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Fellow Exec Ed

Blog Post

Microfinance began in its early days as a novel approach to economic development with a focus on making loans to low-income customers using social collateral. No longer niche, microfinance has reached millions of customers around the world and helped demonstrate that low-income people are, in fact, bankable. Fast forward to today, when microfinance is now but a subset of a diverse range of financial service providers targeting low-income customers.

How did we get here and what happens next for microfinance? CFI recently sat down with one of the editors of a new book that seeks to answer that question.

Paul DiLeo, Managing Director of Grassroots Capital Management and former faculty member of CFI’s <a href="https://centerforfinancialinclusion.org/board-leadership-for-impact-program-overview/" target="_blank" rel="noopener noreferrer">governance training</a> programs in Africa, coedited “<a href="https://www.brookings.edu/book/the-future-of-microfinance/" target="_blank" rel="noopener noreferrer">The Future of Microfinance</a>,” with Ira Lieberman, Todd Watkins and Anna Kanze. The book was born out of a workshop at Lehigh University and includes contributions from more than twenty leading authorities in the field. Together, they tell the important story of how microfinance developed and how it has met the needs of hundreds of millions of people. They also set forth answering questions about how it can continue to meet those needs.
<h3>Why did you publish this book?</h3>
<strong>PD</strong>: The coeditors and I felt that, somewhat paradoxically, as microfinance has consolidated its position to be an integral component of national financial systems around the world, its visibility has diminished. Its success -- and setbacks -- hold important lessons for the broader financial inclusion and impact investing communities at a time when market-based solutions to pressing social and environmental challenges are receiving so much attention. The microfinance experience can be useful in helping these initiatives achieve timely success and avoid pitfalls. Also, while not a consideration when the bulk of the book was written, it also offers some guidance on the essential value we have to preserve as microfinance navigates the pandemic.
<h3>Looking back on microfinance’s history, what are some of the key milestones or accomplishments?</h3>
<strong>PD</strong>: In the early days, microfinance started to demonstrate that poor people didn’t pose an insurmountable credit risk; they were not unbankable and they were not uncreditworthy. From there, the industry moved to prove that the institutions serving microfinance clients can operate sustainably and that they aren’t preponderantly dependent on subsidized or concessional financing. Further, the funding going into the microfinance industry began to evolve to a broader range of financing – from grants and heavily subsidized capital, to purely commercial capital. From there, microfinance institutions (MFIs) began taking on more of the substance of financial institutions from a regulatory, supervisory, and governance standpoint.

What’s interesting is how microfinance has become less of a “headline topic.” In other words, microfinance is now part of the mainstream landscape just like every other sort of subcategory of financial institutions. Microfinance is no longer this idiosyncratic oddity that people can write “whoever imagined this” articles about.
<blockquote class="pullquote--right">Microfinance is no longer this idiosyncratic oddity that people can write “whoever imagined this” articles about.</blockquote>
However, there is a downside. Microfinance was never intended to become “mainstream.” It was always intended to be distinctive from everything else in conventional financial services.
<h3>I’m sure if I asked you in January, your answer would be much different, but how would you describe the chapter of microfinance we're in now?</h3>
<strong>PD</strong>: I think this chapter poses the question of whether microfinance can preserve its essential differentiation: does it retain its priority commitment and distinctive character to continue to serve poor people? Some institutions do it more efficiently, do it more profitably, achieve greater scale, so there's nothing distinctive about microfinance in those dimensions. What distinguishes microfinance is the priority to develop products and services along with the ability to find ways of reaching and innovating for their clients.

Microfinance derives a substantial proportion of its value through relationships that accrue to the client rather than being captured and maximized for the benefit of the financial intermediary. This isn’t a new concept, but the current situation resulting from COVID is going to put this topic in focus because inevitably you're going to see a lot of mergers. We’ll have to keep an eye on the character of the fewer institutions that survive.
<h3>On the topic of consolidation, the book mentions how, in competitive markets, like Peru or India, consolidation is much faster than in less saturated markets. Do you see COVID accelerating consolidation, and if so, in which markets?</h3>
<strong>PD</strong>: Consolidation in the microfinance industry has always been a challenge because in many markets there are many smaller institutions that do not see the benefit, or feel pressure to achieve economies of scale. I think what may be different now, as opposed to previous crises, is that decapitalization is going to be faster and more severe, and the impact is affecting all institutions to a significant degree at the same time.

The wild card is what the regulatory authorities will do because in many of the less competitive markets a lot of these institutions may not be subject to strict regulatory capital requirements, which allow institutions to operate with relatively low levels of capital, or even negative net worth, while they wait and see if a brighter day comes. If regulators do not move to force consolidation, you could see the typical resistance to consolidation and, as a result, a lot of these institutions will continue to fight for survival. Whether consolidation is forced by regulators or not, funders could force consolidation, since they are the ones providing life support. Hopefully, the industry will keep in mind the importance of preserving what is distinctive about microfinance, rather than just trying to create the most profitable and efficient institutions.
<h3>The book mentions how many players in the space “have gone on to other endeavors like financial inclusion, which is closely related to microfinance, but not quite the same thing.” Do you think there’s still enough interest and, more importantly, enough capital to reinvest in microfinance?</h3>
<strong>PD</strong>: Unfortunately, some of the legacy investors in microfinance have declared victory and moved on because, from their perspective, microfinance is well established and has relatively good access to capital markets based on a solid business model developed through experimentation and trial and error over many years.

In one sense, there's nothing wrong with these investors that ostensibly have a development objective moving on to support new models. However, in pursuing their mandates to address social and economic issues, they shouldn’t just move on to the next bright, shiny object in financial inclusion. They should continue to support and guide a proven model like microfinance as it scales to preserve social missions and achieve appreciable benefit to target populations.
<blockquote class="pullquote--left">Investors shouldn’t just move on to the next bright, shiny object in financial inclusion.</blockquote>
It’s a shame that many of these investors have essentially ceded responsibility for preserving what they played a large part in creating. Instead of saying “it’s not our role anymore,” those funders can recommit and play an outsized role in preserving the character and integrity of microfinance. Just because you have succeeded in developing and nurturing a business model like microfinance, doesn't mean your responsibilities are over.
<h3>From a governance perspective, what are some considerations microfinance investors and executives should keep in mind as the industry continues to grapple with COVID-19?</h3>
<strong>PD:</strong> It’s important to re-emphasize that leaders in management and boards need to look at both the financial stabilization of their institution and the implications for clients to determine their response.

For example, accelerating the shift to more digital channels may be an obvious response to COVID, but we need to ensure that we aren’t leaving certain client segments – rural, illiterate, older, women – behind.

We may feel pressure to quickly achieve pre-COVID levels of profitability, but this urge should be resisted if it means abandoning certain clients, products or research that are core to our social mission.
<h3>There’s a chapter written on the need to refocus on the client. Do you think the industry has moved away from focusing on customer centricity to something like product development?</h3>
<strong>PD:</strong> The book has a line that states most MFIs understand the poor, which helps them better serve the poor; however, we must make a distinction between the product and the client. There's a lot of outfits that understand the poor very well, like lotteries, gambling casinos, and payday lenders. They can devise products that extract as much value as possible from the poor. The issue here is not just understanding the poor: it’s about what institutions do with that knowledge, the objective of learning about their vulnerabilities, and what they need.

MFIs have a huge amount of knowledge about the poor. MFIs understand the economic systems in which they operate as well as how the communities work and the characteristics of their value chains. That said, we must ensure we retain those strengths because if we move towards a more transactional relationship, we lose our ability to create meaningful value for customers and, instead, prioritize maximizing value extraction.
<h3>Do you have any recommendations to ensure the upcoming consolidation period is both responsible and maintains the ethos of client centricity?</h3>
<strong>PD:</strong> In our current context, I think one of the strengths of microfinance as a mature, established sector is that it has a diverse funder and shareholder base. Hopefully, these investors will recognize the crucial and, in many cases, unique role that microfinance can play in helping poorer, informal clients and communities weather the crisis. But for this to happen, legacy investors – the DFIs, philanthropies, social investors – who may have been diluted to low levels need to step up. MFIs exist to create value for their clients in a sustainable way, and legacy investors need to speak up and ensure that this character defines the way that the industry moves forward from COVID.

What Is the Future of Microfinance? Q and A with Paul DiLeo

In recent years, practitioners have touted the link between migration and technology for increasing financial inclusion, <a href="https://reliefweb.int/report/world/role-technology-addressing-global-migration-crisis#:~:text=When%20refugees%20and%20IDPs%20use,their%20autonomy%20and%20self%2Dreliance.&amp;text=New%20digital%20platforms%20connect%20displaced,greater%20capacity%20to%20support%20themselves." target="_blank" rel="noopener noreferrer">integration</a>, and livelihoods support. Migrants themselves have developed applications to support integration, in what some call the “<a href="https://www.weforum.org/agenda/2018/12/social-media-is-casting-a-dark-shadow-over-migration/" target="_blank" rel="noopener noreferrer">app-ification of migration</a>” or “migrant tech.” Humanitarian and development agencies have <a href="https://oxfamilibrary.openrepository.com/bitstream/handle/10546/558591/rr-new-technologies-cash-transfer-010111-en.pdf?sequence=6&amp;isAllowed=y" target="_blank" rel="noopener noreferrer">helmed the push for migrant tech</a>, especially with regard to mobile cash transfers.

Also stepping into the “technology gap” — perceived or real — are developers, who create applications for <a href="https://techcrunch.com/2018/10/27/here-are-25-of-the-most-innovative-new-projects-using-tech-to-help-refugees-and-ngos/?guccounter=1" target="_blank" rel="noopener noreferrer">every use under the sun</a>: <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/02/The-Importance-of-mobile-for-refugees_a-landscape-of-new-services-and-approaches.pdf" target="_blank" rel="noopener noreferrer">returnee integration</a>, mobile “game-ified” bilingual education, <a href="https://www.elrha.org/project/mobile-tech-gbv-syrian-adolescent/" target="_blank" rel="noopener noreferrer">gender-based violence prevention</a>. The International Organization for Migration (IOM) recently joined the game with its <a href="https://www.iom.int/migapp" target="_blank" rel="noopener noreferrer">MigApp</a>, which provides information, a money transfer service, and translation. Governments and organizations like the <a href="https://www.oecd.org/migration/mig/migration-strategic-foresight.pdf" target="_blank" rel="noopener noreferrer">OECD</a> have been quick to laud such interventions as efforts to make humanitarian aid future ready.
<blockquote class="pullquote--right">The most useful digital tools for migrants are not migrant tech at all.</blockquote>
Few doubt that mobile technology occupies a key role in migrant life. Yet our research with migrants in Quito, Ecuador, suggests that in spite of efforts to “app-ify” migrant integration, the most useful digital tools for migrants are not migrant tech at all. Instead, migrants take off-the-shelf applications such as WhatsApp and flex them to fit their needs.
<h2>The “WhatsApp Bank": Stories from Migrants in Quito</h2>
In Quito, the “Bangladeshi Club” meets once a week, rotating through different Bangladeshi restaurants. Only about 25 Bangladeshi migrants live in the city, so it is easy to stay in touch. They take advantage of a WhatsApp group chat to coordinate their weekly meetings where, between food and conversation, everyone has the chance to benefit from a communal fund. Each week all members contribute to the fund and should anyone fall on hard times, they can petition the club for a loan.

Formal financial inclusion is unavailable to many migrants in the Ecuadorian capital, not just ones from Bangladesh. As of 2016, the country had among the <a href="https://www.afi-global.org/sites/default/files/publications/2019-07/AFI_FILAC_SP_AW_digital.pdf" target="_blank" rel="noopener noreferrer">lowest number of users of mobile money</a> services in Latin America. The dearth of reliable and robust digital financial services (DFS) in Ecuador pushes migrants to adapt.

Nowhere was the inventive use of WhatsApp clearer than among Venezuelan migrants in need of remittance services. Runaway inflation in Venezuela, coupled with tight DFS regulations in Ecuador, encourages creative thinking among migrants hoping to send money home. Remittances to Venezuela take three forms: in-kind, cash, or via wire or bank transfer. Migrants least preferred the latter option. Due to severe inflation and perceived corruption in Venezuela, money transferred to Venezuelan banks immediately loses value. Thus, alternative options that rely heavily on WhatsApp, and whose legality might be in question, have gained traction.

In one typical example, a Venezuelan migrant wishing to send remittances will connect with a Colombian runner through WhatsApp word-of-mouth networks. Over WhatsApp, the migrant tells the runner how much they would like to remit. The runner responds with a price for services rendered, plus extra for the border bribe they will certainly pay. The migrant then wires money to the runner in Colombia, who performs one of two actions: withdraw cash or buy goods.

In the first scenario, the runner takes out cash and smuggles it into Venezuela. They then transport the package to the intended recipient. In the second, more common case, the runner uses the remittance money to purchase essential goods in Colombia. They then ferry the goods across the border or tap agent networks to make the delivery. In both cases, WhatsApp plays an essential role.
<blockquote class="pullquote--left">WhatsApp supports business growth, marketing, and development for migrants in Ecuador.</blockquote>
WhatsApp also supports business growth, marketing, and development for migrants in Ecuador. Venezuelan migrant Rosa operates her direct-to-order Venezuelan restaurant via WhatsApp. Her clients communicate their home-country cravings directly to her, and Rosa shops for the ingredients and prepares the meals made-to-order. In this way, she fills a very specific community niche and has built a loyal base of clients who depend upon her customizable Venezuelan food. WhatsApp enabled her business to boom.
<h2><strong>What's Next?</strong></h2>
The centrality of WhatsApp to migrant social and economic life in Quito begs the question: Is it really necessary to “app-ify” migration?

Our research offers a simple response: no. This thinking aligns with a small but growing chorus of concerned researchers. A <a href="https://www.rand.org/pubs/research_reports/RR4322.html" target="_blank" rel="noopener noreferrer">RAND Corporation study</a> of refugee technology use in the Middle East and Greece confirms that migrants rely “mainly on mainstream technology developed for more general audiences,” and concludes that the influx of applications and “innovations” is simply “too much.” In the Mediterranean, research at <a href="https://sites.tufts.edu/journeysproject/the-financial-journey-of-refugees-evidence-from-greece-jordan-and-turkey/" target="_blank" rel="noopener noreferrer">The Fletcher School of Law and Diplomacy confirmed</a> those findings. Migrants frequently deployed applications used for maps, currency conversion, language translation, and weather. Notably, none of these applications were created specifically for migrants.

The RAND researchers recommend that humanitarian and development agencies invest more in working within mainstream platforms and less on developing niche products. This includes removing access barriers, scaling internet connectivity, managing data privacy, promoting digital literacy, and improving mobile phone penetration. These are all productive activities that agencies can do—and already do well. Why reinvent the wheel when already-popular migrant platforms exist? Our answer: don’t.

Migrants are the ultimate connectors. They have been using technology for years and will continue to do so, but in their own way and at their own pace. Humanitarian agencies claim that new technologies strengthen migrant autonomy, yet community-developed online systems already lend migrants voice.

Technology will continue to transform how migrants work, move, and connect. No doubt, off-the-shelf technology has made migration a bit more straightforward. Our job as humanitarians is not to invent new technology. Our job, on behalf of migrants, is to help existing technology go the distance. Let’s get to work.

There’s (Not) an App for That: Taking a Hard Look at the “App-ification” of Migration

The four largest tech companies reported more than <a href="https://www.nytimes.com/2020/07/30/technology/tech-company-earnings-amazon-apple-facebook-google.html" target="_blank" rel="noopener noreferrer">$28 billion in profits</a> in the second quarter of 2020. In the last 5 years, revenues of the world's largest tech companies have grown by <a href="https://www.mbres.it/it/publications/report-websoft" target="_blank" rel="noopener noreferrer">118 percent</a> versus only 10 percent by traditional manufacturing. Data is their “<a href="https://www.bernstein.com/Bernstein/EN_US/Research/Publications/Instrumentation/BigDatasHolyGrail.pdf" target="_blank" rel="noopener noreferrer">holy grail</a>,” (consumer personal data generates more than <a href="https://www.barrons.com/articles/why-google-and-facebook-could-dominate-big-data-51602622199" target="_blank" rel="noopener noreferrer">$50 billion in annual revenue</a> just in data broker and marketing data services) to the point that we could actually call those companies -- Apple, Facebook, Alibaba, Amazon, and others -- “digital multinationals.”

As these digital multinationals move into the lucrative and data-rich finance business, the authorities mandated to supervise the financial market -- to preserve the resilience of the financial sector, foster competition, and protect users -- are ill-equipped to oversee them.
<blockquote>The authorities mandated to supervise the financial market are ill-equipped to oversee digital multinationals.</blockquote>
This is an issue because the digital multinationals that increasingly shape our economies and societies, often in a legislation and oversight vacuum, have sought conquest of the financial system and its large -- and largely profitable -- data swathes. Alphabet (Google), Alibaba, Amazon, Apple, Facebook, and Tencent offer financial services, either wallets associated with their main products, or as standalone products.
<h2>Examples of Digital Multinationals’ Big Moves Into Financial Services</h2>
Tencent, for example, has two integrated payment platforms, Tenpay and WeChat Pay (also known as WePay) that are often referred to as a single payments platform and control <a href="https://www.forbes.com/sites/ywang/2018/03/28/is-alipay-losing-to-wechat-in-chinas-trillion-dollar-payment-war/#4662fc418822" target="_blank" rel="noopener noreferrer">40 percent of the mobile payments market</a> in China, making it the second-largest payments platform after Alibaba’s Alipay. Tencent integrates WeChat Pay into its growing ecosystem of WeChat mini programs and online-to-offline services, which offer food deliveries, online shopping, ride hailing, and other services to the messaging platform's 1.06 billion monthly active users. Alibaba's affiliate, Ant Financial, integrates Alipay into Alibaba’s Taobao and Tmall marketplaces. Both Tencent and Ant Financial are increasingly investing in, or partnering with, retailers that offer special discounts to WeChat Pay or Alipay users, and also offer microloans and wealth management products.

Facebook, the world’s leading social media network outside China, has started to roll out Facebook Pay to 2 billion WhatsApp users. In August, the Central Bank of Brazil first authorized, <a href="https://www.bloomberg.com/amp/news/articles/2020-06-23/brazil-s-central-bank-suspends-whatsapp-payments" target="_blank" rel="noopener noreferrer">and then stopped</a>, Facebook from providing payment services to <a href="https://venturebeat.com/2020/06/15/facebook-brings-payments-to-whatsapp-starting-in-brazil/" target="_blank" rel="noopener noreferrer">120 million WhatsApp users</a> in Latin America’s largest market. The bank said it had reversed its original decision to ensure competition in the payment system market, allowing the regulator more time to evaluate potential risks to the country’s payment infrastructure, and to work out whether WhatsApp is compliant with regulation. The WhatsApp payment service was also tested in <a href="https://www.techradar.com/in/news/whatsapp-pay-roll-out-will-be-further-delayed-heres-why" target="_blank" rel="noopener noreferrer">India</a> and Mexico.

Google, which has been in payments since Google Checkout’s launch in 2006, offers retail, peer-to-peer (P2P) and bill payments with Google Pay, and has partnered with eight banks to integrate digital banking. While U.S. adoption has been slow, in India -- where a whopping 98 percent of smartphones run on Android -- Google Pay has enjoyed stupendous growth, with 67 million active users as of September 2019 and $110 billion in annualized payments volume. Importantly, Google has focused on payments to boost engagement and capture data, not to reap fees -- although it takes a <a href="https://www.mobiloud.com/help/knowledge-base/what-are-apple-and-googles-fees-and-revenue-share-percentage-on-in-app-purchases-and-subscriptions" target="_blank" rel="noopener noreferrer">30 percent margin</a> on all sales within the Google Play app store.

Finally, Apple, the world’s most valuable company, uses Apple Pay to enhance the iOS platform and capture a greater share of its customers. It also takes a juicy fee on payments made in its app store.
<h2>A Capabilities Gap That’s Miles Wide</h2>
The analytical and technical capabilities of these firms far exceed those of the authorities charged with regulating them. The firms are using artificial intelligence and cloud computing to exploit the data of their users through surveillance capitalism and data mining. This is done exclusively to increase shareholders' value. Meanwhile, central banks and other agencies, which are already barely equipped for the oversight of the more traditional financial sector, are now being charged with overseeing products of digital multinationals they are not familiar with. Most supervisors rely on outdated tools such as Excel, and the uptake of new supervisory technologies is still slow. We witness astonishing delays in data validation and a scarcity of insights generated to conduct risk-based supervision and contain fraud. The roll out of reliable predictive models is also unavailable to most financial authorities. Benoît Cœuré, the new head of the Bank for International Settlements (BIS) Innovation Hub has highlighted the risks, challenges, and opportunities for financial authorities in a recent <a href="https://www.bis.org/speeches/sp200819.pdf" target="_blank" rel="noopener noreferrer">speech</a>, a call to action for the digital transformation of the public authorities that administer the financial sector.
<blockquote>We witness astonishing delays in data validation and a scarcity of insights generated to conduct risk-based supervision and contain fraud.</blockquote>
In the “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3595344." target="_blank" rel="noopener noreferrer">data stack</a>” paper that I co-authored with Arend Kulenkampff and Matt Grasser before the pandemic, and in the 2018 <a href="http://www.r2accelerator.org" target="_blank" rel="noopener noreferrer">RegTech for Regulators Accelerator</a> (R2A) <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3249283" target="_blank" rel="noopener noreferrer">white paper</a>, we pointed at the risks of the “big data divide” between digital multinationals and financial authorities, and discussed the importance of upgrading supervisory technologies (SupTech) and making new approaches to digital transformation mainstream. We also presented possible solutions to extend the benefits of the adoption of artificial intelligence (AI) and other technologies to increase competition and support innovation in the financial sector.
<h2>Pandemic Increases Urgency</h2>
I believe that the pandemic has made these demands even more urgent, and point at some priorities that financial authorities and multilateral and philanthropic organizations should consider in light of the value of financial data in today’s context, the power dynamics that are shifting with the deepening of the data divide, and the pressing need for upgrading financial supervision.

The lockdowns and physical distancing measures that governments have put in place in response to the pandemic make urgent the need for action. This year, a significant share of the world’s population was forced to work remotely and is spending more time online than ever before. During early shelter-in-place orders in the United States, daily users of Facebook increased 12 percent year over year to 1.79 billion. Monthly usage across its family of apps, which also includes Instagram and WhatsApp, rose 14 percent to 3.14 billion. And Facebook’s mostly ad-based business rose along with them: the company’s revenue was up 11 percent year over year. More than ever before, the majority of us rely on e-commerce, social media, online communications platforms, and remote, cashless transactions. This translates into growth of profit and power for the giant digital multinationals: in its fiscal 2020 third quarter, Apple posted quarterly revenue of $59.7 billion, an increase of 11 percent from the same quarter one year ago. In the quarter that ended in July, Alibaba delivered revenue growth of 34 percent, year over year.

On the regulatory side, the recently conducted <a href="https://www.jbs.cam.ac.uk/insight/2020/new-global-covid-19-fintech-study-launches/" target="_blank" rel="noopener noreferrer">World Bank-CCAF Global COVID-19 FinTech Regulatory Rapid Assessment Survey</a> (results forthcoming) will give insights into what sort of action will be needed by revealing key internal challenges for supervisors that have emerged during the pandemic. Check back here in the coming weeks for a link to those results.
<h2>Risks to Consumers</h2>
These trends represent an increased risk to consumers. First, without the right tools to identify and weigh risk, it will be challenging (impossible?) for financial authorities to supervise the rising digital-native financial sector and the giant digital multinationals. The <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3596276">automation of compliance reports</a> and tools to effectively monitor the health of financial service providers (FSPs) accessing granular and timely data are priorities, particularly at a time when on-site supervision is constrained. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3596276" target="_blank" rel="noopener noreferrer">Digital channels for complaints</a> (e.g., chatbots), and other tools to create better insights into the customer experience, are also needed.
<blockquote>Digital channels for complaints, and other tools to create better insights into the customer experience, are also needed.</blockquote>
Second, digital multinationals may snuff out the smaller, innovative FSPs, applying the same <a href="https://www.ft.com/content/39b5c3a8-4e1a-11ea-95a0-43d18ec715f5" target="_blank" rel="noopener noreferrer">“buy and kill” tactics</a> that have already come under scrutiny in other sectors, posing risks of concentration, and slowing down innovation. This tactic may bring new, much needed, competition into the financial sector at first. Some of them may provide their services for free to retain customers, boost engagement, and capture data, benefiting affordability. However, the long-term impact of the “buy and kill” tactics could be that smaller, innovative, local fintech startups that aim to serve niches of the market -- in some cases, those focused on addressing the needs of more vulnerable segments of the population -- get mopped up.

To correct the imbalance of power between giant digital multinationals and data-poor FSPs, and to counteract the emerging big data divide, a level playing field needs to be established for financial data access and usage. (This includes other data -- from telecoms, for example -- that is relevant for financial customers to make choices, and relevant for FSPs to design and roll out new products).
<h2>A Potential Solution</h2>
One way to level this playing field is a new <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3595344." target="_blank" rel="noopener noreferrer">Open Data Commons</a>, which guarantees access to rich and plentiful data to all market players and customers, and equips them with tools to make them meaningful and actionable. This establishes a shared data platform for the generation, exchange, and dissemination of insights to serve specific use cases for FSPs, customers, and other stakeholders.

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Financial Authorities’ Tools Must Evolve to Catch Up with “Digital Multinationals”

<img class="alignright wp-image-40142 size-thumbnail" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/grateful-emoji-283-150x150.jpg" alt="grateful " width="150" height="150" />
<h2>Grateful</h2>
I am feeling an incredible level of gratitude to all the people who participated in Financial Inclusion Week last week. We had more than 1,200 people register for FIW’s various events. The agenda featured more than 40 sessions covering a broad spectrum of topics, time zones, and regions. Each and every session required planning and coordination. A huge thanks goes to all of our partners who chose to participate and share their learning and experiences during FIW.
<h2><img class="alignleft size-thumbnail wp-image-40143" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/monocle-5-150x150.png" alt="" width="150" height="150" />Curious</h2>
I am already a major advocate for women’s financial inclusion and believe the inclusive finance industry needs to get more sophisticated on this topic. The CFI <a href="https://youtu.be/MxXWHaNhYcY" target="_blank" rel="noopener noreferrer">podcast on social norms</a>, the Caribou Digital session on <a href="https://www.youtube.com/watch?v=SbIBJO_7cJs&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">features that drive women’s usage of DFS</a>, and the Pinbox session, "<a href="https://youtu.be/b2ulPv9INEA" target="_blank" rel="noopener noreferrer">Saving the Next Generation from Old Age Poverty</a>" (especially women, who live longer) were eye-opening. I am curious to see where our collective focus on this topic will take us.
<h2><img class="alignright size-thumbnail wp-image-40144" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/tempted-heart-eyes-emoji-150x150.png" alt="heart eyes emoji " width="150" height="150" />Tempted</h2>
There were so many sessions to choose from that there were moments I felt like a kid in a candy store. Fortunately, the sessions have all been recorded and I can go back to the ones I missed and catch up on them (and I will have a full year to do that). I’ve even mapped out a plan of action for when I’ll get up to speed on what I missed. This week, I plan on listening to the Inclusive Finance India <a href="https://youtu.be/E0Snagg7TYM" target="_blank" rel="noopener noreferrer">session on remittances</a> and GSMA’s session, "<a href="https://www.youtube.com/watch?v=B3Khho7Bgac&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">Beyond One Billion: Exploring the State of Mobile Money in Africa</a>."
<h2><img class="alignleft wp-image-40145" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/connected-emoji-300x268.png" alt="connected emoji" width="184" height="164" /></h2>
<h2>Connected</h2>
We have all been struggling to adjust to our new, social-distanced and Zoom-based world, and I was worried that more virtual events might be difficult. I was surprised at how connected I felt to the inclusive finance industry. I learned so much from the various panelists, whether it was the elaborate -- yet achievable -- <a href="https://www.youtube.com/watch?v=FLWs9JMdj7M&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">ideas posed by Sarah Gammage</a> on the role of financial services in mitigating climate risk and supporting livelihood adaptation, or <a href="https://www.youtube.com/watch?v=qjVT1EaN3QE&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">David Medine’s insightful explanation</a> as to why consent-based systems are no longer relevant for addressing data usage and data privacy concerns. There’s been a lot of talk that this industry has become more fragmented as we each dig deeper into specific silos, but this week showed me the power of coming together. It takes some effort, but the results are evident.
<h2><img class="alignright size-thumbnail wp-image-40146" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/tired-emoji-150x150.png" alt="tired emoji" width="150" height="150" />Tired</h2>
But, alas, I am human and not a complaints bot or <a href="https://www.youtube.com/watch?v=9tXAN0oicVE&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">algorithm</a>, like the ones covered in some sessions. This means by the end of the week I was tired after an incredibly packed agenda and so many interactive sessions.
<h2><img class="alignleft size-thumbnail wp-image-40149" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/cry-emoji-4-150x150.png" alt="cry emoji" width="150" height="150" />Sad</h2>
That’s why my next emoji is complex. Despite my tiredness, I am sad to see FIW 2020 come to an end. I hope that this community that has come together to share and learn from one another can somehow keep the momentum going. At CFI, we will certainly do our best to engage and learn from our partners.
<h2></h2>
<h2><img class="alignright wp-image-40150" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/lightbulb-emoji-2-300x292.png" alt="inspired lightbulb emoji " width="161" height="157" />Inspired</h2>
My final emoji is my overwhelming sense of inspiration. I hope you found FIW as inspiring a learning event as I did. From our first day with the panel, "<a href="https://www.youtube.com/watch?v=im7EP5TtGdA" target="_blank" rel="noopener noreferrer">Serving Low Income Households Impacted by Climate Change</a>," to the last day with Aspen Institute’s session, "The Road to 2030: An Action Agenda for Inclusive Financial Systems," I am inspired that so many organizations are already thinking about and taking action on some of the toughest challenges that poor people face during this extraordinary time in history.

&nbsp;

Financial Inclusion Week and My Emoji Roller Coaster Ride

Two days ago, <a href="https://centerforfinancialinclusion.org/reimagining-inclusive-finance-with-women-in-mind/" target="_blank" rel="noopener noreferrer">we met Carla</a>, a woman in Tanzania with limited access to financial products that could help her save, plan, borrow, and make and receive payments. Now imagine that Carla’s husband became ill with COVID-19 and the market where she normally sells her vegetables has been shuttered by lockdowns to prevent spreading the virus. The family’s income has completely dried up. Carla is eligible for a government program which deposits funds directly into a mobile money account, but Carla has never used mobile money and is completely unfamiliar with the family’s new smartphone that’s registered in her husband’s name. This scenario is playing out around the world for many of the <a href="https://openknowledge.worldbank.org/handle/10986/33635" target="_blank" rel="noopener noreferrer">1.1 billion first-time recipients</a> of cash transfer payments in response to COVID-19. Who will help Carla figure out how to access the funds? Where can she go for help?

COVID-19 and its overwhelming impact on the health and livelihoods of people around the world has been the defining issue of 2020. Unexpected and unparalleled, the pandemic has been particularly devastating for low-income people already living on the brink of poverty. <a href="https://www.worldbank.org/en/news/press-release/2020/10/07/covid-19-to-add-as-many-as-150-million-extreme-poor-by-2021" target="_blank" rel="noopener noreferrer">The World Bank estimates</a> that COVID-19 is likely to push between 88 and 115 million people into extreme poverty, reversing the poverty reduction trend of recent decades.

With this new wave of economic uncertainty, governments have been quick to adopt cash transfer programs to help people cope with the impact of the pandemic. The World Bank reports that 340 cash transfer programs in 158 countries were initiated in response to COVID-19. Of those, 65 programs in 43 countries are new initiatives which are introducing benefits to 1.1 billion first-time cash transfer recipients.

The scale and speed at which these programs have been created and disbursed is unprecedented and has required governments to adapt their processes to get the funds out the door quickly and efficiently. Many have turned to digital channels. On the one hand, this presents an <a href="https://www.cgap.org/blog/can-emergency-cash-transfers-lead-financial-inclusion">opportunity for onboarding</a> customers to the digital finance ecosystem. On the other, it poses significant challenges for customers who are unfamiliar with the system that stands between them and the funds that they desperately need during these challenging times. If something goes wrong when trying to access the funds, whom can they turn to? If they can’t locate any cash-out locations due to lockdowns, how can they access the funds? If someone thinks they are eligible but has not been enrolled, whom do they contact?

During the course of Financial Inclusion Week, we asked participants to share what they’re seeing with regard to emerging consumer protection risks in light of COVID-19. Here’s a sample of what we heard:
<ul>
 	<li>Most respondents believe the rapid digitization of cash transfers presents increased risks for customers</li>
 	<li>Fraud by staff or agents was the most commonly cited type of risk observed, followed by excessive fees and poor data protection and security</li>
 	<li>Respondents would like to see better mechanisms for supervisors to monitor misconduct, and more consumer awareness and capability trainings by providers</li>
</ul>
Have you experienced similar risks where you live or work? <a href="https://app.sli.do/event/oqxdkouf/embed/polls/c12f34ed-3a47-4023-96fe-73f15cb5a722" target="_blank" rel="noopener noreferrer">We are collecting global examples of risks</a> through an ongoing survey and invite you to help us uncover specific instances we should explore as part of our ongoing research on this topic.
<h2>Looking Ahead</h2>
Beyond the specific and urgent issues related to the proliferation of cash transfer payments, we must continue to reimagine the paradigms that will enable improved consumer protection in a digital age. Supervision Technology, or SupTech, for example, is changing the interaction between customers, financial service providers, and supervisors by providing direct communications channels between customers and supervisors. In the Philippines, the central bank is piloting a <a href="https://www.marketscreener.com/news/latest/Moving-from-Crisis-to-a-Stronger-Tech-driven-More-Inclusive-Philippines--31488613/" target="_blank" rel="noopener noreferrer">chatbot</a> named BOB, or BSP Online Buddy, to handle customer concerns sent by SMS, Facebook Messenger, and online chat. This type of direct connection between customers and supervisors can strengthen monitoring systems and help track the customer experience and where protections are needed. Just as we continue to monitor new consumer risks related to the digitization of financial products, we must also continue to research, test, and advocate for innovative approaches to monitoring market conduct.
<blockquote>Just as we continue to monitor new consumer risks related to the digitization of financial products, we must also continue to research, test, and advocate for innovative approaches to monitoring market conduct.</blockquote>
At the end of 2019, when CFI began to <a href="https://centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space/" target="_blank" rel="noopener noreferrer">consider the future</a> of our consumer protection agenda, we never imagined the world that we now find ourselves in. Yet the questions being raised in this context are not new ones. As we collectively work to expand access and usage of financial services that we know can improve lives, how do we do so in a way that sufficiently protects vulnerable customers? The evolution toward digital channels has been underway for many years, already requiring that we reassess the next wave of priority research topics, yet the rapid expansion of digitized cash transfer payments and the rapidly changing context of the pandemic has propelled this effort and made the work even more urgent.

As <a href="https://pheedloop.com/fiw2020/virtual/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> draws to a close today, we hope the conversations held, the connections formed, and the knowledge gained will be put to productive use as we continue to advance inclusive finance in a way that has consumers best interests in mind at every step.


COVID-19 Ushers in New Challenges for Consumer Protection

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