The financial inclusion landscape has changed drastically since the Global Partnership for Financial Inclusion (GPFI) was established over a decade ago. The <a href="https://www.worldbank.org/en/publication/globalfindex">Global Findex 2021</a> revealed that the inclusive finance sector has made significant progress in access — with worldwide account ownership reaching nearly 76 percent of the global population. This uptick largely has been driven by rapid digitalization, investments in digital public infrastructure, and enabling policy environments across several countries.

We should celebrate these accomplishments and continue to focus on the benefits for low-income consumers. There are plenty of examples of how financial services have been designed to support low-income populations. <a href="https://www.worldbank.org/en/publication/globalfindex/Report" target="_blank" rel="noopener noreferrer">In Kenya</a>, mobile money users received remittances from their social networks in times of need to avoid cutting back on essential spending. In Bangladesh, we have seen a reduction in extreme poverty levels due to increased mobile money remittances from people migrating to cities to support their families.

However, there is still work to do, especially to reach the most vulnerable populations. Going forward, it is important that we consider the consumer segments that remain excluded and the underlying reasons behind this exclusion while also continuing to better understand newer risks that are emerging and becoming increasingly relevant.

We must address existing vulnerabilities that stem from poverty, low-income levels, limited financial education, and external conditions that can exacerbate these vulnerabilities, such as the availability, or lack thereof, of adequate infrastructure or consumer and data protection mechanisms. To help classify types of vulnerabilities that can arise, CFI uses a <a href="https://www.strivecommunity.org/insights/financial-services/consumer-protection" target="_blank" rel="noopener noreferrer">vulnerability framework</a>. This framework categorizes the four types of vulnerabilities specific to digital financial services as information vulnerability, supply vulnerability, redress vulnerability, and impact vulnerability.
<blockquote>It is important that we consider the consumer segments that remain excluded and the underlying reasons behind this exclusion while also continuing to better understand newer risks that are emerging and becoming increasingly relevant.</blockquote>
The GPFI has worked over the last few years to address some of these vulnerabilities. The importance of infrastructure is the object of the current Indian Presidency; consumer protection and financial education were addressed during the Italian Presidency; and a <a href="https://www.g20smecasestudies.org/case-studies" target="_blank" rel="noopener noreferrer">G20 living database</a> of best practices of MSMEs innovative financing was created during the Indonesian Presidency.

Despite much progress in addressing vulnerabilities low-income people face, new risks continue to emerge.
<h4><strong>1. Economic recovery from the pandemic</strong> remains a priority for several nations.</h4>
The pandemic heavily impacted micro- and small- enterprises (MSEs) and women – two large consumer groups who are often excluded from formal financial services. The pandemic exposed that despite <a href="https://www.worldbank.org/en/publication/globalfindex/Report" target="_blank" rel="noopener noreferrer">recent progress in narrowing the gender gap</a>, it remains a priority focus area for the sector. GSMA’s mobile gender gap reports reveal that women’s digital inclusion is slowing across low- and middle-income countries for the second consecutive year, and several other reports have shown that we need to address the challenges women have in using financial services to see the full gains of access.
<h4><strong>2. Geo-political risks </strong>are increasing the mass displacement of people, disproportionately affecting low-income individuals, and heightening the risk of financial exclusion.</h4>
Coping strategies require helping low-income people and vulnerable consumers adapt and transition to new livelihoods. Cash transfers, insurance, and remittances can play a crucial role, but we must first address problems with innovation, distribution, and the cost of remittances.
<h4><strong>3. The wide adoption of new technologies</strong> in the financial sector, if not correctly governed, poses a significant risk of further excluding and exploiting vulnerable populations.</h4>
This is especially true as AI becomes more entrenched in every facet of financial products and services and distribution channels, and instances of <a href="https://www.cgap.org/research/reading-deck/evolution-of-nature-and-scale-of-dfs-consumer-risks-review-of-evidence" target="_blank" rel="noopener noreferrer">fraud and cybercrime are on the rise</a>.

&nbsp;

To deliver financial services responsibly, we must address current and emerging exclusions, anticipate possible sources of vulnerability, and consider who might be adversely affected. The inclusive finance sector has the potential to develop products and services that allow consumers, especially the most vulnerable, to become more resilient and adapt to their new realities.

In response to these challenges, <a href="https://globalrff.org/" target="_blank" rel="noopener noreferrer">RFF</a> launched three working groups: 1) Responsible Recourse, led by the Better than Cash Alliance (BTCA) and Bangko Sentral ng Pilipinas; 2) Responsible Digital Credit, led by CGAP, and 3) Responsible AI, led by the office of the UNSGSA and CFI. Each group aims to influence and build a collective effort towards a more responsible finance ecosystem and will present its findings at the upcoming event in India.

<em>RFF convenes July 5-7, 2023, in Bengaluru, India, under the theme of Shaping a Responsible Digital Finance Ecosystem. Visit the </em><a href="https://globalrff.org/july-2023" target="_blank" rel="noopener noreferrer"><em>RFF website</em></a><em> to view the full agenda.</em>

Outlining Priorities for Responsible Finance

CFI Advisory Council Member Rosita Najmi has over 20 years of experience in global development, but she attributes her initial connection to financial inclusion to a personal relationship with poverty as a young refugee who came to the United States from Iran with her family.

<span data-contrast="auto">Originally a field researcher and social entrepreneur, she has also worked across leading international NGOs to advocate for and employ financial services as a tool to empower and improve the lives of low-income people. As a development economist, she helped stand up the first World Bank global practice for financial inclusion. She then transitioned from operations and development policy functions to funder roles -- across impact investing, private philanthropy, and now corporate philanthropy. She is a long-time and devoted champion of gender equality, and her contributions include efforts to advance women’s economic empowerment, including the creation and funding of </span><a href="https://www.findevgateway.org/finequity" target="_blank" rel="noopener noreferrer"><span data-contrast="none">FinEquity</span></a><span data-contrast="auto"> and the </span><a href="https://data2x.org/financial-inclusion/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Data2X Women’s Financial Inclusion Data Partnership</span></a><span data-contrast="auto">. Currently, </span><span data-contrast="none">Rosita serves as </span><span data-contrast="none">a</span><span data-contrast="none"> VP of Social Impact at The UPS Foundation, leading strategy, innovation, grantmaking, and measurement, evaluation, and learning (MEL).</span>

<span data-contrast="auto">As Rosita reflects on her career, she contemplates the meaningful way that her professional roles, and the specific order in which they happened, have enabled her to optimize her impact. As a CFI Advisory Council member since January 2022, she continues to work toward achieving a goal that her late mother regularly encouraged: “Make your life count!”</span>
<h3><b><span data-contrast="auto">1. How did you become involved in inclusive finance and what are you working on now?</span></b><span data-ccp-props="{}"> </span></h3>
<span data-contrast="auto">RN: My connection to financial inclusion is rooted in a personal relationship with poverty. My family — my late mom, three older siblings, and I — </span><a href="https://www.hbs.edu/mba/student-life/people/Pages/portrait-project.aspx?profile=rnajmi~pp" target="_blank" rel="noopener noreferrer"><span data-contrast="none">came to the United States from Iran as refugees</span></a><span data-contrast="auto">. We brought three suitcases and $3,000 cash, which my then 15-year-old brother carried in his pockets.</span>

<span data-contrast="auto">I remember well the judgment and discrimination my family and I faced while living in poverty. I grew up in Tennessee, where there was racism and judgment of families who received government welfare, such as food stamps, which mine did. At that time, food stamps were pieces of paper so it was easy for others to notice when my mom used them at the grocery store.</span>

<span data-contrast="auto">As early as elementary school, I used to help my mother with her bank account and finances. I couldn’t even reach the counter to see the bank teller! But, because of her accent and English being her second language, my mother was not confident, and I would often help communicate with the bank teller on her behalf.</span>

<span data-contrast="auto">This personal journey with access to financial services and resources has shaped my priorities and instilled a strong desire to help and empower others, with an emphasis on designing for dignity. I have worked in social and economic development for many years, but my top priority has been to transform financial services into a tool to empower low-income and marginalized people.</span>
<blockquote class="pullquote--right"><span data-contrast="auto">This personal journey with access to financial services and resources has shaped my priorities and instilled a strong desire to help and empower others, with an emphasis on designing for dignity.</span></blockquote>
<span data-contrast="auto">I started my career as a field researcher, social entrepreneur, and founder of an international NGO. These experiences were the best education I could have asked for — more than my formal education — to understand families’ financial hardships around the world and the impossible choices that so many are forced to make every day. When I joined the World Bank as a development economist, I helped develop the Bank’s first global practice for financial inclusion. We created the support template to help countries develop and measure progress against national financial inclusion strategies. After that, and for over a decade, I have been a funder of different types of capital, from impact investing to private and corporate philanthropy.</span>

<span data-contrast="auto">Currently, I oversee grantmaking, strategy, innovation, and measurement, evaluation, and learning (MEL) at </span><a href="https://about.ups.com/us/en/social-impact.html" target="_blank" rel="noopener noreferrer"><span data-contrast="none">The UPS Foundation</span></a><span data-contrast="auto">. </span><a href="https://about.ups.com/us/en/social-impact/the-ups-foundation/the-ups-foundation-mission-and-purpose.html" target="_blank" rel="noopener noreferrer"><span data-contrast="none">One of the four focus areas</span></a><span data-contrast="auto"> is equity and economic empowerment, which includes a focus on women. Whether in accessing finance or moving their goods to markets or across borders, women face unique challenges because of </span><a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know"><span data-contrast="none">social and cultural norms</span></a><span data-contrast="auto">, limits on mobility and agency, and time poverty, among other barriers. We seek to do our part to remove such barriers. UPS’ equity and economic empowerment portfolio also includes career and college readiness for youth, entrepreneurship, and workforce development.</span>
<h3><b><span data-contrast="auto">2. What key lessons have you learned from past work experiences?</span></b></h3>
<span data-contrast="auto">RN: While funding the </span><a href="https://www.betterthancash.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Better than Cash Alliance</span></a><span data-contrast="auto"> (BTCA) during my tenures at both the Omidyar Network and the Bill &amp; Melinda Gates Foundation, I deepened my understanding of the potential of advocacy. Advocacy is a skill set -- a combination of art and science -- that can transform lives, change policies, and move resources to support underserved or marginalized communities. I also learned how blended finance can play a vital role in global sustainable development. I believe we need varying types of capital — a mixed capital stack — for scale and long-lasting impact.</span>
<blockquote><span data-contrast="auto">Advocacy is a skill set -- a combination of art and science -- that can transform lives, change policies, and move resources to support underserved or marginalized communities.</span></blockquote>
<span data-contrast="auto">Furthermore, learning and sharing experiences through coalitions and alliances is much more efficient and effective than doing it alone. I am a collaborator and connector and have worked on building and supporting multiple global coalitions and alliances around different topics like impact investing, </span><a href="https://www.findevgateway.org/finequity" target="_blank" rel="noopener noreferrer"><span data-contrast="none">women’s economic empowerment</span></a><span data-contrast="auto">, </span><a href="https://www.ictd.ac/programme/digitax/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">tax policy and administration</span></a><span data-contrast="auto">, and </span><a href="https://www.cifaralliance.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">climate equity and resilience</span></a><span data-contrast="auto">.</span>

<span data-contrast="auto">Finally, because of my tenure at </span><a href="https://www.mercycorps.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Mercy Corps</span></a><span data-contrast="auto">, I became a strong believer in market-based approaches that lead to sustainable development and empowerment. In contrast to a beneficiary-focused approach, market-oriented models position populations living in poverty as consumers, producers, employees, or entrepreneurs. Market-based approaches use business models and work to catalyze markets to solve development and humanitarian challenges more sustainably and at scale than time and resource-bound interventions.</span><span data-ccp-props="{&quot;335551550&quot;:6,&quot;335551620&quot;:6}"> </span>
<h3><b><span data-contrast="auto">3. If you weren’t in your current professional role, what would you be doing right now?</span></b></h3>
<span data-contrast="auto">RN: I would spend more time advocating to end human rights violations in Iran, especially in support of </span><a href="https://web.archive.org/web/20160229174442/https:/www.hbs.edu/mba/student-life/people/Pages/wdydwyd.aspx?profile=rnajmi" target="_blank" rel="noopener noreferrer"><span data-contrast="none">women and girls</span></a><span data-contrast="auto"> and members of the religion the </span><a href="https://www.bahai.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Bahá'í Faith</span></a><span data-contrast="auto">.</span>
<h3><b><span data-contrast="auto">4. What unique expertise do you bring to CFI’s Advisory Council? </span></b></h3>
<span data-contrast="auto">RN: I strive to bring the following to CFI: (i) my network so I can be a connector for CFI’s applied research; (ii) strategic thinking, especially around creating intersectional outcomes; and (iii) personal experience and passion for designing for dignity and empowerment.</span>

<span data-contrast="auto">If I had the chance to re-design my career, I would take the same path. The order of my experiences was meaningful; I am a better funder, because I was a grantee first, and I can be an innovator, because I worked in the field, in operations, and on the front lines. I aim to bring my experience wearing these diverse hats to CFI’s Advisory Council.</span>
<h3><b><span data-contrast="auto">5. In one word, what is the current state of financial inclusion today? </span></b><span data-ccp-props="{}"> </span></h3>
<span data-contrast="auto">RN: Transitioning. Many people and organizations have worked hard to build the case for why the sector needs to go beyond solely advancing access. It’s now understood that we cannot declare victory simply when someone opens a bank account and that instead, the customer must build towards resilience to escape poverty and stay out of poverty. Digital financial inclusion can be a tool for both empowerment and equity in development, and it supports government accountability and fiscal transparency, particularly for government subsidies to its citizens and tax administration. Lastly, when I think about the future, especially in terms of climate shocks and war, the need for humanitarian response is increasing at a rapid pace and scale. We must swiftly integrate digital payments into humanitarian responses. </span><span data-ccp-props="{&quot;335551550&quot;:6,&quot;335551620&quot;:6}"> </span>
<h3><span data-ccp-props="{}"> 6. </span><b><span data-contrast="auto">What can we learn from fintech that can be applied to financial inclusion?</span></b></h3>
<span data-contrast="auto">RN: Friction management is important. Typically, the goal of payments, especially for access to credit and savings, is to be as frictionless as possible. However, I believe there is a role for friction when it comes to credit. For example, providing notifications or other reminders highlighting an outstanding debt balance would be advantageous when a customer has multiple loans or payment plans. This approach serves the dual purpose of protecting consumers' interests and empowering consumers to stay informed about their financial obligations. In this way, the financial provider is signaling its focus on its bottom line and its commitment to the financial health of its customer.</span>

<span data-contrast="auto">On the data side, people are already researching and discovering issues related to data misuse, especially data privacy. Fortunately, new laws are helping, but the financial services industry and development actors could also have proactive strategies for the misuse and </span><i><span data-contrast="auto">missed</span></i><span data-contrast="auto"> use of data.</span><span data-ccp-props="{&quot;335551550&quot;:6,&quot;335551620&quot;:6}"> </span>
<blockquote class="pullquote--left"><span data-contrast="auto">The effectiveness of AI relies on the quality of the data employed. If marginalized groups, such as women or people with disabilities, are invisible in the data, these groups are at serious risk of being left further behind.</span></blockquote>
<span data-contrast="auto">There is an abundant amount of data being produced, but unfortunately, not all data is used or used optimally. This underutilization can be because of a fear of breaking the rules, especially around data management and governance. Other times, the barrier can be because skill sets are missing in data science. Nevertheless, like how we developed frameworks to guide countries to develop national strategies for driving and measuring financial inclusion, I think there is a need to develop diagnostics and templates that help governments and financial services providers use data to benefit their customers. For example, financial services providers can use data to measure product equity — showing who is using products and services and to what outcomes. Further, governments, academia, civil society, and development organizations can leverage anonymized and aggregated data sets to triangulate with other data sets for insights, innovations, and consumer protection.</span>

<span data-contrast="auto">I would like to see more ‘data for good’ strategies in the private sector, which can include disaggregating data by </span><a href="https://data2x.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">gender</span></a><span data-contrast="auto">, race, and other classifications and considering the quality of data sets that educate artificial intelligence. The effectiveness of AI relies on the quality of the data employed. If marginalized groups, such as women or people with disabilities, are invisible in the data, these groups are at serious risk of being left further behind.</span>
<h3><b><span data-contrast="auto">7. What are the most crucial issues in inclusive finance that we should prioritize over the next five years?</span></b></h3>
<span data-contrast="auto">RN: We are seven years from the 2030 Sustainable Development Goals (SDG) deadline, and the COVID pandemic eliminated years of progress. We must compensate for this loss by pursuing interventions with intersectional outcomes. Therefore, the issues I would prioritize in the next five years include: </span><span data-ccp-props="{&quot;335551550&quot;:6,&quot;335551620&quot;:6}"> </span>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="35" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">The misuse and missed use of data</span></li>
 	<li data-leveltext="" data-font="Symbol" data-listid="35" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><span data-contrast="auto">Climate risks related to food security, a just transition, adaptation, and resilience</span></li>
 	<li data-leveltext="" data-font="Symbol" data-listid="35" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1"><span data-contrast="auto">Gender equality issues related to health and education outcomes, and the social and cultural norms that thwart the full contributions of women and girls</span></li>
</ul>

Designing for Dignity: Creating Equal Opportunity through Financial Inclusion – Q & A with Rosita Najmi, CFI Advisory Council Member

Financial inclusion plays a strong role in a country’s economic and social development by reducing poverty, supporting sustainable and inclusive development, and enhancing shared prosperity. It is an enabler of 40 percent of the UN’s Sustainable Development Goals (SDGs) and is a useful measure of financial development. There is also ample empirical evidence tying financial inclusion with financially empowering behavior, including but not limited to a higher propensity to save.

Two recent surveys, the <a href="https://karandaazmain.wpenginepowered.com/wp-content/uploads/2023/02/Karandaaz-Financial-Inclusion-Survey-2.pdf" target="_blank" rel="noopener noreferrer">Karandaaz Financial Inclusion Survey 2022 (KFIS)</a> in Pakistan and the <a href="https://www.worldbank.org/en/publication/globalfindex/Report" target="_blank" rel="noopener noreferrer">Global Findex Survey (2021)</a>, and an examination of real-world examples provide some evidence that bank account ownership and access might be helpful in this regard. However, the overall impact of those indicators on improving people’s lives – especially women’s lives -- appears to be nominal. Therefore, to help us understand the goals and principles of inclusive finance, we must reconsider which measurements are useful and appropriate for policymakers to use.
<h1><strong>What really is <em>Financial Inclusion</em>? Measuring Usage over Access</strong></h1>
There have been multiple definitions of financial inclusion over the years, but the underlying focus has been on the following key aspects:
<ul>
 	<li>Access to financial services</li>
 	<li>The degree of usage</li>
 	<li>Quality of services</li>
 	<li>Associated costs</li>
</ul>
These aspects are interrelated, but from a measurement perspective, regular usage of financial services and products should take precedence over account ownership because holding a bank account does not necessarily translate into regular usage. For example, after adjusting for inactive accounts, the percentage of globally banked individuals in 2021 decreased from 76 percent to 66 percent; in Pakistan, after adjusting for inactive accounts, the number of banked individuals in 2021 decreased from 21 percent to 13 percent according to the Global Findex. Data from KFIS in 2022 shows that 30 percent of banked individuals decreases to 27 percent after adjusting for inactive accounts. These discrepancies reflect the reality that access outpaces usage, which is not the desired outcome.

<img class=" wp-image-45915 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/04/Screenshot-2023-04-06-at-11.51.55-AM.png" alt="" width="955" height="543" />

The data on savings as an indicator of consistent use of financial services and products also cements that the industry should not consider bank account ownership as the primary way of measuring holistic financial inclusion. However, around the world, countries and regions have prioritized bank account ownership in different ways. Figure 1 aptly depicts the outcome of these varying efforts. While a significant number of people own bank accounts, it appears that far fewer use them in ways that would offer direct benefits, such as savings.

Even in countries with higher levels of bank account ownership, like India and the UAE, only a fraction of these account owners saves money through a financial institution. In South Asia, where social safety nets are relatively weak, increasing the number of bank account owners does not seem to have much effect on people saving for their golden years -- a meager average of 9 percent of the surveyed individuals saved for old age. Considering this data may explain why, on average, 60 percent of South Asians are ‘very worried’ about not having enough money for old age, according to the Global Findex. As indicated in KFIS 2022, data from Pakistan also depicts a similar pattern: only 16 percent of bank account holders and 10 percent of mobile money wallet holders saved money through their financial institutions.

<img class=" wp-image-45917 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/04/Screenshot-2023-04-06-at-11.52.59-AM.png" alt="" width="882" height="683" />

These numbers are more worrisome when we look at them from a gender financial inclusion gap perspective, as shown in Figure 2. Even in places like India, where women’s account ownership is as high as 78 percent, only 13 percent have saved at a financial institution or used a mobile money account. Furthermore, while only 8 percent saved for old age, 68 percent of women reported being ‘very worried’ about not having enough money for old age. With 13 percent account ownership in Pakistan, less than a half percent of women saved at a financial institution or used a mobile money account.
<h1><strong>Involuntary Exclusion: a Better Target?</strong></h1>
When data from KFIS 2022 shows that 81 percent of Pakistani adults are financially excluded (i.e., non-bank account holders), does that mean the policy agenda should include efforts to close this gap because more financial inclusion is necessarily better?

In a 2020 working paper published by IMF, “<a href="https://www.imf.org/en/Publications/WP/Issues/2020/08/07/Financial-Inclusion-What-Have-We-Learned-So-Far-What-Do-We-Have-to-Learn-49660" target="_blank" rel="noopener noreferrer">Financial Inclusion: What Have We Learned So Far? What Do We Have to Learn?</a>,” authors Adolfo Barajas, Thorsten Beck, Mohammad Belhaj, and Sami Ben Naceur note that policymakers do not need to eliminate all the gaps because more financial inclusion is not necessarily better. The authors refer to the Financial Possibilities Frontier (FPF) as a framework to gauge an optimal level of financial inclusion in a country, given its structural conditions. As an illustration, there can be an instance of excessive financial inclusion, exemplified by the U.S. mortgage market before the subprime crises of 2008. Excessive financial inclusion is neither desirable nor sustainable in the long run. All households and firms do not need financial services, so it is paramount for policymakers to understand voluntary and involuntary financial exclusion factors.

<img class=" wp-image-45918 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/04/Screenshot-2023-04-06-at-11.54.50-AM.png" alt="" width="1101" height="701" />

In the Global Findex 2021 survey, there were seven cited reasons by non-account holders for not having an account (Figure 3). One of the core reasons for voluntary financial exclusion is that someone else in the family has an account to access financial services. Even in countries where account ownership is significantly higher (i.e., 78 percent in India, 89 percent in Sri Lanka, and 86 percent in the UAE), one of the highest cited reasons by non-account holders was a family member having an account. In addition, not holding an account for religious reasons is another voluntary reason for financial exclusion. The other reasons cited for non-account ownership could be designated as involuntary reasons based on the minimum amount, cost, risk, and physical access.

Hence, as argued in the <a href="https://www.imf.org/en/Publications/WP/Issues/2020/08/07/Financial-Inclusion-What-Have-We-Learned-So-Far-What-Do-We-Have-to-Learn-49660" target="_blank" rel="noopener noreferrer">2020 IMF working paper</a>, there is a strong case for policymakers to target involuntary financial exclusion, which is driven by market frictions, instead of financial inclusion directly. However, even for involuntary exclusion, there is a clear argument for not targeting zero exclusion because some borrowers will always be too risky in the credit markets. Furthermore, based on the guidance from the FPF, specific individuals and firms would be excluded due to the high costs of provisioning financial services to them.
<blockquote class="pullquote--right">When financial inclusion is solely measured based on owning a bank account, the outcome does not truly reflect what it means to be financially included.</blockquote>
In Pakistan, the leading reason cited by non-account holders for not owning an account was that they “do not need one or have never thought of using one” (as shown in Figure 3). This explanation is vague at best and does not provide any opportunity to distinguish between voluntary and involuntary reasons. For example, some people might think they do not need a bank account because their family members already have one; others may have personal beliefs, such as religious beliefs, that make them not want to use a bank account. However, “not considering or thinking about” using a bank account can be addressed through financial education. Therefore, categorizing these individuals into one category does not offer any meaningful insight for policymakers or other stakeholders.

Moving forward, in light of the empirical evidence and literature, one can say that when financial inclusion is solely measured based on owning a bank account, the outcome does not truly reflect what it means to be financially included. Therefore, we need to adopt a more accurate measure of financial inclusion, especially in Pakistan. Involuntary financial exclusion may well prove a more useful guide for policy action.  Otherwise, any positive change we celebrate would not hold much value because the actual effective increase in financial inclusion would remain relatively small.

Financial Inclusion: Is More Really Better?

A North Star or a Measurement Pulse? The role of financial health in inclusive finance

<span data-contrast="auto">CFI Advisory Council Member </span><a href="https://www.centerforfinancialinclusion.org/bio/david-ferrand"><span data-contrast="none">David Ferrand</span></a><span data-contrast="auto"> has had a prolific career. Educated as an engineer and trained as a commercial banker, David shifted his focus to financial inclusion in 1993. After working in the space for 12 years, he became the director of </span><a href="https://www.fsdkenya.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Financial Sector Deepening (FSD) Kenya</span></a><span data-contrast="auto">, a multi-donor program established to support the development of inclusive financial markets. Now an independent consultant, David’s primary interest is in enhancing the impact of inclusive finance on the real economy and developmental outcomes. David joined CFI’s Advisory Council in July 2020.</span>

<span data-contrast="auto">As he reflects on how financial inclusion has evolved, David believes that we are at a turning point with potential for far greater developmental impact than has been seen to date. He also shares what he’s learned from nearly three decades in the Kenyan finance ecosystem, and what he believes are the crucial issues our community should prioritize.</span>
<h1><span class="TextRun MacChromeBold SCXW262110138 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW262110138 BCX0">How did you get </span><span class="NormalTextRun SCXW262110138 BCX0">involved in financial inclusion</span><span class="NormalTextRun SCXW262110138 BCX0"> and what are you working on now</span><span class="NormalTextRun SCXW262110138 BCX0">?</span></span></h1>
<span data-contrast="auto">DF: While I was working in banking in the UK, I received an opportunity to be posted to Kenya. I spent just over a year in corporate banking and it was there that I became interested in international development and financial inclusion. I decided to move out of the banking industry and return to the UK, where I got involved in microcredit enterprise development through the UK’s Department for International Development (DFID).</span>

<span data-contrast="auto">After working with DFID, I joined FSD Kenya where I worked until 2019. I then spent the next two years working with the FSD Network on strengthening how FSDs across Africa could work more effectively together. Most recently my focus has been on how we practically link the new possibilities for finance offered by digital technology with the pressing need to find new development pathways that work for Africa.</span>

<span data-contrast="auto">I’m interested in sustainability and the role of inclusive finance in accelerating or facilitating a more sustainable economic basis for developing economies. The green economic agenda is obviously critical now. And though I claim no expertise, I'm also very interested in gender – the question of gender and inclusive finance has become much more significant lately, and rightly so.</span>
<h1><span class="TextRun MacChromeBold SCXW99775668 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW99775668 BCX0">How has financial inclusion changed since you first became interested in the subject?</span></span></h1>
<span data-contrast="auto">DF: It has changed massively. There's been sustained interest in financial inclusion for three decades which, in international development, is perhaps unusual. The space started with credit, broadened into savings, and then insurance was “discovered”. The idea of microcredit was replaced with microfinance to become, broadly, financial inclusion. And now today, I tend to talk about “inclusive finance” because, if our objective is to achieve positive developmental change, one aspect of finance – the direct delivery of financial services to underserved populations – cannot be separated from the rest of the financial system.</span>

<span data-contrast="auto">When I was first involved, things were positioned around microcredit and micro-enterprise, and the approach was very supply-side driven. We all felt there was a recipe: if we could build the financial institutions to deliver finance, then we’d have a massive development impact.</span>

<span data-contrast="auto">But we realized there was a need to instead be outcome-oriented. Our aim is to deliver a financial system that is more inclusive and delivers on economic and social empowerment objectives. There has been a necessary shift toward the demand side to understand how finance plays a role in the real economy.</span>

<span data-contrast="auto">Another major change is commercialization. Three decades ago, the field was dominated by nonprofits. Then there was an explicit attempt to move towards commercialization to scale. In recent years it feels like we’ve been far more successful here than we dared hope. However, our challenge is to bring the work back to the development objectives that underpinned the original policy interest in the space without losing the power of markets to create far-reaching change.</span>
<h1><span class="TextRun MacChromeBold SCXW26246539 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW26246539 BCX0">In one word, what is the current state of financial inclusion today?</span></span></h1>
<span class="NormalTextRun SCXW214271730 BCX0">DF</span><span class="NormalTextRun SCXW214271730 BCX0">: </span><span class="NormalTextRun SCXW214271730 BCX0">E</span><span class="NormalTextRun SCXW214271730 BCX0">xciting</span><span class="NormalTextRun SCXW214271730 BCX0">.</span> <span class="NormalTextRun SCXW214271730 BCX0">T</span><span class="NormalTextRun SCXW214271730 BCX0">he </span><span class="NormalTextRun SCXW214271730 BCX0">possibilit</span><span class="NormalTextRun SCXW214271730 BCX0">y</span> <span class="NormalTextRun SCXW214271730 BCX0">of</span><span class="NormalTextRun SCXW214271730 BCX0"> really impacting </span><span class="NormalTextRun SCXW214271730 BCX0">low-income</span><span class="NormalTextRun SCXW214271730 BCX0"> people </span><span class="NormalTextRun SCXW214271730 BCX0">is</span> <span class="NormalTextRun SCXW214271730 BCX0">better </span><span class="NormalTextRun SCXW214271730 BCX0">now </span><span class="NormalTextRun SCXW214271730 BCX0">than ever</span><span class="NormalTextRun SCXW214271730 BCX0">. </span><span class="NormalTextRun SCXW214271730 BCX0">Digital technology</span><span class="NormalTextRun SCXW214271730 BCX0"> has the </span><span class="NormalTextRun SCXW214271730 BCX0">potential</span><span class="NormalTextRun SCXW214271730 BCX0"> to </span><span class="NormalTextRun SCXW214271730 BCX0">enable</span> <span class="NormalTextRun SCXW214271730 BCX0">a radical reduction in transaction costs</span><span class="NormalTextRun SCXW214271730 BCX0"> and w</span><span class="NormalTextRun SCXW214271730 BCX0">e can</span><span class="NormalTextRun SCXW214271730 BCX0"> imagine the creation of much more sophisticated holistic financing solutions</span><span class="NormalTextRun SCXW214271730 BCX0">. </span><span class="NormalTextRun SCXW214271730 BCX0">T</span><span class="NormalTextRun SCXW214271730 BCX0">here are</span> <span class="NormalTextRun SCXW214271730 BCX0">many</span> <span class="NormalTextRun SCXW214271730 BCX0">more possibilities</span><span class="NormalTextRun SCXW214271730 BCX0">.</span> <span class="NormalTextRun SCXW214271730 BCX0">We do</span><span class="NormalTextRun SCXW214271730 BCX0">,</span> <span class="NormalTextRun SCXW214271730 BCX0">however</span><span class="NormalTextRun SCXW214271730 BCX0">,</span> <span class="NormalTextRun SCXW214271730 BCX0">n</span><span class="NormalTextRun SCXW214271730 BCX0">eed to be on our guard against the </span><span class="NormalTextRun SCXW214271730 BCX0">risks these changes bring.</span> <span class="NormalTextRun SCXW214271730 BCX0">Finance </span><span class="NormalTextRun SCXW214271730 BCX0">is </span><span class="NormalTextRun SCXW214271730 BCX0">a</span> <span class="NormalTextRun SCXW214271730 BCX0">powerful tool </span><span class="NormalTextRun SCXW214271730 BCX0">that</span> <span class="NormalTextRun SCXW214271730 BCX0">can wreak havoc as well as enabl</span><span class="NormalTextRun SCXW214271730 BCX0">e</span> <span class="NormalTextRun SCXW214271730 BCX0">constructive change</span><span class="NormalTextRun SCXW214271730 BCX0">, and we must</span> <span class="NormalTextRun SCXW214271730 BCX0">effectively </span><span class="NormalTextRun SCXW214271730 BCX0">protect </span><span class="NormalTextRun SCXW214271730 BCX0">vulnerable consumers </span><span class="NormalTextRun SCXW214271730 BCX0">of financial services </span><span class="NormalTextRun SCXW214271730 BCX0">in </span><span class="NormalTextRun SCXW214271730 BCX0">the new digital</span><span class="NormalTextRun SCXW214271730 BCX0"> world.</span> <span class="NormalTextRun SCXW214271730 BCX0">Even a</span><span class="NormalTextRun SCXW214271730 BCX0">s </span><span class="NormalTextRun SCXW214271730 BCX0">technology</span><span class="NormalTextRun SCXW214271730 BCX0"> brings new risks, </span><span class="NormalTextRun SCXW214271730 BCX0">it</span> <span class="NormalTextRun SCXW214271730 BCX0">also </span><span class="NormalTextRun SCXW214271730 BCX0">provides new ways to </span><span class="NormalTextRun SCXW214271730 BCX0">improve consumer protection.</span>
<blockquote><span class="NormalTextRun SCXW214271730 BCX0">Finance </span><span class="NormalTextRun SCXW214271730 BCX0">is </span><span class="NormalTextRun SCXW214271730 BCX0">a</span> <span class="NormalTextRun SCXW214271730 BCX0">powerful tool </span><span class="NormalTextRun SCXW214271730 BCX0">that</span> <span class="NormalTextRun SCXW214271730 BCX0">can wreak havoc as well as enabl</span><span class="NormalTextRun SCXW214271730 BCX0">e</span> <span class="NormalTextRun SCXW214271730 BCX0">constructive change</span><span class="NormalTextRun SCXW214271730 BCX0">, and we must</span> <span class="NormalTextRun SCXW214271730 BCX0">effectively </span><span class="NormalTextRun SCXW214271730 BCX0">protect </span><span class="NormalTextRun SCXW214271730 BCX0">vulnerable consumers </span><span class="NormalTextRun SCXW214271730 BCX0">of financial services </span><span class="NormalTextRun SCXW214271730 BCX0">in </span><span class="NormalTextRun SCXW214271730 BCX0">the new digital world.</span></blockquote>
<h1><span class="TextRun MacChromeBold SCXW39344429 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW39344429 BCX0">From</span><span class="NormalTextRun SCXW39344429 BCX0"> your early experience in the banking industry, do you think banks have become more inclusive?</span></span></h1>
<span data-contrast="auto">DF: I think they have. Thirty years ago, banks did not see 90 percent of the population in Africa as a viable market; they were focused on the top 10 percent. The inherent conservatism of the banking industry has often prevented the industry from taking advantage of the potential that technology offers.</span>

<span data-contrast="auto">However, this has changed dramatically in the last few decades, and the extent to which mainstream commercial banks across Africa have adopted channels that effectively enable outreach to underserved communities is tremendous progress. I think the inclusive finance community can take some credit for demonstrating the market potential. More recently, fintech has started to provide a compelling threat to the status quo and banks realize that they need to adapt if they are to remain relevant in a digitally-transformed world.</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}"> </span>
<h1>What lessons can be learned from the Kenyan inclusive finance ecosystem?<span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}"> </span></h1>
<span data-contrast="auto">DF: A lot. I don't think there is necessarily a “Kenya model” but it is useful to reflect on elements of what happened in Kenya. For example, there was a dominant mobile phone provider in Kenya that helped enable mobile money to become ubiquitous. Critical mass must be reached for mobile money to take off and to encourage further rounds of innovation. While that was achieved in Kenya, it has also come at the cost of a highly concentrated market which also creates challenges.</span>

<span data-contrast="auto">Besides the digital financial revolution in Kenya, we also see some of the darker sides of digital finance and how there can be unanticipated outcomes. For example, the rise of overindebtedness has been exacerbated by the ready availability of digital credit. While it is important not to overstate the point, there are nevertheless significant and growing cases of real harm. It is important to harness the powerful tools that have been created to ensure they are applied in a constructive way and risks are controlled.</span>
<h1><b><span data-contrast="auto">What are the most crucial issues in inclusive finance that we should prioritize over the next five years?</span></b></h1>
<span data-contrast="auto">DF: I think the number one challenge is how to carry over innovations from finance into the real economy; how new forms of partnerships can enable funds to flow effectively to solve real-world issues. As we get into the new frontiers of finance and development, it's going to be difficult to find effective ways to take the capabilities of the private sector-driven finance industry and efficiently deliver, innovate, and address the needs of inclusive development. There has been increasing attention on blending finance – combining private, philanthropic, and public resources – but the experiences demonstrate how difficult it is to get right. It will continue to be challenging because it takes us into new organizational territory and causes us to reexamine our assumptions.</span>
<blockquote class="pullquote--left"><span data-contrast="auto">The tools we have been developing can and should play a role in increasing resilience, but they will be at best a modest supporting part if not allied with others.</span></blockquote>
<span data-contrast="auto">Additionally, adaptation to climate change is critical and finance will play a central role in achieving a sustainable future. This requires thinking beyond yesterday’s conception of financial inclusion and instead thinking at a systems level. How is finance needed at various levels –global and national, sectors and communities, firms, and individuals – to increase resilience? The tools we have been developing can and should play a role, but they will be at best a modest supporting part if not allied with others.</span>

<span data-contrast="auto">Finally, we should prioritize achieving more effective forms of market conduct. This will require getting away from today’s largely rules-based regulation, which is frequently costly and practically ineffective. Politically challenging as it may be, an outcomes-driven approach is essential to successfully navigate the complexities of creating a genuinely inclusive financial system. This matters to directly protect consumers and ensure that markets are open and competitive.</span>
<h1>What unique expertise and experience do you bring to the Advisory Council?</h1>
<span data-contrast="auto">DF: As CFI seeks to influence systems change at a global level, I bring many years of experience wrestling with the practical challenges and opportunities of supporting change in what proved to be quite a dynamic system. There is a lot to be drawn from the Kenyan market – both good and bad – and there are many competing narratives of Kenya’s financial system development over the last 30 years. I hope I can bring at least one of those perspectives to bear as a member of CFI’s Advisory Council.</span>
<h1>What advice would you give to young people in the banking industry today regarding financial inclusion?</h1>
<span data-contrast="auto">DF: It is an exciting, but turbulent, place. The industry needs to change and I hope young people who have a long-term vision of what banking should become are attracted to the space. With respect to inclusive finance, banks are at the heart of where it needs to change. For too long, the primary attraction of a career in finance has been the considerable financial gain. This has fueled an approach to finance which has destroyed, rather than created, value. Financial inclusion clearly has not been immune to this. We need young people who are visionary and value-driven and who understand that finance has a key role to play in creating a better future.</span>
<h1>Any final thoughts for our readers?</h1>
<blockquote>We must go beyond the idea of financial inclusion as a narrow concept and instead look at how we can re-engineer our financial systems to be more inclusive.</blockquote>
<span data-contrast="auto">DF: It's a time to be brave and bold. We face huge challenges, but these are surmountable. CFI is in a great position to play a catalytic role in influencing the emergence of the new paradigm. We must go beyond the idea of financial inclusion as a narrow concept and instead look at how we can re-engineer our financial systems to be more inclusive.</span>

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

With more than 30 years of financial experience, CFI Advisory Council Member, <a href="https://www.centerforfinancialinclusion.org/bio/joanna-ledgerwood">Joanna Ledgerwood</a>, has witnessed dramatic changes in the inclusive finance space. Originally a banker interested in women’s studies, she entered the field hoping to contribute to improving women’s lives and alleviating poverty. After working at various organizations, including the World Bank and the Aga Khan Foundation, and eventually establishing and managing <a href="https://www.fsdzambia.org/" target="_blank" rel="noopener noreferrer">Financial Sector Deepening (FSD) Zambia</a>, Joanna now focuses primarily on women’s financial inclusion and economic empowerment.

Joanna is a member of CGAP’s gender team, contributing most recently to understanding how gender norms affect women’s financial inclusion and building gender-transformative solutions. She also advises several organizations within the FSD Network in Sub-Saharan Africa. Joanna joined CFI’s Advisory Council in July 2020.

As she reflects on lessons learned and progress made, Joanna emphasizes the need to clearly define what success means for inclusive finance, and the importance of moving beyond access and use to actively assess and measure impact.
<h3><strong>How did you get involved in inclusive finance</strong><strong> and what are you working on now?</strong></h3>
JL: After completing my MBA in the late 1980s, I found myself working as a private banker while taking women’s studies classes in the evenings. Quite a contrast! I had always been very interested in women’s empowerment and found it increasingly difficult to separate what I was doing in my career with what I really cared about. I decided to give up banking and joined <a href="https://www.centerforfinancialinclusion.org/institutional_partnerships/calmeadow">Calmeadow</a>, a Canadian NGO and forerunner in microcredit.

About 15 years ago, I met Alan Gibson and learned about Making Markets Work for the Poor (M4P). This approach, which I ended up writing a <a href="https://www.amazon.com/Making-Market-Systems-Work-Poor/dp/1788531418" target="_blank" rel="noopener noreferrer">book</a> about, changed my entire perspective on development. Now, working almost exclusively in women’s financial inclusion and empowerment, I use the M4P approach – now referred to as market systems development –in everything I do; I believe it is the only way to make progress in development.
<h3><strong>How did you find yourself working on women’s financial inclusion?</strong></h3>
JL: The genesis of my getting into microcredit was joining Calmeadow. However, for most of my development career, I didn’t focus on gender because I assumed that if the poor were benefiting, then women must be benefiting. It wasn’t until FSD Zambia that I became more involved in gender after securing funding from Sida for a women’s inclusion program. A couple of years after I left FSD Zambia, I spent about a year in an advisory role at the Bill and Melinda Gates Foundation, focused on their gender and policy work. There, I gained an understanding of what various funders and others were working on with regard to women. A few months later, I joined the CGAP gender team, where I focus on gender and market systems development.
<h3><strong>How has inclusive finance changed since you first became interested in the subject?</strong></h3>
JL: For one, the name and focus have changed. When I first joined Calmeadow, it was all about microcredit – the idea being if you provide a small amount of credit to (primarily) poor women, they could start a business that would reduce their poverty. After a decade or so of microcredit, we realized that savings were also important and shifted to microfinance. However, we were still very much centered around supply, and to some extent, I think we still are.

At the time this shift was taking place, I was working with the World Bank and wrote “<a href="https://www.amazon.com/New-Microfinance-Handbook-Financial-Perspective/dp/0821389270/ref=asc_df_0821389270/?tag=hyprod-20&amp;linkCode=df0&amp;hvadid=266118767273&amp;hvpos=&amp;hvnetw=g&amp;hvrand=8536880947652654858&amp;hvpone=&amp;hvptwo=&amp;hvqmt=&amp;hvdev=c&amp;hvdvcmdl=&amp;hvlocint=&amp;hvlocphy=9061285&amp;hvtargid=pla-613592886641&amp;psc=1" target="_blank" rel="noopener noreferrer">The Microfinance Handbook</a>” in 1998. The field has continued to evolve and eventually the term “financial inclusion” made more sense as (micro)insurance and payments were recognized as important financial services for the poor. Now, you often hear the term ‘inclusive finance’, indicating a shift in emphasis and a deeper focus on inclusivity.

I’ve also seen a big movement towards adopting a market systems development approach: recognizing how the various functions and actors necessary in financial market systems must work together to include those underserved and excluded and, ultimately, benefit the real economy.

The other big change has been the acknowledgment of the informal financial sector and its importance in providing financial services to the poor, particularly women and particularly in rural areas. Donor investments made to develop the savings groups sector have been transformational. I think we can learn from the informal sector how to make the formal financial sector work better for women.
<h3><strong>What is your view on the current state of inclusive finance?</strong></h3>
<blockquote class="pullquote--right">If we don’t proactively consider why these groups are underserved or excluded, and then do something about it, inclusive finance won’t be “inclusive”.</blockquote>
JL: What immediately comes to mind is “we’re getting there.” Although much progress has been made, there has recently been an acknowledgment that some marginalized groups are not as included as we assumed. If we don’t proactively consider why these groups are underserved or excluded, and then do something about it, inclusive finance won’t be “inclusive”.

Gender equity, for example, is at the core of development and therefore fundamental to our work in finance. Many people are now talking about a shift toward the “real economy” and how financial services can contribute to inclusive economic growth, access to basic services, and resilience. However, if we’re not intentional and don’t fully consider women and the need for gender equality, real economic impact will be less and will be inequitable.
<h3><strong>What unique expertise do you bring to CFI’s Advisory Council?</strong></h3>
JL: Probably my work in women’s financial inclusion, which is useful since it’s one of CFI’s key focus areas. I love the work CFI is doing on women’s financial inclusion and it’s great to be able to be more actively involved. Also, market systems development, because I believe it’s the only approach that will result in sustainable change that benefits the poor.
<h3><strong>If you weren’t in your current professional role, what would you be doing right now? </strong></h3>
JL: I love my work and the people I have met through it. So, fortunately, I’m doing exactly what I want to be doing. However, if I didn’t work in inclusive finance, I would do something to combat human trafficking. I actually retired about four years ago, but I somehow morphed back into working and got really into women’s financial inclusion and empowerment. I am probably the most inspired and passionate about my work now as I ever have been.
<h3><strong>What lessons did you learn as the founding director of FSD Zambia?</strong></h3>
JL: I learned that to effect market system change, you need to be close to market actors, and I don’t just mean in the private sector. Market actors also include the public sector and civil society. We must consider all the actors (and functions) that either contribute to or constrain the financial market system from working well for everyone – so policymakers, ministries, payment platforms, collateral registries, data management providers, and many others.

Facilitating change requires knowing what’s going on. You need to conduct the research, talk to people, have your ear to the ground. So, when the opportunity for change comes, you’re informed and can influence change in market actor behavior.
<h3><strong>What are the most crucial issues in inclusive finance that we should prioritize over the next five years and why?</strong></h3>
<blockquote class="pullquote--left">The end game is not just about closing the gender gap; it’s about identifying and measuring the benefits of financial services for women.</blockquote>
JL: We need to reach marginalized groups. I think it’s key that we figure out how to define success and how best to measure it. And in measuring it, we pay attention to what is and is not working and adapt what we are doing. The end game is not just about closing the gender gap; it’s about identifying and measuring the benefits of financial services for women. It’s not just about access and use. We need to understand what poor people use financial services for. Are their lives improving as a result? Is poverty being alleviated? That requires not only defining impact but also measuring it and developing an evidence base of what works. Inclusive finance must be inclusive.
<h3><strong>In these recent times of uncertainty, what keeps you up at night and what keeps you inspired?</strong></h3>
JL: A key development objective is poverty alleviation, and gender equality is right at the heart of it. Women simply do not have the same opportunities as men – they have less access to education, health services, finance, etc. ­­– and this inhibits their equal chances to succeed. Women are expected to provide the lion’s share of (unpaid) childcare and domestic work which in turn limits their mobility, their time, and access to market resources and information. They have limited ownership and control of assets, which limits their economic participation as producers. All of this results in income inequality. Therefore, gender inequality is not just a symptom but a cause of poverty. The more research I do, the more I realize that if we’re not making progress on gender equality, then we’re not making progress on the bigger development objectives.
<blockquote>If we’re not making progress on gender equality, then we’re not making progress on the bigger development objectives.</blockquote>
What keeps me inspired are the people. My colleagues, many of whom I consider friends, are really smart and really dedicated. I also think that COVID, despite all the harm it has done, presents an opportunity to ‘build back’ differently. In these uncertain times, I can’t emphasize enough how important it is to understand women’s experiences, needs, preferences, capabilities, and constraints and how they differ from men’s, and design interventions that will result in products, services, policies, and behavior change that work for women.

Inclusive Finance Must Be Inclusive: Q & A with Joanna Ledgerwood, CFI Advisory Council Member

<span class="NormalTextRun SCXW205969893 BCX0">Platforms </span><span class="NormalTextRun SCXW205969893 BCX0">provide </span><span class="NormalTextRun SCXW205969893 BCX0">critical employment opportunities for many underserved populations and are increasingly interconnected with financial services. To advance financial inclusion and support development goals, </span><span class="NormalTextRun SCXW205969893 BCX0">however, </span><span class="NormalTextRun SCXW205969893 BCX0">platforms must focus on the unique digital, financial, and livelihood needs of micro and small enterprises. This </span><span class="NormalTextRun SCXW205969893 BCX0">publication</span> <span class="NormalTextRun SCXW205969893 BCX0">provides an overview</span><span class="NormalTextRun SCXW205969893 BCX0"> of the increasing interconnectedness of</span><span class="NormalTextRun SCXW205969893 BCX0"> platforms and financial service offerings, how platforms can push the frontiers of inclusive finance, how platforms support women, and what is needed from policymakers for platforms to serve broader development goals. </span><span class="NormalTextRun SCXW205969893 BCX0">The audience of this report includes</span><span class="NormalTextRun SCXW205969893 BCX0"> policymakers, platform leaders, donors, international development actors</span><span class="NormalTextRun SCXW205969893 BCX0">,</span><span class="NormalTextRun SCXW205969893 BCX0"> and anyone interested in the potential for financial services and/or platforms to improve livelihoods.</span>

Platforms, Livelihoods, and Inclusive Finance

<span data-contrast="auto">For the past 15 years, the Global Microscope team at </span><a href="https://impact.economist.com/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Economist Impact</span></a><span data-contrast="auto"> (formerly part of the Economist Intelligence Unit) has collected data on the policies and regulations that governments around the world have adopted to promote an inclusive financial system. In 2021, we looked at the historical data from the countries included in the Microscope to identify the policies that drove change and have led to greater rates of account ownership.  We used the findings to develop a new assessment framework that regulators and policymakers can use to promote more accessible, usable, and safe financial systems.</span>

<span data-contrast="auto">As a result, the </span><a href="https://www.centerforfinancialinclusion.org/rethinking-the-global-microscope-for-financial-inclusion-2021-key-findings-report"><span data-contrast="none">2021 Global Microscope</span></a><span data-contrast="auto"> is different from previous versions and poses four key questions. In this report, we discuss the policies that have driven change, the priorities to keep in mind for the future, the tools that will help achieve these goals, and the unique ways these priorities and tools apply across different parts of the financial system. The Global Microscope work is supported by CFI, the Bill &amp; Melinda Gates Foundation, and IDB LAB.</span>
<h1><span class="TextRun MacChromeBold SCXW81014263 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW81014263 BCX0">Question 1: </span><span class="NormalTextRun SCXW81014263 BCX0">Looking </span><span class="NormalTextRun SCXW81014263 BCX0">B</span><span class="NormalTextRun SCXW81014263 BCX0">ack, </span><span class="NormalTextRun SCXW81014263 BCX0">W</span><span class="NormalTextRun SCXW81014263 BCX0">hat </span><span class="NormalTextRun SCXW81014263 BCX0">P</span><span class="NormalTextRun SCXW81014263 BCX0">olicies </span><span class="NormalTextRun SCXW81014263 BCX0">H</span><span class="NormalTextRun SCXW81014263 BCX0">ave </span><span class="NormalTextRun SCXW81014263 BCX0">D</span><span class="NormalTextRun SCXW81014263 BCX0">riven </span><span class="NormalTextRun SCXW81014263 BCX0">C</span><span class="NormalTextRun SCXW81014263 BCX0">hange?</span></span></h1>
<span data-contrast="auto">A country’s overall Global Microscope score historically has been a composite of five categories, each measuring a different aspect of the enabling environment: Government and Policy; Stability and Integrity; Products and Outlets; Consumer Protection; and Infrastructure. This year, our regression analysis found that the overall Global Microscope scores have a positive relationship with account ownership. The correlation was mostly driven by two of the five categories: infrastructure and consumer protection – revealing that more extensive infrastructure and strong consumer protection propel financial inclusion. Within the category of infrastructure, connectivity proved to be a highly significant indicator of account ownership and digital IDs were also moderately significant.</span>
<blockquote class="pullquote--right">The speed and magnitude of reform adoption significantly impact financial inclusion.</blockquote>
<span data-contrast="auto">In line with findings from a </span><a href="https://openknowledge.worldbank.org/bitstream/handle/10986/31179/WPS8711.pdf?sequence=1" target="_blank" rel="noopener noreferrer"><span data-contrast="none">World Bank study</span></a><span data-contrast="auto">, our analysis also found that the speed and magnitude of reform adoption significantly impact financial inclusion. Broad financial inclusion strategies have helped drive fast and concerted efforts to create more inclusive financial systems and are another indicator that demonstrated a highly significant relationship with account ownership.</span>

<span data-contrast="auto">Our analysis also allowed us to identify the leading countries enacting meaningful change. Argentina, China, and Jordan have had the greatest leaps in scores since the Microscope began its global coverage in 2014. Tanzania, Côte d’Ivoire, and Costa Rica have seen the greatest improvements since we began covering the digital financial services revolution in 2018.</span>
<h1><span class="TextRun MacChromeBold SCXW27707130 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW27707130 BCX0">Question 2: </span><span class="NormalTextRun SCXW27707130 BCX0">Looking </span><span class="NormalTextRun SCXW27707130 BCX0">A</span><span class="NormalTextRun SCXW27707130 BCX0">head, </span><span class="NormalTextRun SCXW27707130 BCX0">W</span><span class="NormalTextRun SCXW27707130 BCX0">hat </span><span class="NormalTextRun SCXW27707130 BCX0">P</span><span class="NormalTextRun SCXW27707130 BCX0">olicies </span><span class="NormalTextRun SCXW27707130 BCX0">S</span><span class="NormalTextRun SCXW27707130 BCX0">hould </span><span class="NormalTextRun SCXW27707130 BCX0">We Keep in Mind for the Future?</span></span></h1>
<span data-contrast="auto">The new Microscope framework focuses on capturing the main regulations, policies, and infrastructure investments that governments should prioritize over the coming years. Instead of aggregating all data under one score, the new framework allows users to identify the enablers of three desirable outcomes: accessibility, usability, and safety.</span>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">The </span><b><span data-contrast="auto">accessibility category</span></b><span data-contrast="auto"> looks at policies and regulations that seek to increase the reach and volume of financial services to low-income customers.</span></li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">The </span><b><span data-contrast="auto">usability category</span></b><span data-contrast="auto"> looks at policies linked to the quality of products and customer engagement.</span></li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><span data-contrast="auto">The </span><b><span data-contrast="auto">safety category</span></b><span data-contrast="auto"> looks at challenges arising because of the spread of digital financial services and threats to the integrity and stability of the financial system, which are part of the core mandate of financial regulators. </span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559740&quot;:276}"> </span></li>
</ul>
<span data-contrast="auto">These measures are not necessarily correlated with increased access to financial services but are key to creating a trustworthy financial system.</span>

Identifying What Works: 15 Years of Microscope Data Reveal Key Policy Drivers of Financial Inclusion

Recently, I went searching for “chin-chin,” one of my favorite local Nigerian snacks, which was out of stock in the grocery store where I regularly shop. I went instead to a small kiosk in my neighborhood and was pleased to find it still in stock there. I noticed how this kiosk seemed about the same since I last patronized it six years ago, with no apparent evidence of expansion. When I shared my observation with the vendor, his response was “country too hard.” This got me thinking of the challenges that microenterprises continuously face, especially as they relate to accessing investment funds to grow their businesses.

Like many developing countries, Nigeria has a <a href="https://www.cbn.gov.ng/Out/2012/publications/reports/dfd/CBN-Summary Report of-Financial Inclusion in Nigeria-final.pdf" target="_blank" rel="noopener noreferrer">national financial inclusion strategy</a> (NFIS) to guide market and ecosystem actors on how to improve the lot of microenterprises such as my neighborhood kiosk. The strategy document spells out specific priority measures to be adopted in a bid to reduce credit risks and transaction costs associated with serving the most financially excluded members of society. Some of these measures include initiatives to support the expansion and reach of digital financial services, increasing agent banking networks, and promoting more channels for cashless payments.
<h2>Flaws in the National Financial Inclusion Strategy</h2>
The pace of financial inclusion remains sluggish, however. The country’s strategy has been less successful than anticipated due to several factors, including overly long intervals in assessing progress/impact of the policies adopted, use of limited progress indicators, lack of flexibility, and limited capacity for making quick adjustments to adjust to a fast-changing financial ecosystem.

Since the national strategy took effect in 2012, there has been some progress. The number of citizens with access to bank accounts and credit <a href="https://www.efina.org.ng/wp-content/uploads/2019/01/A2F-2018-Key-Findings-11_01_19.pdf" target="_blank" rel="noopener noreferrer">increased slightly</a>. But access to non-bank services has barely changed: <a href="http://sustainabledfs.lbs.edu.ng/wp-content/uploads/2021/01/SOMR 2020_compressed.pdf" target="_blank" rel="noopener noreferrer">women and rural households</a> -- and <a href="https://devbankng.com/cms/uploads/FINANCIAL INCLUSION IN A DEVELOPING COUNTRY.pdf" target="_blank" rel="noopener noreferrer">individuals located in the northwest region</a> -- are still largely excluded and face access barriers.

Moreover, the chances of meeting the national financial inclusion target of ensuring 95 percent of the country’s adult population have access to formal and/or informal financial services by 2024 are low. The current <a href="https://www.cbn.gov.ng/Out/2020/CCD/2019 Annual Report of the National Financial Inclusion Strategy Implementation.pdf" target="_blank" rel="noopener noreferrer">official figures reported by the central bank</a> show an inclusion rate of 63.2 percent, making the 2024 target less feasible at this rate. The COVID-19 pandemic has also caused some previously scheduled financial inclusion initiatives, like the recapitalization exercise for microfinance banks and insurance companies, to be delayed and has put a lot of <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/nigeria/" target="_blank" rel="noopener noreferrer">financial and economic strain on Nigerian households and small firms</a>.
<blockquote class="pullquote--right">The COVID-19 pandemic has delayed financial inclusion initiatives and strained Nigerian households and small firms.</blockquote>
Weaknesses in the NFIS reduce its effectiveness, as elaborated on in this <a href="https://www.mfw4a.org/sites/default/files/resources/a_critical_review_of_nigerias_financial_inclusion_strategy.pdf" target="_blank" rel="noopener noreferrer">review</a>. These issues tend to impair the effectiveness of interventions targeted at reducing barriers to financial inclusion. A number of these gaps -- which may be relevant to countries in similar situations -- are summed up below.
<ul>
 	<li>The NFIS was only reviewed and revised for the first time after six years. This timeline suggests that the strategy is not flexible enough, does not encourage real-time learning and adjustments, and restricts the possibility of adapting the plan quickly to suit existing needs and challenges. For instance, the initial strategy listed the use of point-of-sale (POS) terminals as a priority tool for ensuring wider and more efficient service delivery. However, given the constant advancements in technology, this particular focus plan very quickly became outdated and less efficient but was only revisited after the six-year review.</li>
 	<li>The metrics for measuring progress are limited to evaluating just access to finance. However, there are equally important issues that need to be considered in assessing the true inclusion rate. These include affordability, quality, and suitability of available financial products, or appropriate skills to use and maximize these services. While the biannual <a href="https://www.efina.org.ng/wp-content/uploads/2019/01/A2F-2018-Questionnaire.pdf" target="_blank" rel="noopener noreferrer">access-to-finance surveys</a> explore some of these areas on usage, affordability, and quality dimensions, not enough focus is placed on the findings. To buttress the importance of these issues, insights from the <a href="https://nibss-plc.com.ng/" target="_blank" rel="noopener noreferrer">Nigeria Inter-Bank Settlement System</a> indicate that about 30 percent of bank accounts are inactive. It would therefore be useful to consider if and why inactive bank accounts are increasing, or if inactive users are growing faster than the number of new users. This is so that the inclusion rates reported are more reflective of realities.</li>
 	<li>The definition of financial inclusion per the NFIS suggests a bias towards adult individuals. As such, performance monitoring is limited to household surveys and does not provide sufficient information on improvement or lack of improvement relevant to enterprises. Since progress indicators are not directly targeted at enterprises, they do not reveal crucial details of the level of financial exclusion suffered by vulnerable groups (like informal microbusinesses) within this segment of the population. It is therefore difficult to determine which specific policy reforms are needed for this group.</li>
 	<li>In implementing the NFIS, interventions introduced do not fully nor effectively take into consideration the fact that socio-economic developmental problems are entwined. Consequently, financial inclusion programs have not been properly integrated with other development initiatives such as the social protection relief programs used to reduce the impact of COVID-19 on poor households and businesses. The country’s weak institutional landscape creates further problems in this regard. An example is the disbursement of a popular welfare scheme which was done via cash rather than digital platforms because a significant proportion of vulnerable groups still do not have access to digital platforms. Policymakers and market actors need to ensure that more people across the country have access to digital technologies.</li>
 	<li>There have been multiple instances of financial regulations being introduced and subsequently withdrawn or revised, giving the impression that the policy reforms are not properly designed or coordinated. Some of these reforms are also poorly sequenced. Keeping track of the various regulatory changes can be tasking and confusing for customers and service providers.</li>
 	<li>Given that the NFIS does not have adequate legislative backing as it is not yet public policy, it makes operationalizing and enforcing the strategy tedious, thus affecting impact.</li>
</ul>
<h2>Recommendations</h2>
The plan for achieving greater financial inclusion at any national level needs to make room for adapting to the evolving financial landscape. One way of achieving this is to incorporate a comprehensive approach in monitoring and evaluating financial inclusion intervention programs.

In Nigeria’s case, more frequent progress monitoring is necessary to identify initiatives that are working well and others that may need improvement. For example, it would be interesting to monitor if the use of agent banking has significantly helped reach more people in remote locations, or if granting more licenses to new entrants in the fintech space has made the prices of financial products more competitive.
<blockquote class="pullquote--left">More frequent progress monitoring is necessary to identify initiatives that are working well and others that need improvement.</blockquote>
Also, there is a need to expand indicators being measured to include not just individuals/households, but micro, small and medium enterprises (MSMEs). While this does not negate the financial sector development approach adopted in many African markets which has resulted in significant progress, more diverse studies could also evaluate how expensive or cheap financial services are, if the banked population is using available services, and if available products are suitable to individual and business needs. Such analysis can reveal the causes behind observed trends, and how this varies across demographics, to guide appropriate drafting of policies that can improve financial inclusion.

Impact evaluation can then be used to check if and how improved financial inclusion has affected the desired outcomes highlighted in the NFIS, which include reducing poverty, closing the income inequality gap, and boosting faster economic growth. This would inform better targeting of scarce resources, and afford policymakers and implementers insightful lessons for improved interventions.

Better structured linkages with the nation’s broader welfare assistance programs and a digitalization drive can improve the chances of successful financial inclusion outcomes. One avenue for integration is to leverage the social register of poor households and find ways of including this group of low-income earners in the formal financial system. Technologically driven financial service solutions should also be encouraged, meaning the NFIS team would have to work more closely with stakeholders in the country’s digital space such as the <a href="https://www.ncc.gov.ng/" target="_blank" rel="noopener noreferrer">Nigerian Communications Commission</a> and the <a href="https://www.commtech.gov.ng/" target="_blank" rel="noopener noreferrer">Ministry of Communications and Digital Economy</a>, to push for regulations and interventions that will enhance customers’ access to the internet, encourage greater investment in digital infrastructure and more responsible use of data to increase customers’ capacity and trust.
<blockquote class="pullquote--right">Better structured linkages with welfare assistance programs and a digitalization drive can improve chances of successful financial inclusion outcomes.</blockquote>
Beyond addressing the perceived shortcomings in the implementation of the NFIS, it is important for the financial ecosystem to <a href="https://www.thisdaylive.com/index.php/2019/12/13/experts-identify-new-ways-to-deepen-financial-inclusion/" target="_blank" rel="noopener noreferrer">collectively work together</a> to tackle the major barrier of <a href="https://www.efina.org.ng/wp-content/uploads/2019/01/A2F-2018-Key-Findings-11_01_19.pdf" target="_blank" rel="noopener noreferrer">high transaction costs and affordability concerns</a> in serving low-income segments in mostly rural and remote regions. This would involve, among other things, providing a conducive environment for financial service providers to see the value in serving excluded groups.

If these policy reforms get buy-in from all stakeholders, and implementation is properly coordinated to increase policy effectiveness, Nigeria will be better equipped to meet its NFIS goals.

How Is Nigeria’s National Financial Inclusion Strategy Going?

<h2>Executive Summary</h2>
Since its founding in 2008, the Center for Financial Inclusion, or CFI, has worked to ensure that efforts to expand inclusive finance for low-income and other vulnerable people remain focused on people. That proposition might seem in theory to be self-evident; in practice, however, efforts often fall victim to focusing on the means and lose sight of the ends. CFI was created to help keep that from happening. We were founded at a particular moment when it was becoming more apparent that market forces alone would not ensure positive outcomes for low-income people, and that sustained intentionality would be necessary. CFI works to ensure that we never lose sight of our <a href="https://centerforfinancialinclusion.org/about/mission/" target="_blank" rel="noopener noreferrer">vision</a> — a world in which all people are able to use financial services and participate in the economy to improve their lives and prosper — and that low-income people and their needs are consistently and deliberately kept at the center of all that we do.

Twelve years later, CFI — and the whole world — faces a radically different historic moment. The COVID-19 pandemic has <a href="https://coronavirus.jhu.edu/map.html" target="_blank" rel="noopener noreferrer">infected over 88 million people and killed over 1.9 million</a> between the time it was first reported in December 2019 and at the time of this writing in January 2021. Beyond the rapid and catastrophic spread of illness and deaths, the pandemic has devastated global economies. Millions of micro, small, and medium enterprises around the world have seen revenues plummet and have suspended operations or gone out of business altogether. Hundreds of millions of families have lost jobs and incomes, and many of them live in countries where social safety net protections are patchy at best. The pandemic also reversed, seemingly overnight, social and economic development gains that had taken decades to achieve: The World Bank estimates that between <a href="https://www.worldbank.org/en/news/press-release/2020/10/07/covid-19-to-add-as-many-as-150-million-extreme-poor-by-2021" target="_blank" rel="noopener noreferrer">88 million and 115 million people are at risk of falling into poverty</a>. Women and children have been among those most affected; children because schools around the world have been shuttered, and women because they are more likely than men to lose their jobs and to shoulder the responsibility of supervising and homeschooling children.

This global crisis has no precedent in modern times. And yet, like all crises, the COVID-19 pandemic also presents an opportunity: to “build back better,” as the saying goes, to ensure that similar crises are averted and that we are much better prepared to respond effectively when they hit. For CFI, that means developing a deep understanding of how financial services reduce vulnerability for low-income populations and how to overcome the obstacles preventing so many from participating in the financial sector, and then working with key stakeholders and advocating for evidence-based change to ensure that such services fulfill their intended purpose. As tragic as the pandemic’s consequences have been and continue to be, it has laid undeniably bare the failures of the status quo and has created a heightened sense of urgency for financial services, no less than for health care, emergency relief, and other sectors, to build back better.
<blockquote class="pullquote--right">The pandemic’s consequences have laid bare the failures of the status quo created a heightened sense of urgency for financial services.</blockquote>
CFI brings more than a decade of experience to this intensified global effort, with expertise in understanding the financial needs and behaviors of low-income vulnerable populations. Complementing CFI’s strengths in demand-side research, our recent <a href="https://centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration with MIX</a> brings supply-side expertise to the table, as the MIX had been studying and reporting about financial service providers for the past 20 years. These complementary strengths, combined with our history of thought leadership and our role as conveners, position CFI to pursue an ambitious strategy made all the more urgent in the context of the pandemic.

Crisis and Opportunity: Reimagining Inclusive Finance After the Pandemic

Magda Bianco

Eda Dokle

Mohsen Siddiqui

Mayada El-Zoghbi

Edi Bardhollari

Rima Patel

Loretta Michaels

Monica  Ballesteros Arias

Sone  Osakwe

Shradha Modi

Alexandra (Alex) Rizzi

Alex Kessler

Julia Arnold

Eric Noggle

Ethan Loufield

Shweta Vashisht

Pakistan

South Asia

Nigeria

Sub-Saharan Africa

Ghana

India

Latin America and The Caribbean

Peru

Credit

Enabling Environment

Financial Inclusion Strategy

Underserved Groups

Women

Alternative Data

Fintech

Fintechs

Access Usage Gap

Policy, Regulation and Government Initiatives

Financial Health

Resilience

Digital Financial Services

Digital Payments

Partnerships

Consumer Protection

Rural Populations

Challenges and Crises

Financial Capability

Small Business Owners

Responsible Digital Finance

Insurance

Smallholder Farmers

Data Transparency

Responsible Product Design and Delivery

Tech-Touch Balance

Blog Post

Report

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.

Evelyn Stark is assistant vice president at MetLife Foundation and a CFI Advisory Council Member. She leads MetLife Foundation’s financial health strategy which seeks to improve outcomes for low- and moderate-income people by advancing the use of high-quality financial services. Before joining MetLife Foundation, she held leadership roles at the Gates Foundation, USAID, and the World Bank. Before that, she spent several years implementing financial inclusion programs in East Africa.
<h2>Responding to COVID-19</h2>
When COVID-19 emerged in early 2020, the foundation worked quickly to commit $25 million to support partners with urgent needs and longer-term relief efforts. For projects such as <a href="https://bfaglobal.com/finnsalud/insights/covid-19-y-las-microempresas-mexicanas/" target="_blank" rel="noopener noreferrer">FinnSalud</a>, this meant a shift in research focus to understanding how people were coping as the crisis deepened and became the new normal. For financial institutions, such as credit unions, this meant stress testing and managing risks to survive the crisis. And for the foundation’s early-stage fintech partners, the focus was on helping manage their funds and hold onto savings, and pivoting their products and services to meet changing needs and the inability to meet customers in-person.

A common trend for many of the foundation’s partners was a shift to digital. Stark credits the existing partnerships in the industry between microfinance institutions and credit unions, for instance, and nonprofit partners such as Accion and BFA, in helping institutions adapt. These trusted partnerships fostered knowledge sharing and allowed institutions to learn from others in the industry. Many funders, like MetLife Foundation, also worked closely with grant partners to adjust grant agreements to determine how funds could be most effective in the changed context.

“The pandemic demystified things for microfinance institutions and traditional banks that have been cautious to get on board with digital. Boards and senior management were already thinking about digital, but COVID brought with it a sense of urgency,” Stark notes.
<h2>Behavioral Science and the Promise of Digital</h2>
Stark was an early proponent of behavioral science in financial health and believes that understanding how people make decisions is key to improving outcomes. One of the Foundation’s current partners, <a href="https://advanced-hindsight.com/commoncents-lab/" target="_blank" rel="noopener noreferrer">Common Cents Lab</a> at Duke University, leverages behavioral science to increase the financial well-being of low-income people in the US, Mexico, China, and Turkey. Common Cents Lab has been working closely with fintechs, nonprofits, and credit unions to design innovative products that incorporate behavioral insights to improve financial health.

The combination of behavioral science, fintech, and digital services has the potential to be highly effective at improving the financial health of low-income consumers. Keeping the customer at the center is essential to make sure that the industry doesn’t get caught up in the "cool stuff” that technology can deliver, but remains focused on what low-income people want and need to improve their financial lives, Stark points out.
<blockquote class="pullquote--right">Together, behavioral science, fintech, and digital services can improve the financial health of low-income consumers.</blockquote>
“We need to think of behavioral science as much more than automation or nudging. Identifying the real issues that make saving money difficult, or that make digital funds susceptible to less optimal spending decisions, is how we’ll be able to create the right fintech environment to encourage the behaviors that enable individuals and families to succeed in reaching their financial goals.”

Likewise, Stark is concerned about the over-hype of what data can deliver, especially where most transactions still happen in cash. The data available to the institutions about their customers is often only a sliver of their financial information; cash transactions and transactions from other institutions are not visible.

“We have a long way to go in making the data useful for our customers while making sure that we protect customers now.”
<h2>Financial Health Through the Lens of Jobs</h2>
Income is a significant driver of financial health; without living wages, the ability to save, repay debts, and plan for the future is much more difficult. Stark is working with the foundation’s grant partners, who are focused on jobs and employment to embed financial services at the source of income.

“Whether people earn their jobs through formal employment or through gig work, there are opportunities to leverage the ‘paycheck’ (even if there is no actual paycheck). Opportunities to designate income – before or when it’s received – toward emergency, education or retirement savings, to debt repayment, or to purchase insurance or other benefits – enables people to take more control over their financial health.”
<blockquote class="pullquote--left">Working with grant partners in the jobs and workforce space has helped the foundation focus on financial lives of different kinds of workers.</blockquote>
Several of the foundation’s partners focused on tech jobs. Whether they are based in Chile or New York City, tech jobs offer decent wages and don’t necessarily require a college degree. Partners have historically focused on the hard and soft skills, and on working with employers to ensure a hiring pipeline, but they hadn’t considered the students’ financial health. After the partners started talking to the students about their financial health using structured interviews, they realized not only how indebted many of their young people were when they entered the classes, but also that they did not have plans for how they would manage their significantly larger incomes once they obtained full-time tech work. With that knowledge, these partners are incorporating planning and money management discussions with their students, and with the employers who will hire them.

“Working with grant partners in the jobs and workforce space has really helped us -- and them -- focus on the financial lives of different kinds of workers, and seek to tailor financial solutions for them.”
<h2>Looking Ahead: CFI’s New Strategy</h2>
The COVID crisis has prompted Stark to think about how we create solutions for bigger problems in our markets – the income gap, food insecurity, education, and health care. Being truly cross-sectoral in focus is essential.

Stark believes CFI’s new strategy is right for the moment. CFI’s newer focus areas -- <a href="https://centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week/financial-services-for-mitigating-and-adapting-to-climate-risk/" target="_blank" rel="noopener noreferrer">climate change</a>, <a href="https://centerforfinancialinclusion.org/rethinking-financial-inclusion-at-the-data-margins/" target="_blank" rel="noopener noreferrer">data for inclusive finance</a>, and <a href="https://centerforfinancialinclusion.org/about/what-we-do/womens-financial-inclusion/" target="_blank" rel="noopener noreferrer">women’s financial inclusion</a> – will help inform how the inclusive finance community navigates the post-pandemic world.

“COVID has made all of us even more aware that there are roles for players in the public and private sectors and for nonprofits, and there are benefits to forging partnerships. COVID has made it even more clear that there are systemic issues that cannot be resolved by a single product and require systemic change.”

Behavioral Science for Financial Health in a Digital World: An Interview With Evelyn Stark

The year 2020 will forever be remembered for COVID-19 and the changes that have ensued as a result. Each day we read about how COVID-19 is impacting low-income people, micro-and small enterprises, the financial sector and low- and middle-income countries; but more than just reading about it, we are all simultaneously living through the impact it is having on our day-to-day lives.

For me, as I reflect on the past year, I can’t help but be thankful for staying gainfully employed, quickly and seamlessly adjusting to working from home, and adjusting CFI’s work program to collect data and do our research using virtual tools. But the results of our research are a daily reminder that my lived experience is very different than the lived experience of the majority of people in developing countries. CFI’s research with micro and small enterprises in <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/nigeria" target="_blank" rel="noopener noreferrer">Nigeria</a>, <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/india" target="_blank" rel="noopener noreferrer">India</a>, <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/indonesia" target="_blank" rel="noopener noreferrer">Indonesia</a> and <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/colombia" target="_blank" rel="noopener noreferrer">Colombia</a> is showing the hardships that these often informal firms are going through.

Early in this pandemic, we wrote about <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">what made this crisis different</a> from any other. The systemic nature of the crisis and the lack of clarity on its duration stood out and made this crisis a test of a lifetime. What have we learned from the responses to COVID-19 undertaken around the world and has inclusive finance risen to the occasion?
<h2>Cash Transfers for the Most Vulnerable</h2>
In June of 2020, I wrote a blog post about the <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">limits of individual action and market solutions</a>. I made the case that this pandemic was different and that the duration of the lockdowns, the loss of incomes and jobs, the overall contraction of the economy and, in turn, demand for goods and services meant that public policy had to play a bigger role in the COVID response than in other prior crises.

This has been playing out in real time and it’s been incredible to see the enormity of the response across the globe. CFI’s brief on <a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">social payments</a> features many examples of how governments were able to step up cash transfers to individuals and firms to help them withstand the enormity of the shock on their lives. The World Bank tracks the number of social protections measure undertaken around the globe, and in its most recent count in <a href="http://documents1.worldbank.org/curated/en/295321600473897712/pdf/Social-Protection-and-Jobs-Responses-to-COVID-19-A-Real-Time-Review-of-Country-Measures-September-18-2020.pdf" target="_blank" rel="noopener noreferrer">September 2020</a>, it identified measures in 212 countries or territories, covering 1,179 social protection measures. Of these, 158 countries have opted for cash transfers and 93 have offered in-kind food or food vouchers. Combined, 1.8 billion people have benefited from cash and in-kind transfers, of which 1.3 billion were cash recipients. This represents a 217 percent increase, globally and on average, in social transfer payments compared to pre-COVID levels.
<blockquote class="pullquote--left">We must build upon digitized cash transfer programs to build systems that can be leveraged in future crises.</blockquote>
While we don’t know precisely how many countries opted for digitized cash transfers, CFI’s research shows that many countries expedited regulatory measures to enable contactless distribution and rapid opening of transaction accounts. Undeniably there will be hiccups with such rapid shifts to digital channels, and more research is needed to better understand how and whether vulnerable people have been able to fully avail of this unprecedented outpouring of assistance. As we continue to investigate and hopefully refine these programs, we must also build upon them to ensure that this is not just a one-off logistical operation, but an opportunity to build systems that can be leveraged in future crises. Even more importantly, providers and others involved in these programs should focus on the beneficiary experience so that users see value in using these new accounts. Only when a service creates value in people’s lives will it displace what they are already using.
<h2>And What About Micro and Small Enterprises?</h2>
Cash transfers have been a lifeline for vulnerable people around the globe, but there are fiscal limits to how much this instrument can solve all COVID-19 wreckage. Cash transfers support the economy by putting money in the hands of people who will buy basic goods and services. This does support aggregate demand in the economy, but it has not been sufficient to preserve or create new jobs. For this, we need to rely on micro and small enterprises (MSEs), which, according to <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_723409/lang--en/index.htm" target="_blank" rel="noopener noreferrer">ILO’s research</a>, employ seven out of 10 people globally. Medium and large firms are important drivers of employment, but for our purposes we focus on informal firms that serve and employ low-income people.

Yet when we look at how the COVID-19 response has addressed the needs of MSEs, the picture is precarious. CFI’s research shows that many of the MSEs in the samples we’ve researched are struggling. Half of them have had to lay off more than 50 percent of their workers, and revenue has been hit hard. When it comes to coping strategies, we see big differences across the markets which could be explained by differences in the samples themselves (gender breakdown, rural/urban breakdowns, etc.), but also in macro-level conditions, government responses, and a myriad of other factors. Although our samples are not nationally representative nor directly comparable, the MSEs we surveyed are customers of microfinance institutions in some of the biggest markets in the world, and therefore tell us something about the engines of employment in the developing world.<img class="alignright wp-image-40915" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/12/map-government-transfers-CFI-data-1024x686.png" alt="map government transfers CFI data" width="600" height="402" />

When it comes to government transfers, we see that 43 percent of the owners of MSEs in our research in Indonesia benefited from this support. This drops to 2 percent in Nigeria, and 13 and 14 percent in Colombia and India, respectively (see map).

The benefits of the digital economy have been magnified under COVID, but have these benefits trickled down to MSEs? Our research shows a mixed bag. Few MSEs in our sample have leveraged digital platforms to sell their products. Colombia is the only country in our sample where more than 10 percent of MSEs started to sell on digital platforms as one way of coping with the pandemic.
<h2><img class="wp-image-40916 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/12/MSEs-on-digital-platforms-map-CFI-data-1024x665.png" alt="" width="600" height="390" /></h2>
Our data shows that MSEs are adapting to market conditions in more analog ways. For example, many have added delivery services – 20 percent in Indonesia, 38 percent in Colombia, 60 percent in India and 28 percent in Nigeria. But more often, MSEs are cutting workers and their employees are working longer hours; they are offering customers credit, not repaying their loans, offering discounts, or increasing their prices. You can explore the full dataset <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">here</a>.
<h2>Institutions That Serve MSEs</h2>
Supporting MSEs does not necessarily mean direct government transfers. In the long term, micro and small enterprises need access to capital, payments and other financial services accessible to them when they need it. They need access to new markets; and they need access to knowledge and services that improve their efficiency and reduce their operating costs. MFIs, cooperatives, fintechs, social platforms, and ecommerce platforms are all increasingly addressing one or more of these needs. While there are signs of hope, much more can be done to support MSEs to survive and thrive post pandemic.
<h3>Microfinance Institutions</h3>
MFIs serve an estimated <a href="https://www.convergences.org/wp-content/uploads/2019/09/Microfinance-Barometer-2019_web-1.pdf" target="_blank" rel="noopener noreferrer">140 million people</a>. Early in the pandemic, there was widespread concern that liquidity constraints could wipe out many of the financial institutions that serve low-income customers and MSEs. CGAP’s <a href="https://www.cgap.org/research/data/results-dashboard-cgap-pulse-survey-microfinance-institutions" target="_blank" rel="noopener noreferrer">Global Pulse Surveys</a> have shown that fears were exaggerated. However, <a href="https://centerforfinancialinclusion.org/are-moratoriums-good-policy-and-good-for-fsps/" target="_blank" rel="noopener noreferrer">moratoriums</a> around the world have put both repayments and new lending on hold. Once moratoriums end, will these institutions resume lending? Will their clients repay? Will their clients <em>be able</em> to repay? CFI’s research with MSE clients of MFIs shows that many have already skipped loan repayments as a coping strategy, from 55 percent of respondents in Nigeria and Colombia, to 47 and 48 percent of respondents in Indonesia and India, respectively.
<blockquote>Once moratoriums end, will these institutions resume lending? Will their clients repay? Will their clients <em>be able</em> to repay?</blockquote>
CFI’s engagement with the <a href="https://centerforfinancialinclusion.org/people/microfinance-coalition/" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a> -- a group of 14 microfinance networks that have come together to advocate for microfinance institutions to regulators, investors and donors -- indicates that the future of these providers rests on how investors, both debt and equity, manage their responses to the crisis. As MIV loans come due, will they roll over their loans? Will they increase their lending, despite covenant infractions? The largest MIVs have taken a coordinated approach and <a href="http://www.e-mfp.eu/sites/default/files/news2020/2020-04-24%20MIV%20Covid-19%20coordination%20MoU.pdf" target="_blank" rel="noopener noreferrer">signed an agreement</a> to avoid a pre-emptive approach by one or more that undermines other investors. This is a good sign, but it has not yet been tested. As closed-end MIVs need to exit, will equity shareholders buy them out? Will new quasi-equity structures come in to smoothen these transitions?

Both MIVs and the Microfinance Coalition want development finance institutions (DFIs) to step in. DFIs have been busily serving their own investees (read these interviews with <a href="https://centerforfinancialinclusion.org/dfis-financial-inclusion-and-the-covid-19-response-a-qa-with-machal-karim-of-cdc/" target="_blank" rel="noopener noreferrer">CDC</a>, <a href="https://centerforfinancialinclusion.org/questions-for-eib-group-dfis-financial-inclusion-and-the-covid-19-response/" target="_blank" rel="noopener noreferrer">EIB</a> and <a href="https://centerforfinancialinclusion.org/dfis-covid-19-and-financial-inclusion-a-conversation-with-richard-greenberg-of-dfc/" target="_blank" rel="noopener noreferrer">USDFC</a>), and several have been in discussions to seek a collaborative response, although nothing yet has been made public. Experience from the 2009 financial crises revealed that the DFI-led emergency facility, the <a href="https://www.kfw-entwicklungsbank.de/PDF/Evaluierung/Ergebnisse-und-Publikationen/PDF-Dokumente-A-D_EN/Alle_Entwicklungsl%C3%A4nder_MEF_2016_E.pdf" target="_blank" rel="noopener noreferrer">Microfinance Enhancement Fund</a>, was too slow in the making and did not serve its original intent of shoring up liquidity when MFIs needed it most. In light of that, it might be too optimistic to expect that DFIs will be able to structure something in time, although many of us still hope for this outcome.

The institutions the Microfinance Coalition represents serve 80 million clients in 69 countries, 23 of which are least developed countries. While united in their advocacy, there is a great deal of nuance among their experiences and that of other MFIs beyond these networks. In some countries, MFIs that rely on local debt markets are less susceptible to cross-border capital. And in some markets, like India and Egypt, the regulators’ responses have allowed MFIs to operate despite the moratoria. MFIs that take deposits have also indicated that in some markets, deposits are up, not down, something that’s counterintuitive but has happened many times before in prior crises. Early signs show that MFIs are likely to be more resilient than expected, and those that have diversified funding sources, such as deposits and local debt, are likely to weather this storm better than non-bank lenders with cross-border debt obligations.
<h3>Fintechs and Platforms</h3>
Unlike in the 2009 financial crisis, today there are more diversified sources of capital, markets and business services for MSEs, including those offered by fintechs and big tech platforms. The <a href="https://www.jbs.cam.ac.uk/wp-content/uploads/2020/12/2020-ccaf-global-covid-fintech-market-rapid-assessment-study.pdf" target="_blank" rel="noopener noreferrer">Cambridge Centre for Alternative Finance</a> conducted a rapid assessment of fintechs globally and found that, on average, fintechs grew in the first two quarters of 2020, by 13 percent and 11 percent respectively. Customer bases and transaction volumes of fintechs operating in emerging and developing markets grew faster than fintechs in developed markets; however, we don’t have sufficient information to assess whether MSEs or low-income people more generally are being served. Data from the <a href="https://static1.squarespace.com/static/5bede261f2e6b1e5ead0a0ba/t/5fce636a74a40730fbccc79b/1607361396896/MIX+IF50+Whitepaper+2020.pdf" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> competition, which narrows the lens to fintechs that serve low-income people and small firms, finds many more fintechs identified MSEs as their primary target market in 2020 than in 2019, signaling that fintechs see an opportunity for growth with this segment. Most of these fintechs offered credit services, but an increasing number also offered insurance to MSEs (see graph below).

<img class="aligncenter wp-image-40936" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/12/Graph-IF50-serving-SME-market--1024x484.png" alt="graph" width="701" height="331" />

It is difficult to unpack the data on platforms and its potential impacts on MSE. <a href="https://i2ifacility.org/system/documents/files/000/000/133/original/Africas_digital_platforms_trends_report.pdf?1587129896" target="_blank" rel="noopener noreferrer">Research by i2i</a> in Africa finds that platforms grew by 18 percent in 2019 across the continent, but it is unclear which types of firms are driving this growth. The largest of these platforms -- Jumia, Takealot, and Konga -- represent ecommerce, which could bode well for small producers selling on them. Anecdotal evidence in some countries could be indicative of something bigger happening with MSEs moving to digital platforms. For example, in Indonesia, platforms like <a href="https://www.thejakartapost.com/news/2020/09/14/bukalapak-gains-3-million-new-merchants-mostly-in-smaller-cities.html" target="_blank" rel="noopener noreferrer">Bukalapak</a> indicated that they have registered 3 million new merchants in the first seven months of 2020.
<h2>So What?</h2>
As I reflect on all of these developments during 2020, I think there is much to be thankful for. There is also some concern that the aggregated results may not be enough to cushion the pain of the pandemic for low-income people and MSEs in developing countries. On the positive side, government transfers to 1.8 billion people has bought some time. But the more fundamental and structural support that enables firms to retain their workers -- and to recover -- are not yet visible.

We have a lot to do in 2021.

Have We Passed the Test? Reflections on the Test of a Lifetime

Rebuilding the post-COVID economy will mean more than preserving powerful players in global and national economies; it will mean saving the small businesses and ensuring employment for workers in the informal and formal sectors. The Global Microscope, which assesses the enabling environment for financial inclusion across five categories and 55 countries, explores the role that financial inclusion has played in policymakers’ crisis response, providing data on how the 55 countries have leveraged their financial infrastructures to support vulnerable individuals, small businesses, and the financial providers that serve poor households.

Below are some key takeaways from the 2020 edition:
<ul>
 	<li>The overall enabling environment for financial inclusion improved as a result of governments’ efforts to reach unbanked populations during the pandemic. Colombia, Peru, Uruguay, Argentina and Mexico lead the global ranking.</li>
 	<li>Investments in digital infrastructure have paid off, with 44 of the 55 countries in scope having used cash transfers to support vulnerable parts of the population</li>
 	<li>Digital IDs can facilitate verification for cash transfers, data integration is needed to target beneficiaries and ensure that marginalized segments of the population are not excluded</li>
 	<li>The pandemic necessitated changes in regulations around remote banking, with several countries relaxing e-KYC rules to facilitate remote account opening, paving the road to the development of a digital, inclusive financial system</li>
 	<li>Financial institutions that serve the poor face liquidity constraints impacting credit availability for the poor, as not all governments were able to address them while rolling out economic stimulus packages</li>
 	<li>Financial authorities should adapt to protect consumers from emerging risks, such as ones posed by the onset of the pandemic and the associated rise in cases of financial fraud</li>
</ul>
The Global Microscope is produced with support from EIU’s partnerships with CFI, the Bill &amp; Melinda Gates Foundation, IDB LAB and IDB Invest.

Global Microscope 2020

The Rizzi family recently returned to the US after living in Italy for three years, during which time a love for all things pizza was cemented. I could write a whole blog about the best Roman pizzeria (it's Roscioli), so when a colleague told us, the data team, about a recent <a href="https://news.stanford.edu/2017/08/03/pizza-privacy-stanford-economist-examines-paradox-digital-age/" target="_blank" rel="noopener noreferrer">study about pizza and data privacy</a> – MIT undergraduates were willing to relinquish their friends’ personal information in exchange for a free pizza – we were interested.

Should we chalk the results up to college students’ love of late-night snacks? Not exactly. This year, the Ipsos Global Trends survey across 33 countries found that despite growing concern around big data, nearly <a href="https://www.ipsosglobaltrends.com/2020/02/data-dilemmas/" target="_blank" rel="noopener noreferrer">half of respondents said they would trade their information away</a> in return for personalized services and products. This was a 7 percent increase since the last time the survey was conducted in 2013. It’s easy to assume that this implies that people don’t care about data protection, but it fails to account for the frequently zero-sum choice presented to consumers for whom access to vital products and services increasingly relies on digital gatekeepers. The financial inclusion field is no exception.
<h2>Unchecked Superpowers?</h2>
For the unbanked and underbanked and those that work with them, the explosion of available data, data-crunching services and data-enabling regulatory schemes bring unprecedented potential. A BFA paper called certain artificial intelligence applications "<a href="https://bfaglobal.com/wp-content/uploads/2019/03/FIBR-Artificial_Intelligence_FINAL_MAY2018-1.pdf" target="_blank" rel="noopener noreferrer">practical superpowers</a>" and the possibilities to unlock wealth and opportunity for the poor indeed seem extraordinary – from prospecting and credit scoring for thin-file consumers to well-timed nudges for saving, from fraud management and complaint chatbots to access to e-commerce platforms and <a href="https://www.cgap.org/blog/open-banking-7-ways-data-sharing-can-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">open banking regimes</a>. At CFI, we feel the case has been <a href="https://centerforfinancialinclusion.org/accelerating-financial-inclusion-with-new-data-2/" target="_blank" rel="noopener noreferrer">well-articulated</a> for supporting a myriad of <a href="https://www.cgap.org/research/publication/using-satellite-data-financial-inclusion" target="_blank" rel="noopener noreferrer">data-driven tools</a> and will continue to be made.
<blockquote>Data-driven tools must also be examined for their risks, pitfalls and unintended consequences.</blockquote>
Our perspective is that for these opportunities for financial inclusion to be fully realized, they must also be examined for their risks, pitfalls and unintended consequences for low-income consumers. This lens is not meant to throw a wet blanket on innovation and enthusiasm, but to have a clear-eyed focus in a world where data is <a href="https://cloudian.com/blog/getting-a-handle-on-data-growth/#:~:text=According%20to%20IDC%2C%20the%20world's,all%20this%20data%20the%20same." target="_blank" rel="noopener noreferrer">growing by the zetabyte</a> (10^21) every month, where tens of thousands of individuals become digital immigrants every day and where innovation <a href="https://www.centerforfinancialinclusion.org/data-consent-lets-share-the-burden-for-effective-consumer-protection" target="_blank" rel="noopener noreferrer">races ahead of traditional guardrails</a> on data protection and privacy.

Our vision is that digitization is catalytic for the poorest and most vulnerable consumers, not just those who are already on the pathway to digital inclusion. Looking at developed markets where smartphone ownership is widespread, we still see vulnerable communities trapped in a state of <a href="https://socialchangenyu.com/review/the-surveillance-gap-the-harms-of-extreme-privacy-and-data-marginalization/" target="_blank" rel="noopener noreferrer">data marginalization</a>, due to gaps in technology access, fear of documentation, or failures of mainstream data collection mechanisms. As the use of alternative data to drive financial products grows and other data tracking systems, such as biometrics, expand, developing countries may see more data silos and failures in capturing a holistic picture of the lives of the poor.

We see evidence of this when looking at the consumer base of digital credit products, which tend to be <a href="https://www.centerforfinancialinclusion.org/making-digital-credit-truly-responsible" target="_blank" rel="noopener noreferrer">younger men living in urban areas</a>. There are many reasons why women may not be accessing these products, but failing to account for <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2020/05/GSMA-The-Mobile-Gender-Gap-Report-2020.pdf" target="_blank" rel="noopener noreferrer">limits on women’s use of smartphones</a> is a structural barrier to collecting accurate data to use in digital credit decision models. Pushing for rapid onboarding to digital finance without an understanding of these dynamics could lead to a more entrenched digital divide, unintentionally excluding those who could benefit most from new products and services because of their incomplete digital footprints.
<blockquote>CFI plans to build on its experience in financial consumer protection to focus on key questions around data and financial inclusion.</blockquote>
CFI plans to build on its decade of experience in financial consumer protection to focus on key questions around the promise of data and financial inclusion. And we are raising several of these issues as part of <a href="https://pheedloop.com/fiw2020/virtual/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week 2020</a>.
<h2>Hot Topics</h2>
<h3>Responsible Algorithms</h3>
The data-driven predictions in the financial inclusion space that have grabbed the most headlines in recent years have been on <a href="https://www.accion.org/digital-lenders-can-help-unlock-full-financial-inclusion" target="_blank" rel="noopener noreferrer">consumer creditworthiness</a>. In economies where there is less access to reliable financial data, providers are leveraging other sources, the bulk of which come from mobile phones but can also include social media, geospatial data, etc., in order to make underwriting decisions. Today there is limited visibility into the type of data that financial service providers are collecting and how they are using it, with few incentives for transparent data practices.

CFI is interested in examining how financial inclusion actors approach the use of algorithms and automated decision-making, especially using alternative data, as their use becomes ever more pervasive in the industry. Within this arena are several important topics, including how to effectively measure capacity to repay with alternative data as well as how to mitigate against biased decisions. Although algorithms and automation don’t necessarily lead to discrimination, bias can occur at <a href="https://medium.com/impact-engineered/understanding-bias-in-algorithmic-design-db9847103b6e" target="_blank" rel="noopener noreferrer">varying stages</a> – from the data sources, processing, model development, or outputs. And there are heightened risks that biases, which could undermine financial inclusion goals, could arise from data that does not paint a full enough picture of a low-income person or customer segment.
<blockquote>Algorithms are not designed to be interpretable or explainable.</blockquote>
Compounding this, algorithms are not designed to be interpretable or explainable, and are often treated as trade secrets that are only understood by few within an organization. Data protection frameworks have emerged in developed markets that empower consumers with data rights vis-à-vis automated decision-making, and rely heavily on <a href="https://gdpr-info.eu/art-22-gdpr/" target="_blank" rel="noopener noreferrer">consent</a>. As the principles in these frameworks percolate into emerging markets, we wonder what constraints and barriers there are in their implementation.
<h3>Beyond Consent</h3>
While notice, choice and informed consent have been the traditional approach to data privacy, those concepts seem ill-equipped for our data-driven world. For instance, you probably already knew that the apps you use monitor your location to send you custom advertisements, but did you know that a <a href="https://www.wired.com/story/wired-guide-personal-data-collection/" target="_blank" rel="noopener noreferrer">hedge fund might also buy</a> that geolocation data to figure out which stores you like? Or that there is a whole industry of data brokers – scraping, compiling and collating bits of data about you to monetize and make predictions about your behavior? <a href="https://www.fastcompany.com/90310803/here-are-the-data-brokers-quietly-buying-and-selling-your-personal-information" target="_blank" rel="noopener noreferrer">Acxiom</a>, one of the biggest, operates in more than 62 markets and has information on over 2.5 billion consumers. Especially for low-income or vulnerable consumers, who are both often targets for data collection efforts and less likely to understand or use basic privacy protections, consent-based approaches seem insufficient. New approaches beyond consent are <a href="https://www.cgap.org/events/beyond-consent-why-new-approaches-data-protection-and-privacy-digital-age-are-needed" target="_blank" rel="noopener noreferrer">clearly needed for data</a> protection in financial inclusion (and beyond), but what might those look like in practice, who bears the cost for them and who determines their efficacy?

We hope you continue to engage us and challenge us on these issues, not only during this <a href="http://www.financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a>, but as we roll out our new <a href="https://centerforfinancialinclusion.org/reflecting-on-the-past-and-charting-a-new-direction/" target="_blank" rel="noopener noreferrer">strategy</a>. There will always be tension – sometimes healthy, sometimes unhealthy – in the use of technology for inclusive finance: will it make better lives within reach? Or will technology overstep and infringe on privacy rights….or worse?

Data for Inclusive Finance: Delivering on the Promise for Consumers

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

<em>This blog post reflects CFI’s early thinking on the intersection between climate change and inclusive finance. Learn more about CFI’s latest thinking and research on our </em><a title="https://www.centerforfinancialinclusion.org/research/financial-services-to-mitigate-and-adapt-to-climate-risks" contenteditable="false" href="https://www.centerforfinancialinclusion.org/research/financial-services-to-mitigate-and-adapt-to-climate-risks">Climate research page</a><em>.</em>

Climate change is having severe economic impacts globally, and low-income, vulnerable populations are being disproportionately affected. Many low-income countries are experiencing longer, hotter heat waves and more extreme storms, which is leading to food insecurity, income losses, lost livelihood opportunities, adverse health impacts, and displacement.

Additionally, climate change is a <a href="https://www.ipcc.ch/sr15/chapter/spm/" target="_blank" rel="noopener noreferrer">threat multiplier</a>, exacerbating inequity for low-income households discriminated against based on gender, race, socioeconomic class, age, and disability.
<h2>Mitigating Climate Risk</h2>
The international consensus is that systems change is necessary to mitigate these climate risks. In this context, systems change refers to altering systems of production and consumption to stabilize the amount of greenhouse gases emitted into the atmosphere. For example, the ongoing shift from non-renewable to renewable energy is an outcome of systems changes and required policy initiatives by government, public and private investment in renewable technology, and changes in fuel utilization by households.
<blockquote>Financial services will play an important role in helping low-income households adapt their livelihoods</blockquote>
Systems change will impact low-income communities through the creation and elimination of livelihood opportunities. The types of systems changes required to mitigate climate impacts at a global level will impact livelihoods in communities across the globe as carbon emitting industries are replaced or innovated with climate resilient technologies. Some estimates project 1.5 billion jobs will be created by this process. Arguably more importantly, many jobs will be <a href="https://unfccc.int/resource/docs/2016/tp/07.pdf" target="_blank" rel="noopener noreferrer">altered, eliminated, or replaced</a>. Financial services will play an important role in helping low-income households adapt their livelihoods to cope with these changes as they will require significant investment to update production processes.
<h2>Resilience, Adaptation, and the Role of Financial Services in the Meantime</h2>
Systems change is a process which will occur in the medium to long-term. In the short term, financial services can support low-income households to improve their resilience to climate shocks. Before a shock, low-income households can prepare in a variety of ways, such as improving housing, diversifying their livelihoods, adopting climate-resilient business practices, and accumulating financial resources to respond to shocks when they happen. After a shock, low-income households need to respond to food insecurity, livelihood disruption, loss of assets, and increased health and safety risks. In addition to their pre-shock preparation, low-income households may seek to draw in other household and community resources to boost their resilience. Households may also choose to migrate to areas less exposed or better prepared to respond to climate events.

There is broad evidence of the critical role financial tools – cash transfers, savings, insurance, and credit – play in helping households respond to shocks. There is strong evidence for the role of person-to-person (P2P) and government-to-person (G2P) cash transfers in helping households survive in crisis environments. Studies have shown that P2P and/or G2P transfers have <a href="http://documents.worldbank.org/curated/en/537771507750178892/Philippines-Lessons-learned-from-Yolanda-an-assessment-of-the-post-Yolanda-shortand-medium-term-recovery-and-rehabilitation-interventions-of-the-Government" target="_blank" rel="noopener noreferrer">helped households respond</a> to various weather events in Kenya, earthquakes in Rwanda, and rainfall shocks in the Philippines.

A large body of impact evidence makes clear that savings is also a powerful financial tool in these environments. Innovations for Poverty Action (IPA) has summarized the evidence supporting the role of savings in preparing for shocks. For formal financial services, they found evidence that low and no-fee savings accounts helped households self-insure against shocks, and there was strong evidence for the role of <a href="https://www.poverty-action.org/sites/default/files/publications/Building-Resilience-Through-Financial-Inclusion-January-2019.pdf" target="_blank" rel="noopener noreferrer">behavioral approaches</a> (such as commitment savings devices) in promoting savings for shock mitigation.

There is some positive evidence on insurance and credit as well. Weather-indexed crop and livestock insurance can promote investment by smallholder farmers in communities likely to experience extreme weather events, and a review of the evidence by IPA articulates examples of credit products encouraging investment in farm inputs and technology by smallholder farmers in sub-Saharan Africa. In addition, a <a href="https://www.adb.org/publications/microfinance-disaster-recovery-lessons-nepal-earthquake" target="_blank" rel="noopener noreferrer">limited</a> <a href="https://www.mercycorps.org/blog/nepal-impact-report-earthquake" target="_blank" rel="noopener noreferrer">number</a> of studies have shown households with access to formal credit had better short and long-term outcomes following a crisis compared to similar households without access to credit.
<h2>Critical Gaps in the Current Knowledge Base</h2>
The evidence makes clear the promise of financial services in supporting low-income households’ response to climate change, but there are numerous demand side and supply side challenges that need to be studied in order to maximize the utility of financial services. Additionally, the role of government in creating an enabling environment and enacting social safety nets to promote mitigation and adaptation needs to be explored.

On the demand side, low-income households have less access to and are <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">less likely to use formal financial products</a> compared to middle and high-income households. This is also true of climate-related financial tools. For instance, the evidence shows that voluntary take up of weather-indexed insurance products is <a href="https://www.poverty-action.org/sites/default/files/publications/Make-it-Rain-Policy-Bulletin.pdf" target="_blank" rel="noopener noreferrer">too low to sustain a market</a> for them without subsidy despite their effectiveness. There are numerous product design challenges that may be contributing to this. Gender bias in program and product design persists, making <a href="http://documents.worldbank.org/curated/en/484541544643269894/pdf/130659-REVISED-PUBLIC-Managing-Coal-Mine-Closure-Achieving-a-Just-Transition-for-All-November-2018-final.pdf" target="_blank" rel="noopener noreferrer">interventions less effective</a> for women and multiple studies have articulated the need for improved financial capability to promote uptake and regular, effective use of financial tools.

On the supply side, there is little visibility into the range of products and financial service providers (FSPs) offering climate-focused financial products to low-income households. This hinders industry learning about what products or services are working and why. This opacity contributes to financial institutions in emerging and developed markets being admittedly unsure about how to best design their products to support households’ resilience to climate change. There is good reason to think providers will need to learn what innovative models work as analysts expect climate risks to create new challenges for pricing credit and insurance products, among others. For instance, in 2019, Munich Re, the world’s largest reinsurance firm, warned that climate-risk could <a href="https://www.theguardian.com/environment/2019/mar/21/climate-change-could-make-insurance-too-expensive-for-ordinary-people-report" target="_blank" rel="noopener noreferrer">make insurance premiums unaffordable</a> for most people.

Governments play a critical role, too. However, there are a limited set of evidence-based best practices for responding to this situation. For instance, unemployment insurance and other social safety nets have proven to be important tools in supporting livelihoods during systems change, but such benefits are less common in emerging markets than in advanced economies. They are also less effective at reaching low-wage and informal workers. How can governments establish policy and programs to better protect the livelihoods of these workers? Are there innovative safety net systems that they could use, or are other policy tools effective?
<h2>CFI’s Climate Agenda</h2>
CFI is embarking on an ambitious agenda to address these gaps. Our immediate focus is on building the evidence for what works on the demand and supply side and for government policies.

On the demand side, CFI will focus on two major activities. First, CFI will map the impact evidence, identifying what financial products and services help low-income households effectively respond to climate change. This is a critical early step as it will inform the industry of what is known and unknown about this topic. It will also serve as a foundation from which CFI will operate, helping us identify what evidence gaps need filling. Second, CFI will conduct qualitative and quantitative research with consumers to establish a baseline understanding of consumers’ experience with and financial needs for mitigating and adapting to climate change.
<blockquote>CFI will map impact evidence and conduct research to understand consumers' experiences with and financial needs for mitigating and adapting to climate change.</blockquote>
On the supply side, CFI will leverage the expertise acquired through its strategic <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX to shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions for low-income households. CFI will do this through two main activities. First, CFI will inventory financial products to understand their target market, design, reach, and effectiveness. This will enable us to promote the development of appropriate climate products with FSPs. Second, CFI will track investment in climate-related finance by monitoring funding flows from public and private sources. Given the attention to climate-related finance, it will become increasingly important for funders to have visibility on funding flows related to climate change and finance that impact low-income households.
<blockquote>CFI will shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions.</blockquote>
Emerging market governments are enacting policies to help their countries mitigate and adapt to the effects of climate change. This gives us a sense of <a href="https://www.afi-global.org/publications/3036/Inclusive-Green-Finance-A-Survey-of-the-Policy-Landscape" target="_blank" rel="noopener noreferrer">what governments are doing</a> in response but it is unclear which policies are most effective for low-income households and why. In order to identify effective policy solutions, CFI will conduct mixed-method case studies of climate policies and their impact on the supply and demand side of the ecosystem.

Our goal for developing the evidence base is to provide information that decision makers need to deliver climate-informed financial products to vulnerable populations across the globe with the hope that it ultimately helps facilitate the transition to a more sustainable economy for all. Financial Inclusion Week is the first step in our journey, and we look forward to sharing our impact in the months to come.

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Financial Services are Needed to Help Low-Income People Mitigate and Adapt to Climate Change

Just over one year ago, I joined the Center for Financial Inclusion (CFI), and what a year it has been. <a href="http://financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> presents a great time for me to reflect on this past year and to share with you CFI’s plans for our next chapter. We are using Financial Inclusion Week to feature the work of so many of our partners. And we are also using the week to focus attention on the themes we have identified in our new strategy as the pillars for this week’s <a href="http://financialinclusionweek.org/event-calendar-2020" target="_blank" rel="noopener noreferrer">calendar of events</a>.

CFI emerged from the rubble of the financial crisis to spearhead the most pressing issue the inclusive finance field needed at the time: improved consumer protection. We are now well into our second decade and our industry is reeling from the ravages of the COVID-19 pandemic. It is perhaps the right time for CFI to reenergize its mandate and spearhead what we believe is needed to “build back better” as the saying goes. As tragic as the pandemic’s consequences have been and continue to be, it has at least laid undeniably bare the failures of the status quo and has created a heightened sense of urgency, for financial services to build back better.

CFI was founded at a particular moment when it was becoming more apparent that market forces alone would not ensure positive outcomes for financial inclusion, and that sustained intentionality would be necessary. The coronavirus pandemic has, at the September 2020 time of writing, infected more than 33 million people and killed nearly 1 million. Beyond the rapid and catastrophic spread of illness and death, the pandemic has devastated global economies. Millions of micro, small, and medium enterprises (MSMEs) around the world have seen revenues plummet and have suspended operations or gone out of business altogether. Hundreds of millions of families have lost jobs and incomes, and many of them live in countries where social safety-net protections are patchy at best. The pandemic also reversed, seemingly overnight, social and economic development gains that had taken decades to achieve: the World Bank estimates that 70 million people are at risk of falling back into poverty. Women and children have been among those most affected: children because schools around the world have been shuttered, and women because they are more likely than men to lose their jobs and to shoulder the responsibility of supervising and homeschooling children.

For CFI, the pandemic has reenergized our purpose. Financial services are critical to reducing low-income populations’ vulnerability and helping them to recover from this and other recurring crises in their lives. We believe we have a leadership role to play in this intensified global effort. We have more than a decade of recognized global leadership in understanding the financial needs and behaviors of low-income vulnerable populations. Complementing this demand-side expertise, our recent <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX brings supply-side expertise to the table, as they have been studying and reporting about financial service providers for the past 20 years. These complementary strengths, combined with our history of thought leadership and our role as conveners, positions CFI to pursue an ambitious three-year strategy made all the more urgent in the context of the pandemic.
<blockquote>The pandemic has reenergized our purpose.</blockquote>
The strategic plan which will guide CFI’s work through 2024 focuses on four thematic areas. All of them, to significant degrees, have either been exacerbated by the pandemic or have been revealed by this crisis as urgent and under-attended priorities. The common thread among the themes is that progress in these areas is essential to ensuring that all people have the financial tools needed to improve their lives and to prosper.
<h2>Financial Services to Respond to the Risks of Climate Change</h2>
Just as the pandemic’s effects have been most severe on those who were already the most vulnerable, so too are the effects of climate change. Low- and moderate-income countries (LMICs) in the Global South are likely to experience longer, hotter heat waves and more extreme storms which in turn will create income loss, food insecurity, adverse health effects, and displacement that will hit already-vulnerable LMIC populations hardest.
<blockquote>Financial services are an indispensable tool to help prepare for climate-related shocks and recover.</blockquote>
CFI recognizes that climate change is ultimately an issue requiring long-term systemic changes to entrenched patterns of production and consumption. In the short term, however, financial services are an indispensable tool to help low-income vulnerable people prepare for climate-related shocks and recover from them when they happen. Our work in this theme will focus on understanding what those people need and the constraints they face, uncovering product innovations that can help, and then pilot testing such innovations and scaling-up lessons learned.
<h2>Women’s Financial Inclusion</h2>
Around the world, in many different geographies and socioeconomic contexts, women occupy a “last in, first out” position of vulnerability. The fall-out from the pandemic has made this abundantly clear. Whether it is a workplace where the more recently hired woman is let go before the more senior man, or a financial system that only prioritizes women’s needs when times are good, women’s economic inclusion is seen as a nice-to-have rather than a must-have. Women’s financial inclusion is powerfully shaped by broader societal norms, the unspoken assumptions and values governing men’s and women’s roles. CFI believes that efforts that focus solely on process fixes or product design will not succeed in women’s financial inclusion unless those efforts also seek to transform, rather than merely acknowledge, the underlying norms.

Our work in this area will accordingly include an intensive focus on research into successful norms-transformative initiatives, and how those might be scaled up. We will also work to improve the digital and financial capability of subsegments of women customers, and to influence the policy environment for women’s financial inclusion.
<h2>Data Risks and Opportunities</h2>
The pace of change created by the technology revolution is much faster than law, policy, or social mores can match. Although data privacy and protection regimes have begun to emerge, especially in wealthy countries, data by its nature is universal. To date, there is no universal framework setting forth who even owns personal data, much less governing how it can be used, by whom, and under which circumstances. The COVID-19 pandemic has provided a powerful illustration of both the risks and the opportunities of digitized data. The public health benefits of documenting and following diagnosed COVID-19 cases, and of tracing patients’ contacts, are obvious. But the risks to patients of stigmatizing, discrimination (whether of access to insurance, housing, employment, or otherwise), and other abuses are also very real.

Similarly, in financial services, data is the key that can unlock access to a full range of personalized, effective products that can help low-income people achieve their goals. The risk is that many LMICs have no effective consumer data protection regimes in place and that even where those exist, people with low levels of digital and financial sophistication may, in their eagerness to receive financial services, sign away their rights without even fully understanding them.
<blockquote>CFI will focus on means to bring transparency to data practices in DFS.</blockquote>
CFI’s work in this area will focus on means to bring transparency to the data practices of digital financial service (DFS) providers. We will also study how financial service providers use algorithms, which can be biased against already-underserved populations, in automated decision-making. We will monitor emerging frameworks around the world to document what does and does not work to advance financial inclusion while safeguarding data privacy, portability, and other consumer rights.
<h2>Consumer Protection in the Digital Economy</h2>
As the inclusive finance landscape evolves, so too must the approaches to consumer protection. Social platforms, ecommerce giants, fintechs, and pay-as-you-go providers are all relatively recent entrants into the field, and this means a multi-pronged approach is necessary to ensure safe practices are the norm. This is especially true since many of these business models fall beyond the scope of existing banking regulation. Consumer protection is an evergreen challenge, and one where CFI has long been active.
<blockquote>Consumer protection is an evergreen challenge.</blockquote>
We plan to devote intensive study to the practice of government-to-person (G2P) digital cash transfers, since these are often the on-ramp to digital financial services for low-income populations. We want to understand the risks that digitized G2P transfers present and how governments are mitigating those risks. We also want to document innovations around redress of grievances, financial capability-building add-on services, resolution of connectivity issues, and other relevant lessons learned.

In addition, CFI will partner with regulators and supervisors to test new technologies, such as chatbots or algorithmic audit tools, that can allow supervisors to be in direct dialogue with consumers, without consumer voices being mediated via the financial service providers. Such a dialogue can ultimately improve customers’ experience with financial services and democratize the financial sector by involving customers in the development of financial sector policies. To date, much of the recent work in regulatory technology (RegTech) and supervisory technology (SupTech) has prioritized the data reporting and compliance, but CFI believes its potential for advancing consumer protection has been underappreciated.
<h2>Conclusion</h2>
CFI developed its three-year strategic plan by weighing the needs of the inclusive finance industry against what we see as our own comparative advantages. We recognize that the four thematic priorities we intend to pursue are not an exhaustive list of everything that needs to happen to ensure positive outcomes for low-income people, and we also recognize that other individuals and organizations are doing excellent work in the areas we intend to pursue. We look forward to collaborating with all stakeholders who share the vision of a world where all people are able to equitably participate in the economy and are able to use financial tools to improve their lives and to prosper.

We hope you will participate in the rest of Financial Inclusion Week, which is packed with amazing speakers, events and activities. And, we want to hear from you. Please participate and tell us what you think about CFI’s thematic priorities.

Reflecting on the Past and Charting a New Direction

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

New data protection legislation in many countries has gotten a lot of attention in recent years. But we hear less about what happens after these laws are passed. Although the substance of new data protection laws is important, implementation is where the rubber meets the road. Any new law is only as good as the implementing capabilities of regulators and providers, so it’s important to take those capabilities into consideration when developing the law’s provisions, subsequent rules and institutional structures that must be put in place to bring it to life.

This point was underscored in a recent <a href="https://www.dvara.com/research/wp-content/uploads/2019/10/Policy-Brief-Implementing-the-Personal-Data-Protection-Bill-in-India.pdf">policy brief</a> issued by the <a href="https://www.dvara.com/research/future-of-finance/">Future of Finance Initiative at Dvara Research</a> that provides a blueprint for actions that will need to be taken by India’s central government and the new Data Protection Authority (DPA) that will be created after passage of the <a href="https://prsindia.org/billtrack/personal-data-protection-bill-2019">Personal Data Protection Bill</a>. In total, the government and the DPA will need to address <a href="https://www.bloombergquint.com/opinion/a-blueprint-for-implementing-indias-personal-data-protection-law">at least 82 action points</a> to implement the new law. This observation begs the question: will regulators have the capacity needed to implement and enforce this new law?
<h2>Bridging a Gap of Understanding and Interpretation</h2>
As mentioned in the <a href="https://centerforfinancialinclusion.org/data-protection-and-financial-inclusion-why-it-matters-introduction/">introductory blog post</a> to this series, a common theme that surfaced during interviews we conducted last year with various data protection stakeholders in India, Ghana and Peru (as part of a <a href="https://www.credit-suisse.com/careers/en/articles/careers/sharing-expertise-201712.html">Credit Suisse Global Citizens volunteer project</a>) is that there is a gap that needs to be bridged between governments and providers on the issue of data protection.

For example, in Ghana, which has had a data protection law in place since 2012, any entity that handles personal data must register with the country’s Data Protection Commission as either a data controller or a data processor. However, according to Elorm Allavi, founder of<a href="https://syecomp.com/"> SyeComp</a>, an agricultural intelligence tech startup, it’s not necessarily clear which classification to register under and what the implications may be for the registration fees to be paid. He also described the data protection requirements as being “very one sided” and expressed a desire for the Bank of Ghana and data protection regulators to take steps to better comprehend the changing digital landscape and how fintechs use data. He felt that their lack of understanding limits their ability to assess the risks and can lead to unwarranted regulations.

On the government side, we’re grateful to Clarissa Kudowor at the Bank of Ghana (BoG) for providing a written response to some of the questions we had submitted regarding the overall legal and regulatory environment around data, as well as the BoG’s new <a href="https://www.bog.gov.gh/wp-content/uploads/2019/09/CYBER-AND-INFORMATION-SECURITY-DIRECTIVE.pdf">Cyber &amp; Information Security Directive</a>. In her response, she recognized the need for innovation in financial services and the role of proportionate regulations and regulatory sandboxes in helping to create an enabling regulatory environment. But despite this enabling spirit, there was also a clear undertone throughout her remarks that compliance with the provisions of the law is paramount, though there was no mention of any specific engagement with providers that would help to facilitate that compliance. Moreover, Ms. Kudowor had to refer some of our questions to the Data Protection Commission, which sits within the Ministry of Communications. This was understandable, since Ghana’s data protection law applies to all sectors and not just the financial sector, but our efforts to get a response from the commission weren’t successful. This perhaps was indicative of the kinds of concerns providers often express about having multiple regulators to answer to.

We encountered similar concerns in Peru, where Mariano Fuentes, a Legal Advisor with <a href="https://www.asbanc.com.pe/">ASBANC</a>, the association of private financial institutions in Peru, told us about five member banks that were appealing sanctions by the National Data Protection Authority (NDPA) over differences in interpretation of consent requirements, suggesting a lack of regulatory clarity. Raising a separate concern, Elias Vargas, Head of Market Conduct Supervision at SBS (the Peruvian banking superintendent), spoke about overlaps in the mandates of the SBS and the NDPA and suggested that in some cases the SBS may be better positioned than the NDPA, which resides in the Ministry of Justice, to provide oversight of the financial sector on certain data protection issues. And in India, where the new data protection bill is looming large, Tejamoy Gosh, Head of Data Science and Artificial Intelligence with Aye Finance, also emphasized the need for regulatory clarity when he said that he would like to see “a list of ‘don’ts’ rather than a list of ‘dos,’ so we can be sure of what not to do absolutely.”
<h2>Provider and Other Stakeholder Capacity Needed, Too</h2>
All of the above issues are reflective of the enormous complexity of data, which brings us full circle to the need for policymakers and regulators to take capacity into account when designing and implementing new data protection frameworks. This doesn’t mean just regulatory capacity, but also provider capacity. In order to do this, it’s important for those doing the regulating to consult with those who will be regulated throughout the policymaking process so that all data protection stakeholders can be set up for success. Based on the feedback we obtained through the interviews described above, it appears that much more deliberate action is needed to make this happen.
<blockquote>It’s important for those doing the regulating to consult with those who will be regulated.</blockquote>
As <a href="https://www.bloombergquint.com/opinion/a-blueprint-for-implementing-indias-personal-data-protection-law">noted</a> by the team at the Future of Finance Initiative at Dvara Research, “Developing robust and timeless regulation will require collaboration between regulators, entities processing data, civil society, researchers and technologists.” We couldn’t agree more. As our interviews showed, there’s a divide between regulators and providers that intentional and ongoing collaboration can help to bridge. They also suggest that governments need to do more to ensure that regulatory bodies not only have the technical expertise to deal with data issues writ large, but also the sectoral expertise to be able to effectively deal with data issues that are specific to each sector. Designing and implementing data protection frameworks is no small task, and governments should do all they can to enlist the support of external stakeholders to develop frameworks that truly set everyone up for success.