Privacy choices are inherently <a href="https://www.ariewaldman.com/book-industry-unbound" target="_blank" rel="noopener noreferrer">contextual</a>, and individuals make different privacy calculi from one situation to another, deciding each time what and how much to share. The boundaries we negotiate depend on our expectations of what will happen to our information in each situation and how much we trust the recipient. For instance, you probably wouldn’t share the same information about your financial status with an acquaintance at work as you would with your tax advisor.
<blockquote class="pullquote--right">Negotiating privacy boundaries in the digital world, including inclusive finance, has become increasingly difficult.</blockquote>
The trouble is that negotiating privacy boundaries in the digital world, including inclusive finance, has become increasingly difficult. <a href="https://www.ipsos.com/en-us/news-polls/trust-in-the-internet-2022" target="_blank" rel="noopener noreferrer">Trust in digital providers</a> has dropped amidst well-documented data breaches and abuses. Trust is also challenged by consumers’ <a href="https://www.youtube.com/watch?v=lXLY7BsG_fg&amp;list=PL30fMMRd3G_4MWcg0tioe63vFk1WA8Clb&amp;index=3" target="_blank" rel="noopener noreferrer">surprise</a> over what data is collected about them. CFI’s <a href="https://www.centerforfinancialinclusion.org/trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users">research in Rwanda</a> found that mobile money users who had applied for digital credit were upset that inputs such as airtime top-ups might be used as part of the underwriting process.

All of this is why, in honor of Data Privacy Week, which is celebrated every year in late January, we’re calling for the inclusive finance field to rethink privacy – specifically to shift it to the left.  Shifting privacy left means bringing up privacy considerations early on in the product lifecycle and paying attention to privacy concerns from the outset, rather than just a final box to check for compliance once a product is already created.
<h1>Focus on Privacy by Design</h1>
One of the ways that people are rethinking privacy in inclusive finance is through an approach called Privacy by Design (PbD). The premise behind PbD is that because privacy is a core property of an IT system, it should influence the underlying system design, rather than be bolted on as an afterthought. In PbD, privacy considerations must therefore start at the ideation phase and be maintained throughout the product lifecycle. This stands in contrast to the compliance-driven approach that typically brings privacy into the discussion after all major design decisions have been made. Popularized by Dr. Ann Cavoukian in 2009, Privacy by Design is most notably mentioned in <a href="https://gdpr-info.eu/art-25-gdpr/" target="_blank" rel="noopener noreferrer">Article 25 in the GDPR</a>.

Despite enthusiasm for the approach and privacy as a value-proposition to consumers, there are limited resources to operationalize Privacy by Design, particularly for organizations like inclusive finance fintechs operating in emerging markets and serving low-income consumers. Last year, CFI conducted a literature review to better understand how PbD has been implemented and its potential for inclusive finance. The results, shared in a report entitled <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/12/Potential-of-Privacy-by-Design-in-Inclusive-Finance-3.pdf">Embedding Trust: The Potential of Privacy by Design in Inclusive Finance</a>, landscape the various approaches to PbD in the legal, engineering, UX/UI, and academic fields. While each of the approaches, outlined in the graphic below, provided valuable tools, there were few examples of holistic approaches that product teams could use to embed privacy throughout the design and development processes.

<img class="wp-image-45694 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/02/Screenshot-2023-02-02-at-9.19.21-AM.png" alt="" width="904" height="570" />

&nbsp;

CFI believes that five key considerations should guide any applications of PbD in inclusive finance:
<h3>1. PbD should be positioned as business-enhancing.
</h3>
Because privacy has historically been seen as a compliance-related cost, to encourage private companies and fintechs to employ PbD techniques, PbD needs to be presented as a business-enhancing design benefit.
<h3>2. PbD needs to be adapted to work for resource-constrained companies and emerging markets. </h3>
Because PbD has been developed and largely implemented in developed countries, little work has been done to date to make PbD approachable and operational outside of those contexts.
<h3>3. PbD should incorporate low-income and vulnerable consumers’ offline privacy needs in addition to privacy for their digital data.</h3>
In considering the user and his/her privacy capacities and needs, PbD can bring customer-centricity into the data-intensive aspects of digital financial products.
<h3>4. PbD must balance consumer privacy preferences with companies’ needs.</h3>
When implementing PbD, it will be important to consider both the information that companies must collect to be able to perform their work, as well as the privacy preferences of consumers. A balance must be found to ensure that a product will function without compromising consumer privacy.
<h3>5. PbD must articulate privacy responsibilities across disaggregated value chain and partnerships.</h3>
Consumer data can sit and be shared across multiple organizations in today’s modularized fintech ecosystem, and not all actors in the value chain have equal power and influence.

&nbsp;

Moving forward, CFI is working to create a PbD playbook for fintech product teams to embed and position privacy as a core value proposition to consumers. The playbook aims to help product managers – in their role of facilitating product development by technical staff (data scientists, engineers, UX/UI, etc.) -- define the user journey and set metrics for product success, and ultimately present a strong opportunity to embed privacy. While product teams are key to executing Privacy by Design, a fintech’s executives and leadership must also recognize the business value of investing in privacy for it to succeed. Similarly, investors and funders need to prioritize privacy and realize the value of embedding privacy into design from the outset, not only because it is the right thing to do for consumers, but also because it is increasingly important to their bottom lines. By increasing awareness of Privacy by Design in the inclusive finance space, we can make strides in ensuring that consumers are protected and help build trust in digital finance.

In Honor of Data Privacy Week, Let’s Rethink Privacy in Inclusive Finance

India has seen a rapid rise in fintech lending since 2014 and the industry continues to evolve with the launch of new models and approaches to lending. Yet, as the industry has scaled and diversified, so have the risks.

The Center for Financial Inclusion (CFI) and the Fintech Association for Consumer Empowerment (FACE) are pleased to partner on this risk barometer study that aims to create a systematic baseline of emerging risks in order to help observe how risks change as the industry matures. The study is part of a market monitoring exercise to understand the range of risks and how they are perceived by multiple stakeholders in the Indian fintech lending sector and this report intends to contribute to the fintech lending industry as it evolves to maturity, combining innovation, inclusion, and impact.

Fintech Lending Risk Barometer 2022-2023

This report and infographic examine data from the 250+ eligible fintech applicants from the fourth Inclusive Fintech 50 competition to better understand the state of early-stage fintechs. CFI analyzes all applications to identify trends and to find innovations with disruptive potential. The massive scale that is only possible with digitalization matters greatly to the financial inclusion agenda, and this year’s IF50 applicants are already collectively reaching 54 million people, many of whom were previously underserved, across 101 countries of operation. The fintechs are young and small now, but as we’ve seen in past years, they grow to reach millions more people and raise millions more in investment. However, despite this tremendous outreach and potential, there are also areas that require attention: funding and gender gaps, inconsistent practices around data privacy and consent, and limited data collection for outcomes management.

Insights from the 2022 Inclusive Fintech 50 Applicant Pool

As each year comes to a close, it’s natural to reflect on the key moments and events that shaped the year. Beyond the political and economic events and trends – the war in Ukraine, the rise in inflation globally, the floods in Pakistan, and COP27 – the field of inclusive finance itself is reshaping its contours to meet the moment. We saw this very visibly in this year’s <a href="https://financialinclusionweek.org/">Financial Inclusion Week (FIW)</a>, the largest event we have hosted to date – with virtual participants from 2,000 organizations across 146 countries. The topics covered reflect the priorities of global actors in inclusive finance, pointing to the direction the field is going.

<img class="wp-image-45545 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/12/Screenshot-2022-12-12-at-11.27.19-AM.png" alt="" width="967" height="429" />

To me, the scale of this year’s FIW and the coming together of the minds of stakeholders worldwide during this difficult time signals an urgent need and momentum to accelerate our understanding of how inclusive finance must evolve to address global challenges. With over <a href="https://financialinclusionweek.org/2022" target="_blank" rel="noopener noreferrer">50 hours of live content and 70 on-demand sessions</a>, FIW has something for everyone. While it would be amazing to watch the hours of rich live and on-demand content oneself, we know few people have this luxury. We have been reflecting on this at CFI and will launch a blog series that highlights takeaways on key topics covered during FIW 2022.

<img class="wp-image-45546 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/12/4_Closing_Plenary-2-1.jpg" alt="" width="960" height="761" />

FIW 2022 left me with several reflections on the state of the inclusive finance sector and what needs to be prioritized. While FIW covered many sub-topics, the overall theme for the week was “Inclusive Growth in a Digital Era,” exploring how our community can harness digital innovation to expand inclusive financial services and contribute to inclusive economic growth.

In hindsight, as I reflect on the content, I would revise the theme and say that this year’s FIW was really about: “How we can create shared prosperity in our digital era.” Many of the sessions at FIW highlighted that, despite digital financial services’ promise to create inclusive solutions, there are serious shortfalls in how the digital economy is evolving, and new risks and gaps are emerging. We learned that while access and usage continue to rise, indicators linked to resilience have worsened. Even more concerningly, numerous examples of fraud and online harassment were spotlighted during the sessions indicating that the digital economy has yet to pan out as the equalizer that we thought it would be.

Some key messages I took away from FIW 2022 include:
<h3>The future of micro and small enterprises (MSE) on digital platforms needs attention.</h3>
In a joint <a href="https://www.youtube.com/watch?v=0FCpTM0TAac" target="_blank" rel="noopener noreferrer">session</a> hosted by CFI and Mastercard Center for Inclusive Growth, panelists discussed the status quo – where platforms retain substantial bargaining power and most MSEs lack the skills or power to benefit fully from the economies of scale offered through platforms. While alternative business models, such as platform cooperatives or open networks, may be options worth exploring, integrating elements of these emerging models into today’s established business models is likely to produce the greatest benefits to MSEs and platforms alike. Sessions by CGAP on <a href="https://www.youtube.com/watch?v=8VlU8U3DOdI" target="_blank" rel="noopener noreferrer">digital platforms</a> and <a href="https://www.youtube.com/watch?v=iGzlBKRK-PU" target="_blank" rel="noopener noreferrer">fintechs</a> surfaced regulatory fragmentation, payment rails, and e-KYC norms as pressing issues limiting workers and MSEs from fully benefitting from the digital economy. Regulators, donors, investors, and other industry stakeholders should invest more explicitly to enable a rebalancing of power to favor MSEs.
<h3>Trust needs to be earned; regulators, providers, and consumer organizations each have a role in making that happen.</h3>
A <a href="https://www.youtube.com/watch?v=yXw-r70lLXc" target="_blank" rel="noopener noreferrer">session by Consumers International</a> shared evidence on both existing and emerging consumer risks. These included significant increases in consumer complaints in Fiji and major issues around trust in digital finance in India, where 60 percent of digital finance users surveyed stated that they stopped usage because of trust issues. While several digital financial services users sought redressal through customer care channels, 20 percent of respondents in India never had their issue resolved.

Regulators can play a critical role in shaping market conduct. Another <a href="https://www.youtube.com/watch?v=CJ9_P7bGOvA" target="_blank" rel="noopener noreferrer">session hosted by SPTF</a> provided compelling evidence of fraud and abuse in markets like Kenya and discussed what provider practices could help mitigate these risks. Fair Finance’s session brought up an example of how a regulator can step in to enable greater trust in the financial system for low-income consumers and businesses: they mentioned the Central Bank of Rwanda's approach, where they are working to build trust via a consumer protection law, retaining oversight of financial consumer protection, creating tools to compare providers, and establishing instant complaints systems that allow consumers to submit complaints through email and social media.

These sessions reinforced the need for rigorous research, progressive regulation, and market conduct supervision that incentivize providers to be responsible and strong consumer organizations who can advocate on behalf of the silent majority in most developing markets. Donors and investors working to support market development must ensure that these fundamental guardrails are in place before they scale innovations.
<h3>Regulation and regulators are important in addressing gender inequity and creating trust.</h3>
Gender inequity is perhaps the gap that received the greatest attention during FIW 2022. Toronto Centre’s panel on <a href="https://www.youtube.com/watch?v=ISoRGWNdaQQ&amp;list=PL30fMMRd3G_7IGUKLWAQm_Z3zDVIu6LCB&amp;index=28" target="_blank" rel="noopener noreferrer">Advancing Cybersecurity and Financial Inclusion</a> highlighted the large gender gaps – such as access to technology – and the greater vulnerability, whether harassment, gender-based violence, or outright discrimination, and looked at what regulators are doing to counterbalance the system that is stacked against women.

<a href="https://www.youtube.com/watch?v=FFIFIvuVo0U" target="_blank" rel="noopener noreferrer">CFI’s Edoardo Totolo</a> delivered one of the four keynotes and highlighted both the opportunities and the risks posed by new embedded finance players. He emphasized the increasingly important role unregulated non-financial actors play in the design and delivery of financial services and the regulatory ambiguity around who is responsible for what. His keynote ends with a cautionary note to regulators and policymakers to clearly define the regulatory perimeters, articulate the role of third-party actors, promote interoperability and open architecture, and above all, create a level playing field.
<h3>One-size fits all solutions are insufficient; segmentation is necessary.</h3>
Several panelists emphasized that low-income customers are not a monolith and recognized that low-income consumers occupy different societal groups, each with its unique strengths, challenges, and starting points. A key takeaway from these sessions is that when we design without understanding the specific segment we are trying to reach, we will de facto design products and services for men. Instead, we must be intentional and create solutions that address specific consumer needs.

<a href="https://www.youtube.com/watch?v=-jz8tnEuAIQ" target="_blank" rel="noopener noreferrer">AXA’s session</a> on developed markets, including Japan, the US, and France, provided a unique look at excluded segments and approaches providers were taking to be inclusive in these highly competitive and highly regulated markets. For example, French provider <a href="https://nickel.eu/fr" target="_blank" rel="noopener noreferrer">Nickel</a> noted their rapid trajectory of delivering a simple product with very clear and fair terms and relying on distribution systems that leverage existing points of sale used by low-income consumers. In another <a href="https://www.youtube.com/watch?v=jC2AmET0HXI" target="_blank" rel="noopener noreferrer">session by Mastercard Strive</a>, a panelist from <a href="https://www.withboost.co/" target="_blank" rel="noopener noreferrer">Boost</a> Nigeria noted that women-owned small businesses are not a homogenous retail segment. Recognizing that women business owners had varying levels of digital and financial capabilities, Boost adopted a range of strategies that tried to meet women where they were in their journeys. A <a href="https://www.youtube.com/watch?v=Yp5yhELqTqI&amp;t=12s" target="_blank" rel="noopener noreferrer">session hosted by the Kashf Foundation</a> noted that despite the progress prompted by the pandemic, the digital divide is a nuanced issue that merits attention. Affordability to broadband is perhaps the next frontier, particularly when women don’t always have full control of household income or phone ownership.
<h3>We need to focus on climate adaptation; prioritizing mitigation is not enough.</h3>
In his keynote, USAID’s <a href="https://www.youtube.com/watch?v=_hUipQztGXs" target="_blank" rel="noopener noreferrer">Songabae Lee</a> provided a realistic and sobering view of the limitations of development finance, noting that mobilizing capital is the current priority at the global level. Recognizing that private sector capital is best geared toward mitigation, while adaptation still requires grant funding, Lee urges the audience to take advantage of what’s currently open rather than beating on a closed door. The open door is to start by leveraging capital for mitigation and then work to advocate for and shift attention to adaptation.

A <a href="https://www.youtube.com/watch?v=IyUlwUPPY40" target="_blank" rel="noopener noreferrer">session hosted by BFA Global</a> on the business case for climate resilience adopts a more optimistic lens, where investors start recognizing the need to move faster toward adaptation. The session delved into the experiences of multilateral development banks (MDBs) in financing climate initiatives that can be leveraged for earlier-stage ventures, highlighted the creation of the <a href="https://gca.org/news/collaborating-to-accelerate-investment-in-climate-adaptation-and-resilience/" target="_blank" rel="noopener noreferrer">adaptation and resilience collaboration</a> with 18 organizations, and the importance of data and measurement to help move this agenda forward. The urgency of scaling climate adaptation finance was also highlighted in a <a href="https://www.youtube.com/watch?v=2qENaGgm_4k&amp;t=1s" target="_blank" rel="noopener noreferrer">session</a> organized by CFI, where panelists from SEWA, FSD Mozambique, and UNHCR unequivocally emphasized the threats and income shocks low-income communities and refugees were exposed to in the absence of solutions tailored to support adaptation and resilience building at the community level.

My colleagues will go deeper into some of these messages in the blogs to follow in this series. If you are interested in revisiting the recordings, all sessions from FIW 2022 are available online. Check out the full playlist <a href="https://financialinclusionweek.org/2022" target="_blank" rel="noopener noreferrer">here</a>.

For curated session lists by topic, please see the links below for the playlists we’ve developed thus far.
<ul>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_7YYIjKT10xi4v5vjOKbuLl" target="_blank" rel="noopener noreferrer">Women’s financial inclusion</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY" target="_blank" rel="noopener noreferrer">Consumer protection</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_434ImijU6wxmZro4JHG7vu" target="_blank" rel="noopener noreferrer">Climate and inclusive finance</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_5l8T1UH24TIm7H-EM7gydP" target="_blank" rel="noopener noreferrer">Micro and small enterprises</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_5Mn-Gm3O2hgxyaSo9ajB7a" target="_blank" rel="noopener noreferrer">Digital assets and digital currencies</a></li>
 	<li><a href="https://www.youtube.com/watch?v=-jz8tnEuAIQ" target="_blank" rel="noopener noreferrer">Developed markets and inclusive finance</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_4yq2Ugx050YBIt4wwN5rMs" target="_blank" rel="noopener noreferrer">Impact measurement</a></li>
</ul>

End-of-Year Reflections

Consumer privacy risks have proliferated in the last decade in parallel with the increased adoption of digital technologies and the availability of consumer data. The great onboarding onto digital finance necessitated by COVID-19 also opened up vulnerable consumers to data misuse through scams in markets like the Philippines, Kenya, and India, among many others. Privacy violations can also have serious long-term consequences for financial inclusion and, even as access has improved, trust remains a critical ingredient in translating that progress into sustainable gains for consumers.

Evidence shows that when consumers fall prey to privacy-related harms, the loss of trust dissuades them from the opportunities afforded by digital finance. Privacy implications not only affect consumers but also impact businesses. While compliance with new data protection regulations has brought stronger safeguards, the rapid speed at which consumer data is collected, used, and shared in digital finance has far outpaced consumers’ understanding. For low-income digital financial consumers, the limits of informed consent and choice are even starker.

This report is intended to be an introduction to Privacy by Design (PbD) and to review the main PbD approaches in literature and wider market practice for their potential applications in the inclusive finance sector. The analysis is based on a literature review and key informant interviews with privacy and inclusive finance experts conducted by the Center for Financial Inclusion (CFI) between May and August 2022. The paper groups findings into four approaches to PbD, each of which attempts to embed privacy through different means, often by combining various tools, methods, and areas of application. The paper also identifies a series of gaps and barriers that limit the potential of PbD, particularly in emerging markets and developing economies. The report closes with considerations for the adaption of PbD for fintechs working with low-income and vulnerable consumers. CFI aims to build off this initial report to develop practical guidance on PbD for fintech product teams.

Embedding Trust: The Potential of Privacy by Design for Inclusive Finance

Digital adoption has been transforming the inclusive finance ecosystem for years. Innovation is robust, digital service providers for the industry are expanding, the competition to roll out digital financial services to clients is fierce, and up and down the value chain companies are excising physical offices and field staffs. As a result, clients’ digital access is broadening across the globe. Arriving mid-metamorphosis, the COVID-19 crisis altered the dynamic considerably. How has the pandemic affected the shift to digital finance? How are inclusive financial service providers incorporating digital tools? Can digitalization revitalize the inclusive finance sector? What challenges need sustained attention?

These were among the questions considered by a gathering of two dozen microfinance organization leaders, impact investors, and analysts from around the world at a workshop hosted by Lehigh University’s <a href="https://business.lehigh.edu/centers/martindale-center/about" target="_blank" rel="noopener noreferrer">Martindale Center</a>. Sharing views on how financial inclusion interacted with the socio-economic crises of the pandemic, participants built on the success of a previous workshop that resulted in publication of <a href="https://www.brookings.edu/book/the-future-of-microfinance/" target="_blank" rel="noopener noreferrer">The Future of Microfinance</a> by Brookings Institution Press in 2020.
<h1>Pandemic as Accelerant</h1>
Workshop participants across every region confirmed the pandemic accelerated digital adoption across client populations and inclusive financial service providers (iFSPs). For clients, digital payments—e.g., mobile money, government transfers, access to savings, remittances, loan distributions—were most visible and provided liquidity, especially during shutdowns. Simultaneously, digital loan repayments helped sustain iFSP liquidity. Yet digitalization extends far beyond payments, from back-office operations and new digital products to automated decision-making algorithms and platforms for onboarding clients and fulfilling regulatory mandates.

Faster. Cheaper. Easier. More scalable. More accessible. Compelling stuff. What’s not to like? The workshop discussion centered around three broad areas of concern: formidable capital requirements, big barriers to technology management capacity building, and consequences of market and firm structural changes.
<h1>Capital is the Principal, Partners are Capital</h1>
Digitalization of the inclusive finance sector will require substantial investment. Progress has been facilitated by investments from governments and development financial institutions (DFIs). Examples include electronic payment systems in Papua New Guinea and Fiji, Tonga’s remittance corridor to global payment systems through partner banks in New Zealand and Australia, and India’s digital bank accounts for all citizens linked to national ID numbers and mobile phones. 

Nonetheless, participants agreed that access to capital for expanding digitalization remains largely limited to large, professionally managed institutions (i.e., Tier 1, assets &gt;$100M) which attract global investors by rigorous attention to risk, sophisticated portfolio management, and superior, transparent governance. However, even that top tier, as discussed in another <a href="https://www.centerforfinancialinclusion.org/slow-motion-extinction-or-can-impact-investors-reinvigorate-pro-poor-financial-inclusion">CFI blog from the workshop</a>, is having difficulty recapitalizing in the wake of COVID-19. Moreover, any funding is unlikely to be accompanied by the technical assistance grants so critical to previous capacity building in the sector.
<blockquote class="pullquote--left">Despite limited funding, iFSPs are proving resourceful.</blockquote>
Despite limited funding, iFSPs are proving resourceful. To reduce development and implementation costs, some have looked to partnerships. For example, Pierette Kouakou, Managing Director of Fin‘Elle (Cote d’Ivoire), reported that bank partnerships forged during COVID expanded her clients' access from five branches to over 200 branches within a banking network. In Indonesia, iFSPs leverage clients’ embrace of social media platforms like WhatsApp to facilitate communications and payments.

Similarly, many fintech companies are playing roles that are more complementary than competitive with more traditional microfinance institutions (MFIs). A recent <a href="https://assets.kpmg/content/dam/kpmg/in/pdf/2021/03/microfinance-digital-fintech-mfi-technology-finance.pdf" target="_blank" rel="noopener noreferrer">survey by KPMG in India</a> indicated that nearly 75 percent of surveyed MFIs have alliances with fintechs, and the rest are exploring forming such alliances. Partnerships can serve as a learning tool before attempting a new venture alone. However, Edgardo Perez, CEO of Fundación Génesis Empresarial (Guatemala), reported moving away from partnerships as Génesis developed its own digital capabilities, which raises a question for iFSPs around what is the balance and path for developing internal capabilities versus partnering to obtain them?
<h1>Capacity Building and Clear-eyed Leadership</h1>
A second main theme at the workshop was the importance of capacity building for managing these technologies. Workshop participants agreed that while funding and digital infrastructure are necessary, they are not sufficient for success. Thoughtful and prudent leadership is crucial for implementing digitalization. Yet a lack of management capacity within institutions is slowing adoption. The management challenges are many, even at the basic level: setting up a tech team requires significant hiring, talent development and, crucially, managerial time to oversee the team and its integration into the organization.

Providing strategic focus is also essential. Alex Silva, Executive Director of Calmeadow, emphasized the need for clear and well understood reasons for digital adoption and for persistent organizational support. Leadership and staff must regularly reassess the reasons underlying digital adoption. Silva pointed out that all three Latin American MFI CEOs at the workshop had led successful implementations of a range of digital processes and services—success driven by client-centric foci and clear understanding of client needs and capabilities. However, the experience of a small MFI that accepted an unsolicited grant to digitize, but ended with little to show for its efforts, serves as a cautionary tale that digitalization is not a silver bullet.
<blockquote class="pullquote--right">Digitalization requires culture change, within and without the iFSP, over long time horizons.</blockquote>
Participants further agreed that digitalization requires culture change, within and without the iFSP, over long time horizons. Executives must navigate the narrow path between moving too fast and outpacing abilities and moving too slow and losing relevance. Given the existing demands on management, there was serious lament about the lack of capacity building grants that had for decades effectively propelled microfinance.
<h1>Potential Within Existing Resources</h1>
While building managerial capacity and new resources can catalyze change, some participants highlighted the potential of existing capabilities and relationships. Mercedes Canalda, CEO of Banco Adopem (Dominican Republic), pointed out that a core strength of many iFSPs is educating clients and onboarding them to new technology, providing the iFSP advantages over fintech competitors. Additionally, many institutions invest heavily in their client communities. Iwan Nazirwan, Chairman of KRAF (Indonesia), reported that MFI lending groups in Bali are spreading digital literacy by helping each other learn to use digital services on their phones. 

And, of course, digitalization has greater impact when integrated across whole organizations. Ralph Guerra, CEO of Compartamos Financiera (Peru), advocated for starting digitalization with existing staff so that digitized staff will in turn push further adoption—as most front-line staff are from the same populations as their clients, they are best situated to mentor clients.

The extensive client data already in the hands of iFSPs are another key resource. Once digitized, client data can help inform product design to better meet client needs, reduce risk, and track impact. For example, Fundación Génesis Empresarial segments clients to understand group needs and business cash flow rhythms and then tailors services accordingly (e.g., matching loan disbursements to prevalent cash flow patterns). Génesis is also using technology to make onboarding easier. 
<h1>Unintended Consequences</h1>
The third broad theme emerging from the workshop was the challenges and consequences that arise when changing trajectory and moving away from long-standing structures that have supported operations and clients. Many have raised concerns of the impacts of digitalization on inclusion arising from low digital literacy, limited connectivity, or a lack of trust (warranted given data security risks) among certain parts of targeted populations. Increased digital adoption challenges existing modes of operating such as group lending. When payments are digital, what is the remaining value of group meetings, in-person meetings, and their staffing?

Some MFIs may shift away from field officers toward remote communications in the hope that costs will fall with increased productivity. But seeking such savings, which may or may not appear, will also alter the recruitment of staff in type and location. This shift of staff recruitment may jeopardize an important external benefit of the industry: the training and professionalization of a segment of rural labor. Field officer jobs have often been first steps in career paths within or beyond MFIs. What are its implications for rural development?
<blockquote>Will the quest for scale and scope efficiencies drive further standardization to the detriment of clients?</blockquote>
Questions arise too about industry structure. Currently iFSPs come in a wide array of organizational sizes, types, and missions. Digital adoption will upend the competitive structure of the sector. Critics characterize the industry as achieving scale with low-cost, standardized products that may not meet client needs. While the customer-centric focus of the participants at the Lehigh workshop belied this characterization, will the quest for scale and scope efficiencies drive further standardization to the detriment of clients? And will we see further consolidation or will the balance of competitive advantage tilt back towards smaller niche players? Even with fintech advances in penetration, certain population segments remain out of reach. Will smaller iFSPs have better business models for serving these populations with needed, potentially, specialized service? Can they survive independently without capital and/or partnerships?
<h1>Enhancing the Narrative</h1>
One of the central questions framing the Lehigh workshop was: What challenges need sustained attention in inclusive financial services? Perhaps the most pressing is the need for a compelling narrative to enhance support for digitization capacity building. Microfinance was the north star of impact investing for decades, attracting the majority of funding. Yet, attention among investors and funders has waned compared to its fast-growing neighbor fintech.

What might re-attract funders’ attention?
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Emphasizing microfinance’s hard-earned lessons of what creates success? These lessons include:
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Disciplined patient capital for capacity building and experimentation;</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Proven self-sustainability and scalability;</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Multi-layered ecosystem development;</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Fostering of staff and management talent;</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Customer-centric product tailoring;</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Transparency in pricing and in governance; and</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Collaborative information sharing.</li>
</ul>
</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Further creating opportunities for complementarity with fintech to garner more attention?</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="8" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Collaborating with fintech to spur mission focus?</li>
</ul>
Regardless, digitalization will not come without pain, steadfast commitment, and vision by both leadership and the impact investing community. Inclusive finance institutions too tied to well-worn methodologies will be at risk, with underperforming investments and suboptimal, lower impact services to the communities they seek to serve.

Digitally Reshaping Inclusive Financial Services in the Wake of COVID-19

So much has happened in the last 12 months. It is hard to believe that this time last year, during <a href="https://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> 2021, we were imagining the end of the pandemic and a return to ‘normal.’ But of course, Omicron was just around the corner, and it came with a bang. Other variants followed and infection rates skyrocketed once again by May 2022. At the same time, by January, the pandemic was overshadowed by the war in Ukraine, which continues to have countless ripple effects on both developed and developing countries. Rising oil prices, disruptions in supply chains, increasing food prices, concerns about food insecurity, and of course inflation have been persistent themes across the airwaves and the headlines.
<blockquote class="pullquote--right">It’s hard to keep up with what feels like endless shocks to the global economy and people’s day-to-day lives.</blockquote>
And the backdrop to all of this has been the climate crisis and an endless series of natural disasters around the world. <a href="https://www.economist.com/graphic-detail/2022/09/15/devastating-floods-like-pakistans-will-be-more-common-in-a-warming-world" target="_blank" rel="noopener noreferrer">Floods in Pakistan</a> have killed thousands and displaced 33 million people, so far covering one-third of the country. With record temperatures in Europe, North America, South Asia, and the Middle East, and another summer of fires in <a href="https://www.reuters.com/business/environment/brazils-amazon-sees-worst-august-fires-over-decade-2022-08-31/" target="_blank" rel="noopener noreferrer">Brazil</a>, <a href="https://www.downtoearth.org.in/news/natural-disasters/india-s-forest-fires-are-getting-bigger-and-hotter-like-the-rest-of-the-world-82319" target="_blank" rel="noopener noreferrer">India</a>, <a href="https://www.voanews.com/a/major-wildfire-in-spain-forces-the-evacuation-of-1-500-/6701137.html" target="_blank" rel="noopener noreferrer">Spain</a>, <a href="https://www.telesurenglish.net/news/Portugal-Under-Alert-as-Fires-Continue--20220822-0018.html" target="_blank" rel="noopener noreferrer">Portugal</a>, and <a href="https://www.reuters.com/world/europe/wildfires-breaking-out-across-world-2022-07-19/" target="_blank" rel="noopener noreferrer">many other countries</a>, it’s hard to keep up with what feels like endless shocks to the global economy and people’s day-to-day lives.
<h1>Drivers of Volatility for Developing and Emerging Countries</h1>
While there is a temptation to shut off the news and search for a less turbulent life, it’s virtually impossible given the magnitude of change in our world. Instead, we need to build our resilience and learn to deal with volatility. We should adjust our expectations and plan for unpredictability to be par for the course.

At CFI, we think there are three important drivers of volatility that everyone needs to prepare for.
<h3>1.  Climate change.</h3>
The World Bank estimates that climate change will have an impact on the lives of 100 million people who are likely to fall below the poverty line by 2030. Natural disasters and other extreme weather conditions are estimated to impact consumption losses. Entire coastal cities in developing countries are expected to be underwater because of rising sea levels. Reversing global trends, <a href="https://www.usglc.org/blog/climate-change-and-the-developing-world-a-disproportionate-impact/#:~:text=Economic%20Development%3A%20The%20World%20Bank,people%20into%20poverty%20each%20year" target="_blank" rel="noopener noreferrer">inequality between developed and developing countries</a> is likely to continue to increase as a result of climate change.

We know that climate change is hurting those least able to cope with the consequences, despite their limited contributions to greenhouse gas emissions. Cumulative shocks – both weather-related and due to the pandemic – have further depleted coping strategies. <a href="https://www.centerforfinancialinclusion.org/climate-change-adds-to-challenges-for-msmes-recovering-from-covid-three-takeaways-from-cfi-surveys">CFI’s research</a> has shown that MSMEs impacted by climate change have struggled to recover from the pandemic more than other small businesses that did not previously face a climate shock, and most MSMEs were unable to actively prepare response strategies to cope with climate shocks.
<h3>2.  Food insecurity and hunger.</h3>
A knock-on effect of climate shocks and the war in Ukraine is the impact on food production and the price of food globally. The World Food Program is calling it a <a href="https://www.wfp.org/global-hunger-crisis#:~:text=2022%3A%20a%20year%20of%20unprecedented,on%20the%20edge%20of%20famine" target="_blank" rel="noopener noreferrer">looming food security crisis</a> where “the number of those facing acute food insecurity has soared – from 135 million to 345 million – since 2019. A total of 50 million people in 45 countries are teetering on the edge of famine." The inflationary effects of the war are hitting developing countries hard and will only further exacerbate food insecurity. <a href="https://www.focus-economics.com/countries/turkey/news/inflation/inflation-comes-in-at-highest-level-since-our-records-began-0#:~:text=FocusEconomics%20Consensus%20Forecast%20panelists%20expect,2022%20and%2036.9%25%20in%202023.">Turkey’s inflation rate</a> reached 80 percent in August. <a href="https://www.bloomberg.com/news/articles/2022-08-31/sri-lanka-inflation-quickens-to-64-3-in-august?leadSource=uverify%20wall" target="_blank" rel="noopener noreferrer">Sri Lanka</a> hit 64 percent. <a href="https://www.imf.org/en/News/Articles/2022/04/29/pr22135-imf-executive-board-approves-two-year-us-billion-flexible-credit-arrangement-for-colombia" target="_blank" rel="noopener noreferrer">Colombia</a>, <a href="https://www.hrw.org/news/2022/08/19/egypt-seeks-exceptional-treatment-imf" target="_blank" rel="noopener noreferrer">Egypt</a>, and <a href="https://www.imf.org/en/News/Articles/2022/09/01/pr22295-imf-reaches-staff-level-agreement-on-an-extended-fund-facility-arrangement-with-sri-lanka" target="_blank" rel="noopener noreferrer">Sri Lanka</a> are a few of the countries recently negotiating emergency support from the IMF in the hopes of reducing or preventing civil unrest linked to price increases.
<h3>3.  Institutional and governance gaps.</h3>
There have been significant economic and political shifts at the global level, creating new alliances and many new uncertainties. The decline of US hegemony has led to increased tensions and competition between the US and China. The war in Ukraine is possibly an outcome of these tectonic power shifts. There is also falling trust in government – 36 percent of the population in 62 developed and developing <a href="https://www.un.org/development/desa/dspd/2021/07/trust-public-institutions/" target="_blank" rel="noopener noreferrer">countries</a> expressed confidence or trust in their governments, a 13 percent decrease in 13 years. According to <a href="https://freedomhouse.org/report/freedom-world/2021/democracy-under-siege" target="_blank" rel="noopener noreferrer">Freedom House</a>, 2020 was the 15th consecutive year of decline in political rights and civil liberties.

Today, there are fewer democracies than in 2005 and many more autocratic regions. The most common form of authoritarian regime is personalist— where power is consolidated in one person or a small group. Personalist authoritarian regimes tend to be the most corrupt and erratic in decision-making, the least likely to plan for succession, and the most likely to start wars and escalate conflicts. The growing democratic deficit, corruption, and a surge in mis- and disinformation campaigns are severely eroding public trust in government. With scores of people falling back into poverty and rising social tensions, the magnitude of the devastation arising from the governance inefficiencies is still being realized.
<blockquote class="pullquote--left">We need to be responsive, nimble, and plan for continued change to be able to catalyze inclusive growth in these turbulent times.</blockquote>
The challenges posed by climate change, rising food insecurity and hunger, and institutional and governance gaps threaten to undo the progress achieved over the past century and adversely impact millions of lives, most of whom are low-income, vulnerable people from the developing world. These trends and forces mean we are firmly in an era of high volatility, where good governance matters more than ever. We need to be responsive, nimble, and plan for continued change to be able to catalyze inclusive growth in these turbulent times.
<h1>Digital Financial Services Support Resilience but Not Enough to Reduce Vulnerabilities and Stress</h1>
The pandemic accelerated an already digitizing world. According to the <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">2021 Global Findex</a>, over 40 percent of adults in low-and-middle-income countries (excluding China) made merchant in-store or online payments for the first time using a card, phone, or the internet. Two-thirds of adults worldwide now make or receive a digital payment, with the share in developing economies increasing from 35 percent in 2014 to 57 percent in 2021. Similarly, mobile money accounts drove a huge increase in financial inclusion, particularly for women in Sub-Saharan Africa, where 33 percent of adults had mobile money accounts.

Despite this momentum, the upsides have not been shared equally. CFI’s <a href="https://www.centerforfinancialinclusion.org/digital-adoption-of-msmes-during-covid-19">research on MSMEs</a> has shown that women MSME owners are less likely to conduct financial transactions via a mobile phone, be familiar with or understand the terms and benefits of mobile money, or own a mobile money account. The research also found that digital uptake was slow, sporadic, and in some cases even declined among women-owned MSMEs, pointing to the likelihood that the women-owned firms were not benefitting from the digital economy, even in markets with more built-out digital ecosystems like India and Indonesia.

Most concerning, despite greater access to and usage of digital finance, multiple data sources are pointing to the decline in financial health globally. The Global Findex 2021 looked at the ability of low-income people to access money within 30 days in an emergency, a metric that aims to capture ‘resilience’. It finds that only 55 percent of adults are able to do so in developing countries. This number is 79 percent in high-income economies, where more adults have access to credit cards and opportunities for short-term or gig work to make extra money. <a href="https://www.fsdkenya.org/blogs-publications/publications/inclusive-finance-for-sustainable-economic-development-in-kenya/" target="_blank" rel="noopener noreferrer">Insights from FSD Kenya’s</a> recent FinAccess survey has shown that despite progress in access and usage of digital financial services, much remains to be done when it comes to achieving strong financial health outcomes that allow Kenyans to build resilience, take prudent risks, and make productive investments towards their future.
<blockquote>It is our collective responsibility to carefully consider and address these barriers that impede access to existing solutions and build protection mechanisms.</blockquote>
It is our collective responsibility to carefully consider and address these barriers that impede access to existing solutions and build protection mechanisms, failing which we will be unable to progress toward a vision of inclusive growth for shared prosperity.
<h1>Growing as a Community to Address Today’s Challenges</h1>
The world is advancing at a dizzying pace. The path of progress we’ve come to rely on is threatened by new forces that are more likely to affect the most vulnerable in society. Hiding our heads in the sand will not do any good and expecting market forces alone to lead to inclusive growth is nostalgic thinking. We need a new era of coordinated and thoughtful action to mitigate the effects of the confluence of forces that have the potential to create unprecedented harm to the lives of millions of people.

The inclusive finance community of stakeholders – those who join Financial Inclusion Week – must step up to connect these macroeconomic forces to real people, real livelihoods, and real solutions.

This Financial Inclusion Week, we have a packed <a href="https://financialinclusionweek.org/2022-agenda" target="_blank" rel="noopener noreferrer">agenda</a> with 45 live sessions and a wealth of on-demand content on the most critical topics in inclusive finance. Throughout the week, hundreds of speakers will be discussing varied issues from how to enable MSMEs to reach their potential to cryptocurrency and the potential of CBDCs; from fintech to applying a gender lens in digital transformation; from consumer protection to investing in climate resilience.

We hope that this year’s Financial Inclusion Week provides the opportunity to learn from and join forces with other organizations and stakeholders so that we can work together toward a shared vision. Thank you for joining us at <a href="https://financialinclusionweek.org/2022-registration" target="_blank" rel="noopener noreferrer">Financial Inclusion Week 2022</a>!

Volatile Times Call for Sustained Resolve

The use of digital payments surged during the pandemic, forcing many MSMEs to turn to a range of digital tools for their businesses, including payments via mobile money, marketing products on social media, and selling on e-commerce platforms. Digital tools helped many MSMEs address challenges in the wake of the pandemic and ongoing economic conditions, but digital adoption among MSMEs has been slow and uneven.

In this report, CFI explores how MSMEs used digital products during the pandemic, what barriers they faced with digital adoption, and what can be done to support the growth of MSMEs in the digital economy.

Digital Adoption of MSMEs During COVID-19

Investing in digital financial capability is essential to support women navigating increasingly digitalized financial systems. A woman who is digitally and financially capable can evaluate, choose, and use financial services that enhance her life. Investing in her digital financial capability can contribute to meaningful access to and usage of financial services. This can be a positive step in improving economic opportunities for women and their families.

Approaches that work for women require going beyond traditional financial education to approaches that may require more time, support, and a deeper understanding of the social and <a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know">gender normative constraints</a> that prevent women from realizing their economic potential.

This publication shares how we can improve the design and delivery of digital cash transfers for low-income women using a four-phased approach: diagnose, design, deliver, and document. It presents examples of promising interventions tailored to women’s needs and realities and offers practical suggestions and tools for market and ecosystem actors to support women’s digital financial capability.

This resource was developed in partnership with the World Food Programme (WFP) and the Bill &amp; Melinda Gates Foundation.

Making Digital Financial Capability Programs Work for Women

CFI Advisory Council Member <a href="https://www.centerforfinancialinclusion.org/bio/david-ferrand">David Ferrand</a> has had a prolific career. Educated as an engineer and trained as a commercial banker, David shifted his focus to financial inclusion in 1993. After working in the space for 12 years, he became the director of <a href="https://www.fsdkenya.org/" target="_blank" rel="noopener noreferrer">Financial Sector Deepening (FSD) Kenya</a>, a multi-donor program established to support the development of inclusive financial markets. Now an independent consultant, David’s primary interest is in enhancing the impact of inclusive finance on the real economy and developmental outcomes. David joined CFI’s Advisory Council in July 2020.

As he reflects on how financial inclusion has evolved, David believes that we are at a turning point with potential for far greater developmental impact than has been seen to date. He also shares what he’s learned from nearly three decades in the Kenyan finance ecosystem, and what he believes are the crucial issues our community should prioritize.
<h1>How did you get involved in financial inclusion and what are you working on now?</h1>
DF: While I was working in banking in the UK, I received an opportunity to be posted to Kenya. I spent just over a year in corporate banking and it was there that I became interested in international development and financial inclusion. I decided to move out of the banking industry and return to the UK, where I got involved in microcredit enterprise development through the UK’s Department for International Development (DFID).

After working with DFID, I joined FSD Kenya where I worked until 2019. I then spent the next two years working with the FSD Network on strengthening how FSDs across Africa could work more effectively together. Most recently my focus has been on how we practically link the new possibilities for finance offered by digital technology with the pressing need to find new development pathways that work for Africa.

I’m interested in sustainability and the role of inclusive finance in accelerating or facilitating a more sustainable economic basis for developing economies. The green economic agenda is obviously critical now. And though I claim no expertise, I'm also very interested in gender – the question of gender and inclusive finance has become much more significant lately, and rightly so.
<h1>How has financial inclusion changed since you first became interested in the subject?</h1>
DF: It has changed massively. There's been sustained interest in financial inclusion for three decades which, in international development, is perhaps unusual. The space started with credit, broadened into savings, and then insurance was “discovered”. The idea of microcredit was replaced with microfinance to become, broadly, financial inclusion. And now today, I tend to talk about “inclusive finance” because, if our objective is to achieve positive developmental change, one aspect of finance – the direct delivery of financial services to underserved populations – cannot be separated from the rest of the financial system.

When I was first involved, things were positioned around microcredit and micro-enterprise, and the approach was very supply-side driven. We all felt there was a recipe: if we could build the financial institutions to deliver finance, then we’d have a massive development impact.

But we realized there was a need to instead be outcome-oriented. Our aim is to deliver a financial system that is more inclusive and delivers on economic and social empowerment objectives. There has been a necessary shift toward the demand side to understand how finance plays a role in the real economy.

Another major change is commercialization. Three decades ago, the field was dominated by nonprofits. Then there was an explicit attempt to move towards commercialization to scale. In recent years it feels like we’ve been far more successful here than we dared hope. However, our challenge is to bring the work back to the development objectives that underpinned the original policy interest in the space without losing the power of markets to create far-reaching change.
<h1>In one word, what is the current state of financial inclusion today?</h1>
DF: Exciting. The possibility of really impacting low-income people is better now than ever. Digital technology has the potential to enable a radical reduction in transaction costs and we can imagine the creation of much more sophisticated holistic financing solutions. There are many more possibilities. We do, however, need to be on our guard against the risks these changes bring. Finance is a powerful tool that can wreak havoc as well as enable constructive change, and we must effectively protect vulnerable consumers of financial services in the new digital world. Even as technology brings new risks, it also provides new ways to improve consumer protection.
<blockquote>Finance is a powerful tool that can wreak havoc as well as enable constructive change, and we must effectively protect vulnerable consumers of financial services in the new digital world.</blockquote>
<h1>From your early experience in the banking industry, do you think banks have become more inclusive?</h1>
DF: I think they have. Thirty years ago, banks did not see 90 percent of the population in Africa as a viable market; they were focused on the top 10 percent. The inherent conservatism of the banking industry has often prevented the industry from taking advantage of the potential that technology offers.

However, this has changed dramatically in the last few decades, and the extent to which mainstream commercial banks across Africa have adopted channels that effectively enable outreach to underserved communities is tremendous progress. I think the inclusive finance community can take some credit for demonstrating the market potential. More recently, fintech has started to provide a compelling threat to the status quo and banks realize that they need to adapt if they are to remain relevant in a digitally-transformed world. 
<h1>What lessons can be learned from the Kenyan inclusive finance ecosystem? </h1>
DF: A lot. I don't think there is necessarily a “Kenya model” but it is useful to reflect on elements of what happened in Kenya. For example, there was a dominant mobile phone provider in Kenya that helped enable mobile money to become ubiquitous. Critical mass must be reached for mobile money to take off and to encourage further rounds of innovation. While that was achieved in Kenya, it has also come at the cost of a highly concentrated market which also creates challenges.

Besides the digital financial revolution in Kenya, we also see some of the darker sides of digital finance and how there can be unanticipated outcomes. For example, the rise of overindebtedness has been exacerbated by the ready availability of digital credit. While it is important not to overstate the point, there are nevertheless significant and growing cases of real harm. It is important to harness the powerful tools that have been created to ensure they are applied in a constructive way and risks are controlled.
<h1>What are the most crucial issues in inclusive finance that we should prioritize over the next five years?</h1>
DF: I think the number one challenge is how to carry over innovations from finance into the real economy; how new forms of partnerships can enable funds to flow effectively to solve real-world issues. As we get into the new frontiers of finance and development, it's going to be difficult to find effective ways to take the capabilities of the private sector-driven finance industry and efficiently deliver, innovate, and address the needs of inclusive development. There has been increasing attention on blending finance – combining private, philanthropic, and public resources – but the experiences demonstrate how difficult it is to get right. It will continue to be challenging because it takes us into new organizational territory and causes us to reexamine our assumptions.
<blockquote class="pullquote--left">The tools we have been developing can and should play a role in increasing resilience, but they will be at best a modest supporting part if not allied with others.</blockquote>
Additionally, adaptation to climate change is critical and finance will play a central role in achieving a sustainable future. This requires thinking beyond yesterday’s conception of financial inclusion and instead thinking at a systems level. How is finance needed at various levels –global and national, sectors and communities, firms, and individuals – to increase resilience? The tools we have been developing can and should play a role, but they will be at best a modest supporting part if not allied with others.

Finally, we should prioritize achieving more effective forms of market conduct. This will require getting away from today’s largely rules-based regulation, which is frequently costly and practically ineffective. Politically challenging as it may be, an outcomes-driven approach is essential to successfully navigate the complexities of creating a genuinely inclusive financial system. This matters to directly protect consumers and ensure that markets are open and competitive.
<h1>What unique expertise and experience do you bring to the Advisory Council?</h1>
DF: As CFI seeks to influence systems change at a global level, I bring many years of experience wrestling with the practical challenges and opportunities of supporting change in what proved to be quite a dynamic system. There is a lot to be drawn from the Kenyan market – both good and bad – and there are many competing narratives of Kenya’s financial system development over the last 30 years. I hope I can bring at least one of those perspectives to bear as a member of CFI’s Advisory Council.
<h1>What advice would you give to young people in the banking industry today regarding financial inclusion?</h1>
DF: It is an exciting, but turbulent, place. The industry needs to change and I hope young people who have a long-term vision of what banking should become are attracted to the space. With respect to inclusive finance, banks are at the heart of where it needs to change. For too long, the primary attraction of a career in finance has been the considerable financial gain. This has fueled an approach to finance which has destroyed, rather than created, value. Financial inclusion clearly has not been immune to this. We need young people who are visionary and value-driven and who understand that finance has a key role to play in creating a better future.
<h1>Any final thoughts for our readers?</h1>
<blockquote>We must go beyond the idea of financial inclusion as a narrow concept and instead look at how we can re-engineer our financial systems to be more inclusive.</blockquote>
DF: It's a time to be brave and bold. We face huge challenges, but these are surmountable. CFI is in a great position to play a catalytic role in influencing the emergence of the new paradigm. We must go beyond the idea of financial inclusion as a narrow concept and instead look at how we can re-engineer our financial systems to be more inclusive.

It’s a Time to Be Brave and Bold: Q & A with David Ferrand, CFI Advisory Council Member

Agent Banking

Customer Centricity

Digital Financial Services

Digital Transformation

Human Centered Design

Human Touch

Alexandra (Alex) Rizzi

Mayada El-Zoghbi

Shannon Mudd

Todd A. Watkins

Shradha Modi

Julia Arnold

Evelyn Stark

Edi Bardhollari

Loretta Michaels

Jayshree Venkatesan

Jacqueline Foelster

Henry Bruce

Pia  Roman Tayag

Ezra Mannix

José Morell-Ducós

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South Asia

Bolivia

Colombia

East Asia and Pacific

Indonesia

Latin America and The Caribbean

Nigeria

Sub-Saharan Africa

Rwanda

Sierra Leone

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Appropriate Product Design and Delivery

Consumer Protection

Delivery Channels

Privacy

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Financial Service Providers

Fintechs

Policy, Regulation and Government Initiatives

Alternative Data

Credit

Data Analytics

Financial Technology

Insurance

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Entrepreneurs of MSMEs

Underserved Groups

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Challenges and Crises

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Blog Post

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Announcement

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

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

Platforms provide critical employment opportunities for many underserved populations and are increasingly interconnected with financial services. To advance financial inclusion and support development goals, however, platforms must focus on the unique digital, financial, and livelihood needs of micro and small enterprises. This publication provides an overview of the increasing interconnectedness of platforms and financial service offerings, how platforms can push the frontiers of inclusive finance, how platforms support women, and what is needed from policymakers for platforms to serve broader development goals. The audience of this report includes policymakers, platform leaders, donors, international development actors, and anyone interested in the potential for financial services and/or platforms to improve livelihoods.

Platforms, Livelihoods, and Inclusive Finance

Two years into the COVID-19 pandemic, the role of digital financial services in providing access to essential services is undeniable. Digital financial services have enabled governments and nonprofits to deliver timely social protection payments and aided families and friends of those in need to quickly share financial resources. The rise of platforms and small business fintechs allowed for new forms of commerce that have kept people employed and grown gig work opportunities, which helped customers in small villages and large cities alike to purchase goods needed for their households.
<blockquote class="pullquote--right">We need data, metrics, and measurement standards to better understand and move the needle on measuring resilience.</blockquote>
The role fintechs have played over the last two years is clear. We have data about the growth of fintechs during the pandemic, on how much capital they have attracted from investors, and many anecdotal stories about how individuals and firms using fintechs have experienced direct benefits from moving to digital solutions. But while there are many stories of the positive relationships between fintechs and their customers during the pandemic, we need data, metrics, and measurement standards to better understand and move the needle on measuring resilience.

With the support of <a href="https://www.accion.org/institutional_partnerships/jersey-overseas-aid-comic-relief">Jersey Overseas Aid and Comic Relief</a>, CFI conducted research to better understand fintechs, their resilience, and the impact they have on the livelihoods of low-income customers. CFI’s research on fintech resilience is the first attempt to set forth a framework and call to action to understand the interconnectedness between progress at the provider level and the implications for users. Through our research, we found that, by and large, fintechs are operationally resilient, although many early-stage fintechs did have to resort to layoffs and salary cuts, or to slowing growth plans. However, measuring resilience — whether at the level of financial institutions or customers, as well as how they influence each other — is at an early stage of research.
<blockquote>PACT measures resilience as a combination of abilities and access to resources across four dimensions: Preparedness, Access, Capability, and Ties (Networks).</blockquote>
To support our work in understanding how to measure and quantify fintech’s resilience and impact, CFI developed the PACT framework. This helps us analyze the resilience of both fintechs and low-income customers, and see where and how there are direct connections between the two. PACT measures resilience as a combination of abilities and access to resources across four dimensions: Preparedness, Access, Capability, and Ties (Networks). This framework can inform investors and donors who are looking to support low-income customers.

A PACT to Promote Resilience

Financial capability is the capacity to make and execute financial decisions that support one’s wellbeing and that fit within one’s lifestyle and environmental circumstances. Yet, how can financial service providers (FSPs) help their customers build financial capability, and how can they measure customers’ progress? CFI, in partnership with MetLife Foundation, launched a project in February 2018 to enhance financial customer engagement by building their capabilities. The project aims to develop and promote digital tools that FSPs can use to diagnose clients’ financial health, identify gaps, and develop actionable plans to improve financial well-being. To date, the project has partnered with two FSPs – <a href="https://grassfin.com/" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a> and <a href="https://fincakosovo.org/en/" target="_blank" rel="noopener noreferrer">FINCA Kosovo</a> – to design and deploy a minimum viable product (MVP) web application aimed to build financial capability using a customer-centric and behavioral-driven approach. This post shares initial learnings from the pilots.
<h2>Background</h2>
<h3>Why Focus on Financial Capability? </h3>
<a href="https://www.centerforfinancialinclusion.org/a-change-in-behavior-innovations-in-financial-capability-2">Financial capability building</a> equips people with the knowledge, skills, attitudes, and behaviors (KSABs) necessary to achieve their desired financial and personal outcomes. Knowledge is a person’s understanding of a subject, skills are the proficiencies a person has to apply to specific situations, attitudes are a person’s general perceptions of a subject, and behaviors are the actions that a person demonstrates.

Building customers’ financial capability is good for both the customer and the FSP. While the link between earnings and a non-financial service, such as financial capability building, might not be immediately obvious, <a href="https://www.fmo.nl/l/en/library/download/urn:uuid:f5a1783f-c435-4031-9d29-bba057663a06/ifc-fmo%2Bfinal_publication.pdf" target="_blank" rel="noopener noreferrer">evidence exists</a> that <a href="https://www.forbes.com/advisor/banking/banks-need-do-more-help-customers-become-financially-successful/" target="_blank" rel="noopener noreferrer">financially capable customers make for a financially sound portfolio</a>, barring macroeconomic volatility. Financially capable borrowers are more likely to repay their loan, thus boosting FSPs’ profitability by lowering the problem loan ratio. Additionally, financially capable customers are more likely to be eligible for loan renewals, and <a href="https://hbr.org/2014/10/the-value-of-keeping-the-right-customers" target="_blank" rel="noopener noreferrer">retaining customers costs less</a> than acquiring new ones.
<h3>Why Develop an App? </h3>
While many FSPs continue to focus on digital transformation, limitations in technology infrastructure and financial resources pose key barriers to digitalization. With these challenges in mind, CFI and MetLife created FinVenture, a mobile-compatible, browser-based web app. FinVenture aims to build customers’ financial capability by presenting users with a series of relevant activities to complete in return for rewards.

The MVP app was designed with the following goals:
<ol>
 	<li>maximize availability across devices</li>
 	<li>reduce steps required to access</li>
 	<li>allow for operation independent of an FSP’s existing IT infrastructure</li>
 	<li>minimize the risk of having complex technology be a distraction – a <a href="https://www.cgap.org/blog/pitfalls-mfi-digitization-getting-bogged-down-technology" target="_blank" rel="noopener noreferrer">common pitfall in digitalization</a>, and</li>
 	<li>allow ample room for iteration.</li>
</ol>
Finally, and importantly for customer engagement, FinVenture’s simple design and interface ensure that customers with basic digital literacy could engage with it.
<h2>Lessons Learned</h2>
The following three key takeaways have come out of our pilots with Grassland Finance Limited and FINCA Kosovo. These pilots are expected to run until June 2022. After that, an analysis of user engagement and feedback will be instrumental in determining the future of the FinVenture platform and our partners’ financial capability-building activities.
<h3>Lesson 1: Build Activities Around “KSABs” </h3>
If financial literacy interventions have taught us anything, it is that focusing solely on improving knowledge and skills, which traditionally relies on rote memorization and lecture-based learning, is not sufficient for improving financial outcomes. With this in mind, CFI used the four financial capability components -- the knowledge, skills, attitudes, and behaviors (KSABs) -- as the launching point to design a diverse set of activity types.

Following extensive user research, we determined a core set of activity types that offer variety while also prioritizing the need for simplicity and functionality. The table below illustrates how each activity type -- namely, quizzes based on articles and case studies, financial tracking tools, and surveys -- is expected to enhance a financial capability component.

<img class="wp-image-43850 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/01/Screen-Shot-2022-01-11-at-10.53.11-AM.png" alt="" width="894" height="711" />

<img class="wp-image-43853 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/01/Screen-Shot-2022-01-11-at-11.04.26-AM.png" alt="" width="420" height="592" />
<h3>Lesson 2: Structure the App Content to Allow for Personalization</h3>
To make the content as relevant as possible for each user, the FinVenture app encourages users to begin by completing an introductory activity to measure their baseline level of financial capability. The introductory activity primes users to reflect on their financial goals and create a personalized experience based on those goals. Users are then prompted to select up to three activities to complete at a time. This structure allows FSPs to leverage user engagement data to inform the design of products and services that can best help customers achieve their financial goals.

For many customers, the breadth of financial information available can be a deterrent from thinking meaningfully about their finances. Creating an organizing structure that is based on financial goals is one way to help overcome potential information overload. We identified core financial goals – namely money management, planning, resilience, and use of financial services – to shape the FinVenture modules.
<h3><img class=" wp-image-43859 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/01/Screen-Shot-2022-01-11-at-11.14.05-AM.png" alt="" width="399" height="813" /></h3>
<h3></h3>
<h3>Lesson 3: Build Incentives to Keep Users Engaged</h3>
To incentivize user engagement, FinVenture’s point system (FINWALLET) contributes to internal motivation while also providing institutions the option to offer material rewards. By allowing partners the ability to choose what rewards to give, the app can be customized to encourage user engagement. One of our pilot partners, Grassland, chose to integrate FinVenture into their <a href="https://tweb.grassfin.com/esg/#/" target="_blank" rel="noopener noreferrer">client education platform</a> and set up a rewards system in which clients can exchange FinVenture points for a variety of rewards, ranging from tangible gifts such as a reusable grocery bag to lump-sum discounts that can be applied to their loan installment payments.
<h2>Considerations for Future App-Based Financial Capability Interventions </h2>
Although the following features didn’t make the FinVenture MVP development due to resource and time constraints, they are worth mentioning for FSPs that are considering developing a financial capability-building app. These features draw from our user research, behavioral science best practices, and pilot partner suggestions.
<h3>Peer Exchange</h3>
One way to strengthen an app’s effectiveness in shifting attitudes would be to incorporate a peer exchange functionality – for example, users could share financial milestones achieved or personal finance hacks that have worked for them. Using <a href="https://blogs.worldbank.org/voices/using-social-media-change-norms-and-behaviors-scale" target="_blank" rel="noopener noreferrer">social media</a> and <a href="https://www.harvardbusiness.org/what-makes-storytelling-so-effective-for-learning/" target="_blank" rel="noopener noreferrer">storytelling</a> has proven to be effective for influencing attitudes and changing behaviors.
<h3>Soliciting Customer Feedback to Inform Content</h3>
Another way to increase user engagement would be to have customers identify where they need help. If an app provided initial recommendations of topics, these could be further refined based on users’ activity engagement and performance. In addition, the FSP can leverage its established feedback channels such as social media, focus groups, or email to take requests from customers. This added feature would allow customers to better chart their own course to improve their financial capability.
<h3>Group Activities </h3>
FSPs can leverage peer and social relationships to encourage financial capability-building behaviors by presenting users with a series of tasks as part of a team in return for rewards. This is worth exploring for users who share financial responsibility with other household members.
<h2>Conclusion</h2>
This project has begun to shed light on how FSPs can use a customer-centric and behaviorally-informed app to begin building customers’ financial capability. In addition to the financial benefits for FSPs that result from having financially capable clients, investing in the financial success of customers strengthens customer relationships and has the potential to further financial inclusion.

Improving Customer Financial Capability Through a Digital App: Lessons Learned from Pilots with Two FSPs

Consumers all over the world may not know it, but many decisions about and for them are increasingly made by algorithms. Eighty percent of viewing activity on Netflix is driven by recommendations from algorithms; a doctor might recommend a course of treatment based on an algorithm that uses patient DNA; <a href="https://www.poverty-action.org/study/using-mobile-phone-and-satellite-data-target-emergency-cash-transfers-togo" target="_blank" rel="noopener noreferrer">social protection programs</a> might determine eligibility for an assistance payment using an algorithm that crunches your mobile phone transactions; and financial providers can determine your creditworthiness or insurability based on algorithms that leverage alternative data.

A persistent challenge in reaching low-income and vulnerable populations with financial services has been a limited availability of data. In recent years the growth of consumer data trails in emerging markets, largely generated by mobile phones, has helped change the equation alongside powerful new analytical tools. But what data goes into consequential algorithms, how it is used, and whether it leads to inclusion — or bias and exclusion — is largely a black box to consumers, as well as governments. While the expansion in consumer data and companies leveraging artificial intelligence (AI) technology can advance financial inclusion, these technologies introduce new risks and may reinforce historical patterns of bias and exclusion, with potentially harmful consequences for consumers.
<blockquote class="pullquote--right">These technologies introduce new risks and may reinforce historical patterns of bias and exclusion, with potentially harmful consequences for consumers.</blockquote>
Central banks and policymakers have long faced the challenge of balancing financial innovation, market growth, and inclusion alongside competition, stability, and consumer safety. That balancing act has been made more difficult by the speed and scope of financial innovation, technology, and algorithms of increasing sophistication. In emerging markets and developing countries in particular, the increased use of mobile phone data for consequential decisions has raised the profile and potential risks of these tools.

There is a growing recognition that governments require ways to assess consumer risks and opportunities in the deployment of these algorithms and AI systems, as well as methods to amplify the opportunities and mitigate risks — all without quashing innovation. But, how?

Earlier this month, H.M. Queen Máxima of the Netherlands, the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), <a href="https://www.centerforfinancialinclusion.org/unsgsa-and-center-for-financial-inclusion-co-host-virtual-roundtable-for-central-banks-to-tackle-algorithm-biases-in-financial-services">co-hosted a virtual workshop</a> with the Center for Financial Inclusion (CFI) to raise awareness and address algorithm biases for financial inclusion. Queen Máxima and CFI Managing Director Mayada El-Zoghbi co-chaired the meeting, which convened leadership from select central banks and other subject matter experts. The workshop examined how to identify and assess these emerging risks, discussed existing risk mitigation tools, and identified opportunities for further research.

The challenge of bias in financial services is not new and many countries already have financial sector anti-discrimination laws that hold financial institutions to fair lending practices, including just under half of emerging markets. The Equal Credit Opportunity Act in the United States, which was passed in 1974, for instance, makes credit discrimination based on protected classes illegal. But it runs into limits in the face of algorithmic lending as it also <a href="https://www.centerforfinancialinclusion.org/reducing-bias-in-algorithmic-decisions-cannot-rely-on-blind-approaches">restricts lenders</a> from collecting demographic information on borrowers. Given the current methods for testing algorithms, this missing demographic data makes disparate impact testing much harder. While the Equal Credit Opportunity Act and similar antidiscrimination laws could be used to hold companies accountable, they will grapple with understandable privacy concerns.

A second potential avenue for accountability could be through data protection laws, the most well-known being the European Union’s General Data Protection Regulation (GDPR).  While GDPR requires that processors assess any high-risk data system, like a new credit scoring algorithm, it does not amount to an audit. GDPR and the laws it has inspired also enumerate individual rights for consumers including the right to an explanation of an automated decision and the right to have your data rectified by a provider if it is incorrect. But we worry, how likely is it that low-income consumers (or consumers writ-large, really) will be aware enough to be empowered by these rights?  If <a href="https://www.centerforfinancialinclusion.org/trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users">consumers are not aware of how their data is being used</a>, they are less likely to exercise their rights, raise their collective voice, and seek accountability for algorithmic decisions.
<blockquote>If consumers are not aware of how their data is being used, they are less likely to exercise their rights, raise their collective voice, and seek accountability for algorithmic decisions.</blockquote>
In recognition of the limits of existing approaches, some countries have drafted national AI policies or frameworks. These policies work to establish the level of risk for discrete AI systems and how to assign levels of supervision. For instance, the EU introduced a draft law that would require <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021PC0206" target="_blank" rel="noopener noreferrer">Algorithmic Impact Assessments</a> for high-risk systems, such as automated credit decisions. Such proposed auditing would require technical expertise within governments and some degree of disclosure of the source code and data. We foresee challenges in implementing such audits in many markets due to gaps in government resources and staffing, as well as challenges in creating standards for auditing that balance supervision with innovation and the proprietary nature of the codes.

One of the ways that governments are engaging is through test and learn partnerships with fintechs. For instance, in the US the Consumer Financial Protection Bureau (CFPB) has granted a <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-announces-first-no-action-letter-upstart-network/" target="_blank" rel="noopener noreferrer">no action letter</a> to Upstart Networks, an online lender that uses alternative data. The letter essentially immunizes Upstart from regulatory action and in exchange, Upstart provides information about its loan applications, methodology for decision-making, and whether its loans expand financial inclusion. Other governments have also conducted test and learn engagements with fintechs, as well as create fora for enhanced private-public engagement such as the AI Forum in the Netherlands and Project Veritas in Singapore. Other emerging approaches include working across regulators, such as the Digital Markets Taskforce in the UK.

While there are some strong examples and initial work that could be shared, clearly, there is also still much to learn. What enhancements to existing legal frameworks are necessary to address the new or shifting risks in the use of AI in digital financial services? What digital public goods can help mitigate attendant risks? How can supervisors and regulators build capacity to understand data inputs and use cases, and develop principles and assessment methodologies that are regularly evaluated? These questions would best be answered through research and dialogue among and across regulators, as well as the private sector. Only through a concerted effort will the enormous potential of algorithms and AI extend the reach of financial services in a manner that is inclusive, safe, and fair for customers.

Accountability for Algorithms: A Balancing Act for Governments

The past year was one of building on what became our new reality in 2020.

While the full impact of the pandemic remains unknown, we know that financial services play a crucial role in mitigating the continued effects on livelihoods. We know that financial services are important for changing norms to achieve women’s economic empowerment. We also know that understanding data risks is needed for protecting low-income consumers against fraud and other hazards. And we know that financial services are needed for underserved customers so they can be resilient in the face of a changing climate.

So how have we advanced our learning on these key lines of inquiry in 2021?

The list below – 10 pieces of selected research, analysis, and recommendations from the year – is not exhaustive: CFI published 15 publications and nearly 30 blog posts this year. But it offers a cross-section of how CFI is thinking about the biggest challenges in our sector.

We look forward to furthering our learning in 2022 and continuing to advance inclusive financial services. We wish everyone a healthy new year with shared prosperity for all.
<h3><a href="https://www.centerforfinancialinclusion.org/the-stories-algorithms-tell-bias-and-financial-inclusion-at-the-data-margins">The Stories Algorithms Tell</a></h3>
By Alexandra Rizzi, Alex Kessler, and Jacobo Menajovsky

This flagship publication grounds universal challenges on the use of algorithms, automated decisions, alternative data, and bias in the context of inclusive financial services to present the current state of play among inclusive finance actors. The report is based on desk research and interviews from a sample of fintechs, regulators, and other experts.
<h3><a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know">Normative Constraints to Women’s Financial Inclusion: What We Know and What We Need to Know</a></h3>
By Julia Arnold, Mayada El-Zoghbi, and Alex Kessler

Financial services design and delivery play a part in ensuring women retain control over resources. But norms are increasingly recognized as a key constraint to women’s financial inclusion. This report reviews evidence on social and gender norms and financial inclusion and identifies areas for further improvement to understand and address the norms that influence women’s participation in the economy and the financial system.
<h3><a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">Green Inclusive Finance</a></h3>
By Howard Miller

The role of financial services in helping low-income consumers respond to climate change is increasingly gaining acceptance in the inclusive finance realm as a key component of the global response to the great crisis of our time. This video and blog post map out CFI’s framework for green inclusive finance and provide four distinct but interrelated pathways for understanding how inclusive finance can help low-income populations prepare for and respond to climate change while improving green outcomes.
<h3><a href="https://www.centerforfinancialinclusion.org/creating-prosperity-in-an-era-of-uncertainty">Promoting Prosperity in an Era of Uncertainty</a></h3>
By Mayada El-Zoghbi

In her welcome letter to <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week">Financial Inclusion Week</a>, CFI’s Managing Director discusses the biggest trends in and challenges facing inclusive finance amid a pandemic that already has pushed an estimated 97 million more people into poverty. She provides a bird’s-eye view of the measures taken to avert the crisis, noting the bright spots – rapid mobile money adoption, impressive investments in inclusive fintechs, the flowering of the platform and gig economies – while striking a cautious tone regarding the challenges ahead.
<h3><a href="https://www.centerforfinancialinclusion.org/the-precarious-state-of-msmes-understanding-the-impact-of-covid-19-and-opportunities-to-support-their-recovery">The Precarious State of MSMEs: Understanding the Impact of COVID-19 and Opportunities to Support their Recovery</a></h3>
By Shradha Modi, Katia Huayta Zapata, Lauren Braniff, and Aeriel Emig

This brief shares how COVID-19 has impacted MSMEs over the last year and a half in four emerging markets: Colombia, India, Indonesia, and Nigeria. Backed by <a href="https://www.centerforfinancialinclusion.org/research/covid-19-and-msmes-data-and-analysis-to-understand-impact">six waves of survey data</a> collected from owners and operators of micro, small and medium enterprises (MSMEs), this brief offers four areas to focus on to navigate today’s challenges and build resilience for tomorrow.
<h3><a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-ii-tales-of-survival-from-microfinance-crises-past">Weathering the Storm II: Tales of Survival from Microfinance Crises Past</a></h3>
By Daniel Rozas

A follow up to the <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there">original report</a> and case studies, published in 2011 in the aftermath of the 2007-09 financial crisis, Weathering the Storm II looks at the decade that followed the original paper and shares what became of the organizations profiled within it and how they’re facing the COVID-19 crisis. Nearly every type of financial institution – from NGO to bank – is included in this report that synthesizes experiences and lessons from 16 institutions in 14 countries on four continents over 15 years (including five new case studies from Azerbaijan, Bosnia and Herzegovina, India, Nicaragua, and Palestine).
<h3><a href="https://www.centerforfinancialinclusion.org/yes-covid-is-the-big-bang-of-digital-payments">Yes, COVID is the Big Bang of Digital Payments</a></h3>
By Loretta Michaels

With over 300 million monthly active users in 2020 (up 17 percent year-over-year), mobile money has seen explosive growth. Not only is it an extremely useful tool for businesses and individuals, but mobile money has also been integral for rapid government-to-person (G2P) transfers in many countries in the first months of the pandemic. But there’s still untapped potential for mobile money in a post-pandemic world, especially for governments seeking universal access to financial services.
<h3><a href="https://www.centerforfinancialinclusion.org/trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users">Trust of Data Usage, Sources, and Decisioning: Perspectives from Rwandan Mobile Money Users</a></h3>
By Alex Rizzi and Tanwi Kumari

Who is fairer: loan officers or digital lenders? The publication shares highlights of a qualitative study of 30 mobile money users in Rwanda that aims to answer this question. The survey focuses on user perceptions of and opinions on consumer data in underwriting and the evolving data ecosystem.
<h3><a href="https://www.centerforfinancialinclusion.org/leveraging-digital-financial-capability-to-drive-womens-financial-inclusion">Leveraging Digital Financial Capability to Drive Women’s Financial Inclusion</a></h3>
By Julia Arnold and Marina Dimova

Financial capability must evolve to include digital financial capability. While digital tools offer promise, there is a risk of excluding women, oral communities, and others from the formal financial system, if focus is not given to helping people gain the knowledge and skills to effectively use digital financial services. This post provides a framework for developing effective digital financial capability programs and action steps to guide the way.
<h3><a href="https://www.centerforfinancialinclusion.org/reducing-bias-in-algorithmic-decisions-cannot-rely-on-blind-approaches">Reducing Bias in Algorithmic Decisions Cannot Rely on “Blind” Approaches</a></h3>
By Alex Kessler and Jacobo Menajovsky

What happens when gender-blind credit scoring is applied to financial products and services? We see products like the infamous Apple Card, which gave women consistently lower lines of credit in what researchers call “fairness through unawareness,” an approach that intentionally excludes data on sensitive attributes like race, ethnicity, or sex to reduce discriminatory outcomes. This post addresses the need for a better understanding of algorithms transforming the financial sector to mitigate against discriminatory outcomes while respecting limitations of data gathering needed to protect privacy.

Top 10 of 2021: CFI Research that Furthered Our Thinking in a Pivotal Year

The <a href="https://www.inclusivefintech50.com" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> application data from the third year signals continued progress on innovations to onboard low-income customers, despite the challenges posed by the pandemic:
<ul>
 	<li>Inclusive fintechs are using creative approaches to serve new customers. From retail partnerships that help drive customer acquisition, to insurance platforms offering micro-coverage, to native language chatbots, to enhanced biometric identity verification solutions, early-stage inclusive fintechs are pursuing outside-the-box solutions to reach un/underbanked people around the world.</li>
</ul>
Nevertheless, there are two areas of concern:
<ul>
 	<li>Funding concentration persists. While fintech investments across emerging markets have been increasing, early-stage inclusive fintechs continue to face disparities based on geography, funding status, and gender.</li>
 	<li>Potential customer risks persist around data usage. Although data is central to the business models of inclusive fintechs, some applicants require customer consent related to data, and some still do not.</li>
</ul>

Insights from the 2021 Inclusive Fintech 50 Applicant Pool

Nearly two billion people across the globe lack access to formal financial services and approximately 90 percent of these people live in developing countries. They are excluded mainly due to four predominant barriers preventing accessibility:
<ul>
 	<li>Living in rural areas</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Reduced access to digital technology </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Distrust in banks </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Lack of financial and digital literacy.
</li>
</ul>
Over the last four years, Comic Relief and Jersey Overseas Aid have been working together to tackle financial exclusion to make sure no one gets left behind. In 2017, Comic Relief and Jersey Overseas Aid launched a joint program, <a href="https://www.joa.je/branching-out-with-comic-relief/" target="_blank" rel="noopener noreferrer">Branching Out: Financial Inclusion at the Margins</a>, that supports eight organizations through 19 different grants working towards financial inclusion in Zambia, Rwanda, and Sierra Leone. Since the launch of the program, hundreds of savings groups have been created, helping more than 124,000 people gain practical tools to better plan for the future, achieve long-term goals, and prepare for emergencies. Things were looking up.

Then the unexpected occurred in early 2020. COVID-19 presented – and still presents – a real danger to those who were already at the margins of society. 
<blockquote>The challenges created by COVID-19 had a catalytic effect on accelerating FSPs' shift to digital delivery of financial services.</blockquote>
In light of the pandemic, the Branching Out program commissioned a study, <a href="https://res.torontocentre.org/guidedocs/Resilient%20and%20Inclusive%20Financial%20Services%20Delivery%20During%20COVID-19.pdf" target="_blank" rel="noopener noreferrer">Resilient and Inclusive Financial Services Delivery During COVID-19,</a> through the Toronto Centre. The study examines crucial lessons learned in responding to the pandemic in 2020-21. The program interviewed organizations striving to support vulnerable people to gain access to financial services during this trying time to prevent vital progress from being undone.

The study revealed two major findings:
<ul>
 	<li>Digitalization is key for resilience.</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Providing practical tools and guidance to financial services is needed now more than ever.</li>
</ul>
The report also shows that the challenges created by COVID-19 had a catalytic effect on accelerating financial service providers’ (FSPs) shift to digital delivery of financial services. When face-to-face service delivery was significantly reduced due to COVID-19 health protocols, resilient FSPs and countries (those experiencing little to no contraction in business) were those that were able to implement new measures to reduce in-person contact.

The table below illustrates the changes in delivery channels used by FSPs. The y-axis indicates the percentage of FSPs surveyed (the total respondents also included a smaller number of supervisors and associations). Respondents are based in Zambia, Rwanda, and Sierra Leone.
<h4 style="text-align: center;"><span class="NormalTextRun SCXW151714652 BCX0" data-ccp-charstyle="normaltextrun" data-ccp-charstyle-defn="{&quot;ObjectId&quot;:&quot;e1c145c7-e2cb-47f2-9ba6-6c688a134605|117&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:[134233614,&quot;true&quot;,201340122,&quot;1&quot;,469775450,&quot;normaltextrun&quot;,469778129,&quot;normaltextrun&quot;,469778324,&quot;Default Paragraph Font&quot;]}">Percentage of FSP Respondents Using the Delivery Channel Type<span class="EOP SCXW151714652 BCX0" data-ccp-props="{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:2,&quot;335551620&quot;:2,&quot;335559740&quot;:240}"> </h4>
<img class="wp-image-43599 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/12/Screen-Shot-2021-12-07-at-2.04.01-PM.png" alt="" width="965" height="480" />
(Credit: Toronto Centre)
The uptake of digitalization in each of the countries we surveyed was slow before the pandemic. This could be due to the barriers individuals face, such as:  
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Limited access to the technology needed for digital access, especially for women and those in rural areas</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">The level of digital literacy, low before COVID-19 in all three countries, presented a barrier for some groups, especially for women and rural populations</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Issues of trust and concerns around data privacy and transparency were hindrances to quick adoption of digital delivery channels.</li>
</ul>
<blockquote class="pullquote--right">Progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized during the pandemic.</blockquote>
During the pandemic, progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized. For example, FSPs in Zambia saw a rise in usage of mobile banking services from 26 percent pre-pandemic to 36 percent during the pandemic. In addition to this, Zambia FSPs used agents more to navigate the social distancing restrictions and to reach localized communities – as it was deemed more effective than bank branches.

In Rwanda, the uptake of mobile banking before the pandemic was similar to that of Zambia, though Rwandan usage was bolstered by government efforts towards creating a “cashless society,” which further promoted non-face-to-face services. Rwanda FSPs, therefore, focused their efforts on mobile and internet banking.

In Sierra Leone, internet banking rose from 7 percent to 17 percent during the pandemic – the largest increase seen in the report. However, because the country had faced similar challenges during the outbreak of Ebola, FSPs also managed to maintain a high level of face-to-face delivery, due to having the existing infrastructure to adhere to COVID-19 restrictions, such as social distancing and strict health and safety protocols. The experience that health authorities in Sierra Leone gained from the Ebola outbreak helped them prepare for COVID-19 even when little information was available.
<h2>What Does the Digitalization of Financial Services Mean for Those at Risk of Financial Exclusion?</h2>
The report found that in many cases the digitalization of financial services, accompanied by greater digital literacy and accessibility, has been a promising development in inclusive finance. Consumer associations revealed that one of the greatest impacts of this transition has been in access to repayment modalities which would otherwise have been impossible and could affect customer access to future credit as well as FSPs’ willingness to lend to affected groups.
<blockquote class="pullquote--left">There is a real danger that more people could be left behind if these barriers aren’t addressed.</blockquote>
However, while digitalization can be seen as a natural progression that has been bolstered by the conditions created by the pandemic, barriers persist, including a lack of internet access and low financial and digital literacy. There is a real danger that more people could be left behind if these aren’t addressed. 
<h2>Steps Needed for Continued Progress in Financial Inclusion</h2>
Comic Relief and Jersey Overseas Aid identified the following steps FSPs and regulatory bodies should take to continue making progress in financial inclusion:
<ul>
 	<li>Support the shift to increased digitalization to ensure it expands the reach of financial inclusion.  </li>
 	<li>Increase communication at the policy level and share risk assessments with FSPs to allow for proper planning and strategy.
</li>
 	<li>Set supervisory expectations for FSPs, through best practice guidelines, on the enhanced risk management measures that FSPs should take in ramping up non-face-to-face delivery. </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="5" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Enhance information-gathering for effective supervision of these delivery channels as FSPs try out innovative approaches.  </li>
</ul>
Comic Relief and Jersey Overseas Aid’s aim has always been to ensure that those in the most rural communities don’t get left behind when it comes to accessing financial services. As a result of <a href="https://res.torontocentre.org/guidedocs/Resilient%20and%20Inclusive%20Financial%20Services%20Delivery%20During%20COVID-19.pdf" target="_blank" rel="noopener noreferrer">this report</a> and its findings, the Branching Out program will continue its vital work to support more people to understand and take control of their finances, get back on their feet, and plan for their future.

Furthering Digitalization’s Potential for Financial Inclusion: Insights from Sub-Saharan FSPs, Supervisors, and Associations

H.M. Queen Máxima of the Netherlands, the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), today co-hosted a virtual workshop with the Center for Financial Inclusion (CFI) at Accion to raise awareness and address algorithm biases for financial inclusion.

Queen Máxima and CFI Managing Director Mayada El-Zoghbi co-chaired the meeting, which convened leadership from select central banks and other subject matter experts. Both the UNSGSA and the Managing Director provided brief opening remarks. President and CEO of Accion Michael Schlein also offered brief remarks.

[caption id="attachment_43591" align="alignright" width="559"]<img class="size-full wp-image-43591" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/12/unsgsa-cfi-workshop-algorithm-bias-web-story-foto-21.jpg" alt="" width="559" height="322" /> UNSGSA Queen Máxima (top left) is pictured during a virtual workshop for central banks to address algorithm biases for financial inclusion, which the Special Advocate co-hosted with Center for Financial Inclusion Managing Director Mayada El-Zoghbi (top right). Also pictured are Office of the UNSGSA Director Pia Tayag (bottom left) and Accion President and CEO Michael Schlein. Other attendees are not shown, in accordance with Chatham House Rule.[/caption]

Artificial intelligence (AI)-driven digital financial services hold tremendous potential for financial inclusion. For example, the rapid growth in mobile phone usage and increase in new customer data have resulted in novel methods to deliver financial services by leveraging AI and data — especially in emerging markets and economies.

However, these new innovations can be accompanied with new risks or reinforce previous biases and exclusion issues, with potentially harmful consequences for consumers. This is particularly relevant for vulnerable groups like the poor, women, smallholder farmers, and small businesses.

Attendees used the opportunity to exchange knowledge and learn lessons from the experiences of their counterparts from different institutions and countries on these issues. They were encouraged to examine how to more effectively diagnose problems and identify risks related to AI-driven digital financial services.

Participants also examined how governments could better monitor and mitigate the risks associated with using algorithms for credit and insurance products in their own markets. Further, attendees used the time to consider the role of the private sector in finding solutions and ensuring future innovations are safe and fair for consumers.

The workshop was designed to help participants better understand the risks associated with algorithm biases, as well as to create a research agenda to develop possible strategies and solutions to tackle these problems.

The meeting was conducted under Chatham House Rule. For further reading on the topic, please see CFI’s report, <a href="https://www.centerforfinancialinclusion.org/the-stories-algorithms-tell-bias-and-financial-inclusion-at-the-data-margins">"The Stories Algorithms Tell: Bias and Financial Inclusion at the Data Margins."</a>

UNSGSA and Center for Financial Inclusion Co-Host Virtual Roundtable for Central Banks to Tackle Algorithm Biases in Financial Services