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> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on the CGAP Blog.
Gabriel Davel knows what he’s talking about, and so should you. Davel is the veteran bank regulator who helped create and lead South Africa’s National Credit Regulator, one of the most capable financial consumer protection agencies in the world. In CGAP’s new Focus Note, Regulatory Options to Curb Debt Stress, Davel draws on the experience of a number of debt crises in microfinance and consumer credit and distills his own hard-won experience into practical guidance aimed mainly at regulators, but also highly relevant for financial institutions.
A perennially intriguing – and urgent – question is how regulators can tell when a crisis of reckless lending and over-indebtedness is on its way. Before a crisis hits, everyone has interests in credit expansion: individuals want loans, lenders want to grow their client base and loan portfolios, and governments want credit expansion, especially for previously excluded clients. But at some point, the bubble over-inflates, highly-leveraged clients are living precariously, and even a modest economic shock can trigger the inevitable collapse. Davel recounts 11 such incidents in microfinance and consumer finance. In their book, This Time is Different, on banking panics, Reinhart and Rogoff document not dozens but hundreds of similar crises throughout history. Their point? It is never different. Credit markets fool themselves time after time.
Is there any way for financial sector participants, happily tipsy from an expansion of credit, to recognize when they need to slow down? Does it take a restrictive set of credit rules? What are the secrets to responsible credit?
> Posted by John Gitau, CEO, Kenya Financial Education Centre
The other day, I received a text message from an engineer keen on financial inclusion matters. He wrote:
“Morning Sir! I was just thinking. At what cost is financial inclusion? I have just read a big sign in Donholm: Redeem your airtime for cash. Does this add to financial inclusion? If I am stuck, someone can sambaza (share) airtime and then I can redeem it as cash and get fare to go home. In financial inclusion, since you are in this field, is it all about such access and convenience to financial services?”
I didn’t immediately have an answer to his question. It sent me thinking broadly and deeply. Through M-Pesa, Safaricom has a “financial inclusion” base of over 16 million Kenyans. Then I remembered that in the G20 Los Cabos Summit of June 2012,* mobile money use was left out as one of the measures of financial inclusion. Having a formal bank account was in. But this realization left me more confused. Safaricom mobile connectivity through its M-Pesa product is excluded as an inclusion parameter just because Safaricom isn’t a bank? Wait a minute, now we have M-Shwari, a bank account at Commercial Bank of Africa available to M-Pesa customers through Safaricom. How shall that be treated? Inclusion within a largely excluded service? Of all Safaricom M-Pesa customers, are only those with M-Shwari accounts counted as included?
This reminded me of a story in Chinua Achebe’s Things Fall Apart about a character called Dimaragana who could not give his knife to cut dog meat because dog meat was taboo, but he was ready to cut the dog meat with his teeth. So, Safaricom customers using M-Pesa are not included but perhaps if they go deeper into its system and buy a product called M-Shwari, they’ll get included? Unsatisfied, I thought about a few other financial services scenarios. If an M-Pesa customer were to close off her M-Shwari account while still using M-Pesa, would that be exclusion? Suppose instead of M-Shwari, she sends money to her retirement benefit scheme through her Mbao Pension scheme. Would she then be considered included? She could also buy an insurance policy from CIC Insurance using their Ksh 20 insurance-per-day scheme and make her payments through M-Pesa… Still excluded?
> Posted by Tanaya Kilara, Financial Sector Analyst, CGAP
The following post was originally published on the YouthSave Blog.
The Center for Financial Inclusion at Accion recently released fascinating demographic data through the Mapping the Invisible Market project, as part of their Financial Inclusion 2020 campaign. It sketches a picture of the world in 2020 building on existing economic and demographic data, and draws implications for financial inclusion.
I do a lot of work on youth. Some of the data really caught my eye and even challenged some of my assumptions about priorities for youth financial services.
Where countries are in their development cycle affects their demographic opportunities. The Least-Developed-Countries (accounting for 27 percent of population growth over the next decade) are entering the first window of opportunity for a demographic dividend as fertility rates fall and the labor force grows faster than dependent populations, freeing resources for development. A second window of opportunity occurs when this expanded workforce ages and people stay in the workforce longer, saving and investing for extended retirement, resulting in more assets which raises the national income and leads to economic growth. Most developing countries, accounting for 68 percent of population growth over the next decade, fall into this category.
(Developed countries, take note: the demographic window of opportunity is largely closed.)
What does this mean for financial inclusion? One conclusion to draw from this is that countries need different financial inclusion strategies to address the needs and priorities of the age segments that are dominant at a particular time. For example, most middle-income countries like South Africa and Mexico are entering the second window of opportunity for a demographic dividend. With their youth population entering into the workforce in the near future, both countries will need to focus on the financial needs of mature adults. For poorer countries, like Nigeria and Pakistan, where the youth bulge will remain prominent for the future, we can anticipate that financial services targeted specifically for the young will be in higher demand and have more impact.
Interview With Ross Beerman, AllLife
> Posted by Eric Zuehlke, Web and Communications Director, CFI
In South Africa, people living with HIV (about 18 percent of the population) are often unable to access basic financial services. AllLife, founded in 2004, provides life insurance and health management services to HIV-positive clients across income groups in South Africa. The company provides financial services, gives individual counseling, and facilitates access to health services. Recently AllLife Co-Founder and Managing Director Ross Beerman visited CFI and discussed AllLife’s unique model, why life insurance is vital to those with HIV in South Africa, and future opportunities for the company.
Why is it so important to provide life insurance to people living with HIV in South Africa?
If we look at the economically active, people who earn more than 500 dollars a month, we’re talking about 2.5 million people [in South Africa] living with HIV. If you get declined for life cover from a life insurance company, really what the company is telling you is that they don’t think that you’re going to live long enough for them to make a profit. Whether it’s HIV, or it’s cancer or something else, there are certain ways you behave if you think you’re terminally ill. You withdraw from your support structure… You don’t invest in long-term projects. That means that you don’t get educated, necessarily. You don’t buy a house. You don’t start a business… That’s what happens in South Africa.
> Posted by Dave Grace, Advisor, CFI
HOPE! Maybe it’s my punch drunk self toward the end of a way too long U.S. election cycle, but it’s the word that comes to mind following the meeting of 80 regulatory agencies in Cape Town. The Cape Town affair was the Alliance for Financial Inclusion’s (AFI) annual Global Policy Forum.
What was so hopeful? That 35 central banks from developing and emerging markets made or reported on past commitments to increase financial inclusion! In my two decades of work in development finance, this is the first time that policymakers, who have the power to change financial systems, are creating a global movement to help the poor in a material way. While some of the commitments from central banks are malleable, most are concrete. For example, Malaysia is seeking 95 percent access by 2012, Ghana is seeking 70 percent inclusion by 2017 and is changing its payments, financial literacy and mobile financial services framework to get there.
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