A household budget, saving for a business investment, or managing an unforeseen emergency can cause stress in the most adept household, let alone those experiencing the vulnerability and volatility of poverty. Learning to navigate financial systems and products is a long-term endeavor.

Building financial capability — that is, the knowledge, skills, attitudes, and behaviors needed to make sound financial decisions to support well-being — can take time and creativity. The ultimate goal is to equip all people with the skills to navigate financial services safely and effectively and allow them to accrue their benefits. For poor and rural communities, this can mean increasing resiliency and reducing exposure to economic shocks, improving income growth and investment, and promoting more sustainable and equitable development. And for women, in particular, the accrued benefits can mean navigating financial choices with confidence, seeing themselves — and being seen — as financial clients, and accessing and using technology with ease.

While overall progress has been made in advancing financial inclusion, progress for women continues to lag. Globally, <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">male ownership is likely to be higher than female ownership of accounts</a>, with a gap of nearly 7 percent, which has persisted despite the overall rise in account ownership. The gender gap is much worse in some countries, where <a href="https://www.cgap.org/blog/how-social-norms-men-restrict-womens-financial-inclusion" target="_blank" rel="noopener noreferrer">social norms govern financial access and decision-making</a>. For instance, in Pakistan, while account ownership doubled since 2011, most of the growth was driven by accounts owned by men. Similarly, in Ethiopia, account ownership by men increased by roughly twice the size of the increase among women since 2014.

We must invest in building women’s financial capability to close this gap and make meaningful progress in women’s access to and usage of financial services. Doing so will require a deeper understanding of the economic and social constraints women face in accessing financial services. Yet existing tools for building financial capability have a mixed track record and there is scarce evidence on which approaches and delivery channels are likely to produce lasting impact.

This publication examines how best to share information, build capability, and enable lasting behavior change in a context in which women may have limited say in their own economic choices or require additional support or flexibility to overcome trust and care responsibilities. We examine the characteristics and success of existing approaches to building women’s financial capability and find a gap in programming that sufficiently accounts for women’s preferences, which are largely influenced by gendered social norms.

Readers of this report will come away with:
<ul>
 	<li>a stronger understanding of the role of gender norms that constrain women's financial capability</li>
 	<li>an overview of current women's financial capability initiatives, including classroom-based initiatives, technology-led financial education, and high-touch financial capability approaches</li>
 	<li>recommendations on how to ensure women are meaningfully and successfully engaged with financial services.</li>
</ul>

Building Women’s Financial Capability: A Path Toward Transformation

As countries around the world grapple with the economic impact of the COVID pandemic, governments have turned to supplemental cash transfers as a key policy instrument to offset the loss of income, mostly via digital payments.

Those countries with well-developed social protection systems, payments infrastructure, and wide access to digital financial services have fared much better in getting these payments out quickly, but even they have struggled to rapidly open accounts for their more vulnerable populations. Many of the people at risk fall outside the usual government welfare rolls and risk being overlooked -- especially informal workers, MSME owners/operators, and those working in hard-hit industries like tourism.

The COVID crisis forced policymakers to find innovative ways to deliver rapid support payments to those most in need. A critical aspect of getting this emergency aid out has been the ability to quickly identify and onboard eligible recipients who don’t already have transaction accounts and distribute the payments as soon as possible.
<blockquote class="pullquote--right">What are governments doing to enable rapid payments to those without existing accounts?</blockquote>
CFI’s latest <a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">policy brief</a>, part of our partnership with Mastercard Center for Inclusive Growth and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), explores what governments are doing to enable rapid payments to those without existing accounts. The paper reviews three types of measures being taken to speed up payment distribution. Not surprisingly, the common theme is the ability and willingness of policymakers to be nimble and innovative. Below are a few examples, organized by type of measure:
<h2>1. Rapid Identification of Eligible Recipients</h2>
To quickly determine who’s eligible for COVID support payments, governments have had to be innovative in tapping into all available existing information, whether publicly or privately owned.
<h3>Current Beneficiary and Employment Rolls</h3>
<strong>Bangladesh Bank</strong> allowed government disbursement program information to be used to open permanent accounts on behalf of customers. The central bank also permitted the creation of accounts for ready-made garment (RMG) workers based on their employment record, given the low rates of digital IDs or other means to confirm their identity among the predominantly female group.
<h3>Voter Rolls</h3>
The Government of <strong>Togo</strong> established the Novissi cash transfer scheme, to provide support during the pandemic. Because Togo does not have a strong national ID system, they took advantage of a recent voter registration campaign to verify the identity of eligible recipients. <strong>Timor-Leste</strong> was also able to take advantage of its voter registration system, which had high sign-up rates after a recent election.
<h3>Mobile SIM Data</h3>
<strong>Zimbabwe</strong> took advantage of its <a href="https://theconversation.com/zimbabwes-restrictions-on-mobile-money-transfers-are-a-blow-to-financial-inclusion-147109" target="_blank" rel="noopener noreferrer">90 percent mobile money penetration</a> to make payments directly to the e-wallets of all phone numbers mapped to areas targeted for support payments, while <strong>Nigeria</strong> partnered with mobile network operators to <a href="https://blogs.imf.org/2020/06/22/youve-got-money-mobile-payments-help-people-during-the-pandemic/" target="_blank" rel="noopener noreferrer">identify vulnerable informal workers in urban areas through airtime purchase patterns</a>.
<blockquote>Governments have had to be innovative in tapping into all available existing information, whether publicly or privately owned.</blockquote>
<h2>2. Simplified Due Diligence for Rapid Account Opening</h2>
During COVID-19, policymakers and FSPs, in cooperation with regulators, have had to apply simplified customer due diligence (SDD), to rapidly open accounts for newly vulnerable recipients. Some of the key ways they’ve done this include use of mobile SIM registration data, employment records and deferred KYC measures.
<h3>Mobile SIM as ID</h3>
The <strong>Bank of Ghana</strong> expanded its tiered KYC to allow mobile phone subscribers to reuse their SIM card registration to open the lowest tier of e-money accounts, called <a href="https://www.bog.gov.gh/wp-content/uploads/2020/03/MPC-Press-Release-March-2020-3.pdf" target="_blank" rel="noopener noreferrer">Minimum KYC Accounts</a>. In <strong>Egypt</strong>, the central bank’s eKYC program allows customers to <a href="https://www.fintechfutures.com/2020/01/central-bank-of-egypt-pilots-ekyc-solution-for-financial-inclusion/" target="_blank" rel="noopener noreferrer">open bank accounts electronically</a>, by submitting their national ID number along with their mobile phone number to the telecommunications authority, which then confirms to the bank the information match for the mobile SIM registration.
<h3>Remote and/or Deferred CDD</h3>
In <strong>Pakistan</strong>, the government suspended the need for biometric confirmation for its Ehsaas Emergency Cash transfers, opening a <a href="https://www.pass.gov.pk/Detailf90ce1f7-083a-4d85-b3e8-60f75ba0d788" target="_blank" rel="noopener noreferrer">web portal for residents to handle applications and resolve any issues</a>, while the Central Bank of West African States (BCEAO) allowed a three-month window following the COVID crisis for in-person due diligence verification for basic accounts.
<h2>3. Use of Alternative Channels for Delivering Payments</h2>
Several jurisdictions have looked to new channels to quickly onboard beneficiaries and distribute social transfers, from mobile apps and websites to postal networks and non-bank financial institutions (NBFIs).
<h3>Apps and Websites</h3>
<strong>Brazil</strong>’s social assistance program aimed at informal workers, the coronavoucher, is accessible through a free mobile app the bank created specifically for this purpose (those without a cellphone could apply via this <a href="http://auxilio.caixa.gov.br/" target="_blank" rel="noopener noreferrer">website</a>).
<h3>Post Offices</h3>
In <strong>Madagascar</strong>, the government’s COVID cash transfer program, called Tosika Fomena, is made via the Madagascar postal system’s (Paositra Malagasy) cash transfer service called Paositra Money, and <a href="http://www.mptdn.gov.mg/?p=1974" target="_blank" rel="noopener noreferrer">can be retrieved</a> at any PO upon <a href="https://fr.allafrica.com/stories/202005261023.html" target="_blank" rel="noopener noreferrer">presentation of a national ID</a>. The <strong>South African Post Office</strong> (SAPO) <a href="https://www.techfinancials.co.za/2020/05/04/south-africa-post-office-unveils-cashless-atm-for-sassa-social-grants/" target="_blank" rel="noopener noreferrer">rolled out 10,000 cashless ATMS in rural shops</a> to allow users to access payments without having to travel to urban centers.

In <strong>India</strong>, the post office enabled people to get their funds delivered to their homes during the COVID crisis, whether they have a postal bank account or not. By downloading the India Post Payment Bank app, the user is able to withdraw funds from any bank account and <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/india-post-delivers-rs-412-cr-cash-in-doorstep-banking-revolution/articleshow/75369897.cms" target="_blank" rel="noopener noreferrer">have it delivered</a> either to the post office branch or to their home.
<h3>NBFIs</h3>
In <strong>Bangladesh</strong>, BRAC turned to the use of the country’s most prominent mobile money wallet, bKash, as a means of delivering aid to their clients. They opened mobile wallet accounts for <a href="http://blog.brac.net/cash-transfers-to-support-families-during-the-covid-19-pandemic/" target="_blank" rel="noopener noreferrer">all the clients who had their own mobile numbers</a> and, for those that didn’t, especially the women, they allowed the use of a trusted family member’s wallet.

In <strong>Ecuador</strong>, the government <a href="http://pubdocs.worldbank.org/en/129771593464547099/World-Bank-G2Px-COVID19-Ecuador-Brief.pdf" target="_blank" rel="noopener noreferrer">implemented a social transfer program</a> aimed at vulnerable households, utilizing cooperatives as well as banks to distribute the funds. Unlike cooperatives in most countries, many of Ecuador’s cooperatives are connected to the national payment system.
<h2>The Path Forward</h2>
While countries have made impressive progress over the last decade in broadening the reach of digital financial services, the COVID pandemic has magnified the remaining gaps and weaknesses in helping the most vulnerable. As governments continue with national infrastructure programs, especially around ID and payments, we offer the following crucial considerations for national governments:
<h3><strong>Value of Universal Access to Basic Accounts Opened Under SDD</strong></h3>
This pandemic has demonstrated the potential value of universal access to basic accounts that can be opened under SDD (simplified customer due diligence) measures and at no initial cost to the customer. Should all members of society, as a matter of course, be able to open accounts – immediately and remotely -- for receipt of government emergency payments?
<h3>Importance of Whole of Government Communication and Policy Responses</h3>
Like many aspects of the COVID crisis, communications have been a critical aspect of program success and/or failure. In some countries, for example, unclear messaging on how to apply for or access funds has led to overcrowding at government offices or state banks, forcing those offices to close and leading to public turmoil.
<h3>Clear, Ongoing Dialogue and Interactive Decision-making</h3>
Clear, ongoing dialogue and interactive decision-making between government ministries, regulators and FSPs -- especially payment service providers -- has proven vital to ensuring quick action on rapid onboarding programs. Governments already have established emergency protocols with telecommunications and power companies. How can governments put in place formal emergency mechanisms to engage all relevant ministries and private-sector actors, especially payment service providers, for any future crisis situations?
<h3>How can countries put in place mechanisms to address identification and verification for future crises?</h3>
One approach is to loosen impediments to the sharing of various government beneficiary databases, but there is much to understand around data privacy and security and it is unclear whether this approach is the answer. Given the likelihood of future crises, it is prudent that governments begin the longer-term dialogue and investment needed to address governance of data sharing.
<h3>What are the mechanisms that governments can use to expedite digital infrastructure partnerships with the private sector?</h3>
Where government doesn’t yet have the necessary infrastructure -- including, among others, digital payments, identification, and government databases -- partnerships with industry allow them to leverage existing capabilities and information sharing. The use of mobile SIM registration is a prime example of collaboration to address shortcomings in existing ID infrastructure. Rather than treating each situation as a one-off event, one approach is for governments to institute ongoing cooperation agreements with MNOs and other private/public sector actors to react quickly to events as necessary.
<h3>Governments must consider how they reach beneficiaries that are not digitally connected and may never be.</h3>
The cases in our report highlighted usage of alternative distribution channels through institutions such as post offices and NBFIs. These players already serve low-income people, often via some combination of cash and digital means. Those beneficiaries that only want to deal in cash must continue to be accommodated. But that doesn’t mean that the institutions they use must also deal only in cash. The further that governments can push out the digitization of payments, especially to the “last mile,” the more efficient and expedient the delivery system can be made before it’s transferred back to cash for final delivery.

<a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">Find out more</a> about these policy considerations, and about how countries have innovated and operationalized social payments for the underserved during this difficult time.

Three Ways Governments Expedited Social Payments During COVID

As countries around the world grapple with the economic impact of the COVID-19 pandemic, governments have turned to supplemental cash transfers as a key policy instrument to offset the loss of income of their citizens.

This policy brief explores what national governments are doing to enable rapid payments to those without existing accounts. The swift measures governments took to speed up payments to citizens during the pandemic include:
<ul>
 	<li>Quick identification of eligible recipients</li>
 	<li>Simplification of customer due diligence for rapid account opening</li>
 	<li>Greater use of alternative channels such as mobile apps, post offices, and non-bank financial institutions (NBFIs) such as microfinance providers.</li>
</ul>
Each section of this brief includes country-specific examples and key takeaways. Efforts by 19 countries to facilitate cash transfers, both digital and non-digital, are discussed.

This publication is the second in a <a href="https://www.centerforfinancialinclusion.org/series/policy-responses-to-covid-19-their-impacts-on-low-income-customers">series</a> of policy briefs on COVID-19 economic policy responses and their impact on low-income customers.

Rapid Response for Social Payments During COVID-19

A woman stands in the sun for five hours, her baby strapped to her back. There’s no water or shade. The baby’s head lolls, as it becomes increasingly dehydrated. This woman has no choice but to stand in the queue in front of a “bank on wheels,” waiting to test a new “financially inclusive” e-payment modality. Elsewhere, a man is unable to collect his benefit because he must work that day in the field. As he missed payday, he must wait two months in order to return to the fixed pay point. When he finally does, he discovers that the accumulated benefit, which he was counting on, has been “swept” from his account. Contrary to the very principles underlying financial inclusion, in South Africa, grant beneficiaries are <a href="https://www.iol.co.za/news/south-africa/social-grants-will-lapse-if-you-havent-used-it-for-3-months-sassa-warns-26019628">warned by the South African Social Security Agency (Sassa)</a> that “social grants that have not been claimed for more than three consecutive months will lapse.”

These are just three examples of how badly designed payments mechanisms for social protection programs harm the very beneficiaries that the programs are meant to help.

Social protection programs (SPP), which provide cash transfers such as social pensions or child benefits, are coordinated by governments and donors. However, the payments are often outsourced to third-party payment service providers (PSPs), such as banks and MNOs. It’s these mechanisms which are often not designed with the inherent rights of the beneficiary in mind. In many cases, basic consumer protection principles, data protection rights and even the beneficiaries’ right to basic information aren't being observed. Look a little closer and the violations become more subtle, but no less serious: excessive fees charged by agents, unauthorized and unlawful deductions, cross-selling of micro-insurance products to beneficiaries that no one asked for or really needed, dangerous levels of indebtedness, nowhere to complain to and little chance of a satisfactory resolution of the dispute.
<blockquote>Without a human rights-based approach to the delivery of SPPs, the vulnerable will be left behind.</blockquote>
SPPs are one of the key means of bringing formal financial services to the unbanked. “Banking the unbanked” is a term that has been bandied around for years. Making use of G2P programs to meet financial inclusion objectives has been a popular refrain as well. But at what cost? Why are PSPs not held to account when delivering payment services to SPP beneficiaries? Do codes of banking practice, consumer protection laws and principles enshrined in directives such as the <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32015L2366">Payment Services Directive II (PSD II)</a> not apply to SPP beneficiaries? Are there two sets of rules depending on whether you are a high net worth bank customer or a SPP beneficiary living in poverty? This <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, as we consider how financial inclusion can better promote equity, we argue that without a human rights-based approach being applied to the delivery of SPPs, the vulnerable will always be left behind.
<h2>Payment Standards Are Needed.</h2>
Is there a link between human rights law and financial or payment services legislation and regulation? At first glance, probably not, but “banking the unbanked” and meeting the financial inclusion targets at any cost isn't only irresponsible, it’s reprehensible. Accountability is needed, but who’s responsible and what mechanisms can and should be used?

The manner in which PSPs provide payment services is now heavily regulated in the European Union, and member states are required to transpose the PSD II into domestic law. Unfortunately, within many developing country contexts, the legal and regulatory framework governing the provision of payment services doesn't exist and consumer protection frameworks are of general application. Where codes of banking practice exist, these, given their non-enforceable status, are often ignored.
<blockquote>In many developing countries, the legal and regulatory framework governing the provision of payment services doesn't exist.</blockquote>
PSPs contracted by governments or development partners to provide payment services to the program always do so in terms of the contractual provisions contained in a commercial contract or service-level agreement, in line with key performance areas which are set and in compliance with a detailed scope of work. However, in the absence of a robust legal and regulatory framework, the drafters of commercial contracts with PSPs are often at a loss as to how these contracts should be drafted, and the scope and content of the service level agreement, key performance area and scope of work. Recognizing this limitation, Development Pathways is working towards developing a set of payment standards, which we hope will inform international best practice in the social protection world. These payment standards are the first step towards merging human rights law with financial and payment services legislation and regulation and establishing a new paradigm where PSPs are held to account.
<h2>What About the Human Rights-Based Approach Applied to PSPs?</h2>
Dignity and autonomy, equality and non-discrimination, inclusion of vulnerable groups, and a gender perspective aren't <a href="http://www.unrisd.org/80256B3C005BCCF9/(httpAuxPages)/1E57FC1E56010C2CC125801B004B0D10/$file/IB2%20-%20Human%20rights%20based%20approach.pdf">first and foremost</a> on the minds of PSPs operating in a “value and volume world.” However, it’s important to remember that the rationale for applying a human rights-based approach is <a href="https://www.un.org/en/universal-declaration-human-rights/">enshrined in international law</a>. Furthermore, the <a href="https://www.business-humanrights.org/en/un-guiding-principles">United Nations Guiding Principles on Business and Human Rights</a> (UNGPs), which were endorsed by the Human Rights Council in June 2011, provide clarity on the expectations of the international community regarding the human rights responsibilities of corporations. With the Guiding Principles, the UN Human Rights Council defined the corporate responsibility to respect human rights. Therefore, PSPs must conduct due diligence to ensure that they identify, prevent, mitigate and account for how they address their adverse human rights impacts.
<blockquote>PSPs must conduct due diligence to ensure that they identify, prevent, mitigate and account for how they address their adverse human rights impacts.</blockquote>
There is also a separate obligation of the governments implementing the social protection programs to ensure that PSPs comply with human rights standards. As the primary duty bearer, states are legally obligated to protect their citizens from third parties (which include PSPs) from violating human rights. It also has a responsibility to implement policies, standards and legislation to ensure that human rights can be realized. In addition, the UNGPs recognize that the closer a business enterprise is to the state, the stronger the state’s policy rationale becomes in ensuring that the enterprise respects human rights. This is especially the case if the state has contracted a business enterprise to provide services, such as the payment delivery of a SPP, and if taxpayers money is being used to fund the program.

With the rationale for a human rights-based approach established, what are the principles that should inform each phase of the payments process? The illustration below demonstrates some ways in which key human rights principles can be incorporated into the design of the payments mechanism. By ensuring that these standards are measurable and quantifiable, the payments standards can then inform the KPAs of a Commercial Contract/Service Level Agreement with a PSP. And better yet, they could even form part of international best practice and be enshrined in domestic laws around the world.

Standing in the Sun: Human Rights Abuses in the Name of Financial Inclusion

<em>Banking Sector Approaches to Customer Engagement and Capability</em> explores how financial institutions are leveraging innovation, new technology, social networks, and other tools that inform and engage customers. This brief builds on the belief that good product design builds the financial capability of customers. The research captures a number of successful models, including:
<ul>
 	<li>RBL offering unsecured loans that allow customers to build up a credit score for the first time in India</li>
 	<li>Standard Bank leveraging existing informal group savings culture combined with a lottery to incentivize and reward savings activity in South Africa,</li>
 	<li>A small cooperative bank “rounding up” loan repayments to create an auto-saving mechanism among credit recipients in Mexico<em>.</em></li>
</ul>
This brief is part of the Mainstreaming Financial Inclusion: Best Practices initiative which aims to facilitate learning and action on how mainstream financial institutions around the world can reach underserved populations with quality financial services. The project is completed in partnership with the Institute of International Finance (IIF), with support from MetLife Foundation.

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Banking Sector Approaches to Customer Engagement and Capability

<em>&gt; Posted by Aurora Bila and Kim Dancey, Director of Payment Systems at the Bank of Mozambique and Head of Payments at First National Bank</em>

Of the 338 million citizens of the Southern African Development Community (SADC) member states, 138 million lack adequate official means of identification. This limits their access to and usage of many government services, as well as the range of services offered by financial service providers. This affects their well being in a host of ways, which is why the U.N. Sustainable Development Goals include the goal of a robust “Identity for All” by 2030.

Some SADC countries lack a standardized form of identification, and citizens require various pieces of documentation to access financial services in the formal sector. And in some instances there are no legislative frameworks for issuing any form of formal identification document.

Even among those SADC adults who do have national IDs, documents are often not accepted across borders for opening bank accounts or sending remittances home. Banks and remittances agencies in SADC countries face more stringent Know Your Customer (KYC) requirements for cross-border than for domestic remittances. Therefore, if the identity source document is not easily verifiable to the level of assurance required, to manage both internal risk and to comply with Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements in force, the provider will not make the service accessible. Furthermore, global standard-setting bodies are increasing the pressure on local regulators regarding identity. For example, it is no longer sufficient to identify only the remittance-sending customer. Financial services providers are now compelled to also know the identity of the recipient and to hold these identities throughout the payment transaction. Consequently, only institutions willing and able to price and charge for the risk and cost will offer the services.

Some SADC remittance corridors are among the most expensive in the world, and these identity issues are likely contributing to the costs. The World Bank has <a href="https://remittanceprices.worldbank.org/en">reported</a> that the average cost of sending a small sum (US$200) from South Africa to other SADC countries is around 16 percent. Recent research from FinMark Trust, an SADC think tank, <a href="http://www.finmark.org.za/wp-content/uploads/2016/11/cross-border-remittances-2016.pdf">suggests</a> that this average may be closer to 7 percent. But even that level is still expensive, certainly compared with global <a href="http://www.un.org/sustainabledevelopment/inequality/">sustainable development goals</a> of reducing the average cross-border remittance cost to 3 percent by 2030.

How can SADC achieve much lower remittance costs, while also advancing other goals of financial inclusion – all <em>with, </em>not at the cost of, financial integrity? We believe that a solution worth considering is a robust, secure digital financial identity system for SADC countries which can be relied on by financial service providers and which is acceptable to regulators across the SADC region. Such a system would support the expansion of financial access in a secure manner and provide the opportunity to leapfrog the less-efficient brick-and-mortar way of doing business and focus strongly on digital finance services. It would also enable easy monitoring of suspicious transactions in real time, which does not happen in informal channels. If a migrant living in South Africa could open an account using an identity document that a bank could easily verify to be genuine, then the risk for banks and other remittance providers would fall substantially, which should have a direct impact on costs.

How could such an SADC-wide digital ID come about? We have several practical suggestions. First, issuing the digital ID would need to be done in a way that does not replace or undermine the efforts of SADC national governments to enroll citizens. Instead, the digital ID would specifically be geared to allowing financial institutions to recognize verification of identities done by other financial institutions across SADC borders. Second, we recommend that SADC governments not have to drive or fund the effort – in part as this arrangement would likely result in a longer time frame – although regulators would have to vet it. Nevertheless, governments may welcome such an initiative if it stimulates demand for government issued so-called ‘breeder documents’ (government-issued national IDs) which would be used as the basis to create digital identities.

There may not be a need for a centralized database. New technologies like blockchain and distributed ledgers applied to identity may allow financial services providers to operate as identity nodes in a permission-enabled network of approved counterparties able to verify identity in a way other banks and financial services providers can recognize. There may be opportunities to capture biometric attributes as well, which could be an additional level of assurance. This approach has been followed across the Nigerian banking sector in issuing a unique bank verification number to all clients linked to biometric identities.

We are following the variety of digital identity solutions being applied around the world in this burgeoning area of interest. These solutions have included offering small businesses ‘<a href="https://e-resident.gov.ee/">e-residency’</a> in Estonia (meaning a business can be registered as a business in Estonia without having a physical presence there), to enable firms to conduct business in the EU, a process recently endorsed by the UN. Another are self-sovereign identity solutions which rely on decentralized ledger technology (blockchains) to allow individuals to build and carry their digital credentials with them. Examples of this include Consent from South Africa and Banqu from the United States.

Of course, many issues need further exploration. What is the business case for banks and others financial services providers to fund set up costs associated with such an effort? Could regional bodies like SADC Bankers Association or SADC Payments Association, which have already supported the rollout of innovative digital payment infrastructure in the region, play a coordinating role? How will privacy and data security risks be addressed in the context of domestic regulation?

There is a precedent for a regional identification process in SADC from the transport sector, namely the process of harmonizing standards for drivers’ licenses and creating a regional database to enable safer cross-border road traffic. This process, which means that SADC drivers’ licenses can be valid and accepted across borders, has been underway for a number of years. Of course, a solution for digital financial ID may not solve the problem for all consumers, especially those who do not have a foundational national ID to start with. But if widely accepted and used, a robust digital financial ID may increase the demand for getting a valid national ID.

SADC has a great opportunity to provide a digital financial identity as part of the infrastructure for a 21<sup>st</sup> century regional economy which includes expanding e-commerce. We hope that SADC Central Bank Governors and the SADC Banking Association will seriously explore this proposal.

<em>This post reflects the views of the authors but not necessary those of their organizations.</em>

<em> <img class="alignleft wp-image-24735" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/12/aurora1.png" alt="" width="85" height="84" />Aurora Da Glória V. Bila holds an MSc. in economics from Cass Business School, City University, United Kingdom. Aurora joined the Central Bank of Mozambique in 1999 and since then she has assumed several positions. Aurora is a graduate from the Fletcher School Leadership Program in Financial Inclusion (Tufts University). Aurora has been Director of the Payment System Department of the Bank of Mozambique since June 2014.</em>

<em><img class="alignleft wp-image-24727" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/12/kim.png" alt="" width="85" height="85" />Kim Dancey is a lawyer with expertise in digital payments with a focus on creating, and supporting, enabling environments for the adoption and usage of quality, and inclusive, digital financial services. As Head of Payments for FNB International, Kim is responsible for supporting the group strategy, and identifying opportunities in differentiated payment services for the FNB group subsidiaries. </em>

<em>Image credit: Accion</em>

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<a href="https://cfi-blog.org/2017/06/15/lack-of-financial-access-the-plight-of-our-south-african-elders/">Lack of Financial Access: The Plight of Our South African Elders</a>

<a href="https://cfi-blog.org/2017/09/29/in-the-wake-of-the-equifax-breach-are-biometrics-the-answer/">In the Wake of the Equifax Breach, Are Biometrics the Answer?</a>

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SADC Needs a Regionally-Accepted Digital Financial ID—and It Is Feasible to Contemplate

<em>&gt; Posted by Ross Tasker, COO, Nobuntu</em>

[caption id="attachment_23740" align="alignright" width="349"]<a href="https://www.flickr.com/photos/worldbank/1128216985/in/album-72157605940095770/"><img class="wp-image-23740" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/06/1128216985_f0b213c86c_b.jpg" alt="A worker prunes trees" width="349" height="233" /></a> A worker prunes trees[/caption]

Imagine an elderly lady in her late seventies, who lives in a township in South Africa. Her income is very little, some US$120 a month in assistance from the government, and her body is old and sore - she is now too old to work. With no savings to draw upon, and no other sources of income, she struggles to afford medication for her chronic ailments. Two of her three children are unemployed, and her grandchildren are hungry and unable to pay the taxi fare to get to their school. This position isn’t atypical in South Africa. There are hundreds of thousands of older adults in the country (8 percent of the total population). Making matters worse, there is a distinct lack of a formal savings culture in the country. Imagine the impossible financial decisions faced by so many elderly South Africans on a daily basis.

There are various reasons for the shortage of savings in South Africa. One of which is the legacy of structural exclusion along racial lines that the pre-democratic regime left behind. During this time, a large part of the population was denied access to basic services and human rights, let alone access to any meaningful financial services.

As a result, informal structures such as stokvels (communal savings clubs) developed and flourished. These informal savings structures became prevalent during a time when the poor and financially underserved needed to mobilize their financial resources in the absence of a developed financial services offering. However, the fact that these structures have remained and are still widely-used (23 percent of the adult population uses these structures, with deposits amounting to some <a href="https://www.moneymarketing.co.za/stokvels-a-uniquely-african-savings-solution/">US$1.38 billion in 2016</a>) raises the question as to why this is the case, when a highly developed and functional formal financial services system operates in the country.

The answer is, in short, i) that the market incumbents do not provide products and services that are necessarily tailored to low-income earners' needs; and ii) that the current distribution model results in low-income earners often being overlooked. As such, the problem is one of a lack of meaningful access. It is clear that the existing offerings are largely complex, unaffordable and inappropriate for their needs. Individuals in the low-income bracket are faced with such fundamental choices as whether to purchase food or fuel for cooking. In these circumstances, considering which of several annuity products has the most favorable fee structure, for example, can be overwhelming.

In addition to informal savings structures, low-income earners have traditionally relied on children and family to support them once they reach an age where they are no longer able to work and earn an income. This has resulted in a cycle that perpetuates people not saving, as younger people who might otherwise save are obliged to provide for their elderly loved ones. This approach might not otherwise be so problematic, but with rising youth unemployment (<a href="https://tradingeconomics.com/south-africa/youth-unemployment-rate">averaging 52 percent between 2013 and 2016</a>), the ability for older, non-working low-income earners to rely on this support has become increasingly uncertain.

It is not that low-income earners do not recognize the value of saving for their long-term future, but rather that the combination of the lack of meaningful formal solutions and the need for immediate consumption means that people don’t end up saving very much, if at all.

On the other side of the coin, this lack of access to services and products coupled with the real need for an offering that is tailored and targeted to the specific needs of this market creates widespread opportunities for inclusive finance providers in South Africa. And from savings to payments to remittances, an ecosystem revolving around the many millions of people that have historically been disregarded is slowly developing. However, it is still early days. For example, quality retirement savings products designed and distributed specifically for low-income earners lag behind the pace at which other parts of the ecosystem are developing.

<a href="http://www.nobuntu.co.za)/">Nobuntu</a> (a female African name meaning one who embodies the spirit of community and humanity) is one of few start-ups in South Africa that aim to solve this problem. Nobuntu created a system whereby elderly people like the woman we first described can pool whatever savings they have for investment (these can be as little as US$20), and share in the risks and gains associated with these savings through investment in comparatively low-risk instruments. Nobuntu currently provides a single option in terms of which investment options are available for clients – this is largely driven by the need to not expose participants to disproportionate risk, but is something that will progress and change with scale. Created in 2017, Nobuntu is establishing a community – a savings ecosystem where people invest and earn returns on a peer-to-peer basis, creating mutual value for all members – something which is simply unattainable on an individual level.

Contributions from individuals as well as employers on behalf of their employees are pooled and invested, with meaningful returns on money saved repaid to participants over the period of their lives. These repayments are annuity-based payments which are made to participants every month until they pass away. The fund is set-up such that half of the capital contributions made by participants remain in the pool once they pass away, with these amounts being re-distributed to the remaining members (peer-to-peer benefit) on a smoothed-basis over time. The other half is bequeathed to a nominated beneficiary. This ensures that participants receive an increasing annuity payment the longer they live. With Nobuntu, living a long life is something to strive for rather than to fear.

Nobuntu is currently trying to grow its customer base through targeting employers of low-income earners. At this stage, marketing and customer engagement is largely direct-to-consumer coupled with social media. Nobuntu uses digital means to onboard and engage with customers – an interactive chatbot with WhatsApp integration as well as a standalone app (each of which assists with mobile onboarding, client questions, client balances and other product/investment information) underpinned by a dynamic backend platform are all in the development testing phase. As far as next steps, Nobuntu has yet to partner with microfinance or other financial institutions, but this is certainly a promising avenue for greater outreach.

<em>To learn more about Nobuntu, <a href="http://www.nobuntu.co.za/">click here</a>.</em>

<em>Image credit: <a href="https://www.flickr.com/photos/worldbank/1128216985/in/album-72157605940095770/">World Bank</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/02/17/talking-agefinclusion-meeting-the-financial-needs-of-the-rapidly-growing-older-demographic/">Talking #AgeFinclusion: Meeting the Financial Needs of the Rapidly Growing Older Demographic</a>

<a href="https://cfi-blog.org/2016/09/14/fintechprotects-keeping-clients-first-in-digital-finance/">#FintechProtects: Keeping Clients First in Digital Finance</a>

<a href="https://cfi-blog.org/2012/11/26/in-south-africa-new-opportunities-through-life-insurance-for-people-living-with-hiv/">In South Africa, New Opportunities Through Life Insurance for People Living with HIV</a>

Lack of Financial Access: The Plight of Our South African Elders

[youtube https://www.youtube.com/watch?v=8flyHNiuKJY]

Time flies. It’s hard to believe that the Africa Board Fellowship (ABF) program will soon begin its fifth cohort of fellows. Over the past few years and four cohorts, the ABF program has included more than 125 CEOs and board members from over 40 financial inclusion institutions across 35 countries in sub-Saharan Africa. If you’re an inclusive finance leader in sub-Saharan Africa, now’s your chance to join the governance and strategic leadership program. Applications are now open for the fifth cohort.

ABF recently held two seminars in Cape Town, welcoming the fourth cohort of fellows and graduating the third cohort. With new case studies on disruptive technologies, and an emphasis on interactive role plays and simulations, the seminars proved once again that peer-to-peer exchanges are an effective way to examine best and worst governance practices. To hear the fellows’ takeaways from the two seminars, watch our new video above.

The fifth cohort will kick-off with an opening seminar May 3-5 in Cape Town. The six-month fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.

The ABF program has demonstrated that many of the fellows are clearly struggling with the same challenges at their respective institutions and have a lot to share with each other. Though each ABF fellowship is only six months long, it is our hope that the connections forged among fellows create a durable network of leaders throughout sub-Saharan Africa in the financial inclusion sector.

This year, with Calmeadow and Sanabel, CFI is also hosting a Governance and Strategic Leadership Seminar for inclusive finance CEOs and board members of the Middle East and North Africa (MENA) region. The seminar will be held March 7-9 in Amman, Jordan. The highly-interactive two and a half days include discussions guided by industry leaders, case-based dialogues examining pressing sector risks, collaborative simulations, and opportunities for peer exchange and learning.

<em>To learn more about ABF, and to apply, <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">click here</a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/07/23/lessons-learned-from-abfs-convening-of-microfinance-leaders-in-cape-town/">Lessons Learned from ABF's Convening of Microfinance Leaders in Cape Town</a>

<a href="https://cfi-blog.org/2017/01/10/calling-all-financial-inclusion-leaders-in-mena-registration-is-open-for-the-mena-governance-and-strategic-leadership-seminar/">Calling All Financial Inclusion Leaders in MENA! Registration Is Open for the MENA Governance and Strategic Leadership Seminar</a>

<a href="https://cfi-blog.org/2016/12/08/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/">Harbingers of Doom? Bank Failures in Africa - How to Interpret These</a>

Join the Africa Board Fellowship Program

<em>&gt; Posted by Center Staff</em>

[caption id="attachment_22181" align="alignright" width="340"]<img class="wp-image-22181" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/10/fi-3.jpg" width="340" height="191" /> Janautthan Samudayic Laghubitta Bikash Bank Limited event in Nepal[/caption]

<em>This post is part of <a href="http://www.fi2020week.org/">Financial Inclusion Week</a>, a week of global conversation on advancing financial inclusion. This year’s theme is keeping clients first in a digital world. Throughout the week participants will share their thoughts in events and webinars, on social media, and through blog posts. Add your voice to the conversation using #FinclusionWeek.</em>

It is day three of <a href="http://www.fi2020week.org/">Financial Inclusion Week 2016</a> and while we are sad to be more than half-way through, we are so excited by the conversations that have already happened! Already, Financial Inclusion Week events have taken place in South Africa, the United Kingdom, Nepal, and Tanzania, among other locations.

Before we dive into a recap of the events that happened yesterday – we encourage you to take another look at the <a href="http://www.fi2020week.org/publicevents">list of webinars</a> happening during the rest of the week and register today to participate. Additionally, we encourage you to join the Twitter conversation with <a href="https://twitter.com/hashtag/finclusionweek?f=tweets&amp;vertical=default&amp;src=hash">#FinclusionWeek</a>. Starting today, CFI (<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>) will be asking a number of questions to the Financial Inclusion Week community focused on the theme, <em>keeping clients first in a digital world</em>.

<strong>What’s Happening</strong>

In Luxembourg yesterday, the ADA held a panel discussion exploring keeping clients first in mobile banking and microfinance. The conversation was led by Laurent de la Vaissière, Director of the Information &amp; Technology Risk Department at Deloitte and included Devyani Parameshwar, Lead Development Manager of M-PESA at Vodafone, and James Onyutta, Managing Director of Musoni Kenya. You can watch the full conversation below.


[youtube https://www.youtube.com/watch?v=09z5f9Z2__s&amp;w=560&amp;h=315]

In the first of the Digital Frontiers Institute’s (DFI) Financial Inclusion Week webinars, DFI’s Ignacio Mas and Accion’s Kathleen Yaworsky addressed the subject of people’s financial coping mechanisms and how digital financial services (DFS) providers can better integrate behavioral insights into their product design and customer engagement strategies. Looking at key differences between the more affluent and those at the base of the pyramid, Ignacio identified four main motivations that should guide the industry: [moving] beyond convenience, beyond data, beyond our own money management attitudes, and beyond products. Kathleen highlighted the importance of the goals of financial inclusion, and suggested that DFS focus on more flexible product design and enhanced customer engagement in order to help create a sense of engagement with and ownership of these products for the many people who are accessing DFS for the first time. Kathleen also provided examples of DFS products that have successfully incorporated behaviorally-informed practices and other technologies (e.g., social media platforms) to help build users’ financial capability beyond traditional financial education [methods/techniques] and give them the tools that they need to navigate their own financial journeys.

In Nepal, Janautthan Samudayic Laghubitta Bikash Bank Limited held a seminar at Butwal-11, Rupandehi, Nepal to discuss the topic of financial literacy and the role of digital media. Over 80 clients, most of which female, joined the seminar and explored the role of digital media in building their financial literacy and capability.

<a href="https://twitter.com/snigdhak17/status/788491114659647488"><img class="alignright wp-image-22183" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/10/fi-3-1.png" width="350" height="341" /></a>In Cambridge, Massachusetts, the Harvard Kennedy School’s Business and Government PIC – Fintech Committee explored the role that fintech can play in reaching wider development goals, and identified the regions that are currently hotbeds for fintech innovation. David Porteous led the conversation and suggested that the next big thing in financial technology will hopefully be informed consumer voices coming forward in the ecosystem.

<strong>Online Conversation</strong>

UK Financial Inclusion Commission – <a href="http://www.financialinclusioncommission.org.uk/news/21">Financial Inclusion Can Be Good for Financial Service Businesses as well as for People</a>
In the second of the UK Financial Commission's daily Financial Inclusion Week blog posts, Laurie Edmans, Financial Inclusion Commissioner, turns to the business case of financial inclusion.  Edmans argues that financial inclusion initiatives must be commercially viable to work and highlights two experiences in the UK where this has been the case: getting lower paid employees to have pensions savings, and expanding insurance access to those exposed to flooding.

The U.S. Chamber of Commerce Foundation - <a href="https://www.uschamberfoundation.org/blog/post/edu-action-financial-inclusion-practice">Edu-Action: Financial Inclusion in Practice </a>
The Foundation highlights how the field of behavioral economics can help us understand how and why people structure their financial lives the way they do. The post inspects the approaches and effectiveness of several behaviorally-inspired interventions, which represent a shift from basic classroom-style financial education. Previous blog posts from the Foundation that focus on financial inclusion also include <a href="https://www.uschamberfoundation.org/blog/post/jpmorgan-chase-s-dedication-inclusion?utm_source=twitter&amp;utm_campaign=fiweek&amp;utm_medium=tweet">JPMorgan Chase’s Dedication to Financial Inclusion</a> and <a href="https://www.uschamberfoundation.org/blog/post/what-business-doing-prepare-kids-success-digital-economy?utm_source=twitter&amp;utm_campaign=fiweek&amp;utm_medium=tweet">What Business Is Doing to Prepare Kids for Success in the Digital Economy</a>.

<em>For more, including the week’s full event list and a curated #FinclusionWeek social media feed, visit the <a href="http://www.fi2020week.org/">Financial Inclusion Week website</a>.</em>

Financial Inclusion Week Round-Up – Day 2

[caption id="attachment_22038" align="alignright" width="330"]<a href="https://www.flickr.com/photos/65162298@N07/6029132512/"><img class="wp-image-22038" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/09/6029132512_b5b26fd99a_b.jpg" width="330" height="220" /></a> Somalis, who rely heavily on money transfers from abroad, have been severely affected by the closing of remittance companies' accounts.[/caption]

<em>This post is the first in a series examining the global phenomenon of de-risking and its impact on financial inclusion. Through the </em><a href="https://www.credit-suisse.com/ch/en/about-us/responsibility/economy-society/focus-themes/employee-engagement.html"><em>Credit Suisse Global Citizens Program</em></a><em>, </em><em>CFI partnered with Rissa Ofilada, who works as a lawyer in compliance in the Philippines, to undertake a study on de-risking. In the series, we’ll discuss the causes of the phenomenon, what it means for customers at the base of the pyramid, how it affects global momentum toward financial inclusion, and what solutions are on the horizon.</em>

The term de-risking may sound arcane and technical, but in fact some observers believe that de-risking is the biggest threat to the progress that has already been made on financial inclusion. We at CFI are worried about it—and you should be too.

De-risking refers to the trend of commercial banks, payments companies, and regulators closing down “suspicious” accounts. These accounts could be suspicious for any number of reasons. The owner may not have had adequate proof of identity—a common problem for lower-income people in countries without well-developed identification systems. Or the owners may not be able to precisely trace the source of the funds they deposit—a frequent issue for those operating in the informal sector. Or the provider had a problem with another lower-income customer who was flagged as suspicious, and as a result decided to close all accounts owned by people with similar patterns or profiles.

We are also starting to see regulators pulling back from regulations that allow for basic accounts and lower know-your-customer (KYC) standards for payments. About a decade ago, the government of South Africa began to offer banks the opportunity to forego the proof of address requirements for transactions of less than approximately $315 per day—a victory for financial inclusion. Today, however, the South African Parliament is considering dropping this exemption under the Financial Intelligence Centre Amendment Bill. And other countries are following suit, pushing their financial institutions to be far more conservative.

Who is responsible for de-risking? Well, it appears no one—and everyone—is to blame. The Financial Action Task Force (FATF), the global body charged with policing terrorism finance and other security threats, proposed a set of regulations in 2012 that they hoped would leave space for financial inclusion while still accounting for the kinds of risks FATF is focused on. This guidance did not prevent the New York State Banking Commissioner from responding to the fear of terrorist attacks by levying fines on global banks that transacted with particular markets and particular people. While the fines were not directed against transactions with the kinds of clients targeted by financial inclusion efforts, many banks began to shy away from these lower-income clients, too. Governments, faced with the prospect of limited interaction of their nationals with the global financial system, adopted conservatism in their policies so as to avoid running up against sanctions from U.S. authorities. This trend filters down to employees at financial institutions, particularly since some violations carry jail time or huge fines. Bankers have started to choose to transact with the least “risky” customers, excluding people who cannot prove their identities or sources of funds. And as a result the very people our industry has been fighting to include are shut out of the formal financial system.

In the regulatory push to create a more accountable and responsible financial system, our industry may have also succeeded in promoting the mass exclusion of lower-income and hard-to-reach customers, small non-profits and NGOs, and migrants and refugees.

If you would like to know more, then you’re in luck. In this blog series—stay tuned—we’ll be looking at de-risking from various angles and seeking solutions. Looking forward to exploring the issue along with you.

<em>Image credit: <a href="https://www.flickr.com/photos/65162298@N07/6029132512/">Giro 555 SHO</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/03/23/basel-committee-guidance-on-financial-inclusion-views-from-a-supervisor/">Basel Committee Guidance on Financial Inclusion: Views from a Supervisor</a>

<a href="https://cfi-blog.org/2014/07/15/somalia-facing-drought-with-fewer-remittance-lifelines/">Somalia: Facing Drought with Fewer Remittance Lifelines</a>

<a href="https://cfi-blog.org/2014/09/08/emerging-themes-in-responsible-digital-finance/">Emerging Themes in Responsible Digital Finance</a>

&nbsp;

De-Risking: Why Should You Care?

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

Julia Arnold

Jayshree Venkatesan

Loretta Michaels

Sarina Kidd

Sarah Langhan

Allyse McGrath

Sonja Kelly

Aurora Bila

Lisa Kienzle

Elisabeth Rhyne

Hannah Sherman

Rafe Mazer

Kettianne Cadet

Apis Partners

IFMR LEAD

Bangladesh

Brazil

Cambodia

Chile

Colombia

East Asia and Pacific

Egypt, Arab Rep.

Europe and Central Asia

Ghana

Kenya

Latin America and The Caribbean

Malawi

Mexico

Middle East and North Africa

Mozambique

Pakistan

Philippines

South Africa

South Asia

Spain

Sub-Saharan Africa

Tanzania

Ecuador

India

Madagascar

Nigeria

Timor-Leste

Togo

Zimbabwe

Jordan

Morocco

Myanmar

Thailand

Nepal

United Kingdom

United States

Turkey

Benin

Consumer Protection

Digital Financial Services

Financial Capability

Financial Health

Partnerships

Personal Financial Management

Resilience

Responsible Product Design and Delivery

Tech-Touch Balance

Underserved Groups

Women

Digital Payments

Enabling Environment

Mobile Banking

Policy, Regulation and Government Initiatives

Challenges and Crises

Fintech

Agent Banking

Risk Management

Financial Inclusion Strategy

Insurance

Credit

Report

Blog Post

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

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.

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.

<a href="http://www.centerforfinancialinclusion.org/business-of-financial-inclusion"><img class="alignright wp-image-21554" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/cover-photo.png" width="280" height="363" /></a>When it comes to financial inclusion, as is true in many sectors these days, sexy start-ups and disruptive innovators often occupy the spotlight. But away from the glare, traditional banks are getting on with the work and making an enormous difference. In <a href="http://www.centerforfinancialinclusion.org/business-of-financial-inclusion"><em>The Business of Financial Inclusion: Insights from Banks in Emerging Markets</em></a>, produced in a partnership between the Institute of International Finance (IIF) and CFI, we explore how banks are innovating to include new customers.

Given the headlines, it may be a surprise to hear that even today the overwhelming majority of new accounts are opened at formal financial institutions, not mobile money outlets. Thanks to the Global Findex, we know that over 720 million adults accessed formal financial services for the first time between 2011 and 2014, 90 percent of these new accounts were opened at formal financial institutions. Of the 720 million total new accounts, only 54 million used mobile money as their primary account.
<h3>How are banks expanding customer outreach?</h3>
Through in-depth interviews, leaders from 24 national, regional, and global banks told us about the opportunities and challenges they face while reaching the unbanked and underbanked. Each bank has its own particular story. In the aggregate, their stories give insight into how banks are evolving to meet people where they are and serve population segments that have been traditionally excluded.

Some banks have inclusion in their DNA. Turkey’s Isbank was created during the birth of the nation in 1924 to support Turkish business owners and the young national economy, and Standard Bank in South Africa led the charge to end financial apartheid following the end of official apartheid in 1994. For these banks, financial inclusion is simply a new name for a longstanding commitment – bolstered by new technologies that make outreach easier. On the other hand, some banks must challenge their dominant organizational norms and change course to reach the currently un-reached.

[caption id="attachment_21561" align="alignright" width="301"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/circle-graphic_3.png"><img class="wp-image-21561" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/circle-graphic_3.png" width="301" height="188" /></a> (click to enlarge)[/caption]

When they decide to pursue financial inclusion, banks also choose from a number of paths. We identified four broad strategies: corporate social responsibility (CSR); investments in microfinance institutions; niche market activities within a broader commercial strategy; and market-motivated efforts with aggressive growth plans. Within this range of strategies is also a range of viability, with CSR efforts aiming at social impact and commercial efforts aiming at profit. Some banks pursue several of these strategies at once. Most of the banks that we talked to intend to make money from financial inclusion activities, and many have either reached or will soon reach a clear break-even point during which the gains from new customers surpass the upfront costs of acquiring and serving them.

Whatever their motivations and expectations, all the banks we spoke to are using technology-enabled channels to bring in new customers. Banks are evolving alongside, often with and sometimes beyond, financial technology start-ups and telecos. Communications technology enables a wider ecosystem of customer service touchpoints and data analysis helps providers fine-tune these touchpoints.

We find, not unexpectedly, that digital payments are the leading edge of new customer outreach. Many banks are leveraging government-to-person (G2P) and business-to-person (B2P) payments to acquire customers at the base of the pyramid. Once a G2P or P2P payer has put money into an account, the bank seeks to engage the customer fully with services such as bill payment, e-commerce, and even transportation payments. From payments, banks then aim to gradually cross-sell other financial products: savings, credit and insurance.

[caption id="attachment_21564" align="alignright" width="300"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/drivers-graphic.png"><img class="wp-image-21564" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/drivers-graphic.png" width="300" height="222" /></a> (click to enlarge)[/caption]

Agent banking has become a critical aspect of low-income customer acquisition and service. Almost every bank interviewed has established a vast agent network. Many banking agents can carry out a full suite of transactions, enabled by biometric national ID systems for simplified identity verification and backed by increasingly robust data analytics programs. Agent banking has its challenges, however, as interviewees were quick to point out. Many banks struggle to make their agent operations work well, with issues such as agent churn, agent liquidity management, quality of information agents provide, and ensuring that customers trust agents.

In nearly all cases we identified, banks find it necessary or advantageous to partner with other organizations that bring specialized capabilities into the business. Partnerships may be at the front or back end of operations, and can support a variety of functions, allowing for enhanced product offerings, financial risk management, greater customer engagement, and more. We saw partnerships with microfinance institutions, fintech start-ups, solar energy companies, and agent network managers, to name only a few. These partnerships put banks at the center of their own financial ecosystems.

For as much opportunity as banks have, their expansion to reach the unbanked is not without challenges. The banks we spoke with highlighted a number of challenges, often unique to their organizational and country context. Customer-related barriers included lack of new consumer trust in banks and unfamiliarity with digital and agent banking, together with low financial capability and digital literacy. These issues lead to low uptake and usage. Banks are struggling to manage and take advantage of quickly-growing amounts of customer data. Broader infrastructure deficits, especially in connectivity, limited the reach of digital banking and increased the cost. Finally, many banks highlighted regulatory issues, especially regarding pricing, capacity, and Know Your Customer requirements.

Despite these challenges, all 24 interviewed banks presented bold goals and evidenced the enthusiasm to reach them. The expansion of financial technology is not leaving them behind, but is driving their efforts. <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/748">The report</a> offers a profile of the inclusion strategies each bank employs. A scan of these pages takes us to the front lines, where banks are creating a genuinely inclusive financial sector.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/08/20/accelerating-agent-banking-in-kenya/">Accelerating Agent Banking in Kenya: Part One</a>

<a href="https://cfi-blog.org/2013/02/27/microfinance-vs-financial-inclusion-whats-the-difference/">Microfinance vs. Financial Inclusion: What's the Difference?</a>

<a href="https://cfi-blog.org/2015/07/22/it-all-comes-down-to-knowledge-akibas-mobile-banking-experience/">"It All Comes Down to Knowledge" - Akiba's Mobile Banking Experience</a>

The Business of Financial Inclusion: Insights from Emerging Market Banks

South Africa's largest mobile phone operator, Vodacom, <a href="http://www.iol.co.za/business/companies/vodacom-to-cease-m-pesa-in-sa-2019262">announced</a> last month that it will stop offering its mobile-banking product M-Pesa in the country at the end of June. M-Pesa is sustained by large numbers of users but, given the widespread presence of banking services throughout South Africa, fewer customers are taking up the service than in other African markets.

"The business sustainability of M-Pesa is predicated on achieving a critical mass of users. Based on our revised projections and high levels of financial inclusion in SA there is little prospect of the M-Pesa product achieving this in its current format in the mid-term," CEO Shameel Joosub <a href="http://www.bdlive.co.za/business/technology/2016/05/09/vodacom-to-discontinue-m-pesa-mobile-payment-offering-in-sa">said</a> in Vodacom’s statement.

M-Pesa, which is a runaway success in Kenya, its flagship country, had more than 25 million customers across 11 countries at the end of March, a 27 percent increase over the previous year.

Vodafone launched M-Pesa in Kenya in 2007 as a way for customers to send money electronically in parts of the continent where banks are scarce. M-Pesa quickly became the new standard for mobile money services around the world. In 2010, M-Pesa launched in South Africa as an additional revenue stream for the Johannesburg-based Vodacom. However, M-Pesa has struggled to grow its customer base in the country.

Shameel Joosub reported that Vodacom will continue to operate M-Pesa in the service’s other African countries -- Tanzania, Mozambique, the Democratic Republic of Congo, and Lesotho -- where demand for the product continues to grow.

Why has M-Pesa not been as successful in South Africa? According to the <a href="http://datatopics.worldbank.org/financialinclusion/region/sub-saharan-africa">Global Findex</a>, only 34 percent of adults in sub-Saharan Africa have banks accounts, and of those with bank accounts only 12 percent use mobile money services. The picture is different in South Africa. Mobile phone usage is much higher in South Africa than in the rest of the region – nine in ten South Africans own a mobile phone – and a third of these are smartphones, <a href="http://www.pewglobal.org/2015/04/15/cell-phones-in-africa-communication-lifeline/">according to figures </a>from the Pew Research Center. At the same time, 70 percent of adults in the country have a bank account, and overall South Africa has the most technologically advanced, financially included, and accessible banking system on the continent. In short, many people in South Africa can already do what M-Pesa enables – sending money to people in another location quickly, safely, and economically.

When M-Pesa was launched in South Africa in 2010 Vodacom <a href="http://www.bbc.com/news/world-africa-36260348">hoped</a> it could build a customer base of 10 million in three years. However, six years on the service only has 76,000 active users (although many more have been registered).

The financial viability of M-Pesa is dependent on gaining a critical mass of users. Some <a href="http://www.bbc.com/news/world-africa-36260348">point</a> to Vodacom’s banking partner, Nedbank, as a detriment. Although Nedbank is one of South Africa’s largest banks, it caters mostly to middle and high-income customers, who often already have banking solutions. Beyond missed opportunities surrounding leveraging bank partners, it seems the big takeaway is Vodacom has struggled to find customers in South Africa where levels of financial inclusion are much higher than in the rest of the region.

In its <a href="http://www.fi2020progressreport.org/technology/">Financial Inclusion Progress Report</a>, the Center for Financial Inclusion stated that “without new developments in technology, there would be no financial inclusion movement today.” It is abundantly clear that financial technology, especially mobile technology, results in cost-efficient, easily accessible products for traditionally excluded populations, and has helped advance financial inclusion around the world.

However, the example of M-Pesa in South Africa has also shown that as global financial inclusion increases, and more adults open traditional bank accounts, it is not yet time to dismiss traditional banking products. It also demonstrates the simple truth that some services might flourish in one location and flounder in another.

In South Africa, as the days of M-Pesa come to a close, we need to make sure that we do not forget the 30 percent of adults in the country that do not have a bank account. We need to make sure that bypassing the opportunities provided by fintech products like M-Pesa does not result in the continued exclusion of the most vulnerable populations.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/05/05/south-african-mineworker-debt-woes/">South African Mineworker Debt Woes</a>

<a href="https://cfi-blog.org/2015/07/15/south-africas-proposed-credit-regulations-irk-credit-providers-please-consumers/">South Africa's Proposed Credit Regulations Irk Credit Providers, Please Consumers</a>

<a href="https://cfi-blog.org/2014/02/14/the-rise-of-hospital-cash-plans-in-south-africa/">The Rise of Hospital Cash Plans in South Africa</a>

Vodacom Discontinues M-Pesa in South Africa

<em>&gt; Posted by Sonja Kelly, Director, CFI</em>

<img class="alignright wp-image-21197" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/making-fun-pic.png" width="350" height="254" />Some financial institutions are gradually recognizing the importance of making financial products fun, but does this strategy work to build financial capability? South African retail bank Absa tested this question when it designed and deployed a series of brief games, called “Shesha” (or “quick-quick” in Zulu). The games were a business necessity for Absa, as the cost of banking at a branch was between 3 and 40 times higher for customers than the cost of digital transactions. Too few of Absa’s customers were migrating from branch banking to digital, and many mobile money accounts were dormant. Equipping customers to more confidently choose and use digital services made business sense and responded to customer needs.

Absa sent text messages to select customers inviting them to participate in the Shesha game, which consisted of basic quiz questions. While standard text message rates applied to customers for playing, the response rate was significant—up to 15 percent of customers responded (compared to 2-3 percent response rates seen in most such efforts). The bank offered prizes to randomly-selected individuals who played and got the questions right, ranging from airtime top-ups to grand cash prizes.

The <a href="http://www.cgap.org/sites/default/files/Working-Paper-Customer-Empowerment-Through-Gamification-Absa-Shesha-Dec-2015.pdf">results</a> were impressive. In a follow-up assessment, customers who participated in the games had 23 percent more transactions and a 29 percent increase in transaction volume on average than those who did not play. The percent of game players who checked their balances via phone or ATM continued to grow after the game finished, and at last measure was 61 percent versus 0 percent at the release of the game. After playing, 40 percent of customers swiped their cards an average of three or more times per month.

While Absa initially was concerned that the shift to digital would reduce the profitability of its branches in the short-term, the increase in use of services and volume of transactions ensured that overall the bank would financially benefit over the long-term. This benefit comes from higher revenue based on more transactions as well as a projected increase in customers with a more compelling customer value proposition. For Absa, the benefits of the program outweighed the costs, and making financial capability fun worked both to build capability and profitability.

Financial education can be dull, but staying awake through the learning process is important! “Make It Fun” was one of the seven behaviorally-informed practices that show great promise for application in financial capability-building that we identified in our assessment of over 100 innovations as part of our recently-launched project, <em>A Change in Behavior: Innovations in Financial Capability</em>. Games can spark and retain interest. Cognitive research shows that humor activates the brain’s reward system, which is linked to both motivation and long-term memory. Because games are goal-oriented, people may stay interested longer, and games can also be used for learning by doing. This practice also includes drama and storytelling that engage the emotions, which are also linked to retention.

<em>For other examples of leading financial capability-building efforts that “make it fun”, and for the other six behaviorally-informed practices, check out “</em><a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/724"><em>A Change in Behavior: Innovations in Financial Capability</em></a><em>”.</em>

<em>Many thanks to Gerhard Coetzee for bringing this example of Absa's Shesha game to our attention.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/04/12/a-change-in-behavior-innovations-in-financial-capability/">A Change in Behavior: Innovations in Financial Capability</a>

<a href="https://cfi-blog.org/2016/04/14/six-recommendations-on-financial-capability/">Six Recommendations on Financial Capability</a>

<a href="https://cfi-blog.org/2014/02/25/mobile-microinsurance-products-and-financial-capability/">Mobile Microinsurance Products and Financial Capability</a>

Making Fun Work for Financial Capability

I want to let you in on a secret: the best part of the<em> <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">Global Microscope 2015</a> </em>is a hidden gem. It’s called the Microscope <a href="http://bit.ly/1IIEy6V">Benchmarking Model</a> (admittedly it might benefit from a better name), and it provides a user-friendly deep-dive into each country and indicator. With this tool, you can go beyond the <a href="http://bit.ly/1m06M8o">report</a>, with insights on questions that we may have neglected to cover in the narrative. And you can slice and dice the data to your heart’s content.

For example, where is the best place to be an insurance provider if you want to work with low-income populations? It’s India, actually, with Mexico, Peru, Colombia, Brazil, and the Philippines following. With two quick steps, the tool produced this map for me (click to enlarge):

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope.png"><img class="aligncenter wp-image-20233 size-full" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/microscope.png" alt="microscope" width="490" height="199" /></a>

The countries colored in red—including the Democratic Republic of Congo, Madagascar, Paraguay, and Tajikistan—are the worst places to be an insurance provider working with low-income populations.

So why is India the best?

On the map, I can click on India to see why it received its scores. Once I do, I see that the research team records that in India, specific regulation for insurance targeting low income populations exists, is comprehensive, and has been fully implemented. More detail follows—the Insurance Regulatory and Development Authority has defined microinsurance as a life or general insurance policy with a maximum sum insured of Rs50,000 (US$800). The Microinsurance Regulation Act was passed by India’s parliament in 2005, and allows specific entities to act as agents for distribution of microinsurance. Some restrictions on the product features, argue critics, may affect uptake by the target population, and this concern is noted in the paragraph describing why India received the score it did. If this is not enough information, there are three references cited, through which users can go even deeper.

There are seemingly endless combinations of questions the tool can address. How, for example, does South Africa’s environment for financial inclusion compare with Brazil’s? (Answer: Brazil has a better overall score, but South Africa fares better on prudential regulation, requirements for non-regulated lenders, and credit reporting systems) Where are the best market conduct rules? (Answer: Bolivia and Peru) Which governments have the best technical capacity to supervise financial inclusion? (Answer: Peru and the Philippines) Where are the documented strategies on financial inclusion? (Answer: Many countries have strategies, including Rwanda, Tanzania, and Pakistan)

I’ll let you explore the <a href="http://bit.ly/1IIEy6V">Benchmarking Model</a> on your own, but since I started with a secret I thought I would end this post with a confession: this tool knows far more about the environment for financial inclusion than I do. And I am about to defend my dissertation on financial inclusion policy and regulation. There is a high likelihood that if you asked me about policies or regulations in a particular country in the past year, I slyly clicked through the tool so that I could answer your question. I give you full permission to use the tool to position yourself as an expert on the environment for financial inclusion. Just give the <em><a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">Global Microscope</a></em> credit when you become famous for your insights, ok?

P.S. If you have a better name that will drive traffic to the tool, or if you come up with a brilliant insight that you want to share, feel free to use the comments section below.

<strong>Have you read?</strong>

<a href="http://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="http://cfi-blog.org/2015/06/15/whats-insurance-got-to-do-with-it/">What's Insurance Got to Do With It?</a>

<a href="http://cfi-blog.org/2015/10/19/financial-inclusion-data-taking-stock/">Financial Inclusion Data: Taking Stock</a>

&nbsp;

Where the Best Place Is to Be an Insurance Provider…and Other Insights from the 'Microscope'

<em>&gt; Posted by Michael Miebach, President, Middle East and Africa, MasterCard</em>

<em><a href="http://www.fi2020week.org"><img class="alignright wp-image-19409" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/fi2020-week-logo.png" alt="" width="350" height="141" /></a>FI2020 Week</em><em> is a global conversation on the key actions needed to advance financial inclusion, grounded in the findings of the recently launched FI2020 Progress Report. From November 2-6, 2015, stakeholders around the world are participating in more than 30 events and sharing their voices over social media, with #FI2020.</em>

<a href="http://www.fi2020week.org/">FI2020 Week</a> offers a good opportunity to review the findings in the <a href="http://www.fi2020progressreport.org/">FI2020 Progress Report</a> and to consider actions the global community needs to take to advance financial inclusion. This is of particular interest to me as I work every day to expand MasterCard’s payments platform in the Middle East and Africa, and in a volunteer capacity, I also serve on the board of directors of Accion.

The report <a href="http://www.fi2020progressreport.org/technology/">asserts</a> that it’s not enough to “build the rails” to enable payment and transaction access, but that “providers, regulators and support institutions need to ensure that the financial services that follow provide value and quality to the passengers who climb aboard.” Here is where interoperability is essential—if last mile customers are to benefit. Banks, telcos, merchants, and governments must be connected—despite different rules and technologies—in a way that is seamless to the user. From a customer perspective, that means ubiquity, safety, and utility—the trifecta of success in financial inclusion. It won’t work if all the stakeholders are competing to create their own end-to-end solutions, or operating in silos. It won’t work if we are creating islands, where the unbanked transact with each other and where data is used in proprietary ways to support individual business models, rather than being shared as a public good.

Now, a parent in Zimbabwe sends money to his daughter studying at university in South Africa using a mobile money operator connected to the global banking system. All he needs to do is go to an <a href="http://newsroom.mastercard.com/press-releases/mastercard-launches-cross-boarder-remittance-service-in-zimbabwe/">EcoCash</a> agent and top up his mobile money account. His daughter then accesses the funds using a MasterCard debit card linked to the same EcoCash mobile money account to purchase text books, and pay university fees as well as other day-to-day expenses while at university in South Africa. This is ubiquity, safety, and utility put into action.


<img class="alignright wp-image-19955" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/thumb_4298b3a77f1a41819e09b1e02e4c3c59.jpg" alt="" width="300" height="200" />Equally critical is the focus on <a href="http://www.fi2020progressreport.org/client-protection/">client protection in the digital age</a>. The explosion of data brings new opportunities for inclusion, but it also requires trust in a system many have never used. The distributed trust model requires that both merchants and customers can trust in a secure transaction when making a purchase without cash. An expanded merchant acceptance network along with an expanded Internet add to the complexities. This will be even more challenging with the rise of P2P transactions, which will bring more micro merchants into the financial system. One solution for increasing protection and decreasing fraud is the use of biometrics. For many people, a biometric ID—using fingerprints or an iris scan—may be the first form of identification they have ever been issued. It increases security and transparency and can open the door to having a bank account, receiving government benefits, and even voting. In this case, biometrics can lead not only to greater financial inclusion, but also to greater social inclusion.

But the fundamental challenge ahead is <a href="http://www.fi2020progressreport.org/addressing-customer-needs/">addressing customer needs</a>, underscored by the gap between access and usage that proves there is still much work to be done despite many new accounts being created. Take the great leap forward of moving from cash to electronic payments for G2P social benefits. This is a good change all around—good for governments, which can reduce transaction costs, leakage and fraud, and good for customers, who can avoid the theft of their money and no longer have to wait in long lines either to receive their social benefits or to pay bills. Yet despite this advance, many customers don’t really take advantage of the service—at least not at first. Many people simply head to the nearest ATM to withdraw all of their funds. Yes, they have avoided the long lines to receive the payments, and the government still saves money—but the customers are not using the service to their own benefit.

This is where the Center for Financial Inclusion’s message about the need for providers to take the long view is key. Take the SASSA debit card in South Africa (the South African Social Security Agency electronic benefits disbursement program). The good news is that, over time, people started changing their behavior when provided with a tool they could learn with through use. We found that from year to year, POS purchases increased by 27 percent, cash withdrawals without a purchase decreased by 24 percent, and cash back with purchase transactions grew slightly by 3 percent. This, of course, means that beneficiaries were not simply cashing out as soon as they received their payments and were using the card to store value in a more secure way. And, along the way, merchants have seen as much as a 30 percent increase in sales in the first year of the card.

For all of us working on financial inclusion, the questions about technology circle back to the central question of the customer experience. If we keep in mind the need to create value for all stakeholders, the access/usage gap will be transformed, and we will move closer to a financially inclusive world.

<em>Michael Miebach is president, Middle East and Africa for MasterCard. Based in Dubai, Mr. Miebach is responsible for driving the evolution of payments in markets across the Middle East and Africa region. Mr. Miebach recently joined the board of directors of Accion.</em>

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/10/13/the-data-story-in-the-fi2020-progress-report-on-credit-reporting/">The Data Story in the FI2020 Progress Report on Credit Reporting</a>

<a href="http://cfi-blog.org/2015/10/08/why-we-gave-consumer-protection-a-5/">Why We Gave Consumer Protection a 5</a>

<a href="http://cfi-blog.org/2015/10/05/toward-an-agent-free-world/">Toward an "Agent-Free" World</a>

Ubiquity, Safety, and Utility: The Trifecta of Success in Financial Inclusion

<em>&gt; Posted by Kettianne Cadet, Program Coordinator, CFI</em>

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/dscf3959.jpg"><img class="aligncenter wp-image-18781" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/dscf3959.jpg" alt="" width="591" height="443" /></a>It’s been a few weeks now since our return from Cape Town and the kick-off seminar of the inaugural <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/">Africa Board Fellowship</a>, a six-month program launched this year to foster peer-to-peer learning and exchange on governance practices among board members and CEOs at financial institutions serving low-income clients in sub-Saharan Africa. The fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.

In early June, CFI's Investing in Inclusive Finance (<a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance">IIF</a>) team and the fellowship’s seasoned faculty, advisors, subject experts, and <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/what-is-abf/2015-fellows">inaugural class</a> of fellows all came together in South Africa for the in-person kick-off seminar. This first seminar was very well received by both fellows and staff and here are some of the reasons I believe it went well.

<u>Participant Diversity</u>: The first cohort of fellows connects 30 board members and CEOs from 13 institutions throughout 11 countries, all with diverse backgrounds and experience. Each participating institution is required to send their CEO along with one or two board members. Having this mix of participants throughout the seminar led to numerous engaged, candid, and rich discussions about roles, board dynamics, and responsibilities. Had we only brought together one fellow from each institution, these conversations would have been far more one dimensional.

<span style="text-decoration:underline">Structured Accountability</span>: Having both CEOs and board members present supports accountability within each institution – to participate in each session and to take action afterwards. If only one member from each institution attended, would they be able to transfer their takeaways to their organization or <em>actually</em> implement any of the lessons learned? Additionally, given that the fellows either came from a different geographical location, offered differing products, or perhaps targeted a different niche market, it seemed that everyone got enormous value from their exchanges with one another.

<u><img class="alignright wp-image-18784" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/small-group-discussions.png?w=490" alt="" width="330" height="248" />Participant Shaped Agenda</u>: Before designing the ABF program, we conducted an assessment and collected responses regarding the governance and risk challenges of MFIs in Africa. Out of this research, it was identified that there was a lack of opportunities for exchange between board members outside of their own institution. A program convening board members and CEOs across institutions and regions didn’t exist in Africa. Based on the results from the demand assessment, this seminar was shaped in order to focus on board dynamics, managing sustainable growth, technology trends, and risk management. The ABF program encourages the fellows to teach and advise each other on these topics based on their own experiences. In this regard, the program agenda is very participant-led.

<u>Small-Group Centered Sessions</u>: The seminar included a variety of session types and locations to keep everyone interested and engaged. While there were some plenary forums and a couple of panels, the seminar mostly consisted of small group discussions, case studies, and role plays to work through challenges while replicating actual board situations, stories, and dynamics.

<span style="text-decoration:underline">Real-Life Stories</span>: One of the case studies, focused on PADME in Benin, provoked a great deal of conversation and debate on how boards and executives can manage executive growth. During a subsequent panel discussion on the subject, the former PADME Managing Director Rene Azokli opened up to the group to share honest and personal stories and lessons he learned. He warned that “Having a ‘Yes-Yes-Yes board’ will eventually lead you to a ‘Yes-Yes-Yes crisis.’” While this quote spurred many laughs among the fellows, his insights resonated and illustrated a board member’s role and responsibility to avoid nepotism and groupthink.

Though each ABF fellowship is only six months long, it is our hope that the connections forged among fellows create a durable network of leaders throughout sub-Saharan Africa in the financial inclusion sector. It struck me as odd that very few of the fellows knew each other prior to this kick-off seminar. Understandably, the region is vast but a financial inclusion space where few CEOs and board members know each other across countries seems like a big missed opportunity. Introducing and creating a platform to connect fellows from across regions - so now they can turn to one another for support or advice - is a big victory since many of the fellows are clearly struggling with the same challenges and have a lot to share with each other. Working groups are of course nothing new, but, with the ABF program as evidence, there’s a need across industries for more opportunities for stakeholders to forge relationships and learn from one another.

With each day the microfinance markets in sub-Saharan Africa, hosting a collective 6.6 million clients, grow increasingly diverse and competitive. It’s our hope that over the coming months the ABF’s collaborative learning opportunities will strengthen the fellows’ capacities to successfully navigate these markets, leading to good governance practices and bolstering the sustainability of the financial inclusion sector.

<em>Image credits: CFI</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/05/19/kicking-off-the-africa-board-fellowship-program/">Kicking off the Africa Board Fellowship Program</a>

<a href="http://cfi-blog.org/2015/06/02/waiting-for-the-revolution/">Waiting for the Revolution</a>

<a href="http://cfi-blog.org/2015/05/21/pursuing-better-microfinance-governance-in-south-sudan/">Pursuing Better Microfinance Governance in South Sudan</a>

Lessons Learned from ABF’s Convening of Microfinance Leaders in Cape Town

<em>&gt; Posted by Magauta Mphahlele, CEO, National Debt Mediation Association (NDMA)</em>

<a href="https://pixabay.com/en/account-bank-business-buy-card-1778/"><img class="alignright wp-image-18686" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/account-1778_640.jpg?w=490" alt="" width="279" height="186" /></a>A few weeks ago, South Africa’s Department of Trade and Industry published new proposed regulations pertaining to the National Credit Act limiting fees and interest rates on short-term and unsecured loans along with credit cards. The public may lodge comments to the draft regulations up until 30 days after its publishing date of June 25th. The intelligence used to inform the proposals have not been released so it is not clear what policy, cost, or operational factors were taken into consideration to arrive at the outlined changes. Meanwhile, the microfinance industry in the country, which has been lobbying for the flexibility to charge significantly higher interest rates and fees, seeks to understand the regulators’ rationale.

The draft regulations were published after a protracted court battle where one of the industry associations representing micro-lenders requested the court to force the regulator and policymakers to review the fees requirements of the National Credit Act. The fees and interest rates hadn’t been reviewed since the Act became effective in 2007 – a concern when taking into account factors like inflation.

Credit providers have responded with dismay and concern about the proposed changes, especially the interest rate caps on unsecured loans. They have expressed the fear that the proposed interest and fee changes will affect the cost of administering credit, reduce profits, and constrict access to credit for borrowers. Other commentators have viewed the reductions favorably considering consumers are already over-indebted to a large extent and the interest rate cycle is predicted to start trending upwards. On this blog a few months ago, I shared that in 2014, the National Credit Regulator (NCR) Credit Bureau Monitor revealed that out of South Africa’s roughly 23 million credit active individuals, about 11 million have impaired records.

Now, for some specifics. Bear in mind that the rates listed below are subject to change according to fluctuations in the market’s interest rate cycle – namely, fluctuations in the market’s “repo rate,” which is the rate at which the central bank lends to commercial ones. However, the proposed amendments do dampen the effect of repo rate changes on interest rates so that increases in the cost of capital for banks don’t get passed on to borrowers.
<ul>
	<li>Credit Cards &amp; Overdrafts: Current per annum interest rate: 22.65%; proposed interest rate: 19.775%</li>
	<li>Unsecured Credit Transactions: Current per annum interest rate: 32.65%; proposed interest rate: 24.75%</li>
	<li>Short-Term Loans (Up to R8,000 (US$648) Repayable Over Six Months): Current per month interest rate: 5%; proposed interest rate: 5% on first loan, and 3% on any additional loans within the same year</li>
	<li>Maximum Monthly Service Fee: Currently R50 per month; proposed R60 per month</li>
	<li>Mortgage Agreement: Current (per annum) interest rate of 17.65% would not change with new rules</li>
</ul>
The draft provision has raised major concerns and uncertainties regarding specifics surrounding the rules and regulations. For example, for monthly service fees, the draft states: “This service fee covers the cost of administering a credit agreement which is the operational cost of the credit provider such as rent, labor, communication, banking, processing of repayments and related costs.” It remains unclear what credit providers are allowed to charge for outside the proposed R60 per month and how this will affect sustainability and profitability.

The proposed regulations are part of a broader legal reform strategy in South Africa to address overindebtedness and reckless lending, which the government views as getting out of control. The strategy encompassed recent amendments to the National Credit Act to introduce more stringent loan affordability tests, and moves to stop credit providers from employing unnecessary and hidden fees. The amendments on affordability were promulgated this past March. The amended legislation introduced the new affordability guidelines because any such regulatory mechanisms were lacking. In some cases of reckless lending we are investigating, evidence indicates that consumers consistently under-declare their monthly expenses by as much as 60 percent, that way it appears they have more money for loan repayment.

The affordability amendment requires credit providers verify income as well as conduct the following assessment: calculate the consumer's discretionary income; take into account all monthly debt repayment obligations; and take into account maintenance obligations and other necessary expenses. Additionally, a credit provider must take into account the consumer's debt repayment history under credit agreements.

The new affordability measures incorporate minimal expense norms, which are individuals’ necessary expenses that a provider must accept they have and keep free from use for loan repayment. Given the structure of these new expense norms, their introduction will restrict credit to lower income consumers, especially those who currently depend on state grants, unless they have proven additional income. Many view this as a good thing but others fear that they will gravitate towards underground lenders who charge illegal and usurious interest rates and use hard core and illegal collection tactics like retaining bank cards.

Though these affordability amendments to the National Credit Act are already enacted, we’ll be eager to witness what transpires during the 30-day comment period for the proposed interest rates and fees amendments. Of course client well-being and protecting against overindebtedness is the central priority of microfinance, but these proposed changes don’t seem to match the financial realities required to serve lower income clients.

<em>Image credit: <a href="https://pixabay.com/en/account-bank-business-buy-card-1778/">Pixabay</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/05/05/south-african-mineworker-debt-woes/">South African Mineworker Debt Woes</a>

<a href="http://cfi-blog.org/2014/01/09/south-african-government-announces-action-to-protect-consumers-and-assist-over-indebted-households/" target="_blank">South African Government Announces Action to Protect Consumers and Assist Over-Indebted Households</a>

<a href="http://cfi-blog.org/2014/02/14/the-rise-of-hospital-cash-plans-in-south-africa/">The Rise of Hospital Cash Plans in South Africa</a>

South Africa’s Proposed Credit Regulations Irk Credit Providers, Please Consumers

<em>&gt; Posted by Magauta Mphahlele, CEO, National Debt Mediation Association (NDMA)</em>

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Overall, 2014 was not a good year for South African consumers of credit. Evidence of this is based on statistics from the banking regulators as well as the casework compiled through the work of the National Debt Mediation Association (NDMA) with individuals and mineworkers employed by two of the largest mining companies in South Africa.

The South African economy has remained stagnant, contributing to strikes and retrenchments across the board, especially in the mining sector. For those consumers who were lucky not to be retrenched, factors, such as price inflation, a freeze on bonuses, reduced commissions, and personal circumstances like illness, divorce, and death in the family put pressure on their finances leading many to default on their debt repayments. Despite several regulatory initiatives and interventions, the results of the December 2014 National Credit Regulator (NCR) Credit Bureau Monitor showed that the number of credit active consumers was 22.84 million and of these, 10.6 million (46 percent) have impaired records.

The statistics provided by the regulators are useful, but they offer very little in terms of understanding why individuals struggle so much with debt. The work done by the NDMA in the mines provides an intimate insight into the challenges faced by mineworkers and demonstrates that preventing and resolving debt problems is a complex process that cannot be done on a one-size-fits-all basis or resolved through legislation only.

Between May and September 2014, the NDMA completed an analysis of the credit health of a sample of mining employees in the Rustenburg, Brits, Lydenburg, and Steelpoort areas. This exercise was done through face-to-face interviews with each miner on site. A total of 658 assessments were completed which represents nearly 8 percent of the lower-level staff of the mine concerned.

The results of the exercise showed the extent to which mining employees struggle with debt due to a combination of factors, including excessive borrowing and lending, lack of financial management knowledge and skills, and other socioeconomic issues, like type of households, distance from home, and education levels.

Each mineworker was placed into a category that reflected how healthy or unhealthy his financial or credit situation is. This was done using information gleaned from salary slips, credit bureau reports, bank statements, and information provided by the mineworker regarding monthly household living expenses.

Below are the categories they were placed in.

<img class="aligncenter wp-image-18103" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/05/table.png" alt="" width="619" height="301" />Of the 658 completed assessments, 422 (64 percent) fell into categories 3 – 5 where employees require some form of debt rehabilitation intervention due to excessive debt levels, negative credit status (judgments, administration, debt review, arrears) or a combination of the two. Many in this category were struggling to meet their monthly living expenses, let alone pay their debts. The remaining 36 percent fell into categories 1 – 2 where employees require minimal preventative interventions as they have manageable debt levels and a clean credit record.

<a href="http://cfi-blog.org/?attachment_id=18105"><img class="aligncenter wp-image-18105" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/05/table-2.png" alt="" width="550" height="290" /></a>

<strong>Types of issues miners are struggling with</strong>

The graph below indicates that 50 percent of the mineworkers have excessive debt levels that leave them with no surplus at the end of the month to adequately cater for their essential living expenses and debt repayments. Employees in this category are highly stressed and could have job performance problems. Only 32 percent have manageable debt levels and affordability, while the remainder have taken up a debt management remedy and are legally prevented from accessing credit as they are under administration, debt counselling, or have judgments against their name.

<strong><a href="http://cfi-blog.org/?attachment_id=18107"><img class="aligncenter wp-image-18107" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/05/table-3.png" alt="" width="550" height="459" /></a>Findings and recommendations</strong>

The assessments were done during the “<a href="http://www.experian.co.za/consumer-services/credit-information-amnesty.html">Credit Information Amnesty</a>” period in South Africa, and it was clear that there was very little understanding among the interviewees of what the process was about and how it worked. Many do not monitor their credit bureau reports or the impact of their payment behavior on their reports. Each mineworker was provided with his or her credit bureau report which was explained in detail as well as ways to keep one’s record clean or resolve disputed information. This part was usually a wake-up call and kick-started a concerted rehabilitation process.

The study revealed limited understanding of types of credit and the cost of credit, resulting in the uptake of “expensive” or unsuitable credit products. Some mineworkers took out large loans (e.g., R150 000) with the intention to use the money to build a house or buy a car but the money ended up not being used for the intended purpose, thus creating financial and debt repayment difficulties. Although it would have been more affordable to obtain secured vehicle finance at a lower interest rate, some mineworkers said they preferred unsecured loans as banks were notorious for repossessing cars and homes.

Many mineworkers also took out short-term credit, which are loans averaging R8000, payable over six months at 5 percent per month. Most payday lenders offer similar credit, often the most expensive and creating the most hardship as the full amount borrowed has to be repaid the next month. Mineworkers use this as revolving credit that keeps them in a never-ending debt spiral.

Many mine workers have a basic salary that is supplemented by regular bonuses or overtime pay. Usually this extra income is included in the affordability assessment by the credit provider, which creates major problems should the extra pay not be realized due to a work stoppage, strike, or if production targets are not met.

The Department of Trade and Industry has amended the National Credit Act and introduced new regulations that prescribe affordability assessment guidelines that require income to be verified, set minimum expenditure norms per income category, and require credit providers to ensure that consolidation loans are used for their intended purpose. The Amendment Act also alters how debt counselling operates, how credit bureau information is submitted and retained, how consumers can improve their credit profile and prohibits certain debt collection practices. All these measures are meant to address the high debt levels in South Africa.

The Mineworker Credit Health Assessment Project provided the employer and the NDMA with clear insight into the credit health of its employees and an opportunity to design and adopt appropriate interventions. The type of issues that mineworkers and consumers in general struggle with indicates that legislative interventions will on their own not solve over-indebtedness in South Africa. The involvement of employers is a positive step, as resources can be made available to work with individual employees to put them on an assisted path to debt rehabilitation.

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