<a href="https://www.cdcgroup.com/en/" target="_blank" rel="noopener noreferrer">CDC Group</a>, the UK’s development finance institution, is one of the largest DFIs in the world. With nearly $6 billion invested in companies located mostly in Africa and South Asia, CDC is an impact investor that aims to drive development through commercial means.

CDC invests across a wide range of sectors but focuses on seven priority sectors that it has identified as having the greatest potential for development impact. Among these, the financial services sector currently represents a <a href="https://www.cdcgroup.com/our-impact/key-data#how-we-invest-in-sectors!" target="_blank" rel="noopener noreferrer">greater share of CDC’s portfolio</a> than any other sector.

As part of its exploration into how DFIs are responding to COVID-19, in particular with respect to the role of the financial sector, CFI connected with Machal Karim, an executive on CDC’s Development Impact team who focuses on financial services in developing countries.
<h2>For its COVID-19 response, CDC has laid out three areas of focus: ‘Preserve,’ ‘Strengthen’ and ‘Rebuild.’ Can you tell us more about those?</h2>
We prepared a briefing document with complete details that is available on our <a href="https://www.cdcgroup.com/en/covid-19-response/" target="_blank" rel="noopener noreferrer">COVID-19 response page</a>.
<blockquote>Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined.</blockquote>
Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined. This is particularly the case in those sectors most affected by COVID-19, where it’s been crucial to act to protect the positive environmental, economic, and social impact of these businesses. Our support has included providing working capital, technical assistance, and guidance to improve their resilience and protect jobs.

Our second area of focus is to strengthen the resilience of businesses by scaling up our response to the economic and health challenges of the crisis. On the economic side, we’re channeling much-needed liquidity to local banks to enable them to support their business customers. And to support those that have a direct role in combating the COVID-19 pandemic, we are assessing opportunities to invest in businesses providing healthcare or access to basic goods and services.

We’re now at a point where, alongside these more immediate actions, we’re thinking more about our third area of focus – to support economies to rebuild and recover once the worst effects of the pandemic have passed. As a DFI, our role to address the long-term challenges a crisis will bring – continuing to invest patient capital at a time when commercial investors pull back – is vital.
<h2>In terms of ‘Strengthen,’ CDC is looking to provide liquidity for local financial service providers. Have you identified opportunities for this type of support yet?</h2>
We’re giving priority to those who are in most urgent need of liquidity support. Over the last few months, we’ve committed just over $400 million to our program of systemic liquidity.

As an example, we’ve recently made an <a href="https://www.cdcgroup.com/en/news-insight/news/cdc-announces-additional-us75-million-trade-finance-deal-with-absa-as-part-of-covid-19-response/" target="_blank" rel="noopener noreferrer">additional $75 million commitment</a> to our existing trade finance facility with Absa Bank, an African financial services group. The pandemic has put significant pressure on African banks as international banks continue to withdraw from the continent.
<blockquote>What makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries.</blockquote>
The investment will enable local banks to sustain the availability of trade finance, supporting supply chains during the crisis. And what makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries and in sectors that are critical to serving people’s basic needs during the crisis – food and agriculture and health.
<h2>What about timeframes? What do you see as the medium-term needs beyond liquidity?</h2>
<blockquote>What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term.</blockquote>
CDC has identified various <a href="https://www.cdcgroup.com/en/news-insight/news/guidance-on-protecting-customers-during-covid-19/" target="_blank" rel="noopener noreferrer">short-term to longer-term risks and provided corresponding suggestions</a>, but we’re at a stage where it’s still very difficult to talk about timeframes. We still cannot predict what the ultimate impact will be. What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term, supporting businesses through the course of the pandemic and to rebuild sustainably.

In terms of needs beyond liquidity, our approach throughout has been to provide guidance for employers, investors, and financial institutions on issues ranging from <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/how-can-investors-help-companies-protect-jobs-during-covid-19/?fl=true" target="_blank" rel="noopener noreferrer">job protection</a>, to <a href="https://www.cdcgroup.com/wp-content/uploads/2020/04/CDC-Group-Guidance-on-protecting-customers.pdf" target="_blank" rel="noopener noreferrer">customer protection</a>, to <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/guidance-on-managing-a-remote-workforce-during-the-covid-19-pandemic/?fl=true" target="_blank" rel="noopener noreferrer">remote working</a>. As time has moved on, the nature of this guidance has evolved to include advice on <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/returning-to-the-workplace-during-covid-19-labour-and-workforce-considerations/" target="_blank" rel="noopener noreferrer">returning to the workplace</a> and how to support women working from home with limited access to technology.

Another part of our approach has been to provide support to investee businesses through <a href="https://www.cdcgroup.com/en/covid-19-response-facilities/" target="_blank" rel="noopener noreferrer">our technical assistance facility, CDC Plus</a>. This has included one facility providing grants to businesses, so they can adapt or scale-up to form part of the response to the pandemic, and a second facility to support the development of guidance for companies on how to respond to the crisis.
<h2>Throughout the short and medium terms, CDC suggests businesses maximize their “digital footprint and channels” as much as possible. How are your investees working to accelerate digitization for consumers?</h2>
We’ve been supporting our investee businesses, including financial institutions, to proactively explore how they may want to pivot their current products or operations to better meet customer needs. Much of this has revolved around learning more about digital opportunities and maximizing their digital offerings so they can continue to operate under the changing environments and new types of customer interaction and behavior that the pandemic has brought about.

We continue to support our investees through various channels, including our technical assistance facility, to explore these opportunities and step up their activities as economies open up.
<h2>Consumer protection remains an important topic for CDC. How have consumer protection challenges shifted in the COVID era?</h2>
<blockquote>Consumer protection risks have become particularly heightened due to the pandemic.</blockquote>
We recognized that financial institutions and their customers would come under particular stress as a result of COVID-19. Consumer protection risks have become particularly heightened due to the pandemic, as financial institutions have had to balance the immediate stress on liquidity with the need to sustain support to their customers and abide by regulatory requirements.

Early on, we ensured that the financial institutions we’re invested in had the support they needed to make decisions and manage risks while protecting customers, such as by issuing this <a href="https://assets.cdcgroup.com/wp-content/uploads/2020/04/09165635/CDC-Group-Guidance-on-protecting-customers_9-April-2020.pdf" target="_blank" rel="noopener noreferrer">guidance document</a>. Mindful of the many stresses on employment, liquidity and cashflows, we urged our financial institution partners to continue to consider the needs of, and risks to, customers through the crisis.
<h2>How has this crisis shifted the perception of inclusive finance, if at all?</h2>
<blockquote>Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable.</blockquote>
Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable. Our work to provide systemic liquidity has been a concrete channel of support to the market, with an explicit focus on supporting the most vulnerable first and ensuring their liquidity needs are managed.

When we start to recover, it will be vital to remember all segments of the market to ensure that the most vulnerable and excluded groups are not left behind. It will also be important to continue to support financial institutions in reaching those customers that have historically been perceived as higher risk and harder to reach, as they are also the most vulnerable.
<h2>CDC’s head of Africa has argued that the banking sector is where DFI support is most crucial, but that private capital will be required in the longer term. Does CDC structure any direct support to MSMEs or does everything flow via the banking sector?</h2>
<blockquote>We know that our most effective way for getting capital to SMEs is through partners, rather than investing directly.</blockquote>
A key part of our <a href="https://www.cdcgroup.com/wp-content/uploads/2020/05/Financial-Institutions_11.pdf" target="_blank" rel="noopener noreferrer">Financial Institutions' Strategy</a> is to help intermediaries serve SMEs because SMEs are the growth engines of the economy in our geographies. We know that our most effective way of getting capital to this size of business is through partners, rather than investing directly.

This includes investing in non-bank financial companies so that alternatives to traditional bank financing become available to SMEs, as well as supporting microfinance institutions looking to extend their lending to SMEs. It also includes working with our bank investees to increase the finance they provide to SMEs. This can mean funding work to develop products and operations better suited to SME clients. And it can mean entering into risk-sharing agreements, which reduce banks’ capital cost of lending to SMEs, or trade finance agreements to bridge the ‘trade finance gap’ and support trade undertaken by local businesses. Finally, it includes investing through funds to reach SMEs with different types of capital.

That’s why an important part of our response has been focused on working with our investee financial institutions, so that we can quickly help them to increase the credit available in our markets. For example, by expanding our pre-existing trade finance programs, we can inject liquidity quickly and accurately, and ensure that domestic supply chains keep operating, which in turn supports SMEs within those markets.
<h2>Has CDC coordinated with other DFIs on its COVID-19 response? What’s been the nature of this inter-DFI coordination, and what more can be done?</h2>
DFIs came together very early on to find ways to collaborate in response to the pandemic. The <a href="https://www.cdcgroup.com/en/news-insight/news/development-finance-institutions-join-forces-to-respond-to-covid-19-in-developing-countries/" target="_blank" rel="noopener noreferrer">DFI Alliance</a>, involving organizations from 16 OECD countries, has been working together to bring liquidity to the market, support companies impacted by the virus, and promote new investment.

CDC has been working with both bilateral and multilateral DFIs. There are various working groups underway coordinating on areas ranging from technical assistance funding, to our approach to certain sectors, to supporting the liquidity of investment funds.

We’ve also been collaborating on how to support the rebuilding of businesses and economies in a way that is more inclusive. For example, alongside our peers, we <a href="https://www.cdcgroup.com/en/news-insight/news/2x-challenge-and-gender-finance-collaborative-response-to-the-covid-19-pandemic/" target="_blank" rel="noopener noreferrer">called for a gender-sensitive approach</a> among investors in both immediate responses and longer-term recovery solutions.
<blockquote>We will continue to stand firm to play our role at a time when commercial investors are pulling back.</blockquote>
We feel proud of what we’ve been able to achieve so far and recognize there is a lot more to do as the pandemic shifts from an acute to a chronic challenge. Our approach of providing much-needed liquidity through financial intermediaries is very likely to continue to be needed in the coming years. We will continue to stand firm to play our role at a time when commercial investors are pulling back, so that in the long-term, businesses and economies are able to successfully rebuild.

DFIs, Financial Inclusion and the COVID-19 Response: A Q&A with Machal Karim of CDC

Many have compared the steps required to overcome COVID-19 with those taken in previous economic crises or <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">natural disasters</a>, whereby the situation follows a similar pattern consisting of three stages: triage, stabilize, recover. While there is some applicability to the current COVID-19 pandemic, it implies a sequence and limited duration that may not truly characterize the nature of the challenges we now face. The reality is that COVID-19 is a more persistent phenomenon that may continue to ebb and flow for some time before it is fully under control.

Given the more entrenched and global nature of this crisis, it is likely that the consequences will be more varied and run deeper than what we have seen in past crises. To help get a sense of what these consequences may be for those who are most vulnerable, we asked a few members of CFI’s <a href="https://www.centerforfinancialinclusion.org/people/advisory-council" target="_blank" rel="noopener noreferrer">Advisory Council</a> to share some brief thoughts on what they see as the biggest implications of COVID-19 and the ways in which the inclusive finance sector can address them.
<h2>Camilla Nestor, Adjunct Professor at Columbia University</h2>
From my perspective, one of the biggest implications of COVID-19 is on food security for countries and populations that were already vulnerable. Before COVID-19, the world’s estimated 500 million smallholder farmers were one of the most financially underserved segments, with an estimated <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">$100 billion lending gap</a> in Africa alone.

As a result of COVID-19, smallholder farmers are dealing with significant volatility in demand for both cash crops and food crops, challenges securing the necessary inputs, and limits on accessing markets. On top of this, they are also facing reductions in access to already-scarce capital. If unaddressed, this lack of capital will directly impact their ability to produce food. We see that commercial lenders are pulling back on lending to agriculture; <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">cross-border social lending</a> is flat; and supply chain financing is at risk – for example, in a recent <a href="https://www.afap-partnership.org/covid-19-impact-assessment-on-the-agrismes-and-farming-communities-of-ghana-malawi-mozambique-tanzania-and-uganda/" target="_blank" rel="noopener noreferrer">survey</a> of 5 markets in Africa, farmers noted reduced access to both supplier credit and trade credit since the onset of the pandemic.
<blockquote>With smallholder farming contributing up to 80% of the food supplies in some regions, there is significant risk to food security at both a household level and a national level.</blockquote>
With smallholder farming contributing <a href="https://www.ifad.org/documents/38714170/40706188/Smallholders+can+feed+the+world_e.pdf/460ca6c2-7621-40d8-9f79-a56f6f8fa75e" target="_blank" rel="noopener noreferrer">up to 80%</a> of the food supplies in some regions, there is significant risk to food security at both a household level and a national level. This is an opportunity for the financial inclusion community and agricultural finance experts to come together to develop short-term and longer-term mechanisms to ensure that financing flows to this critical segment.
<h2>Mark Pickens, Senior Director of Social Impact at Visa</h2>
We need to step up for small and micro businesses as they are the backbone of the global economy. Unless they remain resilient and grow, most economies are going to suffer because small businesses typically account for half of all jobs and GDP. The challenge is even greater with women-owned small businesses, which face many challenges, including lack of access to capital.
<blockquote>Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy.</blockquote>
Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy. Earlier this year the Visa Foundation announced $210 million to help small businesses. Visa also launched online toolkits via Small Business Hubs in 20 countries, expanded our Practical Business Skills portal for a greater geographic reach, and committed to digitally enable 50 million small businesses as we collectively recover from the COVID-19 pandemic.
<h2>Joanna Ledgerwood, Independent Consultant</h2>
It has been well-documented that the COVID-19 crisis has disproportionately affected women and girls. In most countries, social norms dictate that women bear primary responsibility for feeding and caring for their families and managing the household. With children not able to attend school and sick family members needing care, women have increased responsibilities, exacerbating an already heavy workload. The result is women have less time for paid work, and because of the pandemic, less access to informal financial services such as savings groups or local shop credit to help them through.
<blockquote>This pandemic provides an opportunity to proactively promote women’s empowerment.</blockquote>
However, this pandemic provides an opportunity to proactively promote women’s empowerment and advance household food security. Understanding how women and men are impacted differently by the pandemic, as well as the risks, constraints and hardships women face and their specific needs, requires the collection and analysis of sex-disaggregated data. This data can help to design appropriate programs and policies and inform financial products and delivery channels to effectively reach women.

For example, providing digital cash transfers directly to women increases their chances of receiving and controlling money to meet household needs, which in turn is likely to lead to greater bargaining power at home. The use of sex-disaggregated data can help to design programs that mitigate unintended consequences of cash transfers such as increased domestic violence. In addition, G2P programs that take gender biases into account can enhance women’s resilience to future economic shocks and can influence change to social norms over the long-term. Now is the time to ensure that women’s increased responsibilities and reduced ability to earn income will not further widen the gender gap in financial inclusion that existed long before this pandemic.
<h2>David Ferrand, Independent Consultant</h2>
Much depends, I think, on factors beyond financial inclusion. The indications remain rather positive that the health impact on Africa will be relatively bearable, notwithstanding the tragic loss of life. But we still don’t know yet the eventual economic cost to Africa, either in absolute terms or in how it will be distributed. There is a very real concern that the recovery from the crisis could see the micro and smaller scale business sectors re-emerging significantly disadvantaged relative to larger scale. And many people who have lost their livelihoods in the crisis may end up in long-term poverty traps.
<blockquote>Only governments have the balance sheets necessary to bear the risks involved.</blockquote>
There are financial sector providers positioned to play a pivotal role in restoring liquidity to communities and investing in rebuilding. But it would be unrealistic to expect that financial sector players can do this alone. There needs to be a new partnership between the financial sector, communities, and governments. Only governments have the balance sheets necessary to bear the risks involved – but they need help from across the financial system in providing the support where it is needed.

Over the longer term, there is also a need for genuine innovation in developing solutions to deal with the human and economic losses. Digital transformation has extraordinary potential, both now and in the future, to change our societies and ultimately lead to ever greater economic, social and cultural integration of countries and the world. The best-case scenario is that the COVID-19 crisis could lead to our harnessing digital finance to empower the rebuilding and development of local communities. But this is going to require bold, swift and pragmatic action.

Implications of COVID-19 for the Most Vulnerable: A Snapshot of Views from CFI’s Advisory Council

One billion mobile money accounts.

This is the headline figure that emerged from this year’s <a href="https://www.gsma.com/sotir/wp-content/uploads/2020/03/GSMA-State-of-the-Industry-Report-on-Mobile-Money-2019-Full-Report.pdf" target="_blank" rel="noopener noreferrer">State of the Industry Report on Mobile Money</a> by GSMA. The growth in mobile money accounts is indeed remarkable. But beyond this number, the report tells the story of an evolving industry, marked by significant advances in volume of activity, types of transactions, people using the services, and emerging business models.

Based on the current trajectory, mobile money accounts are on pace to generate $1 trillion in annual transactions by 2023. Will COVID-19 derail this progress? Or will the pandemic demonstrate the power of mobile money, and further fortify the critical role mobile money plays in low- and middle-income countries (LMICs)?
<h2>The Digital Ecosystem Comes to Life</h2>
Ever since mobile money emerged in the mid-2000s, businesses, researchers, and those working to advance inclusive finance have talked about how to get more money to stay in the system (see examples <a href="https://www.cgap.org/blog/m-pesa-replacing-cash-kenya">here</a> and <a href="https://www.cgap.org/blog/mobile-money-10-things-you-need-know">here</a>). If funds stay in the mobile money ecosystem, the complexity and inherit cost of cashing in and out in remote areas is diminished and users can benefit from other products and services beyond money transfer. In the early days, most people put money in for the sole purpose of someone else taking it out. That story seems to finally be changing (at least in some markets) as we now see a higher value circulating than exiting the global mobile money ecosystem ($22 billion vs $18 billion). Further, we also now see more digital transactions than cash-based transactions, indicating that people are leaving money in their digital wallets and using those funds to make digital transactions.

The report points to a few reasons for this shift. First, digital payments are quickly becoming a routine part of people’s lives. Taxis, schools, shopkeepers, and even governments increasingly <a href="https://www.betterthancash.org/tools-research/reports/opportunities-of-digitizing-payments">accept mobile money payments</a>, so the need to take cash out of the system to conduct daily transactions is lessening. Second, the industry is finding ways to make it easier for people to make those routine transactions, such as QR codes and overdraft coverage. For example, the report cites that merchants using QR codes transact three times more in value than those without. And third, mobile money providers are offering value-added tools to help micro and small enterprises not only better manage digital payments but also other business functions, such as inventory management and accounting.
<blockquote>The evolution toward a digital ecosystem is uneven worldwide.</blockquote>
That said, this evolution toward a digital ecosystem is not necessarily seen evenly throughout the world. Latin America and the Caribbean saw a decline in active accounts and transaction volume in 2019. And while South Asia has a high overall number of registered accounts, the percent of active accounts in the region is the lowest in the world. In India and Bangladesh, a survey of adults with a SIM card but no mobile money account found that their primary reasons for not using mobile money include a preference for cash and a high number of alternate ways to transfer money.

Sub-Saharan Africa, by contrast, has the highest percentage of active accounts at 50 percent (see graph below). In Mozambique, the same survey found that literacy and skills were the biggest obstacle to mobile money usage rather than a preference for cash. It’s clear that the evolution of mobile money is context specific and the trajectory will not look the same everywhere. But in many parts of the world, more is needed to develop the ecosystem in a way that provides value to the user, either by providing a service that beats the alternative options (e.g. faster, more convenient, less expensive) or offers new services not available via other channels (e.g. digital credit, value-added services for MSMEs, insurance, etc.).


One Billion Accounts in the Pandemic Era: Insights from GSMA’s Mobile Money Report

<h1>Why Consumer Rights and Responsibilities?</h1>
The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> provide a common framework for financial service providers (FSPs), policymakers, and clients to better understand and discuss consumer protection issues. While much of the Center for Financial Inclusion’s (CFI) work with the financial inclusion industry has focused on providers and regulators, there is a third crucial constituency: clients.

Client awareness and capability is a critical component of effective financial consumer protection. Clients have the right to demand fair treatment and lodge complaints with government authorities, but these rights mean little if they don’t know what constitutes lawful treatment or how to access complaints channels. Similarly, clients play a role in protecting themselves by practicing behaviors to maintain their privacy and safety. While FSPs can institute protective processes and regulators can craft policy safeguards, improving client awareness of their rights and responsibilities helps consumers play their part to support a sustainable financial system.

This report provides lessons learned from initiatives in Ghana, Uganda, and Benin to raise consumer protection awareness among clients through multimedia campaigns, digital tools and other outreach strategies. It covers country-specific consumer protection issues and the individualized campaigns to address these issues. We also offer five key takeaways to help inform future client protection and empowerment awareness building activities.

Clients Deserve to Know: Using Radio to Educate and Empower Consumers in Africa

The <a href="/about/what-we-do/hbs-accion-program-on-strategic-leadership-in-inclusive-finance">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a> is the first executive education program of its kind to provide high-level management and leadership training to those shaping the microfinance industry, including CEOs of leading microfinance institutions and executives of mainstream banks entering the microfinance market.
<div class="sc-htpNat hKaJAO"><article class="text-block__article sc-TOsTZ dUoRvJ">
<h2>Dates</h2>
The 2020 HBS-Accion Program on Strategic Leadership in Inclusive Finance, originally scheduled to take place March 29 to April 3, has been postponed indefinitely due to growing concerns and travel restrictions across the globe related to Covid-19. Please contact <a href="mailto:mlongwell@accion.org">Maddy Longwell</a> if you are affected by this cancellation.
<h2>Deadlines</h2>
The application period is now closed. Applicants will be notified of their acceptance in February.
<h2>Fees</h2>
The program costs <strong>$8,850 USD</strong> including tuition, fees, housing and meals. Attendees will need to pay in full to be considered accepted into the program. Airfare is the responsibility of the attendee.
<h2>Scholarships</h2>
The <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> provides a limited number of partial scholarships to participants who otherwise cannot attend because of the cost. Please note that we are unable to offer scholarships to all applicants who apply. If you would like to apply for a scholarship, please indicate so in the application.
<h2>Questions</h2>
For additional questions, contact the Admissions Committee at <a href="mailto:hbsaccion@accion.org">hbsaccion@accion.org</a>. For questions about the 2020 cohort, please contact <a href="mailto:mlongwell@accion.org">Maddy Longwell</a>.

</article></div>

HBS-Accion Program on Strategic Leadership in Inclusive Finance 2020

Hema Bansal is presenting at two events at the 3rd Asia Finance Forum:
<h2>Fintech Bootcamp
Monday, November 4, 2019 3:30-5:00pm</h2>
Financial inclusion is increasingly driven by fintech firms independently, or in partnership with banks. Although financial services delivery models differ across countries, digital financial services have shown promising financial inclusion outcomes. There is little evidence, however, that these services are being delivered responsibly, increasing the potential risks to clients.

The Center for Financial Inclusion’s (CFI) <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Smart Campaign digital credit standards</a> address risks to consumers, particularly those arising from new digital products or channels. At the Fintech Bootcamp, we will share these standards, which address a wide range of risks clients are exposed to when accessing digital credit, including but not limited to data privacy and security, over indebtedness, and lack of transparency. They are meant to guide both fintechs and traditional financial service providers undergoing digital transformation. We will also share CFI’s approach to building the financial capability of consumers in accessing digital financial services.

Hema's session will cover the following:
<ul>
 	<li>Responsible standards for digital credit design and delivery</li>
 	<li>Adaptability of responsible digital credit standards nationally and regionally</li>
 	<li>Financial capability approaches</li>
 	<li>Strategies for embedding responsible finance in digital financial services at the country level</li>
</ul>
<h2>Inclusive Finance: Combining Fintech Innovation, Public-Private Collaboration, and Responsive Regulation to Reach the Poorest
Wednesday, November 6, 2019 9:20-10:30am</h2>
Lack of financial and digital literacy is a major reason for lack of access to finance for women and in rural communities. Policies to enhance financial inclusion, especially through technology, should involve more active financial literacy and educational programs.

Learn about new products and services, players, and channels that address the essential need of financial literacy to reach the underserved and unbanked and drive the shift from financial access to financial usage.

Moderator: Lotte Schou-Zibell, Regional Director, Pacific Department, ADB

Panelists:
<ul>
 	<li>Hema Bansal, Senior Director, The Smart Campaign, Center for Financial Inclusion at Accion</li>
 	<li>Peter Morgan, Senior Consulting Economist and Vice Chair for Research, ADB Institute</li>
 	<li>Anil Gupta, Partner – Payments and Distribution, Microsave Consulting</li>
 	<li>Grace Tan, Head of Corporate Communications, Visa Inc.</li>
</ul>
&nbsp;

&nbsp;

3rd Asia Finance Forum

All is not well in the country that pioneered mobile credit. A new <a href="/making-digital-credit-truly-responsible">report on digital credit in Kenya</a> from <a href="https://www.microsave.net/">MSC</a>, commissioned by <a href="/about/what-we-do/the-smart-campaign">the Smart Campaign</a> and the <a href="https://sptf.info/">SPTF</a>, shows that with continued dramatic growth rates, the sector also experiences cripplingly high default and delinquency, enabled by poor business practices and weaknesses in both the credit reporting infrastructure and regulatory jurisdiction.

Most notably, the report reveals very high rates of delinquency and default. Among active digital loans, more than a quarter are non-performing. About 2.2 million Kenyans are said to have delinquent loans. In some cases, liberal use of refinancing and rescheduling hides this level of delinquency in lender portfolios. At the same time, the report points out that about half of these non-performing loans are for amounts less than $10. These findings are broadly consistent with results cited by CGAP in 2016, which found that 50 percent of digital borrowers in Kenya repaid their loans late, and 12 percent defaulted.
<blockquote>Despite continued growth of digital credit in Kenya, high delinquency, default and interest rates persist in the market and credit bureaus haven't yet caught up with the digital age.</blockquote>
The report also details shortcomings in credit reporting, given that many digital lenders neither consult nor report to the credit reporting bureau as fully or regularly as they should. The credit reporting bureaus were clearly set up for a pre-mobile era, which suffer from issues related to inclusion of all types of lenders, frequency of uploading data (monthly, when daily is more relevant for today’s short term loans), and ease of connection among all the players in the credit reporting ecosystem. As a result, many lenders are not consistently using credit bureaus—neither ensuring that the information is updated and correct, nor fully consulting it prior to lending.

Pricing is also an issue. The market leader, M-Shwari, which accounts for about two-thirds of all digital loans, charges an annual percentage rate (APR) of 90 percent. The low-price option provided by Kenya Commercial Bank is a fairly reasonable 44 percent APR, but the high end of the price range includes providers charging APRs well into the hundreds. Granted that these are small, short term loans where interest payments are not expected to be sustained for an entire year. Nevertheless, the promise of digital to bring down prices does is not yet in sight.

Other issues noted in the report include non-transparency regarding portfolio quality, identity theft, misuse of client data, multiple borrowing and loan bicycling by clients, and client use of loan proceeds for sports betting.

The picture that emerges suggests that the still-exploding market of very small, “nano” loans needs to be brought into more orderly operation. Consumers and providers are operating in risky ways. The current state of the market is not beneficial for either.
<blockquote>Raising the bar for blacklisting customers and public awareness about defaulting on loans are among our recommendations for improving digital credit.</blockquote>
One issue specific to this nano-loan market concerns the reporting of very small non-performing loans to credit bureaus, with negative consequences, such as curtailing of access to credit, for hundreds of thousands of borrowers. MSC, the Smart Campaign and SPTF recommend that regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau (whether US$2, $5 or $10 – the report actually recommends a cutoff of 5% of the monthly per capita GDP). It also recommends that the government launch a public awareness campaign about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

The regulators, credit reporting agencies and lenders in Kenya are aware of these concerns and working to improve the situation. A new association of digital lenders (Digital Lenders Association of Kenya) has been formed to create consumer protection standards and the central bank is exploring ways to upgrade the credit reporting ecosystem. The Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Kenya’s unprecedented dynamism in mobile money, digital credit and financial inclusion is envied across the world. If authorities and providers can bring the participants in these sectors into a better-functioning marketplace, Kenya will benefit greatly from the innovation the country continues to spawn.

Red Flags in Kenya’s Nano-Credit Market

Digital credit has emerged as a new and profitable service offering that has great potential to increase financial inclusion. Yet, if not carefully managed, digital credit also runs the risk of excluding, over-charging, and over-extending customers.

Seven years since the first digital credit product launched, the market in Kenya has grown exponentially and hosts a diverse ecosystem with more than 50 supply-side actors. The phenomenal expansion of digital credit in Kenya serves as a test-bed for the product and offers lessons for digital credit suppliers and regulators around the world.

SPTF and the <a href="/about/what-we-do/the-smart-campaign">Smart Campaign</a> commissioned MicroSave Consulting (MSC) to study the dynamics of the digital credit sector on both demand and supply sides. The output of the study was a comprehensive report on the current state of digital credit in Kenya. It looked at the evolving challenges in digital credit and made recommendations for a more responsible and customer-centric delivery of the product.

With participation from Smart Campaign Senior Director <a href="/bio/alexandra-rizzi">Alexandra Rizzi</a>, this webinar will:
<ul>
 	<li>Help participants understand the digital credit landscape in Kenya</li>
 	<li>Assess the progress and challenges around making digital credit responsible and inclusive</li>
 	<li>Recommend steps towards a more responsible delivery of digital credit</li>
</ul>
We hope you can join us!

<img class="alignnone size-large wp-image-36766" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/MSC_Webinar-1-1024x683.jpg" alt="Infographic describing webinar schedule" width="1024" height="683" />

Webinar: Making Digital Credit Truly Responsible

<strong>WASHINGTON, DC, August 27, 2019</strong> – The Center for Financial Inclusion at Accion (CFI) has launched an executive education program for financial service providers serving low-income communities in emerging markets. Through peer learning and exchange, the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> will empower executives and board members to foster client centricity, lead digital transformation, sustain business growth and drive social impact. In partnership with the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> and <a href="https://www.fmo.nl/">FMO</a>, the Dutch development bank, supporting program implementation and participant scholarships, the Board Leadership for Impact Program will offer multiple in-person workshops per year coupled with a robust virtual portal.

Derived from CFI’s five-year <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>, which fostered the growth and development of more than 300 executives and board members of financial service providers serving more than 10 million clients in Africa, the Board Leadership for Impact Program will now expand to include early stage to mature companies offering financial services to underserved customers that operate in emerging markets around the world.

“Our experience with leadership development through peer exchange will inform our efforts through this new program to cultivate a community of leaders who have the skills and the network to help their organizations thrive,“ said <a href="/bio/deborah-drake">Deborah Drake</a>, Vice President, Center for Financial Inclusion at Accion. “Tackling challenges like achieving sustainable growth or pursuing digital transformation, particularly as a mission-driven organization, takes strategic leadership at the board level.”

Through role play, simulations and facilitated discussion, participants will gain new perspectives, skills, and knowledge on topics critical to social enterprise growth and impact, including risk management, board dynamics, digital transformation and inclusive digital finance. They will join an active community of alumni of the Center for Financial Inclusion at Accion’s <a href="https://www.centerforfinancialinclusion.org/get-involved#fellow-exec-ed">executive education programs</a>.

“By developing and strengthening leadership skills that drive business growth and social impact, our partnership with the Center for Financial Inclusion at Accion will help accelerate financial inclusion and economic progress around the world,” said Florencia Spangaro, Director of Programs, Citi Foundation.

“FMO is a proud partner of Accion for over a decade and we realize that creating a lasting impact starts in the board room. Strengthening the management of financial service providers and enterprises will help ensure business longevity and commitment to underserved customers,” said Gerbrich Salverda, Capacity Development Officer at FMO.
<p style="text-align: center;"><strong>###</strong></p>
<strong>About the Center for Financial Inclusion at Accion</strong>

The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.
<a href="http://www.centerforfinancialinclusion.org/">www.centerforfinancialinclusion.org</a>
<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>
<p style="text-align: center;"><strong>###</strong></p>
MEDIA CONTACT

Center for Financial Inclusion at Accion
<a href="/bio/virginia-moore">Virginia Moore</a>
<a href="mailto:vmoore@accion.org">vmoore@accion.org</a>
+1 202.393.5113

The Center for Financial Inclusion at Accion Launches Executive Education Program for Financial Service Providers to Enable Business Growth and Social Impact

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

Client Voices: Rwandans Speak on Digital Financial Services

Alexandra Rizzi

Senior Director, Smart Campaign 

Mayada El-Zoghbi

Managing Director

Machal Karim

Camilla Nestor

Mark Pickens

Joanna Ledgerwood

David Ferrand

Lauren Braniff

Malacci Ohrt

Alex Kessler

Elisabeth Rhyne

Isabelle Barrès

Wayne Hennessy-Barrett

Patrick Traynor

Eric Noggle

Greta Bull

John Owens

South Asia

Sub-Saharan Africa

Latin America and The Caribbean

Benin

Ghana

Uganda

North America

United States

Kenya

Rwanda

Banks

Challenges and Crises

Consumer Protection

Digital Credit

Digital Financial Services

Microfinance

Microfinance Institutions

MSME/SME Finance

Resilience

Responsible Investing

Supply Chain Finance

Women

Agricultural and Rural Finance

Policy, Regulation and Government Initiatives

Smallholder Farmers

Credit

Financial Service Providers

Fintechs

Mobile Banking

Partnerships

Payments

Client Treatment

Complaint Resolution

Delivery Channels

Enabling Environment

Financial Capability

Fraud

Privacy

Product Pricing

Responsible Digital Finance

Telcos

Transparency

Credit Provision

Customer Centricity

Default

Interest Rates

Nano Loans

Over-indebtedness

Consumer Credit

Education Finance

Energy Finance

Governance

Housing Finance

Informal Credit

Insurance Companies

Neobanks

Risk Management

Underserved Groups

Agent Banking

Appropriate Product Design and Delivery

Impact Investing

Data Analytics

Financial Technology

Access Usage Gap

Saving

Trends

Smart Certification

Blog Post

Report

Event

Press Release

Toolkits and Guides

Webinar

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

With an emerging consensus around the importance of responsible digital credit, demand is rising for a shared set of criteria to assess the practices of digital lenders. Investors and regulators want a way to evaluate consumer protection practices among the financial service providers they invest in or regulate. Digital financial service providers also want guidance to improve their practices and demonstrate that they are committed to putting responsible finance into action.

The Smart Campaign at CFI launched the Client Protection Standards for Digital Credit in June 2019 to consolidate CFI’s research on consumer protection, industry learnings, consultations with digital financial service providers, and on-the-ground testing with digital credit companies.

Client Protection Standards for Digital Credit

Smart Campaign team members <a href="/bio/isabelle-barres">Isabelle Barres</a> and <a href="/bio/alex-taylor">Alex Taylor</a> will lead a lunch session on Wednesday, April 3, 2019 to share the <a href="/help-us-shape-standards-for-responsible-digital-lending">draft digital lending standards</a> and discuss the future of Smart Certification for digital credit providers.

On Thursday, April 4, 2019, Isabelle Barres will present on a panel entitled <em>Evolving Practices for Responsible Digital Financial Services</em>.

Panel Description:

Regulations and supervisory frameworks in DFS are often nascent or fragmented, with industry associations evolving to help DFS players to mitigate DFS risks. This session will highlight the latest industry practices, along with innovators that have adapted their business to manage new risks, while scaling digital financial services. Examples by product and business models may include: payments, mobile, solar energy, digital identity, among others. What are the latest movements in responsible digital inclusion and how can signatories and investors apply evolving practices today?

Responsible Finance for Digital Inclusion: Investing for Impact

Digital lending has the potential to close the credit demand gap for unbanked, low-income customers, but the rapid growth of the sector has raised consumer protection concerns.

In Kenya alone, a leading testing ground for the digital credit sector, there are more than 50 providers and an estimated<a href="https://www.cgap.org/blog/kenyas-digital-credit-revolution-five-years"> one in four</a> Kenyans have taken a digital loan. With <a href="https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf">mobile phone ownership saturating</a> developing markets, we can anticipate similar acceleration in the digital lending space globally.

<a href="https://www.cgap.org/blog/its-time-slow-digital-credits-growth-east-africa">Recent findings</a> have generated debate over whether or not these new products are translating into real benefits for base of the pyramid consumers. Demand is rising from investors, regulators, and providers for ways to demonstrate responsible practices in digital lending.

To fill the gap, the Smart Campaign has undertaken research to better understand risks and benchmarks for responsible digital financials services. In partnership with <a href="https://www.mf-rating.com/">MFR</a>, we’re working with providers to conduct field assessments that identify best practices and help us to determine where to set the bar for responsible behavior. These field assessments, industry research, and engagement with DFS providers in Smart’s <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a> will lead to standards for responsible digital credit that are sustainable for the industry while keeping client needs as the central focus.

<a href="http://www.4g-capital.com/">4G Capital</a>, a digital MSME lender in East Africa and a member of Fintech Protects, recently <a href="https://africanbusinessmagazine.com/company-profile/4g-capital/4g-capital-together-with-the-centre-for-financial-inclusion-smart-campaign-defines-standards-for-client-protection/">partnered with the Smart Campaign</a> to conduct a field assessment. We asked 4G Capital CEO Wayne Hennessy-Barrett for his take on responsible digital lending and the value of industry standards for consumer protection.
<h4>Q: Tell us about the origins of 4G Capital and its products.</h4>
WHB: We began operations in Kenya in 2013, starting with microloans for enterprises using only mobile money. As our relationship with our customers grew, we began informal coaching and mentoring of clients to improve their performance. This evolved quite quickly into a program of enterprise-skills trainings packaged with each loan. We now have a number of different working-capital credit products which are the right size and timed according to the specific needs of the business user, and we’re also scaling with partners to reach tens of thousands of new clients each month.
<h4>Q: What was your motivation for joining Fintech Protects and inviting the Smart Campaign to work with 4G in a field assessment of responsible practices?</h4>
WHB: We have always been a mission-driven business. As a fintech lender, Fintech Protects was the perfect forum to share our experiences and learn from others to find ways to close the finance gap, which leaves so many businesses and families excluded.

The field assessment was a rigorous, end-to-end audit of whether we were able to ‘walk the talk.’ It is nearly impossible to self-assess with the right level of accuracy. Either you’re too hard on yourself, or you get distracted by successes and don’t zero in on the things that need to be fixed.
<h4>Q: What did the field assessment confirm about your business? What surprised you?</h4>
WHB: I was delighted, but not surprised, by the level of professionalism and rigor exercised by Smart and MFR. It was encouraging to get positive feedback on the positive customer outcomes we continue to see consistently – that really is the most important thing that we need to reinforce and protect.
<h4>Q: How do you think about scale and growth of your business in the context of a blended high-touch/high-tech model?</h4>
WHB: Accounting for inflation, forex risk and future value of money, this is the $64 Billion Question!

We need to scale to reach more excluded people, catalyze more value chain growth, and, of course, grow our own business. Our transformation program (which is a continuously evolving cycle) sees our AI and technology developing to continue to improve predictive underwriting to further deliver value to our clients as part of supporting their overall financial health. This should free our people to really focus and excel at what they’re good at: relationships, customer care, and contributing their own experience and knowledge to help us evolve with our clients’ needs.
<h4>Q: Of all the areas that the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> cover, what do you think will be the single most important issue digital lenders must contend with over the next five years?</h4>
WHB: It has to be data protection. There are a ton of fintech lenders who are trying to do good things at the moment, but where data can sometimes be gathered in a way clients, if fully aware, would find really intrusive. We need to reset the conversation about data and the way businesses conduct themselves so that even the most remote and excluded have digital self-sovereignty and power over their own data.
<h4>Q: How do the client protection standards provide value to you as a business?</h4>
WHB: Happy clients = happy business. It really is that simple.

Partnering with Providers to Set DFS Standards for Client Protection

This webinar features CFI Fellow Patrick Traynor — Professor in the Department of Computer and Information Science and Engineering (CISE) at the University of Florida. Our conversation will provide an overview of data privacy and security issues in online lending, highlight specific deficiencies as identified in our three-pronged analysis of over 50 digital finance providers, and provide recommendations for providers so they can ensure that consumers have the best possible protections of their personal data.

This research raises important concerns about how digital finance companies currently address data privacy and security issues and points to areas for improvement when creating strong defense mechanisms and privacy policies that protect consumer data. By examining digital lenders’ privacy policies, the mechanisms for securing the connections between customers’ mobile devices and the internal servers that process and store that data, and the terms of service of their offerings, Patrick's report aims to identify how well providers are addressing these data privacy and security vulnerabilities and lays the groundwork for future research that can assist companies, consumers, and regulators in improving security standards for digital finance.

Webinar: Digital Finance and Data Security

Mobile phones and networks are transforming the world of finance, creating opportunities  for widespread financial inclusion, especially among neglected regions and groups. Security and privacy should be among the most important considerations when building digital finance systems.
Credit decisions are often based on sensitive information and online finance offerings are no exception. The sensitivity of this information gives rise to a series of critical questions for customers:
<ul>
 	<li>To whom am I giving my data? And who else do they allow to access it? For what purposes?</li>
 	<li>How do the companies protect data so that people who do not have legitimate access cannot use or steal it?</li>
 	<li>What rights and options do I have if something does go wrong?</li>
</ul>
The goal of this research, conducted by CFI Fellow Patrick Traynor, is to examine how well digital lenders are responding to these questions.

&nbsp;

&nbsp;

&nbsp;

Digital Finance and Data Security

<em>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.</em>

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

&nbsp;

But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

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Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

The <a href="http://www.smartcampaign.org/">Smart Campaign</a> recently released a paper by digital financial inclusion expert and CFI Fellow John Owens: <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/1036-responsible-digital-credit">Responsible Digital Credit: What does it look like?</a> The paper lays out the variety of digital credit models and, using the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> (CPPs) as a framework, enumerates emerging risks and suggests good practices and mitigating steps that providers, regulators and even clients can take.

The paper is a helpful addition to the Smart Campaign’s work on a number of fronts. First, it has sharpened our ability to distinguish various digital credit models. “Digital credit” has become a hot topic in financial inclusion, but the term is often used without understanding the diversity of credit providers. The paper defines digital credit as “loans that are accessed via a digital channel either online, via a mobile device or via a third-party agent that facilitates digital credit processing remotely.” John provides a helpful taxonomy of the types of providers, ranging from non-bank marketplace P2P lenders, to fintechs that provide tiny mobile loans; to tech giants leveraging their massive data streams to offer consumer loans; and platforms that support SME financing through purchase orders, invoices, receivables, and processes between buyers and sellers along the supply chain. The paper presents the client protection risks inherent in all these digital credit products.

It is important to understand the differences among the business models to be able to identify the best ways for providers to mitigate the risks. For example, responsible underwriting might need to look very different at an e-commerce tech giant like Alibaba versus a mobile loan provider like M-Shwari. The two businesses use different kinds of customer data, have different pre-existing relationships with customers, interface with customers differently, and operate in markets with different levels of development (for example, whether credit bureaus can be relied on). As the Smart Campaign seeks to develop practical guidance for digital credit, this diversity presents a challenge.

The paper was also helpful in validating the seven CPPs as a framework for identifying and pin-pointing client protection risks in a digital world. John proposes one significant change. He writes, “To this list, however, we add an eighth concept: security and fraud protection, which is especially salient for digital financial services.” While on the one hand, the concepts of security and fraud could be housed under the existing Principles “Privacy of Client Data” and “Fair and Respectful Treatment,” <strong>given the importance of data security and fraud protection in a digital world, the Smart Campaign will consider it as a potential addition.</strong>

The paper takes the conversation about responsible digital credit an important step forward. So far, much of industry discussion has been about enumerating risks through research. Now the time is ripe for recommending practices that can be applied in real time by providers, regulators, industry and even clients. <strong>Moving from risk identification to practical guidance is an absolutely necessary next step in making responsible digital credit a reality.</strong> Actually, this process has already begun, in various places. John cites examples of guidance from existing industry associations and regulator groups, as well as the many <a href="http://www.cgap.org/sites/default/files/Focus-Note-Consumer-Protection-in-digital-Credit-Aug-2017.pdf">solutions proposed by CGAP</a>. For example, the Online Lenders Association in the United States has requirements for its members in the areas of advertising and marketing. One such requirement is for disclosure of conditions whenever “trigger” terms such as down payment, APR, variable interest rate, and the like appear. Overall, however John’s paper notes that implementation is still at a nascent stage.

At the end of the paper, John makes recommendations, including a few specific ones for the Smart Campaign. <strong>He strongly endorses the development and implementation of standards of practice that adapt the Client Protection Principles for digital credit. Through the <a href="http://smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>, the Smart Campaign and a group of enthusiastic digital lenders are working towards that end.</strong> The community of practice includes both mobile credit providers and tech-enabled financial institutions.

John also notes the value of recognition and certification programs for digital credit providers that meet these standards. The Smart Campaign’s <a href="http://smartcampaign.org/certification/all-about-certification">Certification Program</a>, which has certified over 100 financial service providers serving more than 42 million clients worldwide, is <strong>being extended to recognize client protection achievement for mobile credit providers, with an expected debut in 2019</strong>.

John is personally excited about the potential of new communications technologies such as chatbots to improve consumer protection in digital settings where face-to-face interactions with customers are infrequent or non-existent. He recommends this approach in the paper, and he is developing opportunities to apply digital communication tools. This is promising not only for providers, but also for regulators wishing to strengthen complaint resolution procedures or monitor a market.

As John writes, it will take a village to ensure that digital credit clients are protected with providers, consumer advocates, regulators, donors and investors all working together. The Smart Campaign is delighted to contribute to this effort.

<strong><em>Alex and John led a <a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">webinar</a> in July 2018 about responsible digital credit and what providers need to do to ensure that their customers are protected and empowered—<a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">check it out</a>. </em> </strong>

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Roadmap for Responsible Digital Credit—What We're Doing at the Smart Campaign

This webinar features CFI Fellow John Owens and Smart Campaign Senior Director Alex Rizzi. This conversation highlights the risks that consumers of digital credit face, using the Smart Campaign Client Protection Principles as an organizing framework, identify existing best practices and standards for responsible digital credit, and provide relevant recommendations for stakeholders seeking guidance on how to best navigate the intersection of digital financial services and consumer protection issues.

<em>This report is published jointly with the Smart Campaign and was made possible by support from Mastercard Foundation and other partners.</em>

Webinar: Responsible Digital Credit