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> Posted by Jeffrey Riecke, Communications Associate, CFI
Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.
The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.
The results?
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Much of the financial world’s attention is directed at China and the global impact of fluctuations in its banking and financial markets. Last week saw a sharp increase in the country’s short-term borrowing costs, and a record high in the country’s interbank (bank-to-bank) overnight rate – a rate that serves as a gauge of liquidity in a market. In a statement published on Monday, the People’s Bank of China asserted that the liquidity in the country’s banking system overall is at a reasonable level, but emphasized that financial institutions need to improve “awareness about preventing risks.”
Turning with impeccable timing to China’s small and micro lending sector, last week PlaNet Finance released its latest research report, Emerging Risks on China’s Path Towards Financial Inclusion.
China first began experimenting with microfinance in the late 1990’s, much later than many other countries. Since then, in part due to a policy environment aimed at supporting rural area and small enterprise development, the industry has grown rapidly, with over 6,000 microcredit companies as of June 2012. At this time of counting, only 25 percent of these companies had operating histories of longer than three years, and only 50 percent longer than two years. Of China’s current population of over 1.3 billion, an estimated 400-500 million live on only two dollars a day. As China’s microfinance industry continues to grow and serve more individuals, effective risk management becomes increasingly important. The PlaNet Finance report reviews the development of the Chinese microfinance sector and identifies four pertinent industry risk areas.
- Many microcredit companies mainly focus on credit risk, without reference to other risks, such as governance risk, external risk, operations risk, IT systems risk, and liquidity risk
- Restrictions in access to funding create obstacles for the scaling-up of operations
- Emerging market leaders are beginning to face the risks inherent in a rapid expansion strategy, including the challenges of maintaining control and standardization, particularly as portfolio monitoring, risk management, and IT systems have not kept pace with the increasing scale and complexity of operations
- A disproportionately fast increase in lending volume in certain urban markets raises concerns about potential future risks regarding market overcrowding, over-indebtedness, and inadequate consumer protection
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