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

Reimagining Inclusive Finance With Women In Mind

Financial Inclusion Week 2020

Enabling Environment

Financial Health

Financial Inclusion Strategy

Resilience

Underserved Groups

Women

Data from across the financial inclusion industry shows the economic upheaval COVID-19 is causing throughout Nigeria. <a href="https://www.centerforfinancialinclusion.org/msmes-in-lagos-struggle-due-to-covid-19-but-remain-positive" target="_blank" rel="noopener noreferrer">In addition to data collected by CFI</a>, we examined the results of four other surveys of COVID-19’s impact throughout the country. When considered collectively, the data tells a story in which the public health crisis has led to policies which slowed economic activity. Consequently, income has declined—for employers and employees alike—and there appears to be massive reductions in available work. The data also suggests Nigerians’ capacity to respond is finite as households draw down savings and struggle to repay debts, exacerbating their struggle to put enough food on the table.
<h2>Survey Summary</h2>
CFI looked at five surveys that have been conducted since COVID-19 reached Nigeria. A summary of those surveys—including sample size, notes on sampling method, survey dates, and major topics covered—is available in Table 1.

There are three things to highlight about this set of surveys which are meaningful when interpreting the results. First, the survey methods used varied, and <a href="https://news.gallup.com/opinion/methodology/233291/why-phone-web-survey-results-aren.aspx" target="_blank" rel="noopener noreferrer">these different modes have shown to yield different responses to the same question in other studies</a>. BFA used an online survey, GeoPoll’s survey was delivered via SMS to its database of respondents while CFI, i2i, and the World Bank conducted surveys by phone.

Second, the samples target different populations of interest and the selection methodology differed. BFA used a sample of paid, online respondents while GeoPoll relied on its database of mobile subscribers who tend to be younger, more literate, and wealthier than the population at large. CFI’s sample of MSMEs were clients of Accion Microfinance Bank in Lagos. Only i2i and the World Bank surveys were nationally representative. This diversity can help give confidence in patterns we identify: <em>there is strong circumstantial evidence the trend is true</em> if all five surveys show a similar trend with a similar magnitude. A downside, though, is that because of the heterogeneity in methods, circumstantial is the best we can do—this is not an empirical comparison.

Third, these surveys happened at proximate but not identical times. BFA’s survey was the earliest and the <em>initial</em> World Bank survey, which includes two waves, also happened shortly after the pandemic struck. i2i’s longitudinal survey was conducted <em>during a two-and-a-half-month period</em>. These differences are relevant because of the immediacy of COVID-19’s impact. Even differences of a few weeks could have had meaningful effects on responses.

Nigerians Are in Desperate Need of Relief as COVID-19 Reduces Wealth and Stresses Coping Strategies

CFI MAP Research

Nigeria

Sub-Saharan Africa

Test of a Lifetime: COVID-19 and Financial Inclusion

Challenges and Crises

Data Analytics

Financial Technology

Entrepreneurs of MSMEs

Blog Post

<a href="https://www.cdcgroup.com/en/" target="_blank" rel="noopener noreferrer">CDC Group</a>, the UK’s development finance institution, is one of the largest DFIs in the world. With nearly $6 billion invested in companies located mostly in Africa and South Asia, CDC is an impact investor that aims to drive development through commercial means.

CDC invests across a wide range of sectors but focuses on seven priority sectors that it has identified as having the greatest potential for development impact. Among these, the financial services sector currently represents a <a href="https://www.cdcgroup.com/our-impact/key-data#how-we-invest-in-sectors!" target="_blank" rel="noopener noreferrer">greater share of CDC’s portfolio</a> than any other sector.

As part of its exploration into how DFIs are responding to COVID-19, in particular with respect to the role of the financial sector, CFI connected with Machal Karim, an executive on CDC’s Development Impact team who focuses on financial services in developing countries.
<h2>For its COVID-19 response, CDC has laid out three areas of focus: ‘Preserve,’ ‘Strengthen’ and ‘Rebuild.’ Can you tell us more about those?</h2>
We prepared a briefing document with complete details that is available on our <a href="https://www.cdcgroup.com/en/covid-19-response/" target="_blank" rel="noopener noreferrer">COVID-19 response page</a>.
<blockquote>Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined.</blockquote>
Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined. This is particularly the case in those sectors most affected by COVID-19, where it’s been crucial to act to protect the positive environmental, economic, and social impact of these businesses. Our support has included providing working capital, technical assistance, and guidance to improve their resilience and protect jobs.

Our second area of focus is to strengthen the resilience of businesses by scaling up our response to the economic and health challenges of the crisis. On the economic side, we’re channeling much-needed liquidity to local banks to enable them to support their business customers. And to support those that have a direct role in combating the COVID-19 pandemic, we are assessing opportunities to invest in businesses providing healthcare or access to basic goods and services.

We’re now at a point where, alongside these more immediate actions, we’re thinking more about our third area of focus – to support economies to rebuild and recover once the worst effects of the pandemic have passed. As a DFI, our role to address the long-term challenges a crisis will bring – continuing to invest patient capital at a time when commercial investors pull back – is vital.
<h2>In terms of ‘Strengthen,’ CDC is looking to provide liquidity for local financial service providers. Have you identified opportunities for this type of support yet?</h2>
We’re giving priority to those who are in most urgent need of liquidity support. Over the last few months, we’ve committed just over $400 million to our program of systemic liquidity.

As an example, we’ve recently made an <a href="https://www.cdcgroup.com/en/news-insight/news/cdc-announces-additional-us75-million-trade-finance-deal-with-absa-as-part-of-covid-19-response/" target="_blank" rel="noopener noreferrer">additional $75 million commitment</a> to our existing trade finance facility with Absa Bank, an African financial services group. The pandemic has put significant pressure on African banks as international banks continue to withdraw from the continent.
<blockquote>What makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries.</blockquote>
The investment will enable local banks to sustain the availability of trade finance, supporting supply chains during the crisis. And what makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries and in sectors that are critical to serving people’s basic needs during the crisis – food and agriculture and health.
<h2>What about timeframes? What do you see as the medium-term needs beyond liquidity?</h2>
<blockquote>What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term.</blockquote>
CDC has identified various <a href="https://www.cdcgroup.com/en/news-insight/news/guidance-on-protecting-customers-during-covid-19/" target="_blank" rel="noopener noreferrer">short-term to longer-term risks and provided corresponding suggestions</a>, but we’re at a stage where it’s still very difficult to talk about timeframes. We still cannot predict what the ultimate impact will be. What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term, supporting businesses through the course of the pandemic and to rebuild sustainably.

In terms of needs beyond liquidity, our approach throughout has been to provide guidance for employers, investors, and financial institutions on issues ranging from <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/how-can-investors-help-companies-protect-jobs-during-covid-19/?fl=true" target="_blank" rel="noopener noreferrer">job protection</a>, to <a href="https://www.cdcgroup.com/wp-content/uploads/2020/04/CDC-Group-Guidance-on-protecting-customers.pdf" target="_blank" rel="noopener noreferrer">customer protection</a>, to <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/guidance-on-managing-a-remote-workforce-during-the-covid-19-pandemic/?fl=true" target="_blank" rel="noopener noreferrer">remote working</a>. As time has moved on, the nature of this guidance has evolved to include advice on <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/returning-to-the-workplace-during-covid-19-labour-and-workforce-considerations/" target="_blank" rel="noopener noreferrer">returning to the workplace</a> and how to support women working from home with limited access to technology.

Another part of our approach has been to provide support to investee businesses through <a href="https://www.cdcgroup.com/en/covid-19-response-facilities/" target="_blank" rel="noopener noreferrer">our technical assistance facility, CDC Plus</a>. This has included one facility providing grants to businesses, so they can adapt or scale-up to form part of the response to the pandemic, and a second facility to support the development of guidance for companies on how to respond to the crisis.
<h2>Throughout the short and medium terms, CDC suggests businesses maximize their “digital footprint and channels” as much as possible. How are your investees working to accelerate digitization for consumers?</h2>
We’ve been supporting our investee businesses, including financial institutions, to proactively explore how they may want to pivot their current products or operations to better meet customer needs. Much of this has revolved around learning more about digital opportunities and maximizing their digital offerings so they can continue to operate under the changing environments and new types of customer interaction and behavior that the pandemic has brought about.

We continue to support our investees through various channels, including our technical assistance facility, to explore these opportunities and step up their activities as economies open up.
<h2>Consumer protection remains an important topic for CDC. How have consumer protection challenges shifted in the COVID era?</h2>
<blockquote>Consumer protection risks have become particularly heightened due to the pandemic.</blockquote>
We recognized that financial institutions and their customers would come under particular stress as a result of COVID-19. Consumer protection risks have become particularly heightened due to the pandemic, as financial institutions have had to balance the immediate stress on liquidity with the need to sustain support to their customers and abide by regulatory requirements.

Early on, we ensured that the financial institutions we’re invested in had the support they needed to make decisions and manage risks while protecting customers, such as by issuing this <a href="https://assets.cdcgroup.com/wp-content/uploads/2020/04/09165635/CDC-Group-Guidance-on-protecting-customers_9-April-2020.pdf" target="_blank" rel="noopener noreferrer">guidance document</a>. Mindful of the many stresses on employment, liquidity and cashflows, we urged our financial institution partners to continue to consider the needs of, and risks to, customers through the crisis.
<h2>How has this crisis shifted the perception of inclusive finance, if at all?</h2>
<blockquote>Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable.</blockquote>
Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable. Our work to provide systemic liquidity has been a concrete channel of support to the market, with an explicit focus on supporting the most vulnerable first and ensuring their liquidity needs are managed.

When we start to recover, it will be vital to remember all segments of the market to ensure that the most vulnerable and excluded groups are not left behind. It will also be important to continue to support financial institutions in reaching those customers that have historically been perceived as higher risk and harder to reach, as they are also the most vulnerable.
<h2>CDC’s head of Africa has argued that the banking sector is where DFI support is most crucial, but that private capital will be required in the longer term. Does CDC structure any direct support to MSMEs or does everything flow via the banking sector?</h2>
<blockquote>We know that our most effective way for getting capital to SMEs is through partners, rather than investing directly.</blockquote>
A key part of our <a href="https://www.cdcgroup.com/wp-content/uploads/2020/05/Financial-Institutions_11.pdf" target="_blank" rel="noopener noreferrer">Financial Institutions' Strategy</a> is to help intermediaries serve SMEs because SMEs are the growth engines of the economy in our geographies. We know that our most effective way of getting capital to this size of business is through partners, rather than investing directly.

This includes investing in non-bank financial companies so that alternatives to traditional bank financing become available to SMEs, as well as supporting microfinance institutions looking to extend their lending to SMEs. It also includes working with our bank investees to increase the finance they provide to SMEs. This can mean funding work to develop products and operations better suited to SME clients. And it can mean entering into risk-sharing agreements, which reduce banks’ capital cost of lending to SMEs, or trade finance agreements to bridge the ‘trade finance gap’ and support trade undertaken by local businesses. Finally, it includes investing through funds to reach SMEs with different types of capital.

That’s why an important part of our response has been focused on working with our investee financial institutions, so that we can quickly help them to increase the credit available in our markets. For example, by expanding our pre-existing trade finance programs, we can inject liquidity quickly and accurately, and ensure that domestic supply chains keep operating, which in turn supports SMEs within those markets.
<h2>Has CDC coordinated with other DFIs on its COVID-19 response? What’s been the nature of this inter-DFI coordination, and what more can be done?</h2>
DFIs came together very early on to find ways to collaborate in response to the pandemic. The <a href="https://www.cdcgroup.com/en/news-insight/news/development-finance-institutions-join-forces-to-respond-to-covid-19-in-developing-countries/" target="_blank" rel="noopener noreferrer">DFI Alliance</a>, involving organizations from 16 OECD countries, has been working together to bring liquidity to the market, support companies impacted by the virus, and promote new investment.

CDC has been working with both bilateral and multilateral DFIs. There are various working groups underway coordinating on areas ranging from technical assistance funding, to our approach to certain sectors, to supporting the liquidity of investment funds.

We’ve also been collaborating on how to support the rebuilding of businesses and economies in a way that is more inclusive. For example, alongside our peers, we <a href="https://www.cdcgroup.com/en/news-insight/news/2x-challenge-and-gender-finance-collaborative-response-to-the-covid-19-pandemic/" target="_blank" rel="noopener noreferrer">called for a gender-sensitive approach</a> among investors in both immediate responses and longer-term recovery solutions.
<blockquote>We will continue to stand firm to play our role at a time when commercial investors are pulling back.</blockquote>
We feel proud of what we’ve been able to achieve so far and recognize there is a lot more to do as the pandemic shifts from an acute to a chronic challenge. Our approach of providing much-needed liquidity through financial intermediaries is very likely to continue to be needed in the coming years. We will continue to stand firm to play our role at a time when commercial investors are pulling back, so that in the long-term, businesses and economies are able to successfully rebuild.

DFIs, Financial Inclusion and the COVID-19 Response: A Q&A with Machal Karim of CDC

South Asia

Banks

Financial Service Providers

Consumer Protection

Digital Credit

Credit

Digital Financial Services

Delivery Channels

Microfinance

Microfinance Institutions

MSME/SME Finance

Responsible Investing

Impact Investing

Supply Chain Finance

Micro, small, and medium enterprises (MSMEs) in Indonesia are suffering in the wake of COVID-19 according to data collected by CFI. Seventeen percent of the businesses in the sample have closed, and 85 percent of those that continue to operate estimate their profits have decreased, often by 50 percent or more.

Owners of the MSMEs that were operating at the time of the survey remained optimistic despite the economic downturn. Almost two-thirds reported they were covering their business expenses with revenue and thought they could keep their doors open for another three months based on how things were going. In addition to altering their business practices to stay open, the data on owners’ use of financial tools suggests that they are drawing down their financial resources, raising concerns that they have little cushion for the months ahead.

From July 13 to August 8, 2020, CFI conducted phone interviews with a random sample of <a href="https://bina-artha.com/" target="_blank" rel="noopener noreferrer">Bina Artha Ventura (BAV)</a> clients in Indonesia. BAV, which is <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">participating in Accion’s partnership with Mastercard</a>, is a microfinance institution that uses a group lending methodology to serve entrepreneurs, mostly women, who predominantly live in rural areas. CFI completed 730 interviews, 660 of which were with female MSME owners. Two-thirds of the owners ran sole proprietorships while 31 percent ran microenterprises (one to 10 employees). Those microbusinesses employed an average of three people before the pandemic. MSMEs in the sample have been operating for almost eight years on average. Most businesses were grocery or food stands, although farming and the sale of household goods were also common. This is one of six surveys CFI is conducting in Indonesia as part of its <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact" target="_blank" rel="noopener noreferrer">ongoing effort to study the impact of COVID-19 on the financial health of MSMEs</a>. As with data from CFI’s first survey in Nigeria, the data from this survey is <a href="https://www.centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/indonesia" target="_blank" rel="noopener noreferrer">presented in this interactive dashboard</a>.
<h2>Survey Insights</h2>
<h4>Nearly one in five women-led businesses have closed. They were almost twice as likely to close as male-led businesses.</h4>
<blockquote>Of the women-led microbusinesses that closed, 78 percent said they were completely confident that they would reopen in the future, but only 57 percent of the women-led sole proprietorships that closed said the same.</blockquote>
Since COVID-19 struck Indonesia, 18 percent of women-led businesses in the sample have closed. These closures have proportionally impacted businesses of different types and sizes, and they have been driven largely by a drop in customer demand, likely the result of restrictions on movement being enforced in the country. The owners of these businesses were generally confident that they would be able to restart their business in the future, but there were major differences based on how large the businesses were prior to the pandemic. Of the women-led microbusinesses that closed, 78 percent said they were completely confident that they would reopen in the future, but only 57 percent of the women-led sole proprietorships that closed said the same. Importantly, women-led businesses were almost twice as likely to close as male-led businesses. Of the 70 male-led businesses in the sample, only 10 percent had shuttered their operations.
<h4>COVID-19 has led to dramatic declines in profits, but roughly two-thirds of businesses say they are covering their expenses.</h4>
<blockquote>70 percent of operating businesses reported a decrease in profits of 50 percent or more.</blockquote>
Businesses generally did well in the year before the pandemic struck. Fifty-six percent of respondents reported their profits increased compared to the year before while 38 percent said they had stayed the same. Only 5 percent of people said their profits had declined, but that number has skyrocketed since COVID-19: 85 percent of businesses reported that their profits have declined compared to pre-pandemic levels. Those declines have been dramatic, with 70 percent of operating businesses reporting a decrease in profits of 50 percent or more. While profit levels shrunk dramatically, owners were confident that they would be resilient to this shock. Sixty-three percent of owners said they were covering their expenses just with business revenue and think they could continue operating for at least three months based on how things were going.
<h4>MSMEs are trying to survive by changing business practices to boost revenue and cut costs, including reducing their labor force.</h4>
<blockquote>Half of operating microenterprises reported that they cut employees.</blockquote>
MSME owners are employing a mix of revenue-boosting and cost-cutting measures to ensure their revenues continue covering their expenses. For instance, a third of all operating businesses reported offering discounts to stimulate sales while a fifth chose to raise prices instead. Almost a fifth of businesses started a delivery service since the pandemic began. Cost-cutting measures were also common. For those businesses with employees, reducing the size of their workforce and work hours for staff was an important strategy. Half of operating microenterprises reported that they cut employees, leading to a 42 percent reduction in employment within this segment. This action likely had downstream effects. Many owners reported that they were working longer hours to meet customer demand or make ends meet, potentially a result of a reduced workforce.
<h4>In addition to their businesses, owners’ households are enduring, but data on financial tools suggests their margin of error is small.</h4>
Three-quarters of households reported that they were covering all their expenses with non-debt income sources. Severe food insecurity – defined as people going to bed hungry because of a lack of money – was relatively low at 10 percent. In comparison, CFI’s survey of urban MSME owners in Lagos, Nigeria found that 34 percent of owners reported severe food insecurity in their households.

While this is encouraging, a closer look at the financial tools owners are using to cope with the crisis suggests that conditions are likely to worsen. For example, 22 percent of owners sold a household asset to keep their business running. Of the households that sold an asset, only 63 percent reported being able to cover their expenses compared to 79 percent who did not sell an asset. Similarly, 47 percent of MSME owners reported skipping a loan payment, and those owners were less likely to have covered their household expenses by a similar margin compared to those who had made their payments.
<blockquote>Savings also appears to have collapsed in the months since the pandemic hit.</blockquote>
Savings also appears to have collapsed in the months since the pandemic hit. Since March, only 38 percent of people reported saving while 53 percent reported withdrawing money from savings. In the year prior to the pandemic, 84 percent of people reported saving compared to 54 percent who said they withdrew money. While the comparison is not one-to-one because of the different periods, it is certainly not encouraging, especially because savings is another indicator of households’ ability to cope. Ninety percent of owners who had saved since March reported being able to cover their household expenses compared to only 67 percent of owners who had not saved.

Collectively, this analysis implies respondents have dwindling financial options. Only so many assets can be sold, and savings will dry up if not replenished. Debts not repaid choke future lines of credit. These underlying patterns may help to explain a less optimistic sentiment shared by respondents: 79 percent said they could only cover their essentials for a month or less if their income sources dried up.
<h2>Summary and Reflections</h2>
Since the pandemic reached Indonesia in March, 17 percent of businesses have closed, profits have collapsed, and employment has plummeted. Women-owned businesses have been hit especially hard, with 18 percent of them closing compared to only 10 percent of male-owned businesses. Owners who managed to keep their business open reported a high degree of confidence in their ability to continue operating, relying on a mix of revenue-boosting and cost-cutting business practices to ensure their revenues continue to at least meet their expenses. This has helped stave off catastrophe at home, where food insecurity remains low and people continue to cover their household expenses.

However, data on the use of financial tools suggests owners and their households have little margin for error in the months ahead. Selling household assets, skipping loan payments, and net savings withdrawal activity indicate that respondents are already relying heavily on financial tools to meet their basic needs. Without a change in their circumstances, it is unlikely that MSME owners will be able to replenish these resources. Thus, it is reasonable to expect a worsening financial situation in the months ahead.

<em>This survey is part of our partnership with <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a> to understand the impact of COVID-19 on MSMEs.</em>

MSMEs in Indonesia Are Surviving but COVID-19 Leaves Little Margin for Error

CFI MSME Financial Health Data Team

Indonesia

East Asia and Pacific

Prior to the onset of COVID-19, very few of us would have foreseen a pandemic spreading so rapidly across the world, forcing governments to take actions like lockdowns and border closures. We have observed how these events found many essential services unprepared and resulted in businesses focusing on “response” and “recovery.” In many countries, the pandemic started as a health crisis, while in Sub-Saharan Africa it started as an <a href="https://www.worldbank.org/en/news/video/2020/04/21/africas-pulse-covid-19-coronavirus-causes-first-recession-in-25-years" target="_blank" rel="noopener noreferrer">economic one</a>, as closures happened quicker than the virus spread.

Despite the fact that many agricultural value chains are considered an essential service, agri-SMEs in Sub-Saharan Africa are still facing a <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">decline in demand</a> (particularly those providing farm inputs), <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">liquidity shortfalls</a>, harvesting and production problems due to labor shortages, <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_FINAL.pdf" target="_blank" rel="noopener noreferrer">export and transportation delays due to lockdowns</a>, and cancelled international contracts. All these challenges are exacerbated by ongoing climate change-related shocks, like droughts, floods and <a href="https://www.nationalgeographic.com/science/2020/02/locust-plague-climate-science-east-africa/" target="_blank" rel="noopener noreferrer">locust plagues</a>. The resilience of agri-SMEs (small and medium-sized businesses that are formal and registered entities engaged in agricultural production) is being tested with these events.

While it is too early to estimate the full economic impact of COVID-19 on agri-SMEs, most lenders are taking steps to address the most pressing challenges faced by these agri-SMEs. Though it is prudent to move quickly to overcome these challenges, agri-SMEs would be better supported in the long run if lenders approach these problems through a systemic lens to understand the root of the challenges instead of focusing only on the symptoms of the overall shock.

Aside from the lack of infrastructure, agri-SMEs’ biggest challenge to growth is their limited access to finance and the regulatory burdens constraining this access. As will be discussed below, these challenges are deeper and more structurally embedded, and therefore require a long-term coordinated commitment to provide agri-SMEs access to capital.

This post highlights steps lenders are currently taking to help agri-SMEs weather the storm and suggests areas where they can expand their focus to support these businesses in being better prepared for future economic shocks.
<h2>Explore new options to mitigate risk and increase capital flow to agri-SMEs</h2>
Since the outbreak of the pandemic, most lenders have focused on serving existing clients by increasing their financing, restructuring loans, or deferring payments to meet their clients’ liquidity challenges. By doing so, lenders are also making sure their current portfolio is not at immediate risk.
<blockquote>It’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.</blockquote>
While lenders may be tempted to take a more conservative stance, those with sufficient capacity should be initiating even more new deals in order for agri-SMEs to keep goods and services flowing through the highly interdependent agricultural value chain. For instance, <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">72% of MSEs in Zambia</a> need working capital to continue and grow their business, and <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">61% are running on their savings</a>. COVID-19 is exacerbating the financing gap, and it’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.

Luckily, lenders have successful examples which they can use to build new and more innovative risk mitigation options. Credit guarantees, such as non-bank financial instruments that mitigate default risk for lenders in Sub-Saharan Africa, are a known practice. Between 2008 and 2015, AGRA worked with several partners to offer several guarantees to extend credit to many agriculture value chain actors in Africa, demonstrating the bankability and feasibility of investing in perceived risky agricultural businesses. Additionally, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> has developed a new market platform that aims to incentivize financial service providers to lend to agri-SMEs while also providing technical assistance to them.
<h2>Create new strategies to find and support agri-SMEs</h2>
Many agricultural lenders are reporting that servicing new clients has either stopped or dropped to low levels, not just because of risk concerns, but also because it is almost impossible to conduct thorough due diligence without on-site visits. Given that on-site visits may not be feasible in the near-future, lenders will want to design creative strategies and leverage data to support remote discovery of new agri-SMEs.
<blockquote>Promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics.</blockquote>
To this end, in early 2020, MIX and SCOPEinsight formed a partnership with the support of AGRA to help address the financing gap agri-SMEs face. Through this partnership, they are <a href="https://www.themix.org/news-blog/mix-and-scopeinsight-launch-partnership-with-agra" target="_blank" rel="noopener noreferrer">building bankability metrics</a> so that agricultural lenders can identify and pre-screen agri-SMEs. These metrics play an even more important role now due to COVID-19 disruptions, and they will feed into a portal which will bridge the information gap between agri-SMEs and lenders. As a result, promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics that lenders can use to reduce their costs to serve SMEs. By employing bankability metrics, lenders will be able to assess the potential for growth of agri-SMEs, which currently handle <a href="https://agrf.org/dealroom/wp-content/uploads/2020/07/AGRA-AGRF-Deal-Room-talk-by-Tom-Reardon-july20-2020-final-sent.pptx" target="_blank" rel="noopener noreferrer">680 million tons of food in Africa</a>.
<h2>Offer appropriate technical assistance to agri-SMEs</h2>
<blockquote>The key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges.</blockquote>
Several of the lenders we spoke with are increasingly providing technical assistance to agri-SMEs, recognizing that in these extraordinary times, agri-SMEs are looking for direction. Lenders are offering guidance and training on financial management, crisis management, and operating a business with limited resources. After conducting a <a href="https://rootcapital.org/wp-content/uploads/2020/06/COVID-19-client-survey-report_JUNE-2020.pdf" target="_blank" rel="noopener noreferrer">survey on COVID-19's impact on 134 of its clients</a>, Root Capital decided to offer virtual technical support through its advisory team in four areas: crisis management, emergency operations, financial management and analysis, and digital data collection and analysis.

While technical assistance is not new and is already being offered to SMEs by many organizations, the key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges, with the main goal to support agri-SMEs to grow and become bankable organizations. Helping agri-SMEs become more bankable, and thus more professionalized and visible to other lenders, can assist them to overcome barriers to financing and become more resilient and better equipped to face future risks and shocks.

Going forward, the uncertainty of this pandemic makes it unclear how the next season or harvest will affect agri-SMEs, who are <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">highly interdependent actors in an agricultural value chain</a> where one simple disruption in the flow of goods and services creates challenges for other actors. Along with prioritizing their existing clients, as they are currently doing, lenders could consider the crisis an opportunity to employ long-term strategies that can help agri-SMEs grow into resilient institutions. Coordinated responses and actions by lenders and other actors will play a critical role in ensuring that these businesses are strong enough to continue to feed the world in the face of new pandemics and other global challenges to come.

&nbsp;

From Crisis to Opportunity: How Can Lenders Help Build Resilient Agri-SMEs

Agricultural and Rural Finance

Smallholder Farmers

New data from CFI’s <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">survey of micro, small, and medium enterprises (MSMEs) in Lagos, Nigeria</a>, show the staggering impact of COVID-19. Since the <a href="https://www.bbc.com/news/world-africa-51671834" target="_blank" rel="noopener noreferrer">first confirmed case</a> of COVID-19 in Nigeria in late February, 9 percent of the 737 businesses in the sample have closed; the number of employees has declined by 51 percent compared to its high point the preceding year; and 80 percent of businesses have seen their profits decline.

The data also show MSME owners’ households in a precarious position. More than half of business owners said their household is currently not covering their expenses from earned income, and if their income were to dry up, nearly 60 percent would be unable to pay for essentials within a month. Food insecurity is high, too – one-third of respondents reported they or someone in their household has gone to bed hungry in the past two months because there has not been enough money to buy food.

This survey is part of CFI’s multi-country effort to <a href="https://centerforfinancialinclusion.org/understanding-covid19s-impact-on-financial-health-of-msmes/" target="_blank" rel="noopener noreferrer">understand the impact of COVID-19 on the financial health of MSMEs</a> and is the first of six longitudinal surveys in Lagos. Broadly, the survey seeks to understand which businesses are shuttering their operations and why; how the performance and practices of operating businesses have changed; what financial tools MSMEs are using and whether their use is correlated with businesses’ resilience; and how changes in these livelihoods are related to changes in household well-being. The initial survey aimed to establish a retrospective baseline for firm performance and financial tool use in addition to capturing changes in behavior and outcomes since COVID-19 arrived in Nigeria. Future surveys – which will occur every two months for the next year – will track these indicators over time.

From June 16 to July 15, 2020, CFI conducted phone interviews with a random sample of Accion Microfinance Bank (AMfB) clients living in Lagos. AMfB is participating in <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Accion’s partnership with Mastercard</a>, which supports the digital transformation of financial service providers. CFI completed interviews with 737 respondents, 55 percent of whom were women. Two-thirds of the businesses in the sample were micro-enterprises (1 to 10 employees) while another quarter were sole proprietorships. Most business were well-established, with an average operating age of 13 years. There was a healthy mix of businesses, including grocers, school operators, and manufacturing businesses.

CFI is presenting its data from this survey effort in this <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/nigeria/" target="_blank" rel="noopener noreferrer">data dashboard</a>. The dashboard is a living document – it will be updated as CFI refines and conducts new analysis, and as new data from other surveys becomes available.
<h2>Survey Insights</h2>
<h3>Nine percent of businesses have closed since COVID-19, but owners are confident they will reopen again.</h3>
The data show that 64 of the 737 businesses in the sample shuttered their operations since COVID-19 arrived in Nigeria. Of these, 40 of the businesses closed because of government restrictions on their businesses. School operators were disproportionately affected. Of the 44 school operators in the sample, 52 percent reported not operating. Of all the other types of businesses – like grocers, tailors, or electronic stores – with an n of 10 or more in the data, only the share of restaurants that have closed cracked double digits at 12 percent. At the time of the survey, these entrepreneurs were confident that they would reopen their businesses when government restrictions are lifted.
<h3>Total employment is down by 51 percent. Closed businesses are a major contributor to the decline, but nominally small losses incurred by microenterprises are adding up.</h3>
The survey asked respondents to report the largest number of staff – full-time, part-time, and seasonal –they employed at one time in the 12 months preceding coronavirus. They included family members if they were paid a wage. Against that benchmark, employment has plummeted. Prior to coronavirus, MSMEs in the sample employed 3,001 people. At the time of the survey, that number had dropped by 51 percent to 1,468 people.

Two major patterns are contributing to the decline. First, business closures are a significant driver of net job loss, largely because so many schools, which are major employers, shut down. A mere seven percent of the entire sample – representing 53 closed businesses – accounted for 44 percent of net job losses, and closed schools accounted for nearly 80 percent of that. Second, many microenterprises have lost a nominally small number of employees (on average, just more than one), which collectively has a significant impact on employment. The 463 operating micro businesses have lost 550 employees, roughly a third of all jobs lost.
<h3>Those job losses are symptomatic of the drop in profits that 80 percent of MSMEs are experiencing.</h3>
Prior to COVID-19, 63 percent of businesses reported their profits increased compared to the year before, but the pandemic has halted that progress. Eighty percent of businesses reported their profits have fallen since the start of the pandemic. Including the businesses that have closed, half of all businesses said they can no longer cover their operating expenses. If there is any consolation, it is that most businesses – even those with a negative cash flow – reported a modest runway before needing to shutter operations. Based on how things were going at the time of the survey, 72 percent of operating businesses estimated they could manage for at least another 3 months before shutting down.
<h3>MSMEs are employing a variety of coping strategies to keep their businesses afloat.</h3>
Businesses were coping using a diverse mix of strategies. For instance, in addition to the dramatic reduction in the workforce, owners are cutting employees’ hours and working longer hours instead. About 11 percent of owners increased prices, 38 percent reduced prices, and 28 percent had done both. Similarly, 32 percent of respondents stopped selling to customers on credit while 29 percent started doing so. Meanwhile, the number of people making savings withdrawals since the pandemic began outpaced the number of people making deposits by just more than two-to-one. For reference, this ratio was effectively one-to-one in the year before the pandemic began.
<h3>Many owners’ households appear to be on the precipice, with an inability to cover expenses and indications of food insecurity.</h3>
Predictably, given their businesses’ performance, owners’ households appeared to be struggling. Fifty-six percent of owners said their household could not cover all their expenses with the combined income household members are earning. If income were to dry up completely, the cushion for the households appears to be very small – 60 percent of owners said their households could cover expenses for a month or less. Households’ financial struggles are having very real impacts: roughly a third of owners reported someone in their household had to go to bed hungry at some point in the past two months because there was not enough money to buy food.
<h2>Summary and Next Steps</h2>
Collectively, this preliminary analysis of CFI’s survey data suggests MSMEs in Lagos are being walloped by COVID-19. The general slowdown in economic activity resulting from restrictions on movement has led to a dramatic reversal of MSMEs’ fortunes. With profits declining, owners are slashing jobs and resorting to a mix of strategies to keep operating. While they expect to be able to do so for a few months, their households stand to suffer more in the near term as expenses of essential items outpace the income available to pay for them.

While the sample is not statistically representative of MSMEs in Lagos, this information adds to the growing set of data available from <a href="https://datastudio.google.com/u/0/reporting/1yyG5QHGV-v-bxw6pJNZvwtqnIfCLj-7q/page/rw0JB" target="_blank" rel="noopener noreferrer">Bankable Frontiers Associates</a>, <a href="https://covid19tracker.africa/country/NGA/summary" target="_blank" rel="noopener noreferrer">insight2impact</a>, and the <a href="https://www.worldbank.org/en/country/nigeria/brief/monitoring-covid-19-impact-on-nigerian-households" target="_blank" rel="noopener noreferrer">World Bank</a>, among others, examining the impact of COVID-19 on households and livelihoods in Nigeria. In a future blog post, we’ll examine the learnings from the collective pieces of work in-depth, but each indicates severe economic stress consistent with this data. For instance, both the insight2impact and World Bank data indicate food insecurity occurring at similar rates to what was seen in this survey. Additionally, CFI will examine what policymakers can do to help mitigate these concerning findings. Whatever the intervention, it must happen quickly. In the meantime, business will struggle and dinner plates will be empty.

<em>This survey is part of our partnership with <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a> to understand the impact of COVID-19 on MSMEs.</em>

&nbsp;

MSMEs in Lagos Struggle Due to COVID-19, but Remain Positive

The coronavirus pandemic has continued to ravage Western countries and is encroaching in a much more aggressive way into developing economies in Latin America, Africa, the Middle East and Asia. In developing countries where the vast majority of the labor force is in the informal economy (estimated at <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_627189/lang--en/index.htm">over 60 percent</a> worldwide), COVID-19 is revealing the limits of individual financial behaviors for coping with the pandemic. This raises questions: Which public policy measures should be prioritized to support resilience? What are the economic policies that are creating the underlying vulnerability and marginalization in the first place?
<blockquote>Which public policy measures should be prioritized to support resilience? What economic policies are creating underlying vulnerability and marginalization?</blockquote>
COVID-19 is revealing that no matter the degree of someone’s financial cushion in the form of savings or remittance networks, it is simply not sufficient to cover a loss of income. From a research perspective, no matter how much information we obtain on someone’s behaviors, attitudes and circumstances, we will not be able to have visibility into their vulnerability to shocks, as these issues only marginally contribute to someone’s resilience. To be better equipped to understand the impact of shocks such as COVID-19 on the lives of the BOP, we need to understand critical variables such as income, wealth and safety nets available to them. This means we need to adapt the financial health measurement tools that were previously developed to serve the narrower purpose of helping providers understand the financial health of their customers. These frameworks were tailored to the information that providers needed to know and the tools available to them to improve the resilience of their customers. Broader contextual variables, like safety nets, let alone income variables, were not part of the equation as FSPs do not have the mandate to address these larger policy issues.
<h2>Need to Ask Bigger Questions</h2>
But for many of us working in the inclusive finance space, our toolbox is bigger. Advocacy on public policy is squarely within our mandate and having the right information to inform this advocacy work should be integral to the types of research work we undertake. Demand-side research such as the <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">Findex</a>, <a href="http://finmark.org.za/programmes/finscope/" target="_blank" rel="noopener noreferrer">Finscope</a>, financial diaries, and the new crop of financial health surveys, all reveal a similar story. They tell us that being poor is bad and poverty <a href="https://cenfri.org/news-and-events/webinar-the-impact-of-covid-19-on-financial-health" target="_blank" rel="noopener noreferrer">limits people’s resilience to shocks</a>. These demand-side tools don’t tell us much about the underlying causes of this lack of resilience. So, narrowing our research efforts only to demand-side data can be misleading. Too often actors draw the wrong inference from it: that people’s behaviors and attitudes are the reason for their poverty or vulnerability, even though this has long been <a href="https://www.dandc.eu/en/article/development-jargon-helping-people-help-themselves" target="_blank" rel="noopener noreferrer">discredited</a>. Focusing only on what providers can do is also too narrow in scope: the ideology that markets can solve all problems has also been pronounced dead by many economists, including the Nobel Laureate <a href="https://www.theguardian.com/business/2019/may/30/neoliberalism-must-be-pronouced-dead-and-buried-where-next" target="_blank" rel="noopener noreferrer">Joseph Stiglitz</a>.
<blockquote>The economic fallout of this pandemic can’t be solved through any individual choices or actions or a ready-made market solution.</blockquote>
The economic fallout of this pandemic can’t be solved through any individual choices or actions or a ready-made market solution. We need to ask bigger questions around why people are vulnerable to economic shocks in the first place and the role of the financial system in addressing this vulnerability. How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances? What would make people resilient and how should the financial system be set up to improve resilience and well-being for the BOP? There is really no amount of planning and sound financial management that would be sufficient under these circumstances. For systemic shocks like COVID-19, we need other research tools and a different body of evidence.
<h2>Creating Financial Protections for the BOP</h2>
We should be thinking about the systems that undergird the financial system and how to use it to create financial protections for the BOP. There are at least three priorities that COVID-19 has revealed for the inclusive finance field. I argue that these should be elevated in our collective research and evidence-gathering agendas.
<h3>1. Strengthening the ability to distribute payments</h3>
If nothing else, this pandemic has made it clear that countries with robust digital payment infrastructures can quickly get money out to people who are most in need. It is heartening that countries like <a href="https://www.ft.com/content/adc604f6-7999-11ea-bd25-7fd923850377?accessToken=zwAAAXF1NqZAkdOtxgT2eZkR6tO9JX_ZI4UDdw.MEYCIQCq8LPiLCFzDU973kkOf7P9UFkYEYGATGjkdNeE4ORSaAIhAMR64HuZniONRGR2qjVaFlZm78iaJRht2C1EKlVruFsQ&amp;sharetype=gift?token=5f6d3c51-58ac-46c1-a629-fc74a677c3b2" target="_blank" rel="noopener noreferrer">Togo</a> are taking action to get money into people’s hands using digital payments. Pakistan’s <a href="https://nation.com.pk/09-Apr-2020/payments-under-ehsaas-emergency-cash-programme-started" target="_blank" rel="noopener noreferrer">Ehsaas Emergency Cash Transfer Program</a> is able to disburse to over 12 million families hardest hit by COVID-19. <a href="https://centerforfinancialinclusion.org/mobile-money-in-times-of-crisis-an-unlikely-hero/" target="_blank" rel="noopener noreferrer">Jordan has taken impressive steps </a>to expedite reforming electronic customer due diligence, expanding the cash in cash out (CICO) networks and other reforms to use a digital channel to disburse aid. These cash transfers are not only a critical lifeline for those most impacted by COVID-19, they also serve as a demonstration of the importance of the financial system for crisis response and for economic recovery. The challenge will be for those countries that do not yet have robust digital infrastructures or where there are still many limitations to getting certain groups -- like women or the elderly -- to engage with these digital channels. The inclusive finance community should focus its problem-solving skills on answering:
<ul>
 	<li>What will it take to extend digital infrastructure quickly? How can donors and investors partner with policymakers to make this a priority?</li>
 	<li>What are quickly scalable, second-best solutions for cash distribution in markets without digital infrastructure? Can MFIs, postal networks, and other community groups serve this last mile distribution?</li>
</ul>
<h3>2. Improving financial protection through “safety net-like” insurance</h3>
Prior to COVID-19, the role of insurance in the inclusive finance field was perceived as good to have or a problem of the health sector, but not the primary focus of our field. The challenge of commercializing micro-insurance was the main obstacle limiting progress. COVID-19 reveals the clear inadequacy of our solution set to date. The concept of employer-backed private insurance in situations where millions of employees are losing their jobs (an estimated <a href="https://www.epi.org/blog/3-5-million-workers-likely-lost-their-employer-provided-health-insurance-in-the-past-two-weeks/" target="_blank" rel="noopener noreferrer">3.5 million in the US alone</a>) is fundamentally flawed; and this has always been the case in developing countries where the vast majority of the BOP has never had a formal employer in the first place, let alone employee-backed private insurance. We must start to see universal health insurance as part of the solution set for inclusive finance. And beyond health insurance, we should be looking for public-private solutions for other types of protections like unemployment insurance or disaster insurance. The inclusive finance community should be focusing on answering:
<ul>
 	<li>What are the private-public models that can be deployed to scale micro-insurance?</li>
 	<li>What are other ways we can reimagine safety nets to leverage private-sector insurers and balance the costs for policymakers and employers?</li>
</ul>
<h3>3. Linking food producers to the financial system</h3>
In <a href="https://larepublica-pe.cdn.ampproject.org/c/s/larepublica.pe/economia/2020/04/09/atender-la-emergencia-en-lo-rural-por-carolina-trivelli/?outputType=amp" target="_blank" rel="noopener noreferrer">La Republica</a> (in Spanish), Carolina Trivelli sounds the alarm bells on food security in Peru. Immediate demand reductions on one side of the value chain are having longer term effects on small producers who are at risk of not getting the seeds, fertilizer and other inputs they need to plant for the next season. A different but also compelling call to action comes from Maha Agriculture Public Co., Ltd., in Myanmar. In an effort to limit the spread of the virus, government policy is <a href="https://centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis/" target="_blank" rel="noopener noreferrer">inadvertently shutting down the financial services providers</a> who are financing critical food production cycles. Maintaining the flow of capital to farmers, regardless of the pandemic, is paramount for all of us if we want to see food at the grocery store in six months and not allow the effects of the pandemic to include food shortages and starvation. The questions that are priority for our collective attention include:
<ul>
 	<li>How can we ensure that money is flowing to food producers? How can we expand work on value chain finance in critical food commodity value chains? Is there specific data that can increase investment to value chain finance? Are there important actors, like buyers or distributors, with whom our community needs to engage?</li>
 	<li>What would it take to support the FSPs that serve agricultural producers? How can we ensure the business continuity of agricultural cooperatives or other financial service providers that serve the agricultural sector?</li>
</ul>
The complexity and gravity of the impact of COVID-19 are demanding that we not only respond immediately, but also reflect deeply on what we prioritize as a community in the future. Do you agree with the ideas put forward here? Let us know what you think.

COVID-19 Reveals the Limits of Individual Action and Market-Based Solutions

Health Insurance

Insurance

Policy, Regulation and Government Initiatives

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

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

North America

United States

Financial Inclusion Week 2019

Financial Capability

Personal Financial Management

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

Financial Well-Being: How Does Australia Measure Up?

Australia

Canada

Europe and Central Asia

Ireland

New Zealand

Norway

As I walked through Alaba International and Idumota markets on a recent trip to Lagos, I was in awe of the bustling scene. Not even the rainy season’s torrential downpours could silence the Afrobeat music thumping in the background as buyers and sellers jockeyed for a better deal. Alaba International and Idumota markets reign supreme in Lagos, offering all the goods one can imagine. Alaba International, on the southeastern edge of the city, bursts at the seams with satellite dishes imported from China, secondhand PlayStations shipped in from the UK, and other electronics. Idumota buzzes on Lagos Island, just south of the city center, and is a shopper’s delight replete with wax print hauled over from Ghana, locally produced Nollywood movies, and so much more.

Amidst the action in the markets, I interviewed 22 small business owners who are clients of <a href="https://www.accionmfb.com/">Accion Microfinance Bank</a> (AMfB) to learn more about their financial health and capability. This research will guide us as we develop a framework to help micro, small, and medium enterprises (MSMEs) better understand and achieve financial health. The framework is part of a project we’re undertaking with the support of the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the <a href="https://www.centerforfinancialinclusion.org/what-financial-health-means-for-small-business-owners">financial health and resilience of individuals and businesses</a> around the globe.

Through my conversations with business owners, I learned about what owners viewed as determinants of their success. We hypothesized that MSME financial health rests on three pillars — earning a profit, having access to capital to seize opportunities, and being resilient to economic shocks. The interviews suggest that our framework is on the right track. For instance, limited and slow access to working capital was commonly cited as a barrier to taking advantage of fleeting business opportunities. We also learned that resilience is not as much about cash-on-hand as it is about being able to quickly shift to other income-generating activities to fill an immediate need.

But arguably, the most eye-opening thing I learned from these interviews had to do with financial capability and the path to entrepreneurship, specifically how owners were able to get the know-how and capital to start their businesses. I had assumed that a commercial bank or <a href="http://www.iosrjournals.org/iosr-jbm/papers/Vol17-issue6/Version-2/J017626267.pdf"><em>esusu</em></a> — a rotating savings and credit association common in Nigeria — were the first two places that a budding entrepreneur would turn to raise seed funding. However, nearly all the merchants and traders I spoke with started their business with a lump sum they earned after spending several years as apprentices in their trade. This practice is part of the centuries-old Igbo apprenticeship model, <a href="https://pdfs.semanticscholar.org/c77a/7e79ec3fb7ce5c9eccdc72d181205251dfb2.pdf"><em>Imu-Ahia</em></a>.

The roots of Imu-Ahia date back to the European colonial era when the Igbo ethnic group native to southeastern Nigeria started to gain a reputation as highly-skilled traders and merchants. Today, the apprenticeship model has been widely adopted across the country. Most apprentices-to-be meet their “boss” — someone who is already well-established in a trade — through a family member or close contact. Reasons abound for why one might become an apprentice. Several entrepreneurs I spoke with decided at a young age that they wanted to be masters of a trade, so becoming an apprentice was always part of their plan. Others became an apprentice as a last resort, often after financial constraints forced them to put off academic or other pursuits.

During their tenure, which can range anywhere between three and seven years, apprentices observe and take notes on the tricks of the trade. They are assigned a variety of responsibilities, and eventually, they’re charged with promoting sales and store management. Although most apprentices aren’t paid, they are afforded accommodation, transportation costs, food, and clothing. Once the agreement — which can be either informal or formal — has been fulfilled, the newly anointed entrepreneurs are provided a lump sum to help them start their shop. One interviewee — a vendor of computer and phone accessories — was compensated with N800,000, the equivalent of approximately US$2,200, after spending five years as an apprentice. This is a decent payout considering he currently spends N350,000 (US $970) a year to rent his shop.

So what exactly does <em>Imu-Ahia</em> tell us about how these entrepreneurs perceive the determinants of their success? Many interviewees captured it perfectly when they shared advice for aspiring entrepreneurs: one must meticulously study and practice the skills needed to run a business before diving into it.

This advice resonates with our team at CFI because it positions financial capability — the knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions — as <a href="https://www.centerforfinancialinclusion.org/four-reasons-focusing-on-financial-capability-is-good-business">an essential contributor to business success</a>. The apprenticeship model serves as a learning and testing ground for those who are set on eventually running their own shop, much in the <a href="https://guardian.ng/technology/apprenticeship-and-mentorship-the-key-to-technology-talent-development/">same way</a> that the modern-day business incubator serves as a testing ground for startups. By the time individuals “graduate” from the apprenticeship model, they will have developed the knowledge and skills to manage business revenues and expenses. They also have plans to take advantage of investment opportunities and experience observing how businesses respond to the ups and downs of the market.

I only interviewed former apprentices who found success in the business world, so there’s still more to learn. We need to do more to understand the relationship between financial capability and business outcomes, especially business failures. Nevertheless, these qualitative findings echo the findings of other research. The <a href="https://www.nber.org/chapters/c8222.pdf">National Bureau of Economic Research</a> conducted a fascinating study that showed the differences in the psychological profile of wage workers, own-account workers, and small and medium enterprise (SME) owners. It found that “ability, motivation, and a competitive attitude are very important in differentiating SME and microenterprise owners.” The World Bank launched a project to measure <a href="http://documents.worldbank.org/curated/en/884291527663849364/pdf/126687-18-6-2018-9-32-12-InvestigatingSMEFinancialCapabilitiesFINALWEB.pdf">financial capability of SMEs</a>. Their analysis showed a positive correlation between financial capability and a firm’s size and level of sales.

The striking thing about what we learned in Lagos is not so much that financial capability contributes to business success, it is how, in the Nigerian system such capability is learned: over a period of years, through experience, and under the watchful eye of a knowledgeable mentor.

Keep reading the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a>, where we’ll share future findings as we conduct surveys around the world on MSME financial health!

What an Apprenticeship System May Reveal About the Financial Health of Small Business Owners in Nigeria

Mastercard Center for Inclusive Growth

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi

Managing Director

Julia Arnold

Madeleine Longwell

Machal Karim

Eda Dokle

Lauren  Rosenbaum

Vinita Godinho

Jacqueline Foelster

Elisabeth Rhyne

Paul DiLeo

Greta Bull

Sonja Kelly

Evelyn Stark

Brigitta Nyawira

Zambia

Kenya

Social Performance

Governance

Access Usage Gap

Mobile Banking

Saving

Trends

Telcos

Report

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

This year’s Financial Inclusion Week is a chance for our industry to reflect on the purpose and impacts of our work as an industry. At CFI, we're observing trends that make us believe this an important time to reflect on these issues, which is why we’ve chosen the theme “Financial Inclusion: For What?”.

As we described throughout our <a href="https://www.centerforfinancialinclusion.org/program_teams/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion</a> series, the digital revolution is fundamentally altering how traditional financial service providers and innovative fintechs interact with each other and how they recruit, onboard, serve, and retain customers. The potential opportunities are limitless, but the move to digital also exposes low-income households to new and poorly understood risks.

Simultaneously, the scope of the financial inclusion industry has widened dramatically. Attention and investment once given almost entirely to microcredit is now being shared with cash transfer, savings, and insurance services, and these products are being offered through increasingly dynamic platforms. When used well, the financial ecosystem can be staggeringly important, delivering digital payments to health workers combating Ebola, facilitating life-saving G2P and P2P cash transfers, or providing working capital to small businesses at critical moments. When it works less well, we read about Kenyans racking up unpaid gambling debts financed through mobile money-delivered nano loans.

Financial Inclusion Week is an opportunity to explore this dynamism while reflecting and refocusing our goals as an industry. Why are those of us in this space engaging in this important work? How do our goals inform our perspective on these and other trends? What does it mean if we’re working to different or competing aims? How should we think about success, and what is necessary to ensure we achieve it?
<blockquote>During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus.</blockquote>
From October 21 to 25, 2019, CFI and partner institutions will be hosting digital and in-person events to explore these questions, and we invite you to <a href="http://financialinclusionweek.org/get-involved">join the conversation</a>. During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus. We’ll ask leading voices in the industry to debate the merits of these questions and articulate why these objectives should or shouldn’t be the guiding light of the industry.

Financial Inclusion: For What?

When we ask about a household’s financial health, we want to know whether the family is currently managing well and on a positive track for the future. The concept revolves around three core elements: well-functioning day-to-day systems, resilience (the ability to weather shocks), and the pursuit of longer term goals.

CFI and many others in the financial inclusion space have been seeking fast, reliable and convenient ways to measure financial health. Measurement matters because it opens the door to diagnosis of financial problems and points the way toward financial fitness. It matters to policy makers who need to understand major economic and social forces creating or eroding financial health, to financial service providers as they craft products, and to individuals for whom financial health is a continual quest.

So far, our conversations about financial health have focused on individuals and households, and we now have a number of measurement frameworks available, such as CFSI’s eight-indicator “<a href="https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/01/28024714/Eight-Ways-to-Measure-Financial-Health_Exec.-Summary.pdf">Spend, Save, Borrow, Plan</a>”  for the U.S., or the <a href="https://www.centerforfinancialinclusion.org/beyond-financial-inclusion-financial-health-as-a-global-framework">six indicators</a> CFI developed with CFSI and Dalberg to adapt the concept to the developing world.

A few people have begun looking at a new question: What does financial health mean for small businesses? They have begun to develop frameworks for business which are quite similar to those developed for individuals. For example, both contain indicators on timely payment of financial obligations, manageable debt burdens, and forward planning. This should come as no surprise, because implicit in the financial health concept is the question of whether an economic entity has “healthy” income and cash flow statements and a sound balance sheet. In essence, the frameworks for assessing financial health for any economic entity highlight selected financial statement indicators that correspond to the concepts of daily systems, resilience and pursuit of goals.

But what if the person, family and small business function as a single economic entity, as is true for many of those Accion and the financial inclusion sector serve? Among the millions of micro-entrepreneurs around the world, family and business can be nearly indistinguishable. A shopkeeper employs her teenagers to work behind the counter, where they do their homework between customers; a farmer divides his crop between commercial sales and the family table. In a more developed economy, such as the U.S., the entities are more likely to be distinct, but even so, transactions between them can be very significant, as anyone knows who has calculated the percentage of their home or automobile used for a business on their tax return.

Some of these interactions contribute to financial health, while others detract. Either way, it is likely that the interactions have an outsize influence on financial health, such that looking at the financial health of the household without understanding the financial health of the business (or vice versa) will not yield an accurate picture of either.

Our next challenge is to figure out how to measure financial health of the combined entity, while taking these interactions into account. Believing that it is important for business success to secure the personal financial health of the business owner, <a href="https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2018/07/18202224/CFSI_JPMC_Report_CP.pdf">CFSI has begun</a> to examine these interactions in the U.S.

Let’s look at the ways business and household may connect:
<ul>
 	<li>Personal investment to start the business. In the U.S., as elsewhere, personal savings are overwhelmingly the main source of start-up capital. (Household contributes to business.)Business net worth is a major asset for the owner. (Business contributes to household.)</li>
 	<li>Business pays “salary” of owner. (Business contributes to household.)</li>
 	<li>Family members work in the business. (Contributions go both ways if family members are paid.)</li>
 	<li>Savings from the business can be used to cover household emergencies – and vice versa. (Contributions could go either way.)</li>
 	<li>Business supplies household benefits, or relies on household for benefits, including health insurance, pension, etc. (Contributions could go either way.)</li>
</ul>
Many of these interactions could be considered healthy, while others are less so. For example, risks for small business owners are seriously concentrated when both capital investment and daily income depend on the same business. No wonder people often prefer salaried employment! As another example, use of family savings to cover business emergency expenses may be a warning sign of financial stress – even though it could also be a smart coping mechanism.

These are lines of inquiry CFI’s research will investigate, thanks to support from the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a>. In the context of low income business owners, especially in developing countries, there are some factors that require special attention. They include income volatility, a low absolute level of income or profit, and the existence of multiple income sources in the household. Seeking to define a measurement framework that adequately incorporates the business-household nexus, we will conduct primary research in a couple of countries during the next six months without becoming unwieldy.

Over the years, microlenders have long recognized the interdependence of business and household, and financial educators have given out a lot of advice about separating household and business finances, but there have been few attempts to look specifically at these connections. With this research, we will gain deeper insight into how business-family interdependence shapes the prospects of the business and the well-being of the people who depend on it.

What Financial Health Means for Small Business Owners

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" /><em>The following is part of an Africa Board Fellowship </em><a href="/series/abf-spotlight/">blog series</a><em> spotlighting the experiences of participants and reflections from industry experts.</em>

In the previous blog in this series, we reframed external challenges as a “normal” part of doing business for financial service providers (FSPs) targeting the base of the pyramid. And based on insights from Africa Board Fellows, we looked at <a href="http://cfi-blog.org/2018/08/09/navigating-challenges-is-what-boards-are-all-about-part-1-anticipating-challenges/">specific ways board members can anticipate and even shape the challenging aspects of their operating environment</a>. However, while most boards have more potential for external influence than they often exercise, there are always external factors that cannot be controlled. Boards must also continually focus on reducing the FSP’s vulnerability and enhancing its resilience<img class=" wp-image-25794 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/31479737602_1ed7a2ba32_k.jpg" alt="31479737602_1ed7a2ba32_k" width="638" height="93" />
<h2>Reducing Vulnerability</h2>
Beyond external awareness and efforts to shape the operating environment, boards can direct their institutions to take internal steps to minimize exposure to external shocks and increase the FSP’s ability to withstand changes in the operating environment. These steps aim to secure adequate financial cushions and human resources to cope with shocks.
<ul>
 	<li><strong>Strategic Planning</strong>: As part of strategic planning<strong>, </strong>the board should review external factors, including client demand, current and future market penetration of its own institution and competitors, and market saturation by area. The strategic plan should include multiple scenarios (e.g., conservative, base case, and optimistic) as well as short, medium and long-term targets. The plan should be reviewed and revised on a regular basis.</li>
 	<li><strong>Capital Adequacy</strong>: Board members bear ultimate responsibility for ensuring that the institution’s capital and liquidity are adequate to surmount whatever disruptions can reasonably be anticipated, and – just as important – ensuring that management takes quick action to cut costs if capital starts eroding. Improvement in the economic environment is often just around the corner, but it can remain around the corner just long enough for the institution to become insolvent and fail. For regulated institutions, regulators set minimum capital adequacy and liquidity ratios, but this does not absolve directors from the responsibility to determine whether additional capital and liquidity would be prudent. Directors can work with management to evaluate how capital and liquidity will be affected in various scenarios.</li>
 	<li><strong>Asset–Liability Management</strong>: Like any financial institution, FSPs are exposed to balance sheet mismatches, such as currency mismatches when borrowing in dollars or euros. While avoiding hard currency loans may not always be feasible, CEOs and board members should scrutinize foreign currency exposure carefully and limit it to levels that the institution can absorb if currency devaluation does occur. To prepare for currency fluctuations, Vision Fund Zambia’s board instituted a policy against foreign currency denominated borrowing, as CEO Nkosilathi Moyo describes in <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">this interview</a>. Passing foreign exchange risk on to clients by denominating loans in foreign currency is usually not an effective risk management technique, as most clients are even less able to absorb such risk than the FSP lender.</li>
 	<li><strong>Staff Training and Incentives</strong>: As part of their fundamental responsibility for the viability of their institution, directors must closely scrutinize how management proposes to train and incentivize staff to ensure that they support strong operational procedures that appropriately retain and encourage staff. Staff knowledge and loyalty can be essential in a crisis situation.</li>
</ul>
<h2>Enhancing Resilience</h2>
[caption id="attachment_25799" align="alignright" width="226"]<img class="alignnone size-full wp-image-25799" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/paul-dileo.jpg" alt="Paul DiLeo" width="226" height="250" /> Paul DiLeo[/caption]

Inevitably, with all the best efforts and preparation, some external events cannot be avoided. But this doesn’t mean they cannot be planned for, even if they may take very different forms. Boards can be better prepared to recover from shocks if they take the following steps:
<ul>
 	<li><strong>Board Composition and Training</strong>: Board self-evaluations should be performed on at least an annual basis to ensure the right skills are represented and to identify gaps. Any areas of improvement should be addressed by training, bringing in experts, and field visits to other institutions that have successfully dealt with relevant challenges and opportunities. Proactively taking these steps can help directors be more prepared for the unexpected.</li>
 	<li><strong>Executive Committee of the Board</strong>: The ability to act quickly can be crucial to responding successfully to external shocks. Many boards have directors in far-flung locations, and it may be hard to assemble a quorum. Even when formal decisions are not required, the CEO and senior management will benefit from the counsel and insights of board members. Many boards designate a small executive committee, usually drawn from in-country directors, authorized to take decisions and provide counsel to management between meetings of the full board.\</li>
 	<li><strong>Disaster Planning and Recovery</strong>: Board directors should ensure that contingency plans addressing a variety of common challenges are prepared and kept up to date. These will cover matters ranging from “phone trees” indicating who calls who to confirm staff safety and whereabouts in the event of a natural disaster or security threat, to secure offsite data backup and recovery to succession planning in the event of loss of a key manager. As Resi Janssen of FFSL South Sudan <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen_fssl.pdf">notes</a>, the first priority in a serious crisis is to ensure that staff are safe.</li>
</ul>
FSPs operate in dynamic environments where challenges and opportunities are constantly changing. Board directors with a good understanding of the institution’s strengths and weaknesses and a grasp on the operating environment play a crucial role in helping shape the environment over the medium term, and ensuring that the FSP and its management are resilient and prepared.

<strong>CFI is currently recruiting fellows for the next cohort of the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.</strong>

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&nbsp;

Navigating Challenges Is What Boards Are All About – Part 2: Vulnerability and Resilience

<em>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.</em>

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

&nbsp;

But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

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Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

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.

<i>This post originally appeared on the <a href="https://nextbillion.net/does-greater-inclusion-lead-to-financial-health/">NextBillion Blog</a> and is re-posted here with permission.
</i>
What conditions create physical health? We know more now than we ever have—working out, eating lots of vegetables and limiting alcohol intake seem to be healthy decisions. But there is no one agreed-upon set of conditions for physical health and wellness. Rather, there is a body of literature that provides clues about different aspects of health. For instance, nutrition literature makes it clear that broccoli is a better food choice than bacon, and data shows us that doing yoga is healthier than watching TV.

In the same way, the new <a href="http://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener">Gallup Global Financial Health Study</a> gives us additional language and data to understand more about what drives different aspects of financial health. No single perspective on financial health constitutes a definitive “theory of everything,” but the new Gallup data contributes significantly to our understanding of how to make financial inclusion work for customers. This dataset comes at the perfect time—right on the heels of the <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener">Global Findex</a> launch—and with it, we can start to ask ourselves with humility if financial inclusion is leading to financial health.
<h3>An Unprecedented Look at Personal Finance</h3>
First, some background about the Gallup survey. The financial inclusion field has benefited greatly from excellent surveying and reporting, from <a href="http://financialdiaries.com/about" target="_blank" rel="noopener">financial diaries projects</a> in <a href="http://www.usfinancialdiaries.org/about/" target="_blank" rel="noopener">multiple countries</a> to huge global databases such as the World Bank’s Global Financial Index, or Findex, which gathers and analyzes sex- and age-disaggregated data on account ownership, transaction patterns, account dormancy and much more. MetLife Foundation, in partnership with Rockefeller Philanthropy Advisors, wanted to know even more: the first-hand perspectives of individuals’ financial situations as they experience them.

So MetLife Foundation partnered with Gallup, one of the global leaders in polling and surveys, to get a deeper understanding on several points: how financially secure people are (or are not), the predictors of financial insecurity, and the degree to which people perceive that they have control over their financial lives. Gallup surveyed more than 15,000 people in 10 very different countries, across a range of economies, between January and March 2018 to take an unprecedented look at personal finance and how people perceive their situation.

To gauge <em>financial security</em>, the Gallup pollsters asked two simple questions: first, how long respondents could cover their basic needs (through savings or by selling assets) if they lost their income; and second, whether making repayments against debts does or does not make it difficult for them to pay for other things they need. We recognize of course that financial security is a complex and contextual phenomenon: A person with the same level of income and assets might be financially secure in one country but insecure in another, depending on available social protection safety net services and a host of other variables. Gallup chose those two simple but powerful questions in order to maintain comparability across 10 survey countries (Bangladesh, Chile, Colombia, Greece, Japan, Kenya, South Korea, United Kingdom, United States and Vietnam) that had been chosen for their diversity.

<em>Financial control</em> is the extent to which people perceive that they are in control of and can influence their financial situation. In the Gallup survey, financial control levels are measured as the percentage of respondents who gave a positive response to at least eight out of the 10 dimensions below.<strong> </strong>
<h3><b>Dimensions of Financial Control</b></h3>
<ol>
 	<li>Do you think that no matter what you do, your financial situation will stay the same?*</li>
 	<li>Do you think that you can overcome any financial problem that you might face?</li>
 	<li>When you spend money on something you don’t need, do you usually regret the decision later?*</li>
 	<li>Have you tried to save money in the past, but been unable to do so?*</li>
 	<li>Do you avoid thinking about how you are going to pay for things in the future?*</li>
 	<li>Do you think you will EVER be able to pay back all the money you owe?</li>
 	<li>Do you enjoy planning what you are going to do with your money in the future?</li>
 	<li>Are you satisfied with how much input you have in financial decisions in your household?</li>
 	<li>If you had a financial emergency today, such as a medical emergency, do you think you would be able to find the money to pay for it?</li>
 	<li>Do you have people in your life who can help you financially if you ever need it?</li>
</ol>
*Reverse-scored item.

Finally, to derive predictors of financial insecurity, the Gallup survey cross-tabulated self-reported financial insecurity with demographic data (age, sex, education level, marital status) and with the self-reported degree of perceived financial control to see what patterns might emerge. To dig into all of these indicators (and others), see the full dataset <a href="http://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener">here</a>.

In an initial analysis full of surprises, two of the biggest were these: The relationship between account ownership and perceived financial control is weak at best. (See Figure 1). And especially in the emerging markets—places where the financial inclusion community has focused the most attention—people’s access to financial services appears to have little correlation with financial security. (See Figure 2)

In Kenya, for example, 82 percent of people have an account, but only 9 percent are financially secure. And in Bangladesh, 50 percent of people are financially included (that is, have an account), but just 7 percent are financially secure. Even in the United States, which also spends significant philanthropic and government funds to increase financial health, only 33 percent are secure despite the fact that 93 percent have an account.

<em>Figure 1: Account Ownership and Perceived Financial Control</em>

<img class=" size-full wp-image-25662 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/figure-1-acct-ownership-and-percd-control.jpeg" alt="Graph of account ownership and perceieved financial control." width="720" height="540" />

<em>Figure 2: Account Ownership and Financial Security</em>

<img class=" size-full wp-image-25663 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/fig-2-account-ownership-and-financial-security.jpeg" alt="Graph of Account Ownership and Financial Security" width="720" height="540" />
<h4><span style="color: #ff6600"> </span></h4>
<h3>The Implications for the Financial Inclusion Agenda</h3>
So, does this mean we should give up on financial inclusion? No. This research is a point-in-time assessment and would benefit from being repeated across a wider set of countries and over a longer period, to see how trends in account ownership and financial control and security relate. In addition, account ownership does seem to make clients happy – in response to the survey’s question, “Overall, do you think that using the services of a bank or other financial institution improves your life?” most account owners (bank and mobile) responded positively. That might mean that they appreciate saving time by avoiding queuing to pay simple bills, or by sending or receiving money quickly to and from loved ones.

But though these benefits can be useful, they are not the ultimate goal of financial inclusion. Worse, these findings could also mean that it’s easier to borrow or spend for frivolous things or to lay bets on sports games, which would likely do little to increase feelings of control, and would certainly not boost financial security.

Further, financial inclusion has always been an overly simplistic term. Virtually all definitions of financial inclusion stress the importance of low-income people using a full suite of financial tools that enable them to manage daily cash flows, save and plan for the short and long term, take advantage of opportunities, and protect against risk. Inclusion and account ownership are just the tip of the spear and perhaps have been too much the focus in the field to date.

The balancing act in this field has always been between two related goals. On the one hand, there’s the need to identify the most efficient way to reach the largest possible number of low-income people. And on the other hand, there’s the need to make those products as useful and custom-tailored as possible, enabling clients to grow their businesses, improve their ability to send their children to school, obtain timely medical care, or otherwise respond effectively to their individual life circumstances.

Although much necessary work has been done to walk back the previous over-hyping of microcredit as a silver bullet for poverty alleviation, it seems unwise to over-correct and limit our focus to inclusion, without keeping in mind the intended outcomes. Perhaps it’s time for those of us working in this field to expand our views beyond basic financial tools and to expand or renew our focus on the quality of those tools and the outcomes they enable. Our current nomenclature is not clear or reflective of our shared goals.
<h3>What Comes Next?</h3>
MetLife Foundation requested that Gallup make the dataset publicly available. Gallup has enthusiastically encouraged researchers to use the data and share the results. The Center for Financial Inclusion team is planning to dig through these 15,000 survey responses and produce a brief later this summer, to highlight what the data says about the relationship between financial services use, attitudes toward these services, and financial health. For this deep dive, the subjective nature of the survey—which focuses on perceptions rather than empirical data—presents challenges but also an opportunity to understand the client perspective.

For MetLife Foundation, we want to make sure that our efforts remain ultimately focused on the point of it all: building the capacity of more people around the world to live financially healthy lives. As with physical health, the thinking about financial health is evolving: Different ideas and assumptions from our field will certainly join the food pyramid and other examples of discarded conventional wisdom in the archives of outdated theories. Our job is to continue learning and supporting others to keep doing their best work, too.

This data on financial control and security offers the industry one lens into financial health and wellness—in the same way the Apple Watch might provide a different behavioral nudge toward fitness than the Fitbit or Garmin. With all of these different approaches, we can build an inclusive world that works better to enable positive financial outcomes for end-users. We’re excited to see how this data adds to and catalyzes this conversation on financial health, and we look forward to seeing where these new observations take our industry.

Download the Gallup dataset <a href="http://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener">here</a>.

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Does Greater Inclusion Lead to Financial Health? New Research Raises Pointed Questions for the Industry

The World Bank's Global Findex is the most comprehensive database on how people access and use financial services in 150 countries across the world. In <em>Financial Inclusion Hype vs. Reality</em>, we examine the Findex data from our own perspective, seeking to deconstruct what it's telling us about financial inclusion progress.

This report spotlights key financial inclusion indicators, including account usage, borrowing, saving and resilience, among others, and takes an in-depth look at six countries that help tell the story of financial inclusion progress around the world. In short, we find that after correcting for account dormancy in developing countries, account growth has slowed, the access-usage gap is widening, credit is flat and savings is declining. A bright spot, however, is the proliferation in the use of digital payments.

The Findex analysis is sobering, but financial inclusion, while further away than expected, is still an achievable goal. We hope the financial inclusion community will use the 2017 Findex results to reconsider how financial inclusion initiatives are affecting usage, products and financial well-being, and to re-engage with eyes wide open as we continue pursuing the important tasks at hand.

Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results

Together, the mobile industry and the financial services community have the power, and the opportunity, to put billions of people on the path to financial inclusion. Steve Polsky of Juvo talks here about getting the the <em>how</em>, the <em>why </em>and the <em>when</em> in place.

&gt; Posted by Steve Polsky, Founder and CEO, Juvo

[caption id="attachment_24443" align="alignright" width="490"]<img class="wp-image-24443 size-large" title="Juvo" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/juvo-be-bold-for-change.png?w=490" alt="Juvo Be Bold for Change Report Cover" width="490" height="276" /> During the Mobile World Congress Americas in September 2017, Juvo held its inaugural Be Bold for a Change event with mobile and fintech leaders in San Francisco. Photo credit: Juvo[/caption]

Thanks to World Bank, we all know the numbers: two billion unbanked people around the world, excluded from formal financial services. Thanks to the United Nations, we have a global rallying cry with the Sustainable Development Goal and that financial inclusion is the enabler for seven of the 17 Sustainable Development Goals. And thanks to the Center for Financial Inclusion at Accion’s initiative <a href="http://financialinclusionweek.org/">Financial Inclusion Week</a>, we also know that dozens of companies are committed to improving the lives of billions of people around the world.

But in the same way that no man (or company) is an island, no single industry can financially include billions of people. Financial institutions have the technology and services to change the way people borrow, save, insure, send and lend money in emerging markets; however, even an industry of the scale of the financial system doesn’t have the reach to change the world as quickly as the UN Sustainable Development Goals demand.

The only industry with that reach is the mobile industry. And as mobile operators around the world begin to embrace the maxim “doing good is good for business,” likewise they’re becoming cognizant that while they may have the reach, they may not have the technology and services to drive sustainable financial inclusion.



In September, <a href="https://juvo.com/">Juvo</a>, redoubled its efforts to bring mobile and fintech together for good. We held our inaugural event:  Be Bold for A Change  focused on <em>How Fintech and Mobile Can Deliver Financial Inclusion for All</em>. I joined  <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.linkedin.com%2Fin%2Fronsuber%2F">Ron Suber</a>, the “Mayor of Fintech”, <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.linkedin.com%2Fin%2Fjamesmcelvanna%2F">James McElvanna,</a> VP of Product at Cable &amp; Wireless  and Chris Berry, co-author of McKinsey’s<a href="https://medium.com/r/?url=https%3A%2F%2Fwww.mckinsey.com%2Fglobal-themes%2Femployment-and-growth%2Fhow-digital-finance-could-boost-growth-in-emerging-economies"> Digital finance for all: Powering inclusive growth in emerging economies</a>  to discuss how, why and when telcos and financial services companies should work together. Three things shone through:
<h3><strong>1) The How: Meeting Customers Where They Are</strong></h3>
Around 80 percent of all mobile users globally use prepaid services. At the same time, only one in 10 unbanked people with a mobile phone are using mobile money services.

One of the biggest obstacles to financial inclusion is building trust with the customer. Some individuals don’t understand or trust financial products. They need education that puts mobile services into context and explain how they work. This is best achieved with a stepping stone approach, something we are doing with Cable &amp; Wireless in the Caribbean.

James McElvanna explained that a few years ago, Cable &amp; Wireless decided it wanted to build a better picture of these customers. James and his colleagues started by “meeting customers where they are” with tangible benefits, like helping when they’ve run out of airtime. In that moment, extending a small airtime credit loan, with zero fees and interest, helps the customer fix an immediate problem. It lays the foundation for a trusting relationship, which is deepened as more loans are taken and repaid.

And it’s the start of a new story, the creation of a credit history. In a short time, Cable &amp; Wireless and Juvo can build financial identities for financially excluded customers. Starting with simple credit extensions, we can understand which customers will make reliable clients for more sophisticated financial services offered by financial institutions. And, critically, it can take them on that journey leveraging the trust they’ve built together.
<h3><strong>2) The Why: Enabling Financial Resilience</strong></h3>
[caption id="attachment_24445" align="alignright" width="273"]<img class=" wp-image-24445" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/juvo-hurricane-levels.jpg" alt="Hurricane storm surge elevations pole" width="273" height="416" /> Hurricane Irma made landfall in Anguilla as a Category 5 hurricane on September 5, 2017.<br />Photo credit: Mr.TinDC (CC BY-NC-ND 2.0)[/caption]

Financial resilience helps<strong> </strong>people meet unexpected financial demands and mitigate financial shocks. It’s one important difference between the haves and the have nots. With access to more sophisticated financial services, the unbanked can build this resilience — securely saving, with the ability to move money and have access to credit when it’s needed.

Mobile operators provide the channel to reach these individuals when more traditional communication channels are unavailable. For example, during Hurricane Irma, Cable &amp; Wireless provided access to airtime loans via mobile to allow their customers to stay connected when catastrophe struck. Getting service — for up to a month of data and voice usage — was frictionless. Users didn’t have to visit a retailer or an agent, which would have been difficult or impossible at the time. As a result, borrowing spiked significantly and customers experienced resilience.

This is just the start. With a financial identity and a convenient channel that works in even the most dire circumstances, the opportunity to support financial resilience is a giant leap towards financial inclusion.
<h3><strong>3) The When: The Time Is Right Now</strong></h3>
Ron Suber pointed<strong> </strong>to<strong> </strong>the 50-year innovation cycle, an interesting concept that has been observed for TV, cars, radio and now mobile devices. Fintech started in 1998 with PayPal. A decade ago, companies like Lending Club and Prosper gave people reasons to borrow and lend online. We’re now 17 years into the fintech innovation cycle, and we’re heading into the <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.crowdfundinsider.com%2F2017%2F10%2F123244-ron-suber-golden-age-fintech%2F">“golden years.”</a> Banks, fintechs and telcos are all figuring out how to more effectively engage with customers–for growth, retention, higher customer lifetime value and social good. The major opportunity, Ron believes, is that fintech can provide access to sophisticated banking services for the underbanked with convenience, and at a far lower cost.

Incumbents are now partnering with tech companies in this new era because of global needs. Ron predicts that a whole new group of companies passionately focused on financial inclusion will emerge in the near future, some with the capability to bridge industries and make them more than the sum of their parts. This, he argues, could not have happened three, five or 10 years ago. It’s a unique moment in time — a moment when industries can come together like never before.

[caption id="attachment_24447" align="aligncenter" width="490"]<img class="size-large wp-image-24447" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/juvo-steve-ron-james.jpg?w=490" alt="Steve Polsky, Ron Suber, James McElvanna at Be Bold for Change 2017." width="490" height="326" /> Steve Polsky, Ron Suber, James McElvanna at Be Bold for Change 2017. Photo credit: Juvo[/caption]

The mobile industry has demonstrated the reach to change the lives of billions of people around the world. But it’s only by working with the financial services community that the industry can contribute to achievement of UN’s Sustainable Development Goals through financial inclusion. Our two industries have the power, and the opportunity, to put billions of people on the path to financial inclusion. With the <em>how</em>, the <em>why </em>and the <em>when</em> in place, it’s time to be <strong>bold for change</strong>.

<em>Juvo is a San Francisco-based fintech company working to enable hundreds of millions of consumers around the world to build financial identities, starting with their everyday use of their prepaid mobile phone. Republished with permission.
</em>

A Team Sport — Three Reasons Why Mobile Telcos and Financial Institutions Will Drive Financial Inclusion Together

<em>This post originally appeared on the <a href="http://www.ifmr.co.in/blog/2017/09/19/the-nature-of-financial-advice-for-low-income-households/?utm_source=feedburner&amp;utm_medium=email&amp;utm_campaign=Feed%3A+ifmr+%28IFMR+Blog%29">IFMR Trust Blog</a> and is re-posted with permission.</em>

By <a href="http://www.ifmr.co.in/about-us/management/bindu-ananth/">Bindu Ananth</a>

I was at an excellent <a href="http://financelawpolicy.umich.edu/behavioral-finance-symposium/">behavioral finance conference</a> organized by the Michigan University’s Centre on Finance, Law &amp; Policy last week. One of the panels on investor protection debated issues including the impacts of disclosures, choice architecture and social norms marketing on investor behavior. There was also an interesting discussion on role of advice and advisors in de-biasing investors or exacerbating weaknesses.

In the audience Q &amp; A, in response to a question on the role of financial advice for low-income investors, one of the panelists responded that failures in the market for advice were less of an issue here since by and large, the right answer in most cases is just “save more for the future.” I found myself disagreeing with this notion strongly and one more reminder that the field of household finance has failed to examine the financial lives of low-income families in sufficient detail. In this post, I attempt to share from our KGFS work what are some of the other important aspects where advice seems to matter.



One, given that human capital (NPV of net lifetime earnings) dominates financial capital (wealth) for a low-income household, all of the issues around protecting that human capital is critical because that might make the difference between bankruptcy &amp; resilience in the face of illness/accident/death. Most advice tends to focus on investments and the portfolio allocation question and surprisingly, pays little attention to insurance. <a href="http://www.cfapubs.org/doi/pdf/10.2470/rf.v2007.n1.4580">Ibbotson et al</a> (2007) provide a comprehensive framework to understand how human capital interacts with investment and insurance decisions. With limited resources, which members of the household should buy insurance? How much insurance should you buy? We find these are important aspects where households benefit from good advice. Specifically, insuring young, adult members of the household for the full value of their human capital is an important step. (One dilemma we faced was that a significant investment in increasing human capital that is made by households is higher education for children. The return to this investment depends greatly on the specific program and employability potential. We did not have the expertise to advise clients on this aspect but it feels like an area closely linked to the role of a financial advisor in this context)

Second, low-income households are typically saving and borrowing simultaneously despite a significant wedge between lending and savings rates (upwards of 20% most times). We don’t understand very well the determinants of this behavior. Clearly, it is not always the right answer to save. High rates of return on micro-enterprises have been <a href="http://www.edegan.com/pdfs/DeMel%20McKenzie%20Woodruff%20(2008)%20-%20Returns%20To%20Capital%20In%20Microenterprises%20Evidence%20From%20A%20Field%20Experiment.pdf">documented</a> by Christopher Woodruff and others. Often it makes sense for households, particularly with surplus labor to borrow to put together the initial capital required to undertake such enterprises. Similarly, households with low but stable cash-flows (the village municipal worker, for instance) may find it reasonable to borrow to build a house rather than wait to save up for the same. Working with the household to determine when to borrow and when to save and even combination strategies such as save for the down payment or borrow to save strategies could be very valuable interventions.

Third, the balance sheet of a low-income household has a combination of physical and financial assets. Physical assets such as land and gold dominate. On the liabilities side, there is a combination of formal and informal loans of different maturities. It requires serious skill to arrive at the APR of some informal loans! Which loans to refinance now that advances in financial inclusion are making formal credit more accessible? Which assets may be “dud assets” (ex: a piece of land that is not being cultivated) that could be sold to bring down debt burden? Which loans have a repayment structure that adds to the financial stress of the household? Working with the household to arrive at this comprehensive “balance sheet view” seems like an important role of an advisor.

Of course, there are significant challenges in converting advice into action and requires more careful work and business model experimentation. Equally, careful research and creating the building blocks for good advice for low-income households is also necessary and cannot be extensions of existing advice frameworks. The myth that these households have simple problems that require simple fixes &amp; simple products needs to be challenged by researchers and pioneering providers.

The Nature of Financial Advice for Low-income Households