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> Posted by Center Staff
Janautthan Samudayic Laghubitta Bikash Bank Limited event in Nepal
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.
It is day three of Financial Inclusion Week 2016 and while we are sad to be more than half-way through, we are so excited by the conversations that have already happened! Already, Financial Inclusion Week events have taken place in South Africa, the United Kingdom, Nepal, and Tanzania, among other locations.
Before we dive into a recap of the events that happened yesterday – we encourage you to take another look at the list of webinars happening during the rest of the week and register today to participate. Additionally, we encourage you to join the Twitter conversation with #FinclusionWeek. Starting today, CFI (@CFI_Accion) will be asking a number of questions to the Financial Inclusion Week community focused on the theme, keeping clients first in a digital world.
What’s Happening
In Luxembourg yesterday, the ADA held a panel discussion exploring keeping clients first in mobile banking and microfinance. The conversation was led by Laurent de la Vaissière, Director of the Information & Technology Risk Department at Deloitte and included Devyani Parameshwar, Lead Development Manager of M-PESA at Vodafone, and James Onyutta, Managing Director of Musoni Kenya. You can watch the full conversation below.
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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.
> Posted by Elisabeth Rhyne, Managing Director, CFI
When it comes to financial inclusion, as is true in many sectors these days, sexy start-ups and disruptive innovators often occupy the spotlight. But away from the glare, traditional banks are getting on with the work and making an enormous difference. In The Business of Financial Inclusion: Insights from Banks in Emerging Markets, produced in a partnership between the Institute of International Finance (IIF) and CFI, we explore how banks are innovating to include new customers.
Given the headlines, it may be a surprise to hear that even today the overwhelming majority of new accounts are opened at formal financial institutions, not mobile money outlets. Thanks to the Global Findex, we know that over 720 million adults accessed formal financial services for the first time between 2011 and 2014, 90 percent of these new accounts were opened at formal financial institutions. Of the 720 million total new accounts, only 54 million used mobile money as their primary account.
How are banks expanding customer outreach?
Through in-depth interviews, leaders from 24 national, regional, and global banks told us about the opportunities and challenges they face while reaching the unbanked and underbanked. Each bank has its own particular story. In the aggregate, their stories give insight into how banks are evolving to meet people where they are and serve population segments that have been traditionally excluded.
> Posted by Hannah Sherman, Project Associate, CFI
South Africa’s largest mobile phone operator, Vodacom, announced last month that it will stop offering its mobile-banking product M-Pesa in the country at the end of June. M-Pesa is sustained by large numbers of users but, given the widespread presence of banking services throughout South Africa, fewer customers are taking up the service than in other African markets.
“The business sustainability of M-Pesa is predicated on achieving a critical mass of users. Based on our revised projections and high levels of financial inclusion in SA there is little prospect of the M-Pesa product achieving this in its current format in the mid-term,” CEO Shameel Joosub said in Vodacom’s statement.
M-Pesa, which is a runaway success in Kenya, its flagship country, had more than 25 million customers across 11 countries at the end of March, a 27 percent increase over the previous year.
> Posted by Sonja Kelly, Director, CFI
Some financial institutions are gradually recognizing the importance of making financial products fun, but does this strategy work to build financial capability? South African retail bank Absa tested this question when it designed and deployed a series of brief games, called “Shesha” (or “quick-quick” in Zulu). The games were a business necessity for Absa, as the cost of banking at a branch was between 3 and 40 times higher for customers than the cost of digital transactions. Too few of Absa’s customers were migrating from branch banking to digital, and many mobile money accounts were dormant. Equipping customers to more confidently choose and use digital services made business sense and responded to customer needs.
Absa sent text messages to select customers inviting them to participate in the Shesha game, which consisted of basic quiz questions. While standard text message rates applied to customers for playing, the response rate was significant—up to 15 percent of customers responded (compared to 2-3 percent response rates seen in most such efforts). The bank offered prizes to randomly-selected individuals who played and got the questions right, ranging from airtime top-ups to grand cash prizes.
> Posted by Sonja E. Kelly, Fellow, CFI
I want to let you in on a secret: the best part of the Global Microscope 2015 is a hidden gem. It’s called the Microscope Benchmarking Model (admittedly it might benefit from a better name), and it provides a user-friendly deep-dive into each country and indicator. With this tool, you can go beyond the report, with insights on questions that we may have neglected to cover in the narrative. And you can slice and dice the data to your heart’s content.
For example, where is the best place to be an insurance provider if you want to work with low-income populations? It’s India, actually, with Mexico, Peru, Colombia, Brazil, and the Philippines following. With two quick steps, the tool produced this map for me (click to enlarge):
The countries colored in red—including the Democratic Republic of Congo, Madagascar, Paraguay, and Tajikistan—are the worst places to be an insurance provider working with low-income populations.
So why is India the best?
> Posted by Michael Miebach, President, Middle East and Africa, MasterCard
FI2020 Week is a global conversation on the key actions needed to advance financial inclusion, grounded in the findings of the recently launched FI2020 Progress Report. From November 2-6, 2015, stakeholders around the world are participating in more than 30 events and sharing their voices over social media, with #FI2020.
FI2020 Week offers a good opportunity to review the findings in the FI2020 Progress Report and to consider actions the global community needs to take to advance financial inclusion. This is of particular interest to me as I work every day to expand MasterCard’s payments platform in the Middle East and Africa, and in a volunteer capacity, I also serve on the board of directors of Accion.
The report asserts that it’s not enough to “build the rails” to enable payment and transaction access, but that “providers, regulators and support institutions need to ensure that the financial services that follow provide value and quality to the passengers who climb aboard.” Here is where interoperability is essential—if last mile customers are to benefit. Banks, telcos, merchants, and governments must be connected—despite different rules and technologies—in a way that is seamless to the user. From a customer perspective, that means ubiquity, safety, and utility—the trifecta of success in financial inclusion. It won’t work if all the stakeholders are competing to create their own end-to-end solutions, or operating in silos. It won’t work if we are creating islands, where the unbanked transact with each other and where data is used in proprietary ways to support individual business models, rather than being shared as a public good.
Now, a parent in Zimbabwe sends money to his daughter studying at university in South Africa using a mobile money operator connected to the global banking system. All he needs to do is go to an EcoCash agent and top up his mobile money account. His daughter then accesses the funds using a MasterCard debit card linked to the same EcoCash mobile money account to purchase text books, and pay university fees as well as other day-to-day expenses while at university in South Africa. This is ubiquity, safety, and utility put into action.
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> Posted by Kai Hsu, Director of Administration & Finance, Positive Planet China
Over the past five years, peer-to-peer lending (P2P) has grown rapidly. Now more commonly referred to as “marketplace lending” because of the large range of institutions, intermediaries, and non-“peer” parties involved, the industry is poised to continue its year-on-year triple-digit growth. The breakneck speed of P2P’s growth seems natural given the many advantages it offers. As an industry, focus has gradually moved from a community of individuals lending directly to other individuals (often within affinity groups), and has evolved into a powerful engine of technical efficiency. Today, P2P is viewed in many different ways: a potential agent of financial inclusion; an innovation in big data analytics and credit risk evaluation; an efficient mechanism for loan matching without the often burdensome capital and regulatory requirements of banks; an innovative operational model leveraging the cost savings of online platforms; a new asset class for retail and institutional investors; and the list goes on.
Change has been slow to come, with many banks questioning the P2P model’s long-term relevance and P2P lenders failing to capture the public eye for many years, but big banks have recently begun to show their appetite for the more robust of the online lenders. Banks have made equity stakes in P2P businesses in the past, such as Barclays’ 49 percent investment in South Africa’s RainFin. However, 2015 seems to be the breakout year for P2P into mainstream finance. In June, Goldman Sachs announced plans to enter the consumer lending space through an online platform, akin to what Lending Club and Prosper offer in the U.S. Several days later, Morgan Stanley featured an optimistic report on P2P lending on its home page. In August, Standard Chartered led a $207 million C-round of funding for Chinese P2P company Dianrong.
> Posted by Kettianne Cadet, Program Coordinator, CFI
It’s been a few weeks now since our return from Cape Town and the kick-off seminar of the inaugural Africa Board Fellowship, a six-month program launched this year to foster peer-to-peer learning and exchange on governance practices among board members and CEOs at financial institutions serving low-income clients in sub-Saharan Africa. The fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.
In early June, CFI’s Investing in Inclusive Finance (IIF) team and the fellowship’s seasoned faculty, advisors, subject experts, and inaugural class of fellows all came together in South Africa for the in-person kick-off seminar. This first seminar was very well received by both fellows and staff and here are some of the reasons I believe it went well.
Participant Diversity: The first cohort of fellows connects 30 board members and CEOs from 13 institutions throughout 11 countries, all with diverse backgrounds and experience. Each participating institution is required to send their CEO along with one or two board members. Having this mix of participants throughout the seminar led to numerous engaged, candid, and rich discussions about roles, board dynamics, and responsibilities. Had we only brought together one fellow from each institution, these conversations would have been far more one dimensional.
Structured Accountability: Having both CEOs and board members present supports accountability within each institution – to participate in each session and to take action afterwards. If only one member from each institution attended, would they be able to transfer their takeaways to their organization or actually implement any of the lessons learned? Additionally, given that the fellows either came from a different geographical location, offered differing products, or perhaps targeted a different niche market, it seemed that everyone got enormous value from their exchanges with one another.
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