<p>What do we have to get right to achieve meaningful financial inclusion?</p>


Across emerging markets, we are in the early stages of a digital financial revolution that promises to upend the status quo while vastly expanding services to people who were previously un- and underserved. As investors, we believe we can play a catalytic role in ensuring that digital innovations have the opportunity to be market tested, refined and ultimately scaled.

This essay considers the role of investors in responding to the opportunities offered by the digital financial services revolution and bringing about financial inclusion. The comments here reflect the view from Quona Capital. Quona manages the Accion Frontier Inclusion Fund, the first global fintech firm for the underserved, and its successor, the Accion Quona Inclusion Fund. We believe that Quona brings a unique perspective with a view across a wide range of countries, business models and investor types – all focused on getting financial inclusion right.

The Role of Investors in Getting Inclusion Right

Getting Inclusion Right

Impact Investing

Responsible Investing

Blog Post

<h3>Introduction</h3>
Moving individuals into the financial mainstream is not simply an aspirational goal, it’s an attainable goal. Financial institutions can now reach new customers with formal financial services—in payments, savings, credit, and insurance—transforming individual lives and creating a ripple effect that drives improvements across the global economy.

I don’t remember exactly when I first read the Rev. Jesse Jackson’s now famous line, “capitalism without capital is just plain -ism–and we can’t live off -ism,” but this idea has stuck with me. It planted the seed for what has become a professional pursuit of mine: working to narrow, and hopefully one day close, the gap between those who have access to the formal financial services industry and those who have been left on the margins. This was something I was able to devote time and attention to during my tenure at the U.S. Department of the Treasury and is also why I added financial inclusion to the Institute of International Finance’s agenda (with the Board’s blessing, I might add). At a time when global growth is still strong, but currently encountering headwinds, it’s essential that the underserved population is included into the larger financial ecosystem. The future of finance is brightest when it provides valuable services to the broadest swath of society and the economy.

Put simply, financial inclusion matters.

Why Financial Inclusion Matters

In celebration of its 10th anniversary, the Center for Financial Inclusion at Accion asked 10 leaders in the financial inclusion community to set out their agenda for Getting Inclusion Right. The resulting essay and webinar series creates a roadmap to take financial inclusion into the next decade.

You are invited to join CFI on Wednesday, October 24, at 10:00 am EDT for this third virtual event , featuring <a href="https://www.centerforfinancialinclusion.org/bio/shameran-abed">Shameran Abed</a>, Director of BRAC Microfinance and Ultra Poor Programs, on the digital and gender divide. Our Getting Inclusion Right series features insights from:
<ul>
 	<li>Simone di Castri and Ariadne Plaitakis of Bankable Frontier Associates on getting policies right and Buhle Goslar, Chief Customer Officer of Jumo, on getting credit right (held Thursday, October 18 at 10am EDT)</li>
 	<li>Garance Wattez-Richard of AXA on getting insurance right and Elisabeth Rhyne, Managing Director of CFI, on getting inclusion right from the customer’s perspective (now available to listen to <a href="https://www.centerforfinancialinclusion.org/webinar-getting-inclusion-right">here</a>)</li>
</ul>
Over the coming weeks, you will also have a chance to read or hear from Tim Adams of the Institute of International Finance on why financial inclusion matters, and Mark Pickens of Visa on payments. We will also look at the ecosystem with Chris Skinner of the Finanser, data privacy with Katharine Kemp of the University of New South Wales, and the role of investors with Jonathan Whittle of Quona Capital.

Together, these leaders lay out a “true North” for the financial inclusion sector that is both visionary and practical as we work to create tangible benefits for the financially excluded and underserved.

We hope you’ll tune into these live conversations with leading figures as they discuss and respond to your questions about key challenges and opportunities for Getting Inclusion Right—we look forward to having you <a href="https://register.gotowebinar.com/register/7243419170722974721">join us</a>!

Webinar:  Bridging the Digital Gender Gap in Financial Inclusion

Access Usage Gap

Enabling Environment

Underserved Groups

Women

Webinar

In the summer of 2011, as BRAC Bank in Bangladesh prepared to launch its mobile money subsidiary bKash, those of us in charge of BRAC’s microfinance operations held a series of discussions about what the advent of mobile money would mean for microfinance generally and for our organization more specifically. In those heady days the excitement about bKash was palpable, but so were our concerns about its immediate impact on our work. We were particularly worried about the possibility that bKash would cannibalize some of our deposits. At the time, customer deposits accounted for over 40 percent of our liabilities, and we worried that if our clients opted to save in their bKash wallets instead of their microfinance accounts, not only would our cost of funds increase significantly, but our asset quality and customer retention might suffer as well. We planned for multiple scenarios, assuming each time that a sizeable hit was sure to come.

Then in August, bKash launched. In the months that followed, bKash set up tens of thousands of agents and signed up millions upon millions of accounts. By the end of its first year the word ‘bKash’ had become a verb in the Bengali language, meaning to send money. And yet, we saw no change in our overall deposit collection or deposit balances. The millions of women living in poverty who saved with us weekly or monthly, were continuing to save at exactly the same rate as before. Granted many of our clients did not have access to a mobile phone to begin with, and many of those who had a phone did not have their own bKash account. However, even for the increasing numbers of people who did have a bKash account, the relative convenience and ease of saving money in their bKash wallet did not prove to be a strong enough incentive to make the switch. They continued to save in our microfinance branches, and with microfinance institutions (MFIs) generally (Bangladeshi regulations allow MFIs to collect deposits from their members).

We realized quickly that our assumption—that what our clients want most is convenience—was wrong. For women living in poverty across Bangladesh, as for women in many parts of the world, among the most important considerations in deciding how and where to save is the ability to protect their savings, mainly from male members of their own family (typically husbands, but often brothers, sons or even fathers). MFIs, which typically make it rather cumbersome to withdraw deposits, were unwittingly providing a service of tremendous value to their female clients – protecting their savings. The ability and ease of “cashing out” anytime was not what most of these women wanted or valued. Quite the contrary.

Bridging the Digital Gender Divide in Financial Inclusion

To Tasiu Abdurrahman, burying cash feels more secure and easier than keeping it with a formal financial service provider. “My business partners need cash,” he said. So he stopped putting money into the bank and closed his account eight years ago. Now he <a href="https://www.bloomberg.com/news/articles/2018-07-18/nigerians-bury-cash-in-backyard-banks-as-mobile-money-stumbles">buries money</a> several times a week, usually at night, and digs it up to transact in person and in cash when he needs to pay suppliers for his spice shop.

Mr. Abdurrahman’s example illustrates the need for a stronger value proposition for digital payments for small businesses and consumers worldwide. Otherwise, the promise of digital financial inclusion may fall short of its full potential for social impact.

We know digitizing money flows has positive effects for society as a whole. According to Moody’s, digital payments <a href="https://usa.visa.com/dam/VCOM/download/corporate/media/moodys-economy-white-paper-feb-2013.pdf">add $983 billion</a> in global economic growth and 0.8 percent to GDP in emerging markets every 5 years. If the people in the world’s 100 largest cities <a href="https://usa.visa.com/dam/VCOM/global/visa-everywhere/documents/visa-cashless-cities-report.pdf">all used digital payments</a> as often as the most active 10 percent of users today, the uptick would generate $470 billion annually in net benefits to consumers, businesses and economies. These benefits would come from reduced cost, time saved, curbed crime and greater transparency.

However, despite the past decade’s excitement, innovation and investments, digital payments are spreading unevenly and overall more slowly than one would hope. Nearly two-thirds of adults in emerging markets have a bank account, according to the <a href="https://globalfindex.worldbank.org/">World Bank</a>. Yet in 2017 just 22 percent made a payment through a mobile phone, and only 25 percent made a payment with a credit or debit card. In short, Tasiu’s story from Nigeria is a story with global relevance. With all the potential benefits to society, what keeps businesses and consumers loyal to cash?

To some extent, closing the digital payments gap depends on big global trends. The long arc of history points toward accelerating digitization of our lives, more travel, and larger social and business networks, all of which drive the need for safe, secure remote payment. Many industries will increasingly rely on digital payments, some with great potential for social impact.

Solar home systems, for example, are safer, cleaner and cheaper than kerosene and also enable extended hours for productivity for adults and children doing schoolwork. But the bulk of targeted consumers also tend to be un- or underbanked and also need a convenient and reliable means of paying. It is not hard to imagine a future where innovation in adjacent industries – health, education, power, entertainment – become the engine pulling financial inclusion forward.
While we wait for those trends to bear fruit, what opportunities do we have to accelerate toward a world where digital payments work better for everyone? What is to be done? I see five areas of need.
<h3>1. Proving identity is still troublesome for many businesses and consumers.</h3>
Worldwide, 1.1 billion people lack dentification, including one in three in low-income countries, creating an absolute barrier for them to access formal financial services. Proving who you are after account opening is a separate kind of challenge. PINs, passwords, signatures are clunky and forgettable. I have one friend who finds it easier to reset his passwords every time he accesses his bank’s online platform rather than remember it. How much harder is it for lower income consumers with less exposure to technology, and probably a lower margin of error for making mistakes with their finances?

Biometric solutions hold a lot of promise. There is buzz around “smile to pay” facial recognition technology, with high profile launches <a href="https://techcrunch.com/2017/09/03/alibaba-debuts-smile-to-pay/">in China</a> and <a href="https://usa.visa.com/visa-everywhere/security/fighting-fraud-with-a-smile.html">in Brazil</a>. And no biometric initiative is more ambitious than Aadhaar, the Indian government’s identity database, which holds fingerprint, iris and other bio-data on 1.1 billion citizens. Aadhaar aims to make proving identity – for a financial account, mobile phone, basic government services, etc. – universally accessible. And, with a series of potential data breaches, Aadhaar also highlights the universal concerns around security, and the heavy and continuing investments required to get it right.
<h3>2. Keeping money in an account is often unappealing.</h3>
Despite decades of mass-market banking in developing economies, basic bank accounts often fail to beat informal money management tools. I remember meeting <a href="http://www.cgap.org/blog/tips-mobile-money-product-design-uganda">a man in Uganda</a> who was so averse to saving in a bank or mobile money that he turned his motorcycle into a piggy bank. He dropped plastic-encased cash into the gas tank where he knew he couldn’t get at it until he truly needed to “withdraw”. Although his self-created deposit product was quite effective at protecting his money from temptation to spend, when the tank was destroyed to get at the money he effectively cut his own return on savings.

Consumers and business owners want bank accounts to be more than an empty vessel for funds. This kind of thinking enabled OXXO, a convenience store brand, and Banamex to become the <a href="http://www.cgap.org/blog/how-retail-chain-became-mexicos-no-1-bank-account-supplier">leading suppliers of bank accounts in Mexico</a> with an integrated saving-payments-transfers product accessible at 14,000 corner stores. We could leverage insights from the academic world of behavioral economics to better design products, using <a href="https://yalebooks.yale.edu/book/9780300122237/nudge">nudges</a>, user-set limits, differential pricing and gamification to make a bank account or mobile money wallet more appealing than keeping cash under the mattress or in a jar at home.
<h3>3. Stop thinking about payments as only a way to pay for products and services.</h3>
As mentioned earlier, paying digitally yields a number of benefits for society and can potentially enable even more. For the billions of consumers and business owners without a credit score, the data associated with their payments to merchants, property owners, and utility companies already exists as proof of their ability and willingness to pay on time and in full. When digitized, this data becomes easily aggregated. And with enough data to analyze, innovative lenders can enable a first time or radically improved offer of credit. A growing cohort of emerging market fintechs are scrambling to explore this space. We should be careful to avoid over-indebtedness and other risks that can come with rapid credit expansion to the poor – the 2010 crisis in the Indian state of <a href="https://www.bbc.com/news/world-south-asia-11997571">Andhra Pradesh</a> comes to mind. Hopefully, the fintech revolution takes advantages of lessons learned.
<h3>4. Governments have more of a role to play than they often take up.</h3>
Creating a balanced, broad payments ecosystem intrinsically lends itself to public-private collaboration. The private sector’s technical expertise and deep investments in secure and stable platforms compliment government not only in setting the rules of the road but actively encouraging the shift from cash. In <a href="https://www.betterthancash.org/news/media-releases/uruguay-makes-great-strides-toward-the-universalization-of-access-to-financial-services">Uruguay</a>, the government introduced a temporary reduction of value-added tax for purchases made digitally and a related set of tax incentives aimed at expanding the country’s network of POS terminals. Debit payments increased by a factor of eight in less than 24 months. <a href="https://qz.com/india/1089424/south-korea-can-teach-india-a-thing-or-two-about-digitising-an-economy/">South Korea</a> spurred the digitization of payments beginning in the 1990s with tax rebates to consumers and businesses if more than 25 percent of their income/revenue was spent via non-cash methods, and offered a weekly lottery based on invoice and card numbers, split between the consumer and merchant.

And let’s not forget government’s opportunity to be a market maker with its own payments: what would happen if presidential offices directed government agencies to actively seek opportunities to digitize their transactions on a commercial basis? The ensuing step change in consumers and businesses making and receiving payments – and the network effects to follow – would be a significant spark to help the digital payments engine fire on all cylinders.
<h3>5. We need to ramp up our collective focus on small businesses.</h3>
For a start, we will never “get payments right” for the poor and underserved if one-half of the two-sided market do not readily see value in accepting digital payments. There will not be enough places for consumers to pay digitally. <a href="https://www.dalberg.com/system/files/2017-07/Small-merchants-big-opportunity.pdf">Hundreds of millions of small businesses</a> account for 98 percent of businesses in developing economies and handle 4.5 billion transactions daily worldwide, yet fewer than 10 percent currently accept digital payment.

Beyond the critical role they play in the payments ecosystem, small businesses deserve more attention for their impact on the wider economy. They contribute 60 percent of GDP in low-income countries, according to the OECD. Looking forward, the World Bank estimates small business will generate 80 percent of new jobs in the developing world.

It’s time for more focus on solutions that help small businesses thrive and be more resilient. The Visa Foundation’s first $20 million grant went to Women’s World Banking to <a href="https://philanthropynewsdigest.org/news/visa-launches-foundation-commits-20-million-to-women-s-world-banking">improve the supply of financial products aimed at female entrepreneurs</a>. Digitizing supply chains above small businesses will help them have the inventory they can sell when there is demand, not what they can buy with cash on hand when the delivery truck comes round. A recent deal with fintech <a href="https://www.crowdfundinsider.com/2018/08/137474-visa-invests-in-partners-with-isreali-startup-behalf-as-part-of-100-million-fintech-investment-program/">Behalf</a> will help small businesses grow via easier-to-access capital (as part of a ramped up Visa commitment to partnering with fintechs, including a $100 million fintech investment fund).
<h3>Conclusion</h3>
Let’s come back to Mr. Abdurrahman and the hole in the ground. The challenges he faces in his spice shop are more typical than they should be. More than ever before the technology exists to build better solutions. There is deep expertise, rising government attention, growing flows of private and public capital aimed at making payments better. The know-how and resources exist.

To some extent, we have solved the easier problems and are left with more challenging hurdles: easy and secure ways for everyone to prove identity; defeating the mattress and other informal mechanisms as a place to store funds; leveraging alternative lending to broadly but safely expand credit; governments taking more of a role to encourage the shift from cash; and last but not least putting small business solutions more at the center of our collective efforts.

Tackling each of these will help us get to a place and time where the notion of burying cash in the ground is an antiquated tale Mr. Abdurrahman tells his grandchildren, saying “Can you believe we used to...?”

Making Payments Better

Payments

In celebration of its 10th anniversary, the Center for Financial Inclusion at Accion asked 10 leaders in the financial inclusion community to set out their agenda for Getting Inclusion Right. The resulting essays and webinar series creates a roadmap to take financial inclusion into the next decade.

You are invited to join CFI on <a href="https://attendee.gotowebinar.com/register/5224822474483746561">Thursday, October 18, at 10 am EDT</a> for this second virtual event, featuring <a href="https://content.centerforfinancialinclusion.org/people/simone-di-castri/">Simone di Castri</a> and Ariadne Plaitakis of Bankable Frontier Associates (BFA) on getting policies right and <a href="https://www.linkedin.com/in/buhle-miranda-goslar-a0ba1830/">Buhle Goslar</a>, Chief Customer Officer of Jumo, on getting credit right.

You can listen to the <a href="https://www.centerforfinancialinclusion.org/webinar-getting-inclusion-right">first virtual event</a> of this series featuring Garance Wattez-Richard of AXA on getting insurance right and Elisabeth Rhyne, Managing Director of CFI, on getting inclusion right from the customer’s perspective. It was held September 18.

Over the coming weeks you will have a chance to read or hear from Tim Adams of the Institute of International Finance on why financial inclusion matters, Shameran Abed of BRAC on the digital divide, and Mark Pickens of Visa on payments. We will also look at the ecosystem with Chris Skinner of the Finanser, data privacy with Katharine Kemp of the University of New South Wales, and the role of investors with Jonathan Whittle of Quona Capital.

Together, these 10 leaders lay out a “true North” for the financial inclusion sector that is both visionary and practical as we work to create tangible benefits for the financially excluded and underserved.

Don’t miss your chance on October 18 to tune into this live conversation with these leading figures as they discuss and respond to your questions about key challenges and opportunities for getting policies and credit right—we look forward to having you <a href="https://attendee.gotowebinar.com/register/5224822474483746561">join us</a>!

You can keep up with 10th anniversary events, webinars, essays and blog posts on Twitter at #gettinginclusionright, on our website's <a href="https://www.centerforfinancialinclusion.org/series/getting-inclusion-right">series page</a>, or by searching "Getting Inclusion Right" in Google.

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Webinar: Getting Credit and Policies Right

Credit

Credit Provision

Financial Service Providers

Fintechs

Policy, Regulation and Government Initiatives

In honor of our 10th anniversary, we invite you to participate in a one-day symposium, <strong>Getting Inclusion Right</strong>, to be held at The National Press Club in Washington, DC on November 1, 2018.

Join a select group of actors and influencers in the financial inclusion arena as we consider <em>what we must get right</em> if financial inclusion is to reach its full promise – access to a full suite of financial services delivered with quality to all who can use them to improve their lives.

We will convene a variety of distinguished thinkers and practitioners for a day of discussion and debate to help set the agenda for the next decade.

Learn more at <a href="http://financialinclusionweek.org/cfi10/">http://financialinclusionweek.org/cfi10/</a>.


CFI@10 Getting Inclusion Right Symposium

Bloomberg Philanthropies

BNP Paribas

Capital One

Citi Foundation

Credit Suisse

MetLife Foundation

Orrick

Sidley

Event

“How is that possible? They can’t have it,” Parameshwari shakes her head and waves a bangled hand. “What is ours will belong to us. We give someone information because they need it. How can they give that to everyone? Why should everyone have my information?”

Parameshwari sits next to a sewing machine in a sparsely furnished room in Chennai, India, where she earns less than $10 a day, according to a 2017 <a href="https://www.dvara.com/research/wp-content/uploads/2017/11/Privacy-On-The-Line.pdf">research collaboration</a>, <em>Privacy on the Line</em>, between Dalberg, Dvara Research and CGAP. She speaks for many consumers around the globe, equally baffled by claims made in the name of “big data” (watch the short film version of <a href="https://www.dvara.com/blog/2017/11/16/privacy-on-the-line-what-do-indians-think-about-privacy-data-protection/"><em>Privacy on the Line</em></a> for more consumer voices in India). How is data about individuals collected and shared? Do they have any real say in the matter? Are their governments protecting them?

The current passion for data – its promises and perils – is everywhere evident in the press and policy making. There is little new about the practice of companies and governments collecting personal information about their customers and citizens. What is new is the enormous scale on which this information is collected and stored (largely in ways which are invisible to the individual concerned); the speed and accuracy of the information which may emerge from tracking individuals in real-time rather than questioning them later; and the extra insights which may be gained by combining information from numerous sources, both public and private. These are the features which make “big data” big.

Data issues concern everyone, and not only in their financial lives. This essay focuses on how the collection and use of data for the purpose of providing financial services affects consumer’s financial lives and other parts of their lives, with a particular focus on the most vulnerable customers – the base of the pyramid in frontier and emerging markets.

Getting Data Right

The world is being dramatically transformed by technology such that the digital revolution includes everyone. This is a radical change from the industrial revolution, where only those rich enough to cover the costs of physical service could be included. In a digital world, digital service is cheap, fast and global. This is the transformation we see happening right before our eyes. Have you noticed?

Until recently, only one-third of people living on earth had a bank account. Two-thirds of humanity were excluded from financial services. The result of this inequality is that, for those who were unbanked, they had to pay more for any financial service as a percentage of their transactions. Then, in 2007, Vodafone’s subsidiary Safaricom launched M-Pesa in Kenya, and the world changed. Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries. This is a reflection of the reach, breadth and depth that a mobile operator needs to make such services work, and is why Orange dominates the mobile money market in Mali and EcoCash in Zimbabwe. More on this later. But the concept is the same across all nations: use the mobile phone to move money.

This is a wonderful change we see in the world. We see the sudden rise of the poorest people in places mobile financial inclusion touches. Now, people in areas decimated by drought can get micro-insurance services to enable them to avoid starvation; people in the remotest areas can get micro-loans to start new businesses; and people with no accessible physical financial services can save their money safely and easily through micro-savings.
<blockquote>People in areas decimated by drought can get micro-insurance services to enable them to avoid starvation; people in the remotest areas can get micro-loans to start new businesses; and people with no accessible physical financial services can save their money safely and easily through micro-savings.</blockquote>
All of this is driven by the mobile telephone revolution, and is best illustrated by Alipay, the Chinese mobile money giant. In 2013, China had no mobile money system as such; five years later, the Chinese transact <a href="https://www.businessinsider.com/alipay-wechat-pay-china-mobile-payments-street-vendors-musicians-2018-5">over $15 trillion a year</a> via Alipay and WeChat Pay. Based upon this success, Alipay is exporting their expertise, technologies and capabilities to other countries where financial inclusion is a priority: Indonesia, the Philippines, Pakistan, Thailand and more. In fact, if you didn’t know it, Alipay is the backbone partner of PayTM, the Indian mobile wallet that aims to bank 500 million Indian citizens by 2020.

This is the core change taking place, but what is it that Alipay got right and M-Pesa got wrong? Why can Alipay power financial inclusion in so many countries, but M-Pesa cannot? What is the right infrastructure play for financial inclusion, and what are the mistakes that are made?

Getting Infrastructure Right for Financial Inclusion

Durante esta primavera, el Banco Mundial publicó el informe <a href="https://globalfindex.worldbank.org/">Global Findex</a>, que es el compendio de calificaciones más completo que existe para medir el progreso de la inclusión financiera. A pesar de que los datos muestran que hubo una disminución de las personas sin acceso a ella, de 2.000 a 1.7000 millones entre 2014 y 2017, un examen acucioso de los datos muestra que muchas de esas nuevas cuentas no son utilizadas de manera activa, y que el crédito, el ahorro y la resiliencia no progresaron durante dicho período. A nivel mundial, al menos 3.000 millones de personas siguen excluidas de las finanzas, o reciben escasos servicios; entre los cuales se encuentra un grupo grande de 30% que son muy jóvenes, lo cual subraya la necesidad de lograr la inclusión acertada desde ya para nuestras futuras generaciones. Estos hallazgos, entre otros, son analizados en <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2/">La Inclusión Financiera: Propaganda vs. Realidad</a> (en ingles), que es un informe del Centro para la Inclusión Financiera en ACCION (CFI, por sus siglas en inglés) que desconstruye los datos del Findex y llama la atención sobre la necesidad de que la industria vaya más allá del mero acceso, e impulse cada vez más el uso y el bienestar financiero. A medida que el acceso se torna real, surge una segunda generación de retos: el de capitalizar los logros obtenidos a través del acceso para ofrecer productos y servicios que verdaderamente mejoren la vida, reduzcan las desigualdades y, en última instancia, impulsen el desarrollo.

Es en tal sentido que la Citi Foundation le brinda su apoyo a las iniciativas de liderazgo intelectual que el CFI promueve este año aprovechando su décimo aniversario, bajo el paraguas de La Inclusión Acertada. Los diez ensayos que ofrece esta serie para dicha celebración, dan cuenta de las diversas visiones provenientes de todo sector de la inclusión financiera, y más allá, sobre los temas que deben ser abordados para garantizar que los servicios financieros se traduzcan en beneficios tangibles para quienes se encuentran excluidos, o reciben escasos servicios.

Dichos ensayos comienzan con las reflexiones de Garance Wattez-Richard, de AXA, quien habla sobre los seguros para la inclusión, y continúan con la exposición de lo que se requiere para lograr que los proveedores se centren en el cliente cuando diseñan y entregan sus productos. Tim Adams, del Instituto Internacional de Finanzas, escribe sobre por qué la inclusión financiera importa. La serie también examina temas sobre los consumidores a través de la exploración de la brecha digital (Shameran Abed, de BRAC) y nos permite saber de proveedores innovadores como Buhle Goslar, de Jumo, y a Mark Pickens, de Visa, que escriben sobre los temas del crédito y los pagos, respectivamente. Luego nos enfocamos en el ecosistema que hace que todo esto sea posible, a través de una perspectiva general de parte de Chris Skinner, de Finanser, un ensayo de Simone di Castri sobre la regulación, uno sobre la privacidad y seguridad de los datos de parte de Katharine Kemp, de la Universidad New South Wales, y otro de Jonathan Whittle, de Quona Capital, sobre el papel de los inversionistas.

Todos los autores conocen muy bien sus temas y les agradecemos que hayan elegido incluir sus opiniones en esta Serie. Los ensayistas han juntado sus sueños y esperanzas en relación a su labor, con sus conocimientos y experiencia, lo que ha producido una visión completa del “norte verdadero” para el sector durante la próxima década.

Bienvenida a los Próximos 10 Años

What do we have to get right to achieve meaningful financial inclusion?

Jonathan Whittle

Monica Brand Engel

Timothy Adams

Shameran Abed

Mark Pickens

Ariadne Plaitakis

Simone di Castri

Buhle Miranda Goslar

Elisabeth Rhyne

Katharine Kemp

Chris Skinner

Brandee McHale

Garance Wattez-Richard

Consumer Protection

Crop Insurance

Health Insurance

Inclusive insurance

Insurance

Life Insurance

The digital revolution has allowed new actors, such as non-bank financial service providers (FSPs) (like mobile money providers) and fintechs (companies that apply new technologies such as Artificial Intelligence to the provision of financial services and products), to leverage connectivity, new technologies, and data analytics to bring innovative financial solutions to market. This has resulted in dramatic transformations of the financial sector in both mature and emerging economies. New products such as nano-credit and mobile person-to-person (P2P) transfers have allowed alternative market players to reach consumers that formal banking and payments providers had never served before.

Such innovative solutions have often brought real competition to segments of the financial services industry, resulting in greater consumer choice, lower retail prices, higher quality of service and <a href="https://www.gsma.com/mobilefordevelopment/programme/mobile-money/competing-with-informal-channels-to-accelerate-the-digitisation-of-remittances/">increased financial inclusion</a>. Mobile money in Sub-Saharan Africa is a good example, due to its dual functionality as payments and low-cost value-storage vehicle, which matches poor peoples’ uneven cash flow. When Safaricom first launched M-Pesa in Kenya, it offered an innovative way for the middle class to send money home, competing with formal and informal providers of remittances services. That innovation and competition has turned out to be one of the greatest game-changers in the pursuit of financial inclusion that emerging countries have seen in the past half century.

Today, fresh on the heels of mobile money and digital credit, there is a much larger fintech wave challenging incumbents and creating new markets based on novel technologies, such as artificial intelligence, big data, and geospatial intelligence. These solutions range from robo-advising (such as StashAway and Autowealth) and crowdfunding (e.g., Kiva) to virtual currency-based remittances (Bitpesa) and blockchain-enabled capital raising platforms (Capexmove). At the same time, super platforms such as <a href="https://www.retaildive.com/ex/mobilecommercedaily/googles-disruption-of-financial-services-is-just-getting-started-forrester">Google</a>, <a href="https://gomedici.com/why-facebook-is-a-dark-horse-in-the-financial-services-industry/">Facebook</a>, and <a href="https://www.americanbanker.com/slideshow/how-amazon-is-shaking-up-financial-services">Amazon</a> are entering the financial services sector, leveraging their massive databases of customer data to do so.

Traditional, established players have been stepping up to these competitive challenges by innovating. For example, by using a combination of technology, data analytics, and client research, traditional FSPs are identifying patterns in customers’ financial behaviors and decisions in order to determine which customer segments may benefit from cross-selling and what cross-sell strategies are appropriate for each segment. Cooperativa Acreimex, Banco WWB, Capital Aid Fund for Employment of the Poor (CEP), and SAJIDA Foundation are examples of FSPs in Mexico, Colombia, Vietnam, and Bangladesh, respectively, that are intentionally pursuing cross-selling strategies that impact the institutions and their customers.

Some innovative products, however, raise concerns that supervisors should monitor and regulators consider carefully. For instance, the rise of digital lending in Kenya has <a href="http://bfaglobal.com/projects/credit-at-the-cusp/">raised the risk of over-indebtedness</a>. Moreover, the World Bank’s Consultative Group to Assist the Poor (CGAP) has pointed out that at least one digital credit product in the country resembles a <a href="https://www.slideshare.net/PeterZetterli/cgap-2015-framing-the-dfs-landscape-v12">Ponzi scheme</a>.

The digital revolution can render financial sectors extremely competitive at different levels of the value chain. The nimble fintechs, which are often not regulated by the primary financial authority, use technology as a way of tackling distinct parts of the financial services value chain, thereby undercutting incumbents that have relied on economies of scale and customer inertia for market share. At the same time, super platforms make formidable competitors to both incumbents and fintechs alike, due to the intrinsic network effects that they exhibit (whereby each new member exponentially increases the value of the platform), their lack of interoperability among themselves and their tendency towards standardization of service features, to the exclusion of small players. Lastly, traditional players, increasingly aware of these competitive threats, are repositioning themselves to remain competitive through collaborations via accelerators and joint ventures, as well as by undertaking acquisitions and internal reorganizations.

The vigorous competition triggered by technological innovation and the entrance of new players in financial services can bring a multitude of benefits to financial inclusion. Effective competition in price makes financial products more affordable, <a href="http://www.cgap.org/sites/default/files/researches/documents/Working-Paper-Competition-in-MFS-Kenya-Tanzania-Jan-2016.pdf">which is essential</a> to drive adoption among low-income populations. Competition equally drives up quality and service standards, which helps adopters remain active users, and encourages the development of new products that are often targeted at specific consumer needs, including those of low-income individuals. Lastly, competition and innovation reinforce each other in a circular manner, as competition promotes further innovation, which may foster financial inclusion.

However, there is a dark side of unchecked market innovation and competition that regulators and supervisors must heed. In particular, the increasing significance of digital channels as the way to access financial services, the rise of customer data as a critical asset for business development, and the existing market power in the sector of origin of many new actors may require closer scrutiny from financial authorities. For instance, in a sector where the value of data has significantly increased, given its utility for credit scoring or customer targeting purposes, the entities that control these data have important market advantages. Similarly, the <a href="http://www.cgap.org/sites/default/files/researches/documents/Working-Paper-Mobile-Payments-Infrastructure-Access-and-Its-Regulation-May-2014.pdf">control of the USSD channel grants</a> an advantage to mobile network operators (MNOs) for downstream digital financial services.

Unfair leverage of these assets could ultimately stifle competition, rendering existing customers worse off and curbing the market’s incentives to reach untapped customers, including those at the bottom of the income pyramid. Traditional incumbents may also be pressured to undertake problematic actions that preserve their market share, including unfairly bundling products, preventing interoperability with competitors in regard to their proprietary platforms or to other payment infrastructure, such as switches, <a href="http://www.cgap.org/blog/kenyas-rules-mobile-money-price-transparency-are-paying">creating opaque pricing structures</a> or inappropriately forcing exclusivity on their agents and distributors.

Getting Policies Right in the Digital Era: Competition and Innovation as Policy Objectives

In the last few years, the <a href="https://www.gsma.com/mobilefordevelopment/sotir/">rapid growth in mobile money account</a> ownership has established a new launchpad for the digital economy in emerging markets. As a part of this new economy, digital credit has been instrumental in giving significant numbers of people first-time access to formal borrowing options, along with unprecedented levels of convenience and reduced financial vulnerability.

Many of these borrowers are entrepreneurs or self-employed, often with low incomes. The theory goes that this increased access to digital finance should translate to an <a href="https://www.mckinsey.com/featured-insights/employment-and-growth/how-digital-finance-could-boost-growth-in-emerging-economies">increase in economic inclusion and development</a>: more resilient households, job creation and thriving micro and small businesses. These outcomes are indeed possible–when we get digital credit right.

However, despite enormous strides in the provision of digital loans, the <a href="https://centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results/">credit gap</a> for individuals and micro-, small and medium enterprises (MSMEs) in emerging markets persists. Supply still fails to meet demand. Also, where credit is available, voices mount around important issues such as vulnerable segments being left behind, insufficient controls to manage over-indebtedness, lack of transparency, inappropriate enforcement techniques, and poor customer marketing and support practices.

This essay explores contributing factors to the lag in digital credit completely fulfilling its promise. It offers four focus areas to help the sector return to its true north and tackle some of the unintended consequences of the first wave of digital credit innovation. In the end, it suggests that at the core of getting inclusive digital credit right is a return to customer value—and intentionality around inclusiveness in the design and delivery of products.

Getting Credit Right

Imagine that low and moderate income consumers created the financial services of their dreams. How would they describe what they want from their financial services? Would the description resemble the services they actually receive?

Since 2008, the Center for Financial Inclusion at Accion has explored the customer perspective in financial inclusion by conducting research and engaging with financial service providers and their customers in dozens of countries. Through our research, we have been privileged to talk with people across the globe who are new to formal financial services, and with organizations serving them. Insights gleaned from our interactions with clients constitute a roadmap of sorts on how to “get financial inclusion right.” They point the way along the long road the sector must travel before the vision of meaningful financial inclusion is realized.

As it moves into its second decade, CFI intends to dedicate itself to search out and promote the elements of financial inclusion that bring customers what they truly need and want. With that in mind, this essay reflects on some of the findings about customers gleaned from a decade of CFI research.
<p style="text-align: center">***</p>
Customer wishes are actually pretty simple, whether customers are poor or not and whether they live in frontier, emerging or high income markets. First, they want services that help them accomplish goals and solve problems. In the words of a customer we spoke with in Chile, “How can banks help me in my actual life?”

Second, when they use those services they want a positive experience. When consumers speak about financial service experiences, they use words like confidence, safety, trust, and understanding – or their opposite: confusion, doubt and stress. These words convey the serious emotional stakes involved in money matters. By contrast, financial service providers tend to use bloodless jargon like “addressable market”, “customer acquisition” or “user interface”. Providers must turn these business concepts into a customer experience that evokes confidence and affirmation.

This essay looks first at products that solve customer problems and then turns to the elements of a positive experience. In the first section we identify four ways to use a financial health framework to design products aimed at reaching goals and solving problems. In the section section we discuss six attributes that lead to positive experiences with financial services. We conclude with a brief reflection on how financial service providers can orient themselves more broadly toward empowering customers.

Financial Services Through the Eyes of Customers

For the insurance industry, 2008 is more often reminiscent of the bailout of AIG than of new beginnings. However, 2008 also launched an unexpected wave of creative destruction. This essay series not only celebrates the 10-year work of the Center for Financial Inclusion, but also  several pioneers that strive to make insurance inclusive for all: the ILO’s Impact Insurance Facility, the Centre for Financial Regulation and Inclusion and the Microinsurance Network—all of which began a decade  ago.

As a more recent settler on the inclusive insurance planet – although almost three years have flown by – others may keep the flame, but I would like to offer a personal opinion on the past decade of innovation, and my perspectives into what more needs to happen to combine sustainable business and social impact for those who need insurance most.

Back in 2008, microfinance institutions predominantly distributed what was then called microinsurance. MFIs provided insurers with a readily available pool of clients for credit life insurance, which reimburses the outstanding loan amount in case of death or disability of the borrower.

This was the first era of inclusive insurance.

Ten Years Gone, Ten Years to Go: Taking Inclusive Insurance from Adolescence to Adulthood

This spring, the World Bank released its latest <a href="https://globalfindex.worldbank.org/">Global Findex</a> report, which is the most comprehensive scorecard available for measuring the progress of financial inclusion. While the data shows that the number of people without access to a financial account of any kind has dropped from 2 billion to 1.7 billion between 2014 and 2017, a closer look at the numbers reveals that many of these new accounts are not actively used and that credit, savings and resilience showed no progress during this period. Globally, at least 3 billion people remain financially excluded or underserved, with 30 percent - a large portion - being disproportionately young, underscoring the importance of getting financial inclusion right today for our future generation. These findings, among others, are discussed in <a href="http://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2/">Financial Inclusion Hype vs. Reality</a>, a report from the Center for Financial Inclusion at Accion (CFI) that deconstructs the Findex data and draws attention to the need for the industry to go beyond access to drive increased usage and improved financial well-being. As access increasingly becomes a reality, a second generation of challenges emerges: to capitalize on the openings made possible through access to offer products and services that truly improve lives, reduce inequality and ultimately drive development.
<blockquote>As access to financial services increasingly becomes a reality, a second generation of challenges emerges: to offer products and services that truly improve lives, reduce inequality and ultimately drive development.</blockquote>
It is in this spirit that the <a href="https://www.citigroup.com/citi/foundation/philanthropic-focus/financial_inclusion.htm">Citi Foundation</a> brings its support to the thought leadership initiatives CFI is pursuing in conjunction with its 10th anniversary this year, under the theme of <a href="/series/getting-inclusion-right">Getting Inclusion Right</a>. The ten essays presented in this series – in celebration of CFI’s ten years – showcase diverse views from across the financial inclusion sector and beyond on questions that must be addressed to ensure that financial services bring about tangible benefits for the financially excluded and underserved.

Starting with Garance Wattez-Richard of AXA, who reflects on <a href="http://www.centerforfinancialinclusion.org/ten-years-gone-ten-years-to-go-taking-inclusive-insurance-from-adolescence-to-adulthood/">inclusive insurance</a>, we move into Elisabeth Rhyne’s discussion of the need for greater <a href="http://www.centerforfinancialinclusion.org/financial-services-through-the-eyes-of-customers/">customer centricity</a> in how providers design and deliver financial services. Tim Adams of the Institute of International Finance writes about why financial inclusion matters. The series also examines consumer issues through its exploration into the digital divide (Shameran Abed of BRAC) and we hear from innovative providers such as Buhle Goslar of Jumo on credit, and Mark Pickens of Visa on payments. We then look at the ecosystem that makes it all possible, with an overview from Chris Skinner of the Finanser and essays from Simone di Castri on regulation, Katharine Kemp of the University of New South Wales on data privacy and security, and Jonathan Whittle of Quona Capital on the role of investors.

Each of these writers is highly qualified to speak on their issues, and we are grateful that they have chosen to include their voices in the series. All the essayists have combined their own hopes and dreams for their work with their personal expertise, and the result is a comprehensive vision of “true North” for the sector during the next decade.

The Citi Foundation is delighted to support and recognize CFI’s 10-year track record in challenging and engaging the industry and in protecting and empowering low-income, marginalized consumers. As a longstanding partner of Accion, the Citi Foundation welcomed CFI’s 2008 launch and has since supported CFI’s efforts to bring stakeholders in financial inclusion together to measure progress and highlight future challenges. During its second decade, CFI has the credibility to continue serving as a focal point for integrated thought and action across the industry and to maintain a unique web of relationships with stakeholders from all segments of the sector.

Financial inclusion has gained new ground in recent years, thanks in part to the acceleration of the digital revolution and the growth of organizations dedicated to expanding financial inclusion. It is our goal with this essay series to seize this momentum in order to forge new relationships and take our efforts to the next level. As you read these essays, we hope that they will trigger clear thinking and convictions about next steps that set the stage for a new generation of breakthroughs in our collective efforts to advance financial inclusion

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