundation contributes to our focus on quality by explaining how a shift from all-cash payments to electronic payments could make a major difference to the quality of a client’s financial life.
Think of access to finance as bridging two clouds: a cash cloud in which poor people live today where value gets transferred physically as paper or metal, and an electronic cloud in which financial institutions operate where value is mere information taking the form of lines in a printed ledger or zeroes and ones in a computer.
There is a need for an infrastructure that bridges these two clouds. This has traditionally been done by bank branches, but in more recent times these bridges have become nearly ubiquitous for many of us with the spread of much cheaper automated teller machines (ATMs) in streets and malls and point-of-sale (POS) terminals in shops. But these two bridges are largely one-way: They take money out of your electronic account (to convert to cash or to pay for goods directly). That is the bridging infrastructure needed by richer people (or people in richer countries) who get paid directly into their account: Their money is born electronic, and their problem is how to use money-as-information. Read the rest of this entry »
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