Ms. Bull has 18 years of experience in development finance, primarily focused on SME Finance, Microfinance and Digital Financial Services. She has worked with both financial services providers and policy makers in Latin America, Central and Eastern Europe, Sub-Saharan Africa and South Asia. Her clients have included banks, microfinance institutions, MNOs and fintechs.
Prior to joining CGAP, Ms. Bull was a Manager for Financial Institutions Advisory Services at the International Finance Corporation. Other career highlights include serving as Director of the Finance, Banking and Enterprise Division at DAI Europe and holding senior level positions at the Eurasia Foundation.
Ms. Bull holds a Master in Public Policy degree from Harvard University’s John F. Kennedy School of Government and an undergraduate degree in International Studies from the University of Washington.

CEO, CGAP & Director, World Bank Group 

Tillman Bruett

Greta Bull

The CFI-MIX integration is a powerful means to preserve gains both organizations have made for inclusive finance, and to position them to tackle new challenges in a sector going through profound structural change.

Blog Post

This post was <a href="https://nextbillion.net/mix-center-financial-inclusion-joining-forces/">originally published</a> on NextBillion.

The financial inclusion community has been built over many years through strategic investment and coalition building among like-minded donors, practitioners, investors, regulators, researchers and sector support organizations. It is a unique coalition that has been able to effectively move the needle on access to financial services for the world’s poor for more than three decades. Yesterday came news that two key players in the inclusive finance space are joining forces: <a href="https://www.themix.org/">MIX</a>, for nearly 20 years the chief data resource for inclusive finance, and CFI, a leading independent think tank. The two organizations issued a <a href="https://centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">joint press release</a> announcing that, effective next week, MIX will officially become a unit of CFI. MIX’s formidable data skills will complement CFI’s work to empower low-income customers during a time of rapid and profound change in the sector.

The forces of global economic integration and technology have been reshaping industries, giving rise to new actors and business models – and the financial services sector is no exception. Findex, the World Bank’s triennial financial inclusion survey, found that the share of financially included adults rose by 18 percent between 2011 and 2017, progress that is impossible to imagine without digital technology. While much of that rise was driven by mobile network operators and a few tech-savvy banks, the market has unleashed a torrent of innovation that has pulled in companies that are new to financial services, including massive platforms like Google and Tencent. Hundreds, if not thousands, of smaller fintechs are also finding opportunity in this watershed moment to quickly go to market with financial service offerings that are more accessible, innovative and, ideally, appropriate for those who are financially excluded or poorly served.

Yet the more that financial services, especially for low-income segments, become the province of tech-powered platforms and other players who are not required to report to any central authority, the more market data becomes fragmented and siloed. This makes it more difficult to have a complete view of how low-income customers are being reached and whether they are being served responsibly. It’s potentially an unhealthy state of affairs. Trustworthy, accessible information is a fundamental requirement for the proper functioning of any market, so this rapidly accelerating data fragmentation should be cause for concern.
<blockquote>Trustworthy, accessible information is a fundamental requirement for the proper functioning of any market, so rapidly accelerating data fragmentation should be cause for concern.</blockquote>
When MIX was founded in 2002, information asymmetry was one of the defining constraints on inclusive finance. Many of the operators were unregulated credit-only providers, and there were no universal standards – much less a repository for reporting them. With the backing of a cross-section of industry stakeholders, MIX did the hard, unglamorous work of designing data standards to define and measure simple and vital data points such as “active customer” and “self-sufficiency,” which enabled meaningful comparisons between financial services providers. MIX created benchmarks to identify investment opportunities, and built relationships of trust around the world to encourage financial services providers to report their data, and capital markets to make use of it. All of this is easy to take for granted now. But MIX’s work to build a massive storehouse of robust supply-side data helped correct a market failure, which in turn helped unlock billions of dollars in investment flows. MIX is now at the forefront of filling the void of data on fintechs, defining and measuring some of the same data points it worked with in its early days – while also gathering and analyzing additional data demanded by today’s donors and investors, covering areas such as “annual revenue per user” and “inclusivity.”

Just as MIX made important contributions to building the supply-side understanding of inclusive finance, CFI has been one of the leaders on the demand side. Formed in 2009 by Accion as a public good to the sector at a critical moment when widespread over-indebtedness was driving microfinance clients to despair and even suicide, CFI emerged as a powerful voice for consumer protection. It launched the Smart Campaign, a global effort to embed client-centricity into the culture and operations of inclusive finance, and its applied research into the financial behaviors and needs of low-income people has made a major contribution.

The two organizations’ skills, in other words, complement each other perfectly. Data is the raw material that fuels insights and thus advocacy. Those functions are stronger together, and that strength is needed more than ever at this moment, when the same technology revolution that is expanding access so dramatically is also making market data more opaque – and raising important new consumer protection concerns, especially around privacy. The CFI-MIX integration is a powerful means to preserve the gains that both organizations have already made for inclusive finance, and to position them to tackle new challenges together.
<blockquote>The two organizations’ skills complement each other perfectly.</blockquote>
This merger of opportunity happens at a time when the development community has unified around the Sustainable Development Goals (SDGs), an inspiring and ambitious agenda with a price tag to match: almost $4 trillion per year by some estimates. It is a sum that requires crowding in capital on a massive scale. This has resulted in more development assistance being channeled directly into SDG-related investments and less into entities like MIX and CFI, which offer public goods -- information, benchmarks, principles, guidelines -- that catalyze investment, build inclusive sectors and protect citizens. Public goods are particularly important during periods of disruption; they are used by entrepreneurs, policymakers, regulators, journalists and development organizations to find opportunities and make sound decisions. On top of this is another important factor, which is of course the COVID-19 pandemic and the economic earthquake it is creating around the world. As organizations scramble to understand what is happening on the ground, the need for real-time data and principles for the protection of vulnerable customers is more urgent than ever.

In a sector going through such profound structural change, it is also critical for inclusive finance to move away from specialization and silos to build agile, more robust businesses and organizations that contain a wider range of skills, which can operate more efficiently and take greater risks in pursuit of a broader agenda. But that’s easier said than done. Business school case studies abound with examples of mergers and acquisitions that made perfect sense in the spreadsheet but proved a lot harder when organizational cultures and leaders’ resolve were put to the test. We have confidence that this marriage will be a success story, as it is being led by some of the most respected and experienced veterans in the inclusive finance sector, who share a vision and a strong commitment to the future of public goods in the inclusive finance space.

We hope that MIX and CFI’s choice to integrate can serve as an example of successful, mission-driven consolidation for the financial inclusion community. We will need to continue to work together if we hope to match the achievements of the last 10 years of inclusive finance and to overcome the challenges -- and embrace the opportunities -- that lie ahead.

Note: Tillman Bruett is a member of the MIX board.

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Stronger Together: Why MIX and the Center for Financial Inclusion are Joining Forces

Findex statistics on account dormancy rates in the developing world appear discouraging, but a deeper dive shows things are not so black and white, argues Greta Bull.

This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

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But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

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Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

"Progress happens, just not according to our wishful time frames." Greta Bull responds to CFI's paper about the 2017 Findex data.

This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full?utm_source=CGAP+Reader+%2808.06.18%29&amp;utm_campaign=CGAP+Reader+%2808.06.18%29&amp;utm_medium=email">CGAP Blog</a> and is re-published here with permission.

We can choose to see a glass as half empty or half full. And our perspective often has a lot to do with our initial assumptions.

Beth Rhyne and Sonja Kelly of the Center for Financial Inclusion (CFI) have generated discussion in the financial inclusion community with their paper exploring the latest <a href="https://globalfindex.worldbank.org/">Findex </a>data, titled “<a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2">Financial Inclusion Hype Versus Reality</a>.” In the paper, Rhyne and Kelly express concern that the rate of access to new accounts slowed between 2014 and 2017 and that the usage gap for those accounts appears to be growing. They also highlight stagnation in the growth of credit and a decline in savings, but an increase in the use of payments. While I have very little to disagree with in their paper, I think the financial inclusion community has a lot more cause for optimism than it makes out.

Let me state up front that it has never been my expectation that we would reach full financial inclusion by 2020. Or even that 79 percent of adults in developing countries would have an account by 2020, a prediction made by Rhyne and Kelly in their previous paper, “<a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>,” published after the release of the last Findex data set in 2015. The World Bank’s access goal is aspirational and meant to inspire action, which it clearly has. But as Rhyne and Kelly quite correctly point out, accounts are largely meaningless if people are not using them. The point of the Findex data is to help us measure progress against the overall access goal and to understand the levers that will take us to the next level. And there is plenty of food for thought on what the key levers might be in this year’s Findex.

Over the course of two blogs, I would like to offer a few reasons why I believe we have done better than Beth and Sonja think, starting with access.

While I would describe this year’s CFI report as overly pessimistic, I would say the 2015 paper was overly optimistic. The 2015 report assumed straight line increases in access, based on the rate of growth achieved between only two data points: the 2011 and 2014 Findex. While the report acknowledges that this was done to present a scenario for discussion, the net effect was to create an overly optimistic strawman. It seems obvious in hindsight that the pace of change achieved between 2011 and 2014 was not likely to be repeated. Why? Because progress doesn’t move in straight lines. New gains at the margin will be harder to reach than previous gains. This holds true at the country level and for important segments within countries.

At the country level, there is an implicit assumption in “By the Numbers” that all countries have equivalent regulations and providers willing to serve the poor. But all regulatory frameworks are not created equal, and not every provider has the same ability to serve the poor. One has only to look at the data for Sub-Saharan Africa to see this at work. Countries like Kenya, Ghana, Uganda, Tanzania and the West African Economic and Monetary Union (WAEMU) region put enabling regulatory frameworks in place and on average enjoyed a 2.5x increase in the rate of account access between 2011 and 2017, far outstripping the 43 percent increase for developing markets as a whole.

<img class=" size-full wp-image-25811 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/graph-greta-bull-cgap.png" alt="graph Greta Bull CGAP" width="624" height="245" />

Africa also demonstrates that providers and regulations matter. The continent is full of mobile network operators (MNOs) trying to mimic the success of M-PESA in Kenya. Although this did not happen overnight, MNOs have by now clearly demonstrated that they are making a measurable difference in multiple African markets. In the 2014 Findex, there were only 11 countries globally that had more than a 5 percentage point differential between access to any account (including mobile money) and access to a financial institution account only. And the gap between these two numbers in Sub-Saharan Africa was 5 percentage points. By this year’s Findex, this had grown to 28 markets, all but two of which were in Sub-Saharan Africa, and the gap grew to 10 percentage points. This differential is almost entirely attributable to the work of MNOs. According to GSMA's 2017 <a href="https://www.gsma.com/mobilefordevelopment/sotir/">State of the Industry Report on Mobile Money</a>, MNOs have added 338 million accounts in Sub-Saharan Africa, of which 122 million are active (this is corroborated by the Findex estimate of 124 million active mobile money accounts in the region). It is safe to say that MNOs have been responsible for adding the better part of 141 million accounts in Sub-Saharan Africa since 2011, representing 10 percent of new accounts globally. Given that Findex counts only active mobile money accounts, this quite significantly understates the level of new account addition in Africa compared to other regions.

But restrictive regulatory and competitive frameworks meant MNOs did not have the same opportunity everywhere. Nigeria, the continent’s largest market, has been a subject of great interest from MNOs for the past 10 years. But Nigeria has a regulatory framework that restricts the ability of MNOs to operate independently of banks, and this has had an impact on access. In contrast to the 2.5x growth in account access in the cohort of countries above, Nigeria experienced growth of only 33 percent in access to accounts from 2011 to 2017, and there is no appreciable difference between access to a financial institution account and access to any account. In the 10-country cohort, the average delta between any account and a financial institution account had grown from zero in 2011 to 21 percentage points in 2017. What’s more, the increasingly visible success of mobile money encouraged banks to expand their service offerings to the mass market. In these 10 countries, access to accounts in a financial institution grew by 52 percent, outperforming Nigeria, which grew financial institution accounts by only 30 percent. Providers and regulations clearly matter.

An additional challenge as we add accounts at the margin is delivering financial services to difficult segments. Women and rural households are particularly challenging, albeit for different reasons: women because of cultural and legal norms inhibiting access, and rural households because they are difficult and expensive for commercial providers to reach.

The gender gap remains stubbornly persistent at 9 percent in developing countries and is particularly challenging in the Middle East and North Africa region and parts of Sub-Saharan Africa and South Asia. The World Bank calculates that, of the remaining 1.7 billion unbanked, nearly half come from just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan. Bangladesh, Pakistan and Nigeria all have substantial gender gaps: 29, 28 and 24 percentage points, respectively. If in these three markets alone, access for women had grown at a rate equivalent to that experienced by men, the access numbers for 2017 would have increased by nearly 50 million, representing a 9.5 percent boost on the 515 million new account holders added in the three previous years.

For rural populations, the picture is a bit brighter. Access for rural households grew from 44 percent to 66 percent globally from 2011 to 2017, largely driven by rapid change in China and India. But Africa has maintained a stubborn 4 percent gap between access for the rural population and access for the population at large. If we could lift the roughly 61 percent of Africans who live in rural areas up to just the regional average, it would add another 20 million new accounts. If we brought them to the same level as urban Africans, it would add roughly 50 million new accounts.

Regulatory change that opens markets to increased competition and a sustained focus on equal inclusion for women and rural communities would do a lot to move us in the direction of full financial access.

For me, the glass is still half full. Meaningful financial inclusion is hard, involving a complex interplay of factors: regulatory change, viable business models and significant behavior change by new account holders. And for certain segments, cultural and legal norms and distance represent significant barriers. We have to be realistic about how long this will take. When I read the CFI report, it took me back to a time when everyone was disappointed that a new M-PESA had not emerged overnight. It didn’t. But we now have a whole slew of providers that are beginning to look like M-PESA did five years ago, sometimes in surprising places. Progress happens, just not according to our wishful time frames. On access, we have already harvested the low-hanging fruit — now the hard work truly begins.

What do you think? Do the Findex data present an overly rosy picture of the state of financial inclusion, or should we remain optimistic? Leave your comments below. 

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Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 1)

The following post was <a href="http://www.cgap.org/blog/four-drivers-change-financial-inclusion-2017">originally published</a> on the CGAP blog.
Returning from the holidays, we at CGAP are turning our attention to the future. I used the down time over the break to reflect on the topics I believe are likely to shape the future of financial services for the poor. Building efficient, large-scale digital ecosystems that dramatically reduce the cost of delivering financial and other services has been an important focus of CGAP’s for many years. But what do we think will enable the emergence of such large ecosystems and ensure their broad accessibility?
I would posit that four factors are changing the landscape for financial inclusion before our eyes:
Technology and distribution
Technology is a clear enabler. None of what we have seen emerge in the last 10 years would have been possible without technology. But technology on its own is not the answer: distribution is the other side of the equation, and its importance is often overlooked in the excitement over new technologies. To access digital financial services, access to a mobile connection is important, but it is equally important to be able to convert cash to digital money and, at least for now, back into cash again. So mobile phones have been important in places like Kenya, but the real game changer has been the emergence of large and well-functioning agent networks. Until accounts are more widely available or people are willing to accept the leap into purely digital money, agents will remain a fact of life.
Policy and regulation
Policy and regulation have always been important, and that role has not diminished. But it has changed. In East Africa, we are seeing a shift from open experimentation to a more coordinated effort to build interconnected services, such as interoperability and cross-border remittances. We are also seeing an increasing focus on competition policy and consumer protection in a number of markets. Governments are increasingly channeling payments to citizens through digital infrastructure and, in some markets, citizens are able to pay governments too. Given the large volumes of money governments drive through the system, this is having an important impact on the viability of digital finance operations.
In India, we are seeing a government that is pushing on all the levers to develop a viable, large-scale digital ecosystem, from building unique biometric identification to pushing government payments through digital channels and integrating various financial services providers into a unified payment system. It is still too early to declare the Indian experiment a success, but we are learning a lot about the public goods that need to be in place for a digital marketplace to function efficiently for the poor, and what the role for the private sector can be.
Around the world, we have much better evidence on what works and what does not in building enabling policy environments, using the levers of government policy and regulation. We are also seeing the impact that global financial policy can have on emerging markets, particularly the effect of de-risking on a number of markets. Even in developed markets, regulators and policy makers are grappling in novel ways with challenges to traditional banking models from disruptive fintechs.
Open ecosystems
We are increasingly seeing the emergence of collaborative approaches in the commercial sector that help broaden the digital ecosystem. Sometimes, these emerge as purely private initiatives, sometimes they are pursued explicitly as public goods. Two important examples are interoperability and open application programming interfaces (APIs).
Interoperability is important because it broadens a networked system, creating a frictionless experience for users, and enables participants to compensate each other for use of their infrastructure. For example, rather than juggling multiple SIM cards to send funds from one mobile money service in Tanzania to another, consumers can now send money across services at no cost to the consumer beyond regular money transfer fees. And agreements are in place that define the rules and commercials for how that transaction will work. So instead of having four smaller mobile money ecosystems for person-to-person (P2P) transfers, Tanzania now has one large interconnected one. Early evidence shows that removing friction between operators is growing the overall size of the P2P market in Tanzania.
Open APIs increase the size of the ecosystem in different ways. When infrastructure providers like banks or mobile network operators open up their APIs, they take the friction out of integrating to the main service for smaller providers of financial services. By removing that cost from the system, small innovators can develop, test and refine services for consumers at a very low cost, and may hit on a formula that users like and want to use (think of the Apple App store and the proliferation of services available there). The innovator can then provide the service over the rails of the larger mobile money service, to the benefit of both providers. Without open APIs, small companies must negotiate commercial arrangements with the large provider and then navigate the complex process of technical integration. Open APIs make this process far more efficient and competitive. Both interoperability and open APIs are by nature complex, as they require fierce competitors to cooperate in ways that may seem counter-intuitive. But over the long term, they have the potential to expand the value of the ecosystem for both providers and consumers by fostering innovation and a more competitive ecosystem.
Data
Data is emerging as a topic of great importance. Connected services mean that poor people, who previously left no data trail, begin to exist in a digital world. Providers are increasingly capturing data on consumer behavior that has wide applications — from scored consumer credit, to the provision of off-grid solar home systems, to building better products for consumers, to providing primary health care services to the poor. Building profiles of poor people will enable providers to deliver services to them in ways they could never have previously done.
But data also brings new risks. Who owns the data generated by our interactions with e-commerce and social media sites? How secure are mobile money systems? How do we know how our data is being used? How likely is it that the poor will be at risk of over-indebtedness, fraud or theft? These are all important aspects that require attention.
These are all topics on which CGAP is actively focusing its attention in the coming year. At the end of last year, we released a landscaping study <a href="http://www.cgap.org/publications/digital-finance-interoperability-financial-inclusion" target="_blank" rel="noopener">on emerging trends in interoperability</a>around the world. We brought together different industry players to discuss open APIs and will continue to build on this experience in the coming year. Data is an emerging area of importance, both for the financial and non-financial services it enables, but also for the risks it poses for low-income consumers. Policy and regulation have been at the heart of our work for many years, and we continue to contribute to global and country-level debates on what works and what does not, most recently in an examination of the key regulatory enablers of digital financial services.
Large, inclusive digital ecosystems provide unprecedented opportunities to generate growth and development, leveraging both financial and non-financial services. CGAP sees it as its core mission to ensure that these innovations evolve in ways that benefit the poor. We look forward to another exciting year!

Image credit: Eakarin Ekartchariyawong, 2016 CGAP Photo Contest

Have you read?

<a href="https://cfi-blog.org/2017/01/12/microfinance-funds-as-catalysts-for-foreign-private-investments-in-emerging-microfinance-markets-evidence-from-a-decade-of-data-and-analysis/">Microfinance Funds as Catalysts for Foreign Private Investments in Emerging Microfinance Markets: Evidence from a Decade of Data and Analysis</a>

<a href="https://cfi-blog.org/2017/01/04/what-does-responsible-online-and-digital-credit-look-like/">What Does Responsible Online and Digital Credit Look Like?</a>

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<a href="https://cfi-blog.org/2016/10/26/new-report-highlights-gains-in-financial-inclusion-led-by-india-digitization-on-the-rise/">2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise</a>

Greta Bull

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