> Posted by Elisabeth Rhyne, Managing Director, CFI
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What are the most important unanswered questions in financial inclusion?
Last week I was fortunate to participate in the small, idea-packed Conference on Financial Inclusion at Harvard Business School, organized by Professor Rajiv Lal. The attendees were a high-level microcosm of the financial inclusion world, a sort of mini-Financial Inclusion 2020 Global Forum. A prime purpose of the gathering was to identify a potential research agenda.
Among the ideas emerging from very rich conversations, I identified three distinct areas of research: business questions that could be addressed through HBS’s famous case method; research focused on regulation; and social science research focused on consumers. Because what one says at HBS stays at HBS, I cannot identify who offered what idea, but here is a brief summary.
An over-arching question relevant to all three of these areas was the challenge of moving customers from access to usage – i.e., creating effective on-ramps to inclusion.
1. Business Questions
- We discussed the relative absence of banks from the financial inclusion discussion (only two mainstream banks attended) and noted that it is hard to innovate from inside an established, market-dominating player.
- What keeps banks from offering financial inclusion products that other players do offer?
- How does a large company innovate from within?
- How can the rich insights on customer needs and behavior be incorporated effectively into the business models and product offerings of financial institutions?
- How can front line staff be empowered with technology to create high touch delivery models that make services more valuable to clients? (This question supports the observation one person made: seeking to increase revenue is usually a better business strategy than minimizing cost.)
- What are the keys to success for building and operating a network of banking or digital financial service agents?
- Cases that illustrate effective models for providing financial advice to consumers, including ways to manage conflicts of interest between providers and the advice they give.
- Cases that illustrate the newly emerging SME lending innovations made possible through “big data”.
- Cases that elaborate the role of alternative providers in the U.S. that serve the BoP segment.
2. Regulatory Questions
- How can regulators best support the creation of interoperable payment systems? Considerations arise of competition policy, attracting first movers, dealing with quasi-monopoly situations, national preferences, and pricing policy.
- What are effective models for public-private dialogue? The consensus was that regulators should follow the market, not lead it, but at a relatively short distance. How can they best learn what they need to know from private actors?
- Creating an effective institutional architecture for consumer protection inside government.
- The rapidly emerging need for consumer protection regulations for digital financial services.
- As a sub-topic of the above, clarity on data rights for consumers as essential for allowing the growth of service offerings that leverage alternative data.
- Case examples of applications of alternative KYC regulations – even anonymous accounts!
- Alternative ways for regulators to motivate providers to protect clients, such as the use of “look back puts” that allow flexibility or self-regulatory efforts.
- And finally, though I had hoped this would no longer be a burning question: what drives down microfinance interest rates, and what are the effects of interest rate ceilings?
3. For Social Scientists
- Explore the linkages between financial inclusion and other forms of societal inclusion. One person described a “lattice of connections” that needs to be understood.
- Extend the conversation about how to design products that support and build on the social relationships that predominate in the informal sector rather than supplanting them.
- Apply the concept of financial health, now the subject of a national survey in the U.S. conducted by CFSI, in developing countries.
- Compare the success of various strategies to help consumers make responsible financial decisions.
- Understand the use of financial services through a family and lifecycle lens.
While this list as a whole is a bit daunting, taken one by one, each of these questions should attract the attention of thoughtful and rigorous analysts. They all represent core problems at the heart of the financial inclusion challenge.
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