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Country-specific scores across regulations that enable, promote, and prevent financial inclusion

> Posted by Liliana Rojas-Suarez and Lucía Pacheco

The following post was originally published on the Center for Global Development’s blog and has been republished with permission.

The most recent World Bank data on financial inclusion shows that by 2014, only 54 percent of the adult population in Latin America had an account at a financial institution. This compares to an average of 62 percent of adults worldwide and 70.5 percent for those countries with a similar level of income per capita (the region’s peers). In developed economies, 94 percent of adults have an account at a financial institution.

Many factors could be cited for the low ratios of financial inclusion in Latin America, but in a recent paper published at BBVA Research, that also came as a CGD working paper, we focus on the potential role of financial regulation. We assessed and compared the quality of the policies and regulations that impinge on financial inclusion in eight Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay). Peru and Mexico came out on top, with what appear to be the best regulatory frameworks for promoting financial inclusion. But even in these top performers, there is room for improvement.

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What the FCC’s net neutrality vote means for financial inclusion, fintech startups

> Posted by Elisabeth Rhyne and Vikas Raj, Managing Director of the Center for Financial Inclusion at Accion and Managing Director of Accion Venture Lab

In a landmark ruling yesterday, the U.S. Federal Communications Commission (FCC), led by Chairman Ajit Pai, voted to end net neutrality — the requirement for internet service providers to treat all the content they carry equally regarding access, price, and speed/quality of delivery. This decision, overturning Obama-era internet regulations, is a big deal and may shape the way Americans experience the internet in the future.

It could have significant implications for financial inclusion, too.

Under the new ruling from the FCC, internet service providers (ISPs) may give preferential treatment to content from applications they favor — unlimited access, differential pricing, or faster/better download speeds — while slowing or even blocking other applications.

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New data from InterMedia breaks down the impact of demonetization on financial inclusion across gender, locality, income levels, account types, and more. 

> Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, InterMedia

(click to enlarge)

Demonetization had a strongly positive effect on financial inclusion, leading to increases in account registration and active and advanced use of registered accounts, according to our data. Perhaps surprisingly, given some of the discussion in the financial inclusion community over the last year predicting demonetization increasing electronic payments, these account registration increases were mostly among bank accounts rather than mobile wallets.

InterMedia’s fourth annual Financial Inclusion Insights (FII) survey was underway on November 9, 2016 when approximately 85 percent of the banknotes in circulation in India were invalidated by the policy known as demonetization. The invalid notes had to be deposited in a bank or exchanged for new ones at banks and other financial institutions. The timing of demonetization in relation to InterMedia’s activities presented an opportunity for us to measure the impact on financial inclusion using a panel survey of 1,600 randomly selected individuals in the states of Gujarat, Madhya Pradesh, and Rajasthan. These respondents were first interviewed for the FII survey roughly one month prior to Nov. 9, and then re-interviewed seven months later.

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> Posted by Aurora Bila and Kim Dancey, Director of Payment Systems at the Bank of Mozambique and Head of Payments at First National Bank

Of the 338 million citizens of the Southern African Development Community (SADC) member states, 138 million lack adequate official means of identification. This limits their access to and usage of many government services, as well as the range of services offered by financial service providers. This affects their wellbeing in a host of ways, which is why the U.N. Sustainable Development Goals include the goal of a robust “Identity for All” by 2030.

Some SADC countries lack a standardized form of identification, and citizens require various pieces of documentation to access financial services in the formal sector. And in some instances there are no legislative frameworks for issuing any form of formal identification document.

Even among those SADC adults who do have national IDs, documents are often not accepted across borders for opening bank accounts or sending remittances home. Banks and remittances agencies in SADC countries face more stringent Know Your Customer (KYC) requirements for cross-border than for domestic remittances. Therefore, if the identity source document is not easily verifiable to the level of assurance required, to manage both internal risk and to comply with Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements in force, the provider will not make the service accessible. Furthermore, global standard-setting bodies are increasing the pressure on local regulators regarding identity. For example, it is no longer sufficient to identify only the remittance-sending customer. Financial services providers are now compelled to also know the identity of the recipient and to hold these identities throughout the payment transaction. Consequently, only institutions willing and able to price and charge for the risk and cost will offer the services.

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> Posted by Jeremy Gray, Engagement Manager, Cenfri

Embed from Getty Images

Why is it that 80 percent of bank account holders in Madagascar only use their accounts once a month or less?

What makes the parents of a child requiring unforeseen medical treatment in the DRC choose to approach their mutualitée (a local form of informal mutual aid society) for a loan despite access to a microfinance institution or local bank?

If a Zimbabwean has a mobile money account, why does he ask a family member to send him money in the care of a bus driver rather than through that mobile account?

The gap between uptake and usage is well documented in financial inclusion. But while these insights are important evidence of the gap, they tell us very little about why this gap exists. The result is that we know there is a problem, but without understanding why, we can do very little to change the problem.

To help us better understand the why, we at insight2impact (i2i) have been exploring the factors that affect usage. In doing so we have incorporated insights from across multiple fields on human decision-making and applied the most relevant aspects of existing models and understanding to the field of financial inclusion.

Decision-making is important for both financial service providers (FSPs) and policymakers to understand, but it isn’t simple, and, typically, our decisions are not based on one single factor. Furthermore, psychology and behavioral economics have illustrated that in some cases we are not even cognitively aware of many of the important factors that influence our decisions.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Money changer at the bazaar displays his currency wares

The following post was originally published on Devex.

In his proposed budget, U.S. President Donald Trump is calling for cuts to foreign assistance. In this message I would like to suggest that even with a smaller foreign aid budget, an excellent opportunity exists to work toward financial inclusion as a development goal. Financial inclusion provides wins all around: for business, for national security and for individuals — and it would not be expensive for the administration to pursue it.

Financial inclusion means ensuring that everyone — farmers, shopkeepers, teachers, students, etc. — has quality financial services to manage their lives and become economically productive. Over 2 billion adults worldwide lack a bank account. Financial services, including accounts, savings and credit, have become a gateway for social and economical inclusion, which in turn contributes to prosperity and peace. For the first time in history, financial inclusion is actually feasible: mobile money, e-commerce and digital financial services make it possible for providers to serve enormous new segments of the population.

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> Posted by Center Staff

Embed from Getty Images

We’ve written about the unfolding demonetization situation in India a few times now (here and here). Demonetization, the government declaration on November 8, 2016 that Rs. 500 and Rs. 1000 notes would become void on midnight of the same day, aims to curb black money and corruption, and support the uptake of digital financial services. However, demonetization has caused a range of harms. These consequences should have been foreseeable because: the declaration was massive in scope, affecting 86 percent of the country’s currency in circulation; the country’s banking industry was given no time to prepare, as the plan was kept secret until November 8; and the vast majority of the country’s labor force works in the informal sector, dealing almost exclusively in cash.

Our previous posts focused on the financial inclusion implications of demonetization and how the government’s move affects Indians’ ability to conduct their finances. But our posts haven’t discussed the non-economic ways that demonetization is affecting citizens. Let us be clear, with the massive population in India living at or below the poverty line, the financial shock caused by demonetization has meant life or death for many. Here is a list of some of the ways demonetization is causing more than economic harm:
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> Posted by Jayshree Venkatesan, Financial Inclusion Consultant

On November 8, 2016, the Prime Minister of India made an announcement that notes of denominations Rs. 500 and Rs. 1000 would become illegal tender overnight in a move that was termed demonetization. In turn, the government would issue a note valued at Rs. 2000, which would replace the notes taken out of circulation. According to the RBI’s most recent annual report, the total currency in circulation in India was INR 16634.63 billion (~USD 256 billion). The withdrawn notes constituted nearly 85 percent of this currency.

Phasing out old notes and replacing them with new ones is a standard practice followed by central banks globally. In the Indian context, however, there were two factors that contributed to this standard practice resulting in chaos and an economic shock on the poor.

The first was the short span of time given to react. The announcement was made on television after business hours on November 8, and the affected tender was rendered illegal by midnight of the same day. As a result there is enormous pressure on the banking system, and a frenzy of citizens trying to make the necessary adjustments. The second factor was the disproportionately small share of Rs. 2000 notes ready to replace the phased out currency. While the short span of time resulted in an instant shock to several segments of the population that predominantly operate in the cash economy, the limited Rs. 2000 notes translated into a cash crunch that has brought large parts of the economy to a grinding halt.

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> Posted by the Smart Campaign

The Center for Financial Inclusion at Accion announced today a $4.4 million, three-year partnership with The MasterCard Foundation to tackle the challenges facing consumer finance in an increasingly digital world. As a reader of this blog, you’re almost certainly familiar with the work of the Smart Campaign. The Smart Campaign is a global campaign committed to embedding client protection practices into the institutional culture and operations of the financial inclusion sector. Since 2009, we’ve worked globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. The partnership marks a shift in strategy for the Smart Campaign, as well as a deepening of its footprint in Sub-Saharan Africa.

To date, the Smart Campaign’s flagship certification program has certified over 68 financial institutions, serving 35 million clients worldwide. Recent certifications include Opportunity International Colombia, ENLACE in El Salvador, and BRAC Bangladesh, part of the world’s largest anti-poverty organization.

Under the partnership, the Smart Certification program will continue. But with support from The MasterCard Foundation, the Smart Campaign will increase its focus on convening a broader range of players in the financial services field—including regulators, industry associations and financial technology firms—to take on client protection issues emerging from new technologies, to elevate the voice of the clients they serve and to effect change at the national level.

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> 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:
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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.