For Telenor Group, the key to fostering inclusive digital finance is collaboration and open technologies.

&gt; Posted by <a href="https://twitter.com/jostemb">Johanna Stemberger</a>, Telenor Financial Services

The digitization of the financial services industry is in full swing. Seamless in-app payments enable smartphone users to pay for rides, tickets, food, etc. with just one click.
<img class=" size-medium wp-image-24565 alignright" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/telenor-ezytic.jpg?w=600" alt="Pay with Wave Money Ad" width="300" height="150" />In emerging markets, where most of the world’s 2 billion adults without bank accounts live, basic financial services have improved over the last decade: mobile operators and banks enable customers to store and transfer funds using their mobile phones. Still, developers and digital innovators struggle to reach users in these cash-based markets.
How can we foster innovation in financial technology for low-income consumers through products and services that promote digital financial inclusion? Telenor Group believes the answer to this question is to collaborate and open up. We’re going to discuss two examples below.

<h3>Accelerating the Pace of Financial Innovation With Open APIs</h3>
Telenor Group joined the mobile financial services industry in 2009, when we launched the mobile money service Easypaisa in Pakistan together with Tameer Bank (now Telenor Microfinance Bank). In 2016, <a href="https://www.wavemoney.com.mm">Wave Money</a> – a joint venture between Telenor, Yoma Bank and First Myanmar Investment – entered Myanmar as its first licensed mobile money operator. Today, Telenor serves more than 20 million mobile money customers in Pakistan, Myanmar, Bangladesh and Malaysia. And now we are giving fintechs and innovators access to our mobile financial services platforms in Pakistan and Myanmar via open APIs. “The local startup scenes in Pakistan and Myanmar bring great solutions with the potential to improve people’s lives. Many local fintechs have already experienced complex integration processes with large providers, and we were no exception. But when they use our open APIs, they can reduce their effort and cost of integrating as well as accelerate the pace of innovation,” explained Roar Bjærum, Head of Telenor Financial Services. “Everyone benefits,” he continued. “Innovators can monetize and scale their products, and our customers can access digital services they previously could not.”

APIs allow two software programs to communicate with each other. In the case of mobile money, the API defines the way a developer should write a program that successfully requests services from the mobile money platform. For example, this would allow an application like Uber or Amazon to link directly to a mobile wallet instead of a credit card or bank account.
<h3>Wave Money Developer Portal –Myanmar </h3>
[caption id="attachment_24571" align="alignright" width="300"]<img class="alignnone size-medium wp-image-24571" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/telenor-wave-money-developer-portal.jpg?w=600" alt="Wave Money's Developer Portal sign up screen" width="300" height="241" /> Wave Money's Developer Portal[/caption]

Wave Money, Myanmar’s leading mobile financial services provider, enables its customers to send and receive money and buy airtime via a smartphone app or at one of the 12,500 Wave shops.

In a country where more than 80 percent of the population does not have a bank account and payments are done almost exclusively with cash, the growing e-commerce and digital services scene was quickly interested in linking to Wave’s system.

As a first step, Wave launched “Pay with Wave Money,” a product enabling e-commerce players to plug in payment functionality to their websites and apps. However, the integration process was manual and therefore hard to scale. They then came up with the idea to build the Developer Portal as the <a href="http://fintechnews.sg/13434/myanmar/wave-money-first-fintech-company-myanmar-launch-open-api-linking-merchants-customers/">first fintech open API in Myanmar</a>. Merchants can integrate themselves by entering specific information and uploading the necessary documents. By availing the open API, hundreds more merchants can access this payment functionality far more quickly and easily—a significant step towards building a cashless economy in Myanmar.
<h3>First Asian Mobile Money Hackathon – Pakistan </h3>
<a href="https://www.telenorbank.pk/index.html">Telenor Microfinance Bank</a>, which runs Pakistan’s leading mobile money service Easypaisa, has also opened up access to its platform, using the harmonized set of mobile money APIs designed by industry stakeholders around the globe. This October, together with the <a href="https://www.gsma.com/mobilefordevelopment/programme/mobile-money/mobile-money-hackathon-coming-karachi">GSMA</a>, JazzCash and Karandaaz, Telenor Microfinance Bank invited developers to participate at a mobile money hackathon, a weekend challenge of testing and building solutions connected to merchant and bill payments.

13 teams participated and presented their ideas, ranging from e-challan (electronic statutory payments) to pay-bots for Facebook Messenger. The winning team proposed a solution geared towards families and the educational sector: it enables parents to directly pay school fees with their mobile phones, to pay for meals at school cantinas, to monitor food consumption to ensure a healthy diet, and to communicate directly with teachers.

[caption id="attachment_24575" align="aligncenter" width="548"]<img class="alignnone size-full wp-image-24575" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/telenor-winning-team.jpg" alt="Shahid Mustafa, President and CEO, Telenor Microfinance Bank, with the winning team." width="548" height="335" /> Shahid Mustafa, President and CEO, Telenor Microfinance Bank, with the winning team. Source: Telenor[/caption]

It is too early to know the impact of such third party services on the overall levels of financial inclusion in Pakistan and Myanmar. The significant interest and motivation that both Wave Money and Telenor Microfinance Bank experienced during their first interactions with the digital community indicates that soon, consumers in emerging markets may have access to a broad set of innovative, inclusive digital services.
****
Telenor is participating in <a href="http://www.financialinclusionweek.org">Financial Inclusion Week 2017</a>, where organizations around the globe join the global conversation on the most important steps to advance financial inclusion. Join the discussion on Twitter using #FinclusionWeek.

Telenor Opens Mobile Money APIs for Third Party Developers

This was the question that a team of us at The Fletcher School at Tufts University set out to answer in our study “<a href="http://fletcher.tufts.edu/Institute-for-Human-Security/Research/Migration-Crisis-and-State-Fragility/Financial-Mobility-of-Refugees">The Financial Journey of Refugees</a>.” We studied the routes and financial challenges of more than 100 refugees in Greece, Jordan and Turkey, between July 2016 and April 2017. The refugees we interviewed had traveled from South Asia, Central Asia, the Middle East, East Africa and West Africa.

Regardless of their country of origin, with the exception of Syria, a refugee’s biggest expense was the cost of hiring a smuggler. Smuggling expenses ran about 85 percent of the total cost of the journey. The smuggler’s fee included important services: travel by air or overland, depending on the refugee’s budget, guide services across borders, payment of bribes at border crossings, and documentation falsification expenses. Smuggling prices varied widely by country of origin (some borders being porous, others sealed tight), by how deluxe a trip was (air versus ground), by numbers of borders crossed (affecting the number of falsified IDs required). To give an example, journeying overland from Afghanistan through Pakistan, Iran, and Turkey to Greece might cost $7,500 per person, a price that went up or down based on shifting rules and border crackdowns. Traveling from Eritrea to Greece might cost the same amount. Traveling from Syria to Turkey could cost as little as $500.

The price of the journey was one factor in a traveler’s safety – the higher the cost, the better the traveling modes, and the safer the travel. While what refugees paid their smuggler was important, how they paid them was equally important. Did the refugee pre-pay the kingpin smuggler in advance of the journey? Did she post-pay him after arriving safely in Greece or Germany? Did she pay leg by leg? All these strategies were in play and we outline them in our <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Human%20Security/Final%20Journeys_Briefing%20Paper.pdf">report summary</a> and they are detailed by the refugees themselves in a <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Human%20Security/Compendium%20Financial%20Journeys%20%20Publication.pdf">Compendium of Field Notes</a>. Below we describe two of many strategies.
<h3>Strategy 1: Guarantee Scheme via a Financial Third Party</h3>
Money agent networks, often informal, span from Pakistan to Germany, and around the world. These networks—dubbed Eastern Union by a Jordanian regulator—do far more than transfer funds from person A to person B. They will store funds for later disbursement or, if instructed, will shunt funds directly to smugglers. For example, a journeyer traveling overland from Kabul to Athens might visit a money agent in Kabul (a saraf) who will take her deposit for $7,500. When she arrives safely to her first waypoint, which could be in Zahedan, Iran, she texts a code to her saraf. The code, incidentally, would have been randomly generated by the saraf’s app before her departure and she would have memorized it. By sending the code, the refugee signals her safe arrival at the Zahedan waypoint. The saraf then forwards a predetermined sum to the kingpin smuggler, using a network of couriers and other money agents to get him his funds. The kingpin in turn deploys a combination of banks and money agents to make sure his local smugglers get paid.

There is no single way this system of guarantee works. It is customized, improvised upon, and individually negotiated by various actors. In some instances, there is no code. In others, there are several codes. In some instances, the kingpin smuggler chooses the saraf. In others, the refugee chooses the saraf. In Syria, the third party is often a shopkeeper who charges $50 to insure the journey. In Iran, the money agent charges a percentage (often 10 percent) of transactions.
<h3>Strategy 2: Crowdsourcing via Kin</h3>
Typically, crowdsourcing via kin is a pre-payment strategy, but not always. We interviewed refugees who were held hostage by smugglers at various points along their routes. When relatives—sometimes a circle of relatives both forward and backward along the route—paid up, the hostage refugee was released to be smuggled farther along her route.

Often crowdsourcing came in the form of pre-payments along various points in a route. For example, traveling from Eritrea to Greece, a journeyer might signal a relative in Khartoum to fund trip expenses. The relative in Khartoum would crowdsource funds from family members in multiple countries across Europe and North America. She might use Zain, a mobile money system, to collect the funds and hold them in Khartoum. She would then secure a smuggling network to help the Eritrean refugee cross to Sudan. The kingpin smuggler would be paid via a courier upon the refugee’s safe arrival in Khartoum. If the Eritrean refugee wanted to continue north to Turkey, Greece or Northern Europe, another round of crowdsourcing would begin. Again, the relative would make payment to the smuggler after the refugee’s safe arrival. In some cases, to ensure compensation, the smuggler will stay with the refugee in a safe house until he has received his payment via Western Union or an informal money agent.

Said one refugee: “It’s a collective system. All Eritreans understand each other on this.” The understanding is that she does not have to pay her relatives back, but she is expected to pay her debt forward: when someone else in her network tries to escape Eritrea, she is expected to do her part to financially support his or her expenses.

What do these strategies mean for providers of financial services? Clearly suppliers cannot legally, knowingly pay smugglers. But, perhaps there are other forms of financial assistance that are perfectly legal.

First, licit travel is often part of a route and could be better insured. For example, a refugee may be able to obtain a visa to a transit country and would like to secure legal travel there. But, because prior legs of the journey may be cobbled together through smugglers, the refugee cannot predict when they will reach the transit country. Insurance could help offset this uncertainty. Too often providers are skeptical that people need financial education to understand sophisticated insurance products. As long as the systems are familiar and offer value, refugees both literate and illiterate, will master them quickly. Second, providers believe that people don’t like to save, but, we found that saving for a purpose—journey preparation—is valuable. Surely, there are many legal ways to assist refugees to accumulate savings for journey purposes. And just as surely, clever suppliers could find ways for refugees to easily access those licit savings along their journey. Third, the ubiquity of informal agents could lead to service expansion. Can trusted informal money agents be co-opted and certified within a legal framework in much the same way that Uber has recruited its drivers?

Have you read?

<a href="https://cfi-blog.org/2017/03/09/the-digital-demands-of-the-displaced-dont-track-me-dont-expose-me-dont-cut-me-off/">The Digital Demands of the Displaced: Don't Track Me, Don't Expose Me, Don't Cut Me Off</a>

<a href="https://cfi-blog.org/2016/02/09/financial-inclusion-and-immigration-in-europe-disrupting-identity-norms/">Financial Inclusion and Immigration in Europe – Disrupting Identity Norms</a>

<a href="https://cfi-blog.org/2016/08/17/a-learners-license-to-master-the-rules-of-the-credit-road/">A Learner's License, To Master the Rules of the Credit Road</a>

Migration’s Middlemen and How to Pay Them

&gt; Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, Intermedia

<a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/"><img class="alignright wp-image-24118" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/8119464904_79beccb1d8_z.jpg?w=490" alt="" width="324" height="225" /></a>The State Bank of Pakistan’s (SBP) <a href="http://www.afi-global.org/sites/default/files/publications/national-financial-inclusion-strategy-pakistan.pdf">National Financial Inclusion Strategy</a> (NFIS), launched in May 2015, set an ambitious goal of expanding access to financial services from 10 percent of adults to at least 50 percent by the year 2020. Intermedia’s newly-released Financial Inclusion Insights (FII) data suggests that, as of 2016, Pakistan’s progress was not yet on a trajectory to get to 50 percent. It also suggests ways Pakistan could improve the rate of progress.

FII’s new <a href="http://finclusion.org/uploads/file/Pakistan%20Wave%204%20Report%2019-July-2017.pdf">2016 Pakistan Annual Report and Survey Data</a> finds that financial access rose only incrementally, from 15 percent to 16 percent, in 2016. More than 45 million more adults would need to take up a formal financial account for the country to achieve 50 percent financial inclusion as defined by the NFIS. Further, even if access is improved, registration and regular use of accounts may lag and prove a steeper climb. The percentage of adults holding registered accounts with a full-service financial institution did not increase at all over the last year, measuring 9 percent in 2015 and 2016. Similarly, active registered users over the same period remained unchanged at 8 percent.

However, these figures could be improved if the gap between the formal products on the market and Pakistanis’ actual, day-to-day financial needs and preferences is addressed, FII data indicates.

Our data show that even though formal access and inclusion levels are low, many Pakistanis’ have active financial lives outside the formal sector. For instance, the 2016 FII survey showed that more than half of survey respondents had actively built savings at least once in their lives, and one in two adults without access to formal financial services had saved. People saved for emergency funds (62 percent), to make ends meet (57 percent), and to buttress their families against financial losses related to crime (42 percent), among other less common reasons. Similarly, 20 percent of Pakistani adults have borrowed before, either formally or informally - most often for emergency spending and daily purchases.

Clearly, Pakistanis are saving, borrowing, and transacting on a daily basis. Yet, for the most part, they are doing so in cash and via informal financial services rather than through formal institutions. In fact, 77 percent of Pakistani adults who save do so in the form of cash at home and 20 percent use Rotating Credit and Savings Associations (ROSCAs). An increasing number of people are using formal digital financial services (DFS) channels, but many do not register personal accounts, preferring over-the-counter (OTC) options instead. In 2016, while less than 1 percent of Pakistani adults had registered a mobile money account, nearly 10 percent were mobile money users, with 93 percent of mobile money use being OTC.

What will be the key levers for building momentum towards improved access and account registration and usage?

Design products and services that better reflect Pakistanis’ needs and daily lives. Despite relatively high awareness of formal financial services, survey respondents had a very low perceived need for them. In fact, 84 percent of Pakistanis who did not use any formal financial services said the main reason was they did not see a need. If your neighborhood merchants accepted only cash, ATMs were scarce, and opening a savings account required a long wait, wouldn’t you prefer to hold cash at home? Respondents’ second-most cited reason for not using a bank account was the perception that they did not have enough money to make transactions (see figure below). This common sentiment could reflect the kinds of products and services currently offered, and their costs and minimum requirements. Expanding access and usage could be aided through client-centric design, investment in infrastructure such as ATMs and other points of service, and deepening merchant acceptance of non-cash transaction tools.

[caption id="attachment_24111" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-1.png"><img class="wp-image-24111" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-1.png?w=490" alt="" width="616" height="242" /></a> (click to enlarge)[/caption]

To improve DFS use, support access to phone ownership and the development of phone skills. In 2016, while 76 percent of Pakistani adults were aware of mobile money providers and almost two in three Pakistani adults knew of a mobile money kiosk or agent within a kilometer of their homes, the conversion rate from awareness to use was a tiny 0.11 percent. This low conversion rate reflects, in part, the lack of ability to fulfill the preconditions for use of mobile money:  In Pakistan, only 52 percent of the population owns a SIM card and only 44 percent have the ability to send and receive a text. Addressing these gaps could help ensure that common transactions such as P2P and bill pay can be done through a mobile money account and without the OTC assistance of an agent.

Invest in women’s access to phones, their mobile phone skills, , and programs that address social norms. The findings speak for themselves. In 2016, the gender gap in financial inclusion in Pakistan climbed back to the 2014 level of 8 percent, after falling to 5 percent in 2015. As shown in the figure below, the gap in the country is pervasive across all stages of the customer journey and across all demographics (poverty, education, geography, age and marital status).

[caption id="attachment_24112" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-2.png"><img class="wp-image-24112" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-2.png?w=490" alt="" width="615" height="224" /></a> (click to enlarge)[/caption]

Gender continues to be a key demographic differentiator in bank account registration where the gap between women and men increased from 5 percent to 7 percent between 2015 and 2016. Among Pakistani women, urban, wealthy and highly educated women reported registering accounts most frequently. However, women within these privileged demographics reported registering less frequently than poor, rural men.  One of the biggest factors behind the gender gap in Pakistan is women’s lack of agency and decision-making power, as illustrated in the figures below.

[caption id="attachment_24114" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-3.png"><img class="wp-image-24114" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-3.png?w=490" alt="" width="615" height="231" /></a> (click to enlarge)[/caption]

[caption id="attachment_24115" align="aligncenter" width="614"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-4.png"><img class="wp-image-24115" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-4.png?w=490" alt="" width="614" height="200" /></a> (click to enlarge)[/caption]

[caption id="attachment_24116" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-5.png"><img class="wp-image-24116" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-5.png?w=490" alt="" width="616" height="233" /></a> (click to enlarge)[/caption]

Only 16 percent of women in Pakistan who have an income from the formal economy have sole control over how they use their money (compared to 44 percent of men), and less than 20 percent of women have control over how to use household assets or household spending. While 88 percent of married men have access to a phone, only 65 percent of married women do. In terms of SIM card ownership, 57 percent of men own a SIM card, while only 27 percent of women do. Finally, as the State Bank of Pakistan continues to promote DFS, it is important to address the current phone skills gap across genders; 57 percent of men were able to send and receive a text versus only 30 percent of women.

Government policies and initiatives in support of financial inclusion are key for advancing access and usage of financial services. Yet, as the data show, progress can be slow when contending with historical barriers to inclusion and competing against informal services. To achieve the NFIS goals, stakeholders will need to address the lack of financial literacy, technological capabilities, and phone access, particularly among women. Additionally, given the active financial lives described by the FII Annual Report, formal products must be tailored to better meet the needs of Pakistanis who are currently using cash and relying on friends and family to save, borrow and protect themselves against risk.

What recommendations do you derive from the data? <a href="mailto:vandewallen@intermedia.org">We’d love to hear from you</a>.

<a href="http://www.finclusion.org">Financial Inclusion Insights</a> is an ongoing research program funded by the Bill &amp; Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries in Africa and Asia. The 2016 Pakistan Annual Report can be found <a href="http://finclusion.org/uploads/file/Pakistan%20Wave%204%20Report%2019-July-2017.pdf">here</a>.

Image credit: <a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/">World Bank</a>

Have you read?

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?</a>

<a href="https://open.spotify.com/track/2dnoG56c2llppkz2IPtt3G">Gauging Loan Officers’ Perspectives: A Study by Pakistan Microfinance Network</a>

<a href="https://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients from Benin, Pakistan, Peru, and Georgia</a>

How to Accelerate Financial Inclusion in Pakistan: Lessons from the New Financial Inclusion Insights Data

&gt; Posted by Kelsey Truman, HBS-Accion Program Coordinator, CFI

<img class="alignright wp-image-23352" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/kgfs.jpg" alt="" width="330" height="185" />Domestic abuse and violence against women (VAW) are pervasive and shocking. According to the World Bank, <a href="http://www.worldbank.org/en/topic/socialdevelopment/brief/violence-against-women-and-girls">38 percent</a> of murders of women globally are committed through intimate partner violence. Globally, <a href="https://unstats.un.org/unsd/gender/chapter6/chapter6.html">one-third</a> of all women have experienced domestic or intimate partner violence. The World Health Organization even went so far as to call VAW a “<a href="http://www.who.int/mediacentre/news/releases/2013/violence_against_women_20130620/en/">global health problem of epidemic proportions</a>.” Could financial services possibly play a role in improving this situation?

One of the largest hurdles in combating VAW around the world is women’s inability or unwillingness to seek help when they find themselves in abusive situations. In conjunction with fear, one important reason many women don’t seek help rests on <a href="https://unstats.un.org/unsd/gender/downloads/Ch8_Poverty_info.pdf">their degree of financial dependency</a>. That is, they don’t have enough money or economic resources necessary to establish themselves independently, much less pay for legal fees and so forth. Furthermore, women’s vulnerability to violence has been shown to <a href="http://www.worldbank.org/en/topic/socialdevelopment/brief/violence-against-women-and-girls">increase with their relative level of poverty</a>. If women are given options to easily and discreetly pursue financial options and open bank accounts independently of their husbands and other male family members, it could very well save their lives one day.

<a href="http://documents.worldbank.org/curated/en/801311468330257772/Financial-inclusion-and-legal-discrimination-against-women-evidence-from-developing-countries">One report from the World Bank</a> found that women in developing countries like Pakistan faced multiple obstacles accessing basic financial services without at least two male guarantors. The same report goes on to find that in countries with higher VAW (like Pakistan) women are less likely to have a bank account, formal savings, or formal credit - which may further entrench them into a cycle of abuse. Therefore, financial service providers, according to <a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/">Bobbi Gray at Grameen Foundation</a>, have a responsibility to pursue robust financial inclusion pilots “to provide the financial services industry with a set of standardized, comparable, relevant, and reliable health indicators that they can add to the existing poverty measurements they are using to assess the impacts of their services for clients,” including in terms of VAW.

Policy and programs that pursue financial access and empowerment can help women create a tailored approach to address their particular situations. Financial inclusion initiatives, especially mobile and digital banking, can facilitate women’s access to financial services in a safe way, promoting independence. Economic empowerment through money management tools like a bank account can be a quiet VAW intervention and, if done correctly, can help afford distance between women and their abusers. MFIs and governments need to remove barriers to account accessibility to allow women to assert their financial independence.

Of course, increasing women’s access to financial services is not only the right thing to do, <a href="https://cfi-blog.org/2014/09/15/savings-groups-mobile-phones-and-a-new-solution-for-rural-women/">it is also a savvy business strategy</a>. Private enterprises like telecoms companies and MFIs benefit from expanding their client base by making mobile banking solutions available to women. And there are plenty of markets with high mobile penetration rates and proliferating mobile money services where women could readily benefit – from <a href="http://www.ebrd.com/downloads/research/economics/workingpapers/wp0136.pdf">Mongolia</a>, to <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/20153/9781464801716.pdf?sequence=1&amp;isAllowed=y">Southeast Asia</a>, <a href="http://hbswk.hbs.edu/item/female-empowerment-impact-of-a-commitment-savings-product-in-the-philippines">the Philippines</a>, <a href="http://gap.hks.harvard.edu/savings-constraints-and-microenterprise-development-evidence-field-experiment-kenya">Kenya</a>, and numerous places in between.

Bank accounts are not a silver bullet in combating VAW or women’s economic empowerment, but they help build a foundation that can give a woman more control over her own finances. Such control can be a necessary first step she takes to remove herself from abuse. And if a bank account leads to a savings account, and a line of credit, this progression adds safeguard options for emergency funds required to leave an abusive situation. Bank accounts could be the tipping point in a woman’s ability to remove herself and her family from unhealthy and possibly dangerous circumstances.

Have you read?

<a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/">Domestic Violence and Microfinance: What Is Our Role as Financial Service Providers?</a>

<a href="https://cfi-blog.org/2014/09/15/savings-groups-mobile-phones-and-a-new-solution-for-rural-women/" target="_blank">Savings Groups, Mobile Phones, and a New Solution for Rural Women</a>

<a href="https://cfi-blog.org/2016/07/15/the-heart-and-science-of-client-assessment/">The Heart and Science of Client Assessment</a>

Can Bank Accounts Save Women's Lives? Violence Against Women and Financial Inclusion

If you had to embark on a journey similar to that of the 65 million people who are currently forcibly displaced, what would you bring? Most likely among your provisions would be a smartphone. Phones are the contemporary map and compass, a gateway to critical information, a means for keeping in touch with loved ones, and a financial toolkit. <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/02/The-Importance-of-mobile-for-refugees_a-landscape-of-new-services-and-approaches.pdf">More and more</a>, aid workers are witnessing refugees arriving at camps with smartphones. For both the refugee journey and the post-journey settlement process, a phone can be vital. With this in mind, you might not be surprised to learn that mobile money usage among refugees, including for cash transfers from governments and NGOs, is on the rise.

GSMA reports that the end of 2015, there were <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/04/SOTIR_2015.pdf">271 operating mobile money systems</a> across 93 countries, with over 400 million registered accounts globally. At the same time, the Center for Global Development <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">estimates</a> that the vast majority of aid to refugees is given in monetary form. Most aid is provided either through vouchers that can be used for specific purchases or in-kind donations of items like blankets, heaters, and bags of rice. There’s growing evidence suggesting that not only are cash aid transfers <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">superior to vouchers and in-kind aid</a>, but that mobile money is the <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/02/The-Importance-of-mobile-for-refugees_a-landscape-of-new-services-and-approaches.pdf">optimal vehicle for cash transfers</a>.

Most refugees use mobile phones extensively, with higher internet usage rates than the general population, according to a study from the Oxford University Humanitarian Innovation Project, “<a href="https://www.rsc.ox.ac.uk/refugeeeconomies">Refugee Economies: Rethinking Popular Assumptions</a>”. In some cases refugees even buy a new SIM card <a href="https://www.trulioo.com/blog/financial-support-for-refugees-displaced-people/">each time they enter a new country</a> in order to navigate their way to the next border. Governments and aid agencies are recognizing this trend and re-thinking how they support this vulnerable population. And for their part, mobile network operators (MNOs) increasingly see refugees as a new, viable customer base as well as an opportunity to contribute services to highly vulnerable people.

A <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/02/The-Importance-of-mobile-for-refugees_a-landscape-of-new-services-and-approaches.pdf">new report from GSMA</a> offers a handful of vignettes that illustrate the growing pervasiveness of phone-based financial services in refugee communities:
<ul>
 	<li>In Pakistan, which has the third-largest refugee community in the world, the government is the primary source of cash assistance for displaced individuals, and the majority of cash transfers are completed via mobile money. Four of the market’s top five MNOs are active participants in the mobile money disbursement programs.</li>
 	<li>In Uganda, GSMA surveyed refugees both in and outside camps and found that almost half of them used mobile money, mainly to receive remittances from family and friends. Recently, the MNO Orange Uganda built a tower in the Nakivale camp to support the launch of its mobile money service targeting the refugee population.</li>
 	<li>Refugees in Rwanda are regular users of mobile money. Some are even working as mobile money agents.</li>
</ul>
Mobile money presents refugees with deepening financial inclusion opportunities. Large barriers persist to refugees adopting and using such services, but when given the opportunity, refugees and internally displaced populations use mobile money in the same ways that other populations do: for remittances, person-to-person payments, merchant payments, loans, and savings.

Potentially most crucial for refugees are international remittances, either to send money home or to receive money from home. The international remittances market has been disrupted by mobile money in recent years, with transfers via phone <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/02/The-Importance-of-mobile-for-refugees_a-landscape-of-new-services-and-approaches.pdf">21 percent</a> cheaper on average than standard money transfer operations. And such services are spreading fast. In fact, international remittances are the fastest-growing mobile money service. One can now send international remittances via mobile money between more than 20 countries worldwide, particularly in regional markets, i.e., between neighboring countries. High rates of adoption are seen in several markets in which these services recently launched, including Burkina Faso, Ivory Coast, Mali, and Senegal.

Whether in settlement camps or post-settlement, refugees seek to quickly build new lives. To this end, they use person-to-person and merchant payments not only for consumption purposes, but also as livelihood-building and business tools. Eighty-nine percent of refugees in Kampala use their mobile phones to generate income, according to “Rethinking Popular Assumptions”. Phones can help refugees find employment, access market information, and run micro-businesses. A mobile money ecosystem also presents employment opportunities for ancillary services like selling phone charging services, mobile phone repair, and serving as mobile money agents. Mobile money empowers refugees to create or boost existing markets – for food, clothing, financial services, and more.

In addition to mobile money, we’ve seen an array of initiatives from governments and NGOs that pair aid with other digital financial services:
<ul>
 	<li>Lebanon hosts the most refugees per capita in the world with 1.2 million individuals. Aid organizations like the International Rescue Committee (IRC) <a href="https://cfi-blog.org/2016/11/15/the-future-of-refugee-financial-inclusion/">issue ATM cards</a> for refugees to access cash benefits, taking advantage of the fully-functioning distribution networks of merchants and ATMs available in the country.</li>
 	<li>In Syria, the United Nations Relief and Works Agency (UNRWA) <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwi_nNidh47SAhUqw1QKHUnmAIQQFggcMAA&amp;url=https%3A%2F%2Fcfi-blog.org%2F2016%2F11%2F15%2Fthe-future-of-refugee-financial-inclusion%2F&amp;usg=AFQjCNECigBXaYLGABweP1wabi4C7_sZdA&amp;sig2=CIjwqfD6abOcndsGBat1RA">developed a small fleet</a> of mobile lending units to reach clients in areas without financial infrastructure.</li>
 	<li>On the island of Lesbos, Greece, Mercy Corps <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">offers refugees debit cards</a> that connect to a bank account to help them build banking histories.</li>
 	<li>The Digital Finance Institute launched the <a href="http://www.digitalfinanceinstitute.org/?post_projects=childrens-adventure-camps">Banking on Refugees project</a> which is piloting a cloud-based branchless bank that harnesses biometric identification and digital payment solutions, including prepaid cards and e-wallets.</li>
</ul>
However, a number of challenges impede the spread of mobile money-based humanitarian aid for refugees, as well as their uptake of broader mobile money services. These can come from both the supply and demand side. In some environments the mobile money ecosystem is still too nascent and not yet a viable option. In others, demand is weak, either because services are not sufficiently convenient or robust, or because of lack of customer awareness or familiarity. In its recent study, GSMA found that for refugees using mobile money, convenience and connectivity was more important than familiarity with the service, pointing to the importance of service and agent coverage and agent liquidity.

Proof of identity also poses a serious issue. <a href="https://cfi-blog.org/2016/11/15/the-future-of-refugee-financial-inclusion/">As discussed on this blog previously</a>, refugees often leave their home country without identity documentation, and sometimes even when they have it, the host country government may not have the technology and data needed to authenticate these documents. Lack of identification can impede refugees from buying SIM cards, owning mobile phones, and accessing mobile money and other financial services.

UNHCR in Jordan is mitigating this problem using biometrics. Refugees in the UNHCR program in Jordan <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">receive iris scans</a> which are stored in the cloud. The UNHCR offers bank accounts for refugees through the Cairo Amman Bank. When refugees arrive at the bank’s ATMs, they look into a set of binoculars that scans and verifies their eyes, and they’re able to withdraw the money in their name.

Refugees are also often faced with the loss of the banking and credit histories they built in their home countries. We’ve <a href="https://cfi-blog.org/2016/11/15/the-future-of-refugee-financial-inclusion/">advocated before for credit history portability</a> for refugees, allowing refugees to be able to apply preexisting credit histories in the host country and, if they return home, to bring credit histories accumulated in host countries back with them.

Trulioo, a company that works in identity verification, <a href="https://www.trulioo.com/blog/financial-support-for-refugees-displaced-people/">asserts the potential</a> to use an individual’s cyber identity for identity verification and for enabling access to credit and other financial services. MNOs could serve as centralized, cross-border identifiers, by harnessing the user data and transaction histories linked to specific SIM cards. Additionally, aggregation of an individual’s online interactions, including of mobile money and online transactions could serve in place of credit histories to open financial doors.

But often it all comes back to the initial distribution of relief payments, where governments, NGOs, MNOs, and banks too often conduct business as usual. Although buy-in and coordination from these stakeholders is essential, many remain uncomfortable, unfamiliar, or unconvinced about the merits of cash transfers instead of vouchers or donated items, or about the merits of mobile money. Elizabeth MacBride of Quartz <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">writes</a>, “One of the obstacles to donors shifting their giving to cash has been that the NGO edifice that funnels their money is built to resist its own destruction.” Indeed, mobile money cash transfers might be a more efficient and effective means to offer refugees crucial resources, but there are vested interests in the status quo. For example, in 2013 USAID shipped <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">1.4 million metric tons</a> of food aid as part of the World Food Program. To accomplish this, roughly $70 million was spent on shipping. Food sellers and shippers are likely to be strong advocates of retaining the in-kind system.

A number of studies suggest that not only is cash aid more efficient than other aid forms, it’s ultimately more helpful for refugees. One study estimates that the savings on administration gleaned from the more efficient digital cash transfer programs could help the aid reach 30 percent more people for the same price. In 2014 IRC, in partnership with Yale and the University of Brasilia, published a rigorous evaluation of emergency cash distribution for refugees with the core finding that refugees <a href="http://mastercardcenter.org/action/mobile-money-transforming-financial-inclusion-refugees/">used the money for food as intended</a>, as opposed to spending it on cigarettes or alcohol. Another IRC report in Lebanon found that 87,700 families who were given $575 via ATM cards <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">used the funds for essential purchases</a>, like food, clothing, fuel oil, and so forth. In both of these studies additional findings spoke to the entrepreneurial nature of refugees, who strive against extremely difficult odds to build new lives. In the first study it was calculated that for every $1 of cash assistance, $2 was created in local markets. In the second, with cash transfers instead of other aid forms, more children stayed in school because fewer families had to send their kids to work. Another study of Syrian refugees in Iraq found that <a href="https://qz.com/750020/the-deceptively-simple-economic-case-for-giving-refugees-cash-not-stuff/">70 percent</a> of individuals sold some of the aid they received in the form of rice. Compared to other forms of aid, cash transfers empower refugees to take action on behalf of themselves and smooth entry into their new country.

And digital channels for cash aid – whether mobile money or otherwise – offer a number of benefits over physical cash transfers. Digital finance offers greater transparency and the ability to track cash, which can combat the longstanding problem of corruption surrounding the physical handling of cash. And digital offers refugees greater security and safety from theft.

Sadly, the current refugee crisis is not going away any time soon. In the meantime, we applaud all those working to support these millions of individuals, through cash transfers, financial services, and other means.

Have you read?

<a href="https://cfi-blog.org/2016/09/20/financial-inclusion-of-refugees-an-introduction/">Financial Inclusion of Refugees: An Introduction</a>

<a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">Financial Inclusion of Refugees: Azerbaijan Case Study</a>

<a href="https://cfi-blog.org/2016/10/07/financial-inclusion-of-refugees-al-majmoua-in-lebanon/">Financial Inclusion of Refugees: Al Majmoua in Lebanon</a>

Refugees and Humanitarian Assistance: Which Kind of Aid Is Best?

In this research, Guy Stuart, CFI Fellow and Executive Director of Microfinance Opportunities, assesses whether and how G2P payments increase formal financial inclusion. Stuart coupled observations, interviews and focus groups in Colombia and Pakistan with extensive analysis of reports on G2P payments covering 19 countries and quantitative data from the World Bank Global Findex.

While Stuart’s research identifies five key mechanisms by which G2P payments could lead to greater financial inclusion, the evidence ultimately suggests that G2P beneficiaries do not take advantage of the basic and common functionality of these programs.

Stuart provides insightful recommendations for government and the private sector to design better products, optimize delivery of payments, and effectively communicate the advantages of these programs to beneficiaries.

&nbsp;

Government to Person Transfers

&gt; Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities

<a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/"><img class="alignright wp-image-21191" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/8119464904_abd5a532c7_k.jpg" width="331" height="229" /></a>Can government-to-person (G2P) payments to low-income beneficiaries translate into their financial inclusion? One way this might happen is if those beneficiaries can gain experience in dealing with a formal financial service provider (FSP) when they go to pick up their payments. This is especially the case where the government pays the beneficiaries of the program through a digital channel, such as a debit card or mobile money, and the payment pick up process gives beneficiaries the chance to interact directly with this new technology. Furthermore, given that G2P programs are often targeted at women, there is the potential for these programs to increase the inclusion of the half of the population traditionally more excluded from formal financial services.

As part of the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-and-accion-research-fellows">Center for Financial Inclusion Fellows Program</a>, Microfinance Opportunities, in partnership with the Pakistan Microfinance Network and Centro de Formación Empresarial de la Fundación de Mario Santo Domingo, looked at this issue as part of a larger project on the relationship between G2P payments and financial inclusion. For this project we analyzed global survey data as well as conducted field research in Colombia and Pakistan—two countries with large, well-established G2P programs called Familias en Acción (Familias) and the Benazir Income Support Program (BISP) respectively. The field research involved focus group discussions with the beneficiaries of the programs and, in Pakistan, a series of observations of transactions at the shops of agents of one of the commercial banks distributing payments to the beneficiaries of BISP.

The focus group discussions with the beneficiaries of the Familias program in Colombia showed the potential of G2P programs to have a direct effect on enabling women to become comfortable with using digital channels to receive money. The women unanimously reported that they used their Familias debit cards to withdraw their G2P payment from an ATM without any help from anyone else. They did report that, at first, they needed help, but soon learned how to use the cards themselves without any problem.
"... I have the money today and we can withdraw it in just 5 minutes, right? I think it is easy.” (La Calera, Bogotá, Urban)
In Pakistan, the story was very different. Over the course of three days of observation at various agents’ locations in three provinces—two in Punjab and three each in Sindh and Khyber Pakhtunkhwa (KP)— our researchers observed 778 transactions, of which 324 (42 percent) were transactions in which an individual conducted a BISP-related transaction. Of these 32 transactions failed due to a variety of reasons including: problems with the card or PIN number, a shortage of cash in the agent’s shop, no balance on the card, problems with the beneficiary’s identify card, or the fact that the beneficiary was not present to conduct the transaction herself. Other than the BISP transactions there were also 229 mobile top-up transactions and 100 mobile money transactions (29 and 13 percent of the transactions respectively).

Almost 97 percent of the transactions unrelated to BISP were conducted by men and took just over two minutes to complete. Men performed just over 2/3s of the BISP-related transactions, and the average time it took for all such transactions was five minutes.

[caption id="attachment_21186" align="aligncenter" width="615"]<img class="wp-image-21186" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/figure-1.png" alt="Figure 1: Distribution of Observed Transactions" width="615" height="319" /> Distribution of Observed Transactions[/caption]

We were able to gather detailed information on 203 of the BISP transactions we observed. The information covered who came to the agents’ shop, who they were with, who conducted the transaction, what role the agent played, and whether they conducted transactions other than the BISP transaction while they were at the agent’s. Of the 203 transactions, 75 (37 percent) were conducted by women on their own. Another 73 (36 percent) were conducted by men on their own. The remaining 55 transactions were conducted by someone who went to the agent’s shop accompanied by one or more persons, and in those situations women conducted 32 of the transactions (16 percent of the total), while men conducted the other 23 (11 percent of the total).

In all cases the agent swiped the card and entered the PIN number, written on a slip of paper, given to him by the person conducting the transaction. In 100 (51 percent) of the 195 transactions completed and for which we have data, the agent handed the person conducting the transaction a receipt related to the transaction, while in the rest of the transactions no receipt was given. There was a clear pattern regarding the giving of receipts—three agents we observed gave receipts in all but 6 of the 96 transactions they conducted, while the rest of the agents did not give receipts in all but 10 of the 99 transactions they conducted.

In sum, women conducted just over half the transactions (53 percent) in a program ostensibly targeted at women. In addition, in all transactions the person actually carrying out the transaction was the agent—it was he who actually swiped the card and entered the PIN.

The gender dynamics underlying the observations we made at the agents’ shops shaped the composition of the focus groups we conducted in Pakistan. We were not able to gather focus groups with women in the areas outside Karachi and ended up with all-male focus groups there. But in Karachi we were able to conduct focus groups with women. In the discussions with men we found that they were heavily involved in picking up the payments for women in their household and they could talk extensively about the process. They also talked about how they relied on agents to conduct the transactions for them or paid a guard at an ATM to help them navigate the process, although some did report being able to use ATMs.

In the women-only groups, in Karachi, we found a different story. Women there reported going to withdraw the money themselves, often on their own or in a group of women but sometimes with a male relative. They also reported that they handled the whole transaction—they did not rely on an agent to do it for them.
"I go to the bank and enter card in the ATM machine. There an option of 'Yes' and 'No' comes. I select 'Yes' option." (Karachi, Women, Group 1)
"We altogether go there and help each other in withdrawing money. Our husbands work as labor and have no time for withdrawing money. So we all go to the bank." (Karachi, Women, Group 1)
"We go together to collect money from Benazir Income Support. Some people after watching us and ask 'Are you going to collect Benazir Money? I will send my mother as well.'" (Karachi, Women, Group 1)
Furthermore, some of the women noted that the whole process gave them a lot of control over the money they received:
"We can get the money by ourselves. Even our husbands don’t know about it and we withdraw the money and use it." (Karachi, Women, Group 1)
What we found in Pakistan is consistent with earlier reports on the process of picking up BISP payments in Pakistan. In 2013 consultants from the design firm Continuum conducted <a href="http://continuuminnovation.com/wp-content/uploads/2014/01/Report-1.4.docx.pdf">human-centered design research</a> on the BISP payment system and found that women were often excluded from the process and, if they were involved in the process, faced challenges navigating the ATM because of their low levels of literacy. An Oxford Policy Management evaluation <a href="http://www.bisp.gov.pk/Others/BISPFirstImpactEvaluationReport.pdf">report</a> on the BISP program using data from 2013 reported that men often conducted transactions on behalf of women. The report did also note that despite this, 64 percent of the time the money ended up in the hands of the women because the men who picked it up handed it to them.

Clearly it is possible for women beneficiaries of G2P programs to gain experience in withdrawing money from an account using a debit card or mobile phone. The experiences of women in Colombia prove this. The reports from the women in Karachi also suggest this. But the gender dynamics in Pakistan are excluding many women from having this experience. Furthermore, even if more women were involved in the process of picking up their payments, it is unclear, given the experience of a lot of their menfolk, whether they would gain full control over the process because the role the agents play.

Finally, we must end with a note of caution. Despite the fact that women in Colombia have gained facility in withdrawing their payments from ATMs and other outlets, this has not led them to become more financially included. They withdraw all their money at once, and make little or no use of the functionalities of the accounts through which the government pays them. Why this is the case is the subject of our next blog.

Image credit: <a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/">World Bank</a>

Have you read?

<a href="https://cfi-blog.org/2014/06/20/electronic-g2p-for-the-poor-does-electronic-social-protection-need-better-consumer-protection/">Electronic G2P for the Poor: Does Electronic Social Protection Need Better Consumer Protection?</a>

<a href="https://open.spotify.com/track/2dnoG56c2llppkz2IPtt3G">Gauging Loan Officers' Perspectives: A Study by Pakistan Microfinance Network</a>

<a href="https://cfi-blog.org/2016/03/08/in-the-hands-of-women-a-reflection-on-the-gender-gap-in-financial-inclusion/">In the Hands of Women: A Reflection on the Gender Gap in Financial Inclusion</a>

G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?

Alex Silva, Calmeadow Foundation, contributed to this post.


Are you a microfinance institution in the Middle East or North Africa (MENA) region? Would you like to improve your bottom-line and attract more investors? Here is one simple trick: improve your governance! A recent International Finance Corporation (IFC) paper focusing on MENA, <a href="http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/corporate+governance/publications/cg_success_stories_mena">Corporate Governance Success Stories</a>, concludes that “good corporate governance can help companies improve their [financial] performance and gain access to capital,” and various stakeholders, such as institutes and regulators have been actively promoting strong corporate governance in the MENA region. As a result many MFIs in MENA have experienced an increase in access to finance, higher profitability, a reduction in organizational inefficiencies, and an increase in impact on sustainability, among other important growth factors.

One such MFI is the Pakistan-based NRSP Microfinance Bank, which went through a rigorous transformation in 2007 and set goals to improve corporate governance. NRSP focused on restructuring board and management roles, establishing board committees and governance policies, and developing a risk management framework with internal audit functions. Within two years of implementing these governance changes, NRSP saw a $1.7 million profit in the first year, a credit rating improvement from “stable” to “positive”,  and an increase in board effectiveness with the inclusion of women and independent directors. At the same time its ability to leverage equity increased. Access to finance grew to four times equity.

Another MFI that demonstrates the power of good governance is Kashf. Also based in Pakistan, the institution was set up in 1996 and now ranks among the top 5 percent of MFIs in the world in terms of outreach. Kashf began corporate governance reforms in 2007. Key board committees were established to enhance its board’s independence and effectiveness, and committee structures were changed, which included enlarging the audit committee’s scope. The MFI added a non-executive member with an accounting background to enhance its board’s skill mix. To strengthen its management and control environment, Kashf bolstered its internal audit function, instituted a compliance function that reports directly to the managing director/CEO, and formalized succession planning for key senior management positions. These changes helped strengthen board effectiveness, improving board engagement on strategy setting and oversight capabilities; increase access to additional sources of funding ($25 million in commercial loans and $1 million in grants); improve Kashf’s reputation among and success with the donor community; and finally, staff morale and the company’s corporate culture were positively impacted by the changes.

NRSP and Kashf are just two of 19 companies highlighted in the IFC’s report on corporate governance success stories in MENA. Not only is good governance important to the operational health of MFIs, it is becoming increasingly significant for building reputation, and the trust of investors. The report states, “The 2008 financial crisis escalated the need for change by showing that good governance is no longer an option, but an imperative.”

In a recent study sponsored by SANABEL and IFC, <a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">Voices: An Assessment of the Perceived Risk Facing the Microfinance Sector in the Arab World</a>, which monitors the risks faced by the microfinance sector, half of those interviewed perceived corporate governance risk as “high” or “very high”. Financial institutions in all markets are rethinking the importance of improving governance, particularly in MENA where there has been an emphasis on building investor relationships by strengthening company transparency and governance strategy. Understanding how better investor relationships are linked to improvements in corporate governance has increased the demand for knowledge sharing and training in this area.

Yet there is still a significant amount of progress to be made. A <a href="http://www.ifc.org/wps/wcm/connect/a4157280485833068b81ebfc046daa89/Hawkamah_CG_Survey_MENA_Banks%2B%2B.pdf?MOD=AJPERES">study by IFC and Dubai’s Hawkamah Institute of Corporate Governance</a> found that more than half of the companies in MENA don’t fully understand the benefits of corporate governance, but recognize that governance practices need improvement, particularly in areas of board structures and roles, risk management, and audit. Undertaking organizational and board changes is daunting for any institution, but understanding the successes that many MFIs in MENA have experienced from doing so will be a motivator for other institutions to follow suit.

Calmeadow, SANABEL, and the CFI are developing a Fall 2016 seminar for board members and CEOs to improve governance practices through peer-to-peer learning and exchange. Stay tuned for more information.

Have you read?

<a href="http://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="http://cfi-blog.org/2015/06/17/what-can-the-financial-inclusion-world-learn-from-fifa-about-governance/">What Can the Financial Inclusion World Learn from FIFA about Governance?</a>

<a href="http://cfi-blog.org/2015/03/11/miv-governance-the-case-of-africap/">MIV Governance: The Case of AfriCap</a>

What Can We Learn from Governance Success Stories in MENA?

&gt; Posted by Elisabeth Rhyne, Managing Director, CFI

 <img class="alignright wp-image-20920" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/thumb_1ad39ca9bc7e44c4a28241b598e34908.jpg" alt="thumb_1AD39CA9BC7E44C4A28241B598E34908" width="350" height="233" />The following post was <a href="http://www.theguardian.com/global-development/2016/mar/17/microfinance-loans-do-lenders-make-clear-risks">originally published</a> on The Guardian.

With <a class="u-underline" href="http://www.worldbank.org/en/programs/globalfindex">700m new accounts opened</a> between 2011 and 2014, more people than ever have a bank or mobile money account. But many of the new consumers are in poor countries, and people with low incomes are often more vulnerable to abuses when they borrow, save or send money.

<a class="u-underline" href="http://www.smartcampaign.org/">The Smart Campaign</a>, a consumer movement, surveyed 4,000 microcredit borrowers in four countries. Their responses were documented in a report, <a class="u-underline" href="http://www.smartcampaign.org/tools-a-resources/1089">It’s My Turn to Speak</a>.

The study looked at Peru and Georgia, where there is relatively good protection for consumers, and Pakistan and Benin, where protection is less robust.

Some good news emerged: most people are satisfied. Borrowers rated their microlenders as good as, and sometimes better than, schools, hospitals, and governments. Grievous abuses were few – about 3 percent of those surveyed.

But there were cautionary tales. Too many borrowers don’t understand what they are getting into. “I borrowed blind,” one Peruvian woman was quoted as saying in the survey.

In Benin, Pakistan and Peru, only about half the respondents said they fully understood the terms and conditions of their loans. In all four countries, only a quarter knew the interest rate of their latest loan. This can lead to nasty surprises.

In Georgia, many customers took out loans in US dollars – in some cases without understanding that the loans were dollar-based. When the Georgian currency <a class="u-underline" href="http://www.reuters.com/video/2016/02/10/georgia-struggles-with-tumbling-lari?videoId=367358178">dramatically depreciated</a>, these customers found higher loan repayments eating up their grocery budget.

Understanding of insurance was particularly spotty. A woman in Peru bought theft insurance at a street kiosk only to find, after a robbery, that she did not know and could not find out how to claim against the policy. In Benin, customers lost their savings when they could not distinguish between legitimate microfinance organisations and fly-by-night scammers.

And even in Peru, where the markets are more sophisticated, few customers understood how they were affected by their credit rating. Not many customers knew how to lodge a complaint or believed complaining would do any good. Only a third of clients said their lenders told them how to file a complaint.

“If you go to complain to the office, or elsewhere, you won’t get another loan,” said a man from Benin.

The report shows there is an urgent need to rethink transparency and customer communications. Beyond requiring lenders to disclose all the terms, regulators should ensure that the borrower understands them. Microfinance clients may need simple language that highlights essential information. Responsible lenders and regulators should verify that clients understand key facts before signing off loans.

People who use microfinance value respectful treatment highly, be it from teachers, police or financial institutions, because they so seldom get it. But harsh treatment is more likely when borrowers fall behind on their repayments.

In Benin and Pakistan, where regulations on microfinance are either non-existent or poorly enforced, clients spoke of providers holding customers hostage at the office, placing a defaulter in a wheelbarrow and trundling her through town, and broadcasting defaulters’ names on the radio. Borrowers who are part of groups, as were nearly all the respondents in Pakistan, said groups often apply intense social pressure. The humiliation can be devastating.

In their responses, customers wanted flexibility and humane treatment, advocating measures like grace periods or leniency for long-time customers facing emergencies. Fortunately, in Peru and Georgia, extreme abuses have largely disappeared, thanks to strong market conduct laws and enforcement. And perhaps equally important, well-functioning credit bureaus in these countries give lenders an alternative way to motivate clients to repay, without resorting to social shaming.

If regulators listen to people who use microfinance, they will hear that regulation, genuine transparency and humane treatment are prerequisites to successful financial inclusion for people on low incomes.

If lenders listen, they will realise that protecting consumers makes business sense. We found that even a few examples of abuse did disproportionate damage to the reputation not only of the abusive provider but of the whole sector.

But customers who understood their services tended to rate them highly. Clients are so hungry for respectful and dignified treatment that they will become loyal customers, and even brand ambassadors, for lenders that explain things clearly and treat them with respect.

Have you read?

<a href="http://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

Do Lenders Make Clear the Risks of Microfinance Loans?

&gt; Posted by Caitlin Sanford, Bankable Frontier Associates, and Alexandra Rizzi, the Smart Campaign

<a href="http://smartcampaign.org/tools-a-resources/1075"><img class="alignright wp-image-20644" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cv-cover.png" alt="" width="300" height="389" /></a>“Sandra” from Lima described her experience talking to a loan officer:

“You don’t understand anything [the microfinance staff members] says, because of how fast he talks.  It is almost as if his tongue is twisted. You end up not understanding in the end. [He says] ‘But ma’am I’ve explained it to you, why can’t you understand? I’ve been very clear.’” 

New <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices</a> research from the Smart Campaign and Bankable Frontier Associates (BFA) finds that although microfinance providers may be complying with disclosure regulations, clients are not adequately absorbing information about their financial products.  A regulatory compliance-based approach to consumer protection in which providers focus on meeting minimum disclosure requirements risks losing sight of the main objective of transparency— that clients understand what they are signing up for. With clients inadequately informed about many aspects of microfinance, even in countries with strong transparency regulations like Peru and Georgia, the Client Voices findings demand a radical rethinking of transparency.  Namely, emphasis should widen from what information is provided to how much clients understand.

In the Client Voices project we solicited input from clients about what they consider good and bad treatment in their interactions with microfinance service providers, and assessed the prevalence of consumer protection problems in Benin, Pakistan, Peru, and Georgia.  We found that clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products.  Although most clients do receive some information about their loan products, overall they report low levels of understanding of their loan terms and conditions, regardless of education level.  In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions.

[caption id="attachment_20901" align="alignright" width="330"]<img class="wp-image-20901" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/photo-1.jpg" alt="" width="330" height="246" /> Photograph taken by client in Benin[/caption]

The lack of understanding is more alarming with respect to insurance that is often bundled with microfinance loans: 24 percent of clients in Peru did not know whether or not they had insurance with their loan. Among clients who had insurance accompanying a microfinance loan in Pakistan, only 13 percent reported that they knew how insurance works.

“But the problem with these [microfinance providers] is that there are some false charges called “insurance” in addition. Finally the amount to borrow becomes insignificant after such costs are deducted.”

-Female, Cotonou, Benin

In Georgia, many MFIs issue loans in U.S. dollars rather than Georgian lari to protect themselves against devaluation. As a result of exchange rate fluctuations in the past year, the monthly repayment of a client who took a dollar-denominated loan in January 2015 would be more than 25 percent larger by October of that same year.  Our research found that 13 percent of respondents with dollar-denominated loans claimed they were not aware of this risk when they took out the loan, and 52 percent felt the information provided on exchange rates was somewhat to not clear at all.

[caption id="attachment_20902" align="alignright" width="330"]<img class="wp-image-20902" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/photo-2.png" alt="" width="330" height="253" /> Photo taken by client in Georgia[/caption]

“[I took the picture of the] empty wallet to signify monthly expenditures, the increase of dollar rate…”

-Male, Kutasi, Georgia

Whether it is currency fluctuations in Georgia or an unknown fee in Peru, clients are often surprised during transactions with MFIs. Regardless of whether these surprises are due to client misunderstanding or staff malfeasance, they damage client trust. We believe that disclosure practices must widen to encompass both what information is shared with the client as well as ways to check client understanding.

Here is some food for thought on ways to rethink transparency and disclosure:
<ul>
	<li>Prior to disbursement, providers could ask clients to describe their understanding of their product, with staff correcting any misunderstandings. Institutions could even apply a short and easy quiz after presenting information to verify that clients have understood key details, such as the term, how often payments should be made, late penalties, the currency of the loan, etc.</li>
	<li>Providers could present information in innovative ways. For example, Georgian clients report that they really like the short videos that Georgian microfinance providers show. Other ideas include calendars for literate populations, songs, and simple infographics. We call for rigorous research to test which types of disclosure mechanisms actually work.</li>
	<li>Client protection standards could define best practices in transparency as not just disclosure but checks (and even monitoring) of client understanding of terms and conditions. SMS and <a href="https://en.wikipedia.org/wiki/Interactive_voice_response">interactive voice response technology</a> could be low-cost methods for implementation.</li>
	<li>Regulators may wish to build verification of client understanding into supervision. This could involve surprise mystery shopping visits to institutions, or questioning clients about high-stakes information. Regulators may consider issuing fines to microfinance institutions if a certain percentage of clients do not know critical information.</li>
	<li>Insurance bundled with loans may deserve more attention from regulators, as client understanding of insurance—even whether they have a policy or not— is especially low.</li>
</ul>
Because transparency efforts have focused on complying with disclosure requirements rather than making sure users understand their rights and responsibilities, information that microfinance institutions provide tends to be copious, technical, and complicated.  Current disclosure methods are not resulting in sufficient client understanding.  We look forward to hearing from the industry on how to shift away from “tongue twisted speeches” used to explain financial products.

For more, check out the <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices project</a>.

Have you read?

<a href="http://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2016/02/22/borrowing-blind-in-peru-findings-from-the-client-voices-project/">Borrowing Blind in Peru: Findings from the Client Voices Project</a>

Towards Authentic Transparency: A Radical Rethinking of Disclosure in Financial Inclusion

Hema Bansal

Senior Director, South and Southeast Asia, Smart Campaign

Kim Wilson

Kelsey Truman

Jeffrey Riecke

Guy Stuart

Saran Sidime

Lizzy Bolze

Elisabeth Rhyne

Caitlin Sanford

Alexandra Rizzi

Barney de

Hannah Sherman

Sonja Kelly

Myanmar

Pakistan

Germany

Greece

Iran, Islamic Rep.

Jordan

Sudan

Syrian Arab Republic

Turkey

Dominican Republic

Kenya

Mongolia

Philippines

Lebanon

Rwanda

Uganda

Colombia

Benin

Agent Banking

Digital Financial Services

Mobile Banking

Insurance

Refugees and Migrants

Alternative Data

Policy, Regulation and Government Initiatives

Women

Telcos

Payments

Governance

Transparency

Credit

Client Treatment

Complaint Resolution

Consumer Protection

Trends

Blog Post

Report

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

&gt; Posted by the Smart Campaign

<a href="http://smartcampaign.org/storage/documents/Voices_from_Peru.pdf"><img class="alignright wp-image-20804" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/peru-cover.png?w=490" alt="" width="270" height="353" /></a>What do microfinance clients in Peru think about their experiences with financial services? A few weeks ago the Smart Campaign released its <a href="http://smartcampaign.org/tools-a-resources/1089">Client Voices</a> reports, a four-country research investigation that directly asked microfinance clients about their experiences. After previously spotlighting Benin, Georgia, and Pakistan on this blog, today we’ll take a look at findings from the fourth country in the project, <a href="http://smartcampaign.org/tools-a-resources/1087">Peru</a>.

The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. A qualitative research phase was first conducted, which included focus group discussions, individual interviews, and a photography exercise to allow clients to visually describe how they view good and bad treatment. The quantitative survey that followed included a sample of 1,000 current and former microfinance clients.

What did the clients say? In Peru, a well-regulated market, a different set of problems emerged from those we found in less-protected Benin and Pakistan. While severe abuses have been curtailed, emerging problems in Peru tended to arise from aggressive competition for customers.

Overall, clients in Peru are satisfied with their providers, suggesting that they’re benefitting from the industry’s well-regulated, competitive market and effective credit reporting system. Less than 10 percent of respondents rated their experiences with microfinance providers as either “bad” or “very bad”. In an exercise where respondents ranked various formal institutions in terms of how they treat clients, microfinance providers scored above commercial banks.

Heavy debt burdens were found to be a cause for concern. The average household dedicates 26 percent of monthly income to debt payments. In rural areas, this figure rises to 35 percent. Thirty-four percent of clients have made at least one late payment, and 9 percent have defaulted or failed to pay a loan at least once. Despite existing debt, clients report receiving many offers for new credit products, with 10 percent reporting feeling pressured to take out a loan. Aggressive sales tactics contribute to the perception that providers are in some cases trying to take advantage of clients. Clients also have loans from a number of different sources, both informal and formal.

“[The woman from the bank] kept following me everywhere. I was working, and she kept coming to my house offering me a credit card that I didn’t want. She kept asking for my number for activating the credit card. At the end, I was very tempted because my daughter was turning 15, and I wanted to [throw a party].” - Female, Peri-Urban Lima

Some clients view credit lines as a benefit to be shared. A combined 18 percent of clients have either taken out a loan for someone else or used a loan that was in another person’s name. Having a loan in another person’s name is associated with increased late payments, suggesting this behavior is risky for clients and institutions alike. Providers cannot control what clients do with the money they borrow, but it is important that financial institutions and regulators are aware of this behavior, as it may have implications for the credit reporting system. This concerning trend was also prevalent in <a href="http://cfi-blog.org/2016/02/29/client-protection-in-georgia-a-responsible-market-with-opportunities-for-improvement/">Georgia</a>.

“My sister-in-law needed money. I borrowed it for her, but I did not enjoy that money…I gave all the money to my sister-in-law thinking that she would pay back, but she didn’t. One day I went to the bank, and my brother told me that I was bad on their system.” - Female, Urban Juliaca

Centralized credit reporting to credit bureaus creates a strong incentive for repayment, and clients reported only minimal client protection problems in collections. In contrast, client mistreatment during collections is a big issue in <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">Benin</a> and <a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">Pakistan</a>. Before the installation of the credit bureaus in Peru, intimidating collection practices were common, but today they have all but disappeared, thanks partly to reliance on credit reporting, which ensures that clients will repay if they possibly can, in order to avoid a black mark against them with all lenders. However, clients still do not have a good understanding of how the credit bureau works. They don’t seem aware that credit bureaus keep positive information in addition to negative, nor do they seem to understand fully the consequences of having a negative record, or the path to rehabilitation.

Researcher: “For how long [does one’s negative record stay in the credit registries]?

Respondent: “Five years, I think… 10 years… For life… Once you have paid, you must wait a lot of time to be trustworthy again.” - Male, Urban Cajamarca

As we found in all of the studied countries, transparency in Peru could be improved. Although 65 percent of current clients reported that they understood their loan terms well, they also report low levels of understanding in the case of bundled products, especially those that include insurance. And 23 percent of current clients reported that providers did not explain the terms and conditions of the loan before signing. As in the other Client Voices countries, only 25 percent of clients knew the interest rate on their current loans.

“Often you go to them [the staff] and don’t understand anything they say, because of how fast they talk. It is almost as if they have their tongues twisted. You end up not understanding in the end. [Then they say] ‘But ma’am I’ve explained it to you, how come you don’t understand? I’ve been very clear.’” - Female, Peri-Urban Lima

Microfinance clients in Peru have many options for recourse, but, like the clients in other countries in the Client Voices project, the majority don’t know about these channels. Seventy-one percent report that their providers did not inform them where to complain. Among those who wanted to complain, many did not do so, either because they did not know how, or because they thought the response would be slow.

“To whom are you going to complain? There is a book for complaints. You fill yours along with your [national ID card] you sign, but they never call you. They make that book vanish!” - Female, Lima Peri-Urban

For more details and additional findings, read the <a href="http://smartcampaign.org/storage/documents/Voices_from_Peru.pdf">Peru report</a> from the Client Voices project.

Have you read?

<a href="http://cfi-blog.org/2016/02/29/client-protection-in-georgia-a-responsible-market-with-opportunities-for-improvement/">Client Protection in Georgia: A Responsible Market with Opportunities for Improvement</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

Progress and Evolving Risks in Peru’s Advanced Consumer Protection Environment

[caption id="attachment_20716" align="alignright" width="275"]<img class="wp-image-20716" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cs-cv.jpg" alt="Caitlin Sanford presenting at the Client Voices launch event last week." width="275" height="315" /> Caitlin Sanford presenting at the Client Voices launch event last week[/caption]

Mariana is a 42 year old single mother living in the outskirts of Lima. Microfinance loans have helped her to start a business, put herself through school as an adult, and even leave her philandering husband. When we met her, Mariana’s main financial goal was to pay tuition for her daughter, “Yessica”. (Names have been changed to protect identity.)

However, Mariana had fallen behind in her microfinance payments after the family was a victim of an extortion scheme that caused the loss of most of the family’s savings. Mariana felt that her microfinance provider (MFP) was indifferent to her plight, and was surprised to learn that she would have to pay late penalties associated with her loan. She said, “They did not inform me very well… the girls [MFP employees] that call you for the loan say, yes, we will give you this loan, and this and that, and they don’t explain in much detail… They give you the payment schedule, but then [if you have a problem] you will be surprised.” As Mariana describes it, she took out these loans “blind” because she did not understand the interest rate or fees.

Although she struggles with her existing credit payments, Mariana is constantly tempted by offers for new loans. She says that representatives from MFPs, banks, and retail stores often stop her in the street or call her cell phone offering loans. Recently, Mariana bought anti-theft insurance on the street because the salesperson was persuasive, but Mariana does not know how she would make a claim if she were to be robbed.

Mariana’s story highlights three central themes discussed in the report, “My Turn to Speak”, and the four accompanying country-specific reports from Benin, Georgia, Pakistan and Peru. These reports summarize research under the <a href="http://www.smartcampaign.org/client-voice">Client Voices</a> project, which was carried out by Bankable Frontier Associates on behalf of the Smart Campaign. The project began with qualitative work to hear directly from clients about the kinds of problems they experience when using microfinance services. It followed with quantitative work to provide information about the frequency of the kinds of problems clients reported.
<blockquote>“I was blind... I took out the loans blind.” – “Mariana”, microfinance client in Peru</blockquote>
Mariana’s story shows first that even when MFPs are complying with disclosure requirements, clients often do not understand key features of their products, such as late penalties. The Client Voices research found that clients have an inadequate understanding of the basic attributes of their microfinance products, even though they receive some information about their loan products from MFPs. Overall clients report low levels of understanding of their loan terms and conditions, regardless of education level. In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions. Providers should care that clients do not understand their products, because such misunderstandings lead clients to feel cheated and lose trust.

Second, like other respondents in Benin, Pakistan, Peru, and Georgia, Mariana wanted her microfinance bank to treat her with empathy and offer flexibility following a family emergency. A few months before we met her, Mariana’s daughter Yessica received a call from a fraudster saying they had kidnapped her mother. The fake kidnapper knew personal information about Mariana, and since she could not reach her mother, Yessica deposited nearly all of the family’s savings, including the money designated for microfinance repayment, in the scammer’s account. This misfortune set the family back financially and led Mariana to miss two loan payments and incur fees. Mariana expected her lender to be more understanding of her plight. Across all four Client Voices countries clients are demanding more flexible products and requesting compassion in the face of the emergencies and crises that punctuate life at the bottom of the pyramid.

A basic demand from clients is for respectful and humane treatment. In Pakistan and Benin clients complain that MFP staff lack human decency in dealing with clients who have problems paying their loans. In these countries, clients view the public shaming that is used to force repayment extremely unfavorably.

Finally, Mariana struggles to say no to special offers on credit products. In Peru and Georgia, the Client Voices research detected possible aggressive selling practices. In Peru, about half of clients complained about regularly receiving calls and visits from MFPs offering credit, with 10 percent reporting that they have felt pressured by MFPs to take out a loan. Having the ability to identify the “good” clients through the credit reporting system may contribute to aggressive sales tactics. In Georgia, clients report receiving prepaid cards that they can use to activate a new loan. Similarly, in Peru clients spoke about receiving checks in the mail with an automatic approval for a new loan that they could cash at any bank branch, increasing the temptation to take out a loan, despite not needing one at that moment.

Implications 

A few ideas for financial service providers resulting from the Client Voices research include:
<ul>
 	<li>Simple, elegant products that can be described in one or two sentences may more effectively grasp clients’ attention.</li>
 	<li>Providers should present information in innovative ways, as Georgian microfinance banks have tried to do with videos. Other ideas include calendars for literate populations, songs, and simple infographics.</li>
 	<li>Providers should ask clients to describe their understanding of their product, with staff correcting any misunderstandings. Institutions could even apply a short quiz after presenting information to verify that clients have understood key details, such as the term, how often payments should be made, late penalties, or the currency of the loan, with the goal of ensuring understanding.</li>
 	<li>Respectful treatment and empathy are important to clients. Products that build in grace periods for a small number of repayments would satisfy clients’ demand for more flexibility and understanding of emergencies that inevitably come up. Variable repayment amounts could also be helpful for clients with irregular income sources.</li>
</ul>
The Client Voices findings compile hundreds of stories like Mariana's through qualitative and quantitative research. You can learn more about the findings, read the reports, and explore the data from the Client Voices research <a href="http://www.smartcampaign.org/client-voice">here</a>.

Have you read?

<a href="http://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

Borrowing Blind in Peru: Findings from the Client Voices Project

&gt; Posted by the Smart Campaign

<img class="alignright wp-image-20644" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cv-cover.png" alt="" width="275" height="356" />What are microfinance clients’ thoughts on fair treatment from financial services providers?

Today the Smart Campaign is proud to present the results from the Client Voices project, a four-country research investigation that directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.

Today’s release includes the main synthesis report as well as country reports from Georgia and Peru. The Campaign has already released comprehensive country reports for the other two countries in which research took place, Benin and Pakistan.

The Campaign commissioned Bankable Frontier Associates (BFA), as research partner on the project, to talk with thousands of lower-income microfinance clients face-to-face in the four diverse country markets. The intent was to hear from clients in an open-ended way, without pre-judging their concerns, and then to follow-up this qualitative work with quantitative surveys to determine how representative the concerns expressed were. The intensive research captures, first-hand, clients’ interactions with the institutions that lend them money and keep their savings, and are therefore instrumental in their lives.

Through the project, the Campaign sought to learn whether assumptions made about what constitutes problematic treatment of poor clients (such as those embodied in the <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>) rightly reflected what clients themselves worry about. The research was conducted so that it might serve as a catalyst for improvement in client protection by financial service providers, regulators, industry associations, consumer advocacy groups, and others – not only in these four countries, but as guidelines for the protection of lower-income clients around the world.

Here is some of what we found.

The research in all four countries found that clients are generally satisfied with their financial institutions. Many respondents described the important and beneficial role microfinance plays in their lives. However, some troubling themes arose that damage client trust, such as inadequate explanations of loan terms, lack of redress mechanisms and opportunities, and disrespectful treatment.

Transparency. As you might have read in our <a href="http://cfi-blog.org/2016/02/12/the-client-voices-project-launches-next-week/">post</a> last week, clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products. In Benin, Pakistan, and Peru, for example, 50 percent, 49 percent, and 43 percent of respondents reported that they understood loan terms only somewhat or not at all at the time of taking the loan. This lack of understanding exists even when institutions follow mandated disclosure rules. Because transparency efforts have focused on complying with disclosure requirements, rather than making sure users understand, information provided tends to be copious, technical, and complicated.

“[Microfinance providers] don´t inform you, they should give you complete information [about the loan charges]… There is an easier way: we should be able to understand, to see what our options are and what is best for us, to find the [product] that suits us best.” -Woman, Juliaca, Peru

Low levels of client understanding of compulsory savings in Benin and loans issued in U.S. dollars in Georgia reveal the high stakes of a failure to communicate basic information to clients. In Benin, 9 percent of current clients and 17 percent of former borrowers reported being unable to withdraw all of their savings. In Georgia, 13 percent of clients were surprised to learn that they had borrowed in U.S. dollars instead of Georgian Lari, a misunderstanding with considerable financial repercussions following a major devaluation.

Respectful treatment. A basic demand from clients is for respectful and humane treatment. Clients view the public shaming that is used in Benin and Pakistan extremely unfavorably. It causes long-lasting social stress for the clients who experience it, and damages the reputation of financial service providers. Poor treatment is most often experienced when consumers are late with loan payments. In Pakistan and Benin for instance, clients told us of the social and psychological pain they suffered from being publicly shamed for late payments. While extreme incidents were rare, the rigidity in loan collections can create a problematic and stressful cycle for clients, even those who pay on time.

“My son was suffering from cancer. He died. They did not leave. They said they just want their money. They insulted me so much. They did not even understand that one brother of five sisters had died — everyone depended on him! They had no sympathies. Then what’s the use of this bank? They take money from us and on the top of that they insult us so badly.” -Male, Karachi, Pakistan

The reports offer broad-reaching recommendations for improving client protection in the areas of transparency and respectful treatment. These range from a radical reframing of transparency and disclosure requirements and practices, to the abolishment of practices that could incentivize collections agents to shame clients. The reports also counsel that financial products should build in grace periods for a small number of repayments, which would satisfy clients’ demand for more flexibility and understanding in the event of emergencies.

Credit bureaus play an increasing and valuable role in protecting clients, helping to leverage their desires for continued access to credit to induce repayment. Credit reporting can reduce the need to rely on social shaming to force clients to repay, which clients find objectionable in Benin and Pakistan. Indeed, problems of shaming clients in collections that we found in Benin and Pakistan are almost entirely absent in Peru and Georgia, countries with strong credit bureaus and regulation.

However, clients lack information about how credit bureaus work, and seem unaware that they can build a positive as well as negative credit history. In Peru and Georgia, for example, clients report confusion about the consequences of having a negative record in the credit bureau, and how to clear one’s name.

Researcher: “What happens if you miss a payment?

Respondent: “They notify you at home. They write in the walls ‘delinquent,’ the bank tells you that you should pay. They put you in INFOCORP. And that is it, you don´t get out of there! Sometimes I would like to know how much time does it takes for you to get out of there, and nobody tells you anything.” -Woman, Urban Juliaca, Peru

Complaints. Most clients don’t know how and where to complain, and given the poor quality of recourse they experience with all kinds of formal institutions (schools, clinics, etc.), they do not think their complaints will be resolved by financial service providers. Across all countries, less than one-fourth of those who reported having a reason to complain actually filed a complaint. The ‘complaints book’ in Peru is one example of a complaints mechanism that clients view as largely symbolic and ineffective.

Where recourse channels exist, clients are not sufficiently informed about them. In Benin, only 14 percent of respondents recall being told by financial institutions who to consult in case a problem arose. Even in Peru and Georgia, with strong microfinance and consumer protection regulatory environments, only 25 percent and 38 percent of clients recall being told where or how to address concerns.

“If you go to complain to [the financial institution] office, or elsewhere, you won’t get another loan.” -Male Respondent, Parakou, Benin

The reports suggest a broad array of actions that actors in the financial inclusion sector should take to address these challenges. Stay tuned in the coming weeks for more posts on the project, including deep-dives into the results from specific countries.

For the report, My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru and Georgia, <a href="http://www.smartcampaign.org/my-turn-to-speak">click here</a>, and for the four individual country reports, available in English and in their national language, head to the Client Voices page on the Smart Campaign website: <a href="http://www.smartcampaign.org/client-voice">www.smartcampaign.org/client-voice</a>.

Have you read?

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

<a href="http://cfi-blog.org/2016/02/12/the-client-voices-project-launches-next-week/">The Client Voices Project Launches Next Week</a>

My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia

<img class="alignright wp-image-20644" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cv-cover.png" alt="" width="275" height="356" />&gt; Posted by the Smart Campaign

Next Thursday we’re launching the Client Voices project, our four-country research investigation that went to the source and directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.

The four studied countries are Benin, Georgia, Pakistan, and Peru. You might have seen our spotlighting the release of the <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">Benin</a> and <a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">Pakistan</a> country reports here on the blog in the fall. On Thursday, we’re sharing those for Georgia and Peru, as well as a “synthesis report” that summarizes and analyses the key findings, takeaways, and recommendations across the four comprehensive country reports.

We have a few launch event opportunities for you to participate in. But first, we wanted to give you a glimpse into what’ll be released on Thursday…

Transparency. One of the overarching findings across the studied countries was that clients have an inadequate understanding of the basic aspects of their microfinance products. For example, in Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents indicated that they either somewhat or didn’t at all understand loan terms at the time of taking out their loan. Even when institutions are following mandated disclosure rules, this lack of understanding persists.

Here are a few soundbites of what clients shared during one-on-one interviews with researchers:
“A ciegas lo hacía… Hacía mis préstamos a ciegas.”
(“I was blind… I took out the loans blind.”)
--Mariana, Lima, Peru
“Quite honestly, I can’t tell you if [my loan] rate is 4 percent or 5 percent. Honestly, I can’t tell you… I can calculate the difference to be able to say that if I borrowed 400,000 CFA (US$827), [I pay] 435,000 CFA ($899) or 425,000 CFA ($878), but I don’t calculate the percentage.”
--Male with a Master’s in law, Cotonou, Benin
Researcher: “So did the MFP explain the interest rate to you?”
Respondent: “They explain, but when they see you are illiterate, they get you to sign papers which mean that you’ll repay more than you should.”
--Male, Parakou, Benin
“They provide different explanations in the beginning, but none of the creditors investigate the depth, because the interest rate is never what they tell you in the beginning. It is always more in the end… some is commissions, some life insurance, etc.”
--Male, Rural Telavi, Georgia
What to do about this? You’ll just have to wait until the release of the reports next week, which include broad-reaching recommendations across stakeholder groups for improving client protection.

As for the launch events, at the World Bank offices in Washington, D.C. on Thursday the Smart Campaign and Bankable Frontier Associates (BFA), which served as research partner on the project, will present key findings and discuss their implications for the industry. BFA will present the research results, with the Smart Campaign to follow with a response and sharing of key takeaways, and afterwards inclusion leaders and representatives from the study’s country markets will discuss how the project should impact industry efforts going forward.

Event speakers will include Caitlin Sanford, Director at BFA, Kim Wilson, Lecturer at the Fletcher School, Elisabeth Rhyne, Managing Director of the Center for Financial Inclusion, Xavier Gine, Lead Economist in the Development Research Group at the World Bank, Isabelle Barrès, Director of the Smart Campaign, and other financial inclusion leaders. For more details and to RSVP, <a href="http://whoozin.com/6JJ-MJA-R6GY">click here</a>.

And if you can’t make the D.C. event, at a later date we’ll host a webcast to discuss the project. Stay tuned for forthcoming details.

Have you read?

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

<a href="http://cfi-blog.org/2013/06/14/a-call-for-client-voice-in-the-boardroom/">A Call for Client Voice in the Boardroom</a>

The Client Voices Project Launches Next Week

&gt; Posted by Saquiba Aziz, Social Responsibility Associate, Pakistan Microfinance Network

<img class="alignright wp-image-20513" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/thumb_619c6e200cbb4acba317c59d2559c972.jpg" alt="" width="330" height="220" />Loan officers, who form the base of organizational hierarchy of a typical microfinance organization, are instrumental in expanding the outreach of microfinance and building goodwill with microfinance clients. Hence it is extremely important that the right kind of social and financial message is conveyed through them. However, despite the critical role that loan officers play in an organization, their voices and their challenges in the field are largely ignored when it comes to literature on microfinance.

Realizing the need to study and document the ground realities and perspectives of this fundamental human capital of microfinance providers, the Pakistan Microfinance Network (PMN), with financial support from the State Bank of Pakistan and the Pakistan Poverty Alleviation Fund, recently undertook a qualitative study on loan officers, titled, "Loan Officers’ Voices: Perspectives and Lessons from the Foot Soldiers". For the research, PMN conducted focus group discussions and in depth interviews with loan officers from 10 institutions that volunteered to participate.

Some very interesting findings emerged from the study. Most of the loan officers were found to be aware of the vital role that they were entrusted with, i.e. the growth and risk management of their institutions. Their work, primarily based in the field, is premised upon assumptions of self-surveillance, monitoring, and discipline to achieve the targets set for them. Loan officers shared diverse visions about the job at hand: responses differed from helping the underprivileged to seeking experience in client handling. Another group viewed their jobs in terms of the authority and social power it brings to them as they monitor clients’ usage of loans. This improves their self-esteem as they feel good about the fact that they are in a position to oversee and help people.
“Going to the field to meet clients, recovering loans from them, confirming their installments and everything else related to it is the job of a loan officer. We get to know a lot about our client while carrying out these activities.”
- Loan Officer, Lahore
In terms of career aspirations, many officers were cognizant of the career pathway from loan officer to senior management, which indicates that microfinance organizations are investing significantly in communicating lucrative incentives and potential for growth to their employees.

Overall, however, the interviewed loan officers seemed to have a low job satisfaction and expressed little emotional attachment to their work. Many loan officers reported to be on the lookout for a better opportunity, a finding which partly explains the high turnover rate among people in this profession. Some of the reasons that emerged for this low job satisfaction included lack of morale building efforts at the loan officer level, and lack of transfer of the institution’s mission from branch management to the loan officer level.

From our focus groups we saw that loan officers draw motivation from many factors - from appreciation during every day work, to financial motivations to uplifting of their social esteem (due to the work being seen in terms of clients’ well-being).
“We get a bonus on Eid which is very beneficial for me. Similarly we get bonuses when we meet certain targets. This policy serves as an incentive for us, motivating us to perform our job better.”
- Loan Officer, Nawabshah
On the other hand, lack of formal career counseling and inadequate knowledge and understanding of the microfinance sector were found to be leading factors contributing towards high turnover. Some of the challenges quoted by loan officers in their daily work lives included extreme weather conditions, problems commuting to far flung areas, inappropriate client behavior, difficulty in finding new clients in a competitive environment, gender based challenges, and constant pressure to achieve their targets.

Although most of the organizations conduct preparatory orientations for the loan officers prior to sending them to the field, periodic on-the-job capacity building programs were found lacking among most of the organizations in the sample. According to the focus groups, although monthly meetings are held with loan officers at the field offices, they tend to focus on targets and achievements of the loan officers. Training and coaching needs are seldom discussed.

It was also found that loan officers have limited understanding of the objectives of the microfinance sector and the philosophy behind its existence. None of the interviewed loan officers could explain the benefits of direct engagement with the underprivileged, and none of them referred to microfinance as a form of financial inclusion for the unbanked. A few even confused the microfinance sector with regular banking, the only difference being the percentage mark up.

These findings speak to the need for regular training sessions for the foot soldiers of the industry to develop a sound understanding of the essence of microfinance. This would not only help the industry maintain the mission it was established for, but it would also help increase the clientele by serving clients better.

As highlighted earlier, the loan officers do not have enough association with their job to turn it into a career and most of them seem to come into this line of profession because they are unable to find a better job. Their work lives are tough because of the crude circumstances faced in field, and the poverty and illiteracy they confront; however this tough work environment is not the only reason for high turnover. The branch managers should be trained in retention of employees and team building activities. Such activities will help develop a work bond that can increase efficiency and retention within the field. In addition, there is a need for formal career coaching, which is currently lacking. Immediate supervisors should be made responsible for communicating the importance of their work to the loan officers, as appreciation in their daily work motivates the loan officers to perform better.

It was encouraging to see that at an industry level, efforts are being made to retain the field staff by offering them rich monetary incentives. Some microfinance providers are actively undergoing structural changes in a bid to improve the incentive schemes in order to retain staff. Attrition is a big issue for the large institutions due to increasing competition in a booming microfinance industry, and this issue needs to be dealt with in a holistic manner instead of isolated interventions.

For the complete note, please <a href="http://www.microfinanceconnect.info/assets/articles/ffeb576797d248de614409e9b327b8bd.pdf">click here</a>.

Image credit: Accion

Have you read?

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

<a href="http://cfi-blog.org/2015/03/26/smart-certification-kashf-foundation-takes-the-lead-in-pakistan/">Smart Certification: Kashf Foundation Takes the Lead in Pakistan</a>

<a href="http://cfi-blog.org/2016/01/21/old-players-new-game-the-changing-landscape-of-financial-inclusion-in-pakistan/">Old Players, New Game: The Changing Landscape of Financial Inclusion in Pakistan</a>

Gauging Loan Officers’ Perspectives: A Study by Pakistan Microfinance Network

<a href="http://cfi-blog.org/category/financial-inclusion-2020/"><img class="alignright wp-image-8901" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2012/12/blogseries.jpg" alt="" width="299" height="66" /></a>&gt; Posted by Hannah Sherman, Project Associate, CFI

Despite all the talk about fintech start-ups transforming how financial services are offered to the base of the pyramid, recent efforts by the government of Pakistan remind us that change can also be led from the top.

[caption id="attachment_20482" align="alignright" width="330"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/figure-1.png"><img class="wp-image-20482" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/figure-1.png" alt="" width="330" height="151" /></a> "Accounts" includes mobile money accounts, while "accounts at a financial institution" is comprised of bank accounts. (click to enlarge)[/caption]

Pakistan has extremely low levels of access to affordable, diverse financial services. In the Center for Financial Inclusion’s (CFI) report <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/by_the_numbers_financial_inclusion.pdf">By the Numbers</a>, which assesses progress toward financial inclusion by 2020, Pakistan was identified as one of the countries predicted to fall short of the goal of universal account access by 2020. In Pakistan, only 13 percent of adults have accounts, compared with about 46 percent of adults in all of South Asia. Microfinance reaches less than 3 percent of the country’s population, and less than 7 percent of small and medium-sized enterprises (SMEs) use formal finance for working capital or investments. (To explore available data on the state of financial inclusion in Pakistan, check out the <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/inclusion-visualizer">FI2020 Inclusion Visualizer</a>.)

[caption id="attachment_20486" align="alignright" width="329"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/figure-2.png"><img class="wp-image-20486" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/figure-2.png" alt="" width="329" height="199" /></a> (click to enlarge)[/caption]

While financial inclusion in Pakistan remains low, recent trends suggest that the country is poised for rapid growth in the near future. Pakistan placed fifth in the <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/eiu_microscope_2015_web.pdf">Global Microscope 2015</a>'s list of enabling environments for financial inclusion, up six points from its 2014 score. This reflects an energetic, sustained effort by the government to strengthen the financial inclusion landscape of the nation.

Historically, there have been three major types of financial inclusion players in Pakistan: microfinance banks (MFBs), microfinance institutions (MFIs), and rural support programs (RSPs). While these three players continue to dominate the financial inclusion landscape in Pakistan, previously “benched” players have begun to play an increasingly important role.

The State Bank of Pakistan (SBP), the country’s central bank, has also developed a <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/eiu_microscope_2015_web.pdf">National Financial Inclusion Strategy (NFIS)</a>, which provides a framework and road map for priority actions, aimed at addressing constraints and significantly increasing access to and usage of high-quality financial services. As part of this strategy, the Government of Pakistan has instituted the Asaan Account initiative, which greatly simplifies the process of opening a bank account, and includes lower minimum initial deposits. SBP is also working on developing guidelines for the development of e-money channels and instruments in Pakistan, as well as promoting a National Financial Literacy Initiative. The government has also joined the global Better than Cash Alliance, further signaling its commitment to digitizing payments.

One particularly interesting initiative that was initially bankrolled by the government is the country’s <a href="http://www.planetbiometrics.com/creo_files/upload/default/ID4D.pdf">National Population Database</a>, managed by the National Database &amp; Registration Authority (NADRA). The database covers 98 percent of the entire population. It is the sole source for identification data in Pakistan, and is linked to a Computerized National Identity Card (CNIC) which acts as the nation’s primary form of identification verification. Since the identification program has been successful in registering much of the country’s population, it has extended to traditionally under-registered communities, including tribal groups, transgender populations, and women.

Biometric data is collected during the card registration process and is stored on a CNIC chip. The availability of this biometric data has greatly reduced the prevalence of dual identities and identity theft in Pakistan. NADRA is no longer funded by the government and now operates on fees for identity services provided. For example, banks are charged around 35 rupees each time they request NADRA to authenticate an individual. In recent years, NADRA has become a central player in a number of program areas - pioneering applications of biometric technology, and successfully administering smart card programs for disaster relief programs and financial inclusion schemes for the underserved.

In addition to its own public initiatives, the Government of Pakistan has also worked jointly with the private sector. In 2014, the Bank of Punjab, a government-owned bank, and MasterCard announced a Social Security Program which transfers government assistance to individuals through electronic payments. Through the initiative the Bank of Punjab has already distributed millions of payment cards, on which Pakistani citizens receive wages and benefits in areas such as healthcare, pension, microlending, and education. The cards can also be used at merchant locations, where the identity of the cardholder is verified via biometric data. According to <a href="http://newsroom.mastercard.com/mea/press-releases/mastercard-and-bank-of-punjab-bring-financial-inclusion-to-pakistan/">Raghu Malhotra</a>, MasterCard’s Division President for the Middle East and North Africa, “We see this initiative as a catalyst to empower the population and help the government to improve transparency and efficiency.”

Despite these significant advances, the Government of Pakistan still faces a number of inclusion challenges. The NFIS has many obstacles in increasing and diversifying financial-service access points. The supply of credit to underserved markets is constrained by poor contract enforcement, deficiency in land titling and registration, and the absence of a secure transaction framework and electronic collateral registry for movable collateral. Lack of capacity in financial institutions will also remain a constraint to greater financial inclusion. Finally, a continued lack of financial literacy and awareness will continue to limit demand for financial products and services.

The Pakistani Government’s recent efforts demonstrate the important role that regulators can play in addressing the primary barriers to financial inclusion. Pakistan has become, if not a leader, at least a model example for many other developing nations whose governments have not historically played an important role in financial inclusion. Perhaps this new game of old players will be enough to prove our By the Numbers prediction wrong.

Financial Inclusion 2020 (<a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">FI2020</a>) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.

Have you read?

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

<a href="http://cfi-blog.org/2015/03/26/smart-certification-kashf-foundation-takes-the-lead-in-pakistan/">Smart Certification: Kashf Foundation Takes the Lead in Pakistan</a>

<a href="http://cfi-blog.org/2014/08/29/the-formula-for-mobile-microinsurance-success-in-senegal-and-pakistan/">The Formula for Mobile Microinsurance Success in Senegal and Pakistan</a>

Old Players, New Game: The Changing Landscape of Financial Inclusion in Pakistan

<a href="http://www.centerforfinancialinclusion.org/microscope"><img class="alignleft wp-image-20217 size-thumbnail" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/screen-shot-2015-12-03-at-5-08-53-pm.png?w=116" alt="Screen Shot 2015-12-03 at 5.08.53 PM" width="116" height="150" /></a>Today, on the release of the <a href="http://www.centerforfinancialinclusion.org/microscope">Global Microscope 2015</a>, we are celebrating some good news: the environment for financial inclusion is improving worldwide. Most of the 55 countries surveyed by the publication increased their scores, which measure the enabling environment for financial inclusion. In addition to an overall increase, we noticed a few particular exciting success stories as certain countries have made significant improvements to their policy and regulatory environments. It’s clear that 2015 was a year of progress, and we expect that the benefits of improved policy, regulation, and infrastructure will have an impact on the lives of clients for years to come.
For the second year in a row, the Global Microscope features an expanded scope that focuses on the overall environment for financial inclusion. The Center for Financial Inclusion has played a critical role in this shift, improving on the methodology and expanding the number of countries that the publication assesses. 
Three countries—Peru, Colombia, and the Philippines—continue to set the standard for the environment for financial inclusion, topping the list for the second year in a row. There were some surprises in the top 10, however. India’s score increased by 10 points between 2014 and 2015, thanks to some very dramatic changes in the past year which pulled it into the fourth position, such as the new licenses for payment banks and small finance banks. Other countries in the top 10 that improved their scores include Pakistan, Tanzania, and Ghana. Ghana saw the most dramatic rise among this group, with a seven-point jump. Four distinct regions—Latin America and the Caribbean, East Asia and the Pacific, South Asia, and Sub-Saharan Africa—are represented in the top 10 countries.
<img class="size-full wp-image-20213 aligncenter" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope1.png" alt="microscope1" width="490" height="433" />
Consistent with overall scores increasing, we also saw most indicators increasing. In particular, average scores on government support for inclusion increased, as more countries developed new national strategies. Regulations on branches and agents also improved markedly across the world, along with the environment for electronic payments.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope3a.png"><img class="aligncenter wp-image-20218 size-full" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope3a.png" alt="microscope3a" width="900" height="369" /></a>

The story, however, is not all positive. Three indicators in the methodology—regulatory and supervisory capacity, prudential regulation, and regulation of deposit-taking—saw slight decreases on average, indicating that while the overall environment for financial inclusion is increasing, the capacity of regulators and supervisors is not. It appears that while specific attention is being paid to new areas such as electronic payments, the bread and butter of basic regulation and supervision is not receiving similar attention. It is important that the basics not be overlooked, as they are the foundations on which more specific regulatory developments rest.

A specific area where see room for improvement is the payment infrastructure. In most countries in the world, payment infrastructure only partly addresses the needs of low income populations. There are a few bright spots in each region where infrastructure is both reliable and addresses the need of the low-income population, but certainly this is an policy and regulatory area where we would hope to see growth in coming years.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope2.png"><img class="aligncenter wp-image-20215 size-full" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope2.png" alt="microscope2" width="900" height="437" /></a>

Finally, this year, we were happy to see evidence to support some of the hypotheses we have been putting forward over the last few years. In short, commitment to financial inclusion matters, consistency in policy matters, and market conduct matters to financial inclusion. We found that countries which had high commitment to financial inclusion did quite well this year. We also found that countries that showed consistency year-over-year also received high scores. Finally, and most interestingly, there was a high correlation between market conduct rules and overall score, indicating that countries which implement measures like dispute resolution systems and pricing transparency are also more likely in general to have environments more conducive to financially inclusive activity.

We’ll be blogging more about the findings of the report over the coming weeks, but in the mean time, we encourage you to check out the report<a href="http://www.centerforfinancialinclusion.org/microscope"> on our website</a> and explore the data through the <a href="http://bit.ly/1IIEy6V">benchmarking model in Excel</a>

Have you read?

<a href="http://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/">The '2014 Global Microscope': Results and Suprises</a>

<a href="http://cfi-blog.org/2015/10/19/financial-inclusion-data-taking-stock/">Financial Inclusion Data: Taking Stock</a>

<a href="http://cfi-blog.org/2015/07/24/perus-national-financial-inclusion-strategy-charts-new-path/">Peru's National Financial Inclusion Strategy Charts New Path</a>

&nbsp;

&nbsp;

Global Microscope 2015: Progress on the Financial Inclusion Front

&gt; Posted by the Smart Campaign

<a href="http://smartcampaign.org/tools-a-resources/1077"><img class="alignright wp-image-19997" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/pakistan-report.png" alt="" width="300" height="388" /></a>What are microfinance clients’ thoughts on fair treatment from financial services providers? We explored this question in the context of Benin in a <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">previous post</a>, spotlighting results from the Smart Campaign’s <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices</a> project. Now, let’s turn to another country investigated in the project: Pakistan.

The Client Voices project went directly to current and former microfinance clients and asked them about their experiences with their financial providers as well as their thoughts on what constitutes good and bad treatment. The project included qualitative and quantitative research in four diverse markets: Benin, Pakistan, Georgia, and Peru. Research partner <a href="http://bankablefrontier.com/">Bankable Frontier Associates (BFA)</a> began its investigation in March 2014. It conducted surveys, focus groups, in-depth discussions, and photo association exercises.

So, what did we find in Pakistan?

Clients report satisfaction with financial providers, but do not have long-term relationships with them. In Pakistan, a country with a relatively advanced client protection environment, 85 percent of clients reported that they are either very or somewhat satisfied in their borrowing and savings experiences. In fact, only 5 percent of clients reported experiencing a consumer protection problem. (This compares to roughly 13 percent of clients in Benin.) However, clients in Pakistan usually only stay with their provider for a short period. On average, the studied clients had been borrowing with their current provider for just one year. Our research suggests that MFIs are weak at fostering long-term relationships with their clients compared to the other institutions, like savings groups, NGOs, and private schools. When asked about the future, clients indicated they’d rather start fresh with a new provider or discontinue borrowing altogether. Reasons cited included rigid repayment structures, lack of respect/empathy from loan officers, and being publicly disparaged in front of their neighbors.

Problematic treatment is concentrated around late repayments. Though consumer protection problems were not reported frequently in Pakistan, the incidence of problems was much higher among clients who reported having paid late at least once. (This was the case in Benin, too.) “Shaming”, as mentioned above, was the most commonly reported problem affecting these clients. Thirty percent of late-payers experienced MFI staff coming to their home and making a scene. A large number of focus group participants indicated that MFIs did not differentiate between clients who pay late willfully and those who may be late due to extenuating circumstances, and this was often seen as inflexible and inhumane.

Clients report that recourse options are unclear and ineffective. The majority of clients surveyed indicated that they are uninformed about the complaints process. Only 34 percent of respondents were told they could lodge complaints in the event of a problem, and less than half of this informed group was notified of options other than speaking with the same staff and group leaders responsible for approving their loans. A number of clients did not complain because they believed it would be ineffective. In fact, clients who had attempted to complain reported getting the “run around” from the institution. Many clients reported that rather than complaining about poor treatment, they’d sooner leave the institution. When recourse options are clear and encouraged, clients report feeling valued.

Clients lack basic comprehension of the terms and conditions of their financial products. MFIs in Pakistan should improve communication on the terms of their loans, recognizing the low literacy and numeracy pervasive in the country. Among respondents, only 41 percent had a strong understanding of the terms and condition of their loans, and 11 percent reported they had no understanding on the matter at all. In this area, insurance is particularly problematic. Over one-third of respondents reported that they were required to buy insurance as part of their services offering, but only 7 percent of these individuals knew what type of insurance they purchased. Not surprisingly, only 4 percent of individuals who purchased insurance had made a claim.

Smaller financial providers in less saturated areas need to be more transparent. In Pakistan, there is a strong regulatory environment. However, in our research in the rural areas of Sheikhupura, where microfinance penetration is generally lower, we observed problems extending beyond those observed in more accessible parts of the country to date. It seems the treatment of clients in smaller MFIs more often “slips through the cracks”. Clients in rural areas where the market is less saturated more frequently experienced lack of transparency around interest rates and disclosure of late fees compared to urban/peri-urban areas. Clients in rural areas also pointed to issues that weren’t mentioned in urban/peri-urban contexts, including MFIs lying about interest rates and group leaders being corrupt and commanding too much power.

A client of a smaller MFI in rural Sheikhupura described his experience with lack of disclosure on late fees:

“[The staff at the MFP] said that I paid late, so I have to pay a fine of 200 rupees for last month.”

“When did you find out about the late fee?”

“After four to five months [of borrowing].”

“Did they tell you about the late fees during the first meeting?”

“No.”

“When did [the MFP] tell you about the late fee?”

 “When I went to their office the next month [to explain that my wife was very sick]. I told them that I needed the money [for her treatment], but I am paying it back now. They said that in any case you still have to pay 200 rupees.” 

“How was their behavior?”

 “It was not good…I told them all that I am the only breadwinner.”

“How did you feel?”

 “I started crying.”

“You started crying there in front of them?”

 “Yes.”

 “What was their reaction?”

 “They had no reaction.”

We hope the Client Voices project will bring to light the experiences of microfinance clients like the individual above, and spur industry actors in the studied markets, and more broadly, to improve their client protection systems.

For more details and findings from the Pakistan research, <a href="http://smartcampaign.org/tools-a-resources/1077">click here</a>. For the Client Voices Benin report, <a href="http://smartcampaign.org/tools-a-resources/1076">click here</a>. And stay tuned in the coming months for the forthcoming reports on Georgia and Peru!

Have you read?

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2014/03/21/cfpb-gives-voice-to-clients/">CFPB Gives Voice to Clients</a>

<a href="http://cfi-blog.org/2013/06/14/a-call-for-client-voice-in-the-boardroom/">A Call for Client Voice in the Boardroom</a>