Jennifer Tescher, CEO of the <a href="https://finhealthnetwork.org" target="_blank" rel="noopener noreferrer">Financial Health Network</a> and CFI <a href="https://centerforfinancialinclusion.org/about/advisory-council/">advisory council</a> member, is used to drawing the attention of regulators, policymakers, bankers, and financiers to financial health inequities in the U.S. With the pandemic raging, these inequities have only become more evident – and the need to draw attention to them even more urgent.

Tescher’s passion for financial health research and consumer advocacy has been at the forefront of her work since founding the Financial Health Network (formerly the Center for Financial Services Innovation) in 2004. Recently, Tescher has been hosting leaders on her <a href="https://emerge.finhealthnetwork.org/explore/emerge-everywhere/" target="_blank" rel="noopener noreferrer">EMERGE Everywhere podcast</a>, writing <a href="https://www.forbes.com/sites/jennifertescher/?sh=6d85aef6612a" target="_blank" rel="noopener noreferrer">articles</a>, and <a href="https://www.youtube.com/watch?v=xFkLqcZd0g8&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">speaking</a> about building financial health ecosystems so everyone can benefit.
<h2>COVID-19’s Impact on Racial and Financial Inequities</h2>
As Tescher sees it, the typical data used to gauge the overall health of the economy bears little resemblance to the financial lives of most Americans. Compare the stock market’s recent rally to the <a href="https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-01-14-2021-11610573648" target="_blank" rel="noopener noreferrer">rising unemployment claims</a> and the disconnect becomes clear. Adding in COVID-19’s disproportionate impact on people of color, the ramifications of the current economic crisis -- including the loss of wealth and unemployment -- also become clear.

"What's different this time around is that we're having a conversation about systemic racism and the numerous structural challenges Americans face,” Tescher said in a recent interview with CFI.
<blockquote class="pullquote--left">Over two-thirds of Americans are still not considered financially healthy.</blockquote>
While the Financial Health Network’s <a href="https://finhealthnetwork.org/research/u-s-financial-health-pulse-2020-trends-report/" target="_blank" rel="noopener noreferrer">U.S. Financial Health Pulse: 2020 Trends Report</a> indicates that financial health has actually improved, Tescher highlights that over two-thirds of Americans are still not considered financially healthy, and much of the improvement can be attributed to the decade-long financial recovery finally trickling down to middle and lower-income Americans – a recovery that is now over. The report further highlights that financial health disparities have widened when considering race and income. “Taking into account COVID-19, Black Americans, people with low incomes, and women are bearing the brunt of the economic burden,” the report states.
<h2>“Breaking Silos” with the EMERGE Podcast and Platform</h2>
Highlighting COVID-19’s impact on racial and economic inequity is just one way Tescher champions the need for meaningful action to address financial health. Another way has been hosting the <a href="https://finhealthnetwork.org/programs-and-events/emerge-financial-health-forum/" target="_blank" rel="noopener noreferrer">EMERGE: Financial Health Forum</a>. Given the restrictions of COVID-19, EMERGE was reimagined this year. The Financial Health Network team created a new platform for the forum and has since leveraged that platform for a range of content such as blog posts, virtual events, and the podcast.

The idea behind the podcast, as listeners quickly learn, is the need to “break silos” to further financial health. And the diversity of professionals Tescher has on the show indicates that she means it: Dan Schulman of PayPal, Mayor Melvin Carter III, Jelena McWilliams of the FDIC, and Bill Bynum of HOPE are a few of her recent guests.

“The leaders that I’ve been privileged to interview during the first few months of Emerge Everywhere are flourishing during these challenging times precisely because of their ability to embrace complexity, demonstrate empathy, and act boldly. They see in 3-D,” Tescher points out.

Although the topics Tescher addresses in her podcast are focused on financial inclusion, she makes it a point to discuss topics relevant to leadership, industry partnerships, gender, and community engagement. For example, in the episode “<a href="https://emerge.finhealthnetwork.org/podcasts/episode-5-banking-with-empathy/" target="_blank" rel="noopener noreferrer">Banking with Empathy</a>” with McWilliams, the pair discuss disenfranchisement and inclusion in financial services as well as Jelena’s personal and financial challenges after immigrating to the U.S. with only $500.

It may seem like there isn’t much her guests have in common, but each episode includes key requirements to creating a holistic approach to financial health and (re)building the economy to work for everyone. For example, we learn in one episode that one of those requirements, feeling what it’s like to go without, is taken literally for employees at PayPal: Dan Schulman requires his staff to spend a day living without digital financial services.
<h2>Tescher on CFI’s Priorities in Inclusive Finance</h2>
With regard to <a href="https://centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week/" target="_blank" rel="noopener noreferrer">CFI’s four strategic priorities</a> – data risks and opportunities, mitigating and adapting to climate risks, consumer protection, and women’s financial inclusion -- Tescher believes that although these areas could be tackled individually, the intersection and interconnection amongst these topics are what interest her.

“Thinking about CFI’s priorities together as one is where the geographic boundaries become less relevant, which creates an opportunity for the financial inclusion industry to collaborate.”

Climate change is still an evolving topic that Tescher and her team are thinking through. The U.S. is lagging behind the rest of the world in terms of both the ramifications -- i.e. droughts and food shortages, and risk management -- as they relate to climate change’s impact on financial services and consumer financial health. When it comes to climate change, it is important to recognize the connection between physical and financial health, Tescher notes.

On gender, Tescher points out that women historically have not had the same financial health outcomes as their male counterparts, yet <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X10002330" target="_blank" rel="noopener noreferrer">women have shown</a> they are better at repaying debt like mortgages or microloans. The challenge now is connecting women to tools that are aimed at helping them become entrepreneurs and financially healthy.

Financial Health Network’s <a href="https://finhealthnetwork.org/research/consumer-data-sharing/">data work</a> continues to be one of its main policy priorities. Tescher sees the importance of data rights as a means to <a href="https://finhealthnetwork.org/research/give-consumers-control-of-their-financial-data/" target="_blank" rel="noopener noreferrer">empower consumers</a> to have control over, and access to, the information they need to make better decisions and leverage data for good.

“Consumer protection is certainly an aspect of financial data; however, the focus shouldn’t be solely on how data is used for bad, but also how to use data for good.”


Breaking Silos and Challenging Inequities in America: An Interview with Jennifer Tescher

Following nearly a year of limited direct access to the lives of the vulnerable people who are the subject of his research, Prof. <a href="https://wagner.nyu.edu/community/faculty/jonathan-j-morduch" target="_blank" rel="noopener noreferrer">Jonathan Morduch</a> -- economist, co-founder of the <a href="https://www.financialaccess.org/" target="_blank" rel="noopener noreferrer">Financial Access Initiative</a> (FAI), scholar of the lives of the poor and <a href="https://centerforfinancialinclusion.org/about/advisory-council/" target="_blank" rel="noopener noreferrer">CFI Advisory Council</a> member – has been working beside a white-hot forge of projects, continuing to help shape the global body of knowledge about the lives that inclusive finance seeks to improve.

“It’s been a very busy time, even though we haven’t been able to do what we really want to do, which is being in the field: doing surveys, doing research, getting to know people and better understand problems.”

For Prof. Morduch and his <a href="https://www.financialaccess.org/about" target="_blank" rel="noopener noreferrer">team</a>, co-led by Timothy Ogden, that’s meant building partnerships and assembling teams for four different projects focusing on people from a range of backgrounds: from ultra-poor workers migrating to Dhaka from northwest Bangladesh, to families in Compton, California, struggling in a pandemic-scarred economy.
<h2>Small Firm Diaries: Applying the “Portfolios” Model</h2>
Perhaps the most visible of these so far is the <a href="https://www.smallfirmdiaries.org/" target="_blank" rel="noopener noreferrer">Small Firm Diaries</a> project. Morduch, co-author of “<a href="https://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/0691148198" target="_blank" rel="noopener noreferrer">Portfolios of the Poor</a>” and <a href="https://www.usfinancialdiaries.org/" target="_blank" rel="noopener noreferrer">U.S. Financial Diaries</a>, is part of a team that will apply the financial diaries model -- collecting data from hundreds of poor households frequently and regularly over a long period of time (at least a year) -- to firms with 1 to 20 employees, in contrast to CFI’s <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">research</a> on MSMEs, which has been focused on collecting and analyzing survey data on COVID-19's impact on the financial health of owners of a broader range of business sizes.

“There’s a lot of great research available on small firms from different angles – liquidity, gender, how they use digital services... The diaries instead present a chance to look at firms holistically, without imposing a particular agenda from the start. The diaries are a way to understand the lives of firms and whom they employ, whom they serve – and whom they are served by – and try to understand them on their own terms.”
<blockquote>The diaries present a chance to look at firms holistically, without imposing a particular agenda from the start.</blockquote>
With financial support from the Mastercard Center for Inclusive Growth, the Bill &amp; Melinda Gates Foundation, and the Argidius Foundation, the team will collect data for one year from firms in Colombia, Fiji, Indonesia, Kenya, Ethiopia, Uganda and Nigeria. In addition to following cash flows, the researchers will also complete qualitative interviews in roughly 100 households per country from a variety of sectors.
<h2>From South Asian Cities: Researching Digital Remittances Back Home</h2>
A second project Prof. Morduch is leading is digitally connected and builds on a <a href="https://www.aeaweb.org/articles?id=10.1257/app.20190067" target="_blank" rel="noopener noreferrer">pilot in Bangladesh</a> that connected ultra-poor families – whose working-aged children were employed mostly in garment factories in Dhaka and who were largely excluded from technology -- with digital networks to send money home easily. This pilot intervention revealed a 25 percent boost in money going to home villages; the team also found that consumption was smoothed during the lean season and increased overall. The project was spearheaded to fill a knowledge gap in the impact of domestic remittances. Beyond the numbers, it has also changed the way Prof. Morduch has viewed microfinance interventions, which have traditionally been about bringing resources like microcredit to grow businesses in villages.

“This project shows other ways to improve rural conditions. One is to make it easier for younger people to move to cities where they can be more productive and earn higher wages. What about the people who are left behind in rural areas? They can benefit if migrants have reliable ways to send money home.” In addition to introducing the technology to urban migrants and their rural families, the team translated the digital interfaces (which were mostly in English) and gave users hands-on experience. The initial result? Active use of the product went from 20 percent to 70 percent.

The team hypothesized that urban-to-rural remittances would become more frequent as a result of the digital ease of transacting. Surprisingly, the frequency remained largely the same, but the amounts grew.

While the financial and usage results were positive, the treatment group of migrants reported worsened physical and emotional health. The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.
<blockquote class="pullquote--left">The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.</blockquote>
“It’s a reminder that digital financial services can disrupt social relationships. All of a sudden, migrants are available to their families all the time, both to talk and to send money. This changes how we go through life. These technologies can be powerful, but they disturb a social balance.”

With support from the Bill &amp; Melinda Gates Foundation, the team will replicate the work in six other sites in India, Pakistan and Bangladesh.
<h2>To the Homes of Compton: A Guaranteed-Income RCT</h2>
Prof. Morduch is also part of a group that’s working on a guaranteed-income randomized control trial in Compton, California, involving several hundred families whose incomes are below twice the U.S. poverty line. The purpose of this RCT is to test a premise about <a href="https://www.youtube.com/watch?v=Yw4jRO5rYf8" target="_blank" rel="noopener noreferrer">being poor and facing instability</a>: while financial services’ role in smoothing consumption via saving and borrowing is critical, the poor also need a “<a href="https://www.microsave.net/files/pdf/BN_13_Money_Managers_The_Poor_and_Their_Savings.pdf" target="_blank" rel="noopener noreferrer">usefully large sum</a>” from time to time.

As Morduch says, families need to both “smooth” and “spike” during the year.

“These are different savings problems. We tend to focus on smoothing, but both smoothing and spiking are really hard for poorer households, and they call for different solutions.” So for the duration of the experiment, some families will get a check every couple of weeks (smoothing), and another group will get a larger disbursement of funds less frequently, which Prof. Morduch and his collaborators hope will allow them to support important purchases.

Morduch points out that even though the U.S. has the Earned Income Tax Credit (a <em>de facto</em> lump sum payment in the form of a tax refund) and programs -- like SNAP -- to support food purchases for low-income families (a smoothing mechanism), “we never really step back and think about them as financial mechanisms, and that’s what the Compton project is all about.”

Indeed, thinking about stability’s role has been a common theme throughout his planning and executing of projects. “One of the great inequalities in life is that people who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”
<blockquote class="pullquote--right">"People who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”</blockquote>
With that instability and seasonality of employment for the poor, there needs to be more frequent measurements to understand poverty, be them quarterly, or monthly, as opposed to yearly. And the kind of instabilities we saw in "Portfolios of the Poor" are also faced by American workers as the power of labor (i.e., declining unions, <a href="https://www.investopedia.com/terms/m/monopsony.asp" target="_blank" rel="noopener noreferrer">monosponies</a>) falls away, Morduch points out. The Compton project could help inform ways to better collect data frequently.
<h2>A New Primer on Financial Inclusion</h2>
As if that weren’t enough to keep them busy, a new book is also in the works. "Financial Inclusion: What Everyone Needs to Know," by Prof. Morduch and Ogden, will be an explainer organized in Q &amp; A form, a chance for the pair to “pull together ideas and evidence that we talk about all the time, but that may be new to readers.” Prof. Morduch pointed out that while organizations like CFI implicitly explain topics by offering solutions, a book that explains the problems for a broader audience will help advance financial inclusion objectives even more. The book is slated for fall 2021 release.
<h2>CFI’s Strategic Shift</h2>
In some ways, Prof. Morduch’s strategizing and planning is similar to that undertaken by CFI, for whom he has advised for many years. And the excitement is shared.

“CFI’s strategic priorities show an organization that’s truly looking forward, while also looking back. CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”
<blockquote>"CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”</blockquote>
For the latter topic, Morduch urges CFI to make it clear why climate risk is important for people concerned with financial inclusion. “If everyone worried about finance also understands why they should get excited about climate risk, then they will follow CFI, and they will push CFI to push harder, and I am excited about that possibility.”
<h2>Wanted: Closer Public Sector Involvement</h2>
Whether it’s CFI, FAI or other organizations advocating for inclusive finance, Morduch believes that public sector interventions need more prominence.

“The microfinance ethos, in some sense, got us off on the wrong foot. It seemed very anti-government in the beginning -- a private sector intervention. Politically, that was aligned with the moment, but it cut off important conversations. Instead of minimizing connections to public action, financial inclusion should be coming alongside steps by governments to support citizens. That’s one of the great omissions of the financial inclusion conversation: it has been too optimistic about the power of finance alone to address inequality.”

We at CFI agree that the conversation must go beyond private sector interventions: “How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances?” Mayada El-Zoghbi, CFI Managing Director, <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">asked</a> readers of this blog last June.

And we’re looking forward to learning and comparing what we’ve discovered.

Prof. Jonathan Morduch’s Four New Projects

Imagine a woman living in a village near Arusha, Tanzania. Let’s call her Carla. She lives in a small home with three young children and her husband. They have a small plot of land behind their house where they raise vegetables, chickens. When income is steady and predictable, they buy a few goats. She learned to make cheese from a local NGO, so she sells goat cheese and milk, along with her vegetables or crafts, and she puts her earnings into her savings group. Her husband is a day laborer and farmer, but work can be hard to come by, so he often travels into town looking for work and can be gone for weeks at a time. School expenses, sending money to her parents and mother-in-law, and keeping up with her microloan repayments from her savings group weigh on her mind from the moment she wakes up to the time she finally gets to rest after everyone else has gone to sleep.

Carla’s not alone. Nearly two billion low-income people around the world, 56 percent of whom are women, remain <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">excluded from formal financial services</a>, along with millions more dormant bank accounts worldwide. Carla could benefit from financial products that keep her money safe, access to government schemes to support her and her family with money and food, insurance for when the unexpected happens, and carefully designed credit products when she needs them.
<blockquote>Most financial products were not designed with someone like Carla in mind.</blockquote>
These types of products exist on the market today. But Carla doesn’t have access to them. And even if she did, most of these products were not designed with someone like Carla, her family, and her community in mind. Despite the fact that Carla is careful and committed to her savings group and inventive when it comes to livelihood opportunities, most, if not all, formal banks would consider her, and others like her, too risky to bank.
<h2>Are We Listening to Women Enough?</h2>
The persistent global gender gap in account ownership, mobile phone ownership and usage speaks to this misperception. The existing financial system – including <a href="https://www.ifpri.org/publication/beyond-access-gender-transformative-financial-inclusion-agriculture-and-entrepreneurship" target="_blank" rel="noopener noreferrer">aspects</a> of the inclusive finance industry – was not designed with women’s needs in mind, low-income women in particular. Gender roles and norms – behavior based on social expectations – determine men’s and women’s caregiving duties, mobility, livelihoods, education, and access to economic opportunities and financial services. By and large, women who are able to participate in paid labor are also expected to care for dependents. They choose livelihoods that allow them to also perform care work – most often livelihoods that are underpaid and contingent, where the individual worker is dispensable. Frequently, women are unable to choose their occupation or claim ownership over assets as gender norms are also <a href="https://wbl.worldbank.org/" target="_blank" rel="noopener noreferrer">embedded</a> within the legal and banking systems. Women the world over are subject to these norms.
<blockquote>Frequently, women are unable to choose their occupation or claim ownership over assets.</blockquote>
We bring gender assumptions and expectations with us into every aspect of our lives, including when designing and delivering financial products and services. For example, basic bank requirements have assumptions embedded into the very forms and documents meant to help banks get to know customers. Who is the person who can complete a know-your-customer (KYC) form? Not people like Carla. Who is the person who can show valid state-issued identification? Likely not people like Carla. Who is the person who can show proof of ownership over their land? Unfortunately, it’s unlikely Carla has a deed in her name.

It is time we ask ourselves if the current system work for everyone? And if not, what needs to change? Can we as an industry claim that we are listening to women?

This is a massive opportunity for the industry to rethink our work. In fact, there are numerous examples of providers and funders exploring these questions and thinking critically about how successfully and sustainably to reach women.
<ul>
 	<li>Grameen Foundation created a <a href="https://www.prnewswire.com/news-releases/in-midst-of-rural-poverty-nearly-1-3-million-gain-access-to-financial-services-through-grameen-foundation-womens-networks-300845966.html" target="_blank" rel="noopener noreferrer">network of female agents</a> in India and the Philippines – training low-income women to bring financial services to rural communities.</li>
 	<li><a href="https://www.tymebank.co.za/" target="_blank" rel="noopener noreferrer">TymeBank</a> is a fully digital bank based in South Africa that provides basic banking services and financial guidance to its customers. It <a href="https://juntosglobal.com/tymebank-launches-new-conversational-education-service-to-support-customers-during-covid-19/" target="_blank" rel="noopener noreferrer">recently launched</a> a financial literacy service for its first-time banking customers to help them navigate their financial lives during the COVID-19 pandemic.</li>
 	<li>JazzCash, a mobile money provider based in Pakistan, <a href="https://www.financedigitalafrica.org/wp-content/uploads/2018/02/FiDA-Snapshot-9-Best-practices-in-big-data-analytics.pdf" target="_blank" rel="noopener noreferrer">designed a marketing campaign</a> specifically to address potential female-clients. They also embedded a gender lens using behaviorally informed text messages to encourage current users to refer more women.</li>
 	<li>IDRC-funded research is <a href="https://www.idrc.ca/en/research-in-action/harnessing-transformative-potential-womens-financial-inclusion" target="_blank" rel="noopener noreferrer">improving our knowledge-base</a> of what women need and how financial services can transform their lives.</li>
 	<li>Researchers out of Innovations for Poverty Action (IPA) -- Kyle Holloway, Zahra Niazi, and Rebecca Rouse -- <a href="https://www.poverty-action.org/sites/default/files/publications/Womens-Economic-Empowerment-Through-Financial-Inclusion-Web.pdf" target="_blank" rel="noopener noreferrer">analyzed specific supply- and demand-side gender based barriers</a> to financial inclusion. Their research highlights more providers using a gender lens to improve their services to female customers.</li>
</ul>
<h2>Are Women's Lives Actually Improving?</h2>
CFI’s <a href="http://reflecting-on-the-past-and-charting-a-new-direction/" target="_blank" rel="noopener noreferrer">new strategy</a> puts advancing women’s financial inclusion at the foreground, where our research and advocacy will center around the question: do financial solutions improve women’s lives? This work focuses on three critical elements seen in Carla’s story: social norms, the digital divide, and gaps in gender data. Knowing how to design products to serve Carla’s needs – and how to rethink financial systems – begins with understanding her aspirations, limitations, and resources. At CFI, we will gather data to understand her life, which will inform providers and policymakers to better meet the Carlas of the world where they are.
<blockquote>Knowing how to design products to serve Carla’s needs begins with understanding her aspirations, limitations, and resources.</blockquote>
Women are not a single market segment; a deeper understanding of the lives of women – for example, their livelihoods and the social norms that shape their lives – will help inform providers of their financial service needs and how the sector can better serve them. CFI is leading research to understand the necessary components for building women’s financial and digital capability as well as the key normative constraints impacting providers and limiting women from improving their lives through financial services. The hope is that evidence will catalyze knowledge, innovation, and initiatives to embed norms-transformative work throughout the inclusive finance field.
<h2>Join Us</h2>
CFI's <a href="http://financialinclusionweek.org/event-calendar-2020" target="_blank" rel="noopener noreferrer">Financial Inclusion Week lineup</a> includes a lively podcast conversation with three experts on gender norms and gender transformative financial services and a live webinar that unpacks design principles for building women’s financial capability. We hope participants walk away with a deeper understanding for why and how to build women’s financial inclusion.

The conversation doesn’t stop after Financial Inclusion Week concludes. CFI hopes to continue to learn from the industry to better shape our work. Want to tell us about what you’re doing? Please contact Julia Arnold, Senior Director, Gender and Financial Inclusion at <a href="mailto:jarnold@accion.org">jarnold@accion.org</a>.

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Reimagining Inclusive Finance With Women In Mind

Data from across the financial inclusion industry shows the economic upheaval COVID-19 is causing throughout Nigeria. <a href="https://www.centerforfinancialinclusion.org/msmes-in-lagos-struggle-due-to-covid-19-but-remain-positive" target="_blank" rel="noopener noreferrer">In addition to data collected by CFI</a>, we examined the results of four other surveys of COVID-19’s impact throughout the country. When considered collectively, the data tells a story in which the public health crisis has led to policies which slowed economic activity. Consequently, income has declined—for employers and employees alike—and there appears to be massive reductions in available work. The data also suggests Nigerians’ capacity to respond is finite as households draw down savings and struggle to repay debts, exacerbating their struggle to put enough food on the table.
<h2>Survey Summary</h2>
CFI looked at five surveys that have been conducted since COVID-19 reached Nigeria. A summary of those surveys—including sample size, notes on sampling method, survey dates, and major topics covered—is available in Table 1.

There are three things to highlight about this set of surveys which are meaningful when interpreting the results. First, the survey methods used varied, and <a href="https://news.gallup.com/opinion/methodology/233291/why-phone-web-survey-results-aren.aspx" target="_blank" rel="noopener noreferrer">these different modes have shown to yield different responses to the same question in other studies</a>. BFA used an online survey, GeoPoll’s survey was delivered via SMS to its database of respondents while CFI, i2i, and the World Bank conducted surveys by phone.

Second, the samples target different populations of interest and the selection methodology differed. BFA used a sample of paid, online respondents while GeoPoll relied on its database of mobile subscribers who tend to be younger, more literate, and wealthier than the population at large. CFI’s sample of MSMEs were clients of Accion Microfinance Bank in Lagos. Only i2i and the World Bank surveys were nationally representative. This diversity can help give confidence in patterns we identify: <em>there is strong circumstantial evidence the trend is true</em> if all five surveys show a similar trend with a similar magnitude. A downside, though, is that because of the heterogeneity in methods, circumstantial is the best we can do—this is not an empirical comparison.

Third, these surveys happened at proximate but not identical times. BFA’s survey was the earliest and the <em>initial</em> World Bank survey, which includes two waves, also happened shortly after the pandemic struck. i2i’s longitudinal survey was conducted <em>during a two-and-a-half-month period</em>. These differences are relevant because of the immediacy of COVID-19’s impact. Even differences of a few weeks could have had meaningful effects on responses.

Nigerians Are in Desperate Need of Relief as COVID-19 Reduces Wealth and Stresses Coping Strategies

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

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

Micro, small, and medium enterprises (MSMEs) in Indonesia are suffering in the wake of COVID-19 according to data collected by CFI. Seventeen percent of the businesses in the sample have closed, and 85 percent of those that continue to operate estimate their profits have decreased, often by 50 percent or more.

Owners of the MSMEs that were operating at the time of the survey remained optimistic despite the economic downturn. Almost two-thirds reported they were covering their business expenses with revenue and thought they could keep their doors open for another three months based on how things were going. In addition to altering their business practices to stay open, the data on owners’ use of financial tools suggests that they are drawing down their financial resources, raising concerns that they have little cushion for the months ahead.

From July 13 to August 8, 2020, CFI conducted phone interviews with a random sample of <a href="https://bina-artha.com/" target="_blank" rel="noopener noreferrer">Bina Artha Ventura (BAV)</a> clients in Indonesia. BAV, which is <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">participating in Accion’s partnership with Mastercard</a>, is a microfinance institution that uses a group lending methodology to serve entrepreneurs, mostly women, who predominantly live in rural areas. CFI completed 730 interviews, 660 of which were with female MSME owners. Two-thirds of the owners ran sole proprietorships while 31 percent ran microenterprises (one to 10 employees). Those microbusinesses employed an average of three people before the pandemic. MSMEs in the sample have been operating for almost eight years on average. Most businesses were grocery or food stands, although farming and the sale of household goods were also common. This is one of six surveys CFI is conducting in Indonesia as part of its <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact" target="_blank" rel="noopener noreferrer">ongoing effort to study the impact of COVID-19 on the financial health of MSMEs</a>. As with data from CFI’s first survey in Nigeria, the data from this survey is <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/indonesia" target="_blank" rel="noopener noreferrer">presented in this interactive dashboard</a>.
<h2>Survey Insights</h2>
<h4>Nearly one in five women-led businesses have closed. They were almost twice as likely to close as male-led businesses.</h4>
<blockquote>Of the women-led microbusinesses that closed, 78 percent said they were completely confident that they would reopen in the future, but only 57 percent of the women-led sole proprietorships that closed said the same.</blockquote>
Since COVID-19 struck Indonesia, 18 percent of women-led businesses in the sample have closed. These closures have proportionally impacted businesses of different types and sizes, and they have been driven largely by a drop in customer demand, likely the result of restrictions on movement being enforced in the country. The owners of these businesses were generally confident that they would be able to restart their business in the future, but there were major differences based on how large the businesses were prior to the pandemic. Of the women-led microbusinesses that closed, 78 percent said they were completely confident that they would reopen in the future, but only 57 percent of the women-led sole proprietorships that closed said the same. Importantly, women-led businesses were almost twice as likely to close as male-led businesses. Of the 70 male-led businesses in the sample, only 10 percent had shuttered their operations.
<h4>COVID-19 has led to dramatic declines in profits, but roughly two-thirds of businesses say they are covering their expenses.</h4>
<blockquote>70 percent of operating businesses reported a decrease in profits of 50 percent or more.</blockquote>
Businesses generally did well in the year before the pandemic struck. Fifty-six percent of respondents reported their profits increased compared to the year before while 38 percent said they had stayed the same. Only 5 percent of people said their profits had declined, but that number has skyrocketed since COVID-19: 85 percent of businesses reported that their profits have declined compared to pre-pandemic levels. Those declines have been dramatic, with 70 percent of operating businesses reporting a decrease in profits of 50 percent or more. While profit levels shrunk dramatically, owners were confident that they would be resilient to this shock. Sixty-three percent of owners said they were covering their expenses just with business revenue and think they could continue operating for at least three months based on how things were going.
<h4>MSMEs are trying to survive by changing business practices to boost revenue and cut costs, including reducing their labor force.</h4>
<blockquote>Half of operating microenterprises reported that they cut employees.</blockquote>
MSME owners are employing a mix of revenue-boosting and cost-cutting measures to ensure their revenues continue covering their expenses. For instance, a third of all operating businesses reported offering discounts to stimulate sales while a fifth chose to raise prices instead. Almost a fifth of businesses started a delivery service since the pandemic began. Cost-cutting measures were also common. For those businesses with employees, reducing the size of their workforce and work hours for staff was an important strategy. Half of operating microenterprises reported that they cut employees, leading to a 42 percent reduction in employment within this segment. This action likely had downstream effects. Many owners reported that they were working longer hours to meet customer demand or make ends meet, potentially a result of a reduced workforce.
<h4>In addition to their businesses, owners’ households are enduring, but data on financial tools suggests their margin of error is small.</h4>
Three-quarters of households reported that they were covering all their expenses with non-debt income sources. Severe food insecurity – defined as people going to bed hungry because of a lack of money – was relatively low at 10 percent. In comparison, CFI’s survey of urban MSME owners in Lagos, Nigeria found that 34 percent of owners reported severe food insecurity in their households.

While this is encouraging, a closer look at the financial tools owners are using to cope with the crisis suggests that conditions are likely to worsen. For example, 22 percent of owners sold a household asset to keep their business running. Of the households that sold an asset, only 63 percent reported being able to cover their expenses compared to 79 percent who did not sell an asset. Similarly, 47 percent of MSME owners reported skipping a loan payment, and those owners were less likely to have covered their household expenses by a similar margin compared to those who had made their payments.
<blockquote>Savings also appears to have collapsed in the months since the pandemic hit.</blockquote>
Savings also appears to have collapsed in the months since the pandemic hit. Since March, only 38 percent of people reported saving while 53 percent reported withdrawing money from savings. In the year prior to the pandemic, 84 percent of people reported saving compared to 54 percent who said they withdrew money. While the comparison is not one-to-one because of the different periods, it is certainly not encouraging, especially because savings is another indicator of households’ ability to cope. Ninety percent of owners who had saved since March reported being able to cover their household expenses compared to only 67 percent of owners who had not saved.

Collectively, this analysis implies respondents have dwindling financial options. Only so many assets can be sold, and savings will dry up if not replenished. Debts not repaid choke future lines of credit. These underlying patterns may help to explain a less optimistic sentiment shared by respondents: 79 percent said they could only cover their essentials for a month or less if their income sources dried up.
<h2>Summary and Reflections</h2>
Since the pandemic reached Indonesia in March, 17 percent of businesses have closed, profits have collapsed, and employment has plummeted. Women-owned businesses have been hit especially hard, with 18 percent of them closing compared to only 10 percent of male-owned businesses. Owners who managed to keep their business open reported a high degree of confidence in their ability to continue operating, relying on a mix of revenue-boosting and cost-cutting business practices to ensure their revenues continue to at least meet their expenses. This has helped stave off catastrophe at home, where food insecurity remains low and people continue to cover their household expenses.

However, data on the use of financial tools suggests owners and their households have little margin for error in the months ahead. Selling household assets, skipping loan payments, and net savings withdrawal activity indicate that respondents are already relying heavily on financial tools to meet their basic needs. Without a change in their circumstances, it is unlikely that MSME owners will be able to replenish these resources. Thus, it is reasonable to expect a worsening financial situation in the months ahead.

<em>This survey is part of our partnership with <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a> to understand the impact of COVID-19 on MSMEs.</em>

MSMEs in Indonesia Are Surviving but COVID-19 Leaves Little Margin for Error

Prior to the onset of COVID-19, very few of us would have foreseen a pandemic spreading so rapidly across the world, forcing governments to take actions like lockdowns and border closures. We have observed how these events found many essential services unprepared and resulted in businesses focusing on “response” and “recovery.” In many countries, the pandemic started as a health crisis, while in Sub-Saharan Africa it started as an <a href="https://www.worldbank.org/en/news/video/2020/04/21/africas-pulse-covid-19-coronavirus-causes-first-recession-in-25-years" target="_blank" rel="noopener noreferrer">economic one</a>, as closures happened quicker than the virus spread.

Despite the fact that many agricultural value chains are considered an essential service, agri-SMEs in Sub-Saharan Africa are still facing a <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">decline in demand</a> (particularly those providing farm inputs), <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">liquidity shortfalls</a>, harvesting and production problems due to labor shortages, <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_FINAL.pdf" target="_blank" rel="noopener noreferrer">export and transportation delays due to lockdowns</a>, and cancelled international contracts. All these challenges are exacerbated by ongoing climate change-related shocks, like droughts, floods and <a href="https://www.nationalgeographic.com/science/2020/02/locust-plague-climate-science-east-africa/" target="_blank" rel="noopener noreferrer">locust plagues</a>. The resilience of agri-SMEs (small and medium-sized businesses that are formal and registered entities engaged in agricultural production) is being tested with these events.

While it is too early to estimate the full economic impact of COVID-19 on agri-SMEs, most lenders are taking steps to address the most pressing challenges faced by these agri-SMEs. Though it is prudent to move quickly to overcome these challenges, agri-SMEs would be better supported in the long run if lenders approach these problems through a systemic lens to understand the root of the challenges instead of focusing only on the symptoms of the overall shock.

Aside from the lack of infrastructure, agri-SMEs’ biggest challenge to growth is their limited access to finance and the regulatory burdens constraining this access. As will be discussed below, these challenges are deeper and more structurally embedded, and therefore require a long-term coordinated commitment to provide agri-SMEs access to capital.

This post highlights steps lenders are currently taking to help agri-SMEs weather the storm and suggests areas where they can expand their focus to support these businesses in being better prepared for future economic shocks.
<h2>Explore new options to mitigate risk and increase capital flow to agri-SMEs</h2>
Since the outbreak of the pandemic, most lenders have focused on serving existing clients by increasing their financing, restructuring loans, or deferring payments to meet their clients’ liquidity challenges. By doing so, lenders are also making sure their current portfolio is not at immediate risk.
<blockquote>It’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.</blockquote>
While lenders may be tempted to take a more conservative stance, those with sufficient capacity should be initiating even more new deals in order for agri-SMEs to keep goods and services flowing through the highly interdependent agricultural value chain. For instance, <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">72% of MSEs in Zambia</a> need working capital to continue and grow their business, and <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">61% are running on their savings</a>. COVID-19 is exacerbating the financing gap, and it’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.

Luckily, lenders have successful examples which they can use to build new and more innovative risk mitigation options. Credit guarantees, such as non-bank financial instruments that mitigate default risk for lenders in Sub-Saharan Africa, are a known practice. Between 2008 and 2015, AGRA worked with several partners to offer several guarantees to extend credit to many agriculture value chain actors in Africa, demonstrating the bankability and feasibility of investing in perceived risky agricultural businesses. Additionally, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> has developed a new market platform that aims to incentivize financial service providers to lend to agri-SMEs while also providing technical assistance to them.
<h2>Create new strategies to find and support agri-SMEs</h2>
Many agricultural lenders are reporting that servicing new clients has either stopped or dropped to low levels, not just because of risk concerns, but also because it is almost impossible to conduct thorough due diligence without on-site visits. Given that on-site visits may not be feasible in the near-future, lenders will want to design creative strategies and leverage data to support remote discovery of new agri-SMEs.
<blockquote>Promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics.</blockquote>
To this end, in early 2020, MIX and SCOPEinsight formed a partnership with the support of AGRA to help address the financing gap agri-SMEs face. Through this partnership, they are <a href="https://www.themix.org/news-blog/mix-and-scopeinsight-launch-partnership-with-agra" target="_blank" rel="noopener noreferrer">building bankability metrics</a> so that agricultural lenders can identify and pre-screen agri-SMEs. These metrics play an even more important role now due to COVID-19 disruptions, and they will feed into a portal which will bridge the information gap between agri-SMEs and lenders. As a result, promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics that lenders can use to reduce their costs to serve SMEs. By employing bankability metrics, lenders will be able to assess the potential for growth of agri-SMEs, which currently handle <a href="https://agrf.org/dealroom/wp-content/uploads/2020/07/AGRA-AGRF-Deal-Room-talk-by-Tom-Reardon-july20-2020-final-sent.pptx" target="_blank" rel="noopener noreferrer">680 million tons of food in Africa</a>.
<h2>Offer appropriate technical assistance to agri-SMEs</h2>
<blockquote>The key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges.</blockquote>
Several of the lenders we spoke with are increasingly providing technical assistance to agri-SMEs, recognizing that in these extraordinary times, agri-SMEs are looking for direction. Lenders are offering guidance and training on financial management, crisis management, and operating a business with limited resources. After conducting a <a href="https://rootcapital.org/wp-content/uploads/2020/06/COVID-19-client-survey-report_JUNE-2020.pdf" target="_blank" rel="noopener noreferrer">survey on COVID-19's impact on 134 of its clients</a>, Root Capital decided to offer virtual technical support through its advisory team in four areas: crisis management, emergency operations, financial management and analysis, and digital data collection and analysis.

While technical assistance is not new and is already being offered to SMEs by many organizations, the key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges, with the main goal to support agri-SMEs to grow and become bankable organizations. Helping agri-SMEs become more bankable, and thus more professionalized and visible to other lenders, can assist them to overcome barriers to financing and become more resilient and better equipped to face future risks and shocks.

Going forward, the uncertainty of this pandemic makes it unclear how the next season or harvest will affect agri-SMEs, who are <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">highly interdependent actors in an agricultural value chain</a> where one simple disruption in the flow of goods and services creates challenges for other actors. Along with prioritizing their existing clients, as they are currently doing, lenders could consider the crisis an opportunity to employ long-term strategies that can help agri-SMEs grow into resilient institutions. Coordinated responses and actions by lenders and other actors will play a critical role in ensuring that these businesses are strong enough to continue to feed the world in the face of new pandemics and other global challenges to come.

&nbsp;

From Crisis to Opportunity: How Can Lenders Help Build Resilient Agri-SMEs

New data from CFI’s <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">survey of micro, small, and medium enterprises (MSMEs) in Lagos, Nigeria</a>, show the staggering impact of COVID-19. Since the <a href="https://www.bbc.com/news/world-africa-51671834" target="_blank" rel="noopener noreferrer">first confirmed case</a> of COVID-19 in Nigeria in late February, 9 percent of the 737 businesses in the sample have closed; the number of employees has declined by 51 percent compared to its high point the preceding year; and 80 percent of businesses have seen their profits decline.

The data also show MSME owners’ households in a precarious position. More than half of business owners said their household is currently not covering their expenses from earned income, and if their income were to dry up, nearly 60 percent would be unable to pay for essentials within a month. Food insecurity is high, too – one-third of respondents reported they or someone in their household has gone to bed hungry in the past two months because there has not been enough money to buy food.

This survey is part of CFI’s multi-country effort to <a href="https://centerforfinancialinclusion.org/understanding-covid19s-impact-on-financial-health-of-msmes/" target="_blank" rel="noopener noreferrer">understand the impact of COVID-19 on the financial health of MSMEs</a> and is the first of six longitudinal surveys in Lagos. Broadly, the survey seeks to understand which businesses are shuttering their operations and why; how the performance and practices of operating businesses have changed; what financial tools MSMEs are using and whether their use is correlated with businesses’ resilience; and how changes in these livelihoods are related to changes in household well-being. The initial survey aimed to establish a retrospective baseline for firm performance and financial tool use in addition to capturing changes in behavior and outcomes since COVID-19 arrived in Nigeria. Future surveys – which will occur every two months for the next year – will track these indicators over time.

From June 16 to July 15, 2020, CFI conducted phone interviews with a random sample of Accion Microfinance Bank (AMfB) clients living in Lagos. AMfB is participating in <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Accion’s partnership with Mastercard</a>, which supports the digital transformation of financial service providers. CFI completed interviews with 737 respondents, 55 percent of whom were women. Two-thirds of the businesses in the sample were micro-enterprises (1 to 10 employees) while another quarter were sole proprietorships. Most business were well-established, with an average operating age of 13 years. There was a healthy mix of businesses, including grocers, school operators, and manufacturing businesses.

CFI is presenting its data from this survey effort in this <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/nigeria/" target="_blank" rel="noopener noreferrer">data dashboard</a>. The dashboard is a living document – it will be updated as CFI refines and conducts new analysis, and as new data from other surveys becomes available.
<h2>Survey Insights</h2>
<h3>Nine percent of businesses have closed since COVID-19, but owners are confident they will reopen again.</h3>
The data show that 64 of the 737 businesses in the sample shuttered their operations since COVID-19 arrived in Nigeria. Of these, 40 of the businesses closed because of government restrictions on their businesses. School operators were disproportionately affected. Of the 44 school operators in the sample, 52 percent reported not operating. Of all the other types of businesses – like grocers, tailors, or electronic stores – with an n of 10 or more in the data, only the share of restaurants that have closed cracked double digits at 12 percent. At the time of the survey, these entrepreneurs were confident that they would reopen their businesses when government restrictions are lifted.
<h3>Total employment is down by 51 percent. Closed businesses are a major contributor to the decline, but nominally small losses incurred by microenterprises are adding up.</h3>
The survey asked respondents to report the largest number of staff – full-time, part-time, and seasonal –they employed at one time in the 12 months preceding coronavirus. They included family members if they were paid a wage. Against that benchmark, employment has plummeted. Prior to coronavirus, MSMEs in the sample employed 3,001 people. At the time of the survey, that number had dropped by 51 percent to 1,468 people.

Two major patterns are contributing to the decline. First, business closures are a significant driver of net job loss, largely because so many schools, which are major employers, shut down. A mere seven percent of the entire sample – representing 53 closed businesses – accounted for 44 percent of net job losses, and closed schools accounted for nearly 80 percent of that. Second, many microenterprises have lost a nominally small number of employees (on average, just more than one), which collectively has a significant impact on employment. The 463 operating micro businesses have lost 550 employees, roughly a third of all jobs lost.
<h3>Those job losses are symptomatic of the drop in profits that 80 percent of MSMEs are experiencing.</h3>
Prior to COVID-19, 63 percent of businesses reported their profits increased compared to the year before, but the pandemic has halted that progress. Eighty percent of businesses reported their profits have fallen since the start of the pandemic. Including the businesses that have closed, half of all businesses said they can no longer cover their operating expenses. If there is any consolation, it is that most businesses – even those with a negative cash flow – reported a modest runway before needing to shutter operations. Based on how things were going at the time of the survey, 72 percent of operating businesses estimated they could manage for at least another 3 months before shutting down.
<h3>MSMEs are employing a variety of coping strategies to keep their businesses afloat.</h3>
Businesses were coping using a diverse mix of strategies. For instance, in addition to the dramatic reduction in the workforce, owners are cutting employees’ hours and working longer hours instead. About 11 percent of owners increased prices, 38 percent reduced prices, and 28 percent had done both. Similarly, 32 percent of respondents stopped selling to customers on credit while 29 percent started doing so. Meanwhile, the number of people making savings withdrawals since the pandemic began outpaced the number of people making deposits by just more than two-to-one. For reference, this ratio was effectively one-to-one in the year before the pandemic began.
<h3>Many owners’ households appear to be on the precipice, with an inability to cover expenses and indications of food insecurity.</h3>
Predictably, given their businesses’ performance, owners’ households appeared to be struggling. Fifty-six percent of owners said their household could not cover all their expenses with the combined income household members are earning. If income were to dry up completely, the cushion for the households appears to be very small – 60 percent of owners said their households could cover expenses for a month or less. Households’ financial struggles are having very real impacts: roughly a third of owners reported someone in their household had to go to bed hungry at some point in the past two months because there was not enough money to buy food.
<h2>Summary and Next Steps</h2>
Collectively, this preliminary analysis of CFI’s survey data suggests MSMEs in Lagos are being walloped by COVID-19. The general slowdown in economic activity resulting from restrictions on movement has led to a dramatic reversal of MSMEs’ fortunes. With profits declining, owners are slashing jobs and resorting to a mix of strategies to keep operating. While they expect to be able to do so for a few months, their households stand to suffer more in the near term as expenses of essential items outpace the income available to pay for them.

While the sample is not statistically representative of MSMEs in Lagos, this information adds to the growing set of data available from <a href="https://datastudio.google.com/u/0/reporting/1yyG5QHGV-v-bxw6pJNZvwtqnIfCLj-7q/page/rw0JB" target="_blank" rel="noopener noreferrer">Bankable Frontiers Associates</a>, <a href="https://covid19tracker.africa/country/NGA/summary" target="_blank" rel="noopener noreferrer">insight2impact</a>, and the <a href="https://www.worldbank.org/en/country/nigeria/brief/monitoring-covid-19-impact-on-nigerian-households" target="_blank" rel="noopener noreferrer">World Bank</a>, among others, examining the impact of COVID-19 on households and livelihoods in Nigeria. In a future blog post, we’ll examine the learnings from the collective pieces of work in-depth, but each indicates severe economic stress consistent with this data. For instance, both the insight2impact and World Bank data indicate food insecurity occurring at similar rates to what was seen in this survey. Additionally, CFI will examine what policymakers can do to help mitigate these concerning findings. Whatever the intervention, it must happen quickly. In the meantime, business will struggle and dinner plates will be empty.

<em>This survey is part of our partnership with <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a> to understand the impact of COVID-19 on MSMEs.</em>

&nbsp;

MSMEs in Lagos Struggle Due to COVID-19, but Remain Positive

Micro, small, and medium enterprises (MSMEs) play an important role in economies across the globe. As crucial as they are for economies, MSMEs face a number of challenges when it comes to financial health. The entrepreneurs of these businesses navigate a complex web of exogenous and endogenous obstacles, ranging from discrimination based on gender or caste to challenges acquiring and implementing business skills.

While there has been extensive research done and data collected on financial health, there is a relative lack of surveys that seek to capture a holistic understanding of MSME financial health in one document. This tool seeks to close that gap.

This combined framework and survey tool is intended for policymakers, financial service providers, and NGOs so that they can learn about their MSME constituents. These entities will be able to use this survey to segment MSMEs based on their performance and drivers of it, in turn allowing them to better target policies, products, and services. While broadly applicable to MSMEs globally, CFI took a specific interest in microenterprises — both formal and informal — in emerging markets, and the survey instrument is ideally suited for that segment.

A Framework for Understanding the Financial Health of MSME Entrepreneurs

The coronavirus pandemic has continued to ravage Western countries and is encroaching in a much more aggressive way into developing economies in Latin America, Africa, the Middle East and Asia. In developing countries where the vast majority of the labor force is in the informal economy (estimated at <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_627189/lang--en/index.htm">over 60 percent</a> worldwide), COVID-19 is revealing the limits of individual financial behaviors for coping with the pandemic. This raises questions: Which public policy measures should be prioritized to support resilience? What are the economic policies that are creating the underlying vulnerability and marginalization in the first place?
<blockquote>Which public policy measures should be prioritized to support resilience? What economic policies are creating underlying vulnerability and marginalization?</blockquote>
COVID-19 is revealing that no matter the degree of someone’s financial cushion in the form of savings or remittance networks, it is simply not sufficient to cover a loss of income. From a research perspective, no matter how much information we obtain on someone’s behaviors, attitudes and circumstances, we will not be able to have visibility into their vulnerability to shocks, as these issues only marginally contribute to someone’s resilience. To be better equipped to understand the impact of shocks such as COVID-19 on the lives of the BOP, we need to understand critical variables such as income, wealth and safety nets available to them. This means we need to adapt the financial health measurement tools that were previously developed to serve the narrower purpose of helping providers understand the financial health of their customers. These frameworks were tailored to the information that providers needed to know and the tools available to them to improve the resilience of their customers. Broader contextual variables, like safety nets, let alone income variables, were not part of the equation as FSPs do not have the mandate to address these larger policy issues.
<h2>Need to Ask Bigger Questions</h2>
But for many of us working in the inclusive finance space, our toolbox is bigger. Advocacy on public policy is squarely within our mandate and having the right information to inform this advocacy work should be integral to the types of research work we undertake. Demand-side research such as the <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">Findex</a>, <a href="http://finmark.org.za/programmes/finscope/" target="_blank" rel="noopener noreferrer">Finscope</a>, financial diaries, and the new crop of financial health surveys, all reveal a similar story. They tell us that being poor is bad and poverty <a href="https://cenfri.org/news-and-events/webinar-the-impact-of-covid-19-on-financial-health" target="_blank" rel="noopener noreferrer">limits people’s resilience to shocks</a>. These demand-side tools don’t tell us much about the underlying causes of this lack of resilience. So, narrowing our research efforts only to demand-side data can be misleading. Too often actors draw the wrong inference from it: that people’s behaviors and attitudes are the reason for their poverty or vulnerability, even though this has long been <a href="https://www.dandc.eu/en/article/development-jargon-helping-people-help-themselves" target="_blank" rel="noopener noreferrer">discredited</a>. Focusing only on what providers can do is also too narrow in scope: the ideology that markets can solve all problems has also been pronounced dead by many economists, including the Nobel Laureate <a href="https://www.theguardian.com/business/2019/may/30/neoliberalism-must-be-pronouced-dead-and-buried-where-next" target="_blank" rel="noopener noreferrer">Joseph Stiglitz</a>.
<blockquote>The economic fallout of this pandemic can’t be solved through any individual choices or actions or a ready-made market solution.</blockquote>
The economic fallout of this pandemic can’t be solved through any individual choices or actions or a ready-made market solution. We need to ask bigger questions around why people are vulnerable to economic shocks in the first place and the role of the financial system in addressing this vulnerability. How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances? What would make people resilient and how should the financial system be set up to improve resilience and well-being for the BOP? There is really no amount of planning and sound financial management that would be sufficient under these circumstances. For systemic shocks like COVID-19, we need other research tools and a different body of evidence.
<h2>Creating Financial Protections for the BOP</h2>
We should be thinking about the systems that undergird the financial system and how to use it to create financial protections for the BOP. There are at least three priorities that COVID-19 has revealed for the inclusive finance field. I argue that these should be elevated in our collective research and evidence-gathering agendas.
<h3>1. Strengthening the ability to distribute payments</h3>
If nothing else, this pandemic has made it clear that countries with robust digital payment infrastructures can quickly get money out to people who are most in need. It is heartening that countries like <a href="https://www.ft.com/content/adc604f6-7999-11ea-bd25-7fd923850377?accessToken=zwAAAXF1NqZAkdOtxgT2eZkR6tO9JX_ZI4UDdw.MEYCIQCq8LPiLCFzDU973kkOf7P9UFkYEYGATGjkdNeE4ORSaAIhAMR64HuZniONRGR2qjVaFlZm78iaJRht2C1EKlVruFsQ&amp;sharetype=gift?token=5f6d3c51-58ac-46c1-a629-fc74a677c3b2" target="_blank" rel="noopener noreferrer">Togo</a> are taking action to get money into people’s hands using digital payments. Pakistan’s <a href="https://nation.com.pk/09-Apr-2020/payments-under-ehsaas-emergency-cash-programme-started" target="_blank" rel="noopener noreferrer">Ehsaas Emergency Cash Transfer Program</a> is able to disburse to over 12 million families hardest hit by COVID-19. <a href="https://centerforfinancialinclusion.org/mobile-money-in-times-of-crisis-an-unlikely-hero/" target="_blank" rel="noopener noreferrer">Jordan has taken impressive steps </a>to expedite reforming electronic customer due diligence, expanding the cash in cash out (CICO) networks and other reforms to use a digital channel to disburse aid. These cash transfers are not only a critical lifeline for those most impacted by COVID-19, they also serve as a demonstration of the importance of the financial system for crisis response and for economic recovery. The challenge will be for those countries that do not yet have robust digital infrastructures or where there are still many limitations to getting certain groups -- like women or the elderly -- to engage with these digital channels. The inclusive finance community should focus its problem-solving skills on answering:
<ul>
 	<li>What will it take to extend digital infrastructure quickly? How can donors and investors partner with policymakers to make this a priority?</li>
 	<li>What are quickly scalable, second-best solutions for cash distribution in markets without digital infrastructure? Can MFIs, postal networks, and other community groups serve this last mile distribution?</li>
</ul>
<h3>2. Improving financial protection through “safety net-like” insurance</h3>
Prior to COVID-19, the role of insurance in the inclusive finance field was perceived as good to have or a problem of the health sector, but not the primary focus of our field. The challenge of commercializing micro-insurance was the main obstacle limiting progress. COVID-19 reveals the clear inadequacy of our solution set to date. The concept of employer-backed private insurance in situations where millions of employees are losing their jobs (an estimated <a href="https://www.epi.org/blog/3-5-million-workers-likely-lost-their-employer-provided-health-insurance-in-the-past-two-weeks/" target="_blank" rel="noopener noreferrer">3.5 million in the US alone</a>) is fundamentally flawed; and this has always been the case in developing countries where the vast majority of the BOP has never had a formal employer in the first place, let alone employee-backed private insurance. We must start to see universal health insurance as part of the solution set for inclusive finance. And beyond health insurance, we should be looking for public-private solutions for other types of protections like unemployment insurance or disaster insurance. The inclusive finance community should be focusing on answering:
<ul>
 	<li>What are the private-public models that can be deployed to scale micro-insurance?</li>
 	<li>What are other ways we can reimagine safety nets to leverage private-sector insurers and balance the costs for policymakers and employers?</li>
</ul>
<h3>3. Linking food producers to the financial system</h3>
In <a href="https://larepublica-pe.cdn.ampproject.org/c/s/larepublica.pe/economia/2020/04/09/atender-la-emergencia-en-lo-rural-por-carolina-trivelli/?outputType=amp" target="_blank" rel="noopener noreferrer">La Republica</a> (in Spanish), Carolina Trivelli sounds the alarm bells on food security in Peru. Immediate demand reductions on one side of the value chain are having longer term effects on small producers who are at risk of not getting the seeds, fertilizer and other inputs they need to plant for the next season. A different but also compelling call to action comes from Maha Agriculture Public Co., Ltd., in Myanmar. In an effort to limit the spread of the virus, government policy is <a href="https://centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis/" target="_blank" rel="noopener noreferrer">inadvertently shutting down the financial services providers</a> who are financing critical food production cycles. Maintaining the flow of capital to farmers, regardless of the pandemic, is paramount for all of us if we want to see food at the grocery store in six months and not allow the effects of the pandemic to include food shortages and starvation. The questions that are priority for our collective attention include:
<ul>
 	<li>How can we ensure that money is flowing to food producers? How can we expand work on value chain finance in critical food commodity value chains? Is there specific data that can increase investment to value chain finance? Are there important actors, like buyers or distributors, with whom our community needs to engage?</li>
 	<li>What would it take to support the FSPs that serve agricultural producers? How can we ensure the business continuity of agricultural cooperatives or other financial service providers that serve the agricultural sector?</li>
</ul>
The complexity and gravity of the impact of COVID-19 are demanding that we not only respond immediately, but also reflect deeply on what we prioritize as a community in the future. Do you agree with the ideas put forward here? Let us know what you think.

COVID-19 Reveals the Limits of Individual Action and Market-Based Solutions

Resilience

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi

Managing Director

Garrett Jaso

Ezra Mannix

Julia Arnold

Madeleine Longwell

Machal Karim

Eda Dokle

Jacqueline Foelster

Tess Johnson

Rachel Morpeth

Virginia Moore

Lauren  Rosenbaum

Vinita Godinho

North America

United States

Bangladesh

Colombia

Ethiopia

Fiji

India

Kenya

Latin America and The Caribbean

Nigeria

Pakistan

South Asia

Sub-Saharan Africa

Uganda

Indonesia

Australia

Canada

East Asia and Pacific

Europe and Central Asia

Ireland

New Zealand

Norway

Serbia

Challenges and Crises

Enabling Environment

Financial Capability

Financial Health

Personal Financial Management

Policy, Regulation and Government Initiatives

Behavioral Insights

Entrepreneurs of MSMEs

Payments

Refugees and Migrants

Remittances

Saving

Underserved Groups

Financial Inclusion Strategy

Women

Data Analytics

Banks

Consumer Protection

Digital Credit

Digital Financial Services

Microfinance

Microfinance Institutions

MSME/SME Finance

Responsible Investing

Supply Chain Finance

Agricultural and Rural Finance

Smallholder Farmers

Financial Technology

Credit

Health Insurance

Insurance

Financial Service Providers

Social Performance

Blog Post

Report

Podcast

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.

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

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

On the outskirts of Bismarck, North Dakota, is the Missouri River Correctional Center, locally known as “the Farm.” While unassuming from the outside, this small, minimum-security state prison is making huge strides to rehabilitate inmates and better prepare them to reenter society. From <a href="https://billingsgazette.com/news/state-and-regional/montana/puppies-help-inmates-do-time/article_fd2df909-b50d-505d-92e4-9de98f0ed0aa.html">training service dogs</a> to <a href="https://bismarcktribune.com/news/state-and-regional/focus-on-reform-north-dakota-uses-education-work-to-prepare/article_2d8fc7a3-0f28-5222-a1b9-f7b3b22a9be4.html">cleaning the local zoo</a> to <a href="https://www.kfyrtv.com/content/news/GABR-at-the-MRCC-508526311.html">participating in charity events</a>, the efforts seem to be working: North Dakota’s three-year recidivism rate is between 35 and 40 percent, compared to a national average of 68 percent.

The prison reform efforts in North Dakota are being led by Leann Bertsch, Director of the North Dakota Department of Corrections and Rehabilitation (DOCR). Bertsch began implementing extensive reform efforts following a 2015 trip to Norway to learn about the country’s incarceration system, which is often credited as being the most humane in the world. The biennial <a href="https://docr.nd.gov/sites/www/files/documents/Biennial Report Archive/Biannual Report 2015-2017.pdf">DOCR report</a> following the Norway visit listed several new program offerings across all five of North Dakota’s state prisons – including financial literacy training.

As we've <a href="https://www.centerforfinancialinclusion.org/are-financial-service-providers-gouging-inmates-in-the-u-s-prison-system">written</a> about in the past, financial services are critical for the nearly <a href="https://www.statista.com/statistics/203718/number-of-prisoners-in-the-us/">1.5 million inmates</a> in U.S. prisons to be able to make phone calls, send emails, and purchase toiletries and clothes. Financial literacy already a meager <a href="https://gflec.org/wp-content/uploads/2015/11/Finlit_paper_16_F2_singles.pdf">57 percent</a> in the United States. This figure is much lower among inmates, who often come from low-income backgrounds and experience financial stressors early on in life. The income levels of inmates prior to incarceration are, on average, <a href="https://www.prisonpolicy.org/reports/income.html">41 percent lower</a> than those who have never been incarcerated. A <a href="https://arktimes.com/news/arkansas-reporter/2014/06/19/new-ualr-survey-finds-a-lack-of-basic-financial-literacy-among-inmates">2014 study</a> found that incarcerated people were less likely to have ever had a checking account or credit card, and more than twice as likely to take out payday loans and three times as likely to pawn an item than their nonincarcerated counterparts. Basic understanding of how to manage personal finances and efficiently allocate earnings are <a href="https://www.sciencedaily.com/releases/2014/06/140618163924.htm">crucial components</a> of ensuring offenders do not turn back to crime in desperation.
<blockquote>Financial literacy is already a meager 57 percent in the United States. This figure is much lower among inmates.</blockquote>
In a <a href="https://files.eric.ed.gov/fulltext/EJ1043227.pdf">2013 study</a>, inmates cited several barriers to financial services that contribute to their financial illiteracy. These included high overdraft fees, checking account minimum balance requirements, and a general mistrust of banks, especially by those who have obtained their income illegally. Financial literacy educators often suggest avoiding commercial banks in favor of <a href="https://www.marketwatch.com/story/this-woman-teaches-personal-finance-to-prison-inmates-2018-07-29">joining a credit union</a>, and participating in <a href="https://www.cuinsight.com/empowering-inmates-through-financial-education-in-jails.html">Financial Reality Fairs</a> to game out real life financial scenarios.

While North Dakota has one of the lowest incarceration rates in the country, it isn't alone in its efforts to help inmates successfully reenter society. Two years ago in Pennsylvania, a consortium of state agencies began hosting Financial Reality Fairs to help reentrants learn basic banking and money management. In February 2017, the <a href="https://www.wandtv.com/news/life-after-prison-kewanee-life-skills-re-entry-center/article_9bdbda4e-19d7-527a-82c4-e8a6f66b5339.html">Kewanee Life Skills Re-Entry Center</a> opened in Illinois to help inmates reduce their susceptibility to recidivism through three phases of required programing – one of which is financial literacy.

Financial literacy programs focus on knowledge acquisition and skill development with the goal of helping inmates understand best practices in money management, like how to save money, build credit, and budget. Many may question the use of taxpayer dollars to fund training and education programs for those found guilty of a crime. However, the cost of keeping those people incarcerated is in fact much more expensive. Inmates who receive education are less likely to return to prison, and a <a href="https://www.rand.org/news/press/2013/08/22.html">RAND Corporation study</a> estimated that for every $1 invested in a prison education program, incarceration costs three years post-release were reduced by $4 to $5.

There’s lots of talk about reforming our prison system. As the founder of <a href="https://r3score.com/">R3 Score</a>, Teresa Hodge is one of the leaders in this fight. R3 Score helps individuals with criminal records find their footing through a three-pronged approach: financial literacy, inclusive entrepreneurship, and community engagement. The company’s fintech analysis tool aggregates data to de-risk people with criminal histories. This data is then turned into a score for decision makers – like potential employers – to improve access to opportunities for qualified individuals.

With nearly <a href="https://www.bop.gov/about/statistics/statistics_inmate_age.jsp">90 percent</a> of inmates of working age and <a href="https://www.prisonfellowship.org/resources/training-resources/family/ministry-basics/faqs-about-children-of-prisoners/#children_with_parent_in_prison">1 in 28 American children</a> with a parent behind bars, it is economically and socially critical that we support rehabilitation efforts to help offenders successfully reintegrate. While financial literacy alone may not be the leading cause of reduced recidivism rates, it can equip offenders with essential knowledge to support themselves upon release.

Financial Literacy for Convicted Felons: A Way to Lower Recidivism?

For Financial Inclusion Week 2019, CFI sought out a small group of financial inclusion thought leaders to comment and take a position on this year’s theme, “Financial Inclusion: For What?” CFI Director of Communications Virginia Moore sat down with Bobbi Gray (Grameen Foundation), Till Bruett (DAI), and Shivani Siroya (Tala) to discuss the theme and evaluate our four proposed answers to it: financial health, sustainable development, equity, and the bottom line. They examine ways in which these answers complement or conflict with one another, and assess how the industry should measure its success, among other topics.

Financial Inclusion: For What? Podcast

Mariel Cota and her three children were confronted with the prospect of starting from scratch after she left her abusive ex-husband. She had the skills to start a flower business, but as an immigrant she had limited credit history and couldn’t secure traditional financing. After taking part in an entrepreneurship training program and securing a business loan from Accion serving Southern California, Mariel was able to launch Flowers by Mariel. The capital and coaching offered through the entrepreneurship program enabled Mariel to improve her credit and build wealth for her family. In the process, Mariel has grown as a role model to other women in her community.
<h2>Why Digital Financial Coaching?</h2>
Mariel’s story is in line with those of similar entrepreneurs who benefit from the lending and business support services offered by <a href="https://us.accion.org/">Accion in the U.S</a>. A <a href="https://us.accion.org/impact-study/">multi-year evaluation</a> study published in 2018 indicated that on the whole, Accion-supported businesses are thriving based on indicators of business strength, and they experience significant improvements in feelings of financial stability in the years following their loan. However, the study also highlighted ongoing challenges our clients face – particularly related to financial health. For example, less than half of clients surveyed at the end of the study had taken steps to prepare for a financial emergency (45 percent) and most found finances to be a significant source of stress (58 percent). This research revealed that entrepreneurs who use Accion’s non-financial services (such as the entrepreneurship training program Mariel participated in) see great benefit to them. Yet, many clients don’t take advantage of these opportunities. This presented an opportunity to improve how we connect small business owners to resources that can help them reach their goals, on their own terms.
<blockquote>A multi-year Accion study highlighted financial health-related challenges clients face.</blockquote>
To address these challenges, Accion launched a pilot partnership with <a href="https://www.neighborhoodtrust.org/">Neighborhood Trust Financial Partners</a>, a nonprofit social enterprise and one of the nation’s leading providers of financial empowerment services, to offer personalized, technology-enabled financial coaching through their Trusted Advisor program. The program connects clients to a personal financial coach through video or phone sessions. Participants have access to a customized online portal as well as SMS and email reminders to stay on track with their financial action plan.
<h2>Why Women Entrepreneurs?</h2>
We had a surprising insight in implementing this program: the Neighborhood Trust offering was particularly popular among women entrepreneurs. The majority of Accion clients who attended sessions were women (57 percent), even though women only make up 44 percent of our U.S. loan portfolio. Interestingly, this insight parallels Google Analytics data that captures aggregate characteristics of website users who access Accion’s <a href="https://us.accion.org/resources/">online business resource library</a>.

Additionally, women appeared to engage more deeply in digital financial support services through Neighborhood Trust. Of those clients who attended more than one coaching session through the Neighborhood Trust program, 65 percent were women. Women also made up 62 percent of the Accion clients who used Neighborhood Trust’s online tools to track their goals. While the maximum number of sessions attended by a male client was three, female clients attended up to 11 sessions. Further, while men on average had approximately 8 interactions with their coaches (including texts, emails and coaching sessions), women had 11 interactions on average.
<blockquote>Women made up 62 percent of the Accion clients who used Neighborhood Trust’s online tools to track their goals.</blockquote>
What broader contextual factors might make resources delivered in a digital manner particularly valuable for women? First, we know that <a href="https://www.nbcnews.com/business/business-news/why-work-yourself-women-want-flexibility-men-want-control-n774311">flexibility is key motivator for women to pursue entrepreneurship</a> in the first place. This means that women value opportunities to pursue their goals on their own terms, in a manner that fits into their busy lives. And, this desire isn’t limited to women entrepreneurs. The <a href="http://www.learninghouse.com/wp-content/uploads/2017/09/OnlineCollegeStudents2015.pdf">majority of online college and graduate students are women</a> (70 percent and 72 percent, respectively, according to a 2015 survey), and many cite <a href="https://www.usnews.com/education/online-education/articles/2015/08/05/why-women-are-drawn-to-online-learning-in-higher-numbers-than-men">flexibility as a key factor</a> in their decision to pursue online learning opportunities.

Second, digital financial coaching appears to align with the ways that women already use technology in their daily lives, as well as their propensity to use online channels to connect with others. Nielsen data shows that <a href="https://www.nielsen.com/us/en/insights/article/2011/digital-and-very-social-american-women-and-technology-adoption/">women talk 28 percent more and text 14 percent more</a> than men every month, and they’re also heavier users of social features on their phones.

Finally, women entrepreneurs face unique financial challenges. For example, <a href="https://www.prnewswire.com/news-releases/women-are-more-likely-than-men-to-rely-on-personal-credit-to-finance-their-business-300870005.html">women rely more heavily on consumer credit to fund their businesses</a> than men. This translates to higher credit utilization rates and consumer trade counts, which can negatively impact a woman’s personal credit, and thus her ability to qualify for quality business financing options.
<blockquote>Women rely more heavily on consumer credit to fund their businesses than men.</blockquote>
<h2>What’s Next?</h2>
We were encouraged to learn that this service was valuable to the 149 business owners who took part in the pilot financial coaching offering through Neighborhood Trust. Over a period of six months, 47 percent of participants improved their credit scores, 49 percent reduced their total debt, and 52 percent of those who had an account in collections reduced the balance in collections. Participants reported taking a variety of concrete actions as a result of the coaching, including paying down credit card balances and setting up an emergency fund. The majority felt they had a more solid financial plan for their business after coaching and that the service helped them meet at least one business or personal financial goal.
<blockquote>The majority felt they had a more solid financial business plan after coaching.</blockquote>
As a result of this early success, we’re expanding upon the partnership with a second pilot round to test new strategies to encourage enrollment in financial coaching. We will continue to monitor the service’s value to women, and we will also offer digital resources that are particularly supportive to women (for example, by elevating the success stories of inspiring women entrepreneurs of color). We also encourage our peers who are invested in supporting women’s entrepreneurship to consider how they might integrate digital coaching and resources into their programming in order to better meet their needs.

The Promise of Digital Financial Coaching for Women Entrepreneurs in the U.S.

As part of a <a href="https://www.fulbright.org.au/current-scholars/">Fulbright Australia</a> scholarship, I have the privilege of making my way across Canada and the US, connecting with those working to improve the financial lives of vulnerable groups within their communities.

People aspire to well-being, and the financial aspect of achieving this, referred to as <a href="https://assetfunders.org/wp-content/uploads/CFSI_Consumer_Financial_Health_0415.pdf">financial health</a> (having day-to-day financial systems that build long-term resilience and opportunity), <a href="https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html">financial wellness</a> (achieving financial stability and address the financial issues that cause them stress) or <a href="https://www.consumerfinance.gov/data-research/research-reports/financial-well-being/">financial well-being</a> (the ability to meet current financial needs, feel secure about their future, and are free to make choices to enjoy life) in different parts of the world, is a growing area of interest for researchers, policymakers and practitioners.

This article, the first in a series exploring how my learning journey can strengthen the well-being of low income Australians, focuses on financial well-being in Australia and four comparable countries. It’s based on research led primarily by Professor Elaine Kempson at the <a href="http://www.bristol.ac.uk/geography/research/pfrc/">Personal Finance Research Center</a>.
<blockquote>This article focuses on financial well-being in Australia and four comparable countries.</blockquote>
Her <a href="https://www.researchgate.net/project/Understanding-financial-well-being">work</a> links cross-country surveys conducted in <a href="https://www.bristol.ac.uk/media-library/sites/geography/pfrc/pfrc1705-financial-well-being-conceptual-model.pdf">Norway</a>, <a href="https://www.ccpc.ie/business/wp-content/uploads/sites/3/2018/12/Financial-Well-being-in-Ireland-Final-December-2018.pdf">Ireland</a>, <a href="https://www.canada.ca/en/financial-consumer-agency/programs/research/post-symposium-research-report-financial-well-being-canadians.html">Canada</a> and <a href="https://financialcapability.gov.au/files/anz-financial-wellbeing-summary-report-australia.pdf">Australia</a> and <a href="https://financialcapability.gov.au/files/anz-financial-wellbeing-summary-report-new-zealand.pdf">New Zealand</a> on financial well-being, which she defines as ‘being able to meet all one’s current commitments and needs comfortably, and having the financial resilience to maintain this in the future’. The selected countries are high-income, developed economies with virtually universal access to formal financial services except for Ireland, where 5 percent of the population doesn’t have an account. Generally, gender isn’t a barrier to access yet income is, as the poorest 20 percent of people are the most likely to be excluded, particularly those who are unemployed. Given similar levels of inclusion, this paper explores how these countries compare on financial well-being. What insights can be gleaned on what’s working globally, what’s not, and areas where Australia should prioritize the limited resources at hand?
<h2>Exploring Financial Well-being in Developed Economies</h2>
Kempson frames the research findings around three distinct components of financial well-being: meeting current commitments, being financially comfortable now, and having the financial resilience to maintain this in the future. At the national level, a country with high financial well-being is one where the population has the freedom and ability to fully participate in society and the economy. Despite similar levels of financial inclusion, <strong>Table 1</strong> reveals a considerable variance in overall financial well-being across these countries. (All tables in this post are from <a href="https://www.canada.ca/en/financial-consumer-agency/programs/research/post-symposium-research-report-financial-well-being-canadians.html">this report</a> from the Financial Consumer Agency of Canada).

Financial Well-Being: How Does Australia Measure Up?

As I walked through Alaba International and Idumota markets on a recent trip to Lagos, I was in awe of the bustling scene. Not even the rainy season’s torrential downpours could silence the Afrobeat music thumping in the background as buyers and sellers jockeyed for a better deal. Alaba International and Idumota markets reign supreme in Lagos, offering all the goods one can imagine. Alaba International, on the southeastern edge of the city, bursts at the seams with satellite dishes imported from China, secondhand PlayStations shipped in from the UK, and other electronics. Idumota buzzes on Lagos Island, just south of the city center, and is a shopper’s delight replete with wax print hauled over from Ghana, locally produced Nollywood movies, and so much more.

Amidst the action in the markets, I interviewed 22 small business owners who are clients of <a href="https://www.accionmfb.com/">Accion Microfinance Bank</a> (AMfB) to learn more about their financial health and capability. This research will guide us as we develop a framework to help micro, small, and medium enterprises (MSMEs) better understand and achieve financial health. The framework is part of a project we’re undertaking with the support of the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the <a href="https://www.centerforfinancialinclusion.org/what-financial-health-means-for-small-business-owners">financial health and resilience of individuals and businesses</a> around the globe.

Through my conversations with business owners, I learned about what owners viewed as determinants of their success. We hypothesized that MSME financial health rests on three pillars — earning a profit, having access to capital to seize opportunities, and being resilient to economic shocks. The interviews suggest that our framework is on the right track. For instance, limited and slow access to working capital was commonly cited as a barrier to taking advantage of fleeting business opportunities. We also learned that resilience is not as much about cash-on-hand as it is about being able to quickly shift to other income-generating activities to fill an immediate need.

But arguably, the most eye-opening thing I learned from these interviews had to do with financial capability and the path to entrepreneurship, specifically how owners were able to get the know-how and capital to start their businesses. I had assumed that a commercial bank or <a href="http://www.iosrjournals.org/iosr-jbm/papers/Vol17-issue6/Version-2/J017626267.pdf"><em>esusu</em></a> — a rotating savings and credit association common in Nigeria — were the first two places that a budding entrepreneur would turn to raise seed funding. However, nearly all the merchants and traders I spoke with started their business with a lump sum they earned after spending several years as apprentices in their trade. This practice is part of the centuries-old Igbo apprenticeship model, <a href="https://pdfs.semanticscholar.org/c77a/7e79ec3fb7ce5c9eccdc72d181205251dfb2.pdf"><em>Imu-Ahia</em></a>.

The roots of Imu-Ahia date back to the European colonial era when the Igbo ethnic group native to southeastern Nigeria started to gain a reputation as highly-skilled traders and merchants. Today, the apprenticeship model has been widely adopted across the country. Most apprentices-to-be meet their “boss” — someone who is already well-established in a trade — through a family member or close contact. Reasons abound for why one might become an apprentice. Several entrepreneurs I spoke with decided at a young age that they wanted to be masters of a trade, so becoming an apprentice was always part of their plan. Others became an apprentice as a last resort, often after financial constraints forced them to put off academic or other pursuits.

During their tenure, which can range anywhere between three and seven years, apprentices observe and take notes on the tricks of the trade. They are assigned a variety of responsibilities, and eventually, they’re charged with promoting sales and store management. Although most apprentices aren’t paid, they are afforded accommodation, transportation costs, food, and clothing. Once the agreement — which can be either informal or formal — has been fulfilled, the newly anointed entrepreneurs are provided a lump sum to help them start their shop. One interviewee — a vendor of computer and phone accessories — was compensated with N800,000, the equivalent of approximately US$2,200, after spending five years as an apprentice. This is a decent payout considering he currently spends N350,000 (US $970) a year to rent his shop.

So what exactly does <em>Imu-Ahia</em> tell us about how these entrepreneurs perceive the determinants of their success? Many interviewees captured it perfectly when they shared advice for aspiring entrepreneurs: one must meticulously study and practice the skills needed to run a business before diving into it.

This advice resonates with our team at CFI because it positions financial capability — the knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions — as <a href="https://www.centerforfinancialinclusion.org/four-reasons-focusing-on-financial-capability-is-good-business">an essential contributor to business success</a>. The apprenticeship model serves as a learning and testing ground for those who are set on eventually running their own shop, much in the <a href="https://guardian.ng/technology/apprenticeship-and-mentorship-the-key-to-technology-talent-development/">same way</a> that the modern-day business incubator serves as a testing ground for startups. By the time individuals “graduate” from the apprenticeship model, they will have developed the knowledge and skills to manage business revenues and expenses. They also have plans to take advantage of investment opportunities and experience observing how businesses respond to the ups and downs of the market.

I only interviewed former apprentices who found success in the business world, so there’s still more to learn. We need to do more to understand the relationship between financial capability and business outcomes, especially business failures. Nevertheless, these qualitative findings echo the findings of other research. The <a href="https://www.nber.org/chapters/c8222.pdf">National Bureau of Economic Research</a> conducted a fascinating study that showed the differences in the psychological profile of wage workers, own-account workers, and small and medium enterprise (SME) owners. It found that “ability, motivation, and a competitive attitude are very important in differentiating SME and microenterprise owners.” The World Bank launched a project to measure <a href="http://documents.worldbank.org/curated/en/884291527663849364/pdf/126687-18-6-2018-9-32-12-InvestigatingSMEFinancialCapabilitiesFINALWEB.pdf">financial capability of SMEs</a>. Their analysis showed a positive correlation between financial capability and a firm’s size and level of sales.

The striking thing about what we learned in Lagos is not so much that financial capability contributes to business success, it is how, in the Nigerian system such capability is learned: over a period of years, through experience, and under the watchful eye of a knowledgeable mentor.

Keep reading the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a>, where we’ll share future findings as we conduct surveys around the world on MSME financial health!

What an Apprenticeship System May Reveal About the Financial Health of Small Business Owners in Nigeria

This year’s Financial Inclusion Week is a chance for our industry to reflect on the purpose and impacts of our work as an industry. At CFI, we're observing trends that make us believe this an important time to reflect on these issues, which is why we’ve chosen the theme “Financial Inclusion: For What?”.

As we described throughout our <a href="https://www.centerforfinancialinclusion.org/program_teams/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion</a> series, the digital revolution is fundamentally altering how traditional financial service providers and innovative fintechs interact with each other and how they recruit, onboard, serve, and retain customers. The potential opportunities are limitless, but the move to digital also exposes low-income households to new and poorly understood risks.

Simultaneously, the scope of the financial inclusion industry has widened dramatically. Attention and investment once given almost entirely to microcredit is now being shared with cash transfer, savings, and insurance services, and these products are being offered through increasingly dynamic platforms. When used well, the financial ecosystem can be staggeringly important, delivering digital payments to health workers combating Ebola, facilitating life-saving G2P and P2P cash transfers, or providing working capital to small businesses at critical moments. When it works less well, we read about Kenyans racking up unpaid gambling debts financed through mobile money-delivered nano loans.

Financial Inclusion Week is an opportunity to explore this dynamism while reflecting and refocusing our goals as an industry. Why are those of us in this space engaging in this important work? How do our goals inform our perspective on these and other trends? What does it mean if we’re working to different or competing aims? How should we think about success, and what is necessary to ensure we achieve it?
<blockquote>During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus.</blockquote>
From October 21 to 25, 2019, CFI and partner institutions will be hosting digital and in-person events to explore these questions, and we invite you to <a href="http://financialinclusionweek.org/get-involved">join the conversation</a>. During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus. We’ll ask leading voices in the industry to debate the merits of these questions and articulate why these objectives should or shouldn’t be the guiding light of the industry.

Financial Inclusion: For What?

The current focus on client outcomes – as demonstrated by the proliferation of frameworks describing financial health, well-being, or similar all-encompassing concepts – has renewed attention on how we achieve positive impact for clients. Currently, the behaviorists – those who believe an understanding of cognitive biases and deft application of behavioral insights in intervention design can lead to superior outcomes – rule the day. Meanwhile, financial education, traditionally seen as an enabler of better client outcomes, has become debatable, as research has shown that traditionally delivered education programs provide mixed results at best. Collectively, these trends are giving way to the narratives that client outcomes are achievable through behavioral interventions and that financial education is an ineffective relic of the past.
<blockquote>Current trends are giving way to narratives that client outcomes are achievable through behavioral interventions, and that financial education is an ineffective relic of the past.</blockquote>
This is a dangerous story. It positions the concept of education as an antagonist to behavioral insights rather than as a collaborator, and it presumes that behavioral interventions are superior to educational ones. This post aims to re-balance that narrative.

A quick point of order: financial education and financial literacy are often used interchangeably – in colloquial conversation this makes sense (“educated” and “literate” are synonyms, after all) but using them interchangeably confuses the delivery of education with its intended outcome (literate clients). I use the term financial education to refer to the process of teaching knowledge and skills and financial literacy as the state in which one possesses financial knowledge and skills.

A Fourth Era: Balancing Behavioral Interventions with Quality Education

After months studying the drivers of financial health and mobile and internet usage in Eastern Europe, I was excited when our team finally landed in Serbia. During the hour-long taxi ride from Belgrade’s Nikola Tesla Airport to Novi Sad, we finalized our work plan for the coming days while catching glimpses of the countryside.

We came to Serbia to join our colleagues at the <a href="http://mfc.org.pl/">Microfinance Centre</a> (MFC) in conducting in-depth interviews with current and prospective customers of <a href="http://www.obs.rs/eng/">Opportunity Bank Serbia</a> and <a href="http://fiiw.pl/">Fundacja Innowacja i Wiedza</a> (Foundation for Innovation and Knowledge). We wanted to learn everything we could about the interviewees’ ambitions, challenges, attitudes, and technology use, so we can use these insights to design and develop a digital tool that will help clients understand and improve their financial health. This research is part of the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities &amp; Strengthening Institutions through Customer-Centered Innovations</a> project, supported by <a href="https://www.metlife.com/corporate-responsibility/metlife-foundation/">MetLife Foundation</a>.
<h2>Observations on Currency Usage</h2>
[caption id="attachment_35062" align="alignright" width="300"]<img class="size-medium wp-image-35062" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/05/novi-sad-taxi-300x218.jpg" alt="" width="300" height="218" /> <em>Taxis in Novi Sad, Serbia, often quote cab fares in euros.</em>[/caption]

As we pulled up to the hotel, I was perplexed when our driver, Božidar, quoted the cab fare in euros. Last time I checked, the dinar was the currency of Serbia, since it remains an EU candidate country. Yet Božidar wished to be paid in euros, as did many other local vendors. We discovered that our interviewees commonly use euros alongside dinars. One farmer said that she quickly deposits any payments made in euros, but she tends to use her dinars for everyday purchases or stash them at home for emergencies. A shop owner said the majority of her suppliers pay her in euros while she accepts payments from customers in both currencies.

The trend of “euroization” or “dollarization” — a foreign currency substituting or complementing the domestic one — is well studied. The graph below, from the Austrian central bank’s Euro Survey, shows that among its neighbors in central, eastern, and southeastern Europe, Serbia is the most euroized, with the highest proportion of all its cash and deposits held in the form of euros.

&nbsp;

Dinars vs. Euros: Financial Health and the Multiple Currency Dynamic