For Financial Inclusion Week 2019, CFI sought out a small group of financial inclusion thought leaders to comment and take a position on this year’s theme, “Financial Inclusion: For What?” CFI Director of Communications Virginia Moore sat down with Bobbi Gray (Grameen Foundation), Till Bruett (DAI), and Shivani Siroya (Tala) to discuss the theme and evaluate our four proposed answers to it: financial health, sustainable development, equity, and the bottom line. They examine ways in which these answers complement or conflict with one another, and assess how the industry should measure its success, among other topics.

Financial Inclusion: For What? Podcast

Financial Inclusion Week 2019

Financial Health

Financial Technology

Payments

Saving

Underserved Groups

Women

Podcast

In the March 14 <a href="https://www.raconteur.net/finance/financial-inclusion-banked">piece</a>, Rhyne’s insights are part of a broad survey of the global financial inclusion landscape -- from barriers to financial inclusion in the developing world, to its benefits and the tools that are helping to integrate marginalized populations into the “financial mainstream.”
<p style="text-align: left;">“In the developing world there is an issue of absolute low incomes,” Rhyne said in the feature, which appeared in the <a href="https://www.raconteur.net/future-money-2019"><em>Future of Money</em></a>, a 20-page insert published in <a href="http://www.thetimes.co.uk">The Times (UK)</a> in association with <a href="https://europe.money2020.com/">Money 20/20</a>. “In regards to how much in deposits people would be providing, how large a credit they might want, these are below the threshold of feasibility for banks using traditional branch-based, teller-based models. So you couldn’t put a branch out in a rural area and expect it to be profitable.”</p>
Rhyne uses the example of hyperinflation in Latin America to illustrate why potential customers don't have bank accounts, and concludes the article by noting that digital payments “are going to be essential” over the next decade.

<a href="https://www.raconteur.net/">Raconteur</a> is a publisher of “special-interest content and research” whose special reports are inserted into the printed version of The Times (UK). Read the full article <a href="https://www.raconteur.net/finance/financial-inclusion-banked">here</a>.

Raconteur Features Elisabeth Rhyne in “Challenges in Banking the Unbanked”

Latin America and The Caribbean

Appropriate Product Design and Delivery

Consumer Protection

Credit

Digital Financial Services

Delivery Channels

Enabling Environment

Financial Inclusion Strategy

Fintechs

Financial Service Providers

Mobile Banking

News

A market trader in Ghana hands over part of her day’s earnings to a susu collector every day. In Tanzania, villagers hold weekly Vicoba gatherings to pool savings, receive loans and catch up with the other members of the group. Informal savings mechanisms (ISMs), such as savings groups and daily savings collection, have long been of interest to the financial inclusion community because they demonstrate high quality savings and borrowing behavior and they work for people who do not normally consider themselves "bankable." The digital services revolution offers a prospect of closing the gap between formal and informal alternatives, combining a richer and more robust service offering with a greater understanding of savers’ needs and preferences.

Documented challenges on proximity, cost of acquisition and practical delivery make the provision of a service that benefits both formal and informal actors difficult to achieve. But <a href="https://www.opml.co.uk/projects/savings-frontier">Savings at the Frontier</a> (SatF), a partnership between <a href="https://mastercardfdn.org/">Mastercard Foundation</a> and <a href="https://www.opml.co.uk/">Oxford Policy Management (OPM)</a>, has set its sights on this goal, and is working directly with FSPs to achieve it.

During the early stages of the program, we selected a set of partner FSPs with promising concepts and provided them with up to $100,000 in business plan development funding to flesh out their ideas using whatever mix of technical assistance, customer research, piloting, systems work or prototyping required.

Full proposals underwent a second selection round, with the approved finalists eligible for conditional funding of up to $1 million to implement their business models. To date, SatF has partnered with three institutions in Ghana (Access Bank, DSS and Interpay), four in Tanzania (Equity Bank, Maxcom, NMB and TPB Bank) and one in Zambia (M-Finance).
<h3>What We’ve Learned So Far</h3>
Contrary to some stereotypes about the willingness and ability of FSPs to meet the needs of customers, particularly those of low income savers or people outside their traditional customer base, we have been surprised and pleased at how far our partners’ thinking has already gone, in understanding what it takes to make products relevant to this customer segment, how that can translate into a long-term relationship with internal savings mechanisms and their members, and how much institutional buy-in the SatF partnership has enabled. For example:
<ul>
 	<li><strong>The funding incentive has allowed middle-level managers to promote linkage up the institutions’ corporate agendas.</strong> Operational managers feel able to use SatF’s support to further internal discussions with senior management and other stakeholders, potentially including regulators, government, mobile network operators, etc.</li>
 	<li><strong>Customer centricity has become a central feature of the FSPs’ approach.</strong> Our partners understand that sustainable business means understanding and responding to genuine need. FSPs that conducted research and pilots and ultimately developed a full proposal were able to understand the ‘pain points’ and needs of their customers and reflect those in their product offerings.</li>
 	<li><strong> Early piloting has allowed our partners to foresee and address operational constraints.</strong> From systems changes inhibiting take-up, to ensuring regular contact with customers to maintaining sufficient liquidity through the agent network, FSPs have been quick to pick up on issues that may hinder implementation and have either already identified workable solutions or are in the process of doing so.</li>
 	<li><strong>Their reaction to challenges highlights the FSPs’ commitment, creativity and capacity to innovatively develop and deliver solutions.</strong> With the flexibility offered by their role as lead institutions, our partners have been able to consider a range of consortium options (working with facilitators, creating and facilitating their own informal savings mechanisms, identifying niche technical and delivery partners) and develop effective route-to-market strategies. FSPs have negotiated channel strategies to keep fees and charges affordable, reached out to specialist solution providers, and iteratively developed customer friendly interfaces or engagement strategies to make their products appealing and drive take-up.</li>
 	<li><strong>FSPs appreciate that attracting clients and offering relevant services are key to achieving long term sustainability.</strong> Our partners acknowledge that working with informal savers is not about extracting margins. The viability of their business case will be determined by the FSPs’ capacity to attract and retain customers and develop products that address customer needs and expectations. In looking to offer customer friendly, convenient and affordable services, and creating improved outreach and communication channels, our partners are signaling they are taking sustainability seriously.</li>
</ul>
<h3>What Next?</h3>
Some upcoming challenges are already visible, such as bringing pricing more in line with customer expectations. Why, for example, should anyone pay to use a financial service when cash transactions are free? Other challenges include financial education, closing the proximity gap, agent availability and float management.

The ability of our partners to overcome these challenges will depend on how well they have learned from similar previous challenges. We as a project will also need to be flexible and create space for the FSPs to identify and implement solutions specific to their operating environment. To this end, we have developed a disbursement mechanism that allows us to assess progress and consider course corrections at various points in the process by releasing funding in tranches based on individually negotiated ‘promise cards’, which incentivise design work in the early stages and delivery in later stages. Each tranche has its own delivery milestones built as much around the emerging value proposition being offered to informal savings mechanisms and their users as on the usual kinds of activity/output milestones. These milestones create a continuous dialogue with FSP partners, which allow us to react to needs as they emerge, provide tailored support, and work together to identify elements of the business case that will support the sustainable delivery of their linkage products beyond the lifetime of our project.

As we head into the fourth year of the program, it is encouraging that both the SatF team and our FSP partners are as optimistic about the prospect of successful delivery as we were when we first started. Nurturing the interest and capacity shown by our partners, and taking a flexible and adaptive approach to fund disbursement, we stand a good chance of turning our optimism into success.

Change Management Inside Financial Service Providers: Takeaways from a Funder Partnering with African FSPs

Sub-Saharan Africa

Banks

Partnerships

Blog Post

This week is <a href="http://financialinclusionweek.org/">Financial Inclusion Week</a> and today is <a href="http://www.world-savings-day.org/">World Savings Day</a>. In recognition of these concurrent days of reflection and support, we would like to use this digital space to discuss our work at the <a href="https://itad.com/knowledge-and-resources/mastercard-foundation-savings-learning-lab/">Savings Learning Lab</a>, where we set out to better understand the state of access to, and use of, savings in Sub-Saharan Africa (SSA). What we have learned will help prioritize and contextualize our work over the next few years.

The resulting report, <a href="https://itad.com/reports/briefing-paper-savings-count/">Savings Count</a>, provides a comprehensive synthesis of trends in demand and supply of savings services in SSA. It discusses behavioral trends in saving and barriers to saving, the range of providers and approaches that have made a difference, key policies and regulatory factors important to promote savings, as well as areas of progress, areas in which promising work is underway, and areas where significant progress is required.

Specifically, we set out to ask and answer the following questions.
<h3>Are savings part of the financial inclusion success story?</h3>
Unfortunately, it doesn’t look like savings have increased at the same rate as access to formal finance.

According to the 2017 Global <a href="https://globalfindex.worldbank.org/">Findex</a>, in SSA, despite an impressive increase in account ownership from 23 to 43 percent since 2011, the percentage of people who saved money with a formal financial institution stagnated at a low of around 15 percent.

This is concerning. We now know with certainty that the consistent use of financial services can help the world’s poorest people better manage risks, step out of poverty, and build a better life. Strong evidence indicates that savings are an essential part of this package. And while savings rates are higher in SSA than in other developing regions, they are still much lower than in higher-income regions. The persistence of dormant accounts and infrequent use of digital savings – along with poor households’ predominant use of informal savings mechanisms – indicate that people, particularly the poor, continue to face significant barriers to formal saving.
<h3>Is there a demand from clients? Or is savings no longer important in the rapidly changing world of financial services?</h3>
Our research shows there is a demand and that saving is as important as ever.

Savings are critical for poor people’s consumption smoothing, risk management and financing of important life goals such as education and starting a business. As an industry, we have made significant advances in understanding the impact of savings on customers in key areas such as income, consumption, resilience and food security. We now have a solid understanding of savings behaviors, needs and preferences, of how poor manage their money and what savings mechanisms work best for them. Savings are also good for financial service providers’ bottom lines and are required for economic growth.
<h3>Who serves this market and what are their difficulties in providing the services?</h3>
The low-income savings market is served by a range of providers such as banks, microfinance institutions, savings and credit cooperatives, and mobile money providers. All providers continue to face challenges in reaching this market segment. This is because poor people tend to keep small balances, transact often and live and work far from traditional banking outlets. Despite the challenges, significant advances have been made in reaching poor people through alternative delivery channels, the rise of digital financial services, the proliferation of linking savings groups to formal finance, and the use of customer-centric approaches. However, providers continue to struggle to serve this population segment with appropriate savings products. They face a number of challenges, including high costs of providing services and low profit margins, insufficient understanding of their clients’ behaviors, the distance of clients from branches, and product offerings that do not meet client needs.
<h3>If savings are so important, then what are governments doing to promote it?</h3>
The promotion of savings is strongly influenced by government regulation and financial inclusion policies. For example, regulation can determine if certain types of financial service providers can mobilize savings by obtaining deposit-taking licenses, or whether providers can mobilize savings from clients who may not meet all the required identification documents – by allowing for tiered KYC requirements.

Our research shows that countries in SSA employ a range of policy and regulatory initiatives that can help promote savings for low-income clients. These include the widespread adoption of national financial inclusion strategies, the implementation of regulation of e-money funds and the widespread regulation allowing the use of agents to facilitate account opening. Significant work in progress also exists on implementing regulations supporting simplified customer due diligence requirements and enforcement of customers’ ability to receive account information at no cost. However, the uneven prevalence of these examples in the region indicates that continued progress is still needed.
<h3>Our main conclusion after unpacking the data and evidence?</h3>
There is a need for savings to be promoted more prominently and more explicitly within the broader financial inclusion agenda.
<blockquote>There is a need for savings to be promoted more prominently and more explicitly within the broader financial inclusion agenda.</blockquote>
Increasing poor people’s ability to use savings mechanisms effectively is fundamental to shifting the industry’s focus from access alone to financial health and meaningful financial inclusion. And while the numbers don’t look so great yet, we believe that collectively as an industry we can make savings work! Our confidence is based on what we identified as existing advances along with promising work in progress in high impact areas, coupled with recommendations of where additional progress will make a significant difference.

We invite you to read our report and to join us in our effort to help close the gap in savings.

<em><strong>Editor's Note: Like what you read? Listen to SEEP's Financial Inclusion Week podcast, <a href="https://seepnetwork.org/Webinar-Post/Navigating-the-Evidence-on-Savings-Focused-Financial-Inclusion-Webinar">Navigating the Evidence on Savings-Focused Financial Inclusion</a>,  </strong></em><em><strong>about a searchable, interactive evidence map that provides consolidated access to relevant evidence related to savings-focused financial inclusion.
</strong></em>

Savings in Sub-Saharan Africa: Access, Policies and Priorities

Financial Inclusion Week

“How much money do people typically imagine they should have when saving for emergency needs? Is that different from what they need for the children’s education? What kinds of conversations are field staff having?

These and similar questions are quite familiar to financial institutions trying to mobilize long-term savings from low-income clients through their field staff. In this blog post, we share the story of how mobile application usage data allowed <a href="http://www.sajidafoundation.org/">SAJIDA Foundation</a>, an <a href="https://optixproject.org/">OPTIX</a> partner from Bangladesh to gain insights into member-staff conversations without actually being there: a kind of virtual “fly on the wall”. They gained an unprecedented look into how financial planning really unfolds as they sought to tailor a term-deposit product to people’s needs.

In October 2017, <a href="https://nextbillion.net/cross-sell-done-well-how-one-finance-app-found-a-balance-between-digital-and-human-touch/">we introduced the Financial Advisory Services (FAS) mobile app</a> designed to allow field officers at SAJIDA Foundation to identify members (as SAJIDA calls its clients) with longer-term savings potential, structure conversations around life goals, and simulate scenarios to arrive at appropriate amounts and terms for the term-deposit savings account.

Built into the FAS app is the capability to collect detailed usage data, including when and where the app was used, what actions were undertaken, and what information was entered to simulate scenarios. Any interaction on the device, such as the click of a button, filling in a text field, or submitting a form, is recorded. More than 20 officers used the FAS in 2017 and undertook 11,793 actions on the app. By threading together consecutive actions, we can approximately reconstruct actual conversations.
<h3>FAS app frames conversations as intended…and then some</h3>
When starting a conversation, field officers mention most of the savings goals the FAS offers (Figure 1). Users were able to choose from a list of eight specific goals and one “other.” These goals are chosen based on qualitative research with members and staff, and appear to be a fairly accurate representation of member savings goals. “Emergency Needs” is the most common, featuring in 31 percent of the conversations. The icon “For Children” comes second, at 25 percent. “Livestock” features in only 1 percent of the conversations, leading us to question its permanence on the goal screen.

An App, a Conversation and a New Account: A Novel Approach to Term Deposits in Dhaka

Bangladesh

South Asia

Customer Centricity

Data Analytics

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

Citi Foundation

Global Findex

Access Usage Gap

Resilience

Trends

Report

On January 18th CFI hosted a webinar to discuss “Financial Inclusion and Pension Inclusion: Lessons learned on access, usage and financial capability”— a chapter from the recent publication Saving the Next Billion from Old Age Poverty: Global Lessons for Local Action. This webinar explores the innovations in pension inclusion, including strategies to reduce costs, build financial capability, and protect consumers.

Webinar panelists include:
- Elisabeth Rhyne, Managing Director, CFI
- Susy Cheston, Financial Inclusion Consultant
- William Price, Senior Financial Sector Specialist, World Bank Group
- Gautam Bhardwaj, Co-Founder and Director, pinBox Solutions
- Parul Seth Khanna, Co-Founder and Director, pinBox Solutions

Webinar: Financial Inclusion and Pension Inclusion

CFI Research Fellows Program

Pensions and Retirement Saving

Webinar

Accion has made a concerted effort over the past few years to promote savings among its partners and affiliates around the world, and those organizations have racked up some impressive statistics. There are 2.9 million savers using the 17 financial institutions associated with Accion that have savings operations, and the total amount on deposit is nearly $4 billion (data as of September 2013). The average savings amount, at $1,376, is uncannily similar to the average loan, $1,460.
<p style="text-align: left">But behind these numbers lies a very different story that reflects deep-seated cultural differences in the approach to savings among Latin American and African microfinance institutions – and their customers.</p>
<p style="text-align: center"><img class=" wp-image-13983 aligncenter" style="margin-top: 10px;margin-bottom: 10px" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/02/financialinclusion.png" alt="" width="510" /></p>
Several of Accion’s Latin American partners are mature commercial banks or finance companies that started with a strong microcredit orientation and subsequently gained the approval to accept deposits. At this point, several have somewhat more savers than borrowers, and loan portfolios mainly funded by deposits. As would be expected, average loan sizes are several times the size of average savings.

On the surface, Accion’s four newer and smaller partners in Africa look similar, though the ratio of savers to borrowers is higher (5-10 times as many savers as borrowers), and average savings balances are a smaller fraction of average loan sizes. The loan portfolios of two of the four are fully savings-financed; the other two require some outside funding.

Looking more closely at the Latin American institutions, one might at first think that they have reached the elusive goal of offering a balanced set of savings and credit services to their base-of-the-pyramid clients. However, a large portion of the accounts included in the total above are dormant, with balances less than $1. In half the institutions, over 70 percent of the accounts are dormant. Dormancy is prevalent among savings accounts in banks everywhere, but in these institutions the level is higher because many of the accounts were created as loan disbursement and repayment accounts. They were not regarded by either provider or customer as saving vehicles. Despite the large number of accounts, most of the actual savings comes from a relatively small number of term deposits, including large deposits from institutions.

Such results are not unusual for microfinance institutions in the region. The leaders and staff of Latin American microfinance institutions have been very slow to embrace retail savings, believing that collection of small savings is an expensive way to fund a portfolio and not profitable. Clients, for their part, have not clamored for savings accounts and apparently do not perceive microfinance institutions as the right place to save, as opposed to informal savings, credit unions or mainstream banks.

Accion’s four African microfinance partners, in contrast, started with savings. They tend to view savings as the primary way to acquire customers and build customer relationships. They see savings as an important part of the value they bring to customers and therefore, organize their operations for attracting retail savings. In West Africa the institutions draw on local tradition, in the form of roving savings collectors who make it easy for customers to save small amounts day by day. Despite the large number of savers and small average savings balances, the African microfinance institutions operate profitably.

Accion worked intensively with two of its Latin American partners to develop retail savings, with support from the Gates Foundation. The results have been interesting. Finamerica, a historically credit-focused institution in Colombia, now has a savings portfolio designed with BOP client needs in mind, which shows a good uptake by target clients. The product, <i>El Milagroso</i> (The Miraculous), won the Accenture Prize for Innovation 2013 in the financial services category in 2013. It represents 36,000 new savings accounts, an increase of 165 percent during the past year, with an average balance of $38 and a dormancy rate of 33 percent (vs. 70 percent for Finamerica’s older traditional saving account). <i>El Milagroso</i> accounts are easily opened by the sales force on the streets through a mobile phone, and clients can make deposits though any of Finamerica’s banking agents, located close by. Balances have been growing faster in these accounts than in regular savings accounts, demonstrating the appeal of the product’s features for motivating savings, including proximity and convenience of the channel.

Banco Pichincha, in Ecuador, also introduced savings products to the BOP to complement its microcredit offer. Pichincha’s clients can now access a voluntary savings account designed according to their needs and can access the bank’s extensive channel network (the biggest in the country). As a result, 510,000 accounts now exist.

The arithmetic of averages makes it look like broad-based savings is happening at institutions with many dormant accounts coupled with a few big deposits, and that arithmetic has allowed the underlying situation to go unremarked in public discussion. It takes stratification of deposits by size to reveal what is happening within a single institution or a group, but such data is rarely public. Only when the data are examined from a variety of angles, does the real story start to emerge.

<i>Liza Guzman and Leonardo Tibaquira of Accion contributed to this report.
</i>

<em>Image credit: <a href="http://www5.iadb.org/mif/HOME/FOMINblog/Blogs/tabid/628/authorid/26984/language/en-US/Default.aspx" target="_blank" rel="noopener">IADB</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2012/11/13/accumulating-financial-assets-microfinance-ambivalence-about-savings-and-the-poor/" target="_blank" rel="noopener">Accumulating Financial Assets: Microfinance Ambivalence about Savings and the Poor</a>

<a href="http://cfi-blog.org/2013/09/30/savings-is-the-key-to-merchant-payments-in-developing-countries/" target="_blank" rel="noopener">Savings Is Key to Merchant Payments in Developing Countries</a>

<a href="http://cfi-blog.org/2013/07/16/savings-overtakes-loans-in-the-philippines/" target="_blank" rel="noopener">Savings Overtakes Loans in the Philippines</a>

Base-of-the-Pyramid Savings Among Accion Partners – Some News Is Bad and Some Is Good

<em>&gt; Posted by Amanda Yap, Research and Communications, PlaNet Finance</em>

<i><i><i><i><i><i><i><a href="http://cfi-blog.org/category/investing-in-inclusive-finance/" target="_blank" rel="attachment noopener wp-att-9676"><img class="alignright" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/02/untitled2.jpg" alt="" width="310" height="54" /></a></i></i></i></i></i></i>The </i><a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance" target="_blank" rel="noopener"><i>Investing in Inclusive Finance</i></a><i> program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.</i>

Before the advent of the People’s Bank of China’s county-level pilot program to create microcredit companies (MCCs) and village and township banks (VTBs), there was a large number of unbanked individuals and micro-entrepreneurs whom commercial banks were unwilling to serve. Hence when the pilot program to create MCCs, <a href="http://www.planetfinancechina.org/resource-center/MCCs-VTBs-Guarantees">the product of a financial inclusion plan by the Chinese government</a>, went into action in 2005 the number of MCCs boomed, and in the past few years they have mushroomed to an astounding number of 9,000 as of 2013. The Chinese financial sector has been plagued with corruption in the past few years - for example, the <a href="http://www.marketwatch.com/story/pleas-over-capital-punishment-verdict-in-china-2012-03-06?link=MW_latest_news">Wu Ying private lending network scandal</a> and the <a href="http://english.caijing.com.cn/2012-05-22/111855735.html">Qilu commercial bank forgery</a> in Shandong. To circumvent corruption and maintain control of the increasingly overpopulated sector, regulators enforce strict capital requirements and caps on interest rates. However, these requirements are stifling the operational sustainability of these MCCs. Joe Zhang, author of the book <a href="http://blogs.wsj.com/chinarealtime/2013/06/18/eight-questions-joe-zhang-inside-chinas-shadow-banking/" target="_blank" rel="noopener"><i>Inside China’s Shadow Banking: the New Sub-prime Crisis?</i></a> writes, “The regulation is killing the dynamism of the sector. Everyone in the sector is working extra hard to make a modest return (after huge expenses and bad debts).”

Should 9,000 MCCs all be painted with the same regulatory brush?

<a href="http://www.microfinancegateway.org/p/site/m/template.rc/1.9.60426/">Some industry leaders believe a rating system for microcredit companies is the answer.</a> Liu Ping, Director General of the Senior Advisors of the People’s Bank of China, believes ratings can be a yardstick to measure the sustainability of microcredit companies and differentiate the good apples from the bad. MCC investors hope that high grades based on credible ratings could move the authorities to loosen restrictions on outlets, so that business costs could be better covered, individual company branches could grow, and the sector could eventually be made more sustainable. Conversely, low rating grades would expose institutions with questionable practices that require operational changes. In addition, a ratings system may change the popular perception that these institutions are “loan sharks”, leading to increased investment, institutional growth, and client outreach.

Rating systems – a staple of the traditional finance sector – play an important role in microfinance globally. Rating agencies select and weigh indicators for both companies issuing debt and the debt instruments, setting benchmarks for the industry and allowing for factors of comparison amongst companies. Rating reports create access to the risk analysis of debt and debt issuers, increasing market transparency and facilitating investors in sourcing investments, performing credit decisions, and supervising risk. For investees, monitoring of issuers of debt instruments encourages issuers to act in the interests of the investor community which leads to best management practices.

Currently, there are seven approved rating companies in China. Two of these companies are joint ventures with international credit rating agencies - Lianhe Credit with Fitch and Chengxin Credit with Moody’s. Chinese rating companies commonly perceive that getting an accurate picture of MCC operations is unfeasible due to the rather unreliable nature of financial reporting amongst Chinese MCCs, rendering traditional rating methods bogus. Currently, no single regulator has all the data needed to form a comprehensive picture of an MCC. Instead, they advocate a market based approach. If markets can ascertain reliable information, then ratings systems can be built around these indicators. Lianhe Credit applies this market-based approach by performing credit investigation instead of ratings. “The main utility for us is to help the provincial-level supervisors construct information systems that can give them a better grasp on the target MCC’s operations,” says Lianhe’s CIO, Shi XX. The Provincial Office of Financial Affairs in each province, which were abruptly tasked with the duty of regulating MCCs in May 2008, are dedicating energy and time to rating systems. Even if policy restrictions aren’t loosened, MCCs and financial affairs offices now have new management and supervision tools to supplement standard reporting and provide greater clarity to investors.

From the outset, there has been heated debate over the methodologies and goals of a microfinance rating system. Ed Wu, Managing Director of PlaNet Finance China suggests that the most common risk factors in determining sustainability are governance, strategy, risk management skills, IT systems, and funding. The importance of effective risk governance is also emphasized in <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/512-governing-banks-mfi-edition-part1" target="_blank" rel="noopener"><i>Governing Banks: MFI Edition</i></a> by CFI’s Running with Risk project. These risk factors should be taken into account when developing new rating schemas.

When overburdened with companies to regulate, Provincial Offices of Financial Affairs (POFA) may be inclined to use ratings to single out non-compliant MCCs or MCCs with poor risk management in order to revoke business licenses and closely supervise operations. The provinces with the greatest numbers of MCCs urgently need the ability to differentiate among them and are working quickly to establish a ratings infrastructure. Some areas, such as Tianjin, already require a yearly rating report and audit report to be submitted to the local POFA. Additionally, in Jiangsu, Inner Mongolia, and Yunan, POFAs either own state-owned enterprises that do ratings or have internal rating standards and schemes for regulatory purposes.

The concept of ratings for MCCs is taking off and may enable regulators to relax the regulatory noose strangling strong MCCs, whilst reining in MCCs with less than ideal operations. To learn more about this topic, please look out for the joint report by PlaNet Rating and PlaNet Finance coming out in the first quarter of 2014, written with the support of the Credit Suisse microfinance capacity building initiative.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/06/27/emerging-risks-on-chinas-path-towards-financial-inclusion/" target="_blank" rel="noopener">Emerging Risks on China's Path Toward Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank" rel="noopener">Designing Financial Services for China's Marginalized</a>

<a href="http://cfi-blog.org/2013/07/23/a-journey-to-understanding-risk-as-a-new-board-director-in-governing-banks-mfi-edition/" target="_blank" rel="noopener">A Journey to Understanding Risk as a New Board Director in "Governing Banks MFI Edition"</a>

&nbsp;

Ratings to Loosen the Regulatory Noose on China’s Microcredit Companies

Financial Inclusion 2020

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

China

East Asia and Pacific

Colombia

Dominican Republic

Ghana

Guatemala

India

Mexico

Nigeria

Paraguay

Peru

Tanzania

United States

North America

Zambia

Aging and Older Adults

Financial Capability

Housing Finance

Impact Investing

Microfinance

Persons With Disabilities

Policy, Regulation and Government Initiatives

Risk Management

Governance

Social Performance

Youth

<em>&gt; Posted by Joanna Ledgerwood, Senior Advisor, Access to Finance, Aga Khan Foundation</em>

<em><a href="http://www.guardian.co.uk/global-development-professionals-network/dai-partner-zone/microfinance-financial-inclusion-world-bank-aga-khan" target="_blank" rel="attachment wp-att-11335"><img class="alignright  wp-image-11335" style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/05/money-008.jpg" width="310" /></a></em>

<em>The following post was <a href="http://www.guardian.co.uk/global-development-professionals-network/dai-partner-zone/microfinance-financial-inclusion-world-bank-aga-khan" target="_blank">originally published</a> in<em> the Guardian Development Professionals Network DAI Partner Zone</em></em><em>.</em>

The microfinance industry has come under withering attack in recent years, pilloried among other things for its high interest rates and its coverage, which is often estimated to reach less than 10 percent of the population. But practitioners, the media, and the public should understand that microfinance is a broad term for a highly differentiated financial sector that is not without its successes. Each type of provider — from banks to savings groups — plays a particular role in providing the continuum of services typically needed to promote "financial inclusion" in underserved areas.

My recently published book, <em><a href="https://openknowledge.worldbank.org/bitstream/handle/10986/12272/9780821389270.pdf" target="_blank" rel="nofollow">The New Microfinance Handbook: A Financial Market System Perspective</a></em>, addresses the need to broaden microfinance's reach to meet the diverse financial service needs of clients. For financial inclusion to increase, each type of institution must be deployed in the contexts in which it works best. Together, funders and governments must take a holistic, context-driven approach to improving financial services in poor areas — referred to as the market systems approach. While the commercialization of microfinance has had its successes, we need to consider the entire system, especially community-based providers, if we are to reach the rural poor with appropriate financial services.

The <a href="http://www.akdn.org/publications/2005_akf_mountains_paper3_english.pdf" target="_blank" rel="nofollow">Mountain Societies Development Support Programme</a> (MSDSP), an NGO set up and supported by the <a href="http://www.akdn.org/AKF" target="_blank" rel="nofollow">Aga Khan</a> Foundation in Tajikistan, is a good example of a market systems approach where a variety of financial initiatives work collaboratively. Launched as a relief and humanitarian initiative, MSDSP transitioned to become a development organization, promoting good governance and local economic development. Recognizing that the legacy of distrust in the formal financial sector has been particularly damaging to people living in mountainous areas — already subject to isolation, marginalization, and deep poverty — MSDSP aims to address the lack of accessible financial services.

In the remote rural areas where MSDSP works, community-based savings groups (CBSGs) are at the heart of a successful effort to bring financial services to the poor, supported by a broad spectrum of financial and social institutions. Based on tested models in Africa and South Asia, CBSGs are simple savings and borrowing associations. Under the direction of elected leaders, groups of 15 to 25 members gather biweekly to manage their financial activities. After two months of training followed by approximately seven months of close supervision, CBSGs continue to operate, without external support, for many years. Members access loans and pay interest of about three percent per month, and all interest received contributes to increasing the loan fund which is periodically, usually annually, distributed back to members. No external capital is required, making CBSGs transparent and profitable for the members.

While loans and savings services are generally the most valued services, people also develop basic financial management and goal-setting skills by participating in CBSGs — skills that serve them well in managing resources beyond those invested in their CBSGs. Additionally, CBSGs help develop relationships between group members and banks. Many groups open bank accounts to deposit excess funds and individual members learn to use banks for saving larger amounts.

Currently, CBSGs are the only accessible provider of savings services in many of the areas where MSDSP works. During recent civil unrest in Tajikistan, for example, CBSGs were the only financial service providers operating and the only place where cash was available because banks in the urban centers were forced to close.

In addition to CBSGs, MSDSP also supports microlending organizations. In many cases, such organizations are the only proximate, accessible credit provider for MSDSP beneficiaries, other than CBSGs. The microlending organizations, grounded in social missions, provide larger loans than the CBSGs. In MSDSP's target area, the CBSG program currently reaches slightly more than 50,000 members, while the microlending organizations serve around 12,000 loan clients. Assuming seven family members indirectly reached for each direct member or client, MSDSP is reaching more than 438,000 people, or 63 percent of the 700,000 total population in its targeted program area. In the CBSGs alone, savings held by groups now exceed $2.3m (£1.5m) — a significant amount of money that used to languish under the proverbial mattress.

Despite this impressive coverage, these programs are not able to meet all requests for credit in the districts where they operate. Longer-duration loans for agriculture and sustainable leasing products are also needed. For those clients whose credit needs exceed what is available from the CBSGs or the microlending organizations, and who are able to qualify for bank loans, microfinance banks like the First Microfinance Bank, established by the Aga Khan Development Network, provide another option for somewhat less poor clients and those operating an enterprise. Such institutions can also play a role in wholesaling loans to the microlending organizations to increase their capital, allowing them to lend greater amounts to those unable to qualify for bank loans.

Each provider meets a certain market need and serves a specific market segment. MSDSP's experience bears out the fact that the poor have a multitude of financial service needs which are met by a broad spectrum of financial service providers, including CBSGs, microlending institutions, and banks.

<em>Joanna Ledgerwood is the author and editor of <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/12272/9780821389270.pdf" target="_blank">The New Microfinance Handbook</a>, published by the World Bank on February 18, which addresses the need for increased financial inclusion by examining the financial market system, beginning with client needs. The book can be downloaded for free from the World Bank Open Knowledge Repository under a Creative Commons Attribution (CC BY) license. Currently head of Access to Finance for the Aga Khan Foundation in Geneva, Joanna will shortly be joining DAI in Zambia.</em>

<em>Image credit: <a href="http://www.guardian.co.uk/global-development-professionals-network/dai-partner-zone/microfinance-financial-inclusion-world-bank-aga-khan" target="_blank">Sean Smith for the Guardian</a> </em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/05/01/deep-outreach-financial-inclusion-savings-groups-for-those-microfinance-cant-reach/" target="_blank">Deep Outreach Financial Inclusion: Savings Groups for Those Microfinance Can't Reach</a>

<a href="http://cfi-blog.org/2013/04/16/silos-no-more-financial-inclusion-for-the-whole-value-chain/" target="_blank">Silos No More: Financial Inclusion for the Whole Value Chain</a>

<a href="http://cfi-blog.org/2013/04/09/developing-financial-products-fit-for-the-poor/" target="_blank">Developing Financial Products Fit for the Poor</a>

The Service Provider Spectrum - From Microfinance to Financial Inclusion

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi

Tess Johnson

Virginia Moore

Constantin Albot

James  Robinson

Ashirul Amin

Greta Bull

Pablo Anton-Diaz

Elisabeth Rhyne

Sonja Kelly

Rachel Morpeth

Susy Cheston

William Price

Gautam Bhardwaj

Parul Seth Khanna

Hannah McCandless

Lauren Hendricks

Cambodia

Myanmar

Uganda

Alternative Data

Digital Credit

Microfinance Institutions

Agent Banking

Insurance

Insurance Companies

<img class="alignright wp-image-40142 size-thumbnail" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/grateful-emoji-283-150x150.jpg" alt="grateful " width="150" height="150" />
<h2>Grateful</h2>
I am feeling an incredible level of gratitude to all the people who participated in Financial Inclusion Week last week. We had more than 1,200 people register for FIW’s various events. The agenda featured more than 40 sessions covering a broad spectrum of topics, time zones, and regions. Each and every session required planning and coordination. A huge thanks goes to all of our partners who chose to participate and share their learning and experiences during FIW.
<h2><img class="alignleft size-thumbnail wp-image-40143" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/monocle-5-150x150.png" alt="" width="150" height="150" />Curious</h2>
I am already a major advocate for women’s financial inclusion and believe the inclusive finance industry needs to get more sophisticated on this topic. The CFI <a href="https://youtu.be/MxXWHaNhYcY" target="_blank" rel="noopener noreferrer">podcast on social norms</a>, the Caribou Digital session on <a href="https://www.youtube.com/watch?v=SbIBJO_7cJs&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">features that drive women’s usage of DFS</a>, and the Pinbox session, "<a href="https://youtu.be/b2ulPv9INEA" target="_blank" rel="noopener noreferrer">Saving the Next Generation from Old Age Poverty</a>" (especially women, who live longer) were eye-opening. I am curious to see where our collective focus on this topic will take us.
<h2><img class="alignright size-thumbnail wp-image-40144" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/tempted-heart-eyes-emoji-150x150.png" alt="heart eyes emoji " width="150" height="150" />Tempted</h2>
There were so many sessions to choose from that there were moments I felt like a kid in a candy store. Fortunately, the sessions have all been recorded and I can go back to the ones I missed and catch up on them (and I will have a full year to do that). I’ve even mapped out a plan of action for when I’ll get up to speed on what I missed. This week, I plan on listening to the Inclusive Finance India <a href="https://youtu.be/E0Snagg7TYM" target="_blank" rel="noopener noreferrer">session on remittances</a> and GSMA’s session, "<a href="https://www.youtube.com/watch?v=B3Khho7Bgac&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">Beyond One Billion: Exploring the State of Mobile Money in Africa</a>."
<h2><img class="alignleft wp-image-40145" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/connected-emoji-300x268.png" alt="connected emoji" width="184" height="164" /></h2>
<h2>Connected</h2>
We have all been struggling to adjust to our new, social-distanced and Zoom-based world, and I was worried that more virtual events might be difficult. I was surprised at how connected I felt to the inclusive finance industry. I learned so much from the various panelists, whether it was the elaborate -- yet achievable -- <a href="https://www.youtube.com/watch?v=FLWs9JMdj7M&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">ideas posed by Sarah Gammage</a> on the role of financial services in mitigating climate risk and supporting livelihood adaptation, or <a href="https://www.youtube.com/watch?v=qjVT1EaN3QE&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">David Medine’s insightful explanation</a> as to why consent-based systems are no longer relevant for addressing data usage and data privacy concerns. There’s been a lot of talk that this industry has become more fragmented as we each dig deeper into specific silos, but this week showed me the power of coming together. It takes some effort, but the results are evident.
<h2><img class="alignright size-thumbnail wp-image-40146" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/tired-emoji-150x150.png" alt="tired emoji" width="150" height="150" />Tired</h2>
But, alas, I am human and not a complaints bot or <a href="https://www.youtube.com/watch?v=9tXAN0oicVE&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">algorithm</a>, like the ones covered in some sessions. This means by the end of the week I was tired after an incredibly packed agenda and so many interactive sessions.
<h2><img class="alignleft size-thumbnail wp-image-40149" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/cry-emoji-4-150x150.png" alt="cry emoji" width="150" height="150" />Sad</h2>
That’s why my next emoji is complex. Despite my tiredness, I am sad to see FIW 2020 come to an end. I hope that this community that has come together to share and learn from one another can somehow keep the momentum going. At CFI, we will certainly do our best to engage and learn from our partners.
<h2></h2>
<h2><img class="alignright wp-image-40150" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/lightbulb-emoji-2-300x292.png" alt="inspired lightbulb emoji " width="161" height="157" />Inspired</h2>
My final emoji is my overwhelming sense of inspiration. I hope you found FIW as inspiring a learning event as I did. From our first day with the panel, "<a href="https://www.youtube.com/watch?v=im7EP5TtGdA" target="_blank" rel="noopener noreferrer">Serving Low Income Households Impacted by Climate Change</a>," to the last day with Aspen Institute’s session, "The Road to 2030: An Action Agenda for Inclusive Financial Systems," I am inspired that so many organizations are already thinking about and taking action on some of the toughest challenges that poor people face during this extraordinary time in history.

&nbsp;

Financial Inclusion Week and My Emoji Roller Coaster Ride

<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.

&nbsp;

Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

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

According to the <a href="https://globalfindex.worldbank.org/">Global Findex</a>, the percentage of adults in Mexico who are saving money at a formal institution plunged from 15 percent to 10 percent in just the past three years—despite financial inclusion strategies <a href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/">enacted by the government</a>. This steep decline in usage of savings accounts came as a surprise, and hit close to home for me as a Mexican. This <a href="https://cfi-blog.org/2018/06/18/is-financial-inclusion-stalling-the-2017-findex-results-raise-several-red-flags/">trend is a cause for concern</a>, and it’s also a call to action. At Accion, we took this as an opportunity to listen to the people we’d like to see benefit from financial services. With support of <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, we wanted to understand why fewer people were saving in banks, what products and services people were using, and who was providing those services if it wasn’t formal institutions.

To get answers about what people in Mexico want from their financial service providers, I recently traveled home to Mexico City as part of a team of researchers. We listened to small merchants map out their entire financial lives—their motivations, goals and

[caption id="attachment_25738" align="alignright" width="286"]<img class="alignnone size-full wp-image-25738" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-fish-market-accion.jpg" alt="Man sells fish at a stall in an outdoor market" width="286" height="215" /> Fish market on San Gregario Street in Xochimilco, a southeastern municipality of Mexico City, one of the places we visited for our user research.[/caption]

aspirations, how they feel about various types of financial services, the strategies they use to stay financially healthy, and more.

Our biggest surprise? The individuals we talked with know about and can access a lot of financial products—they just aren’t using them. Lack of alignment between what low-income customers want and what financial products offer is a factor preventing further financial inclusion in Mexico.

All of the individuals we spoke to reported having access to microloans, consumer store credit, credit cards, and savings accounts. Financial access didn’t seem to be an issue for them — not even in the more rural areas we visited two hours outside the city. Even though our small, qualitative study may not be rigorous enough to extrapolate to the broader population, this finding seems to be consistent with national data. In Mexico, <a href="https://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf">86 percent of banking branches are located in urban areas</a>, so people close to the city are unlikely to deal with a shortage of services. What our interviews revealed is that a different issue is preventing further inclusion: lack of alignment between what low-income customers want and what current financial products offer. Most people we talked to dislike dealing with large commercial banks, and they continuously decline the offers for financial services they regularly receive, at their doorstep or in public places.

[caption id="attachment_25737" align="alignleft" width="275"]<img class="alignnone size-full wp-image-25737" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-azucena-mother-holding-baby.png" alt="Mother holding bay" width="275" height="366" /> Azucena is a former bank teller, however she prefers to save money at home. Alpuyeca, Morelos, Mexico, 2018.[/caption]

Many of the people we interviewed still prioritize saving cash at home, even if they also have a formal savings account.  For example, Azucena, a former teller at a large commercial bank branch, told us that despite her relationship with a bank, she and her husband still prefer to store cash informally. “We save at home, but we do so separately, using different lock boxes for different purposes,” she says.

Through our conversations with clients like Azucena, we discovered that informal alternatives like lock boxes continue to be more convenient for clients and preferable to formal options. Keeping cash at home is, after all, indispensable for unexpected emergencies. If your money is in a bank, you’d have the hassle of getting there and waiting. Plus, it may not be available 24/7, and you can run into issues if the ATM is offline or the pharmacist, mechanic, or whomever you’re turning to for help doesn’t take a debit card.

In many cases, the interviewees’ savings accounts had been opened for them by former employers to serve as payroll accounts or by the government for disbursement of benefits. These accounts were less “savings accounts” and more “distribution accounts” that were immediately turned into cash and saved at home. Because the savings aspect wasn’t used—in fact, was never emphasized—once they switched jobs or stopped receiving benefits, they let the accounts lapse.

Convenience may be a key issue, but it is not the only one. Feeling unsafe withdrawing money from a bank branch is also an issue because thieves wait where the money is—outside bank branches and near ATMs. The lack of trust our interviewees placed in financial institutions was often less about security and more about the unclear, high (real or perceived) maintenance fees banks charge on savings accounts.

Despite this perceived aversion to formal accounts, we found that people still continue to save and set high financial goals for themselves. In all the interviews we conducted, the number one financial goal was saving to access better opportunities: education of their children, a home for their family, or the chance of opening their own business. The demand is clearly there, and most of the people we talked to were indeed saving.

We heard from customers, and now we’re working with a mix of fintechs and financial service providers of all sizes to use those insights to create financial products that customers will want to use as key tools for their financial lives.  Stay tuned!

<em>This research was conducted by <a href="http://www.accion.org/">Accion</a>, the Center for Financial Inclusion at Accion, and <a href="http://www.dalbergdesign.com/">Dalberg Design</a> as part of our part of our <a href="/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.</em>

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Why Aren’t People Saving Money in Mexico?

<em>This post originally appeared on <a href="https://nextbillion.net/is-financial-inclusion-stalling-the-2017-findex-results/">Next Billion's blog</a> and is reposted here with permission.
</em>
<p style="text-align: left"><img class=" size-full wp-image-25657 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-cover_fig.png" alt="geographic distribution of 3 billion people without active accounts, 2017" width="2300" height="2325" /><em>
About 3 billion people in the world either have no account or have an account that sits unused. The countries with the largest number of financially excluded people are also the highest population countries: India and China. This picture has changed little in the past three years.</em></p>
The Global Financial Inclusion Database (Findex) is a survey of the financial habits of adults in 144 countries with data from 2011, 2014 and now (2017). Governments, foundations, big financial companies and fintechs alike rely on the Findex to understand how people are using (or not using) financial services. It is the best available yardstick through which we measure global progress toward financial inclusion.
<h3>A Misleading Findex Headline</h3>
Unfortunately – as we share in our recent report, <a href="http://www.centerforfinancialinclusion.org/storage/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results.pdf" target="_blank" rel="noopener">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a> – while we see a few bright spots, the overall results in the latest survey are decidedly less exciting than they were in 2014. The World Bank, which houses the Findex, announced the 2017 results with the headline that 69 percent of the world’s adults now have bank or mobile money accounts – which represents good progress toward its target of “<a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020" target="_blank" rel="noopener">Universal Financial Access” by 2020</a>. We agree that connecting hundreds of millions of people to the formal financial system is worth celebrating: If nothing else, it serves as heartening evidence that a sustained movement involving the private and public sectors in nearly every country can meet an important global challenge.

But that headline is deeply misleading, for two reasons. First, and somewhat embarrassingly, many new accounts are simply dormant. The accounts of a fifth of reported account-holders have had zero activity in over a year – no deposits and no withdrawals. If a small shop owner has a bank account but does not use it, the account is valueless to her and a burden to the financial service provider that invested in technology, staff and infrastructure to serve her. It’s wasteful.

<img class=" size-full wp-image-25655 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig03.png" alt="Graph of percentage of account-holding population with an inactive account, 2017" width="1370" height="1746" /><em>
In 29 countries, more than one in five people have an account but have not used it in the past year. Inactivity has increased in the past few years.</em>

India accounts for the greatest number of these dormant accounts. In 2014, Prime Minister Modi launched the Pradhan Mantri Jan Dhan Yojana (Prime Minister’s People’s Money Scheme), which required banks to open millions of new accounts. The Guinness Book of World Records recognized the effort when <a href="http://www.guinnessworldrecords.com/news/2015/1/india-makes-financial-world-record-as-millions-open-new-bank-accounts" target="_blank" rel="noopener">a staggering 18 million bank accounts</a> were opened in a single week. This campaign and many related Indian government efforts show up clearly in some of the Findex results. Bank account ownership in India more than doubled since Findex began in 2011. But more than a third of those accounts appear to be idle, even using the very soft definition of “active” as one transaction in a year.
<h3>Sobering Financial Inclusion Stats in Emerging and Frontier Markets</h3>
Beyond the positive headlines, the data raise some issues: First, focusing only on active accounts, the number to remember is that across the developing world, only 48 percent of adults have accounts, whether at a financial institution or mobile money provider. But the second problem with the World Bank’s positive Findex spin is even more important than slow growth in active accounts. Savings and credit are at least as important as accounts when it comes to indicators of financial inclusion. But little or no progress is apparent in either. More precisely, since 2014, in the developing world as a whole, savings is down and credit is flat.

<img class=" size-full wp-image-25656 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig06.png" alt="Graph of saving, borrowing, and digital payments, 2011-2017 (developing countries)" width="2300" height="1446" />

<em>Credit is flat, and savings is declining, even as digital payments make significant gains.</em>

Take savings, a stepping stone to better financial health. If access to accounts is making a difference in the lives of the newly included, this should show up in more people saving. Instead, the fraction of people who saved through a formal account – 20 percent – was slightly lower than the 22 percent reported in 2014. The segment saving for retirement fell to a very low 15 percent in 2017, worrisome indeed as the global population ages.

On the credit side, the number of people borrowing from a financial institution increased very slightly in the past three years. However, the data do not provide evidence that the new and much-lauded forms of digitally delivered and big-data-based credit have substantially boosted access. Fintech innovations using algorithms, machine learning and artificial intelligence for credit scoring may revolutionize access to small loans, but as of 2017, either they are simply transforming the way credit is provided to existing groups, or they have not yet achieved transformative scale.

The lack of progress on savings and credit could help explain why the Findex responses to the question on financial resilience – whether a person can quickly come up with money needed for an emergency – also failed to show improvement.
<h3>Looking on the Bright Side</h3>
Findex results offer one important bright spot: digital payments. We are witnessing an enormous transformation in the infrastructure of banking, as more people use digital payments to send and receive money and to buy goods and services. In the developing world, 44 percent of the people surveyed had used digital payments in the past year, up solidly from 32 percent in 2014. All kinds of digital use cases are increasing, from online purchases and direct deposit of salaries to paying utility bills through an account. There is a clear and convincing trend – even if there is also a long way to go before the developing world reaches the degree of digitization common in high-income countries, where 91 percent have made such payments.

The emerging digital infrastructure may one day support the financial well-being of most of the world’s people. But we’re not there yet. The latest Findex results set the stage for the financial inclusion community to reflect and reconsider its assumptions so that everyone working in this field can better ensure that access to accounts and payments translates into active use and benefit for the 3 billion financially underserved people around the world.

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Is Financial Inclusion Stalling? The 2017 Findex Results Raise Several Red Flags

<div class="getty embed image">

Financial inclusion momentum has slowed in the past three years, the 2017 Global Findex revealed. The financial inclusion community may wish to reflect on these results, recalibrate expectations, and then re-engage.

In a <a href="http://bit.ly/DeconstructFindex">new report</a>, the Center for Financial Inclusion at Accion journeys through the 2017 Global Findex data recently released by the World Bank, which assess progress toward financial inclusion on the basis of a 150-country study conducted by Gallup. We examined the 2017 Findex data from our own perspective, and although we found some good news, there are also some concerning trends.

In recent years, the headline for financial inclusion has been the percentage of adults in the world with accounts (either financial institution or mobile-based). That number has grown since 2014 to 69 percent – good news. But we believe it is more relevant, if less encouraging, to focus on the number of adults with active accounts, that is, accounts they have used at least once in the past year. That number is 55 percent, representing a net gain of 280 million active accounts between 2014 and 2017, a much more modest gain than the nearly 700 million total new accounts added in the previous three years (2011-2014).

Looking specifically at the developing world and correcting for account dormancy, only 48 percent of adults in developing countries have active accounts – disappointingly, participation remains below half. Overall, account growth has slowed, and at the same time the access-usage gap has grown.

[caption id="attachment_25628" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/account-ownership.png"><img class="wp-image-25628" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/account-ownership.png" alt="" width="615" height="382" /></a> (click to enlarge)[/caption]

Moreover, these new accounts have not resulted in greater availability of credit or greater incidence of savings. Savings has dropped slightly in many countries in the past three years – and that includes both saving in any form and saving in financial institutions. In developing countries as a whole, about 20 percent of the adult population saves in financial institutions. Credit is essentially flat at 15 percent of the adult population, which may be a surprise for some who have watched with anticipation the rise of fintech-enabled digital credit using alternative data and algorithms. These new forms of credit will need to scale a great deal more before they can make a significant difference in the big picture of financial inclusion.

[caption id="attachment_25624" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/borrowing-activity.png"><img class="wp-image-25624" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/borrowing-activity.png" alt="" width="616" height="382" /></a> (click to enlarge)[/caption]

Financial inclusion promises to provide people with more options and tools to manage their day-to-day funds, respond to emergencies, and seize opportunities. The Findex survey asked whether people believe they can come up with funds in case of emergency. In developing countries, however, responses were slightly less positive in 2017 than in 2014. Asked whether they could come up with 1/20 GNI per capita in a month, only about 50 percent of people in developing countries said it was possible—down 8 percentage points from the 2014 survey.

In short, a full suite of quality financial services that supports financial well-being is still a distant dream for more than half of the developing world.

The bright spot, however, involves greater use of digital payments. Many more people in the developing world have been involved in a digital transaction in the past year than ever before. In developing countries, an additional 12 percent of adults reported having made a digital payment in the last year. Of wage recipients in developing countries, about half received wages into an account in the past year, and 21 percent of people in developing countries purchase things and pay bills using mobile phones or the internet. Mobile accounts are connecting people to financial services all across Africa and in a handful of other countries, and at the same time in other regions, more people are using mobile phones to access their financial institution accounts.

[caption id="attachment_25625" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/payments.png"><img class="wp-image-25625" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/payments.png" alt="" width="615" height="380" /></a> (click to enlarge)[/caption]

Despite the growth of digital payments, the Findex 2017 results overall are sobering. Financial inclusion, while further away than expected, is still an achievable goal. It requires considerable thought and engagement from all industry stakeholders to ensure that inclusion will create active usage and meaningful change in the lives of consumers. We hope the financial inclusion community will use the 2017 results to engage in a serious conversation about how financial inclusion initiatives are affecting usage, products and financial well-being, and then to re-engage with eyes open as we continue pursuing the important tasks at hand.

<em>For more analysis on these and other areas of financial inclusion, read the new report, <a href="http://bit.ly/DeconstructFindex"><u>Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</u></a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/04/19/new-global-findex-sixty-nine-percent-of-global-population-is-banked/">New Global Findex: Sixty-Nine Percent of Global Population Is Banked</a>

<a href="https://cfi-blog.org/2018/04/25/findex-and-financial-health-in-eastern-europe-and-central-asia/">Findex and Financial Health in Eastern Europe and Central Asia</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

</div>
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That question is at the crux of a different kind of emergency savings fund. A “f*ck off fund” is savings you can leverage when you need to break away from your current situation – say, when you need to leave a harmful relationship or a problematic job. The term was coined a few years ago and has become popular, in recognition of its distinctiveness from other types of savings and its importance especially among women.

In a survey of adult women in the United States, <a href="https://www.glamour.com/story/why-you-need-a-fuck-off-fund">71 percent</a> indicated they’ve stayed in a job because they couldn’t afford to leave, and 31 percent said they’ve been financially trapped in a relationship. A f*ck off fund, equivalent to roughly three-to-six months’ worth of living expenses, provides the financial means to leave any such situation and start again. This might apply if you’re unhappy with your current work or living situation. Perhaps you want to quit your job and take that internship to jumpstart your career in a different industry. Or, more importantly, if you have been sexually harassed, abused, or feel unsafe but otherwise wouldn’t have the financial means to remove yourself from a bad relationship. This sort of fund provides the financial power to leave a situation.

This kind of savings fund is in keeping with mainstream financial advice. In addition to insurance, it’s recommended to have the safety net of three-to-six months’ worth of savings. Of course, just because this is recommended doesn’t mean most of us have these sorts of savings. Additionally, there are a few characteristics that differentiate this sort of fund from other types of emergency savings. If you are in a long-term relationship and are sharing finances with your significant other, your emergency savings might be joint with that person. However, what happens if the reason you need these savings is to leave? A <em>personal</em> emergency fund would be advisable. If your work environment were problematic, would it be as easy for you to mobilize savings from your family and friends to leave this situation as it would be to mobilize savings for a medical expense? As with savings for education or housing, it is typically a good idea to have savings set aside exclusively for this purpose.

It’s been exhilarating and heartening recently to witness a watershed moment for action against sexual harassment and abuse in the United States. And in many of these cases, the harassers have considerable financial power over their victims.

We were tipped off on the concept of a f*ck off fund by an <a href="https://www.glamour.com/story/why-you-need-a-fuck-off-fund">article</a> in <em>Glamour</em>. <em>Glamour</em> surveyed over a thousand women in the United States and found that 72 percent of respondents did not have such a fund, and that 51 percent have less than $500 in their savings. A third of the respondents said paying down debt was their main financial goal, and half said they have gone negative on their bank balances at least once in the last year. The financial roadblock they cited most frequently was simple: they did not make enough money at their jobs. You can find the survey’s full results <a href="https://www.glamour.com/story/money-secrets-from-1000-real-women">here</a>.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/" target="_blank" rel="noopener">Domestic Violence and Microfinance: What Is Our Role As Financial Services Providers?</a>

<a href="https://cfi-blog.org/2016/07/15/the-heart-and-science-of-client-assessment/" target="_blank" rel="noopener">The Heart and Science of Client Assessment</a>

<a href="https://cfi-blog.org/2017/04/03/can-bank-accounts-save-womens-lives-violence-against-women-and-financial-inclusion/" target="_blank" rel="noopener">Can Bank Accounts Save Women's Lives? Violence Against Women and Financial Inclusion</a>

&nbsp;

&nbsp;

If You Suffered Domestic Abuse, Would You Be in a Financial Position to Leave?

I walked past the International Monetary Fund on Pennsylvania Avenue on a sunny Saturday morning, a few blocks from the White House. Three large posters of international faces filled their windows, covered by the text <em>#EndPoverty</em>.

Across the street, two homeless men emerged from their tents.

More than 1 in 10 Americans – nearly 45 million people – are living below the poverty line. The United States has one of the highest poverty rates in the developed world, second only to Israel. A survey conducted by CareerBuilder estimated that <a href="http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey">78 percent</a> of Americans are living paycheck-to-paycheck – a number that has been steadily increasing each year. The U.S. consistently <a href="http://www.businessinsider.com/the-richest-countries-in-the-world-2017-3/#18-australia-gdp-per-capita-48806-39820-13">ranks</a> as one of the most affluent countries in the world, yet these statistics obscure the financial health of its population and how its wealth is distributed.

It is well known that profitably serving low-income clients can be a challenge. Earlier this year, Bank of America <a href="https://www.npr.org/sections/thetwo-way/2018/01/24/580324251/bank-of-america-ends-free-checking-option-a-bastion-for-low-income-customers">eliminated its free eBanking checking accounts</a>, which now require a $1,500 daily minimum balance or a $250 monthly deposit to avoid a $12 monthly “maintenance” fee. If Bank of America were a country, it would have the 8<sup>th</sup> highest GDP in the world, at <a href="http://www.annualreports.com/Company/bank-of-america-corporation">$2.2 trillion in assets</a>. It started in San Francisco as a bank for the common man. Surely it can follow the lead of many <a href="https://www.nerdwallet.com/blog/banking/best-free-checking-accounts/">other financial institutions</a> and offer a bank account that works for low-income people.

As we’ve written on the blog before, several of the day-to-day services that banked populations take for granted are costly and time-consuming for the unbanked. Cashing a check? Fee. Obtaining a pre-paid debit card? Fee. Transferring money? Fee. Money order to pay bills? Fee. Although these fees might seem small in dollar terms, they add up over time, and for Americans living paycheck-to-paycheck, every penny counts. According to consumer advocate Bill Bartmann, the 68 million financially underserved Americans spend an average of <a href="https://www.huffingtonpost.com/bill-bartmann/financial-exclusion-why-the-poor_b_7001914.html">$108 per month</a> per person on financial services.

Globally, financial inclusion is evolving and advancing. Where are we on progress in the United States?
<h3>Financial Access</h3>
Access to financial services in the United States is improving. Roughly <a href="https://obamawhitehouse.archives.gov/blog/2016/06/10/financial-inclusion-united-states">7 percent</a> of American households lack access to a bank account, and around 20 percent have a bank account but also use financial services associated with the financially excluded, like payday loans. By comparison, in 1989, 14 percent of U.S. households lacked a bank account. Improvements in services access were especially pronounced among those in the bottom income quintile and among minority households, which, over the period of 1989 to 2013, experienced an increase in access from <a href="https://obamawhitehouse.archives.gov/blog/2016/06/10/financial-inclusion-united-states">56 to 79 percent and from 65 to 87 percent</a>, respectively.
<h3>Financial Health</h3>
In terms of financial health, the Center for Financial Services Innovation (CFSI) finds that <a href="https://cfsinnovation.org/research/2017-financially-underserved-market-size-study/">57 percent</a> of American adults are struggling financially – with either large sums of debt, irregular income flows, and/or sporadic savings habits. The Federal Deposit Insurance Corporation (FDIC) estimates that approximately 91 million U.S. adults are credit-challenged, stemming either from being low-file or having a subprime credit score below 600.
<h3>Debt Levels</h3>
Last year saw the country reaching an all-time high in terms of total household debt, at roughly <a href="https://www.cnbc.com/2018/02/13/total-us-household-debt-soars-to-record-above-13-trillion.html">$13 trillion</a>, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. This was the fifth rise, with increases across the credit card, auto, mortgage, and student loan categories.

Arguably the most dramatic rise has been in student loan debt. In 2008, student debt made up only <a href="https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html">5 percent</a> of total household debt, but by 2017 this had increased to 11 percent. As of 2017, student loan borrowers owe a total of $1.3 trillion. Moreover, roughly one in ten student loan borrowers are behind on repayments, which is the highest delinquency rate of any type of loan in the country.
<h3>Savings Levels</h3>
According to data from the U.S. Bureau of Economic Analysis, the personal savings rate in the United States is at roughly <a href="https://www.fool.com/saving/2016/10/03/heres-the-average-americans-savings-rate.aspx">5.7 percent</a>, meaning that for every $100 earned, $5.70 is saved for purposes including emergencies, retirement, and the proverbial rainy-day. While this figure is a substantial improvement over the 1.9 percent savings rate before the financial crisis in 2008, a recommended healthy savings habit would involve setting aside between 10 percent and 15 percent of income.

Like many other countries, retirement savings in the United States are a growing problem as more baby boomers reach retirement age. According to Census Bureau data, older Americans were the only demographic that experienced a <a href="https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/">poverty rate increase</a> between 2015 and 2016. Across the country’s adult population, the Census Bureau finds that two-thirds of Americans don’t contribute any money to a 401(k) or other retirement account.
<h3>Industry Progress</h3>
Over the past decade, transformations in technology, products, and business models have pushed the U.S. to meet a growing demand for financial inclusion.

As of February 2016, there were over 2,000 U.S. fintech start-ups, and fintech venture capital is steadily growing. One the biggest fintech success stories in the United States is the peer-to-peer mobile-based payment service Venmo. Owned by PayPal, Venmo has exhibited staggering <a href="https://www.dailydot.com/debug/venmo-growth-chart/">growth</a>. In the first quarter of 2015, Venmo processed $1.3 billion in payments, while two and a half years later, in the third quarter of 2017, the figure was $9 billion. In an effort to compete with Venmo and other payment apps, commercial banks are expanding their financial service offerings. A consortium of banks that includes Wells Fargo, Bank of America, JP Morgan Chase and Capital One rolled out Zelle in 2017, which is based on a similar model and allows for free, instant transfers between accounts of registered users.

Nationwide, there are more than 800 <a href="https://www.forbes.com/sites/darden/2014/06/05/fighting-financial-exclusion-how-to-serve-88-million-americans-who-have-no-bank/#111284992a5c">Community Development Financial Institutions</a> (CDFIs), private organizations fighting financial exclusion in rural areas (often deemed “bank deserts”) and disadvantaged urban zones. For customers who want to make sure their money is used to benefit communities, Morgan Simon of the Candide Group <a href="https://nextbillion.net/avoiding-the-ick-factor-four-easy-steps-to-align-your-investments-with-your-values-in-2018/">suggests</a> breaking up with your bank in favor of more socially-minded financial institutions like CDFIs, credit unions and community-based commercial banks.

Despite the increasingly digital payment structure of the U.S. financial system, millions of Americans still prefer cash over card. While 80 percent and 75 percent of American adults have a debit or credit card, respectively, more than 99 percent <a href="https://www.bostonfed.org/publications/research-data-report/2017/the-2015-survey-of-consumer-payment-choice-summary-results.aspx">report</a> that they still use cash. Innovative companies that recognize the need for payment flexibility are starting to fill in the gaps. <a href="http://paynearme.com/en/">PayNearMe</a>, for instance, offers remote transactions at more than 28,000 locations, such as CVS and 7-Eleven. At these neighborhood retailers, payments can be made for bills, rent, tickets and even taxes to participating entities located elsewhere.

At a federal level, the U.S. has implemented several programs to expand financial inclusion. To help alleviate the issue of inadequate retirement savings, the Obama administration introduced <a href="https://myra.gov/">My Retirement Account</a> (myRA) for people without access to employer-sponsored retirement plans. While the program was not well-advertised and saw low usage during its three years of activity, it was a step in the right direction. The retirement accounts didn’t carry fees or minimum balance requirements, and any earnings or withdrawals were tax free. Unfortunately the program was <a href="https://www.forbes.com/sites/nextavenue/2017/07/28/r-i-p-myra-retirement-account-gone-too-soon/#3c8b88077885">dropped</a> by the current administration in December 2017.

Eradicating financial exclusion in the United States will require cooperation among all sectors, public and private. While there may not be a simple solution, everyone has something to gain from creating a solid financial foundation for low-income Americans.

<em>Featured image credit: Doug Focht via <a href="https://www.flickr.com/photos/99077624@N00/2272841875/">Flickr Creative Commons</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/02/02/exchanging-cash-for-freedom-predatory-bail-bonds-in-the-u-s-criminal-justice-system/">Exchanging Cash for Freedom: Predatory Bail Bonds in the U.S. Criminal Justice System</a>

<a href="https://cfi-blog.org/2016/05/02/in-the-united-states-gender-gaps-in-financial-literacy-and-pay-persist/">In the United States, Gender Gaps in Financial Literacy and Pay Persist</a>

<a href="https://cfi-blog.org/2016/10/13/who-is-to-blame-for-global-de-risking-the-united-states/">Who Is to Blame for Global De-Risking? The United States?</a>

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Financial Inclusion in the U.S. – Are We Making Progress?

The World Bank is just days from releasing the next version of its <a href="http://www.worldbank.org/en/programs/globalfindex">Global Financial Inclusion Index (Findex</a>), the authoritative data source on global progress toward financial inclusion. The dataset, which tracks financial inclusion in 150 countries, is released once every three years, and we have been waiting eagerly to see how things have changed since 2014. We are confident that the numbers will show enormous progress on the World Bank’s goal of universal access to financial accounts. But we wonder whether the news will also indicate that people are actually using those accounts and whether financial services are helping them achieve financial health, gain resilience and pursue opportunity – the ultimate goals of financial inclusion.

After we high-five the World Bank team for a job well-done, here are a few things that we will be looking for when we examine the new Findex numbers:
<h3>Increased access in smaller and less prominent markets</h3>
We’re sure that the Findex will show dramatic gains on access, and we predict that these gains will be driven by the major advances we already know about in India, China and East Africa. The big success stories result from unique characteristics in each location – the leapfrogging potential of mobile money in East Africa, the political support for building inclusion infrastructure in India and the rise of technology super-platforms in China. But what about countries like Mexico, Ghana, or the Philippines? These countries have all been making significant efforts to implement digital financial services. We hope to see success stories emerging in some of these lower-profile markets. We are also eager to see what is happening in the smaller countries that are often ignored in the excitement over big players, and that do not offer the economies of scale that attract digital financial infrastructure providers. We hope the data does not show a growing big-country/small-country digital divide.  We would also like to see regional imbalances closing. Accion works throughout Latin America, which is often forgotten in the financial inclusion story.
<h3>A shrinking access-usage gap</h3>
When we first saw the 2014 Findex data, we <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">pointed out</a> the huge numbers of accounts that sat unused or were used only as a pass-through – i.e., as a means to receive a payment and immediately cash out. This gap is a strong indicator of whether a financial service meets important client needs. This year, we hope to see progress in reducing that access-usage gap. We’ll be looking especially at India, where the government has aggressively pursued its goal of an account in every household, but where we have seen significant account dormancy. One driver of active use is the ecosystem of value-added products that build on simple account or payment mechanisms. Progress in this area will signal that financial services are addressing real life needs, and that more people are becoming comfortable using phones and other digital means for financial transactions – as we documented last year in <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/782">research in Kenya</a>. We’d like to see people in countries beyond Kenya showing greater willingness to transact digitally.

<img class="aligncenter wp-image-25359" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/03/amc_may-2013_shaoyun-wang_restaurant_4.jpg" alt="" width="616" height="411" />
<h3>Greater resilience among families</h3>
Our favorite question in the 2014 Findex asked whether a family could come up with a substantial sum of money (1/20 GNI per capita) in case of an emergency. This question – the “resilience question” – is the single indicator that best shows whether families are improving their <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/807-beyond-financial-inclusion-financial-health-as-a-global-framework">financial health</a>. Of course, a natural product to mention in connection with resilience is insurance. CFI released a <a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/973-inclusive-insurance-closing-the-protection-gap-for-emerging-customers">new report</a> on inclusive insurance earlier this year. New ways of assessing and anticipating economic shocks—and covering them for lower income populations—might move the numbers on vulnerability. Soon we will have two data points on resilience (2014 and 2017) and this trend line will allow us to make our first statements about whether financial inclusion is actually increasing financial security for clients. This question will give us insight into whether all the work toward financial inclusion is paying off.
<h3>A smaller gender gap</h3>
One of our disappointments in the past ten years is that while overall access to financial services has increased, the gender gap has hardly budged. As of 2015, women were about 10 percentage points behind in access to an account, despite great funder and industry focus on women. While we do not have robust evidence yet, we hope to see progress here. We have done some thinking on <a href="https://cfi-blog.org/?s=gender">gender equality and financial inclusion</a>, as have many others. It is time that these collective industry efforts begin to result in a smaller gender gap!
<h4><span style="color: #ff6600"><img class="aligncenter wp-image-25357" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/03/pedro_macariotol_gen_2014-18.jpg" alt="" width="615" height="410" /></span></h4>
<h3>Financial inclusion enabling the Sustainable Development Goals</h3>
We love it when we see financial inclusion acknowledged for the role it plays in creating positive change in economic and social development—including many of the Sustainable Development Goals. The Findex reports whether people have paid electronically for things like school fees or bills, and indicators like this provide some clues about what financial inclusion improvements can enable for people new to the formal financial system. Building on the recognition that financial services are fundamentally about supporting people to do more with their resources, we see the ultimate goal of financial inclusion as improving lives.<em> </em>
<h3>Commentary on the post-2020 future of financial inclusion</h3>
The World Bank has set the ambitious, but achievable, goal of reaching <a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020">universal financial access by 2020</a>. This goal and this date has been a rallying cry among a set of prominent stakeholders who are key to making the achievement a reality. Now that 2020 is rapidly approaching, we want to know what comes next—and we have a strong view that access to an account is only the first step. If financial inclusion is to be more than a buzzword, we must continue to work until the newly “included” can use a full suite of quality services to make lasting improvements in their financial lives.

Join us in waiting eagerly, clicking the “refresh” button on our browser windows over the next few weeks as we await the answers to these questions. Whatever the data show, we are eager to engage in conversation and action with the financial inclusion community to continue charting a path toward meaningful financial inclusion.

<em>Image credits: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/06/04/by-the-numbers-benchmarking-progress-toward-financial-inclusion/">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion - Beyond Account Access</a>

<a href="https://cfi-blog.org/2015/04/28/global-findex-offers-next-steps-for-how-to-give-people-bank-accounts/" target="_blank" rel="noopener">Global Findex Offers Next Steps for How to Give People Bank Accounts</a>

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Anticipating the Global Findex 2017: Our Wish List for Financial Inclusion Progress

<em> </em>

<img class="aligncenter wp-image-24227" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/10/fi-week_cropped.png" alt="" width="616" height="273" />With Financial Inclusion Week 2017 less than two weeks away, we’re excited to share a full <a href="http://financialinclusionweek.org/calendar17/">calendar of events</a> and specifically, 11 webinars or online events that you can join from wherever you are. Topics include micro pensions, IndiaStack, interactive voice response technology, and more. Don’t pass up an opportunity to hear from organizations and experts from around the world – register today!
<h4><span style="color: #ff6600"><strong>Monday, October 30</strong></span></h4>
<strong><a href="https://attendee.gotowebinar.com/register/5232828010844793347">Digital Fireside Chat: How Are New Products and New Partnerships Unlocking Access to Insurance?</a></strong>
<em>Hosting Organizations: <a href="https://us.axa.com/home.html">AXA</a>, <a href="http://www.centerforfinancialinclusion.org/">Center for Financial Inclusion at Accion</a></em>
To kick of Financial Inclusion Week 2017, Elisabeth Rhyne, Managing Director of the Center for Financial Inclusion at Accion will join Garance Wattez-Richard, Head of AXA Emerging Customers for a digital fireside chat. During the webinar, Rhyne and Wattez-Richard will discuss how new products and partnerships are opening up new potential in the inclusive insurance space. They will take a specific look at how AXA is working to reach emerging customers.

<strong><a href="https://www.facebook.com/Thitsaworks/">Technology-Enabled Financial Inclusion in Myanmar</a></strong>
<em>Hosting Organizations: <a href="https://www.thitsaworks.com/">ThitsaWorks</a>, <a href="https://www.magzter.com/MM/Information-Matrix/Myanmar-Internet-Journal/Computer-&amp;-Mobile/">Internet Journal</a>
</em>ThitsaWorks and Internet Journal will host a Facebook Live conversation on the impact of digital services on financial inclusion in Myanmar, where mobile phone ownership has grown rapidly from 5 to 90 percent between 2011 and 2017.


<h4><span style="color: #ff6600"><strong>Tuesday, October 31</strong></span></h4>
<strong><a href="https://attendee.gotowebinar.com/register/8455245903222706945">The Digital Landscape of Financial Inclusion: Trends, Challenges and Opportunities</a></strong>
<em>Hosting Organization: <a href="https://responsiblefinancialinclusion.org/">The Partnership for Responsible Financial Inclusion</a> (formerly MCWG)
</em>The Partnership for Responsible Financial Inclusion (formerly the Microfinance CEO Working Group) and their senior staff who work in digital financial services and fintech will present on the trends, challenges, and opportunities for sector-wide collaboration in digital financial inclusion. Join the discussion and share your thoughts on the technology and innovations that are shaping the inclusive finance landscape.
<h4><span style="color: #ff6600"><strong>Wednesday, November 1</strong></span></h4>
<strong><a href="https://mix.webex.com/mw3200/mywebex/default.do?nomenu=true&amp;siteurl=mix&amp;service=6&amp;rnd=0.9052351292117116&amp;main_url=https://mix.webex.com/ec3200/eventcenter/event/eventAction.do%3FtheAction%3Ddetail%26%26%26EMK%3D4832534b00000004931da127582115b1d0736ecfcb3b55bac591f4f402a78992b74709dd5584d48a%26siteurl%3Dmix%26confViewID%3D75612919730059323%26encryptTicket%3DSDJTSwAAAAR8kbqDsowOMB0HcHiCIxdYCb3-Oq_N6uyieiCBtymWFA2%26">Voice of the Client: Using Mobile Phones and IVR Technology to Understand Client Satisfaction in Cambodia</a></strong>
<em>Hosting Organization: <a href="https://www.themix.org/">MIX</a></em>
MIX’s webinar is focused on their <a href="http://www.themix.org/mixmarket/publications/voice-client-cambodia">Voice of the Client</a> project, a pilot developed for financial services providers (FSPs) to leverage mobile technologies as a means to analyze client satisfaction. MIX will share research findings from Cambodia and offer insight on how to best use interactive voice response (IVR) technology to gather client-level data for decision-making.

<strong><a href="https://www.eventbrite.co.uk/e/uncdf-and-visionfund-present-whats-next-for-microfinance-in-myanmar-tickets-39003624892">UNCDF and VisionFund Present: What's Next for Microfinance in Myanmar?</a></strong>
<em>Hosting Organizations: <a href="http://www.uncdf.org/">UNCDF</a>, <a href="http://www.visionfund.org/">VisionFund</a></em>
Isolated for decades, Myanmar has only recently opened up to the global economy. This has brought a lot of discussion about the Southeast Asian country being the 'last frontier' of financial inclusion. Microfinance legislation was passed in late 2011, but what has happened since? And what does the future look like?
<h4><span style="color: #ff6600"><strong>Thursday, November 2</strong></span></h4>
<strong><a href="https://bfaglobal.zoom.us/webinar/register/WN_pQVJ6I9gTOOpO2ylEI5gBA">A Fintech Approach to Financial Inclusion</a></strong>
<em>Hosting Organization: <a href="http://bfaglobal.com/">BFA</a></em>
BFA will host a webinar focused on the benefits and challenges of fintech approaches to financial inclusion. The webinar will highlight key findings from three of BFA’s global programs: Catalyst Fund, FIBR and OPTIX.

<strong><a href="http://bit.ly/MIXvoc2">Voice of the Client: Using Mobile Phones and IVR Technology to Understand Client Satisfaction in Peru (Spanish)</a></strong>
<em>Hosting Organization: <a href="https://www.themix.org/">MIX</a></em>
This webinar presentation will be the same as the preceding Voice of the Client webinar, expect it will be in Spanish and it will share project research findings from Peru instead of Cambodia.

<strong><a href="https://successfulmicropensiondesign.clickmeeting.com/financial-inclusion-week-webinar-bpps">Successful Micro Pension Design</a></strong>
<em>Hosting Organization: <a href="http://www.blueprintpensionservices.com/">BluePrint Pension Services</a></em>
BluePrint Pension Services is hosting a webinar on designing successful micro pension schemes as a solution to mitigate the risk of old age poverty for men and women working in the informal sector.

<strong><a href="https://attendee.gotowebinar.com/register/1959278429738133251">What We Learned from Micro Pensions So Far: Case Studies from India and Ghana</a></strong>
<em>Hosting Organization: <a href="http://www.enviu.org/">Enviu</a></em>
In this one-hour interactive discussion, Ashish Aggarwal of Invest India Micro Pension Services and Samuel Waterberg of People’s Pension Trust Ghana will share their experiences and perspectives on setting up micro pension products in India and Ghana.

<strong><a href="https://attendee.gotowebinar.com/register/4179631111385479170">IndiaStack - The Change Catalyst</a></strong>
<em>Hosting Organization: <a href="http://www.accion.org/">Accion</a></em>
Accion will be hosting a webinar to discuss the ways that IndiaStack – a combination of complimentary financial technologies – is catalyzing change in financial inclusion in India. The webinar will highlight the risks and rewards of IndiaStack and the considerations FSPs should take before integrating with this system of APIs.
<h4><span style="color: #ff6600"><strong>Friday, November 3</strong></span></h4>
<strong><a href="https://attendee.gotowebinar.com/register/845125705152860161">How Financial Institutions and Fintechs Are Partnering for Inclusion</a></strong>
<em>Hosting Organizations: Center for Financial Inclusion at Accion, <a href="https://www.iif.com/">Institute of International Finance</a>
</em>Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships. This webinar will explore how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets.

<em>For more on Financial inclusion Week 2017, head to <a href="http://financialinclusionweek.org/">the Financial Inclusion Week website</a>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/11/17/financial-inclusion-week-roundup-e-magazine-keeping-clients-first-in-a-digital-world/">Financial Inclusion Week Roundup E-Magazine: Keeping Clients First in a Digital World</a>

<a href="https://cfi-blog.org/2017/04/11/save-the-date-financial-inclusion-week-2017/">Save the Date: Financial Inclusion Week 2017</a>

<a href="https://cfi-blog.org/2017/10/12/have-you-marked-your-calendars-for-financial-inclusion-week-2017/">Have You Marked Your Calendars for Financial Inclusion Week 2017?</a>

Webinars for #FinclusionWeek -- Register Today

<em>&gt; Posted by Hannah McCandless, Program Support Associate, Village Enterprise</em>

<em><a href="https://www.flickr.com/photos/worldbank/27150960902/in/album-72157630544765096/"><img class="alignright wp-image-24086" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/27150960902_0a528d1a21_z.jpg?w=490" alt="" width="335" height="268" /></a>Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. The program combines these grassroots interventions with linkages to financial institutions, increasing the financial capability of the extreme poor. In the second part of this series, Village Enterprise reflects on some of the learning gained through these interventions, focusing on amplifying progress made at the grassroots level through linkages to formal institutions. </em>

The adoption of attitudes, habits, and behaviors needed for healthy financial decision-making is an essential first step in preparing individuals to be consumers of financial services. But just because households regularly save money or understand the risks of microloans does not necessarily mean that they are ready to evaluate and take-up formal financial services on their own. To be effective, financial inclusion interventions for those living in extreme poverty, at the base of the pyramid, need to both foster financial capability <em>and</em> facilitate healthy linkages to financial institutions.

Recognizing this need, Village Enterprise is working to establish linkages between our Business Savings Groups (BSGs, our version of VSLAs) and formal financial institutions. However, as we have learned, linking our BSGs to the <em>right </em>financial institution is easier said than done. We have found that creating healthy linkages is a multi-step process, rather than a one-time event.



<strong>Banking for the base of the pyramid</strong>

In a <a href="https://cfi-blog.org/2016/11/14/microcredit-in-remote-rural-areas-whats-happening-in-east-africa/">CFI blog post</a> about a year ago, Ellen Metzger, a former member of the Village Enterprise team, reflected on the East African financial inclusion landscape in which we work. Metzger’s post details the obstacles our participants face in accessing financial services, and cites a lack of credible information, irrelevant product offerings, and inadequate rural access.

Reaching and empowering those living in extreme poverty demands more than a suite of expensive services or a savvy mobile app. It requires an understanding of the unique needs, limitations, and potential of the rural poor. It calls for a staff dedicated to high-touch engagement with consumers, infrastructure to meet consumers where they are, and services that both respect the limitations of the BoP and offer room for growth.

<strong>Savings first</strong>

As explored in the <a href="https://cfi-blog.org/2017/08/30/harnessing-behavior-change-to-end-extreme-poverty/">first post in this series</a>, the Village Enterprise graduation program facilitates behavior and attitude changes needed to increase financial capability. Before linking participants to formal financial services, we first foster a culture of savings and healthy financial management at both the household and VSLA levels.

In seeking to link our BSGs to banking services, we put savings as the number one priority. To amplify the savings habit we instill in our participants, we pursue linkages that will allow our BSGs to access a secure means of growing their savings from the formal financial institution, while still maintaining the flexibility to allow the BSGs to offer loans and collect interest among the groups’ members. Prior to researching the lending products a bank offers, we ascertain whether they are able to offer this vital basic service.

<strong>Translating priorities into linkages </strong>

Using these criteria, as we developed our program in Uganda, Village Enterprise explored potential linkages with a number of banks. First, we discovered that most banks lacked the structure for adequate rural access. What’s more, we found that while some do offer services to VSLAs, they neglect savings and prioritize loans, often with interest rates and fees that are too high for the base of the pyramid.

After extensive due diligence, we selected Post Bank Uganda, which targets rural farmers and is government owned, for our pilot partnership. Post Bank strives to empower customers by offering financial services in a manner sustainable for lower-income clients. It has 37 branch networks, 9 mobile banking vehicles, 90 points of sale in various SACCOs, mobile money transfers available through MTN, Airtel, and Africell, and managers in every branch that focus on VSLAs. We found that Post Bank could provide service to all the areas we work. Furthermore, their group savings account offering looked to be the ideal product for our BSGs to prioritize growing their savings while still independently maintaining their loans and lending practice. We found that Post Bank was far better positioned to work with the rural poor than the other institutions we researched.

<strong>Healthy and sustainable linkages are a process, not a transaction</strong>

However, identifying a partner was just the beginning of our linkage journey. Shortly after starting to link our BSGs with Post Bank across Uganda, Village Enterprise encountered challenges with the bank’s decentralized structure and found that our success varied greatly by branch. In Northern Uganda, the Post Bank VSLA manager was highly motivated and collaborative, which resulted in 23 out of our 30 BSGs in this region opening accounts with Post Bank last year, and all are opening accounts this year.

However, when VSLA managers in other regions were missing meetings, delaying communication, and demonstrating an inability to work well in rural communities, we questioned whether Post Bank was prepared to meet our needs in these regions. We take our relationships with the communities we serve very seriously and are hesitant to introduce a partner who might jeopardize those relationships. We learned that what works for one BSG won’t necessarily be the right linkage for all.

So, we had to go back to the drawing board to rethink our linkage strategy countrywide. In the end we decided that while we will continue to work with Post Bank in regions where the partnership is proving successful, our pilot demonstrated a need to identify additional potential partners. We can better serve our BSGs by vetting and introducing potential partners and allowing them to pick the best option, rather than relying on a “one-size-fits all” solution.

This approach, which we also use with our Kenya BSGs, acknowledges lack of information and access as barriers to entry, but respects the agency and ownership of BSG members and leadership by putting the ultimate decision in their hands.

These realizations taught us that facilitating linkages that work for the poor is a time-intensive process rather than a one-time transaction. While signing a national MOU with a single partner seemed like an efficient and effective means of establishing linkages, we found it necessary to work BSG by BSG to evaluate the needs of each, then provide choices for the right institution that would result in linkages that are healthy and sustainable in the long run.

<strong>Create change in people and amplify effectiveness through linkages</strong>

CFI’s <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">landscape study on financial capability</a> notes, “Successful financial inclusion requires financially capable consumers who use products actively for their own benefit.” At Village Enterprise, we see this as a two-fold process: village-level trainings and membership in a self-managed BSG help to build financially capable consumers; then, engaging in a linkage <em>process</em>, rather than transaction, to the right financial services so that participants can use financial services actively, and for their own benefit.

<em>Image credit: <a href="https://www.flickr.com/photos/worldbank/27150960902/in/album-72157630544765096/">World Bank</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/08/30/harnessing-behavior-change-to-end-extreme-poverty/">Harnessing Behavior Change to End Extreme Poverty</a>

<a href="https://cfi-blog.org/2017/06/12/finding-a-bhutanese-path-to-financial-inclusion/">Finding a Bhutanese Path to Financial Inclusion</a>

<a href="https://cfi-blog.org/2017/07/19/how-women-help-women-gain-control-of-their-financial-lives/">How Women Help Women Gain Control of Their Financial Lives</a>

Invest In a Process, Not a Transaction: Lessons Learned on Linking Business Savings Groups to Banks

<em>&gt; Posted by Hannah McCandless, Program Support Associate, Village Enterprise</em>

<em><img class="alignright wp-image-24072" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/thumb_ac9809ca6fc84270b778ef0c2f2452b8.jpg" alt="" width="351" height="234" />Through its one-year graduation program, Village Enterprise provides business and savings training, access to savings groups, seed capital, and mentoring to rural East Africans living in extreme poverty. In part one of this series, Village Enterprise reflects on some of the learnings gained through these interventions, focusing on facilitating behavior and attitude change to increase financial capability. </em>

In a recent <a href="https://cfi-blog.org/2017/04/25/financial-inclusion-why-technology-will-only-get-us-so-far/">CFI blog post</a>, Robert Stone of Savings at the Frontier reflects that technology can serve as a valuable tool, but not a silver bullet, in the quest to improve well-being through expanding financial capability. As tech-thinker Kentaro Toyama notes, “Even in a world of abundant technology, there is no social change without change in people.” Toyama’s words resonate with Village Enterprise’s approach to financial inclusion for the extreme poor. Stone argues that effective change will occur when interventions that create change in people are connected to systems that amplify the effectiveness of these changes. This is a good description of what Village Enterprise is about.

Village Enterprise’s graduation program instills behavior change in people by providing a package of supports that enable them to move forward: access to savings networks, an asset transfer, skills training, and mentoring. Then, we capitalize on these changes by connecting participants to formal financial services. The combination of these services dramatically increases financial capability--the knowledge, skills, attitudes, and behaviors needed to facilitate healthy financial decision making--in the extreme poor.

<strong>Capitalizing on behaviorally informed practices</strong>

A few months ago, I met with a Village Enterprise business owner who was part of our program in 2009, before savings was a core aspect of our model. Emukajo Gilbert used his training and seed capital to start an orange orchard, which he still operates. Despite enormous increases in income and significant livelihood improvements, Gilbert does not habitually save money. He explained, “We have plans to save, but we already spend most of our money paying school fees.”  In our current program, we now require participants to start saving as soon as they enter the program. Before they start their businesses and before they receive a grant, they practice making weekly sacrifices to put aside whatever they can. We’ve learned that increasing savings isn’t about just creating change in income, it’s about creating change in people—and Gilbert’s story is a perfect example of why.

CFI’s <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">Seven Behaviorally-Informed Practices for Effective Financial Capability Interventions</a> provide an optimal framework through which organizations like Village Enterprise can effectively create the changes needed to facilitate increased financial capability leading to graduation from extreme poverty.

<em>Customize it</em>

According to the <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">CFI study</a>, “tailored interventions may powerfully shift the learning from passive to active.” Village Enterprise tailors its program to the unique set of needs that the rural extreme poor have for high-touch interventions. For instance, low self-confidence and social isolation are among the barriers we must address to prepare participants to be successful consumers of more advanced financial services. Allowing for one-on-one mentoring and access to social capital through savings groups, the Village Enterprise graduation program offers the valuable first step on the ladder of financial inclusion by addressing not just the material symptoms and drivers of poverty, but the emotional and mental ones as well.

<em>Teachable moments</em>

Village Enterprise establishes VSLAs, which we call Business Savings Groups (BSGs). The formation of the BSG is our first intervention as well as our exit strategy. BSGs provide a financial safety net, access to capital, and a space for social inclusion and support.

We establish our BSGs in the first weeks of training. Participants are expected to begin saving the very week their BSG opens and every week thereafter, with guidance and support from their Village Enterprise business mentor. “Reaching consumers at the right time is perhaps the core practice [of the financial capability approach],” according to the CFI study. By establishing BSGs at the start, Village Enterprise establishes the connection “when a person is about to make an important financial decision or use a financial service.” Investing seed capital in a small business or taking a loan from their BSGs are some of the most significant financial decisions most of our participants have ever made. BSGs provide our business mentors with a platform through which they can take advantage of the teachable moments that arise throughout the first year.

<em>Learning by Doing</em>

Households living in extreme poverty rarely save money. However, as shown by Gilbert’s story, saving is not solely correlated with an increase in income—saving money is a behavior or habit that must be adopted and reinforced through opportunities to learn by doing. “Practice,” reads the study, “enables customers to overcome the initial barriers to use that come with unfamiliarity and lack of confidence.”

Our BSGs share out participants’ savings and interest accrued once per year. It can be difficult to convince participants of the value of saving when the payoff is so far away. The Village Enterprise Savings with a Purpose (SWAP) intervention was born out of this need. SWAP provides a platform for participants to learn the benefits of saving from the start. Upon the inception of a Business Savings Group, participants identify one item that they would like to SWAP for, in addition to their regular weekly savings. For example, they might save to buy a small radio, a set of pots, or a new mattress. Their business mentor helps them identify how much they need to save each week. After a month or two of saving, the participant buys the item and learns the value of saving through the gratification it provides.

One of the tenets of successful behavior change interventions is that the system must reinforce the benefit of the desired change. SWAP provides this reinforcement early, which allows for better savings throughout the program, and after exit.

<strong>From change in people to change in access</strong>

VSLAs serve as a vital starting point on the journey to financial inclusion. Village Enterprise BSGs and savings trainings provide this starting point through tailored interventions built to provide teachable moments and opportunities to learn by doing, both of which reinforce behavior changes among the extreme poor. Thanks to this foundation, participants are better prepared to access and benefit from formal financial services when they graduate from the Village Enterprise program. Access to insurance, more sophisticated financing options, and opening a bank account can build upon previous interventions to continuously contribute to improvements in well being. High-touch, grassroots level interventions like those offered through Village Enterprise are essential for laying the groundwork to prepare the ultra poor for formal financial services.

However, the transition from VSLAs, or in our case BSGs, to formal financial institutions can be easier said than done. In the next post in this series, we will share learning from our experience facilitating healthy and sustainable linkages for our BSGs in Uganda.

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

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

<a href="https://cfi-blog.org/2016/04/14/six-recommendations-on-financial-capability/">Six Recommendations on Financial Capability</a>

<a href="https://cfi-blog.org/2016/05/03/shifting-the-paradigm-providers-as-financial-capability-builders/">Shifting the Paradigm: Providers as Financial Capability Builders</a>

Harnessing Behavior Change to End Extreme Poverty

<em>&gt; Posted by Lauren Hendricks, Executive Vice President, and Christian Loupeda, Senior Director Financial Inclusion, Grameen Foundation  </em>

<em><img class="alignright wp-image-23864" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/thumb_4818000712eb421992b7ee990b13a4db.jpg" alt="" width="330" height="220" /></em>

For poor, rural communities “field force” workers such as mobile money agents or government agricultural extension officers can be lifelines to services and information that bring rural residents greater control over their financial lives and help them increase their incomes and gain a connection to the larger world. But, for women, rather than a bridge, field force workers too often end up being one more hurdle on the way to access resources.

Across the developing world, almost all agricultural extension services <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/04/SOTIR_2015.pdf">lack female participation</a>. Women, on average, comprise 43 percent of the agricultural labor force in developing countries and account for an estimated two-thirds of the world’s 600 million poor livestock keepers. Yet only 15 percent of the world’s agriculture extension agents are women, and only 5 percent of women farmers benefit from extension services--despite the fact that women play a significant role in farming activities from production all the way to commercialization. Similarly, for mobile money agents, GSMA reports that among its members that report on gender, only 23 percent of agents and 37 percent of customers are female.

As Lisa Kienzle mentioned in <a href="https://cfi-blog.org/2017/06/23/helping-women-control-their-financial-lives-through-digital-financial-services/">her post</a> in this series on digital financial services for women, Grameen Foundation has found that a woman often benefits from being able to work with a trusted agent who can directly help her understand and use the services available. That’s why we have helped to develop women as banking agents in the Philippines. We created an independent network of female financial agents who work out of their neighborhood sari-sari (variety) shops. The all-female network now includes 862 trained agents, who bring digital financial services to more than 66,000 low-income clients. Recruiting female agents benefits the end clients, but also the female entreprenuers who become agents who typically see an increase in their own income of at least 20-to-30 percent.

In Burkina Faso, we assisted a partner microfinance institution, Réseau des Caisses Populaires du Burkina (RCPB) in training its female community agents to be financial agents. Previously, these women specialized in the promotion and formation of savings groups. Along with the training, they are equipped with smart phones to provide deposit and withdrawal services for the savings group members. The transactions link back to RCPB’s new digital transaction platform. RCPB is pilot-testing a network of 40 agents in selected communities, leveraging their intimate understanding of savings groups operations and of the financial needs of the women members.

Contact with a female field force worker can help female clients in multiple ways. In Malawi, Zoona reports that female agents help clients stick with a provider and more actively use their accounts. This makes sense. Female agents tend to be more patient and willing to help customers with transactions and women in many markets report that they are <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2014/09/2014_DI_Reach-half-of-the-market-Women-and-mobile-money.pdf">more comfortable</a> sharing their personal information with female agents. In Burkina Faso, when asked why she became a financial agent, one agent replied that she was proud to help support her sisters. <a href="https://www.womensworldbanking.org/research/">Evidence shows</a> that female mobile money users tend to need to complete more successful transactions in order to become regular mobile money users. Therefore, having an agent who is willing to assist in the learning process and demystify the service can be the difference between an active user and one who lets her account become dormant out of frustration or humiliation.

There are similar benefits for women farmers working with female extension workers. For example, one study in Nigeria found that women farmers who had females for extension agents had relatively higher levels of awareness, adoption and technical knowledge of recommended practices, as well as greater satisfaction with the quality of agents' services and credibility. However, some clients remain skeptical of female extension agents and sometimes lack confidence in their abilities. A study in Malawi found that while smallholder farmers who had a female extension agent had higher agricultural yields, farmers perceived female agents as less capable and were less likely to pay attention to their messages.

In some instances, social norms hinder women’s freedom to interact with agents. In many cultures the constraints on interactions between men and women limits women’s ability to receive services from men. In 2015, GSMA published <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/04/SOTIR_2015.pdf">new research</a> calculating that the gender gap in mobile money access was 14 percent in low and middle income countries and as high as 38 percent in South Asia, and that a major contributing factor was “the social norms around how women and men make financial decisions in a household, the ‘appropriateness’ of men and women interacting with sales agents of the opposite sex, and community perceptions of male and female roles.”

Female agents can help to overcome such social barriers, and in doing so, help women gain more control over their financial lives. In Somaliland, the hiring of female agents removed a significant barrier to women, who otherwise couldn’t open an account with a male agent. In addition, female agents are a source of inspiration for their peers who may feel empowered to play leadership roles in their communities.

It is important, however, that female agents be incorporated into mainstream field force networks, rather than sidelined into the “female-only” category. This is true even in markets like Somaliland where clients are quite segregated by gender. If they are to bring the maximum benefit to their clients in the field, women agents need to receive the same training and market engagement as male agents. In agricultural extension models of female-only agents targeting only women farmers, those farmers tend to be sidelined into traditional crops, with a focus more on subsistence and nutrition rather than on access to markets and integration into commercial value chains.

More research is needed into the impacts of female agents on women clients. It can be challenging to hire women as field force workers, given that women may have lower literacy and numeracy skills than men, and may have less ability to invest in becoming an agent. To attract more female applicants, agricultural enterprises and mobile network operators need to invest more in dedicated recruitment and training opportunities for women. In order to justify this additional investment, businesses and/or donors need the evidence that this investment will result in greater outreach and benefit for female customers and their communities. If successful that investment could have significant benefits. In the mobile space alone, closing the gender gap is an estimated $170 billion market opportunity.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/03/23/will-the-crowd-support-more-women-agents/">Will the Crowd Support More Women Agents?</a>

<a href="https://cfi-blog.org/2017/02/24/why-women-in-smes-lean-out/">Why Women in SMEs Lean Out</a>

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?</a>

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