The recent acceleration in digital remittances bears out the truth of that old adage: necessity is the mother of invention. The inefficiencies are obvious in the dominant cash in, cash out over-the-counter model for formal remittances. End-to-end digitization has long been recognized as the solution to drive down costs and drive up scale. But it’s easier said than done, and the shift to digital has been slow – until COVID-19 hit. The title of a recent Forbes magazine article on the trend, “<a href="https://www.forbes.com/sites/danielwebber/2020/05/28/how-money-transfer-companies-squeezed-four-years-of-digital-growth-into-just-two-months/#6d10135ca7b6" target="_blank" rel="noopener noreferrer">How Money Transfer Companies Squeezed Four Years of Digital Growth Into Just Two Months</a>,” says it all. And with remittances accounting for significant shares of receiving countries’ GDP, there’s a lot at stake in keeping them flowing despite the job losses, mobility restrictions, and other pandemic-related challenges.

In the months since COVID-19 was declared a pandemic, the migration and remittance team at <a href="https://www.uncdf.org/article/5606/covid-19-changing-the-landscape-for-migrants-and-remittances" target="_blank" rel="noopener noreferrer">UNCDF</a> has been busy gathering and analyzing survey data and sifting through applications to support scaling for digital innovations.

CFI recently caught up with two members of this team: Dr. Robin Gravesteijn and Arunjay Katakam. Gravesteijn leads UNCDF’s data analytics and research work on migration and remittances. A veteran of mobile money and payments, Katakam recently joined UNCDF as a consultant leading the team’s product innovation and learning efforts.
<h3>How has the pandemic affected migrant groups?</h3>
<strong>RG</strong>: There are three core issues. The first is limited access to remittance services in sending and receiving countries. The CEO of MoneyGram, for example, <a href="https://www.stripes.com/news/us/lockdown-disrupts-a-part-of-finance-that-hasn-t-gone-digital-1.629307" target="_blank" rel="noopener noreferrer">recently stated</a> that approximately 40 percent of its locations were closed, and even more were operating on a restricted schedule. Shelter-in-place orders have affected people and businesses in virtually every country. This may improve now that some countries are opening up, but they need to open up on both sending and receiving sides.

The second part is the loss of earnings by migrants. Migrants are sometimes stuck in their host countries, they often have little social protection, and they may be excluded from COVID support packages even where those are available. In crisis situations, migrants are often the first to lose their jobs, particularly those in low-skilled, low job-security or undocumented situations.

The third part is remittances flows. There are about 60 countries where remittance flows account for more than 5 percent of GDP. In Nepal, for instance, remittance flows <a href="https://fred.stlouisfed.org/series/DDOI11NPA156NWDB" target="_blank" rel="noopener noreferrer">exceed 25 percent of GDP</a>.
<blockquote>Access to services, loss of earnings and remittance flow amounts are three core issues during COVID-19.</blockquote>
<strong>AK</strong>: Before the COVID-19 outbreak, official global remittance flows were on the rise, reaching a record $550 billion, exceeding global direct investments. With the pandemic, the World Bank predicts <a href="https://www.worldbank.org/en/news/press-release/2020/04/22/world-bank-predicts-sharpest-decline-of-remittances-in-recent-history" target="_blank" rel="noopener noreferrer">remittances will fall by 20 percent</a>. This loss of income is a serious blow not only to receiving-country economies but to migrants’ families: in many cases, they rely on those remittances to meet basic needs for food, shelter, and healthcare.
<h3>Seventy-six percent of respondents in your <a href="https://www.uncdf.org/article/5606/covid-19-changing-the-landscape-for-migrants-and-remittances" target="_blank" rel="noopener noreferrer">survey of CEOs of remittance providers</a> noted that limited access due to lockdowns was a challenge faced by migrants. Are you seeing a change in access now that countries and services are reopening?</h3>
<strong>RG</strong>: We’re already seeing the impact on cash-based and agent-led remittances due to the shift to digital. From our survey, we understand that for the majority of remittance service providers (RSPs), reinforcing remittances through mobile wallets and online banking has been crucial. Sixty-four percent of the responding RSPs said they will scale or pilot digital channels. And for example, Western Union and MoneyGram have taken significant steps in this regard. Moneygram’s digital remittance growth <a href="https://www.mobilepaymentstoday.com/news/moneygram-doubles-digital-remittances-in-june/" target="_blank" rel="noopener noreferrer">more than doubled</a> in June; World Remit has seen a 150 percent growth in new customer activations in the months of March and April 2020. Digital-only services like Remitly and Azimo have reported month-over-month doubling in new-customer acquisitions. Before COVID, Vodafone MPAiSA Fiji did 6,500 transactions – almost $1 million dollars – per month. That’s increased to 22,000 transactions per month and $3.1 million in volume.
<h3>What aspects of the digital ecosystem do you see as the most pressing for digital adoption? What should be the priority for remittance service providers and policymakers?</h3>
<strong>RG</strong>: Although digital solutions are growing, they’re only recently becoming available in developing countries, so regulators need to promote the termination of remittances in digital channels by promoting partnerships and interoperability. Other policy priorities might include a tiered system for rules regarding AML/CFT (anti-money laundering/countering the financing of terrorism) so that we don’t subject, say, a housekeeper or a taxi driver sending $50 back home to the same level of scrutiny as someone sending $50,000. Electronic Know-Your-Customer (e-KYC) policies would also help; e-KYC would make it easier and faster for migrants to open digital accounts and conduct transactions.

On the provider side, one key is investing in product design so that digital remittance services are accessible and convenient for migrants, and so they can trust the service. Digital remittances are faster, cheaper, and more transparent than cash-based or agent-led solutions. They’re also less sensitive to lockdowns. But none of that matters until the actual prospective users understand the advantages and trust the system enough to move beyond the tried and true. The product design must inspire confidence, not only confirming that the sender’s transaction went through, but also so that the recipient confirms quickly and says, “I can see the money.”
<blockquote>Product design must inspire confidence and confirm transactions quickly to gain users' trust.</blockquote>
Another very important product design priority is gender responsiveness: women are the majority of both senders and receivers in many countries, so marketing and user experience design should be gender aware.

Providers also need to embrace digital and financial literacy efforts. This goes beyond traditional marketing toward a broader based effort to ensure that the shift to digital economies leaves no one behind. Digital and financial literacy means that customers understand what’s available, know what’s beneficial to them, feel confident using it, and have access and everything else necessary to actually do so. Achieving that fully is both a demand- and a supply-side issue.
<h3>UNCDF recently put out a<a href="https://mm4p.uncdf.org/article/5660/request-for-applications-inclusive-digital-solutions-to-support-migrants-and-remittances" target="_blank" rel="noopener noreferrer"> request for applications</a> to “support partners in the development or expansion of digital remittance channels, strengthening digital use-cases, and developing products or services that strengthen the financial resilience of migrants and their families.” Can you tell us about the applicants who will partner with UNCDF? What would you like to see them achieve?</h3>
<strong>AK</strong>: We received 66 applications, with 44 going to the second round. The application quality is excellent. Ones that stand out include a remittance-linked product for low-income migrant women, a superapp for migrants, and those that explore alternative revenue models. There are also several applications targeting Senegal, Ethiopia, Nepal, Bangladesh and Myanmar, where innovation is needed most.

Also, as migration trends are moving intra-regional – more than 60 percent of migrants from ASEAN and Africa are moving within those regions – we also requested applications with an impact on regional mobility and portability of financial services.
<h3>You mentioned at the end of this <a href="https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.uncdf.org%2Farticle%2F5611%2Fmigrant-remittances-in-the-times-of-covid-19-insights-from-remittance-service-providers&amp;data=02%7C01%7Camil.aneja%40uncdf.org%7C57b7072152e546c6ea8f08d816e196d6%7Cb3e5db5e2944483799f57488ace54319%7C0%7C0%7C637284505440972584&amp;sdata=DA7DZAlzMZEGeo%2F35fVJmHozBBqv%2FknJ0StKxlqrng4%3D&amp;reserved=0" target="_blank" rel="noopener noreferrer">post</a> that innovative ideas and approaches are desperately needed to keep the remittances lifeline flowing. In addition to your applicants, what are some of the best examples of innovation you've seen over the past few months?</h3>
<strong>AK</strong>: AXA and Merchant Trade, who have provided health insurance for migrants, are a great example. Another is AXA and Western Union, who have <a href="https://www.axa.com/en/press/press-releases/axa-and-western-union-to-collaborate-to-provide-inclusive-insurance" target="_blank" rel="noopener noreferrer">joined forces</a> to offer insurance products. These two large companies have a big customer base and global footprint, so their involvement has impact.

Governments have also proactively taken steps to improve the flow of remittances. Pakistan has waived a tax on cash withdrawals of remittances received into bank accounts. It has also lowered the transfer fees on in-bound remittances of between $100 and $200, and stepped in to reduce the lag time between when money hits the bank and when that money is available to the customer. Bangladesh also took steps in July 2019 to provide 2 percent incentives on remittances sent directly to bank accounts. The ceiling on these deposits had been $1,500, now, in light of the crisis, it’s $5,000.
<h3>Another way to ease the burden for migrants is lowering transaction costs. How can RSPs lower transaction costs during these challenging times and remain solvent? Which actors need to step in and how?</h3>
<strong>RG</strong>: There’s the immediate issue and the longer range one. In the immediate term, definitely, the pandemic has put huge pressure on RSPs. They’re hardly the only sector affected, of course: we’ve all watched as retailers declare bankruptcy and entire industries lose almost all their revenue. Our survey has shown that half the RSPs will be in financial trouble if the crisis goes beyond six months. Where countries are designing policy responses based on “essential business” designations, certainly it would help if RSPs were recognized as the essential businesses they are, considering the low-income and vulnerable populations they serve. In the longer term, since 2009, there has been the <a href="https://sdgs.un.org/goals/goal10" target="_blank" rel="noopener noreferrer">SDG target of reducing transaction costs of remittances</a> from 10 percent to 3 percent by 2030. One important step to achieve this is to facilitate market competition; another is to pick up the pace of digitization. Those issues are related.
<blockquote>Half of RSPs will be in financial trouble if the crisis goes beyond six months.</blockquote>
<strong>AK</strong>: Transaction costs for migrants – globally, on average – were 8.7 percent in 2010, 7.7 percent in 2015, and 6.8 percent in the first quarter of 2020. The key to lowering these costs is, again, digitization.

There hasn’t been investment in driving that adoption, which requires a lot of financial education, incentives and behavior changes. Recently, a lot of investment has been made, and due to pandemic-related movement restrictions and changing circumstances, adoption has been greater. The two biggest providers – Western Union and MoneyGram -- have <a href="https://www.forbes.com/sites/danielwebber/2020/05/28/how-money-transfer-companies-squeezed-four-years-of-digital-growth-into-just-two-months/#609bf6e5a7b6" target="_blank" rel="noopener noreferrer">squeezed in four years of growth</a> of adoption of digital channels into just two months. We expect this growth to continue and drive transaction costs lower.
<h3>The request for applications sought “products supporting the financial resilience and well-being of migrants and their families – microinsurance, micropension, microcredit for access to education, energy, health, water, and livelihood purposes.” What’s the interplay between inclusive financial services and remittance solutions? How do they support one another?</h3>
<strong>AK</strong>: On the recipient side, adding services beyond remittances is critical. In credit, this means moving from asset-based lending to cash-flow-based lending, where RSPs can see what the remittance flows are and make decisions on emergency loans. Remittance providers are well-positioned to do that. In savings, you can’t provide a remittances-linked savings account if the remittance transfer is cash-based. You need digitized products to allow people to save some portion of an inbound remittance. If it’s cash-based, and they withdraw the whole remittance and take it as cash, they’re not going to put some back in as savings, even in the unlikely event that that is even an option. They need a digital account where they can withdraw, as cash, only what they need right away and leave the rest as savings.
<blockquote>You can’t provide a remittances-linked savings account if the remittance transfer is cash-based.</blockquote>
Insurance is another example. A Ghanaian taxi driver in Washington, D.C., might need to pay for a funeral back home. Once he does that, the taxi driver is not left with much, yet as the breadwinner, he is expected to provide when there is a funeral. If he can take out a funeral policy, that would help.

Also, many sending countries have pension plans: employers are mandated to contribute to them, even if the migrant does not. The migrants are often not even aware. If migrants get access to those, they can remit it home when they leave for good.

<strong>RG</strong>: These examples illustrate why remittances are valuable for <a href="https://www.un.org/en/observances/remittances-day/SDGs" target="_blank" rel="noopener noreferrer">a variety of SDGs</a>. They supplement incomes for households, but they’re often used to pay medical expenses for health, tuition for education, business and enterprise growth, not to mention the gender equality and empowerment component.

Remittances and Financial Inclusion: “Sending Money Home” in the COVID Era

Test of a Lifetime: COVID-19 and Financial Inclusion

Delivery Channels

Digital Financial Services

Financial Capability

Financial Service Providers

Payments

Partnerships

Personal Financial Management

Remittances

Blog Post

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

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

North America

United States

Financial Inclusion Week 2019

Financial Health

Resilience

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

Financial Well-Being: How Does Australia Measure Up?

Australia

East Asia and Pacific

Canada

Europe and Central Asia

Ireland

New Zealand

Norway

What counts as financial inclusion? Reporting the number of active accounts in a country is a common way to measure progress in financial inclusion. But as access to, and uptake of, accounts increases, we need more powerful indicators to help us understand the dynamics of how people use financial services, and digital financial services in particular.

At <a href="https://i2ifacility.org/">insight2impact</a>, we’ve spent the last four years exploring these questions and have tested our measurement frameworks and emergent indicators on both demand-side survey data and transactional data in Mexico and Nigeria. We also went further by linking the data sets for the same person to analyze a more complete picture of people’s financial lives, both within and outside of formal financial services. What we found was both curious and transformative for our thinking on how we measure financial inclusion.
<h2>Frequency as a Means to Track Digitization</h2>
The first step to financial inclusion is <a href="http://www.worldbank.org/en/topic/financialinclusion/overview">having access to a transactional account</a>. If I choose to take up an account, I’m able to store money or send and receive payments, but if I use my account very rarely, am I still financially included? Maybe I receive a payment and immediately withdraw it all at an ATM. What if all the transactions I need to do can only be done in cash?

Analyzing frequency of usage gives us an indication of how populations are (or aren’t) switching to digital channels for transacting. We analyzed bank transaction data in Mexico to better understand financial service usage patterns. Debit-card usage by customers was relatively high, with 78 percent using their cards weekly, but 60 percent of monthly card usage occurred at ATMs to withdraw cash, not for purchases via POS or online. The frequency of ATM vs non-ATM card usage paints a more realistic picture of digitization in Mexico. It’s a picture of incomplete digitization, with cash remaining central for most people.

Secondly, we linked the transaction data to survey responses to compare people’s online vs offline transaction behavior. This revealed that most people still use cash for their regular expenses, even if they have a bank account. The graph below shows both banked and unbanked people’s cash usage for regular expenses such as rent and bills, and daily expenses such as groceries and transport. Cash was ubiquitous, regardless of gender, socio-economic segment or account ownership. By only counting the accounts, we would miss the scale of non-digital financial lives.

Counting More than Accounts: What Can Frequency of Transactions Tell Us About Financial Inclusion?

Latin America and The Caribbean

Mexico

Nigeria

Sub-Saharan Africa

Access Usage Gap

Enabling Environment

Data Analytics

Financial Technology

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

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

MetLife Foundation

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Serbia

Behavioral Insights

What would you do with an extra $500 a month?

Mayor Michael Tubbs of Stockton, California, posed this question to his constituents last year. In February, the city began its 18-month universal basic income (UBI) pilot. Through a privately-funded program, Stockton’s government will distribute <a href="https://www.huffpost.com/entry/stockton-california-universal-basic-income_n_5c697700e4b05c889d20203a">$500 on a monthly basis</a> (the first $500, pre-paid debit cards have been sent), no strings attached, to 130 of its low-income residents. <a href="https://www.ycombinator.com/about/">Y Combinator</a>, a California-based startup accelerator, plans to launch a similar trial this year in Oakland.

Tubbs knew there would be obstacles in getting this pilot off the ground; he would have to convince people across the political spectrum that it was a good idea. However, there was one segment he did not expect push back from: the people the program intended to help.

“There were conversations I had with folks who are one paycheck away from deprivation saying, ‘We don’t deserve anything,’ so really the challenge has been reshaping the conversation. This is not a handout. This is part of what you get as a citizen of Stockton. You are eligible for this not because you need anything, but because you are a citizen of this city, ” Tubbs explained in an <a href="https://iop.harvard.edu/forum/stockton%E2%80%99s-economic-empowerment-demonstration-guaranteed-income-initiative">interview</a> last year. He hopes that this program will empower people to have more agency.
<h2>Differences Between Stockton's UBI Pilot and Others</h2>
A UBI pilot like this has never been done in the U.S. before, so it’s difficult to hypothesize how the Stockton trial will turn out. While most pilots focus on the quantitative data – how funds are spent, whether employment rates changed, and the like – the Stockton pilot aims to <a href="https://basicincomepodcast.com/podcast/updates-stockton-basic-income-trial-feat-mayor-michael-tubbs-lori-ospina/">humanize the results</a>. Through surveys, qualitative interviews, and local artists, the city intends to engage participants more deeply and stimulate discussion more broadly.
<blockquote>Humanizing the results: Stockton's universal basic income pilot participants will be engaged deeply and stimulated by discussion.</blockquote>
Finland recently ended a <a href="https://www.nytimes.com/2018/05/02/opinion/universal-basic-income-finland.html">two-year trial</a> that awarded 2,000 Finns roughly $630 per month, but that was targeted exclusively at the unemployed.

The fact that it targeted exclusively the unemployed is important for a couple of reasons. First, it didn’t teach us how people who have a source of income, especially on the low or irregular end, would treat this extra funding. Second, the Finnish government changed its unemployment laws concurrently with the pilot such that if you could not prove you were actively seeking a job, you lost your government benefits. In the first three months, <a href="https://yle.fi/uutiset/osasto/news/finlands_activation_model_brings_benefit_cuts_for_94000_people/10145894">94,000 Finns saw their benefits cut</a>.

UBI is not meant to be contingent, and cutting other benefits shifts the financial liability for things like health care back to the individual. In many ways it’s similar to Clinton’s <a href="https://aspe.hhs.gov/report/personal-responsibility-and-work-opportunity-reconciliation-act-1996">Personal Responsibility and Work Opportunity Reconciliation Act</a>: among other things, it forces the unemployed to accept gig work, and businesses can lower wages because people have to accept a job or risk losing benefits.

The closest thing we’ve seen to a large-scale UBI is the Alaska Permanent Fund, which has been active since 1982. The fund receives most of its capital from the revenue of oil companies operating within the state; each year, payments of equal amounts are distributed to all Alaskan residents (generally between $1,000 and $3,000). A 2018 report found that this cash transfer program <a href="https://www.nber.org/papers/w24312.pdf">did not significantly decrease employment</a>. However, as climate change issues surge, there are growing concerns regarding the source of revenue of the fund. While some board members <a href="https://www.juneauempire.com/news/what-does-the-alaska-permanent-fund-have-to-do-with-climate-change-this-group-will-tell-you/">attempt to downplay</a> the percent of the portfolio invested in fossil fuels, its former Chair William Moran <a href="https://www.adn.com/opinions/2018/05/24/how-alaska-permanent-fund-investment-policies-fail-to-consider-the-changing-world/">noted</a> last year that “every last cent of the $65 billion initiative is a financial derivative of fossil fuel interests. ” This sends a message that if the price is right, oil companies can buy their way into operation.

The United States already has an antipoverty cash distribution program called the Earned Income Tax Credit (EITC), which is designed to support low-income Americans. The program differs from the UBI concept in several important ways, however. It primarily supports people with children, rather than focusing on individuals. The disbursal amount varies each year, and it is only distributed once a year. This means that recipients never know how much they will receive, and often spend it on overdue expenses. <a href="https://www.nytimes.com/2012/04/17/us/antipoverty-tax-program-offers-relief-though-temporary.html?hp">Critics argue</a> the lump sum would be more effective if dispensed in installments.

Given that less than 10 percent of the EITC payout goes into savings account, this points to the critical problem that people still can't survive on working wages alone. Research by economist Alan Krueger shows that <a href="https://qz.com/851066/almost-all-the-10-million-jobs-created-since-2005-are-temporary/">nearly all jobs created since the recession have been contract, part time, or contingent</a>. These types of jobs don’t provide the same benefits as a 40-hour per week role, and it is increasingly <a href="https://scholar.harvard.edu/files/lkatz/files/katz_krueger_cws_v3.pdf">less likely that your job will provide the security</a> that it did 20 years ago. Some of the most successful companies in the past decade,<a href="https://slate.com/business/2018/12/google-walkout-protests-contract-workers.html"> including Google</a>, contract more than half of their staff. In combination with the rising concern of job loss to automation, UBI could be an insurance policy for future downturns that require workers to accept less stable short-term or gig positions, especially for those who have dependents, less varied skillsets, or otherwise require a degree of employment stability.
<h2>Beyond Income: Work Isn’t Just Monetarily Rewarding</h2>
Some scoff at the idea of UBI, deeming it welfare for those too lazy to work and believing it would lead to workforce gaps. However, according to the Economic Policy Institute, nearly <a href="https://www.epi.org/publication/poor-people-work-a-majority-of-poor-people-who-can-work-do/">63 percent of poor people in the U.S. who are eligible to work are currently employed</a> full or part time, and many of those who aren’t – about 3.3 million – are actively seeking employment. Furthermore, work is generally not just about a paycheck; unemployment is enormously traumatic, and studies have shown that people <a href="https://harris.uchicago.edu/news-events/news/universal-basic-income-policies-dont-cause-people-leave-workforce-study-finds">find purpose in work</a>. When it comes to poverty, a willingness to work is not the problem, but rather that work itself is no longer the solution. The next big economic idea will have to consider a myriad of factors – from increasing digitization to the ever-expanding wealth gap – to push for a more economically-inclusive society.

The idea of universal basic income isn't just about social justice – it's about stimulating economic growth. The United States <a href="http://inequalityforall.com/wp-content/uploads/2014/12/A_Visual_StoryPDF.pdf">prospers most</a> when it has a healthy middle class; in 1940, it was almost guaranteed that a child would grow up to have a higher income than his or her parents. By the mid-1980s, that probability was <a href="https://www.brookings.edu/blog/up-front/2018/07/25/fewer-americans-are-making-more-than-their-parents-did-especially-if-they-grew-up-in-the-middle-class/">down by about half</a>. When those who have less do better, <a href="https://www.americanprogressaction.org/issues/poverty/news/2011/12/06/10771/10-reasons-why-cutting-poverty-is-good-for-our-nation/">everyone benefits</a>: health costs go down, innovation goes up, and social mobility improves.
<blockquote>Universal basic income isn't just about social justice – it's about stimulating economic growth.</blockquote>
While UBI alone is not a panacea for economic inequality, its time has come as a force for serious and meaningful economic prosperity, and a counter to the ballooning inequality from which the U.S. suffers.

Work Isn’t Just About Money: Universal Basic Income and Potential Benefits for U.S. Working Poor

Financial Inclusion Strategy

<em>&gt; Posted by Jeffrey Riecke, Communications Assistant, CFI</em>

<a href="http://www.sfexaminer.com/local/2012/03/sf-wants-do-away-paychecks" target="_blank" rel="attachment wp-att-11034"><img class="alignright  wp-image-11034" style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/04/paycheck-stock.jpg" width="300" /></a>When you receive a paycheck, what are your next steps? Do you have set amounts that you allocate to certain bank accounts? Do you specify how much you’ll be allowed to spend across a set of expense categories? Maybe you even have analysis programs that help you track your recent financial activity and their relation to your goals? Since you’re reading a financial inclusion blog, I’m guessing you fit into one if not all three of these money management groupings. But of course this isn’t the case for everyone.

For many, receiving a paycheck isn’t followed by examining a financial analysis program’s dashboard, making adjustments to a financial plan for moving forward, and carefully dispensing funds. It’s followed by the elation that comes from knowing that you’ll be able to pay your rent this month. By the relief that you’ll be able to pay back the family and friends who lent you money. Maybe even by a slightly frivolous purchase to help wash away the sting of financial stress. Money management in one of its many forms likely comes, but it’s often that it comes much after the paycheck. And it’s reasonable to assume that this separation gets in the way of more holistic money management.

With the help of a $350,000 grant from the <a href="http://www.cfsinnovation.com/">Center for Financial Services Innovation</a> (CFSI), the Neighborhood Trust Financial Partners will soon launch <a href="http://neighborhoodtrust.org/news/">PayGoal</a>, an employee payment program that’s coupled with an array of financial services. The program provides on-site, individual financial counseling to companies’ employees, facilitates their participation in formal financial services, offers them financial capability tools, and assists in their establishing financial plans and goals – all while integrating the companies’ payment system. Workers will predetermine how much of their wages will be allocated across spending and savings buckets, and instead of a traditional paystub, employees receive their pay with a report on their financial progress over the pay period (money saved, debt reduced, financial milestones reached, etc.) as well as educational messaging, such as the difference between gross and net pay.

PayGoal is one of eight organizations who received support from CFSI’s Financial Capability Innovation Fund II. In addition to monetary assistance, CFSI’s support to these organizations includes strategic advice and guidance, technical assistance, and peer-learning opportunities. PayGoal is operating as part of the Neighborhood Trust’s <a href="http://theemployersolution.com/">Employer Solution</a> venture.

<em>Image credit: <a href="http://www.sfexaminer.com/local/2012/03/sf-wants-do-away-paychecks" target="_blank">The Examiner</a><a href="http://janchipchase.com/2010/08/mobile-money-afghanistan/" target="_blank">
</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/04/12/a-holistic-approach-to-money-management/" target="_blank">A Holistic Approach to Money Management</a>

<a href="http://cfi-blog.org/2013/03/01/bill-pay-as-an-on-ramp-to-financial-inclusion/" target="_blank">Bill Pay as an On-Ramp to Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/01/10/payroll-loans-the-coffee-date-of-financial-services/" target="_blank">Payroll Loans: The "Coffee Date" of Financial Services</a>

A Financial Plan With Your Paycheck

<em>&gt; Posted by Elisabeth Rhyne</em>
<img class="alignright  wp-image-7465" title="keep-money-safe" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/08/keep-money-safe.jpg" alt="" width="240" height="239" />According to the<a href="http://financialtrustindex.org/resultswave15.htm" target="_blank"> Financial Trust Index</a>, a quarterly survey of public opinion, only 21 percent of Americans trust the financial system and only 23 percent trust large national banks.
On the other hand, nearly 63 percent, according to the same survey, trust credit unions. Hmm…impressive.
What’s more, in a <a href="http://primeperformance.net/2012/consumers-believe-credit-unions-have-the-best-reputation/" target="_blank">survey rating the reputation of 34 different industries</a>, credit unions had the most positive rankings, higher than all other segments of the financial system and also higher than non-financial industries including retail stores, schools, technology and communications companies, automobile companies, health care companies and the federal government. That’s right -- numero uno.

And as a sample of one, I can also vouch for my own loyalty to the credit union that has served my family well for many years.
Why do the credit unions get so much love?
I am sure that the answers are complex and historic, and that they go well beyond my limited knowledge of the credit union movement in the United States. Maybe it’s because credit unions are local and small, and maybe because they did not participate in the kinds of transactions that got mortgage brokers and big banks in trouble, precipitating the global financial crisis. One could unpack any number of factors.
Ultimately, however, I am becoming convinced that client ownership is at the root of it all. It seems that credit unions actually do put the client first, unlike many banks, which only say they do. And I attribute that to the fact that for credit unions clients are not just clients, they are owners. If clients are annoyed by something a credit union does, like charging high penalty fees for small missteps, managers will hear about it not only from the (often lowly) customer service department, but at the governance level. When customers are also seen as owners, responsibility to customers is intrinsically aligned with responsibility to shareholders, while in corporate banks it is possible for customer interests and shareholder interests to diverge or conflict, giving bank managers divided loyalties. This difference can hardly escape showing up in the culture and decision making of the institutions.
Maybe that’s why the thing I remember most from my last bank  is that it allowed overdrafts on my debit card without my agreement then socked me with enormous overdraft charges (grrrr…), while the most recent news from my credit union is that it reimburses me for fees I pay when using non-credit union ATMs (wow, how nice).
I have long been wary of credit unions because of the susceptibility governance problems that has plagued them over the decades in credit unions around the world. I have also been frustrated with credit unions because their structure makes it hard to attract investment for growth.
But the success of credit unions in building an excellent reputation has me wondering whether more client voices in the boardrooms of financial service providers might be a powerful way to ensure that the institutions actually practice pro-client behavior.
<em>Image Credit: <a href="http://www.gobankingrates.com" target="_blank">gobankingrates.com</a></em>
<strong>Have you read?</strong>
<a href="http://cfi-blog.org/2012/08/17/an-excellent-resource-on-regulating-client-protection-ifmr-trusts-blog-series/" target="_blank">An Excellent Resource on Regulating Client Protection: IFMR Trust’s Blog Series</a>
<a href="http://cfi-blog.org/2012/07/09/lets-actually-talk-about-money-management/" target="_blank">Let’s Actually Talk about Money Management</a>
<a href="http://cfi-blog.org/2012/06/14/money-management-whats-a-bank-account-for/" target="_blank">Money Management: What’s a Bank Account For?</a>

What Is It about Credit Unions?

<em>&gt; Posted by Ignacio Mas</em>
Let me put it a bit brutally, using round numbers for effect:
<ul>
	<li>Many people are willing to pay an all-in cost of 70% for a microloan.</li>
	<li>Most people are willing to pay a fee of 7% for a (domestic or international) money transfer.</li>
	<li>Most people do not see much value in paying 0.7% in fees for a savings account.</li>
</ul>
<img class="alignright size-medium wp-image-7322" title="mobile-money-transfer" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/07/mobile-money-transfer.jpg?w=300" alt="" width="300" height="177" />Notice the order of magnitude reduction in willingness to pay. A savings account, viewed as an electronic receptacle of value, generates little willingness to pay – unless I need it to get a loan or make money transfers from/to it.
It would be much better if microcredit or money transfers were a lot cheaper, but the point is that if people are not able to get better terms, they still find sufficient value in these services to pay quite a bit for them. Not so with savings. Or, to be more precise, not so with the kinds of formal savings products that are being presented to them by formal financial institutions.

I see two main problems with the here’s-an-account-now-start-saving proposition that most financial institutions push into the base of the pyramid. First, most people manage their money by fragmenting it, mentally assigning it to different purposes and physically storing it in different receptacles. It helps them budget and it helps them not raid their own savings so easily on impulse. They have received too much financial education from their parents and grand-parents to think it’s a good idea to collect all those pockets of money into a single electronic account. And replicating the multiple pockets through a gaggle of ear-marked electronic accounts which differ in nothing but name, terms and conditions and fees seems abstract and complex to manage.
Second, most bank products offer either liquidity (current accounts) or discipline (commitment savings plans, time deposits), but not both at the same time. The discipline element is based on denying access to saved funds or incurring explicit financial penalties if conditions are not met. Poor people whose finances are easily overwhelmed by more or less predictable shocks cannot afford to hold a barbell portfolio of temptation money here and locked-up money there. Most informal savings mechanisms do double duty, offering discipline but without foregoing liquidity. A cow, for instance, can be sold in case of need, but it does not offer partial liquidity to satisfy small daily temptations and it invites people to think of it as an investment, even a productive asset, which raises the stakes of dis-saving.
Maybe you disagree with this diagnosis, but the fact is that poor people are not finding electronic accounts so useful. If they did, you wouldn’t find such meager balances in so many of their accounts, balances which have no chance of being impactful for the client nor profitable for the financial institution. Most opt out of formal banking, and continue doing what they’ve always done. If we want to change that, we need to find ways to add customer value to these electronic accounts.
Somewhere along this post you probably got to thinking: but doesn’t the experience with deposit collectors in Africa demonstrate that there is willingness to use and pay for saving? Well, that’s a great example of how value can be added to a savings account so as to generate much more customer interest: in this case by offering door-to-door collection services and a dash of daily discipline. It’s a cash management service that combines a mini-savings account with a mini-Brinx (cash transport) service, and traders like it.
My feeling is that the most powerful and promising approach is to redefine the purpose of the formal account around financial management: helping people get as many of the things they want to spend their money on -- now and in the future. It’s about helping them manage payments over time, so that today’s expenditures don’t obliterate tomorrow’s goals.
So yes, Beth, <a href="http://cfi-blog.org/2012/07/09/lets-actually-talk-about-money-management/" target="_blank">let’s actually talk about money management</a>.
We need to construct a much more nuanced savings service that incorporates all the mental discipline features that people already use, but is not so complex to operate that people give up on it. One example of how this might be done is re-imagining mobile money as a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2018807" target="_blank">tool for managing payments across space and time</a>. Your mobile money tool would help you accumulate the money you need to make specific future payments (through a series of payments to yourself to particular dates or goals), and then of course it would help you deploy the money when the time comes (through real-time money transfers).
Why have I suddenly started talking about mobile? Because planning tools need to be immediately available to people, so that they can assign money to purposes the moment they earn it or whenever they have a virtuous thought. The mobile phone can be the basis of building a continuous relationship between a poor client and the bank, one that is based on capturing the client’s personal goals, habits and mental processes rather than on promoting a prescribed list of bank products.
<em>Image credit: <a href="http://www.wadsam.com/" target="_blank">wadsam.com</a></em>
<strong>Have you read?</strong>
<a href="http://cfi-blog.org/2012/06/25/an-armchair-safari-through-m-pesa-land/" target="_blank">An Armchair Safari through M-PESA-Land</a>
<a href="http://cfi-blog.org/2012/04/20/mobile-money-transfer-what-does-it-mean-for-financial-inclusion/" target="_blank">Mobile Money Transfer–What Does it Mean for Financial Inclusion?</a>
<a href="http://cfi-blog.org/2012/04/11/mobile-money-as-a-payment-planning-tool/" target="_blank">Mobile Money as a (Payment) Planning Tool</a>

&quot;Can we make savings a little bit more interesting for people, please?&quot;

Mobile Banking

<em>&gt; Posted by Elisabeth Rhyne</em>
I wrote a <a href="http://www.huffingtonpost.com/elisabeth-rhyne/banking-low-income_b_1590147.html" target="_blank">blog post </a>on the <em>Huffington Post</em> a couple of weeks ago, just thin<em><img class="alignright size-thumbnail wp-image-7021" title="bank-pic" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/06/bank-pic.jpg?w=150" alt="" width="150" height="128" /></em>king out loud about something which suddenly seems absolutely central to financial inclusion: money management. How do people keep track of their finances? Will people new to formal financial services be inclined to use a bank account as a money management tool? How do financially excluded people manage their money?
I was hoping to start a conversation. I even sent the post to several colleagues experts in this area. But what I got was yawns and silence.
Almost. I did get 2 comments, both from a U.S. perspective. “SirVantes137” said that the best way to help poor people with money management, including himself, was to pay them better so they would have something to manage. “Samantha is Soo Savory” referred me to <a href="https://powerwallet.com/" target="_blank">powerwallet</a>, an online money management tool, which looks pretty interesting, and very relevant to the question.
But the conversation among financial inclusion folks failed to take off, so I’m trying again. Come on, people, think about this. It’s important!
We like to say that the poor are “expert money managers,” drawing on evidence from the <a href="http://www.gatesfoundation.org/learning/pages/financial-diaries-lives-of-the-poor-report.aspx" target="_blank">Financial Diaries</a> and <a href="http://www.portfoliosofthepoor.com/" target="_blank"><em>Portfolios of the Poor</em></a> that they lead complex financial lives with multiple transactions. We also assert that competence in money management is a hallmark of a financially capable person.<em></em>
If this is true, why don’t we know more about how money management works?
Competent money management consists of at least two functions: keeping track and making decisions. The first function supports the other. You need to know how much money you have before you decide how much to spend. Increased ability to keep track of one’s financial situation should improve financial decision-making, even if other factors remain unchanged (like propensity to yield to temptation or social pressure). But is this effect big or small?
I assume that most people whose financial lives play out in the informal sector keep track of their financial situation in their heads, without a formal system, while most people in high income countries who grew up with bank accounts use their bank statement as a key tool for keeping track, at least of short and medium term status. There are lots of financial education materials for teaching people to keep track more systematically, even simple systems like different wallets for family and business cash flows. Powerwallet is a souped-up version of one of these systems.
Traditionally, most of these systems suffer from being one step removed from the actual money flows. You have to write down the financial transaction independently of the transaction. This extra step, though simple, is a huge disincentive to using a money management tool, because the tool only works if every transaction is faithfully recorded. With a bank account (and systems like powerwallet, which electronically reads your bank statement), the record is generated automatically when the transaction occurs.
But the bank account is only a good system if it consolidates all or mo<em></em>st of a person’s cash flows. This works for me because all my payments, big and small ultimately flow through the bank account: my mortgage, tax and monthly credit card payments, in addition to ATM withdrawals and grocery store purchases. For people whose financial lives are straddling the formal and informal sector, a bank account may not offer such consolidation.
Understanding how people carry out their money management is pivotal to many aspects of financial inclusion, from deciding on policy objectives (Are bank accounts the best top line objective for financial inclusion?) to creating effective financial capability-building programs, to evaluating new products and delivery channels (Does mobile banking assist people with money management or make it harder?).
That’s why I’d really like to know what others think. Comments, please!
<em>Image Credit: <a href="http://www.londonrelocationservices.com/" target="_blank">londonrelocationservices.com</a></em>
<strong>Have you read?</strong>
<a href="http://www.huffingtonpost.com/elisabeth-rhyne/banking-low-income_b_1590147.html" target="_blank">Money Management: What's a Bank Account For? </a>
<a href="http://cfi-blog.org/2012/05/09/the-secret-financial-lives-of-rural-residents-what-every-market-researcher-needs-to-know/" target="_blank">The Secret (Financial) Lives of Rural Residents – What Every Market Researcher Needs to Know</a>
<a href="http://cfi-blog.org/2012/04/25/financial-capability-not-many-answers-but-lots-of-great-questions/" target="_blank">Financial Capability: Not Many Answers, but Lots of Great Questions</a>

Let’s Actually Talk about Money Management

Eric Noggle

Senior Research Director 

Arunjay Katakam

Robin  Gravesteijn

Lauren  Rosenbaum

Vinita Godinho

Isabelle Carboni

Jacqueline Foelster

Rachel Morpeth

Hannah Sherman

Danielle Piskadlo

John Gitau

Jeffrey Riecke

Elisabeth Rhyne

Ignacio Mas

China

Fintechs

Women

Youth

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.

<em>&gt; Posted by Hannah Sherman, Project Associate, CFI</em>

A financial shock can happen suddenly and at any time, and a single unexpected expense can push many American households into financial hardship. Something as straightforward as a car repair can have a snowball effect on a family’s finances if they are not prepared for it<em>. </em>A 2015 <a href="http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/10/the-role-of-emergency-savings-in-family-financial-security-how-do-families">report from the Pew Charitable Trusts</a> found that in 2014, 60 percent of American households experienced a financial shock, and that the average household spent half a month of income on its most expensive shock.

While most households have at least a loose budget for recurring expenses like housing, food, and transportation, most are not prepared for additional unexpected expenses, a <a href="http://www.cfsinnovation.com/CMSPages/GetFile.aspx?guid=bea17b32-b3c8-4fbc-8d24-e55b8900dba6">study</a> from the Center for Financial Services Innovation (CFSI) found. Consumers’ attitudes and behaviors are typically consistent with their financial health – i.e. those who are financially healthy are more likely to have recovery strategies available when setbacks strike.

With these survey results CFSI decided to focus its second annual <a href="http://finlab.cfsinnovation.com/Challenge-2016">Financial Solutions Lab (FinLab) Challenge</a> on entrepreneurs using technology to help consumers withstand financial shocks. The Financial Solutions Lab is a $30 million, five-year initiative managed by CFSI and founding partner JPMorgan Chase &amp; Co (JPMC), “to identify, test and expand the availability of promising innovations that help Americans increase savings, improve credit, and build assets.” This year the Lab selected <a href="https://www.jpmorganchase.com/corporate/news/pr/financial-solutions-lab-announces-winners-2016.htm.">nine winners</a>.

<a href="https://cfi-blog.org/2016/06/29/what-financial-health-means-to-me/">Financial capability</a>, among its other tenets, means being able to make informed decisions to effectively navigate the financial services landscape, decisions that contribute to financial health. A number of this year’s competition winners specifically target client behavior as a way to improve financial health.
<ul>
 	<li><a href="https://meetalbert.com/">Albert</a>: For most people, money management is no easy task. Albert is a mobile-based financial advising app that incorporates all of a user’s financial services into the app in order to make this task more manageable. An unusual feature of the app is that it targets specific unhealthy behaviors. It also offers recommendations on things like lowering credit card fees, acquiring low-interest loans to help repay credit card debt, and setting up retirement plans. Albert is also synched with service providers so that users can easily take action on additional services (like signing up for new products) right in the app.</li>
</ul>
<ul>
 	<li><a href="https://starter.earn.org/?_LOCALE_=en-us">EARN</a>: If it’s tough to make ends meet, it’s likely even tougher to save regularly. EARN provides tools for lower-income families that help make regular saving easier. EARN’s online platform encourages and incentivizes regular “microsaving” through financial education and support, realistic goal setting, and rewards for meeting these goals..</li>
</ul>
<ul>
 	<li><a href="http://www.earnup.com/">EarnUp</a>: Similar to Albert and EARN, EarnUp offers actionable money management advice through an online platform that integrates users’ financial services and financial flows. As it can be hard to know how to save when money is tight, it can also be hard to know how to pay off loans. Based on users’ finances, financial behavior, and lifestyle, EarnUp automates micropayments to help users pay off loans and offers real-time advice on savings opportunities.</li>
</ul>
<ul>
 	<li><a href="https://www.everlance.com/#/">Everlance</a>: Freelance workers can face uniquely difficult money management circumstances, keeping track of business expenses while on their own and on the move. Everlance focuses specifically on helping this segment, tracking certain behaviors to help users make better financial decisions. For example, for those needing to keep track of driving mileage for their work, Everlance uses GPS technology to automatically log miles on every trip.</li>
</ul>
The remaining five winners of the second FinLab competition, which span a range of areas, consist of the following companies:  <a href="http://www.beecard.us/">Bee</a>; <a href="https://ecredithero.com/">eCreditHero</a>; <a href="https://www.tryremedy.com/">Remedy</a>; <a href="https://www.cbinsights.com/deal/scratch-biz-plan-competition">Scratch</a>; <a href="https://wisebanyan.com/">WiseBanyan</a>.

Financial shocks are common and damaging occurrences for the average American consumer, especially for those with poor financial health and behaviors. Though the winners of this year’s FinLab competition demonstrate that the industry has come a long way in leveraging fintech, data, behavioral science, partnerships, and more to help consumers improve their financial health. For more, check out the innovations from around the world we spotlighted in our <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">financial capability building project</a>.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/05/17/for-successful-financial-inclusion-in-india-build-customer-financial-capability/">For Successful Financial Inclusion in India, Build Customer Financial Capability</a>

<a href="https://cfi-blog.org/2016/06/29/what-financial-health-means-to-me/">What Financial Health Means to Me</a>

<a href="https://cfi-blog.org/2015/04/24/fintech-for-fi2020-a-conversation-on-aligning-technology-and-partnerships-for-financial-inclusion/">FinTech for FI2020: A Conversation on Aligning Technology and Partnerships for Financial Inclusion</a>

FinTech to Better Weather Financial Shocks

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.

<em>&gt; Posted by Tyler Aveni, Positive Planet Co-Country Director (China)</em>

<img class="alignright wp-image-21321" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/05/china-fin-ed.jpg" width="656" height="437" />Through the support of Diageo’s <a href="http://www.diageoplanw.com/">Plan W</a> initiative, Positive Planet’s three-year women’s empowerment project <em>Banking on Women</em> has provided financial education to more than 8,000 women across <a href="http://www.nxhmxd.cn/">Huimin Dongfang Microcredit Company</a>'s client network in Ningxia Autonomous Region, China. The project’s curriculum, which is based in the core financial concepts of savings, risk protection, and digital finance, is intended to empower women in the household and community through increased financial decision-making power. With the project more than two-thirds completed, Positive Planet has just published a case study that explores the project team’s experience in working to build the financial capability of rural Chinese women.

<a href="https://cfi-blog.org/2014/10/27/gender-dynamics-in-rural-china-illuminate-the-need-for-financial-education/">As written here before</a>, China’s rural women stand to greatly benefit by being introduced to financial concepts and related services. However, China’s government has yet to establish a national strategy for financial education that clearly looks beyond urban residents’ financial capability needs. (Current efforts <a href="http://www.oecd.org/daf/fin/financial-education/national-strategies-for-financial-education-policy-handbook.htm">mostly cover</a> security precautions for traditional banking, anti-fraud measures, counterfeit currency awareness, and illegal investment prevention.) Serving rural residents and their unique set of circumstances and needs will require a greatly expanded financial capability-building offering. For such an expansion to work well, it will need to include programming that looks at the rural population separately. Further, implementation for rural programming should lean on the experience and opinions of diverse local groups and township government offices. Unique cultures, language dialects, and market distinctions across China’s many regions make one-size-fits-all financial educational content less effective. Central planning and support play a crucial role, but resource design must allow for calculated flexibility per the local settings.

<em>Banking on Women</em> is an attempt to start bridging this rural China financial capability gap. The project borrows from international financial education program methodology, while also exploring new ideas in project design and implementation that better suit China’s rural poor and Ningxia’s market circumstances. For instance, the project takes advantage of WeChat, a widely used texting and social media platform in China, by posting stories and lessons that get sent to subscribers’ phones. Voice messaging features have made the mobile application more accessible to partially illiterate rural women in China who are increasingly likely to own smartphones. The result is that a majority of rural women under the age of 50 in Ningxia (and in most other provinces) can now utilize WeChat to communicate and gain access to new sources of digital financial information for the first time.
<blockquote><em>Banking on Women</em> is an attempt to start bridging this rural China financial capability gap.</blockquote>
Though the project explores new features, such as WeChat, it still fundamentally operates on the training-of-trainers (ToT) model of disseminating content. Positive Planet consultants train loan officers in key concepts as well as the skills required for training their clients. After receiving this training, loan officers are equipped with a set of simple financial capability tools, exercise instructions, and teaching cues so that they can more effectively engage their clients with content. During monthly, community-based loan repayment meetings, loan officers share the information and lessons with their clients.

Because the project aims to establish a sustainable approach to financial capability-building, loan officer-to-client trainings are designed to be compatible with regular work and are therefore kept brief, flexible, and conversational. By embedding educational content and client engagement directly into daily operations and providing many light touch points, key financial concepts can be reinforced in the long-term. Moreover, the MFI does not become over-encumbered with resource-intensive activities and programming that may not be realistically sustainable.

Of course, creating such a system remains a work in progress. The project has been an evolution of ideas and strategies, reflecting limitations and challenges of reaching remote clients through a rural organization. The case study “<a href="http://www.positiveplanetchina.org/banking-on-women-case-study-published/">Banking on Women: Financial Education in Rural China</a>” sheds light on this development process. Topics covered in the case study include the following:
<ul>
 	<li>Digital channels for dissemination</li>
 	<li>Client-centric design in addressing diverse needs</li>
 	<li>Curriculum development for rural Chinese</li>
 	<li>Project activities and implementation organization</li>
 	<li>Training methods and impact</li>
 	<li>Importance of local role models</li>
 	<li>Incentivizing loan officer training</li>
</ul>
The paper can be viewed or downloaded in its entirety on the <a href="http://www.positiveplanetchina.org/banking-on-women-case-study-published/">Positive Planet China website</a>. It is available in English and Chinese.

<em>Since its entry into China in 2003, <a href="http://www.positiveplanetchina.org/">Positive Planet</a> has supported China’s microfinance sector development by providing direct technical assistance to microfinance institutions. In recent years, Positive Planet has expanded its support beyond just technical advisory to MFIs, including direct assistance to MFI clients and other economically marginalized groups in areas like financial education. </em>

<em>Image credit: Positive Planet</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/09/15/insights-into-an-evolving-peer-to-peer-lending-industry-in-china/">Insights into an Evolving Peer-to-Peer Lending Industry in China</a>

<a href="https://cfi-blog.org/2015/07/28/new-surveys-fill-data-void-in-chinas-microfinance-industry/">New Surveys Fill Data Void in China’s Microfinance Industry</a>

<a href="https://cfi-blog.org/2016/04/05/improving-access-and-usage-of-financial-products-and-services-in-china/">Improving Access and Usage of Financial Products and Services in China</a>

Financial Education in China: Challenges and Lessons in an Embedded Model

As we say goodbye to April, I reflect on the month that since 2004 has been recognized as <a href="http://www.financialliteracymonth.com/">Financial Literacy Month</a> by the U.S. government and that also brings us <a href="http://www.pay-equity.org/day.html">Equal Pay Day</a>, which was originated by the National Committee on Pay Equity in 1996. To celebrate and learn more about these topics, I attended two events in Boston: a talk hosted by <a href="http://www.budgetbuddies.org/">Budget Buddies</a>, a financial literacy coaching program for women, and an Equal Pay Day <a href="http://www.wbur.org/2016/04/12/goldberg-pay-gap-calculator">event</a> hosted by Massachusetts Treasurer Deborah Goldberg. I was struck by a few pertinent themes that ran through both events.

<strong><em>1. Gender Gaps</em></strong>. Financial literacy is low in the U.S. and worldwide according to <em><a href="http://www.wsj.com/articles/get-ready-to-be-told-you-dont-know-money-1457321010#livefyre-comment">The Wall Street Journal</a></em>: “Only 57 percent of Americans passed a basic financial literacy test, according to one recent global survey; in another survey, teens in the U.S. ranked between those of Russia and Latvia. Around the world, meanwhile, just one-third of adults are considered to be financially literate.”

However, there is also a gap between genders in financial literacy – <a href="http://media.mhfi.com/documents/2015-Finlit_paper_17_F3_SINGLES.pdf">5 percent on average worldwide</a> (35 percent for men, 30 percent for women) and <a href="https://www.youtube.com/watch?v=woTC6AyRXSo">10 percent in the U.S</a>., according to Standard &amp; Poor’s Ratings Services Global Financial Literacy Survey.

Budget Buddies, which focuses only on women, makes the case that strong money management skills are especially important for women because:
<ul>
 	<li>Women still earn about <a href="http://www.catalyst.org/knowledge/womens-earnings-and-income">20 percent less than men</a> and are more than twice as likely to work part-time.</li>
 	<li>Women also spend an average of <a href="http://www.bls.gov/data/">12 fewer years</a> in the work force, due to caring for children and older relatives.</li>
 	<li>As a result of their lower lifetime earnings, women have <a href="https://www.ssa.gov/policy/docs/issuepapers/ip2009-02.html">lower Social Security payments</a> in their later years.</li>
 	<li>Lower lifetime savings exacerbate this problem, as women outlive men by 5 years on average.</li>
</ul>
<strong><em>2. Confidence Matters</em></strong>. A recent Atlantic article presents a theory that a <a href="http://www.theatlantic.com/magazine/archive/2014/05/the-confidence-gap/359815/">confidence gap</a> between men and women is one reason why wage and promotion inequalities exist in the workplace. Evidence shows that women are less self-assured than men—and that to succeed in the workplace, confidence matters as much as competence. It seems confidence may be one contributor to the fact that, despite passage of the <a href="https://www.whitehouse.gov/issues/equal-pay">Equal Pay Act in 1963</a>, the gender gap in pay still persists.

Similarly, confidence is a hurdle for women with financial literacy. A study commissioned by the Girl Scouts, <a href="http://www.girlscouts.org/content/dam/girlscouts-gsusa/forms-and-documents/about-girl-scouts/research/GSRI_Having_It_All_report.pdf"><em>Having It All: Girls and Financial Literacy</em></a>, found “girls are extremely optimistic about their future lives but admit to lacking the financial confidence and knowledge to achieve their dreams.” It also uncovered that about 50 percent of girls feel confident making financial decisions, and only 12 percent would consider themselves very confident.

<strong><em>3. Knowledge is Power</em>.</strong> Improved financial literacy might support greater economic self-sufficiency and empowerment. Despite the huge focus on higher education that it is known for, Massachusetts is still one of 12 states in the country that does not require schools to offer financial education courses to students. Financial literacy is especially key in a state where the majority of students take on an enormous amount of student debt, an average of $29,391 in 2014. And where the average annual cost of day care, $17,062 as of this year, is well above the “10 percent” of a family’s income that the Department of Health and Human Services considers affordable.

[caption id="attachment_21250" align="aligncenter" width="585"]<a href="http://www.mass.gov/treasury/docs/empowerment/financial-literacy-in-massachusetts-report.pdf"><img class="wp-image-21250" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/05/picture-1.png" width="585" height="587" /></a> (click to enlarge)[/caption]

However, for many women, perhaps the single most important piece of financial knowledge may be understanding your worth in the market place. And for that, in April Massachusetts released <a href="http://equalpayma.com/en/Calculator">a tool kit</a> for understanding the pay gap, which includes a calculator allowing women to play with the concept of pay differentials in their industry.

A December 2015 <a href="http://www.mass.gov/treasury/docs/empowerment/financial-literacy-in-massachusetts-report.pdf">Report on Financial Literacy in Massachusetts</a> indicates that there is still a lot of work to be done, and the equal pay <a href="http://equalpayma.com/en/faqs#sthash.3IPtp8l0.dpuf">website</a> indicates that “at the current rate, the wage gap for women in Massachusetts will not close until 2058.” Some of the keys to improve both efforts include more data, greater transparency, and early education, including education focused on building confidence. Additionally, like the aim of the CFI’s new <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">financial capability innovations project</a>, it’s important for practitioners and stakeholders to widely share ideas that work, especially between domestic and international efforts, which often seem to be disconnected. For example, the microfinance industry has long focused on financial literacy, recognizing it as an important cornerstone to responsible lending, and has long focused on women.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money</a>

<a href="https://cfi-blog.org/2016/03/08/in-the-hands-of-women-a-reflection-on-the-gender-gap-in-financial-inclusion/">In the Hands of Women: A Reflection on the Gender Gap in Financial Inclusion</a>

<a href="https://cfi-blog.org/2016/03/22/the-trouble-with-retail-credit-cards/">The Trouble with Retail Credit Cards</a>

In the United States, Gender Gaps in Financial Literacy and Pay Persist

<em>&gt; Posted by John Gitau, CEO, Kenya Financial Education Centre</em>

<a href="https://www.flickr.com/photos/14516334@N00/1202829000/" target="_blank"><img class="alignright wp-image-15588" style="margin-top:5px;margin-bottom:5px;border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/1202829000_e7ccd05992_o.jpg" alt="" width="300" height="246" /></a>A year ago today, I lost a nephew, John Gachoka. He was 33 years old. As it is our tradition, my family met to make burial arrangements. We drew a tentative funeral budget of $1,870 all expenses inclusive.

John worked in a factory earning a salary of $94 a month ($3 a day). He lived with his family of four (wife and three small children, eldest aged 8) in a single room in a low-income neighborhood, rented for $10.58 a month. He belonged to the bottom of the pyramid.

Characteristic of the warmth that pervades people at the BoP, John’s colleagues joined his neighbors and they drew up a parallel funeral budget in consultation with John’s widow. We, as the larger family, were not aware of another budget until the third day when we joined the colleagues and neighbors meeting. It was time to develop one concrete program.

The chairperson of that committee gave me the budget they had drawn. It read a total of $635, all inclusive expenses, morgue to grave. The budget had all the components we as a family had listed, except that the figures were lower. For example, we had a budget of $295 for the coffin. Their budget for the same was $175. We had a food budget of $300 while theirs was $115. Correctly, they had a similar estimated attendance of 200 people, as we had.

This being a financial inclusion blog space, you must be wondering where a funeral comes in. Please bear with me. There is a grave financial management lesson herein.

The drama and lessons came from the reasoning exhibited in the course of harmonizing the two budgets. Let me pick a few elements that revealed how the poor think around values and money.
<ol>
	<li><strong>The coffin price</strong>. We the family considered a nice looking coffin as a symbol of a decent send off. My nephew’s colleagues and neighbors argued that we can’t give ants in the grave a whole feast of $295 while John had left behind small children. I was shocked by that perspective – decency versus financial implications, my gosh!</li>
	<li><strong>Food budget</strong>. They argued that our budget was just too high, since we were going for a funeral not a party. We should be thinking how much should be left over after the funeral for the young widow. We adopted their thin budget consisting of snacks as opposed to the elaborate menu we had designed.</li>
	<li><strong>Transport.</strong> The family had a budget of $411 to hire a bus to ferry mourners. The committee endorsed it and said that, yes, that money would be set aside, but each mourner who would board it was to pay $7 on the spot. Nobody had any objection.</li>
</ol>
The two subsequent days that I joined that committee to raise funds, I was amazed by the unity and level of contribution. Most colleagues attended the meetings daily and neighbors contributed in kind by serving tea and bread.

After the burial, the chairman of the committee thanked everybody, and later that week he brought to the widow the balance after all expenses. I was very surprised because it was enough to take care of the house rent for three years and school fees for the small children for at least five years.

Foolish and educated, we the family, would have wasted a clear $1,235 ($1,870 minus $635) in a lavish funeral to appease our egos in the name of decent burial for our nephew. Indeed, the burial was not any less decent, and everything went as planned.

The poor may be poor but they have the basic logic around money that we in the next tier can easily miss as we get wasteful. It is perhaps important to remember this lesson when we go for conferences to discuss matters about the poor. Let us reflect on who makes money, the hotels, transporters, and perhaps such money can be used better for the course of the poor. It will be important to emulate the poor in money management, thrift, and economy, not necessarily driven by scarcity but by our reflection on the need to avoid wasting money.

<em><img class="alignleft wp-image-14980" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/skmbt_c35140204162400_0001-v.jpg?w=119" alt="" width="90" height="113" />John Gitau is an independent financial education consultant and trainer and is the CEO of <a href="http://financialeducationcentre.co.ke/" target="_blank">Kenya Financial Education Centre</a>, an independent centre that supports and promotes financial inclusion efforts among the Kenya poor living in low-income neighborhoods. He does that using his home grown financial literacy curriculum, Practical Financial Literacy Counseling (P-FLC) adopted from the Global Financial Education Program (GFEP) developed by Microfinance Opportunities, Citi Foundation, and Freedom from Hunger.</em>

<em>Image credit: <a href="https://www.flickr.com/photos/14516334@N00/1202829000/"><span style="text-decoration:underline">aussiegal</span></a></em>
<p style="color:#5e514d"><span style="font-weight:bold">Have you read?</span></p>
<p style="color:#5e514d"><a href="http://cfi-blog.org/2012/07/09/lets-actually-talk-about-money-management/" target="_blank">Let's Actually Talk about Money Management</a></p>
<p style="color:#5e514d"><a href="http://cfi-blog.org/2013/04/12/a-holistic-approach-to-money-management/" target="_blank">A Holistic Approach to Money Management</a></p>
<p style="color:#5e514d"><a href="http://cfi-blog.org/2013/05/08/fine-tuning-money-management-concepts-from-income-shaping-to-fuzzy-goals/" target="_blank">Fine-Tuning Money Management Concepts - From Income Shaping to Fuzzy Goals</a></p>

A Funeral and Money Management Lessons - The Poor Can Teach