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> Posted by Rachel Morpeth and Danielle Piskadlo, Analyst and Director of the Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion 

The following post was originally published on the Microfinance Gateway.

As a hub of technology-based innovation, sub-Saharan Africa (SSA) leads the world in mobile money accounts. 12 percent of adults in the region have a mobile money account, compared to 2 percent globally. In a recent global survey measuring progress towards financial access and usage, five of the ten highest scoring economies hailed from SSA. However, financial exclusion remains acute.

The fact that most of Africa’s population lacks access to formal banking services but has one of the highest mobile penetration rates in the world provides the perfect breeding grounds for the use of financial technologies to grow a customer base. However, as disruptive technologies and business models continue to revolutionize the financial inclusion landscape in Africa, they present new challenges to leaders and boards.

These challenges can only be overcome through creative, forward-thinking solutions and active dialogues across governance bodies – boards and regulators. Board members, CEOs, regulators and fintechs will come together to advance these issues in Ethiopia on October 12-13 at the Center for Financial Inclusion at Accion’s (CFI) Governing in a Digital World roundtable, a side event to African Microfinance Week. In the meantime, let’s take a quick look at a few of the challenges to be discussed, and their respective solutions.

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> Posted by Dr. Katharine Kemp, Research Fellow, UNSW Digital Financial Services Regulation Project

The following post was originally published on the IFMR blog. 

Financial inclusion is not good in itself.

We value financial inclusion as a means to an end. We value financial inclusion because we believe it will increase the well-being, dignity and freedom of poor people and people living in remote areas, who have never had access to savings, insurance, credit and payment services.

It is therefore important to ensure that the way in which financial services are delivered to these people does not ultimately diminish their well-being, dignity and freedom. We already do this in a number of ways – for example, by ensuring providers do not make misrepresentations to consumers, or charge exploitative or hidden rates or fees. Consumers should also be protected from harms that result from data practices, which are tied to the provision of financial services.

Benefits of Big Data and Data-Driven Innovations for Financial Inclusion

“Big data” has become a fixture in any future-focused discussion. It refers to data captured in very large quantities, very rapidly, from numerous sources, where that data is of sufficient quality to be useful. The collected data is analysed, using increasingly sophisticated algorithms, in the hope of revealing new correlations and insights.

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> Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

How does a microfinance institution know what transformation will be like from an NGO to a formal financial institution? In an increasingly complex industry with competition from commercial banks and the entrance of fintechs, many microfinance NGOs are considering transformation to realize their growth potential and help attract investment. However, the road to transformation can often be bumpy, as noted in the Center for Financial Inclusion’s publication Aligning Interests: Addressing Management and Stakeholder Incentives During Microfinance Institution Transformations.  Regulatory compliance issues, information technology hurdles, and aligning with the needs of the NGO and investors can often complicate the process. For Enda Tamweel, the largest and oldest microfinance organization in Tunisia, the decision to transform has come with external pressures, operational challenges, and a focus on maintaining their mission. Read the rest of this entry »

> Posted by Sonja Kelly, Director of Research, CFI

The role of data is increasingly crucial as the financial services industry shifts to digital delivery, alternative analytics, targeted marketing, and data-driven customer segmentation. As outlined in the recent Accion report, Unlocking the Promise of Big Data to Promote Financial Inclusion, the future of financial inclusion will include higher volumes of better quality and more wide-ranging data to expand access, lower prices, reduce bias, and drive innovation. However, the use of big and alternative data in financial inclusion is not a value-neutral trend—nor should it be.

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> Posted by Sonja Kelly, Director of Research, CFI

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A customer waits to collect money at the Juba Express money transfer company in Mogadishu, Somalia. 

This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a literature review and conduct interviews with key players in the conversation on de-risking.

This is not a rhetorical question—I really do want to know. As we’ve put out a modest blog series about de-risking, I’ve been thinking about regulations on anti-money laundering and combating the financing of terrorism (AML/CFT). Are stringent regulations and dramatic consequences for non-compliance really necessary? Is it fair to expect the financial system to bear so large a burden? Would it be better for everyone if the onus were on law enforcement to detect and eliminate illicit activity and financial institutions just had to cooperate where necessary?

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> Posted by Ellen Metzger, CFI

Community savings groups are at the heart of successful rural banking

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.

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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 Center Staff

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Customers wait to collect money at the Juba Express money transfer company in Mogadishu, Somalia. 

This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a comprehensive literature review and conduct interviews with key players in the conversation on de-risking.

Are anti-money laundering and counter-terrorism financing (AML/CTF) rules to blame for de-risking and the resulting financial exclusion? A World Bank survey of financial institutions says, “probably.” The survey respondents listed concerns about money laundering and terrorism financing risks, including the imposition of international sanctions pertaining to AML/CTF. To say the least, the de-risking phenomenon has huge implications for the advancement of financial inclusion in our current geopolitical climate.

De-risking has been defined as the trend of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk. This can take the form of: restricting or terminating correspondent banking relationships (CBRs) where one bank provides services to another; restricting or terminating money transfer operators (MTOs); and restricting or terminating the accounts of individual clients deemed to be risky. It’s important to note that recently “de-risking” as a term has been called inappropriate by some as there may be other reasons why, to give one example, CBRs are terminated. Nevertheless, we use it here as it is the most commonly used phrase to describe this phenomenon.

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> Posted by Sonja Kelly, Director, CFI

Somalis, who rely heavily on money transfers from abroad, have been severely affected by the closing of remittance companies’ accounts.

This post is the first in a series examining the global phenomenon of de-risking and its impact on financial inclusion. Through the Credit Suisse Global Citizens Program, CFI partnered with Rissa Ofilada, who works as a lawyer in compliance in the Philippines, to undertake a study on de-risking. In the series, we’ll discuss the causes of the phenomenon, what it means for customers at the base of the pyramid, how it affects global momentum toward financial inclusion, and what solutions are on the horizon.

The term de-risking may sound arcane and technical, but in fact some observers believe that de-risking is the biggest threat to the progress that has already been made on financial inclusion. We at CFI are worried about it—and you should be too.

De-risking refers to the trend of commercial banks, payments companies, and regulators closing down “suspicious” accounts. These accounts could be suspicious for any number of reasons. The owner may not have had adequate proof of identity—a common problem for lower-income people in countries without well-developed identification systems. Or the owners may not be able to precisely trace the source of the funds they deposit—a frequent issue for those operating in the informal sector. Or the provider had a problem with another lower-income customer who was flagged as suspicious, and as a result decided to close all accounts owned by people with similar patterns or profiles.

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> Posted by Steve Waddell, Principal, NetworkingAction

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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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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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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.