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> Posted by Center Staff
Last week the Kenyan government officially kicked-off Huduma cards, a fintech initiative aimed at bolstering government services in the country and digital financial inclusion. The program leverages partnerships with Mastercard and a handful of prominent banks. If successful, the new cards will simultaneously improve the government’s functioning, enroll more citizens in key government services like health insurance and social security, and provide digital financial services to many unbanked Kenyans.
> Posted by Center Staff
A schoolboy looks at an electric light bulb powered by M-KOPA solar technology, as it illuminates his home in Ndela village, Machakos, Kenya.
2016 was the hottest year on Earth since records began in 1880. For those of us who work in financial inclusion but are fearful about our lack of progress in combating climate change, the following is a spot of good news: at the recent World Economic Forum Annual Meeting in Davos, Ant Financial and the United Nations Environment Program launched the Green Digital Finance Alliance.
> Posted by Center Staff
After reviewing many high-quality proposals, we are excited to announce the second cohort of CFI Fellows. Like the inaugural cohort, the new fellows will explore and answer some of the most pressing questions in the financial inclusion industry. The six 2017 fellows will design and produce actionable research, focusing on the topics of responsible online credit, human touch in a digital age, and the business case for financial capability. Read more about the upcoming research below and join us for a webinar tomorrow, December 14 to hear from the fellows themselves.
John Owens, Independent Consultant
What does responsible online credit look like?
Online lending for consumers, and especially small and medium-sized enterprises (SMEs), is highly relevant and important to facilitating financial inclusion. However, trust, confidence, and responsible lending practices need to be in place to ensure that this industry is successful and that the customers are protected and empowered. CFI Fellow John Owens will examine the risks customers of online lending face and what best practices are, or should be considered, for setting consumer protection and risk mitigation standards for the emerging online financial services industry.
> Posted by Ellen Metzger, CFI
Before joining the Center for Financial Inclusion at Accion, I spent four years in rural East Africa managing an ultra-poor graduation program. At Village Enterprise, we focused on savings group creation and distributed conditional cash transfers rather than livestock (as is customary with graduation programs) in order to empower choice and facilitate ownership among our participants. Over years of traveling the bumpy back roads of Uganda and Western Kenya meeting with hundreds of savings group members, I met very few participants who went beyond their local savings groups to take loans from financial institutions such as MFIs. Those few who did created great success stories. In light of the recent article “Your Inflexible Friend” in The Economist, which offers a review of microlending’s history, I reflect on why we don’t see microlending in the rural areas of Uganda and Western Kenya and how that can change.
A good reputation is critical. In these areas, tragic stories of delinquencies and defaults travel faster and are remembered longer than stories of success. In Kenya especially, where there is more competition in rural areas among financial institutions than in Uganda, reputation precedes the products and services. These reputations can vary dramatically every 5 kilometers you travel. When groups are asked about being linked to a particular financial institution, one community will trust the organization, the next community a few kilometers away will cringe at the name. Microfinance institutions are extremely sensitive to fluctuations in trust, so it’s imperative for them to design trustworthy products and ensure adequate follow-through on their services every time.
> Posted by Tilman Ehrbeck, Partner, Omidyar Network
This post is part of Financial Inclusion Week, a week of global conversation on advancing financial inclusion. This year’s theme is keeping clients first in a digital world. Throughout the week participants will share their thoughts in events and webinars, on social media, and through blog posts. Add your voice to the conversation using #FinclusionWeek.
The digitization of the retail financial services front-end has the potential to unlock access to formal financial services for the 45 percent of working-age adults in emerging markets who are currently disconnected from the global economy. A recent McKinsey & Company study estimates that digital finance could reach the bulk of today’s excluded, mobilize new deposits and expand credit, adding six percentage points to emerging market GDP in 10 years-time, worth some $3.7 trillion. The driving force behind the digitization of retail financial services in emerging markets is the mobile phone. Already today, more people worldwide own a mobile phone than a bank account and by 2020, 80 percent of working-age adults will have a smartphone in their pocket. But to capture this opportunity, a lot still has to come together.
To begin with, the mobile infrastructure needs to be expanded. Data plans can still be very expensive in emerging markets, and low-cost smartphones have limited memory, which means people can use only a few apps. In fact, most emerging market users are connected via 2G feature phones, hindering a number of financial innovations from running on them.
But things are looking up.
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
The following is 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. For more information on #FintechProtects, and to get involved, click here.
Digital credit is growing fast in developing markets, particularly in Sub-Saharan Africa. Lenders such as M-Shwari, Jumo, M-Pawa, Eazzy Loan, Branch, EcoCashLoan, Timiza, KCG M-Pesa and others are attracting interest and investment. They are seen as having the potential to improve financial access and to make banking with poor clients more feasible and sustainable through technology that reduces underwriting and infrastructure costs. They offer small or nano loans starting as low as $5 or $10 dollars, make use of simple mobile user interfaces, and provide funds in real-time.
> Posted by Steve Waddell, Principal, NetworkingAction
Financial inclusion is a large systems change challenge – it’s one that integrates a basic new goal into the working of the financial system. This is a very different challenge than simply opening a new branch or even policy reform. What are the implications of large systems change for traditional governance structures? Put another way, if an industry is significantly disrupted, does this affect the way it is governed? I recently dived into the question looking at the impact of financial inclusion on financial sector governance, including central banks. The was done in collaboration with Ann Florini, a governance expert and professor at Singapore Management University, and Simon Zadek, a visiting professor there and Co-Director of the UNEP Inquiry into the Design of a Sustainable Financial System.
The three of us have common interest in how multi-stakeholder processes might impact governance. Such processes in the case of financial inclusion involve business, government and civil society interests. With many diverse parties at the table, and many more such multi-stakeholder processes, is financial sector governance also becoming more multi-stakeholder? We decided to investigate the question of financial inclusion with a descriptive analysis of what has been happening in Kenya. We came to the topic with the understanding that multi-stakeholder process governance in itself is not necessarily good or bad compared with traditional government-dominated governance, but experience might indicate that it is necessary for advancing public good. The Center for Financial Inclusion defines full financial inclusion as:
Read the rest of this entry »
> 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.
> Posted by a Nairobi-Based Consultant
Kenya and Nigeria are often heralded as two of the most dynamic economies in Africa. They could soon have something else in common: interest rate caps.
Banks in Kenya have urged President Uhuru Kenyatta to dismiss a new bill which caps loan interest rates and provides for sanctions (fines and prison) directly to the CEOs of banks that fail to do so. This is not the first time such a proposal has come forward; the last one having come at a time the incumbent president was Minister for Finance. Should the President sign off on the bill it will become law, and lending rates will be capped at 400 basis points above the Central Bank discount rate which now stands at 10.5 percent.
Understandably, the prospect of such limits has caused anxiety amongst lenders. Through the Kenya Bankers Association, Kenya’s bankers immediately lodged appeals to the government arguing that capping interest rates is counterproductive and against the free market economy premises Kenya enjoys. We are yet to see how the financial markets react.