Mark your calendars for Financial Inclusion Week 2022! 

Event

Financial Inclusion Week (FIW) is an annual gathering of the global community working to advance inclusive finance. The four-day virtual event is a forum for exchanging ideas, research, and perspectives from around the world. The Center for Financial Inclusion (CFI) convenes FIW each year and invites partner organizations to showcase work, share ideas on what’s ahead, network with others, and more. The community-driven agenda covers the most pressing topics in our space, helping to inform and advise global efforts to advance inclusive finance. FIW 2022 will be held October 17-20. Registration information will be made available at <a href="https://www.financialinclusionweek.org" target="_blank" rel="noopener noreferrer">financialinclusionweek.org</a> closer to the date.

The theme for 2022 is "Inclusive Growth in a Digital Era." Want to participate in 2022? The call for session proposals is now live! <a href="https://www.financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Learn more about FIW</a> and <a href="https://app.smartsheet.com/b/form/c9a1ca94eb37456f8fae25515dbfe42b" target="_blank" rel="noopener noreferrer">submit your session proposal</a>.

CFI invites sponsors to support FIW. Sponsors help maintain FIW as a free event for our global community and benefit from visibility on their contributions to inclusive finance. If your organization is interested in sponsoring FIW 2022, please reach out to <a href="mailto:center@accion.org">center@accion.org</a>.

In the meantime, check out this <a href="https://financialinclusionweek.org/2021#page-section-61e9c01a780fa32ba37b6cba" target="_blank" rel="noopener noreferrer">playlist</a> of incredible content from Financial Inclusion Week 2021.

Financial Inclusion Week 2022

Upcoming Events

Research Topics

Julia Arnold

Evelyn Stark

Report

Investing in digital financial capability is essential to support women navigating increasingly digitalized financial systems. A woman who is digitally and financially capable can evaluate, choose, and use financial services that enhance her life. Investing in her digital financial capability can contribute to meaningful access to and usage of financial services. This can be a positive step in improving economic opportunities for women and their families.

Approaches that work for women require going beyond traditional financial education to approaches that may require more time, support, and a deeper understanding of the social and <a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know">gender normative constraints</a> that prevent women from realizing their economic potential.

This publication shares how we can improve the design and delivery of digital cash transfers for low-income women using a four-phased approach: diagnose, design, deliver, and document. It presents examples of promising interventions tailored to women’s needs and realities and offers practical suggestions and tools for market and ecosystem actors to support women’s digital financial capability.

This resource was developed in partnership with the World Food Programme (WFP) and the Bill &amp; Melinda Gates Foundation.

Making Digital Financial Capability Programs Work for Women

Anindita Chakraborty

Brief

Privacy Perceptions, Attitudes, and Behaviors: Perspectives from Indonesian Smartphone Users

Deborah Drake

<div class="page" title="Page 3">
<div class="layoutArea">
<div class="column">

The COVID-19 pandemic has emphasized the important role of financial services in helping low-income people manage uncertainty and economic shocks. Many low-income customers rely on microfinance institutions (MFIs) to provide those financial services; however, the pandemic has also sent many MFIs themselves into crisis and many continue to face serious solvency concerns. This publication provides considerations and options for MFIs facing the need for potential consolidation. 

This brief provides an illustrated overview of five consolidation options: 
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Asset Purchase </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Share Purchase </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Forward Merger </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Triangular Merger </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="5" data-aria-level="1">Reverse Triangular Merger </li>
</ul>
&nbsp;

</div>
This brief was conducted as part of CFI’s partnership with Mastercard’s Center for Inclusive Growth.

</div>
</div>

Mergers and Acquisitions in Pandemic Recovery: What MFI Leadership Should Know

Mayada El-Zoghbi

Loretta Michaels

Platforms provide critical employment opportunities for many underserved populations and are increasingly interconnected with financial services. To advance financial inclusion and support development goals, however, platforms must focus on the unique digital, financial, and livelihood needs of micro and small enterprises. This publication provides an overview of the increasing interconnectedness of platforms and financial service offerings, how platforms can push the frontiers of inclusive finance, how platforms support women, and what is needed from policymakers for platforms to serve broader development goals. The audience of this report includes policymakers, platform leaders, donors, international development actors, and anyone interested in the potential for financial services and/or platforms to improve livelihoods.

Platforms, Livelihoods, and Inclusive Finance

Jayshree Venkatesan

Using a Framework to Understand How Fintechs and their Customers Cope, Survive, and Thrive

Two years into the COVID-19 pandemic, the role of digital financial services in providing access to essential services is undeniable. Digital financial services have enabled governments and nonprofits to deliver timely social protection payments and aided families and friends of those in need to quickly share financial resources. The rise of platforms and small business fintechs allowed for new forms of commerce that have kept people employed and grown gig work opportunities, which helped customers in small villages and large cities alike to purchase goods needed for their households.
<blockquote class="pullquote--right">We need data, metrics, and measurement standards to better understand and move the needle on measuring resilience.</blockquote>
The role fintechs have played over the last two years is clear. We have data about the growth of fintechs during the pandemic, on how much capital they have attracted from investors, and many anecdotal stories about how individuals and firms using fintechs have experienced direct benefits from moving to digital solutions. But while there are many stories of the positive relationships between fintechs and their customers during the pandemic, we need data, metrics, and measurement standards to better understand and move the needle on measuring resilience.

With the support of <a href="https://www.accion.org/institutional_partnerships/jersey-overseas-aid-comic-relief">Jersey Overseas Aid and Comic Relief</a>, CFI conducted research to better understand fintechs, their resilience, and the impact they have on the livelihoods of low-income customers. CFI’s research on fintech resilience is the first attempt to set forth a framework and call to action to understand the interconnectedness between progress at the provider level and the implications for users. Through our research, we found that, by and large, fintechs are operationally resilient, although many early-stage fintechs did have to resort to layoffs and salary cuts, or to slowing growth plans. However, measuring resilience — whether at the level of financial institutions or customers, as well as how they influence each other — is at an early stage of research.
<blockquote>PACT measures resilience as a combination of abilities and access to resources across four dimensions: Preparedness, Access, Capability, and Ties (Networks).</blockquote>
To support our work in understanding how to measure and quantify fintech’s resilience and impact, CFI developed the PACT framework. This helps us analyze the resilience of both fintechs and low-income customers, and see where and how there are direct connections between the two. PACT measures resilience as a combination of abilities and access to resources across four dimensions: Preparedness, Access, Capability, and Ties (Networks). This framework can inform investors and donors who are looking to support low-income customers.

A PACT to Promote Resilience

Latest Publications

The application period runs until Jul5 25th.

Inclusive Fintech 50 Application Period is now Open

RFF convenes this week for the first time since 2020, and the rapid pace of change in financial services, and the external world at large, supplies stakeholders with a plethora of issues to discuss regarding emerging risks to consumers.

Blog Post

We Are All in This Together

Ethan Loufield

Prior to the launch of the fourth annual Inclusive Fintech 50 (IF50) competition on June 27, we look at findings from last year’s competition and identify ways to help inclusive fintechs build commercially viable businesses.

There has been a lot of talk in recent years about the promise of fintech to help advance financial inclusion. This has been especially true during the pandemic: acceleration in digital adoption, spurring further growth in the inclusive fintech sector. Much of this growth has taken place in Africa, where fintechs raised <a class="Hyperlink SCXW16100441 BCX0" href="https://thebigdeal.substack.com/" target="_blank" rel="noreferrer noopener">$2.3 billion dollars in 2021, up from $830 million in 2020</a>, helping to catch up with funding levels in South Asia and Latin America.
<blockquote class="pullquote--right">While inclusive fintechs are developing innovative ways to reach new customers, meaningful customer segments remain underserved.</blockquote>
With this growth, there also is more data and insights about fintechs and their customers. Last year, two reports, CFI’s <a class="Hyperlink SCXW14958972 BCX0" href="https://www.centerforfinancialinclusion.org/insights-from-the-2021-if50-applicant-pool" rel="noreferrer noopener">Inclusive Fintech 50: Driving Innovation in an Era of Uncertainty</a> and Catalyst Fund’s <a class="Hyperlink SCXW14958972 BCX0" href="https://bfaglobal.com/catalyst-fund/briter-catalyst-fund-state-of-the-fintech-industry-report/" target="_blank" rel="noreferrer noopener">State of Fintech in Emerging Markets </a>(in collaboration with <a class="Hyperlink SCXW14958972 BCX0" href="https://briterbridges.com/" target="_blank" rel="noreferrer noopener">Briter Bridges</a>), leveraged such data to take stock of the industry’s progress. The reports arrived at similar conclusions: while inclusive fintechs are continuing to develop innovative ways to reach new customers, meaningful customer segments remain underserved and fintech funding remains concentrated.

The truth is that we are still in the early stages of bringing the power of fintech to bear on the challenges that low-income and vulnerable populations face. Advances have certainly been made, but the greatest gains only can be realized through intentional and collective efforts on the fintech frontier. This will help pave the way for strategies to turn these underserved markets into opportunities for growth.
<h1>Outreach to Underserved People</h1>
On the bright side, early-stage fintechs continue to proliferate. Last year, nearly 300 such fintechs applied to <a href="http://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50 (IF50)</a>, an annual competition to showcase early-stage fintechs driving financial inclusion around the world. Expert judges selected 50 winners from this applicant pool based on established criteria of inclusivity, innovation, scale potential, and traction. 

IF50 applicants have shown a continuous drive to innovate, demonstrated by their broad range of product areas, with varied models, partnerships, and customer acquisition strategies. The fintechs also are finding diverse ways to reach underserved people, such as through the provision of in-person digital skills training, use of agents, and product offerings that can be accessed without a smartphone.

Applicants are also designing solutions to address challenges in areas that are fundamental to people’s livelihoods – including climate resilience, health, and support for micro and small enterprises. For example, IF50 2021 winner <a href="https://gotugende.com/" target="_blank" rel="noopener noreferrer">Tugende</a> uses asset finance, technology, and a customer-centric model to help informal sector entrepreneurs in Africa grow their businesses and access value-added services such as medical insurance. Eighty percent of IF50 2021 applicants reported that their solutions helped customers access essential services during the pandemic, such as healthcare, government relief, and clean energy.

&nbsp;

<img class="size-full wp-image-44679 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/06/Tugende-Snapshot-03-e1655994301976.png" alt="" width="1000" height="599" />

&nbsp;
<h1>Gaps in Inclusivity</h1>
Despite this progress, significant gaps in customer outreach remain. For example, only 23 percent of fintechs in the Catalyst Fund sample reported that women constituted more than 50 percent of their customer base. Moreover, 38 percent of the IF50 2021 applicants do not disaggregate client data by gender.

Catalyst Fund and IF50 both also found that most inclusive fintechs do not focus mainly on low-income people. In the IF50 sample, 41 percent of applicants reported primarily targeting low-income customers. More than 70 percent of startups in the Catalyst Fund sample reported that fewer than 25 percent of their customers live under the poverty line, although poverty rates in the countries where these startups operate are closer to 35-45 percent.

The Catalyst Fund data also showed that as startups grow, they tend to move upmarket. Particularly for early-stage startups looking to raise capital, showing strong acquisition numbers is imperative, and middle- and higher-income customers tend to be <a href="https://medium.com/caribou-digital/what-are-the-limits-of-the-private-sector-in-serving-the-poor-3ee9a9a468fc" target="_blank" rel="noopener noreferrer">easier and cheaper</a> to acquire.
<h1>Concentration in Funding and Geographies</h1>
The pressure to acquire more customers may be driven by the underlying scarcity of funding for early-stage fintechs. Although investment flows have grown dramatically in recent years, funding in emerging markets is concentrated among very few startups. Out of 101 Sub-Saharan African startups in the IF50 2021 sample, five accounted for 65 percent of the funding. In Latin America, five of 36 applicants received 83 percent of funding.

Not only is funding concentrated among a few startups, but those startups are also based in a select few countries. Sixty-four percent of total funding reported by IF50 2021 applicants went to fintechs based in five countries: Colombia, India, Mexico, Singapore, and the United States. In Latin America, four countries (Brazil, Mexico, Uruguay, and Colombia) accounted for over 99 percent of funding in the Catalyst Fund sample. Such geographic concentration particularly excludes countries with lower levels of financial inclusion. Of the 16 countries in the IF50 sample that received over $10 million, only three have financial inclusion levels below 40 percent. Similarly, <a href="https://qz.com/africa/2029505/everything-you-need-to-know-about-fintech-financing-in-africa/?utm_source=email&amp;utm_medium=africa-launch-list&amp;utm_content=017e81c9-90b4-11ec-8d42-724a485ab421" target="_blank" rel="noopener noreferrer">fintech funding in Africa is concentrated in Kenya, Nigeria, and South Africa</a> (87.9 percent), all countries with higher levels of financial inclusion and/or more developed fintech ecosystems.
<blockquote>Not only is funding concentrated among a few startups, but those startups are also based in a select few countries.</blockquote>
Deals are also concentrated in certain types of products: those in payments, digital credit, and neo banks, and those that require a smartphone. In contrast, savings and insurance fintechs receive less funding, as do models that leverage USSD or lower-tech accessibility. IF50 data found that funding to fintechs offering services that require smartphones was about 3.5 times greater than those needing only a basic or feature phone. This may be because lower-tech models cost more to operate and users cannot bear higher-margin pricing.

Investment flows continue to favor men, and along all stages of growth, men founders raise more than women founders. According to 2021 IF50 data, women founders, on average, raised one-third the amount raised by men founders.

&nbsp;

<img class="wp-image-44683 size-full aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/06/IF50-blog-post-stacked-graph-1-e1656002022248.png" alt="" width="1000" height="652" />

&nbsp;

Overall, the data demonstrates that the majority of inclusive fintech startups, particularly those servicing more excluded segments, continue to find it difficult to access investment capital.  Being able to prove the business case of untapped markets is difficult, but Okapi Finance, an IF50 2021 winner, aims to demonstrate the potential by focusing on women merchants in Africa’s informal sector.

&nbsp;

<img class="aligncenter wp-image-44681" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/06/Okapi-snapshot-01.png" alt="" width="1000" height="599" />

&nbsp;
<h1>Looking Ahead</h1>
While there are opportunities for early-stage fintechs to build commercially viable businesses that are truly inclusive, more effort is needed from the broader ecosystem to ensure that innovative solutions can take hold. Startups are continuing to emerge on the frontier, but they need access to the visibility, resources, expertise, and networks that support their growth into sustainable and impactful companies.

Supporters of digital financial inclusion can help by directing greater attention to innovative startups in overlooked markets. Competitions like IF50 and those organized by <a href="https://www.womensworldbanking.org/fintech-innovation-challenge-2021/" target="_blank" rel="noopener noreferrer">Women’s World Banking</a> and the <a href="https://www.afi-global.org/newsroom/news/applications-open-for-the-2022-afi-inclusive-fintech-showcase/" target="_blank" rel="noopener noreferrer">Alliance for Financial Inclusion</a>, and market insights provided by research organizations like Briter Bridges, also help to raise awareness. Incubators and accelerators, such as <a href="https://bfaglobal.com/catalyst-fund/" target="_blank" rel="noopener noreferrer">Catalyst Fund</a>, can assist in de-risking less proven models and making them more market-ready via grant funding, mentorship, and other venture-building services. And finally, greater investment, particularly in the $250K to $1M range, can help to fuel early-stage ventures pioneering innovative solutions.

The application period for the 2022 <a class="Hyperlink SCXW136892565 BCX0" href="https://www.inclusivefintech50.com/" target="_blank" rel="noreferrer noopener">Inclusive Fintech 50</a> competition will open Monday, June 27, and inclusive fintech startups – especially those at the frontier – are strongly encouraged to apply. The 2022 theme is “Making Digitalization Count.” IF50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief.

Driving Inclusivity on the Fintech Frontier: Let’s Make It Count

David Porteous

Sam Parker

Marc Herson

Is there value in good governance at the early-stage of a company’s life? It turns out that the answer depends on with whom you speak and on what you mean by “good governance.” We spent two months speaking widely to investors, accelerators, and founders in the startup investment ecosystem in different parts of the world. This was part of an exercise commissioned by the Center for Financial Inclusion to wrap up its multi-year <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact program</a> by considering governance needs of early-stage companies – ranging from startup to a Series B funding round or equivalent.

Our interviews showed a disconnect in understanding between funders and founders, caused in part because the word “governance” is vague with different connotations. Funders differed in their degree of activism on the issue of governance, but tended to agree on the value of good governance and had a general desire to see certain practices in place over time. This was true whether or not the funder’s strategy or available resources allowed them to be actively involved in investee governance.

However, founders tended to have less positive views of the value of governance at the early-stage. Some founders experienced a low return on their investment of scarce time and money in formalizing their board. The co-founder of African fintech Zoona, Mike Quinn, writes in his recent autobiographical reflection, <a href="https://www.amazon.com/Failing-Win-Hard-earned-lessons-purpose-driven-ebook/dp/B09BDL1HQ8" target="_blank" rel="noopener noreferrer">Failing to Win</a>, that while he spent a lot of time preparing for board meetings, the outcomes of meetings were not focused on the pressing issues he faced as an early-stage CEO. For other founders, governance connoted adding formality and bureaucracy in ways that fettered their discretion and ability to move fast at a stage when there was little time to waste.

This is one of the reasons why the accelerators with which we spoke tend to avoid putting structured emphasis on the issue of governance, and instead, focus on product-market fit and go-to-market strategies. This Silicon Valley “proverb” expresses the prevailing view of many founders that boards bring more risk than they bring value: “Good boards don’t create good companies, but a bad board will kill a company every time.”
<blockquote class="pullquote--right">Founders who are working on their second or later startup are much more likely to recognize the value of paying attention to governance early on.</blockquote>
While we heard evidence of this disconnect between funders and founders in our interviews, we don’t want to exaggerate its extent: it turns out that founders who are working on their second or later startup are much more likely to recognize the value of paying attention to governance early on, in part because of ‘scars’ from difficulties they experienced in earlier ventures. And there is value in good governance: funders generally supported the view that investors are willing to pay a premium for good governance – certainly by the time of a Series B round. Even at the time of a seed or Series A round, the lack of governance processes is a negative screen for many investors. Founders can capture more investment value by building a governance roadmap that anticipates how their governance structures and practices will evolve as they mature.

Part of the disconnect is generated by different understandings of the term governance. Some definitions emphasize the structure and practices, usually focused on the role played by the board of directors. This tends to be the emphasis of <a href="https://www.cfainstitute.org/en/ethics-standards/codes/esg-standards" target="_blank" rel="noopener noreferrer">ESG standards </a>designed for and applied primarily to large public companies where the board plays a central role. For startup companies, the board typically becomes the main governing body after an inflection point, usually a seed or Series A funding round in which external investors have at least one board seat. But prior to that point, the locus of governance may well sit outside a formal board and be vested rather in less formal decision-making structures among founders, perhaps assisted by mentors or an advisory board.

It is important to note that an overemphasis on governance structures misses a key point of what happens to a company during a startup journey: not only is a company emerging out of an idea, but it is also accumulating stakeholders other than the founders – including investors, employees, suppliers, government officials, and the society in which it operates – who have legitimate but often competing expectations that their needs and claims on the company will be considered and met.

Good early-stage governance amounts to effective and ethical decision-making processes in the transition from founder-centric to a multi-stakeholder environment. Governance is a progressive process along the startup journey: governance practices evolve as the startup evolves. Smart, agile governance recognizes not only that an evolution towards multi-party decision-making is inevitable but also that it can and should be value adding. The interviews shed light on the importance of reframing early-stage governance more along these lines. And the rationale for doing so is clear: for founders, good governance pays off through better access to capital on better terms; for funders, good governance helps to de-risk a fundamentally risky early-stage investment proposition. This forms the basis of reconnecting the interests of founders and funders.
<blockquote>For founders, good governance pays off through better access to capital on better terms; for funders, good governance helps to de-risk a fundamentally risky early-stage investment proposition.</blockquote>
Reframing early-stage governance is important. Without it, the disconnect between founders and funders may widen. ESG pressures are rising for fund managers, even in alternative asset classes like venture. Without a clear reframing, this pressure may have the unintended consequence of rigidifying early-stage governance so that it is less, not more, effective. That deadweight loss is something society can ill afford at a time when risk capital may become scarcer and when innovation is required as never before to reach the <a href="https://sdgs.un.org/goals" target="_blank" rel="noopener noreferrer">Sustainable Development Goals</a>.

Reframing is also timely because of recent events in the emerging world, which has experienced a flood of VC investments in the past few years. In April 2022, former employees and an investigative journalist surfaced <a href="https://restofworld.org/2022/inside-the-scandal-at-flutterwave-nigerias-fintech-champion/#:~:text=The%20police%20said%20at%20the,ultimately%20released%20without%20being%20charged." target="_blank" rel="noopener noreferrer">allegations of abuse and misconduct </a>at one of Africa’s fintech unicorns, Flutterwave. If found to be true, these may be attributed in large part to lack of good governance. This one case may be the tip of an iceberg: also in April 2022, Sequoia India published a <a href="https://www-india.sequoiacap.com/corporate-governance-the-cornerstone-of-an-enduring-company/" target="_blank" rel="noopener noreferrer">blog post </a>reporting that some founders in their portfolio were under investigation for potential fraudulent practices or governance lapses. Their lament expresses the reality that some VCs, in their chase to win deals and be “founder-friendly,” have neglected, or at least underemphasized, their governance responsibilities. Sequoia India has committed to double down on improving governance at its early-stage portfolio companies.

We hope that other VCs and impact investors will follow suit. We also hope that the outcome will not just be more procedures or controls, though some of that may well be needed, but rather a smart, agile approach to good governance at the early stage.

Is There Value in Good Governance at the Early-Stage?

Lucciana Alvarez Ruiz

Howard Miller

As you drive into Quetzaltenango, the largest city in Guatemala’s western highlands, you pass a large statue. The migrant depicted in "Homage to the Migrant of Salcaja" (the name of the local municipality) stands 30 meters high, wears a backpack, and faces north. The statue pays tribute to the thousands of Guatemalan migrants who, despite the risks and the costs, have left this corner of the country to seek opportunities elsewhere.

The number of international migrants from Guatemala tripled from nearly <a href="https://www.un.org/development/desa/pd/content/international-migrant-stock" target="_blank" rel="noopener noreferrer">462,000 to almost 1.4 million people</a> between 1995 and 2020. A recent survey shows that in 2021, <a href="http://migration.mit.edu/" target="_blank" rel="noopener noreferrer">43 percent of Guatemalan households expressed the desire to migrate</a>, five times the percentage in 2019. Among the reasons for this – food insecurity, unemployment, and desire to send remittances home – one that underlines and exacerbates these issues is climate change.
<blockquote class="pullquote--right">People who are already marginalized tend to experience a greater impact from climate-related events.</blockquote>
The effects of climate change are not felt equally, and people who are already marginalized – such as women, low-income populations living in rural areas, indigenous groups, and smallholder farmers – tend to experience a greater impact from climate-related events.  The impact of climate change is growing and Guatemala is particularly affected because of its dependence on agriculture. In 2018, a <a href="https://www.wfpusa.org/news-release/erratic-weather-patterns-in-the-central-american-dry-corridor-leave-1-4-million-people-in-urgent-need-of-food-assistance/" target="_blank" rel="noopener noreferrer">delay in the rainy season in the Central American Dry Corridor</a> – spanning El Salvador, Guatemala, Honduras, and Nicaragua – damaged 70 percent of subsistence farmers’ first harvest and ruined 50 percent of their second harvest. <a href="https://publications.iadb.org/publications/spanish/document/BIDeconomics_Guatemala_Crecer_m%C3%A1s_y_para_todos_es_es.pdf" target="_blank" rel="noopener noreferrer">Agriculture employs more than 70 percent of the rural population in Guatemala</a>, and because of increased temperatures and shifts in the rainy season, thousands have been forced to leave their homes as they are unable to feed their families.

Guatemalan migrants are predominantly from rural areas – the same areas that have been highly impacted by climate-related disasters. The share of international migrants from <a href="https://blogs.worldbank.org/jobs/migrating-better-life-why-better-jobs-are-key-helping-youth-prosper-home-guatemala" target="_blank" rel="noopener noreferrer">rural areas in Guatemala is twice that of urban areas</a>, and most migrants from Guatemala to the U.S. are from the western highlands, motivated to leave because of natural disasters such as the droughts of 2014, 2015, and 2018. This is true across the region: evidence from Mexico suggests that rising temperatures and weather shocks associated with <a href="https://academic.oup.com/ej/article/128/608/230/5068979" target="_blank" rel="noopener noreferrer">climate change increased the likelihood of internal migration</a> from rural areas to urban areas as well as international migration.

The populations most impacted by climate change also tend to be financially vulnerable: 60 percent of rural Guatemalans say they would be unable to come up with emergency funds. Only <a href="https://publications.iadb.org/publications/spanish/document/BIDeconomics_Guatemala_Crecer_m%C3%A1s_y_para_todos_es_es.pdf" target="_blank" rel="noopener noreferrer">10 percent of the loans</a> offered by Guatemalan financial institutions are dedicated to agriculture and just a fraction of that is invested in adaptive practices to respond to climate change. So how can financial services work better for these climate-vulnerable populations?
<h1>Remittances Help Families Make Ends Meet But Are Not the Full Answer</h1>
Between 2000 and 2020, <a href="https://databank.worldbank.org/reports.aspx?source=2&amp;series=BX.TRF.PWKR.DT.GD.ZS&amp;country=GTM" target="_blank" rel="noopener noreferrer">remittances exploded from 3 to 14.7 percent of GDP</a> in Guatemala and represented seven times the average in Latin America and the Caribbean in 2020. Three in 10 Guatemalan households <a href="http://migration.mit.edu/assets/mpi-wfp-mit_migration-motivations-costs_final.pdf" target="_blank" rel="noopener noreferrer">receive remittances with an average monthly amount of $350</a>, according to the most recent data published in 2020. Recipients are <a href="https://publications.iadb.org/publications/spanish/document/La-poblaci%C3%B3n-receptora-de-remesas-en-Guatemala-Un-an%C3%A1lisis-de-sus-caracter%C3%ADsticas-socioecon%C3%B3micas.pdf" target="_blank" rel="noopener noreferrer">disproportionately rural</a> and most are located in the north and western highlands of Guatemala.

[caption id="attachment_44509" align="aligncenter" width="8000"]<img class="wp-image-44509 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/05/Personal-remittances-graph-1_Mesa-de-trabajo-1.jpg" alt="" width="8000" height="4500" /> Data: World Bank. DataBank, World Development Indicators (2021)[/caption]

&nbsp;

Remittances from migrants are a critical source of income for many families in Guatemala and are relied on to cover food expenses (57 percent), education (10 percent), or household construction (8 percent). Among the <a href="https://publications.iadb.org/publications/spanish/document/La-poblaci%C3%B3n-receptora-de-remesas-en-Guatemala-Un-an%C3%A1lisis-de-sus-caracter%C3%ADsticas-socioecon%C3%B3micas.pdf" target="_blank" rel="noopener noreferrer">remittance recipients in Guatemala</a>, a large share are women (69 percent), live in or are at risk of poverty (88 percent), and have attained primary education or less (77 percent). However, only <a href="https://www.cepal.org/sites/default/files/a2020-07-22-ude-strategies-inversion-remfam-cv-guat-eng.pdf" target="_blank" rel="noopener noreferrer">3 percent of recipients use remittances to invest</a>.

In a country where the <a href="https://publications.iadb.org/publications/english/document/LAC-Post-COVID-19-Challenges-and-Opportunities-for-Central-America-Haiti-Mexico-Panama-and-the-Dominican-Republic.pdf" target="_blank" rel="noopener noreferrer">losses in agriculture due to natural disasters were around $2.4 billion</a> between 1992 and 2011, and where migrants <a href="http://migration.mit.edu/" target="_blank" rel="noopener noreferrer">spent $1.2 billion dollars to travel</a> to the U.S. in 2021, there are opportunities to encourage Guatemalans to use their remittances to invest in forward-looking practices that build resilience to climate change. Financial services are needed that channel remitted funds into investments in sustainable agriculture and support forest-based livelihoods, while putting women at the center given they are the primary recipients of remittances. While remittances can be a key tool for resilience and risk management, <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">there is also a role for them to support adaptation,</a> by linking diaspora funds to investments in climate-smart agriculture and sustainable rural enterprises.
<blockquote>Remittances can support adaptation as well as resilience and risk management.</blockquote>
In Guatemala, <a href="https://www.dgrv.coop/es/project/guatemala-2/" target="_blank" rel="noopener noreferrer">325 out of more than 1000 cooperatives provide savings and credit services</a> and focus on MSMEs, particularly small-holders. We believe financial services have a key role to play in supporting resilience, through products like insurance and informal social support systems that build on Guatemala’s strong cooperative movement. Financial services also play a critical role in underpinning a just transition for rural populations. One example of this is the Guatemalan government’s social protection initiatives <a href="https://www.inab.gob.gt/index.php/component/content/article/112-servicios/183-pinpep?Itemid=437" target="_blank" rel="noopener noreferrer">Pinpep</a> and <a href="https://www.inab.gob.gt/images/servicios/probosque/foliares/foliar-sitios-sagrados.pdf" target="_blank" rel="noopener noreferrer">Probosque</a> schemes that provide financial incentives for tree-planting and reforestation. CFI is working with The Nature Conservancy and other partners to explore these issues. 
<h1>Imagining a Constructive Role for Financial Services</h1>
As far as we know, the Migrant of Salcajá isn’t a real person but rather a representation of the thousands who have made the treacherous journey. To make the trip north, the migrant is likely to have informally borrowed up to $17,500 to pay smugglers, known in Guatemala as “coyotes”. If the migrant reaches the U.S. border and finds work, it can take time to find the funds to repay the debt. And if the migrant doesn’t reach the U.S., they remain indebted. The combination of lack of economic opportunity and predatory moneylending can lead to dangerous debt traps.
<blockquote class="pullquote--left">Imagine if the money flowing back from the current generation of migrants could change the incentives for the next generation, encouraging them to stay and build climate-resilient livelihoods.</blockquote>
But imagine if Guatemala’s financial system offered the services needed to invest in resilient rural livelihoods, to adapt to changing climatic conditions, and to diversify into new opportunities in agro-processing. Imagine if the money flowing back from the current generation of migrants could change the incentives for the next generation, encouraging them to stay and build climate-resilient livelihoods. There is a long way to go, but it is increasingly clear that improving the way that financial services work for Guatemala’s smallholders has a role to play in the dual challenges of climate change and migration.

Rural, Poor, and Pressured by Climate Change: Migration and Financial Inclusion in Guatemala’s Western Highlands

Shradha Modi

And as climate change makes the business models of some MSMEs no longer viable, financial services will be necessary to help business owners transition to new business models and livelihoods.
Forward-looking recommendations and actions should also consider that MSMEs are still struggling to recover from the COVID-19 crisis. There are lessons to learn about supporting MSMEs in preparing for the next crisis, and we must keep current struggles in mind while continuing to listen to their needs.

Imagine a woman, Rita, who owns a food shop in Delhi. She lives in a small home with her husband and two children. The incomes from her business and her husband’s job cover the rent for their small apartment, household essentials, and school expenses, while also allowing them to send money to their family in the village and save for future expenses. Climate change has intensified the monsoon season in the past few years, and two years ago, a record-setting flood caused damage to Rita’s shop and all her business supplies. She has been working hard to rebuild her business, but a lack of capital has prevented her from operating at full capacity. <a href="https://www.washingtonpost.com/weather/2022/04/28/india-pakistan-heat-wave-records/" target="_blank" rel="noopener noreferrer">An intense heatwave now is affecting Delhi</a> and posing new hurdles to Rita’s business. 

Rita’s situation is not unique and many small businesses around the world face similar challenges. Climate change disproportionately impacts low-income and vulnerable people and climate-related shocks are drastically altering the livelihoods and living conditions for many. Globally, MSMEs make up over <a href="https://www.un.org/en/observances/micro-small-medium-businesses-day" target="_blank" rel="noopener noreferrer">90 percent of firms and provide 70 percent of employment</a>, and many are struggling with intensifying climate risks. As part of CFI’s <a href="https://www.centerforfinancialinclusion.org/research/covid-19-and-msmes-data-and-analysis-to-understand-impact">longitudinal</a> research on the impact of COVID-19 on MSMEs in four different markets (Colombia, India, Indonesia, and Nigeria), we conducted a dipstick survey in 2021 to understand the consequences of climate shocks on MSMEs and the ways they are preparing to adapt to climate change.

Our research revealed three takeaways:
<h1>1  Climate Change is Impacting MSMEs and Hindering Their Recovery from COVID-19 Financial Impacts </h1>
Thirty-two percent of survey respondents reported that at least one climate shock – including flooding, sea level increase, heat wave, or drought – has impacted their business within the past five years. The types of climate shocks and their impact varied by country (see graph below).

<img class="size-full wp-image-44468 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/05/MSME-Climate-Graph1-1.png" alt="" width="2696" height="1308" />

While climate change impacts all people, women bear the brunt of the escalating climate risks. <a href="https://www.unwomen.org/en/news/in-focus/csw61/women-in-informal-economy" target="_blank" rel="noopener noreferrer">Women make up much of the informal economy</a> and their <a href="https://www.un.org/en/chronicle/article/womenin-shadow-climate-change" target="_blank" rel="noopener noreferrer">livelihoods are more likely to be impacted by climate risks</a>. CFI’s data indicates that women show a higher level of concern than men that climate change will affect their ability to operate their business and maintain their quality of life – 61 percent of women business owners were concerned about this compared to 52 percent of men.

Additionally, among the MSME respondents who had been impacted by a climate shock, <a href="https://www.centerforfinancialinclusion.org/the-precarious-state-of-msmes-understanding-the-impact-of-covid-19-and-opportunities-to-support-their-recovery">recovery from the financial impacts of the pandemic appears to be slower</a> than those who had not faced a climate-related shock (see graph below).

<img class="size-full wp-image-44469 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/05/MSME-Climate-Graph2.png" alt="" width="2766" height="1394" />
<h1>2  MSMEs Are Unable to Actively Prepare for the Accelerated Effects of Climate Change</h1>
Extreme climate events are becoming a more frequent phenomenon around the world. And for MSME owners with limited resources and time, preparing for climate change can be a challenge. Across all survey respondents, only 47 percent reported that they had an operating plan in place for business continuity (see graph below).

Sixty-two percent said they are confident in their ability to get a loan to rebuild their business following a climate disaster, and 53 percent said they had friends and family who could provide financial support in the event of a climate shock. During the COVID-19 crisis, help from friends and family was essential to the ability of MSMEs to survive. In the immediate aftermath of the pandemic, 44 percent of business owners in Colombia said they borrowed from friends and family compared to 11 percent who borrowed from a financial service provider. This demonstrates the importance of both formal financial services and informal networks in supporting climate resilience.

Only 23 percent reported that they had an insurance plan for climate disasters, and 38 percent said they had savings set aside to cope with climate disasters. While there were variations among countries in the strategies employed to combat a future climate shock, data suggests that MSME owners are more likely to rely on reactionary strategies than preventative ones.

<img class="wp-image-44470 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/05/MSME-Climate-Graph3.png" alt="" width="1022" height="881" />
<h1>3  MSMEs Need Support From Governments and Financial Services Providers to Adapt Their Businesses to Increasing Climate Risks</h1>
<a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">CFI’s green inclusive finance framework</a> outlines four pathways – Mitigation, Resilience, Adaptation, and Transition – that help to understand how inclusive finance can support low-income and vulnerable populations prepare for climate-related impacts. Financial services can help MSMEs build resiliency and respond to the disastrous effects of climate change. For example, access to savings products and emergency loans can help MSME owners carry out cost-intensive efforts to rebuild their business after an extreme weather event.

Our survey data indicates that MSMEs need support from governments and financial services providers to build resilience and adapt to climate change. In some cases, such as insurance products, governments and financial service providers will need to work together to ensure MSMEs have access to appropriate and affordable financial services.

A significant share of MSME owners who experienced a climate shock faced damage to their shop or inventory (see graph below). To manage the impacts of climate disasters on their business operations, MSMEs need financing to make upgrades to their business location or inventory storage. Governments can provide grants or low-cost loans to MSMEs for making upgrades that would help avoid more drastic consequences of a climate emergency.

Climate Change Adds to Challenges for MSMEs Recovering from COVID: Three Takeaways from CFI Surveys

CFI Blog

Learn about FIW, watch last year's content, fill in the submission form, and more.

Now Accepting Proposals for Financial Inclusion Week 2022

#strategyvideo

Moving Beyond Access Toward Improving Outcomes

A longitudinal research program in four emerging markets 

COVID-19 & MSMEs: Data and Analysis to Understand Impact

How Financial Services Can Mitigate Climate Risks

to advance inclusive financial systems for low-income people around the world. 

Indonesia

Consumer Protection

Delivery Channels

Financial Health

This is an example page. It&#8217;s different from a blog post because it will stay in one place and will show up in your site navigation (in most themes). Most people start with an About page that introduces them to potential site visitors. It might say something like this:
<blockquote>Hi there! I&#8217;m a bike messenger by day, aspiring actor by night, and this is my website. I live in Los Angeles, have a great dog named Jack, and I like piña coladas. (And gettin&#8217; caught in the rain.)</blockquote>
&#8230;or something like this:
<blockquote>The XYZ Doohickey Company was founded in 1971, and has been providing quality doohickeys to the public ever since. Located in Gotham City, XYZ employs over 2,000 people and does all kinds of awesome things for the Gotham community.</blockquote>
As a new WordPress user, you should go to <a href="https://content.centerforfinancialinclusion.org/wp-admin/">your dashboard</a> to delete this page and create new pages for your content. Have fun!

We use rigorous research and advocacy to advance inclusive financial systems for low-income people around the world.