Scrolling through Instagram these days, I’ve noticed a pattern that has emerged since COVID-19 prompted lockdowns across the globe. With movement restricted, many social media users in the US have engaged in culinary adventures. New experiments in the kitchen abound despite the noted shortage of ingredients like flour on supermarket shelves.

But what I haven’t been seeing on my social media feed on the food front is much more dire: COVID-19 will push up to an estimated <a href="https://www.oxfam.org/en/research/dignity-not-destitution" target="_blank" rel="noopener noreferrer">half billion people into poverty</a> across the globe, threatening food security. Prior to the pandemic, approximately <a href="https://www.who.int/news-room/detail/11-09-2018-global-hunger-continues-to-rise---new-un-report-says" target="_blank" rel="noopener noreferrer">820 million people were chronically hungry</a>. Now, the World Food Program estimates that by the end of 2020, <a href="https://insight.wfp.org/covid-19-will-almost-double-people-in-acute-hunger-by-end-of-2020-59df0c4a8072" target="_blank" rel="noopener noreferrer">265 million people</a> in low and middle-income countries will be under the threat of starvation.
<h2>A Challenge for a Continent</h2>
These issues are particularly acute in several countries in Africa, where job losses and income losses are affecting food security, defined as access to sufficient, safe, and nutritious food. In a recent <a href="https://amref.zoom.us/rec/play/uZZ_Ju2p-zo3E9ed4wSDBKR6W9S9J_2s0iFP-qZemkixVXRQOlWkYuAbMLeKlvVOBygaPgBJmSDPJCzg?continueMode=true&amp;_x_zm_rtaid=FQWENb2fTM2AEbhvJuEg9g.1590501183404.6cee48bfc63a9f06cac60da22d85013d&amp;_x_zm_rhtaid=599" target="_blank" rel="noopener noreferrer">Africa Dialogues webinar</a>, hosted by Dalberg Advisors and Amref Health Africa and moderated by Lolem Ngong and Edwin Macharia, Professor Hamadi Iddi Boga of the Ministry of Agriculture, Livestock, and Fisheries in Kenya; Sara Menker, Founder and CEO of Gro Intelligence; and Monica Musonda, Founder and CEO of Java Foods, explored how the pandemic is disrupting agricultural supply chains and impacting smallholder farmers and vulnerable populations across the continent.

As Menker highlighted, there isn’t a lack of food around the world. Food insecurity, rather, is rooted in a massive distribution problem and a widespread inability to afford food, now exacerbated by COVID-19. Foreign exchange reserves across the African continent are at an all-time low due to the pandemic. In a weakened macroeconomic environment, the cost of imports has increased, and although some African markets are experiencing food insecurity to a greater extent than others, net importers of calories are finding themselves in an increasingly precarious situation. In Zambia, for example, the <a href="http://www.fao.org/giews/countrybrief/country.jsp?code=ZMB" target="_blank" rel="noopener noreferrer">price of fortified cereal</a> for children has increased to $6. Groups including informal workers, microentrepreneurs, and women tend to be the most adversely impacted by such price fluctuations.
<blockquote>Informal workers, microentrepreneurs and women tend to be the most adversely impacted by price fluctuations.</blockquote>
Musonda noted during the webinar that up to 60 percent of wages from informal work in Africa are used to buy food. Finding themselves without work, or with fewer working hours due to COVID-related restrictions on physical movement, informal workers and microentrepreneurs face increasing food insecurity, and women, who allocate more of their own resources to <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">other members of the household during hardship</a>, are disproportionately affected.
<h2>How Does Financial Inclusion Come into Play?</h2>
As a well-documented <a href="https://www.uncdf.org/financial-inclusion-and-the-sdgs" target="_blank" rel="noopener noreferrer">enabler of food security</a>, financial inclusion has an important role to play in the mitigation of COVID-19’s harms to vulnerable groups. Here, I highlight a few of <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">many considerations</a> for financial inclusion initiatives when taking action to reduce food insecurity.
<h3>Supporting SMEs and Smallholder Farmers</h3>
Propping up small and medium-sized business is an important consideration for financial inclusion and, by extension, food security in Africa. SMEs form an <a href="https://www.researchgate.net/publication/315516536_AFRICAN_SMALL_AND_MEDIUM_ENTERPRISES_SMES_CONTRIBUTIONS_CHALLENGES_AND_SOLUTIONS" target="_blank" rel="noopener noreferrer">integral part</a> of the food supply chain in Africa. According to Musonda, <a href="http://www.ipsnews.net/2019/09/smes-main-drivers-africas-food-economy/" target="_blank" rel="noopener noreferrer">SMEs handle 64 percent of food</a>, much of which is fresh and perishable, on the continent. These are the foods that are crucial, but we must do more to ensure that SMEs stay alive during this time of crisis.

This is where financial service providers (FSPs) play an important role. FSPs need to address both short-term and longer-term financing options for SMEs. In the short-term, as <a href="https://www.covid-finclusion.org/forum/discussion/surviving-the-liquidity-crunch-what-are-your-expectations-and-plans-for-managing-mfi-liquidity-what-worries-you-most" target="_blank" rel="noopener noreferrer">FSPs themselves are struggling with liquidity constraints</a>, the role of other actors, such as impact investors, development finance institutions, and policymakers, will be important to filling the void in available liquidity. But beyond liquidity through FSPs, there is a broader role for governments to play when it comes to food security.

In Kenya, the government has created an ecosystem of SMEs to support smallholder farmers in a mutually beneficial initiative that connects nodes of the supply chain. According to Prof. Boga, 90 percent of farmers in Kenya are smallholder farmers. To support this population, the government has created an ecosystem of SMEs to support them, and has implemented an e-voucher program in which farmers receive vouchers on their mobile phones to exchange for partially subsidized farm supplies based on their individual and household needs.
<h3>Promoting and Strengthening Cash Transfer Systems</h3>
Government-to-person (G2P) and person-to-person (P2P) <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits" target="_blank" rel="noopener noreferrer">cash transfers are an effective strategy</a> to increase both financial inclusion and food security. NGOs, governments, and the private sector are working together to promote and strengthen this most important vehicle for quickly delivering crucial cash to low-income households and individuals. <a href="https://www.unicef-irc.org/publications/pdf/IRB 2016_04.pdf" target="_blank" rel="noopener noreferrer">Evidence</a> from several large-scale <a href="https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7596.pdf" target="_blank" rel="noopener noreferrer">evaluations</a> shows that as households receive more in cash transfers, they spend more on food, with positive impacts on meals consumed and dietary quality.

The regulatory environment and payment infrastructure in many countries can present a challenge for massive payouts, but the financial inclusion community views the current crisis as an <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits">opportunity to fast-track improvements to payments systems</a>, particularly through digital payments ecosystems. While digitalization is promising, however, CFI’s Alex Rizzi <a href="https://centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection/" target="_blank" rel="noopener noreferrer">cautions</a> that rushed pushes to go digital may harm the poor, and it will continue to be important to put base-of-the-pyramid consumers at the center of considerations for digital cash payments.
<blockquote>Countries with strong DFS infrastructures are taking the lead in implementing systems to help people afford food.</blockquote>
In Africa, countries with strong DFS infrastructures are taking the lead in implementing systems to help the base of the pyramid afford food and other living expenses. The Western Africa Central Bank (BCEAO) is promoting the use of electronic payment tools by making it easier for people to open a mobile money account and by making P2P transfers free. Kenya’s National Treasury <a href="https://www.ugogentilini.net/wp-content/uploads/2020/04/Country-social-protection-COVID-responses_April3-1.pdf" target="_blank" rel="noopener noreferrer">appropriated</a> an additional 10 billion Kenyan schillings, or $100 million, to support for the elderly, orphans and other vulnerable groups through cash transfers. In addition, fee waivers on P2P mobile money transactions on M-PESA were <a href="https://techcrunch.com/2020/03/16/kenya-turns-to-its-mobile-money-dominance-to-stem-the-spread-of-covid-19/" target="_blank" rel="noopener noreferrer">approved</a>. The Moroccan Economic Watch Committee activated a mobile payment device for cash transfers directly to an estimated 3 million informal workers, while in Tunisia, the government is offering one-off cash transfers to households with members working in the informal sector and housing the elderly.

To support governments and markets where the digital payment infrastructure is still developing, initiatives like the <a href="https://www.worldbank.org/en/topic/paymentsystemsremittances" target="_blank" rel="noopener noreferrer">World Bank’s G2Px</a> focus on bringing together expertise across sectors to scale G2P payments responsibly. NGOs such as the World Food Program <a href="https://www.wfp.org/cash-transfers" target="_blank" rel="noopener noreferrer">continue to employ cash transfers</a> in coordination with partners.
<h3>Supporting Women’s Financial Inclusion as a Means to Greater Food Security</h3>
Research indicates that within households, women are at a <a href="https://www.adb.org/sites/default/files/publication/30315/gender-equality-and-food-security.pdf" target="_blank" rel="noopener noreferrer">greater risk of being food insecure</a>. In times of hardship, such as the current pandemic, they are more likely to reduce their own food consumption to leave enough for men and boys. However, access to secure financial services <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">has the potential</a> to <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">promote women’s empowerment</a> and advance food security. Women with bank accounts are likely to have greater bargaining power to allocate more household resources to purchasing nutritious food. Increasingly, many donors and policymakers are recognizing the need to shift cash transfers to women as one approach to tackling food insecurity. This provides an <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">on-ramp for digital financial services while improving convenience and confidentiality</a> of these payments.

Will our documentation of this moment in time capture the resilience, cooperation, and hard work of the individuals and institutions responding to this unprecedented crisis? Food security is a critical basic need, and financial inclusion is an important means of achieving it. With financial services digitizing at a breakneck pace, we mustn’t forget our most basic needs and how inclusive finance can serve them.

Food Security and COVID-19: How Financial Inclusion Can Support Livelihoods

Sub-Saharan Africa

Test of a Lifetime: COVID-19 and Financial Inclusion

Entrepreneurs of MSMEs

Payments

Smallholder Farmers

Underserved Groups

Women

Blog Post

It’s 7 a.m. in a remote village in India’s Bihar state. Punam Kumari, a bank sakhi, is ready to serve her customers. Many of them have already arrived at her customer service point (CSP). She ensures that everyone is complying with social distancing norms while she also takes COVID-related safety precautions for transactions she conducts.

This early morning routine represents a major shift in how she works. She used to open her outlet at 10 a.m., but since the lockdown was imposed by the government to curb the spread of COVID-19, she has been working from 7 am to 7 pm providing financial services to the village. She caters to customers at her CSP outlet and at a nearby school, where she’s set up shop at the request of local authorities.
<blockquote>Thanks to bank sakhis, accessing money during COVID-19 has been made easier for rural women.</blockquote>
Thanks to her and her colleagues, known colloquially as bank sakhis, what would otherwise have been a daunting task of accessing money during COVID-19 has been made easier for rural women. Bank sakhi – literally “female banker friend” in Hindi – is an informal term for female banking agents, who are collectively known in India as business correspondents (BCs). Equipped with smartphones, tablets, or laptops and biometric scanners, they provide basic banking services and financial access for women, self-help groups and many others in some 20,000 difficult-to-reach villages in rural India. Punam has been a bank sakhi since 2018 after her husband passed away, and she needed a way to support her three children.
<h2>The Banking Correspondent Model Works Toward Gender Equality</h2>
The BC model, supported by the Reserve Bank of India (RBI) since 2006, allows third-party agents to provide banking services on behalf of banks, eliminating the need for brick-and-mortar structures. In 2015-16, <a href="http://documents.worldbank.org/curated/en/662851590658776125/pdf/Self-Help-Group-Members-as-Banking-Agents-for-Deepening-Financial-Inclusion.pdf" target="_blank" rel="noopener noreferrer">a female BC model</a> was promoted by the National Rural Livelihoods Mission (NRLM), with support from the World Bank, financed the <a href="https://projects.worldbank.org/en/projects-operations/project-detail/P104164" target="_blank" rel="noopener noreferrer">National Rural Livelihoods Project</a> (NRLP), which was built on the <a href="https://www.giz.de/en/downloads_els/sakhimodel.pdf" target="_blank" rel="noopener noreferrer">GIZ-NABARD</a> experience. This pilot initiative helped in reducing the gender gap in access to financial services and provided a regular income stream for local women who were trained and employed as BCs. Fifty-four percent of <a href="https://pmjdy.gov.in/">Pradhan Mantri Jan Dhan Yojana</a> (PMJDY) accountholders are women and, unofficially, <a href="https://www.microsave.net/2018/05/01/india-needs-more-women-business-correspondent-agents/">most BC agents are men</a>, but these women BC agents are servicing first-time women customers and challenging gender disparities in an otherwise male-dominated profession. On average, approximately 6000 NRLM BCs across 9 low-income states collectively complete 700,000 transactions each month, worth over INR 2.5 billion.
<h2>Leveraging the Power of Business Correspondents During the Pandemic</h2>
In the past couple of months, Punam’s business volume has increased considerably due to the government-initiated direct benefit transfer (DBT) schemes as part of the <a href="https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1608345" target="_blank" rel="noopener noreferrer">Pradhan Mantri Garib Kalyan Yojana (PMGKY) - COVID-19 relief package</a> announced by the prime minister on March 26. Under the PMGKY, 206 million PMJDY women account holders are now receiving INR 500 per month for three months.

During the COVID-19 lockdown, BC agents have proven effective in the delivery of financial services in rural areas and have been granted exemption because the Indian government has now classified their services as essential. In Bihar, Odisha, Madhya Pradesh, Jharkhand, Chhattisgarh and several other states, bank sakhis have continued working to provide cash flow in their villages since the lockdown. They now wear gloves while conducting the transactions, regularly sanitize their devices and require all customers to wash or sanitize their hands before completing the required biometric scanning. While they’ve had to discontinue service delivery at their customers’ doorsteps during this period, they’ve set up services from home, roadsides, and are helping with information dissemination in communities, ensuring that their customers are aware of COVID-19 guidelines on quarantine, handwashing and social distancing.
<h2>Insights on BC Transactions During the COVID-19 Era</h2>
A quick review of daily transactions of 39 bank sakhis (SHG-BCs in the graph below) of a private sector bank in rural Bihar -- the data was collected from mid-March to April -- reveals three interesting points:
<ul>
 	<li>An initial drop in daily transaction volumes immediately after the lockdown was announced. These 39 agents conducted 3035 transactions worth about INR 9 million in mid-March, which dropped by about 50 percent to 1629 transactions and INR 4.5 million right after the lockdown was announced.</li>
 	<li>A spike in transactions in the first week of April corresponding with the release of the first tranche of the PMGKY G2Ps cash transfers. While the size of transactions in the first week of April is lower than in the preceding weeks, cash flow resumed in the rural economy. The agents completed 4895 transactions by April 10, 2020, but with a lower value of INR 7.6 million and this uptick continues through May.</li>
 	<li>A corresponding increase in transaction failures. These are largely due to network and bandwidth requirements for a spike in demand for services, mostly in the case of inter-bank transactions.</li>
</ul>

Gender Gap Narrowing “Bank Sakhis” Take Crucial G2P Support the Last Mile During COVID-19

India

South Asia

Agent Banking

Delivery Channels

A woman stands in the sun for five hours, her baby strapped to her back. There’s no water or shade. The baby’s head lolls, as it becomes increasingly dehydrated. This woman has no choice but to stand in the queue in front of a “bank on wheels,” waiting to test a new “financially inclusive” e-payment modality. Elsewhere, a man is unable to collect his benefit because he must work that day in the field. As he missed payday, he must wait two months in order to return to the fixed pay point. When he finally does, he discovers that the accumulated benefit, which he was counting on, has been “swept” from his account. Contrary to the very principles underlying financial inclusion, in South Africa, grant beneficiaries are <a href="https://www.iol.co.za/news/south-africa/social-grants-will-lapse-if-you-havent-used-it-for-3-months-sassa-warns-26019628">warned by the South African Social Security Agency (Sassa)</a> that “social grants that have not been claimed for more than three consecutive months will lapse.”

These are just three examples of how badly designed payments mechanisms for social protection programs harm the very beneficiaries that the programs are meant to help.

Social protection programs (SPP), which provide cash transfers such as social pensions or child benefits, are coordinated by governments and donors. However, the payments are often outsourced to third-party payment service providers (PSPs), such as banks and MNOs. It’s these mechanisms which are often not designed with the inherent rights of the beneficiary in mind. In many cases, basic consumer protection principles, data protection rights and even the beneficiaries’ right to basic information aren't being observed. Look a little closer and the violations become more subtle, but no less serious: excessive fees charged by agents, unauthorized and unlawful deductions, cross-selling of micro-insurance products to beneficiaries that no one asked for or really needed, dangerous levels of indebtedness, nowhere to complain to and little chance of a satisfactory resolution of the dispute.
<blockquote>Without a human rights-based approach to the delivery of SPPs, the vulnerable will be left behind.</blockquote>
SPPs are one of the key means of bringing formal financial services to the unbanked. “Banking the unbanked” is a term that has been bandied around for years. Making use of G2P programs to meet financial inclusion objectives has been a popular refrain as well. But at what cost? Why are PSPs not held to account when delivering payment services to SPP beneficiaries? Do codes of banking practice, consumer protection laws and principles enshrined in directives such as the <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32015L2366">Payment Services Directive II (PSD II)</a> not apply to SPP beneficiaries? Are there two sets of rules depending on whether you are a high net worth bank customer or a SPP beneficiary living in poverty? This <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, as we consider how financial inclusion can better promote equity, we argue that without a human rights-based approach being applied to the delivery of SPPs, the vulnerable will always be left behind.
<h2>Payment Standards Are Needed.</h2>
Is there a link between human rights law and financial or payment services legislation and regulation? At first glance, probably not, but “banking the unbanked” and meeting the financial inclusion targets at any cost isn't only irresponsible, it’s reprehensible. Accountability is needed, but who’s responsible and what mechanisms can and should be used?

The manner in which PSPs provide payment services is now heavily regulated in the European Union, and member states are required to transpose the PSD II into domestic law. Unfortunately, within many developing country contexts, the legal and regulatory framework governing the provision of payment services doesn't exist and consumer protection frameworks are of general application. Where codes of banking practice exist, these, given their non-enforceable status, are often ignored.
<blockquote>In many developing countries, the legal and regulatory framework governing the provision of payment services doesn't exist.</blockquote>
PSPs contracted by governments or development partners to provide payment services to the program always do so in terms of the contractual provisions contained in a commercial contract or service-level agreement, in line with key performance areas which are set and in compliance with a detailed scope of work. However, in the absence of a robust legal and regulatory framework, the drafters of commercial contracts with PSPs are often at a loss as to how these contracts should be drafted, and the scope and content of the service level agreement, key performance area and scope of work. Recognizing this limitation, Development Pathways is working towards developing a set of payment standards, which we hope will inform international best practice in the social protection world. These payment standards are the first step towards merging human rights law with financial and payment services legislation and regulation and establishing a new paradigm where PSPs are held to account.
<h2>What About the Human Rights-Based Approach Applied to PSPs?</h2>
Dignity and autonomy, equality and non-discrimination, inclusion of vulnerable groups, and a gender perspective aren't <a href="http://www.unrisd.org/80256B3C005BCCF9/(httpAuxPages)/1E57FC1E56010C2CC125801B004B0D10/$file/IB2%20-%20Human%20rights%20based%20approach.pdf">first and foremost</a> on the minds of PSPs operating in a “value and volume world.” However, it’s important to remember that the rationale for applying a human rights-based approach is <a href="https://www.un.org/en/universal-declaration-human-rights/">enshrined in international law</a>. Furthermore, the <a href="https://www.business-humanrights.org/en/un-guiding-principles">United Nations Guiding Principles on Business and Human Rights</a> (UNGPs), which were endorsed by the Human Rights Council in June 2011, provide clarity on the expectations of the international community regarding the human rights responsibilities of corporations. With the Guiding Principles, the UN Human Rights Council defined the corporate responsibility to respect human rights. Therefore, PSPs must conduct due diligence to ensure that they identify, prevent, mitigate and account for how they address their adverse human rights impacts.
<blockquote>PSPs must conduct due diligence to ensure that they identify, prevent, mitigate and account for how they address their adverse human rights impacts.</blockquote>
There is also a separate obligation of the governments implementing the social protection programs to ensure that PSPs comply with human rights standards. As the primary duty bearer, states are legally obligated to protect their citizens from third parties (which include PSPs) from violating human rights. It also has a responsibility to implement policies, standards and legislation to ensure that human rights can be realized. In addition, the UNGPs recognize that the closer a business enterprise is to the state, the stronger the state’s policy rationale becomes in ensuring that the enterprise respects human rights. This is especially the case if the state has contracted a business enterprise to provide services, such as the payment delivery of a SPP, and if taxpayers money is being used to fund the program.

With the rationale for a human rights-based approach established, what are the principles that should inform each phase of the payments process? The illustration below demonstrates some ways in which key human rights principles can be incorporated into the design of the payments mechanism. By ensuring that these standards are measurable and quantifiable, the payments standards can then inform the KPAs of a Commercial Contract/Service Level Agreement with a PSP. And better yet, they could even form part of international best practice and be enshrined in domestic laws around the world.

Standing in the Sun: Human Rights Abuses in the Name of Financial Inclusion

South Africa

Financial Inclusion Week 2019

Client Treatment

Consumer Protection

When I reflect on the future of financial inclusion, I find myself returning over and over to a basic question. What is the purpose of financial inclusion? Why are so many people around the world working towards it, and why do they believe that financial inclusion will contribute to a better world? What purpose have I been pursuing as leader of the Center for Financial Inclusion for the past decade?

This year, in choosing a theme for our 5th annual <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, CFI reflected this question attitude by selecting Financial Inclusion for What? as the theme. But we are not about to let that important question go unanswered. So, after posing it, the CFI staff came up with <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-for-what">four answers</a> that will be explored during Financial Inclusion Week: financial inclusion for financial health, financial inclusion for equity, financial inclusion for sustainable development, and financial inclusion for the bottom line.

While each of these ideas is important and worthy of exploration, I’d like to talk here about just one of them: sustainable development. In my view, the time is right for the financial inclusion sector to focus smartly on this set of goals. Even more emphatically, if the financial inclusion sector does not embrace sustainable development, it will soon find that it has worked itself out of a job. That’s because the more basic financial inclusion challenges are well on their way to being solved.

In the last decade an amazing transformation has taken place in the ability of most people to move money around quickly and efficiently. Millions and millions have opened bank or mobile money accounts and gained the ability to receive income straight into an account and then use electronic means to buy things. Yes, there are gender gaps, poor country gaps and rural areas gaps. But these are rapidly closing.

When we can presume that basic financial infrastructure is available to everyone for routine payments and banking, the financial inclusion job will be done. Right? This is an accomplishment that everyone in the financial inclusion sector can be very proud of. Even if we are not quite there in 2019, the finish line is well in view. Put an enormous celebration emoji right here, and look for the next challenge.

With financial access infrastructure as a foundation, we can turn to assisting people to do what they care most about: to apply financial services toward problems in the real sector – the real world, where people earn a living, get educated, build a home, go to the doctor and much more. The Sustainable Development Goals offer a widely-accepted list of real sector challenges that financial services can help address, but I’d like to focus on a slightly narrower list that highlights the activities where financial services are critical: agriculture, small business, health, education, shelter, and environment. The financial inclusion world needs to begin developing solutions that contribute directly to these sectors.

Back in the 1970s, the World Bank, USAID and other global development organizations were highly real-sector oriented when they talked about financial services. They provided enormous lines of credit to agriculture, fisheries, small business, and the like. These lines of credit were channeled through government development banks, who pushed them out at subsidized interest rates. Because they were seen as cheap handouts from the government, they were diverted to elites, with dismal repayment records. The development banks required constant cash infusions, either from abroad or from government budgets. And meanwhile, regular banks could not develop profitable businesses in these sectors, being out-competed by the subsidized loans. Development organizations treated banks much like communist countries treated them: as the distribution arms of central planning. Their solvency wasn’t important – they were just an administrative function. This was a disaster – for the banks, for the low-income people who were intended beneficiaries, for the market economy and for the achievement of development objectives.

Fortunately, a band of rural finance enthusiasts at Ohio State University (and others with similar views) convinced the World Bank and USAID to turn off the money hydrants. How they did that is a saga unto itself. For our story, the important thing is that once the subsidized credit spigot was turned off, it left open space in the financial sector for the growth, first, of microfinance and then of financial inclusion. Starting in the 1980s, these movements focused their attention in the right place: building sound financial institutions that knew how to serve the poor and excluded. That institution- and model-building focus was exactly what was needed at the time, and, with a boost from technology innovation, the sector has been on an unbroken path for three decades that is taking us to full realization of basic financial inclusion goals.

But this focus has also meant a three-decade detour away from deep engagement with real sector challenges. We’re working on payments, not mortgages. We’re working on credit algorithms, not pensions. All are important, but our emphasis has been selective.

Now it’s time to come back to the real sector and see how individuals, with their newly acquired access to financial services, can better use those services to accomplish tasks like building a business, using clean energy, getting an education and staying healthy. We’re in a much better position do tackle these challenges today than in the 1970s, because inclusive financial systems exist. And, hopefully, because we won’t make the old mistakes.
<blockquote>It’s time to come back to the real sector and see how individuals can better use financial services to accomplish tasks like building a business, using clean energy, getting an education and staying healthy.</blockquote>
To take one example, financing for shelter is a potentially pathbreaking field of endeavor for those concerned with financial services for the poor. Everyone needs a safe and comfortable place to live. But with a few exceptions, shelter has not played a role in the financial inclusion conversation for the past decade. To seriously support the acquisition or upgrading of housing, we need innovations. We already know that the thirty-year mortgage is not the answer for most low-income people around the world, but how can we promote the spread of the two-year home improvement loan that has shown promise in many areas? What models combine new financial products with new forms of construction, or land titling?

To develop innovations that work, financial inclusion and housing experts will have to join together in a multi-disciplinary way, and they will have to draw on the advances available through technology. A handful of organizations do combine housing and financial expertise to solve shelter problems, but many more are needed. Financial inclusion experts need to learn about construction, while shelter experts need to be open to financing methods other than scaled back mortgages. Partnerships are needed to solve barriers such as out-of-date building codes and access to water and sanitation. These challenges are often far beyond the usual concerns of banks and financial institutions, and unsolved, they can impede the development of financing solutions by making it hard to lend or by making housing unaffordable.

Similarly, in order to offer financial services that support health care, financial inclusion experts must learn more about how health care works and what it costs, while the health care experts must be willing to explore models other than public sector hospitals and clinics. And I could say the same about agriculture, energy, environment and education.

Why haven’t financial inclusion specialists already moved into sustainable development in a big way? I can think of three very good reasons.

The Next CFI Challenge: Financial Inclusion for Sustainable Development

From Beth's Desk

Financial Service Providers

Partnerships

Rural Populations

How do financial institutions use APIs and bespoke partnerships to partner effectively with fintechs to reach the underserved? How can financial institutions provide a set of accounts and services for G2P recipients in a profitable way?

Join us on February 7 at 10:00 am EST to virtually meet <a href="https://www.centerforfinancialinclusion.org/bio/dan-kleinbaum/">Dan Kleinbaum</a> and <a href="https://www.centerforfinancialinclusion.org/bio/larry-reed">Larry Reed</a>, the 2019 CFI Research Fellows, as they discuss their plans to tackle the above research questions. They'll introduce themselves and discuss why these topics are of interest to them. Be sure to bring your own questions, too: there will be time for a Q &amp; A at the end.

Over the course of spring and summer 2019, be on the lookout for their blog posts and reports. We'll also keep you in the loop regarding in-person events with these two researchers. In the meantime, check out our blog post <a href="https://www.centerforfinancialinclusion.org/2019-cfi-fellows">announcing this year's Fellows</a>.

Special thanks to <a href="https://www.fmo.nl/">FMO</a> and <a href="http://www.accion.org">Accion</a> for their support of the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/research-fellows-program/">CFI Research Fellows Program</a>.

Webinar: Meet the 2019 CFI Fellows: Making APIs and G2P Payments Work for Financial Inclusion

CFI Research Fellows Program

Digital Financial Services

Event

After considering many highly qualified applicants, we are excited to introduce 2019 CFI Research Fellows <a href="https://www.centerforfinancialinclusion.org/bio/dan-kleinbaum">Dan Kleinbaum</a> and <a href="https://www.centerforfinancialinclusion.org/bio/larry-reed">Larry Reed</a>. As all participants in the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/research-fellows-program/">CFI Research Fellows Program </a>have done since its genesis in 2015, the new group will examine important – but different – questions in financial inclusion. Kleinbaum will focus on how application programming interfaces (APIs) can support small financial service providers (FSPs) to partner with fintechs to reach the underserved, while Reed will explore the incentives facing banks when they attempt to serve the recipients of government welfare and related programs profitably.

Take a moment to learn about the fellows’ planned research below. For more information, tune in to a webinar on February 7 -- "<a href="https://register.gotowebinar.com/register/5090331313860456961">Meet the 2019 CFI Fellows: Making APIs and G2P Payments Work for Financial Inclusion</a>" -- when the Fellows will provide a preview of their research and the motivations behind it.

Announcing the 2019 Fellows: Researchers to Tackle Important Questions on APIs, G2P Payments

The program leverages partnerships with Mastercard and a handful of prominent banks. If successful, the new cards will simultaneously improve the government’s functioning, enroll more citizens in key government services like health insurance and social security, and provide digital financial services to many unbanked Kenyans.

How does the program work? Huduma cards are issued <a href="http://www.iafrikan.com/2017/02/07/mastercard-and-huduma-kenya-have-partnered-to-launch-the-countrys-first-multipurpose-social-payment-card-2/">throughout the country</a> at the government’s preexisting Huduma Centres, which provide citizens with the gambit of government services. The cards will also be available at the partner banks, which include the Commercial Bank of Africa, Diamond Trust Bank, Equity Bank, and Kenya Commercial Bank.

Those who register for Huduma cards will use them to receive social benefits and other payments from the government, as well as to pay for government services. Powered by Mastercard, the cards also serve as a prepaid card solution anywhere Mastercards are accepted - in stores, online, via phone, and at Mastercard compatible ATMs. There are corresponding online and mobile phone payment portals for Huduma card holders. Registration doesn’t entail any fees or require a credit history or preexisting bank account. For many, Huduma could <a href="http://www.pymnts.com/financial-inclusion-3/2017/mastercard-powers-cashless-efficiency-in-kenya/">serve as a first formal bank account</a>.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/key-mechanisms.png"><img class="wp-image-23070 alignright" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/key-mechanisms.png" width="591" height="568" /></a>One of the most compelling features of the program is that when registering for a Huduma card users will automatically be enrolled in vital government services including the National Social Security Fund and the National Hospital Insurance Fund, bolstering the expansion of savings and insurance in the country.

This is Kenya’s first multipurpose social payment card with payment functionality. It’s part of Kenya Vision 2030, the country’s development program pertaining to 2008 through the year 2030. By creating a unified payment gateway for government services, the Huduma cards should improve efficiency, transparency, and accountability.

The formal roll-out of the program follows a successful pilot and <a href="http://www.pymnts.com/financial-inclusion-3/2017/mastercard-powers-cashless-efficiency-in-kenya/">will focus on</a> efforts to ensure access to the cards, education on the benefits of the cards, and boosting card usage.

We look forward to closely following the program’s roll-out. Our recent CFI paper “<a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/764">Is G2P an On-Ramp to Financial Inclusion?</a>” found that although programs like Huduma have the potential to increase formal financial inclusion, to-date the evidence ultimately suggests that government-to-person (G2P) beneficiaries do not take advantage of the basic and common functionality of these programs.

In the figure at right are key mechanisms identified in the report by which G2P payments could lead to greater financial inclusion. Of key importance to the success of Kenya’s program in serving as an on-ramp to financial inclusion will be effective education on the Huduma cards and effective relationship-building between cardholders and both Huduma Centres and participating banks.

Have you read?

<a href="https://cfi-blog.org/2016/10/11/the-g2p-silver-bullet-not-so-fast/">The G2P Silver Bullet? Not So Fast.</a>

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?</a>

<a href="https://cfi-blog.org/2016/10/31/g2p-in-colombia-where-to-next-for-the-familias-en-accion-program/">G2P in Colombia: Where to Next for the Familias en Accion Program?</a>

Kenyan Government Expands Insurance and Social Security via Digital Finance

Mastercard

Kenya

Enabling Environment

Policy, Regulation and Government Initiatives

&gt; Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities

<img class="alignright wp-image-22328" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/10/call-out-box.png" width="350" height="247" />Can government-to-person (G2P) payments to low-income beneficiaries translate into their formal financial inclusion? This might happen if those beneficiaries can gain experience in dealing with a formal financial service provider (FSP) when they pick up their payments. This is especially the case where the government pays the beneficiaries of the program through a digital channel, such as a debit card or mobile money, and the payment pick-up process gives beneficiaries the chance to interact directly with this new technology. Furthermore, given that G2P programs are often targeted at women, there is the potential for these programs to increase the inclusion of the half of the population traditionally more excluded from formal financial services.

As part of <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/764">the CFI Fellows Program</a>, Microfinance Opportunities, in partnership with the Pakistan Microfinance Network and Centro de Formación Empresarial de la Fundación de Mario Santo Domingo, looked at the relationship between G2P payments and financial inclusion. For this project we analyzed global survey data and conducted field research in Colombia and Pakistan—two countries with large, well-established G2P programs.

The focus group discussions with the beneficiaries of the <a href="https://www.cgap.org/blog/familias-en-acci%C3%B3n-financial-inclusion-strategy">Familias program in Colombia</a> showed the potential of G2P programs to have a direct effect on enabling women to become comfortable with using digital channels to receive money. The women unanimously reported that they used their Familias debit cards to withdraw their G2P payment from an ATM without any help from anyone else. They did report that, at first, they needed help, but soon learned how to use the cards themselves without any problem.

"... I have the money today and we can withdraw it in just five minutes, right? I think it is easy." (La Calera, Bogotá, Urban)
Nevertheless, despite the fact that women in Colombia have gained facility in withdrawing their payments from ATMs and other outlets, this has not led them to become more financially included. They withdraw all their money at once, and make little or no use of the functionalities of the accounts through which the government pays them. Furthermore, the fact that they have an account with a bank has not translated into their using any other services banks offer.

The women gave various reasons for not using their Familias accounts to manage their money, even though that account allows them to leave money in the account and deposit money into it. The reasons fall into three main categories: a lack of information, a lack of trust, and convenience.

A majority of the participants in the focus groups who received their Familias payment through Banco Agrario did not know that there was a savings account linked to their debit card or that they could save in the account.

If they had information about the account, it was often inaccurate. For example, they thought the account was limited to receiving and withdrawing Familias payments in limited amounts. In the same way, those beneficiaries who received their payment through Daviplata—a mobile money service—did not always know they had a mobile wallet, and, as a result, an account they could use to send and receive money and make deposits. Other participants who knew about the mobile wallets thought that they could only be used for the program. Furthermore, the women thought that if they were temporarily suspended or withdrew from Familias, their accounts would be closed.

In most cases, the participants reported that they withdrew all the money they received in one transaction. One reason they gave was worry that the balance might be “taken back” by the government—they do not trust the Familias accounts. Some participants reported that, in fact, when they had left a balance it shrank over time. This might have been due to the fees Banco Agrario charges for more than two transactions per month, including balance checks.
"No, because once I left $20,000 pesos and then I tried to withdraw the money and there was nothing there. I asked the Familias program and they told me that I should not have left it there." (Codito, Bogotá, Urban)
"... Because when we received this debit card, they told us that we could save money there and nothing will happen. But, we fell into the trap and they took the money away..." (Codito, Bogotá, Urban)
The participants also reported hearing lots of stories about “lost money” that involved other beneficiaries, and those stories pointed to problems with the ATMs, hidden bank fees, and penalties imposed by the program for not withdrawing the funds, amongst others.

Not all the participants in the focus groups mistrusted the Familias accounts. Some participants noted that one advantage of the debit card attached to an account was that you could leave money in the account, whereas if you receive a payment through a giro check you cannot. As a result, a number of women reported leaving small amounts in their account:
"There are always little balances there. I hope that with the next payment I have more than $ 10,000 pesos. I always verified if these balances are there. They are increasing little by little and nobody has taken them away."  (Sabana Grande, Barranquilla, Rural)
Beyond the issue of trust, the focus group discussions made it clear that the women simply preferred to keep their money at home in a piggy-bank (“alcancía”) or in their purses as a matter of convenience—to enable them to have easy access to the cash to pay for day-to-day necessities or deal with an emergency. They did not like using banks or other types of financial service providers because they thought they had minimum deposit rules or simply because they were not accessible.
"It is safer in the house because you know you have it there..." (Codito, Bogotá, Urban)
"…we save small amounts of $1,000 pesos, $2,000 pesos [in the piggy-bank]... the bank does not accept smaller amounts." (San Juan de Nepomuceno, Cartagena, Rural)
"The piggy-bank [is better] because when I withdraw money from ATM, it charges me a fee." (San Juan de Nepomuceno, Cartagena, Rural)
Relationship with an FSP

There was a general perception among the participants that banks did not offer products suitable for them because of their high fees and interest rates or because they were out of reach for someone of their socio-economic status. However, some participants, despite not using their Familias account regularly, knew about and used other financial services offered by other banks and financial service providers not linked to Familias. None of the participants thought that having a Familias account in any way made it easier for them to get access to other services.

For example, there was a small group of women who had savings accounts, loans outstanding, or had borrowed in the past. In large part, these were business owners and were better educated than the other participants in the focus groups. Again, the women stated that there was no connection between their use of these services and their participation in the Familias program.

The participants in the focus groups had a generally favorable view of banks and thought they could be useful in helping finance large purchases such as for homes, land, or businesses. In their view, banks offered lower interest rates and better terms than other, informal sources of credit. Given their economic status, the women did not think they would meet the requirements of the bank today, but hoped that someday in the future they might.

The women said they preferred to borrow from family or informal lenders when they need money for a necessity or an emergency. Informal lenders had an advantage because they lend money quickly, but those lenders also charged interest and required timely repayment. Family sources might take a little longer to get the money but did not charge interest and were flexible about repayment timing. Banks require a lot of paperwork, collateral and/or guarantees, and are slow to deliver the money.
"The bank asks you some requirements… you have to earn more than a minimum wage for a loan, and at the end, you can get a loan for not more than $500,000 pesos. They analyze what expenditures you have at home, and suddenly they answer that you are not eligible for that loan. If you do not have credit rating it is impossible." (Codito, Bogotá, Urban)
The one way in which the women did link their families more closely to the formal banking system because of Familias was through their children. Many women reported having opened a bank account for their children, and that this was encouraged by Banco Agrario and the Familias program. They liked the accounts because the bank did not charge any use fees. The data suggest that the women who had opened such accounts were generally more financially literate.
"…because I opened a savings account for my daughters in Banco Agrario and once I made a transfer from my account to their account. I took it out from the program account and I passed it to their account." (La Calera, Bogotá, Urban)
"They told me in Banco Agrario that I could open a free account for my two minor children. That was part of the Familias program." (Tunjaque, Bogotá, Rural)
In sum, even though the women who participated in our focus groups in Colombia were very comfortable using their Familias accounts, that comfort did not translate into their using those accounts to help them manage their money, except in a few cases. Furthermore, it was clear that they saw no benefit from being part of the program in terms of gaining access to other financial services. The one exception was the accounts they were able to open on behalf of their children. Based on these findings it is fair to say that in Colombia G2P payments to low-income people offer no easy on-ramp to formal financial inclusion. Advocates of inclusion who are seeking to make this ramp smoother and less steep, need to tackle the issues of misinformation, trust and convenience.

Have you read?

<a href="https://cfi-blog.org/2016/10/11/the-g2p-silver-bullet-not-so-fast/">The G2P Silver Bullet? Not So Fast.</a>

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?</a>

<a href="https://cfi-blog.org/2014/06/20/electronic-g2p-for-the-poor-does-electronic-social-protection-need-better-consumer-protection/">Electronic G2P for the Poor: Does Electronic Social Protection Need Better Consumer Protection?</a>

G2P in Colombia: Where to Next for the Familias en Accion Program?

<a href="http://www.centerforfinancialinclusion.org/storage/documents/Government_to_Person_Transfers.pdf"><img class="alignright wp-image-22099" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/10/g2p.png" width="270" height="344" /></a>The following post was <a href="http://nextbillion.net/the-g2p-silver-bullet-not-so-fast/">originally published</a> on NextBillion.

As we approach the <a href="http://www.imf.org/external/am/2016/" target="_blank" rel="noopener">World Bank Annual Meetings</a> this year in Washington, D.C., one topic world leaders will discuss is how to reach universal financial access by 2020. But there is a resounding dissonance between enthusiasm for one of the most-touted solutions to financial exclusion and the evidence to date.

We’re talking about the fervor with which shifting government welfare payments to electronic form (government-to-person or G2P payments) is put forward as a quick route toward universal access. The evidence we’ve seen suggests that while moving G2P to electronic form has important benefits, clients are not yet benefitting from meaningful increases in financial inclusion.

The argument in favor of G2P electronic payments for financial inclusion is simple. Many governments offer cash transfers to millions of people at or below the poverty line, most of whom are not connected to the formal financial system. If these cash transfers are funneled into bank accounts rather than paid directly out in cash, these people immediately gain an on-ramp to financial services.

But the evidence shows that this solution is not working for financial inclusion. The financial inclusion community has been whispering this truth for years.

When G2P recipients receive payment through a bank account, they consistently continue to withdraw the funds in cash. While the recipients may now be officially counted as “included” because they have bank accounts, meaningful inclusion would involve active use of the account, retention of savings in the account, or use of other products offered by the financial institution. However, we observe that no one involved in these transactions – not governments, banks, or clients – sees financial inclusion as an integral part of this process or even as a relevant goal.

The <a href="http://www.centerforfinancialinclusion.org/" target="_blank" rel="noopener">Center for Financial Inclusion</a> commissioned our <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program">CFI Fellow</a>, Guy Stuart, CEO of Microfinance Opportunities, to study G2P programs from a client perspective in Pakistan and Colombia. In his report, “<a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/764">Government-to-Person Transfers: On Ramp to Financial Inclusion?</a>” Stuart found that not only do people withdraw all funds as soon as they can, they do not necessarily perceive the digital channel as more convenient. Recipients continue to report long lines and technical problems. The financial institutions do not actively provide other services to these customers. Banks are attracted to these programs not because they see the customers as an attractive market segment (for the most part, they don’t), but because they receive a small subsidy from the government and the prestige of winning a large scale government procurement.

The government administrators of cash transfer programs, for their part, are focused on reducing administrative costs and leakage due to fraud along the way. Shifting to electronic channels has been effective for those purposes. However, welfare program administrators typically do not share an interest in financial inclusion, and may even believe that all funds should be withdrawn immediately, since their purpose is to support consumption. Stuart concludes that while the cash paid out through welfare programs does better peoples’ lives, the benefits to clients do not depend on which payment channels are used.

And Stuart is not the only skeptic. Experts on the topic from multilaterals, research institutions and financial services providers—the ones doing the research on such programs—agree that G2P electronic payments do not in their current form deliver on their financial inclusion promises.

Stuart’s research also points to the still formidable challenges to make G2P systems work smoothly and provide the right incentives for providers. Providers report that the profit margins on G2P electronic payments are impossibly small, such that few institutional resources can justifiably be spent on leveraging the payments for further inclusion. The procurement processes often used for G2P electronic payments also should be revisited. Often, the entire contract is offered to one institution for a few years, then awarded to a lower bidder during the next cycle. Currently, the process discourages innovation and the kind of competition that might improve service for recipients.

Within financial institutions, changes would be needed to respond to recipients as real customers. Without having to spend funds on customer acquisition, financial institutions could capitalize on how to most effectively engage recipients of G2P payments. Often, however, G2P payment accounts are managed by a separate department from other products. This product separation discourages a long-term customer relationship view.

Finally, recipients will always cash out if they cannot use their funds in electronic form. If the merchant acceptance environment developed such that recipients could use a card linked to their account to buy things they need, then they might be more likely to leave funds in their account for future use.

Is G2P a silver bullet for financial access? No, and of course silver bullets are very rare. We know that cash transfers matter to the poor; we know that paying them electronically reduces administrative costs and leakage. Now we need to work on improving incentives for both providers and recipients to take the next steps to move G2P payments toward more useful customer-bank relationships, and more meaningful financial inclusion.

To read Guy Stuart's report, "Government-to-Person Transfers: On Ramp to Financial Inclusion?", <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/764">click here</a>.

Have you read?

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?</a>

<a href="https://cfi-blog.org/2014/06/20/electronic-g2p-for-the-poor-does-electronic-social-protection-need-better-consumer-protection/">Electronic G2P for the Poor: Does Electronic Social Protection Need Better Consumer Protection?</a>

<a href="https://open.spotify.com/track/2dnoG56c2llppkz2IPtt3G">Gauging Loan Officers’ Perspectives: A Study by Pakistan Microfinance Network</a>

The G2P Silver Bullet? Not So Fast.

<a href="https://www.joomag.com/magazine/financial-inclusion-2020-essential-debates-looking-beyond-universal-financial-access/0826766001475174088?short"><img class="alignright wp-image-22057" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/10/fi-2020.png" width="300" height="410" /></a>&gt; Posted by Center Staff

Looking Beyond [Universal Financial] Access

CFI defines Financial Inclusion as “a state in which everyone who can use them has access to a full suite of quality financial services…”

The World Bank’s latest edition of the Global Findex revealed that between 2011 and 2014 over 700 million people were newly financially included, at least according to the top line metric of account ownership. The Universal Financial Access program continues to drive home the message that financial access is within reach, even possibly by 2020. We at CFI are now shifting our focus to the other elements of financial inclusion, those which we have always stood by and advocated for, but those that will certainly take longer than 2020 to reach.

Our definition continues: 

“… provided at affordable prices, in a convenient manner, with respect and dignity. Financial services are delivered by a range of providers, in a stable, competitive market to financially capable clients.” 

In <a href="https://www.joomag.com/magazine/financial-inclusion-2020-essential-debates-looking-beyond-universal-financial-access/0826766001475174088?short">this issue of our ongoing Financial Inclusion 2020 e-magazine series</a> you will find insights from recent or ongoing CFI research projects. In a rundown of our Business of Financial Inclusion report, you will hear what commercial bank managers told us about the opportunities and challenges that they face in reaching unbanked and underbanked customers. You will also dive into how commercial banks are partnering with financial technology startups to serve new customers and broaden their product offerings. In the e-zine’s research spotlight, we take a critical look at how effective G2P payments have been in advancing financial inclusion. We also explore the role of microfinance in microenterprise growth. In addition, we discuss the importance of two emerging concepts, financial health and financial capability, and what these two frameworks mean for regulators, providers, and customers.

All of this work is unified by a focus on the customer. In advancing financial inclusion, we must make sure that we are not driven by account numbers, but by helping unserved and underserved customers reach their financial goals. That is why we are looking beyond 2020 to a world which provides financial inclusion to all, in every sense of the definition above.

Beyond the e-magazine, we are eager to look ahead to our work with dozens of financial inclusion leaders around the world who together are hosting Financial Inclusion Week 2016 from October 17-21. Last year, from November 2-6, 2015, 34 partner organizations engaged in conversations worldwide to discuss the most pressing actions needed to advance financial inclusion globally. In 2016, we aim to continue these conversations and engage an even wider community of stakeholders to discuss this year’s theme: keeping clients first in a digital world. Events will focus on how to ensure that clients are empowered and protected in a financial ecosystem that has moved beyond brick and mortar to cell phones and internet delivery channels. To get involved in Financial Inclusion Week 2016, <a href="https://cfi-blog.org/2016/06/08/save-the-date-financial-inclusion-week-2016/">click here</a>.

To read the e-magazine, <a href="https://www.joomag.com/magazine/financial-inclusion-2020-essential-debates-looking-beyond-universal-financial-access/0826766001475174088?short">click here</a>.

Have you read?

<a href="https://cfi-blog.org/2015/12/14/fi2020-week-e-magazine-themes-highlights-and-calls-to-action/">FI2020 Week E-Magazine: Themes, Highlights, and Calls to Action</a>

<a href="https://cfi-blog.org/2015/08/10/new-fi2020-e-magazine-three-essential-debates/">New FI2020 E-Magazine: Three Essential Debates</a>

<a href="https://cfi-blog.org/2013/12/19/global-forum-roundup-magazine/">Global Forum Roundup Magazine</a>

New FI2020 E-Magazine: Beyond Access

Financial Inclusion 2020

Financial Capability

Financial Health

Trends

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi

Managing Director

Alreena  Pinto

Amit  Arora

Elisabeth Rhyne

Guy Stuart

Jamie M

Jeff Abrams

Joseph Smolen

Laura Schroeder

Rafe Mazer

Sarah Langhan

Sarina Kidd

Solana Cozzo

Sonja Kelly

Susy Cheston

Tess Johnson

Chile

China

Colombia

Dominican Republic

Europe and Central Asia

Ghana

Guatemala

Haiti

Latin America and The Caribbean

Mexico

Nigeria

Pakistan

Paraguay

Peru

Philippines

Tanzania

Uganda

United States

Zambia

Zimbabwe

Aging and Older Adults

Alternative Data

Banks

Complaint Resolution

Credit

Credit/Debit Cards

Data Analytics

Financial Inclusion Strategy

Financial Technology

Fintechs

Housing Finance

Impact Investing

Microfinance

Mobile Banking

Over-indebtedness

Pensions and Retirement Saving

Persons With Disabilities

Privacy

Remittances

Risk Management

Saving

Social Impact Metrics

Social Performance

Transparency

Youth

Report

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

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

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

In this research, Guy Stuart, CFI Fellow and Executive Director of Microfinance Opportunities, assesses whether and how G2P payments increase formal financial inclusion. Stuart coupled observations, interviews and focus groups in Colombia and Pakistan with extensive analysis of reports on G2P payments covering 19 countries and quantitative data from the World Bank Global Findex.

While Stuart’s research identifies five key mechanisms by which G2P payments could lead to greater financial inclusion, the evidence ultimately suggests that G2P beneficiaries do not take advantage of the basic and common functionality of these programs.

Stuart provides insightful recommendations for government and the private sector to design better products, optimize delivery of payments, and effectively communicate the advantages of these programs to beneficiaries.

&nbsp;

Government to Person Transfers

Michael Schlein

&gt; Posted by Michael Schlein, President and CEO, Accion

[vimeo 174714924 w=640 h=360]

Over the last few years, we’ve made great progress in expanding financial access for those left out of the economic mainstream. From 2011-2014, more than <a href="http://www.worldbank.org/en/programs/globalfindex" target="_blank" rel="nofollow">700 million</a> people gained access to new financial accounts. If you’ve just been reading the headlines, you might assume that telcos and fintech start-ups are the primary forces driving that progress.

But the newest study from the <a href="http://www.centerforfinancialinclusion.org/" target="_blank" rel="nofollow">Center for Financial Inclusion at Accion</a> and the <a href="https://www.iif.com/" target="_blank" rel="nofollow">Institute of International Finance</a>, “<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/748" target="_blank" rel="nofollow">The Business of Financial Inclusion: Insights from Banks in Emerging Markets</a>”, found that of the 721 million adults who gained access to new financial accounts between 2011-2014, 90 percent of them did so at more traditional financial institutions.

Telcos and fintech start-ups have been getting the headlines; the banks have been getting the job done. That’s important, exciting news.

This report shows that, for the first time, banks, all around the world, are seeing financial inclusion as a core business function. <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/748" target="_blank" rel="nofollow">The Business of Financial Inclusion</a> report shows that banks are creating lean, viable business models to reach customers they have never reached before. Digital payments are the main gateway for commercial banks to reach underbanked customers. They take many forms – transactional accounts, salaries and bill payments, G2P, and P2P. This means cheaper, more secure, and more convenient payments. Instead of spending hours traveling to make a single utility payment, mobile money allows you to push a button.

But technology is doing more than providing customers with more channels. It’s also powering data analytics, back-office systems, and product innovation. The combination of banking’s view of the base of the pyramid as a business opportunity, leaner business models, and back office efficiencies is how we’ll reach more people, and provide them with the tools they need to help themselves.

<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/748" target="_blank" rel="nofollow">The Business of Financial Inclusion</a> report also shows how highly the banks regard microfinance, as both an investment opportunity and, more importantly, as a partner in reaching the ultimate clients. These partnerships between banks and microfinance institutions are transforming financial inclusion ecosystems.

Account Access versus Usage

The 721 million new accounts that the world added between 2011-2014 represent tremendous progress; with banking committed to pursuing financial inclusion, I’m confident that we’ll add hundreds of millions of more new accounts in the coming years.

But opening accounts is just the first step. Too often newly-opened accounts remain dormant. Compared to high income countries, people living in low income countries use their accounts much less frequently – and sometimes not at all. And opening dormant accounts is not our vision of financial inclusion.

We know there is much more work to be done. And we are seeing promising signs. The State Bank of India, for example, has led a major effort to open up accounts and, in the first 18 months, we have seen zero account balances fall from 90 percent to 40 percent.

Now that a host of new banks are committing themselves with this cause, they must acquaint themselves with this important distinction: access is a necessary condition for financial inclusion, but customers must use those accounts to realize the potential of inclusive finance. To ensure that customers remain active, engaged users, we need to keep working to gain the trust of our new clients, to develop products that make sense for them and to make sure they have the capability to use these powerful tools well.

Financial exclusion is an urgent problem. Providing someone with financial services now might make the difference between their children going to school today or waiting for their grandchildren – or great-grandchildren – to realize that opportunity.

And this is a problem that we can solve. The digital revolution has changed the boundaries of our imagination. And this <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/748" target="_blank" rel="nofollow">report </a>shows that instead of viewing financial exclusion as a failure of the banking system, we have turned a very significant corner – and now the banks have begun to see the enormous opportunity at the base of the pyramid. This is important progress.

Have you read?

<a href="https://cfi-blog.org/2016/07/13/new-video-susy-cheston-interviews-dr-william-derban-on-the-business-of-financial-inclusion/">New Video: Susy Cheston Interviews Dr. William Derban on “The Business of Financial Inclusion”</a>

<a href="https://cfi-blog.org/2016/07/07/the-business-of-financial-inclusion-insights-from-emerging-market-banks/">The Business of Financial Inclusion: Insights from Emerging Market Banks</a>

<a href="https://cfi-blog.org/2016/07/19/banks-in-financial-inclusion-improving-the-customer-experience/">Banks in Financial Inclusion: Improving the Customer Experience</a>

New CFI and IIF Report Reveals Banks Are Leading Financial Inclusion

Regulators

Saran Sidime

&gt; Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities

<a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/"><img class="alignright wp-image-21191" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/8119464904_abd5a532c7_k.jpg" width="331" height="229" /></a>Can government-to-person (G2P) payments to low-income beneficiaries translate into their financial inclusion? One way this might happen is if those beneficiaries can gain experience in dealing with a formal financial service provider (FSP) when they go to pick up their payments. This is especially the case where the government pays the beneficiaries of the program through a digital channel, such as a debit card or mobile money, and the payment pick up process gives beneficiaries the chance to interact directly with this new technology. Furthermore, given that G2P programs are often targeted at women, there is the potential for these programs to increase the inclusion of the half of the population traditionally more excluded from formal financial services.

As part of the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-and-accion-research-fellows">Center for Financial Inclusion Fellows Program</a>, Microfinance Opportunities, in partnership with the Pakistan Microfinance Network and Centro de Formación Empresarial de la Fundación de Mario Santo Domingo, looked at this issue as part of a larger project on the relationship between G2P payments and financial inclusion. For this project we analyzed global survey data as well as conducted field research in Colombia and Pakistan—two countries with large, well-established G2P programs called Familias en Acción (Familias) and the Benazir Income Support Program (BISP) respectively. The field research involved focus group discussions with the beneficiaries of the programs and, in Pakistan, a series of observations of transactions at the shops of agents of one of the commercial banks distributing payments to the beneficiaries of BISP.

The focus group discussions with the beneficiaries of the Familias program in Colombia showed the potential of G2P programs to have a direct effect on enabling women to become comfortable with using digital channels to receive money. The women unanimously reported that they used their Familias debit cards to withdraw their G2P payment from an ATM without any help from anyone else. They did report that, at first, they needed help, but soon learned how to use the cards themselves without any problem.
"... I have the money today and we can withdraw it in just 5 minutes, right? I think it is easy.” (La Calera, Bogotá, Urban)
In Pakistan, the story was very different. Over the course of three days of observation at various agents’ locations in three provinces—two in Punjab and three each in Sindh and Khyber Pakhtunkhwa (KP)— our researchers observed 778 transactions, of which 324 (42 percent) were transactions in which an individual conducted a BISP-related transaction. Of these 32 transactions failed due to a variety of reasons including: problems with the card or PIN number, a shortage of cash in the agent’s shop, no balance on the card, problems with the beneficiary’s identify card, or the fact that the beneficiary was not present to conduct the transaction herself. Other than the BISP transactions there were also 229 mobile top-up transactions and 100 mobile money transactions (29 and 13 percent of the transactions respectively).

Almost 97 percent of the transactions unrelated to BISP were conducted by men and took just over two minutes to complete. Men performed just over 2/3s of the BISP-related transactions, and the average time it took for all such transactions was five minutes.

[caption id="attachment_21186" align="aligncenter" width="615"]<img class="wp-image-21186" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/figure-1.png" alt="Figure 1: Distribution of Observed Transactions" width="615" height="319" /> Distribution of Observed Transactions[/caption]

We were able to gather detailed information on 203 of the BISP transactions we observed. The information covered who came to the agents’ shop, who they were with, who conducted the transaction, what role the agent played, and whether they conducted transactions other than the BISP transaction while they were at the agent’s. Of the 203 transactions, 75 (37 percent) were conducted by women on their own. Another 73 (36 percent) were conducted by men on their own. The remaining 55 transactions were conducted by someone who went to the agent’s shop accompanied by one or more persons, and in those situations women conducted 32 of the transactions (16 percent of the total), while men conducted the other 23 (11 percent of the total).

In all cases the agent swiped the card and entered the PIN number, written on a slip of paper, given to him by the person conducting the transaction. In 100 (51 percent) of the 195 transactions completed and for which we have data, the agent handed the person conducting the transaction a receipt related to the transaction, while in the rest of the transactions no receipt was given. There was a clear pattern regarding the giving of receipts—three agents we observed gave receipts in all but 6 of the 96 transactions they conducted, while the rest of the agents did not give receipts in all but 10 of the 99 transactions they conducted.

In sum, women conducted just over half the transactions (53 percent) in a program ostensibly targeted at women. In addition, in all transactions the person actually carrying out the transaction was the agent—it was he who actually swiped the card and entered the PIN.

The gender dynamics underlying the observations we made at the agents’ shops shaped the composition of the focus groups we conducted in Pakistan. We were not able to gather focus groups with women in the areas outside Karachi and ended up with all-male focus groups there. But in Karachi we were able to conduct focus groups with women. In the discussions with men we found that they were heavily involved in picking up the payments for women in their household and they could talk extensively about the process. They also talked about how they relied on agents to conduct the transactions for them or paid a guard at an ATM to help them navigate the process, although some did report being able to use ATMs.

In the women-only groups, in Karachi, we found a different story. Women there reported going to withdraw the money themselves, often on their own or in a group of women but sometimes with a male relative. They also reported that they handled the whole transaction—they did not rely on an agent to do it for them.
"I go to the bank and enter card in the ATM machine. There an option of 'Yes' and 'No' comes. I select 'Yes' option." (Karachi, Women, Group 1)
"We altogether go there and help each other in withdrawing money. Our husbands work as labor and have no time for withdrawing money. So we all go to the bank." (Karachi, Women, Group 1)
"We go together to collect money from Benazir Income Support. Some people after watching us and ask 'Are you going to collect Benazir Money? I will send my mother as well.'" (Karachi, Women, Group 1)
Furthermore, some of the women noted that the whole process gave them a lot of control over the money they received:
"We can get the money by ourselves. Even our husbands don’t know about it and we withdraw the money and use it." (Karachi, Women, Group 1)
What we found in Pakistan is consistent with earlier reports on the process of picking up BISP payments in Pakistan. In 2013 consultants from the design firm Continuum conducted <a href="http://continuuminnovation.com/wp-content/uploads/2014/01/Report-1.4.docx.pdf">human-centered design research</a> on the BISP payment system and found that women were often excluded from the process and, if they were involved in the process, faced challenges navigating the ATM because of their low levels of literacy. An Oxford Policy Management evaluation <a href="http://www.bisp.gov.pk/Others/BISPFirstImpactEvaluationReport.pdf">report</a> on the BISP program using data from 2013 reported that men often conducted transactions on behalf of women. The report did also note that despite this, 64 percent of the time the money ended up in the hands of the women because the men who picked it up handed it to them.

Clearly it is possible for women beneficiaries of G2P programs to gain experience in withdrawing money from an account using a debit card or mobile phone. The experiences of women in Colombia prove this. The reports from the women in Karachi also suggest this. But the gender dynamics in Pakistan are excluding many women from having this experience. Furthermore, even if more women were involved in the process of picking up their payments, it is unclear, given the experience of a lot of their menfolk, whether they would gain full control over the process because the role the agents play.

Finally, we must end with a note of caution. Despite the fact that women in Colombia have gained facility in withdrawing their payments from ATMs and other outlets, this has not led them to become more financially included. They withdraw all their money at once, and make little or no use of the functionalities of the accounts through which the government pays them. Why this is the case is the subject of our next blog.

Image credit: <a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/">World Bank</a>

Have you read?

<a href="https://cfi-blog.org/2014/06/20/electronic-g2p-for-the-poor-does-electronic-social-protection-need-better-consumer-protection/">Electronic G2P for the Poor: Does Electronic Social Protection Need Better Consumer Protection?</a>

<a href="https://open.spotify.com/track/2dnoG56c2llppkz2IPtt3G">Gauging Loan Officers' Perspectives: A Study by Pakistan Microfinance Network</a>

<a href="https://cfi-blog.org/2016/03/08/in-the-hands-of-women-a-reflection-on-the-gender-gap-in-financial-inclusion/">In the Hands of Women: A Reflection on the Gender Gap in Financial Inclusion</a>

G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?

&gt; Posted by Susy Cheston, Senior Advisor, CFI

<img class="alignright wp-image-21146" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/kgfs.jpg" alt="" width="330" height="185" />A lot of money is being spent on financial education—and we’d like to see it spent more effectively. We still don’t know all that is needed about what works, but based on our <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/724">scan of the current landscape</a> for financial capability-building innovations, we can already recommend six major shifts in how financial capability resources are deployed.

The first three recommendations relate to who is building financial capability.
1. Bring financial capability efforts closer to the actual use of financial services by enabling providers to take a greater role.
2. Shift the expectation that the government is responsible for financial capability to an expectation of shared responsibility among all stakeholders, including financial service providers and other institutions.
3. Engage organizations serving BoP constituencies, from government social service agencies to employers to non-profits.
This calls for “all hands on deck.” We argue, first and foremost, that providers can and should take a primary role in building financial capability, as they are best equipped to reach customers at teachable moments and to help them learn by doing. Many providers are already spending significant resources on financial education. They could have a much greater return on their investment if they focused those resources on embedding financial capability into product design and delivery, looking at all the touch points in the customer experience as opportunities to help customers use products more successfully.

Fortunately, there are some easy wins, such as the use of nudges, reminders, and default options that bring high impact for very little cost. Other shifts may take more time but are worth the investment. For instance, customer data analytics can yield detailed segmentation so that interventions can be tailored to customers. At the same time, data analytics can support two-way communication so that providers can hear from customers directly and at the time convey important information to them. BBVA/Bancomer is one of a number of banks working with Juntos, a service provider specialized in data analytics for financial capability-building. Juntos provides BBVA/Bancomer customers with reminders through SMS messages. The good news for providers is that technology opens up tremendous opportunities to build capability—at relatively low per customer cost.

One legitimate concern is whether or not providers—and their front-line staff—have the capacity to build financial capability. If front-line staff are not themselves financially capable, it may be hard for them to explain services to customers. At this point, few financial service providers have deep expertise in financial capability-building, and even less in behaviorally-informed approaches. While investing in such expertise may pay off over time, a faster solution may be to bring in consultants specialized in the design of financial capability interventions or service providers that interface directly with the financial institutions’ customers. Over the long term, investments in building the financial capability of front-line staff and agents may pay off. Organizations such as Microfinance Opportunities have found success in providing aids such as scripts or flip books that help front-line staff and agents communicate correctly with customers.

We found a number of providers that are embedding behavioral insights into their financial services. Janalakshmi, a microfinance institution in India is working on a number of fronts, including developing easy-to-remember rules of thumb to communicate through mobile phones, using in-depth household data to customize advice, and providing one-on-one counseling. KGFS incorporates tailored financial advice into its service model. Some commercial banks are also innovating, as is the case with the Saldazo transactional account of Banamex in Mexico, which uses text messaging and a call center to inform customers, answer queries, collect information, and encourage product use. Customers who provide their mobile number receive an SMS after each transaction with messages that encourage account usage and provide tips.

A strong role for providers does not absolve governments of their responsibility. One natural role is to build behavioral principles into national financial inclusion and financial education strategies and into school curricula. At the same time, we see opportunities for governments to shift their focus toward equipping and enabling providers and other actors, including reducing barriers to innovation. These efforts must be supported by a strong client protection framework—one that helps draw the line between building capability and overly aggressive marketing tactics, so that customers are protected and providers are clear about their limits. Governments that provide G2P payments electronically also have a huge opportunity to use a direct deposit into an account as a teachable moment—one that leads to active use of accounts and becomes an on-ramp to other financial services.

We believe there is a role for all stakeholders, and urge the many service providers who work with people at the base of the pyramid to play their part to build financial capability and connect people to providers. This includes employers, social service organizations, hospitals and clinics, and others who connect with people during critical life events.

The remaining three recommendations have to do with the paradigm shift toward behavior and keeping customers and their needs at the center.
4. Incorporate proven elements that support behavior change into existing financial education and financial capacity efforts.
5. Measure results rigorously.
6. Foster customer-led financial capability.
We call on all actors—including financial education experts—to close the gap between knowing and doing by focusing their efforts on customers’ behavior. We have identified <a href="https://cfi-blog.org/2016/04/12/a-change-in-behavior-innovations-in-financial-capability/">seven behaviorally-informed practices</a> that we believe are a good start. But we also believe that these practices need a lot more refinement based on evidence of what works and what doesn’t—evidence that can only come about if those who work on building capability do the hard job of developing metrics for impact based on outcomes not just outputs. In other words, too much of what we know is how many participants receive messages, rather than what actions they take as a result.

Our final recommendation addresses the perspective of customers. We cannot presume to know what matters most to customers, what problems they are trying to solve, or how they would like to be contacted. Throughout our survey, we heard from many people who think deeply about what financial capability means from a customer perspective—and who caution us about the need to approach this work with humility. That means, above all, listening to customers, and developing feedback loops so that our efforts match what customers need in order to achieve healthy financial behaviors that support their goals.

Have you read?

<a href="https://cfi-blog.org/2016/04/12/a-change-in-behavior-innovations-in-financial-capability/">A Change in Behavior: Innovations in Financial Capability</a>

<a href="https://cfi-blog.org/2013/07/22/clearing-the-path-to-financial-capability-in-latin-america/">Clearing the Path to Financial Capability in Latin America</a>

<a href="https://cfi-blog.org/2014/02/25/mobile-microinsurance-products-and-financial-capability/">Mobile Microinsurance Products and Financial Capability</a>

Six Recommendations on Financial Capability

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

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

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.

<a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/"><img class="alignright wp-image-20072" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/2652377697_7cd2f08d4e_o.jpg" alt="2652377697_7cd2f08d4e_o" width="349" height="224" /></a>Aging is an issue that we all hope to face personally, if we haven’t already. As we prepare to participate in <a href="http://www.e-mfp.eu/microfinance-week">European Microfinance Week</a>, we are more convinced than ever that this is a critical topic for the financial inclusion community to address. (If you are planning to be at European Microfinance Week too, make sure to <a href="https://event.neimenster.lu/ehome/emw2015/308192/?&amp;">check out our panel</a> on the Sustainable Development Goals and financial inclusion!) In Europe, the aging of the population is well acknowledged. With average life expectancy in Europe among the highest in the world, at 77 years, the proportion of the population reaching older age is naturally growing. About 25 percent of Europe’s population is now over the age of 60, and that percentage is set to rise. The aging of the population is well understood in Europe, but what is less recognized is that the middle and lower-middle income countries of the world – the countries that encompass most of the world’s population – are already beginning to experience the same older age population boom. In most middle income countries, from Mexico to China, over-60s are the fastest growing cohort of the population. Aging is a product of successful development. Increased life expectancy, better family planning mechanisms, and higher quality of life all contribute to growth in the proportion of the population that is older.

Aging is a reality, but can it also represent an opportunity for financial institutions? The smart money is on providers who recognize that the answer is yes, and work to figure out how to respond.

We’ve created a list of activities, some practical and some research-oriented, we think would be valuable to close the gaps in financial inclusion for older people and for younger people who want to prepare for their older age. And, frankly, we would love for you to steal these ideas!

Develop a toolkit for becoming an age-friendly institution. We hear of a few financial institutions—from MFIs to commercial banks—that are using age as a lens through which to segment product offerings. From long-term savings products for people in their primary working years to credit designed for older people, being age-friendly across the life course allows a focus on life transitions and the diverse financial needs that accompany them. Case studies and toolkits would help financial institutions follow proven approaches. As part of becoming an age-friendly institution, there are a few starting points that would make a big impact:
Age-proof channels and technology. Financial institutions recognize that new technology, new channels, and new products must be built with the user experience in mind. There are existing vehicles for testing channels and technology to ensure that they work for older people. As part of vetting channels and technology, financial institutions can leverage older persons’ associations, assuring the technology’s validity for later life.
Ensure that staff members are not discriminating based on age. Financial institutions and support organizations can test the customer experience through mystery shopping in order to better understand how people of different ages are treated when they walk into a branch. An exercise like this could inform market-specific training modules to dispel myths about aging for staff of financial institutions.
Use existing data to create better products. Financial institutions have a wealth of data on clients that goes unused, and age is one data point that is collected because of the way that AML/CFT laws are translated into institutional policy. Financial institutions can use the data they have on clients to better understand how age influences client behavior. From this data, financial institutions have the opportunity to create better products to serve people across their life cycle, and especially into their older age.
Enhance financial security in older age by leveraging G2P and P2G early on. The shift toward electronic government-to-person and person-to-government payments presents an opportunity for creating “on-ramps” to inclusion. Leveraging these products could include automatically diverting funds sent through electronic channels to help people save funds for older age (which is already happening in many parts of the world) or using electronic G2P payments that go to older people as collateral for loans (older people are often seen as higher risk). Financial institutions which provide the accounts through which electronic payments are channeled have the positioning to capitalize on this opportunity.

Raise or eliminate age caps on credit and insurance. Over half of the institutions we <a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">surveyed earlier this year</a> reported that they impose upper age restrictions on their products. Many age caps at microfinance institutions are based on outdated actuarial tables, and are ripe for being challenged or creatively eliminated. Many people who are older may be willing to pay more for credit. And financial institutions could find highly receptive clients if they responsibly raise age caps on credit products. A dedicated loan guarantee fund could help mitigate perceived risk during a pilot phase, accompanied with careful performance monitoring to provide more data about actual risks of lending to older adults.

Enable people to save for their older age. Pension systems were designed for a largely formal labor force, and the current reality of the size of informal markets does not match the intention of pensions systems. More progressive governments have begun to reform their pension systems to account for the more informal labor force, by creating alternative channels for contributions at places like corner stores and through mobile phones. Financial institutions can also play a role, either serving as channels to collect funds for the pension system or by setting up independent long-term savings programs that promise a competitive interest rate.

We are confident that there are a hundred more ideas that are just as good (or better). More importantly, though, we look forward to seeing a world in which age is not a barrier to people having access to a full range of quality financial services.

If you end up stealing one of these ideas, or if you’re already doing something to advance industry thinking on aging, let us know—we would love to champion your work.

Image credit: <a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/">World Bank</a>

Have you read?

<a href="http://cfi-blog.org/2015/02/20/moving-to-action-on-aging-and-financial-inclusion/">Moving to Action on Aging and Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/02/10/aging-and-financial-inclusion-an-opportunity/" target="_blank" rel="noopener">Aging and Financial Inclusion: An Opportunity</a>

<a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">Aging and Financial Inclusion: A Client Protection Issue?</a>

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Aging and Financial Inclusion: Steal These Ideas!

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

&gt; Posted by Michael Miebach, President, Middle East and Africa, MasterCard

<a href="http://www.fi2020week.org"><img class="alignright wp-image-19409" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/fi2020-week-logo.png" alt="" width="350" height="141" /></a>FI2020 Week is a global conversation on the key actions needed to advance financial inclusion, grounded in the findings of the recently launched FI2020 Progress Report. From November 2-6, 2015, stakeholders around the world are participating in more than 30 events and sharing their voices over social media, with #FI2020.

<a href="http://www.fi2020week.org/">FI2020 Week</a> offers a good opportunity to review the findings in the <a href="http://www.fi2020progressreport.org/">FI2020 Progress Report</a> and to consider actions the global community needs to take to advance financial inclusion. This is of particular interest to me as I work every day to expand MasterCard’s payments platform in the Middle East and Africa, and in a volunteer capacity, I also serve on the board of directors of Accion.

The report <a href="http://www.fi2020progressreport.org/technology/">asserts</a> that it’s not enough to “build the rails” to enable payment and transaction access, but that “providers, regulators and support institutions need to ensure that the financial services that follow provide value and quality to the passengers who climb aboard.” Here is where interoperability is essential—if last mile customers are to benefit. Banks, telcos, merchants, and governments must be connected—despite different rules and technologies—in a way that is seamless to the user. From a customer perspective, that means ubiquity, safety, and utility—the trifecta of success in financial inclusion. It won’t work if all the stakeholders are competing to create their own end-to-end solutions, or operating in silos. It won’t work if we are creating islands, where the unbanked transact with each other and where data is used in proprietary ways to support individual business models, rather than being shared as a public good.

Now, a parent in Zimbabwe sends money to his daughter studying at university in South Africa using a mobile money operator connected to the global banking system. All he needs to do is go to an <a href="http://newsroom.mastercard.com/press-releases/mastercard-launches-cross-boarder-remittance-service-in-zimbabwe/">EcoCash</a> agent and top up his mobile money account. His daughter then accesses the funds using a MasterCard debit card linked to the same EcoCash mobile money account to purchase text books, and pay university fees as well as other day-to-day expenses while at university in South Africa. This is ubiquity, safety, and utility put into action.


<img class="alignright wp-image-19955" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/thumb_4298b3a77f1a41819e09b1e02e4c3c59.jpg" alt="" width="300" height="200" />Equally critical is the focus on <a href="http://www.fi2020progressreport.org/client-protection/">client protection in the digital age</a>. The explosion of data brings new opportunities for inclusion, but it also requires trust in a system many have never used. The distributed trust model requires that both merchants and customers can trust in a secure transaction when making a purchase without cash. An expanded merchant acceptance network along with an expanded Internet add to the complexities. This will be even more challenging with the rise of P2P transactions, which will bring more micro merchants into the financial system. One solution for increasing protection and decreasing fraud is the use of biometrics. For many people, a biometric ID—using fingerprints or an iris scan—may be the first form of identification they have ever been issued. It increases security and transparency and can open the door to having a bank account, receiving government benefits, and even voting. In this case, biometrics can lead not only to greater financial inclusion, but also to greater social inclusion.

But the fundamental challenge ahead is <a href="http://www.fi2020progressreport.org/addressing-customer-needs/">addressing customer needs</a>, underscored by the gap between access and usage that proves there is still much work to be done despite many new accounts being created. Take the great leap forward of moving from cash to electronic payments for G2P social benefits. This is a good change all around—good for governments, which can reduce transaction costs, leakage and fraud, and good for customers, who can avoid the theft of their money and no longer have to wait in long lines either to receive their social benefits or to pay bills. Yet despite this advance, many customers don’t really take advantage of the service—at least not at first. Many people simply head to the nearest ATM to withdraw all of their funds. Yes, they have avoided the long lines to receive the payments, and the government still saves money—but the customers are not using the service to their own benefit.

This is where the Center for Financial Inclusion’s message about the need for providers to take the long view is key. Take the SASSA debit card in South Africa (the South African Social Security Agency electronic benefits disbursement program). The good news is that, over time, people started changing their behavior when provided with a tool they could learn with through use. We found that from year to year, POS purchases increased by 27 percent, cash withdrawals without a purchase decreased by 24 percent, and cash back with purchase transactions grew slightly by 3 percent. This, of course, means that beneficiaries were not simply cashing out as soon as they received their payments and were using the card to store value in a more secure way. And, along the way, merchants have seen as much as a 30 percent increase in sales in the first year of the card.

For all of us working on financial inclusion, the questions about technology circle back to the central question of the customer experience. If we keep in mind the need to create value for all stakeholders, the access/usage gap will be transformed, and we will move closer to a financially inclusive world.

Michael Miebach is president, Middle East and Africa for MasterCard. Based in Dubai, Mr. Miebach is responsible for driving the evolution of payments in markets across the Middle East and Africa region. Mr. Miebach recently joined the board of directors of Accion.

Image credit: Accion

Have you read?

<a href="http://cfi-blog.org/2015/10/13/the-data-story-in-the-fi2020-progress-report-on-credit-reporting/">The Data Story in the FI2020 Progress Report on Credit Reporting</a>

<a href="http://cfi-blog.org/2015/10/08/why-we-gave-consumer-protection-a-5/">Why We Gave Consumer Protection a 5</a>

<a href="http://cfi-blog.org/2015/10/05/toward-an-agent-free-world/">Toward an "Agent-Free" World</a>

Ubiquity, Safety, and Utility: The Trifecta of Success in Financial Inclusion

&gt; Posted by Susy Cheston, Senior Advisor, CFI

<img class="alignright wp-image-19853" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/thumb_d95a78ed16824c9ca5c524a6278705db.jpg" alt="" width="326" height="217" />Of the 700 million new accounts that the Global Findex reports were opened from 2011 to 2014:
<ul>
 	<li>Banks and other financial institutions accounted for 550 million;</li>
 	<li>Mobile network operators accounted for 100-240 million, depending on your source and methodology;</li>
 	<li>Microfinance institutions accounted for 50 million.</li>
</ul>
These numbers are rough and involve some overlap—but they point to the continued importance of commercial banks in financial inclusion. Put another way, of the 3.2 billion accounts reported in the 2014 Findex, 3.1 billion were accounts with a financial institution.

That’s why I was so interested in hearing what the commercial bankers had to say at an Institute of International Finance (IIF) roundtable held in Lima on October 9 alongside the International Monetary Fund (IMF) / World Bank meetings. The strategies they discussed for reaching the BoP were not new to those immersed in the financial inclusion world, but it was heartening to hear their commitment to putting those strategies into operation. Here are a few of the points from the discussion:

Use data to understand customers. Now more than ever, there is a wealth of available data to help us better understand customers at the base of the pyramid. These new customer insights are opening up new practices – from on-boarding, to cross-selling, to risk management. Data analytics can also enable cost reductions on credit and insurance. For example, ecommerce platforms for small manufacturers can facilitate credit offers and then arrange for automatic repayment from the ecommerce activity itself. This innovative use of data allows financing at half the cost.

Partner with last mile providers. Several banks credited their progress in reaching the BoP to partnerships with microfinance institutions, agent networks, mobile network operators, and retailers. In the case of Indonesia, they did the math. About 40 percent of the population has access to financial services, served by roughly 30,000 bank branches in the country. Yet with roughly 300,000 shops and a mobile penetration rate of 70 percent, there is a clear win if banks can figure out the partnership models with agents and mobile operators—including the questions of who owns the customer and how to structure revenue sharing.

Work with G2P and national ID programs to connect to large numbers of new customers. Large commercial financial institutions are partnering with governments to help deploy payments like conditional cash transfers. Such a partnership both serves the government and also supports the bank’s customer acquisition. Of course, this can be a huge undertaking, sometimes involving the entire population of a country. Banks operating in this space that are concerned about their capacity have started small, with plans to expand. Universal ID programs are helping make it easier to meet costly Know Your Customer requirements, most notably the Aadhaar program in India.

A stable and open regulation system is, of course, always helpful, as well as dialogue between the public and private sectors, including both financial and telco regulators. The roundtable particularly focused on the challenges of inconsistent and unclear supervision which is exacerbated by the introduction of new technology. When a supervisor with a great deal of discretion faces a new technology, anything can happen, and the resulting uncertainty can make banks shy away.

Understand the product introduction “ladder” (we call this on-ramps). Customers often begin with a single product and then progress to use a wider array of services. Roundtable participants seemed to agree that the most effective product introduction ladder is typically: cash in/cash out; bill pay; savings; and credit. (We’ll hope that insurance is included in the next discussion!)

Provide customer support. Without adequate focus on the customer, the services offered will likely fail. Providers must build customer understanding and gear product offerings accordingly. Clients must be treated with adequate care, including in the handling of newly emerging risks like data privacy. And integrating financial capability-building into product delivery, especially for new financial customers, is key.

IIF’s roundtable wasn’t the only inclusive finance activity at the IMF / World Bank meetings in Lima. On October 8, in a session entitled “Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?”, an expert panel discussed the current state of financial inclusion, the impact of national commitments, and how the U.N. Sustainable Development Goals (SDGs) will shape the future of national targets and methods used to advance progress. There was a consensus among panelists that financial inclusion plays a fundamental role in all levels of economic development. (A great recap of the session from the Alliance for Financial Inclusion is available, <a href="http://www.afi-global.org/news/2015/10/09/financial-inclusion-takes-center-stage-world-bank-imf-flagship-seminar-lima-peru">here</a>.) Christine Lagarde, head of the IMF, also put financial inclusion in the macro spotlight in her speech, delivered the following day. And in the Civil Society Policy Forum accompanying the IMF meeting, the Microcredit Summit Campaign focused on ways financial inclusion can contribute to ending extreme poverty.

Image credit: Accion

Have you read?

<a href="http://cfi-blog.org/2015/04/24/fintech-for-fi2020-a-conversation-on-aligning-technology-and-partnerships-for-financial-inclusion/">FinTech for FI2020: A Conversation on Aligning Technology and Partnerships for Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/04/28/global-findex-offers-next-steps-for-how-to-give-people-bank-accounts/">Global Findex Offers Next Steps for How to Give People Bank Accounts</a>

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress toward Financial Inclusion on a Scale of 1 to 10</a>

Are Commercial Banks Ready to Serve the Base of the Pyramid?

Investors

&gt; Posted by Sonja E. Kelly, CFI

A couple months ago we announced a <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-and-accion-research-fellows">new program</a> coming out of the Center for Financial Inclusion and Accion designed to produce actionable research for the microfinance and financial inclusion industry. We’ve been busy since, overwhelmed by the positive response we had to our announcement, and torn between many high-quality research proposals.

In recent days we selected four fellows to carry out research that we think will have an influence on the future of financial inclusion. Without further adieu, I would like to introduce you to…


<img class="alignright wp-image-19425" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/guy1.png" alt="" width="150" height="157" />Guy Stuart, Microfinance Opportunities 

“Is G2P an On-Ramp to Financial Inclusion?”

Guy will ask whether G2P payments serve as an on-ramp to financial inclusion, and what factors best explain the successful transition from cashing out G2P payments to active use of an account. The research will study this in-depth in two countries, Pakistan and Colombia, using the Benazir Income Support Program and the Familias en Accion program as bases for analysis. The research will be supported by the Pakistan Microfinance Network and Centro de Formacion Empresarial de la Fundacion Maria Santo Domingo, using key informant interviews, focus groups, and site-based observations of G2P transactions. Guy is the Executive Director of Microfinance Opportunities. He has extensive experience conducting research on the financial capabilities of low-income consumers.

<img class="alignright wp-image-19428" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/bio-pic-1.jpg" alt="" width="150" height="147" />Leon Perlman, Independent Consultant 

“Challenges of Technology Access in Enhancing Financial Inclusion”

Leon’s research will look in detail at the opportunities and challenges of the current and projected technological evolution. The research focuses specifically on changing technology, bearer services, access platforms, and user devices. To articulate these challenges and opportunities, Leon will take a market-level approach to policy, pricing, access coverage, cost of devices, challenges to security, and usability. Leon Perlman is a PhD-level expert in digital financial services, payments systems, financial inclusion, mobile technology, and compliance, with over 16 years of experience in the sector. He has also advised central banks, finance ministries, the ITU, the Gates Foundation, GSMA, the World Bank/IFC, and the World Economic Forum.

<img class="alignright wp-image-19429" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/christy.png" alt="" width="150" height="148" />Christy Stickney, Independent Consultant 

“Financing the Growth of Enterprise (How did they do it?!?)”

Christy will ask the question of how entrepreneurs transition from microenterprises to small businesses. By looking at time series data from financial institutions and enterprises in multiple markets, her research will identify patterns and practices among entrepreneurs who have utilized financial services while successfully growing their businesses. The research will also leverage face-to-face interviews with selected clients and their loan officers beyond institution-level data. The purpose of the research is to offer insight into what a successful business model would be for MFIs seeking to expand their outreach into the small business sector, and better serve their current client base in growing their enterprises beyond the micro-level. Christy has been engaged in microfinance since 1993, having developed loan and savings products for women micro-entrepreneurs and then going on to design a variety of other types of financial products and services. Since 2010 she has worked as a consultant in financial services and inclusive market development, and is based in Costa Rica.

<img class="alignright wp-image-19431" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/amy.png" alt="" width="150" height="188" />Amy Jensen Mowl, IFMR Finance Foundation 

“Big Data for Financial and Social Inclusion: Opportunities and Challenges for Alternative Data and Credit Analytics in India”

In developing countries, “big data” analytics has been touted as having the power to unlock the door to more fair, convenient, equitable financial access to all citizens. While its promise is compelling, the evidence on the ground is thin, and recent debates in high-income countries have highlighted very real fears that these data and technologies will exacerbate the financial and social inequities they were engineered to alleviate. Amy’s work attempts to fill the knowledge gap in India and serve as a starting point for a longer-term, action-oriented engagement with stakeholders in the sector. Amy Jensen Mowl is a development economist based in India specializing in financial inclusion. She has nearly a decade of experience conducting qualitative and quantitative research in the country, her most recent focus being on the institutional and structural barriers to financial inclusion.

We look forward to sharing with you the fellows' research as they move forward!

The research fellows webpage can be found <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-and-accion-research-fellows">here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/09/14/increasing-poverty-outreach-suggestions-from-recent-research/">Increasing Poverty Outreach: Suggestions from Recent Research</a>

<a href="http://cfi-blog.org/2015/04/03/new-research-highlights-increasing-use-of-alternative-data-in-credit-reporting/">New Research Highlights Increasing Use of Alternative Data in Credit Reporting</a>

<a href="http://cfi-blog.org/2015/03/19/individually-tailored-financial-education-what-research-tells-us-is-possible/">Individually Tailored Financial Education: What Research Tells Us Is Possible </a>

Announcing… CFI and Accion’s Research Fellows

G2P

Meet the Experts