Artificial intelligence (AI) enables innovations in digital finance that can boost efficiency, cut costs, and expand consumer reach. AI provides scalable ways to determine the creditworthiness of individuals and businesses that historically lacked identification, collateral, and credit history. And by automating processes, AI can enable higher volumes of low-value transactions that make harder-to-reach segments more viable customers. However, while AI presents tremendous opportunities, deploying AI also comes with significant risks – one being inequitable outcomes for marginalized consumers, especially women. When applied at scale, the harms caused by AI counter the financial inclusion goals of many impact investors and their portfolio companies. While impact investors are well positioned to take a proactive role in supporting companies in building and deploying equitable AI systems in inclusive finance services, they often do not have the tools required to assess and evaluate the fairness of algorithms. Recognizing this gap, the Center for Financial Inclusion (CFI) developed a practical guide for impact investors to help them identify harmful AI gender bias.
The Investing in Equitable AI for Inclusive Finance: A Risk Management Guide for Impact Investors gives an overview of the use cases of AI in inclusive finance and some of the drivers of harmful AI bias towards women. It also presents a snapshot of the state of practice in bias identification and mitigation and then provides a user-friendly checklist with an actionable set of questions to help impact investors understand the use of AI among their investee companies.
The accompanying brief, Prompts for Equitable Artificial Intelligence in Inclusive Finance: Strengthening the Industry Conversation, presents some of the key challenges with building accountability and transparency for AI in inclusive finance and discusses how CFI’s new guide can help raise awareness around the risks and costs of gender bias in AI. The brief also offers opportunities to strengthen the industry conversation on equitable AI, including advancing research, supporting consumer advocacy and journalism, and operationalizing data rights for consumers.
This work is the result of USAID’s <a href="https://www.usaid.gov/innovation/competitions/equitable-ai-challenge" target="_blank" rel="noopener noreferrer">Equitable AI Challenge</a>. Implemented by DAI’s Digital Frontiers, the challenge aimed to identify innovative approaches to address artificial intelligence inequitable outcomes. The Equitable AI Challenge asked for proposals that critically consider holistic and creative approaches to identify and address gender biases in AI systems within global development contexts. This work is the result of CFI’s winning proposal.

Equitable AI for Inclusive Finance

This blog post was generated from a research project conducted by a team of graduate students from Columbia University’s <a href="https://www.sipa.columbia.edu/" target="_blank" rel="noopener noreferrer">School of International and Public Affairs</a>, in consultation with CFI and with support from <a href="https://ifmrlead.org/" target="_blank" rel="noopener noreferrer">LEAD at Krea University</a>. The team focused on digital financial inclusion and consumer protection for women micro- and small-enterprise (MSE) owners in India and interviewed 38 women MSE owners, bank and fintech agents, and fintech executives in India in March 2023. Please note: Akanksha is a composite character based on interview anecdotes.  

It is the middle of the day in Noida in Uttar Pradesh, and an angry customer storms into Akanksha’s small mobile phone and banking agent shop. The customer demands to know why his parents have not yet received the money he transferred to them at Akanksha’s shop yesterday. To calm him down, Akanksha explains that the bank app’s server experienced an electrical outage in the morning that stalled all transactions. However, the customer continues to demand an immediate fix. 
<blockquote class="pullquote--left">As a woman, building trust with male customers has been particularly challenging, but she must do so since most customers are men. </blockquote>
In addition to running her shop, Akanksha is an agent for banks and fintechs, offering mobile money transfers and various utility services. In this scenario, she faces a tough decision. Akanksha must choose how to address the customer’s complaint – she can try to resolve the issue via the bank app, contact her area distributor — the middleman between banks or fintechs and the network of local agents serving customers, or close her shop and visit the bank. How she handles this complaint is critical, as she must maintain her customer base and the hard-earned trust of her customers. As a woman, building trust with male customers has been particularly challenging, but she must do so since most customers are men. 

Akanksha, a woman in her mid-thirties with a bachelor’s degree, is not confident in filing a formal complaint using the app, which only has instructions in English. She also does not want to file a formal complaint out of fear that staff may escalate her issue to upper management, damaging her relationship with bank staff or her distributor. She attempts to contact her distributor on WhatsApp, but he does not answer. Because her husband is busy at work, Akanksha has no choice but to close her shop early and walk to the bank to talk to a staff member in person.  
<h2 style="text-align: center;"><img class="aligncenter wp-image-46280" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/SIPA_quote1.png" alt="" width="1074" height="180" /></h2>
<h1>Minor Issues With Major Implications </h1>
While Akanksha’s story is fictional, it is not an uncommon situation for many women MSE owners in India. A team of graduate students from Columbia University interviewed 38 women in India who use digital financial services (DFS) to understand their user experiences with banking and fintech apps, especially concerning the complaints journey. The interviews revealed that a stalled transaction is just one of several common issues faced daily by women MSE owners and agents like Akanksha. Stalled transactions and outages are so common that one interviewee described this as “just a part of life.” Almost all interviewees (35 out of 38) experienced at least one minor issue like this when using banking or fintech apps. Because each instance takes valuable time to resolve and leads to lost revenue, the effects of “minor” issues can significantly impact MSE owners’ businesses. One interviewee reported closing her shop for 15-minute periods multiple times a day to walk to the bank and settle matters in person.  

Akanksha’s experience highlights some of the barriers to complaints resolution and consumer protection for women MSE owners in India, driven by low confidence in DFS and a reliance on personal relationships with distributors and staff. In an interview with one fintech CEO – whose company was also among the <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> winners – she said, “Women do not come screaming and shouting; this never happens. Local partners are more approachable. It is a business relationship; if you go to that level, it is also a social relationship.” 

An example of this type of social relationship is how many women agents rely on and highly value their personal relationships with distributors who travel to different communities to collect and disburse cash to agents. One agent even described her distributor as her “mentor and guru.” However, this relationship can also be vulnerable; distributors can exploit agents who depend on them for operational needs and resolving issues. Furthermore, if complaints are made informally to the distributor, which is often true for women, distributors are not incentivized to formally record complaints. As a result, the absence of an official record limits management’s oversight of the challenges women agents face.  
<h1>Finding Solutions That Better Serve Women </h1>
<a href="https://www.microsave.net/2018/10/24/consumer-protection-in-the-digital-age/" target="_blank" rel="noopener noreferrer">Existing literature</a> points to factors such as literacy levels, a difficult interface, and a lack of trust that prevent the adoption and use of DFS. However, there remains a gap in understanding the challenges in post-adoption utilization of services, particularly in the face of weak consumer protection provisions by low-income women users. Therefore, in our study, we aimed to explore how consumer protection policies impacted the experiences of women MSEs in using DFS, particularly with complaint redressal.

We found that, generally, women were not comfortable with the process of submitting formal complaints. Despite fintechs and DFS providers having established complaints handling processes under their consumer protection policies, they are often inadequate in supporting their women users. This results in many women abandoning platforms altogether. 
<h2 style="text-align: center;"><img class="aligncenter wp-image-46281" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/SIPA_quote2.png" alt="" width="1075" height="180" /></h2>
The interviews with women users in India showed that they highly value personal relationships and prefer in-person complaint resolution. However, women face higher challenges to complaint redressal because of their strong preference for resolving issues through social interactions and providers’ lack of gender-sensitive consumer protection policies. As such, to accommodate women’s user preferences, banks and fintechs need to adopt <a href="https://www.centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs">gender-intelligent</a> strategies.

Through a gender-intelligent approach, banks and fintechs can better understand how women use complaint resolution processes and ultimately design offerings that address their specific needs. This approach can help <a href="https://www.centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs">change entrenched gender inequalities</a> and <a href="https://financialallianceforwomen.org/download/how-fintechs-can-capture-the-female-economy/" target="_blank" rel="noopener noreferrer">benefit</a> companies’ bottom lines. Therefore, solutions should focus on directly addressing women’s specific needs while considering the ability to achieve scale.

Based on the research interviews, we recommend that banks and fintechs consider the following:
<h3>1. Banks and fintechs should develop support features that strengthen women agents’ ability to use their apps confidently.</h3>
This approach could include robust in-person onboarding, training, and support in learning to use the app’s features. While this element is considered “high-touch,” <a href="https://www.accion.org/the-path-forward-for-human-touch-in-a-high-tech-world" target="_blank" rel="noopener noreferrer">the tech-touch balance</a> is vital in providing inclusive financial services. Women users also reported that certain apps and resources were only available in English. Consequently, financial service products should be available in local languages and cater to varying literacy levels.
<h3>2. Banks and fintechs should formalize the full scope of the complaint process for their digital financial services.</h3>
Our research found that many women agents resolve complaints through informal mechanisms such as calling, texting (including WhatsApp), or meeting in person with distributors. Therefore, banks and fintechs should update processes and incentives to record distributor interactions and include them in formal complaint resolution processes and metrics.
<h3>3. Banks and fintechs should build user communities that enable high-touch and in-person support at scale.</h3>
Due to the travel-intensive and vulnerable cash collection nature of the role, most distributors are men. However, there is an opportunity to engage women as distributors to support women agents – one example is creating an “ambassador” program where established and high-performing women agents onboard and help new women agents. The incentive for becoming an ambassador is recognition as an expert and leader within the community. While many of our interviewees said they did not know other women agents, we saw that those who had learned from other women had higher competency levels in using the bank and fintech apps.   
<h3>4. There should be more physical meeting spaces or local offices for women customers to meet staff and raise complaints.</h3>
For example, one gender-intelligent fintech established local meeting hubs to support women using fintech services. By providing a secure environment and personalized assistance, the space motivated women customers to raise issues and embrace a broader range of digital financial services, ultimately improving customer loyalty and lifetime value to fintechs.

These recommendations are merely the beginning of the transformative potential of digital financial services in advancing financial inclusion and consumer protection for women. By taking experiences like Akanksha’s into account during the product design and complaint resolution processes, banks and fintechs can forge a more inclusive complaints-handling strategy. Such an approach would enable women MSE owners and agents to thrive, expand their businesses, and achieve greater economic prosperity. When more women feel they can use DFS and fintech successfully, financial service providers can expand their business reach, demonstrating that gender-intelligent design is a win for all.

Fight Gender Inequality: Prioritizing Women’s Customer Experience in Product Design and Complaint Resolution Processes

<h3>“My husband wanted to start a small business but he could not get a big enough loan from the cooperative and did not qualify for a bank loan. The coyote, however, had no problem giving him a large loan to take him to America. My husband sends me money every month and I take the cash to the coyote to repay the loan.”</h3>
<h4 style="text-align: right;">– Anonymous woman from Santa Apolonia, Guatemala</h4>
Immigration to the United States from Guatemala is motivated by a myriad of factors, including rising rates of local violence and climate-change induced impacts on agriculture, but the main accelerant is extreme poverty without prospects for economic mobility. Guatemalans view the enormous potential for economic opportunity abroad as a pull factor, especially in contrast to the limited financial prospects that they face at home. This presents the financial sector in Guatemala with both the opportunity and imperative to support Guatemalans hoping to build and maintain wealth in their home country. This blog shares how the <a href="https://www.usaid.gov/" target="_blank" rel="noopener noreferrer">United States Agency for International Development (USAID)</a> is helping deepen financial access and usage among low-income and marginalized Guatemalans to create more economic opportunities within their communities.

Guatemala has the largest economy in Central America, an achievement fueled primarily by agricultural production, as the nation produces and exports some of the highest quality coffee and spices in the world. Guatemala also has rich cultural diversity, with a <a href="https://www.macrotrends.net/countries/GTM/guatemala/population" target="_blank" rel="noopener noreferrer">population of over 18 million</a>, over 40 percent of whom identify as one of the country’s more than 20 <a href="https://www.pionerophilanthropy.org/guatemalas-indigenous-community-a-struggle-against-poverty-racism-and-exclusion/" target="_blank" rel="noopener noreferrer">Indigenous communities</a>.
<blockquote class="pullquote--right">The financial sector in Guatemala has the opportunity and imperative to support Guatemalans hoping to build and maintain wealth in their home country.</blockquote>
Despite its rich culture and economic standing in the region, Guatemala has high social inequity, including a <a href="https://www.worldbank.org/en/country/guatemala/overview" target="_blank" rel="noopener noreferrer">poverty rate of 52.4 percent</a>, which has been further exacerbated by factors such as climate change and COVID-19-induced economic shocks. The country’s economy benefits from significant remittance inflows—which make up <a href="https://country.eiu.com/article.aspx?articleid=221764805&amp;Country=Guatemala&amp;topic=Economy&amp;subtopic=Forecast&amp;subsubtopic=Economic+growth" target="_blank" rel="noopener noreferrer">18 percent of the country’s GDP</a>—but this has yet to translate into significant reductions in poverty. In terms of financial access, according to the <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">latest Findex Data from 2022</a>, only 35 percent of adults have access to formal bank accounts, down nine percent from 2017 when 44 percent of adults had an account. The gender gap is six percent: 34 percent of women had an account in 2022 versus 40 percent of men, a one percent increase in the gender gap from 2017 when it was five percent. Many do not rely on formal lending sources, with only 11 percent of adults borrowing from a financial institution last year. The Center for Financial Inclusion wrote about<a href="https://www.centerforfinancialinclusion.org/rural-poor-and-pressured-by-climate-change-migration-and-financial-inclusion-in-guatemalas-western-highlands"> the potential for financial services to support rural opportunities in Guatemala</a>.

To break the poverty cycle in Guatemala, low-income families need access to financial services that will build and protect their wealth, enabling them to be more resilient in the face of climate-induced economic shocks and other unanticipated crises. Presently, low-income earners primarily interact with formal financial service providers, including banks, in an over-the-counter (OTC) manner, to cash out remittances without accessing the full suite of benefits that digital financial services can offer such as lower costs, higher speed, and security, as well as building a credit history to access loans.

As smartphone ownership rises in countries around the world, digital financial services (DFS) are a more efficient way to support low-income earners in wealth creation and management by offering convenience, cost savings, economic security, and broad accessibility—and removing the need to go to a physical bank or financial institution. Unfortunately, these service offerings are nascent in Guatemala—and even more so in the country’s rural areas. For example, according to the latest Findex, just 26 percent of adults made or received a digital payment in the last year—a low rate even in comparison to neighboring countries such as El Salvador (28%) and Honduras (32%). While DFS are gaining traction in Guatemala, more work needs to be done to make them accessible, practical, and useful to a broader consumer group.
<blockquote>While DFS are gaining traction in Guatemala, more work needs to be done to make them accessible, practical, and useful to a broader consumer group.</blockquote>
In partnership with DAI’s Digital Frontiers and ConsumerCentrix, USAID recently conducted qualitative customer market research to offer the Guatemalan financial sector concrete recommendations on how it might leverage DFS to positively impact the financial security of low-income and marginalized populations in Guatemala. This research, conducted with 112 participants in Guatemala City, Quiché, and Chimaltenango, identified clear segments and sustainable commercial potential, debunking common misunderstandings about the needs and demands of financially underserved Guatemalans. 

Here are a few key findings: 
<h2>While low-income communities are among the clientele of established providers, banks tend not to treat these communities as strategically critical customer segments deserving of tailored services.</h2>
Most banks mainly offer OTC services to low-income populations, failing to transition these customers to full account holders. The few banks that dominate the financial sector provide bank accounts to only four million people out of the country’s over 18 million population. They offer banking OTC to about five million remittance receivers and one million government-to-person (G2P) and humanitarian aid recipients. Tigo Money, the mobile money provider, offers OTC services to about 700,000 people. The main financial account providers are rural cooperatives, which have about three million clients, and microfinance institutions, which serve about half a million primarily urban clients. 
<h2>A widely-held assumption among financial institutions—that low confidence and limited education are the main barriers to access and use among low-income individuals—is not backed by evidence.</h2>
Providers name literacy, confidence, and aversion to formal financial services as the primary reasons why low-income earners are not formally banked. Yet this study demonstrated that poor customer service, including non-transparent banking fees, which is closely related to low trust in the financial sector, is a major issue alongside stringent requirements for accessing credit—a need among those looking to build a better future for themselves. 
<h2>Latent demand for formal finance exists, and there is awareness of and openness to using digital channels for financial transactions.</h2>
Research participants across all age groups and localities have smartphones and sufficient network connectivity to access DFS. Research found that digital financial literacy is present, particularly among younger segments, and that these segments can and are willing to support their older relatives in using technology. While concerns exist around protecting their security and making mistakes online, there is a shared understanding among participants that DFS is the future, and they are open to using DFS where it can save time and money. Most existing users have prior experiences with bank and cooperative mobile banking applications, generally as complementary to an account. There is little to no awareness of other DFS solutions or even how mobile banking applications could be used more broadly—representing a real opportunity for the financial sector.
<blockquote class="pullquote--left">There is little to no awareness of other DFS solutions or even how mobile banking applications could be used more broadly—representing a real opportunity for the financial sector.</blockquote>
Considering the nascent status of digital finance in Guatemala, financial service providers can start by tailoring products to the most viable segments to first create a critical mass before reaching out to those most in need: the lowest income and most rural consumers. Using criteria around population size, aggregation potential, income regularity, and digital readiness, the research identified two consumer segments with the strongest opportunities for DFS with the most potential use cases, regular income flows, and capacity for aggregation: 1) domestic remittance senders (such as domestic workers) and their recipients, and 2) international remittance recipients. 

Research showed opportunities in digitizing domestic remittance transfers and receipt of international remittances to an account that can be used for a broader set of financial needs including utility payments, savings, and credit facilities based on remittance flows to be used for a microbusiness or household needs. 

Low-income and vulnerable Guatemalans need financial products that help them manage their variable cash flows and to manage risks, including those arising from climate change, and to help them access more economic opportunities. Prototype testing of a potential solution is underway, and the team will produce a full Digital Financial Services Market Assessment Report that outlines these DFS opportunities in greater detail. Stay tuned for the full report—expected in spring 2023.

Letting the Consumer Speak: The Reality of Access to Finance in Guatemala

Each year, World Consumer Rights Day is celebrated on March 15 as a means of raising global awareness about consumer rights and needs. To join in spreading the awareness, this post outlines current risks and opportunities emerging in the field of consumer protection.

By October 2022, when <a href="https://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> (FIW) was held, the world was beginning to emerge from more than two years of pandemic lockdowns and accelerated digitalization. The Global Findex 2021 showed that the share of adults in developing economies making or receiving digital payments <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">grew from 35 percent in 2014 to 57 percent in 2021</a>, with over one-third of adults paying their utility bills digitally for the first time during COVID. In addition, growth in digital lending <a href="https://www.jbs.cam.ac.uk/wp-content/uploads/2021/03/2020-ccaf-global-covid-fintech-market-rapid-assessment-study-v2.pdf" target="_blank" rel="noopener noreferrer">dropped by 8 percent</a> in the first two quarters of 2020 but showed a <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/36883/9781464817304_Ch04.pdf" target="_blank" rel="noopener noreferrer">strong recovery when lockdowns eased</a>.

While these numbers reveal opportunities to use digital financial services to drive financial inclusion, there is also evidence of rising risks that can increase vulnerabilities among newly included consumers. CGAP’s research found that the frequency, breadth, and complexity of risks <a href="https://www.cgap.org/research/reading-deck/evolution-of-nature-and-scale-of-dfs-consumer-risks-review-of-evidence" target="_blank" rel="noopener noreferrer">have increased since 2017</a>. The <a href="https://finaccess.knbs.or.ke/reports-and-datasets" target="_blank" rel="noopener noreferrer">2021 FinAccess Survey</a> found that 47 percent of Kenyans using mobile money have lost funds, a sharp increase from the 8 percent who had cited the same problem in 2019. Digitalization has rapidly increased identity theft, fraud, and mobile money scams.

The impact of these risks is not experienced uniformly by all consumer segments. This indicates that our approach to consumer protection needs a more nuanced, segmented approach to address vulnerabilities. Data from the United Nation’s 2022 <a href="https://www.unwomen.org/sites/default/files/2022-09/Progress-on-the-sustainable-development-goals-the-gender-snapshot-2022-en_0.pdf" target="_blank" rel="noopener noreferrer">Progress on the Sustainable Development Goals</a> report is not encouraging. According to the report, it will take us approximately 300 years to address discriminatory laws and close prevailing gaps in legal protection for women. In addition to issues of fraud and financial losses that all consumers experience, women are also subject to greater harassment due to breaches of privacy and online harassment.
<h1>Consumer Protection was a Clear Focal Point at FIW 2022</h1>
This rise in consumer risks has not gone unnoticed by the inclusive finance community. The urgency to address these risks, particularly before consumer trust in digital financial services is eroded, was a leitmotif across many of the sessions at Financial Inclusion Week 2022. For example, in <a href="https://www.youtube.com/watch?v=J0QaPM6sDDk&amp;list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY&amp;index=1&amp;t=11s" target="_blank" rel="noopener noreferrer">CFI’s global plenary</a>, we discussed the need to embed privacy into the design and delivery of financial services, and expert panelists highlighted international examples to illustrate how this might be done.
<blockquote class="pullquote--right">The urgency to address these risks, particularly before consumer trust in digital financial services is eroded, was a leitmotif across many of the sessions at Financial Inclusion Week 2022.</blockquote>
Digitalization tends to exacerbate existing risks and introduces new risks that must also be detected and addressed. Standards such as the <a href="https://www.ada-microfinance.org/en/toolbox/social-and-environmental-performance#:~:text=The%20Universal%20Standards%20for%20Social%20and%20Environmental%20Performance,Universal%20Standards%20take%20into%20account%20seven%20fundamental%20dimensions%3A" target="_blank" rel="noopener noreferrer">Universal Standards for Social and Environmental Performance Management</a>, SPTF’s <a href="https://cerise-sptf.org/digital-financial-services/" target="_blank" rel="noopener noreferrer">Standards for Responsible Digital Financial Services</a>, and others emerged as important tools to address existing risks. In a session <a href="https://www.youtube.com/watch?v=CJ9_P7bGOvA&amp;list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY&amp;index=4&amp;t=2540s" target="_blank" rel="noopener noreferrer">hosted by SPTF</a>, there was agreement among discussants that standards provide a guideline for best practices for known risks. However, these guidelines may need to be adapted to specific contexts and may not reflect emerging risks or be sufficient to address them.

A <a href="https://www.youtube.com/watch?v=kYmfrSk094w&amp;list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY&amp;index=3&amp;t=8s" target="_blank" rel="noopener noreferrer">session by Incofin</a> highlighted investors as an important stakeholder group to enforce best practices through due diligence and monitoring. And in <a href="https://www.youtube.com/watch?v=7y8x44tLk2I&amp;list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY&amp;index=6" target="_blank" rel="noopener noreferrer">CFI’s on-demand session</a>, we also spoke to investors about how they shape market-level incentives through advocacy and catalytic capital investments. Catalytic capital investors can spur lending in underdeveloped markets while extending a stamp of responsible lending to companies they invest in at an early stage.
<h1>The Way Forward</h1>
As technology increasingly affects inclusive financial services, consumer protection risks are beginning to arise from areas outside the remit of traditional financial sector regulation. In addition, consumers must face risks from newer sources, which impact their financial lives. These new sources of risk include climate shocks, changes in weather patterns, the evolving nature of work, and factors like changing societal structures and norms. These risks can cause vulnerabilities in consumers’ lives at any stage of their interaction with financial services.

Consumer research, policy advocacy, and legislation must adapt to this new normal to take a different lens on identifying and addressing these challenges. By doing so, the industry can help low-income consumers achieve the goals of financial resilience and well-being. CFI’s consumer protection strategy addresses this by using a <a href="https://www.strivecommunity.org/insights/financial-services/consumer-protection" target="_blank" rel="noopener noreferrer">vulnerability framework</a> that identifies where consumer vulnerability is liable to exist in financial services. Identifying causes of vulnerability at any point in the consumer’s life captures moments where consumer resilience can be eroded and thus requires action by various stakeholder groups – investors, regulators, supervisors, and policymakers.
<blockquote>Identifying causes of vulnerability at any point in the consumer’s life requires action by various stakeholder groups – investors, regulators, supervisors, and policymakers.</blockquote>
CFI also convenes the <a href="https://globalrff.org" target="_blank" rel="noopener noreferrer">Responsible Finance Forum</a> (RFF), a global platform for dialogue and knowledge sharing on responsible inclusive finance and consumer protection. The RFF aims to confront the changing nature of consumer risks and collectively arrive at solutions that the inclusive finance industry can adopt to deliver financial services responsibly.

View the full <a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY" target="_blank" rel="noopener noreferrer">Consumer Protection playlist</a> from FIW 2022.

Financial Inclusion Week 2022 had over 3,300 registered participants from 2,000 organizations across 148 countries. With almost 400 speakers and 125 sessions, FIW 2022 was the largest event to date. All sessions from FIW 2022 can be viewed <a href="https://financialinclusionweek.org/2022-event" target="_blank" rel="noopener noreferrer">here</a>.

And be sure to save the date for FIW 2023, which will take place October 16-19, 2023.

FIW Recap: Consumer Protection – Crucial to Driving the Inclusive Finance Agenda

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

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

Alexandra (Alex) Rizzi

Lucciana Alvarez Ruiz

Nikita Chettri

Evelina Durlind

Nina Liew

Leonie Rauls

Ulayya Gempur Tirani

Marina Santos Piacente

Diana Boncheva-Gooley

Veronica Karpoich

Jayshree Venkatesan

Shannon Mudd

Todd A. Watkins

Mayada El-Zoghbi

Julia Arnold

Evelyn Stark

Edi Bardhollari

Loretta Michaels

Jacqueline Foelster

Henry Bruce

Pia  Roman Tayag

Ezra Mannix

India

South Asia

Guatemala

Latin America and The Caribbean

Alternative Data

Digital Financial Services

Fintech

Impact Investing

Underserved Groups

Women

Consumer Protection

Fintechs

Responsible Product Design and Delivery

Small Business Owners

Access Usage Gap

Data Transparency

Enabling Environment

Financial Health

Resilience

Digital Payments

Fraud

Mobile Banking

Responsible Digital Finance

Data Privacy

Policy, Regulation and Government Initiatives

Credit

Insurance

Remittances

Challenges and Crises

Financial Capability

Financial Inclusion Strategy

Partnerships

Blockchain

Human Centered Design

Toolkits and Guides

Blog Post

Report

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.

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

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