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 same way 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

Mastercard Center for Inclusive Growth

Nigeria

Sub-Saharan Africa

Credit

Financial Capability

Financial Health

MSME/SME Finance

Resilience

Blog Post

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?

Financial Inclusion Week 2019

Consumer Protection

Financial Service Providers

Social Performance

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

Behavioral Insights

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

MetLife Foundation

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Europe and Central Asia

Serbia

Personal Financial Management

<em>This post originally appeared on the <a href="http://www.accion.org">Accion</a> website.</em>

Too often we hear questions from some of our financial service provider clients such as, “How can we gain market share and beat out our competition?” This isn’t inherently a bad question — it’s important to think strategically about competitors. But this question focuses only on the supply side. To get the full picture, an institution should also ask, “How can we better understand the challenges that our customers face, and how can we help them tackle these issues through our services?” While many financial service providers have made considerable strides in developing customer-centric products, most could be doing more to better understand their customers’ wants, needs, behaviors, and habits.

For these institutions that lag behind in customer centricity, it is not that they are unconcerned for their customers and only worried about the bottom line, but they often perceive this to be expensive and can be reluctant to invest in market research. Instead, they rely on anecdotal customer stories from their sales force. Unfortunately, this approach to the collection of customer information often leads these institutions to misunderstand the real problems their customers face. For instance, they may miss how technology is changing customers’ preferences for accessing information and the social groups they are part of.

[caption id="attachment_34130" align="alignright" width="550"]<img class="wp-image-34130 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.01-AM.png" alt="" width="550" height="448" /> <strong>A workshop participant shares her prototype travel debit card with a potential user. This product would include a digital application geared to address millennials’ need for saving as well as financial and business coaching. </strong>[/caption]

Conventional market research methods rely on focus groups and expensive customer surveys, which don’t always deliver relevant insights. In contrast, a customer-centric design methodology focuses on listening to and observing people in their daily lives and works within market and technological constraints. One particular area of focus is product touch-points. A customer-centric approach regards each touch-point as an opportunity to surprise, delight, and deliver benefits to users. When done well, this approach provides experiences that resonate with the intended customers — driving their engagement and, ultimately, growth for the institution. With a customer-centric design methodology, rapid prototyping and real-world tests with customers are used to validate (or invalidate) early designs and improve the solution.

With the aim of teaching financial service providers how to apply Accion’s user-centric design methodology, we hosted a workshop in Queretaro, Mexico, with the support of MetLife Foundation. This 2-day workshop brought together ten financial institutions, including microfinance organizations, cooperatives, and fintechs, to learn our methodology for designing and developing user-centric products, based on a deep understanding of customers’ behavior, with a high potential for adoption. Participants learned how to reframe their business challenges from a customer-perspective, conduct efficient and useful user research, and use their understanding of their customers’ financial behaviors, capabilities, needs, and desires to conceive and prototype a new product.

After designing prototypes, the participants shared their ideas with potential users and engaged in a conversation about their lives, desires, and fears. By walking the users through each touch point in the proposed customer journey, the participants empathized with the customers’ thoughts, feelings and experiences at each moment. These conversations brought up questions about the usefulness and complexity of many of the products and forced participating institutions to adjust their concepts to make their prototype more customer-centric — ultimately promoting greater adoption and supporting the <a href="https://content.centerforfinancialinclusion.org/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">financial health</a> of the customer. When financial service providers watched potential users struggle with digital tools or have trouble navigating through non-intuitive wireframe mock-ups, they gained insight in designing user-centered products. The providers told us this was the most influential part of the workshop.

[caption id="attachment_34131" align="alignleft" width="488"]<img class="size-full wp-image-34131" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.21-AM.png" alt="" width="488" height="346" /> <strong>One bank conceptualized a flexible product that will address customer distress in paying their hospital bills. This bank visualizes the customer experience at every touch point with the bank. The visualized product allows the customer to customize their experience by choosing where to open their account, pick the date and portion of the bill they want to pay.</strong>[/caption]

Both traditional institutions and fintechs found the user-centric design methodology useful. While many fintechs claim to be more customer-centric than incumbent financial providers, several of the fintech participants admitted that they do not have a process to ensure that their existing products evolve to match the dynamic needs of their clients. Upon reflection, many found that their services were disconnected from client realities.

The workshop participants were eager to return to their institutions to share their new product prototypes. As one attendee put it, they were looking forward to using this methodology to, “not only help us to improve our products and services, but to create a more enriching experience for our customers.”

However, participants know that the path from prototyping customer-centric products to product deployment is not an easy one. Within an organization, a willingness to embrace change and focus on customers requires a shift in mindset. As one participant said, “it will be difficult to convince others to center their focus on our clients.”

Over the next two years, with the support of MetLife Foundation, Accion will continue working with select financial service providers to ensure that they are asking more strategic questions as they apply this user-centric design methodology to develop a product, service, or experience. And we will help the institutions tackle the challenge of internal alignment and cultural change, while ensuring that designs resonate with customers, use innovations in technology, and contribute to the financial health of the low-income population in Mexico.

To Help Customers, Ask the Right Questions

Mexico

Customer Centricity

Human Centered Design

Isabelle Barres, Global Director of the <a href="http://smartcampaign.org/">Smart Campaign</a> and a CFI Vice President, was interviewed for the <a href="https://fi.11fs.com/444">Dec. 21 edition of the FinTech Insider "Insights" podcast</a>, which gives listeners an overview of financial inclusion, financial health and financial literacy.

The goal of financial inclusion is not only providing access to financial products and services, but also ensuring their usage improves financial health, she said.

"An individual is financially healthy when a number of conditions are met," Barres noted. These include being able to balance income and expense streams, build and maintain financial reserves, plan for the future, manage existing debts, as well as the ability to plan for the future and plan for financial shocks along the way.

Barres also discussed CFI's efforts to these ends. "What we focus on is mostly global issues related to financial inclusion and the extent to which we can foster a better ecosystem to encourage financial inclusion."

Director of Smart Campaign Featured in Podcast on Financial Inclusion and Health

The Smart Campaign

Financial Inclusion 101

News

When we ask about a household’s financial health, we want to know whether the family is currently managing well and on a positive track for the future. The concept revolves around three core elements: well-functioning day-to-day systems, resilience (the ability to weather shocks), and the pursuit of longer term goals.

CFI and many others in the financial inclusion space have been seeking fast, reliable and convenient ways to measure financial health. Measurement matters because it opens the door to diagnosis of financial problems and points the way toward financial fitness. It matters to policy makers who need to understand major economic and social forces creating or eroding financial health, to financial service providers as they craft products, and to individuals for whom financial health is a continual quest.

So far, our conversations about financial health have focused on individuals and households, and we now have a number of measurement frameworks available, such as CFSI’s eight-indicator “<a href="https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/01/28024714/Eight-Ways-to-Measure-Financial-Health_Exec.-Summary.pdf">Spend, Save, Borrow, Plan</a>”  for the U.S., or the <a href="https://www.centerforfinancialinclusion.org/beyond-financial-inclusion-financial-health-as-a-global-framework">six indicators</a> CFI developed with CFSI and Dalberg to adapt the concept to the developing world.

A few people have begun looking at a new question: What does financial health mean for small businesses? They have begun to develop frameworks for business which are quite similar to those developed for individuals. For example, both contain indicators on timely payment of financial obligations, manageable debt burdens, and forward planning. This should come as no surprise, because implicit in the financial health concept is the question of whether an economic entity has “healthy” income and cash flow statements and a sound balance sheet. In essence, the frameworks for assessing financial health for any economic entity highlight selected financial statement indicators that correspond to the concepts of daily systems, resilience and pursuit of goals.

But what if the person, family and small business function as a single economic entity, as is true for many of those Accion and the financial inclusion sector serve? Among the millions of micro-entrepreneurs around the world, family and business can be nearly indistinguishable. A shopkeeper employs her teenagers to work behind the counter, where they do their homework between customers; a farmer divides his crop between commercial sales and the family table. In a more developed economy, such as the U.S., the entities are more likely to be distinct, but even so, transactions between them can be very significant, as anyone knows who has calculated the percentage of their home or automobile used for a business on their tax return.

Some of these interactions contribute to financial health, while others detract. Either way, it is likely that the interactions have an outsize influence on financial health, such that looking at the financial health of the household without understanding the financial health of the business (or vice versa) will not yield an accurate picture of either.

Our next challenge is to figure out how to measure financial health of the combined entity, while taking these interactions into account. Believing that it is important for business success to secure the personal financial health of the business owner, <a href="https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2018/07/18202224/CFSI_JPMC_Report_CP.pdf">CFSI has begun</a> to examine these interactions in the U.S.

Let’s look at the ways business and household may connect:
<ul>
 	<li>Personal investment to start the business. In the U.S., as elsewhere, personal savings are overwhelmingly the main source of start-up capital. (Household contributes to business.)Business net worth is a major asset for the owner. (Business contributes to household.)</li>
 	<li>Business pays “salary” of owner. (Business contributes to household.)</li>
 	<li>Family members work in the business. (Contributions go both ways if family members are paid.)</li>
 	<li>Savings from the business can be used to cover household emergencies – and vice versa. (Contributions could go either way.)</li>
 	<li>Business supplies household benefits, or relies on household for benefits, including health insurance, pension, etc. (Contributions could go either way.)</li>
</ul>
Many of these interactions could be considered healthy, while others are less so. For example, risks for small business owners are seriously concentrated when both capital investment and daily income depend on the same business. No wonder people often prefer salaried employment! As another example, use of family savings to cover business emergency expenses may be a warning sign of financial stress – even though it could also be a smart coping mechanism.

These are lines of inquiry CFI’s research will investigate, thanks to support from the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a>. In the context of low income business owners, especially in developing countries, there are some factors that require special attention. They include income volatility, a low absolute level of income or profit, and the existence of multiple income sources in the household. Seeking to define a measurement framework that adequately incorporates the business-household nexus, we will conduct primary research in a couple of countries during the next six months without becoming unwieldy.

Over the years, microlenders have long recognized the interdependence of business and household, and financial educators have given out a lot of advice about separating household and business finances, but there have been few attempts to look specifically at these connections. With this research, we will gain deeper insight into how business-family interdependence shapes the prospects of the business and the well-being of the people who depend on it.

What Financial Health Means for Small Business Owners

For the second part of our Financial Inclusion Week 2018 podcast series, Tess Johnson, research associate at the Center for Financial Inclusion at Accion, sat down with Accion in the U.S. CEO Gina Harman for a conversation highlighting the domestic U.S. perspective on getting inclusion right. Accion in the U.S. collaborates with all four Accion U.S.-based lending organizations to reach entrepreneurs on the ground and online with the latest innovations in mission-based small business lending.

Podcast: Getting Inclusion Right Podcast with Gina Harman

North America

United States

Financial Inclusion Week

Financial Technology

Fintechs

Podcast

<em>La versión en español de esta entrada será publicada mañana, 31/10.</em>

In most countries there are well-defined metrics on the access, use and quality of financial products and services. Fewer assessments are available, however, on how they impact people's financial well-being. For this reason, CAF–Development Bank of Latin America ─ together with Sebastian Cardenas of the Financial Superintendence of Colombia, Paola Cuadros of the Central Bank of Colombia, and Catalina Estrada of the Universidad de los Andes ─ has worked on a study that provides a first assessment of financial well-being in Latin America, based on the <a href="https://www.consumerfinance.gov/data-research/research-reports/financial-well-being-scale/">Consumer Financial Protection Bureau’s</a> (CFPB) research and the results of the <a href="http://scioteca.caf.com/handle/123456789/1086">financial capabilities surveys</a> carried out in seven countries of the region: Argentina, Bolivia, Chile, Colombia, Ecuador, Paraguay, and Peru. In addition, the study evaluates the determinants of financial well-being in each of these countries.

The CFPB defines financial well-being as a state of being in which a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life. The CAF surveys, in comparison, inquire about people’s financial capabilities, which we define as the combined set of knowledge, skills, attitudes and behaviors in relation to financial issues. Although the formulation of these survey questions is not identical to that of the CFPB, we’ve identified survey questions that best fit the elements of financial well-being as raised by the CFPB.

The following table shows the elements of financial well-being as proposed by the CFPB and CAF survey questions that align with that definition:

<img class="aligncenter wp-image-33283" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/10/Screen-Shot-2018-10-30-at-1.10.39-PM.png" alt="" width="642" height="501" />

The financial well-being scores proposed in the study measure the ability of people to fully meet current and ongoing financial obligations, feel secure in their financial future and be able to make choices that allow them to enjoy life, according to CFPB’s definition. The country analysis shows that top scores were found in Chile (66) and Colombia (63), followed by Bolivia (59) and Peru (58), and lastly Ecuador (57), Paraguay (56) and Argentina (55). These results suggest that Chile and Colombia are faring relatively well in the sub-region conformed by these seven countries. By contrast, Paraguay, Ecuador and Argentina are facing greater financial challenges.

<img class="aligncenter wp-image-33284" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/10/Screen-Shot-2018-10-30-at-1.38.01-PM.png" alt="" width="670" height="493" />

We find that this index provides greater insight into financial well-being beyond traditional measures of financial inclusion─that is, even when a person belongs to a group that is relatively disadvantaged (for example, those with lower income and education levels), there may be compensating factors or strategies that offer other opportunities for these individuals to increase their financial well-being, such as savings, planning ahead or being part of safety networks (family, community, etc.).

Second, differences in average financial well-being are largely based on savings behavior, rather than borrowing behavior. This suggests that not having or not using formal products to save may be more harmful to one’s financial well-being than not having access to formal credit.

Third, individuals with higher levels of financial knowledge and financial skills have greater financial well-being on average.
Fourth, there are key variables that help explain an individual’s financial well-being, such as previous experience with the formal financial sector, comparison shopping between financial institutions before acquiring a new financial product, and personal participation or involvement in the financial decisions of the household.

This research suggests the following two opportunities to improve financial well-being through financial education and inclusion programs:
<ol>
 	<li><strong>Embedding attitudes and behaviors</strong> – including saving, comparison shopping between different financial institutions before acquiring a new financial product, and personal participation or involvement in the financial decisions of the household – within financial education and inclusion programs could have a significant impact on individuals’ financial well-being.</li>
 	<li><strong>Financial knowledge is important for financial well-being</strong>. Thus, it is imperative that public and private institutions implement programs that effectively promote financial capability through interventions that aim to change behavior with teachable moments, learning by doing, nudges and reminders, heuristics, gamification, personalization, and socialization, according to <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/financial-capability">CFI's recommendations on financial capability</a>.</li>
</ol>
Ultimately, we believe more research is needed to understand the drivers of financial well-being in order to better design (and implement) financial education and inclusion programs across Latin America.

&nbsp;

Measuring Financial Well-Being in Latin America: A New Tool Tested

Latin America and The Caribbean

<h1>Why Financial Health Matters</h1>
Everyone strives to be financially healthy: to manage day-to-day finances, to weather financial shocks and to pursue longer term goals. Arguably, the core purpose of financial inclusion is to help people achieve financial health.

If the financial inclusion sector begins to measure the financial health of customers and considers ways to support financial health in their products and policies, it will have made a significant shift toward addressing what matters most – customer benefit.

From Idea Into Action on Global Financial Health

Dalberg Design Impact Group

Financial Health Network (formerly CFSI)

The Bill and Melinda Gates Foundation

Case Study

Elisabeth Rhyne

Managing Director

Eric Noggle

Senior Research Director 

Allyse McGrath

Amee Parbhoo

Diana Mejia

Emma Morse

Evelyn Stark

Geraldine O'Keeffe

Gina Harman

Jacqueline Foelster

Jeffrey Riecke

Julia Arnold

Kaitlin  Asrow

Pablo Anton-Diaz

Priya  Punatar

Rachel Morpeth

Sarah Rotman Parker

Sonja Kelly

Tanya Ladha

Tess Johnson

Bhutan

China

India

Kenya

South Asia

Access Usage Gap

Agent Banking

Alternative Data

Client Treatment

Consumer Credit

Credit Provision

Digital Financial Services

Enabling Environment

Entrepreneurs of MSMEs

Financial Inclusion Strategy

Governance

Housing Finance

Impact Investing

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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.

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

According to the <a href="https://globalfindex.worldbank.org/">Global Findex</a>, the percentage of adults in Mexico who are saving money at a formal institution plunged from 15 percent to 10 percent in just the past three years—despite financial inclusion strategies <a href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/">enacted by the government</a>. This steep decline in usage of savings accounts came as a surprise, and hit close to home for me as a Mexican. This <a href="https://cfi-blog.org/2018/06/18/is-financial-inclusion-stalling-the-2017-findex-results-raise-several-red-flags/">trend is a cause for concern</a>, and it’s also a call to action. At Accion, we took this as an opportunity to listen to the people we’d like to see benefit from financial services. With support of <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, we wanted to understand why fewer people were saving in banks, what products and services people were using, and who was providing those services if it wasn’t formal institutions.

To get answers about what people in Mexico want from their financial service providers, I recently traveled home to Mexico City as part of a team of researchers. We listened to small merchants map out their entire financial lives—their motivations, goals and

[caption id="attachment_25738" align="alignright" width="286"]<img class="alignnone size-full wp-image-25738" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-fish-market-accion.jpg" alt="Man sells fish at a stall in an outdoor market" width="286" height="215" /> Fish market on San Gregario Street in Xochimilco, a southeastern municipality of Mexico City, one of the places we visited for our user research.[/caption]

aspirations, how they feel about various types of financial services, the strategies they use to stay financially healthy, and more.

Our biggest surprise? The individuals we talked with know about and can access a lot of financial products—they just aren’t using them. Lack of alignment between what low-income customers want and what financial products offer is a factor preventing further financial inclusion in Mexico.

All of the individuals we spoke to reported having access to microloans, consumer store credit, credit cards, and savings accounts. Financial access didn’t seem to be an issue for them — not even in the more rural areas we visited two hours outside the city. Even though our small, qualitative study may not be rigorous enough to extrapolate to the broader population, this finding seems to be consistent with national data. In Mexico, <a href="https://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf">86 percent of banking branches are located in urban areas</a>, so people close to the city are unlikely to deal with a shortage of services. What our interviews revealed is that a different issue is preventing further inclusion: lack of alignment between what low-income customers want and what current financial products offer. Most people we talked to dislike dealing with large commercial banks, and they continuously decline the offers for financial services they regularly receive, at their doorstep or in public places.

[caption id="attachment_25737" align="alignleft" width="275"]<img class="alignnone size-full wp-image-25737" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-azucena-mother-holding-baby.png" alt="Mother holding bay" width="275" height="366" /> Azucena is a former bank teller, however she prefers to save money at home. Alpuyeca, Morelos, Mexico, 2018.[/caption]

Many of the people we interviewed still prioritize saving cash at home, even if they also have a formal savings account.  For example, Azucena, a former teller at a large commercial bank branch, told us that despite her relationship with a bank, she and her husband still prefer to store cash informally. “We save at home, but we do so separately, using different lock boxes for different purposes,” she says.

Through our conversations with clients like Azucena, we discovered that informal alternatives like lock boxes continue to be more convenient for clients and preferable to formal options. Keeping cash at home is, after all, indispensable for unexpected emergencies. If your money is in a bank, you’d have the hassle of getting there and waiting. Plus, it may not be available 24/7, and you can run into issues if the ATM is offline or the pharmacist, mechanic, or whomever you’re turning to for help doesn’t take a debit card.

In many cases, the interviewees’ savings accounts had been opened for them by former employers to serve as payroll accounts or by the government for disbursement of benefits. These accounts were less “savings accounts” and more “distribution accounts” that were immediately turned into cash and saved at home. Because the savings aspect wasn’t used—in fact, was never emphasized—once they switched jobs or stopped receiving benefits, they let the accounts lapse.

Convenience may be a key issue, but it is not the only one. Feeling unsafe withdrawing money from a bank branch is also an issue because thieves wait where the money is—outside bank branches and near ATMs. The lack of trust our interviewees placed in financial institutions was often less about security and more about the unclear, high (real or perceived) maintenance fees banks charge on savings accounts.

Despite this perceived aversion to formal accounts, we found that people still continue to save and set high financial goals for themselves. In all the interviews we conducted, the number one financial goal was saving to access better opportunities: education of their children, a home for their family, or the chance of opening their own business. The demand is clearly there, and most of the people we talked to were indeed saving.

We heard from customers, and now we’re working with a mix of fintechs and financial service providers of all sizes to use those insights to create financial products that customers will want to use as key tools for their financial lives.  Stay tuned!

<em>This research was conducted by <a href="http://www.accion.org/">Accion</a>, the Center for Financial Inclusion at Accion, and <a href="http://www.dalbergdesign.com/">Dalberg Design</a> as part of our part of our <a href="/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.</em>

&nbsp;

Why Aren’t People Saving Money in Mexico?

This blog from <a href="https://us.accion.org/">Accion in the U.S.</a> was originally posted on <a href="https://nextbillion.net/impact-of-small-business-lending/">NextBillion</a> and is re-published here with permission.

<em>By Gina Harman, CEO, Accion in the U.S., and Liz Urrutia, CEO, Opportunity International</em>

The field of microfinance arose to address a pressing problem in emerging markets: Billions of people around the globe were shut out of, or poorly served by, the financial sector. But while microfinance institutions grew rapidly around the globe, so too did economic inequality in developed countries. It was within this context that organizations like <a href="http://us.accion.org/" target="_blank" rel="noopener">Accion in the U.S.</a> and <a href="http://opportunityfund.org/" target="_blank" rel="noopener">Opportunity Fund</a> adapted the microlending model to the United States more than two decades ago, expanding access to economic opportunity for entrepreneurs who lacked the financing and resources they needed to start or grow their businesses. In the ensuing years, the mission-based lending industry has continued to expand its services across the country – <a href="https://ofn.org/sites/default/files/OFN_20_Years_Opportunity_Finance_Report.pdf" target="_blank" rel="noopener">even in times of economic recession</a>.
<h2>From Financial Inclusion to Financial Health</h2>
In the early days, progress toward our mission could be measured by portfolio numbers, such as number of loans disbursed and amount of capital deployed, as well as by evaluating how many of our clients were from traditionally underserved populations, such as people of color, women and low- to moderate-income individuals. However, we also understood that gaining access to financial services is only meaningful if that access places an individual on a path to greater financial stability and improved quality of life. In short, financial inclusion does not necessarily enable financial health.

Over time, with support from the <a href="https://microtracker.org/assets/documents/entrepreneurtracker-overview.pdf" target="_blank" rel="noopener">Aspen Institute’s EntrepreneurTracker</a> initiative, our organizations have been able to evaluate borrower outcomes such as business survival, revenue growth and job creation in the years following loan disbursement. Still, we knew that these numbers alone didn’t tell the full story. That’s why we kicked off a <a href="https://us.accion.org/impact-study/" target="_blank" rel="noopener">multi-year, mixed methods study</a> in 2015 to more fully understand the impact of our lending and advising services over a longer time horizon. This research, conducted by Harder+Company Community Research, was made possible through lead funding from the W.K. Kellogg Foundation and JPMorgan Chase &amp; Co., with additional support from S&amp;P Global.
<h2>How Are Our Clients Faring?</h2>
The results of this research revealed that, by and large, the entrepreneurs we serve are thriving, even two to three years after receiving their loan. Most businesses in the study increased sales (60 percent) and profit (57 percent). Forty percent of borrowers added employees during the study period, and entrepreneurs with employees significantly increased benefits provided to those employees. What’s more, the majority of study participants specifically attributed progress toward their business and personal goals to the services they received from Accion or Opportunity Fund.

This study also provided unprecedented insight into the emotional benefits of mission-based small business lending. At the end of the study, 63 percent of participants expressed that support from their lender had “a lot” of positive impact on their confidence. In follow-up interviews, entrepreneurs discussed the demoralizing effect of previous loan rejections, sharing that the approval from Accion or Opportunity Fund was a sign that someone believed in them. As one participant put it: “The biggest thing has been the confidence that I’ve gained in myself. I’m really proud of it.”

But the report also highlighted some ongoing challenges – among them, the fact that financial health remains a key need among the business owners we serve. For example, the majority of clients surveyed at the end of the study had not taken steps to prepare for a financial emergency (55 percent) and found finances to be a significant source of stress (58 percent). This was a statistically significant improvement from the beginning of the study, when only 36 percent of participants had prepared for a financial emergency and 71 percent reported significant anxiety about finances. Nevertheless, though these findings indicate that our clients are on the path to greater financial stability, they remain vulnerable to financial shocks.
<h2>Defining Success on Entrepreneurs' Terms</h2>
The multifaceted nature of the study findings illuminates the limitations of a “one-size-fits-all” definition of impact. For instance, as the mission-based lending field moves beyond measures of inclusion to focus on borrower outcomes, traditional metrics like revenue growth and job creation don’t necessarily align with entrepreneurs’ own definitions of success. That’s why the research employed a technique called cluster analysis, which revealed five distinct typologies of entrepreneurs, each with unique goals, challenges and successes.

For example, the <i>Focused and Growing</i> group (44 percent of the sample) sought to grow, and succeeded. By the end of the study, they had all moved into their businesses full-time, had successfully used their loans to expand their businesses, and were experiencing increased sales and profits.

In comparison, the <i>Stable and Strategic </i>group (12 percent of the sample) juggled multiple sources of income while carefully planning for long-term, safe business growth. They increased their financial stability over the study period, and they also reported increased quality of life.

For the <i>Off Balance and Seasonal</i> group (9 percent of the sample), unexpected hardships and seasonal cash flow meant that their main priority was keeping their business afloat. In follow-up interviews they expressed an appreciation for the tailored support and guidance they received from their lender to help them weather financial challenges.

Borrowers in the <em>Retrenching</em> group (19 percent of the sample), were most likely to have used their loan to start a new business. While most experienced business growth over the study period, very few reported taking a salary from the business. Nevertheless, they remained confident about their financial future at the end of the study and reported a significant decrease in financial stress.

For those in the Slowly Growing and Optimistic group (17 percent of the sample), key goals for business ownership included fulfilling a specific dream or becoming their own boss. Although the majority experienced increases in sales, most were not able to increase savings, and some had even drained their savings over the study period. Many of these entrepreneurs operated highly specialized businesses with unpredictable cash flows, and were looking for opportunities to diversify their offerings.

With the completion of this research, we have gained invaluable insights into the impact of our services – as defined by our clients. As our organizations look to expand access to high quality, transparent and affordable financial services, it will be crucial to continue to refine our definitions of success, and to iterate and design new products and services to best align with their needs.

&nbsp;

&nbsp;

Beyond Inclusion: How Mission-Based Small Business Lenders in the U.S. Are Evolving Their Definition of Impact

It’s the most wonderful time of the year! We are thrilled to announce that we are <a href="http://www.centerforfinancialinclusion.org/storage/documents/CFI_Fellows_2018_RFP_2018-05-07.pdf">now accepting proposals</a> for the 2018 cohort of CFI Fellows.

Building upon the impact of the <a href="http://bit.ly/CFI-Fellows">CFI Fellows Program</a> over the past three years, we’re looking for proposals from researchers and practitioners with demonstrated experience executing high-quality research projects from start to finish. Successful proposals will articulate a thoughtful and feasible response to one of the questions in our research agenda.

This year’s research agenda reflects an exhaustive consultative process, and thanks to <a href="https://cfi-blog.org/2018/04/12/help-us-shape-our-fellows-program-research-agenda/">your help</a>, we’ll be selecting proposals that best address one of the following topics:
<ol>
 	<li><strong>How do financial institutions use mass APIs, open APIs, custom APIs and bespoke partnerships to partner effectively with fintechs to reach the underserved? </strong></li>
</ol>
Financial institutions of all sizes are finding that <a href="http://bit.ly/PartneringFintechs">partnerships with fin</a><a href="http://bit.ly/PartneringFintechs">techs</a> can help them reach underserved customer segments, and increasingly, these partnerships use APIs to create the necessary connections that enable data sharing between fintechs and financial institutions. However, it may be especially challenging for smaller financial institutions to benefit from such connections. How do recent efforts to create more accessible APIs function? Which models are working well? Research should include a comparison between mass APIs, API marketplaces, open APIs, bespoke APIs, and custom partnerships, recognizing that there are opportunities and challenges associated with each.
<ol start="2">
 	<li><strong>How do electronic invoicing (e-invoicing) and other electronic filing mandates enable financial services providers to make better decisions about MSME lending? Have more MSMEs become financially included as a result of these efforts? </strong></li>
</ol>
We’ve seen that e-invoicing is being mandated by governments across Latin America and in selected other countries as a tax compliance initiative (<a href="https://assets.kpmg.com/content/dam/kpmg/us/pdf/2017/10/mandate-for-e-invoicing-adoption-kpmg.pdf">KPMG, 2017</a>) and we expect that this practice may have spillover effects for financial inclusion. Through the collection and analysis of rich transaction data from micro, small and medium enterprises (MSMEs) that electronic invoicing provides, lenders are finding new ways of assessing this customer segment. This research will identify which providers are leveraging this data to improve their lending operations for MSMEs and through what means.
<ol start="3">
 	<li><strong>How can employers in developing countries support the financial health of their employees?</strong></li>
</ol>
Financial health is an increasingly important concept in the financial inclusion ecosystem, but we find that one often overlooked set of actors is employers. Employers have an important stake in the financial health of their employees, as financial challenges can create stress, absenteeism and other problems. This fellowship will explore the research on financial stress and employment to better articulate why employers in emerging markets should care about financial health, the interest of employers in active involvement, examples of good practice and/or tools or resources that employers need to get involved.
<ol start="4">
 	<li><strong>What is the landscape of financial products and services designed to</strong><strong> meet previously underserved consumers’ (physical) health needs? </strong></li>
</ol>
This fellowship will review the current status of health finance initiatives in the developing world or in a region or set of countries. It will identify and analyze the key challenges that existing programs encounter, with reference to the most successful models.

If you are passionate about financial inclusion, can craft a high-quality research plan that demonstrates a thoughtful approach, and have relevant experience in producing impactful analytic work, we want you to submit a proposal or share this opportunity with a colleague.

For more information (or inspiration), visit <a href="http://bit.ly/CFI-Fellows">our website</a>, view the full <a href="http://www.centerforfinancialinclusion.org/storage/documents/CFI_Fellows_2018_RFP_2018-05-07.pdf">request for proposals</a>, or email <a href="mailto:tjohnson@accion.org?subject=Question%20About%20CFI%20Fellows%20Program%202018">Tess Johnson</a>. We can’t wait to see how you tackle these questions!

&nbsp;

&nbsp;

CFI Fellows Program Now Accepting Proposals

CFI Research Fellows Program

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.

<i>This post originally appeared on the <a href="https://nextbillion.net/does-greater-inclusion-lead-to-financial-health/">NextBillion Blog</a> and is re-posted here with permission.
</i>
What conditions create physical health? We know more now than we ever have—working out, eating lots of vegetables and limiting alcohol intake seem to be healthy decisions. But there is no one agreed-upon set of conditions for physical health and wellness. Rather, there is a body of literature that provides clues about different aspects of health. For instance, nutrition literature makes it clear that broccoli is a better food choice than bacon, and data shows us that doing yoga is healthier than watching TV.

In the same way, the new <a href="http://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener">Gallup Global Financial Health Study</a> gives us additional language and data to understand more about what drives different aspects of financial health. No single perspective on financial health constitutes a definitive “theory of everything,” but the new Gallup data contributes significantly to our understanding of how to make financial inclusion work for customers. This dataset comes at the perfect time—right on the heels of the <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener">Global Findex</a> launch—and with it, we can start to ask ourselves with humility if financial inclusion is leading to financial health.
<h3>An Unprecedented Look at Personal Finance</h3>
First, some background about the Gallup survey. The financial inclusion field has benefited greatly from excellent surveying and reporting, from <a href="http://financialdiaries.com/about" target="_blank" rel="noopener">financial diaries projects</a> in <a href="http://www.usfinancialdiaries.org/about/" target="_blank" rel="noopener">multiple countries</a> to huge global databases such as the World Bank’s Global Financial Index, or Findex, which gathers and analyzes sex- and age-disaggregated data on account ownership, transaction patterns, account dormancy and much more. MetLife Foundation, in partnership with Rockefeller Philanthropy Advisors, wanted to know even more: the first-hand perspectives of individuals’ financial situations as they experience them.

So MetLife Foundation partnered with Gallup, one of the global leaders in polling and surveys, to get a deeper understanding on several points: how financially secure people are (or are not), the predictors of financial insecurity, and the degree to which people perceive that they have control over their financial lives. Gallup surveyed more than 15,000 people in 10 very different countries, across a range of economies, between January and March 2018 to take an unprecedented look at personal finance and how people perceive their situation.

To gauge <em>financial security</em>, the Gallup pollsters asked two simple questions: first, how long respondents could cover their basic needs (through savings or by selling assets) if they lost their income; and second, whether making repayments against debts does or does not make it difficult for them to pay for other things they need. We recognize of course that financial security is a complex and contextual phenomenon: A person with the same level of income and assets might be financially secure in one country but insecure in another, depending on available social protection safety net services and a host of other variables. Gallup chose those two simple but powerful questions in order to maintain comparability across 10 survey countries (Bangladesh, Chile, Colombia, Greece, Japan, Kenya, South Korea, United Kingdom, United States and Vietnam) that had been chosen for their diversity.

<em>Financial control</em> is the extent to which people perceive that they are in control of and can influence their financial situation. In the Gallup survey, financial control levels are measured as the percentage of respondents who gave a positive response to at least eight out of the 10 dimensions below.<strong> </strong>
<h3><b>Dimensions of Financial Control</b></h3>
<ol>
 	<li>Do you think that no matter what you do, your financial situation will stay the same?*</li>
 	<li>Do you think that you can overcome any financial problem that you might face?</li>
 	<li>When you spend money on something you don’t need, do you usually regret the decision later?*</li>
 	<li>Have you tried to save money in the past, but been unable to do so?*</li>
 	<li>Do you avoid thinking about how you are going to pay for things in the future?*</li>
 	<li>Do you think you will EVER be able to pay back all the money you owe?</li>
 	<li>Do you enjoy planning what you are going to do with your money in the future?</li>
 	<li>Are you satisfied with how much input you have in financial decisions in your household?</li>
 	<li>If you had a financial emergency today, such as a medical emergency, do you think you would be able to find the money to pay for it?</li>
 	<li>Do you have people in your life who can help you financially if you ever need it?</li>
</ol>
*Reverse-scored item.

Finally, to derive predictors of financial insecurity, the Gallup survey cross-tabulated self-reported financial insecurity with demographic data (age, sex, education level, marital status) and with the self-reported degree of perceived financial control to see what patterns might emerge. To dig into all of these indicators (and others), see the full dataset <a href="http://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener">here</a>.

In an initial analysis full of surprises, two of the biggest were these: The relationship between account ownership and perceived financial control is weak at best. (See Figure 1). And especially in the emerging markets—places where the financial inclusion community has focused the most attention—people’s access to financial services appears to have little correlation with financial security. (See Figure 2)

In Kenya, for example, 82 percent of people have an account, but only 9 percent are financially secure. And in Bangladesh, 50 percent of people are financially included (that is, have an account), but just 7 percent are financially secure. Even in the United States, which also spends significant philanthropic and government funds to increase financial health, only 33 percent are secure despite the fact that 93 percent have an account.

<em>Figure 1: Account Ownership and Perceived Financial Control</em>

<img class=" size-full wp-image-25662 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/figure-1-acct-ownership-and-percd-control.jpeg" alt="Graph of account ownership and perceieved financial control." width="720" height="540" />

<em>Figure 2: Account Ownership and Financial Security</em>

<img class=" size-full wp-image-25663 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/fig-2-account-ownership-and-financial-security.jpeg" alt="Graph of Account Ownership and Financial Security" width="720" height="540" />
<h4><span style="color: #ff6600"> </span></h4>
<h3>The Implications for the Financial Inclusion Agenda</h3>
So, does this mean we should give up on financial inclusion? No. This research is a point-in-time assessment and would benefit from being repeated across a wider set of countries and over a longer period, to see how trends in account ownership and financial control and security relate. In addition, account ownership does seem to make clients happy – in response to the survey’s question, “Overall, do you think that using the services of a bank or other financial institution improves your life?” most account owners (bank and mobile) responded positively. That might mean that they appreciate saving time by avoiding queuing to pay simple bills, or by sending or receiving money quickly to and from loved ones.

But though these benefits can be useful, they are not the ultimate goal of financial inclusion. Worse, these findings could also mean that it’s easier to borrow or spend for frivolous things or to lay bets on sports games, which would likely do little to increase feelings of control, and would certainly not boost financial security.

Further, financial inclusion has always been an overly simplistic term. Virtually all definitions of financial inclusion stress the importance of low-income people using a full suite of financial tools that enable them to manage daily cash flows, save and plan for the short and long term, take advantage of opportunities, and protect against risk. Inclusion and account ownership are just the tip of the spear and perhaps have been too much the focus in the field to date.

The balancing act in this field has always been between two related goals. On the one hand, there’s the need to identify the most efficient way to reach the largest possible number of low-income people. And on the other hand, there’s the need to make those products as useful and custom-tailored as possible, enabling clients to grow their businesses, improve their ability to send their children to school, obtain timely medical care, or otherwise respond effectively to their individual life circumstances.

Although much necessary work has been done to walk back the previous over-hyping of microcredit as a silver bullet for poverty alleviation, it seems unwise to over-correct and limit our focus to inclusion, without keeping in mind the intended outcomes. Perhaps it’s time for those of us working in this field to expand our views beyond basic financial tools and to expand or renew our focus on the quality of those tools and the outcomes they enable. Our current nomenclature is not clear or reflective of our shared goals.
<h3>What Comes Next?</h3>
MetLife Foundation requested that Gallup make the dataset publicly available. Gallup has enthusiastically encouraged researchers to use the data and share the results. The Center for Financial Inclusion team is planning to dig through these 15,000 survey responses and produce a brief later this summer, to highlight what the data says about the relationship between financial services use, attitudes toward these services, and financial health. For this deep dive, the subjective nature of the survey—which focuses on perceptions rather than empirical data—presents challenges but also an opportunity to understand the client perspective.

For MetLife Foundation, we want to make sure that our efforts remain ultimately focused on the point of it all: building the capacity of more people around the world to live financially healthy lives. As with physical health, the thinking about financial health is evolving: Different ideas and assumptions from our field will certainly join the food pyramid and other examples of discarded conventional wisdom in the archives of outdated theories. Our job is to continue learning and supporting others to keep doing their best work, too.

This data on financial control and security offers the industry one lens into financial health and wellness—in the same way the Apple Watch might provide a different behavioral nudge toward fitness than the Fitbit or Garmin. With all of these different approaches, we can build an inclusive world that works better to enable positive financial outcomes for end-users. We’re excited to see how this data adds to and catalyzes this conversation on financial health, and we look forward to seeing where these new observations take our industry.

Download the Gallup dataset <a href="http://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener">here</a>.

&nbsp;

&nbsp;

Does Greater Inclusion Lead to Financial Health? New Research Raises Pointed Questions for the Industry

That question is at the crux of a different kind of emergency savings fund. A “f*ck off fund” is savings you can leverage when you need to break away from your current situation – say, when you need to leave a harmful relationship or a problematic job. The term was coined a few years ago and has become popular, in recognition of its distinctiveness from other types of savings and its importance especially among women.

In a survey of adult women in the United States, <a href="https://www.glamour.com/story/why-you-need-a-fuck-off-fund">71 percent</a> indicated they’ve stayed in a job because they couldn’t afford to leave, and 31 percent said they’ve been financially trapped in a relationship. A f*ck off fund, equivalent to roughly three-to-six months’ worth of living expenses, provides the financial means to leave any such situation and start again. This might apply if you’re unhappy with your current work or living situation. Perhaps you want to quit your job and take that internship to jumpstart your career in a different industry. Or, more importantly, if you have been sexually harassed, abused, or feel unsafe but otherwise wouldn’t have the financial means to remove yourself from a bad relationship. This sort of fund provides the financial power to leave a situation.

This kind of savings fund is in keeping with mainstream financial advice. In addition to insurance, it’s recommended to have the safety net of three-to-six months’ worth of savings. Of course, just because this is recommended doesn’t mean most of us have these sorts of savings. Additionally, there are a few characteristics that differentiate this sort of fund from other types of emergency savings. If you are in a long-term relationship and are sharing finances with your significant other, your emergency savings might be joint with that person. However, what happens if the reason you need these savings is to leave? A <em>personal</em> emergency fund would be advisable. If your work environment were problematic, would it be as easy for you to mobilize savings from your family and friends to leave this situation as it would be to mobilize savings for a medical expense? As with savings for education or housing, it is typically a good idea to have savings set aside exclusively for this purpose.

It’s been exhilarating and heartening recently to witness a watershed moment for action against sexual harassment and abuse in the United States. And in many of these cases, the harassers have considerable financial power over their victims.

We were tipped off on the concept of a f*ck off fund by an <a href="https://www.glamour.com/story/why-you-need-a-fuck-off-fund">article</a> in <em>Glamour</em>. <em>Glamour</em> surveyed over a thousand women in the United States and found that 72 percent of respondents did not have such a fund, and that 51 percent have less than $500 in their savings. A third of the respondents said paying down debt was their main financial goal, and half said they have gone negative on their bank balances at least once in the last year. The financial roadblock they cited most frequently was simple: they did not make enough money at their jobs. You can find the survey’s full results <a href="https://www.glamour.com/story/money-secrets-from-1000-real-women">here</a>.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/" target="_blank" rel="noopener">Domestic Violence and Microfinance: What Is Our Role As Financial Services Providers?</a>

<a href="https://cfi-blog.org/2016/07/15/the-heart-and-science-of-client-assessment/" target="_blank" rel="noopener">The Heart and Science of Client Assessment</a>

<a href="https://cfi-blog.org/2017/04/03/can-bank-accounts-save-womens-lives-violence-against-women-and-financial-inclusion/" target="_blank" rel="noopener">Can Bank Accounts Save Women's Lives? Violence Against Women and Financial Inclusion</a>

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If You Suffered Domestic Abuse, Would You Be in a Financial Position to Leave?

Webinar: Financial Health Community Meeting

This year on Financial Health Matters Day, we at the Center for Financial Inclusion at Accion are taking a look at the new <a href="http://globalfindex.worldbank.org/">Global Findex data</a> and what it says about the financial health of respondents around the world. Because of our recent work on financial health in Eastern Europe and Central Asia, we decided to take a closer look at the Findex numbers from the region.

The 2017 Global Findex shows a substantial increase in account ownership between 2014 and 2017, from 62 percent to 69 percent of adults. However, one indicator that has decreased across this same period is the Findex’s proxy for financial health – the resilience question. This metric measures a person’s ability to come up with emergency funds in the amount of 1/20 GNI per capita in the next month (for reference, this is a little less than $3,000 in the U.S. context, and a little less than 700 dinar in Serbia). Isolating Eastern Europe and Central Asia, the percentage of people who said they could come up with this amount actually decreased slightly from 64 percent in 2014 to 61 percent in 2017.

This data echoes some of the findings presented in the new brief from CFI and the Microfinance Centre (MFC) in Warsaw, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/986-toward-a-financial-health-tool-for-consumers"><em>Toward a Financial Health Tool for Customers – Test Results from Eastern Europe and Central Asia</em></a>. As its title suggests, the brief shares findings from a financial health quiz that was tested in late 2017 among the clients and staff of organizations partnering with MFC on its Borrow Wisely Campaign. CFI and MFC are working together to build a smartphone-based tool to assist customers with gauging and improving their financial health, starting with the financial health quiz.

The quiz measured financial health across three categories – day-to-day management, resilience, and longer-term planning. Overall, customers scored highest on questions related to their day-to-day management of finances and lowest in questions related to their financial resilience. Our quiz also asked the same resilience question as the Findex. Respondents scored an average of 63 points out of 100, quite in line with Findex results.

Our test of the financial health quiz in the region revealed that people want help with many facets of their financial lives, from short term money management to longer term planning. As noted in our brief, “They also want to know how to plan in unstable economic conditions; they want a blueprint for steps to take when a financial crisis hits; and they want help setting and sticking to spending limits and reducing or consolidating debts. Several people wanted to know how to talk with their families and involve their children in good financial behavior.”

Despite the desire for better habits that respondents expressed during our financial health testing, the Findex shows savings rates in the region are lower than global averages, with 14 percent of adults saving at a financial institution, compared to 27 percent globally and 37 percent saving in any form, compared to 48 percent globally.

Most of the Global Findex is focused on account access, and the resilience question is not a headline in the narrative released by the World Bank. But all of those working in financial inclusion need to think about how to ensure that financial services are making a meaningful difference in the financial health of customers.

CFI and the Microfinance Centre will continue to use insights like those encapsulated in the brief and the Findex to explore how digital channels may be used to help improve customers’ financial health. We look forward to sharing more lessons learned in our finhealth app <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/financial-capability#BldgFinCapProject">project</a> along the way.

<em><a href="https://cfsinnovation.org/news/finhealth-matters-day-2/">Financial Health Matters Day</a> (#FinHealthMatters) is an initiative of the Center for Financial Services Innovation (CFSI). This year CFSI is directing particular attention to student financial health. CFSI finds that although 57 percent of Americans struggle with their overall financial health, 75 percent of students aren’t sure if they’d be able to come up with $1,000 in the next month. Learn more and explore ways to get involved in Financial Health Matters Day <a href="https://cfsinnovation.org/news/finhealth-matters-day-2/">here</a></em><em>.</em>

<em>Image credit: <a href="https://www.flickr.com/photos/worldbank/4248402729/in/album-72157631291110788/">Brigitte Brefort / The World Bank</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/06/01/seeking-happiness-and-financial-health-in-bhutan/">Seeking Happiness and Financial Health in Bhutan</a>

<a href="https://cfi-blog.org/2017/03/29/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

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Findex and Financial Health in Eastern Europe and Central Asia

Global Findex

I walked past the International Monetary Fund on Pennsylvania Avenue on a sunny Saturday morning, a few blocks from the White House. Three large posters of international faces filled their windows, covered by the text <em>#EndPoverty</em>.

Across the street, two homeless men emerged from their tents.

More than 1 in 10 Americans – nearly 45 million people – are living below the poverty line. The United States has one of the highest poverty rates in the developed world, second only to Israel. A survey conducted by CareerBuilder estimated that <a href="http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey">78 percent</a> of Americans are living paycheck-to-paycheck – a number that has been steadily increasing each year. The U.S. consistently <a href="http://www.businessinsider.com/the-richest-countries-in-the-world-2017-3/#18-australia-gdp-per-capita-48806-39820-13">ranks</a> as one of the most affluent countries in the world, yet these statistics obscure the financial health of its population and how its wealth is distributed.

It is well known that profitably serving low-income clients can be a challenge. Earlier this year, Bank of America <a href="https://www.npr.org/sections/thetwo-way/2018/01/24/580324251/bank-of-america-ends-free-checking-option-a-bastion-for-low-income-customers">eliminated its free eBanking checking accounts</a>, which now require a $1,500 daily minimum balance or a $250 monthly deposit to avoid a $12 monthly “maintenance” fee. If Bank of America were a country, it would have the 8<sup>th</sup> highest GDP in the world, at <a href="http://www.annualreports.com/Company/bank-of-america-corporation">$2.2 trillion in assets</a>. It started in San Francisco as a bank for the common man. Surely it can follow the lead of many <a href="https://www.nerdwallet.com/blog/banking/best-free-checking-accounts/">other financial institutions</a> and offer a bank account that works for low-income people.

As we’ve written on the blog before, several of the day-to-day services that banked populations take for granted are costly and time-consuming for the unbanked. Cashing a check? Fee. Obtaining a pre-paid debit card? Fee. Transferring money? Fee. Money order to pay bills? Fee. Although these fees might seem small in dollar terms, they add up over time, and for Americans living paycheck-to-paycheck, every penny counts. According to consumer advocate Bill Bartmann, the 68 million financially underserved Americans spend an average of <a href="https://www.huffingtonpost.com/bill-bartmann/financial-exclusion-why-the-poor_b_7001914.html">$108 per month</a> per person on financial services.

Globally, financial inclusion is evolving and advancing. Where are we on progress in the United States?
<h3>Financial Access</h3>
Access to financial services in the United States is improving. Roughly <a href="https://obamawhitehouse.archives.gov/blog/2016/06/10/financial-inclusion-united-states">7 percent</a> of American households lack access to a bank account, and around 20 percent have a bank account but also use financial services associated with the financially excluded, like payday loans. By comparison, in 1989, 14 percent of U.S. households lacked a bank account. Improvements in services access were especially pronounced among those in the bottom income quintile and among minority households, which, over the period of 1989 to 2013, experienced an increase in access from <a href="https://obamawhitehouse.archives.gov/blog/2016/06/10/financial-inclusion-united-states">56 to 79 percent and from 65 to 87 percent</a>, respectively.
<h3>Financial Health</h3>
In terms of financial health, the Center for Financial Services Innovation (CFSI) finds that <a href="https://cfsinnovation.org/research/2017-financially-underserved-market-size-study/">57 percent</a> of American adults are struggling financially – with either large sums of debt, irregular income flows, and/or sporadic savings habits. The Federal Deposit Insurance Corporation (FDIC) estimates that approximately 91 million U.S. adults are credit-challenged, stemming either from being low-file or having a subprime credit score below 600.
<h3>Debt Levels</h3>
Last year saw the country reaching an all-time high in terms of total household debt, at roughly <a href="https://www.cnbc.com/2018/02/13/total-us-household-debt-soars-to-record-above-13-trillion.html">$13 trillion</a>, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. This was the fifth rise, with increases across the credit card, auto, mortgage, and student loan categories.

Arguably the most dramatic rise has been in student loan debt. In 2008, student debt made up only <a href="https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html">5 percent</a> of total household debt, but by 2017 this had increased to 11 percent. As of 2017, student loan borrowers owe a total of $1.3 trillion. Moreover, roughly one in ten student loan borrowers are behind on repayments, which is the highest delinquency rate of any type of loan in the country.
<h3>Savings Levels</h3>
According to data from the U.S. Bureau of Economic Analysis, the personal savings rate in the United States is at roughly <a href="https://www.fool.com/saving/2016/10/03/heres-the-average-americans-savings-rate.aspx">5.7 percent</a>, meaning that for every $100 earned, $5.70 is saved for purposes including emergencies, retirement, and the proverbial rainy-day. While this figure is a substantial improvement over the 1.9 percent savings rate before the financial crisis in 2008, a recommended healthy savings habit would involve setting aside between 10 percent and 15 percent of income.

Like many other countries, retirement savings in the United States are a growing problem as more baby boomers reach retirement age. According to Census Bureau data, older Americans were the only demographic that experienced a <a href="https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/">poverty rate increase</a> between 2015 and 2016. Across the country’s adult population, the Census Bureau finds that two-thirds of Americans don’t contribute any money to a 401(k) or other retirement account.
<h3>Industry Progress</h3>
Over the past decade, transformations in technology, products, and business models have pushed the U.S. to meet a growing demand for financial inclusion.

As of February 2016, there were over 2,000 U.S. fintech start-ups, and fintech venture capital is steadily growing. One the biggest fintech success stories in the United States is the peer-to-peer mobile-based payment service Venmo. Owned by PayPal, Venmo has exhibited staggering <a href="https://www.dailydot.com/debug/venmo-growth-chart/">growth</a>. In the first quarter of 2015, Venmo processed $1.3 billion in payments, while two and a half years later, in the third quarter of 2017, the figure was $9 billion. In an effort to compete with Venmo and other payment apps, commercial banks are expanding their financial service offerings. A consortium of banks that includes Wells Fargo, Bank of America, JP Morgan Chase and Capital One rolled out Zelle in 2017, which is based on a similar model and allows for free, instant transfers between accounts of registered users.

Nationwide, there are more than 800 <a href="https://www.forbes.com/sites/darden/2014/06/05/fighting-financial-exclusion-how-to-serve-88-million-americans-who-have-no-bank/#111284992a5c">Community Development Financial Institutions</a> (CDFIs), private organizations fighting financial exclusion in rural areas (often deemed “bank deserts”) and disadvantaged urban zones. For customers who want to make sure their money is used to benefit communities, Morgan Simon of the Candide Group <a href="https://nextbillion.net/avoiding-the-ick-factor-four-easy-steps-to-align-your-investments-with-your-values-in-2018/">suggests</a> breaking up with your bank in favor of more socially-minded financial institutions like CDFIs, credit unions and community-based commercial banks.

Despite the increasingly digital payment structure of the U.S. financial system, millions of Americans still prefer cash over card. While 80 percent and 75 percent of American adults have a debit or credit card, respectively, more than 99 percent <a href="https://www.bostonfed.org/publications/research-data-report/2017/the-2015-survey-of-consumer-payment-choice-summary-results.aspx">report</a> that they still use cash. Innovative companies that recognize the need for payment flexibility are starting to fill in the gaps. <a href="http://paynearme.com/en/">PayNearMe</a>, for instance, offers remote transactions at more than 28,000 locations, such as CVS and 7-Eleven. At these neighborhood retailers, payments can be made for bills, rent, tickets and even taxes to participating entities located elsewhere.

At a federal level, the U.S. has implemented several programs to expand financial inclusion. To help alleviate the issue of inadequate retirement savings, the Obama administration introduced <a href="https://myra.gov/">My Retirement Account</a> (myRA) for people without access to employer-sponsored retirement plans. While the program was not well-advertised and saw low usage during its three years of activity, it was a step in the right direction. The retirement accounts didn’t carry fees or minimum balance requirements, and any earnings or withdrawals were tax free. Unfortunately the program was <a href="https://www.forbes.com/sites/nextavenue/2017/07/28/r-i-p-myra-retirement-account-gone-too-soon/#3c8b88077885">dropped</a> by the current administration in December 2017.

Eradicating financial exclusion in the United States will require cooperation among all sectors, public and private. While there may not be a simple solution, everyone has something to gain from creating a solid financial foundation for low-income Americans.

<em>Featured image credit: Doug Focht via <a href="https://www.flickr.com/photos/99077624@N00/2272841875/">Flickr Creative Commons</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/02/02/exchanging-cash-for-freedom-predatory-bail-bonds-in-the-u-s-criminal-justice-system/">Exchanging Cash for Freedom: Predatory Bail Bonds in the U.S. Criminal Justice System</a>

<a href="https://cfi-blog.org/2016/05/02/in-the-united-states-gender-gaps-in-financial-literacy-and-pay-persist/">In the United States, Gender Gaps in Financial Literacy and Pay Persist</a>

<a href="https://cfi-blog.org/2016/10/13/who-is-to-blame-for-global-de-risking-the-united-states/">Who Is to Blame for Global De-Risking? The United States?</a>

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Financial Inclusion in the U.S. – Are We Making Progress?

How can an app help improve financial health? Spoiler alert: offering users sound financial advice isn’t enough!

CFI and the Microfinance Centre (MFC) in Warsaw are working together to build a smartphone-based tool to assist customers with gauging and improving their financial health.

As part of the project, we developed a simple financial health quiz that will serve as the foundation of the application, helping users not only assess their financial health, but also understand and decide on specific actions to improve it.

Last year MFC tested the quiz among the clients and staff of organizations partnering with its Borrow Wisely Campaign in Eastern Europe and Central Asia. Our lessons learned from this testing phase are informing our next steps as we continue to design and build the application.

We released a new brief, “<a href="http://bit.ly/TowardFinHealthTool">Toward a Financial Health Tool for Consumers</a>” that distills the results of the tests and shares our lessons learned up to this stage in the project. Here’s a quick overview of our findings.
<h2>Results: How People Responded to the Financial Health Quiz</h2>
We were pleased to learn that customers responded favorably to the test. They enjoyed taking it, considering it to be fun and easy. At the same time, they commented that it was eye-opening and helped them reflect on their financial situation. The value customers found in taking the quiz was perhaps all the greater because, as many reported, they have few sources of financial management advice (beyond friends and family) and few or no tools.
<ul>
 	<li>Customers appreciated concrete, practical advice, particularly with regard to short-term money management. The tip to save the cost of five loaves of bread each month was especially popular.</li>
 	<li>Instead of simply hearing what they “should” do in general terms, consumers want advice on “how” to do it.</li>
 	<li>They also want help to prioritize among the many possible actions they could take. Too many tips can leave people overwhelmed and paralyzed, especially if their financial health is poor.</li>
 	<li>It is important to provide positive feedback that encourages people to continue with what they are doing well.</li>
 	<li>The quiz questions and content should be customized and refined to fit users’ financial literacy levels and local market contexts. In this case, test takers were confused by questions involving percentages.</li>
 	<li>Users indicated that games, other quizzes, and memorable stories would help guide behavior and motivate ongoing engagement.</li>
 	<li>The ability to print out tips, tools, advice, and a calendar for budgeting was suggested.</li>
</ul>
<h2>The Business Case for Providers</h2>
Providers see the development of a digital tool as an opportunity to improve two-way communication with clients and a chance to learn more about clients’ needs and financial behavior. With this information they may be able to offer better services and help customers improve their financial health. Providers would also be interested in having the app provide information to customers, such as account status, that could reduce the number of inquiries to which they would otherwise have to respond.

This project is part of a larger initiative implemented by Accion with support from the <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, <em>Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</em>. With regional efforts in Latin America, Eastern Europe, and Asia, the initiative includes designing digital tools and services informed by human-centered design, incorporating behavioral principles that spur product usage and empower clients, and enabling financial service providers to effectively leverage and utilize client data for continuous improvement.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/06/01/seeking-happiness-and-financial-health-in-bhutan/">Seeking Happiness and Financial Health in Bhutan</a>

<a href="https://cfi-blog.org/2017/03/29/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

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Lessons Learned in Designing an App to Build Financial Health