Following nearly a year of limited direct access to the lives of the vulnerable people who are the subject of his research, Prof. <a href="https://wagner.nyu.edu/community/faculty/jonathan-j-morduch" target="_blank" rel="noopener noreferrer">Jonathan Morduch</a> -- economist, co-founder of the <a href="https://www.financialaccess.org/" target="_blank" rel="noopener noreferrer">Financial Access Initiative</a> (FAI), scholar of the lives of the poor and <a href="https://centerforfinancialinclusion.org/about/advisory-council/" target="_blank" rel="noopener noreferrer">CFI Advisory Council</a> member – has been working beside a white-hot forge of projects, continuing to help shape the global body of knowledge about the lives that inclusive finance seeks to improve.

“It’s been a very busy time, even though we haven’t been able to do what we really want to do, which is being in the field: doing surveys, doing research, getting to know people and better understand problems.”

For Prof. Morduch and his <a href="https://www.financialaccess.org/about" target="_blank" rel="noopener noreferrer">team</a>, co-led by Timothy Ogden, that’s meant building partnerships and assembling teams for four different projects focusing on people from a range of backgrounds: from ultra-poor workers migrating to Dhaka from northwest Bangladesh, to families in Compton, California, struggling in a pandemic-scarred economy.
<h2>Small Firm Diaries: Applying the “Portfolios” Model</h2>
Perhaps the most visible of these so far is the <a href="https://www.smallfirmdiaries.org/" target="_blank" rel="noopener noreferrer">Small Firm Diaries</a> project. Morduch, co-author of “<a href="https://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/0691148198" target="_blank" rel="noopener noreferrer">Portfolios of the Poor</a>” and <a href="https://www.usfinancialdiaries.org/" target="_blank" rel="noopener noreferrer">U.S. Financial Diaries</a>, is part of a team that will apply the financial diaries model -- collecting data from hundreds of poor households frequently and regularly over a long period of time (at least a year) -- to firms with 1 to 20 employees, in contrast to CFI’s <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">research</a> on MSMEs, which has been focused on collecting and analyzing survey data on COVID-19's impact on the financial health of owners of a broader range of business sizes.

“There’s a lot of great research available on small firms from different angles – liquidity, gender, how they use digital services... The diaries instead present a chance to look at firms holistically, without imposing a particular agenda from the start. The diaries are a way to understand the lives of firms and whom they employ, whom they serve – and whom they are served by – and try to understand them on their own terms.”
<blockquote>The diaries present a chance to look at firms holistically, without imposing a particular agenda from the start.</blockquote>
With financial support from the Mastercard Center for Inclusive Growth, the Bill &amp; Melinda Gates Foundation, and the Argidius Foundation, the team will collect data for one year from firms in Colombia, Fiji, Indonesia, Kenya, Ethiopia, Uganda and Nigeria. In addition to following cash flows, the researchers will also complete qualitative interviews in roughly 100 households per country from a variety of sectors.
<h2>From South Asian Cities: Researching Digital Remittances Back Home</h2>
A second project Prof. Morduch is leading is digitally connected and builds on a <a href="https://www.aeaweb.org/articles?id=10.1257/app.20190067" target="_blank" rel="noopener noreferrer">pilot in Bangladesh</a> that connected ultra-poor families – whose working-aged children were employed mostly in garment factories in Dhaka and who were largely excluded from technology -- with digital networks to send money home easily. This pilot intervention revealed a 25 percent boost in money going to home villages; the team also found that consumption was smoothed during the lean season and increased overall. The project was spearheaded to fill a knowledge gap in the impact of domestic remittances. Beyond the numbers, it has also changed the way Prof. Morduch has viewed microfinance interventions, which have traditionally been about bringing resources like microcredit to grow businesses in villages.

“This project shows other ways to improve rural conditions. One is to make it easier for younger people to move to cities where they can be more productive and earn higher wages. What about the people who are left behind in rural areas? They can benefit if migrants have reliable ways to send money home.” In addition to introducing the technology to urban migrants and their rural families, the team translated the digital interfaces (which were mostly in English) and gave users hands-on experience. The initial result? Active use of the product went from 20 percent to 70 percent.

The team hypothesized that urban-to-rural remittances would become more frequent as a result of the digital ease of transacting. Surprisingly, the frequency remained largely the same, but the amounts grew.

While the financial and usage results were positive, the treatment group of migrants reported worsened physical and emotional health. The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.
<blockquote class="pullquote--left">The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.</blockquote>
“It’s a reminder that digital financial services can disrupt social relationships. All of a sudden, migrants are available to their families all the time, both to talk and to send money. This changes how we go through life. These technologies can be powerful, but they disturb a social balance.”

With support from the Bill &amp; Melinda Gates Foundation, the team will replicate the work in six other sites in India, Pakistan and Bangladesh.
<h2>To the Homes of Compton: A Guaranteed-Income RCT</h2>
Prof. Morduch is also part of a group that’s working on a guaranteed-income randomized control trial in Compton, California, involving several hundred families whose incomes are below twice the U.S. poverty line. The purpose of this RCT is to test a premise about <a href="https://www.youtube.com/watch?v=Yw4jRO5rYf8" target="_blank" rel="noopener noreferrer">being poor and facing instability</a>: while financial services’ role in smoothing consumption via saving and borrowing is critical, the poor also need a “<a href="https://www.microsave.net/files/pdf/BN_13_Money_Managers_The_Poor_and_Their_Savings.pdf" target="_blank" rel="noopener noreferrer">usefully large sum</a>” from time to time.

As Morduch says, families need to both “smooth” and “spike” during the year.

“These are different savings problems. We tend to focus on smoothing, but both smoothing and spiking are really hard for poorer households, and they call for different solutions.” So for the duration of the experiment, some families will get a check every couple of weeks (smoothing), and another group will get a larger disbursement of funds less frequently, which Prof. Morduch and his collaborators hope will allow them to support important purchases.

Morduch points out that even though the U.S. has the Earned Income Tax Credit (a de facto lump sum payment in the form of a tax refund) and programs -- like SNAP -- to support food purchases for low-income families (a smoothing mechanism), “we never really step back and think about them as financial mechanisms, and that’s what the Compton project is all about.”

Indeed, thinking about stability’s role has been a common theme throughout his planning and executing of projects. “One of the great inequalities in life is that people who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”
<blockquote class="pullquote--right">"People who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”</blockquote>
With that instability and seasonality of employment for the poor, there needs to be more frequent measurements to understand poverty, be them quarterly, or monthly, as opposed to yearly. And the kind of instabilities we saw in "Portfolios of the Poor" are also faced by American workers as the power of labor (i.e., declining unions, <a href="https://www.investopedia.com/terms/m/monopsony.asp" target="_blank" rel="noopener noreferrer">monosponies</a>) falls away, Morduch points out. The Compton project could help inform ways to better collect data frequently.
<h2>A New Primer on Financial Inclusion</h2>
As if that weren’t enough to keep them busy, a new book is also in the works. "Financial Inclusion: What Everyone Needs to Know," by Prof. Morduch and Ogden, will be an explainer organized in Q &amp; A form, a chance for the pair to “pull together ideas and evidence that we talk about all the time, but that may be new to readers.” Prof. Morduch pointed out that while organizations like CFI implicitly explain topics by offering solutions, a book that explains the problems for a broader audience will help advance financial inclusion objectives even more. The book is slated for fall 2021 release.
<h2>CFI’s Strategic Shift</h2>
In some ways, Prof. Morduch’s strategizing and planning is similar to that undertaken by CFI, for whom he has advised for many years. And the excitement is shared.

“CFI’s strategic priorities show an organization that’s truly looking forward, while also looking back. CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”
<blockquote>"CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”</blockquote>
For the latter topic, Morduch urges CFI to make it clear why climate risk is important for people concerned with financial inclusion. “If everyone worried about finance also understands why they should get excited about climate risk, then they will follow CFI, and they will push CFI to push harder, and I am excited about that possibility.”
<h2>Wanted: Closer Public Sector Involvement</h2>
Whether it’s CFI, FAI or other organizations advocating for inclusive finance, Morduch believes that public sector interventions need more prominence.

“The microfinance ethos, in some sense, got us off on the wrong foot. It seemed very anti-government in the beginning -- a private sector intervention. Politically, that was aligned with the moment, but it cut off important conversations. Instead of minimizing connections to public action, financial inclusion should be coming alongside steps by governments to support citizens. That’s one of the great omissions of the financial inclusion conversation: it has been too optimistic about the power of finance alone to address inequality.”

We at CFI agree that the conversation must go beyond private sector interventions: “How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances?” Mayada El-Zoghbi, CFI Managing Director, <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">asked</a> readers of this blog last June.

And we’re looking forward to learning and comparing what we’ve discovered.

Prof. Jonathan Morduch’s Four New Projects

In recent years, practitioners have touted the link between migration and technology for increasing financial inclusion, <a href="https://reliefweb.int/report/world/role-technology-addressing-global-migration-crisis#:~:text=When%20refugees%20and%20IDPs%20use,their%20autonomy%20and%20self%2Dreliance.&amp;text=New%20digital%20platforms%20connect%20displaced,greater%20capacity%20to%20support%20themselves." target="_blank" rel="noopener noreferrer">integration</a>, and livelihoods support. Migrants themselves have developed applications to support integration, in what some call the “<a href="https://www.weforum.org/agenda/2018/12/social-media-is-casting-a-dark-shadow-over-migration/" target="_blank" rel="noopener noreferrer">app-ification of migration</a>” or “migrant tech.” Humanitarian and development agencies have <a href="https://oxfamilibrary.openrepository.com/bitstream/handle/10546/558591/rr-new-technologies-cash-transfer-010111-en.pdf?sequence=6&amp;isAllowed=y" target="_blank" rel="noopener noreferrer">helmed the push for migrant tech</a>, especially with regard to mobile cash transfers.

Also stepping into the “technology gap” — perceived or real — are developers, who create applications for <a href="https://techcrunch.com/2018/10/27/here-are-25-of-the-most-innovative-new-projects-using-tech-to-help-refugees-and-ngos/?guccounter=1" target="_blank" rel="noopener noreferrer">every use under the sun</a>: <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/02/The-Importance-of-mobile-for-refugees_a-landscape-of-new-services-and-approaches.pdf" target="_blank" rel="noopener noreferrer">returnee integration</a>, mobile “game-ified” bilingual education, <a href="https://www.elrha.org/project/mobile-tech-gbv-syrian-adolescent/" target="_blank" rel="noopener noreferrer">gender-based violence prevention</a>. The International Organization for Migration (IOM) recently joined the game with its <a href="https://www.iom.int/migapp" target="_blank" rel="noopener noreferrer">MigApp</a>, which provides information, a money transfer service, and translation. Governments and organizations like the <a href="https://www.oecd.org/migration/mig/migration-strategic-foresight.pdf" target="_blank" rel="noopener noreferrer">OECD</a> have been quick to laud such interventions as efforts to make humanitarian aid future ready.
<blockquote class="pullquote--right">The most useful digital tools for migrants are not migrant tech at all.</blockquote>
Few doubt that mobile technology occupies a key role in migrant life. Yet our research with migrants in Quito, Ecuador, suggests that in spite of efforts to “app-ify” migrant integration, the most useful digital tools for migrants are not migrant tech at all. Instead, migrants take off-the-shelf applications such as WhatsApp and flex them to fit their needs.
<h2>The “WhatsApp Bank": Stories from Migrants in Quito</h2>
In Quito, the “Bangladeshi Club” meets once a week, rotating through different Bangladeshi restaurants. Only about 25 Bangladeshi migrants live in the city, so it is easy to stay in touch. They take advantage of a WhatsApp group chat to coordinate their weekly meetings where, between food and conversation, everyone has the chance to benefit from a communal fund. Each week all members contribute to the fund and should anyone fall on hard times, they can petition the club for a loan.

Formal financial inclusion is unavailable to many migrants in the Ecuadorian capital, not just ones from Bangladesh. As of 2016, the country had among the <a href="https://www.afi-global.org/sites/default/files/publications/2019-07/AFI_FILAC_SP_AW_digital.pdf" target="_blank" rel="noopener noreferrer">lowest number of users of mobile money</a> services in Latin America. The dearth of reliable and robust digital financial services (DFS) in Ecuador pushes migrants to adapt.

Nowhere was the inventive use of WhatsApp clearer than among Venezuelan migrants in need of remittance services. Runaway inflation in Venezuela, coupled with tight DFS regulations in Ecuador, encourages creative thinking among migrants hoping to send money home. Remittances to Venezuela take three forms: in-kind, cash, or via wire or bank transfer. Migrants least preferred the latter option. Due to severe inflation and perceived corruption in Venezuela, money transferred to Venezuelan banks immediately loses value. Thus, alternative options that rely heavily on WhatsApp, and whose legality might be in question, have gained traction.

In one typical example, a Venezuelan migrant wishing to send remittances will connect with a Colombian runner through WhatsApp word-of-mouth networks. Over WhatsApp, the migrant tells the runner how much they would like to remit. The runner responds with a price for services rendered, plus extra for the border bribe they will certainly pay. The migrant then wires money to the runner in Colombia, who performs one of two actions: withdraw cash or buy goods.

In the first scenario, the runner takes out cash and smuggles it into Venezuela. They then transport the package to the intended recipient. In the second, more common case, the runner uses the remittance money to purchase essential goods in Colombia. They then ferry the goods across the border or tap agent networks to make the delivery. In both cases, WhatsApp plays an essential role.
<blockquote class="pullquote--left">WhatsApp supports business growth, marketing, and development for migrants in Ecuador.</blockquote>
WhatsApp also supports business growth, marketing, and development for migrants in Ecuador. Venezuelan migrant Rosa operates her direct-to-order Venezuelan restaurant via WhatsApp. Her clients communicate their home-country cravings directly to her, and Rosa shops for the ingredients and prepares the meals made-to-order. In this way, she fills a very specific community niche and has built a loyal base of clients who depend upon her customizable Venezuelan food. WhatsApp enabled her business to boom.
<h2>What's Next?</h2>
The centrality of WhatsApp to migrant social and economic life in Quito begs the question: Is it really necessary to “app-ify” migration?

Our research offers a simple response: no. This thinking aligns with a small but growing chorus of concerned researchers. A <a href="https://www.rand.org/pubs/research_reports/RR4322.html" target="_blank" rel="noopener noreferrer">RAND Corporation study</a> of refugee technology use in the Middle East and Greece confirms that migrants rely “mainly on mainstream technology developed for more general audiences,” and concludes that the influx of applications and “innovations” is simply “too much.” In the Mediterranean, research at <a href="https://sites.tufts.edu/journeysproject/the-financial-journey-of-refugees-evidence-from-greece-jordan-and-turkey/" target="_blank" rel="noopener noreferrer">The Fletcher School of Law and Diplomacy confirmed</a> those findings. Migrants frequently deployed applications used for maps, currency conversion, language translation, and weather. Notably, none of these applications were created specifically for migrants.

The RAND researchers recommend that humanitarian and development agencies invest more in working within mainstream platforms and less on developing niche products. This includes removing access barriers, scaling internet connectivity, managing data privacy, promoting digital literacy, and improving mobile phone penetration. These are all productive activities that agencies can do—and already do well. Why reinvent the wheel when already-popular migrant platforms exist? Our answer: don’t.

Migrants are the ultimate connectors. They have been using technology for years and will continue to do so, but in their own way and at their own pace. Humanitarian agencies claim that new technologies strengthen migrant autonomy, yet community-developed online systems already lend migrants voice.

Technology will continue to transform how migrants work, move, and connect. No doubt, off-the-shelf technology has made migration a bit more straightforward. Our job as humanitarians is not to invent new technology. Our job, on behalf of migrants, is to help existing technology go the distance. Let’s get to work.

There’s (Not) an App for That: Taking a Hard Look at the “App-ification” of Migration

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>
RG: 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>
AK: 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>
RG: 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>
RG: 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>
AK: 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>
AK: 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>
RG: 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>
AK: 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>
AK: 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.

RG: 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

The following post was <a href="http://blogs.accion.org/features/7-fintech-trends-to-watch-in-2018/">originally published</a> on the Accion blog.
We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/trends-that-may-change-the-world-c00f4e500a8c" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.
As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.

<h4>Digital neobanks</h4>
[caption id="attachment_24930" align="aligncenter" width="616"]<img class="wp-image-24930" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/appsm_mockup2.jpg" alt="" width="616" height="411" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.

<h4>Next gen small business finance solutions</h4>
Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com/en/" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.

<h4>Insurtech for the underserved</h4>
Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.

<h4>Financial services for smallholder farmers</h4>
Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.

<h4>Asset finance</h4>
[caption id="attachment_24931" align="aligncenter" width="615"]<img class="wp-image-24931" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/kn_pg_2016_25.jpg" alt="" width="615" height="410" /> The Paygo team at work on their smart meter for cooking gas[/caption]
Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="http://paygoenergy.org/" target="_blank" rel="nofollow noopener noreferrer">PayGo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.

<h4>All-digital consumer lending</h4>
Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.

<h4>Consumer financial health</h4>
In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.893f79e72c4c" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.
Each of these areas of startup-led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.
Image credits: Accion

Have you read?

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/07/31/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines/">How Financial Institutions and Fintechs Are Partnering for Financial Inclusion: Lessons from the Frontlines</a>

&nbsp;

&nbsp;

&nbsp;

&nbsp;

&nbsp;

7 Fintech Trends to Watch in 2018

<a href="https://www.antfin.com/index.htm?locale=en_US">Ant Financial</a><a href="https://www.flickr.com/photos/39160147@N03/26062114184/"><img class="alignright wp-image-23600" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/05/26062114184_d276b847e7_z.jpg" alt="" width="265" height="199" /></a>, the Chinese inclusive finance powerhouse founded by Alibaba Group, and <a href="http://www.euronetworldwide.com/our_company/businesses.cfm">Euronet Worldwide</a>, a U.S. giant in the money transfer game, are in a bidding war over <a href="https://secure.moneygram.com/">MoneyGram</a>. Financially, this makes sense as the global remittance market is estimated at about <a href="https://www.infosys.com/industries/cards-and-payments/resources/Documents/money-transfer-industry-2016.pdf">US$600B</a> and MoneyGram commands a market share of roughly <a href="http://ir.moneygram.com/releasedetail.cfm?releaseid=879586">13 percent</a> of the world’s largest remittance route, from the U.S. to Mexico.

When two large companies compete to acquire another large company you might <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">hear about it on CNN Money</a> and promptly move on to other thoughts. But this particular news struck me because it touches on three of the (many) insights about the future of financial inclusion that I took away from attending this year’s <a href="https://www.accion.org/hbs">Harvard Business School - Accion Program on Strategic Leadership in Inclusive Finance</a> just last month.

Big players will increasingly drive the financial inclusion sector moving forward while, in the past, only small companies served the financial needs of the low end market. Microfinance has shown the poor to be a commercially viable customer segment, and as competition heats up, many big financial players are looking for ways to better tap into the commercial potential of new clients at the base of the pyramid. These big players have the deep pockets to innovate, experiment, and take the risks required to figure out how best to serve the billions of people still financially excluded. In addition to Alibaba’s Ant Financial, China’s WeChat, the social messaging app which connects over 800 million people, now <a href="http://onestop.globaltimes.cn/how-to-transfer-money-to-your-wechat-wallet-contacts/">allows for money transfers</a>.

Political interests play a much bigger role in the financial inclusion industry than you might realize. This makes sense given that we are working at the nexus of finance and the poor. Still, I was surprised that almost every case we discussed at the HBS-Accion Program had an important regulatory angle which proved critical to the outcome. We discussed examples of regulation done well and also regulation gone wrong – with the latter often closely tied to political interference. The main take-away was that regulators can best allow for innovation by setting out their desired outcomes and then taking a hands-off approach on how financial institutions get there. Most of the regulatory examples discussed at the HBS-Accion Program took place in developing markets, but their learnings hold true in the MoneyGram bidding war. In an era of “America First” rhetoric, there is <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">political resistance</a> to allowing Ant Financial, in which the Chinese government has a 15 percent stake, to buy MoneyGram. Members of Congress have <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">spoken out</a> against the deal.

Data ownership was another hotly discussed issue at the HBS-Accion Program, and it may be an important reason for U.S. political concerns about a Chinese company owning a U.S. money transfer service. If Ant Financial were to buy MoneyGram, it’s reasonable to assume that the Chinese government would gain access to information on American consumers’ finances. At a minimum, such data has the potential to convey competitive advantage. More broadly, data is increasingly seen as power.

In March, Euronet offered to buy MoneyGram for $1 billion, and last month Ant countered with $1.2 billion. MoneyGram’s board unanimously approved the new deal from Ant, but U.S. regulatory approval still needs to be secured, including from the Committee on Foreign Investment, which is tasked with vetting foreign investments into the U.S. and discerning how they might affect national security.

It may seem the MoneyGram bidding war is pretty far away from a week-long program focused on financial inclusion, but the HBS-Accion Program provides a new lens for analyzing some of the most pressing issues facing the financial inclusion industry. It provides an opportunity to take a step back from the day-to-day and think more strategically about industry trends. This year’s HBS-Accion Program brought together 71 executives and other leaders in financial inclusion from leading institutions spanning 30 countries to engage in interactive case studies and peer exchange. Learning from this group of peers and world class facilitators proved immensely enriching.

Image credit: <a href="https://www.flickr.com/photos/39160147@N03/26062114184/">Mike Mozart via Flickr</a>

Have you read?

<a href="https://cfi-blog.org/2017/01/05/the-news-from-china-can-a-speeding-ticket-hurt-your-credit-score/">The News from China: Can a Speeding Ticket Hurt Your Credit Score?</a>

<a href="https://cfi-blog.org/2014/09/23/chinas-microfinance-landscape-nonprofits-microcredit-companies-rural-financers-and-alibaba/">China's Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba</a>

<a href="https://cfi-blog.org/2016/04/08/global-financial-inclusion-leaders-convene-for-hbs-accion-program/">Global Financial Inclusion Leaders Convene for HBS-Accion Program</a>

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MoneyGram Bidding War Heats Up: Financial Inclusion Take-Aways

<a href="http://www.fi2020progressreport.org/technology/"><img class="wp-image-19609 alignright" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/fi2020-tech-section.png" alt="" width="615" height="336" /></a>The following post draws observations from the just-released FI2020 Progress Report on Technology. See the full report to explore other topics.

Technology innovation is dramatically changing the financial services landscape—and quickly. No longer are simple 2G/SMS-based payments the talk of the financial inclusion community. Instead, a range of platforms and products and services promise that as we move into the future, the costs of providing services will be lower, and the base of the pyramid will be within reach for mainstream financial services providers.

The world in which these innovations are mainstreamed is one where the agent network concerns we have today will be gone. In the cash-lite or cash-free world that technology providers are seeking, there will, in fact, be few to no agents, as people will receive money electronically and spend it electronically without ever converting it to cash. When is the last time you went to a banking agent?

Consider the following innovations that allow important financial transactions to take place without a detour through cash. (For a more comprehensive list of innovations, see the FI2020 Progress Report on Technology.)

Low-Fee Remittances: In 2014, the global average cost for transferring remittances was 8 percent – a burden for low-income families who rely on remittance income. But this may soon change. Start-ups such as TransferWise, WorldRemit, and Azimo have mobile apps through which users can send remittances at fees as low as 1 percent. Companies like PayPal are increasing their global consumer base, and charge 3–4 percent on international transfers. Customers who were recently offered mobile cross-border remittances in West Africa <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/04/2015_MMU_Mobile-money-crosses-borders_New-remittance-models-in-West-Africa.pdf">responded by rapidly</a> adopting the service. Orange Money offered transfers between its own customers across Cote d’Ivoire, Mali, and Senegal, while MTN and Airtel created a bilateral agreement to serve the Cote d’Ivoire–Burkina Faso corridor. With the emergence of these competing business models, established players such as Western Union and MoneyGram have reduced their fees. Cornelis Heesbeen, CEO of Auxfin, a remittance service, <a href="http://www.remittancesgateway.org/index.php?option=com_kunena&amp;view=topic&amp;catid=9&amp;id=12&amp;Itemid=151">predicts</a> that by 2020 there will be no fees for remittances. The big question is how and when the remittance industry will shift from one in which most transactions start and end in cash at a banking agent, to one in which most transfers are account to account.

Pay-As-You-Go Utilities: Large up-front costs make solar home systems too expensive for off-grid, low-income customers, unless they get a loan. To sidestep the need for credit, some companies are using pay-as-you-go leasing technology on top of mobile payments. For example, with M-Kopa in Kenya and Mobisol in Tanzania and Kenya, customers pay daily-use fees via M-Pesa. If payment is not received, the company can turn off the system remotely through the embedded pay-as-you-go device. <a href="https://www.cgap.org/sites/default/files/DigitallyFinancedEnergy%20_FINAL.pdf">According to CGAP</a>, as of 2014 there were at least 25 companies selling solar systems with this technology in Africa, Asia, and Latin America. And the technology is being tested for other utilities, too.

P2P Lending: P2P lending services <a href="http://www.wsj.com/articles/peer-to-peer-lending-takes-off-in-china-1433320681">have taken off</a> and expanded rapidly, particularly in China, led by CreditEase, Lufax, China Rapid Finance, and DianRong. At the end of 2014 there were an estimated 1,575 P2P platforms operating in China, up from only 50 in 2011, and 103.6 billion yuan (US$16.7 billion) in outstanding loans issued via online platforms.

Online ROSCAs: An estimated 1.5 billion people globally participate in rotating savings and credit associations (ROSCAs). They provide a simple, informal method for people to save money and receive loans, although traditional ROSCAs can be unreliable and subject to management problems. <a href="http://kitty10.io/">Kitty10</a> is a mobile app that offers a possible remedy, allowing ROSCAs to manage their finances, maintain an electronic history of transactions, and easily make decisions (such as those dealing with loan amounts and repayment terms). It gives financial tips and can even build credit histories for members. <a href="https://www.margadarsi.com/index.jsp">Magadarsi</a> is an Indian chit fund that uses the Internet to support ROSCA-like operations. Magadarsi allows users to sign up online and pay savings and loan installments through online banking on its website. This allows for much larger scale in membership.

These innovations exemplify the impressive progress that technology has made in the last few years—and will continue to make from now to 2020, when the financial inclusion industry is striving to achieve financial inclusion globally. Truly, of all of the lenses through which we explored progress made toward financial inclusion for the FI2020 Progress Report, technology was the most promising, and we gave it the highest score on progress (7/10).

&nbsp;

Have you read?

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress on Financial Inclusion on a Scale of 1 to 10</a>

<a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/">The Twelve Days of Fintech</a>

<a href="http://cfi-blog.org/2015/04/24/fintech-for-fi2020-a-conversation-on-aligning-technology-and-partnerships-for-financial-inclusion/">Fintech for FI2020: A Conversation on Aligning Technology and Partnerships for Financial Inclusion</a>

&nbsp;

Toward an “Agent-Free” World

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

&gt; Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group

[getty src="165290027?et=QjzN8v2pS9xjJ97nhN4pJA&amp;viewMoreLink=off&amp;sig=TVc520TQ3jkLcODOcxJxSj1m9EUG67jq-0Mh_eWZOA4=" width="594" height="395"]

A few weeks ago, I attended the Global Forum on Remittances and Development sponsored by the International Fund for Agricultural Development (IFAD), the European Commission, and the World Bank. Much of the meeting was focused on two critically important questions:
<ol>
	<li>Are or could remittances be a major driver of financial inclusion?</li>
	<li>Is it possible (and desirable) for a greater percentage of remittances to be put to productive use as opposed to consumption once the funds arrive in the hands of the recipient?</li>
</ol>
First, a few facts to underscore why these discussions are so important:
<ul>
	<li>In 2014 there were at least <a href="http://www.remittancesgateway.org/doc/Provisional_Agenda_GFRD_2015.pdf">240 million international migrants</a>. That is a BIG number – bigger than the populations of all the countries of the world except China, India, the U.S., and Indonesia.</li>
	<li>This year these migrants will send back to their countries of origin more than 440 billion U.S. dollars! This amount is more than three times the amount of foreign aid. It is estimated that <a href="http://www.ifad.org/remittances/pub/fiveyears.pdf">$200 billion</a> of this amount goes directly to rural areas in developing countries where the most poverty is.</li>
	<li>Remittances can constitute up to <a href="http://www.migrationpolicy.org/programs/data-hub/global-remittances-guide">40 percent of GDP</a> or more in some countries, often the most fragile, most conflict-ridden countries in the world.</li>
	<li>Some 750 million people are estimated to receive remittances, the vast majority in developing countries. Forty percent live in rural areas.</li>
	<li>The global average cost of sending this money home is 8.6 percent of the amount sent, so the potential customer benefits to cost reduction are very important. (In July 2009 the G20 set a goal of reducing the average cost from 10 percent to five percent in five years. Despite failing to achieve the objective, it recently established a new goal of three percent by 2030!)</li>
</ul>
Are remittances a driver for financial inclusion? Could they be? In a moment of frustration, Fernando Jimenez-Ontiveros, the Acting General Manager of the Multilateral Investment Fund said at the conference, “We’ve been working on these issues for some 15 years, and estimates are that 60 percent of senders and recipients still don’t even have an account! We’ve got to do better!”

In fact, the senders of remittances are most often people who are excluded not only from the financial sector, they are also excluded from employment and economic opportunities in their countries, which is why they leave in the first place. IFAD, through its Financing Facility for Remittances (FFR) program, has been supporting pilots around the world to test different approaches for transitioning migrants and their families back home from financial exclusion to financial inclusion. A good number of these pilots have worked – when all the conditions are right.

I can help to enumerate these conditions based on 17 years of experience as CEO of Fonkoze, Haiti’s largest microfinance institution (MFI). In 1995, when I first met Fonkoze’s founder, Fr. Joseph Philippe, he explained his vision – he wanted to build a bank the poor could call their own. This wasn’t a project or a program – he was trying to build a national institution. However, he cautioned, success will be elusive unless we engage the Haitian Diaspora.

Once I figured out what a Diaspora was (the dispersion of people from their original homeland), I asked whether the Haitian Diaspora would be able to finance this start-up. He explained that that was naive – most of the Diaspora were poor Haitians sending money home to even poorer family members. So I asked how we could gain their support. He said, “We have to offer a reasonably priced, convenient, and secure service for them to get their money home.” This was in 1995 when microcredit supporters weren’t even thinking about remittances.

So from the first day, the idea was that this bank for the poor would offer both credit and money transfer services – but even that wasn’t enough. It also needed to offer savings and currency exchange (since so many U.S. dollars were circulating through the economy) and ultimately insurance. The founder was clear that Haitians needed a full range of financial services at their disposal.

So as we were building this institution, which today has 46 branches, over 200,000 savings accounts, and more than 60,000 borrowers (mostly women), we had to develop a money transfer service, along with all the other financial services. We succeeded in offering our own remittance service through an informal partnership with a bank in the U.S., but it wasn’t a perfect offering, and we wanted our clients to have a full range of options. So we also became agents for MoneyGram and other money transfer operators (MTOs), putting up their signs at all our locations and maintaining the liquidity needed to pay out transfers to any recipient.

Our own service required the recipient in Haiti who wanted to receive transfers to open savings accounts with us. The transfer was automatically deposited into their account when senders deposited it in our bank in the U.S. This had the added advantage of encouraging our clients to open and use savings accounts. On the other hand, for MTO transactions, we had to pay out in cash, and that had to be in U.S. dollars as required by Haitian law, unless the client specifically asked to exchange the money with us.

It quickly became clear that offering the service was not enough. We also needed to find mechanisms for helping our clients learn to use these services. We implemented a version of Paolo Freire’s theory of education as explained in Pedagogy of the Oppressed – a form of peer learning where we would train those clients who knew how to read and write to teach the other clients who didn’t. Included were basic literacy training, business skills, women’s health, children’s rights, and environmental protection.

All of this was designed to bring our clients in Haiti toward <a href="http://www.centerforfinancialinclusion.org/about">full financial inclusion</a>. I would say that the services we had designed accomplished that reasonably well. People coming to pick up their remittance would learn about the loan or savings program while standing in line and, when the cross-selling was done well, they would take up the additional service.

Pretty soon, we had women who had moved from using the money received from relatives abroad purely for consumption <a href="https://www.youtube.com/watch?v=ggDk3irXuf0">to using some of it to start a little business</a>. Then they would learn that they could get a loan to manage the expansion of their business and save the better part of the money transfer in a Fonkoze savings accounts. They became quite skilled at figuring out which service would work best for each need they had.

Of course, not everyone is a “natural entrepreneur.” So, again with the MIF’s support, we launched an educational program for individuals using the remittances purely for consumption to encourage them to consider alternatives. We listened to their reasons for not investing the money, and it became clear that they wanted to figure out a way to set up a business, but they simply didn’t know how. We went to rural branches, recruited clients directly from the lines of people waiting to receive remittances, and then brought them into a class to talk about how to set up a little business. The most successful part of this training program was identifying “businesses in a box” or “micro-franchising” opportunities that would allow the participant to easily launch a simple business. For example, one was to sell solar lighting where someone else was taking care of importing, distribution, and ensuring quality of the product.

But what about the members of the Diaspora? IFAD and the MIF ultimately helped us to demonstrate how we could organize them as well. We hired Katleen Felix, a woman with Haitian roots living in the U.S., to be our Diaspora Liaison. She was a godsend. We organized meetings in Boston, New York, Miami, and even Port-au-Prince to discuss the power of the remittances they were sending home and their potential as engines of development. We discovered that migrants did want to help in the development of their native countries.

It turns out that many of them wanted to invest a portion of the earnings in businesses, schools, or health care clinics in their home communities. So they asked Fonkoze to help them by “vetting” the businesses in the rural areas of Haiti that were “investment ready”. Ultimately, we set up one of the first Diaspora crowd-funding sites with the assistance of DePaul University and the Vincentian Family and hired business analysts in Haiti to identify enterprises that needed loans and were likely to be able and willing to repay.

Suddenly, the Haitian living abroad who wanted to do something for Haitians at home could make a loan of $25, that when combined with 100 other loans of $25, would allow a small honey producer in Haiti to receive a loan of $2,500. Ultimately we negotiated a partnership with Kiva that guaranteed virtually every loan request put up on the website would be fully funded. For Fonkoze, crowd funding through the website <a href="https://www.youtube.com/watch?v=vHPOucbJ918">Zafen</a> (Creole for “It’s our business”) and Kiva has offered a tremendous opportunity for migrants to have the satisfaction of helping in the development of their country without incurring too much risk.

All of this suggests that MFIs are, in many ways, ideally suited to making remittances on-ramps to financial inclusion if they indeed offer a range of services and if they are willing to take the time to help clients understand how to use them. In contrast to traditional financial institutions, MFIs often have a deep understanding of and interest in serving the excluded. The revenue they earn from facilitating remittances can contribute to their bottom line, and in the event that they can convert some of those remittances into savings, they can increase their capital for lending.

So why this isn’t occurring more often? Here are a few of the challenges:
<ul>
	<li>National regulators must allow MFIs to become payers of remittances, accept deposits, and provide loans. Not all countries do.</li>
	<li>MFIs must have the financial, technological, and human resources to offer these services.</li>
	<li>MFIs must be large enough and have the geographical coverage to make a real business out of remittances.</li>
	<li>They must be able to negotiate effectively with money transfer operators (MTOs) in order to ensure they receive enough fee to make the business sustainable.</li>
</ul>
The majority of MFIs are not able to effectively address these challenges. So why was Fonkoze able to do it? First, there was no regulation of MFIs in Haiti (not something we would recommend). Second, we probably didn’t have the capacity to offer these services at scale, though we could make a good point about their promise. We met the geographic coverage challenge above, but it took several years to get the reach and coverage needed. Finally, we were also able to negotiate reasonably well with the MTOs. We had a lot of help, of course, from our donors, investors, and a terrific board of directors always willing to assist in the negotiations. As Don Terry said at the Milan conference, “Fonkoze is a symbol of what is possible!”

What we never accomplished, however, was the scale needed to generate a sufficient return on investment. This has proven to be a challenge for most MFIs, which helps to explain why more MFIs have not entered this market.

Still, projects like Fonkoze’s have learned a lot. Let me summarize the lessons we took away:
<ul>
	<li>Remittances can be an on-ramp to financial inclusion, but it doesn’t happen automatically.</li>
	<li>The financially excluded do not suddenly become the financially included by taking a loan. They need access to a full range of financial services.</li>
	<li>The services will only be of benefit if the person fully understands how and when to use them. This is not something that can be easily taught in a classroom. The best learning is “in the moment” when the need becomes apparent. For example, when the person comes to pick up their transfer is the time to explain to them the options for their money: Wouldn’t they like to save a portion of it in a savings accounts? Is it a good time to exchange into the local currency or would it be better to save in USD? Would they be interested in learning how they might use a portion of it to set up an enterprise of their own?</li>
	<li>Once they’ve made their way onto the “on-ramp”, clients still need close support through continuing education and coaching.</li>
	<li>Development professionals spend a lot of effort trying to turn remittances used for consumption into remittances for productive use. But let’s remember that it’s THEIR money – and they have the right to spend it as they see fit and not as the development professional prefers. If it’s needed for consumption, let it be spent on consumption.</li>
	<li>That said, there are many in the Diaspora who want to invest in their home country but they need:
<ul>
	<li>Easy-to-use and safe investment vehicles</li>
	<li>Access to market information about investment-ready enterprises</li>
	<li>Management support and monitoring of the business they invest in</li>
	<li>Education on risks in the investments and how to mitigate them</li>
</ul>
</li>
</ul>
At the end of the conference, the conclusion was that we still have a long way to go to make remittances a major driver of financial inclusion and to turn remittances into a tool for development in the countries of origin. As Pedro Tigre De Vasconcelos remarked, “There are no silver bullets here, but there sure is a golden opportunity!” For all of us in the microfinance sector, let’s deliver on the promise. Let’s convince more MFIs of the opportunity that this rapidly growing segment of migrants and their families back home represent.

Have you read?

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

<a href="http://cfi-blog.org/2015/01/27/pathway-to-a-better-life-for-haitis-disabled/">Pathway to a Better Life for Haiti's Disabled</a>

Remittances as an On-Ramp to Financial Inclusion: Let’s Deliver on the Promise!

&gt; Posted by Sonja Kelly, Fellow, CFI

<a href="http://www.worldbank.org/en/programs/globalfindex/infographics#2"><img class="alignright wp-image-17975" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/04/shareable_01.png?w=490" alt="" width="376" height="188" /></a>In 2013, Elisabeth Rhyne was asked what she was particularly excited about as she looked forward to the future of financial inclusion. Her response? “A second data point.”

Well, now we have that second data point. The 2014 Global Findex reports that <a href="http://cfi-blog.org/2015/04/15/sixty-two-percent-of-the-world-is-banked-the-new-global-findex-finds/">62 percent</a> of people in the world have a bank or mobile money account, up from 51 percent in 2011, and those two points describe a line. Simply projecting that line forward takes the world to about 83 percent of people with accounts by the year 2020. But of course, that’s not the whole story…

The Global Findex encouragingly articulates some concrete steps that governments and providers can take to accelerate progress toward financial access. I would venture to guess that these steps would bridge the gap between the projected 83 percent and the full 100 percent by 2020 (you can read about the World Bank’s goal of universal access by 2020 <a href="http://www.worldbank.org/en/news/press-release/2013/10/11/universal-financial-access-vital-reducing-poverty-innovation-jim-yong-kim">here</a>).

So let’s just assume that universal access will be a reality by 2020. We can envision a world in the near future where people receive wages, government payments, and remittances into their bank accounts. Businesses spend less on payroll and have fewer risks than if they paid out in cash. Governments avoid corruption associated with social benefit payments by having a cheaper G2P system that entails fewer human intermediaries. Remittances are cheap—or even free—and go directly into the recipient’s bank account. Cause for celebration, right?

Well, yes, but not so fast.

What’s missing from this world is a description of the quality of financial services for the customer. Financial access will mean a lot of good things for a lot of stakeholders—reduced corruption, lower cost of employment, and massive savings for government, to name a few. But financial access does not necessarily mean improved lives for the two billion people around the world who may have a new account by 2020.

<a href="http://www.centerforfinancialinclusion.org/about" target="_blank" rel="noopener">Full financial inclusion</a> is a lot more than access to a transaction account. Services will have to come with quality in order to be relevant to consumers. If products are well-designed to meet the needs of consumers, then we will have a great deal to celebrate by 2020. But if customers receive wages, government payments, and remittances into a bank account and then withdraw them right away, financial inclusion will have just created a different (but only marginally better) way for people at the base of the economic pyramid to interact with their money.

At our <a href="http://www.centerforfinancialinclusion.org/fi2020">FI2020</a> roundtable co-hosted with the Institute for International Finance (<a href="https://www.iif.com/">IIF</a>) this week, one of the themes that emerged was this difference between access and quality. You can give a person an account, but if the account sits unused, or if it serves the same function that a cash payment would serve, or if the owner of the account doesn’t even remember they have it, its use is minimal or even nil.

Instead of trying to fit people to existing products, financial inclusion has a responsibility to fit products to people’s needs. We have the tools to create products for the mother who wants to pay her child’s school fees without carrying a pile of cash to the school on the first day of the term, for the family who wants to create a new floor in their house but needs a loan, or for the older person who needs to receive her pension but cannot walk all the way to the post office to collect it. Financial inclusion is a vision for improved lives—and financial services are just a means to an end.

Getting back to the Findex, I was most excited this year by the question that started to address this “so what” issue of financial services. The questionnaire asks respondents, “Could you come up with [insert 1/20 of GNI per capita here] in the next month if you had to?” (In the US, 1/20 of GNI per capita is about $2,600 just to provide some perspective.) In developing countries, 26 percent of people reported they would be able to come up with the money from their own savings. But more than half of this group said that they do not save in a formal financial institution—and if they had the right product it is possible their answer wouldn’t be “no”. Now that we are well on our way to addressing the problem of lack of access to financial services, let’s start to turn the conversation to quality so that we can achieve not just access but full financial inclusion.

Have you read?

<a href="http://cfi-blog.org/2015/04/15/sixty-two-percent-of-the-world-is-banked-the-new-global-findex-finds/" target="_blank" rel="noopener">Sixty-Two Percent of the World Is Banked, the New Global Findex Finds</a>

<a href="http://cfi-blog.org/2015/04/21/global-leaders-issue-commitments-to-universal-financial-access-by-2020/">Global Leaders Issue Commitments to Universal Financial Access by 2020</a>

<a href="http://cfi-blog.org/2012/12/14/announcing-the-launch-of-the-global-financial-inclusion-global-findex-microdata/">Announcing the Launch of the Global Financial Inclusion (Global Findex) Microdata</a>

Financial Inclusion by 2020? It Depends.

&gt; Posted by Paul Breloff and Jeff Bond, Accion Venture Lab

[getty src="53270050?et=_tSs6Bq9T9FSfNKHf337NA&amp;sig=3UViRGRb1qp_4H7OXpzAaUPJFhw_JiCZwp_orH3GGgA=" width="594" height="382"]

Remittances are big business. This year, customers will send <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief23.pdf">$454 billion</a> to developing countries through formal channels alone. Developing countries’ income from remittances is three times bigger than the global aid budget. If you exclude China, remittance flows even outweigh foreign direct investment.

However, remittance services have never been known for great customer experience. Here’s why:

First, they’re expensive. At the end of 2014, the global average cost of sending remittances was <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief23.pdf">just under 8 percent of the value sent</a>. For less popular remittance corridors, rates climb well into the double digits and can reach over 20 percent.

Second, they’re inconvenient. Coordination between senders/receivers, locating branches to send and receive cash, paperwork and red tape, and long lines – these and other factors often make the experience of sending remittances pretty miserable.

But the world is changing. A convergence of forces offers the opportunity to rethink the traditional remittance model, promising more money, time, and peace of mind for customers. What’s new?
 

<ul>
	<li>New technology. Cell phone penetration, mobile money, and the internet permit remote digital access to financial products in a way never before possible.</li>
	<li>New money. Cryptocurrencies like Bitcoin and related protocols like <a href="https://ripple.com/">Ripple</a> offer instant, point-to-point value transmission. This opens new possibilities for customers as well as alternative payment channels for providers, who have traditionally had to work through a highly intermediated correspondent bank network.</li>
	<li>New distribution. On the sending side, customers can manage transfers from their phone or PC without ever leaving their seats; on the receiving side, customers can have transfers land in mobile money accounts or as gift cards to be spent locally, as well as simply having their bills or purchases paid for directly. Cash is still important, but there are alternatives. Many recipients never need to actually hold currency in their hands.</li>
	<li>New players. The game is not dominated just by Western Union and Moneygram anymore. Incumbents are being challenged by a range of high-growth, well-funded new players, like <a href="http://www.xoom.com/">Xoom</a> (which went public in 2013), <a href="http://www.transferwise.com/">Transferwise</a>, <a href="http://www.worldremit.com/">WorldRemit</a>, <a href="http://www.azimo.com/">Azimo</a>, and others.</li>
</ul>
The opportunity to “disrupt remittances” has become fintech’s honey pot, luring entrepreneurs of all kinds to join the party and see if they can offer better pricing, better service, better experience, better everything. In the last couple of years we’ve learned about dozens of new entrants, including (alphabetically): <a href="http://www.goabra.com/">Abra</a>, <a href="http://www.bitpesa.co/">BitPesa</a>, <a href="http://www.bitx.co">BitX</a>, <a href="http://www.michapulin.com/">Chapulin</a>, <a href="http://www.hellobit.com/">Hellobit</a>, <a href="http://www.instarem.com/">Instarem</a>, <a href="http://www.isend.com/">iSend</a>, <a href="http://www.kipochi.com/">Kipochi</a>, <a href="http://www.kitiwa.com/">Kitiwa</a>, <a href="http://www.kwanji.com/">Kwanji</a>, <a href="http://www.kwikremit.com/">Kwikremit</a>, <a href="http://www.mergims.com/">Mergims</a>, <a href="http://www.getneema.com/">Neema</a>, <a href="http://www.niokobok.com/">Niokobok</a>, <a href="http://www.quippi.com/">Quippi</a>, <a href="http://www.regalii.com/">Regalii</a>, <a href="http://www.remit.ug/">Remit.ug</a>, <a href="http://www.remitix.com/">Remitix</a>, <a href="http://www.remitly.com/">Remitly</a>, <a href="http://www.saldo.mx/">Saldo.mx</a>, <a href="http://www.sikacash.com/">SikaCash</a>, <a href="http://www.simbapay.com/">SimbaPay</a>, <a href="http://www.tawipay.com/">Tawipay</a>, <a href="http://www.volabit.com/">Volabit</a>, <a href="http://www.sendwave.com/">Wave</a>, <a href="http://www.willstream.com">Willstream</a>. No doubt, there are others as well.

As investors, we’ve looked at dozens of pitch decks from these and other companies. Most of them start the same: “Western Union is gouging customers! Prices can be, will be lowered!” Yes, we agree – and most exciting, all of this promises benefits for the global poor and underserved (many of whom are active money transfer users), who will have options that are cheaper, better, faster, nicer, and more transparent.

But as investors, we’re finding it hard to back any of these opportunities – at least at the seed or startup stage.

Why?
<ul>
	<li>Remittance companies are all about trust; trust is all about brand; and brands are expensive. It’s not that remittances can’t be disrupted, but that’s already happening, with some very deep-pocketed challengers already out in the lead.</li>
	<li>Winning at remittances requires winning at customer acquisition: s/he with the customer wins. But at the startup stage, companies have very few customers and are not sufficiently established to allow an investor to determine who has legit customer acquisition prowess.</li>
	<li>A lower price is no longer a sustainable competitive advantage. Pricing is a race to the bottom. This is great for humanity, but bad for remittance companies who claim price as their primary differentiator. Startups may undercut traditional players now, but that’s probably not defensible long-term. An established player like Western Union can simply cut prices when specific markets, like the U.S. – Philippines corridor, grow crowded. The battle will likely be won on better customer experience, convenience, and brand – in addition to a great price.</li>
	<li>Cryptocurrencies like bitcoin may benefit the well-funded challengers more than startups. Traditional companies like Western Union and Moneygram may not easily figure out how to use these new currencies, given their legacy systems, but the more established among the newer players, like Transferwise, Xoom, and Azimo, are poised to take advantage of the cost and speed advantages of cryptocurrencies on the back-end, regardless of whether they choose to make them a direct part of the customer experience. Startups can do this too, of course, but we doubt a startup can create sustainable competitive differentiation on the use of cryptocurrencies alone.</li>
	<li>Similarly, user experience and design is very important, and we’re seeing great examples, but it’s not clear this can be a source of long-term competitive edge without brand and distribution.</li>
	<li>Finally, many of the strategies we’re seeing will be hard to scale (a pre-requisite in a high volume, low margin business like remittances):
<ul>
	<li>“Directed remittances” (e.g., remote bill pay, airtime purchasing, gift cards) may not get to scale quickly enough to result in viable businesses, because of reliance on local retailer, utility, and/or product distributor partnerships.</li>
	<li>Players focused on sending remittances to mobile money accounts will only be able to expand in those markets with robust mobile money ecosystems. However, few markets outside Kenya and Tanzania are ready for this, so scale will come slowly.</li>
	<li>Overall, remittance concepts with limited use cases or specialized corridors may never achieve escape velocity. The very things that make remittance startups valuable in specific markets make them less scalable and transferable: signing on local vendors, integrating with local partners, targeting local users or customers who are part of a specific diaspora. And nothing prevents competitors from doing the exact same thing.</li>
</ul>
</li>
</ul>
There will no doubt be some sizable winners in remittances – companies who break through the clutter and customers who benefit from superior products and lower prices. Capturing even a small slice of the remittance market could be very lucrative indeed. Ultimately, though, the winners will likely be the ones to break through on brand, customer acquisition (and how this compares to repeat usage and lifetime value), customer experience, and execution, not just price. These can be very hard to predict at a startup stage (when we at Venture Lab invest), before the real work has begun.

Paul Breloff and Jeff Bond work with <a href="https://www.accion.org/venturelab">Accion Venture Lab</a>, investing in innovative financial inclusion startups globally.

Have you read?

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

<a href="http://cfi-blog.org/2015/04/10/digital-financial-inclusion-in-india-taking-off-in-2015/">Digital Financial Inclusion in India - Taking off in 2015</a>

Picking Winners in the Great Remittance Disruption

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi

Managing Director

Ezra Mannix

Kim Wilson

Madison  Chapman

Arunjay Katakam

Robin  Gravesteijn

Amee Parbhoo

Danielle Piskadlo

Sonja Kelly

Apis Partners

Brianna Nelson

Matt Collin

Juan Blanco

Jeffrey Riecke

Amanda Lotz

Bangladesh

Colombia

Ethiopia

Fiji

India

Kenya

Latin America and The Caribbean

Nigeria

North America

Pakistan

South Asia

Sub-Saharan Africa

Uganda

United States

Ecuador

Dominican Republic

China

Ghana

Guatemala

Mexico

Paraguay

Peru

Rwanda

Tanzania

Zambia

Haiti

Australia

Somalia

United Kingdom

Brazil

Chile

Philippines

El Salvador

Honduras

Italy

Behavioral Insights

Enabling Environment

Entrepreneurs of MSMEs

Financial Capability

Financial Health

Payments

Policy, Regulation and Government Initiatives

Refugees and Migrants

Remittances

Saving

Underserved Groups

Delivery Channels

Digital Financial Services

Financial Service Providers

Partnerships

Personal Financial Management

Agent Banking

Alternative Data

Credit

Fintechs

Impact Investing

Insurance

Insurtech

MSME/SME Finance

Neobanks

PayGo

Smallholder Farmers

Consumer Protection

Credit Provision

Financial Technology

Informal Credit

P2P Lending

Trends

Aging and Older Adults

Agricultural and Rural Finance

Financial Inclusion Strategy

Housing Finance

Microfinance

Persons With Disabilities

Risk Management

Social Performance

Transparency

Women

Youth

Pensions and Retirement Saving

Blockchain and Cryptocurrency

Mobile Banking

Data Analytics

Blog Post

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.

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.

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.

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

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

<img class="alignright wp-image-17429" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/02/cgdlogo.png?w=300" alt="" width="249" height="117" />&gt; Posted by Matt Collin, Research Fellow, the Center for Global Development

The following post was <a href="http://www.cgdev.org/blog/and-then-there-were-none-banks-are-de-banking-grand-scale" target="_blank">originally published</a> on the Center for Global Development blog.

In a few weeks’ time Australia’s Westpac bank will start closing down the accounts of money transfer organizations used by immigrants to send money home. Westpac is the last major Australian bank still offering services to organizations in the country’s US$25 billion remittance sector.

Two weeks ago, Merchant’s Bank of California also decided to close the accounts of all money transfer organizations (MTOs) sending money to Somalia. The source of Merchant’s decision appears to have been a <a href="http://www.occ.gov/static/enforcement-actions/ea2014-084.pdf">cease-and-desist order</a> issued by the Office of the Comptroller of Currency (OCC) in June, purportedly due to the bank’s failure to appropriately monitor the destination of remitted funds.

Unfortunately, we’re seeing a trend here. In 2013, Barclays’ closed the accounts of <a href="http://www.bailii.org/ew/cases/EWHC/Ch/2013/3379.html">nearly 90 percent</a> of its U.K.-based MTOs, despite being the last large bank in the country willing to do business with remitters. HSBC made the same decision the previous year, following a nearly US$2 billion penalty handed down by U.S. regulators.

Regulators gone wild

This 'de-banking' is a response to growing pressure from national and international regulators to comply with rules on anti-money laundering and combating the financing of terrorism (AML/CFT). Since 2010, the Financial Action Task Force (FATF) has placed 23 countries on its '<a href="http://en.wikipedia.org/wiki/FATF_blacklist">blacklist</a>' of nations seen as high risk for money laundering or terrorist financing, or as not doing enough to comply with international standards. That’s more than double the number from the previous five years.

Local regulators have responded by drastically increasing the fines they hand out. In the U.K. data shows the size of fines issued by the Financial Conduct Authority (formerly the FSA) skyrocketed in 2011, up to almost £10 million in some years. That might not seem like a lot of money, but it highlights a trend in which banks now increasingly run the risk of large penalties. Last year, South Africa’s Reserve Bank <a href="http://www.amlabc.com/aml-category/aml-sanctions-fines/south-africa-fines-top-four-banks-over-anti-money-laundering-controls/">fined its top four banks</a> approximately $10 million for AML violations. Just last week, the U.S. Financial Crimes Enforcement Network (FinCEN) handed down a $20 million fine to Oppenheimer &amp; Co. for similar problems with compliance.

To read the rest of this post, visit <a href="http://www.cgdev.org/blog/and-then-there-were-none-banks-are-de-banking-grand-scale" target="_blank">the Center for Global Development blog</a>. 

Have you read?

<a href="http://cfi-blog.org/2014/07/15/somalia-facing-drought-with-fewer-remittance-lifelines/" target="_blank">Somalia: Facing Drought with Fewer Remittance Lifelines</a>

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/" target="_blank">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/23/not-just-migrants-but-their-families-too/" target="_blank">Not Just Migrants, but Their Families Too</a>

And Then There Were None? Banks Are De-Banking on a Grand Scale

<h4>The most exciting trends and startups in inclusive finance this year</h4>
&gt; Posted by Vikas Raj, Director of Investments, Accion Venture Lab

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There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a <a href="http://www.bloomberg.com/news/2014-12-10/lendingclub-poised-for-cash-infusion-of-its-own-to-fund-growth.html">high-profile IPO, several more apparently on the way</a>, and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility - just this month, Australian Wealth Index (AWI) listed the <a href="http://fintechinnovators.com/about-awi" target="_blank">50 Best FinTech Innovators</a>, and CFI’s Elisabeth Rhyne <a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank">conveniently categorized</a> the list so it’s easy to see at a glance where the innovations are.
At <a href="https://www.accion.org/venturelab">Venture Lab</a>, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed. 
It’s a particularly exciting time because the traditional bottlenecks to reaching these customers – the need for high-touch models and small value transactions, the need for cost-effective means of education and engagement – are exactly the kind of barriers that technological advances can help tackle. As Elisabeth Rhyne <a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank">laid out</a> in her challenge recently, what about the “top 50 financial inclusion innovators?” What about the new business models and technologies that are impacting the underserved? 
At Venture Lab, we are focused on investing in businesses that are innovating in big ways to get consumers and small businesses a wider range of financial products and services, and therefore giving them the tools they need to manage and improve their lives. The breadth of this challenge is so large, and the ways to chip away at it so varied, that we don’t think it makes a lot of sense to try to force rank the “best” financial inclusion companies.
Instead, we lay out below some of the key groundbreaking trends we see in the financial inclusion space right now, and some of the seed stage companies that are leading the charge. This is by no means an exhaustive list – of trends, and especially not of companies. However, from our seat as seed stage investors, these are some of the most exciting things happening in financial inclusion right now.
Digital Remittances – Companies are figuring out new ways to send money across international borders, dramatically improving the value proposition to senders and recipients, using mobile wallets to get money directly into recipients’ pockets and cryptocurrencies to execute transactions faster and cheaper.
<ul>
	<li>Coins.ph (the Philippines) – A Bitcoin mobile wallet that cuts transaction costs for Filipinos working abroad and sending money home. Also offers direct ATM withdrawal via partnerships with banks as well as merchant integration for e-commerce.</li>
	<li class="List_0020Paragraph">SimbaPay (U.K.) – Mobile app that allows Kenyans abroad to deposit money into Kenyan bank accounts instantly.</li>
	<li class="List_0020Paragraph">Send WAVE (Kenya) – Cuts transaction costs for Kenyans via software that automates remittances, only charging a foreign exchange rate fee. Users can instantly send funds via a mobile application.</li>
	<li class="List_0020Paragraph">Hellobit (San Francisco) – Uses Bitcoin to cut transaction costs for remittances by allowing anyone with a mobile phone to act as Bitcoin exchanger or delivery agent.</li>
	<li class="List_0020Paragraph">BitPesa (Kenya) – Uses Bitcoin to cut transactions costs for Kenyans working abroad and sending money home.</li>
	<li class="List_0020Paragraph">Volabit (Mexico) - Uses a Bitcoin backend for consumers to send money, shop online, and invest in Bitcoins via peer to peer lending.</li>
</ul>
Marketplace Lending 2.0 – With the Lending Club IPO starting 2015 off with a bang, we expect businesses that build online platforms that stand between borrowers and lenders to continue to be a core innovation area in 2015, particularly as new business models leverage motivated alternative capital sources to serve specific customers sets (small business, customers working through credit issues) with more relevant products.
<ul>
	<li>LendStreet (U.S.) – Using marketplace lending capital to allow distressed borrowers to refinance their debt and rebuild their lives.</li>
	<li class="List_0020Paragraph">StreetShares (U.S.) – Connecting small businesses to marketplace lending-sourced capital, with a focus on veteran-owned businesses and investors.</li>
	<li class="List_0020Paragraph">Bolstr (U.S.) – Expansion capital for small businesses with a focus on community support – revenue share-based repayments.</li>
	<li class="List_0020Paragraph">Intoo (Brazil) – Receivables financing for small and medium-sized businesses through FIDCs and other alternative financers.</li>
</ul>
New Data for Credit Scoring – We are more excited than ever about companies that identify and exploit new or never-before-used data pools to enhance lenders’ decision-making and allow them to expand their loan books downmarket.
<ul>
	<li>First Access (East Africa) – Leveraging cell phone data to more reliably gauge credit risk for borrowers in informal markets.</li>
	<li class="List_0020Paragraph">Destacame (Chile) – Uses individuals’ utilities and cell phone data to create and manage alternative credit scores and influence current credit scoring models.</li>
	<li class="List_0020Paragraph">AIRE (U.K.) - Alternative credit score for consumers who have no existing credit data.</li>
	<li class="List_0020Paragraph">Kopo Kopo (East Africa) – Using mobile money merchant data to provide financing to merchants that fits within their cash flow cycles.</li>
</ul>
eCommerce Merchant Lending – This could be seen as a sub-set of the category above, but we are particularly excited about companies that partner with existing eCommerce sites to gather crucial data and provide loans and other financial services to online merchants.
<ul>
	<li>Lendingkart (India) – Partnering with India’s eCommerce players to provide unsecured term loans to online merchants.</li>
	<li class="List_0020Paragraph">Mr Presta (South America) – Partnering with the largest eCommerce players in Mexico and Argentina to lend to small and medium-sized online businesses.</li>
	<li class="List_0020Paragraph">NeoGrowth (India) – Financing via online partners based around merchant cash advance.</li>
</ul>
Customer Engagement – Finally, we love the new breed of companies that are allowing lenders, and others, to better engage with their customers by helping them to better understand products and giving them core insights about customer behavior and risk. These companies run the gamut between financial literacy and credit enhancement tools, but they are connected by their core innovation around bringing customers into the financial system by engaging directly in new ways.
<ul>
	<li>Juntos (Global) – Mobile-based personal finance tools for cash-based households.</li>
	<li class="List_0020Paragraph">Revolution Credit (U.S.) – Online courses and videos that allow consumers to increase financial IQ and access better financial products.</li>
</ul>
This is hardly a complete inventory of all the cool stuff happening, but certainly enough to get excited about.
Have you read?

<a href="http://cfi-blog.org/2014/10/30/fueling-the-economic-engine-global-experiments-in-small-enterprise-lending/" target="_blank">Fueling the Economic Engine: Global Experiments in Small Enterprise Lending</a>

<a href="http://cfi-blog.org/2014/12/05/the-role-of-peer-to-peer-lending-in-financial-inclusion/" target="_blank">The Role of Peer-to-Peer Lending in Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/11/05/accion-venture-lab-responds-to-the-great-competition-and-innovation-deficit/" target="_blank">Accion Venture Lab Responds to 'The Great Competition and Innovation Deficit'</a>

Financial Inclusion Trends and Innovators – 2015

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

<a href="http://www.afi-global.org/news/2014/7/21/international-leaders-highlight-financial-inclusions-role-sustaining-success-rwanda"><img class="aligncenter wp-image-15599" style="margin-top:5px;margin-bottom:5px;border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/dsc08057.jpg" alt="" width="540" height="359" /></a>

Rwanda has a lot to celebrate in terms of financial inclusion these days. Last week in Kigali the National Bank of Rwanda (NBR) hosted a conference in partnership with the World Bank, the African Development Bank, and the Alliance for Financial Inclusion (AFI) commemorating their 50-year anniversary. At the event, titled <a href="http://www.afi-global.org/news/2014/7/21/international-leaders-highlight-financial-inclusions-role-sustaining-success-rwanda">Financial Inclusion for Inclusive Growth and Sustainable Development</a>, NBR Governor John Rwangombwa highlighted the country’s recent rise in access levels, from 48 to 72 percent between 2008 and 2012 across formal and informal providers. Rwanda now has the laudable goal of increasing this figure to 90 percent by 2020. To help it get there, on Friday the World Bank launched a <a href="http://www.worldbank.org/en/news/press-release/2014/07/18/world-bank-group-to-step-up-its-support-to-rwanda-financial-inclusion-goals">$2.25 million program</a> supporting key financial inclusion areas for the country.

Along with overall exclusion rates dropping from 52 to 28 percent over 2008 to 2012, formal services access increased from 21 to 42 percent during the same period, according to the <a href="http://www.afi-global.org/news/2013/3/04/national-bank-rwanda-makes-significant-progress-toward-maya-declaration-commitment">2012 FinScope Rwanda Survey</a>. The new government goal of 90 percent access by 2020 is an extension of the country’s Maya Declaration Commitment of 80 percent access by 2017. Rwanda’s growth in formal access can be attributed to products offered by both banks and non-bank providers, like the country’s community savings and credit cooperatives known as Umurenge SACCOs. Over the past three years, Umurenge SACCOs have attracted over <a href="http://www.afi-global.org/sites/default/files/publications/afi_case_study_rwanda_finalweb.pdf">1.6 million customers</a>. Ninety percent of Rwandans live within a 5 km radius of one of the cooperatives. Countrywide, the number of MFIs, including Umurenge SACCOs, increased from 125 to 491 between 2008 and December 2013. Elsewhere in the sector, over the last three years, the number of banks increased from 10 to 14, the number of insurance companies increased from 9 to 13, and the number of pension providers increased from 41 to 56.

The NBR conference highlighted the role that technology has played in reducing exclusion rates in Rwanda and elsewhere in East Africa. During the “Innovation, Technology, and Financial Inclusion” panel session, the Central Bank of Tanzania Governor Benno Ndulu cited how technology-enabled services models have halved exclusion rates in his country in just a few years. In the mobile money space, both Rwanda and Tanzania are prioritizing interoperability among providers (see <a href="http://www.theigc.org/sites/default/files/Argent%20et%20al%202013.pdf">here</a> and <a href="http://cfi-blog.org/2014/06/06/interoperability-agreement-signed-between-leading-tanzanian-mobile-money-providers/">here</a>). The two countries were the first in African to support <a href="http://techmoran.com/tigo-cash-launches-worlds-first-mobile-money-transfer-with-currency-conversion-between-rwanda-tanzania/">mobile money-based cross-border remittances</a>. Across the continent, Rwanda and Tanzania’s central banks and other AFI member institutions are part of the <a href="http://www.afi-global.org/african-mobile-phone-financial-services-policy-initiative-ampi">African Mobile Phone Financial Services Policy Initiative</a> (AMPI). The coalition serves as a platform for knowledge sharing and developing best practices and solutions for mobile money policy and legislative frameworks.

Other conference topics included the synergies and trade-offs of financial inclusion, financial stability, financial integrity, and financial consumer protection. The value of timely, accurate, and complete data for measuring and working towards poverty alleviation was also discussed, in a session that included leaders from MasterCard, CGAP, Innovations for Poverty Action, and the United Nations Capital Development Fund.

The World Bank’s newly-launched support for Rwanda is through the Financial Inclusion Support Framework (FISF) program. The program is aligned with the country’s financial inclusion agenda, targeting areas including MSME finance, client protection, financial literacy, payment systems, and financial infrastructure. Operating in close collaboration with inclusion stakeholders, the initiative aims to improve services access, usage, and quality, especially for lower-income and underserved rural populations. The scope of the work will entail technical assistance, advisory services, and capacity building for policy, regulation, and infrastructure development.

For a closer look at inclusion in the country, check out MIX’s <a href="http://maps.mixmarket.org/rwanda/">Rwanda Map of Financial Inclusion</a>.

Image credit: <a href="http://www.afi-global.org/news/2014/7/21/international-leaders-highlight-financial-inclusions-role-sustaining-success-rwanda" target="_blank">AFI</a>

Have you read?

<a href="http://cfi-blog.org/2013/12/18/elections-and-interruptions-financial-inclusion-strategy-pitfalls/" target="_blank">Elections and Interruptions: Financial Inclusion Strategy Pitfalls</a>

<a href="http://cfi-blog.org/2014/06/06/interoperability-agreement-signed-between-leading-tanzanian-mobile-money-providers/">Interoperability Agreement Signed Between Leading Tanzanian Mobile Money Providers</a>

<a href="http://cfi-blog.org/2013/05/10/untapped-potential-women-and-mobile-money/">Untapped Potential: Women and Mobile Money</a>

With 72 Percent of Population with Access, Rwanda Looks Toward 2020 for Next Inclusion Milestone

&gt; Posted by Joshua Goldstein aka Mr. Provocative

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Since October, more than 52,000 unaccompanied children, mostly from Honduras, El Salvador, and Guatemala have illegally entered the United States, mostly through the Rio Grande Valley. Until the justice system processes their cases, they’re being held in miserably overcrowded border detention centers, military bases, and other facilities in Texas and elsewhere.

All kinds of reasons are given for this exodus - gang violence, lack of economic opportunity, the perception that under a “liberal president” amnesty will be granted. The policy wonks and talking heads can debate the causes of this humanitarian crisis and assign blame to their hearts' content. And of course, we have to “study” the situation and make sure that if we allow some of these frightened minors to join family members in the United States, this doesn’t incentivize other youth to risk life and limb to set off on a dangerous journey from their homelands to reach the United States.

But come on pundits, these are children, scared, vulnerable children, some just a few years old. And whatever the proximate cause of their departure from their countries like violence or poverty, the destination for most of these children is usually pretty clear: loved ones, whom they miss. Many of these absentee parents/guardians had left their children behind years before and migrated legally or illegally to the United States and have been sending back remittances ever since.

The current crisis reminded me of my 2008 Mr. Provocative blog post about a fantastic book called Enrique’s Journey, which looks at the dark side of the explosive growth of remittance provision, resulting from separated families. The book helps get us into the hearts and minds of some of these children, who then, as today, are driven by a simple and powerful emotional mandate: they want to be with their mothers. Titled “<a href="http://cfi-blog.org/2008/11/04/microfinance-keeps-families-together-the-sorrow-behind-the-explosion-in-remittances/" target="_blank" rel="noopener">Microfinance keeps families together: The sorrow behind the explosion in remittances</a>,” here’s my post on the ever-pertinent Enrique’s Journey.

<img class="alignright size-full wp-image-15518" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/enriques-journey.jpg" alt="" width="156" height="238" />The explosion of remittance transfers from people who have migrated to developed countries to their poor relatives back home has led to new wealth creation and a better standard of living for many. And this is, on the face of it, very positive.

But I believe that there is a particular sorrow behind a considerable percentage of remittances that demands greater scrutiny and perhaps some kind of remedial action. The transfer of money is often made by families living under the great stress of separation—such as an absent mother supporting the small children she has left behind—an abandonment from which some never recover.

<a href="http://www.enriquesjourney.com/" target="Blank">Enrique’s Journey</a>, (2006) by Pulitzer Prize winning journalist Sonia Mazarin, is the harrowing story of a teenage Honduran boy who embarks on a dangerous journey, riding the tops of freight trains, to reach the United States in search of his mother Lourdes, whom he has not seen since he was five years old. He is, says Mazarin, one of an estimated 35,000 migrant children each year who sneak into the United States (many others are turned away at the border) with the dream of reuniting with a mother they hardly remember.

Like countless other impoverished, single mothers, Lourdes left Honduras for the United States with the best interests of Enrique in mind. Hers is an agonizing decision, driven by economic necessity and the dream of a better future. Lourdes does find work, remits money regularly, and within a year or two plans to return to Honduras. But that last, critical piece of her plan is not possible.

As a five-year-old, all Enrique understood was that his mother had abandoned him. His loss ultimately drives him to risk everything and head north to find her. But, after years of separation, the kind of perfect bonding he longs for with his mother is not achievable, leaving him bitter and confused.

When impact studies are done about the value of remittances, it is inevitable that proxies for success like school attendance and increased consumption are used. And that makes sense. But poor people are as psychologically complex as the rest of us, and increased material well-being afforded by remittances may be counteracted by the profound social dislocation and loss that children like Enrique suffer. (And what good is school attendance if a child cannot concentrate anyway?) As a first step, a public health campaign to educate migrant mothers about how best to communicate with the children they have left behind, in order to minimize the psychological damage, would be well advised.

Transfers of money are no substitute for the daily reassurance of parental love that allows children to flourish, and that means doing more to keep families together. Microfinance institutions focus on serving people where they are. Made explicit in the mission statements of microfinance institutions might be something like the following: Working capital loans to the self-employed poor sector make it possible for mothers and fathers to stay with their children.This is a very impressive achievement of the microfinance revolution that, in my opinion, should be highlighted more and is surely an impact that we should design studies to measure. It certainly is another powerful argument for exponentially expanding the reach of microfinance.

Reading recommendation: Readers of this blog might also be interested in Edwige Danticat’s memoir, <a href="http://www.amazon.com/Brother-Im-Dying-Edwidge-Danticat/dp/1400041155" target="Blank">Brother I’m Dying</a>, which is filled with poignant passages about separation, loss, and the role of remittances in the lives of the Haitian poor.

Image credit: <a href="http://www.gettyimages.com/detail/news-photo/immigrants-who-have-been-caught-crossing-the-border-news-photo/452198062" target="_blank" rel="noopener">Pool/ Getty Images</a>

Have you read?

<a href="http://cfi-blog.org/2011/02/01/remittances-a-key-driver-of-economic-reform-in-cuba/" target="_blank" rel="noopener">Cuba &amp; Remittances: Can the 'Money in the Mail' Drive Reform?</a>

<a href="http://cfi-blog.org/2014/04/18/unexpected-benefits-of-mobile-money/" target="_blank" rel="noopener">Beyond On-Ramps and Uptake: Exploring Surprising Benefits of Mobile Money </a>

<a href="http://cfi-blog.org/2013/10/18/mobile-money-domestic-remittances-innovations-in-savings-top-picks-of-the-microfinance-blogosphere/" target="_blank" rel="noopener">Mobile Money, Domestic Remittances, Innovations in Savings - Top Picks of the Microfinance Blogosphere</a>

In Light of the U.S. Border Crisis, Revisiting ‘Enrique’s Journey’

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

<a href="https://www.flickr.com/photos/7521603@N04/6561380227/"><img class="aligncenter wp-image-15509" style="margin-top:5px;margin-bottom:5px;border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/6561380227_493dc2924f_b.jpg" alt="" width="570" height="380" /></a>Somalia is facing another potentially life-threatening <a href="http://www.scidev.net/sub-saharan-africa/disasters/news/drought-in-horn-africa.html">drought</a>. Aid agencies in East Africa indicate a strong possibility that drought in 2014 will be as severe as that of 2011, which resulted in the deaths of about 260,000 people. But this year, Somalia’s people may not be able to count on a trusted lifeline in times of drought: remittances from the United States and other countries. Remittances from the United States to Somalia are responsible for roughly $214 million annually, but increasingly, U.S. regulators are imposing a string of <a href="http://www.npr.org/blogs/parallels/2014/07/08/328183695/as-wire-transfer-options-dwindle-somali-americans-fear-a-lost-lifeline">service provider shutdowns</a>. If these services are constrained, the effects of a drought on Somalis will likely be exacerbated.

The reason for this challenge for cash flows between friends and family across the Somali diaspora? Regulatory issues centering on the risk of these remittances funding potentially dangerous individuals. In 2011, for example, two Somali-Americans from Rochester, Minnesota were convicted of supplying cash to the terrorist group al-Shabab. Such incidents prompt often sweeping regulatory action and/or preemptive actions by banks to avoid transactions involving Somalia.

The global network providing cash transfers to Somalia is known as hawala, meaning transfer in Arabic. The system, which functions both in conjunction with and outside of formal services channels, primarily serves the Middle East, North Africa, and the Horn of Africa. Trust and the extensive use of social connections are often at the core of hawala transactions; the system can function in places without presiding legal environments. In the United States, hawala brokers, also referred to as hawaladars, legally need to be linked to a bank account.

Over the past few years, many U.S. banks have terminated the account services of Somali-American hawala brokers, afraid of facilitating cash flow to criminal parties and being penalized for breaking domestic counter-terrorism laws. In the United States, banks must have proof that the company receiving the remittance knows its customer and can validate the identification of the person picking up the cash. Because of the lack of formal financial services in Somalia, and the absence of other infrastructure (the country transitioned from an interim to permanent government just two years ago), it’s difficult to verify the identification of those receiving money.

About a third of Somali-Americans live in Minnesota. Following a succession of other Minnesota banks ending the accounts of Somali-American hawaladars (see <a href="http://www.mprnews.org/story/2011/12/02/hawala-shutdown">here</a> and <a href="http://www.mprnews.org/story/2012/05/11/social_issue/somali-americans-close-wells-fargo-us-bank-accounts-over-remittances">here</a>), Merchants Bank of California, one of the last remaining banks operating in the space, recently announced that it will stop supporting such remittances at the end of this month. With fewer banks open to services for hawala, remittances to Somalia are slowing dramatically.

To prevent the services from disappearing completely, the Somali-American community in Minnesota is lobbying the federal government to pass legislation to make it feasible for banks to offer accounts to hawala brokers. A bill from Minnesota’s Keith Ellison <a href="http://ellison.house.gov/media-center/press-releases/ellison-paulsen-duffy-applaud-passage-of-money-remittances-improvement">passed</a> Congress’ House of Representatives in May, and now awaits vote by the Senate. The Money Remittances Improvement Act aims to streamline remittances regulation, reducing the risk imposed on banks. The bill includes measures to both simplify the oversight of hawala remittances providers by strengthening collaboration between federal and state regulators, and offer greater assurance for the associated financial institutions that hawaladars are properly regulated.

For more on the proposed legislation, <a href="http://ellison.house.gov/media-center/press-releases/ellison-and-paulsen-reintroduce-money-remittances-improvement-act-to">click here</a>.

Image credit: <a href="https://www.flickr.com/photos/7521603@N04/6561380227/" target="_blank">Riyaad Minty</a>

Have you read?

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/" target="_blank">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/23/not-just-migrants-but-their-families-too/" target="_blank">Not Just Migrants, but Their Families Too</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/" target="_blank">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

Somalia: Facing Drought with Fewer Remittance Lifelines

&gt; Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

[getty src="167838335?et=TSypZf4RQF1ISgn9Q2G1aQ&amp;sig=v1M0OvRQfi6cSneDblP56VkirMMRO9KsbdZendl6NJ4=" width="594" height="445"]

According to a recent Overseas Development Institute (ODI) <a href="http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8901.pdf">report</a>, of every eight dollars sent to Africa, a whole dollar is lost to accompanying transaction fees. This loss, estimated by ODI to be between $1.4 and $2.3 billion annually, is particularly significant given that remittances comprise a significant share of African states’ economies and are rapidly increasing; the World Bank <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief21.pdf">estimates</a> they totaled around $32 billion in sub-Saharan Africa (SSA) in 2013 and may reach $41 billion by 2016. These numbers attracted The Economist to ask, “<a href="http://www.economist.com/blogs/baobab/2014/04/remittances-africa">Do the middlemen deserve their cut?</a>”

Looking at these practices through the lens of the Smart Campaign’s <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>, we question whether they are in keeping with responsible pricing. These charges can’t be explained by distance. In fact, large amounts of remittances are intra-country or intra-Africa, transmitted from urban to rural areas or by migrant workers from one country to another. Remittance corridors within Africa have some of the highest charge structures in the world. The 12.3 percent average charge for sub-Saharan Africa compares to a global average (without SSA) of 7.8 percent.

Secondly, these practices <a href="http://www.consumersinternational.org/media/886482/the%20remittances%20game%20of%20chance.pdf">often appear to violate</a> principles of transparency. Fees are unclear, hidden, or simply undisclosed. On top of an initial fee to transfer funds, there are reports of providers employing foreign exchange rates that generate a “bonus profit” for themselves, without disclosing to the client that this is happening. This lack of transparency leaves individuals unable to make informed decisions about which provider to use.

Third, remittances services providers in Africa may not always meet standards for the principle of Appropriate Product Design and Delivery. As discussed in a <a href="http://cfi-blog.org/2014/05/23/not-just-migrants-but-their-families-too/">recent post</a> on this site, many migrants, particularly those who work for low sums in agriculture, would prefer to send money more often and in smaller amounts, but high fees instead force them to wait.

One of the causes of high prices is likely to be the relatively low level of competition. According to ODI, Western Union and Moneygram control 50 percent or more of the market in three-quarters of sub-Saharan African countries. In some countries such as Zambia, Angola, and Mali, they have over 90 percent of the market. On the whole, Western Union and Moneygram account for two-thirds of all transfers to the region. Competition remains limited because when the two pioneered their services on the continent, they imposed exclusivity agreements with local authorized agents and at payout points (usually banks). Moreover, <a href="http://www.ifad.org/remittances/pub/money.htm">local regulations limit the number</a> of financial institutions which can pay out remittances to banks in most countries.

So, will costs come down and service improve? After all, for recipients, every little bit counts. Many point to the benefits that will occur as new technologies emerge and existing technologies improve, leading to greater competition, challenging the duopoly, and <a href="http://www.rrojasdatabank.info/mobilebanking23.pdf">providing options for higher frequency, smaller transactions</a>. New options include <a href="http://www.ifad.org/remittances/pub/mobile.pdf">money transfer via mobile wallets,</a> pre-paid cards, and international airtime top-up services without fees.

Yet, such innovation must be accompanied by client-protection-focused regulation, wider competition, and greater transparency. Regulators could also promote the use of microfinance institutions and post offices as remittance pay-out agencies and public-private partnerships as governments and MTOs work together to promote mobile banking options. After all, new entrants and start-ups <a href="http://www.cgap.org/topics/paymentsremittances">face extremely high entry costs, delayed deployments, and operational challenges</a> and current remittance service providers are a step ahead. Western Union and Moneygram’s size, infrastructure, and reputation make them attractive versus competitors. Regulation could open the market to greater competition. New actors and new business models would be welcome.

Image credit: <a href="http://www.gettyimages.com/detail/news-photo/man-holds-a-bundle-of-kenyan-schilling-bank-notes-while-in-news-photo/167838335" target="_blank">Bloomberg/ Getty Images</a>

Have you read?

<a href="http://cfi-blog.org/2014/05/23/not-just-migrants-but-their-families-too/" target="_blank">Not Just Migrants, but Their Families Too</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

<a href="http://cfi-blog.org/2014/04/16/facebook-to-provide-remittances-the-news-and-the-bigger-picture/" target="_blank">Facebook to Provide Remittances? The News and the Bigger Picture</a>

Do African Remittances Services Providers Properly Protect Clients?

&gt; Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI

Javier moved from Honduras to the United States with his wife and their children in search of better work opportunities and to escape the violence in their community. His parents chose to stay behind. Luisa moved from the Philippines to Canada to pursue more lucrative opportunities as a nurse, hoping to support her family back home. Yousef fled from Syria to Lebanon, as a refugee, to escape civil unrest.

<a href="http://www.flickr.com/photos/24738097@N04/5062517764/"><img class="alignright wp-image-15019" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/5062517764_0ff45913d8_b.jpg?w=490" alt="" width="350" height="350" /></a>Javier, Luisa, and Yousef - fictitious characters - are only symbolically representative of some of the enormous global migrant population - estimated to total 232 million people in 2013. Certainly not homogenous, their reasons for leaving their home country can vary tremendously and may include economic opportunities, natural disasters, and security or political concerns.

In spite of the complications of migrating, there is an undeniable and increasing opportunity for financial service providers to serve migrants and their families. Today, I will focus primarily on migrants who move for economic and employment opportunities, though we recognize that these issues are more nuanced for migrants like Yousef who have fled their country of origin for the sake of their safety. I will save this smaller subset, <a href="http://www.un.org/News/briefings/docs//2013/130911_Migration.doc.htm" target="_blank" rel="noopener">7 percent</a> of all migrants, for another post. Though, I will mention that MasterCard has an innovative partnership with Banque Libano-Française for Syrian refugees in Lebanon, which you can read more about <a href="http://newsroom.mastercard.com/mea/press-releases/mastercard-celebrates-partnership-with-banque-libano-francaise-in-lebanon/" target="_blank" rel="noopener">here</a>.

In <a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">Financial Inclusion 2020</a>’s consultations with experts who work with migrants, one message rang particularly loud and clear: it’s not just migrants, but their families too. Regardless of their reasons for relocating, many migrants are leaving someone behind in their native country. With linkages back home, and also because 75 percent of the global migrant population is of working age, they are likely to send remittances to friends and family members. In fact, remittances are projected to reach <a href="http://www.worldbank.org/en/news/press-release/2013/04/19/world-bank-launches-initiative-on-migration-releases-new-projections-on-remittance-flows" target="_blank" rel="noopener">USD $515 billion per year by 2015</a> according to the World Bank. This is quite significant, especially as evidence suggests that remittances have a strong <a href="http://esa.un.org/unmigration/Time_for_Action_UN%20Summit_by_PSutherland_RMAD.pdf" target="_blank" rel="noopener">impact </a>on reducing poverty.

To support remittances for migrants, services providers should maximize migrants’ connections to their native countries. This applies especially for providers in the <a href="http://www.un.org/News/briefings/docs//2013/130911_Migration.doc.htm" target="_blank" rel="noopener">top 10</a> migrant receiving countries (United States, Russia, Germany, Saudi Arabia, United Arab Emirates, United Kingdom, France, Canada, Australia, and Spain). In many cases, migrants typically can only send remittances infrequently (often quarterly) due to costs. The recipients, typically family members, often struggle to budget money during the long lapses of time. Additionally, the migrant has little control over how their family uses the money. If they could send smaller amounts at more strategic times, they could better facilitate the use of the remittances by their families. Accordingly, the World Bank is leading an initiative to reduce remittance costs by the <a href="http://blogs.worldbank.org/psd/more-efficient-ways-transfer-remittances-are-emerging-are-migrants-and-their-families-ready-benefit" target="_blank" rel="noopener">end of 2014</a>, which we hope will relieve some of the burden. However, more can be done to engage with migrants and their families.

Beyond remittances, providers should take responsibility for helping migrants and their families transition to other financial services - for example, savings accounts. When it comes to savings, like many other low-income people, migrants often prefer to stow their earnings at home. Introducing financial services can be aided through the use of complimentary financial consultations at the “teachable moment” of the transaction (e.g. cashing out a remittance), as has been successful through <a href="http://www.developingmarkets.com/case-offering-free-financial-consultation" target="_blank" rel="noopener">Developing Markets’ Associates work</a> in Moldova, Kyrgyzstan, Tajikistan, and Armenia. Taking a holistic approach to the family, <a href="http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2012/08/14/000158349_20120814084903/Rendered/PDF/WPS6157.pdf" target="_blank" rel="noopener">evidence</a> suggests that increased savings, budgeting, and financial planning result when both the migrant and another family member are trained.

Another promising example of linking remittances and other financial services comes from the Philippines. The Commission on Filipinos Overseas, in partnership with Land Bank, created the Kiddies Kapatid Savings (KKISs) program for migrant parents and their dependents. When children make a deposit, migrants are encouraged to match the <a href="http://cfo.gov.ph/index.php?option=com_content&amp;view=article&amp;id=1944:kiddie-katapat-savings-program-kkiss&amp;catid=108:cfo-press-release&amp;Itemid=839" target="_blank" rel="noopener">savings</a>.

An innovator that caught my attention is <a href="https://www.quippi.com/" target="_blank" rel="noopener">Quippi</a>, which provides fee-free international gift cards targeting remittances sent from the U.S. back to Mexico. These gift cards may be used at stores in Mexico, which enables the migrant to have more control over the recipient’s spending.

In Italy, Banca Monte dei Paschi di Siena offers a <a href="http://www.fininc.eu/gallery/documents/wp-migrants-financial-services-final-january.pdf" target="_blank" rel="noopener">special package</a> for migrants, which includes a checking account and remittances/bank transfers at <a href="http://english.mps.it/I+Nostri+Valori/Notizie/Archivio/Montepaschi+at+G20+table+to+support+financial+inclusion.htm">no cost</a> if sent to their country of origin. This is accomplished through special agreements with foreign banks.

At the Center, we are also very interested in on-ramps to financial inclusion, i.e., products and processes that lead to increased use of financial services. In Sri Lanka, Hatton National Bank (HNB) offers a <a href="http://www.microfinancegateway.org/gm/document-1.9.29510/49615.pdf" target="_blank" rel="noopener">savings-linked remittance product</a> to help migrants and their families increase savings and access credit. By partnering with local and international banks, HNB educates migrants and family members on the value of formal remittances. Requiring that 5 percent of transferred funds be saved, after a designated time period the migrant or a family member is able to take out a loan much greater than the amount in the savings account.

Imagine if some of these models were replicated in other countries! Certainly, there are cases where regulatory issues are a challenge. However, whether you’re a regulator, provider, or support organization, I hope that these examples inspire you to think of what more can be done to reach migrants and their families.

Do you have an innovative model that you’d like to share? Please tell us in a comment below.
Image credit: <a href="http://www.flickr.com/photos/24738097@N04/5062517764/" target="_blank" rel="noopener">Romulo Moya Peralta</a>
Have you read?
<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>
<a href="http://cfi-blog.org/2014/04/16/facebook-to-provide-remittances-the-news-and-the-bigger-picture/" target="_blank" rel="noopener">Facebook to Provide Remittances? The News and the Bigger Picture</a>
<a href="http://cfi-blog.org/2011/02/01/remittances-a-key-driver-of-economic-reform-in-cuba/" target="_blank" rel="noopener">Cuba &amp; Remittances: Can the "Money in the Mail" Drive Reform?</a>

Not Just Migrants, but Their Families Too

It is expensive to be poor. Case in point, if you don’t have access to a bank account and need to send money to a friend or family in a different location, often your only choice is an expensive cash wiring service. Last year the World Bank found that the average cost of remittance services worldwide was <a href="http://blogs.worldbank.org/peoplemove/migration-and-remittances-recent-developments-and-outlook" target="_blank" rel="noopener">9 percent</a>.

Well, these rates could be changing quicker than anticipated. On the heels of <a href="http://cfi-blog.org/2014/04/16/facebook-to-provide-remittances-the-news-and-the-bigger-picture/" target="_blank" rel="noopener">rumors</a> that Facebook is preparing to offer money transfer services, it was officially <a href="http://www.nytimes.com/2014/04/18/business/walmart-to-offer-customers-money-transfers-between-stores.html?_r=1">announced</a> that Walmart will be offering cash transfers for customers between stores, and doing so at their famous Walmart prices.

Say what you will about Walmart, it is hard to dispute that they know how to lower prices. At least initially, they will provide cash transfer services at significantly cheaper rates than most money transfer service providers. For instance, to send $900 between Walmart stores would only cost customers $9.50, a <a href="http://news.walmart.com/news-archive/2014/04/17/walmart-introduces-exclusive-money-transfer-service-cuts-fees-by-up-to-50-percent-for-customers" target="_blank" rel="noopener">Walmart press release</a> indicates. Transferring the same amount via Western Union would cost at least $52, according to their <a href="https://www.westernunion.com/price-estimator/" target="_blank" rel="noopener">online price estimator</a>, calibrated for my sending city of Boston.

Along with its low prices, Walmart thrives on its ability to attract customers with the ease and convenience of a one-stop shop. In 2012, it began offering its <a href="http://cfi-blog.org/2013/05/29/your-neighborhood-bank-walmart/" target="_blank" rel="noopener">Bluebird reloadable prepaid cards</a>, marketed as an alternative to checking and debit accounts.

This remittances news about Walmart raises interesting questions about what the future of the market might look like, as more non-traditional players including internet-based groups like Facebook and mobile service providers start offering money transfer.

Unlike with Walmart, the use of mobile service providers or internet-based applications to send money requires that users have a phone or internet access and the know-how and comfort to use these tools to transfer money. Mobile connectivity is widespread, and internet penetration is increasing rapidly, however, much room for improvement remains in mobile money uptake and in internet access. Also, neither of these remittance options provide the ease of cash entry and exit points, and the reality is that most of the world’s poor still operate in an informal, cash society. Walmart on the other hand has 10,957 retail units worldwide.

Though there is one huge shortcoming in Walmart’s new offering: for now, the transfer services are only available between stores in the United States.

Who will be next to join the list of remittances providers? McDonalds is in more than 100 countries, with more than 35,000 restaurants serving nearly 70 million people every day, many of whom might be ideal candidates for a cheap cash transfer service. Perhaps the day is nearing when you will send money to your grandmother in Bolivia or Tanzania while ordering up a Big Mac.
Have you read?
<a href="http://cfi-blog.org/2013/05/29/your-neighborhood-bank-walmart/" target="_blank" rel="noopener">Your Neighborhood Bank, Walmart?</a>
<a href="http://cfi-blog.org/2013/08/01/retail-credit-in-chile-scourge-or-solution/" target="_blank" rel="noopener">Retail Credit in Chile: Scourge or Solution?</a>
<a href="http://cfi-blog.org/2014/04/16/facebook-to-provide-remittances-the-news-and-the-bigger-picture/" target="_blank" rel="noopener">Facebook to Provide Remittances? The News and the Bigger Picture</a>

Walmart Joins the List of Non-Traditional Players Offering Remittances