Ezra Mannix

Mayada El-Zoghbi

The Spanish multinational FSP features CFI's Managing Director in its Responsible Banking content section.

News

EL-Zoghbi discusses how COVID-19’s economic shocks are affecting incomes, and elaborates on the population segments most vulnerable to pandemic-induced shocks.

She also describes why financial inclusion alone is not enough, and how financial inclusion – especially when paired with digitization – can help distribute support from humanitarian and governmental organizations to the base of the pyramid.

Furthermore, El-Zoghbi mentions the Microfinance Coalition’s calls to action aimed at awareness-raising among <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">investors</a>, <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-donors/" target="_blank" rel="noopener noreferrer">donors</a> and <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-policymakers/" target="_blank" rel="noopener noreferrer">policymakers</a>.

Lastly, she predicts that insurance products will see higher demand, and notes that the crisis requires collective action that goes beyond market-oriented solutions.

El-Zoghbi is a member of the Advisory Council of BBVA's <a href="https://www.bbvaedufin.com/en/" target="_blank" rel="noopener noreferrer">Center for Financial Education and Capability</a>.

Read the full article <a href="https://www.bbva.com/en/how-to-strengthen-the-finances-of-the-vulnerable-population-against-the-crisis/" target="_blank" rel="noopener noreferrer">here</a>.

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BBVA Interviews Mayada El-Zoghbi on Financial Inclusion in the Pandemic Era

The article highlights how certain groups could be left vulnerable by a widespread COVID-induced switch to digital-only payments. 

The elderly, young people, the homeless and casual workers are just some of the groups that might have a difficult time participating in the economy, the article notes. Some do not have the skills to use digital payments, do not have access to the internet, do not have a credit history or a fixed address:

<em>A dependence on cash can be linked to the digital divide that exists in both rich and poor countries, said Mayada El-Zoghbi, managing director for the Center for Financial Inclusion (CFI), an independent U.S. think tank.</em>

<em>“A move to a cashless society will not benefit all groups equally. The groups that are most likely to be excluded will be women, rural communities, and the elderly,” she said.</em>

Read the full article <a href="https://www.reuters.com/article/us-health-coronavirus-banks-britain-trfn-idUSKBN23X0XE" target="_blank" rel="noopener noreferrer">here</a>.

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Reuters Quotes Mayada El-Zoghbi on Going Cashless During the Pandemic

Announcement

The <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/fiec">Financial Inclusion Equity Council (FIEC)</a> has, for over a decade, brought together leading managers of equity investments in microfinance and financial inclusion in developing countries.  Our members have made equity investments of over $5 billion in institutions focused on under-served or un-served clients with the goal of improving livelihoods and opportunity.

Microfinance institutions (MFIs) and the clients they serve are currently facing severe economic challenges as a result of COVID-19. Many clients face uncertain incomes in the best of times and perhaps now more than ever, will need to rely on the vital role MFIs play in providing reliable access to savings, emergency loans and grants, health information and loans to restart businesses as lockdowns are lifted.

To ensure they can continue meeting their clients’ needs, MFIs will need the full support of the investor community and FIEC members stand ready to continue their support of this critical industry. Debt investors have begun to come together to <a href="https://www.covid-finclusion.org/investors">coordinate their responses</a> to COVID-19, particularly focused on near-term issues of liquidity and repayments. FIEC members support these timely efforts to address the immediate challenges. Meanwhile, FIEC members are <a href="https://www.covid-finclusion.org/post/preparing-for-insolvency-and-recapitalization-everybody-in-the-pool">preparing for the recapitalization</a> of MFIs that may face significant erosion of equity as they preserve their capacity to support their clients.

FIEC members commit to working with the entire investor community to achieve maximum cooperation among stakeholders and conserve resources. We will engage with the community to draw on previous experience to anticipate and resolve hurdles before they can impede a timely resolution. Further, FIEC members are committed to making financial instruments and structures available to help optimize financial outcomes while accommodating the diverse circumstances of creditors, shareholders, and other funders. Most importantly, we pledge to preserve our focus on social impact and commitment to patient capital.

The COVID-19 crisis presents an unprecedented challenge to the financial inclusion sector and the clients it serves. FIEC members resolve to work constructively and collaboratively with all members of the inclusive finance ecosystem to ensure the future viability and vitality of this critically important industry.

Financial Inclusion Equity Council (FIEC) Responds to COVID-19

<p>The Center for Financial Inclusion (CFI) is an independent think tank housed at Accion that works to better serve, protect and empower clients. CFI learns, tests and shares insights; promotes concrete solutions; and advocates for inclusive, responsible finance that helps individuals. We collaborate with stakeholders globally to achieve our goal of enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.</p>
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<p>MIX is the leading global data resource for socially responsible investors and businesses focused on inclusive finance. MIX’s catalytic data initiatives encourage the growth of inclusive markets and support informed thinking on the future of financial services. MIX convenes stakeholders to build common data standards that create transparency and develops strategic insight from complex data to help sectors flourish. Founded in 2002, MIX has served as a trusted data partner for socially responsible investors who move USD 10 billion annually. Learn more at www.themix.org.</p>
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Bringing together deep data expertise and thought leadership in financial services will yield crucial insights in service of broader development goals.

Press Release

WASHINGTON, May 26, 2020 – MIX and the Center for Financial Inclusion at Accion (CFI), two mission-driven organizations advancing financial services for the poor, announced they are joining forces to strengthen their collective capacity to deliver data-driven insights to the industry. Effective June 1, 2020, MIX will become a unit within CFI.

The strategic integration brings MIX’s unique data expertise together with CFI’s thought leadership and convening power to advance and guide efforts to improve the lives of the 3 billion financially underserved people globally. Together, the CFI and MIX teams will conduct data-driven research that supports the decision-making of key stakeholders, including financial service providers, investors, donors, regulators and policymakers.

“MIX’s team is adept at building trusted data networks and spurring the adoption of common data standards that enable meaningful analysis. This combination will strengthen the Center for Financial Inclusion’s existing capabilities to surface insights and scale our learnings for impact,” said Mayada El-Zoghbi, Managing Director of CFI, who will lead the combined team. “Deepening the Center for Financial Inclusion’s capacity in data analytics will enhance our role as an advocate for improved outcomes across a rapidly changing financial services landscape.”

CFI, an independent think tank housed at global nonprofit Accion, works to better serve, protect and empower clients. CFI learns, tests and shares insights; promotes concrete solutions; and advocates for inclusive, responsible finance that helps the bottom of the pyramid. CFI uses its research and convening power to advocate for end clients with the goal of ensuring that inclusive financial services lead to improved outcomes for the poor. MIX is a global data resource for socially responsible investors and businesses focused on inclusive finance. The global nonprofit develops catalytic data initiatives that help unlock capital for financial service providers, including early-stage fintechs and agricultural enterprises, and supports informed thinking on the financial services ecosystem.

“Bringing MIX’s data expertise together with CFI’s applied research and advocacy capabilities allows us to demonstrate the value of mission-driven consolidation,” said Camilla Nestor, CEO of MIX. “As a single team, it will be possible to develop a robust knowledge base on the growing diversity of financial service providers, the direction of the sector, and the opportunities or risks that may emerge.” Following the integration, Nestor will shift from an operational to a governance role, joining the CFI Advisory Council to support the integrated team’s ongoing success.

MIX’s team of directors and analysts will continue to build on current partnerships both during and after this transition, and will continue its long track record of providing value to its partners as a trusted steward of data for the sector. By joining forces, MIX and CFI look forward to developing independent and data-driven analysis, insight, and knowledge for inclusive finance. Funding for the combination and integrated strategy has been provided by Visa Foundation and MetLife Foundation.

MIX would like to express appreciation to Goodwin for providing pro bono legal services.

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Please direct media inquiries to:
Lauren Braniff, CFI - lbraniff@accion.org
Nikhil Gehani, MIX - ngehani@themix.org


MIX and CFI Announce Strategic Integration to Drive Industry Knowledge for Inclusive Finance

Listen

CFI's Managing Director was interviewed for more than 30 minutes on her background, CFI's evolving role in financial inclusion, COVID-19's impact on CFI's agenda and more. 

On each episode of Peter Renton's long-running show, the Lending and Fintech Podcast, a different leader in fintech and finance is interviewed in depth. On episode 245, Mayada touches on the following topics:
<ul>
 	<li>Her background in inclusive finance</li>
 	<li>The work that she did on the Global Findex database</li>
 	<li>Why she decided to take the job to be the head of CFI</li>
 	<li>The mission of CFI today</li>
 	<li>Why improving financial inclusion is about far more than technology</li>
 	<li>The geographies they focus on and the types of demographics</li>
 	<li>The relationship between CFI and Accion</li>
 	<li>How COVID-19 has impacted the agenda for CFI</li>
 	<li>The silver lining that could come out of this crisis</li>
 	<li>How it will affect the gender gap</li>
 	<li>What more fintech companies should be doing today in this area</li>
 	<li>The priorities that CFI is focused on beyond the current crisis</li>
</ul>
Listen below, or visit this episode's podcast <a href="https://www.lendacademy.com/podcast-245-mayada-el-zoghbi-of-cfi/">page</a>. Lend Academy's podcasts are available on iTunes and Stitcher.

Lend Academy Podcast features Mayada El-Zoghbi

Mayada El-Zoghbi outlines changes to CFI's agenda to focus on COVID-19's impact on clients and financial inclusion stakeholder responses. 

In this letter, CFI's Managing Director outlines changes to CFI's agenda to focus on COVID-19's impact on clients and financial inclusion stakeholder responses. 

While many of us have been trying to carry on with our work as normal, there is nothing ‘normal’ about the current situation. Like other organizations, CFI is rethinking its priorities in both the short and long term.

COVID-19 has upended life around the world, but it is likely going to have much longer and deeper ripple effects on the lives of the BOP and on the institutions that serve them. In light of this, CFI has made important changes to its work program, thanks to the generosity and flexibility of our donors who have been co-collaborators and thought partners in our collective response to the pandemic.
<h2>Customer Research and Customer Capability</h2>
Over the past several years, CFI has prioritized research on financial health and had plans to extend this work to micro and small enterprises in 10 developing countries. We were one week away from launching data collection in Nigeria, followed by nine other countries, with support from the Mastercard Center for Inclusive Growth. But the rapid roll out of shelter in place policies and lockdowns throughout the world has meant a need to rethink our research agenda. For the past several weeks, we have been mobilizing to <a href="https://www.centerforfinancialinclusion.org/understanding-covid19s-impact-on-financial-health-of-msmes">reshape our research approach</a> and our methodology to embark on phone-based panel surveys in at least five countries to answer the following questions for micro-and small enterprises:
<ul>
 	<li><strong>New Reality</strong>: How were things before COVID? How are things now?</li>
 	<li><strong>Exits</strong>: Which firms are exiting the market? What are the basic characteristics of those firms?</li>
 	<li><strong>Survivors</strong>: How are they keeping the doors open? How long can they survive?</li>
 	<li><strong>Financial Tools</strong>: Are owners on the “rails”? Can they be reached through formal channels now?</li>
 	<li><strong>Household Impact</strong>: Are owners making ends meet? Are they food secure?</li>
</ul>
We will make both the data and our analysis of the data publicly available and we hope this can be used by policymakers, financial service providers, investors and donors to guide their respective responses.

In addition to focusing on micro and small enterprise data, we are also looking to deploy research and a new customer capability tool with a broader base of customers, including gig workers and those who are formally employed. With the support of MetLife Foundation, CFI is developing an app, called FinVenture, that is built on global evidence on behavioral research and uses nudges, rewards and games to improve customer decision making and capability. We are in discussions with multiple stakeholders from microfinance networks to social media and e-commerce platforms to test the use of the app to support financial health during the COVID-19 related responses.
<h2>Consumer Protection Under COVID-19</h2>
Over the past several months, CFI has been rethinking its consumer protection work and assessing the future of the Smart Campaign in light of evolving risks in the digital age. The emergence of new players, like MNOs, fintechs and digital platforms, raise new questions about consumer protection as well as the means by which we influence behavior change. In light of that, CFI is considering whether a campaign-style approach, fueled by the incentive of certification, is still effective and relevant in today’s context. While CFI will continue to assess our overall consumer protection approach, including the future of the Smart Campaign, COVID-19 is requiring that we immediately prioritize the emerging risks linked to the COVID-19 response.
<blockquote>COVID-19 is requiring that we prioritize emerging consumer protection risks linked to the COVID-19 response.</blockquote>
We are seeing an increase in fraud and an escalated and expedited use of digital payment channels to get cash out to the BOP as part of the COVID-19 responses. For these and many other reasons, we are shifting our consumer protection agenda to better understand and document emerging consumer protection risks. We also aim to support donors, governments and humanitarian organizations to build in sound consumer protections in their cash transfer and other financial services used for the COVID-19 response.
<h2>Supporting Investors and Policymakers</h2>
Critical to the COVID-19 response is the role of investors and policymakers who have within their means the tools that will make or break the impact of the pandemic on the institutions that serve the BOP.  How should investors respond during this pandemic? We know <a href="https://www.covid-finclusion.org/post/how-long-can-microfinance-institutions-last-the-liquidity-crunch-an-analysis-of-the-data">liquidity</a> is a major concern now and should be the main priority. But what happens next? What should DFIs prioritize? How should equity investors respond?

CFI, along with many of our industry partners, have been in discussions about developing coordinated tools and responses for the investor community. CFI, SPTF and e-MFP launched a discussion platform, <a href="https://www.covid-finclusion.org/forum">covid-finclusion.org</a>, to reflect on what we know from past crises and to develop updated guidance for investors and providers relevant for today’s situation. CFI, MIX and CGAP are in discussions about reducing the data collection burden on MFIs, and putting in place more streamlined tools that can help investors get the right information they need from their investees without unduly adding to the operational strains of the pandemic.

As home to the Financial Inclusion Equity Council (FIEC), CFI is also facilitating and engaging with the equity investors and coordinating with other investor constituencies to ensure that there is a structured and coherent investor response. Among other things, FIEC members are embarking on shared principles linked to COVID-19. Additionally, we plan on launching dedicated research that will help equity investors address longer-term restructuring, merger and insolvency issues that may arise from the fall-out of the pandemic.

On the policy front, we are seeing COVID-19 responses spanning fiscal stimulus (cash transfers, funds to MSMEs, health care spending, etc.) as well as important monetary policies, such as liquidity measures, to support the banking sector and deferment in the application of Basel III rules. Which of these measures are most critical for the BOP and the institutions that serve them, and how should regulators and policymakers think about prioritizing short-term benefits without undermining longer-term impact on the BOP? CFI will be launching a policy initiative that aims to support the evidence and impact analysis of different policy responses.
<h2>Delaying Formal Launch of CFI’s New Strategy Launch</h2>
In light of the immediate COVID-19 measures, CFI will be delaying the formal launch of its new strategy, which I referred to in this <a href="https://www.centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space">blog post</a> that was featured in our last <a href="https://us5.campaign-archive.com/?u=394352ae963270aef6c51680d&amp;id=9e6112223c">newsletter</a>. In addition to our consumer protection work, we had identified several pro-poor research streams including women’s financial inclusion, financial services to support resilience and livelihood adaptation to climate change, and data opportunities and risks. We will continue to push all of these agendas but will begin with the COVID-19 related aspects of this work. For example, we are starting our work on data opportunities and risks focusing on how the COVID-19 pandemic is resulting in a wave of responses that may have long-term ramifications for data privacy and data rights.
<blockquote>We will continue to push our gender, climate change and data agendas, but will begin with the COVID-19 related aspects of this work.</blockquote>
As the pandemic stabilizes and we return to a modicum of normalcy, we hope to organize a formal strategy launch at a later date to share more details about our plans with the wider community.

Inclusive finance is undeniably more important today than ever. It is heartening to see the amount of collaboration that is taking place across the industry to ensure that the BOP does not bear the brunt of this pandemic. CFI is proud to be working with all of our partners and stands ready to do our part.

Best,

Mayada El-Zoghbi
Managing Director

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Letter from the Managing Director: CFI Responds to COVID-19

CFI launches multi-country data collection effort to assess the financial health of MSMEs and inform responses to COVID-19.

As part of our <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">partnership</a> with the Mastercard Center for Inclusive Growth, the Center for Financial Inclusion at Accion (CFI) is embarking on an ambitious research program to collect data on micro, small, and medium enterprise (MSME) performance and resilience during the COVID-19 pandemic. CFI’s research will provide financial inclusion stakeholders the insights they need to develop policy, products, and services to support MSMEs across the globe.

Countrywide lockdowns in response to COVID-19 are slowing economies globally, and the impact is likely to be devastating for MSMEs in emerging markets. However, without data, it will be impossible to understand the extent to which COVID-19 has impacted the livelihoods of MSME operators in emerging markets and how they are coping in response. In turn, this will make it more difficult for governments, the donor community, and private institutions to craft effective responses to the crisis. CFI’s research aims to fill the data gap to ensure these stakeholders have visibility on MSMEs in order to address their needs.

The centerpiece of this program will be a longitudinal phone survey of clients at Accion partner institutions in Latin America, sub-Saharan Africa, and Asia, conducted every other month over the course of twelve months.

Broadly, the survey aims to answer the following research questions:
<ul>
 	<li>How has business performance and practice changed since COVID-19 began?</li>
 	<li>Which MSMEs are shuttering operations and why?</li>
 	<li>What strategies are operational businesses using to cope with COVID-19?</li>
 	<li>What financial services are MSMEs using? Can financial assistance be quickly delivered through these channels?</li>
 	<li>How are changes in MSME owners’ livelihoods impacting household well-being?</li>
</ul>
CFI’s survey will collect details of business operations, business practices, and household well-being. The longitudinal methodology will allow CFI to see how these indicators change over time with the aim of providing critical data on the pace of MSME deterioration and recovery in each market.

CFI expects to provide insights into the types of behaviors and products that correlate with better resilience during this shock. Those insights can be used to develop, test, and scale interventions that promote success factors—business practices or use of financial services—amongst struggling MSMEs.

Data collection is set to begin in early May in Lagos, Nigeria with preliminary results published in June.

This new effort is a component of our partnership with the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the financial health and resilience of individuals and businesses, with a refocused effort to support our understanding of and responses to COVID-19 on MSMEs and vulnerable populations.

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Understanding COVID-19’s Impact on Financial Health of MSMEs

A leading Colombian news outlet featured a photo of the CFI Managing Director speaking at FOROMIC, an annual conference on microfinance and entrepreneurship in the Latin American and Caribbean region. The Global Microscope 2019 was formally unveiled at the conference. 

The <a href="https://www.elespectador.com/economia/colombia-lidera-entorno-para-la-inclusion-financiera-regional-articulo-888988">article</a> (in Spanish) notes that Colombia -- along with Peru, Uruguay and Mexico -- lead the <a href="https://centerforfinancialinclusion.org/global-microscope-2019/">Global Microscope 2019</a> rankings this year. Supported by CFI and the Bill &amp; Melinda Gates Foundation, an updated Microscope is published every year by the <a href="https://www.eiu.com/n/">Economist Intelligence Unit</a>. It assesses the enabling regulatory environment for financial inclusion in 55 countries worldwide.

<a href="https://events.iadb.org/calendar/event/20252?lang=en">FOROMIC</a> is hosted annually by the Inter-American Development Bank (IDB).

In El Espectador: CFI, Mayada El-Zoghbi Mentioned in Microscope Coverage

Eric Noggle

Eric Noggle, Senior Research Director, talks to Good ID about the intersection between good digital ID and broader socio-political change. 

Following the <a href="/id2020-summit-2019">ID2020 Summit</a> in September, Eric Noggle, Senior Research Director, talks to Good ID about the intersection between good digital ID and broader socio-political change. Read more in <a href="https://www.good-id.org/en/articles/everything-connected-making-good-id-matter/">Everything Is Connected: Making Good ID Matter</a>.

Eric Noggle, Senior Research Director, on Making the "Good ID" Movement Matter

Watch

Mayada El-Zoghbi poses the question to Her Majesty from the Netherlands during a UN General Assembly event on financial inclusion in September 2019. 

Mayada El-Zoghbi poses a question to Her Majesty from the Netherlands during a UN General Assembly event on financial inclusion in September 2019. 

The event, “<a href="https://www.unsgsa.org/resources/news/unsgsa-queen-maxima-world-leaders-participate-unga/">Financial Inclusion for Development: Building on 10 Years of Progress</a>,” included the participation of António Guterres, UN Secretary-General; David Malpass, President of the World Bank; Melinda Gates, Co-Chair of the Bill &amp; Melinda Gates Foundation; Dan Schulman, President and CEO of PayPal; and Ajay Banga, President and CEO of Mastercard.

Watch Mayada ask Queen Maxima about measuring financial inclusion's progress within the framework of the SDGs, and how financial inclusion contributes to achieving the SDGs by 2030. Queen Maxima is the <a href="https://www.unsgsa.org/">United Nations Secretary General's Special Advocate for Inclusive Finance for Development</a>.

More video coverage of the event can be found <a href="http://webtv.un.org/search/financial-inclusion-for-development-building-on-10-years-of-progress/6089500721001/?term=finance%20for%20development&amp;lan=english&amp;sort=date">here</a>.

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CFI Managing Director Asks Queen Maxima About Financial Inclusion's Role in the Sustainable Development Goals

Latest from CFI

Richard  Greenberg

This is the first of an occasional series of interviews with professionals from development finance institutions supporting inclusive finance during these difficult times. 

Blog Post

Richard Greenberg is a Managing Director of the Social Enterprise Finance group at U.S. International Development Finance Corporation (DFC, formerly OPIC). The group leads DFC efforts to place capital in highly impactful and innovative enterprises and funds.

Like other development finance institutions, DFC – which has prioritized inclusive finance for decades to address critical challenges facing the developing world – has been hard at work supporting immediate and longer-term needs of MFIs and other actors so they can continue supporting base-of-pyramid clients during the COVID-19 crisis. In this interview with CFI, Greenberg discusses collaboration with other DFIs, DFC’s social impact initiatives that support its development goals, digitization during the pandemic, and more.
<h3>In April’s COVID-related joint <a href="https://www.dfc.gov/media/press-releases/development-finance-institutions-join-forces-respond-covid-19-developing" target="_blank" rel="noopener noreferrer">statement</a>, the <a href="https://www.dfc.gov/media/opic-press-releases/opic-signs-mou-establishing-dfi-alliance-key-allies" target="_blank" rel="noopener noreferrer">DFI Alliance</a> highlighted that its DFI members would work to address not only current liquidity issues in the financial sector, but also other measures related to essential business activities. How have you collaborated on your inclusive finance objectives since that announcement? Has there been any other inter-DFI coordination? What more could be done in this regard?</h3>
There have been extensive conversations to collaborate and coordinate with other DFIs to ensure we’re deploying our capital as efficiently as possible given the significant impacts of the crisis. The crisis has generated tremendous demand for capital from DFC and other DFIs. Since we are long-term lenders focused on our missions, in times like these, DFIs become even more important in addressing market gaps.
<blockquote>In times like these, DFIs become even more important in addressing market gaps.</blockquote>
Many of the projects that we’re looking at involve multiple DFIs. Sometimes that’s a challenge because our level of participation, our products, our policies and our risk-return requirements may all be slightly different, but these diverse strengths and capabilities are also what make our collaboration so powerful. Our goal is to make sure we can accommodate—and leverage—the differences there may be to arrive at the financing package that best supports the developmental impact we’re seeking.

We have also recently announced that DFIs have collectively <a href="https://www.dfc.gov/media/press-releases/2x-challenge-drives-groundbreaking-45-billion-women-developing-countries" target="_blank" rel="noopener noreferrer">catalyzed $4.5 billion in investment financing</a> to support women through the <a href="https://www.2xchallenge.org/" target="_blank" rel="noopener noreferrer">2X Challenge</a>, surpassing the initial goal of $3 billion. Building on DFC’s <a href="https://www.dfc.gov/our-work/2x-womens-initiative" target="_blank" rel="noopener noreferrer">2X Women’s Initiative</a>, launched in 2018, we encouraged our counterparts from G7 countries to accept the 2X Challenge by prioritizing investments in women. And it’s not just G7 countries: 15 total countries have joined to date.

Another aspect of our collaboration is discussions with DFIs and other investment partners to share market and institutional response information. One of those groups that we have joined is being led by CGAP.
<h3><strong>In addition to the recently <a href="https://yourstory.com/2020/06/funding-alert-northern-arc-us-international-development-finance-corporation" target="_blank" rel="noopener noreferrer">announced</a> $50 million of debt financing for Northern Arc, has DFC provided direct assistance to institutions support base-of-pyramid clients during these difficult times? Could you tell us a bit more about how the Northern Arc support came to pass?</strong></h3>
We’ve had a long-standing relationship with the senior management of Northern Arc (formerly IFMR Trust). They are a pioneer and a leader in wholesale finance in India. They have tremendous expertise and knowledge of the market. The proceeds of our loan to Northern Arc will be used to expand its loan portfolio in areas of importance to DFC, such as women’s economic empowerment, food security, and the WASH sector.
<blockquote>Our goal is be as responsive as we can to what the market needs at this unique time.</blockquote>
Our goal is be as responsive as we can to what the market needs at this unique time, working with established and new clients. For clients that we have previously worked with, we’ve been able to move projects forward especially quickly throughout the crisis. For example, in India, we have closed and disbursed funds to two clients, including <a href="https://www.dfc.gov/investment-story/improving-access-quality-education-india" target="_blank" rel="noopener noreferrer">Varthana</a>, an education finance company that serves low-income families, and <a href="https://yourstory.com/2020/05/funding-alert-caspian-debt-investment-from-dfc" target="_blank" rel="noopener noreferrer">Caspian</a>, an income fund manager that lends to SMEs. The debt <a href="https://economictimes.indiatimes.com/wealth/save/sbi-loan-emi-moratorium-extended-here-are-all-the-details/articleshow/76087915.cms" target="_blank" rel="noopener noreferrer">moratorium</a> in India certainly created additional risk and complexity, but the quality of these entities and the strong relationships we had with them enabled us to keep moving forward.

These are just two examples among <a href="https://www.dfc.gov/media/press-releases/dfc-approves-1-billion-investments-global-development" target="_blank" rel="noopener noreferrer">many others</a> we are supporting in developing countries reeling from COVID-19, such as Banco Industrial in <a href="https://gt.usembassy.gov/dfc-approves-a-200-million-investment-for-guatemala/" target="_blank" rel="noopener noreferrer">Guatemala</a>, whose portfolio includes 30 percent women-owned or women-led businesses, Root Capital for farmers in Latin America and Africa, <a href="https://www.dfc.gov/investment-story/supporting-worlds-smallest-farmers" target="_blank" rel="noopener noreferrer">One Acre Fund</a> supporting farmers in Kenya, and a fund managed by <a href="https://www.dfc.gov/media/press-releases/dfc-approves-nearly-900-million-global-development-projects" target="_blank" rel="noopener noreferrer">WaterEquity</a>, which lends to MFIs to improve access to reliable and clean sources of water.
<h3><strong>What about coordinating with fund managers? What role have they played?</strong></h3>
We have relationships with many of the leading global microfinance fund managers. Some of them have expanded their investment strategy to include SMEs and other financial intermediaries. Shortly after the crisis began, we were contacted by many fund managers with ideas about how to address needs by expanding existing funds, creating new funds, or reorienting funds that were already raising capital but not yet launched.
<blockquote>There are a lot of questions related to the type of capital to be deployed, the timing, and demand versus supply in various markets.</blockquote>
We are working with several of them right now, making good progress on underwriting and collaboration with other DFIs and fund managers to put together the right kind of capital for these funds so they can quickly start to deploy it. Of course, in the context of the crisis, there are a lot of questions related to the type of capital to be deployed, the timing, and demand versus supply in various markets. The base case assumption for most is that there’s going to be significant liquidity needs in the near term, though that will likely vary significantly across markets.
<h3><strong>Geographically, DFC’s microfinance/inclusive finance activities have reached a <a href="https://www.dfc.gov/sites/default/files/2019-08/fy2019_cbj.pdf" target="_blank" rel="noopener noreferrer">diverse range</a> of countries and regions. Are there any countries or regions DFC has prioritized with regards to its support of inclusive finance during COVID? Are there issues unique to specific places, or are challenges mostly universal?</strong></h3>
In terms of regions, DFC is open for business across emerging markets. We focus on low-income and lower middle-income countries. Priority regions include Africa, Latin America and the Caribbean, and the Indo-Pacific.

There are different needs and challenges around the world. The strength and resilience of financial sector institutions and regulation varies considerably, as does extent of digitization which is so important at this time. Countries are getting hit very differently and we need to account for that.
<h3>Has the crisis altered DFC’s approach to funding social impact enterprises beyond microfinance?</h3>
DFC’s <a href="https://www.dfc.gov/what-we-offer-our-products/portfolio-impact" target="_blank" rel="noopener noreferrer">Portfolio for Impact and Innovation (PI2)</a> has launched, which builds on the success of OPIC’s Portfolio for Impact (PI) initiative, introduced in 2014. PI2 is how we serve smaller, early-stage social enterprises that have a highly developmental impact but that lack scale-up capital due to their relative size, novel approach, or limited track record. Initially, financing for each project under PI2 was $1 to $5 million; now, we’re able to go up to $10 million per deal.

In the wake of COVID-19, PI2 takes on even greater importance: we know that it is often small, early-stage ventures that introduce the most innovative solutions to daunting challenges. These creative business models will be exactly what we need to navigate the many new challenges that COVID-19 has brought to emerging markets.
<h3><strong>Has the crisis shifted the perceptions of inclusive finance within DFC?</strong></h3>
Inclusive finance has been a focus of DFC for a long time. We have become one of the most significant capital providers among DFIs to microfinance over the last 10 years. This crisis is demonstrating how inclusive finance is even more essential.

Though our underwriting process is rigorous, we have leveraged information sharing with co-investors to further accelerate the deployment of capital. Additionally, in the management of our existing portfolio, we have been proactive and expeditious in trying to respond to clients who may be struggling as a result of this crisis and may need some relief.
<h3><strong>Has DFC engaged with fintechs and non-microfinance FSPs during this crisis? Are you seeing a rush to digitization among your partners? How, if at all, are your investees working to accelerate digitization for consumer segments who were conducting business primarily offline – and how might this be done <a href="https://www.centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection" target="_blank" rel="noopener noreferrer">safely</a>?</strong></h3>
There’s no question that, with the lockdowns, having a digital platform is critical. Some MFIs have already digitized, others less so, and the latter are of course a lot more vulnerable in these conditions.

It’s really important that those MFIs and intermediaries that need to further digitize have the opportunity and support to do that. For example, a fund manager launching a fund for which we expect to provide financing has a specific technical assistance facility that focuses on digitization. They assess an MFI’s digitization needs and can provide finance to facilitate action items. It’s important that we not only provide financing, but provide this kind of targeted support to strengthen financial institutions to which we are lending.
<h3>What about time frames? <a href="https://centerforfinancialinclusion.org/how-should-investors-coordinate-when-time-is-of-the-essence/" target="_blank" rel="noopener noreferrer">CFI</a>, the <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a>, and others have identified investor medium-term needs as well as short term ones. What do you see as the medium-term needs beyond liquidity? When does the medium term “start”?</h3>
My personal interpretation is the “short term” is the next quarter or two. We’re trying to move very quickly. We don’t want to miss the opportunity to support pressing needs.

We are thinking about liquidity now and solvency issues that might arise down the road. At this time it is difficult to forecast market conditions in the coming quarters. One of our existing partners that lends to MFIs has a view that demand for their funds will slow down temporarily while others are expecting increased demand. Projecting the demand for capital in this kind of volatile market is less certain than it typically would be, so that’s creating some challenges in thinking about the risks versus returns.
<blockquote>We are thinking about liquidity now and solvency issues that might arise down the road.</blockquote>
Unfortunately, it seems likely that some people in the markets we serve who are currently middle income may lose jobs and income that will push them into a lower income level or even poverty – at least temporarily – so that could create more demand for the services from some of the institutions that we fund.

We want to support funds and intermediaries that will manage their capital prudently and avoid taking unnecessary risks. In some cases, this may mean focusing their lending initially to MFIs that are the strongest right now, and then adding institutions to their portfolios that are smaller and more vulnerable – but serve important underserved groups – over time.

&nbsp;

&nbsp;

DFIs, COVID-19 and Financial Inclusion: A Conversation with Richard Greenberg of DFC

Lauren Braniff

<h2>Moving Beyond Payments</h2>
<p>One of the most important ways providers can encourage more funds to stay in the system is to provide access to a range of financial services. While recent years have seen the growth of digital credit products offered directly by mobile money providers, the 2019 State of the Industry report notes that providers are increasingly partnering with financial institutions which can offer a wider range of services. For those services integrated with financial institutions, they are connected to an average of 13 banks.</p>
<p>This marks an important evolution of the market for several reasons. For individuals, it means those with a bank account can use mobile money services to seamlessly conduct transactions. For those without a bank account, it may open the door to an account and eventually to a range of products, from savings to credit and insurance. Partnerships with regulated financial institutions provide additional safeguards for customers, and result in better underwriting and risk mitigation for both customers and banks. A <a href="https://www.microsave.net/wp-content/uploads/2019/09/Digital-Credit-Kenya-Final-report.pdf" target="_blank" rel="noopener">MicroSave report</a> found that “non-performing loans in Kenya decreased by 20 percentage points for mobile money providers that had partnerships with banks.” Yet the research also showed that non-performing loans were still about three times higher for digital loans (16 percent) than traditional products (5 percent). Partnering with banks should help manage the potential for over-indebtedness, <a href="https://centerforfinancialinclusion.org/digital-credit-in-africa-are-nano-loans-safe-for-consumers/" target="_blank" rel="noopener">a well-noted risk of the nano-credit products</a> offered by many mobile money providers.</p>
<blockquote><p>Mobile money providers partnering with financial institutions has been a boon for both providers and customers.</p></blockquote>
<p>For mobile money providers, partnerships with banks and other companies appear to have been key to 60 percent of providers reporting a positive EBITDA in 2019. This growth in profitability comes at the same time that providers report a reduction in reliance on customer fees, from 80 percent in 2018 to 67 percent in 2019. In addition, 21 percent report that business fees are now driving a majority of their revenue. Providers are shifting to the <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/02/Embracing-payments-as-a-platform-for-the-future-of-mobile-money.pdf" target="_blank" rel="noopener">“payments as a platform” model</a>, whereby their networks are leveraged by a wide range of service providers and businesses. This diversification – as well as innovative products and services – will continue to be key to the viability of mobile money business models and has the potential to deliver enormous value to customers.</p>
<h2>We’re Not There Yet</h2>
<p>While I feel encouraged about the positive evolution of the sector, there are several areas that need continued attention. First, male users still dominate. To truly realize the opportunities posed by mobile money for low-income populations, we must do more to design and deliver services that resonate with and empower women. <a href="https://centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space/" target="_blank" rel="noopener">Closing the gender gap in financial services</a> is a key component of CFI’s new strategy, so expect to hear more from us on this topic in the coming months.</p>
<p>Second, there is immense untapped potential in delivering a range of financial products over mobile money platforms, particularly in markets where P2P continues to dominate. <a href="https://www.inclusivefintech50.com/winners" target="_blank" rel="noopener">Fintech players offering a range of products and services</a> &#8212; from innovative health and agricultural insurance products to sanitation loans &#8212; are showing up in headlines around the world. Many of these startups are likely to suffer due to COVID-19, making the support of donors and investors even more critical. Be sure to follow the results of the 2020<a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener"> Inclusive Fintech 50</a> awards for a preview of the next wave of innovators, and insights into how previous winners are faring in light of COVID-19.</p>
<blockquote><p>Gender equality, support for innovation and data issues are areas that need continued attention in mobile money.</p></blockquote>
<p>Third, <a href="https://www.centerforfinancialinclusion.org/series/data-protection-financial-inclusion-why-it-matters" target="_blank" rel="noopener">data localization, transparency, and privacy</a> are topics of growing importance that will affect how much control customers have over their financial well-being. CFI will also be diving more deeply into these issues going forward to help ensure that as we take steps toward data regulation, customer needs and protections remain at the forefront.</p>
<p>While COVID-19 is having devastating impacts on economies and livelihoods around the world, the strong growth of mobile money in recent years may provide the foundation for a new round of innovation and advancement in access to and usage of digital financial services. Financial service providers, regulators, policymakers, and funders must collectively work to address pervasive challenges in financial inclusion to help realize its potential to transform lives, now more than ever.</p>


We recap key takeaways from the report as well as steps that must be taken to leverage the growth of mobile money to help mitigate the impact of the pandemic on both individuals and businesses.

One billion mobile money accounts.

This is the headline figure that emerged from this year’s <a href="https://www.gsma.com/sotir/wp-content/uploads/2020/03/GSMA-State-of-the-Industry-Report-on-Mobile-Money-2019-Full-Report.pdf" target="_blank" rel="noopener noreferrer">State of the Industry Report on Mobile Money</a> by GSMA. The growth in mobile money accounts is indeed remarkable. But beyond this number, the report tells the story of an evolving industry, marked by significant advances in volume of activity, types of transactions, people using the services, and emerging business models.

Based on the current trajectory, mobile money accounts are on pace to generate $1 trillion in annual transactions by 2023. Will COVID-19 derail this progress? Or will the pandemic demonstrate the power of mobile money, and further fortify the critical role mobile money plays in low- and middle-income countries (LMICs)?
<h2>The Digital Ecosystem Comes to Life</h2>
Ever since mobile money emerged in the mid-2000s, businesses, researchers, and those working to advance inclusive finance have talked about how to get more money to stay in the system (see examples <a href="https://www.cgap.org/blog/m-pesa-replacing-cash-kenya">here</a> and <a href="https://www.cgap.org/blog/mobile-money-10-things-you-need-know">here</a>). If funds stay in the mobile money ecosystem, the complexity and inherit cost of cashing in and out in remote areas is diminished and users can benefit from other products and services beyond money transfer. In the early days, most people put money in for the sole purpose of someone else taking it out. That story seems to finally be changing (at least in some markets) as we now see a higher value circulating than exiting the global mobile money ecosystem ($22 billion vs $18 billion). Further, we also now see more digital transactions than cash-based transactions, indicating that people are leaving money in their digital wallets and using those funds to make digital transactions.

The report points to a few reasons for this shift. First, digital payments are quickly becoming a routine part of people’s lives. Taxis, schools, shopkeepers, and even governments increasingly <a href="https://www.betterthancash.org/tools-research/reports/opportunities-of-digitizing-payments">accept mobile money payments</a>, so the need to take cash out of the system to conduct daily transactions is lessening. Second, the industry is finding ways to make it easier for people to make those routine transactions, such as QR codes and overdraft coverage. For example, the report cites that merchants using QR codes transact three times more in value than those without. And third, mobile money providers are offering value-added tools to help micro and small enterprises not only better manage digital payments but also other business functions, such as inventory management and accounting.
<blockquote>The evolution toward a digital ecosystem is uneven worldwide.</blockquote>
That said, this evolution toward a digital ecosystem is not necessarily seen evenly throughout the world. Latin America and the Caribbean saw a decline in active accounts and transaction volume in 2019. And while South Asia has a high overall number of registered accounts, the percent of active accounts in the region is the lowest in the world. In India and Bangladesh, a survey of adults with a SIM card but no mobile money account found that their primary reasons for not using mobile money include a preference for cash and a high number of alternate ways to transfer money.

Sub-Saharan Africa, by contrast, has the highest percentage of active accounts at 50 percent (see graph below). In Mozambique, the same survey found that literacy and skills were the biggest obstacle to mobile money usage rather than a preference for cash. It’s clear that the evolution of mobile money is context specific and the trajectory will not look the same everywhere. But in many parts of the world, more is needed to develop the ecosystem in a way that provides value to the user, either by providing a service that beats the alternative options (e.g. faster, more convenient, less expensive) or offers new services not available via other channels (e.g. digital credit, value-added services for MSMEs, insurance, etc.).


One Billion Accounts in the Pandemic Era: Insights from GSMA’s Mobile Money Report

Aryasilpa Adhikari

Radhika  Agashe

Micro-merchants face challenges adopting digital payment modes, but the trend toward digital payments will continue and perhaps accelerate due to the pandemic. It’s imperative that enablers, service providers and the government resolve critical cash-to-digital barriers. 

Ram Krishna is the owner of a local grocery shop in the outskirts of Hyderabad.

“Yes, I have digital options,” he told <a href="http://www.accessassist.org/" target="_blank" rel="noopener noreferrer">ACCESS ASSIST</a> in February. “But my customers pay in cash mostly. It’s convenient. I have no fear of fraud. I prefer it that way. I have to pay to my suppliers and workers in cash.”

Little did Ram Krishna know that his preference for cash, arising out of convenience and ease of doing business, was about to change. When the World Health Organization released a <a href="https://www.forbes.com/sites/rogerhuang/2020/03/09/who-encourages-use-of-digital-payments-due-to-covid-19/#2549508e41eb" target="_blank" rel="noopener noreferrer">statement</a> on March 9 recommending people turn to cashless transactions in March, and the Reserve Bank of India <a href="https://economictimes.indiatimes.com/wealth/personal-finance-news/rbi-urges-customers-to-use-digital-banking-facilities-amid-coronavirus-outbreak/articleshow/74653847.cms" target="_blank" rel="noopener noreferrer">followed suit</a>, it was evident that contactless and digital payments would get a significant push. Since cash handling carries the risk of contamination of COVID-19 and requires social interaction, many customers have started demanding and using digital options.
<h2>Survey: Micro-Merchants are Weary and Skeptical</h2>
However, despite strong political will and government support to push the digital agenda across India – not to mention the immense <a href="https://www.cgap.org/research/publication/digitizing-merchant-payments-why-and-how" target="_blank" rel="noopener noreferrer">potential of a cashless economy</a> – micro-merchants have been weary and skeptical.

This is the conclusion of our dipstick survey of 50 micro-merchants in February across various sectors, from<em> kirana</em> shops (small convenience stores), small eateries, salons, vegetable and fruit sellers, to medical shops and mobile shop owners. We sought to understand and identify barriers to adoption of cashless modes of doing business. The study used in-depth interviews and focused discussions with micro-merchants from the cities/towns of Delhi, Krishnagiri (Tamil Nadu), and Guntur and Hyderabad in Telangana.
<blockquote>We sought to understand and identify barriers to adoption of cashless modes of doing business.</blockquote>
The interviewees had revenues ranging from $13,500 to $170,000, average margins of 15 to 20 percent and average transaction sizes ranging between $2.25 to $3. Seventy percent of the respondents were less than 50 years old. Ninety percent of respondents owned smartphones and 98 percent of them had either secondary or tertiary education. Almost all of them had at least one bank account and 84 percent made personal payments digitally. Seventy-five percent of the retailers who had not adopted digital payments had all the basic prerequisites for adoption (bank account, a smartphone, internet access and basic literacy).
<h2>Barriers: Infrastructure, Supporting Services and Demand</h2>
The barriers to adoption of digital payments were explored by analyzing the responses of the retailers who had either not adopted the digital payment instruments or had adopted, but with limited sustained usage rates. The survey also inquired about possible challenges they anticipated in adopting and using the digital payment instruments. The anticipation itself acted as a deterrent for micro-merchants to adopt digital payment instruments.

On the supply side, infrastructure-related issues like uninterrupted power supply and slow speed of internet remained a challenge. Inconsistent and unreliable technological infrastructure and poor capacity building support in rural and peri-urban markets to support electronic payments were found to be important reasons of non-adoption.

<img class="aligncenter wp-image-39081 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/06/barriers-to-adoption-of-digital-channels-by-micro-merchants.png" alt="barriers to digital adoption graphic" width="820" height="385" />

On the demand side, having access to POS machines and the convenience of cash were the top reasons for micro-merchant’s disinterest in adopting digital modes, with 23 percent of respondents echoing this as primary concern. One example is from the Krishnagiri semi-urban area, where a retailer applied for POS with his local private bank. In spite of regular follow up for more than 4 months, the bank was unable to provide a POS machine.

Twenty-three percent of the respondents mentioned weak aggregate customer demand. Their customers usually set aside monthly household expenses and prefer transacting with cash as it helps keep expenditures on budget. Even during the pandemic, the preferred mode of payment for this segment remains cash.
<blockquote>Customers set aside household expenses and prefer transacting with cash as it helps keep them on budget.</blockquote>
Sadly, 12 percent of respondents tried going digital, but subsequently discontinued due to insufficient demand, low perceived benefits and added complexity of operation. Complexity of handling POS machines, inability to handle unusual transactions -- especially when they fail due to technical errors or poor internet -- were key concern areas for many retailers.
<h2>No One to Show Them How</h2>
Moreover, shop owners do not have access to help from peers or family members to guide and facilitate the use of technologies for digital payments. In local neighborhoods, availability of the service providers for troubleshooting issues was also limited to mobile phone repair and internet connectivity fixes in most cases.

Among the respondents, 12 percent of the micro-merchants were unaware of the possibility of accepting digital payments, signaling a strong need for targeted communication strategies. Fifty percent of retailers who were not using digital payments mentioned they were not aware of the process of accessing digital modes. Neighborhood grocery retailers, which usually serve local households, refrain from using digital transactions, citing small size and scale of their businesses.

Moreover, they felt that installing digital payment instruments would be an unnecessary cost. Bigger department stores usually can streamline the operations and financial management to offset costs from fees, but 12 percent of respondents mentioned they operate on thin margins, and any cost escalation eats away at those margins.
<h2>Fear of Fraud and Lack of Trust</h2>
The fear of fraud stemming from a lack of trust of employees processing payments was also observed. All of the sample respondents mentioned payments being handled by owners or family members and in cash. The only exception was observed in a medical shop where the POS machine is integrated with inventory and billing. Such integrated application helps address the fear of manual error from retailer’s end; however, it comes with the tradeoff of becoming formalized and having to deal with tax requirements and compliance.
<h2>Leveraging a Critical Link: Suppliers</h2>
It will be equally critical to identify the key leverage points for improving digital payment adoption at scale. One leverage point is suppliers.

<img class="aligncenter wp-image-39083 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/06/how-do-you-pay-your-suppliers-micro-merchant-survey.png" alt="how to pay suppliers micro-merchants survey results" width="849" height="432" />

A <a href="https://www.mastercardcenter.org/insights/move-indias-small-merchants-toward-digital-financial-services" target="_blank" rel="noopener noreferrer">broken link in the digital payment value chain</a> is usually third or fourth stage distributors. Such suppliers or distributors demand cash from retailers, which in turn had a cascade effect. In fact, 49 percent of the sample respondents made cash payments to suppliers while 29 percent made check payments leading to a whopping 78 percent of respondents using non-digital modes for supplier payment.

Any digitization effort aimed at improving last-mile micro-merchant’s adoption rate should also push for adoption at the supplier’s end as well. Appropriate incentive structures for increased digital adoption need to be carefully thought out and incorporated into supply chains.
<h2>Leveraging Peer Support</h2>
The merchants’ peer networks played a prominent role in influencing merchants’ behavior and propensity to adoption of digital modes.
<blockquote>Retailers rely on tech-savvy friends for receiving or making payments through applications.</blockquote>
Peers accepting digital modes of payment helped to weaken inhibitions of others. Early movers in the peer group act as critical influencers: they discuss the benefits or challenges of digital adoption, which either weakens or reinforces inhibitions. Many retailers mentioned that they rely on friends for receiving or making payments through applications like GooglePay or online transfers. All the retailers mentioned that their friends were “tech-savvy” or “reliable” – and free.

The core value proposition of accepting digital payments – a secure, efficient and convenient way of being paid – needs to resonate with the merchants’ business needs. While we mobilize efforts and resources for increasing access and usage of digital financial services to bring back normalcy in post-COVID times, let us not ignore the key barriers and challenges last-mile retail units face.


The Digital Payments Push: What 50 Micro-Merchants in India Are Saying

Isabelle Barrès

Moratoriums are a popular policy remedy during the COVID-19 era, but different client circumstances call for different types of moratoriums -- or even none at all.

Policymakers have been busy putting in place measures to protect financial services clients and the population at large from the consequences of the COVID-19 pandemic. Of all the measures that have been put in place, moratoriums have been particularly popular. <a href="https://www.investopedia.com/TERMS/M/MORATORIUM.ASP" target="_blank" rel="noopener noreferrer">Defined</a> as a temporary suspension of business as usual during financial hardship, a moratorium seems like an appropriate response when nothing is “business as usual”. Countries <a href="https://docs.google.com/spreadsheets/d/1s6EgMa4KGDfFzcsZJKqwiH7yqkhnCQtW7gI7eHpZuqg/edit#gid=0" target="_blank" rel="noopener noreferrer">around the globe</a> have put in place moratoriums on debt repayments for a wide range of lenders.

Moratoriums can bring many benefits for clients, such as providing much needed relief in a time of cash constraints, formally anticipating a breach of contract between the lender and the creditor, and avoiding negative reporting to the credit bureau.

But is this the full story? While moratoriums are meant to benefit clients, there are a number of variables in design and implementation of moratoriums that need be considered before concluding that they are indeed beneficial.
<h2>Moratoriums Are Not Created Equal</h2>
Moratoriums come in different shapes and sizes. Many moratorium schemes defer repayments – typically for 3 months – but accumulate interest on the outstanding debt, therefore increasing the total cost of the loan. When institutions or clients start paying back, they are faced with not only their original debt payment obligation (accumulated for the months not paid), but also the additional interest they would not have had to pay had they paid per the original schedule. This type of scheme raises concerns about clients’ ability to repay their loans once the moratorium is over, as recent evidence suggests may be the case emerging in <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3615077" target="_blank" rel="noopener noreferrer">Pakistan</a>.
<blockquote>Moratoriums come in different shapes and sizes.</blockquote>
Other types of moratoriums only defer payments, but <a href="https://www.cnbc.com/2020/03/31/in-the-pandemic-some-of-your-bills-can-wait-and-some-cant.html" target="_blank" rel="noopener noreferrer">do not accrue additional interest</a>, and others yet are coupled with a <a href="https://www.consumerreports.org/personal-finance/trouble-paying-bills-coronavirus-pandemic/" target="_blank" rel="noopener noreferrer">broader set of debt relief measures</a>, such as rescheduling and lowering fees. Moratoriums that do not accrue interest present a better value proposition to customers as they provide relief from loan payments during the time of crisis, but do not overly burden customers as they emerge from the period of crisis.
<h2>One Size Does Not Fit All</h2>
Whether they are beneficial or not for clients depends on the inherent features of the offer and the particular needs of clients. Not all clients face the same constraints, and different constraints and challenges call for different solutions. Client circumstances will determine whether a moratorium is useful, as exemplified in the scenarios below:

Clients may have the funds available to pay their loan but may not be able to physically make the payment due to logistical constraints associated with the pandemic (lockdowns preventing them from accessing their branches, no access to alternative repayment channels, etc.). For them, a break on payments may allow them to retain a good credit standing while they cannot repay and safeguard the funds for when they are mobile again.

Clients may not have the ability to pay their debt anymore, due to the impact of the crisis on their income flows. For these clients, a simple delay in repayments will not be adequate. Assuming that they are able to go back to their pre-crisis income levels, they may not have the ability to meet the demands of their existing obligations plus the delayed payments and accrued interest. A more appropriate solution in this case would be rescheduling the debt, taking into account the lack of or reduced level of economic activity and resetting the loan at a time when activity picks up again.

Clients may benefit from increased economic opportunities during the crisis (e.g. delivery workers). What they may need is increased access to credit to answer growing demand for their services, rather than relief on existing debt.
<blockquote>Moratoriums should not be seen as a blanket solution for everyone.</blockquote>
Because moratoriums on capital and interest payments are experienced differently by clients based on their circumstances, they should not be seen as a blanket solution for everyone. Relying only on moratoriums during times of crisis – or implementing a moratorium for all clients – is too simplistic. Moratoriums should be one of many tools used to alleviate debt burdens for clients who need it, depending on their situations. The same argument has been made to recognize the fact that <a href="https://www.covid-finclusion.org/post/how-long-can-microfinance-institutions-last-the-liquidity-crunch-an-analysis-of-the-data" target="_blank" rel="noopener noreferrer">not all lenders require the same level of relief</a>, and holds equally true for borrowers. Policymakers should mandate that providers offer moratoriums as an option to their clients, but should not mandate automatically deferring repayments.
<h2>Default Opt In With Caution: Clients’ Right to Know and Choose</h2>
While <a href="https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19" target="_blank" rel="noopener noreferrer">many countries</a> have put moratoriums in place, policymakers have not been consistent with guidance on their implementation.

As a result, we have seen a <a href="https://www.livemint.com/money/personal-finance/mandatory-yet-discretionary-confusion-prevails-over-emi-moratorium-11592214374082.html" target="_blank" rel="noopener noreferrer">number of approaches</a> on how financial service providers are handling moratoriums: some have offered moratoriums across the board, others have reached out to customers and offered the option on a selected basis. Others yet have put control in the hands of the customers and are <a href="https://www.consumerreports.org/personal-finance/trouble-paying-bills-coronavirus-pandemic/" target="_blank" rel="noopener noreferrer">waiting for them to request it</a>.

Financial service providers should consider that due to <a href="https://thedecisionlab.com/biases/default-bias/">default bias</a>, clients tend to go with whatever option was chosen for them, so FSPs should carefully consider how they set their opt-in or opt-out structures.
<h2>Recommendations</h2>
Moratoriums have the potential to help clients who have suffered income losses due to COVID-19 by deferring debt obligations. But to determine whether moratoriums will actually have the intended impact, several questions need to be addressed:
<ol>
 	<li>How is interest handled in the moratorium? Does the deferment increase the total costs for clients?</li>
 	<li>Does the moratorium also include loan restructuring or is a lump sum required at the end of the loan’s duration?</li>
 	<li>How are clients informed of their obligations under a moratorium and do they understand their options? Can they choose to opt in or out?</li>
</ol>
CFI has several recommendations for the design and implementation of moratoriums to ensure that clients do, in fact, benefit from the moratorium.
<h3><strong>Opt-In as Default</strong></h3>
If the moratorium will benefit all clients (deferred payments with extension of the terms, no penalties), clients should be opted in by default.
<h3>Opt-Out as Default</h3>
If the conditions of the moratorium do not benefit everyone (such as increased overall fees, lump sum payments, etc.), then providers should use opt-out as the default setting.
<h3>Information Transparency</h3>
Clients should be informed, whether through opt-ins or opt-outs, of the default decision that has been made on their behalf and the specific terms of the moratoriums. If clients are refused a moratorium, they have a right to understand the reason for refusal. Clients should also be informed about the consequences – such as increased overall loan costs – of moratoriums.
<h3>Client Choice and Recourse</h3>
Clients who have automatically been opted in to a moratorium should have the option to opt-out. Inversely, clients who have not been offered a moratorium should have a right to ask for it, and know how and where to complain if needed.

When implemented with the clients’ interests in mind, a moratorium is an effective instrument, but a number of different circumstances of the client must be considered. In order to ensure that clients benefit, the recommendations above should be considered.
<h4>What’s happening in your markets? Are moratoriums being imposed? Were conditions clearly spelled out to clients? What about providers? Are moratoriums extending to them as well?</h4>
<h4>Tell us what you are seeing and experiencing! Visit our special <a href="https://www.covid-finclusion.org/forum/discussion/moratoriums-what-s-happening-in-your-markets" target="_blank" rel="noopener noreferrer">moratorium forum discussion</a>.</h4>
&nbsp;

Are Moratoriums Good for Clients?

Laura Schroeder

Because of the pandemic, starvation might threaten an additional 250-plus million people in low and middle-income countries. SME financing, cash transfer programs and financial inclusion of women may boost food security for the most vulnerable.  

Scrolling through Instagram these days, I’ve noticed a pattern that has emerged since COVID-19 prompted lockdowns across the globe. With movement restricted, many social media users in the US have engaged in culinary adventures. New experiments in the kitchen abound despite the noted shortage of ingredients like flour on supermarket shelves.

But what I haven’t been seeing on my social media feed on the food front is much more dire: COVID-19 will push up to an estimated <a href="https://www.oxfam.org/en/research/dignity-not-destitution" target="_blank" rel="noopener noreferrer">half billion people into poverty</a> across the globe, threatening food security. Prior to the pandemic, approximately <a href="https://www.who.int/news-room/detail/11-09-2018-global-hunger-continues-to-rise---new-un-report-says" target="_blank" rel="noopener noreferrer">820 million people were chronically hungry</a>. Now, the World Food Program estimates that by the end of 2020, <a href="https://insight.wfp.org/covid-19-will-almost-double-people-in-acute-hunger-by-end-of-2020-59df0c4a8072" target="_blank" rel="noopener noreferrer">265 million people</a> in low and middle-income countries will be under the threat of starvation.
<h2>A Challenge for a Continent</h2>
These issues are particularly acute in several countries in Africa, where job losses and income losses are affecting food security, defined as access to sufficient, safe, and nutritious food. In a recent <a href="https://amref.zoom.us/rec/play/uZZ_Ju2p-zo3E9ed4wSDBKR6W9S9J_2s0iFP-qZemkixVXRQOlWkYuAbMLeKlvVOBygaPgBJmSDPJCzg?continueMode=true&amp;_x_zm_rtaid=FQWENb2fTM2AEbhvJuEg9g.1590501183404.6cee48bfc63a9f06cac60da22d85013d&amp;_x_zm_rhtaid=599" target="_blank" rel="noopener noreferrer">Africa Dialogues webinar</a>, hosted by Dalberg Advisors and Amref Health Africa and moderated by Lolem Ngong and Edwin Macharia, Professor Hamadi Iddi Boga of the Ministry of Agriculture, Livestock, and Fisheries in Kenya; Sara Menker, Founder and CEO of Gro Intelligence; and Monica Musonda, Founder and CEO of Java Foods, explored how the pandemic is disrupting agricultural supply chains and impacting smallholder farmers and vulnerable populations across the continent.

As Menker highlighted, there isn’t a lack of food around the world. Food insecurity, rather, is rooted in a massive distribution problem and a widespread inability to afford food, now exacerbated by COVID-19. Foreign exchange reserves across the African continent are at an all-time low due to the pandemic. In a weakened macroeconomic environment, the cost of imports has increased, and although some African markets are experiencing food insecurity to a greater extent than others, net importers of calories are finding themselves in an increasingly precarious situation. In Zambia, for example, the <a href="http://www.fao.org/giews/countrybrief/country.jsp?code=ZMB" target="_blank" rel="noopener noreferrer">price of fortified cereal</a> for children has increased to $6. Groups including informal workers, microentrepreneurs, and women tend to be the most adversely impacted by such price fluctuations.
<blockquote>Informal workers, microentrepreneurs and women tend to be the most adversely impacted by price fluctuations.</blockquote>
Musonda noted during the webinar that up to 60 percent of wages from informal work in Africa are used to buy food. Finding themselves without work, or with fewer working hours due to COVID-related restrictions on physical movement, informal workers and microentrepreneurs face increasing food insecurity, and women, who allocate more of their own resources to <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">other members of the household during hardship</a>, are disproportionately affected.
<h2>How Does Financial Inclusion Come into Play?</h2>
As a well-documented <a href="https://www.uncdf.org/financial-inclusion-and-the-sdgs" target="_blank" rel="noopener noreferrer">enabler of food security</a>, financial inclusion has an important role to play in the mitigation of COVID-19’s harms to vulnerable groups. Here, I highlight a few of <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">many considerations</a> for financial inclusion initiatives when taking action to reduce food insecurity.
<h3>Supporting SMEs and Smallholder Farmers</h3>
Propping up small and medium-sized business is an important consideration for financial inclusion and, by extension, food security in Africa. SMEs form an <a href="https://www.researchgate.net/publication/315516536_AFRICAN_SMALL_AND_MEDIUM_ENTERPRISES_SMES_CONTRIBUTIONS_CHALLENGES_AND_SOLUTIONS" target="_blank" rel="noopener noreferrer">integral part</a> of the food supply chain in Africa. According to Musonda, <a href="http://www.ipsnews.net/2019/09/smes-main-drivers-africas-food-economy/" target="_blank" rel="noopener noreferrer">SMEs handle 64 percent of food</a>, much of which is fresh and perishable, on the continent. These are the foods that are crucial, but we must do more to ensure that SMEs stay alive during this time of crisis.

This is where financial service providers (FSPs) play an important role. FSPs need to address both short-term and longer-term financing options for SMEs. In the short-term, as <a href="https://www.covid-finclusion.org/forum/discussion/surviving-the-liquidity-crunch-what-are-your-expectations-and-plans-for-managing-mfi-liquidity-what-worries-you-most" target="_blank" rel="noopener noreferrer">FSPs themselves are struggling with liquidity constraints</a>, the role of other actors, such as impact investors, development finance institutions, and policymakers, will be important to filling the void in available liquidity. But beyond liquidity through FSPs, there is a broader role for governments to play when it comes to food security.

In Kenya, the government has created an ecosystem of SMEs to support smallholder farmers in a mutually beneficial initiative that connects nodes of the supply chain. According to Prof. Boga, 90 percent of farmers in Kenya are smallholder farmers. To support this population, the government has created an ecosystem of SMEs to support them, and has implemented an e-voucher program in which farmers receive vouchers on their mobile phones to exchange for partially subsidized farm supplies based on their individual and household needs.
<h3>Promoting and Strengthening Cash Transfer Systems</h3>
Government-to-person (G2P) and person-to-person (P2P) <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits" target="_blank" rel="noopener noreferrer">cash transfers are an effective strategy</a> to increase both financial inclusion and food security. NGOs, governments, and the private sector are working together to promote and strengthen this most important vehicle for quickly delivering crucial cash to low-income households and individuals. <a href="https://www.unicef-irc.org/publications/pdf/IRB 2016_04.pdf" target="_blank" rel="noopener noreferrer">Evidence</a> from several large-scale <a href="https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7596.pdf" target="_blank" rel="noopener noreferrer">evaluations</a> shows that as households receive more in cash transfers, they spend more on food, with positive impacts on meals consumed and dietary quality.

The regulatory environment and payment infrastructure in many countries can present a challenge for massive payouts, but the financial inclusion community views the current crisis as an <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits">opportunity to fast-track improvements to payments systems</a>, particularly through digital payments ecosystems. While digitalization is promising, however, CFI’s Alex Rizzi <a href="https://centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection/" target="_blank" rel="noopener noreferrer">cautions</a> that rushed pushes to go digital may harm the poor, and it will continue to be important to put base-of-the-pyramid consumers at the center of considerations for digital cash payments.
<blockquote>Countries with strong DFS infrastructures are taking the lead in implementing systems to help people afford food.</blockquote>
In Africa, countries with strong DFS infrastructures are taking the lead in implementing systems to help the base of the pyramid afford food and other living expenses. The Western Africa Central Bank (BCEAO) is promoting the use of electronic payment tools by making it easier for people to open a mobile money account and by making P2P transfers free. Kenya’s National Treasury <a href="https://www.ugogentilini.net/wp-content/uploads/2020/04/Country-social-protection-COVID-responses_April3-1.pdf" target="_blank" rel="noopener noreferrer">appropriated</a> an additional 10 billion Kenyan schillings, or $100 million, to support for the elderly, orphans and other vulnerable groups through cash transfers. In addition, fee waivers on P2P mobile money transactions on M-PESA were <a href="https://techcrunch.com/2020/03/16/kenya-turns-to-its-mobile-money-dominance-to-stem-the-spread-of-covid-19/" target="_blank" rel="noopener noreferrer">approved</a>. The Moroccan Economic Watch Committee activated a mobile payment device for cash transfers directly to an estimated 3 million informal workers, while in Tunisia, the government is offering one-off cash transfers to households with members working in the informal sector and housing the elderly.

To support governments and markets where the digital payment infrastructure is still developing, initiatives like the <a href="https://www.worldbank.org/en/topic/paymentsystemsremittances" target="_blank" rel="noopener noreferrer">World Bank’s G2Px</a> focus on bringing together expertise across sectors to scale G2P payments responsibly. NGOs such as the World Food Program <a href="https://www.wfp.org/cash-transfers" target="_blank" rel="noopener noreferrer">continue to employ cash transfers</a> in coordination with partners.
<h3>Supporting Women’s Financial Inclusion as a Means to Greater Food Security</h3>
Research indicates that within households, women are at a <a href="https://www.adb.org/sites/default/files/publication/30315/gender-equality-and-food-security.pdf" target="_blank" rel="noopener noreferrer">greater risk of being food insecure</a>. In times of hardship, such as the current pandemic, they are more likely to reduce their own food consumption to leave enough for men and boys. However, access to secure financial services <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">has the potential</a> to <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">promote women’s empowerment</a> and advance food security. Women with bank accounts are likely to have greater bargaining power to allocate more household resources to purchasing nutritious food. Increasingly, many donors and policymakers are recognizing the need to shift cash transfers to women as one approach to tackling food insecurity. This provides an <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">on-ramp for digital financial services while improving convenience and confidentiality</a> of these payments.

Will our documentation of this moment in time capture the resilience, cooperation, and hard work of the individuals and institutions responding to this unprecedented crisis? Food security is a critical basic need, and financial inclusion is an important means of achieving it. With financial services digitizing at a breakneck pace, we mustn’t forget our most basic needs and how inclusive finance can serve them.

Food Security and COVID-19: How Financial Inclusion Can Support Livelihoods

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