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> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities
The past few decades have seen an impressive expansion of financial services to the world’s under- and unbanked populations. This expansion has not been without its challenges, including low-income customers of many financial service providers (FSPs) falling into considerable over-indebtedness¹ or signing up for services they do not use.² MFO’s own research³ and the research of others suggest that the limited financial capability of FSP customers is one of the factors behind these challenges. Hundreds of millions of people are gaining access to formal financial services with no education in basic money management principles and ways to maximize the usefulness of the new services to which they have access.4
Extending financial education (FE) to consumers is vital in empowering them to make informed decisions about the financial services they use and how they use them, including avoiding over-indebtedness and signing up for accounts they never use. But reaching the massive number of clients in need of FE in a way that is accessible and practical is a tall order. The Monitor Group report suggests it could cost from $7 billion to $10 billion using traditional, classroom-based approaches to provide education just to those who already have access now —a sum that is 10 to 15 percent of the total current asset base of microfinance institutions worldwide. If access to finance were extended to include the world’s 2.7 billion unbanked, the cost of building financial capability would rise further by a factor of at least three.
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> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI
Javier moved from Honduras to the United States with his wife and their children in search of better work opportunities and to escape the violence in their community. His parents chose to stay behind. Luisa moved from the Philippines to Canada to pursue more lucrative opportunities as a nurse, hoping to support her family back home. Yousef fled from Syria to Lebanon, as a refugee, to escape civil unrest.
Javier, Luisa, and Yousef – fictitious characters – are only symbolically representative of some of the enormous global migrant population – estimated to total 232 million people in 2013. Certainly not homogenous, their reasons for leaving their home country can vary tremendously and may include economic opportunities, natural disasters, and security or political concerns.
In spite of the complications of migrating, there is an undeniable and increasing opportunity for financial service providers to serve migrants and their families. Today, I will focus primarily on migrants who move for economic and employment opportunities, though we recognize that these issues are more nuanced for migrants like Yousef who have fled their country of origin for the sake of their safety. I will save this smaller subset, 7 percent of all migrants, for another post. Though, I will mention that MasterCard has an innovative partnership with Banque Libano-Française for Syrian refugees in Lebanon, which you can read more about here.
> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI
Microinsurance matters, especially as we see an increase in climate change related disasters.
On October 28, Alexia Latortue of the U.S. Treasury moderated the opening plenary of the Financial Inclusion 2020 Global Forum featuring two leaders in microinsurance, Michel Khalaf of MetLife and Martyn Parker of Swiss Re. One of Alexia’s remarks at the Global Forum deeply resonates with me today: “The occurrence of a risk event can set a family back an entire generation.” Among other things, she suggested, there are new and emerging risks linked to climate change.
Shortly after the Forum, we saw haunting evidence of this. On November 8, Typhoon Haiyan devastated much of the Visayas region in the Philippines, with the city of Tacloban being the hardest hit. Typhoon Haiyan is a reminder of why we must prepare to face natural disasters. Microinsurance is one form of advance preparation that can prove instrumental in the disaster rebuilding stage.
In a disaster prone country such as the Philippines, where over 41 percent of the population lives on under $2 per day, ensuring greater access to microinsurance could make an enormous impact. In the country’s rural areas, which encompass roughly half of Filipinos and about 80 percent of those living in poverty, agriculture is the primary source of income. Government data from 2009 indicates that poverty among fishermen is at 41 percent, with farmers close behind at 36 percent. Think about the opportunities for providing microinsurance to farmers and fishers, whose livelihoods and families depend on productive land and assets that can be tremendously affected by weather!
> Posted by Center Staff
The total savings portfolio of the Philippine microfinance industry is greater than its total loan portfolio for the first time. News of the achievement came in an announcement last week from Amando M. Tetangco, Governor of the country’s central bank at the launch of the 11th Citi Microentrepreneurship Awards. During the first quarter of this year, the total savings of the country’s microfinance clients reached P8.2 billion (US$ 189 million), while their total loans were P8 billion (US$ 184 million). This is a dramatic surge in savings compared to the end of 2012, when industry totals were P6.4 billion in savings, and P8.4 billion in loans. These numbers suggest that as clients take out and repay loans, they’re able to sustain savings levels.
In The Economist Intelligence Unit’s 2012 Microscope on Microfinance, the Philippines was ranked as the fourth best microfinance business environment in the world, and as the microfinance environment with the best regulatory framework and practices. Last month the government enacted new legislation allowing foreign entities to hold up to 60 percent equity in the country’s government-sponsored rural banks, with the aim to further promote economic development in rural areas. The opportunity for expanding microfinance outreach in the Philippines remains great. Out of the Philippines population of 95 million, 33 percent live below the poverty line, and only 27 percent have an account at a formal financial institution.
> Posted by Deborah Drake and Andrea Horak, Vice President/Program Manager and Program Coordinator, Investing in Inclusive Finance, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
With good governance a top priority for investors, donors, and regulators, it’s time to ask exactly what good governance looks like. A recent debate about the Anglo-American (shareholder) versus the European (stakeholder) models of governance set out to answer that question. The Governance Working Group (GWG), a 25-member group of microfinance professionals focused on governance, hosted by CFI, sponsored a webinar to discuss the characteristics of the two models and their implications for microfinance institutions, equity funds, and clients.
Lauren Burnhill of One Planet Ventures started off the debate by describing the model of single tier governance commonly used in the U.K. and U.S. In this model, each company has a single board that includes both executive directors, who are employed by the company or have significant ties to its corporate management, and non-executive directors who have no direct relationship with the company or its management. The company CEO may serve as chair of the corporate board, in which case a great deal of power is invested in that board position. The overarching duty of the board is to protect the interests of shareholders. In this model, particular importance is given to the protection of minority shareholder rights.
The following post, written by Tilman Ehrbeck, CEO of CGAP, was originally published on the Huffington Post Business Blog, with the title Behavioral Insights to Advance Financial Inclusion — or Why Swedes Are Not Necessarily Better Human Beings Than Danes.
In Sweden, all new drivers start out registered to be organ donors in the event of their passing. They have the freedom to opt out without negative consequences. Fourteen percent decide to do so and 86 percent remain organ donors. Across the Oresund, less than 10 miles away, Danes have to proactively decide whether they want to become organ donors. Less than 5 percent do, and more than 95 percent don’t. On the global scale of things, Sweden and Denmark are culturally quite similar: generally credited with being open-minded, socially responsible, common-sense Scandinavians.
The vast difference between Swedish and Danish organ donor participation rates (technically “presumed consent”) despite all the cultural similarities is one of the most dramatic examples of the power of policy design that takes into account pervasive human cognitive and behavioral biases to help us do what we generally think is a good thing, but often have a hard time following through with. One such bias is that, when decisions are tough, we tend to prefer the status quo; and relatedly, it’s much harder to proactively opt for something, rather than to simply stick with the offered default choice. (The approach, popularized by the term ‘nudging,’ even led the UK Prime Minister to set up a ‘nudge’ policy advisory unit.)
> Posted by Anita Gardeva, Senior Analyst, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
A who’s who of the global financial education community came together this month at the ninth annual Citi-FT Financial Education Summit in Manila. I was excited to attend this signature event, organized by the Citi Foundation, the Pearson Foundation, and the Financial Times, and I took home a number of important insights. Most importantly, it is clear that we need much more information and evidence about what works in regards to building financial capability.
> Posted by Kelley Mesa
An article in yesterday’s Business Mirror (Philippines), highlights the Rural Bankers Association of the Philippines (RBAP) and its recent participation in the Center’s Beyond Codes action research project.
In her most recent round of field work, wrapped up this week, Center Senior Fellow Heather Clark trained staff from RBAP, the Microfinance Council of the Philippines Inc.(a national network), and the Philippines Central Bank, in the how to’s for conducting guided self-assessments and analyzing client protection practices. One rural bank, two NGOs, and one cooperative are participating in the Beyond Codes Philippines project and will be carrying out the consumer protection assessment process this month. Read the rest of this entry »
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