> Posted by Susy Cheston, Senior Advisor, CFI
The Credit Reporting section of the FI2020 e-zine (click to read)
The Financial Inclusion 2020 Round-Up 2014 e-zine, found on the CFI website, takes a look at progress toward financial inclusion in the year following the FI2020 Global Forum. It was at the Global Forum that five Roadmaps to Financial Inclusion were presented after two years of being developed and debated by dozens of financial inclusion experts. Now, imagine the editorial challenge of collapsing a year’s worth of activity around each Roadmap into just two pages each.
While it’s a fun read, I admit to a little cognitive dissonance as I page through the Round-Up. The brief analyses of where we stand around each of the Roadmaps to Financial Inclusion can be summed up in the quote “we’re not as far along as we think we are.” While that quote was about the Technology Roadmap, it could just as easily be said of the other Roadmaps: Financial Capability, Addressing Customer Needs, Client Protection, and Credit Reporting.
Yet despite the clear-eyed look at the ongoing challenges, the e-zine also tells a story of intense and productive activity by a wide range of actors. Legacy financial service providers—the heavy hitters with big resources and even greater reach—are investing heavily in financial inclusion. It’s not just for corporate social responsibility any more; it’s part of a new business strategy inspired by the discovery of an untapped and (they hope) profitable new market. Sprinkled in and around those vignettes are stories of scrappy start-ups doing the social entrepreneurship thing. Some of those services may not make it past 2015, but some of them have a “why didn’t I think of that” inevitability about them. The diversity of actors and the energy are impressive.
Credit Reporting shows this paradox. Frankly, when we started the process of building the Roadmap to Credit Reporting, we thought most of what’s important had already been said. The World Bank had already led an intensive process to develop General Principles, and CGAP and IFC had put forth an excellent paper that seemed to say it all. (Hot Tip: You can find these and many other selected resources in our FI2020 Resource Library.)
Yet it wasn’t happening. As has been the case for decades with microfinance, an excellent theory was not achieving its full potential in practice. The business model for credit reporting requires a level of ubiquity to create a functioning credit reporting ecosystem serving the base of the pyramid in a given market, and most markets couldn’t get to the tipping point. While the traditional players were struggling, a slew of entrepreneurs looked at all the new data that is becoming available electronically about most people on earth and started connecting the dots in new ways that bypass the old system.
One of the key messages of the FI2020 project is that access must be linked to quality and financial inclusion to client protection, all in service to the customer. The e-zine pages on Credit Reporting give a good glimpse of the tensions between these poles. What I mean by that is that the non-traditional providers may be providing a ground-breaking on-ramp to inclusion—or they could be opening the door to exploitation in the absence of clear policies for data privacy and security—or both. At the same time, there is new research showing the powerful role traditional credit bureaus can play in opening up the market for those who have been excluded. The Smart Campaign found that credit bureaus create a space for banks to treat defaulting customers with dignity, and other research also demonstrates the benefits to customers when credit information allows financial institutions to manage risk well.
Credit Reporting is just one of the five Roadmaps, and the other features covered by the e-zine also pack a lot of activity into a small space. A world of financial inclusion is loaded into 16 fast pages—“fast” both because the Round-Up is a quick read and because some aspects of inclusion are moving forward at a dizzying speed. Then again, “we’re not as far along as we think we are.” Or are we? Read the Financial Inclusion 2020 Round-Up 2014 and see what you think.
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