This report, the third in a <a href="https://www.centerforfinancialinclusion.org/series/municipal-cash-transfer-programs-design-ids-and-data-protection">series</a> on municipal cash transfers in the U.S., focuses on data protection for undocumented or mixed-status beneficiary households. In the context of cash-based assistance (CBA) programs, poor data protection practices could add additional risks for low-risk individuals by providing data trails that could pave the way for unauthorized access to applicant or beneficiary data or leakage of personally identifiable information. These could leave a digital footprint that can make it easier for law enforcement to target undocumented individuals.

Considering these risks, we have identified and detailed approaches and strategies used to protect applicant and beneficiary data through four programmatic phases: targeting beneficiaries, outreach and onboarding, disbursement and distribution, and ongoing monitoring and data storage/retention. Insights in this report are gleaned from CFI interviews with cities, community-based organizations (CBOs), debit card providers, and privacy advocates.

This report and the others in this series are intended to guide municipal officials and CBOs considering or developing programs to support undocumented or mixed-status households. The insights may also be of interest to organizations advocating for and supporting the rights of undocumented populations, students and academics, and anyone <span data-contrast="auto">interested in </span><span data-contrast="auto">access to financial and</span> <span data-contrast="auto">public</span> <span data-contrast="auto">services</span><span data-contrast="auto"> for all members of U.S. communities. </span>

Protecting Beneficiary Data: Guidance for Municipal Cash Transfer Programs Responding to COVID-19

Open Society Foundations

North America

United States

Municipal Cash Transfer Programs: From Design to Data Protection

Appropriate Product Design and Delivery

Consumer Protection

Challenges and Crises

Enabling Environment

Credit/Debit Cards

Payments

Privacy

Responsible Digital Finance

Report

Though U.S. citizens and residents received economic support following passage of the CARES Act in spring of 2020, undocumented and mixed-status households were left behind. To bridge this assistance gap, state and local governments across the U.S. have partnered with community-based organizations (CBOs) to establish cash transfer programs to support these populations during the pandemic.

This report, part of a three-part <a href="https://www.centerforfinancialinclusion.org/series/municipal-cash-transfer-programs-design-ids-and-data-protection">series</a>, provides practical guidance to municipalities considering or currently operating direct cash assistance programs. It is based on insights from in-depth, semi-structured interviews conducted by CFI with 12 program administrators representing seven cash assistance programs.

We identify and detail practices for defining target beneficiaries, establishing eligibility criteria, conducting outreach, onboarding recipients, and disbursing funds. This report also highlights the relative advantages and disadvantages of different approaches at each step of the process.

The insights here may also be of interest to organizations advocating for and supporting the rights of undocumented populations, students and academics, and anyone <span data-contrast="auto">interested in </span><span data-contrast="auto">access to financial and</span> <span data-contrast="auto">public</span> <span data-contrast="auto">services</span><span data-contrast="auto"> for all members of U.S. communities. </span>

Designing Municipal Cash Transfer Programs to Mitigate the Economic Impact of COVID-19

Policy, Regulation and Government Initiatives

Just over one year ago, I joined the Center for Financial Inclusion (CFI), and what a year it has been. <a href="http://financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> presents a great time for me to reflect on this past year and to share with you CFI’s plans for our next chapter. We are using Financial Inclusion Week to feature the work of so many of our partners. And we are also using the week to focus attention on the themes we have identified in our new strategy as the pillars for this week’s <a href="http://financialinclusionweek.org/event-calendar-2020" target="_blank" rel="noopener noreferrer">calendar of events</a>.

CFI emerged from the rubble of the financial crisis to spearhead the most pressing issue the inclusive finance field needed at the time: improved consumer protection. We are now well into our second decade and our industry is reeling from the ravages of the COVID-19 pandemic. It is perhaps the right time for CFI to reenergize its mandate and spearhead what we believe is needed to “build back better” as the saying goes. As tragic as the pandemic’s consequences have been and continue to be, it has at least laid undeniably bare the failures of the status quo and has created a heightened sense of urgency, for financial services to build back better.

CFI was founded at a particular moment when it was becoming more apparent that market forces alone would not ensure positive outcomes for financial inclusion, and that sustained intentionality would be necessary. The coronavirus pandemic has, at the September 2020 time of writing, infected more than 33 million people and killed nearly 1 million. Beyond the rapid and catastrophic spread of illness and death, the pandemic has devastated global economies. Millions of micro, small, and medium enterprises (MSMEs) around the world have seen revenues plummet and have suspended operations or gone out of business altogether. Hundreds of millions of families have lost jobs and incomes, and many of them live in countries where social safety-net protections are patchy at best. The pandemic also reversed, seemingly overnight, social and economic development gains that had taken decades to achieve: the World Bank estimates that 70 million people are at risk of falling back into poverty. Women and children have been among those most affected: children because schools around the world have been shuttered, and women because they are more likely than men to lose their jobs and to shoulder the responsibility of supervising and homeschooling children.

For CFI, the pandemic has reenergized our purpose. Financial services are critical to reducing low-income populations’ vulnerability and helping them to recover from this and other recurring crises in their lives. We believe we have a leadership role to play in this intensified global effort. We have more than a decade of recognized global leadership in understanding the financial needs and behaviors of low-income vulnerable populations. Complementing this demand-side expertise, our recent <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX brings supply-side expertise to the table, as they have been studying and reporting about financial service providers for the past 20 years. These complementary strengths, combined with our history of thought leadership and our role as conveners, positions CFI to pursue an ambitious three-year strategy made all the more urgent in the context of the pandemic.
<blockquote>The pandemic has reenergized our purpose.</blockquote>
The strategic plan which will guide CFI’s work through 2024 focuses on four thematic areas. All of them, to significant degrees, have either been exacerbated by the pandemic or have been revealed by this crisis as urgent and under-attended priorities. The common thread among the themes is that progress in these areas is essential to ensuring that all people have the financial tools needed to improve their lives and to prosper.
<h2>Financial Services to Respond to the Risks of Climate Change</h2>
Just as the pandemic’s effects have been most severe on those who were already the most vulnerable, so too are the effects of climate change. Low- and moderate-income countries (LMICs) in the Global South are likely to experience longer, hotter heat waves and more extreme storms which in turn will create income loss, food insecurity, adverse health effects, and displacement that will hit already-vulnerable LMIC populations hardest.
<blockquote>Financial services are an indispensable tool to help prepare for climate-related shocks and recover.</blockquote>
CFI recognizes that climate change is ultimately an issue requiring long-term systemic changes to entrenched patterns of production and consumption. In the short term, however, financial services are an indispensable tool to help low-income vulnerable people prepare for climate-related shocks and recover from them when they happen. Our work in this theme will focus on understanding what those people need and the constraints they face, uncovering product innovations that can help, and then pilot testing such innovations and scaling-up lessons learned.
<h2>Women’s Financial Inclusion</h2>
Around the world, in many different geographies and socioeconomic contexts, women occupy a “last in, first out” position of vulnerability. The fall-out from the pandemic has made this abundantly clear. Whether it is a workplace where the more recently hired woman is let go before the more senior man, or a financial system that only prioritizes women’s needs when times are good, women’s economic inclusion is seen as a nice-to-have rather than a must-have. Women’s financial inclusion is powerfully shaped by broader societal norms, the unspoken assumptions and values governing men’s and women’s roles. CFI believes that efforts that focus solely on process fixes or product design will not succeed in women’s financial inclusion unless those efforts also seek to transform, rather than merely acknowledge, the underlying norms.

Our work in this area will accordingly include an intensive focus on research into successful norms-transformative initiatives, and how those might be scaled up. We will also work to improve the digital and financial capability of subsegments of women customers, and to influence the policy environment for women’s financial inclusion.
<h2>Data Risks and Opportunities</h2>
The pace of change created by the technology revolution is much faster than law, policy, or social mores can match. Although data privacy and protection regimes have begun to emerge, especially in wealthy countries, data by its nature is universal. To date, there is no universal framework setting forth who even owns personal data, much less governing how it can be used, by whom, and under which circumstances. The COVID-19 pandemic has provided a powerful illustration of both the risks and the opportunities of digitized data. The public health benefits of documenting and following diagnosed COVID-19 cases, and of tracing patients’ contacts, are obvious. But the risks to patients of stigmatizing, discrimination (whether of access to insurance, housing, employment, or otherwise), and other abuses are also very real.

Similarly, in financial services, data is the key that can unlock access to a full range of personalized, effective products that can help low-income people achieve their goals. The risk is that many LMICs have no effective consumer data protection regimes in place and that even where those exist, people with low levels of digital and financial sophistication may, in their eagerness to receive financial services, sign away their rights without even fully understanding them.
<blockquote>CFI will focus on means to bring transparency to data practices in DFS.</blockquote>
CFI’s work in this area will focus on means to bring transparency to the data practices of digital financial service (DFS) providers. We will also study how financial service providers use algorithms, which can be biased against already-underserved populations, in automated decision-making. We will monitor emerging frameworks around the world to document what does and does not work to advance financial inclusion while safeguarding data privacy, portability, and other consumer rights.
<h2>Consumer Protection in the Digital Economy</h2>
As the inclusive finance landscape evolves, so too must the approaches to consumer protection. Social platforms, ecommerce giants, fintechs, and pay-as-you-go providers are all relatively recent entrants into the field, and this means a multi-pronged approach is necessary to ensure safe practices are the norm. This is especially true since many of these business models fall beyond the scope of existing banking regulation. Consumer protection is an evergreen challenge, and one where CFI has long been active.
<blockquote>Consumer protection is an evergreen challenge.</blockquote>
We plan to devote intensive study to the practice of government-to-person (G2P) digital cash transfers, since these are often the on-ramp to digital financial services for low-income populations. We want to understand the risks that digitized G2P transfers present and how governments are mitigating those risks. We also want to document innovations around redress of grievances, financial capability-building add-on services, resolution of connectivity issues, and other relevant lessons learned.

In addition, CFI will partner with regulators and supervisors to test new technologies, such as chatbots or algorithmic audit tools, that can allow supervisors to be in direct dialogue with consumers, without consumer voices being mediated via the financial service providers. Such a dialogue can ultimately improve customers’ experience with financial services and democratize the financial sector by involving customers in the development of financial sector policies. To date, much of the recent work in regulatory technology (RegTech) and supervisory technology (SupTech) has prioritized the data reporting and compliance, but CFI believes its potential for advancing consumer protection has been underappreciated.
<h2>Conclusion</h2>
CFI developed its three-year strategic plan by weighing the needs of the inclusive finance industry against what we see as our own comparative advantages. We recognize that the four thematic priorities we intend to pursue are not an exhaustive list of everything that needs to happen to ensure positive outcomes for low-income people, and we also recognize that other individuals and organizations are doing excellent work in the areas we intend to pursue. We look forward to collaborating with all stakeholders who share the vision of a world where all people are able to equitably participate in the economy and are able to use financial tools to improve their lives and to prosper.

We hope you will participate in the rest of Financial Inclusion Week, which is packed with amazing speakers, events and activities. And, we want to hear from you. Please participate and tell us what you think about CFI’s thematic priorities.

Reflecting on the Past and Charting a New Direction

Financial Inclusion Week 2020

Delivery Channels

Digital Financial Services

Financial Inclusion Strategy

Human Touch

Transparency

Trends

Underserved Groups

Women

Blog Post

Policymakers have been busy putting in place measures to protect financial services clients and the population at large from the consequences of the COVID-19 pandemic. Of all the measures that have been put in place, moratoriums have been particularly popular. <a href="https://www.investopedia.com/TERMS/M/MORATORIUM.ASP" target="_blank" rel="noopener noreferrer">Defined</a> as a temporary suspension of business as usual during financial hardship, a moratorium seems like an appropriate response when nothing is “business as usual”. Countries <a href="https://docs.google.com/spreadsheets/d/1s6EgMa4KGDfFzcsZJKqwiH7yqkhnCQtW7gI7eHpZuqg/edit#gid=0" target="_blank" rel="noopener noreferrer">around the globe</a> have put in place moratoriums on debt repayments for a wide range of lenders.

Moratoriums can bring many benefits for clients, such as providing much needed relief in a time of cash constraints, formally anticipating a breach of contract between the lender and the creditor, and avoiding negative reporting to the credit bureau.

But is this the full story? While moratoriums are meant to benefit clients, there are a number of variables in design and implementation of moratoriums that need be considered before concluding that they are indeed beneficial.
<h2>Moratoriums Are Not Created Equal</h2>
Moratoriums come in different shapes and sizes. Many moratorium schemes defer repayments – typically for 3 months – but accumulate interest on the outstanding debt, therefore increasing the total cost of the loan. When institutions or clients start paying back, they are faced with not only their original debt payment obligation (accumulated for the months not paid), but also the additional interest they would not have had to pay had they paid per the original schedule. This type of scheme raises concerns about clients’ ability to repay their loans once the moratorium is over, as recent evidence suggests may be the case emerging in <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3615077" target="_blank" rel="noopener noreferrer">Pakistan</a>.
<blockquote>Moratoriums come in different shapes and sizes.</blockquote>
Other types of moratoriums only defer payments, but <a href="https://www.cnbc.com/2020/03/31/in-the-pandemic-some-of-your-bills-can-wait-and-some-cant.html" target="_blank" rel="noopener noreferrer">do not accrue additional interest</a>, and others yet are coupled with a <a href="https://www.consumerreports.org/personal-finance/trouble-paying-bills-coronavirus-pandemic/" target="_blank" rel="noopener noreferrer">broader set of debt relief measures</a>, such as rescheduling and lowering fees. Moratoriums that do not accrue interest present a better value proposition to customers as they provide relief from loan payments during the time of crisis, but do not overly burden customers as they emerge from the period of crisis.
<h2>One Size Does Not Fit All</h2>
Whether they are beneficial or not for clients depends on the inherent features of the offer and the particular needs of clients. Not all clients face the same constraints, and different constraints and challenges call for different solutions. Client circumstances will determine whether a moratorium is useful, as exemplified in the scenarios below:

Clients may have the funds available to pay their loan but may not be able to physically make the payment due to logistical constraints associated with the pandemic (lockdowns preventing them from accessing their branches, no access to alternative repayment channels, etc.). For them, a break on payments may allow them to retain a good credit standing while they cannot repay and safeguard the funds for when they are mobile again.

Clients may not have the ability to pay their debt anymore, due to the impact of the crisis on their income flows. For these clients, a simple delay in repayments will not be adequate. Assuming that they are able to go back to their pre-crisis income levels, they may not have the ability to meet the demands of their existing obligations plus the delayed payments and accrued interest. A more appropriate solution in this case would be rescheduling the debt, taking into account the lack of or reduced level of economic activity and resetting the loan at a time when activity picks up again.

Clients may benefit from increased economic opportunities during the crisis (e.g. delivery workers). What they may need is increased access to credit to answer growing demand for their services, rather than relief on existing debt.
<blockquote>Moratoriums should not be seen as a blanket solution for everyone.</blockquote>
Because moratoriums on capital and interest payments are experienced differently by clients based on their circumstances, they should not be seen as a blanket solution for everyone. Relying only on moratoriums during times of crisis – or implementing a moratorium for all clients – is too simplistic. Moratoriums should be one of many tools used to alleviate debt burdens for clients who need it, depending on their situations. The same argument has been made to recognize the fact that <a href="https://www.covid-finclusion.org/post/how-long-can-microfinance-institutions-last-the-liquidity-crunch-an-analysis-of-the-data" target="_blank" rel="noopener noreferrer">not all lenders require the same level of relief</a>, and holds equally true for borrowers. Policymakers should mandate that providers offer moratoriums as an option to their clients, but should not mandate automatically deferring repayments.
<h2>Default Opt In With Caution: Clients’ Right to Know and Choose</h2>
While <a href="https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19" target="_blank" rel="noopener noreferrer">many countries</a> have put moratoriums in place, policymakers have not been consistent with guidance on their implementation.

As a result, we have seen a <a href="https://www.livemint.com/money/personal-finance/mandatory-yet-discretionary-confusion-prevails-over-emi-moratorium-11592214374082.html" target="_blank" rel="noopener noreferrer">number of approaches</a> on how financial service providers are handling moratoriums: some have offered moratoriums across the board, others have reached out to customers and offered the option on a selected basis. Others yet have put control in the hands of the customers and are <a href="https://www.consumerreports.org/personal-finance/trouble-paying-bills-coronavirus-pandemic/" target="_blank" rel="noopener noreferrer">waiting for them to request it</a>.

Financial service providers should consider that due to <a href="https://thedecisionlab.com/biases/default-bias/">default bias</a>, clients tend to go with whatever option was chosen for them, so FSPs should carefully consider how they set their opt-in or opt-out structures.
<h2>Recommendations</h2>
Moratoriums have the potential to help clients who have suffered income losses due to COVID-19 by deferring debt obligations. But to determine whether moratoriums will actually have the intended impact, several questions need to be addressed:
<ol>
 	<li>How is interest handled in the moratorium? Does the deferment increase the total costs for clients?</li>
 	<li>Does the moratorium also include loan restructuring or is a lump sum required at the end of the loan’s duration?</li>
 	<li>How are clients informed of their obligations under a moratorium and do they understand their options? Can they choose to opt in or out?</li>
</ol>
CFI has several recommendations for the design and implementation of moratoriums to ensure that clients do, in fact, benefit from the moratorium.
<h3><strong>Opt-In as Default</strong></h3>
If the moratorium will benefit all clients (deferred payments with extension of the terms, no penalties), clients should be opted in by default.
<h3>Opt-Out as Default</h3>
If the conditions of the moratorium do not benefit everyone (such as increased overall fees, lump sum payments, etc.), then providers should use opt-out as the default setting.
<h3>Information Transparency</h3>
Clients should be informed, whether through opt-ins or opt-outs, of the default decision that has been made on their behalf and the specific terms of the moratoriums. If clients are refused a moratorium, they have a right to understand the reason for refusal. Clients should also be informed about the consequences – such as increased overall loan costs – of moratoriums.
<h3>Client Choice and Recourse</h3>
Clients who have automatically been opted in to a moratorium should have the option to opt-out. Inversely, clients who have not been offered a moratorium should have a right to ask for it, and know how and where to complain if needed.

When implemented with the clients’ interests in mind, a moratorium is an effective instrument, but a number of different circumstances of the client must be considered. In order to ensure that clients benefit, the recommendations above should be considered.
<h4>What’s happening in your markets? Are moratoriums being imposed? Were conditions clearly spelled out to clients? What about providers? Are moratoriums extending to them as well?</h4>
<h4>Tell us what you are seeing and experiencing! Visit our special <a href="https://www.covid-finclusion.org/forum/discussion/moratoriums-what-s-happening-in-your-markets" target="_blank" rel="noopener noreferrer">moratorium forum discussion</a>.</h4>
&nbsp;

Are Moratoriums Good for Clients?

Test of a Lifetime: COVID-19 and Financial Inclusion

<h2>What does the issue of gender within financial inclusion mean to you personally?</h2>
<strong>AT</strong>: It’s a pretty universal experience for women that data gaps lead to a world that is designed with men as the default. I think it’s important in this field that we highlight the diversity of women’s experiences in different countries and at different socioeconomic levels. A pain point for many women is that we don’t believe our experiences are properly captured or represented. I feel fortunate that in a professional setting I can advocate for closing those gaps.
<blockquote>A pain point for many women is that we don’t believe our experiences are properly captured or represented.</blockquote>
<strong>JF</strong>: I’m constantly reminded of my identity as a woman. These reminders manifest themselves both overtly and subtly, and reveal that women are hugely forgotten or omitted from the equation. At home, caretaking responsibilities are predominantly taken on by women, which represent a tremendous opportunity cost in the form of foregone income or time away from individual pursuits. At work, gender inequality is reflected not only in yawning pay gaps but also in the unbalanced representation of women in senior positions. In the marketplace, the design of products continues to be based on the view that women are a monolith, thereby failing to respond to the unique needs and preferences of women. In every way I can – whether it’s in conversation with my peers or through our research at CFI – I look forward to building more gender-inclusive attitudes and approaches.
<h2>What are some key takeaways from your research?</h2>
<strong>JF</strong>: One main takeaway is that absence of evidence is not evidence of absence. A financial institution’s failure to classify clients by gender does not mean that it does not have any women clients. We ultimately have a choice in the data we collect and how that data get applied. Therefore, we should choose to actively and consistently gather gender-disaggregated data to more accurately diagnose the full extent of gender inequality in financial inclusion and design solutions accordingly.
<blockquote>We should actively and consistently gather gender-disaggregated data to diagnose the full extent of gender inequality in financial inclusion.</blockquote>
<strong>AT</strong>: One of the key takeaways is the importance of norms in dictating what barriers prevent women from accessing formal financial services. The existence of norms was not a surprise. Those of us who’ve worked in a cross-cultural context get that. The idea of designing norms transformative work is something important to highlight. I think many people believe norms are a force to design around, but there are ways to design financial inclusion interventions that can have a transformative outcome on the way people are thinking about gender roles. It’s not about dictating what gender roles should be, but promoting the principles of equal access and opportunity as something everyone is striving for. The actual norms people hold can be really surprising and not what people expect, and the first step is not to dictate what norms should be but to understand what stories people tell themselves. Then we need to think about designing financial inclusion interventions that are accompanied by dialogue that creates greater reflection on gender roles, and hopefully greater inclusion.

<strong>JF</strong>: “Reflection” is an operative word. Our role is to facilitate discussion amongst the stakeholders within a particular population, especially when it comes to norms. We must be intentional in our approach, which is not to wag our finger and be prescriptive, but rather to reflect back in order to influence positive change.
<h2>What has surprised you during your research?</h2>
<strong>AT</strong>: In our research process, we’ve talked a lot about the constraints of unpaid labor on women. There are studies in the US about time use among liberal, feminist leaning couples and how care and unpaid labor are still not evenly split in even when there’s the aspiration to do so. There’s an intention level and a systems level to the issue of unpaid labor. Part of it is whether two partners intend to split labor equally, and there are also larger, structural forces and societal pressures that reinforce inequality. In our industry, we need to be thinking about how financial services can address time constraints women face due to unpaid labor or their role as caretakers, especially when that burden is much larger for poor women in developing countries as <a href="https://www.oxfam.org/en/research/time-care">Oxfam has documented</a>.

<strong>JF</strong>: One thing that surprised me is that – despite the progress made in identifying data gaps and biases that result in suboptimal outcomes for women – there’s still so much ground to cover. Separately, the idea that gender is relational really struck me. When talking about advancing women’s economic empowerment, our focus often turns to what women can do or how women can be better equipped with the skills, tools, and knowledge required to improve their lot. Unfortunately, this thinking assumes that all women have full agency over the decision-making processes that govern their lives. As this is not the case, I have started to think a lot about the role that the men can and must play in reconciling gender disparities.
<h2>What about digitalization? Can you speak to the role of digitalization of financial services and gender?</h2>
<strong>JF</strong>: Digitalization is rapidly reconfiguring the menu of financial services and products that are being offered and the ways in which they are being delivered. This flurry of activity creates a lot of momentum and excitement that can be channeled to bring women into the fold. But it’s important to recognize that digitalization can also present a significant risk of further excluding already marginalized groups, including women. Digitalization effectively serves as a multiplier: while it has the potential to yield enormous gains for women, it can also further entrench norms that may not favor women.

<strong>AT</strong>: We often start with an assumed positive outcome of digitalization and DFS. These tools aren’t positive or negative. We get a little over-excited about the potential of technology in our industry sometimes, without thinking about the risks that automation pose, for instance in automated credit decision. Further entrenching exclusion of unbanked and underbanked groups is a real danger because using bad data in a data driven economy can create bad outcomes. When we don’t have a good historical picture or data trail of unbanked, low-income women in developing countries, algorithm-based decisions may not result in the best outcomes for those people. We have the assumption that if we add technology, things should just be better, but it’s not purely a technology issue. Inclusion is a socio-technical issue.
<blockquote>We sometimes get a little over-excited about the potential of technology without thinking about the risks.</blockquote>
<strong>JT</strong>: And our role at CFI is to observe where digitalization can go wrong and steer efforts so that it can be applied to go right.

<strong>AT</strong>: And that’s where the consumer protection role comes in: we need to give people access to digital financial services with appropriate guardrails and the capability to use it best for themselves.
<h2>Can you briefly discuss digital interventions that get it right?</h2>
<strong>AT</strong>: Digitizing cash transfers actually address some of the privacy concerns women have about their finances. It doesn’t get a dialogue of norms going, but there are papers that have looked at <a href="https://law.yale.edu/sites/default/files/area/workshop/leo/leo19_pande.pdf">cash transfers to rural women in India</a> and how notifications of the transfer on a mobile device allowed women to know when the money was deposited, giving them the opportunity to spend it on something they thought was important before negotiating with their husbands. The notification shifted the power dynamic a little bit. Accompanying that with dialogue and community-based work could actually then have a greater impact. This is an example of how a digital delivery mechanism can address a privacy need for women giving them a little more financial agency.
<blockquote>Accompanying cash transfers with dialogue and community-based work could have great impact.</blockquote>
<strong>JF</strong>: As a think tank, having a finger on the pulse of customers is extremely important to understand how well their needs are being met by financial institutions and other actors. While one-on-one interviews help bring great depth and granularity to our research, we also want to be certain that the data we collect are representative and accurately reflect the scope of any given problem. This is where technology can play a central role. Mobile-based technologies such as interactive voice response can be deployed at relatively low cost to collect feedback directly from customers at scale. In addition, the wealth of data generated by digital platforms can also be used to draw insights on the financial lives of women and other client segments.
<h2>How do you see CFI’s gender research progressing? Where’s the “white space”?</h2>
<strong>JF</strong>: I am excited about the direction in which CFI is heading. By making women’s economic empowerment a strategic priority, we can employ a systematic methodology to define and test our theory of change for how women’s financial inclusion can lead to better outcomes for women. Furthermore, connecting gender into the broader development agenda to advance social economic development is something I’m really passionate about. My work at CFI has focused on financial capability, and I’ve found that strengthening one’s financial capability has positive ripple effects in other domains of our lives and vice versa. In much the same way, I believe that an intentional focus on improving women’s financial lives will yield positive externalities that will empower women.

<strong>AT</strong>: We think there’s a need for better consumer protection, better financial capability interventions and an overall policy assessment to evaluate what areas of focus result in greater women’s financial inclusion. We think that focusing on these three pillars will help the digital economy actually work for women. Simultaneously, we need to be aware of the absence of sex-disaggregated data and the norms-based work that needs to accompany any interventions aimed at closing the gender gap in financial inclusion. Those are the areas where CFI’s work is relevant and could be strengthened with a gender lens.

<strong>JF</strong>: I’m also looking forward to speaking with women directly to inform best practices and policies. It will also be important to evaluate the effectiveness of said practices and policies by monitoring how well – or not well – they are being operationalized on the ground.

[Q and A] Addressing Gender Inequality in the Formal Financial System: Data Gaps, Digitalization and Future Interventions

<em>This post originally appeared on the European Microfinance Platform's (e-MFP) <a href="http://www.e-mfp.eu/blog">blog</a>.</em>

How should financial institutions approach consumer protection differently when they offer services through smartphones rather than humans?

This was the question we posed when the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">Smart Campaign</a> team first started revising the standards to be applied to digital financial services, especially digital credit. We're very pleased to have launched the new <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Digital Credit Standards</a>, their accompanying <a href="http://www.smartcampaign.org/storage/documents/2019_06_19_Principles_Guidelines_FINAL2.pdf">guidance document</a>, and the forthcoming companion Handbook on Consumer Protection for Financial Inclusion (summary <a href="https://www.smartcampaign.org/storage/documents/Handbook_on_Consumer_Protection_-_Eng.pdf">here</a>). What we didn’t expect, however, was quite how profound the differences would turn out to be. We made significant changes to the standards for all seven Client Protection Principles (the principles themselves remain the same). I want to focus here on the most fundamental: Appropriate Product and Delivery Design.

When financial service providers (FSPs) consider tackling client protection, their first thought is often, “We need a code of conduct!” That reflexive response shows that FSPs traditionally view protecting clients mainly through the lens of setting and enforcing boundaries on staff behavior. And traditionally, that made sense. After all, ground zero for protecting clients occurs in the moments when they come face to face with staff. That’s when the client receives product information that is transparent (or not) and is treated (or not) with fairness and dignity. The practice of client protection has centered on defining codes of conduct, incentivizing and training staff to follow them, monitoring their adherence, and applying sanctions to breaches.
<h2>When face-to-face interaction disappears, what happens to consumer protection?</h2>
When staff aren't present, however, the client experience changes. On the one hand, the problem of rogue or substandard staff behavior disappears, which is good for clients. But so does the helpful staff person who can answer a client’s questions and guide the client to the right product. With digital services, everything the client experiences is pre-programmed and embedded into the user interface upfront, before a single client has clicked on a single screen. Everything is determined in advance, through coding and algorithms, and the sequences roll along without individual human intervention.

In this setting, protecting clients is all about good design. But product and delivery design teams in FSPs include a range of people, not all of whom are traditionally alert to client protection: the IT team, the market research and marketing teams, commercial analysts, and possibly outside software developers. Team members come from different disciplines with different training and skills, and they may not even be aware of client protection principles. These teams need guidelines to assist them in integrating protections into the interfaces they ultimately design. For example, designers need to determine whether clients are likely to understand the product information they provide in a setting where they can't easily ask questions. Those involved in market research and prototype testing need to have client protection issues in the forefront of their minds as they do their work.

To do this, they need a “code of conduct” for the design process, and that is how we think about the new standards for appropriate product and delivery design. We call the approach “protection by design,” taking a cue from the concept of privacy by design often advocated as a rubric for data privacy. Protection by design is a vastly different approach to implementing client protection from the old codes of conduct. The focus is what goes into the product, rather than how the staff member behaves with each individual. Protection by design focuses on anticipating the totality of needs of all clients and incorporates them right from the start.

And that brings up another profound difference between traditional client protection practice and the new standards. When the focus is on ensuring that the staff conducts successful interactions with each client, adherence is monitored on an ongoing basis through everyday work. With protection by design, and its focus on getting it right in advance for the whole portfolio of clients, the staff stand back and watch machines do the work. There is no daily staff feedback to tell supervisors whether client outcomes are satisfactory. Thus, in protection by design, systems and methods for monitoring client outcomes – through portfolio data and direct client surveys – become essential.
<blockquote>When the focus is on ensuring that the staff conducts successful interactions, adherence is monitored. With protection by design, the staff stand back and watch the machines do the work.</blockquote>
We're just at the start of understanding these and other implications of protection by design for the practice of client protection. The Smart Campaign looks forward to engaging with members of <a href="http://www.e-mfp.eu/">e-MFP</a> to build out and test robust tools that can enable the approach to be widely applied. We’d like to work out how to incorporate client input and testing during the design process, protocols for algorithm review and other facets of the new approach.

Beyond protection by design, the revised standards for digital financial services incorporate several other very important changes, some of which are among the hottest issues in the sector today: data privacy, data security, and the thorny question of fairness and responsibility in algorithm-based lending. The Smart Campaign will dig deeper into these issues during the coming year.

We would like to thank all those who worked with us in designing the standards, especially MFR and the members of the <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>. It has been a community effort.

In a world that is changing very rapidly, we consider the client protection standards to be a permanent work in progress, anticipating that they will need to be adapted as new developments in financial services occur. At this stage, our hope is that the players in the financial inclusion sector will actively promote and use the new standards to ensure that the sector does right by its clients, no matter what methods it uses to deliver its services.

We invite you to review the <a href="http://www.smartcampaign.org/storage/documents/Digital_Credit_Standards_June_2019.pdf">standards</a> and send us your thoughts by commenting below.

From Human Conduct to Protection by Design: The Smart Campaign's Digital Standards

The Smart Campaign

Keeping Clients First

Barres's questions that Libra's developers should consider when innovating for the new cryptocurrency are:
<ul>
 	<li>What would data privacy agreements look like if we wanted them to be understandable, fair and with an option to opt out?</li>
 	<li>How would algorithms that did not discriminate be set up?</li>
 	<li>How might fully transparent, low-cost and high-quality products and services that truly solve problems be brought to bear?</li>
</ul>
Read the <a href="https://www.euromoney.com/article/b1g0hvpnhqmyg0/cryptocurrency-facebook39s-libra-is-this-how-we-get-to-responsible-fintech">full article in Euromoney</a>.

In Euromoney: Smart Campaign's Isabelle Barres Poses Questions About Libra

News

This <a href="https://soundcloud.com/user-273615244/frt-episode-28-digital-customer-journey">episode</a> of the "FRT" podcast focuses on how digital customer journeys are enabling financial institutions to reach underserved segments in a sustainable manner. IIF’s Conan French host Rhyne and Amin Khairy to discuss the upcoming CFI-IIF paper “Charting the Customer Journey in the Digital Age.”

Rhyne discusses the persistent challenges for digital inclusion and the importance of having a “tech-touch” balance at certain stages of the customer journey.

They also discuss the potential gain in operational efficiencies for financial institutions and the positive impact digitization has on unbanked customers and provide real-life examples of digital customer journeys in various stages: pre-onboarding, onboarding and continued use.

"We're finding that the countries that are making it easy to onboard are those with a good national ID program," Rhyne said. "Having a very clear and simple to use national ID that's easily connected electronically is probably the most important thing."

Rhyne also notes that understanding the unique financial lives of lower income segments is crucial to digitization and different from transitioning banked populations from analog to digital.

Browse more <a href="https://www.iif.com/Innovation/FRT-Podcast">FRT podcast episodes</a>.

&nbsp;

IIF Podcast Features Elisabeth Rhyne Discussing the Digital Customer Journey

Human Centered Design

In the March 14 <a href="https://www.raconteur.net/finance/financial-inclusion-banked">piece</a>, Rhyne’s insights are part of a broad survey of the global financial inclusion landscape -- from barriers to financial inclusion in the developing world, to its benefits and the tools that are helping to integrate marginalized populations into the “financial mainstream.”
<p style="text-align: left;">“In the developing world there is an issue of absolute low incomes,” Rhyne said in the feature, which appeared in the <a href="https://www.raconteur.net/future-money-2019"><em>Future of Money</em></a>, a 20-page insert published in <a href="http://www.thetimes.co.uk">The Times (UK)</a> in association with <a href="https://europe.money2020.com/">Money 20/20</a>. “In regards to how much in deposits people would be providing, how large a credit they might want, these are below the threshold of feasibility for banks using traditional branch-based, teller-based models. So you couldn’t put a branch out in a rural area and expect it to be profitable.”</p>
Rhyne uses the example of hyperinflation in Latin America to illustrate why potential customers don't have bank accounts, and concludes the article by noting that digital payments “are going to be essential” over the next decade.

<a href="https://www.raconteur.net/">Raconteur</a> is a publisher of “special-interest content and research” whose special reports are inserted into the printed version of The Times (UK). Read the full article <a href="https://www.raconteur.net/finance/financial-inclusion-banked">here</a>.

Raconteur Features Elisabeth Rhyne in “Challenges in Banking the Unbanked”

Latin America and The Caribbean

Credit

Fintechs

Financial Service Providers

Mobile Banking

Saving

Georgia Client Voice research included the perspectives of 1,000 current and former microfinance clients to identify the consumer protection impediments that persist in the country. The Smart Campaign selected Georgia as the market in Eastern Europe and Central Asia for the Client Voices project for several reasons, primarily because of the current regulatory reform at the national level. As the Consumer Protection Division becomes its own entity, operating outside of the regime of the National Bank of Georgia, this research will enrich the discussion and inform the next steps in the country’s consumer protection arena. The building blocks for a thriving industry are already set, including a credit bureau, CreditInfo. Regulators, local partners, and microfinance institutions all have a role to play to raise awareness among clients and cement customer protection in the industry.
<blockquote>Top concerns among microfinance clients in Georgia are: over-indebtedness, appropriate product design and delivery, and transparency.</blockquote>
Various research methods were implemented in the qualitative phase, including focus group discussions, individual in-depth interviews, and a photography exercise to gain a deeper and contextualized understanding of clients’ views of good and bad treatment. The quantitative sample consisted of 800 currently clients and 200 former clients, 59 percent of whom were women.

The research finds that the majority of clients, around 66 percent, are happy with their institutions and thus stay with their institutions for a long time. Primarily, microfinance institutions’ service and treatment was ranked as matching or exceeding commercial banks. However, clients’ understanding of terms and conditions is still lacking, especially around the high risks associated with taking loans in U.S. Dollars.

Client Voices: Georgia Country Report

Bankable Frontier Associates

Europe and Central Asia

Georgia

Over-indebtedness

Alexandra (Alex) Rizzi

Senior Research Director, Consumer Data Opportunities and Risks

Tanwi Kumari

Research Manager

Madeleine Longwell

Eric Noggle

Tess Johnson

Mayada El-Zoghbi

Isabelle Barrès

Alex Kessler

Jacqueline Foelster

Elisabeth Rhyne

Brigitta Nyawira

Alex Counts

Brianna Nelson

Smita Aggarwal

Alissa Fishbane

Ignacio Mas

Rafe Mazer

Hema Bansal

Maura Hart

Rwanda

Sub-Saharan Africa

Kenya

Philippines

Cambodia

Colombia

Myanmar

Agent Banking

Client Treatment

Complaint Resolution

Credit Provision

Digital Credit

Telcos

Customer Centricity

Risk Management

Behavioral Insights

Financial Capability

Banks

Data Analytics

Financial Technology

Alternative Data

Product Pricing

Smart Certification

Social Performance

Today there are close to 700 million mobile money accounts registered worldwide — a number that, if it were a population, would rank as the world’s third-largest country. East Africa continues to lead in digital financial innovations as well as account usage, with two-thirds of the combined adult populations of Kenya, Rwanda, Tanzania, and Uganda actively using mobile money. With the proliferation of mobile financial services, particularly among underserved populations, it is vital that users be treated fairly and with dignity. In the momentum to define responsible digital finance and recognize providers of high-quality financial services, the industry must not forget the consumer.
<h1>Client Voices: Why We Listened</h1>
<a href="/about/what-we-do/the-smart-campaign/">The Smart Campaign</a>, a global initiative to create an environment in which financial services are delivered safely and responsibly to low-income clients, has long recognized that client perspectives are often underrepresented in consumer protection discussions. With the Client Voices Project, the Campaign questions whether the industry’s assumptions about what constitutes problematic treatment rightly reflect what clients themselves worry about.

The dual objectives of the project are to solicit input from low-income clients about what they consider good and bad treatment in their interactions with financial service providers and to assess the prevalence of consumer protection problems among these clients, using quantitative surveys. The project is designed to act as a catalyst for financial service providers, regulators, industry associations, consumer advocacy groups, and others to improve client protection in ways that are grounded in client feedback.
<h1>Major Findings</h1>
Based on a survey of over 1,200 people in three districts in Rwanda, this report delves into the experiences of individuals who use digital financial services (DFS), the main client protection issues they are concerned about, and the impact and prevalence of negative experiences. We find that mobile money enjoys a high degree of satisfaction and trust from clients in Rwanda, even though 40 percent of clients report being targeted by fraudulent schemes, which have become increasingly sophisticated.
<blockquote>Customers report wising up to scams and fraud, but with a continuous influx of new mobile money users and fraudsters who innovate quickly, the threat is real and constant. Fraud represents the greatest potential to damage customer trust and engagement with mobile money in Rwanda.</blockquote>
However, there are many ways that DFS operations and practices can be improved to better protect clients and strengthen trust. Client recourse mechanisms, for example, represent an important area for improvement: many clients shared that they feel helpless and unsure about what to do after realizing they have been duped. Additionally, for business models that rely more on the mobile interface than on human interaction, clients increasingly rely on agents for information and guidance. This presents an opportunity to provide better service, as well as a risk for poor client treatment.

We hope that providers, industry associations, support organizations, regulators, consumer protection advocates, and clients can benefit from these findings to create a stronger, more inclusive client protection ecosystem. We offer specific recommendations for many of these stakeholders.

Client Voices: Rwandans Speak on Digital Financial Services

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

<em>&gt; Posted by Akhand Tiwari, Bhavana Srivastava, and Vijay Ravi, MicroSave</em>
<h4><span style="color:#ff6600"><img class="alignright wp-image-24143" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/dialogue-on-business-clients-india-7.jpg" alt="" width="330" height="220" />Loyalty Programs</span></h4>
In today’s world, loyalty programs are a dime a dozen, with everyone from retail stores to luxury hotels offering membership for even the smallest of transactions. <a href="https://smith.queensu.ca/insight/articles/the_logic_of_loyalty">A publication from Smith School of Business</a> suggests that the average Canadian household is enrolled in no less than eight loyalty programs. In this context, it is pertinent to examine if loyalty programs actually serve their intended purpose. If yes, how specifically do they impact a company’s business?

The premise of all loyalty programs is that they promote<a href="https://responsiblefinanceforum.org/wp-content/uploads/Building-Customer-Loyalty.pdf"> continued patronage</a>. In a world where there is often little variation between competitors’ offerings, a <a href="http://www.emeraldinsight.com/doi/pdfplus/10.1108/03090560810840925">well-designed loyalty program</a> could make all the difference for your business. After all, a good loyalty program could very well decide which airline you choose for your next business trip!

We make an important distinction here – between loyalty programs and rewards. While loyalty programs aim to instill continuous engagement, the focus of rewards is on pushing specific action. Rewards are target-oriented and last only for a limited period. To illustrate this, think of offers, such as zero-processing fees, which are designed to increase adoption of a credit product, and <a href="http://www.livemint.com/Money/L4zWiHkiKEibnL3W8w7kWM/New-banks-FDs-have-higher-interest-rates.html">higher interest rates on term deposits</a>, which promote savings.

Based on <em>MicroSave</em>’s experience on how low-income households exhibit loyalty towards their financial service providers – we have some useful insights.


<h4><span style="color:#ff6600">Loyalty Programs and Financial Service Providers</span></h4>
The success of any service provider depends on the quality of engagement with their customers, measured in part by customer satisfaction. The <a href="http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf">emergence of new players</a> who offer financial services across the spectrum has increased the significance of loyalty programs in this industry. With programs offering options of cashback, <a href="http://www.investopedia.com/terms/e/equated_monthly_installment.asp">equated monthly installments</a> (EMIs) on high-value purchases, and loyalty points for using credit cards, the financial sector is no stranger to the loyalty bandwagon. However, so far, these programs have been designed to cater to the middle-class or, <a href="http://www.cgap.org/photos-videos/how-get-merchants-go-digital">more recently, to merchants</a>.

With the digital finance revolution, the industry is increasingly eager to tap into the bottom of the pyramid. It now wants to bring into the mainstream those who have been traditionally excluded. <a href="http://www.microsave.net/files/pdf/RP161_FSP_Sales_in_MM_World_Kendall_et_al.pdf">Changes in target consumer base and product-delivery methods</a> warrant a <a href="http://blog.microsave.net/customer-service-more-than-just-smiles/">new approach</a> to loyalty programs as well.
<h4><span style="color:#ff6600">Loyalty and Low-Income Households</span></h4>
<img class="alignright wp-image-24136" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/quote-box-1.png" alt="" width="330" height="160" />For a financial service provider that seeks loyalty from this segment, how should the approach differ? While the focus of a loyalty program should be to promote patronage, could the program also include other dimensions? We believe that, for this client, there is a need to promote a positive mindset by demonstrating their importance to the company. There is a need to display trust, which will be reciprocated in the form of loyalty. This is critical, given the low-income market’s strong reliance on their social circle as a source of both information and influence.

Existing loyalty initiatives, like cashbacks and discounts, may not make sense when the institution is trying to promote patronage and trust.

<img class="alignleft wp-image-24139" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/quote-box-2.png" alt="" width="329" height="174" />Also, loyalty programs that offer benefits that are not obviously related to the core product (like a mobile operator offering discounts on FMCG products), may be a welcome bonus, but do not actually impact customer loyalty.

Simply put, we believe financial service providers can build customer loyalty among low-income clients by providing an important element that is <a href="http://www.microsave.net/files/pdf/the_answer_is_yes_cost_and_willingness_to_pay_in_india_2_UeUWcdIyaSo.pdf">lacking in their lives</a> – dignity.

Financial service providers may offer their customers dignity in many ways. Some initiatives that we know work well are:
<ul>
 	<li>Recognition makes customers stick around even during crisis periods because they have a sense of ‘ownership’ associated with the brand. For example, MFIs who work with base-of-pyramid segments often celebrate their customers for regular repayment. A token of appreciation in a group meeting often does wonders to their attitude towards the organization.</li>
 	<li><img class="alignright wp-image-24140" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/quote-box-3.png" alt="" width="331" height="185" />Many FSPs conduct skill-based training sessions and workshops that focus on building livelihoods. These work in two ways. Firstly, receiving an invitation to attend a training and being awarded a certificate is regarded as “being recognized”. Secondly, customers see this as skill-building, which garners social respect. Moreover, when applied well, these skills result in increased income — improving the economic conditions of the household. We have seen at Equity Bank in Kenya, for example, that customers who have attended training sessions have a stronger affinity to the organization and tend to stick with it longer than those who have not. These customers also demonstrate <a href="https://nextbillion.net/enhancing-access-to-finance-for-women-entrepreneurs-what-should-financial-institutions-do/">better behavior</a> in terms of timely repayment and regular attendance in meetings.</li>
 	<li><a href="http://bit.ly/1ltB0iU">Good customer service and a happy customer experience can go a long way to improve loyalty</a>, while poor customer service can quickly erode it. We’ve seen that <a href="http://www.microsave.net/files/pdf/No_Thrills_Dormancy_in_NFA_Accounts.pdf">a major reason for dormancy of bank accounts</a> can be a lack of respect shown by bank staff to their customers. Responsive product design and processes also improve customer experience. In Bangladesh, MFIs have <a href="http://gfdrr.org/sites/gfdrr/files/publication/Microfinance%20and%20Disasters-Preparing%20for%20the%20Worst.pdf">modified product features</a> to help their customers through cyclones and excessive rains that affect Bangladeshis every year. In its earlier days, Equity Bank used <a href="http://www.microsave.net/files/pdf/Customer_Service_Strategy.pdf">salary boards</a> to allow clients to check whether their salaries were credited to their accounts without having to wait in line to ask tellers. As <a href="http://documents.worldbank.org/curated/en/221421468147873241/pdf/909510BRI0Box30l0Inclusion0Jun02014.pdf">CGAP notes</a>, “customer-centric providers tend to fare better in the long run, as they are better at retaining customer loyalty and identifying and meeting evolving demand.” Arguments in <a href="https://assets.kpmg.com/content/dam/kpmg/au/pdf/2017/customer-first-digital-age.pdf">this thoughtful piece from KPMG Australia</a> highlight the importance of customer experience as well.</li>
</ul>
In order to create a fully functional loyalty program, these piecemeal activities should be institutionalized with clear goals and targets in sight. One might argue that cost-constraints inhibit financial service providers from focusing on these activities on a sustained basis. However, consider this: the cost of acquiring a new customer is always high – definitely higher than retaining existing customers, though the estimates vary (see the <a href="https://www.linkedin.com/pulse/what-cost-customer-acquisition-vs-retention-ian-kingwill">cost of retention vs acquisition</a> and <a href="https://hbr.org/2014/10/the-value-of-keeping-the-right-customers">this Harvard Business Review note</a>). Organizations serving the BoP face <a href="http://www.microfinanceindia.org/uploads/news_attachments/20130724120608_state-of-the-sector-report-2012.pdf">the same challenge</a>. However, the fact remains that even in trying times (such as the emergence of new, aggressive competitors, political interference, and/or macroeconomic shocks, such as the <a href="http://timesofindia.indiatimes.com/business/india-business/demonetisation-to-hit-mfis-for-q4-too/articleshow/57525277.cms">demonetization</a> exercise in India), these investments will provide the organization with the much-needed time to face new challenges.

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/08/23/juntos-harnesses-artificial-intelligence-to-improve-customer-engagement-for-bbva-bancomer-and-bancolombia/">Juntos Harnesses Artificial Intelligence to Improve Customer Engagement for BBVA Bancomer and Bancolombia</a>

<a href="https://cfi-blog.org/2017/07/13/not-just-a-pretty-interface-designs-must-be-easily-learned-and-used/">Not Just a Pretty Interface: Designs Must Be Easily Learned and Used</a>

<a href="https://cfi-blog.org/2016/12/05/client-centricity-at-scale-the-brac-smart-certification-journey/">Client-Centricity at Scale: The BRAC Smart Certification Journey</a>

Building Customer Loyalty at the Bottom of the Pyramid

I have <a href="https://alexcountshaitibook.wordpress.com/2013/10/18/a-surprising-microfinance-researcher-and-possible-implications-for-haiti/">written extensively</a> about how I believe practitioners and researchers can work most effectively together in reducing poverty, often using some of the missed opportunities for this kind of collaboration in microfinance as a point of departure. In the process, quite a few people have come to believe that I am opposed to randomized controlled trials (RCTs). Perhaps part of the issue is the tendency of many people, especially those in the media, to reduce a point of view to whether it is “for” or “against” something else.

In fact, my position has always been that RCTs have an important place in improving development policy and practice. I have, however, been uneasy with the way they have been promoted – dare I say “over-hyped”? – as a “gold standard” and also with the <a href="http://www.grameenfoundation.org/blog/reflections-latest-studies-microcredit#.ViZ3fX6rTIU">misleading assumptions and comparisons</a> some of its proponents routinely make. The limitations of RCTs are frequently minimized, as are the potential contributions of other research methodologies.

In the case of microcredit, the way RCT studies have been digested, interpreted, and acted upon has done considerable and unnecessary damage to policy and practice, even as it has increased our knowledge of some important issues. No one group bears responsibility for this damage, but too many continue to ignore or minimize it.
<h3><strong>Enter Angus Deaton</strong></h3>
Like many others, I have struggled at times to articulate the source of my unease. Now comes powerful commentary on RCTs and related topics by 2015 Nobel laureate economist Professor Angus Deaton in his <a href="https://medium.com/@timothyogden/experimental-conversations-angus-deaton-b2f768dffd57">interview with Tim Ogden</a> of NYU’s Financial Access Initiative.

Deaton, a Professor of Economics and International Affairs at the Woodrow Wilson School, is currently focusing on the broad topics of health, well being, and economic development. In announcing the Nobel Prize, the Royal Swedish Academy of Sciences noted his “analysis of poverty, consumption and welfare.”

In the interview, Deaton comes across as a blunt, old school economist who resists hyperbolic claims by proponents of the latest fads, especially if those fads are rebranded versions of earlier ones that were discovered to have notable strengths but also significant limitations.

I have a lot of sympathy for this type of realistic, long-term thinking. In fact, my <a href="http://cfi-blog.org/2015/03/03/what-impact-investors-could-learn-from-microfinance/">blog post</a> about what impact investors could learn from microfinance began as a reflection on the ahistorical thinking of many impact investors who failed to appreciate their forerunners and what they accomplished and learned.

In the interview with Ogden, the overarching theme is that development and development research, besides being prone to fads, are simply hard to do well. There are no short-cuts, no silver bullets, and above all (to use a term he favors), no “magic.” Each generation seems to believe they have found the answer, and are ultimately proved wrong, in part because they missed opportunities to learn from prior generations and to replace hubris with humility and curiosity.

Certainly Grameen Foundation, for example, has learned how difficult it is to make tangible progress on leveraging the power of information technology for poverty reduction. But with sustained effort, and at times aided by RCTs, we have been able to make real headway, especially in the areas of <a href="http://www.grameenfoundation.org/what-we-do/financial-services">financial services</a>, <a href="http://www.grameenfoundation.org/what-we-do/agriculture">subsistence agriculture</a>, and <a href="https://taroworks.org/">using field data to improve decision-making</a> impacting poor clients. Other members of the <a href="http://microfinanceceoworkinggroup.org/">Microfinance CEO Working Group</a> are advancing the state of practice through similarly rigorous and painstaking approaches.

As we go about our work, Grameen Foundation staff and volunteers continuously familiarize themselves with and promote broad industry awareness of the widest possible range of research findings and methodologies, most notably in our “Measuring the Impact of Microfinance” series, which is coming out with its third installment next month. (This forthcoming publication is written by Professor Kathleen Odell of Dominican University, who also authored <a href="http://www.grameenfoundation.org/resource/measuring-impact-microfinance">the 2010 report</a>.)

To get a flavor of Deaton’s commentary, I have extracted some of the most trenchant quotes from the interview and grouped them thematically. I urge people to read <a href="https://medium.com/@timothyogden/experimental-conversations-angus-deaton-b2f768dffd57">the entire interview</a> and also the forthcoming book <em>Experimental Conversations</em> by Ogden that it will be part of. (I am also interviewed in the book.)
<h3>There Is No Magic</h3>
“[The randomistas believe that they] have a magic tool but they don’t yet have much of an idea of the problems with that magic tool. And there are a lot of them….  I think RCTs rarely meet the hype.”

“[The randomistas] like to argue that RCTs don’t need assumptions but they’re loaded with assumptions at least if you are going to use them for anything.”

“There is a sort of belief in magic, that RCTs are attributed with properties that they do not possess.”
<h3>Failing to Learn from History</h3>
“If you go back to the 70s and 80s and you read what was written then, people thought quite hard about how you take the result from one experiment and how it would apply somewhere else. I see too little of that in the development literature today… [My] reading of the J-PAL webpage makes me think that when they list estimates they seem to suggest you can use them pretty much anywhere. Which is pretty weird when you think about it.”

“I think [prior generations of economists] thought very hard about the strengths and limitations of RCTs, and that much of that seems to have been lost today, which is a pity.”

“I think some of it is a youth over old age sort of idea. Here’s a new tool, we can rethink the world with it.”
<h3>Beyond Its Capabilities</h3>
“…[A] reporter wrote that an RCT allows you to establish causality for sure. But that statement is absurd.”

“I think [RCT advocates] thought they were going to solve a problem which is not solvable.”

“I think that right now the literature is claiming way too much for RCTs.”
<h3>Part of A Toolbox</h3>
“RCTs are fine, but they are just one of the techniques in the armory that one would use to try to discover things. Gold standard thinking is magical thinking, … a belief that this method can do something which it can’t, the replacement of statistics with magical thinking.”

“I’m not blinkered by the craziness that if it’s not a randomized control trial I shouldn’t pay any attention to it. Which I’ve heard more times than I can count.”

“[E]xtended case studies are enormously important. Most of the great ideas in the social sciences over the last 100 years came out of case studies like [the financial diaries]. Because people are open to hearing things they didn’t necessarily plan…”

“I think [the RCT movement] will likely fade in the same way it faded 30 years ago and for much of the same reasons….  RCTs will have more of a place in the economist’s toolbox than was true twenty years ago, and as with other methods, we will have a well thought out view of when and where they are useful. More tools are always welcome, as long as we don’t think one of them is a magic tool, or that it is the only tool we need.”

To which I simply say, “Amen.”

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/03/20/reflections-on-the-latest-studies-on-microcredit/">Reflections on the Latest Studies on Microcredit</a>

<a href="http://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

<a href="http://cfi-blog.org/2015/08/27/how-we-talk-about-microfinance-a-reply-to-dean-karlan/">How We Talk About Microfinance: A Reply to Dean Karlan</a>

Part of a Toolbox: Angus Deaton Urges Reconsideration of the Role of RCTs

<em>&gt; Posted by Brianna Nelson, Project Associate, CFI</em>

[caption id="attachment_17934" align="alignright" width="300"]<a href="http://www.cgap.org/blog/creating-insights-engine-customer-centric-organization"><img class="wp-image-17934 size-medium" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/04/kaleido.png?w=300" alt="" width="300" height="297" /></a> (click for larger graphic)[/caption]

The idea of customer-centricity doesn’t sound complicated. Shouldn’t every business be focused on its customers? However, even for businesses that do endorse a customer-centric approach, endorsement doesn’t necessarily translate into action. Financial service providers organize their businesses around their services. Even small tweaks to refocus the organization around the customer can require major institutional shifts.

Gerhard Coetzee, Senior Financial Sector Specialist at CGAP, recently presented at the Center for Financial Inclusion offices in Washington, D.C. on CGAP’s work on business models for customer-centricity. To assist institutions not only to prioritize but to effectively implement customer-centric products, CGAP is piloting a new tool to help financial providers better understand the complex needs of their customers.

In collaboration with LIVELABS, CGAP created the innovative <a href="http://www.cgap.org/blog/creating-insights-engine-customer-centric-organization" target="_blank">Kaleido tool</a>, a 360° customer profiling tool for designing financial services. The goal behind Kaleido is to understand and map the financial context of a household, which in turn provides valuable insights into the needs of clients. It is being piloted with Janalakshmi, an Indian financial service provider that serves over <a href="http://mastercardfdnsymposium.org/PDF/Workshop/WS3-Kaleido_360_Customer_Profiling.pdf" target="_blank">1 million</a> urban clients.

The first step in the Kaleido process is fairly straightforward – a questionnaire completed by families upon enrollment at a financial institution. These questionnaires provide the information needed to develop a visual map of a household’s financial indicators (see graphic). The data is <a href="http://www.cgap.org/sites/default/files/Other-Kaleido-Brochure-March-2014.pdf" target="_blank">synthesized</a> into five sections: composition, events, attitudes, business, and finances. By compiling the financial profile of a household, Kaleido creates a holistic overview of the needs and aspirations of the client. More information is added over time, with Kaleido serving as the foundation for identifying financial needs, and the institution designing products and delivery mechanisms to fit those needs. Clients focus their lives around events and milestones, not around loans or savings, so developing a unique and comprehensive profile of each household is a crucial step to understanding their financial needs and developing customer-centric products.

Kaleido is still in its initial stages of implementation, with Janalakshmi conducting <a href="http://www.cgap.org/blog/creating-insights-engine-customer-centric-organization" target="_blank">quantitative testing</a> on aspects of the tool and piloting it with a limited set of customers. The next phase will involve a gradual integration of Kaleido into Janalakshmi’s core operations. As the system is refined and more data is included for each client, it is expected to evolve into a comprehensive resource that can continually assess the financial progress of households and inform product design. Over time, the insights drawn from Kaleido will be based on the financial journeys of a large number of households.

We are excited to see how Kaleido’s implementation affects the shift toward customer-centricity at Janalakshmi. The next challenge will be to translate these insights into design criteria and ultimately services. And to get more institutions to take up similar efforts.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/03/28/behavioral-approaches-to-product-innovation-at-the-base-of-the-pyramid/" target="_blank">Behavioral Approaches to Product Innovation at the Base of the Pyramid</a>

<a href="http://cfi-blog.org/2014/07/08/does-financial-inclusion-need-to-be-more-customer-centric/" target="_blank">Does Financial Inclusion Need to Be More Customer-Centric?</a>

<a href="http://cfi-blog.org/2014/10/31/fast-moving-consumer-goods-and-customer-needs-the-missing-link-between-shampoo-and-savings-accounts/" target="_blank">Fast-Moving Consumer Goods and Customer Needs: The Missing Link Between Shampoo and Savings Accounts</a>

Customer-Centricity as a Business Model: Taking the Kaleido Approach

<em>&gt; Posted by Anton Simanowitz and Katherine E. Knotts</em>

<img class="alignright wp-image-17579" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/03/467304.jpg" alt="" width="230" height="349" />“Customer centricity” is the new buzz in the microfinance industry. More and more financial service providers are recognizing that their success is built on the success of their clients. Customer centricity certainly means recognizing that financial inclusion is not just about <em>more services – </em>it’s about <em>better services</em>. To achieve this, financial service providers need to grapple with the complexity of clients’ financial lives, <a href="http://www.cgap.org/publications/customer-centricity-financial-inclusion">understand what appropriate design looks like</a>, and <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/financial-capability">empower clients to use those services effectively</a>.

But is it always a “win-win”? What if clients express preferences and make choices that are not in their long-term best interests – that is, what happens when what clients <em>need</em> isn’t what they might <em>want </em>or demand? And what if responding to client needs in the most appropriate way appears to be a riskier decision from the point of view of institutional financial performance?

These tension points (and some quite radical decisions in the face of them) can be seen in the work of AMK Cambodia, highlighted in a new book <a href="http://www.thebusinessofdoinggood.co.uk/"><em>The Business of Doing Good</em></a>. Witness a conversation we had with a senior manager. "We will never be a leader in client service," he proudly announced. In the competitive Cambodian market, rapid disbursement of loans that meet customer demand is an important competitive advantage. Yet AMK accepts that its own loan disbursement is slower and more time-consuming for clients, and its loan sizes are much smaller than those of its competitors. Coming from an organization that is proudly “client focused”, this statement struck an odd note.

AMK, serving more than 360,000 people, is now the largest Cambodian MFI in terms of outreach. How can an MFI that invests heavily in understanding and responding to the <em>needs</em> of its clients be “less customer friendly” than others? The simple answer is that a market-led solution (responding to what clients <em>want </em>and are prepared to pay for) might look different from responding to what clients <em>need </em>in order to address the underlying complexities of their lives (i.e. poverty and vulnerability).

So if fast loan disbursement (which clients might prefer, and which AMK’s competitors are prepared to provide) means compromising the rigor of the detailed loan appraisal process that ensures they are not over-indebted and increases the likelihood of the success of a client’s investment, AMK is simply not interested. AMK recognises the importance of matching loans to client capacity to repay – not just whether they have sufficient collateral to cover them if they default. Central to this appraisal process is a visit to the client’s home, which experience has shown is critical to get an accurate understanding of the client’s situation. This visit takes time, is hard work for staff, and inconveniences its clients. Other MFIs have long abandoned this step, but AMK has made this a mandatory part of their lending process, and its “zero-tolerance” policy (with disciplinary action for client officers neglecting this) is verified through its internal audit function.

To understand what clients need, what they want, and what constraints they face, AMK invests in detailed research and client feedback, rather than assuming that it knows best. In fact this research overturned many common perceptions about rural poor people – showing for example that they had mixed economic baskets (rather than being solely reliant on agricultural income). It also highlighted that they were keenly vulnerable to shocks that affected their income (such as floods or health problems). These insights lay at the foundation of AMK’s product design, and have led to some noteworthy innovations.

Take the credit line loan, for example. It matches loan disbursement and repayments to erratic cash flows, and also cuts costs for clients by allowing them to draw down the amount of credit they need (up to a maximum), when they need it, rather than paying interest on capital that is not being used. On paper, the credit line looks like a risky product. Indeed, there were nervous glances around the boardroom table about how the organization would be able to predict its own cash flow, if clients were drawing down and repaying their loans when they chose to. And in fact in hindsight – although this looked like a case of clashing institutional and client needs - AMK has found that the seasonality of credit draw-downs and repayments are largely predictable. Clients are happy with the product – and AMK’s investors are satisfied that it’s worth supporting.

The credit line illustrates the challenge of balancing client needs with institutional risk and performance. Minimizing risk, while recognizing future benefits, has been at the core of AMK’s strategy. Whilst AMK developed a sound understanding of its clients and their needs, it has always sought to find the “sweet spot” between these needs, organizational capacity, and financial performance. As such, strategic decisions have been made about <em>which </em>of those needs to meet at any one point in time. These decisions were driven by the evolving internal and external context (including organizational capacity, market share, regulation, competition). For example, in the past five years, AMK has evolved from largely a credit-only provider to a multi-channel, multi-service provider (including insurance, savings, and remittances). In the case of savings, its early research revealed that clients <em>can </em>and <em>did </em>save (although not in regular amounts in a secure way), and highlighted the role that savings played in helping clients to cope with the unexpected. However, it wasn’t until regulatory barriers dropped that they were able to offer these in a way that made sense both for clients and the organization – by rolling out an agent savings model that took flexible services to where they were needed most (rural areas).

<em>The Business of Doing Good </em>tracks the ongoing conversation around client centricity over the past 11 years within AMK. AMK’s journey is founded upon a clear understanding of its clients’ needs, and clarity about its purpose within the lives of those clients and indeed the marketplace. As such, this book is relevant to all microfinance organizations, and those that support them to be more effective.

<strong>Learn more about the book: </strong>website: <a href="http://www.thebusinessofdoinggood.co.uk">www.thebusinessofdoinggood.co.uk</a>; Twitter: <a href="https://twitter.com/TBODGood">@TBODGood</a>

<em><strong>Anton Simanowitz</strong> (<a href="https://twitter.com/antowitz">@antowitz</a>) has worked for the past 20 years to support social enterprises to be more effective in delivering impact, and for those who support and invest in them to make better investment, capacity building, and policy decisions.</em>

<em><strong>Katherine Knotts </strong>(<a href="https://twitter.com/katherineknotts">@katherineknotts</a>) is a writer and strategic communications specialist, who works with microfinance and other social purpose organizations to help them analyse what’s working (and what’s not), distill lessons learned, and package those lessons for other practitioners through written and film media.</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/07/08/does-financial-inclusion-need-to-be-more-customer-centric/" target="_blank">Does Financial Inclusion Need to Be More Customer Centric?</a>

<a href="http://cfi-blog.org/2014/11/21/cambodian-microfinance-market-records-big-growth-but-is-it-healthy/" target="_blank">Cambodian Microfinance Market Records Big Growth. But Is It Healthy?</a>

<a href="http://cfi-blog.org/2014/10/31/fast-moving-consumer-goods-and-customer-needs-the-missing-link-between-shampoo-and-savings-accounts/" target="_blank">Fast-Moving Consumer Goods and Customer Needs: The Missing Link Between Shampoo and Savings Accounts</a>

Responding to Needs and Wants in a Market-Driven Financial Institution

<em>&gt; Posted by Alissa Fishbane and Allison Daminger, Ideas42</em>
[getty src="94882601?et=jtX0Y_cQT5J3JKDQg-JgvA&amp;socialOnLoad=off&amp;sig=4TJOthCJ6-9S1zmpdvXFFIch0zmuKWWxa6dDydwtw-M=" width="594" height="395"]

What does it take to successfully design, pilot, and scale an effective new financial product or service? Much more than most would realize! That’s why CFI’s recent <a href="http://cfi-blog.org/2014/11/18/applying-behavioral-insights-inside-latin-american-financial-institutions-what-happened-at-our-workshop/#more-16644">behavioral insights workshop</a> in Bogota, Colombia, had a clear focus: understanding the challenges of applying behavioral science to the operations of Latin American financial institutions. CFI asked ideas42 to kick off the day with an overview of behavioral science and its implications for the design and scale-up of financial products.

At ideas42, we use insights from behavioral science to diagnose behavioral bottlenecks preventing people from taking their desired actions, and design remedies that help organizations overcome them. We then measure the impact of these remedies through a randomized evaluation before they are fully scaled. Any successful program that hinges on people’s decisions and actions, as nearly all consumer finance initiatives do, requires a behavioral approach.

We’ve found that many promising financial programs underperform simply because people often don’t behave the way we expect. As humans, even when we know what’s best for us, we don’t always follow through. We put off applying for a program that will help us save for retirement, or a loan to expand the family business. And when we do make it through the initial sign-up process, we often fail to save consistently or make monthly payments on time. Whatever the specific challenge may be, the result is that resources aren’t used efficiently. Because of this, neither financial organizations nor the individuals they serve see the returns they could be seeing from a product that accounts for these human tendencies.

But while behaviorally informed product design is an essential piece of the puzzle, there is much more to it, as our recent <a href="http://www.ideas42.org/publication/view/driving-positive-innovations-to-scale-in-the-financial-services-sector/">white paper</a> on scaling financial products found. Institutions have to find pathways to achieving profitability, overcoming any organizational impediments, and navigating often-complex regulatory environments. Solid design alone cannot protect a financial innovation from the many structural challenges it will face.

What’s more, it is rarely acknowledged that the people who are responsible for driving this process within financial institutions will have the same behavioral biases as their intended audience. For example, whether we are playing the role of consumer or provider in a particular setting, we all selectively interpret information; are overconfident about future outcomes; and underestimate how long it will take to get something done. These can make the structural challenges even more difficult to overcome.

At the workshop, Colombian financial inclusion professionals were eager to share lessons from their own experiences. Our resulting conversation centered on four key recommendations:
<ul>
 	<li><strong>Have a “champion” at the top. </strong>Without an influential senior leader to protect it throughout the process, any innovation is even more vulnerable to budget cuts and internal priority shifts.</li>
 	<li><strong>Involve representatives from many departments early on. </strong>Though the role of the sales or legal teams might not be obvious in the early stages of product development, these and other departments may flag important concerns that could derail the innovation if discovered later on. Of course, working across a dozen departments presents a myriad of challenges, and therefore an effective project leader, nominated from the top, is also needed to motivate and communicate within and across specialized teams.</li>
 	<li><strong>Make the business case at the outset of a new project. </strong>Ensuring that a product will be economically viable at scale doesn’t just enhance profitability; it increases the likelihood that a product will be championed and supported by individuals and departments across the institution.</li>
 	<li><strong>Plan for scale from the start. </strong>Without a clear vision of how an innovation will later be scaled, a project is likely to be derailed by lack of resources in the budget, resistance from departments not involved in the pilot, distributional hurdles that didn’t exist on a smaller scale, or simply by lack of momentum.</li>
</ul>
These insights echo findings outlined in our recent <a href="http://www.ideas42.org/new-white-paper-driving-positive-innovations-to-scale-in-the-financial-services-sector/">white paper</a>, and it was exciting to see our analysis reflected in the real-world experiences of Colombian financial institutions. The workshop in Bogota proved to be a successful exchange of ideas and practices between financial providers and behavioral experts. As ideas42 continues to build our work in the financial inclusion space, we are taking a deeper dive into examining the economics of product models from a provider perspective. Stay tuned to the CFI blog and the <a href="http://ideas42.org">ideas42 website</a> for more insights early next year.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/11/18/applying-behavioral-insights-inside-latin-american-financial-institutions-what-happened-at-our-workshop/">Applying Behavioral Insights Inside Latin American Financial Institutions: What Happened at Our Workshop</a>

<a href="http://cfi-blog.org/2014/07/03/financial-capability-stakeholders-join-j-p-morgan-in-new-solutions-lab/"> Financial Capability Stakeholders Join J.P. Morgan in New Solutions Lab</a>

<a href="http://cfi-blog.org/2014/04/10/smart-design-for-policy-and-practice-consider-bandwidth-insights-from-harvard-kennedy-schools-rethinking-financial-inclusion/">Smart Design for Policy and Practice: Consider Bandwidth – Insights from Harvard Kennedy School’s “Rethinking Financial Inclusion”</a>

Beyond Design, Behavioral Science for the Pilot and Scale of Product Innovations

<img class="alignright wp-image-16660" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/fin-fin-cap-cap-photo1.png" alt="" width="290" height="386" />In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.

The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.

Most of the participants represented a cross-section of the financial inclusion sector in Colombia – many banks, several microfinance institutions, and the public sector Banca de las Oportunidades program were present. The financial inclusion market segment is increasingly contested territory in Colombia, and every major bank has had some experience trying to create products and channels to reach it.

To launch the conversation, we asked several experts to recount their experiences in introducing “client-centric” innovations, bringing in the work of additional organizations, this time associated with the U.S. West Coast – Stanford and Silicon Valley. Included were proponents of human centered design and Juntos Finanzas, an entrepreneurial start-up that uses data analytics to provide tailored financial capability messages to clients of financial institutions. Finally, two more homegrown experiences from the Accion Latin America network were represented – one involving savings and the other financial education for microinsurance.

Some lessons immediately popped out. In several cases, well-crafted products, designed with deep understanding of client behavior were not implemented due to snags encountered inside the implementing financial institutions. And even those that succeeded faced major challenges before gaining a secure place within their organizations. Challenges ranged from changes at the CEO level, to pressure for faster return on investment, to unsupportive frontline staff.

We thought this needed further exploration, so we posed some hypothetical products with integrated behavioral insights and asked participants in small groups to assume the roles of various actors within a financial institution. Each group’s task was to design and roll out the proposed products. It was at this point that participants began to talk over each other. The legal department and the IT department, the HR department and the finance department, the product department and the marketing department – everyone had crucial and legitimate issues, each needing solutions before the product could proceed. At that stage the behavioral experts in each group tended to step back and watch the simulated institutions battle it out internally as questions about behavioral economics took a back seat to the practicalities of implementing change inside institutions.

The overarching takeaway of the day was that no matter how inspired or close to the client, good product design is only the first step toward a successful offer. Experts who bring important new insights cannot assume that their work ends with product design. As Gerhard Coetzee <a href="http://cfi-blog.org/2014/11/14/expecting-change-where-the-odds-are-seemingly-against-it/" target="_blank" rel="noopener">wrote</a> in this blog space on the very same day as this workshop, a new product is primed for success only after thorough analysis of the inner workings of an institution and a plan is aligned with the interests of its various areas. Behavioral insights and other customer-oriented product features must make it through the “noise” within the institution, competing with all of the other things a bank must attend to in order to survive.

From my (perhaps biased) position as someone who has worked at Accion, this kind of analysis and planning is exactly the know-how Accion has built up over the years as it has worked to build healthy microfinance institutions. Accion, for its part, has not particularly embraced behavioral economics insights. So opportunities for mutual learning exist.

Many specific lessons emerged from the day’s discussion, and we would like to continue to share them with you. CFI will assemble them into a brief note within a few weeks. Please stay tuned.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/11/05/kate-mckee-on-the-behavioral-economics-of-poverty-and-implications-for-financial-inclusion/" target="_blank" rel="noopener">Kate McKee: On the Behavioral Economics of Poverty and Implications for Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/03/28/behavioral-approaches-to-product-innovation-at-the-base-of-the-pyramid/" target="_blank" rel="noopener">Behavioral Approaches to Product Innovation at the Base of the Pyramid</a>

<a href="http://cfi-blog.org/2014/07/03/financial-capability-stakeholders-join-j-p-morgan-in-new-solutions-lab/" target="_blank" rel="noopener">Financial Capability Stakeholders Join J.P. Morgan in New Solutions Lab</a>

Applying Behavioral Insights Inside Latin American Financial Institutions: What Happened at Our Workshop

<em>In this thoughtful and provocative blog post Ignacio Mas lays down a series of challenges for everyone working on financial inclusion. We think that the questions he's asking need to be talked about. We're asking three experts — on customer-centricity, on fintech start-ups, and on regulation — to respond to his provocations, and for the next three Wednesdays we'll publish one of them.</em>

Have you noticed how narrow the interventions of the chorus of financial inclusion supporters have become? Academic researchers are immersed in proving whether an SMS message sent at the right time can push people to repay their loans more promptly (a.k.a. nudges), or whether someone with more savings is likely to be happier and more empowered in some way (a.k.a. impact evaluations). NGOs fund numerous papers and conferences to promote the idea of seeking early and frequent customer feedback in product design (a.k.a. human-centered design), or of looking into customer data for some clue as to what interests them and how they behave (a.k.a. big data). Donors set up round after round of tenders with subsidized funds to spur fully-grown banks and telcos to try out a new product feature (a.k.a. challenge grants), or to prop up the marketing and distribution wherewithal of selected players (a.k.a. capacity building).

All this buzz surely is positive and the things that come out of these activities may well be part of the answer to the financial inclusion challenge. But this begs the larger question: why aren´t these rather obvious and incremental things done by interested market participants themselves? Why don´t they already experiment with customer communication modes and new product features? Why don´t they eagerly seek out impact data that can drive effective marketing and PR, or more routinely seek customer feedback to improve their products and operations? Why don´t they systematically leverage customer insight as a core asset, and why do they underinvest in novel customer promotion techniques?

In other words, why is there such an inherent innovation deficit within the very commercial ventures that we think are going to drive financial inclusion forward? Do market players really need this very granular level of handholding to <em>get</em> what academics, NGOs, and donors so clearly believe in?

To put it more bluntly: do we really need to continue subsidizing <em>sustaining</em> innovation like this? Or is the problem, rather, that there isn´t enough of a competitive push to drive them to want to innovate as a key source of market advantage? Would more competition for and within the market drive the kinds of innovations that are being promoted from the sidelines?

I think the latter. Consider the current innovation frenzy in digital financial services in the US. <a href="https://www.google.com/wallet/">Google</a>, <a href="http://www.amazon.com/Amazon-com-Amazon-Wallet-Beta/dp/B00LIBDH8M">Amazon</a>, and <a href="https://www.apple.com/iphone-6/apple-pay/">Apple</a> all want to join early mover <a href="https://www.paypal.com/ke/webapps/mpp/home">PayPal</a> in getting inside or becoming people´s electronic wallets. <a href="http://www.theguardian.com/technology/2014/oct/06/facebook-mobile-payments-messenger-app">Facebook</a> and smaller start-ups like <a href="https://www.dwolla.com/">Dwolla</a> and <a href="https://venmo.com/">Venmo</a> all want to revolutionize how money is sent online. Players like <a href="https://www.smartypig.com/">Smartypig</a>, <a href="https://www.simple.com/">Simple</a>, and <a href="https://www.moven.com/">Moven</a> want to reinvent how you deal with the money sitting in your bank account. Established players like <a href="http://www.mastercard.com/contactless/">MasterCard</a> and new ones like <a href="https://squareup.com/">Square</a> want to change how you pay for goods at the store. Not to mention, of course, the slew of <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1769124">bitcoin</a> start-ups.

Now ask yourself: why are none of these players vying for the blue space that is the billions of people who are excluded? Aren´t these companies the ones who are best placed, with their high-volume, low-cost digital platforms and viral marketing savvy, to radically transform the economics of financial service delivery? Why isn´t the chorus of financial inclusion supporters simply putting their desire for innovation at the feet of these corporate <em>digital natives</em>?

And let me tell you, they are right not to do so. That´s because there are three things none of these digital players want to deal with – and never will. They do <em>not</em> want to get a banking license that embroils them in onerous regulation. They do <em>not</em> want to conduct primary identity checks on their customers (Know Your Customer, or KYC), which require physical customer contact. And they do <em>not</em> want to touch their customers´ cash. That´s why all digital financial players, exciting as they may seem when you look at their wares online, sit parasitically on top of banks. You will not have access to their services if you do not already have a bank account: to deal with regulatory aspects, to conduct primary KYC, and to do cash in/out through them.

It follows that these digital players will not lead the charge on financial inclusion in developing countries. At most they will wait tactically in the sidelines and pick up customers as they trickle into the formal financial system. But most won´t even do that: these businesses´ DNA is all about scale and network effects, so if they can´t go for size then they may not go there at all.

Unless. Unless we give them an alternative path to delegate, or even avoid, these three things that they don´t want to do. A way into developing markets that does not make them entirely dependent on banks to first open up the space for them. Here´s how. First, give these players the opportunity to get a more <em>lenient</em> e-money license which does not constrain them in what services they can offer customers, but bars them from loaning out or otherwise speculating with (i.e. intermediating) customers´ funds. Second, allow them to offer an entry-level account that requires <em>no</em> identity checks; cap usage of that appropriately, so that more onerous KYC procedures kick in only when customers are ready to give the account more serious use. And third, delink cash in/out networks from specific account issuers, so that a breed of independent cash in/out network managers emerge with the vocation to serve all issuers, all stores, and all customers. All they should be required to have is a customer account, but not an agency contract, with each issuer. (If you are thinking that this is the standard branchless banking regulatory prescription, think again, or, better yet, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1692164">read this</a>.)

You will have noticed that these points are all about regulation. Regulation holds the key to creating a competitive environment that is more welcoming of innovative digital players. In the end, the chorus of financial inclusion supporters are getting involved in the supply of innovation simply because they want to avoid the morass that is regulatory reform. But if they truly want to make an impact on financial inclusion, they should go back to focusing on basic market enablement rather than merely filling innovation gaps.

<em>Ignacio Mas is an independent consultant. You can learn more about his work <a href="http://www.ignaciomas.com/" target="_blank" rel="noopener">here</a>.</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/08/06/reality-check-three-ways-we-hype-up-financial-inclusion-break-throughs/" target="_blank" rel="noopener">Reality Check: Three Ways We Hype Up Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/07/10/what-kinds-of-regulation-promote-the-development-of-microfinance-markets/" target="_blank" rel="noopener">What Kinds of Regulation Promote the Development of Microfinance Markets?</a>

<a href="http://cfi-blog.org/2014/09/08/emerging-themes-in-responsible-digital-finance/" target="_blank" rel="noopener">Emerging Themes in Responsible Digital Finance</a>

The Great Competition and Innovation Deficit

<em>&gt; Posted by Rafe Mazer, Financial Sector Specialist, Government &amp; Policy, CGAP</em>

[getty src="107953538?et=tornn0RpTmJ8kJdz_oWfzw&amp;sig=roCw9oAQ_uen6k63Ip8QktmPdCybdJpw0DEhiOCbYqU=" width="594" height="395"]

It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, <a href="http://www.cgap.org/data/infographic-mystery-shopping-mexico">this infographic</a> on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or <a href="http://www.amazon.com/Scarcity-Having-Little-Means-Much/dp/0805092641">scarcity</a> means for financial behavior.

The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, <a href="http://www.cgap.org/publications/applying-behavioral-insights-consumer-protection-policy">Applying Behavioral Insights in Consumer Protection Policy</a>, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?



<strong>CPP 1: Appropriate product design and delivery</strong>

What works best for low-income consumers won’t always work best (or at all) for providers, and this can lead to some very anti-inclusion behaviors. Consider for example a fascinating forthcoming study in India by Amy Mowl and Camille Boudot, which showed that even when trained consumers persisted in trying to open no cost basic savings accounts, providers went to great lengths—even lying about regulations—to avoid providing these accounts. So perhaps we need to look at the growing research on sales staff incentives, have an honest conversation about just how much policy can force mass distribution of appropriate products, and focus instead on where the true nexus for consumer welfare and provider business case may lie.

<strong>CPP 2: Prevention of over-indebtedness</strong>

Here the long-term incentives may be better aligned between providers and consumers, as poor loan portfolio quality will eventually catch up to a lender in most cases. Several behavioral issues are pertinent to consumers’ falling into situations of over-indebtedness (e.g. tunneling, or temporal discounting) that providers can take into consideration when designing loan products. A basic first step is to make the cost of credit more salient upfront to consumers, by presenting the costs before consumers are about to sign for the loan, and in terms that they will understand (e.g. not a confusing percentage-based representation of APR). Additionally, understanding the context of the moment the consumer is seeking the loan—are they dealing with an emergency problem and so “tunneling” on the immediate without consideration for the long term?—means providers can design products and guidance that helps consumers consider long-term implications of a credit decision as well.

<strong>CPP 3: Transparency</strong>

Behavioral research is showing that new ways of presenting product features in ways that connect with our daily financial lives can help them to become more salient and understandable to most consumers. It is also showing us that the way information is presented—including information overload—can matter as much as the actual information itself in driving our decisions. This is also one of the easiest areas to get started on, via simple testing of new formats and terms with actual consumers.

<strong>CPP 4: Responsible pricing</strong>

The behavioral insights relevant to this principle overlap significantly with those on over-indebtedness, although with the added issue of helping to assure that providers don’t take advantage of consumers’ biases, such as lack of attention to detail, to hide costs of things such as credit life insurance in the fine print or misrepresent its value for money.

<strong>CPP 5: Fair and respectful treatment of clients</strong>

Mullainathan and Barr said it best: Many lower income people feel “that banking is not intended and should not appeal to people with lesser means…a poor client may feel reluctance, shame, and a general sense that he or she could never be an important or valued customer at a bank.” Perceptions matter for usage and client behavior. I have always been surprised in interviews with consumers—especially lower-income segments of the populations we look at—how much simple things like layout of the branch, signage, or even how they are greeted impact their decisions to seek a product, complete a transaction, or seek recourse when something goes wrong. New research methods can offer a path for providers to test all these small changes in design or behavior to figure out how they drive consumers’ behavior and feelings of being respected and treated fairly.

<strong>CPP 6: Privacy of client data</strong>

As digital footprints become a bigger element of financial inclusion, the need to protect consumers’ data becomes even more important. Here a key behavioral issue emerges: A gap between what consumers say (“I want my data protected”) and what they do (relinquishing control of their data at the slightest barrier or ticking the consent box without considering what they consented to). We therefore should not hold much hope for consumers to self-protect here, and so providers should design their data sharing policies and informed consent approaches with this gap in what we say and what we do in mind.

<strong>CPP 7: Mechanisms for complaint resolution</strong>

Improved recourse can be a win-win for consumers and providers, as it can drive long-term usage and loyalty of consumers. However, recent work by CGAP on consumer complaints behavior has drawn out some small design flaws in providers’ complaints processes that can greatly limit consumers’ ability to see a complaint through to resolution. This includes physical and procedural barriers (such as “fill out this form then come back tomorrow,” which may not be possible for consumers), limited advertising of channels, and unclear steps to escalate a complaint if the first attempt by the consumers goes nowhere. Simple solutions are emerging, such as using real-life success stories of consumers who complained and got successful resolution to create positive expectations to encourage complaints, using local authorities or new channels, such as agents or mobile banking, to move complaints initiation out of the often intimidating (and crowded) banking halls, and integrating commitment devices (such as “we will call you within three days”) to increase follow-through. We are excited to try out some new design approaches to see if we can improve systems so they make consumers more likely, and this is certainly a space where providers aligned with the Smart Campaign should be encouraged to test and innovate.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/03/12/helping-consumers-understand-their-digital-data-initial-experiences-from-tanzania/" target="_blank">Helping Consumers Understand Their Digital Data: Initial Experiences from Tanzania </a>

<a href="http://cfi-blog.org/2014/03/28/behavioral-approaches-to-product-innovation-at-the-base-of-the-pyramid/" target="_blank">Behavioral Approaches to Product Innovation at the Base of the Pyramid</a>

<a href="http://cfi-blog.org/2014/01/17/contemplating-scarcity-and-its-implications-for-microfinance-and-poverty-alleviation/" target="_blank">Contemplating Scarcity and Its Implications for Microfinance and Poverty Alleviation</a>

Behavioral Research and the Client Protection Principles

<em>&gt; Posted by Hema Bansal, India Director, the Smart Campaign</em>

<a href="http://www.flickr.com/photos/14406301@N08/8588157743/"><img class="aligncenter wp-image-14999" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/8588157743_b466487693_z.jpg" alt="" width="530" height="416" /></a>As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

While it is encouraging to see MFIs mushrooming in Myanmar, licenses provided without much scrutiny and without sufficient industry regulations or self-regulation are challenges for the development of a responsible microfinance industry. Given this concern, the Responsible Finance Seminar was focused on bringing all industry stakeholders - including microfinance institutions - together to enhance the sector’s understanding of the principles of client protection and social performance management, and to kick start the process of engagement and deliberation for helping the microfinance industry in Myanmar adopt basic principles of responsible finance.

The seminar had about a hundred participants and included representatives of microfinance institutions (ACLEDA, BRAC, LOMC, BDA, CARD, and Dawn, to name a few), funders (including ADB, IFC, and LIFT), technical assistance providers (such as MicroSave and EDA), a regulator from Bangko Sentral ng Pilipinas, and representatives from CGAP, the Smart Campaign, SPTF,  UNCDF, and UNDP.

The seminar, bringing together this range of stakeholders spanning many markets, provided an opportunity to learn from the mistakes in markets like India where the microfinance crisis was partially triggered by unprecedented growth rates and the lack of safeguards in the industry. Frances Sinha, CEO of EDA India, introduced the <a href="http://cfi-blog.org/2012/09/17/banana-skins-2012-improving-mfi-governance/" target="_blank" rel="noopener">Banana Skins report series</a> on industry risk, outlining how important it is to identify potential risks in the sector on a continual basis. There needs to be strong prudential regulations established that reflect the respective risks of deposit and non-deposit-taking institutions, presenters at the seminar contended. New regulation can also address the client protection areas of transparency, fair treatment, and complaints resolution processes, noted CGAP's Eric Duflos, who is co-author of the IFC/CGAP joint report <em><a href="http://www.cgap.org/publications/microfinance-myanmar-sector-assessment" target="_blank" rel="noopener">Microfinance in Myanmar: Sector Assessment</a>.</em> In markets like India, clear guidelines on transparency have made microfinance institutions effective in communicating loan pricing and terms to clients.

Other concerns for Myanmar’s industry that were raised included high price caps and its lack of credit bureaus. In Myanmar there is currently a $500 loan cap, which, considering that 70 percent of the people in the country depend on agriculture for their livelihoods, does not serve much purpose. For example, it misses the spirit of the Smart Campaign’s <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles" target="_blank" rel="noopener">Appropriate Product Design and Delivery</a> principle, which emphasizes keeping clients’ needs in mind and creating value for clients.

The role of global initiations pertaining to responsible finance was also highlighted, with presentations and interactive sessions on the Smart Campaign’s <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles" target="_blank" rel="noopener">Client Protection Principles</a> and SPTF's <a href="http://sptf.info/spstandards1" target="_blank" rel="noopener">Universal Standards of Social Performance</a>.

For the Smart Campaign, Myanmar is a unique market because unlike other countries with mature microfinance industries where we have worked, Myanmar presents a virtually new market wherein the Campaign will have the opportunity to influence changes in client protection practices from the beginning. In the short term, the Campaign envisions engagement with the industry stakeholders, transferring its knowledge and resources through <a href="http://www.smartcampaign.org/certification/assessments" target="_blank" rel="noopener">Smart Assessor Training</a>, and training for institutions on the client protection principles and on the use of Smart Campaign <a href="http://www.smartcampaign.org/tools-a-resources" target="_blank" rel="noopener">tools and resources</a>. In the longer term, the Campaign will strive to help institutions achieve <a href="http://www.smartcampaign.org/certification" target="_blank" rel="noopener">Client Protection Certification</a>, thereby creating flagship institutions to guide the sector towards the responsible treatment of its clients.

<em>Image credit: <a href="http://www.flickr.com/photos/14406301@N08/8588157743/" target="_blank" rel="noopener">rustyproof</a></em>
<p style="color: #5e514d"><span style="font-weight: bold">Have you read?</span></p>
<p style="color: #5e514d"><a href="http://cfi-blog.org/2013/06/10/inclusive-activity-in-myanmar/" target="_blank" rel="noopener">Inclusive Activity in Myanmar</a></p>
<p style="color: #5e514d"><a href="http://cfi-blog.org/2014/01/06/client-protection-is-gaining-ground-in-indian-microfinance/" target="_blank" rel="noopener">Client Protection is Gaining Ground in Indian Microfinance</a></p>
<p style="color: #5e514d"><a href="http://cfi-blog.org/2014/01/21/the-suitability-approach-to-client-protection-comments-on-the-mor-committee-report/" target="_blank" rel="noopener">The Sustainability Approach to Client Protection: Comments on the Mor Committee Report</a></p>
&nbsp;

Fostering Responsible Finance in Myanmar’s Infant Industry

<em>&gt; Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School</em>

<em><a href="http://www.centerforfinancialinclusion.org/programs-a-projects/financial-inclusion-2020"><img class="alignright size-medium wp-image-8784" style="border: 0;margin-bottom: 15px" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/11/fi2020_antilogo2.jpg?w=300" alt="" width="300" height="66" /></a></em>

<em>The <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/financial-inclusion-2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”</em>

Here’s a financial inclusion puzzle for you. In marketplaces in Peru, small shop owners often take out loans from illegal and possibly dangerous lenders, gangs that operate on motorcycles. Cheaper and safer legal lending channels are available to these customers, but they don’t use them. How would you design a product that would draw these borrowers into the formal sector?

This was the question Guillermo Palomino, chairman of the microlending organization Edpyme La Cruz in Peru and advisor to several Latin American MFIs, brought to small group discussions in the <em><a href="https://exed.hks.harvard.edu/Programs/rfi/overview.aspx">Rethinking Financial Inclusion: Smart Design for Policy and Practice</a></em> program offered by Harvard Kennedy School Executive Education.

The first step was to develop a clear statement of the problem: use of illegal loans may endanger customers and exposes them to high interest rates and it may also expose their communities to increased criminality. Palomino explains, “The customer has no legal contract, no real knowledge of what the interest rate is, what the penalties are, when they might be applied, or what might happen if they default with these lenders.”

However, an effective solution would involve understanding the appeal of illegal loans. The HKS group worked to define the factors contributing to the problem, both at the surface and at deeper levels.

In essence, the formal sector was not offering customers the ease they required. With the illegal lenders, Palomino explains, “You call a cell phone and a guy shows up on a motorcycle with a little bag. He’ll give you $500 and say, ‘Okay, I’ll be back next week.’” Formal loans, in contrast, require signatures, background checks, address verification, and projected cash flow. These are minor hassles for some, like the formally-employed rich, but major hurdles for the poor. As Palomino describes, “These microbusinesses don’t have people to handle paperwork, go back and forth for signatures or pick up money—because then who takes care of selling the apples or bags of rice?” In probing for underlying causes, the small groups discussed how the regulatory demands pertaining to the loan approval process also present a challenge.



<a href="http://www.flickr.com/photos/28442702@N00/444409418/"><img class="aligncenter wp-image-14814" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/444409418_f4b28d4605_z.jpg" alt="" width="600" height="449" /></a>When it came to designing the actual product, harnessing technology-enabled mobility was a key theme. It’s to be expected that many clients favor convenience, like gang lenders arriving at their door. Agent banking can offer neighborhood convenience, minus the gangsters. To lessen the costs associated with such a model, incorporating mobile technology at consumer touch points, like data collection via phone or tablet devices for credit scoring, can increase efficiency. The group also expressed the need to work alongside regulators to allow more streamlined rules for small loans. And they acknowledged that the fundamental advantages of formal financial services, like client protection, might not be understood by first-time customers. Marketing could help here, and so could on-site agents conveying this information face-to-face.

The fourth step, how to install monitoring and evaluation into the product, was a particular challenge for several of the small groups. Given the high level of participants and their spread across the microfinance, NGO and regulatory sectors (<a href="http://www.hks.harvard.edu/centers/cid/programs/evidence-for-policy-design/news-events/rfi2" target="_blank" rel="noopener">click here</a> for a breakdown), this indicates an area for closer examination: How often is this element missing when designing products for financial inclusion? In the Peru case, participants included monitoring and evaluation practices now increasingly common among MFIs, such as tracking new and repeat customers through administrative data, quantifying market share, and conducting satisfaction surveys. Further, they proposed watching portfolio quality to evaluate streamlined credit scoring models.

So how did the course’s design steps work as a whole? To your correspondent, who sat in on several small groups throughout the week, the process was useful for the very reason it sometimes frustrated participants: each day they had to deal with a single step, rather than skipping forward toward preconceived solutions.

On the final day of the program, the small groups presented their designs to the class as a whole. In one of the grilling sessions that followed, one program participant asked if the formal lender could work with the loan gangs themselves. The presenter pointed out that this wouldn’t be feasible, since they are borderline criminal organizations, fly-by-night, and possibly armed. Yet the point was well taken that the product the group had designed was based on the model of these gangs—a successful model that could be improved with the consumer protections and lower costs that legitimacy can provide.

<em>Rohini Pande and Asim Ijaz Khwaja of <a href="http://www.hks.harvard.edu/centers/cid/programs/evidence-for-policy-design" target="_blank" rel="noopener">Evidence for Policy Design</a> (EPoD) at Harvard Kennedy School will offer the “Rethinking Financial Inclusion: Smart Design for Policy and Practice” program again next May 10-15, 2015. Visit the <a href="https://exed.hks.harvard.edu//Programs/rfi/overview.aspx" target="_blank" rel="noopener">HKS Executive Education website</a> for details.</em>

<i>For more information on Financial Inclusion 2020, </i><a href="http://bit.ly/FI2020signup"><i>sign up for campaign updates</i></a><i>.</i>

<em>V. McIntyre is a freelance writer based in London.</em>

<i>Image credit: <a href="http://www.flickr.com/photos/28442702@N00/444409418/" target="_blank" rel="noopener">Pierre Pouliquin</a></i>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/04/02/day-one-at-rethinking-financial-inclusion-smart-design-for-policy-and-practice-penicillin-versus-the-magic-bullet-or-why-data-is-not-a-mere-annoyance/" target="_blank" rel="noopener">Day One at "Rethinking Financial Inclusion: Smart Design for Policy and Practice" - Penicillin Versus the Magic Bullet, or, Why Data is Not Mere Annoyance</a>

<a href="http://cfi-blog.org/2014/04/10/smart-design-for-policy-and-practice-consider-bandwidth-insights-from-harvard-kennedy-schools-rethinking-financial-inclusion/" target="_blank" rel="noopener">Smart Design for Policy and Practice: Consider Bandwidth - Insights from Harvard Kennedy School's "Rethinking Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/12/17/defining-the-path-to-financial-inclusion-in-peru/" target="_blank" rel="noopener">Defining the Path to Financial Inclusion in Peru</a>

Designing Products in the Classroom for Use in the Real World