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> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign

As part of the Smart Campaign’s #FintechProtects mini campaign, we’re raising awareness about responsible digital financial services, spotlighting work from the Smart Campaign and others, and engaging with industry actors on how fintech can move forward in a way that’s best for clients. Learn more and get involved at #FintechProtects.

Agent networks play an integral role in increasing financial access by helping financial service providers broaden their reach without building more branches. For an agent network to succeed, however, the client must be able to trust the agent and perform transactions with confidence. To win that trust, providers need to ensure that agents perform up to a standard that minimizes customer harms. They need to practice responsible agent management. Read the rest of this entry »

> Posted by Jeffrey Riecke, Communications Specialist, CFI

Recently news broke that Google is developing an ambitious online platform that aligns with India’s flagship Pradhan Mantri Jan Dhan Yojana (PMJDY) financial inclusion scheme, and will support users in building their financial literacy and accessing appropriate financial services. If the platform does indeed come to fruition, and functions as intended, it could mean huge benefits for the country. It is reported that the PMJDY program has succeeded in enabling every household in the country in having a formal bank account, and as of the end of 2015, according to the Finance Ministry, 60 percent of the accounts opened under the program have been used and have a balance. However, concerns over account dormancy and lack of account usage in the country persist, as do concerns over financial capability. A platform that empowers Indians to best use PMJDY financial services, harnessing the horsepower of Google, could be a game-changer.

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> Posted by Shreya Chatterjee, Senior Research Associate and Misha Sharma, Project Manager, IFMR LEAD

Self-Help Groups and the Need for Digitization

Despite efforts from all quarters, 2 billion people globally are still excluded from formal sources of financial services. Digital financial inclusion has emerged as the new wave in the hope that it will reach the last mile consumer in the most convenient and affordable manner. In the context of India, digital financial inclusion is still a work in progress. As per the 2015 Financial Inclusion Insight survey, 49 percent of Indian adults are digitally included – i.e., they have digital access to a financial account. However, usage of these digital accounts remains debatable. Similarly, only 0.4 percent of adults in India use mobile money, primarily due to the key challenges of poor infrastructure and lack of financial know-how. The financial inclusion divide is even more glaring among poor women. Indian women are 8 percent less likely to own a formal financial account and 12 percent less likely to use digital services offered by these accounts. Digital modes of enhancing financial inclusion for women by targeting self-help groups (SHGs) could be one potential channel for accelerating and promoting digital financial inclusion in India.

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> Posted by Sonja Kelly, Director, CFI

Weather-indexed insurance is brilliant. It’s just not working.

It’s brilliant because it solves one of the basic challenges of insurance: moral hazard. Under the principle of moral hazard, having insurance tends to make an individual’s behavior riskier, increasing the likelihood that the product will be used. If I have fantastic health insurance, for example, I may be more likely to make riskier life decisions because I don’t feel the financial effects of the consequences of those decisions quite so acutely. If insurance is tied to the weather, however, nothing an individual does (unless you believe in the efficacy of a rain dance) will “trigger” the insurance.

Weather-indexed insurance is not a new phenomenon. Over the last decade we’ve heard exciting stories about weather-indexed crop microinsurance and the lifeline it offers to farmers given our world’s quickly-changing climate. Weather-indexed insurance was bundled with agricultural inputs like seeds or livestock, and the product was lauded as a way to increase the inclusion of poor people in insurance.

Amazing, right? So why, after a decade, aren’t customers buying? In India, for example, only 5 percent of farmers have taken it up where available.
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> Posted by Devanshi Patani, MIX Analyst

In November 2014, Kerala became one of the first states in India where every household had access to at least one bank account. The Ministry of Finance applauded this result, declaring it a “100 percent saturated state”. However, a recent estimate found that a large number of accounts are dormant or inoperative and, further, that many individuals hold multiple bank accounts, which presents overindebtedness concerns. Yet, even without full saturation, Kerala remains a leader in financial inclusion in India and, thus, the industry can learn from its accomplishments.

Along with its exemplary financial services access statistics, there is no doubt that Kerala is a model state for financial inclusion partly due to its history, being home to one of the five financial institutions in India during the 1800s. It developed its banking infrastructure relatively early and, due to extensive population segmentation, created a large network of branches that still caters to different communities and customer bases.

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> Posted by Elisabeth Rhyne, Managing Director, CFI, and Michael Mori, Senior Designer, Dalberg Design Impact Group

The following post was originally published on NextBillion.

From a mathematical point of view, borrowing and saving are mirror images. In both cases many small payments allow for one or more large payouts. Only the sequence differs. Stuart Rutherford’s classic description involves “saving up” (saving) and “saving down” (borrowing), both for the purpose of assembling “usefully large sums.” When viewed in this way it is clear that saving and borrowing can serve much the same purpose, and at times can even substitute for each other.

This is true, as far as it goes, and it underscores the importance of disciplined payments of small amounts as a path to obtaining the lump sums needed for major purchases.

We recently traveled to India (Mumbai and rural Maharashtra) and Kenya (Nairobi and farming villages outside of Nyahururu) as part of a research project led by the Center for Financial Services Innovation and the Center for Financial Inclusion, and conducted by Dalberg. In speaking with a variety of residents, we were struck by vast differences in the way people make borrowing and savings decisions.

The people we talked with carried out most of their financial actions through informal instruments, though many were members of cooperatives and some did have (largely inactive) bank accounts. Instead of using these formal options, they borrowed mostly from friends, family and moneylenders. They saved in cash stashed at home, livestock, land and gold, amongst other assets. We asked how they decided where and how to save and borrow. They very willingly described their thought processes and the considerations that guide them in making decisions. As it turns out, their decisions about borrowing hang on surprisingly different criteria from those about saving, bearing on very different realms of their lives.

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> Posted by Kathleen Yaworsky, Lead Specialist, Channels & Technology, Accion, and Alexandra Rizzi, Deputy Director, the Smart Campaign

Hi, I’d like to send money to my mother in Bihar. Can you help me?

Sure, I’ll help you do that here. Here’s what you’ll need…

A similar scene unfolded across 80 small merchant agent locations (business correspondents or customer service points, as they’re called in India) as the Smart Campaign conducted mystery shopping research to uncover and understand the client protection risks in the provision of financial services at agent network outlets.

Agent networks play a critical role in increasing financial access by helping financial service providers broaden their reach beyond branches, but in order for an agent network to succeed, the client must trust the agent and be able to perform transactions with confidence. The current rapid growth in agent networks is driven by a push to build out the infrastructure and increase access points. Future growth will require quality from the services delivered through that infrastructure. That’s why it is critical to identify and address potential risks early on.

Complicating the identification and mitigation of client protection risks are several common characteristics of agent banking, including limited agent control over product design and pricing, and the part-time nature and lack of employee status of agents.

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> Posted by Bobbi Gray, Research Director, Freedom from Hunger

If someone asked you, “In the past 12 months, have you ever been afraid of your spouse?” how do you think you’d respond? I would personally hope you’d be able to say “never”. I wouldn’t want to hear you say, “often” or even “sometimes”.

A few years back, I wrote a blog post about domestic violence and microfinance. This topic came out of the 2014 Microcredit Summit in Mexico where we were talking about health indicators. Carmen Velasco suggested we’d forgotten to add an indicator related to domestic violence to the list, since conceptually it feels that if we don’t include domestic violence under the theme of health, it might continue to not get covered anywhere.

Since the Summit, Freedom from Hunger has had a chance to ask the question I asked you above in three countries. While most demographic and health surveys and other standardized surveys on domestic violence may go through a series of questions about whether a person has experienced physical, sexual, emotional, verbal, or other types of abuse, we were looking for something less invasive, if that’s possible. When I found the above question in an Indian survey, it felt right. I actually had a personal reaction to it. At one point in my life, if someone had asked me this question, I might have said “sometimes” or even “often.”

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> Posted by MFIN

In 2013, the Reserve Bank of India (RBI) announced a significant policy move in the form of Self Regulatory Organization (SRO) guidelines for the microfinance industry. An SRO is an organization that has been authorized by a regulator to exercise control and regulation on its behalf over certain aspects of an industry. In the case of Indian microfinance, an SRO supports the RBI in ensuring compliance with statutory regulations and the Industry Code of Conduct, while also taking up research, training, data analytics, and capacity building of the sector. The SRO architecture has dramatically altered the landscape of the Indian industry, providing stability to the industry, with more robust market discipline and customer protection.

MFIN, whose membership consists of 52 NBFC-MFIs which account for over 90 percent of India’s microfinance business, was recognized as an SRO by the RBI in June, 2014. Since then, MFIN has worked towards putting in place an effective SRO framework, with borrower protection as the focal point. One of the important obligations of the SRO in line with the RBI guidelines is to have an independent redressal mechanism for addressing the grievances of microfinance clients. In order to standardize the grievance redressal mechanism and to ensure a common minimum benchmark, MFIN drew on the existing grievance redressal mechanisms (GRMs) of 45 MFIs and worked in partnership with the Smart Campaign to cull out the good practice from these models. The idea was to put in place a three tier mechanism based on the capacity of the MFI concerned, and the Smart Campaign was asked to work on such a model whose aim was to standardize and ultimately strengthen the practices of the member institutions.

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> Posted by Center Staff

Today, the global financial inclusion celebrity (and Prime Minister of India) Narendra Modi visits with United States President Barack Obama. The pair will discuss the deepening U.S.-India relationship, including progress on climate change and clean energy partnerships, security and defense cooperation, and economic growth priorities. As a reader of our blog, you’re likely aware of Prime Minister Modi and India’s commitment to advancing financial inclusion in the country. Indeed, at the close of 2015, we named India our Financial Inclusion Country of the Year. In honor of Prime Minister Modi’s visit today, we wanted to take a moment to spotlight some of the strides that India has taken to bank the unbanked. After a brief review of the broad initiatives, we identify some highlights from recent months.

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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.