When I reflect on the future of financial inclusion, I find myself returning over and over to a basic question. What is the purpose of financial inclusion? Why are so many people around the world working towards it, and why do they believe that financial inclusion will contribute to a better world? What purpose have I been pursuing as leader of the Center for Financial Inclusion for the past decade?

This year, in choosing a theme for our 5th annual <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, CFI reflected this question attitude by selecting Financial Inclusion for What? as the theme. But we are not about to let that important question go unanswered. So, after posing it, the CFI staff came up with <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-for-what">four answers</a> that will be explored during Financial Inclusion Week: financial inclusion for financial health, financial inclusion for equity, financial inclusion for sustainable development, and financial inclusion for the bottom line.

While each of these ideas is important and worthy of exploration, I’d like to talk here about just one of them: sustainable development. In my view, the time is right for the financial inclusion sector to focus smartly on this set of goals. Even more emphatically, if the financial inclusion sector does not embrace sustainable development, it will soon find that it has worked itself out of a job. That’s because the more basic financial inclusion challenges are well on their way to being solved.

In the last decade an amazing transformation has taken place in the ability of most people to move money around quickly and efficiently. Millions and millions have opened bank or mobile money accounts and gained the ability to receive income straight into an account and then use electronic means to buy things. Yes, there are gender gaps, poor country gaps and rural areas gaps. But these are rapidly closing.

When we can presume that basic financial infrastructure is available to everyone for routine payments and banking, the financial inclusion job will be done. Right? This is an accomplishment that everyone in the financial inclusion sector can be very proud of. Even if we are not quite there in 2019, the finish line is well in view. Put an enormous celebration emoji right here, and look for the next challenge.

With financial access infrastructure as a foundation, we can turn to assisting people to do what they care most about: to apply financial services toward problems in the real sector – the real world, where people earn a living, get educated, build a home, go to the doctor and much more. The Sustainable Development Goals offer a widely-accepted list of real sector challenges that financial services can help address, but I’d like to focus on a slightly narrower list that highlights the activities where financial services are critical: agriculture, small business, health, education, shelter, and environment. The financial inclusion world needs to begin developing solutions that contribute directly to these sectors.

Back in the 1970s, the World Bank, USAID and other global development organizations were highly real-sector oriented when they talked about financial services. They provided enormous lines of credit to agriculture, fisheries, small business, and the like. These lines of credit were channeled through government development banks, who pushed them out at subsidized interest rates. Because they were seen as cheap handouts from the government, they were diverted to elites, with dismal repayment records. The development banks required constant cash infusions, either from abroad or from government budgets. And meanwhile, regular banks could not develop profitable businesses in these sectors, being out-competed by the subsidized loans. Development organizations treated banks much like communist countries treated them: as the distribution arms of central planning. Their solvency wasn’t important – they were just an administrative function. This was a disaster – for the banks, for the low-income people who were intended beneficiaries, for the market economy and for the achievement of development objectives.

Fortunately, a band of rural finance enthusiasts at Ohio State University (and others with similar views) convinced the World Bank and USAID to turn off the money hydrants. How they did that is a saga unto itself. For our story, the important thing is that once the subsidized credit spigot was turned off, it left open space in the financial sector for the growth, first, of microfinance and then of financial inclusion. Starting in the 1980s, these movements focused their attention in the right place: building sound financial institutions that knew how to serve the poor and excluded. That institution- and model-building focus was exactly what was needed at the time, and, with a boost from technology innovation, the sector has been on an unbroken path for three decades that is taking us to full realization of basic financial inclusion goals.

But this focus has also meant a three-decade detour away from deep engagement with real sector challenges. We’re working on payments, not mortgages. We’re working on credit algorithms, not pensions. All are important, but our emphasis has been selective.

Now it’s time to come back to the real sector and see how individuals, with their newly acquired access to financial services, can better use those services to accomplish tasks like building a business, using clean energy, getting an education and staying healthy. We’re in a much better position do tackle these challenges today than in the 1970s, because inclusive financial systems exist. And, hopefully, because we won’t make the old mistakes.
<blockquote>It’s time to come back to the real sector and see how individuals can better use financial services to accomplish tasks like building a business, using clean energy, getting an education and staying healthy.</blockquote>
To take one example, financing for shelter is a potentially pathbreaking field of endeavor for those concerned with financial services for the poor. Everyone needs a safe and comfortable place to live. But with a few exceptions, shelter has not played a role in the financial inclusion conversation for the past decade. To seriously support the acquisition or upgrading of housing, we need innovations. We already know that the thirty-year mortgage is not the answer for most low-income people around the world, but how can we promote the spread of the two-year home improvement loan that has shown promise in many areas? What models combine new financial products with new forms of construction, or land titling?

To develop innovations that work, financial inclusion and housing experts will have to join together in a multi-disciplinary way, and they will have to draw on the advances available through technology. A handful of organizations do combine housing and financial expertise to solve shelter problems, but many more are needed. Financial inclusion experts need to learn about construction, while shelter experts need to be open to financing methods other than scaled back mortgages. Partnerships are needed to solve barriers such as out-of-date building codes and access to water and sanitation. These challenges are often far beyond the usual concerns of banks and financial institutions, and unsolved, they can impede the development of financing solutions by making it hard to lend or by making housing unaffordable.

Similarly, in order to offer financial services that support health care, financial inclusion experts must learn more about how health care works and what it costs, while the health care experts must be willing to explore models other than public sector hospitals and clinics. And I could say the same about agriculture, energy, environment and education.

Why haven’t financial inclusion specialists already moved into sustainable development in a big way? I can think of three very good reasons.

The Next CFI Challenge: Financial Inclusion for Sustainable Development

<em>This post was <a href="https://www.findevgateway.org/blog/2019/may/microfinance-digital-world-seven-questions-future">originally published</a> on the FinDev Gateway blog.</em>

In the early 2000s, the microfinance sector was on a roll. It was accessing capital markets for growth, securing regulatory legitimacy, developing savings and insurance products in addition to credit, demonstrating social performance, and working on institutional transformation.

Then, in 2007, M-Pesa was born, and things started to change. The attention and support of the international financial inclusion sector shifted abruptly from credit for the poor to payment and delivery channel innovation. And the low operating costs of the new models attracted new players with enormous resources, from telcos to tech platforms and beyond.

Away from the spotlight, microfinance institutions (MFIs) continued to grow, thrive and serve hundreds of millions of people, using their familiar methods and feeling little need to adjust. But as 2020 approaches, the digital juggernaut has changed the world around them in ways they cannot ignore. At the recent Microfinance Network’s 25th anniversary meeting, the CEOs of leading MFIs urgently discussed how to respond.

Looking at the next 10 years, and reflecting on conversations at the meeting, I offer my own take on seven questions MFIs face.
<h2>1  Are fintechs going to take over the microfinance market?</h2>
In the 1990s, if you wanted to be a social entrepreneur, you founded an MFI. Today, you start a fintech. Accion has become one of the world’s leading investors in “fintech for financial inclusion”, with investments in nearly 50 companies offering such products as payment networks, remittances, small and medium enterprise (SME) credit, consumer credit, PayGo applications, customer advice, insurance, and data analytics.

At first, many fintechs were out to disrupt traditional financial institutions, like MFIs, but they continue to confront two fundamental problems: customer acquisition and raising capital. This requires many fintechs to pivot towards partnering with traditional institutions, and that offers a path to the future for many MFIs:fintech partnerships can help MFIs make the leap from traditional to digital.

However, MFIs need to prepare to work with fintechs. They need IT departments that can connect seamlessly to the technology fintechs bring. They need to develop a culture of experimentation, in contrast to an organizational identity wedded to traditional methods. And they need to recognize that fintechs, with limited financial resources, need to get to market quickly, or they need financial support from prospective partners. To take advantage of what fintechs have to offer, MFIs must not only ask what they need from fintechs, but also be prepared to offer what fintechs need from them.
<h2>2  Will MFIs join the shift to digital lending?</h2>
MFIs swear by their traditional underwriting methodologies, whether they involve group guarantees or individual repayment capacity assessment. These high-touch methods often yield repayment rates that other lenders only dream of. A key to success is that the methodology not only predicts the ability of a customer to repay, it actually increases motivation to repay, through peer pressure personal contact and the promise of continued access to credit.

In contrast, the algorithms generated through big data and machine learning lack most of the motivational aspects and are designed primarily to predict repayment. As a result, much of the algorithm-based lending we see today features high default rates, which in turn requires high interest rates.

That said, once the initial set-up is in place, algorithm-based credit is so cheap to operate that its rise is inexorable. Just look at Kenya, where digital lending got an early start. There are over 6 million digital borrowers, and according to a draft study by MSC, nearly 9 out of every 10 loans in the entire system are digital. Algorithm-based lending is made possible by access to customer behavioral data, data analytic capacity and ability to reach customers digitally, all of which may be difficult for MFIs (another reason for partnering with fintechs).
<blockquote>MFIs may wish to explore hybrid models that combine tech and touch.</blockquote>
As they develop the capabilities that enable algorithm-based lending, MFIs may wish to explore hybrid models that combine tech and touch. They may find it possible to focus on market segments that are hard for digital lenders to reach. In all cases, they need to advocate for high standards of consumer protection to be enforced in their markets, to avoid being crowded out by predatory lending.
<h2>3  Can MFIs participate in the innovation happening in SME (small and medium enterprise) credit?</h2>
After decades of stagnation, SME credit is alight with innovation. This innovation is enabled by three economic structure changes that are moving previously informal businesses toward greater formality:
<ul>
 	<li><strong>Electronic invoicing</strong>: Across Latin America and other regions, governments are requiring SMEs to invoice electronically, mainly for taxation. Lenders like Konfio in Mexico use the resulting data trail as the basis for digital lending.</li>
 	<li><strong>Supply chain finance</strong>, led by the large companies that supply goods to local merchants or that purchase agricultural output, is emerging.</li>
 	<li><strong>Ecommerce</strong>, perhaps the biggest force, is connecting millions of SMEs to technology platforms.</li>
</ul>
Many MFIs have a ready advantage in connecting with these market opportunities as they already serve SME clients and are skilled at underwriting for at least the lower end of this segment. Going forward, they can develop lending methods that use electronic data trails. They can also partner with big distributors, agricultural buyers or ecommerce firms taking advantage of the fact that these platforms do not see lending as core to their business and often welcome partners with lenders.
<h2>4  Will insurance ever matter for MFI customers?</h2>
Most MFI clients who have so far received insurance coverage probably didn’t even know they had it, because the most common insurance product is credit life, integrated into their loans without them having to make a decision to purchase it. But innovation is finally coming to insurance for low income people.

For example, Accion’s Venture Lab has invested in several creative start-ups: Pula offers weather insurance together with seed purchases, thanks to a chip embedded in the seed bag; Toffee offers bite-sized insurance cover for specific, often short-term activities; and Lumkani packages fire insurance with fire prevention.

These and other insurance products upend conventional insurance wisdom in order to reach low income customers, by doing three things:
<ul>
 	<li>They reduce costs of sign-up by doing away with exclusions.</li>
 	<li>They reduce costs of claims payments by making them automatic.</li>
 	<li>Instead of insuring infrequent events, they build a culture of insurance by covering common problems.</li>
</ul>
These offers are facilitated by electronic distribution. MFIs can participate in this innovation, recognizing how important insurance can be for the financial health of their customers. Mitigating customer risks should be a good business strategy for MFIs, and at the same time, insurers still need good distribution and customer data partners.
<h2>5  Will consumers be adequately protected in a digital world?</h2>
We have to keep asking this question, as digital financial services bring new risks to consumers. Digital loans can be very easy to get, but also very expensive. In Kenya, where tiny digital loans are available via the phone, we get a good picture of the risks involved: 20 percent of customers in default, many digital loans used for sports betting, prices much higher than microfinance loans, and an enormous number of people added to the credit bureau blacklist.

Data protection is another rising risk: customers want assurance that their private data remains private, both as a fundamental right and because they are concerned about their exposure to hacking, fraud, and mistakes. As MFIs go digital, their exposure to cybersecurity risk rises.

Regulators are struggling to keep up with emerging risks, and MFIs can play an important role in ensuring that they meet high consumer protection standards and shaping high market conduct standards for other players.
<h2>6  How will payments and credit connect in 2020?</h2>
MFIs began with credit as a stand-alone product, but increasingly, digital payments are the gateway to credit because of the data payments produce, and this gives an enormous potential advantage to major payments platforms. These platforms already have massive customer bases that generate floods of data, which, properly analyzed, yield the insights needed to offer credit. The combination of payments and credit has the potential to be highly powerful. Major tech platforms could very well end up dominating lending, while smaller providers, such as MFIs, either remain very small or become dependent on the platforms.

The evolution of financial inclusion in Kenya shows how the future may unfold, with the market-dominating combination of M-Pesa payments with M-Shwari credit. Of the global big tech firms such as Amazon and Google, only Alibaba has moved into finance in a big way, but all the big techs are making moves. Ant Financial has become the lifeline for Chinese SMEs for both sales and working capital, and the model is spreading worldwide as Ant Financial invests across Asia.
<blockquote>Only Alibaba has moved into finance in a big way, but all the big techs are making moves.</blockquote>
This platform-dominated scenario is not present in most MFI markets yet, and it may not come to pass. But what is clear is the power and efficiency of payments data to inform credit decisions, suggesting that MFIs should be looking for ways to connect to and harness such data.
<h2>7  Is digital transformation feasible for traditional MFIs?</h2>
For MFIs to turn the challenges described here into opportunities, they must be willing to undergo digital transformation. In many cases, such as the MFIs that are members of the Microfinance Network, they are already moving along the digital journey, but few have completed that transformation. Many organizations have created digital tools for their loan officers, some have incorporated credit scoring tools into their underwriting processes, and many have switched to digital loan disbursements and repayments.

More fundamental digital transformation requires rethinking business models, including the role of the cadre of loan officers who constitute the backbone of the staff of most MFIs. This transformation entails difficult choices about retraining and employment, which need to be discussed more openly in the sector. Investments in data analytic capabilities are needed, and at the board level, expertise needs to be brought on to guide the transformation.

In conclusion, MFIs have the chance to use digital tools to pursue their missions in an increasingly digital world. If they haven’t started already, it’s high time to begin.

Microfinance in the Digital World: Seven Questions for the Future

In the run-up to elections this year in Uruguay, an unusual petition has been circulating in cities and villages across the country. It’s a call for a plebiscite against “mandatory financial inclusion.”

Uruguay’s current government, the leftish <em>Frente Amplio</em>, has been energetically pursuing financial inclusion for the past several years, putting in place new banking laws that support the use of electronic payments, among other measures. This systematic approach to installing a regulatory framework for financial inclusion earned Uruguay a top ranking in the Economist Intelligence Unit’s <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">2018 Global Microscope</a>, which rates the quality of the regulatory and institutional environment for financial inclusion. Uruguay placed third out of 55 countries, a <a href="https://www.centerforfinancialinclusion.org/uruguay-leaps-9-spots-in-the-global-microscope-rankings">dramatic increase from its previous ranking</a>.

But Uruguay’s government may have been too eager.

Its recent changes to the banking law require all businesses to accept electronic payments and convert payrolls to electronic form. These provisions have been justified publicly largely in the name of crime prevention. Once a very safe country, the incidence of robbery and burglary has been growing, especially in the capital, Montevideo, and many Uruguayans point to the influence of drug money on criminal activity. ATMs have attracted their share of criminal attention: thieves go on weekend sprees to pull ATMs out of walls with pickup trucks, confiscating the cash (or perhaps it’s only an urban legend). This concern prompted banks to place most of their ATMs inside well-protected enclosures.

A first government move to reduce cash was the provision that gas stations could only accept electronic payments after a certain time at night, which was seen as a reasonable security precaution. But this has now been followed by the mandatory provisions mentioned above. And it’s clear that governmental motivations go beyond physical security to increased ability to monitor illicit economic activity and, very importantly, an increased tax base.
<h2>Plebiscite Petitions</h2>
Much of the population is unprepared to operate electronically, however, especially in the interior of the country. In a surprising move, merchants and small businesses, including those operating in provincial areas where ranching is the economic mainstay, are banding together to resist. These merchants and various politicians have created two petitions which seek to overturn the mandatory previsions of the banking law through a referendum. If one of the petition garners 260,000 signatures, a referendum must be held, as the gentlemen in <a href="https://www.facebook.com/noalabancarizacionobligatoria/videos/2306663086248516/">this eloquent video</a> explains (in Spanish).

In addition to the unpreparedness of the society, opponents of this financial inclusion measure cite high banking fees, unfair contract clauses, and invasion of privacy as concerns. An underlying mistrust of banks is behind many of the specific concerns, heightened by fear of banks and government teaming up against citizens, on the pretext of security. But the biggest complaint is the mandatory aspect of the law. One of the leaders of the protest, quoted in the newspaper El Pais, stated, “We say yes to the financial system, we say yes to the cards, we say yes to the banks….We say no to the obligation.”
<blockquote>Opponents cite high banking fees, unfair contract clauses, and invasion of privacy as concerns.</blockquote>
Sensing a way to undercut the <em>Frente Amplio</em>, which has held the presidency of the country for most of the past decade, nearly all the opposition electoral candidates have signed one of the petitions, which are said to have already secured over 200,000 signatures, although the deadline for getting the measure on the ballot is looming.

Meanwhile, in the same <em>El Pais</em> article, a government spokesperson, defending the new law, called financial inclusion “one of the most important structural transformations of the government.”
<h2>Commentary</h2>
While the organized opposition to Uruguay’s financial inclusion law may be unprecedented, many of the concerns and emotions behind it, prompted by a rapid transition to electronic payments, are bubbling beneath the surface in many countries around the globe: a sense that banks do not have customer best interests at heart, that they charge confusing and unfair fees, that the good old ways don’t need changing, and that electronic money creates a major threat to privacy. Governments and financial service providers everywhere would do well to recognize such emotion-laden concerns and work to build customer trust and confidence before moving too fast to transform the way money works.

Financial Inclusion Backlash in Uruguay

How is the world – and the World Bank – doing on its campaign for <a href="http://ufa.worldbank.org/">Universal Financial Access</a> (UFA) by 2020?

With 2020 just a short year away, this question will be asked wherever financial inclusion is discussed at the World Bank Spring Meetings this week. Only so much can change in a year, so it is just a small leap to imagine the likely situation in 2020. During last year’s meetings, the World Bank cited a figure of 69 percent of adults in the world having accounts, according to the 2017 Global Findex data collection round. <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/09/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results-08032018-1.pdf">Our own look at the 2017 Findex numbers</a>, which removes fully dormant accounts, shows that only 48 percent of adults in low- and middle-income countries had accounts that they actually used.

We think this is the right number to focus on: it sets aside the many useless accounts that inflate the rolls and avoids the overly rosy picture that emerges from including high income countries where account access is no longer a relevant challenge. Based on what we’ve seen in the past several years, we could guesstimate that by 2020 active account access in the developing world will be somewhere between 50 and 60 percent of adults, still well short of universal. We won’t know the 2020 result until 2021, when the Findex 2020 data is published. The Findex team is gearing up now for that massive data collection and analysis effort.

The World Bank could declare victory, recognizing the enormous increases in account access that have occurred, and expressing confidence in the momentum around financial inclusion across the world, which will surely result in universal access within the next decade.

Meanwhile, the World Bank and its partners are focusing on upholding their institutional commitments to the UFA campaign. The bank pledged to contribute to the inclusion of one billion people. Many others have also made numeric pledges, including VISA, Mastercard, and GSMA (500 million people each), large mass-market-oriented financial institutions (Ant Financial, China, 100 million; Equity Bank, Kenya, 50 million; and Bank Mandiri, Indonesia, 50 million) and associations like the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/partnership-for-responsible-financial-inclusion/">Partnership for Responsible Financial Inclusion</a> (70 million) and the <a href="https://www.wsbi-esbg.org/About-us">World Savings Bank Institute</a> (400 million). I am aware first hand of the efforts of some of these organizations to take their pledges seriously, putting in both resources and high-level attention. This week we hope to see some of these partners report on the progress of their efforts.

With the departure of its former president, Jim Kim, who championed the UFA effort personally, one wonders how much attention the World Bank will continue to pay to financial inclusion. The new chief, David Malpass, begins his term with this weeks’ meetings. Malpass, a former Bear Stearns economist and Trump campaign advisor, has been <a href="https://foreignpolicy.com/2019/02/05/will-david-malpass-run-the-world-bank-or-ruin-it/">highly critical</a> of the World Bank. Understandably, World Bank watchers are speculating intensely over whether he will pursue his critiques of the bank, though in the lead-up to his arrival he softened his prior calls for the bank to end lending to upper middle-income countries like China and Brazil and affirmed the focus of the bank on elimination of extreme poverty and on economic growth. This sounds compatible with maintaining a focus on financial inclusion, though staff inside the Trump foreign policy world have reported that the administration does not often use the words “inclusion” or “inclusive”, preferring “market development.”
<blockquote>Unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly.</blockquote>
Nevertheless, unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly. Perhaps it will not receive the same spotlight it has enjoyed in recent years, but work will undoubtedly continue off stage. As bank staff members I recently spoke with noted, financial inclusion is embedded in many departments of the bank, with dozens if not hundreds of professionals working with individual countries to make progress every day. Barring a drastic turn in the World Bank’s mission, this will continue, regardless of who takes the helm.

The Outlook for Universal Financial Access in 2020

<em>This post originally appeared on American Banker's <a href="https://www.americanbanker.com/opinion/consumer-harm-from-data-breaches-is-a-black-box">BankThink</a> page.</em>

Data privacy and security concerns are red-hot right now, with near daily headlines about yet another breach. Often missing from the conversation, however, is information about the nature and prevalence of harms consumers actually experience as a result of poorly protected data. We appear to enjoy speculating about what might happen to consumers more than documenting what does and has happened. And yet, there is no better guide to prioritizing remedial action than clear documentation of the consequences of shortcomings, their frequency and their severity.

The Center for Financial Inclusion at Accion, an action-oriented think tank focused on financial inclusion, examines issues around data protection among financial service providers around the world, with an emphasis on those serving the base of the pyramid. From the financial inclusion point of view, we need to understand the financial losses that customers experience — primarily theft and fraud — when data breaches occur.

While we have been able to <a href="https://www.centerforfinancialinclusion.org/digital-finance-and-data-security-2">explore security vulnerabilities</a> by working with the computer scientist Patrick Traynor of the University of Florida, we have found it more difficult to find good data on the consumer side. How often do consumers experience theft and fraud, how harmful are these events to consumers and financial institutions when they do occur, and how do they relate to security lapses or poor policies among financial institutions and their regulators? Without this data, we as a sector can only view part of the problem. We are unable to analyze the link between security system measures and actual consumer harm. It’s as though we have lost the car keys but are only able to look for them under the streetlight.

It sounds overly simplistic to say that a data breach leads to negative consequences only when those who obtain personal information actually use it. But while the breach of data from millions of bank accounts makes front-page news, we know startlingly little about the number of uses of those identities or the amounts of money lost. One estimate of incidence comes from the Identity Theft Resource Center, a nonprofit dedicated to assisting victims. It cites 1.6 billion record breaches since 2005, but only 16.7 million identity theft victims. A quick hallway poll of my own colleagues revealed many experiences of fraud, generally through idiosyncratic events rather than massive ones, underlining the fact that hackers and fraudsters tend to rip people off quietly and often individually. When this happens, victims themselves may not know how or when their personal data was tapped. As an industry, we are short of information about the pathways hackers use to turn data breaches into monetary thefts.

Where could the industry begin to gather this information?

Cybercrimes units among law enforcement agencies undoubtedly have a great deal of information about the incidence of theft resulting from fraudulent uses of personal data. In theory, their financial forensics can work backward from a monetary theft to the data breach that made it possible. But we need to ensure that such units address losses by ordinary consumers and not just big ticket white collar crimes. We also need to ensure that law enforcement knowledge translates into useful advice for financial institutions and regulators.

Large banks and major card providers also have masses of relevant information and expertise. They have invested enormous resources over decades to identify and cope with fraud, creating fraud detection systems and workforces dedicated to assisting customers who are victims, and they still write off millions of faulty transactions. While it may be expensive, that very investment is a major source of their business success: It makes it possible for consumers to trust that when their credit card information is stolen, they will not be liable. But what about smaller financial institutions and new market entrants that cannot afford the sophistication of major card providers? They need to know more about how consumers experience fraud and theft. It would be valuable for the regulators, researchers and industry associations that monitor the financial sector and have a stake in its success to gather more systematic demand-side research to document these consumer experiences — and that information needs to be publicly available so that financial service providers and their consumers can benefit from it.

These recommendations are a starting point to better inform consumers and the financial services industry about the risks associated with data breaches, and how they can be prevented and addressed. Better information on the incidence and severity of consumer harms can enable financial service providers and policymakers to weigh trade-offs between data protection investments and the risks associated with incomplete protection. As a result, they can target remedial actions more effectively, avoiding both over-spending and running unacceptable risks — with better outcomes for consumers.

Consumer Harm from Data Breaches is a Black Box

Mark Zuckerberg <a href="https://www.nytimes.com/2018/04/10/us/politics/mark-zuckerberg-testimony.html">defended</a> Facebook’s handling of customer data yesterday before the U.S. Senate, and many of us at Accion and the Center for Financial Inclusion were riveted. Not that the testimony was especially compelling as television spectacle, but because the issues at stake are so important both for our own lives and for our work.

I did a quick scan of the staff here in our Washington, D.C. office, and would like to share some of their thoughts.

Many of us identified with the widespread shock toward Facebook for using our data (or allowing others to use it) in ways we don’t like and without our clear consent. “It’s hard to separate the relevance for our work [in financial inclusion] from my anger at the relevance of these events for my life,” said <a href="http://www.centerforfinancialinclusion.org/about/staff/675-sonja-kelly">Sonja Kelly</a>. For <a href="http://www.centerforfinancialinclusion.org/about/staff/733-Allyse-McGrath">Allyse McGrath</a>, the first thought was a sense of relief that policy makers are “actually doing something about protecting our data” which she quickly amended to “at least starting to explore how to do so.” Other folks are more skeptical and wondering whether legislators will do anything once the furor dies down.

Data privacy and data security are central to the success of financial inclusion. As <a href="http://smartcampaign.org/">Smart Campaign</a> director <a href="http://www.centerforfinancialinclusion.org/about/staff/124-isabelle-barres">Isabelle Barres</a> pointed out, the Campaign enshrined data privacy as one of the seven <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> from the very beginning. Through the years we have seen a somewhat peripheral principle become increasingly prominent, as customer data became more digital and more abundant. “There are absolutely some data abuses, and regulators need to step in,” she said. “And perhaps there is hope that the focus on Facebook will be a trigger to force companies to think about consumer data more carefully.” More broadly, our staff are concerned that the proliferation of data collected without much regulation can lead to the kinds of aggressive push marketing we are beginning to see with digital credit delivery in some countries.

<img class="alignright wp-image-25420" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/04/quote-1-real1.png" alt="" width="340" height="102" />Senators asked Zuckerberg a lot of questions about Terms and Conditions (T&amp;C). Long and legalistic, people do not read the Facebook T&amp;Cs, and if they did, they would not likely understand them. In such a situation, does consent really exist? This problem is exactly the same in financial inclusion. On many mobile money platforms, for example, T&amp;Cs cannot be read on the phone when the customer is actually using the service. Customers have to log on to an internet-connected computer to download the T&amp;Cs – and we know almost none of them do. What have these customers given away? They do not know.

The solution proposed in the hearing today was to ask customers to opt-in to data sharing rather than setting sharing as the default and asking them to opt out. This choice is just as relevant for payment and credit apps as it is for Facebook. The presumption should always be in favor of privacy and the customers’ right to choose how their data is used.

<a href="https://www.accion.org/content/venture-lab-team">Coryell Stout</a> of the <a href="https://www.accion.org/venturelab">Accion Venture Lab</a> team noted that fintech start-ups often do collect enormous amounts of data. Venture Lab vets the founders and managers of their investee companies thoroughly, with an eye toward social mission. They also review data use and management policies. They do not invest until satisfied that the data is used to benefit customers. However,  the potential for misuse exists, if data is in the hands of people with other motivations. “We know that companies are collecting a lot of data. It needs to be secure, and we need more clarity about who controls the data fintechs collect.” Governments may need to help create that clarity.

<img class="alignright wp-image-25422" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/04/quote-1.png" alt="" width="339" height="130" />The landmark European law on data privacy, the <a href="https://www.eugdpr.org/">General Data Protection Regulation</a>, which goes into effect next month, comes down solidly on the side of consumer ownership and control of data. Yesterday’s hearings suggest that the U.S., which has until now had a much more pro-company perspective, may become somewhat more sympathetic to the European approach. Regulators in the emerging and frontier markets in which we work are just starting to come to grips with the issue, and may forge their own path, as <a href="http://www.mondaq.com/india/x/655034/data+protection/Data+Protection+Laws+in+India">India</a> and <a href="https://www.economist.com/news/china/21735613-will-impede-governments-snooping-china-consumers-are-becoming-more-anxious-about-data">China</a> are doing.

The consequences of misuse of consumers’ social media data can be significant – not just annoying ads, but election meddling and more. But the consequences of misuse of financial data can be even more direct: money lost to scams, theft and mis-selling. As we watch the public conversation play out over the broad questions of data ownership, we need to ensure that a similar conversation is moving forward to ensure that the highly sensitive data financial service providers handle – whether they are banks, microfinance institutions, telcos or fintechs – is secure and properly used.

<em>Featured image credit: Alessio Jacona via <a href="https://www.flickr.com/photos/10296406@N00/25140171161">Flickr Creative Commons</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/04/16/facebook-to-provide-remittances-the-news-and-the-bigger-picture/">Facebook to Provide Remittances? The News and the Big Picture</a>

<a href="https://cfi-blog.org/2015/09/24/discrimination-and-credit-underwriting-in-the-age-of-social-media/">Discrimination and Credit Underwriting in the Age of Social Media</a>

<a href="https://cfi-blog.org/2017/11/20/choosing-a-payday-lender-can-online-reviews-help/" target="_blank" rel="noopener">What Global Bankers Are Worried About</a>

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Financial Inclusion Responds to the Zuckerberg Moment

There was a curious refrain at the joint Institute of International Finance (IIF) / G20 conference in Buenos Aires: “The global economy is in the best shape in years, but I’m worried.”

This meeting brings together some of the leading financial sector policymakers with counterparts among private banks and financial institutions to talk about the action agenda for this year’s G20. Maybe it’s asking too much for the macroeconomists who advise global banks and policy setters ever to be anything other than worried – they are paid to worry. But I think it’s more than that. The overwhelming message is we (the world) are at a good moment economically, but any number of events could knock us (the world) off our cloud. Among them:


<ul>
 	<li>The rapid increase in debt – over 50 trillion in recent years, according to IIF chief, Tim Adams. This includes both public and private sector debt. Case in point: the U.S. debt to GDP ratio, which is set to rise dramatically with the recent tax cut. (Though perhaps the rise in debt is not as worrying as in past years, since interest rates are low, so the debt service will not be as hard to swallow.) One big problem is the refusal of some major powers who remain nameless (China) to be transparent about the amount of credit they are issuing, making creditworthiness of countries and some major institutions difficult to gauge.</li>
 	<li>Lack of growth in foreign direct investment (FDI) around the world. With economic recovery, FDI usually picks up, but this has not happened as expected. FDI is a driver of both growth and globalization, which points to another concern:</li>
 	<li>The rise of protectionism. It’s not just the U.S. putting tariffs on aluminum and steel, there were hundreds of protectionist measures put in place around the world this year. The chances of a trade war are making global investors very skittish, and they see many downstream consequences. But the dissolution of NAFTA isn’t one of the main concerns: “You can’t unscramble an egg,” says one pundit, referring to the economic interconnections between Mexico and the U.S. that have developed under NAFTA.</li>
 	<li>Geopolitical instability, a nice way to say the rise of populism (although less in Latin America). Changing politics creates policy uncertainty. Populism is closely connected to protectionism and “de-globalization”. And it’s closely connected to another concern:</li>
 	<li>Increasing inequality. According to Tim Adams, 85 percent of the increase in incomes in the world last year went to the top 1 percent of the world’s population. Which feeds political discontent.</li>
 	<li>The need for China and the U.S. to be good global players. The U.S. Undersecretary of the Treasury, David Malpass, speaking for the Trump Administration, revealed its preoccupation with China which fails, according to Malpass, to play fair. It’s not just the recent power consolidation of Mr. Xi, but the lack of transparency in global credit markets and the lopsided private agreements with regard to technology in which China takes in all the new developments from those she does business with and reveals none of her own.</li>
 	<li>At the same time, the Latin Americans are worried that the U.S. will deviate from the straight and narrow path. Historically, rising interest rates in the U.S. have triggered economic crises in Latin America, and it’s clear that interest rates will be rising over the year in the U.S.</li>
</ul>
For those of us who work on financial inclusion, it’s good to step back and consider the broader context in which financial inclusion is taking place. But with all these macroeconomic and global trends to worry about, there seems to be little time for those leading governments and major financial institutions to focus on core societal issues. Many speakers at this event call for attention to and investment in: infrastructure (a G20 priority this year), environment, education, poverty and – finally – inclusion. However, it’s not evident how these essential needs will be pursued, nor is there much discussion devoted to those questions. Keeping the current macro risks at bay requires so much focus and discipline, including fiscal prudence, that the space to work on these longer term social issues may continue to be in scarce supply.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/10/19/the-financial-lives-of-struggling-americans-the-financial-diaries-and-the-unbanking-of-america/">The Financial Lives of Struggling Americans: The Financial Diaries and The Unbanking of America</a>

<a href="https://cfi-blog.org/2017/12/15/net-neutrality-ruling-could-block-your-bank/">Net Neutrality Ruling Could Block Your Bank</a>

<a href="https://cfi-blog.org/2017/11/20/choosing-a-payday-lender-can-online-reviews-help/" target="_blank" rel="noopener">Choosing a Payday Lender: Can Online Reviews Help?</a>

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What Global Bankers Are Worried About

In a landmark ruling yesterday, the U.S. Federal Communications Commission (FCC), led by Chairman Ajit Pai, voted to end net neutrality — the requirement for internet service providers to treat all the content they carry equally regarding access, price, and speed/quality of delivery. This decision, overturning Obama-era internet regulations, is a big deal and may shape the way Americans experience the internet in the future.

It could have significant implications for financial inclusion, too.

Under the new ruling from the FCC, internet service providers (ISPs) may give preferential treatment to content from applications they favor — unlimited access, differential pricing, or faster/better download speeds — while slowing or even blocking other applications.

Defenders of net neutrality call it the First Amendment of the internet. They see it as protecting the open culture of the net with web access available to anyone who wants to hear or be heard. Without net neutrality, say its defenders, the internet will begin to look more like the cable TV industry of a few years ago, in which competition is limited, and consumers are offered only a few pre-packaged bundles of services. They fear that ISPs will engineer consolidation in the industry by favoring companies they own, buy, or negotiate sweetheart deals with — and these will probably only be big companies. Some consumer advocates imagine a tiered internet emerging in which high-end consumers pay for deluxe packages and lower-income people receive poor quality and limited services.
<h3>Net Neutrality Around the World</h3>
Yesterday’s ending of net neutrality ruling applies only in the United States. Europe retains the principle, though it may not always enforce it. In emerging markets, regulations vary widely, and in some areas, they are hotly debated. <a href="https://www.bnamericas.com/en/news/Lower_house_approves_internet_neutrality_law/?position=524428">Chile enacted net neutrality in 2010,</a> becoming one of the first countries to introduce rules on internet neutrality. Mexico, as well, has such legislation. Despite much discussion around net neutrality in India, there’s still no legislation in place there. At issue in India has been telcos’ interest in maintaining their core telephone revenue in the face of competition from digital telephone service providers like WhatsApp.

At this point, we can only speculate about the effects of yesterday’s decision on financial inclusion in the U.S. and around the world. But if the net neutrality advocates are right, such changes in the shape of the internet could substantially hurt financial inclusion, primarily by making it harder for smaller companies and startups to succeed.

To illustrate how ISPs and big tech are likely to team up, <a href="https://www.nytimes.com/2017/12/10/business/net-neutrality-europe-fcc.html?action=click&amp;contentCollection=Technology&amp;module=RelatedCoverage&amp;region=EndOfArticle&amp;pgtype=article">recently in Sweden</a>, Telia, a telco offering internet services, sought to provide a package of unlimited access to Facebook, Spotify, and Instagram (owned by Facebook), among other top platforms, while charging for content from other sources. The offering has been challenged under European net neutrality rules, but it marks a path toward industry consolidation.
<h3>Why Web Access Matters for Financial Services</h3>
As large internet companies increasingly enter the financial services arena, payment services offered by internet giants would likely be part of packages like the example from Sweden. Other companies — like fintech startups and smaller financial institutions — would not have the market power to negotiate their way into favored packages. If the fears of supporters of net neutrality come true and extend into financial services, that would mean less innovation, less competition, less variety, and possibly higher prices for the same (or worse) services.

In such a scenario, it would become harder for lower-income customers to use internet-enabled financial services if their end of the market is differentiated from the premium end. Reaching customers would become more expensive and difficult for fintech startups and small financial institutions aiming at a mass market if the ISPs shut both companies and customers out of the premium internet. Companies with deeper pockets may be able to afford faster (or any) access to potential customers, and it is conceivable, under the new rules, that an ISP could completely block a service that competes directly with one of its initiatives. If fintech startups are trying to nudge and disrupt the often massive, well-entrenched financial service companies, these companies will face fewer innovations challenging their business models.

In the worst case, we are worried that the “big five” tech companies, who already have the data and the access to make any other fintech startups irrelevant, just became even more powerful. Not only do they have the data they need to better understand and serve any customer on the planet, these major tech companies soon may be the only ones that can afford to access and engage with those customers, and we know they have big ambitions in the financial services arena.

The net neutrality debate raises fundamental and profound questions about freedom of speech, the role of a free and open internet in society, market concentration in the digital economy, and so forth. Its effect on financial inclusion may get lost in the more prominent debates and the titanic struggles for influence among powerful companies. When it comes to shaping the future of financial inclusion, a lot depends on decisions made without much thought about their effect on the financial sector.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Catalyst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/10/19/the-financial-lives-of-struggling-americans-the-financial-diaries-and-the-unbanking-of-america/">The Financial Lives of Struggling Americans: The Financial Diaries and The Unbanking of America</a>

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Net Neutrality Ruling Could Block Your Bank

<em><a href="http://www.centerforfinancialinclusion.org/microscope"><img class="alignright wp-image-16543 size-medium" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/microscope.png?w=238" alt="" width="238" height="300" /></a></em>

<em>The following post was <a href="http://mastercardcenter.org/insights/calling-countries-get-policies-right/" target="_blank" rel="noopener">originally published</a> on the MasterCard Center for Inclusive Growth blog.</em>

Reaching full financial inclusion by 2020 will require supportive policies in every country around the globe. The Economist Intelligence Unit’s “<a href="http://www.centerforfinancialinclusion.org/microscope">Global Microscope on Financial Inclusion, 2014</a>” assesses the policy environment for financial inclusion in 55 countries. The Microscope examines 12 policy dimensions essential for creating an inclusion-friendly regulatory and institutional framework. The rigorous model incorporates input from hundreds of policy makers and participants in the financial sector and a review of existing policies and implementation. The resulting rankings represent the best readily available source for judging the state of financial inclusion policy around the world.

What’s surprising about the 2014 Microscope results is their wide range. Out of a possible 100 points, the top scorer (Peru) received 87 while the lowest (Haiti) earned only 16. If full inclusion requires good policies, it is disappointing to learn that the median score across all countries was a mediocre 46.

Why do some countries score so much better than others? The best-scoring countries, led by Peru, Colombia, and the Philippines, boast capable financial sector regulators who have exerted sustained effort over years. They issue, test, and revise their rules as the market evolves. Many of the worst-scoring countries (notably in the Middle East) have recently suffered political instability. However, in the vast middle group, regulators have worked on some aspects of financial inclusion policy leaving major gaps in others. Most countries have the regulatory basics down – like prudential supervision and regulation of deposit-taking – but fewer have mastered areas important for reaching lower-income customers, especially electronic payments, supervising smaller financial service providers, and protecting consumers.

When new <a href="http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTFINRES/EXTGLOBALFIN/0,,contentMDK:23147627~pagePK:64168176~piPK:64168140~theSitePK:8519639,00.html">Global Findex</a> results come out this month, we will learn more about how good policies contribute to progress toward inclusion. And in the next few years we hope to see advances, especially in the biggest countries covered in the Microscope – China, India, Indonesia, Brazil, Pakistan, Nigeria, and Bangladesh. These giants’ policies are better than average, reflecting their capability as large economies and their priorities as high population countries. But not by much. Average score? 51.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/" target="_blank" rel="noopener">The 'Global Microscope 2014': Results and Surprises</a>

<a href="http://cfi-blog.org/2014/09/25/the-political-economy-of-financial-inclusion-policy/" target="_blank" rel="noopener">The Political Economy of Financial Inclusion Policy</a>

<a href="http://cfi-blog.org/2014/12/12/asias-top-country-on-financial-inclusion-policy-the-philippines-strengthens-its-microfinance-market/" target="_blank" rel="noopener">Asia's Top Country on Financial Inclusion Policy, the Philippines, Strengthens Its Microfinance Market</a>

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Calling All Countries to Get Policies Right

<img class="alignright wp-image-17515" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/03/emperor.jpg?w=490" alt="" width="210" height="320" />In his book, <a href="http://en.wikipedia.org/wiki/The_Emperor_of_All_Maladies" target="_blank" rel="noopener"><em>The Emperor of All Maladies</em></a>, Siddhartha Mukherjee tells the history of the fight against cancer. It’s a grand saga involving scientists, doctors, patients, and politics, all wielding their best tools to find better treatments and ultimately a cure. And of course, the tale is not over: the scourge continues, though much progress has been made, and an increasing number of bright spots are appearing.

As I read, I see parallels between the evolution of that medical “war” and the struggle against poverty waged by the international development community, or at least the part of that struggle I’m part of, the struggle to give people financial tools to better their lives. The more I read, the more I see, until in each corner of the cancer story I find parallels with our own sector and its searches for solutions.

In the early 20<sup>th</sup> century, surgeons began to treat breast cancer with radical mastectomies in which not only breast but also lymph nodes and many of the neighboring chest muscles were taken. The more radical, the greater the chances of success, went the theory. By mid-century, chemotherapies appeared. They represented another radical approach in which patients were brought to the brink of death as chemicals attacked cancerous and normal cells alike. In both cases, Mukherjee argues, brute force substituted for the absence of a deep understanding of the causes and behavior of cancer. The medical profession simply applied the tools at hand, raising the intensity as high as patients could tolerate. The tools sometimes cured the patient, but more often postponed the inevitable recurrence, a partial success. According to Mukherjee, the surgeons and chemotherapists who wielded these instruments were so convinced of their efficacy that they closed their minds to alternatives (including each other’s solutions), scoffed at attempts to measure success through rigorous trials, and downplayed the suffering imposed on actual patients.

Maybe you’re already seeing parallels…

In the late 1970s and early 1980s, some development organizations began to “treat” poverty with microcredit. As with surgery and chemotherapy, the rationale behind this treatment was straightforward and plausible, so microcredit proponents (myself included) focused on spreading the work far and wide across the globe, not bothering about rigorous analysis of outcomes, but counting on high repayments and continued demand as signals that the treatment worked. A few decades later, digital financial services emerged and generated similar worldwide enthusiasm around a different set of products and techniques.

As the 21<sup>st</sup> Century turned, the “randomistas” joined in the microfinance/financial inclusion conversation, insisting that randomized trials, modeled on the trials used to test medical treatments, be the gold standard for measuring efficacy. Financial service providers raised many of the same kinds of objections to clinical trials that surgeons and chemotherapists had raised – about the ethics of randomization, the appropriate duration of trials (How long does success take?), biases inherent in even randomized methods, and so on. Nevertheless, in both medicine and microfinance, the trials, taken as a whole, served to temper high-flung claims and provide a sobering picture of how much progress had actually been made. The recent issue of the <em>American Economic Journal</em>, devoted to microfinance, is the rough equivalent of key papers in the <em>Lancet</em> or <em>JAMA</em>.

The exuberance with which microfinance was pursued resulted in several crises of overindebtedness among clients. Just as surgeons and chemotherapists often discounted the patient suffering inflicted by their treatments, so microlenders often failed to notice that many of their clients were falling into debt traps. Mukherjee describes how cancer patients, taking a cue from AIDS-inspired groups like Act-Up, began to organize to demand more from providers. Just as with debt protestors in microfinance, the client voice was raised infrequently and in unpredictable ways. Nevertheless, even a few emotionally-charged personal stories can ignite change, as they did in Andhra Pradesh in 2010.

Among the heroes in the cancer story, according to Mukherjee, are the scientists who sought to understand how cancer works. Recent learning about genes and the molecular biology of the proteins that carry out genetic directives provides the basis for treatments that are both more effective and less toxic than the previous generation. The analogous basic research in financial services are efforts such as financial diaries that seek a deep understanding of how clients conduct their financial and economic lives. In both medicine and financial services the translation from basic understanding to effective treatment is long, spotty (i.e. not every problem has an easy solution), and only now really gaining momentum. In both cases, deeper understanding revealed that there would be no simple, one-shot cure.

So here we are in 2015 with an array of players, each providing pieces of the solution. Surgeons and chemotherapists, microlenders and digital financial service providers all have important techniques to offer, if they collaborate with other practitioners and with researchers. Patient care and consumer protection are ever-present concerns. In both “wars” progress is evident, with the best tools reaching more and more people.

The strong medicine in these two histories steer us toward an appreciation for the contributions of pioneers, openness to a variety of solutions, and humility in expectations. And, by the way, <em>The Emperor of All Maladies</em> is an excellent book, even if you’re not looking for parallels.

<strong><img class="aligncenter wp-image-17509" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/03/figure-12.png" alt="" width="590" height="535" />Have you read?</strong>

<a href="http://cfi-blog.org/2014/09/08/emerging-themes-in-responsible-digital-finance/">Emerging Themes in Responsible Digital Finance</a>

<a href="http://cfi-blog.org/2015/02/05/measuring-the-impact-of-microcredit-six-new-studies/" target="_blank" rel="noopener">Measuring the Impact of Microcredit - Six New Studies</a>

<a href="http://cfi-blog.org/2014/07/14/2014-banana-skins-report-reveals-overindebtedness-as-biggest-concern-in-microfinance-industry/" target="_blank" rel="noopener">2014 Banana Skins Report Reveals Overindebtedness as Biggest Concern in Microfinance Industry</a>

Two 'Wars' – One on Cancer, Another on Poverty

Elisabeth Rhyne

Latin America and The Caribbean

Uruguay

Chile

Sweden

Financial Service Providers

Partnerships

Payments

Rural Populations

Underserved Groups

Microfinance Institutions

Enabling Environment

Policy, Regulation and Government Initiatives

Access Usage Gap

Financial Inclusion Strategy

Consumer Protection

Fraud

Privacy

Banks

Agent Banking

Aging and Older Adults

Credit

Delivery Channels

Financial Capability

Fintechs

Governance

Housing Finance

Impact Investing

Microfinance

Persons With Disabilities

Risk Management

Saving

Social Performance

Trends

Women

Youth

Digital Financial Services

Over-indebtedness

Blog Post

From Beth's Desk

<em>The following post was originally published on the <a href="http://blogs.worldbank.org/psd/global-challenge-can-we-achieve-financial-inclusion-2020" target="_blank" rel="noopener">World Bank Private Sector Development Blog</a>.</em>

The issue of financial inclusion seems to be everywhere – from the World Bank <a href="http://live.worldbank.org/igniting-innovation-financial-access" target="_blank" rel="nofollow noopener">Annual Meetings</a> to the new UN <a href="http://www.post2015hlp.org/the-report/" target="_blank" rel="nofollow noopener">post-2015 development goals</a>. It’s got buzz in the private sector, public sector and development organizations big and small. Policymakers are increasingly <a href="http://blogs.worldbank.org/psd/a-global-wave-of-financial-inclusion-targets" target="_blank" rel="nofollow noopener">making financial inclusion a priority</a> through specific financial inclusion targets and commitments, such as the Alliance for Financial Inclusion’s Maya Declaration. In fact, World Bank Group President Jim Yong Kim <a href="http://www.worldbank.org/en/news/press-release/2013/10/11/universal-financial-access-vital-reducing-poverty-innovation-jim-yong-kim" target="_blank" rel="nofollow noopener">recently launched</a> an initiative “to provide universal financial access to all working-age adults by 2020.”

<img class="alignright wp-image-12877" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/10/p0000000742.jpg" alt="" width="325" />

As we know from the <a href="http://www.worldbank.org/globalfindex" target="_blank" rel="nofollow noopener">Global Findex</a>, more than 2.5 billion people lack access to even a basic bank account — a huge gap in inclusion and an enormous opportunity. Demographic changes, economic growth, and advances in technology are making global financial inclusion more possible than ever before. With a massive new market of people demanding new services <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/growing-income-growing-inclusion" target="_blank" rel="nofollow noopener">as incomes rise among the bottom 40 percent</a>, the stage is set for dramatic leaps in access in the next few years. Emerging technologies are bringing down costs and opening new business models while providing greater access to a range of services.

Recognizing that the time is ripe for significant progress on financial inclusion, the Center for Financial Inclusion developed a consultative process aimed to raise everyone's sights about the possibilities of achieving full inclusion within a foreseeable timeframe – using the year 2020 as a focal point. The process sought to build a more cohesive financial inclusion “community” through the development of a common vision. It brought together experts from the World Bank, IFC, and CGAP along with many representatives of the private sector and the social sector. Financial Inclusion 2020’s Roadmap to Financial Inclusion is the result.

With all of the financial inclusion buzz, you would think that we would be closer to full inclusion. But if closing the gaps were easy, it would have happened already. Many factors still stand in the way. In the case of regulatory accommodation to new technology, for example, the gaps result from such factors as the pace of the spread of know-how among policymakers globally, national legislative and political processes, and uncertainty about the risks involved with new models. In the case of fully addressing the needs of customers at the base of the pyramid (BOP), gaps stem from a combination of doubt among providers about the likely profitability of these customers and limited knowledge inside institutions about the financial lives of the poor. In the case of client protection, providers face perverse incentives, while many regulatory bodies are only beginning the major task of establishing robust oversight of market conduct.

We see encouraging examples of financial inclusion in the most remote corners of the world, often done by surprising actors. However, the momentum is uneven. The Roadmap process included many of the thinkers and entrepreneurs behind such initiatives. Each of the five working groups — Addressing Customer Needs, Technology, Financial Capability, Client Protection and Credit Reporting — has developed a roadmap to direct the world community toward the actions most needed to achieve FI2020’s vision of full financial inclusion. Most of the recommendations are addressed either to governments or to providers, but they point the way to actions needed by a range of supporting organizations, including multilateral and bilateral organizations, donors, social investors and non-profits, at both the global and the national levels.

Providers who see the business case for serving BOP customers are asked to adopt a pro-customer orientation by investing in understanding the special character of the BOP, applying opportunities to build financial capability, and committing to consumer protection. The principles also ask providers to work with each other and with partners in the public, private and social sectors to create a healthy ecosystem for inclusion. Many of the requisites for an enabling business environment can only be developed through collaboration, be they standards for interoperability or consumer protection or alignment of providers and regulators around workable credit reporting systems.

<span style="font-size: 13px;line-height: 19px">Turning to policymakers and regulators, the principles challenge them both to facilitate technologies, business models and providers adapted to the BOP and to develop effective consumer protection. Regulators are hard at work on both of these tasks, but the scale of the challenges calls for even greater efforts. Supporting organizations such as the GPFI, AFI, the World Bank and the United Nations are asked to consider whether their excellent efforts to increase capacity are sufficiently resourced.</span>
<p style="text-align: left"><a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion" target="_blank" rel="attachment noopener wp-att-12883"><img class="aligncenter wp-image-12883" style="border: 0;margin-top: 15px;margin-bottom: 15px" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/10/fi2020-roadmap-principles1.png" alt="" width="550" /></a>The accompanying chart distills the broadest, most important recommendations from each group in the form of a set of roadmap principles that we hope will be among the key takeaways from the FI2020 process. These basic principles form what might be thought of as a manifesto for financial inclusion. They advocate for major investments of time and resources necessary to achieve full financial inclusion with quality.</p>
<p style="text-align: left">It is important to note the significance of the five roadmaps as vehicles for dialogue among many participants working to construct a common vision. With that in mind, these roadmaps will remain works in progress. As the FI2020 process moves forward to engage with more actors, the roadmaps will incorporate their views, building a greater consensus throughout the financial inclusion community. The existence of a stronger consensus within a more self-aware community of actors will, we believe, facilitate the goal of reaching full financial inclusion.</p>
Full financial inclusion could bring individuals, nations and businesses enormous benefits. We know what needs to be done. The political will and the business case are getting stronger every year. With sustained pursuit of the roadmap principles, full financial inclusion within a realistic time frame is possible. FI2020 challenges the global financial inclusion community to commit to these principles and this goal.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/10/10/fi2020-global-forum-gearing-up-for-the-homestretch/" target="_blank" rel="noopener">FI2020 Global Forum: Gearing Up for the Homestretch</a>

<a href="http://cfi-blog.org/2013/08/23/citi-and-mastercard-ceos-join-financial-inclusion-2020-global-forum-agenda/" target="_blank" rel="noopener">Citi and MasterCard CEOs Join Financial Inclusion 2020 Global Forum Agenda</a>

<a href="http://cfi-blog.org/2013/09/24/launching-the-roadmap-to-financial-inclusion-with-a-focus-on-greater-access-quality-and-protection-for-customers/" target="_blank" rel="noopener">Launching the Roadmap to Financial Inclusion With a Focus on Greater Access, Quality, and Protection for Customers</a>

A Global Challenge: Can We Achieve Financial Inclusion by 2020?