Can your skin color help predict whether you may be financially exploited in the United States? Unfortunately, even in 2018, the answer is still yes.

In February of this year, Wells Fargo was <a href="http://www.wisebread.com/how-to-fight-back-against-mortgage-discrimination">sued</a> by the city of Sacramento, California for allegedly discriminating against black and Latino mortgage borrowers since 2004. The specific charge, raised against the country’s third-largest bank in terms of assets, was providing these clients with more expensive loans compared to those offered to white borrowers.

Across the country, in Baltimore, Maryland, <a href="https://www.nytimes.com/2015/05/31/opinion/sunday/racial-penalties-in-baltimore-mortgages.html">a study</a> that found that black homeowners were charged higher interest rates and disadvantaged at every stage in the borrowing process compared to similarly qualified white borrowers – even taking into account factors such as credit scores, income and down payments. Over the span of a 30-year loan, the researchers say, discrimination against black borrowers cost them an extra $14,904 each, compared with white borrowers.

Homeownership is one of the most important ways for working and middle class families to build generational wealth. According to the U.S. Census Bureau, <a href="http://www.nareb.com/site-files/uploads/2017/09/SHIBA2017-final-for-web-0918.pdf">69 percent</a> of a household’s net worth in America lies in the net equity in their home. And investigations have repeatedly shown that people of color pay a heftier price to achieve wealth than their white counterparts.

What are the economic implications of financially exploiting people of color in home ownership? More expensive mortgage loans translate into higher monthly payments, lower savings, and a higher risk of default and foreclosure. On a macro-level, consequences include a stagnant homeownership rate among people of color, a yawning (<a href="https://qz.com/1087711/the-racial-wealth-divide-is-worse-than-people-think-and-its-growing/">and growing</a>) racial wealth gap, and continued institutional discrimination against people of color in the United States.

As a national consumer advocacy entity, the Consumer Financial Protection Bureau (CFBP) is designed to investigate claims of nefarious behavior among financial service providers and ensure that providers treat consumers fairly. However, its Office of Fair Lending and Equal Opportunity was <a href="https://www.americanbanker.com/news/cfpbs-mulvaney-strips-his-fair-lending-office-of-enforcement-powers">stripped of its power</a> earlier this year, with the removal from its mandate of oversight and enforcement. Commenting on the move, Lisa Donner, executive director of Americans for Financial Reform <a href="https://www.bostonglobe.com/news/politics/2018/02/01/trump-administration-strips-consumer-watchdog-office-enforcement-powers-lending-discrimination-cases/p7L5FAbNZisXTAuUvkeeAP/story.html">remarked</a>, ‘‘These changes . . . threaten effective enforcement of civil rights laws, and increase the likelihood that people will continue to face discriminatory access and pricing as they navigate their economic lives.”

The burst of the U.S. housing bubble yielded the Great Recession, which spread throughout world. Its origins in reckless lending in the subprime market convinced many people involved in the financial sector that consumer protection was urgently needed. In response to this gap, the 2010 Dodd-Frank financial reform law was passed. However, the current administration has since rolled back banking regulations, making it harder to detect discriminatory mortgage lending practices. <a href="https://www.stltoday.com/business/local/discriminatory-mortgage-lending-harder-to-detect-as-banking-regulations-rolled/article_c31cdd14-7b9e-5f55-80dd-28bbdf2fb6e3.html">Signed in May 2018</a>, the new Economic Growth, Regulatory Relief and Consumer Protection Act would exempt <a href="https://www.huffingtonpost.com/entry/bank-bill-deregulation-congress_us_5b043b70e4b0c0b8b23ea6cd">85 percent</a> of banks from reporting detailed information about mortgage loan applicants. This means it will be more difficult to identify systemic issues, conduct research about them, and respond with corrective action.

As borrowers of color in the U.S. continue to access credit with the goal of owning a home, and the steady deliberate weakening of institutional watchdogs and regulations continues, the future of consumer protection in financial services for all remains in jeopardy. As banks continue to backslide into more discriminatory and predatory practices towards people of color, we as consumers and advocates should continue to be aware of and vigilant about them.

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Skin Color Still Costly: Discrimination in the U.S. Mortgage Market

United States

Consumer Protection

Enabling Environment

Financial Service Providers

Housing Finance

Policy, Regulation and Government Initiatives

Transparency

Underserved Groups

Blog Post

&gt; Posted by Jeffrey Riecke, Communications Specialist, CFI

<img class="alignright size-full wp-image-21507" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/06/pay-bills.png" alt="" width="300" height="150" />This morning I had the luxury of splitting an Uber with my girlfriend for our to-work transportation. Neither she nor I are affluent by United States standards, but I would say we’re relatively financially healthy. Most months, our expenses like rent, food, medical bills, and student loans are low enough compared to our incomes that we have money left over for things like Uber rides, dinners out, and the occasional vacation. We have formal financial products and understand them well. Financial health for us means the combination of our financial flows and our financial products positions us for financial stability in the immediate and long-term, even as we grow older and our financial demands dramatically change.

Building financial health, for me, requires attention to my day-to-day financial activities that help build my resilience and allow me to take advantage of opportunities. It’s having savings quietly accumulating for a rainy day or for that bicycle purchase. It’s having access to loans that help if I want to go back to school, buy a house, or start a business. It’s the ability to pay up when an emergency visit to the hospital is necessary, and it’s the confidence that if my house is broken into I can replace my possessions.

My own financial health is very much related to the unique day-to-day financial needs, opportunities, and emergencies that exist in my life. Someone who is unemployed, or older, or supporting a child, or enrolled in school would have a much different assessment of their own health. Similarly, someone in a low or middle income country—where the Center for Financial Inclusion focuses most of its attention—would have different financial needs and therefore different financial health. Despite these differences, however, the thing I’ve noticed is that many of the big financial issues around the world are the same. As part of the Center for Financial Service Innovation’s (CFSI) <a href="http://www.cfsinnovation.com/finhealthmatters/">financial health blog contest</a>, I wanted to offer some observations along these lines.

Whether you’re in the United States or elsewhere, being financially healthy means having credit options that don’t carry scarily big strings attached. This is something I see in my own neighborhood. In the United States, most households have a bank account, but roughly <a href="https://www.whitehouse.gov/sites/default/files/docs/20160610_financial_inclusion_cea_issue_brief.pdf">20 percent</a> of these households are underbanked, meaning they have to resort to informal financial services for some of their needs. The payday loan industry in the United States, for example, has <a href="https://cfi-blog.org/2016/06/02/critical-regulation-the-consumer-financial-protection-bureaus-new-rules-on-payday-loans-and-short-term-credit/">grown robustly</a> in recent years, and is known for high interest rates and fees that trap borrowers into cycles of debt.

As an American, I’m constantly exposed to a barrage of advertisements for financial service providers including payday lenders and alternative financers. In that Uber ride this morning my girlfriend and I heard an ad on the radio for a rapidly-issued loan product. This spurred a conversation between she and I on the prominent U.S. mortgage lending company Quicken Loans. If their name isn’t enough to give you pause, I’m sure their <a href="https://www.youtube.com/watch?v=QlRm6Y5iVfw">Super Bowl spot</a> this past January is. <a href="http://blogs.accion.org/features/6433/">In the words</a> of Accion Venture Lab’s Amee Patel and Paul Breloff, “this ad basically turned the biggest household financial decision – i.e., whether to get a mortgage or home equity line of credit – into a Pavlovian-style autonomic response: ‘Push Button. Get Mortgage.’”

One might posit that this is an ill-conceived though not problematic advertisement as the country has surely wised up since the 2008 global financial crisis, but as only <a href="http://www.wsj.com/articles/get-ready-to-be-told-you-dont-know-money-1457321010#livefyre-comment">57 percent</a> of Americans are able to pass a basic financial literacy test, and the <a href="https://cfi-blog.org/2015/02/04/keeping-score-the-client-protection-principles-vs-the-u-s-subprime-auto-loan-market/">U.S. sub-prime auto loan market</a> is looking dangerously familiar to the pre-’08 mortgage market, it’s hard to feel comfortable with the fact that Quicken Loans is the name of the <a href="http://www.theqarena.com/">arena</a> where the recently crowned Cleveland Cavaliers NBA team plays, if not for Quiken Loans practices then for the flippancy in which they discuss mortgages.

On the whole, the average American household has <a href="https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/">over $15,000</a> in credit card debt.

In the United States and around the world, financial health means being able to make informed decisions to effectively navigate the financial services landscape and maintain an appropriate level of debt.

But I’d love to hear – what does financial health mean to you? Let us know in the comments.

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/2016/06/02/critical-regulation-the-consumer-financial-protection-bureaus-new-rules-on-payday-loans-and-short-term-credit/">Critical Regulation: The Consumer Financial Protection Bureau's New Rules on Payday Loans and Short-Term Credit</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion - Beyond Account Access</a>

What Financial Health Means to Me

Accion Venture Lab

Consumer Credit

Financial Capability

Financial Health

Risk Management

<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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&nbsp;

&nbsp;

&nbsp;

Aging and Financial Inclusion: Steal These Ideas!

Financial Inclusion 2020

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

China

Colombia

Dominican Republic

Europe and Central Asia

Ghana

Guatemala

India

Mexico

Nigeria

Paraguay

Peru

Tanzania

Zambia

Agent Banking

Aging and Older Adults

Credit

Financial Inclusion Strategy

Fintechs

Impact Investing

Microfinance

Payments

Persons With Disabilities

Saving

Social Performance

Women

Youth

&gt; Posted by Habitat for Humanity International

Microfinance in Cambodia has seen tremendous growth throughout the past two decades. The first microfinance institutions were initially established by relief organizations to provide cash transfers to poor families, to build incomes and reduce poverty. Fast forward to 2015, and the financial landscape is thriving with over 45 regulated microfinance institutions (MFIs) operating in the country. Improved financial access is contributing to 7.3 percent GDP growth and reducing poverty rates for those living under $2 per day.

Despite impressive economic growth, housing quality for many Cambodians remains below standards. A <a href="http://www.stat.go.jp/info/meetings/cambodia/pdf/c13ana09.pdf">2014 study</a> conducted by the Ministry of Planning in Cambodia revealed that nearly 27 percent of homes in rural areas still use temporary materials for walls and roughly 83 percent have temporary floors.

As migration brings more people to urban and peri-urban areas, and as a young population seeks to build new housing, there is a growing need for financial products that match the term and usage that housing requires. Recently, housing microfinance (usually characterized by larger loan amounts and longer terms than traditional microfinance) has gained traction in Cambodia as a funding source for home construction and home improvements for low income families.

In 2011 MFIs started to look seriously into housing microfinance as a separate product line – previously the common practice was for some MFIs to offer housing as part of a personal use or general purpose loan.

In 2012, the MicroBuild Fund, an investment vehicle initiated by Habitat for Humanity International with support from Omidyar Network and managed by Triple Jump, entered into Cambodia. This funding focused on MFIs with scalable housing portfolios, based on the hypothesis that to catalyze the growth of home improvement loan products, funds would be required that matched the longer loan terms paired with advisory services to build MFI capacity. MicroBuild has invested USD 39 million in 27 MFIs in 18 countries around the globe, bundled with USD 2 million worth of technical assistance. These investments have assisted partner financial institutions to maintain housing microfinance portfolios worth USD 238 million spread among 136,000 active clients.

Today MFIs offering individual home improvement loan products in Cambodia include <a href="http://www.lolc.com.kh/eng/improvement.aspx">LOLC (formerly TPC)</a>, <a href="http://www.firstfinance.biz/products-services/">First Finance</a>, <a href="http://www.hkl.com.kh/index.php?page=loan">Hattha Kaksekar Limited</a>, and <a href="http://www.amret.com.kh/amret/index.php/en/products-and-services/cp">Amret</a>, among others.

The progress of housing microfinance in Cambodia is well-aligned with global trends. A recent survey conducted by Habitat for Humanity’s Center for Innovation in Shelter and Finance (CISF) revealed that 73 percent of MFIs worldwide enter into housing microfinance to diversify their portfolios and to respond to client demand, keeping customers satisfied and loyal with appropriate products and services. In an increasingly competitive MFI sector, MFIs recognize that offering housing products with lending terms matched to use of the loan can assist with client satisfaction and loyalty, as well as reduce the risk of the loan.

MFIs seem to not be stopping there. Promising trends reveal innovations ranging from water, sanitation, solar installation, home improvement, repairs and extensions, as well as micro-mortgage products.

Additionally, innovation is being initiated in service delivery. For example, LOLC has embedded an engineer in their head office in order to initiate technical tie-ups with suppliers of solar panels, to improve the quality of improvements and service delivery. These MFIs are not just making housing loans available to clients, but doing so in a way that improves home quality in a country without a formal building code or training minimums in the construction sector.

Still there is a tremendous amount to learn and key questions to answer. First, housing microfinance provides a small sliver of the capital required to create a thriving housing finance environment. Two key questions remain. First, what other types of support to the sector are required to incentivize lenders to increase the availability of housing finance products, notably micro-mortgages? Second, in the face of increasing risks for disasters such as floods, how can investors help to ensure that disaster resilience in housing is addressed?

Ultimately, housing provides an opportunity for MFIs, housing finance companies, and commercial banks and developers alike to respond to the housing demand with new and unique product offerings including housing microfinance, relocation housing, micro-mortgages, and rental housing. Additional investors will be needed to provide capital and fuel the growth, and we hope other investors will join MicroBuild in providing capital and support in this burgeoning sector.

Habitat has supported an estimated 2 million individuals in the Asia-Pacific region, where it has been active since 1983. For more on Habitat's Center for Innovation in Shelter and Finance, <a href="http://www.habitat.org/housing-markets/shelter-finance/publications/articles">click here</a>, and on Habitat’s other work and guiding vision, <a href="http://www.habitat.org/how">click here</a>. 

Have You Read?

<a href="http://cfi-blog.org/2014/07/17/housing-finance-models-in-latin-america-and-the-caribbean/">Housing Finance Models in Latin America and the Caribbean</a>

<a href="http://cfi-blog.org/2013/09/03/microfinance-to-mitigate-substandard-housing/">Microfinance to mitigate Substandard Housing</a>

<a href="http://cfi-blog.org/2013/02/15/microfinance-for-housing-in-africas-cities/">Microfinance for Housing in Africa's Cities</a>

Getting to Scale with Housing Finance Innovation in Cambodia

Cambodia

East Asia and Pacific

Microfinance Institutions

&gt; Posted by Tyler Aveni, Positive Planet China

[getty src="179628484?et=GgCaq6CEQdlJs64RSN4CFA&amp;viewMoreLink=on&amp;sig=pvS2qjiVTWBxLnLM0IeaSV7Yv2XmXBmACDzG6Frnxjw=" width="594" height="396"]

In an industry that is constantly evolving due to new technology and abundant knowledge-sharing opportunities, practitioners of socially-driven microfinance and inclusive financial services are also helping to drive new innovation. Accompanying research critically assists this process, especially in evaluating the impact of these new methods and initiatives. This presents a problem for countries like China where a dearth of credible (or existing) data resources makes a critical review of practices far harder to manage. As such, researchers interested in the world’s second-largest economy often must settle with statistics that may suffice but rarely meet higher standards found elsewhere.

The work of Li Gan, a Texas A&amp;M professor who also heads the Survey and Research Center for Household Finance at Southwestern University of Finance &amp; Economics (SWUFE) in Chengdu, China, is helping to address the problem. Professor Li has spent much of the last four years spearheading an effort to gather more data on the financial condition of Chinese households and businesses. Through generous funding by SWUFE and support from the PBOC, China’s central bank, Professor Li has set into motion two key multi-year surveys: The China Household Finance Survey (CHFS) and the “ChinaPnR-SWUFE SME Index” which looks at small enterprises.

Prior to the household survey, the main source of data available on household finance in China came from the National Bureau of Statistics (NBS), a government-sponsored research department. These reported statistics, while comprehensive, are sometimes met with a certain degree of skepticism. Researchers question the integrity of the data collection methods, and some analysts raise concerns about number-tinkering. Any alternative, private surveys were collected on a much smaller scale.

The CHFS is filling the void. Results of the CHFS first began being published in 2012 and are now becoming an increasingly rich and pliable resource for research as additional years of data capture shifts in China’s social and financial landscape. The CHFS started with more than 8,000 households from across mainland China (Tibet and Xinjiang AR excluded) and has been gradually expanded every year. In 2013, some 1,600 SWUFE students were hired and trained to conduct surveys, with the number expected to grow to more than 2,500 for the 2015 survey. Nearly 28,000 households (or 100,000 individuals) are expected to be included in this year’s survey.

Out of approximately 3,000 counties in China, 260 are randomly selected. This selection is then controlled to insure that the sample is both nationally and provincially representative of the population. Within each of these 260 counties, 4 neighborhoods (consisting of villages and communities) are randomly selected. Among the households in the 1,000-plus neighborhoods, between 20 and 50 are randomly selected to be interviewed. The ChinaPnR-SWUFE SME Index works on a very similar system wherein counties and neighborhoods are randomly selected; neighborhood businesses are recorded and then some are randomly selected to participate in the survey.

According to Li Gan, households could be very reluctant to participate but to avoid bias, persistence (i.e. many returned trips) with the support of the local governments and neighborhood committees, has given the CHFS the tools necessary to collect accurate mass-market results. High participation levels (only 11 percent refused to participate in the survey after repeated visits) attest to this earnestness.

Li Gan’s data have shown that wealth is far more concentrated at the top of the socioeconomic pyramid than the NBS figures suggest. It also illustrates that the big picture savings figures are skewed since most of the total dollar amount comes from high income savers.

Interestingly, the survey may also hint at changes in the role of China’s small businesses, since micro-businesses and household finances are often intertwined. In fact, this subset of interest inspired Li Gan and his team of researchers to create the new micro, small, and medium-sized enterprise (MSME) index  in collaboration with a Chinese technology payment services company, ChinaPnR Limited. Used to capture information about China’s roughly 60 million small unlisted companies, data from the ChinaPnR-SWUFE SME Index has now been collected for more than a year. Government and research bodies have strongly encouraged the program, because, as Li Gan points out, any existing lists on these organizations that are currently available are completely outdated. Mass movements of migrant workers to cities and changing economic conditions have relentlessly re-shaped businesses. New shops crop up daily, and turnover is high.

Li Gan sees both the household and microenterprise survey as crucial for microfinance both directly and indirectly. In his view, policies related to microenterprises or small enterprises could even be affected by the survey results. The data keeps relevant information updated by addressing many important questions like: What is the current demand for loans? How much debt can micro and small businesses afford? What financing channels are currently available? Why do micro-entrepreneurs start their businesses? Do they use internet? How knowledgeable are they with internet technology and other innovation?

Answers to these questions may hold implications for what microfinance institutions offer clients and how they deliver services. In addition to researchers digging into past changes and effects, practitioners and organizations may find that the data hold new insights. In recent years there has been a move to holistically evaluate client needs and rethink product and services design to become more appealing for new and existing clients, which in turn, also benefits the institution. This approach, coined “human center design” (HCD) stands to benefit from data, such as the CHFS and SME indexes, which may serve as a broad platform to improve practices and their core offerings.

As of a July 1 update on the CHFS research center’s website (which oversees both surveys), results of the MSME index were officially <a href="http://www.chfsdata.org/detail-26,28-109.html">released</a> last month on June 26. Updates and new results will be published quarterly, with plans made for at least an additional 5-10 years of data collection for both the MSME and household finance indices. As is the case with the CHFS, this data is planned to be made freely available as a public asset for the research community.

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China’s Microcredit Companies</a>

<a href="http://cfi-blog.org/2015/01/06/the-role-of-microfinance-ratings-in-the-sustainable-development-of-chinas-financial-inclusion-sector/">The Role of Microfinance Ratings in the Sustainable Development of China's Financial Inclusion Sector</a>

<a href="http://cfi-blog.org/2014/10/27/gender-dynamics-in-rural-china-illuminate-the-need-for-financial-education/" target="_blank" rel="noopener">Gender Dynamics in Rural China Illuminate the Need for Financial Education</a>

&nbsp;

New Surveys Fill Data Void in China’s Microfinance Industry

Alternative Data

MSME/SME Finance

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18804" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/7-27-news-feed.png" alt="" width="615" height="328" /></a>

Good morning! Freshly published is the latest edition of the <a href="http://newsfeed.financialinclusion2020.org/">Financial Inclusion 2020 News Feed,</a> our weekly online magazine sharing the big news in banking the unbanked. Among the stories in this week's edition are the World Council receiving a USAID award to catalyze affordable housing in Haiti, a multi-partner initiative to train women across Nigeria to become mobile banking agents, and Tanzania setting a new financial inclusion goal. Here are a few more details:
<ul>
 	<li>The World Council with support from USAID and others will work directly with financial institutions and housing developers to help expand affordable housing financial products and services in Haiti.</li>
 	<li>The Cherie Blair Foundation for Women is working with FirstBank to provide technical, business, and financial literacy training to 2,500 women across Nigeria to become agents for FirstBank's mobile banking platform.</li>
 	<li>Last week Tanzania set a new goal of extending financial services access to 75 percent of the population in 2016 - as a follow-up to the goal of 55 percent in 2016, which was surpassed in 2014.</li>
</ul>
For more information on these and other stories, read the latest issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

Housing Finance, Mobile Banking Agents, Tanzania's New Goal - the Latest FI2020 News Feed

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18655" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/fi2020-issue-five.png" alt="fi2020 issue five" width="614" height="329" /></a>

Good afternoon! Freshly published is this week’s Financial Inclusion 2020 News Feed, sharing the big news in banking the unbanked. Among its stories are a new partnership between MetLife Foundation and Opportunity International to expand financing and skills training in rural China, the launch of a World Food Programme initiative that integrates climate risk reduction with financial services, and the release of the first annual Consumer Banking PACE Index, which gauges bank performance to consumer expectations. Here are a few more details:
<ul>
 	<li>MetLife Foundation and Opportunity International have embarked on a three-year partnership to support thousands of small businesses in rural China with financial services and business development training via banks, mobile vans, and rural service centers.</li>
 	<li>The World Food Programme launched the R4 Rural Resilience Initiative, which helps smallholder famers in Zambia navigate environmental demands using index-based agricultural insurance, improved natural resource management, credit, savings, and productive safety nets.</li>
 	<li>The new Consumer Banking PACE Index, drawing on input from over 9,000 consumers, examines bank performance in a handful of countries around the world to conclude that, among other findings, fair and transparent pricing falls below consumer expectations, and trust in banks remains an issue.</li>
</ul>
For more information on these and other stories, read the fifth issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

&nbsp;

Rural Finance in China, Climate Risk Reduction, Meeting Consumer Expectations – the Latest FI2020 News Feed

MetLife Foundation

Rwanda

Agricultural and Rural Finance

Remittances

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18544" style="border: 1px solid #000000;margin-bottom: 3px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/fi2020-news-feed-three.png" alt="" width="614" height="326" /></a>

Hot off the press! We published the third issue of the Financial Inclusion 2020 News Feed, our new weekly online magazine on the big news in financial inclusion. What’s been happening in the world of banking the unbanked?

Among its stories, the new issue of the FI2020 News Feed spotlights the following:
<ul>
 	<li>The State Bank of Pakistan ordered all commercial banks in the country to create a new account category, Asaan Account, which targets the base of the pyramid by simplifying account opening requirements</li>
 	<li>Mybank, a new online bank in China, was launched by Ant Financial, utilizing transaction records on Alibaba to extend credit to individuals and small businesses</li>
 	<li>In Tanzania, agent and mobile phone-based banking continues to grow steadily in both the volume and value of transactions</li>
</ul>
For more details on these and other stories, read the third issue <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

&nbsp;

Pakistan’s New Asaan Account, the Alibaba-Enabled Mybank, Mobile Progress in Tanzania – the Third Issue of the FI2020 News Feed

Pakistan

Digital Financial Services

Mobile Banking

&gt; Posted by Bruce MacDonald, Senior Vice President, Communications, Accion

[getty src="84815725?et=wPg-7YQrQCFaA-fN-k8ZVw&amp;viewMoreLink=off&amp;sig=z4ilN_-ibCZSgKNb_7vzbi2yOIk367nqfDGi-sIPNLs=" width="594" height="361"]

My first love was Susan Morasky, but my second – and far more enduring – has been Africa. For that I credit Mrs. Walden, my third-grade teacher, who encouraged us to think big.

Sadly, even the loves of your life can let you down. In Nairobi last week to promote the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>, our new program on governance for sub-Saharan MFIs, all went well. Until, that is, I tried to go home. A 20-minute taxi ride to the airport became an hour, then two, then four.

I missed the KLM flight to Amsterdam, and of course the connecting flight home. As I sat in the cab, fuming in First-World frustration, I peppered the driver with questions. “What’s the cause of this?” Rain. “Can’t you go another way?” This is the only way. “Where are all the policemen directing traffic?” Incoherent response. And, finally, snippily, “How on earth do you people put up with this?” Obviously embarrassed, he finally stopped answering my questions.

Everything’s relative, especially in Africa – something I should have remembered, given the <a href="http://aidembs.com/banking_conference/">banking and finance conference</a> I’d just come from, and the presentation by Amish Gupta, head of investment banking at Standard Investment Bank in Nairobi.

Some of the most compelling advances in financial inclusion can be found in Kenya. Equity Bank. M-Pesa. M-Shwari. The country is known as Africa’s tech hub. As measured by the latest <a href="http://www.worldbank.org/en/programs/globalfindex">Global Findex</a>, Kenya has moved faster than any other country in the world in terms of population percentage gaining access to accounts – mostly mobile – in the last three years. The current Findex shows that 75 percent of Kenyan adults have either a mobile account, or bank account, or both.

Amish applies a different metric. “What,” he rhetorically asked conference attendees, “does every African want?” Someone fired back: “A piece of the soil!” He nodded, then gave us some numbers. Kenya – estimated population, 45 million – boasts 14 million personal bank accounts spread across 40 banks. Yet the country has a mere 30,000 mortgages on the books. “Absolute failure across Africa,” Amish said, estimating the continent’s home-ownership rate at perhaps 10 percent.

He ticked off some of the critical pieces still missing: listed mutual funds, listed unit trusts, derivatives, REITs, and especially mortgage-backed securities…not to mention the need to create a national finance housing agency to guarantee loans, so mortgage rates – averaging 16.7 percent – will tumble. “We’re missing statistics on the percentage of working-class people who own homes,” he explained. “We’re missing average-mortgage-debt-to-household-assets ratios. We’re missing average-mortgage-debt-to-income ratios.” Financial inclusion, he inferred, goes well beyond microloans, mobile money or financial literacy.

“We are waiting for the revolution in capital.”

Amish remains upbeat. Kenyans – and Amish, personally, it sounds like – are working on all of these issues. A new company law framework, the <a href="http://kenyalaw.org/kl/fileadmin/pdfdownloads/bills/2014/CompaniesBill2014.pdf">Companies Bill 2014</a>, was introduced last year in the <a href="http://www.klrc.go.ke/index.php/constitution-of-kenya/123-chapter-eight-the-legislature/part-2-composition-and-membership-of-parliament/265-97-membership-of-the-national-assembly" target="_blank">Kenya National Assembly</a>. Although withdrawn by its sponsor earlier this year for needed amendments, it includes such common, yet new-to-Kenya, provisions as corporate stock buy-back options and the ability to issue multiple classes of shares. With a nod in my direction, he added, “This bill will bring more and better governance to Kenyan companies.”

Governance. There’s that word again.

Mortgage rates pushing 17 percent, home ownership at 10 percent, a capital-markets infrastructure still in skeletal form… What, by comparison, is four hours by cab to Jomo Kenyatta International?

Have you read?

<a href="http://cfi-blog.org/2014/10/06/bundling-mhealth-info-and-microinsurance-to-improve-health-outcomes-in-kenya/" target="_blank">Bundling mHealth Info and Microinsurance to Improve Health Outcomes in Kenya</a>

<a href="http://cfi-blog.org/2014/08/15/300-households-for-one-year-results-of-the-kenya-financial-diaries/" target="_blank">300 Households for One Year - Results of the Kenya Financial Diaries</a>

<a href="http://cfi-blog.org/2014/11/26/kenya-edges-closer-to-universal-health-coverage/" target="_blank">Kenya Edges Closer to Universal Health Coverage</a>

Waiting for the Revolution

Africa Board Fellowship Program

Kenya

Trends

&gt; Posted by Nelly Agyemang-Gyamfi, Program Coordinator, CFI

<img class="aligncenter wp-image-18030" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/04/hbs_yes.png" alt="" width="620" height="374" />On the 6th of April, 68 financial inclusion stakeholders from 23 countries across the globe arrived in (a thankfully snowless) Boston to commence the 10th annual <a href="http://www.centerforfinancialinclusion.org/collaborators-a-sponsors/harvard-business-school-accion">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>. Over the past decade, the deeply immersive, week-long program has trained over 660 high-level executives from more than 250 organizations spanning 90 countries. As in past years, this year’s program was held on the beautiful campus of the Harvard Business School and led by world-renowned HBS professors Michael Chu and V. Kasturi Rangan. As a Center for Financial Inclusion staff member who helped organize the course, I was privileged to take part, and I offer these reflections on what I saw and learned.

Participants were exposed to a wide range of issues pertinent to inclusive finance, from managing political uncertainty to impact investing and measurement. This year, reflecting the changing landscape of inclusive finance, the course included seven new sessions including cases on China’s <a href="http://english.creditease.cn/">CreditEase</a>, Massachusetts’ <a href="http://payforsuccess.org/">Pay-for-Success</a>, and Peru’s <a href="http://www.edyficar.com.pe/">Edyficar</a>.

To be an observer of all the happenings was exhilarating. Discussions were extremely lively with points and counterpoints that reflected the unique perspectives of the various industries represented – microfinance providers, technology companies, regulators, investors, and so forth. For me, one of the best parts was when lessons learned from cases that seemed far from financial inclusion were applied in tangible terms to the industry.

From my humble point of view, four of the main takeaways from the week were:
<ol>
 	<li>Make sure you are addressing your customers’ pain points. Do not just offer them products YOU think they need. In the session on mobile banking, for example, what Kenya’s population wanted was a way to transfer money to the rural areas to support their families. M-Pesa met this need and a study conducted showed that M-Pesa users were twice as likely to have had a bank account and be wealthier than non-users.</li>
 	<li>Addressing your customers’ pain points can lead to increased sustainability as your customer becomes your advocate. Such was the case with the Manila Water Company where members of the community showed up to a regulatory committee hearing to support the company’s request to increase its rates.</li>
 	<li>There is a need to boil down financial inclusion into a manageable piece for your organization. Decide on what you want to achieve and focus on it. Not every organization can effectively tackle all the dimensions of financial inclusion (e.g. offering not just savings, but also credit and insurance and so on). This was illustrated in the healthcare context through the <a href="http://en.wikipedia.org/wiki/Aravind_Eye_Hospital">Aravind Eye Hospital</a>. The hospital determined that their expertise in the fight against blindness in India was curing the problem as opposed to preventing it. Now, the hospital system has seen upwards of 32 million patients and conducted nearly 4 million cataract surgeries.</li>
 	<li>Once you decide what you want to achieve, do not be afraid to explore other avenues within that focus. Stretch your mission but do not drift from it. At the Aravind Eye Hospital, having decided that their expertise in the fight against blindness was providing cures, leaders decided to expand by offering optometry services in addition to cataract surgeries.</li>
</ol>
If you are interested in experiencing the HBS-Accion Program for yourself, look out for announcements about the 2016 application period which opens in November.

Have you read?

<a href="http://cfi-blog.org/2014/05/16/seventy-global-leaders-convene-for-hbs-accion-program-on-strategic-leadership-in-inclusive-finance/" target="_blank" rel="noopener">Seventy Global Leaders Convene for HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>

<a href="http://cfi-blog.org/2010/04/08/1427/">Dispatch from Harvard Business School — Relating Social and Financial Value</a>

<a href="http://cfi-blog.org/2009/04/24/optimism-in-the-wake-of-crisis-a-week-at-hbs-accion-program/" target="_blank" rel="noopener">Optimism in the Wake of Crisis: A Week at the HBS-Accion Program</a>

&nbsp;

Celebrating 10 Years! Dispatch from the 2015 HBS-Accion Program on Strategic Leadership in Inclusive Finance

HBS-Accion Program on Strategic Leadership for Inclusive Finance

Amanda Yap

Apis Partners

Bhuvana Ramakrishnan

Carmen Paraison

Danielle Piskadlo

Elisabeth Rhyne

Eric Zuehlke

Jeffrey Riecke

Kaj Malden

Panthea Lee

Patrick Kelley

Sonja Kelly

Susy Cheston

Afghanistan

Australia

Azerbaijan

Bangladesh

Brazil

Chile

Indonesia

Latin America and The Caribbean

Libya

Malaysia

Morocco

Nicaragua

Russian Federation

South Africa

Sudan

Tunisia

Uganda

Yemen, Rep.

Banks

Customer Centricity

Delivery Channels

Governance

P2P Lending

Amelia Kuklewicz

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.

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.

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.

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.

<a href="http://www.centerforfinancialinclusion.org/microscope"><img class="alignright wp-image-16543 size-medium" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/microscope.png?w=238" alt="" width="238" height="300" /></a>

The following post was <a href="http://mastercardcenter.org/insights/calling-countries-get-policies-right/" target="_blank" rel="noopener">originally published</a> on the MasterCard Center for Inclusive Growth blog.

Reaching full financial inclusion by 2020 will require supportive policies in every country around the globe. The Economist Intelligence Unit’s “<a href="http://www.centerforfinancialinclusion.org/microscope">Global Microscope on Financial Inclusion, 2014</a>” assesses the policy environment for financial inclusion in 55 countries. The Microscope examines 12 policy dimensions essential for creating an inclusion-friendly regulatory and institutional framework. The rigorous model incorporates input from hundreds of policy makers and participants in the financial sector and a review of existing policies and implementation. The resulting rankings represent the best readily available source for judging the state of financial inclusion policy around the world.

What’s surprising about the 2014 Microscope results is their wide range. Out of a possible 100 points, the top scorer (Peru) received 87 while the lowest (Haiti) earned only 16. If full inclusion requires good policies, it is disappointing to learn that the median score across all countries was a mediocre 46.

Why do some countries score so much better than others? The best-scoring countries, led by Peru, Colombia, and the Philippines, boast capable financial sector regulators who have exerted sustained effort over years. They issue, test, and revise their rules as the market evolves. Many of the worst-scoring countries (notably in the Middle East) have recently suffered political instability. However, in the vast middle group, regulators have worked on some aspects of financial inclusion policy leaving major gaps in others. Most countries have the regulatory basics down – like prudential supervision and regulation of deposit-taking – but fewer have mastered areas important for reaching lower-income customers, especially electronic payments, supervising smaller financial service providers, and protecting consumers.

When new <a href="http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTFINRES/EXTGLOBALFIN/0,,contentMDK:23147627~pagePK:64168176~piPK:64168140~theSitePK:8519639,00.html">Global Findex</a> results come out this month, we will learn more about how good policies contribute to progress toward inclusion. And in the next few years we hope to see advances, especially in the biggest countries covered in the Microscope – China, India, Indonesia, Brazil, Pakistan, Nigeria, and Bangladesh. These giants’ policies are better than average, reflecting their capability as large economies and their priorities as high population countries. But not by much. Average score? 51.

Have you read?

<a href="http://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/" target="_blank" rel="noopener">The 'Global Microscope 2014': Results and Surprises</a>

<a href="http://cfi-blog.org/2014/09/25/the-political-economy-of-financial-inclusion-policy/" target="_blank" rel="noopener">The Political Economy of Financial Inclusion Policy</a>

<a href="http://cfi-blog.org/2014/12/12/asias-top-country-on-financial-inclusion-policy-the-philippines-strengthens-its-microfinance-market/" target="_blank" rel="noopener">Asia's Top Country on Financial Inclusion Policy, the Philippines, Strengthens Its Microfinance Market</a>

&nbsp;

Calling All Countries to Get Policies Right

Mastercard

From Beth's Desk

Global Microscope

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="90864197?et=R_JtKRgyR7tLJCRKwDyPJw&amp;sig=r3FXAhVXSAs_VDh__Ut4DYTaIVNjJQPkEY8zDOO4wUk=" width="509" height="337"]

Obtaining a mortgage is often the single largest transaction a person will ever make. Despite this, about half of Americans actively consider only one lender or broker before taking out their mortgage. Why? A <a href="http://www.consumerfinance.gov/blog/nearly-half-of-mortgage-borrowers-dont-shop-around-when-they-buy-a-home/" target="_blank">new report</a> from the U.S. Consumer Financial Protection Bureau (CFPB) details this phenomenon and some of the factors in play, especially consumer confidence. Tuesday, at <a href="http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-brookings-institution/" target="_blank">an event</a> releasing the report, CFPB Director Richard Cordray put the reality into stark and relatable terms, positing that many individuals spend more time shopping around for a TV or other household appliance than they do looking for a good mortgage. He remarked, “When you are spending a lot of money, you are literally betting the house on the choices you are making.” At the event, Cordray launched a <a href="http://www.consumerfinance.gov/owning-a-home" target="_blank">suite of tools</a> from the CFPB to empower informed decision-making. The hope is that these tools will ultimately get Americans to… shop.

Cordray recommends that mortgage seekers fill out applications with multiple lenders to see which one offers the best deal. Filing multiple applications doesn’t hurt one’s credit score, contrary to popular belief; multiple credit checks from potential lenders within a certain time window (generally 14-45 days) are considered a single inquiry. The CFPB report, which is based on new data in the National Survey of Mortgage Borrowers, found that 77 percent of borrowers only apply with a single lender.

The report also found that prospective borrowers rely heavily on lenders as their main source of information about mortgages – even though lenders have a clear stake in the borrower's&nbsp;decision. Seventy percent of borrowers rely on their lender “a lot” to get information about mortgages, while 20 percent rely on websites and only 2 percent rely on housing counselors. This is especially problematic when considering how much money can fluctuate with just slight mortgage term fluctuations. During his speech, Cordray offered the following numbers for thought:
<ul>
	<li>For conventional borrowers with good credit ratings and 20 percent down payments, potential interest rates can vary a half-percent or more</li>
	<li>An interest rate of 4.0 percent instead of 4.5 percent on a 30-year fixed-rate loan for $200,000 translates into approximately $60 in savings per month</li>
	<li>Over the first five years, this equates to about $3,500 in mortgage payments savings</li>
</ul>
To mitigate passivity by home buyers, the key is confidence – or we might say financial capability. The report found that customers with more confidence in their knowledge about the mortgage process were more likely to shop. Among those very familiar with available interest rates, this was especially true. They were almost twice as likely to shop for their mortgages as those unfamiliar with interest rates. Those who are intimidated are less likely to engage with the process.

The new CFPB tools aim to equip borrowers with resources to instill this confidence. Housed on the <a href="http://www.consumerfinance.gov/owning-a-home" target="_blank">Owning a Home</a>&nbsp;platform, the interactive suite includes a guide to understanding loan options, explanations of disclosure forms, a loan closing checklist, and widgets that demonstrate interest rate implications of various choices and help borrowers assess their borrowing capacity. CFPB also offers a rate-checker, which calculates the interest rates available for users by inputting their credit score, location, and information about the type of mortgage they want. The checker offers users a snapshot of rates brokers are offering to borrowers like them – and it doesn’t advertise additional services or gather personal details for marketing purposes, as is often the case with similar private services. Throughout the year additional tools will be added to Owning a Home.

During the summer, the industry will begin adopting the CFPB’s new loan estimate and closing disclosure forms, which will be received by prospective borrowers shortly after they apply for a mortgage and shortly before they close on one. The new forms were developed in consult with those who will be using the forms - consumers, lenders, mortgage brokers, and settlement agents. The forms were validated through a quantitative study, where participants provided more correct answers about a sample mortgage using the new forms than the existing forms. The <a href="http://www.consumerfinance.gov/knowbeforeyouowe/" target="_blank">CFPB Know Before You Owe</a>&nbsp;website has the new forms available for download, as well as an interactive feature allowing users to click on different form sections and learn about the information pertaining to each section and how the form section was improved upon from that of the previous form.

These recent developments along with the <a href="http://files.consumerfinance.gov/f/201312_cfpb_mortgagerules.pdf" target="_blank">added mortgage lender regulations</a> put in place by the CFPB last January are encouraging for the U.S. mortgage industry, the single largest consumer financial market in the world. Perhaps they’ll be enough to affect the housing market’s recovery, which in spite of improvements to foreclosures and home values and delinquency rates, has lagged the recovery pace of other sectors over the past five years.

Have you read?

<a href="http://cfi-blog.org/2012/03/06/removing-road-blocks-to-housing-finance-new-findings-from-latin-america/" target="_blank">Removing Road Blocks Housing Finance: New Findings for Latin America</a>

<a href="http://cfi-blog.org/2014/07/17/housing-finance-models-in-latin-america-and-the-caribbean/" target="_blank">Housing Finance Models in Latin America and the Caribbean</a>

<a href="http://cfi-blog.org/2014/03/21/cfpb-gives-voice-to-clients/" target="_blank">CFPB Gives Voice to Clients</a>

Americans Don’t Shop for Mortgages

Regulators

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.

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="142765195?et=R5H1wf3HRzVY85zP-SHj7A&amp;socialOnLoad=off&amp;sig=MCzrHiaz1fbKeXXBgrpdooZt9BGrF3EX8HvxLFGuv-s=" width="506" height="339"]

Islamic finance is expected to expand substantially in 2015, from 2014’s total of <a href="http://www.brecorder.com/money-a-banking/198/1138766/">$2.1 trillion to $2.5 trillion</a>, according to figures released last week by the Al-Huda Centre of Islamic Banking and Economics. In 2011, the industry had assets of about <a href="http://www.cgap.org/topics/islamic-products">$1 trillion</a>. Islamic microfinance, the segment of Sharia-compliant services targeting clients at the base of the pyramid, only occupies a small slice of the pie, at 1 percent of all Islamic finance globally. However this uptick in Sharia-compliant finance, as well as encouraging recent support for the 650 million Muslims living on less than 2 dollars a day, suggest a rising tide for Islamic microfinance.

The industry findings indicate that not only did Islamic finance surpass the $2 trillion landmark in 2014, it gained traction in nascent markets and entered new ones. Markets still green in offering Islamic finance that showed growth in 2014 include Morocco, Tunisia, Azerbaijan, Libya, and several non-Muslim-majority countries including Nigeria, Tanzania, and South Africa. Among the new markets where Islamic finance took root last year are Australia, Brazil, and China. Globally, there are 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries. The expansion of Islamic finance opens the door for the many Muslims whose beliefs preclude them from accepting finance with interest rates and fee structures outlawed by Sharia doctrine.

Islamic microfinance, which has typically grown slower than its mainstream microfinance counterpart, could be in for a big year. In 2013, Islamic microfinance had an estimated <a href="http://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">1.28 million clients</a>, about 82 percent of whom lived in three countries – Bangladesh, Indonesia, and Sudan. (Nevertheless, the number of Islamic microfinance clients in Muslim-majority Bangladesh is dwarfed by the 8 million conventional microfinance borrowers in the country.) Along with the Al-Huda estimation of 19 percent growth in 2015 for all Islamic finance, a report by TechNavio from November found that the Islamic microfinance market would grow at a compound annual growth rate of about <a href="http://www.prnewswire.com/news-releases/global-islamic-microfinance-market-2014-2018-281593461.html">20 percent</a> between 2014 and 2018. The current Microfinance Market Outlook forecasts <a href="http://www.microfinancegateway.org/library/microfinance-market-outlook-2015">15-20 percent</a> growth for 2015.

Strong government support, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">instrumental for financial inclusion efforts</a>, has been <a href="http://www.emirates247.com/business/economy-finance/islamic-banking-finance-set-to-reach-dh9-1trn-in-2015-2015-01-01-1.575128">demonstrated</a> for Islamic microfinance in countries including Yemen, Afghanistan, Sudan, Malaysia, and Pakistan. As part of its larger Financial Inclusion Program, the State Bank of Pakistan launched the partially U.K.-funded <a href="http://www.sbp.org.pk/AC&amp;MFD/events/FICF-Round-3-Guidelines.pdf">3rd Financial Innovation Challenge Fund</a>, which focuses on Islamic microfinance. Until the application deadline of February 20, 2015, the bank will accept proposals for grants to test solutions for delivering low cost Islamic microfinance services to more markets. One aim of the challenge is to develop Pakistan’s base of Islamic finance professionals.

GIZ, the German government’s international development agency, is <a href="http://www.reuters.com/article/2014/11/05/islam-microfinance-idUSL6N0SH04020141105">working with CGAP and others</a> to develop model regulations, education, and trainings to expand Islamic microfinance in developing countries. A current GIZ study is exploring demand factors, while another is comparing Islamic finance regulations in five countries. A study by GIZ and CGAP on Islamic microfinance aims to find ways to lower costs – a key obstacle for product adoption. Difficulties in adapting traditional microfinance products to Islamic microfinance have limited product offerings, with the <a href="http://www.cgap.org/news/innovation-islamic-microfinance">most popular</a> being murabaha, a cost-plus-markup product for asset purchases. Last year’s CGAP <a href="http://www.cgap.org/news/pakistan%E2%80%99s-wasil-foundation-wins-islamic-microfinance-challenge">Islamic Microfinance Challenge</a>, a global contest to identify innovative Sharia-compliant products, was themed “Beyond Murabaha.”

We look forward to following the developments in Islamic microfinance throughout the year.

Have you read?

<a href="http://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="http://cfi-blog.org/2013/01/15/continuing-the-conversation-on-inclusion-in-the-arab-world/" target="_blank" rel="noopener">Continuing the Conversation on Inclusion in the Arab World</a>

<a href="http://cfi-blog.org/2014/08/07/financial-inclusion-of-disabled-people-in-bangladesh-the-broken-promises-of-mfis/" target="_blank" rel="noopener">Financial Inclusion of Disabled People in Bangladesh: The Broken Promises of MFIs</a>

&nbsp;

Set to Grow in 2015: Islamic Microfinance

&gt; Posted by Kaj Malden, Consultant, PlaNet Finance China

<a href="https://www.flickr.com/photos/kongharald/11809665464"><img class="aligncenter wp-image-16933" style="margin-top: 5px;margin-bottom: 5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/01/11809665464_cfd2ea95a5_z.jpg" alt="" width="610" height="407" /></a>For China’s young microfinance sector, which could benefit from more regulatory oversight and transparency, ratings have the potential to catalyze healthy growth. Efforts to incorporate ratings throughout the country’s market, however, have so far been largely ineffectual. A new report from PlaNet Finance China and Planet Rating, The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector, part of PlaNet Finance and Credit Suisse’s “Microfinance Robustness Program”, outlines how ratings could provide welcome growth and strengthening for Chinese microfinance, and describes the current obstacles that stand in the way.

Mainstream ratings systems evaluate creditworthiness of debt and financial products for companies. They also contribute to setting benchmarks for the wider financial services industry. Specialized microfinance rating agencies evaluate some of the same qualities traditional rating agencies do, but they are trained in microfinance and investigate other financial inclusion-specific indicators, such as social performance. Microfinance ratings function as institutional ratings, not credit ratings, as in the case of mainstream ratings. These more nuanced ratings for the microfinance sector first emerged in Latin America, where microfinance boomed in the late 1990s.

In the Latin American region, ratings armed investors, government leaders, and other stakeholders with a clearer picture of the microfinance landscape, eventually leading to increased debt funding and growth-conducive policy. Today, Peru, Colombia, and Chile feature robust microfinance markets, as suggested by their ranking among the top five countries for financially inclusive environments in the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope" target="_blank" rel="noopener">2014 Global Microscope</a> from the Economist Intelligence Unit (EIU). While ratings are far from the whole story of success in Latin American microfinance, they made – and continue to make – important contributions.

In China, there has been an expansion in the number and type of institutions serving the base of the pyramid. For instance, policy initiatives have encouraged traditional lenders to downscale their services in the form of Village and Township Banks, and there are also over 8,000 microcredit companies (MCCs) across the country. In spite of this encouraging growth, however, the policy environment for inclusive finance in China ranks 42nd in the EIU’s 2014 Global Microscope.

Many of the Chinese institutions engaged in inclusive lending could benefit from third-party feedback on how to scale their operations – exactly the kind of feedback ratings provide. Supervisors would also benefit from the best practices and experiences of other MFIs. If history in Latin America provides any lessons, perhaps specialized ratings for microfinance operations in China could form the next crucial step in the sustainable development of the sector.

However, as the PlaNet Finance China report clarifies, comparing the history of ratings undertaken globally to those recently done in China is a complex exercise. China faces unique developmental conditions in using ratings for microfinance:
<ul>
 	<li>MFIs in China so far have only undergone superficial credit ratings performed by mainstream domestic agencies, as mandated by central government leaders trying to make sense of a complex market. These agencies spend minimal time on site, and given their generalized approach, do not provide deep feedback or insight to the young financial institutions.</li>
 	<li>The responsibility of implementing these pilot rating projects is devolved to provincial offices of financial affairs (POFAs). While ratings should stay “local” given China’s provincial diversity, these POFAs perform ratings as mandated by central authorities and they do not share their findings with each other. Central coordination when rating and evaluating these new institutions will be key in defining national benchmarks for the industry.</li>
 	<li>Ratings have not armed Chinese MFIs and MCCs with increased access to debt funding, a concern further exacerbated by the fact that foreign investors with interest in microfinance have difficulties investing in the Chinese market. In contrast, non-banking financial institutions globally have enjoyed easier access to debt funding and preferential policy treatment as a result of ratings, making them a worthwhile value-added exercise that garners industry support and boosts capacity building. Mainstream rating pilots in China’s microfinance sector have not so far delivered these kinds of benefits.</li>
</ul>
There’s much that ratings can do for the robust growth of microfinance. However, the sector is still emerging in China, and fragmented coordination of surface rating pilots do not yet offer Chinese players the benefits needed for increased growth. The new report hopes to mediate that missing knowledge and provoke discussion on the part of stakeholders.

To read the report, <a href="http://www.planetfinancechina.org/planet-finance-china-publishes-report-on-the-role-of-microfinance-ratings-in-china/" target="_blank" rel="noopener">click here</a>.

Image credit: <a href="https://www.flickr.com/photos/kongharald/11809665464" target="_blank" rel="noopener">Harald Groven</a>

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/14/how-client-protection-certification-and-ratings-work-together/" target="_blank" rel="noopener">How Client Protection and Ratings Work Together</a>

<a href="http://cfi-blog.org/2014/10/27/gender-dynamics-in-rural-china-illuminate-the-need-for-financial-education/" target="_blank" rel="noopener">Gender Dynamics in Rural China Illuminate the Need for Financial Education</a>

&nbsp;

The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector

Credit Suisse

&gt; Posted by Bhuvana Ramakrishnan, Daniella Llanos Flores, and Singyew Foo, Credit Suisse

[getty src="94632957?et=5MA8-1V9RU9LO0_0Mr3nHQ&amp;similar=off&amp;sig=hx2UBLfQ2slbtO4d7X50BDvGjbx4s8dUEsNO4uckaGc=" width="594" height="395"]

The <a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> project has been talking to the experts lately to get their views on the main recommendations that came out of the 2013 <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion" target="_blank" rel="noopener">Roadmap to Inclusion</a> process. A group of <a href="http://www.centerforfinancialinclusion.org/collaborators-a-sponsors/virtual-volunteers">Credit Suisse Virtual Volunteers</a> conducted interviews with various experts within Credit Suisse. Insights from those conversations helped shape this post. 

What can a new shampoo formula teach us about financial services? Quite a bit, as it turns out.

Procter and Gamble (P&amp;G), one of the world’s largest fast-moving consumer goods companies (FMCGs), has an annual research and development budget of $2 billion – with nearly a half a billion going towards consumer research. In emerging markets, this money funds field research that aims to identify how existing products are used and how a new product could become a part of someone’s daily routine. In China, <a href="http://fortune.com/2011/01/06/can-pg-make-money-in-places-where-people-earn-2-a-day/">P&amp;G has a simulated Hutong</a> (a typical Chinese home) where researchers can observe consumer behavior and make on-the-spot modifications to product prototypes. They have sent teams around the country to observe how women wash their hair. Such research yielded a shampoo that suds and washes out with little water – a response to the shortage of water and privacy in the villages visited.

In India, Nestlé sent local staff to 1,500 homes to better understand how people cook and eat. The insights gained during this five year project, titled <a href="http://www.economist.com/node/21525427">Project Epicure</a>, were used to fuel product innovation and development. As a result, Nestlé reported a 20 percent increase in sales and a 9 percent increase in its net profit during the following quarter.

Beyond understanding product-related needs, FMCG companies also work to comprehend how consumers spend their money, especially in resource-constrained households. For example, many FMCG producers have introduced cleaning and cooking products in wallet-sized sachets for only a few cents, to align with customers’ spending behavior.

In order to reach full financial inclusion, it is crucial that financial service providers scale up their efforts to understand the unique set of needs and behaviors of their customers. Providers must strive to pull in customers rather than push out products, and the only way to do this is to grasp what will pull them in. In this case, it won’t be a quick-bubbling chemical or a certain spice, but rather financial services that create value and foster financial capability.

A <a href="http://www.ideo.com/work/interbank-explora">transformation of a Peruvian bank’s branches</a> illustrates both the importance of addressing customer needs and the business incentives of doing so. In 2013, Interbank, one of Peru’s largest banks, partnered with IDEO, a design consultancy. In Peru, a country where only about 20 percent of the population has a bank account, addressing customer needs began with understanding why most of the population prefers under-mattress money savings to formal savings accounts. A large-scale assessment revealed that many Peruvians did not understand the benefit of banking and were too intimidated to talk to tellers at existing branches. On top of that, lines to access banks and financial products often wind around the block.

To combat this stereotypical banking experience, Interbank opened up an Interbank Explora branch, which brought financial products and tellers into the center of the store. Additionally, the Explora branch eliminated lines through a digital queuing system, incorporated social learning spaces where customers could browse products and consult with staff, and also encouraged electronic and digital banking to minimize wait times.

Interbank opened the first Explora branch in Lima, Peru on May 3, 2013 and experienced an immediate shift in demand. Customer satisfaction nearly tripled, jumping from 33 to 84 percent. This satisfaction was paired with a reported 138 percent increase in non-interest income activities and a 200 percent increase in sales in its first 60 days. While the initial transition required up-front investment, Interbank managers state that the cost of running the more interactive Explora branch is exactly the same as normal operations costs. By cutting costs on procedures that often pushed customers away, Interbank created a more inclusive environment that pulled in customers.

Interbank’s experience serves as proof that the customer matters. Whether the product is shampoo or a savings account, creating value for the consumer is the only way to create value for the company. In order to do so, companies should strive to operationalize customer centricity. FI2020 suggests that “companies (…) develop a specific definition of what being customer-centered means and lay out a strategic approach that fits with their own market opportunities and internal capabilities.” The result will be a win-win for providers and consumers.

Have you read?

<a href="http://cfi-blog.org/2013/11/20/encouraging-active-clients-is-part-of-fi2020/" target="_blank" rel="noopener">Encouraging "Active" Clients is Part of FI2020</a>

<a href="http://cfi-blog.org/2013/10/02/fast-moving-consumer-goods-companies-and-microfinance/" target="_blank" rel="noopener">Fast-Moving Consumer Goods Companies and Microfinance</a>

<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/" target="_blank" rel="noopener">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

&nbsp;

Fast-Moving Consumer Goods and Customer Needs: The Missing Link Between Shampoo and Savings Accounts

&gt; Posted by Kaj Malden, Project Manager, PlaNet Finance China

[caption id="attachment_16404" align="aligncenter" width="600"]<img class="wp-image-16404" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/10/dsc_1024.jpg" alt="" width="600" height="397" /> Huimin Microcredit client engaging in budgeting exercise[/caption]

Poor rural women in China face challenges not dissimilar to poor rural women in other developing countries. Many are homemakers and child rearers, with much of their work tied to the home, offering little social or professional mobility. However, there are some dynamics in China that make women’s conditions somewhat different. The Communist Revolution of 1949 promulgated an ideology that favored gender equality and claimed women “hold up half the sky” (半边天). According to a <a href="http://www.weforum.org/issues/global-gender-gap/">recent study by the World Economic Forum</a>, gender inequality is more apparent in the developed economies of Japan and Italy than in China. Modern China’s One-Child Policy, however, leads to a cultural view that “values males and belittles females” (重男轻女). The fact that China’s gender ratio skews towards males may support this view and suggest that parents favor males. Additionally, China’s massive urbanization continues to create large flows of migrant workers, posing other challenges for women. Husbands often find work in neighboring provinces or eastern coastal cities, leaving their wives to manage the household’s finances and run the family business independently.

The management of household finances offers an interesting vantage point for considering not only gender equality in China, but also the opportunity to empower women through financial training. This forms the logic behind a financial education project <a href="http://www.planetfinancechina.org">PlaNet Finance China</a> (PFC) is currently implementing. Supported by Diageo’s Plan W program (which supports non-profit projects that advance women’s empowerment), the project provides rural women in China with financial education to promote their ownership over household economic decision-making, thereby delivering empowerment. PlaNet Finance China works with Huimin Microcredit Company, a vanguard of rural microfinance in China, to embed light touch financial education for women throughout their lending practices. Instead of classroom-style seminars, PFC and Diageo designed a series of innovative tools for use at the MFI and at home including interactive budgeting e-calendars and “choose your own [financial] adventure” style readers. Huimin is an ideal distribution channel, given its 90 percent female client base. Most rural MFIs share this characteristic, whereas urban MFIs are more gender neutral.

When we spoke with one woman who makes economic decisions in the household, she said: “My husband, he oversees all of it, he makes the decisions. But I have to calculate and manage those decisions myself. ”

This woman is a mother of three, with her own plot of land whose corn crops she single-handedly manages in order to afford schooling for her children, house repairs, and food. She has decided to borrow money from a local microfinance institution, with a signed contract in her name. A conversation between her and her loan officer reveals why the microfinance institution lends directly to her:

Client: “Why is it always women that sign these forms and not the men?”

Loan Officer: “Because women are tied to the land. Their husbands make the majority of income necessary to support the family, but they must leave the village to find work, and pose more of a risk for us when it comes to collecting interest payments or avoiding a loan-default scenario. Their wives must stay to raise the children, manage the household, and work in the fields. They are less of a risk for us.”

[caption id="attachment_16403" align="aligncenter" width="599"]<img class="wp-image-16403" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/10/dsc_0891.jpg" alt="" width="599" height="397" /> Loan officer reviewing financial exercises with clients[/caption]

Financial Inclusion through Financial Education

What’s illuminating here is the fact that, due to women being unable to move, this MFI seems to “trust” them with microloans more than men. This may suggest that with the right skills and training, women that sign microloan contracts could not just be doing more for their families, but could also be bigger contributors to the country’s economy, which is soon set to be the world’s largest. Yet, even with such a vital global economy, the Chinese population is not very financially literate. In a 2012 study by Visa, China ranked 14th out of 27 countries in financial literacy, behind countries like Belarus and Bosnia. In the same study, China ranked 18th out of 27 in household budgeting practices. With the right financial training, women in China, especially in rural areas, could emerge with an important role in building financial inclusion.

But what is the right financial training? Women in rural China, similar to the rural poor in other regions of the world, already seem to be adept at managing finances. As Portfolios of the Poor shows us, many impoverished people lead complex financial lives and make use of both formal and informal tools. However, for rural women in China, their financial understanding could be more standardized and context-relevant. In Ningxia province, for example, where farm land is recovering from desertification, income from agriculture can be unreliable as can the wages from migrant labor that men pursue. Both amount and frequency of remittances from husbands can be in flux. Such irregularities in money flows make particular lessons in formal financial education, such as investment diversification, more critical. Compared to other markets, interestingly, lessons in savings are not as helpful to China’s rural clients. Chinese culture already champions savings habits. And lessons in mobile banking, while intriguing and innovative, don’t have the same immediacy given a lack of sophisticated telecommunications infrastructure in China’s rural areas.

The experiences of the rural Huimin microfinance institution in China, as well as distinct gaps in financial knowledge, show us that there is a big opportunity in advancing financial inclusion in the country starting with financial training for women who are the principal recipients of microloans and ultimately the ones who manage many household budgets. If women continue to be rurally isolated, knowledge and service deprived, and “tied to the land,” then financial inclusion can start with them.

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China’s Marginalized</a>

<a href="http://cfi-blog.org/2014/09/23/chinas-microfinance-landscape-nonprofits-microcredit-companies-rural-financers-and-alibaba/" target="_blank" rel="noopener">China's Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba</a>

&nbsp;

Gender Dynamics in Rural China Illuminate the Need for Financial Education

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

[getty src="113909912?et=_6kWVqx4Q59DMZYjnY7XMw&amp;sig=VUsmJJq-oYjkoLGk0zD9tPtZKCYhgZPi4Ow_-eJPvC8=" width="594" height="396"]

Albeit a relative newcomer to microfinance, China’s market has grown rapidly in recent years. In 2012 the country had 6,000 microcredit providers, but only 25 percent had been in operation for more than three years. Today the number of providers is a few thousand higher, spanning nonprofit institutions, government programs, microcredit companies, commercial banks, rural credit cooperatives and banks, village and township banks, and P2P lenders. Even Alibaba, China’s internet giant, is involved. It has offered loans to over 230,000 micro-entrepreneurs through its AliFinance arm, launched in 2011.

Earlier this year Accion’s Training and Capacity-Building team conducted a comprehensive assessment to determine the training and knowledge-sharing needs of the microfinance providers sustainably serving the poor in China. The assessment was carried out in partnership with the China Microfinance Institution Association, the China Association of Microfinance, and the PBC School of Finance Tsinghua, with support from the MetLife Foundation. As part of the assessment, the team compiled a landscape of the country’s microfinance institutions. Offering a snapshot of the state of the market and the challenges that lie ahead, here are some of its findings.

Nonprofit Financial Institutions

This category includes non-government organizations (NGOs), government programs, quasi-government organizations, social enterprises, and rural development associations. Among those the team identified few have reached sustainability. Of the 50 NGOs, for instance, fewer than 10 met the team’s criteria for sustainably serving the poor: at least 600 clients; an average loan size of RMB 300,000 (~US$49,000) or less; and at least three years in operation. Of course there are some success stories, including the NGO China Foundation for Poverty Alleviation (<a href="http://www.cfpamf.org.cn/">CFPA</a>), which operates nationwide.

Microcredit Companies

According to the People’s Bank of China (PBC), the central bank, the number of microcredit companies (MCCs) in the country totals 8,217. Approximately 10 percent of these meet the team’s specifications for sustainably serving the BoP. The majority of MCCs target financing for SMEs, not for individuals. To advance financial inclusion, incentives for MCCs to offer less-profitable microlending need to be integrated. One barrier MCCs face to improving their services to microfinance clients is low access to credit reporting information held by the PBC.

Commercial Banks

China has five large commercial banks (four of which are state owned), 12 joint-stock commercial banks, 144 city commercial banks, and 337 rural commercial banks. Disaggregated data was not available for determining the proportion offering microfinance. However, the team’s research indicates that there are likely fewer than 10 doing so. Similar to MCCs, most commercial banks focus on SME lending. Challenges to these institutions serving the base of the pyramid include mixed support for microlending from senior management, unfamiliarity with microfinance lending methodologies, and difficulty innovating due to a lack of autonomy from parent banks.

Rural Finance – VTBs, RCCs and PSBCs

Village and Township Banks (VTBs), Rural Credit Cooperatives (RCCs), and the Postal Savings Bank of China (PSBCs) provide large-scale financial services in China. There are about 2,000 country-level RCCs, 147 rural cooperative banks, 800 VTBs, and 39,000 frontline branches for the PSBC. Until recently, RCCs provided the majority of financial services outside cities. With its expansion branch network, PSBCs service about 2.2 million microcredit clients with an average outstanding loan size of RMB 54,000 (US$8,800). The main products offered by PSBCs are agricultural loans, women’s loans, re-employment loans, and loans with informal collateral. Challenges facing these rural institutions include a lack of microfinance expertise and reluctance to try new methodologies.

P2P Lending

The P2P lending market in China crossed the RMB 80 billion mark (US$13 billion) in 2013, according to Forbes. The explosion of activity reflects the growth of e-commerce in the country. The advances haven’t been without missteps and complications, however. Of the 1,000 P2P lending providers in China, 58 went bankrupt in the first quarter of 2013.

Alibaba

Quickly becoming a household name around the world, Alibaba’s virtual marketplace ecosystem connecting customers and entrepreneurs with products, payments, financing, and each other has made products less expensive and more available and has reduced the startup and operational costs for businesses. Alibaba’s Taobao Market, the largest C2C marketplace in China, boasts over 8 million vendors, with the vast majority small and micro-sized enterprises. Alibaba tracks the incidence of “Taobao Villages,” where nearly all the households are using the marketplace in some capacity.

To help the Taobao Marketplace vendors grow their businesses, Alibaba offers loans through the AliFinance platform. To date, AliFinance has provided loans to over 230,000 clients with an accumulated loan portfolio exceeding 80 billion RMB (US$13 billion) and an average loan size of 23-30,000 RMB (US$3,500 to $5,000). The platform employs an alternative credit scoring methodology based on the client’s activity on TaoBao and other Alibaba platforms.

The payment service used on Alibaba platforms, which hosted over 300 million registered users at the end of 2013, is called AliPay. Predominantly used for online transactions and growing for mobile, AliPay is connected to over 100 banks in China as well as major global payment providers like Visa and Western Union. The platform can be used to pay for goods and services, utilities, airtime, investment products, microloans, and donations to nonprofits, among other purposes.

Have you read?

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China's Marginalized</a>

<a href="http://cfi-blog.org/2014/06/12/selling-sheep-on-instagram-and-sending-virtual-gifts-to-karaoke-singers-in-the-new-mobile-internet-economy/" target="_blank" rel="noopener">Selling Sheep on Instagram and Sending Virtual Gifts to Karaoke Singers in the New Mobile Internet Economy</a>

&nbsp;

China’s Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba

Accion Global Advisory Solutions

Somen Saha

&gt; Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI

<a href="http://publications.iadb.org/bitstream/handle/11319/6466/int630C.PDF?sequence=1"><img class="alignright wp-image-15540" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/idb.png" alt="" width="280" height="364" /></a>In Latin America and the Caribbean, approximately 40 percent of families live in houses to which they have no title or that lack sewage systems, water, electricity, or proper building materials, according to the Inter-American Development Bank (IDB). However, current annual investments in living solutions by the base of the pyramid in LAC total $56.7 billion, confirming the increasing buying power of this segment and the growing opportunity in developing housing finance business models.

A few weeks ago I attended an event hosted by the IDB to launch the report <a href="http://publications.iadb.org/bitstream/handle/11319/6466/int630C.PDF?sequence=1" target="_blank">Many Paths to a Home: Emerging Business Models for Latin America and the Caribbean’s Base of the Pyramid</a>. The report was written by Christy Stickney for the Opportunities for the Majority Initiative (OMJ), a part of the Private Sector Group of the Inter-American Development Bank. OMJ provides finance to small, medium-sized, and large companies, as well as financial institutions and funds to support the development and expansion of business models that serve BoP markets.

The report analyses cases within OMJ’s housing portfolio in countries such as Colombia, Mexico, Nicaragua, Paraguay, and Peru. Stickney found  two main housing solutions for the BoP, a “complete” housing solution and an “incremental” housing solution.

The complete housing category includes the micro-mortgage business model, and the rent-to-own model. Employing the micro-mortgage model, the Colombian government supports private sector developers in offering mortgages to families using a multi-faceted credit scoring and savings program to mitigate risk. Families that fall under an established income threshold can ask for government subsidies to make the initial down payment. Those unable to meet the initial payment can enter into a 6 to 12 month savings plan while their home is built.

The rent-to-own model gives customers the option of signing a formal rental agreement. Families that qualify can occupy homes and part of their monthly rent goes towards their future mortgage down payment. This option enables clients to build a payments history in the formal financial system through the rental payments while they save to pay for their home. This model is currently being pilot-tested in Comfama in Colombia and RAFCASA in Nicaragua.

The incremental housing category includes two business models, the core house model and the home improvement model. The core house model, developed by the housing finance company FOMEPADE in Mexico, targets low-income state workers. FOMEPADE first helps clients consolidate and refinance all of their outstanding debt, then extends a housing loan to buy a core house (a newly built basic house of modular design) or undertake a house improvement. The design of core houses facilitates rapid, low-cost improvements and additions. The financing for this model is provided by government subsidies, the family’s down payment, and FOMEPADE’s loan. This model is unique because it links social housing developers, public sector employees, and government subsidy programs.

The home improvement model has been used by different actors such as microfinance banks, municipal savings and loan funds, and wholesale financing institutions. The publication finds that these groups are increasingly using microfinance lending methodologies to help customers make small (roof, floor, water, etc.) or large (room, second story) improvements to their homes. Besides funding, in partnership with other entities like social housing developers, non-profits, and hardware stores, these institutions provide technical assistance, materials, and labor.

What is interesting about these four different business models is that they are not only making it easier for customers at the base of the pyramid to buy a home, or slowly build one, but also that in some way they are bringing this customer segment into the formal financial system. The complete housing solution options are particularly interesting to consider as on-ramps products. Micro-mortgages and rent-to-own offer people the option of having savings products, in addition to building credit scores and payments histories. It’s not difficult to imagine that BoP customers that now have these commodities could access different types of credit and insurance products in the future.

Another positive impact of these housing business models is that they enable financial behavior. Entering savings programs and making regular payments could influence these customers to continue these practices in the future, which could contribute to developing financial capability. Of course, there’s also an opportunity in incorporating capability-building guidance throughout the housing finance services.

We would love to hear your opinion - is housing finance a potential on-ramp to financial inclusion that might be worth a closer look and wider replication?

Have you read?

<a href="http://cfi-blog.org/2013/09/03/microfinance-to-mitigate-substandard-housing/" target="_blank">Microfinance to Mitigate Substandard Housing</a>

<a href="http://cfi-blog.org/2013/02/15/microfinance-for-housing-in-africas-cities/" target="_blank">Microfinance for Housing in Africa's Cities</a>

<a href="http://cfi-blog.org/2012/03/06/removing-road-blocks-to-housing-finance-new-findings-from-latin-america/" target="_blank">Removing Road Blocks to Housing Finance: New Findings from Latin America</a>

Housing Finance Models in Latin America and the Caribbean

Investors