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

Financial Inclusion: For What?

Financial Inclusion Week 2019

Consumer Protection

Financial Health

Financial Service Providers

Resilience

Social Performance

Blog Post

This post is adapted from the recently-released publication “<a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.

As many know too painfully well, catastrophic events like climate change-related disasters can cause financial stress long after they have occurred. In fact, less than 30 percent of losses from catastrophic events are covered by insurance, which means the remaining 70 percent of the burden is carried by individuals, firms, and the “insurer of last resort,” governments. According to the Insurance Development Forum, a 1 percent increase in insurance penetration could reduce the disaster-recovery burden on taxpayers by 22 percent.

The United Nations member states, in the Sendai Framework for Disaster Risk Reduction, declared that governments have the primary role in reducing disaster risk. Governments can be well-positioned to support the introduction of insurance products to those in rural areas who are particularly vulnerable to the effects of climate change. Additionally, many observers believe that agricultural insurance requires government subsidies. Governments have a key role to play here, but they shouldn’t have to go it alone. The responsibility of buffering against the effects of disasters should be shared with other stakeholders, including local government and the private sector.

New forms of public-private partnerships can help countries absorb the financial consequences of catastrophic events. Swiss Re partners with governments and multilateral institutions through public-private partnerships that mitigate the effects of natural catastrophes. Paula Pagniez of Swiss Re points out that the key is long-term investment. A number of innovative projects have folded—not because they are unsuccessful, but because donors are not thinking long-term.

In China, the government persuaded hundreds of millions of farmers to use insurance to hedge against the risks of climate change. The government subsidizes the insurance, but at least 20 percent of the premiums come from farmers.

The government of India, after mounting losses due to extreme weather—80 percent of which were uninsured—is mandating insurance to address its highly vulnerable agriculture sector. Its recent scheme, Pradhan Mantri Fasal Bima Yojana, launched in 2016, sets premiums for farmers growing specific crops. The government has also required private insurers to set aside 20 percent of policies to cover people in rural areas.

Insurance companies manage their own risk in part by protecting farmers from adverse changes in the climate through activities such as training on how to cope with erratic weather patterns and paying for artificial hail-suppression services.

It is also worth mentioning multi-country risk-pooling initiatives such as the African Risk Capacity partnership, which works with member states of the African Union while drawing on expertise, underwriting, and reinsurance from private companies such as AXA and Willis to help governments respond to extreme weather events and natural disasters.

Often, these complex partnerships benefit from external brokering. Cenfri, as an independent policy think tank, has the patience for brokering longer-term relationships and models. The MicroInsurance Centre likewise has deep experience working with commercial insurers, foundations, bi- and multilateral development agencies, regulators, NGOs, and others. The International Finance Corporation has promoted insurance as an element of public-private partnerships to address climate risk and other challenges.

We cannot insure our way out of all the risks of climate change and natural disasters, yet governments and insurers are recognizing the risks and working creatively with a range of partners to mitigate them.

For more on inclusive insurance, read “<a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>.”

Image credit: <a href="https://www.flickr.com/photos/44760652@N05/8048402381/">International Maize and Wheat Improvement Center</a>

Have you read?

<a href="https://cfi-blog.org/2018/01/08/inclusive-insurance-closing-the-protection-gap-for-emerging-customers/">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>

<a href="https://cfi-blog.org/2018/01/18/how-technology-is-propelling-inclusive-insurance/">How Technology Is Propelling Inclusive Insurance</a>

<a href="https://cfi-blog.org/2018/01/29/inclusive-insurance-its-a-team-effort/">Inclusive Insurance: It's a Team Effort</a>

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The Role of Public-Private Partnerships in Reducing Disaster Risk

MetLife Foundation

Financial Inclusion 2020

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

India

Risk Management

&gt; Posted by the Microfinance CEO Working Group

[caption id="attachment_23928" align="alignright" width="305"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/2016-by-the-numbers.png"><img class="wp-image-23928" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/2016-by-the-numbers.png?w=490" alt="" width="305" height="390" /></a> (click to enlarge)[/caption]

What’s been happening with the Microfinance CEO Working Group (MCWG)? We’re glad you asked. Fresh-off-the-press is a <a href="http://bit.ly/MCWG2016">new annual report</a> from the MCWG, detailing the Working Group’s key accomplishments and activities of the past year. Consumer protection is among the standout areas for the MCWG for 2016. Over the course of the year, 14 local partners belonging to the MCWG network achieved <a href="http://smartcampaign.org/certification">Smart Certification</a>, including BRAC Bangladesh, the first microfinance provider in the country and the largest in the world to reach the consumer protection milestone. In total, 21.9 million clients are served by 39 MCWG network Smart Certified institutions.

The MCWG is comprised of the leaders of 10 global microfinance organizations: Accion; Aga Khan Agency for Microfinance; BRAC; CARE; FINCA; Grameen Foundation; Opportunity International; Pro Mujer; VisionFund International; and Women’s World Banking. The newest member, added in 2016, is the Aga Khan Agency for Microfinance and its General Manager Jesse Fripp. The MCWG also harnesses the expertise of more than 40 senior staffers across the member organizations, who meet regularly across seven Peer Groups focused on specific areas of microfinance, from digital financial services, to social performance, to communications, taxation, and others. Members and local partners work with more than 89 million clients in 87 countries, providing them with financial services as well as other support to help them succeed and lift their families out of poverty.

The MCWG provides a forum for members to advocate on behalf of the microfinance sector, develop common industry standards, and share best practices in an effort to help organizations improve their services and expand their reach. The Working Group seeks to expand financial inclusion by leveraging longstanding expertise in the delivery of microfinance services and collaborating with those best positioned to scale quality financial services.

On consumer protection, a priority for the group, the MCWG advocates to the industry for the development and adoption of best consumer practices, and it also leads by example, encouraging the financial institutions in its network to take up these standards themselves. Along with the Smart Campaign and Smart Certification, the MCWG supports the Social Performance Task Force (SPTF). The results of the group’s testing of SPTF’s social performance management standards were incorporated into CERISE’s Social Performance Indicators Tool (SPI4), which is one of the most widely used assessment tools for double bottom line microfinance institutions. Over the past three years, 74 local partner institutions have conducted a SPI4.

The MCWG works with central banks to strengthen client protection regulations. The MCWG, in collaboration with Accion, New Perimeter (law firm DLA Piper’s global pro bono initiative), and the Smart Campaign, developed the <a href="https://issuu.com/microfinanceceoworkinggroup/docs/model_legislation_-_english">Model Legal Framework for Financial Consumer Protection</a> (MLF). In 2016, the MLF team particiapted in 12 events across seven countries, training more than 270 financial inclusion stakeholders, including more than 100 regulators and bank supervisors, on the MLF and the Smart Campaign’s underlying Client Protection Principles. Many of these regulators are using the MLF as a reference or even incorporating some of its suggestions directly as they develop their consumer protection regulations.

In March of 2016, the MCWG joined several industry voices to discourage interest rate caps being considered by the Central Bank of Nigera (CBN). It endorsed the creation of client protection regulations and provided suggestions on how transparency and responsible lending measures could help achieve some of the objectives of interest rate caps without the reduction of service to small borrowers that interest rate caps often cause. These efforts ultimately contributed to the CBN’s decision not to impose interest rate caps and instead work on a body of consumer protection regulations.

These are just some of the ways that the MCWG is working to strengthen the financial inclsuion industry and ensure the consumer is treated fairly.

The MCWG's annual report also spotlights how the network is harnessing fintech and innovation. For example, in Bangladesh, BRAC's app-based cash collection system has provided 8,500 tablets to credit officers, enabling them to do cash collection in the field. This paperless process will save time and money - an estimated $1 million per year - and allow credit officers to serve clients better by having information readily available.

For more, read the MCWG’s annual report, <a href="http://bit.ly/MCWG2016">here</a>.

Have you read?

<a href="https://cfi-blog.org/2014/05/19/new-microfinance-ceo-working-group-papers-examine-causes-and-potential-remedies-for-over-indebtedness/" target="_blank" rel="noopener">New Microfinance CEO Working Group Papers Examine Causes and Potential Remedies for Over-Indebtedness</a>

<a href="https://cfi-blog.org/2015/07/07/model-law-for-best-practice-in-financial-consumer-protection-an-important-driver-for-universal-financial-access/">'Model Law for Best Practice in Financial Consumer Protection': An Important Driver for Universal Financial Access</a>

<a href="https://cfi-blog.org/2017/06/05/the-smart-campaign-promotes-stronger-client-protection-and-sector-collaboration-in-uganda/">The Smart Campaign Promotes Stronger Client Protection and Sector Collaboration in Uganda</a>

The Microfinance CEO Working Group Reports Out: Consumer Protection by the Millions and Other Updates

Bangladesh

Agent Banking

Microfinance Institutions

Smart Certification

WeBank started piloting facial recognition for KYC (“know your customer”—verifying that a customer is who they say they are) last year—we heard about it when we talked with Jared Shu, a partner with McKinsey, as part of our <a href="http://www.centerforfinancialinclusion.org/storage/documents/IIF_CFI_Report_FINAL.pdf">deep dive about the different ways banks pursue financial inclusion</a>. At that point, the technology was mere possibility, with some question about whether the regulator would allow it. Now, it seems, facial recognition is indeed serving as a form of identity in China. With the help of technology, customers can quite literally authorize a transaction <a href="https://www.technologyreview.com/s/603494/10-breakthrough-technologies-2017-paying-with-your-face/">using their face</a>.

Alipay, a mobile payment app launched by Alibaba in 2004 and used by 120 million people in China, is partnering with Face++ (pronounced “face plus plus”) to allow people to use their face as a credential to make payments. The technology is a natural extension of using a fingerprint to verify a person’s identity, and it is far more secure than just comparing a signature on the back of a credit card to a signature on a receipt.

Software can distinguish between faces far better than humans can. You may have noticed this when you uploaded photos to social media like Facebook and the platform suggested names for the faces in your photos. Face++ uses 83 different points on the human face to verify a person, assigning a measure to the distance between each of the points. It is this combination of distances that verifies identity. The technology’s use cases go beyond the financial system to unlocking doors (literal ones—as in you don’t carry a key any longer), tracking down criminals, or verifying Uber drivers/riders. A scenario is even possible in which a customer walks into a store and receives a personalized experience based on their previous spending—just like Tom Cruise gets to enjoy in “Minority Report.”

While I am slightly disturbed by some of the implications of corporations having a searchable image of my face on their servers, I am optimistic about the possibilities that this technology offers. Open a bank account by holding up your iPad to your face! Split a cab fare by holding a smartphone to your friend’s face! Send money for your niece’s birthday using voice recognition technology even while you’re stuck on the bus! More convenience in my financial services? Yes, please.

However, everything I have read about this technology is just that—a push for convenience to make transactions easier for existing customers. Nowhere am I reading about increasing access to people who aren’t carrying high definition cameras in their pockets or rucksack. The big news should be small microfinance institutions in the Democratic Republic of the Congo equipping their staff with iPads that will enable them to solve the problem of the majority of the population not having a government-issued id. We should be hearing about some of the problems of de-risking solved by the possibility of a reliable and robust technology that verifies identity through a means that people aren’t likely to lose when their wallet gets stolen.

Why are we not hearing about the application of this technology for low income populations? This is not a rhetorical question—I truly want to know. Is it that the technology is too expensive? Too experimental? Doesn’t fit squarely within regulatory requirements? I would love to hear your thoughts in the comments below if you have any.

Creative ways of solving the identity problem are exciting and present new possibilities for financial inclusion. I will be anxiously watching this space to see how these new possibilities are translated into creating a more enabling environment to include more low income and vulnerable customers into the financial system.

Have you read?

<a href="https://cfi-blog.org/2016/09/08/the-new-wave-of-partnership-models-between-banks-and-fintech-startups/">The New Wave of Partnership Models Between Banks and Fintech Startups</a>

<a href="https://cfi-blog.org/2017/01/05/the-news-from-china-can-a-speeding-ticket-hurt-your-credit-score/">The News from China: Can a Speeding Ticket Hurt Your Credit Score?</a>

<a href="https://cfi-blog.org/2015/09/08/new-case-study-provides-evidence-on-the-impact-of-digital-field-applications/">New Case Study Provides Evidence on the Impact of Digital Field Applications</a>

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Sign Here, And Put Your Face Here

Financial Inclusion Strategy

&gt; Posted by Kimberly Lei Pang, Digital Learning Specialist, UNICEF

<a href="https://www.flickr.com/photos/58571789@N00/6991751189/"><img class="alignright wp-image-23671" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/05/6991751189_f0fc74a58e_z.jpg" alt="" width="325" height="217" /></a>In the story of Ali Baba and the 40 Thieves, the magical word “sesame” was used to open the seal of a cave where Ali Baba found hidden treasure. In China today, the same word is connected to another kind of magic, one that reveals hidden identities of the socially and economically disadvantaged. Sesame Credit (“芝麻信用” in Mandarin) is a product launched by <a href="https://www.forbes.com/companies/alibaba/">Alibaba</a> that pulls from transaction records on e-commerce platforms to understand a person or company’s creditworthiness. Such innovation in credit scoring is part of the “social credit system” that the Chinese government is building to make up for the longstanding shortage of credit data.

Access to credit, a major indicator of financial inclusion, has gained increasing attention from Chinese policymakers in recent years. For a country experiencing an economic slowdown and widening income gap between the rich and the poor, credit accessibility has the potential to spur growth and level the playing field for the poor. However, despite China’s efforts to improve financial access, a large portion of its population neither uses nor has access to credit. Data from the World Bank’s Global Findex study showed that Chinese people (aged 15+) have relatively high levels of formal bank account ownership (<a href="http://databank.worldbank.org/data/reports.aspx?source=1228">79 percent</a>, 2014) but low levels of credit usage (<a href="http://databank.worldbank.org/data/reports.aspx?source=1228">14 percent</a>, 2014). In fact, China’s formal credit use is the <a href="https://helda.helsinki.fi/bof/bitstream/handle/123456789/12748/173611.pdf?sequence=1">lowest among the five BRICS economies</a>. Aside from the rigidity and costliness of financial institutions, a significant barrier to borrowing is the lack of reliable credit scoring in China. Established just 11 years ago, China’s credit bureau CCRC covers credit profiles for only <a href="https://www.fitchratings.com/site/pr/997017">a quarter of China's 1.4 billion population</a> and shares that information only with selected banks. Lenders thus often have no access to borrowers’ financial histories and tend to make rather arbitrary decisions on borrowers’ creditworthiness. As a result, many individuals and microenterprises find it difficult to get a loan, as steady employment and collateral assets are commonly required for formal credit.

In order to fill the gap in credit scoring, <a href="https://www.bloomberg.com/news/articles/2015-07-02/china-credit-scores-come-to-a-debt-leery-culture">a few non-banking institutions</a> in China were awarded licenses by the central bank to seek innovative solutions to collect data and create credit profiles for people who would otherwise have no credit scores. One of the solutions is Sesame Credit. Although alternative credit scoring is nothing new in the financial inclusion space, what sets Sesame Credit apart is its direct access to a unique database of consumer information: <a href="http://www.alizila.com/alibaba-group-reports-quarterly-and-fy2016-results/">400 million annual active users</a> on Alibaba’s e-commerce and payment platform, which includes purchasing volume, payment histories, personal information, and social networks. Having a “Sesame Score” is suddenly equivalent to a new identity for China’s credit invisibles, including students and migrant workers. Depending on their scores, they can now take out loans, pay mortgages, find better jobs, and even <a href="http://www.bbc.com/news/world-asia-china-34592186">step up their dating game</a>.

While Sesame Credit has shown some early success in expanding access to credit for underserved consumers, it also comes with inherent drawbacks that present problems for potential borrowers.

First, Sesame Credit is tied to the ownership of a smartphone or computer. China’s rural areas, where <a href="http://data.worldbank.org/indicator/SP.RUR.TOTL.ZS?locations=CN">44 percent</a> of China’s total population resides, have a smartphone penetration rate of only <a href="http://www.nielsen.com/cn/en/press-room/2015/Nielsen-Chinese-Smartphone-Market-Now-Driven-by-Upgrading-EN.html">32 percent</a> (2015). Internet users in rural areas only account for <a href="https://www.chinainternetwatch.com/19697/top-stats-2017/">27 percent</a> of all of China’s internet users (2017). Therefore, rural residents who need access to credit the most may still be left out.

In addition, Sesame Credit has not explained how exactly it calculates its credit scores, besides saying that it is a "complex algorithm". This lack of transparency causes information privacy and protection concerns. Consumers do not have the opportunity to check the accuracy of the underlying data or know how to make improvements.

Last but not least, as part of the country’s social credit system pilot, Sesame Credit also takes into account a diversity of nonfinancial factors and behaviors when assigning users credit ratings. It is suspected that a minor traffic violation can also determine a consumer’s ability to pay back a loan. One can easily argue that a nonfinancial factor like <a href="https://cfi-blog.org/2017/01/05/the-news-from-china-can-a-speeding-ticket-hurt-your-credit-score/">a minor traffic violation</a> shouldn’t negatively impact one’s ability to access credit.

All told, it’s great to see that, in its efforts to promote a more financially inclusive economy, China is encouraging credit underwriting innovations such as Sesame Credit to improve access to financial services and foster experiences with formal financial services among the unbanked. Yet, it’s still too early to tell if Sesame Credit has the potential to effectively reach critical mass as well as provide reliable insight into consumers’ credit worthiness. What is clear is Chinese policymakers and regulators must strike a balance between the space for innovation and the need for greater transparency and consumer protection. A social credit system may indeed work as intended if the system holds both consumers and financial service providers accountable.

Kimberly Lei Pang is a Digital Learning Specialist in the Digital Strategy Section, Division of Communications, UNICEF NYHQ. She is also an Executive MPA candidate at Columbia University’s School of International and Public Affairs.

Image credit: <a href="https://www.flickr.com/photos/58571789@N00/6991751189/">Jens Schott Knudsen / flickr / CC BY 2.0</a>

Have you read?

<a href="https://cfi-blog.org/2017/01/05/the-news-from-china-can-a-speeding-ticket-hurt-your-credit-score/">The News from China: Can a Speeding Ticket Hurt Your Credit Score?</a>

<a href="https://cfi-blog.org/2016/04/05/improving-access-and-usage-of-financial-products-and-services-in-china/">Improving Access and Usage of Financial Products and Services in China</a>

<a href="https://cfi-blog.org/2016/05/11/financial-education-in-china-challenges-and-lessons-in-an-embedded-model/">Financial Education in China: Challenges and Lessons in an Embedded Model</a>

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Open Sesame! Give Me Some Credit

China

Consumer Credit

Credit

&gt; Posted by Alex Counts

<img class="alignright wp-image-22582" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/12/thumb_0c6a18b0775a452b984dcc6a587d8577-1.jpg" width="330" height="220" />During my final years as President of <a href="http://www.grameenfoundation.org/">Grameen Foundation</a> and Co-Chair of the <a href="http://microfinanceceoworkinggroup.org/">Microfinance CEO Working Group</a> (MCWG), I advocated that two papers be written that I had neither the time nor the expertise to do justice to myself.

The first paper was a distillation of lessons for practice from recent studies on the impact of microcredit and microfinance. Many papers that set out to determine whether microfinance worked stumbled on important insights about how it could work better. Unfortunately, those discoveries were buried in papers that people barely read beyond summaries and extracts. A paper that presented these “lessons for practice” in a form that was accessible to busy practitioners could make a big impact, by removing friction from the maddeningly difficult process of using research to positively influence policy and practice.

The second paper I advocated for was one that made the case for how philanthropy and social/impact investing, and more broadly, subsidy, could play a positive role in the microfinance industry today. Such a paper would need to start with making the case that such social investments had any role to play, as the conventional wisdom was settling on the idea that it did not have any.

When Tim Ogden joined a MCWG meeting about four years ago, I was surprised when he responded positively to my plea for some researcher to agree to write the paper on lessons for practice. He later agreed to write it and I helped connect him with a source of funding, the <a href="http://linkedfoundation.org/">Linked Foundation</a>, an impressively flexible philanthropy based in Santa Barbara. I wrote a <a href="https://alexcountshaitibook.wordpress.com/2013/10/18/a-surprising-microfinance-researcher-and-possible-implications-for-haiti/">blog post</a> about how his openness to ideas from others and to this idea in particular was refreshing. In one of the amusing ironies of my relationship with him, Ogden ended up not writing a paper about “lessons for practice,” but instead the second one I was calling for <a href="http://www.financialaccess.org/publications-index/2016/ogdenmicrocredit">on the role of philanthropy and impact investing in microfinance</a> (though this paper does touch on the former topic). Fortunately, he has done an excellent job with the paper he ended up writing.

I will start with three quibbles. In an otherwise clear-eyed and accessible analysis of the research literature to date (including both RCTs and other methodologies), he fails to acknowledge the central weakness of the often-made argument that studies have proven that microfinance in general has modest (if any) positive impact on poverty. While the clients of the microfinance institutions being studied are randomized, the choices of the MFIs themselves have been anything but random. In fact, those choices were highly opportunistic and as a result, not especially representative of MFIs in general. The tendency to generalize these findings is actually on quite shaky ground. (For a more complete treatment of the research literature, see <a href="http://www.grameenfoundation.org/resource/measuring-impact-microfinance-looking-future">this Grameen Foundation report</a> by Professor Kathleen Odell, and for more on my critique on how current research has been characterized, see <a href="https://cfi-blog.org/2015/08/27/how-we-talk-about-microfinance-a-reply-to-dean-karlan/">this post</a> on the <a href="https://cfi-blog.org/">Center for Financial Inclusion blog</a>.)

Secondly, when he writes about smart subsidy, Ogden leaves off investments in industry infrastructure such as the <a href="http://microcreditsummit.org/">Microcredit Summit Campaign</a>, the <a href="https://www.themix.org/">MIX</a>, the <a href="http://sptf.info/">Social Performance Task Force</a>, the <a href="http://www.smartcampaign.org/">Smart Campaign</a>, and <a href="http://www.cerise-microfinance.org/">Cerise</a>, even though he notes their importance earlier in the paper. (So this may simply be an oversight on his part as he rushed to finish it.)

Lastly, his idea of microfinance failing the “eyeball test” (in terms of villages where microfinance was widely available having significantly improved over a reasonable period of time) suggests that he did not walk around rural Bangladesh in the early 1990s then repeat the exercise twenty years later.

Here are eight of the unique strengths of this paper:
<ol>
 	<li>He helpfully puts microfinance in a larger context by acknowledging the fact that it developed a uniquely powerful and global platform for social change. He notes that microcredit is the only social innovation to: (1) reach global scale, (2) build a complete industry infrastructure, (3) tap into commercial capital on multiple continents, and (4) “produce enough profit to generate actual controversy over the returns to social investments.” I have been making <a href="http://www.grameenfoundation.org/blog/reflections-latest-studies-microcredit#.WFMwtlMrLIU">similar points myself</a>, so it is good to have Ogden affirming them in his own way.</li>
</ol>
<ol start="2">
 	<li>The paper includes an excellent and accessible analysis of the research literature and also the current role and extent of subsidy in microfinance. He notes that subsidies remain widespread but generally small. He describes the counter-intuitive (and frankly ironic) reality where “for-profit [microfinance] institutions rely more heavily on subsidy than non-profit ones” – the apparent result of recent funding priorities and fads. He cites new <a href="http://documents.worldbank.org/curated/en/404501470669620154/The-microfinance-business-model-enduring-subsidy-and-modest-profit">research</a> showing the total average subsidy as $26 per borrower, and acknowledges that even this modest figure is inflated due to “the very high subsidies at some commercial institutions.”</li>
</ol>
<ol start="3">
 	<li>He points out that focusing almost entirely on the “average impact” on clients in research studies, which many industry players have done, distorts the findings and their meaning. In his words, “…concluding that microcredit ‘doesn’t work’ because the average impact is modest is wrong.” His point is that simple averages mask important distinctions within a distribution that can make the difference between something that shows great promise and something that does not. He makes the important related point that studying what is going right with the 10 percent of microcredit clients who are already benefitting significantly from current products – the ones on the extreme positive end of the benefit/harm distribution curve – can help us better target existing products and to develop better ones for everyone else. Furthermore, he notes that recent studies are attempting to measure the impact of increased access to microcredit, not the impact “when it is (or was) first introduced.”</li>
</ol>
<ol start="4">
 	<li>He persuasively makes the case that the current business models of microfinance – with their low subsidy and low profitability in many of the largest and most competitive markets – almost ensure that investment in innovation will be minimal. In other words, testing new approaches that build on important research findings will be limited without external support. Ironically, the flight of philanthropy and (to a lesser degree) social investment from microfinance – caused in part by the widespread misinterpretation of recent research – would help ensure that research findings that could lead to improved practice and impact are not acted upon.</li>
</ol>
<ol start="5">
 	<li>He argues that social investment and philanthropy will be critical to spurring innovations in leveraging the global microfinance platform for greater sustained impact. Ogden writes, “Increasing the impact of microcredit will require new products, new operational procedures and perhaps even new business models. Testing these … will almost inevitably lead to higher default rates, higher operating costs and lower sustainability ratios in the short term. Social investors will need to adapt their mindset to drive innovation in microcredit.”</li>
</ol>
<ol start="6">
 	<li>He states what should be obvious to any observer of the industry but is rarely acknowledged: “Raising interest rates enough to generate surplus needed for risk-taking innovation is simply not in the cards for most microfinance institutions.”</li>
</ol>
<ol start="7">
 	<li>The paper argues that the significant opportunity is to leverage findings showing that targeting loans to those “most likely to achieve high returns” and to particular industries holds great promise, but is unlikely to be acted upon given the funding priorities of most donors and social investors.</li>
</ol>
<ol start="8">
 	<li>Another area ripe for social investment is product design. He notes that researchers found that building in grace periods for loan repayment increased positive impact but led to somewhat lower repayment rates, and as a result were cancelled by MFIs as their “social” investors were uncomfortable with the uptick in default rates (even though the product was still profitable). Truly patient capital can make it easier for MFIs and other lenders to absorb short-term losses that come from potentially high-impact experiments like this one.</li>
</ol>
Before this review grows longer than the paper itself, let me conclude with a simple observation. The conventional wisdom about two related subjects – the meaning and implications of microfinance research and the optimal role of subsidy – has been deeply flawed for a long time. Tim Ogden has brought some fresh thinking in an accessible format to these issues, and I applaud him for this contribution.

To read Tim Ogden's paper, "The Case for Social Investment in Microcredit", <a href="http://www.financialaccess.org/publications-index/2016/ogdenmicrocredit">click here</a>.

Counts is the President of <a href="http://aif.org/">American India Foundation</a>, the founder of Grameen Foundation, and a founding member of the Center for Financial Inclusion’s Advisory Council.

Image credit: Accion

Have you read?

<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/2015/10/21/part-of-a-toolbox-angus-deaton-urges-reconsideration-of-the-role-of-rcts/">Part of a Toolbox: Angus Deaton Urges Reconsideration of the Role of RCTs</a>

<a href="https://cfi-blog.org/2015/03/03/what-impact-investors-could-learn-from-microfinance/">What Impact Investors Could Learn from Microfinance</a>

A Review of 'The Case for Social Investment in Microcredit' by Tim Ogden

Impact Investing

Microfinance

&gt; Posted by the Social Performance Task Force (SPTF)

The following is the third post in a four-part blog series on the financial inclusion of refugees and the internally displaced. The first post can be found <a href="https://cfi-blog.org/2016/09/20/financial-inclusion-of-refugees-an-introduction/">here</a>, and the second <a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">here</a>.

Overview of refugee populations in Lebanon

The multi-cultural and open economy of Lebanon is no stranger to the need to accommodate refugees. Over the years, Lebanon, which has a population of roughly 6 million, has generously maintained an open border policy and has, until restrictions were introduced in 2014-15 following the very large influx of Syrian refugees, permitted refugees to settle temporarily but freely across the country. The country’s experience in providing financial services to these refugees and internally displaced persons offers insights for financial institutions around the world on serving these vulnerable global populations.

Lebanon's refugee populations are diverse. The largest refugee group is Palestinian, around half of whom live in the 12 recognized Palestine refugee camps. From Iraq, about 50,000 refugees arrived after American-launched military operations in Iraq in 2003. Many of the Iraqi refugees were at one time middle-class professionals who have self-settled in urban areas in Lebanon. Syrians, who have a long history as migrant workers in Lebanon, have never been counted as foreign workers, and many were known to work in Lebanon before the war in Syria. But when civil war broke out in Syria in 2011, an unprecedented number of Syrians emigrated to Lebanon. As of October 2015, close to <a href="http://www.refworld.org/docid/56557d3b4.html">1.1 million</a> Syrian refugees in Lebanon had registered with the United Nations High Commissioner for Refugees (UNHCR).

Serving as a refugee in Lebanon requires the ability to navigate in an environment of extremely complex political, economic, social, and security-related volatilities. For example, <a href="http://www.ilo.org/wcmsp5/groups/public/---dgreports/---exrel/documents/briefingnote/wcms_368227.pdf">Lebanese labor laws exclude</a> Palestinian refugees from Syria from entry into formal employment, while newer restrictions allow for Syrian refugees to obtain work permits only in the traditional migrant worker sectors of agriculture and domestic services, where almost half of the Syrian refugee workers are employed, and in construction. The increased competition for low-quality, low-skilled jobs has <a href="http://documents.worldbank.org/curated/en/698161468179049613/Lebanon-Promoting-poverty-reduction-and-shared-prosperity-a-systematic-country-diagnostic">resulted</a> in depressed wage incomes and increased job insecurity, which is a key perceived stress factor for both refugee and host communities. These dynamics can <a href="https://data.unhcr.org/syrianrefugees/download.php?id=9399">trigger</a> resentment and fear especially among lower-income Lebanese workers and entrepreneurs, including the traditional core clientele of financial service providers (FSPs) like Al Majmoua.

Al Majmoua - history and structure

Save the Children launched Al Majmoua (Arabic for “the Group”) was established in 1994 as a microfinance program with USAID funding to provide group loans to lower-income women entrepreneurs across disadvantaged areas of Lebanon. In 1997, it became an autonomous NGO. One of Al Majmoua's <a href="http://www.almajmoua.org/visionandmission.aspx">strongly held values is inclusiveness</a>; though Al Majmoua's core clientele are women, it also serves lower-income men as well as individuals of “any nationality whether located in rural or urban regions; [it] also serve[s] refugees and reach[es] out to those living in remote areas and Palestinian camps all over Lebanon.” As of October 2015, Al Majmoua had 54,000 active borrowers holding USD 49 million in loans. Fifteen percent of these borrowers are non-Lebanese, including migrant workers, Palestinians, and Syrian refugees. Contrary to some fears that loans to refugees are high risk, as of 2015, each of Al Majmoua's client segments, including the non-Lebanese, has a 30 day portfolio at risk rate below 1 percent.

Al Majmoua offers group and individual loan products for micro- and SME enterprises, information and communication technology (ICT) start-ups, and youth entrepreneurs. It also offers salary-guaranteed loans, home improvement loans, loans to pay school fees for children, and loans for the disabled.

Lessons learned from Al Majmoua on serving refugees

Expect initial staff and leadership resistance, but this can be overcome. Inclusion of refugees challenges stereotypes and preconceived ideas about ‘the other.’ This requires determined drive from the board and senior management. A good first step for institutions is to have an open-ended board discussion on why refugee populations in their country are – or are not – served by their FSP. Institutions might also consider a discussion on ‘why not refugees?’ with their national associations, and can meet with relevant external stakeholders such as protection agencies to get more information on refugee populations. Once the reasons for ‘why not’ are put on paper, a strategy session with management to convert obstacles into opportunities is a great next step.

Solicit and analyze feedback from institutions’ own staff and clients before offering services to refugee populations. Al Majmoua initiated a series of focus group discussions with existing clients to discuss the idea of offering financial services to Syrian refugees. These discussions revealed very significant negativity. A majority of clients feared being outpriced or losing jobs to Syrians willing to work more for less, and they did not think Al Majmoua should “help the competition.” Demand for rental housing was felt to be surging, affecting also rent costs for Lebanese. During 2012, the injection of relief funds in the economy was believed to inflate prices of basic commodities, while the increased demand for goods by refugees was seen to benefit larger businesses (for example, refugees were provided cash or vouchers to use in select, large supermarkets) at the expense of the small stores operated by Al Majmoua’s clients.

Develop and share the business case/strategy to secure buy-in. Developing the business case for serving refugees based on hard data can be difficult to do upfront, due to a big information gap. One path forward is institutions making it a point to compile all the questions and concerns for which they do not have an upfront answer and incorporate these into a ‘feasibility study’ to eventually build a business case that works for all stakeholders. As the business case is developed, it’s essential that all stakeholders are fully informed. For Al Majmoua, a key turning point came when clients and staff felt their concerns were being heard and addressed in the pilot project.

Market research is indispensable. Because culture, language, and traditions among the targeted refugee population differ from those in the host community, and thus also from FSP staff, market research is critical, as adaptation and adjustments to products or procedures may be necessary. Furthermore, market research can help make refugee populations become more visible to the FSP. A recommended starting point is consulting with protection agencies and local authorities, as they can usually assist with numbers, location maps, and basic socio-economic profiles of refugee populations. Al Majmoua suggests that FSPs focus their market research in the value chains where refugees have an advantage, such as in ethnic foods and handicrafts. Further, institutions supporting refugee associations offer another means for learning about and engaging with local populations. Institutions might also create opportunities for repeated informal meetings between refugees and existing clients and staff.

Do not outsource client selection. Protection agencies may refer the most vulnerable refugees, as they prioritize needs, even though FSPs can best serve the working or entrepreneurial poor. The experience of Al Majmoua suggests to not outsource or rely on referrals from other agencies for client selection or appraisals.

Non-financial services are relevant to refugees – and a good entry point. Offering non-financial services can be a great entry point for refugees who are often socially isolated, but  services must be based on actual, specific demand. Involve participants in the design of curriculum and activities, and take the time to find the right trainer - . Include the cost of transport to activities if possible, as transportation can be an access barrier to poor refugees. Finally, institutions should expect tension and be patient. Al Majmoua found that it took an average of two sessions among youth and four sessions among women for non-financial services participants to start feeling comfortable with each other.

Expand inclusive financial products to refugees. There is no need to develop specific ‘refugee products’ and in fact, segregated product access can be counter-productive and cause tension with existing clients. Refugees can perform as well as any other financial services clients, when well segmented and appropriately appraised.

Review and update the risk management regime. Lastly, during the pilot test period of serving refugees, institutions should review their risk management systems and risk mitigation measures to check that these accurately identify and mitigate risks appropriately.

The experience of Al Majmoua in including refugees in its portfolio of financial and non-financial products has been largely positive. The overwhelming message to other FSPs is not to be afraid: Appropriately segmented and appraised, refugees can be as good clients as any national low-income entrepreneur – and sometimes better.

This blog post was adapted by SPTF from the case study on Al Majmoua by Lene Hansen. To read the complete case study, please go to the <a href="http://sptf.info/working-groups/refugee-microfinancehttp:/sptf.info/working-groups/refugee-microfinance">”Refugee Microfinance” page</a> of the SPTF website.

Have you read?

<a href="https://cfi-blog.org/2016/09/20/financial-inclusion-of-refugees-an-introduction/">Financial Inclusion of Refugees: An Introduction</a>

<a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">Financial Inclusion of Refugees: Azerbaijan Case Study</a>

<a href="https://cfi-blog.org/2015/06/30/political-risk-is-keeping-microfinance-ceos-up-at-night/">Political Risk Is Keeping Microfinance CEOs Up at Night</a>

Financial Inclusion of Refugees: Al Majmoua in Lebanon

Lebanon

Refugees and Migrants

Underserved Groups

&gt; Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, The Smart Campaign

The following is the first post in a four-part blog series on the financial inclusion of refugees and the internally displaced. 

The unresolved Syrian conflict and the slow collapse of nation-states on Europe’s periphery have brought the topic of refugees back into the media spotlight. Whereas previously, refugees were often seen as a problem of the Global South, events have now brought migrants to Europe’s doorstop, forcing OECD countries to consider new strategies to provide for and integrate this population. Yet as refugee assistance becomes a hot topic once again, old myths and fictions have reemerged. Refugees are often described as highly transitory populations with few marketable skills who will inevitably rely on long-term government assistance. But these stereotypes are frequently inaccurate.

Providers of financial services for the poor can play a critical role in empowering refugee populations. By offering credit, insurance, savings and other products, these providers can help refugees transition beyond reliance on economic assistance programs, achieve independence, and contribute to their host countries. To attain this goal, however, the financial inclusion sector needs to gain a better understanding of the specific challenges and opportunities that refugees face and the financial needs they are likely to have. This is the first in a series of blog posts where we’ll discuss some of these critical questions. What happens when a previously included individual is excluded from the formal financial system? What special vulnerabilities do refugee populations face and what special protections can help ensure that they are not taken advantage of by lenders? How have other countries used financial services to help meet this challenge in the past?

In this post, we discuss two commonly told refugee narratives and explore what we already know about including forced migrants in the formal financial sector.

Myth 1. Refugees are transitory. To begin, how long do refugees typically stay in a refugee camp? It’s a lot longer than most people think. The most commonly quoted statistic (see <a href="http://www.cnn.com/2016/05/18/architecture/sean-anderson-moma-refugee-architecture/">CNN</a> and <a href="http://www.huffingtonpost.com/dale-buscher/why-refugees-need-to-make_b_256589.html">The Huffington Post</a>) is that the average length of stay in a refugee camp is 17 years. <a href="http://www.bbc.co.uk/programmes/p03wgr2n#play">According to the BBC</a>, this figure comes from a partial misreading of a 2006 report by the United Nations High Commission for Refugees (UNHCR), which used the figure to describe the average duration of refugee situations rather than the average duration of refugee encampment. More accurate statistics are hard to come by: the definition of a refugee often depends on the individual or organization deploying it. Nevertheless, while the average stay in a refugee camp may be well under 17 years, it is clear that refugees are far from the transitory population they are often depicted as in the popular imagination.

<a href="#_ftnref1" name="_ftn1"></a>

Myth 2. Refugees are an economic burden and do not contribute to the local economy. The world currently has the highest number of forcibly displaced people since World War II, but this has not been matched by an increase in pathways to increased economic opportunities for this vulnerable population. Were they to gain access to these opportunities, they could provide a boon for their host countries.

Research has shown that refugees aren’t merely passive victims but are engaged in a wide and diverse array of productive economic activities, leveraging a pool of extensive skills and experiences acquired both in their host countries and countries of origin. Indeed, a <a href="http://www.rsc.ox.ac.uk/refugeeeconomies">recent report</a> by the Refugee Studies Center at the University of Oxford challenges commonly-held myths that refugees are necessarily an economic burden, are technologically illiterate, and exclusively dependent on international assistance. A <a href="http://www.fmreview.org/sites/fmr/files/FMRdownloads/en/preventing/zetter.pdf">study</a> of the Dadaab Refugee Camp on the Kenya-Somalia border assessed the camp’s economic value at $14 million dollars – a full 25 percent of the economy of the province that hosted it. A <a href="http://www.irinnews.org/report/101624/benefits-hosting-refugees">joint study</a> by the United Nations Development Program (UNDP) and the UN’s refugee agency, UNHCR, found that, for every dollar invested in refugee assistance, roughly $.50 returns into the local economy through the multiplier effect. This shouldn’t be surprising. Scholars often term war and natural disaster as “social status agnostic;” physicians are as likely to flee violence as manual laborers, though they often do so under different circumstances and in different ways.

Despite their tremendous economic potential, refugees face very specific challenges in securing quality financial products that are rarely encountered by other vulnerable populations. If they were forced to flee conflict or natural disaster, they are likely to have had limited prior preparation. As such, refugees often lack the fixed assets necessary to secure a business or consumption loan, even if they had such assets where they originally lived. While many countries are parties to international agreements that enshrine the refugee’s right to work, refugees often encounter legal obstacles that prevent this right from translating into a reality. Of 15 countries examined by UNHCR, nearly <a href="http://asylumaccess.org/wp-content/uploads/2014/09/FINAL_Global-Refugee-Work-Rights-Report-2014_Interactive.pdf">45 percent</a> have effectively prohibitive legal barriers to employment for refugees. As a result, refugees are often drawn to black and grey markets, rendering them unable to document income as is necessary to secure a loan. Refugees have little say in where they reside. They often have a limited grasp of the language and culture and minimal experience navigating the bureaucracy in their host country. Finally, refugees are often perceived as a flight risk, and are not trusted by financial service providers to return borrowed funds. In cases where they are able to secure access to financial services, unscrupulous lenders may view them as easy targets for abuse, given their limited access to recourse. Moreover, creditors are rarely interested in arranging a lending infrastructure that can continue to serve refugee populations after they return to their home country. As such, credit scores built up in exile are valueless when refugees return to their countries of origin.

Systemic and concerted research on refugees and financial inclusion is new, and many questions remain unanswered. In the 1960s and 1970s, <a href="http://www.unhcr.org/en-us/research/epau/3f978a894/unhcr-refugee-livelihoods-self-reliance-brief-history.html">the UNHCR began to study</a> how refugees could be assisted in a sustainable way. The original plan was to develop large agricultural communities in host countries that, through international aid, would become economically self-reliant and subsequently ceded to the host-country, which would assume responsibility for governance and service provision. This approach proved unsuccessful and was overtaken in the subsequent decade by a focus on emergency response prompted by the collapse of communism and by famine in the Horn of Africa. In the 1990s, UNHCR saw a resurgence of interest in refugee livelihoods and assistance programs built around self-reliance in recognition of the greater prevalence of protracted displacement versus immediate crises. Organizations including NGOs and the UN began to explore how to leverage microcredit to assist refugees and the internally displaced.

In a recent effort to stimulate interest in and understanding of how to offer financial services to refugees, the Social Performance Task Force (SPTF) partnered with the UNHCR to <a href="http://sptf.info/working-groups/refugee-microfinance">design guidelines</a> for financial service providers. In addition to building the skills of financial service providers, the guidelines help dispel myths about refugee populations and encourage the adoption of delivery mechanisms and services that meet this population’s specific needs.

There’s no doubt that the financial inclusion sector is far better informed about providing assistance to refugees today than in the past. Still, major knowledge gaps remain. First, while the research has provided greater clarity on what it takes to sustain financial services for refugees, it has rarely explored how these services are experienced from the perspective of the refugee. Second, the research pays little attention to new products, services and methods of delivery that have emerged in the past few years. Finally, ongoing research has yet to explore how refugee populations can be protected from abuse by lenders, given their specific and unique needs.

This blog series will make a very modest attempt to explore some of these gaps through three follow-on blog posts. The next post will look at Azerbaijan, where the microfinance sector emerged specifically to serve internally displaced persons from that country’s war with Armenia. In a subsequent post, we will speak about Al Majmoua, a pioneering Lebanese institution that provides loans to mixed groups of Lebanese and Syrian refugee women. Finally, we’ll take a look at the future of financial services provision for refugees and consider how new technologies are opening up a world of possibilities for assisting migratory populations.

<a href="#_ftnref1" name="_ftn1"></a>

Have you read?

<a href="https://cfi-blog.org/2014/12/08/smart-certification-the-view-from-azerbaijan/">Smart Certification: The View from Azerbaijan</a>

<a href="https://cfi-blog.org/2016/03/31/client-voices-at-the-georgian-parliament/">'Client Voices' at the Georgian Parliament</a>

<a href="https://cfi-blog.org/2016/02/09/financial-inclusion-and-immigration-in-europe-disrupting-identity-norms/">Financial Inclusion and Immigration in Europe – Disrupting Identity Norms</a>

Financial Inclusion of Refugees: An Introduction

Azerbaijan

Kenya

Somalia

Syrian Arab Republic

&gt; Posted by Bobbi Gray, Research Director, Freedom from Hunger

<img class="alignright wp-image-21613" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/thumb_d75e7bfcb21242bf83ba10b40cb0b7b0.jpg" width="330" height="220" />If someone asked you, “In the past 12 months, have you ever been afraid of your spouse?” how do you think you’d respond? I would personally hope you’d be able to say “never”. I wouldn’t want to hear you say, “often” or even “sometimes”.

A few years back, I wrote a <a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/">blog post</a> about domestic violence and microfinance. This topic came out of the <a href="http://www.microcreditsummit.org/past-summits.html#2014_Anchor">2014 Microcredit Summit in Mexico</a> where we were talking about health indicators. Carmen Velasco suggested we’d forgotten to add an indicator related to domestic violence to the list, since conceptually it feels that if we don’t include domestic violence under the theme of health, it might continue to not get covered anywhere.

Since the Summit, Freedom from Hunger has had a chance to ask the question I asked you above in three countries. While most demographic and health surveys and other standardized surveys on domestic violence may go through a series of questions about whether a person has experienced physical, sexual, emotional, verbal, or other types of abuse, we were looking for something less invasive, if that’s possible. When I found the above question in an Indian survey, it felt right. I actually had a personal reaction to it. At one point in my life, if someone had asked me this question, I might have said “sometimes” or even “often.”

I won’t go into details here, but, at least personally, I feel like I know the difference in what “never” means compared to “sometimes”, or “often”.

When we asked this question in Burkina Faso, India, and the Philippines, 61 percent, 93 percent, and 12 percent of women, respectively, were sometimes or often afraid of their spouses in the past 12 months.

The researcher side of me says, well, we haven’t really assessed this indicator for its validity. Is it reflecting the likelihood a person is actually experiencing domestic abuse? I can’t prove it, but I feel that whether or not it does, fear is real and you know when you’ve experienced it.

When just considering the statistic for Burkina Faso, other research on the country suggests that approximately <a href="http://pdf.usaid.gov/pdf_docs/PNADY347.pdf">31 percent</a> of women suffered from physical or sexual violence at the hands of their husbands in the previous 12 months.  <a href="http://www.un.org/womenwatch/ianwge/taskforces/vaw/Version_anglaise_de_l_etude_de_base_VEF_2009-ud.pdf">Thirty percent</a> of men admitted to having exercised violence on their wives or daughters in the previous 12 months.  Another study <a href="http://cega.berkeley.edu/assets/miscellaneous_files/128_-_Cools_-_Weather_Shocks_and_Violence_Against_Women_-_ABCA.pdf">found</a> that women in Sub-Saharan Africa living in areas that experienced a recent drought that affected their partners’ income were more likely to have been abused during the last year.  Eighty-nine percent of the respondents in our <a href="http://www.cgap.org/publications/role-financial-services-building-household-resilience">research in Burkina Faso</a> reported not being able to leave the home without permission. Most (72 percent) said they were not currently autonomous or empowered.

<img class="aligncenter wp-image-21610" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/fear_of_spouse.png" width="620" height="259" />When we triangulate our data on abuse with other data, it seems more likely it is real and our question is picking up on an important dynamic, whether it is a validated measure or not.

The first reason I share this data is to continue raising the issue of domestic violence within financial services. In Burkina, <a href="http://www.cgap.org/publications/designing-financial-services-respond-household-shocks">we’ve reflected</a> that one of the reasons women are not using a health financing product as predicted or expected is because three management committee group members of a village bank had to request permission from their husbands to travel to the local branch to withdraw their health savings funds. When we qualitatively interviewed the respondents after discovering most of them had feared their husbands in the past 12 months, we probed into the mobility issue. One group of women, when asked how they requested permission to leave their homes, said, “Sometimes we wait for a favorable moment” when their husbands are in a good mood, or when there is the presence of another person of influence on the husband. So, if three women, who are generally afraid of their husbands, have to seek permission to travel on behalf of themselves or another member of their group to a branch office outside of their small village, they’re simply going to choose the path of least resistance—and not go and then not use the product that’s designed to help them meet an important financial cost.

The second reason for sharing this data is to raise perhaps a hope and expectation for those of us who are interested in standardizing client outcomes measures for the sector. The <a href="http://sptf.info/working-groups/outcomes">Social Performance Task Force (SPTF)</a> has been leading this charge and we are all eager to learn and grow in the area of client outcomes measures.  The SPTF is going to be pilot-testing a series of client outcome indicators in Peru and galvanizing input and collaboration across the globe on defining successful client outcome indicators and processes for outcomes measurement for the sector. As we prepare for this venture, I know we all appreciate and desire indicators that can be observed, validated, and backed-up. That’s why we appreciate “hard” indicators like loan size, the type of roof a household has, how much a person has in savings, etc. But I don’t want us to forget the “soft” indicators like, hope, fear, happiness, and stress.

I tend to agree with researchers like Johannes Haushofer, who wrote in <a href="https://www.foreignaffairs.com/articles/africa/2014-07-15/price-poverty">Foreign Affairs</a>, “... variables such as stress and happiness are important metrics of success for development programs. New indicators, both self-reported and biometric, offer hope of tracking the welfare of poor people more directly than the established metrics (such as income and consumption) and should be used in concert with them.”

We need hard indicators, but we also need “soft” indicators that remind us or cause us to feel, associate with, and act on behalf of the people we are serving. This type of data is important to make sure a “client” doesn’t simply become a financial inclusion metric, but can reveal to us the person, who has real life needs and with whom we can personally relate. We need indicators that compel us to act and improve what we are doing and that get to the heart of our mission to move people out of poverty.

To my sisters in Burkina Faso, India, and the Philippines. I see you.

Have you read?

<a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/">Domestic Violence and Microfinance: What Is Our Role as Financial Service Providers?</a>

<a href="https://cfi-blog.org/2014/09/15/savings-groups-mobile-phones-and-a-new-solution-for-rural-women/" target="_blank">Savings Groups, Mobile Phones, and a New Solution for Rural Women</a>

<a href="https://cfi-blog.org/2014/08/04/integrating-health-and-microfinance-in-india/" target="_blank">Integrating Health and Microfinance in India</a>

&nbsp;

The Heart and Science of Client Assessment

Burkina Faso

Philippines

Policy, Regulation and Government Initiatives

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

<img class="alignright wp-image-20379" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/thumb_c5b035a6756147e597764f8b518f2c53.jpg" alt="" width="340" height="205" />India has received much fanfare for its financial inclusion efforts in recent years. A few weeks ago we declared it our <a href="http://cfi-blog.org/2015/12/16/country-of-the-year-india/">Financial Inclusion Country of the Year for 2015</a> in recognition of the major steps it took, which resulted in achieving the greatest improvement in its <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">Global Microscope</a> score between 2014 and 2015. It recently granted new bank licenses that dramatically diversify and grow the country’s services landscape, widely applied new cost-saving technologies like biometric identification, and rolled-out historically ambitious public programs like PMJDY that dramatically reduce the portion of the population that is unbanked.

“Never waste a good crisis” said Royston Braganza, CEO of Grameen Capital India, at the Inclusive Finance Summit in Delhi last month, referring to the Andhra Pradesh crisis of 2010. The recently-released <a href="https://us.sagepub.com/en-us/nam/responsible-finance-india-report-2015/book251469">Responsible Finance India 2015</a> analyses the current state of practice on responsible finance and social performance management in India. In light of that report, Braganza questioned, “Have we learned from our mistakes?”

Responsible finance centers on client protection and market conduct, and has been extended in recent years to include many other good corporate citizenship issues such as employee management, governance, and social performance monitoring.

By way of context, here are a few numbers on the present-day BoP Indian finance landscape:
<ul>
	<li>Across MFIs in India’s MFIN network, which represent roughly 90 percent of MFIs in the country, loan books grew by 64 percent in the last fiscal year, compared with 43 percent in the year prior and 4 percent in the year before that.</li>
	<li>In total, MFI outreach in the country accounts for about 100 million clients.</li>
	<li>Reportedly, through PMJDY 180 million new bank accounts have been opened over the past year, and adjacent schemes covering insurance, pensions, and credit have been implemented, as well.</li>
	<li>For the first time in a decade, the RBI granted new bank licenses last year – to Bandhan Bank and IDFC. Bandhan now has 500 branches and over 2,000 service centers across 24 states. Sixty-five percent of IDFC’s first 23 branches are located in rural areas of Madhya Pradesh.</li>
	<li>Under the RBI’s newly created categories of payment banks and small finance banks, 11 and 10 providers, respectively, have received new licenses, further expanding the network of providers serving the poor.</li>
</ul>
In short, given India’s rapidly changing and expanding financial services landscape, it’s more important than ever that these new players, and the quickly-growing older ones, are treating these first-time clients, and everyone else, with adequate care.

Defining and Monitoring Social Goals

Aside from a few MFIs, social goals are not clearly defined, and those that have defined goals might not have them integrated into their business plan, and/or might not be monitoring them, relayed Alok Misra, author of the Responsible Finance India report. The Code of Conduct assessment report by MicroSave covered 50 assessments including 32 NBFC-MFIs and revealed that only 37 percent of MFIs have a documented social performance management policy in place. Without this, much pertaining to an institution’s social mission goes untracked, which widens the possibility for mission drift.

Social Performance in Governance

Social performance management needs to be embedded at institutions’ top levels. “How could your board be expected to make critical decisions about things related to operations if they don’t know about client centricity and social missions?” asked Leah Wardle of the Social Performance Task Force.

Given that most MFIs in India don’t have well-defined social goals, it’s not surprising that much work remains in mainstreaming social performance in governance. Regulations and the industry Code of Conduct have significantly improved governance, yet only 17 percent of MFIs have SPM board subcommittees. The focus of governance has been on traditional compliance-related areas.

Client Protection

Addressing client protection has seen tremendous progress since the 2010 crisis, thanks in part to regulatory guidelines, the industry Code of Conduct, and the Smart Campaign. Great strides have been made in disclosure, with a focus on client understanding, for example. Most MFIs in the country strive to conduct compulsory group trainings using plain-speak for all new clients on product features, terms, and conditions.

Hema Bansal, India Director of the Smart Campaign, pointed to two other areas in need of serious attention: consistent and informed payment rescheduling policies and stronger research and application of cash flow analysis to assess repayment capacity.

Responsibility to Staff

Institutions have responsibilities to their staff, as well. Staff turnover and gender imbalance remain areas of concern among MFIs in India. Only roughly 20 percent of MFI staff are women. The industry Code of Conduct centers on labor law compliance, including minimum wage and mandatory leave. Although such requirements are largely being met, high staff turnover warrants closer examination of wages, staff satisfaction, and intensity of field work – especially given recent industry growth.

These 60 percent growth numbers might seem dramatic, and they are, but the additional outreach is indeed welcomed. During the conference session it was shared that just five states in India account for 58 percent of the country’s MFI loan portfolio. One-hundred-twenty districts in the country don’t have an MFI! Manoj Nambiar, president of MFIN, remarking on the dramatically changing services landscape said, “If financial inclusion is a priority of the government and the country, we need more institutions. It’s not a question of me versus them. It’s a question of what we can do together.” However, it’s essential to remember what’s come before and not repeat the horrible crisis that begun this decade. In order for inclusion to be sustainable, responsible finance is critical.

Note: These remarks were made during a panel discussion at the Inclusive Finance India Summit in December, entitled, “Moving from No Harm to Doing Good: Double Bottom-Line Microfinance”.

Image credit: Accion

Have you read?

<a href="http://cfi-blog.org/2015/12/10/smart-campaign-certifies-five-indian-financial-institutions-for-meeting-high-standards-of-client-care/">Smart Campaign Certifies Five Indian Financial Institutions for Meeting High Standards of Client Care</a>

<a href="http://cfi-blog.org/2015/09/03/in-the-case-of-indias-pmjdy-considerations-for-avoiding-account-dormancy/">In the Case of India’s PMJDY, Considerations for Avoiding Account Dormancy</a>

<a href="http://cfi-blog.org/2015/12/16/country-of-the-year-india/">Country of the Year: India</a>

“Never Waste a Good Crisis”

Trends

Alexandra Rizzi

Senior Director, The Smart Campaign 

Isabelle Barrès

Vice President, Smart Campaign

Alex Counts

Amanda Yap

Antonique Koning

Apis Partners

Bhuvana Ramakrishnan

Daniel Balson

Danielle Piskadlo

David Tuesta

Elisabeth Rhyne

Eric Noggle

Eric Zuehlke

Geraldine O'Keeffe

Hema Bansal

Jeffrey Riecke

Kaj Malden

Panthea Lee

Rani Deshpande

Sonja Kelly

Susy Cheston

Afghanistan

Australia

Brazil

Chile

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Banks

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Fintechs

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Over-indebtedness

P2P Lending

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Responsible Digital Finance

Saving

Transparency

Women

Youth

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

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

Ros Grady

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

Bobbi Gray

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

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

<a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/"><img class="alignright wp-image-20072" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/2652377697_7cd2f08d4e_o.jpg" alt="2652377697_7cd2f08d4e_o" width="349" height="224" /></a>Aging is an issue that we all hope to face personally, if we haven’t already. As we prepare to participate in <a href="http://www.e-mfp.eu/microfinance-week">European Microfinance Week</a>, we are more convinced than ever that this is a critical topic for the financial inclusion community to address. (If you are planning to be at European Microfinance Week too, make sure to <a href="https://event.neimenster.lu/ehome/emw2015/308192/?&amp;">check out our panel</a> on the Sustainable Development Goals and financial inclusion!) In Europe, the aging of the population is well acknowledged. With average life expectancy in Europe among the highest in the world, at 77 years, the proportion of the population reaching older age is naturally growing. About 25 percent of Europe’s population is now over the age of 60, and that percentage is set to rise. The aging of the population is well understood in Europe, but what is less recognized is that the middle and lower-middle income countries of the world – the countries that encompass most of the world’s population – are already beginning to experience the same older age population boom. In most middle income countries, from Mexico to China, over-60s are the fastest growing cohort of the population. Aging is a product of successful development. Increased life expectancy, better family planning mechanisms, and higher quality of life all contribute to growth in the proportion of the population that is older.

Aging is a reality, but can it also represent an opportunity for financial institutions? The smart money is on providers who recognize that the answer is yes, and work to figure out how to respond.

We’ve created a list of activities, some practical and some research-oriented, we think would be valuable to close the gaps in financial inclusion for older people and for younger people who want to prepare for their older age. And, frankly, we would love for you to steal these ideas!

Develop a toolkit for becoming an age-friendly institution. We hear of a few financial institutions—from MFIs to commercial banks—that are using age as a lens through which to segment product offerings. From long-term savings products for people in their primary working years to credit designed for older people, being age-friendly across the life course allows a focus on life transitions and the diverse financial needs that accompany them. Case studies and toolkits would help financial institutions follow proven approaches. As part of becoming an age-friendly institution, there are a few starting points that would make a big impact:
Age-proof channels and technology. Financial institutions recognize that new technology, new channels, and new products must be built with the user experience in mind. There are existing vehicles for testing channels and technology to ensure that they work for older people. As part of vetting channels and technology, financial institutions can leverage older persons’ associations, assuring the technology’s validity for later life.
Ensure that staff members are not discriminating based on age. Financial institutions and support organizations can test the customer experience through mystery shopping in order to better understand how people of different ages are treated when they walk into a branch. An exercise like this could inform market-specific training modules to dispel myths about aging for staff of financial institutions.
Use existing data to create better products. Financial institutions have a wealth of data on clients that goes unused, and age is one data point that is collected because of the way that AML/CFT laws are translated into institutional policy. Financial institutions can use the data they have on clients to better understand how age influences client behavior. From this data, financial institutions have the opportunity to create better products to serve people across their life cycle, and especially into their older age.
Enhance financial security in older age by leveraging G2P and P2G early on. The shift toward electronic government-to-person and person-to-government payments presents an opportunity for creating “on-ramps” to inclusion. Leveraging these products could include automatically diverting funds sent through electronic channels to help people save funds for older age (which is already happening in many parts of the world) or using electronic G2P payments that go to older people as collateral for loans (older people are often seen as higher risk). Financial institutions which provide the accounts through which electronic payments are channeled have the positioning to capitalize on this opportunity.

Raise or eliminate age caps on credit and insurance. Over half of the institutions we <a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">surveyed earlier this year</a> reported that they impose upper age restrictions on their products. Many age caps at microfinance institutions are based on outdated actuarial tables, and are ripe for being challenged or creatively eliminated. Many people who are older may be willing to pay more for credit. And financial institutions could find highly receptive clients if they responsibly raise age caps on credit products. A dedicated loan guarantee fund could help mitigate perceived risk during a pilot phase, accompanied with careful performance monitoring to provide more data about actual risks of lending to older adults.

Enable people to save for their older age. Pension systems were designed for a largely formal labor force, and the current reality of the size of informal markets does not match the intention of pensions systems. More progressive governments have begun to reform their pension systems to account for the more informal labor force, by creating alternative channels for contributions at places like corner stores and through mobile phones. Financial institutions can also play a role, either serving as channels to collect funds for the pension system or by setting up independent long-term savings programs that promise a competitive interest rate.

We are confident that there are a hundred more ideas that are just as good (or better). More importantly, though, we look forward to seeing a world in which age is not a barrier to people having access to a full range of quality financial services.

If you end up stealing one of these ideas, or if you’re already doing something to advance industry thinking on aging, let us know—we would love to champion your work.

Image credit: <a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/">World Bank</a>

Have you read?

<a href="http://cfi-blog.org/2015/02/20/moving-to-action-on-aging-and-financial-inclusion/">Moving to Action on Aging and Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/02/10/aging-and-financial-inclusion-an-opportunity/" target="_blank" rel="noopener">Aging and Financial Inclusion: An Opportunity</a>

<a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">Aging and Financial Inclusion: A Client Protection Issue?</a>

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&nbsp;

&nbsp;

&nbsp;

Aging and Financial Inclusion: Steal These Ideas!

The government of China is launching a mandatory credit scoring system in 2020 and since the publishing of a <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">piece on the system</a> by the American Civil Liberties Union (ACLU) last week, it's become a topic of passionate discussion. It remains to be seen how the system will work.  

Below are the opening excerpts from the ACLU post and from a <a href="https://www.techinasia.com/china-citizen-scores-credit-system-orwellian/">Tech in Asia post</a>, which weighs in on the ACLU's points and offers additional food for thought.

"China’s Nightmarish Citizen Scores Are a Warning For Americans"

&gt; By Jay Stanley, Senior Policy Analyst, ACLU Speech, Privacy &amp; Technology Project

China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator <a href="https://twitter.com/interfluidity/status/650803807262130177">put it</a>, “authoritarianism, gamified.” Read <a href="https://www.privateinternetaccess.com/blog/2015/10/in-china-your-credit-score-is-now-affected-by-your-political-opinions-and-your-friends-political-opinions/">this piece</a> for the full flavor—it will make your head spin. If that and the <a href="http://www.chinadailyasia.com/business/2015-06/09/content_15274221.html">little</a> <a href="http://www.fastcoexist.com/3050606/china-is-building-the-mother-of-all-reputation-systems-to-monitor-citizen-behavior">other</a> <a href="http://www.volkskrant.nl/buitenland/china-rates-its-own-citizens-including-online-behaviour~a3979668/">reporting</a> I’ve seen is accurate, the basics are this:

<ul>
 	<li>Everybody is measured by a score between 350 and 950, which is linked to their national identity card. While currently supposedly voluntary, the government has announced that it will be mandatory by 2020.</li>
 	<li>The system is run by two companies, Alibaba and Tencent, which run all the social networks in China and therefore have access to a vast amount of data about people’s social ties and activities and what they say.</li>
 	<li>In addition to measuring your ability to pay, as in the United States, the scores serve as a measure of political compliance. Among the things that will hurt a citizen’s score are posting political opinions without prior permission, or posting information that the regime does not like, such as about the Tienanmen Square massacre that the government carried out to hold onto power, or the Shanghai stock market collapse.</li>
 	<li>It will hurt your score not only if you do these things, but if any of your friends do them. Imagine the social pressure against disobedience or dissent that this will create.</li>
 	<li>Anybody can check anyone else’s score online. Among other things, this lets people find out which of their friends may be hurting their scores.</li>
 	<li>Also used to calculate scores is information about hobbies, lifestyle, and shopping. Buying certain goods will improve your score, while others (such as video games) will lower it.</li>
 	<li>Those with higher scores are rewarded with concrete benefits. Those who reach 700, for example, get easy access to a Singapore travel permit, while those who hit 750 get an even more valued visa.</li>
 	<li>Sadly, many Chinese appear to be embracing the score as a measure of social worth, with almost 100,000 people bragging about their scores on the Chinese equivalent of Twitter.</li>
</ul>
A few years ago I wrote a <a href="https://www.aclu.org/blog/would-it-be-easier-fight-surveillance-if-soviets-were-still-around">piece</a> about how the fall of the Soviet Union, for all its benefits, has made it harder to defend privacy in the United States. During the Cold War, I argued, we defined ourselves in opposition to an enemy that exemplified and embodied in very real form the nightmarish potential of widespread surveillance and control. This made it easy to point to surveillance and shout, “un-American!”

To read the rest of this post, <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">click here</a>.

"China’s ‘citizen scores’ credit system isn’t as Orwellian as the ACLU thinks…yet"

&gt; By C. Custer

Recently, you may have come across <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">this ACLU piece</a> – or any of the dozens of sites reblogging it – about China’s new citizen score system. Mandatory credit scores for everyone that take into account everything from your video game purchases (that’ll drop your score) to your friends’ political activities? Rewards like travel visas for those with good scores? It sounds like a nightmare.

Thankfully, it’s not quite as bad as all that. The ACLU seems to have been confused about a few things, but here’s the key one: Alibaba’s Sesame Credit scoring system, Tencent’s credit scoring system, and the mandatory government one (which isn’t mandatory until 2020) are not the same things. They are three different things that many articles in the Western press are treating as if they were the same.

Alibaba and Tencent’s credit systems: two different non-government products

Sesame Credit does offer some of the features outlined in the ACLU article. It doesn’t hand out Singapore visas, obviously – I’m not sure how that would even be possible – but it was offering promotions for people with high credit scores, including access to a high-speed VIP check-in at Beijing’s Capital International Airport. China’s government has not endorsed this, though. In fact, <a href="http://english.caixin.com/2015-09-28/100859064.html">according to Caixin</a>, China’s central bank is annoyed by the promotional tactics and has reportedly ordered Sesame Credit to stop offering the airport promotional benefit.

The online score-sharing and bragging alluded to by the ACLU also seems to be coming primarily from Sesame Credit. Some critics have accused the scoring system of essentially being a marketing gimmick designed to promote use of Alibaba’s payment service Alipay (since an increased number of transactions will raise your score).

Many of the other details from the ACLU’s article seem to be based on Tencent’s credit score system, which does <a href="http://www.chinadaily.com.cn/business/tech/2015-08/08/content_21535587.htm">mine data from users’ social networks</a> in order to determine their credit. I haven’t been able to find any direct statement that Tencent factors in users’ political post history – or that of their friends – in determining a credit score.

The difference between the two systems makes sense when you think about the companies’ backgrounds. Ecommerce-focused Alibaba’s credit system is based heavily in users’ purchase and payment history. Social giant Tencent’s credit system is based on users’ social networks. Each company is leveraging the data to which it has access. China doesn’t have a national, comprehensive, and widely-used credit system like those in the West, so private lenders like Alibaba and Tencent have created these systems to better inform their lending decisions.

To read the rest of this post, <a href="https://www.techinasia.com/china-citizen-scores-credit-system-orwellian/">click here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/10/13/the-data-story-in-the-fi2020-progress-report-on-credit-reporting/">The Data Story in the FI2020 Progress Report on Credit Reporting</a>

<a href="http://cfi-blog.org/2015/04/03/new-research-highlights-increasing-use-of-alternative-data-in-credit-reporting/" target="_blank" rel="noopener">New Research Highlights Increasing Use of Alternative Data in Credit Reporting</a>

<a href="http://cfi-blog.org/2015/07/16/more-credit-information-sharing-in-emerging-markets-a-call-to-action/">More Credit Information Sharing in Emerging Markets: A Call to Action!</a>

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Mixing Credit Scoring and Political Control in China. How Bad Is It?

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

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

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

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

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

HBS-Accion Program on Strategic Leadership for Inclusive Finance

&gt; Posted by Bobbi Gray, Research Director, Freedom from Hunger

[getty src="107953528?et=N-ti1Dh0TYxzWsk0oHctDQ&amp;sig=ohTg-74FOrnUDD5V5JtetTs7rwUi7ycpCTt4v7oMEM8=&amp;caption=true" width="594" height="419"]

While recent research indicates that access to and use of microcredit alone is not transformative for the average client served (see <a href="https://www.povertyactionlab.org/publication/where-credit-is-due">“Where Credit Is Due”</a>), there has been very little discussion about the types of indicators being used to measure “transformation” in the <a href="http://microfinanceceoworkinggroup.org/reflections-latest-studies-microcredit/">ongoing debates</a>. In fact, it seems that we all have accepted the general findings that microcredit has only had modest impacts on, along with other indicators of poverty and well-being, education, health, and social capital because the randomized controlled trials (RCTs) have said so. There needs to be greater thought and debate about the choices of indicators used to support these conclusions.

Freedom from Hunger over the past 20-plus years has integrated health with microfinance and helped build a <a href="https://www.freedomfromhunger.org/resources/microfinance-health">body of knowledge</a> indicating that microfinance plus health services can enhance health outcomes. In an ongoing partnership with the Microcredit Summit Campaign, supported by Johnson and Johnson, we have pilot-tested a series of health indicators that financial service providers (FSPs) can use to track client health outcomes. This pilot test was built on years of experience of evaluating health outcomes with our FSP partners, as well as on similar experiences of developing common tracking indicators in the health sector. We created a list of criteria to assess the types of indicators we felt would be meaningful to track—for individuals with and without health services – which included dimensions of feasibility, usability, and reliability. Initial results have been shared in several webinars with <a href="http://100millionideas.org/2015/03/13/health-outcome-performance-indicators-will-help-us-understand-clients/">SEEP</a> and the <a href="http://100millionideas.org/2015/02/27/the-importance-of-measuring-client-outcomes/">Social Performance Task Force</a>.

It’s important to note that this pilot test effort was not about “proving” impact, but rather developing common techniques for monitoring client outcomes that FSPs could use over time. However, this experience has shown how difficult it is to identify indicators that best measure certain health outcomes. What initially might appear as an intuitive indicator to use—for example, how often a person reports being ill or seeking medical treatment—is found to be more difficult than expected. Morbidity—or reports of illness—is not an easy measure for health sector actors or those who directly work to improve health outcomes because it is influenced by the seasons, by specific efforts, and other factors, so care has to be taken when interpreting results. Reports of seeking medical treatment are complicated by whether people are satisfied with the services they can seek and may not always reflect financial capability but preferences or lack of available health services.

Acknowledging this experience and the importance of RCTs for our work, a discussion is still warranted on the bigger picture behind client outcomes indicators: how do we define “transformation” and which indicators do we use to measure it.

For example, the RCTs found that household access to and use of microcredit by itself led to no transformative effects in relation to health; however, these studies also relied on child morbidity rates, incidence of serious illness in the prior three years, and household spending on health as key outcomes to measure the impact of microcredit on health. On the one hand, one could argue that these were the right indicators because they represent important high-level health outcomes. On the other hand, measuring change in child morbidity rates during a short one- to three-year window may not be the most relevant and useful indicator to use to detect impact for FSPs. Additionally, it is not clear whether seasonality issues were taken into account for this indicator. Changes in household spending on health may also not reveal important impacts if the local health system is not easily accessible or a desirable place from which to seek health care, or if people tend to rely on traditional medicine. Yet, it is also important to note that until more information exists from FSPs collecting data on health, it is unclear which indicators will likely be the most useful for understanding impact (through use of evaluations) and understanding changes in client well-being over time (through use of impact monitoring processes).

Education and women’s empowerment were also assessed in the RCTs. Ratios of school-aged children in school and amounts spent on education were typically used to measure changes in educational outcomes. Women’s empowerment was acknowledged throughout the six RCTs as being tricky to measure, and the studies tended to rely on indices that combined a series of indicators assessing decision-making, mobility, and ownership of assets. In some cases, women’s empowerment was measured even if lending was not exclusive to women. The RCT conducted with Compartamos in Mexico was arguably the most comprehensive in the types of “transformative” indicators assessed, as it included subjective measures such as stress, happiness, and trust. It is unclear whether these are the most important indicators for education and women’s empowerment. Are they the best and most accurate indicators to tell us whether transformation is occurring?

As participants in a financial services sector, in collaboration with our academic colleagues, we have to identify better shared indicators of success. While it might seem easy to choose indicators, this is as much art as it is science. Even with the national <a href="http://dhsprogram.com/">Demographic and Health Surveys</a>, debates occur about the best sets of indicators to be used—and these surveys are considered fairly standardized across countries.

There is growing energy around the commitment to identify better common client outcomes. The client outcomes working group of the <a href="http://sptf.info/sp-task-force/working-groups">Social Performance Task Force</a> is one focal point for this energy. The <a href="http://microfinanceceoworkinggroup.org/">Microfinance CEO Working Group</a>'s social performance sub-committee is another group of committed individuals who want to make more meaningful comparisons and statements about where we expect to see impact and how we can help FSPs monitor the data themselves. The Microfinance Genome from <a href="http://missionmeasurement.com/">Mission Measurement</a> is another.

The debate cannot stop with whether or not transformation has occurred. The debate has to include how we define transformation and how we measure it. This means that, along with the much-scrutinized data, we have to pay equal attention to the indicators. If there is no silver bullet for reducing poverty, neither does there appear to be a silver bullet for measuring transformation.

Have you read?

<a href="http://cfi-blog.org/2015/02/05/measuring-the-impact-of-microcredit-six-new-studies/" target="_blank">Measuring the Impact of Microcredit - Six New Studies</a>

<a href="http://cfi-blog.org/2015/03/20/reflections-on-the-latest-studies-on-microcredit/" target="_blank">Reflections on the Latest Studies on Microcredit</a>

<a href="http://cfi-blog.org/2014/08/04/integrating-health-and-microfinance-in-india/" target="_blank">Integrating Health and Microfinance in India</a>

Measuring Transformation

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

Calling All Countries to Get Policies Right

Mastercard

From Beth's Desk

Global Microscope