<em>CFI is focused on understanding how COVID-19 is impacting MSMEs and conducted a </em><a href="https://www.centerforfinancialinclusion.org/research/covid-19-and-msmes-data-and-analysis-to-understand-impact"><em>longitudinal survey</em></a><em> to understand the scale of its impact. As part of CFI’s learning agenda on this topic, we welcome other perspectives and research on how COVID-19 impacted low-income entrepreneurs. This post shares research from Triple Jump’s assessment of how the pandemic affected borrowers, their businesses, and their capacity to service loans across five countries in Latin America and Southeast Asia.</em>

&nbsp;

Proponents of financial inclusion often argue that it <a href="https://nextbillion.net/relief-through-finance/" target="_blank" rel="noopener noreferrer">boosts borrowers’ resilience</a>, defined as “<a href="https://www.emerald.com/insight/content/doi/10.1108/JEC-06-2015-0033/full/html" target="_blank" rel="noopener noreferrer">reducing the financial vulnerabilities of communities at risk</a>,” notably by helping clients to build assets and gain access to credit. That theory was put to the test on a global scale during the COVID-19 pandemic, when lockdowns and changes in consumption patterns severely undermined the ability of many micro and small entrepreneurs to keep their businesses afloat.

Did financial inclusion really reduce entrepreneurs’ financial vulnerabilities in this context? To find out, Triple Jump and several partners conducted eight separate surveys of 1,638 microfinance borrowers across five countries in South America and Southeast Asia—Bolivia, Cambodia, Colombia, Myanmar, and Peru—during the second half of 2021, more than a year after the start of the pandemic. Analyzing the data from Triple Jump’s <a href="https://triplejump.eu/tj_coping_covid19_effects_sep2022/" target="_blank" rel="noopener noreferrer">findings</a>, three key lessons emerged.
<h1>Lesson #1: External Shocks Do Not Affect All Borrowers Equally</h1>
We found considerable differences between borrowers in terms of whether, and to what extent, they suffered financial shocks in the wake of the pandemic. In Peru, approximately one-third of borrowers reported that their financial situation had worsened significantly, another third had suffered a more moderate decline, and for the remaining third, the situation had not deteriorated at all.
<h4><em>Percentage of Borrowers Reporting Worsened Family Financial Situation</em></h4>
<img class="alignnone size-full wp-image-45325" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/11/TJ-blog-post1.png" alt="" width="2071" height="660" />

A closer look at the data revealed that borrowers whose families lived in poverty suffered a greater financial shock than those who were over the poverty line. Staying with the example of Peru, the financial situation of 78 percent of families below the poverty line declined even further in the wake of COVID, while this was true for 62 percent of families above it.

But again, there were significant differences at the household level, with a small minority of low-income clients even finding themselves in a slightly better financial position post-COVID than they had been before.
<h4><em>Changes in Family Financial Situation by Poverty Status in Peru</em></h4>
<img class="alignnone size-full wp-image-45326" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/11/TJ-blog-post2.png" alt="" width="2071" height="453" />

Thus, while it is true that, on average, some groups of borrowers will be worse affected by systemic shocks, lenders must bear in mind that the impacts on individual borrowers within any given group—even within especially hard-hit groups—may be very different.
<h1><strong>Lesson #2: The Formal Sector Only Forms Part of the Larger Resilience Picture</strong></h1>
Entrepreneurs in all five countries reported using a variety of coping strategies to respond to pandemic-related shocks. While some of those strategies involved formal sector lenders, most did not. When we looked at the data, three trends emerged.

First, drawing down savings and borrowing additional funds were only two among many coping strategies that respondents had employed. Other widely used coping strategies included reducing business stock, laying off employees, reducing business or household investments, selling and pawning assets, and cutting down on food consumption.

Second, most entrepreneurs across countries did not borrow additional funds from any source to help them weather the crisis. ‘Crisis borrowing’ was most frequently reported in Colombia with 56 percent of respondents having used the strategy. At the low-end of the spectrum, only 21 percent of Cambodian entrepreneurs had borrowed additional funds.

Third, when people did seek and secure a ‘crisis loan’, the role of banks and microfinance institutions varied widely between countries. In Peru and Colombia, around three-quarters of ‘crisis loans’ were provided by the formal sector, while in Bolivia, Cambodia, and Myanmar, informal sources of credit predominated.
<h4><em>Percentage of ‘Crisis Borrowers’ Who Borrowed from a Bank or MFI</em></h4>
<img class="alignnone size-full wp-image-45327" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/11/TJ-blog-post3.png" alt="" width="2112" height="724" />

Thus, while financial inclusion can, and often does, contribute to building resilience by allowing people to accumulate savings in times of plenty and access credit in times of crisis, entrepreneurs widely employ other strategies involving a diverse set of players to navigate crises.
<h1>Lesson #3: Need for a Nuanced Approach</h1>
Considering the above data, it appears that financial inclusion did indeed boost some borrowers’ resilience in the wake of the pandemic, and we found no indications that financial inclusion reduced the resilience of any borrowers. At the same time, many entrepreneurs chose to pursue alternative coping strategies that did not involve accessing formal financial services—ranging from reducing investments over seeking alternative or additional employment to cutting down on household consumption.

Thus, it appears that financial inclusion does boost borrowers’ resilience on average, but that this benefit is only sought and experienced by some borrowers. Future attempts to better understand the link between financial inclusion and resilience will need to focus on the individual business or household level.

&nbsp;

<em>This blog post is based on data collected for the report “</em><a href="https://triplejump.eu/tj_coping_covid19_effects_sep2022/" target="_blank" rel="noopener noreferrer"><strong><em>Coping with long-lasting effects of the pandemic: How financial institutions supported borrowers affected by Covid</em></strong></a><em>,” published by Triple Jump in September 2022. The report is the result of a collaboration between Triple Jump, Banco de Desarrollo de América Latina (CAF), and the Responsible Inclusive Finance Facility for Southeast Asia (RIFF-SEA); the latter is managed by the Social Performance Task Force. The underlying surveys were executed by 60 Decibels. </em><em>This article was commissioned by Triple Jump.</em>

Does Financial Inclusion Boost Borrowers’ Resilience? Three Lessons from the Pandemic

When financial sectors are buffeted by sudden and dramatic external shocks, regulators strive to implement targeted regulatory responses to mitigate negative impacts -- and the shocks made by the pandemic were no exception.

The aim of this policy report is to examine the types of regulatory flexibility adopted in response to the pandemic and provide early evidence on the impact of these measures.
<h3>The Purpose of This Report</h3>
Based on desk research and interviews and exchanges with regulators and financial service providers (FSPs), this paper aims for the following:
<ul>
 	<li>Describe the main types of regulatory flexibility adopted in developing and emerging economies as a response to the pandemic.</li>
 	<li>Provide preliminary evidence of how regulatory flexibility has impacted low-income financial consumers and micro and small enterprises (MSEs), as well as the FSPs that serve them.</li>
 	<li>Draw some emerging lessons for regulators seeking to better prepare for the future.</li>
</ul>
This is the third in a <a href="https://www.centerforfinancialinclusion.org/series/policy-responses-to-covid-19-their-impacts-on-low-income-customers" target="_blank" rel="noopener noreferrer">series of policy papers</a> that aims to analyze policy responses to COVID-19 to assess the impact of policies, both in the short- and long-term, on low-income customers of financial services and the financial service providers that work with them.

Regulatory Flexibility During the Pandemic: Emerging Lessons

In June, CFI published a blog post asking whether repayment <a href="https://centerforfinancialinclusion.org/are-moratoriums-good-for-clients/" target="_blank" rel="noopener noreferrer">moratoriums are good for clients</a>. As one of the <a href="https://centerforfinancialinclusion.org/preserving-liquidity-policymaker-responses-to-covid-19-and-the-impact-on-low-income-customers/" target="_blank" rel="noopener noreferrer">key tools being used by policymakers</a> to mitigate the consequences of COVID-19 on microfinance clients, moratoriums have provided vital relief to people at a time of unprecedented need.

But when we assess the value of moratoriums, we must also carefully consider what impacts they are having on the financial institutions that serve low-income and underserved segments. From confusion caused by moratoriums announcements to the liquidity impacts for financial institutions serving the BOP, the implications of loan moratoriums are proving to be very mixed.
<h2>COVID-era Moratoriums: Confusion and Rumors</h2>
Moratoriums for loan payments was one of the first measures taken by policymakers around the world when the pandemic shut down businesses. Consumer and MSME borrowers were told they could hold off on repaying their debts, usually for a few months. While this measure seems straightforward, the way in which it was implemented and communicated has varied widely across markets – and often within markets – leading to significant confusion.
<blockquote>While a moratorium seems straightforward, implementation and communication varied widely across markets.</blockquote>
Some moratoriums were mandatory, others were offered as recommendations. The timeframes varied, anywhere from one through six months. Some financial institutions implemented them with an “opt in” approach for customers, while others in the same market took an “opt out” approach. Some regulators said customers needed to request deferments in writing, then later said they could do so via phone, SMS, or email, adding further challenges to financial institutions. In some cases, financial institutions told their clients they could hold off on principal payments but not interest payments. Others said clients would need to pay the combined principal and interest in one balloon payment at the end of the period. And in many markets, it was not clear which borrowers and institutions the moratoriums would apply to, leading to false rumors and public turmoil.

A key issue contributing to the confusion is that the FSPs that serve the poor are made up of many types of entities, typically licensed and supervised by different regulators, with moratorium parameters often differing between them. So consumers and MSMEs were hearing mixed messages and weren’t sure which ones applied to them.

So far, it’s small and mid-size non-bank financial institutions (NBFIs) that are finding themselves most negatively impacted by the moratoriums in their markets, both by the liquidity implications as well as the confusion over how to implement the moratoriums and who it applies to. Many of their clients are no longer able to repay their loans, and even those who can pay are refusing to because they believe the moratoriums apply to them.
<blockquote>Moratorium parameters often differ between types of entities which serve the poor.</blockquote>
In some countries, such as India, the Reserve Bank of India (RBI) stated that <a href="https://economictimes.indiatimes.com/wealth/borrow/lending-institutions-to-allow-3-month-moratorium-on-all-term-loans/articleshow/74840850.cms#:~:text=The%20Reserve%20Bank%20of%20India%20(RBI)%20in%20a%20press%20conference,outstanding%20on%20March%201%2C%202020.&amp;text=Normally%2C%20simple%20interest%20is%20payable,loan%20during%20a%20moratorium%20period." target="_blank" rel="noopener noreferrer">banks and NBFCs are “allowed” to provide moratoriums</a> to their borrowers, but didn’t specify the conditions around how the moratorium should be carried out.

In discussions with the Central Bank of Egypt, they said that the moratorium announced by the central bank applied only to bank loans, but somehow got miscommunicated, leading many MFI customers to initially believe it applied to them as well. At that point, the regulator responsible for non-bank financial institutions in Egypt, the Egyptian Financial Regulatory Authority (FRA), announced its own moratorium. FRA took a more nuanced approach to a moratorium for microfinance clients, in coordination with the MFIs themselves and the Egyptian Microfinance Federation. The mid-March moratorium stated that MFI clients could repay a portion of their loans, down to 50 percent, for a period of two months (March and April), with extensions allowed on an as-needed basis. FRA’s view was that MFIs could not afford a sudden and complete stop in repayments, especially as they don’t have deposits to fall back on, nor would it be a good precedent in terms of microfinance borrower culture. The Bank of Zambia told us they chose to not impose any moratorium, leaving it to individual financial institutions to decide how to address the issue with their clients.

In Peru, MFIs were struggling even before COVID, and there’s now a debate about a proposed law that would forgive all interest charges for six months. It’s still under discussion but industry observers estimate that the law would force at least 26 MFIs into <a href="https://gestion.pe/economia/sbs-26-entidades-financieras-quebrarian-si-aprueban-condonacion-de-intereses-noticia/" target="_blank" rel="noopener noreferrer">serious solvency problems</a>.

Most moratorium announcements have overlooked the loan repayments that MFIs themselves must pay to their bank lenders. Many central banks have urged the banks under their supervision to extend the moratoriums to their MFI/NBFI clients but have not mandated it. And, according to one observer in India, there are banks who fear that extending moratoriums to MFIs will affect their own bank’s credit rating, so are reluctant to do so. MFIs and NBFIs thus find themselves caught in the middle between client moratoriums and their own creditors. Not only are MFIs struggling to meet their current loans in this environment, but their banks and investors are hesitant to issue new loans to them, further exacerbating the situation.
<h2>FSPs: Caught in the Middle and Facing a Liquidity Crisis</h2>
In this pandemic environment, with no loan repayments coming in, deposits being drawn down, and maturing debt commitments coming due with little sign of being renewed or rescheduled, many MFIs are facing the possibility of a serious liquidity crisis. Many industry observers suggest that MFIs won’t get back to their normal repayment rates until 2022. The reduction in cash reserves means shortages in their operational budgets, including their ability to pay staff costs, which also exacerbates their ability to collect repayments. One recent analysis shows that a slip in client repayment rates from 95 to just 85 percent would render most MFIs <a href="http://cgap.org/blog/covid-19-how-does-microfinance-weather-coming-storm" target="_blank" rel="noopener noreferrer">insolvent in less than a year</a>. In a June 2020 survey in Rwanda, 95 percent of the microfinance banks and limited liability microfinance institutions reported <a href="http://afr.rw/IMG/pdf/focus_note_-_covid-19_survey_12.06.20_.pdf" target="_blank" rel="noopener noreferrer">emergency need for liquidity support</a> in the next three months.

Allowing a collapse in the microfinance sector could very well end up negating overall COVID economic relief measures. So far, most MFIs are continuing to operate and few have indicated that they are struggling from serious liquidity shortages, particularly the larger players. According to a recent <a href="https://www.cgap.org/pulse" target="_blank" rel="noopener noreferrer">CGAP survey</a> of MFIs, only 14 percent of respondents reported having less than three months of liquidity on hand (as of April 2020). This figure jumps to 25 percent when operating expenses and debt repayments are factored in. What concerns observers, though, is what happens when the moratoriums end and borrowers are still unable to repay. When the lockdowns and moratoriums end, many microfinance clients will need additional credit to resume business activities, not to mention repay other liabilities accrued to meet their household needs during lockdown.
<blockquote>Allowing a collapse in the microfinance sector could negate overall COVID economic relief measures.</blockquote>
MFIs that are in a precarious position because of the liquidity squeeze described above won’t be in a position to provide this critical credit. This will be compounded by MFIs being unable to access further credit from wholesale lenders such as banks as their collection efficiency will plummet during and after lockdown. In financial situations like this, where there is considerable reduction in consumer demand and a broader economic slowdown, banks become risk averse – even more so when dealing with the poorest segments of society and the institutions that serve them.
<h2>Recommendations for Policymakers and Regulators</h2>
Going forward, we’d make the following recommendations, which can also be found in the recent CFI policy brief:
<h3>Authorities must carefully consider the appropriateness of blanket moratoriums for all institutions and build some flexibility into the policy.</h3>
As we’ve seen so far in Egypt, offering only a partial moratorium to MFI clients has so far proven successful and has eased the impact on the MFIs. The risks of poorly-thought out moratoriums don’t just apply to MFIs, either: a recent stress test by the Bank of Uganda showed that more than half of Uganda’s commercial banks <a href="https://www.theeastafrican.co.ke/business/Half-Ugandan-banks-fail-pandemic-liquidity-test/2560-5584762-ji0t3c/index.html?utm_source=newzmate&amp;utm_medium=email&amp;utm_campaign=2318&amp;tqid=3fGufmcvDU4BEZgeQv5CBIR5.HzSy386xe.6Ebixzw" target="_blank" rel="noopener noreferrer">would have collapsed</a> if the central bank had enforced a three-month customer loans repayments holiday at the onset of the COVID-19 pandemic. In India, industry experts are starting to worry about the impact that twice-extended moratoriums will have on the banks. As The Economist <a href="https://www.economist.com/finance-and-economics/2020/08/01/has-indias-moratorium-on-loan-payments-delayed-the-pain-for-banks" target="_blank" rel="noopener noreferrer">notes</a>, "Much of the RBI's early response to the pandemic involved protecting borrowers. It may yet find itself being forced to step in to save some lenders."
<h3>Moratorium mandates must be clearly thought out and communicated uniformly across all institutions.</h3>
Moratorium announcements can be very confusing to consumers and financial institutions alike. Regulators and policymakers must articulate clearly who the moratoriums apply to, and announcements affecting different groups should occur at the same time to avoid confusion. If moratoriums are to be made optional, say by letting customers opt in, the procedures should be simple, straightforward and clearly communicated. There should also be a clear understanding between the regulator and financial institutions on how they wish to see the moratoriums carried out, with measures in place to ensure that instructions are carried out accordingly. For example, merely recommending that banks extend moratoriums to their MFI clients without following up to ensure this is happening will probably not deliver the results that central banks want to see.

Policymakers and regulators were caught off guard by the pandemic, and are struggling to do everything they can to alleviate the suffering people are facing. While moratoriums were implemented with good intentions, the effects may end up being detrimental in the long run.

Are Moratoriums Good Policy and Good for FSPs?

This paper examines how COVID-era economic policy measures – specifically those addressing liquidity – are directly affecting low-income segments and the financial institutions that serve them. In particular, the paper reviews the liquidity needs of financial institutions serving low-income customers in light of COVID-19, provides examples of policy measures being taken around the world to address concerns over liquidity, and addresses how these measures are affecting the financial institutions that serve low-income customers in emerging markets, especially MFIs and other related non-bank financial institutions (NBFIs). This is the first in a series of policy papers on COVID-19 economic policy responses and their impact on low-income customers.

Preserving Liquidity: Policymaker Responses to COVID-19 and the Impact on Low-Income Customers

New data protection legislation in many countries has gotten a lot of attention in recent years. But we hear less about what happens after these laws are passed. Although the substance of new data protection laws is important, implementation is where the rubber meets the road. Any new law is only as good as the implementing capabilities of regulators and providers, so it’s important to take those capabilities into consideration when developing the law’s provisions, subsequent rules and institutional structures that must be put in place to bring it to life.

This point was underscored in a recent <a href="https://www.dvara.com/research/wp-content/uploads/2019/10/Policy-Brief-Implementing-the-Personal-Data-Protection-Bill-in-India.pdf">policy brief</a> issued by the <a href="https://www.dvara.com/research/future-of-finance/">Future of Finance Initiative at Dvara Research</a> that provides a blueprint for actions that will need to be taken by India’s central government and the new Data Protection Authority (DPA) that will be created after passage of the <a href="https://prsindia.org/billtrack/personal-data-protection-bill-2019">Personal Data Protection Bill</a>. In total, the government and the DPA will need to address <a href="https://www.bloombergquint.com/opinion/a-blueprint-for-implementing-indias-personal-data-protection-law">at least 82 action points</a> to implement the new law. This observation begs the question: will regulators have the capacity needed to implement and enforce this new law?
<h2>Bridging a Gap of Understanding and Interpretation</h2>
As mentioned in the <a href="https://centerforfinancialinclusion.org/data-protection-and-financial-inclusion-why-it-matters-introduction/">introductory blog post</a> to this series, a common theme that surfaced during interviews we conducted last year with various data protection stakeholders in India, Ghana and Peru (as part of a <a href="https://www.credit-suisse.com/careers/en/articles/careers/sharing-expertise-201712.html">Credit Suisse Global Citizens volunteer project</a>) is that there is a gap that needs to be bridged between governments and providers on the issue of data protection.

For example, in Ghana, which has had a data protection law in place since 2012, any entity that handles personal data must register with the country’s Data Protection Commission as either a data controller or a data processor. However, according to Elorm Allavi, founder of<a href="https://syecomp.com/"> SyeComp</a>, an agricultural intelligence tech startup, it’s not necessarily clear which classification to register under and what the implications may be for the registration fees to be paid. He also described the data protection requirements as being “very one sided” and expressed a desire for the Bank of Ghana and data protection regulators to take steps to better comprehend the changing digital landscape and how fintechs use data. He felt that their lack of understanding limits their ability to assess the risks and can lead to unwarranted regulations.

On the government side, we’re grateful to Clarissa Kudowor at the Bank of Ghana (BoG) for providing a written response to some of the questions we had submitted regarding the overall legal and regulatory environment around data, as well as the BoG’s new <a href="https://www.bog.gov.gh/wp-content/uploads/2019/09/CYBER-AND-INFORMATION-SECURITY-DIRECTIVE.pdf">Cyber &amp; Information Security Directive</a>. In her response, she recognized the need for innovation in financial services and the role of proportionate regulations and regulatory sandboxes in helping to create an enabling regulatory environment. But despite this enabling spirit, there was also a clear undertone throughout her remarks that compliance with the provisions of the law is paramount, though there was no mention of any specific engagement with providers that would help to facilitate that compliance. Moreover, Ms. Kudowor had to refer some of our questions to the Data Protection Commission, which sits within the Ministry of Communications. This was understandable, since Ghana’s data protection law applies to all sectors and not just the financial sector, but our efforts to get a response from the commission weren’t successful. This perhaps was indicative of the kinds of concerns providers often express about having multiple regulators to answer to.

We encountered similar concerns in Peru, where Mariano Fuentes, a Legal Advisor with <a href="https://www.asbanc.com.pe/">ASBANC</a>, the association of private financial institutions in Peru, told us about five member banks that were appealing sanctions by the National Data Protection Authority (NDPA) over differences in interpretation of consent requirements, suggesting a lack of regulatory clarity. Raising a separate concern, Elias Vargas, Head of Market Conduct Supervision at SBS (the Peruvian banking superintendent), spoke about overlaps in the mandates of the SBS and the NDPA and suggested that in some cases the SBS may be better positioned than the NDPA, which resides in the Ministry of Justice, to provide oversight of the financial sector on certain data protection issues. And in India, where the new data protection bill is looming large, Tejamoy Gosh, Head of Data Science and Artificial Intelligence with Aye Finance, also emphasized the need for regulatory clarity when he said that he would like to see “a list of ‘don’ts’ rather than a list of ‘dos,’ so we can be sure of what not to do absolutely.”
<h2>Provider and Other Stakeholder Capacity Needed, Too</h2>
All of the above issues are reflective of the enormous complexity of data, which brings us full circle to the need for policymakers and regulators to take capacity into account when designing and implementing new data protection frameworks. This doesn’t mean just regulatory capacity, but also provider capacity. In order to do this, it’s important for those doing the regulating to consult with those who will be regulated throughout the policymaking process so that all data protection stakeholders can be set up for success. Based on the feedback we obtained through the interviews described above, it appears that much more deliberate action is needed to make this happen.
<blockquote>It’s important for those doing the regulating to consult with those who will be regulated.</blockquote>
As <a href="https://www.bloombergquint.com/opinion/a-blueprint-for-implementing-indias-personal-data-protection-law">noted</a> by the team at the Future of Finance Initiative at Dvara Research, “Developing robust and timeless regulation will require collaboration between regulators, entities processing data, civil society, researchers and technologists.” We couldn’t agree more. As our interviews showed, there’s a divide between regulators and providers that intentional and ongoing collaboration can help to bridge. They also suggest that governments need to do more to ensure that regulatory bodies not only have the technical expertise to deal with data issues writ large, but also the sectoral expertise to be able to effectively deal with data issues that are specific to each sector. Designing and implementing data protection frameworks is no small task, and governments should do all they can to enlist the support of external stakeholders to develop frameworks that truly set everyone up for success.

Avoiding Capacity Overload in Data Protection Frameworks

As more people are connecting to more financial services digitally, we’re seeing growing calls for individuals to have greater control over how their data is being used and by whom. At the heart of consumers’ ability to control their data is the notion of consent, but what consent means in practice can vary considerably and can often be difficult for providers to ascertain in a meaningful way from a consumer standpoint.

In the EU, the GDPR has <a href="https://gdpr.eu/gdpr-consent-requirements/">defined consent</a> as being free, informed, specific and unambiguous. It also necessitates an opt-out option for data subjects, allowing for the partial or complete withdrawal of any previously given consent, and for the removal of all gathered personal data. But while these requirements may be good for consumers, they’re also tough for providers to implement. Just ask Google, which was <a href="https://www.reuters.com/article/us-google-privacy-france/france-fines-google-57-million-for-european-privacy-rule-breach-idUSKCN1PF208">fined 50 million euros</a> last year after the French data protection authority concluded that it “lacked transparency and clarity in the way it informs users about its handling of personal data and failed to properly obtain their consent for personalized ads.”
<h2>Flexibility Needed for Smaller Providers</h2>
So, if a tech giant, operating in Europe with all the resources and expertise at their disposal, can run afoul of these new consent requirements, does it make sense for governments in developing countries to try to adopt similar rules? India’s response for now has been yes. The current version of its pending data protection bill incorporates the same consent principles as GDPR. However, one legal observer we spoke to expressed concerns that the bill says nothing about what this consent architecture will look like and the ways in which consent will be sought. For smaller providers like microfinance institutions, fintechs and small finance banks that are trying to reach underserved segments with higher levels of illiteracy, obtaining consent as currently defined in the bill would pose a significant challenge, as elaborated below. Moreover, providers leveraging digital technologies to serve customers who might not be that digitally literate or understand the ways their data can be used may find it nearly impossible to meet such high standards of consent. The likes of Google might be able to figure it out over time, but smaller providers would need more flexible rules and support to comply.
<blockquote>Google might be able to figure out high-standard consent, but smaller providers would need more flexible rules and support.</blockquote>
For further evidence on how providers are already coming up short on consent, a recent <a href="http://documents.worldbank.org/curated/en/677281542207403561/Financial-Consumer-Protection-and-New-Forms-of-Data-Processing-Beyond-Credit-Reporting">World Bank report on new forms of data processing</a> laid out many limitations of practices around consent, such as lengthy and complex consent forms, incomplete information, and standardized, inflexible terms offered on a “take it or leave it” basis. As a result, providers are often seen to be doing the bare minimum to comply with existing data protection requirements. In recounting the deficiencies identified in a study by the Centre for Internet and Society on fintech privacy policies in India, a <a href="https://cis-india.org/internet-governance/blog/the-wire-shweta-mohandas-july-30-2019-in-india-privacy-policies-of-fintech-companies-pay-lip-service-to-user-rights">recent article</a> noted that one rule “requires a fintech company to provide an option to withdraw consent. Twenty-three percent of the companies allowed the user to opt out or withdraw from certain services such as mailing list, direct marketing and in app public forums, but they did not allow the user to withdraw their consent completely.” Such findings have led various observers to rightly question <a href="https://www.cgap.org/blog/data-protection-and-financial-inclusion-why-consent-not-enough">how effective consent really is</a> in practice and to propose <a href="https://www.cgap.org/research/publication/making-data-work-poor">other approaches</a> to give consumers more meaningful control over their data.
<h2>The Futility of Trying to Keep Up with New Approaches to Consent</h2>
This all stands to reason, but it again begs the question as to how providers who are already having a hard time complying at a minimal level could ever keep up with these new approaches. Indeed, in discussing the variety of data protection principles and standards that already exist around the world, the previously mentioned World Bank report also hastened to point out that “such principles may often be difficult to implement, particularly in low-capacity environments and/or where changes in the financial sector are fast paced.” As our interviewees attested, low-capacity environments and fast-paced changes are very much the rule, not the exception, and the path from principles to implementation is littered with landmines.
<blockquote>Low-capacity environments and fast-paced changes are very much the rule, not the exception.</blockquote>
One case we encountered centered around the issue of informed consent. Last year, the Reserve Bank of India <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-slaps-rs-5-crore-penalty-on-airtel-payments-bank-for-violation-of-norms/articleshow/63235308.cms">fined Airtel Payments Bank</a> the equivalent of roughly $700,000 for “contravening the Operating Guidelines for Payments Banks and directions issued by RBI on Know Your Customer (KYC) norms.” Airtel Payments Bank is majority owned by Bharti Airtel, one of the largest mobile operators in India, and in 2017 complaints started to emerge among mobile subscribers that Airtel Payments Bank had opened new bank accounts without their consent. According to <a href="https://www.financialexpress.com/economy/uidai-airtel-payments-bank-case-company-claims-no-wrongdoing-heres-how-you-can-avoid-the-trap/979401/">reports</a>, when new Airtel mobile subscribers first opened their Airtel mobile app, a pre-ticked consent box would appear on the welcome screen which, unless unchecked, would authorize the use of the same <a href="https://uidai.gov.in/what-is-aadhaar.html">Aadhaar</a>-based eKYC verification required to open the mobile account to also open an Airtel Payments Bank account. Over 2.3 million customers reportedly had new bank accounts created that they did not realize had been opened. Further complicating the matter was the fact that government subsidies would automatically be sent as direct benefit transfers to each beneficiary’s most recent Aadhaar-linked bank account, resulting in the equivalent of about $6.6 million in subsidies being deposited into these accounts. Airtel Payments Bank maintained that it had properly obtained consent to open these accounts but committed to working with the government to ensure compliance. We spoke with Akhil Verma, the current Chief Information Security Officer of Airtel Payments Bank, and he said the bank’s failure to notify customers of this caveat and obtain their explicit permission before allowing this was considered grounds for insufficient consent.
<h2>Out of Step With Modern Digital Reality</h2>
Another concern we heard from the other side of the globe was that some consent requirements are out of step with modern realities. According to Mariano Fuentes, Legal Advisor with ASBANC, the banking association in Peru, its data protection law (which was originally passed in 2011) is outdated for the digital times we now live in and does not do a thorough job of clarifying the ways consent can be obtained. Banks in Peru can obtain consent for personal data digitally, but “sensitive” personal data, which not only includes data on things like race or health, but also biometric data and data pertaining to “personal habits” that could come from things like mobile phone usage patterns, still requires written consent. Since Peru’s data protection law was passed in 2011, it would not have been able to fully anticipate the ways in which people’s lives have been digitized and the new types of data that would emerge, so it’s not surprising that it was reported last June that the National Authority for the Protection of Personal Data in Peru had issued <a href="https://elcomercio.pe/economia/negocios/tres-anos-han-puesto-1-246-sanciones-faltas-proteger-datos-noticia-646513-noticia/">1,246 sanctions within three years</a> (across all sectors).  A scan of the sanctions imposed by the data protection authority also reveals that a significant share of these violations resulted from failures to properly obtain consent.

Whether these cases amount to violations is often a matter of interpretation. Mariano Fuentes of ASBANC underscored this by pointing out that five member banks are currently appealing their penalties because they disagree with the arguments made by the data protection authority. “The complete idea of consent is not represented by any technology, which is damaging in today’s times and is used against us to levy sanctions,” he added. Despite these challenges, Peru consistently ranks as one of the top country-wide regulatory environments for financial inclusion in the Economist Intelligence Unit’s <a href="https://www.centerforfinancialinclusion.org/global-microscope-2019">Global Microscope</a> assessment. In the 2019 version, it came in second partly because it “showed the greatest improvement in the consumer protection domain—specifically, for its data protection framework for financial customers.”
<h2>So How Are Consumers Supposed to Understand?</h2>
Given all the shortcomings with current consent practices around the world, it’s simply unfair to expect consumers to be able to fully understand what can and cannot happen with their data right at the point when they are about to access a new service or download an app. But at the same time, placing the burden on providers, especially those that are on the frontlines of underserved areas, to understand and apply high standards of consent is also proving to be a challenge. The reality is that this is a burden that both consumers and providers need to share, but not on their own. They need the right mix of policy and technology to help them get there. There are some emerging regulatory technology – or “regtech” – solutions providers in developed markets (like <a href="https://www.trunomi.com/">Trunomi</a>) that enable consent-based data sharing, for example.
<blockquote>This is a burden that both consumers and providers need to share, but not on their own.</blockquote>
As these solutions continue to advance, perhaps governments in developing countries could seek to attract such providers to adapt these solutions for their markets. It’s this type of innovation and collaboration that is needed to make consent work. The burden should be broadly shared.

Data Consent: Let’s Share the Burden for Effective Consumer Protection

<img class="alignright wp-image-21499" style="border: 0 solid #000000;" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/06/thumb_cb9d9de3868b4e559e297920eacfbb6c.jpg" width="330" height="220" />What are the biggest unanswered questions in financial inclusion? This isn’t rhetorical—we want your opinion.

In preparation for selecting three CFI Fellows for 2016-2017, we are developing a short list of questions whose answers would drive financial inclusion forward.

Our Research Fellows Program is an initiative intended to tackle the biggest questions in financial inclusion—in order for the industry to take action in new areas and in new ways. <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-and-accion-research-fellows">The current cohort of fellows</a> is finalizing research ranging from big data to small enterprises to technology infrastructure to G2P payments.

The questions we put forward for this next cohort will only be relevant if they are essential to the financial inclusion community. So we’re coming to you (yes, you!) for your input.

To get the conversation started, here are some of the questions on our working list. Let us know below in the comments which you think are compelling, and please take the liberty of adding your own.

<ul>
 	<li><strong><em>What does effective human touch look like in our digital age?</em></strong></li>
</ul>
Today, financial services are rapidly going digital to lower their costs and serve more people. But customers still may desire to interface with people—to build trust, to troubleshoot problems, and to receive advice on their financial lives. How are financial services providers integrating human touch into digital products, and is it working?
<ul>
 	<li><strong><em>What is the business case for financial capability?</em></strong></li>
</ul>
Proponents of financial capability report that institutions want to know about the business case before they pursue financial capability building initiatives. Our hunch is that financially capable customers are more loyal and frequent users of products, but we have not seen much concrete evidence to support or refute this.
<ul>
 	<li><strong><em>Solving the challenges of agent network management</em></strong></li>
</ul>
There is no “right” way to manage agent networks, but how such networks are managed has an impact on the relationship with the client, where the risk is held, and the cost of the network to the institution (among other considerations). We frequently hear about the headaches of agent management, from liquidity problems, to high turnover to uneven service quality. What can we learn about how to solve these problems?
<ul>
 	<li><strong><em>Are fintech startups really disrupting the financial sector?</em></strong></li>
</ul>
There is a lot of (justified) enthusiasm about fintech investments to further financial inclusion. Accion and other institutions are betting on fintech—quite literally. But are fintech companies actually changing the system? Are they on a path to do so? What is the evidence and what can we learn from the experience so far?
<ul>
 	<li><strong><em>What are the challenges to increasing regulatory or supervisory capacity to oversee financial inclusion?</em></strong></li>
</ul>
<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/722-commentary-on-basel-committee-guidance-on-financial-inclusion">Our analysis of recent draft Basel Committee guidance</a> suggests that overseeing financial inclusion requires regulators and supervisors to develop a host of new activities and skills. What investments are needed to increase supervisory capacity to meet the changing needs, and who can make them?
<ul>
 	<li><strong><em>What are the financial needs of refugees and how well are they being met?</em></strong></li>
</ul>
Refugees face unique challenges in their financial lives, as they leave behind their livelihoods, their portfolio of financial services, and their credit histories. In addition, many refugees are on the move and cannot connect physically with an institution. Nevertheless, being a refugee comes with a host of financial needs. What are those needs and how are financial institutions meeting them?
<ul>
 	<li><strong><em>Can personal financial data be made portable?</em></strong></li>
</ul>
If customers could take their financial behavior data and give it to a financial institution, they may be eligible for higher credit limits, lower interest rates, and better premiums. What needs to happen to make data portable? Is this a good idea? How are existing efforts working out so far?
<ul>
 	<li><strong><em>What is the landscape of digital financial services for people with disabilities. Are innovations moving to scale?</em></strong></li>
</ul>
Digital financial services can support the financial inclusion of people with disabilities. But have such innovations gone mainstream? We suspect that those who are successful at leveraging innovations for people with disabilities have done so by most comprehensively understanding both the use case and the business case, but we would like to see evidence from the institutions themselves.
<ul>
 	<li><strong><em>How does financial inclusion relate to the Sustainable Development Goals?</em></strong></li>
</ul>
The new Sustainable Development Goals offer guidance for countries looking to pursue economic development in a way that benefits everyone. How does financial inclusion translate into success in meeting these goals? What strategies are most important for governments to pursue?
<ul>
 	<li><strong><em>What are the elements of a great user experience and who is providing it?</em></strong></li>
</ul>
Some of the biggest financial technology investors are betting that an excellent user experience will drive customer uptake and use of services. What does excellent user experience look like? Can it be available for BoP customers? Does it matter to financial services access and use?
<ul>
 	<li><strong><em>Using technology to equip frontline staff.</em></strong></li>
</ul>
As financial services providers adopt technology to streamline their operations, they must rethink the role of frontline staff. Digital field applications are one strategy. What creative concepts are being developed to empower staff with technology that both provides value to clients and makes operations more efficient?
<ul>
 	<li><strong><em>Does prioritizing consumer protection benefit providers and customers?</em></strong></li>
</ul>
It has been five years since the Smart Campaign launched its certification program—enough time to assess whether and how certification makes a difference in a financial institution. Do certified institutions treat their customers better? Do they perform better on financial and/or social dimensions? How has certification affected institutions internally? We hear from institutions that being a certified institution is good business, but can we verify that claim?
<ul>
 	<li><strong><em>What does responsible online credit look like?</em></strong></li>
</ul>
Online credit is a new phenomenon—one that does not fall squarely in regulatory frameworks for the financial system. Given the rise in the use of online credit, the question of consumer protection in this space has become more critical. What are good practices to protect clients using online credit, and what recommendations for standards can be made for the financial services industry?
<ul>
 	<li><strong><em>How do financial services providers address human capital challenges?</em></strong></li>
</ul>
Particularly at this moment—when the industry is shifting toward digital financial services—financial services providers need staff with a wide range of skills and expertise (often on a shoestring budget). How are financial services providers coping with these human resource challenges, and where are the blind spots?
<ul>
 	<li><em><strong>[YOUR QUESTION HERE]</strong></em></li>
</ul>
Do any of these get you excited? More importantly, what have we left out? Give us some thoughts in the comments below.

P.S. If you would rather email us than leave your comment below, reach out to Sonja Kelly at <a href="mailto:skelly@accion.org">skelly@accion.org</a>.

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/09/14/increasing-poverty-outreach-suggestions-from-recent-research/">Increasing Poverty Outreach: Suggestions from Recent Research</a>

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P Gender: When Will Pakistani Women Be Able to Able to Withdraw Their Own Money?</a>

<a href="https://cfi-blog.org/2015/09/21/announcing-cfi-and-accions-research-fellows/">Announcing... CFI and Accion's Research Fellows</a>

&nbsp;

We want YOU… to think about big questions

In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">most conducive environment</a> for financial inclusion, but also for its historic collaborative effort to establish a <a href="https://cfi-blog.org/2017/01/30/modelo-peru-unique-model-unique-challenges-bright-future/">fully-interoperable nationwide digital payments platform</a> (Bim) to support the supply of financial services. But buckle up, there is more.

The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.
<blockquote>“The risk is to regulate by anecdotes and not by evidence.” - Mariela Zaldivar, Deputy Superintendent, Insurance and Private Pension Fund of Peru (SBS Peru)</blockquote>
<a href="http://smartcampaign.org/tools-a-resources/1087">Client Voices</a> was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.

Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.
<h2>Understanding Credit Bureaus and Credit Reporting</h2>
<em>High-level finding </em>– Client Voices found that clients did not understand how credit bureaus work, or the consequences of having a negative credit record. Clients seemed to be unaware that credit bureaus now keep positive as well as negative information. To combat these shortcomings, the SBS took the following steps:
<ul>
 	<li><strong>Presenting credit histories as a potentially positive asset</strong>: Through their media campaign and financial education training programs, the SBS is raising awareness to help clients understand that they can build and invest in their credit histories through good repayment behavior. The credit bureau does not just offer negative outcomes or punishment for nonpayment. “Clients need to be aware that credit histories can result in positives like facilitating access to better interest rates,” says Mariela Zaldivar, Deputy Superintendent of SBS Peru.</li>
 	<li><strong>Non-payment warning</strong>: In the country’s 2012 transparency regulation, the warning to clients about negative reporting in the credit bureau in the case of non-payment was suppressed. The new regulation on market conduct - published in August 2017 - has reestablished this warning for clients as a preventive measure. Now, clients receive this non-payment warning in their contract summary sheets, where most relevant terms and conditions of loans are explained.</li>
 	<li>
<div class="mceTemp"></div>
<strong>Simple and accessible credit report</strong>: In 2015, Peru’s credit bureau system developed a simplified credit report to motivate users to look up their credit information. Today, credit reports are accessible virtually (web or app) and there has been a media campaign to encourage people to use the report. Credit ratings are presented with an easy-to-understand red, yellow and green light coding, and legal jargon has been minimized. “In the past 30,000 reports were accessed every year. Since our recent changes, over 1.5 million reports are accessed per year,” states Mariela Zaldivar. For this development, the SBS was recognized with the Best Practices in Public Management Award organized by the non-profit <a href="http://www.premiobpg.pe/es/">Ciudadanos al Día</a>, which encourages efficient, successful and innovative public programs that benefit citizens.</li>
</ul>
<h2>Understanding Loans and Insurance Products</h2>
<em>High-level finding</em> - Approximately 40 percent of respondents in Peru did not fully understand their loan terms. Clients were especially confused about the insurance policies linked to their loans. They did not know what insurance products they currently had or how they worked. Overall, we estimated that about 30 percent of all clients in Peru were not aware that they even had insurance tied to their loans, let alone what the insurance covered. The SBS addressed these findings with the following:
<ul>
 	<li><strong>Loan terms and conditions</strong>: In incorporating the results of the Client Voice report, the SBS started testing how to prioritize the information provided to clients in their contract summary sheets. The new regulation on market conduct reduced the potential items to be included in the summaries, from 12 to 7, in order to promote clarity and simplicity of the information. Moreover, the following items are published in a highlighted, salient way: 1) how much you pay, and 2) what happens if you do not pay on time. Contracts cannot be eliminated, but more client-centered summaries are being implemented.</li>
 	<li><strong>Marketing of insurance</strong>: In 2017, a <a href="http://busquedas.elperuano.com.pe/normaslegales/aprueban-el-reglamento-de-comercializacion-de-productos-de-s-resolucion-no-1121-2017-1498132-1/">new regulation</a> for insurance commercialization was approved. Under this regulation, companies are required to explain the scope and characteristics of product coverage to potential clients. Providers are also required to have insurance agents, which are bank employees whose role is to be the link between institutions and insurance companies, to promote better coordination between them. The insurance agent is in charge of training the staff on insurance and is responsible for sales and post-sale services.</li>
</ul>
<h2>Market Conduct</h2>
<em>High-level finding</em> - Clients are generally satisfied with microfinance services in Peru. However, 26 percent of clients report that microfinance providers do not treat clients equally, discriminating against those of lower socioeconomic status. To advance equal treatment of clients, the SBS took action by:

<strong>Market conduct regulation</strong>: In order to strengthen the Consumer Protection in Financial Services System, earlier this year the SBS changed its legal regulatory framework on market conduct. It now incorporates new <a href="http://ima01.gestion.pe/doc/0/0/2/4/3/243991.pdf">detailed responsibilities and obligations for financial institutions to improve their business practices</a>. It outlines requirements for how financial providers interact with their clients in three main areas: 1) offering of products and services, 2) transparency of information, and 3) claims management. The attention-grabbing fact here is that the board of the institution is now held responsible for the interaction with the client throughout the lifecycle of the product. Positive and responsible interaction with the client becomes an institutional goal and must be clearly outlined in an annual work program, presented by a full-time market conduct officer, and approved by the board each year.

It has been exciting to witness how the SBS uses evidence to help it establish effective consumer protection policy in Peru. The Smart Campaign encourages actors in the financial inclusion sector, both policymakers and providers, to keep learning from research that reveals the voice of the client.

<em>Learn more about Client Voices and its broad array of recommendations to advance consumer protection at <a href="http://smartcampaign.org/tools-a-resources/1075">the Smart Campaign website</a>.</em>

<strong>Have you read?</strong>

<a href="https://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>

<a href="https://cfi-blog.org/2017/01/30/modelo-peru-unique-model-unique-challenges-bright-future/">Modelo Peru: Unique Model, Unique Challenges, Bright Future</a>

<a href="https://cfi-blog.org/2017/02/07/modelo-peru-whats-next-for-the-groundbreaking-mobile-money-platform/">Modelo Peru: What's Next for the Groundbreaking Mobile Money Platform?</a>

&nbsp;

How Smart Campaign Research Is Influencing Client Protection Policy in Peru

<strong>February 16, 12:30 - 2pm ET, Washington DC</strong>

Modelo Peru is a historic collaborative effort to establish an inclusive national digital payments platform--Billetera Movil (Bim)--the first of its kind in the world, which was launched on February 16, 2016. On the first anniversary of Bim, the Center for Financial Inclusion at Accion (CFI) invites you to join us for a Brown Bag Lunch to discuss our latest <a href="publications-a-resources/browse-publications/794-modelo-peru-cfi-brief">brief on the Modelo Peru project</a>. <a href="about/staff/802">Pablo Anton Diaz</a>, Research Manager at CFI, will walk us through the main report findings, specifically the key implementation challenges and what the road to success looks like for financial institutions, government, telecommunications companies, payers and payees, all of whom have a stake in the success of Bim in Peru.

Please note that lunch <strong>will not</strong> be provided at this event. Please feel free to bring something to eat and we will have plates, silverware and refreshments available.

The brown bag will be held at CFI's office located in Washington, DC:

Center for Financial Inclusion at Accion
1101 15th Street, NW, Suite 400
Washington, DC 20005

<hr />

<h4>Webinar</h4>
On March 15, 2017, CFI's Research Manager Pablo Anton Diaz delivered a webinar on Modelo Perú – a historic collaborative effort to establish an inclusive national digital payments platform, Billetera Móvil (Bim), the first of its kind in the world. After the first anniversary of Bim, we talked with Pablo Antón Díaz, research manager at CFI, about the main report findings, the platform’s key implementation challenges, and what the road to success for Bim will look like for financial institutions, the Peruvian government, telecommunications companies, and payers and payees alike.

<a href="http://bit.ly/2kvBZk0"><strong>Download a copy of the Modelo Perú brief here &gt;&gt;</strong></a>

&nbsp;

Brown Bag: Modelo Peru

<em>The following post is part of a two-part series on Modelo Perú.</em>

Today, we are excited to share <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/794-modelo-peru-cfi-brief">an issue brief on Modelo Perú</a><em>, </em>a first-of-its kind payments initiative in Peru. The brief, produced in partnership with The Institute of International Finance, explores the successes and challenges that the initiative has seen since its launch in February 2016.

Spearheaded initially by the Bankers’ Association of Peru (ASBANC), Modelo Perú is an effort to establish an interoperable nationwide payments platform. The platform, Bim (Billetera Móvil<em>), </em>brings together financial institutions, government, telecommunications companies, and large payers and payees into a shared payments infrastructure. It intends to expand banking access to the 71 percent of Peruvians who currently lack a bank account, and aims to reduce the transactions costs associated with cash for both financial service providers and other businesses. Modelo Perú has been lauded as an example of interoperability – with many different players coming together to create one seamless payments ecosystem. About one year after its launch, we wanted to explore how ‘seamless’ it has been.

Through interviews of a variety of stakeholders, we identified key challenges faced in rolling out this massive effort. While many are excited about the platform, they acknowledged that it faced more challenges than expected in the first year. Pagos Digitales Peruanos (PDP), the company set up to run the platform, aimed to reach 300,000 accounts in the program’s first year. At the end of 2016, they had reached 240,000, not far from their enrollment target. Stakeholders, however, are less worried about enrollment and more worried about lower-than-expected transaction numbers. Pilot projects have failed to deliver the expected flow of transactions.

The stakeholders we spoke to identified four key challenges that may have hindered the growth of the platform thus far. Here are a few details on these challenges:

The biggest challenge stakeholders are facing in the implementation of the Bim platform is limited buy-in from agents. The strategy for the roll-out of Bim was to target agents of the largest banks in Peru, many of which are shopkeepers or small-business owners.  These agents had previously been completing transactions for customers, including bill payments and withdrawals, through POS systems. As a mobile platform, Bim introduces an alternative to the POS systems, with transactions being completed through mobile phones. To many agents, however, this alternative is not a welcome addition as it has required, among other challenges, agents to become familiar with a new system and have the capacity to operate on two systems.

With the platform roll-out strategy targeting existing agents and networks of large commercial banks, expansion of Bim to rural areas and to unbanked population segments has been greatly limited. Stakeholders highlighted that the uptake of the platform remains concentrated in urban centers and primarily among previously banked customers.

While three different mobile network operators (Entel, Claro, Movistar) are participating in Bim, there are still coverage issues for agents. In some areas, only one of the three operators has a strong signal, which creates connectivity issues for any agents not operating with that network. In other areas, none of the operators had adequate network coverage, leaving agents unable to complete Bim transactions.

As could be expected on a platform with 33 participating institutions, there is growing disagreement about how Bim should proceed, especially given lagging transaction numbers. On one hand, large commercial banks are focused on driving up the volume of transactions, and on the other MFIs and credit unions are more interested in expanding the ecosystem to reach currently underserved locations and unbanked populations.

Even given the challenges above, the progress already made on establishing Bim in Peru is certainly impressive. In part two of this series, we will highlight the potential path forward, looking at solutions for the challenges described above.

<em>For more information on these challenges, and for more on Modelo P</em><em>erú, read the brief, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/794-modelo-peru-cfi-brief">here</a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/02/17/bim-the-first-fully-interoperable-mobile-money-platform-now-live-in-peru/">Bim - The First Fully-Interoperable Mobile Money Platform: Now Live in Peru</a>

<a href="https://cfi-blog.org/2016/01/19/digital-financial-inclusion-in-peru-a-promising-trend-to-watch/">Digital Financial Inclusion in Peru; A Promising Trend to Watch</a>

<a href="https://cfi-blog.org/2015/07/24/perus-national-financial-inclusion-strategy-charts-new-path/">Peru’s National Financial Inclusion Strategy Charts New Path</a>

Modelo Perú: Unique Model, Unique Challenges, Bright Future

Till Bruckner

Denise Dias

Loretta Michaels

Hema Bansal

Mayada El-Zoghbi

Ethan Loufield

Shweta Vashisht

Sonja Kelly

Ana Ruth Medina Arias

Pablo Anton-Diaz

Christy Stickney

Misha Dave

Josh Goldstein

Susy Cheston

Bolivia

Cambodia

Colombia

East Asia and Pacific

Latin America and The Caribbean

Myanmar

Peru

Brazil

India

Nigeria

Pakistan

Philippines

South Asia

Sri Lanka

Sub-Saharan Africa

Egypt, Arab Rep.

Middle East and North Africa

Bangladesh

Jordan

Morocco

Uganda

Zambia

Ghana

Dominican Republic

Ecuador

China

Europe and Central Asia

Guatemala

Mexico

Paraguay

Tanzania

United States

Challenges and Crises

Enabling Environment

Financial Health

Resilience

Small Business Owners

Underserved Groups

Consumer Protection

Microfinance Institutions

Policy, Regulation and Government Initiatives

Financial Inclusion Strategy

Data Transparency

Responsible Digital Finance

Digital Financial Services

Digital Payments

Mobile Banking

Agent Banking

Credit

MSME/SME Finance

Financial Capability

Fintechs

Impact Investing

Microfinance

Risk Management

Savings

Women

Youth

Blog Post

Report

Event

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

Virginia Moore

For the last 10 years, the <a href="http://www.centerforfinancialinclusion.org/microscope"><i>Global Microscope on Financial Inclusion</i></a> has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest <i>Global Microscope</i> takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.
<h2>The Leaderboard</h2>
Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and the Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, the Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.

With this much consistency in the leaderboard, the more fascinating stories may lie with this year’s “most improved players”: India, Costa Rica, Honduras and Egypt. Each country has made notable progress on financial inclusion, but none more than India. With a national biometric identification system in place, continued progress on access and usage of bank accounts, an improved institutional framework and commitment to digital payments, India—already among the top countries—is increasingly seen as a model for ongoing progress.
<h2>Keys to Success</h2>
<strong>Commitment and consistency matter. </strong>An enabling environment for financial inclusion does not happen overnight. Colombia’s and India’s financial inclusion policy efforts predate even the first <i>Global Microscope</i>. Peru and Philippines signed on to the Maya Declaration, the first global platform for commitment to financial inclusion, back in 2011, with a small group of only 15 other countries. In short, it has taken years of concerted effort and political will for the top countries to earn and keep their spots in the <i>Global Microscope</i> index.

<b>Broad-based policy pays off. </b>The <i>Global Microscope</i> measures 12 components of the financial sector, ranging from level of government support to strength of dispute resolution mechanisms. None of the leading countries scored below 50 percent in any of the 12 components, and all but India achieved 100 percent in at least four components. (Colombia achieved perfect scores in a whopping eight components.) The leading countries demonstrate that you have to proceed on multiple fronts simultaneously to make meaningful progress in financial inclusion.

<b>Consumer protection is a winning strategy. </b>Treating consumers right is an essential part of successful financial inclusion, but when it comes to fair treatment, especially mechanisms for airing and resolving customer complaints, most countries are underperforming. By contrast, leading countries prioritize consumer protection, and their scores show it. Colombia and Peru receive perfect scores in the consumer protection-focused components, and the rest of the leading countries rank in the top eight. Prioritizing consumer protection, as the leading countries have done, is a key to expanding financial inclusion.
<h2>Remaining Challenges</h2>
<b>Enforcement is limited. </b>Rules don’t mean much if you can’t enforce them, and that’s the story for many countries’ financial sectors. The average score for regulatory and supervisory capacity for financial inclusion, which spans credit portfolios, deposit-taking activities, insurance for low-income people and branch/agent models, is only 48 out of 100.

<b>Consumer protection is especially weak. </b>Again, consumer protection is an area of particular weakness, constituting some of the lowest average scores in the index. For example, monitoring of consumer protection for insurance for low-income people netted an average score of just 15 out of 100. Most countries are grappling with widespread lack of market transparency and predatory sales and collection practices.

<b>Usage still lags policy. </b>Countries like India and Philippines have successfully enacted policies to increase access to formal banking, but are still exploring how to get people to actually use the accounts they open. Those countries are pursuing tactics like government-to-person (G2P) transfers to build familiarity and instill the habit of using accounts. On the other hand, countries like China that are experiencing the fallout from unregulated peer-to-peer (P2P) lending are now exploring how to protect investors without prohibiting the flow of capital.

As the financial sector expands thanks to digital advances and new product offerings, the policy environment will also need to evolve accordingly. The <i>Global Microscope</i> continues to report what the policy environment for financial inclusion should entail.

<em>This post originally appeared on <a href="http://partners.wsj.com/metlife/multipliers/articles/financial-inclusions-best-in-class/">Multipliers of Prosperity</a>. </em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/12/04/global-microscope-2015-progress-on-the-financial-inclusion-front/">Global Microscope 2015: Progress on the Financial Inclusion Front</a>

<a href="https://cfi-blog.org/2015/12/09/where-the-best-place-is-to-be-an-insurance-providerand-other-insights-from-the-microscope/">Where the Best Place Is to Be an Insurance Provider... and Other Insights from the 'Microscope'</a>

<a href="https://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/">The ‘2014 Global Microscope’: Results and Surprises</a>

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Financial Inclusion’s Best in Class

Modelo Peru is a historic collaborative effort to establish an inclusive national digital payments platform<span style="font-size: 11pt;line-height: 115%;font-family: 'Calibri','sans-serif';color: #4a514d">—</span>Billetera Movil (Bim)<span style="font-size: 11pt;line-height: 115%;font-family: 'Calibri','sans-serif';color: #4a514d">—</span>the first of its kind in the world, launched in February 2016. Now that Bim has been operating for nearly a year, it is possible to examine the implementation challenges and potential solutions. In this Brief, we explore Bim's initial setup and subsequent implementation, its four main challenges, and what the road to success looks like for the financial institutions, government, telecommunications companies, payers and payees, all of whom have a stake in the success of Bim in Peru.

This report is co-authored by Pablo Anton, CFI and Tomas Conde, of the Institute of International Finance.

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Modelo Peru: CFI Brief

In this report, Christy Stickney, CFI Fellow and independent consultant, highlights the characteristics of owners of small and medium-sized enterprises (SMEs) whose businesses have overcome significant hurdles and grown from their micro size.

Christy has utilized qualitative research to identify and analyze clients of MFIs whose borrowing had increased significantly over time from the portfolios of three leading microfinance institutions in Latin America – MiBanco (Peru), Banco Solidario (Ecuador), and Banco ADOPEM (the Dominican Republic). As part of the research, Christy conducted 55 in-depth client interviews and consulted with institution staff. She identifies and describes in detail a select group of "growth entrepreneurs" (GEs) who operate higher growth businesses, have overcome significant growth hurdles, and express a clear vision for future business growth. Christy argues that this category of emerging SMEs holds great potential for future growth and job creation.

Christy also provides recommendations for financial institutions (including microfinance institutions [MFIs]), FinTech companies, governments, and other financial ecosystem actors to support growth and greater financial inclusion for emerging SMEs and growth entrepreneurs.

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Emerging SMEs—Secrets to Growth from Micro to Small Enterprise

<em>&gt; Posted by Misha Dave and Jeffrey Riecke, Disability Inclusion Program Manager and Communications Specialist, CFI</em>

Financial inclusion for persons with disabilities (PWD) is a hugely under-addressed area in the quest to bank the unbanked. Estimates indicate that less than one percent of microfinance clients globally are PWD, despite roughly 15 percent of the global population having some sort of disability, and four-fifths of these individuals living in developing countries. The Center’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd">Financial Inclusion for PWD program</a>, launched in 2010, has developed steadily since its inception. Here on the CFI blog you might’ve seen us spotlight our <a href="http://cfi-blog.org/2014/01/13/a-how-to-guide-to-realizing-disability-inclusion-at-mfis-is-now-available/">Framework for Disability Inclusion</a>, our <a href="http://cfi-blog.org/2014/05/28/attitudes-toward-persons-with-disabilities-in-indian-microfinance-institutions/">report on attitudes related to disability inclusion among Indian MFIs</a>, or our <a href="http://cfi-blog.org/2014/09/04/13000-pwd-and-counting-receive-financial-access-in-india/">disability inclusion partnerships with MFIs</a>.

The program has been busy over the past year. Let’s take a look at a few highlights.

<u>India Partnerships</u>: The Center’s PWD program provides trainings and resources to sensitize and equip MFIs to service PWD clients. The program recently forged new partnerships with two MFIs in India, Grameen Koota and Micrograam, bringing the total number of partnerships with institutions in the country to five. The other three partner institutions in India are Equitas, ESAF, and Annapurna. Across these three original partners, more than 30,000 lower-income disabled persons, including 2,000 visually impaired individuals (a severely excluded disability segment), have been included.

<u>India Trainings</u>: The program has trained over 160 field staff in six regions/states in India: Tamil Nadu, Kerala, Odisha, Karnataka, West Bengal, and Jharkhand. Recent inclusion programming and trainings were conducted at Micrograam’s three sub-partners in West Bengal, Jharkhand, and Tamil Nadu. And disability awareness surveys and sensitization trainings were completed with all branch managers of Grameen Koota in Karnataka.

<u>Expansion in India</u>: The India PWD program recently secured funding to expand its core program to three new partners in new regions. The India program is working to develop strong business case materials, collect data and client stories, revamp the core trainings, provide more practical tools for MFIs, and disseminate disability inclusion best practices.

<u>Fundacion Paraguaya</u>: CFI continues to work closely with Fundacion Paraguaya on a two-year expansion of the institution’s disability program to serve more PWD based on the Center’s Framework for Disability Inclusion.

<u>Mental Health</u>: The CFI is also working with Fundacion Paraguaya on the development of a mental health indicator for inclusion in the institution’s Poverty Stoplight tool, which helps assess the quality of life and poverty level of clients. Joshua Goldstein spoke at the 8<sup>th</sup> Pan-African Psychotrauma Conference, where he <a href="http://cfi-blog.org/2015/08/31/four-interventions-to-help-victims-of-trauma-find-hope-and-dignity/">discussed</a> the potential for victims of trauma becoming microfinance clients.

<u>The Ecuadorian Government</u> continues to receive advisory support from the Center on how to integrate disability best practices in the country’s financial sector.

<u>Nigeria</u>: Accion Microfinance Bank in Nigeria launched the People Living with Disabilities (PLWD) product to provide loans for PWD under the auspices of the Central Bank of Nigeria. The Center’s PWD program provided technical assistance on the initiative. The Center also met with the Vice President of Nigeria on advancing disability inclusion in the financial sector, and provides ongoing support to the Central Bank on how to create disability-inclusive institutions.

<u>BRAC Bangladesh</u>, which the Center provides disability inclusion assistance to, has achieved a client base of 7,000 PWD.

<u>The Framework for Disability Inclusion</u> was recently revamped to increase usability.

<u>The New Client Protection Standards</u>, currently being finalized by the Smart Campaign, include new language on protecting persons with disabilities from discrimination.

This is only a snapshot of the program’s happenings. Stay tuned to this blog for more updates.

<em>For more information on the CFI’s Financial Inclusion for PWD program, </em><a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd/"><em>click here</em></a><em>.</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/03/23/disability-inclusion-in-ecuador-and-around-the-world-an-interview-with-larry-reed/">Disability Inclusion, in Ecuador and Around the World: An Interview with Larry Reed</a>

<a href="http://cfi-blog.org/2015/08/31/four-interventions-to-help-victims-of-trauma-find-hope-and-dignity/">Four Interventions to Help Victims of Trauma Find Hope and Dignity</a>

<a href="http://cfi-blog.org/2014/01/13/a-how-to-guide-to-realizing-disability-inclusion-at-mfis-is-now-available/">A How-To Guide to Realizing Disability Inclusion at MFIs Is Now Available</a>

Disability Inclusion Progress - in India, Ecuador, Nigeria, and Elsewhere

<em>&gt; Posted by Joshua Goldstein aka Mr. Provocative</em>

There are no final victories when it comes to providing equal opportunities for groups that have suffered from historic discrimination and exclusion. This is true in the United States. This is true everywhere else in the world.  Attitudinal barriers that belittle and marginalize, originating in class, racial, or religious prejudice, may triumphantly come down in one generation only to be resurrected in the next – or even sooner if some shock to the body politic is great enough.

Thus, watchdog groups like the Center for Financial Inclusion’s Smart Campaign, the Southern Poverty Law Center, and the Anti-Defamation League can never call it quits and declare victory. Backsliding into bigotry is more likely the rule than the exception with our tribal species.

To bolster this glum supposition is this example of the ongoing difficulties facing another beleaguered minority: Twenty-five years after the passage of the Americans with Disabilities Act (ADA), there is new evidence about employment discrimination from researchers at Rutgers and Syracuse University.

<a href="http://mobile.nytimes.com/2015/11/02/upshot/fake-cover-letters-expose-discrimination-against-disabled.html?_r=0">According to <em>The New York Times</em></a>, the researchers applied for thousands of accounting jobs, sending resumes and cover letters on behalf of fictitious candidates, some with disabilities, some without. Employers followed up with candidates via phone or email 26 percent less frequently when those candidates disclosed that they had a disability. The study ensured that disability was the only differentiator among the otherwise identically qualified candidates.

But <a href="http://kesslerfoundation.org/kfsurvey15">another study</a> from the Kessler Foundation shows signs of workplace hope. The foundation’s recent national employment and disability survey shows that once on a job about 16 percent of persons with disabilities (PWD) report negative attitudes related to their disability on the part of their supervisor. However, over 41 percent of these same individuals say that they were able to overcome this barrier. How? I believe it is likely that in many cases the employee with a disability gained acceptance because she demonstrated her pride and personal agency in completing tasks that challenged her boss’ presumptions about her inferiority. Attitudes change because of this assertion of self. Once on the job, daily performance makes the difference.

At the Center for Financial Inclusion, we are running the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd">Financial inclusion for Persons with Disabilities program</a> to encourage the microfinance industry to become more disability welcoming and friendly. Consonant with the Kessler study, the Center has found that the most effective way to change negative attitudes among the staff members at financial institutions is to have them get to know persons with disabilities. Familiarity in this case does not breed contempt but can open new pathways to acceptance. Our work in India, for example, has included the creation of tools and an operating model for MFIs to incorporate PWD, and disability awareness trainings for institutions across the country. Some of our partners now have more than 15,000 clients with disabilities. When given a chance, persons with disabilities make excellent clients.

While many supervisors’ prejudice can be defeated in the workplace when real, multifaceted people take the place of abstractions, a robust law really matters for the other roughly 60 percent of supervisors in the Rutgers/Syracuse sample whose prejudice appeared unshakeable in spite of contact.

The Rutgers/Syracuse study showed that Fortune 500 companies tended to discriminate significantly less than smaller firms. Demonstrating a lack of interest in candidates with disabilities was most prevalent at firms with fewer than 15 employees. Notably, businesses this small are not mandated to be inclusive under the Americans with Disabilities Act.

So a recipe for the greatest success seems to be a combination of laws with teeth and human connection. Neither alone does the trick. And one reinforces the other.

But while incremental societal change certainly does happen, vigilance without end to protect our vulnerable populations is a necessity. A willingness to play well with others is critical for human survival but in most cases the people played with are from the same tribe. The daughters of today’s supervisors, when they move into leadership positions themselves one day, will have to relearn the lessons of nondiscrimination against people who are different, all over again.

And that is why the Smart Campaign, the ADA, and other human dignity watchdogs, along with enforceable laws, are so central to the human rights enterprise.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/03/23/disability-inclusion-in-ecuador-and-around-the-world-an-interview-with-larry-reed/">Disability Inclusion, in Ecuador and Around the World: An Interview with Larry Reed</a>

<a href="http://cfi-blog.org/2015/12/03/happy-international-day-of-persons-with-disabilities/">Happy International Day of Persons with Disabilities</a>

<a href="http://cfi-blog.org/2014/05/28/attitudes-toward-persons-with-disabilities-in-indian-microfinance-institutions/">Attitudes toward Persons with Disabilities in Indian Microfinance Institutions</a>

Vigilance without End

Peru’s Client Voice research included the perspectives of 1,000 current and former microfinance clients to identify consumer protection challenges and opportunities in the country. The Smart Campaign selected Peru as the market in Latin America for the Client Voices project because of its strong consumer protection regulations, recourse mechanism, and well-functioning credit reporting system.
<blockquote>The top concerns that emerged for clients in Peru are prevention of over-indebtedness, transparency, and fair and respectful treatment of clients.</blockquote>
Between January and July 2015, Bankable Frontier Associates (BFA) and Datum International, a local research firm, conducted qualitative and quantitative research. Peruvian clients of savings and loan institutions, cooperatives, and NGOs offering group loans participated in the qualitative research. The quantitative research included 550 current clients and 450 former clients.

Peru has a favorable environment for financial services, in recent years earning the top spot in the Economist Intelligence Unit’s Global Microscope rankings. Although a strong government consumer complaints institution (INDECOPI) exists, over-indebtedness, transparency, and fair and respectful treatment emerge as the most prevalent concerns for clients in Peru. Addressing these concerns requires a market-level approach that takes into consideration the unique role that regulators, the microfinance industry, and clients themselves each must play.

Client Voices: Peru Country Report

<em>&gt; Posted by Center Staff</em>

International Day of Persons with Disabilities is a global occasion to promote awareness and mobilize support for critical issues relating to the inclusion of persons with disabilities (PWD). To mark the day, we wanted to share with you a new Accion video spotlighting the story of Reshma Babu. At five months old, Reshma contracted polio and lost the use of her legs, yet today, she lives independently. That’s partly due to her job at Accion partner Vindhya, where four out of five workers have some kind of disability. Vindhya is a business process outsourcing company that widely employs PWD to deliver high-quality and competitive services to companies spanning multiple sectors, including microfinance. Vindhya exemplifies how inclusion for PWD is a sustainable model for social enterprise at the base of the pyramid.

[facebook url="https://www.facebook.com/ACCION.International/videos/10153683554691136/" /]

Along with partnering with Vindhya, here are some of the ways that Accion and CFI are working to achieve disability inclusion:

<ul>
 	<li>Identify and disseminate best practices related to how persons with disabilities are using financial services today.</li>
 	<li>Implement the <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/framework_for_disability_inclusion.pdf">Disability Inclusion Framework</a> at a number of highly respected MFIs. Our first such partnership is in its third year with Fundación Paraguaya.</li>
 	<li>Disseminate <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd/framework-for-persons-with-disabilities">disability inclusion tools and trainings</a> for MFIs, developed at Fundación Paraguaya, with the support of Handicap International. These resources are open source and now available for all interested parties to download.</li>
 	<li>Partner with Micrograam, an NGO with 33 sub-partners, and MFIs in India— Annapurna, Equitas, ESAF, and Grameen Koota—covering five regions with the continued support of v-shesh to deliver CFI’s disability inclusion training to the vast Indian market.</li>
 	<li>Develop and share the compelling business case for disability inclusion in mainstream financial services.</li>
 	<li>Establish and form strategic partnerships with global disability organizations, including Handicap International and v-shesh to achieve maximum outreach and scale.</li>
 	<li>Further collaborate with the Smart Campaign and FI2020 to develop practices and tools to implement the newly incorporated Smart principle on non-discrimination.</li>
 	<li>Implement a disability inclusion program with BRAC in Bangladesh and in Nigeria with Accion Microfinance Bank and the Central Bank.</li>
 	<li>Look for innovative ways to include persons with psychosocial disabilities.</li>
</ul>
For more on financial inclusion of persons with disabilities, and our work, <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/pwd">click here</a>.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/03/23/disability-inclusion-in-ecuador-and-around-the-world-an-interview-with-larry-reed/">Disability Inclusion, in Ecuador and Around the World: An Interview with Larry Reed</a>

<a href="http://cfi-blog.org/2014/09/04/13000-pwd-and-counting-receive-financial-access-in-india/" target="_blank" rel="noopener">13,000 Persons with Disabilities (and Counting) Receive Financial Access in India</a>

<a href="http://cfi-blog.org/2015/01/22/on-disability-benefits-rand-paul-has-a-point/">On Disability Benefits, Rand Paul Has a Point</a>

Happy International Day of Persons with Disabilities!

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

<a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/"><img class="alignright wp-image-20072" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/2652377697_7cd2f08d4e_o.jpg" alt="2652377697_7cd2f08d4e_o" width="349" height="224" /></a>Aging is an issue that we all hope to face personally, if we haven’t already. As we prepare to participate in <a href="http://www.e-mfp.eu/microfinance-week">European Microfinance Week</a>, we are more convinced than ever that this is a critical topic for the financial inclusion community to address. (If you are planning to be at European Microfinance Week too, make sure to <a href="https://event.neimenster.lu/ehome/emw2015/308192/?&amp;">check out our panel</a> on the Sustainable Development Goals and financial inclusion!) In Europe, the aging of the population is well acknowledged. With average life expectancy in Europe among the highest in the world, at 77 years, the proportion of the population reaching older age is naturally growing. About 25 percent of Europe’s population is now over the age of 60, and that percentage is set to rise. The aging of the population is well understood in Europe, but what is less recognized is that the middle and lower-middle income countries of the world – the countries that encompass most of the world’s population – are already beginning to experience the same older age population boom. In most middle income countries, from Mexico to China, over-60s are the fastest growing cohort of the population. Aging is a product of successful development. Increased life expectancy, better family planning mechanisms, and higher quality of life all contribute to growth in the proportion of the population that is older.

Aging is a reality, but can it also represent an opportunity for financial institutions? The smart money is on providers who recognize that the answer is yes, and work to figure out how to respond.

We’ve created a list of activities, some practical and some research-oriented, we think would be valuable to close the gaps in financial inclusion for older people and for younger people who want to prepare for their older age. And, frankly, we would love for you to steal these ideas!

<em>Develop a toolkit for becoming an age-friendly institution.</em> We hear of a few financial institutions—from MFIs to commercial banks—that are using age as a lens through which to segment product offerings. From long-term savings products for people in their primary working years to credit designed for older people, being age-friendly across the life course allows a focus on life transitions and the diverse financial needs that accompany them. Case studies and toolkits would help financial institutions follow proven approaches. As part of becoming an age-friendly institution, there are a few starting points that would make a big impact:
<p style="padding-left: 30px"><em>Age-proof channels and technology</em>. Financial institutions recognize that new technology, new channels, and new products must be built with the user experience in mind. There are existing vehicles for testing channels and technology to ensure that they work for older people. As part of vetting channels and technology, financial institutions can leverage older persons’ associations, assuring the technology’s validity for later life.</p>
<p style="padding-left: 30px"><em>Ensure that staff members are not discriminating based on age.</em> Financial institutions and support organizations can test the customer experience through mystery shopping in order to better understand how people of different ages are treated when they walk into a branch. An exercise like this could inform market-specific training modules to dispel myths about aging for staff of financial institutions.</p>
<p style="padding-left: 30px"><em>Use existing data to create better products.</em> Financial institutions have a wealth of data on clients that goes unused, and age is one data point that is collected because of the way that AML/CFT laws are translated into institutional policy. Financial institutions can use the data they have on clients to better understand how age influences client behavior. From this data, financial institutions have the opportunity to create better products to serve people across their life cycle, and especially into their older age.</p>
<em>Enhance financial security in older age by leveraging G2P and P2G early on</em>. The shift toward electronic government-to-person and person-to-government payments presents an opportunity for creating “on-ramps” to inclusion. Leveraging these products could include automatically diverting funds sent through electronic channels to help people save funds for older age (which is already happening in many parts of the world) or using electronic G2P payments that go to older people as collateral for loans (older people are often seen as higher risk). Financial institutions which provide the accounts through which electronic payments are channeled have the positioning to capitalize on this opportunity.

<em>Raise or eliminate age caps on credit and insurance</em>. Over half of the institutions we <a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">surveyed earlier this year</a> reported that they impose upper age restrictions on their products. Many age caps at microfinance institutions are based on outdated actuarial tables, and are ripe for being challenged or creatively eliminated. Many people who are older may be willing to pay more for credit. And financial institutions could find highly receptive clients if they responsibly raise age caps on credit products. A dedicated loan guarantee fund could help mitigate perceived risk during a pilot phase, accompanied with careful performance monitoring to provide more data about actual risks of lending to older adults.

<em>Enable people to save for their older age.</em> Pension systems were designed for a largely formal labor force, and the current reality of the size of informal markets does not match the intention of pensions systems. More progressive governments have begun to reform their pension systems to account for the more informal labor force, by creating alternative channels for contributions at places like corner stores and through mobile phones. Financial institutions can also play a role, either serving as channels to collect funds for the pension system or by setting up independent long-term savings programs that promise a competitive interest rate.

We are confident that there are a hundred more ideas that are just as good (or better). More importantly, though, we look forward to seeing a world in which age is not a barrier to people having access to a full range of quality financial services.

If you end up stealing one of these ideas, or if you’re already doing something to advance industry thinking on aging, let us know—we would love to champion your work.

<em>Image credit: <a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/">World Bank</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/02/20/moving-to-action-on-aging-and-financial-inclusion/">Moving to Action on Aging and Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/02/10/aging-and-financial-inclusion-an-opportunity/" target="_blank" rel="noopener">Aging and Financial Inclusion: An Opportunity</a>

<a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">Aging and Financial Inclusion: A Client Protection Issue?</a>

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Aging and Financial Inclusion: Steal These Ideas!