A North Star or a Measurement Pulse? The role of financial health in inclusive finance

Global Findex 2021: Growth, Stagnation, and (Relative) Decline in Global Financial Inclusion

Perhaps more than ever, 2020 provided us an opportunity to reflect on that for which we are thankful. One thing we’re thankful for at CFI is our <a href="https://centerforfinancialinclusion.org/blog/" target="_blank" rel="noopener noreferrer">blog</a>, a place where CFI and our community of contributors share their unique perspectives and calls to action for inclusive finance. The 76 posts of 2020 offer incredible insights into a wide range of themes and projects across many geographies.

Not surprisingly, since late March, nearly every CFI post has covered or mentioned COVID-19 in some form or fashion. But the top 10 posts (by unique page views) also dove into topics such as data and consumer protection -- pillars of CFI’s <a href="https://centerforfinancialinclusion.org/reflecting-on-the-past-and-charting-a-new-direction/" target="_blank" rel="noopener noreferrer">new strategy</a> -- over-indebtedness in Kenya, internal migration, women’s financial inclusion (another key, cross-cutting CFI strategic focus area), a deep dive into resilience, and even how comics were used to spread COVID-19 awareness.

Happy reading, and happy new year!
<h2>1. <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">Pandemics and Natural Disasters: What Can We Learn from Past Disasters to Help with Today’s Pandemic?</a></h2>
Two weeks after the WHO declared the COVID-19 outbreak a pandemic, Managing Director <a href="https://centerforfinancialinclusion.org/people/mayada-el-zoghbi/" target="_blank" rel="noopener noreferrer">Mayada El-Zoghbi</a> wrote about how this crisis compares to previous ones: namely, the Indonesian tsunami of 2004 and the Pakistan earthquake of 2013. She pointed out that households experience shocks similarly, regardless of the cause, and that the systemic nature of the shocks means that the firms and FSPs that serve them need to measure and implement the right responses to meet the challenge. She also predicted that the pandemic would be a “tipping point” for platform financial service provision.
<h2>2. <a href="https://centerforfinancialinclusion.org/what-is-the-future-of-microfinance-q-and-a-with-paul-dileo/" target="_blank" rel="noopener noreferrer">What Is the Future of Microfinance? Q and A with Paul DiLeo</a></h2>
This year was a tipping point for microfinance, too, noted <a href="https://centerforfinancialinclusion.org/people/paul-dileo/" target="_blank" rel="noopener noreferrer">Paul DiLeo</a> in this interview with CFI. DiLeo is the Managing Director of Grassroots Capital Management and a veteran faculty member of CFI <a href="https://centerforfinancialinclusion.org/board-leadership-for-impact-program-overview/" target="_blank" rel="noopener noreferrer">board governance training</a>. He is also coeditor of a recently published volume, “The Future of Microfinance.” DiLeo suggested that investors in this space resist the temptation to move on to the next “bright, shiny object” in financial inclusion and continue to support microfinance to preserve social missions and benefit target populations.
<h2>3. <a href="https://centerforfinancialinclusion.org/resilience-and-the-three-phases-of-response-brac/" target="_blank" rel="noopener noreferrer">Resilience and the Three Phases of Response</a></h2>
In May, BRAC’s microfinance director <a href="https://centerforfinancialinclusion.org/people/shameran-abed/" target="_blank" rel="noopener noreferrer">Shameran Abed</a> and <a href="https://centerforfinancialinclusion.org/people/laurie-j-spengler/" target="_blank" rel="noopener noreferrer">Laurie J. Spengler</a>, the CEO of Courageous Capital Advisors, wrote that resilience is the “connective tissue” between the three phases of response: relief, recovery and rebuild. The authors advocate for assessing resilience through two lenses, opportunity and risk, and point out that the pandemic is an opportunity to invest in resilience because “recurring dividends will be realized by all.”
<h2>4. <a href="https://centerforfinancialinclusion.org/data-globalization-vs-data-localization/" target="_blank" rel="noopener noreferrer">Data Globalization vs. Data Localization</a></h2>
Before the pandemic hit, CFI’s <a href="https://centerforfinancialinclusion.org/people/ethan-loufield/" target="_blank" rel="noopener noreferrer">Ethan Loufield</a> and Credit Suisse’s <a href="https://centerforfinancialinclusion.org/people/shweta-vashisht/" target="_blank" rel="noopener noreferrer">Shweta Vashisht</a> wrote about how the flow of data across borders is a contentious issue countries encounter when developing data protection laws and regulations. They present arguments for data localization, but ultimately conclude that data can, and should, be allowed to flow across borders with the right frameworks in place.
<h2>5. <a href="https://centerforfinancialinclusion.org/data-consent-lets-share-the-burden-for-effective-consumer-protection/" target="_blank" rel="noopener noreferrer">Data Consent: Let’s Share the Burden for Effective Consumer Protection</a></h2>
Also part of the <a href="https://centerforfinancialinclusion.org/data-protection-and-financial-inclusion-why-it-matters-introduction/" target="_blank" rel="noopener noreferrer">Data Protection and Financial Inclusion: Why It Matters</a> series, this post argues that it’s futile for small tech to keep up with high-standard consent practices, and that the path from data consent principles to implementation is, for low-capacity environments, “littered with landmines.” Vashisht and Loufield conclude that successful solutions need to be shouldered by both consumers and providers.
<h2>6. <a href="https://centerforfinancialinclusion.org/q-and-a-using-comics-for-covid-19-awareness/" target="_blank" rel="noopener noreferrer">Q and A: Using Comics for COVID-19 Awareness</a></h2>
<a href="https://centerforfinancialinclusion.org/people/graham-a-n-wright/" target="_blank" rel="noopener noreferrer">Graham A.N. Wright</a>, founder of MSC, sat down with CFI to discuss a series of informative comics his team produced to get the word out about the dangers of COVID. The colorful comics, complete with protagonists warning clients about the hazards of the virus and how they can help knock it out, informed how real-life group meetings and staff visits have been conducted.
<h2>7. <a href="https://centerforfinancialinclusion.org/support-for-indias-migrants-during-covid-19-navigating-potential-gaps-in-the-system/" target="_blank" rel="noopener noreferrer">Support for India’s Migrants During COVID-19: Navigating Potential Gaps in the System</a></h2>
The lockdown in India had massive impacts, perhaps for none more than internal migrant workers, who left for home villages in droves when work dried up. This post warned that system-wide social payments challenges boded poorly for these vulnerable workers due to, among other reasons, ATM access constraints and domicile restrictions of state governments. The post was authored by <a href="https://centerforfinancialinclusion.org/people/shashank-shreedharan/" target="_blank" rel="noopener noreferrer">Shashank Shreedharan</a> and <a href="https://centerforfinancialinclusion.org/people/jithin-jose/" target="_blank" rel="noopener noreferrer">Jithin Jose</a> of LEAD.
<h2>8. <a href="https://centerforfinancialinclusion.org/its-time-to-protect-kenyans-from-a-digital-lending-laboratory/" target="_blank" rel="noopener noreferrer">It’s Time to Protect Kenyans from a Digital Lending Laboratory</a></h2>
CFI’s <a href="https://centerforfinancialinclusion.org/people/alex-kessler/" target="_blank" rel="noopener noreferrer">Alex Kessler</a> warns readers that the breakneck growth in mobile lending and aggressive debt collection and debt stress have raised enormous consumer protection red flags. This article offers key statistics on mobile money’s exponential growth there, highlights the need for consumer protection-oriented algorithms, and suggests calls to action for regulators.
<h2>9. <a href="https://centerforfinancialinclusion.org/reimagining-inclusive-finance-with-women-in-mind/" target="_blank" rel="noopener noreferrer">Reimagining Inclusive Finance With Women In Mind</a></h2>
In this <a href="https://centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> post, we meet Carla, a fictitious -- but very realistic -- mother of three young children living in a village in Tanzania. Carla’s story is like that of millions of poor women in the Global South who are excluded from financial products that weren’t designed for them. CFI gender lead <a href="https://centerforfinancialinclusion.org/people/julia-arnold/" target="_blank" rel="noopener noreferrer">Julia Arnold</a> asks our community if we are listening to women enough, and implores our sector to design and deliver financial products and services with the Carlas of the world in mind. She also provides early thinking around CFI’s gender work in 2021 and beyond.
<h2>10. <a href="https://centerforfinancialinclusion.org/can-financial-inclusion-moderate-impacts-to-coronavirus/" target="_blank" rel="noopener noreferrer">Can Financial Inclusion Moderate Impacts of Coronavirus?</a></h2>
It’s fitting that we round out the 2020 list with our very first COVID response post, written by research lead <a href="https://centerforfinancialinclusion.org/people/eric-noggle/" target="_blank" rel="noopener noreferrer">Eric Noggle</a> and published on March 20. While alarm bells in the media had sounded long before, this was one of the early posts in the inclusive finance space that offered a clear call to action for this “major stress test,” namely, getting as much money as possible into the hands of those who need it most -- and doing so as quickly as possible. How did governments of the world do? Read our December <a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">policy brief</a> for examples of many governments that innovated quickly to get social payments into the literal and digital hands of citizens.
<h3>We hope you continue to read and share views from our blog in 2021. For a sneak peek into the kind of content you'll see, revisit these Financial Inclusion Week posts (plus #9) related to our top priorities for inclusive finance:</h3>
<h3>• “<a href="https://centerforfinancialinclusion.org/financial-services-are-needed-to-help-low-income-people-mitigate-and-adapt-to-climate-change/" target="_blank" rel="noopener noreferrer">Financial Services are Needed to Help Low-Income People Mitigate and Adapt to Climate Change</a>” By Eric Noggle
• “<a href="https://centerforfinancialinclusion.org/covid-19-ushers-in-new-challenges-for-consumer-protection/" target="_blank" rel="noopener noreferrer">COVID-19 Ushers in New Challenges for Consumer Protection</a>” By Lauren Braniff
• “<a href="https://centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers/" target="_blank" rel="noopener noreferrer">Data for Inclusive Finance: Delivering on the Promise for Consumers</a>” By Alexandra Rizzi and Alex Kessler</h3>

Combating the Rise in Fraudulent Fintech Apps

Just over one year ago, I joined the Center for Financial Inclusion (CFI), and what a year it has been. <a href="http://financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> presents a great time for me to reflect on this past year and to share with you CFI’s plans for our next chapter. We are using Financial Inclusion Week to feature the work of so many of our partners. And we are also using the week to focus attention on the themes we have identified in our new strategy as the pillars for this week’s <a href="http://financialinclusionweek.org/event-calendar-2020" target="_blank" rel="noopener noreferrer">calendar of events</a>.

CFI emerged from the rubble of the financial crisis to spearhead the most pressing issue the inclusive finance field needed at the time: improved consumer protection. We are now well into our second decade and our industry is reeling from the ravages of the COVID-19 pandemic. It is perhaps the right time for CFI to reenergize its mandate and spearhead what we believe is needed to “build back better” as the saying goes. As tragic as the pandemic’s consequences have been and continue to be, it has at least laid undeniably bare the failures of the status quo and has created a heightened sense of urgency, for financial services to build back better.

CFI was founded at a particular moment when it was becoming more apparent that market forces alone would not ensure positive outcomes for financial inclusion, and that sustained intentionality would be necessary. The coronavirus pandemic has, at the September 2020 time of writing, infected more than 33 million people and killed nearly 1 million. Beyond the rapid and catastrophic spread of illness and death, the pandemic has devastated global economies. Millions of micro, small, and medium enterprises (MSMEs) around the world have seen revenues plummet and have suspended operations or gone out of business altogether. Hundreds of millions of families have lost jobs and incomes, and many of them live in countries where social safety-net protections are patchy at best. The pandemic also reversed, seemingly overnight, social and economic development gains that had taken decades to achieve: the World Bank estimates that 70 million people are at risk of falling back into poverty. Women and children have been among those most affected: children because schools around the world have been shuttered, and women because they are more likely than men to lose their jobs and to shoulder the responsibility of supervising and homeschooling children.

For CFI, the pandemic has reenergized our purpose. Financial services are critical to reducing low-income populations’ vulnerability and helping them to recover from this and other recurring crises in their lives. We believe we have a leadership role to play in this intensified global effort. We have more than a decade of recognized global leadership in understanding the financial needs and behaviors of low-income vulnerable populations. Complementing this demand-side expertise, our recent <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX brings supply-side expertise to the table, as they have been studying and reporting about financial service providers for the past 20 years. These complementary strengths, combined with our history of thought leadership and our role as conveners, positions CFI to pursue an ambitious three-year strategy made all the more urgent in the context of the pandemic.
<blockquote>The pandemic has reenergized our purpose.</blockquote>
The strategic plan which will guide CFI’s work through 2024 focuses on four thematic areas. All of them, to significant degrees, have either been exacerbated by the pandemic or have been revealed by this crisis as urgent and under-attended priorities. The common thread among the themes is that progress in these areas is essential to ensuring that all people have the financial tools needed to improve their lives and to prosper.
<h2>Financial Services to Respond to the Risks of Climate Change</h2>
Just as the pandemic’s effects have been most severe on those who were already the most vulnerable, so too are the effects of climate change. Low- and moderate-income countries (LMICs) in the Global South are likely to experience longer, hotter heat waves and more extreme storms which in turn will create income loss, food insecurity, adverse health effects, and displacement that will hit already-vulnerable LMIC populations hardest.
<blockquote>Financial services are an indispensable tool to help prepare for climate-related shocks and recover.</blockquote>
CFI recognizes that climate change is ultimately an issue requiring long-term systemic changes to entrenched patterns of production and consumption. In the short term, however, financial services are an indispensable tool to help low-income vulnerable people prepare for climate-related shocks and recover from them when they happen. Our work in this theme will focus on understanding what those people need and the constraints they face, uncovering product innovations that can help, and then pilot testing such innovations and scaling-up lessons learned.
<h2>Women’s Financial Inclusion</h2>
Around the world, in many different geographies and socioeconomic contexts, women occupy a “last in, first out” position of vulnerability. The fall-out from the pandemic has made this abundantly clear. Whether it is a workplace where the more recently hired woman is let go before the more senior man, or a financial system that only prioritizes women’s needs when times are good, women’s economic inclusion is seen as a nice-to-have rather than a must-have. Women’s financial inclusion is powerfully shaped by broader societal norms, the unspoken assumptions and values governing men’s and women’s roles. CFI believes that efforts that focus solely on process fixes or product design will not succeed in women’s financial inclusion unless those efforts also seek to transform, rather than merely acknowledge, the underlying norms.

Our work in this area will accordingly include an intensive focus on research into successful norms-transformative initiatives, and how those might be scaled up. We will also work to improve the digital and financial capability of subsegments of women customers, and to influence the policy environment for women’s financial inclusion.
<h2>Data Risks and Opportunities</h2>
The pace of change created by the technology revolution is much faster than law, policy, or social mores can match. Although data privacy and protection regimes have begun to emerge, especially in wealthy countries, data by its nature is universal. To date, there is no universal framework setting forth who even owns personal data, much less governing how it can be used, by whom, and under which circumstances. The COVID-19 pandemic has provided a powerful illustration of both the risks and the opportunities of digitized data. The public health benefits of documenting and following diagnosed COVID-19 cases, and of tracing patients’ contacts, are obvious. But the risks to patients of stigmatizing, discrimination (whether of access to insurance, housing, employment, or otherwise), and other abuses are also very real.

Similarly, in financial services, data is the key that can unlock access to a full range of personalized, effective products that can help low-income people achieve their goals. The risk is that many LMICs have no effective consumer data protection regimes in place and that even where those exist, people with low levels of digital and financial sophistication may, in their eagerness to receive financial services, sign away their rights without even fully understanding them.
<blockquote>CFI will focus on means to bring transparency to data practices in DFS.</blockquote>
CFI’s work in this area will focus on means to bring transparency to the data practices of digital financial service (DFS) providers. We will also study how financial service providers use algorithms, which can be biased against already-underserved populations, in automated decision-making. We will monitor emerging frameworks around the world to document what does and does not work to advance financial inclusion while safeguarding data privacy, portability, and other consumer rights.
<h2>Consumer Protection in the Digital Economy</h2>
As the inclusive finance landscape evolves, so too must the approaches to consumer protection. Social platforms, ecommerce giants, fintechs, and pay-as-you-go providers are all relatively recent entrants into the field, and this means a multi-pronged approach is necessary to ensure safe practices are the norm. This is especially true since many of these business models fall beyond the scope of existing banking regulation. Consumer protection is an evergreen challenge, and one where CFI has long been active.
<blockquote>Consumer protection is an evergreen challenge.</blockquote>
We plan to devote intensive study to the practice of government-to-person (G2P) digital cash transfers, since these are often the on-ramp to digital financial services for low-income populations. We want to understand the risks that digitized G2P transfers present and how governments are mitigating those risks. We also want to document innovations around redress of grievances, financial capability-building add-on services, resolution of connectivity issues, and other relevant lessons learned.

In addition, CFI will partner with regulators and supervisors to test new technologies, such as chatbots or algorithmic audit tools, that can allow supervisors to be in direct dialogue with consumers, without consumer voices being mediated via the financial service providers. Such a dialogue can ultimately improve customers’ experience with financial services and democratize the financial sector by involving customers in the development of financial sector policies. To date, much of the recent work in regulatory technology (RegTech) and supervisory technology (SupTech) has prioritized the data reporting and compliance, but CFI believes its potential for advancing consumer protection has been underappreciated.
<h2>Conclusion</h2>
CFI developed its three-year strategic plan by weighing the needs of the inclusive finance industry against what we see as our own comparative advantages. We recognize that the four thematic priorities we intend to pursue are not an exhaustive list of everything that needs to happen to ensure positive outcomes for low-income people, and we also recognize that other individuals and organizations are doing excellent work in the areas we intend to pursue. We look forward to collaborating with all stakeholders who share the vision of a world where all people are able to equitably participate in the economy and are able to use financial tools to improve their lives and to prosper.

We hope you will participate in the rest of Financial Inclusion Week, which is packed with amazing speakers, events and activities. And, we want to hear from you. Please participate and tell us what you think about CFI’s thematic priorities.

Reflecting on the Past and Charting a New Direction

The Economist Intelligence Unit’s <a href="https://centerforfinancialinclusion.org/global-microscope-2019/">Global Microscope</a> is a robust data set that offers a deep dive into the policies and regulations that are considered important for financial inclusion in 55 countries. The indicators are derived from an expert-based consultation process to identify the most likely policy and regulatory conditions under which financial access and usage is likely to thrive.

The Microscope’s approach is to bundle the indicators into an index so that performance across countries can be compared easily. It also allows the EIU to simplify a set of complex conditions in which no one indicator can sufficiently signal a country’s environment for financial inclusion. Using an index approach to aggregate the indicators has both positive and negative implications. On the positive side, it simplifies a complex set of variables into a score than can easily be understood: a low score is bad and a high score is good. An index also creates a certain level of competition among countries that are covered in the index. Like with other indices that use this approach, such as <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf">Doing Business</a>, many countries put resources behind improving their score year in and year out. The ranking serves as motivation for action.
<blockquote>An index allows the EIU to simplify complex conditions in which no one indicator can signal the environment for financial inclusion.</blockquote>
On the other hand, there are several drawbacks with the use of indices for something as complex as the policy and regulatory environment in a country for financial inclusion. The first drawback is squaring the results with the evidence on the ground. According to the EIU’s Microscope, Colombia has the highest score, 82, in the enabling policy and infrastructure index, yet Colombia’s access figures from the <a href="https://globalfindex.worldbank.org/">2017 Global Findex</a> shows that the country’s financial access is only 46 percent for adults over 15. This is significantly lower than the global average of 69 percent and lower than the 63 percent average in developing countries. A country like Bangladesh is ranked very low in the Microscope (38), but has higher access figures than Colombia, reaching 50 percent in the latest Findex round.

So why is there such a disconnect between a country’s ranking in the Microscope with its access and usage data from Findex? It shouldn’t surprise anyone that the reality on the ground can lag behind regulations. For example, while the US has equal-rights legislation on the books, experience among minorities in the US confirms frequent and continued discrimination in practice. So it isn’t a surprise that even though some countries have favorable policy and regulatory conditions for financial inclusion, there may be cultural issues or social norms that aren’t in line with the regulatory change and may require time and additional effort to change. Change may also require enforcement or supervisory capacity to ensure that there’s compliance with policies and regulations.

But perhaps more importantly, policies and regulations are only part of the financial system, and financial service providers and the users of the financial system have many other influences on their choices and behaviors. If we’re only looking at the policy and regulatory viewpoint, we’re not seeing the full picture of what drives outcomes on the ground.
<blockquote>If we’re only looking at the policy and regulatory viewpoint, we’re not seeing the full picture of what drives outcomes on the ground.</blockquote>
The second drawback is lack of clarity on which policies actually matter. The Microscope tracks five domains with a total of 69 indicators. Each of these indicators has an equal weight in the score. But is it true that each indicator is equally likely to drive inclusion? The Microscope doesn’t do enough to help countries prioritize from among the 69 indicators it tracks. For example, in the new indicators on women’s financial inclusion, variables such as “non-discriminatory access to IDs” and “differences in access to a mobile phone between men and women” are included as indicators. How important is one or the other towards women’s financial inclusion? When everything is important, nothing is. The index may be inadvertently contributing to either paralysis or misguided prioritization by policy makers.
<blockquote>The Microscope doesn’t do enough to help countries prioritize from among its 69 indicators.</blockquote>
Regulators and policy makers are looking for evidence on what works to drive financial inclusion. This is where there is potential for researchers and the EIU to take this important data set and do additional analysis to identify which of the indicators correlate with results on the ground. The <a href="http://documents.worldbank.org/curated/en/926401524803880673/pdf/125804-PUB-REPLACEMENT-PUBLIC.pdf">World Bank’s Women, Business and the Law 2018</a> publication did a deep dive on financial inclusion which did this type of analysis linked to women’s financial inclusion, for example.

While correlations have their own set of limitations, they are nonetheless a step closer to helping us unpack which policies and regulations are priorities to drive inclusion. In the next round of the Global Microscope, we’d like to see less emphasis on rankings and much more effort devoted to helping policy makers understand which policies and regulations should be prioritized.

What’s in a Score? Reconciling Financial Access and Usage With the Microscope Rankings

Regulators play a significant role in catalyzing or impeding a country’s progress toward financial inclusion. By evaluating five domains of the regulatory environments in 55 countries (i.e., government and policy support, stability and integrity, products and outlets, consumer protection and infrastructure), the Global Microscope identifies each country’s current policies and regulations and notes which are likely to create an enabling environment for financial inclusion.

The 2019 Global Microscope features 11 new gender-focused indicators that measure financial inclusion for both women and men. These new indicators can help policymakers identify areas that could potentially improve women’s ability to access and use the financial tools they need to thrive.

The Global Microscope is produced by The Economist Intelligence Unit with policy guidance and financial support from leading organizations in the field, including CFI.
<h2>Major Findings</h2>
<ul>
 	<li>The enabling environment for financial inclusion has improved in the 55 countries covered in the Global Microscope 2019. Colombia, Peru, and Uruguay maintained the top rankings again this year. Likewise, the countries covered in the study’s regional analysis of Latin America and the Caribbean maintained the most favorable regulatory environments. These findings are at odds with access and usage data that show that Latin America and the Caribbean have recently fallen behind other regions. This points to the limitations that policies play in driving outcomes. They can contribute, but policies alone are insufficient in driving desired outcomes.</li>
 	<li>Practical impediments – such as limited access to identification, the Internet, and/or mobile phones – restrict women’s ability to use digital financial services.</li>
 	<li>Argentina, Costa Rica, Honduras, Russia, and other countries continue to adopt financial inclusion strategies and incorporate digital approaches to foster inclusion. In the past, national-level programs have led to the most progress over the short and long term.</li>
 	<li>Consumer protection and privacy laws are evolving to respond to the unique challenges that fintech presents, but few countries have updated their consumer protection regulations to account for the risks posed by digital players.</li>
</ul>
<h2>Calls to Action</h2>
<strong>Policymakers must ensure that both women and men are enabled to utilize and empowered benefit from greater financial inclusion.</strong> As the landscape for financial inclusion continues to evolve, and as financial service providers adopt new technologies and approaches, governments will need to implement policies to ensure that potential users develop the necessary capabilities and possess key enablers to access and use these products (such as national ID and mobile phones). This includes developing and implementing policies specifically designed to address gender disparities in access to these enablers.

<b>Governments must ensure their national strategies do not worsen the gender gap.</b> As financial inclusion policy shifts its focus towards the promotion of digital financial services, regulators and policymakers must address this digital gender gap or risk contributing to even greater disparities in access to financial services between women and men. Although nearly four-fifths of countries in the Microscope have strategies or initiatives to promote digital literacy, only one-fifth incorporate a gender approach into these programs.

Global Microscope 2019: The Enabling Environment for Financial Inclusion

The event, “<a href="https://www.unsgsa.org/resources/news/unsgsa-queen-maxima-world-leaders-participate-unga/">Financial Inclusion for Development: Building on 10 Years of Progress</a>,” included the participation of António Guterres, UN Secretary-General; David Malpass, President of the World Bank; Melinda Gates, Co-Chair of the Bill &amp; Melinda Gates Foundation; Dan Schulman, President and CEO of PayPal; and Ajay Banga, President and CEO of Mastercard.

Watch Mayada ask Queen Maxima about measuring financial inclusion's progress within the framework of the SDGs, and how financial inclusion contributes to achieving the SDGs by 2030. Queen Maxima is the <a href="https://www.unsgsa.org/">United Nations Secretary General's Special Advocate for Inclusive Finance for Development</a>.

More video coverage of the event can be found <a href="http://webtv.un.org/search/financial-inclusion-for-development-building-on-10-years-of-progress/6089500721001/?term=finance%20for%20development&amp;lan=english&amp;sort=date">here</a>.

&nbsp;

CFI Managing Director Asks Queen Maxima About Financial Inclusion's Role in the Sustainable Development Goals

<h2><strong>Panel Discussion</strong></h2>
There is a strong push on the part of card companies and some merchants to eliminate cash in retail, citing reduced transaction times, crime, and worker headcount. But could cashless commerce deprive millions of unbanked customers from access to food and other goods and services? States and municipalities are starting to push back with proposals to restrict cashless commerce in New York City, New Jersey, Philadelphia and San Francisco. We’ll use this latest skirmish as a starting point for a discussion on the ongoing battle for financial inclusion. What is the current status of efforts to provide financial services to the unbanked? Will mandating the acceptance of cash help or hurt these effort?

<b>
Moderator:</b>

Andy Lorentz, Partner, Davis Wright Tremaine LLP

<b>
Panelists:</b>
<ul>
 	<li style="text-align: start">Matthew Homer, Consumer Data Access, Control, and Portability, Plaid</li>
 	<li>Devina Khanna, Manager, Center for Financial Services Innovation</li>
 	<li style="text-align: start">Eric Noggle, Senior Director, Research, Center for Financial Inclusion at Accion</li>
 	<li style="text-align: start">Leon Perlman, Founder and head of the Digital Financial Services Observatory at the Columbia Institute for Tele-Information, Columbia University</li>
</ul>
<strong>
Registration </strong>
https://www.nypay.org/event/your-moneys-no-good-here-progress-and-pitfalls-in-cashless-commerce/

&nbsp;

&nbsp;

Your Money’s No Good Here: Cashless Commerce vs Financial Inclusion

In her <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-past-present-and-future">remarks</a> at CFI’s tenth anniversary symposium, Elisabeth Rhyne mentioned that more than technology itself, the growing number and variety of players involved in the financial inclusion space is the greatest change the sector has seen in the past decade.

This view resonated with the Global Microscope team. Earlier this year, we reviewed the framework for our annual ranking of countries on the enabling environment for financial inclusion. As we created a revised framework, we saw that technology is only part of the story: the diversity of stakeholders also presents a significant change from previous editions.
<blockquote>We saw that technology is only part of the story: the diversity of stakeholders also presents a significant change from previous editions.</blockquote>
The <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> started in 2007 as a study of the regulation of microfinance institutions (MFIs), but today it must address the enabling environment for MFIs, banks, insurance providers, money issuers, cross-border payment providers, fintechs, and banking agents.

There is no clear roadmap to navigate this broadening panorama, and from a regulator’s perspective, this might seem daunting. The temptation might be to limit the actors in the market and continue to operate business as usual. However, the diversity of players is actually key to creating more inclusive ecosystems.

In their recent essay “<a href="https://www.centerforfinancialinclusion.org/getting-policies-right-in-the-digital-era-competition-and-innovation-as-policy-objectives">Getting Policies right in the Digital Era</a>,” Ariadne Plaitakis and Simone di Castri argue that competition and innovation should be added to the policy mandates of financial authorities. When we compare the findings of the 2018 Microscope, which measure regulatory and policy inputs for financial inclusion, to financial inclusion outcomes, we see that greater competition is an important driver in the adoption of digital financial services.

The Microscope evaluated the regulatory frameworks of 55 countries to determine among other things, what are the legal market entry restrictions for e-money issuers. Most countries allow a wide variety of providers, including mobile transfer operators (MTOs), to obtain a license to issue e-money. However, in some countries (16 out of 55) authorities still restrict the type of players that can enter the market, which means that mobile providers have to partner with banks to enter the market.

When we compared the Microscope’s analysis of market entry barriers for e-money issuers to the results of the Global Findex, we found that countries that do not restrict the type of provider that can issue e-money have much higher rates of e-money adoption. The average percentage of mobile money accounts in less restrictive countries is 18 percent compared to a 9 percent average in countries where e-money issuers have to partner with banks. These results give a clear message: <strong>let a wide variety of providers operate</strong>.

As MTOs consolidate as dominant players in the provision of e-money, promoting interoperability is another key role that regulators can assume to foster greater competition. Peru and Indonesia, two of the Microscope’s top five countries, have made interoperability a cornerstone of their financial inclusion strategies.

Interoperability was also identified as major driver for the uptake of e-money in Madagascar, one of the “surge countries” identified by CFI in its most recent report on the Global Findex. In 2016, Madagascar became the second African country, after Tanzania, to roll out interoperable e-money services. Interoperability also exists at the agent network level, which allows agents to perform transactions for multiple operators.

Between 2014 and 2017, the percentage of adults with access to an account doubled, growing from nine percent to 18 percent. The percentage of adults with a mobile money account grew from four to 12 percent and the percentage of adults who had made or received a digital payment increased from five to 15 percent. The ease to transfer money created by interoperability has been, according to our interviewees, a major driver for financial inclusion in the country. We see a second key message for regulators: <strong>lead the market toward interoperability</strong>.

The regulatory approach that allowed e-money to flourish has been described as a “test and learn” approach. This means that regulatory authorities allowed these products to evolve with light-touch or ad-hoc regulation. In order to foster fintech innovation, some countries, including Argentina and China, have adopted an even more liberal “wait and see” approach, letting innovative products operate freely in the market. This flexibility has enabled innovation and has become a guiding principle to regulate digital financial services. In 36 of the Microscope countries, regulators have opted to let innovative products grow before setting the rules of the sector.

However, <a href="https://www.cgap.org/blog/competition-mobile-financial-services-move-past-test-learn">evidence from Kenya and Tanzania</a>, suggest that as emerging services mature, continuing the “test and learn” model can have adverse consequences for competition. For example, in Kenya, e-money providers were not subject to the same transparency rules as other financial services providers until 2016. Transparency requirements encourage providers to compete on quality and price and promote the entrance of new players that can bring lower costs. In the Global Microscope we found variations in market conduct rules between traditional and digital financial services in 22 out of 55 countries. A third key message emerges: <strong>keep market conduct rules consistent between traditional and emerging services</strong>.

The ascent of e-money gives regulators and policymakers useful insights that can guide decision making as they navigate an increasingly complex landscape. Technology has radically transformed the financial services industry and has a great potential to make services more accessible and tailored to users needs. However, as this year´s Microscope findings suggest, a greater variety of providers can help bring these innovations to populations that have been traditionally underserved.

Competition in Digital Financial Services: 3 Key Insights from the 2018 Global Microscope

Mayada El-Zoghbi

Lucciana Alvarez Ruiz

Edoardo Totolo

Ezra Mannix

Jonathan Fu

Mrinal Mishra

Eric Noggle

Monica  Ballesteros Arias

Danielle Piskadlo

Deborah Drake

Philip Brown

Greta Bull

India

South Asia

Bangladesh

Colombia

Latin America and The Caribbean

North America

United States

Sub-Saharan Africa

Enabling Environment

Financial Health

Financial Inclusion Strategy

Resilience

Trends

Access Usage Gap

Consumer Protection

Underserved Groups

Alternative Data

Data Analytics

Financial Technology

Women

Complaint Resolution

Financial Service Providers

Fintechs

Fraud

Responsible Digital Finance

Transparency

Appropriate Product Design and Delivery

Challenges and Crises

Delivery Channels

Digital Financial Services

Human Touch

Policy, Regulation and Government Initiatives

Credit/Debit Cards

Payments

Equity Investing

Impact Investing

Governance

Risk Management

Persons With Disabilities

Microfinance Institutions

Credit

Digital Credit

Mobile Banking

Saving

Rural Populations

Telcos

Blog Post

Report

Event

Webinar

Case Study

Press Release

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

The Global Microscope is a benchmarking index that assesses the enabling environment for financial inclusion in 55 countries. Now in its 11th year, the Microscope is the global standard for financial inclusion policy in developing economies. The 2018 Global Microscope on Financial Inclusion, with a revised research framework, offers a forward-looking focus on the digital financial services now and in the future, and the critical role for financial inclusion envisioned in the Sustainable Development Goals.

The 2018 Global Microscope sets a model for an enabling environment for financial inclusion across five domains: government and policy support, stability and integrity, products and outlets, consumer protection, and infrastructure. The Microscope evaluates the regulatory and policy environment for key players in the financial inclusion space including banks, non-bank financial institutions, e-money issuers and cross-border payment providers. It also focuses on the role of inclusive insurance, financial agents, financial technology (fintech) firms, and credit information providers.

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organizations in the field, including CFI.

&nbsp;

Global Microscope 2018: The Enabling Environment for Financial Inclusion and the Expansion of Digital Financial Services

This virtual dialogue provides an opportunity for the <a href="/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship</a> (ABF) network and <a href="/about/what-we-do/fiec/">Financial Inclusion Equity Council</a> (FIEC) members to discuss the role disruptive technologies play in advancing financial inclusion. This dialogue will also provide opportunities for peer exchange on investment evaluation and which technology solutions have the potential to be the most disruptive.

<strong>Discussion Topics:</strong>
<ul>
 	<li>The theme of financial inclusion week is “getting inclusion right”. What role do disruptive technologies have in advancing that agenda?</li>
 	<li>What are the most innovative and disruptive technologies that you are seeing in the FI sector?</li>
 	<li>Are there technologies from other sector that we should be watching/following?</li>
 	<li>How can investors evaluate different technologies for financial inclusion? What criteria to you use to assess which technology solutions have the potential to be the most disruptive?</li>
</ul>
<strong>Featuring:</strong>
<ul>
 	<li>Wayne Hennessy-Barrett, CEO, 4G Capital, ABF Fellow</li>
 	<li>Ami Dalal, Managing Director, FINCA Ventures, FIEC Member</li>
</ul>
<strong>Moderator:</strong>
<ul>
 	<li><a href="/bio/danielle-piskadlo">Danielle Piskadlo</a>, Director, Investing in Inclusive Finance, CFI</li>
</ul>
&nbsp;

&nbsp;

Webinar: Disruptive Technologies Advancing Financial Inclusion

<h1 style="text-align: center">Finance for All: A Round-Table Discussion</h1>
<h2 style="text-align: center">Thursday, October 4, 2018
12:30pm - 2:15pm
Armourer’s Hall, 81 Coleman St, London EC2R 5BJ</h2>
<h3 style="text-align: center">Supported by the Citi Foundation and the Center for Financial Inclusion at Accion</h3>
Financial inclusion has become a big cause across the globe, and is increasingly becoming big business. It is also a risky business. Many of the markets where financial exclusion reigns are untested, the consumers lack financial sophistication, regulation may be unfriendly, and the technology may not always deliver what it says on the tin.

The CSFI has just conducted - with the support of the Citi Foundation and the Center for Financial Inclusion at Accion - a survey of these risks using its tried and tested Banana Skins methodology. The result is <a href="https://content.centerforfinancialinclusion.org/finance-for-all-wedded-to-fintech-for-better-or-worse/">Finance for All</a>, which identified 18 areas of risk for service providers and ranked them by the scores given by respondents. Technology risk was the clear leader, with “FinTech” firms opening new opportunities and new risks across all the markets surveyed.

Leading the discussion will be:
<ul>
 	<li>Keyur Patel, a CSFI researcher and lead author of the report</li>
 	<li><a href="https://content.centerforfinancialinclusion.org/people/deborah-drake/">Deborah Drake</a>, Vice President, Investing in Inclusive Finance, Center for Financial Inclusion at Accion</li>
 	<li>Philip Brown, Managing Director, Risk, at Citi Inclusive Finance.</li>
</ul>
There will also be a discussion panel including Simon Long, International Editor of The Economist, who published his own special report on technology in financial inclusion earlier this year.
This will be an excellent opportunity to hear a hard-nosed discussion about the prospects for financial inclusion which takes account of the business case as well as the philanthropic.

Roundtable Discussion: Finance for All

<h1>Why Benchmarking Matters</h1>
<h5>HOW DO WE KNOW WE'RE BEING EFFECTIVE?</h5>
Achieving financial inclusion requires continuously evaluating how well the industry is progressing and how far we still have to go. Benchmarking activities help us measure progress and identify priorities for research and action. To reach 3 billion people who are left out of or poorly served by the financial sector, a full understanding of progress and setbacks is essential.

&nbsp;
<h1>Approach</h1>
<h5>INDEPENDENT AND CRITICAL PERSPECTIVE</h5>
We are committed to keeping the industry focused on financial inclusion that benefits consumers. CFI assesses public industry data, like the <a href="https://globalfindex.worldbank.org/">Global Findex</a> and the <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">Gallup Global Financial Health Study</a> with an independent and critical eye, shining a spotlight on where action is most needed. We also participate in joint benchmarking exercises with partners to examine specific aspects of the sector, like the regulatory environment or risk perceptions. In all our benchmarking and research endeavors, we are keen to reality test prevailing narratives, ask tough questions and shine a light on overlooked trends.

&nbsp;
<h1>Results</h1>
<h5>WHAT HAVE WE ACHIEVED?</h5>
<h2>Benchmarking the Enabling Environment</h2>
Together with partners, CFI sponsors and contributes to the Global Microscope—a project led by the Economist Intelligence Unit. Intended to benchmark the enabling environment for promoting financial inclusion, the Microscope assesses the institutional and regulatory ecosystem based on selected indicators across over 50 developing economies. We have helped the Microscope evolve from a study of microfinance in Latin America and the Caribbean into a global study of the broader financial inclusion ecosystem. Additionally, we also look at new indicators on the enabling environment for digital financial services.

With 2018 marking its eleventh edition, the Microscope is one of the few benchmarking tools in the financial inclusion sector that spans a decade or more. Regulators across the world use its scoring and rankings as yardsticks for their own performance. Investors also consult the study when considering investment strategies. Many countries are cognizant of where they stand in the global rankings and are motivated to improve.


Benchmarking Financial Inclusion Progress

<h1>Challenge</h1>
In emerging markets across Africa, microfinance institutions (MFIs) and other financial service providers (FSPs) play a critical role providing financial services to people who are unable to obtain traditional finance. Despite its important role, this sector in Africa faces enormous challenges. In 2013, our <a href="https://www.centerforfinancialinclusion.org/microfinance-banana-skins-2014-the-csfi-survey-of-microfinance-risk/">survey of African FSPs</a> revealed governance and risk management as the primary vulnerabilities in the sector. Weak governance and risky behavior also <a href="http://www.cgap.org/publications/growth-and-vulnerabilities-microfinance">played a role in microfinance crises</a> in Nicaragua, Morocco, Bosnia-Herzegovina, and Pakistan. CFI decided to commit to helping African FSPs focus on governance and risk—and not just individually, but at a sectoral level—to avoid this fate.
<h1>Navigating Obstacles</h1>
We quickly realized we would be starting nearly from scratch. The handful of existing governance resources on the market at the time comprised generic, one-off trainings or were geared to corporate participants. We knew that this kind of classroom-based, lecture-heavy, training was not an effective strategy for senior board members, whose time was valuable and who were often in positions of authority in other walks of life.

We wanted to create something meaningful and effective, tailor-made for FSPs, and delivered in a manner that would stick with participants so that they could lead their organizations and their industry to grow and prosper.

&nbsp;

Governance Peer Learning and Exchange Program Strengthens Financial Institutions in Africa

The marriage metaphor appropriately captures the link between technology and financial inclusion as we launch “<a href="http://www.centerforfinancialinclusion.org/finance-for-all-wedded-to-fintech-for-better-or-worse/">Finance for All 2018: Wedded to Fintech, for Better or Worse</a>,” a new report on what financial inclusion stakeholders see as crucial risks facing financial service providers in emerging markets who work with those with little or no access to these services.

There are two key takeaways here. One is that fintech-enabled models are powerful drivers of financial inclusion and strong partnerships will contribute to their success and long-term sustainability. That technology is a force for good in the quest to achieve full financial inclusion is undeniable.

The other takeaway is that concerns about the marriage are ubiquitous. In fact, technology came out as the top risk out of 18 risk areas ranked by survey respondents, with strategy risk ranked a distant second (it was number one in the 2016 survey). Three hundred financial service providers, investors, regulators and observers from 70 countries participated.
<h2>What they’re saying about technology</h2>
Many respondents cited its potential to facilitate growth and revolutionize financial service provision by expanding outreach, improving efficiency, and better understanding client needs. Yet this enthusiasm is tempered by concerns that this new technology brings with it new and perhaps not well understood risks, particularly with respect to client protection and data security.

“The use of technology has huge potential in reaching and servicing the unbanked, yet we cannot do it without a probable increase in the inherent risk of failure of systems or infrastructure, data breaches and leakage of information. These pose a threat to cyber security, while the multiplicity and network of providers involved in providing finance could blur lines of accountability that could pose risk to consumers,” noted one regulator in Southeast Asia.

While technology has the opportunity to scale impact in financial inclusion, some technology providers may not align with missions of financial service providers (FSPs), focused on serving the base of the economic pyramid. Respondents to the survey stressed the downsides to loss of human touch and catered products that mass automation of technologies may bring. Ethan Loufield, director of strategy and operations at the CFI office in Washington, D.C., stressed in the report that “financial services are not inherently good or bad, but they can be designed and delivered in ways that target positive outcomes. And while many providers are trying to do this, when you look under the hood at what's happening in practice you find that many such providers have a very difficult time measuring and articulating what the positive outcomes might be.”

Staying focused on the needs of clients and their varying levels of engagement highlight the importance of partnerships and establishing an ecosystem to better understand strengths, weaknesses and opportunities to work together. Many financial service providers are sitting on a wealth of client data that could be used more effectively to serve a larger number of clients. However, the inevitability of partnerships between FSPs and fintechs comes with the high risk choosing the wrong partner.

“With digitization and other forms of cost cutting and efficiency enhancement, partnerships are unavoidable. Once a process involves external partnerships, the risk of one or more partners failing a service provider will always be there. Good selection of partners is key in overcoming such challenges,” according to survey respondent and board member of UGAFODE in Uganda, Olive Kabatalya.
<h2>Why should I read this report?</h2>
“Finance for All: Wedded to Fintech, for Better or Worse” is important reading for everyone working to advance financial inclusion because new entrants, new technology and new models are redefining the ecosystem of financial inclusion and bringing much promise as well as a lot of hype. There is no longer one business model fits all. Digitization has brought in new players and models. It has changed expectations and the risk landscape for clients and both existing and new players.

Not surprisingly, stakeholders view this evolution and related risks through different lenses, focusing on certain risks while paying less attention to others. The report provides us a platform to highlight and understand different risk perspectives, ask questions and to spark discussion about our own strategies to reach full financial inclusion.
<h2>What can be done?</h2>
Fintech providers ought to keep customer centricity the focal point of any technology rollout. While this sounds straightforward, we sometimes lose sight of our purpose as we add new bells and whistles and venture into new territory in “big data:” alternative data, psychometrics and the like.

For those more established, mainstream financial institutions, partnering with fintechs to improve product offerings, increase efficiency, and lower costs–goals with special relevance to low-income customers–ought to be paramount, as we discussed in the 2017 CFI report “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/872-how-financial-institutions-and-fintechs-are-partnering-for-inclusion">How Financial Institutions and Fintechs are Partnering for Inclusion</a>.”
To facilitate productive fintech partnerships, mainstream financial institutions are organizing internally for innovation, strategically integrating systems and staff, and developing contractual agreements to ensure stability and success. Fintech partnerships enable legacy institutions to engage with and learn from new technology in low-risk, low-cost ways. They are also key to allowing incumbents to compete in a world where alternative players, like Facebook and Amazon, are threatening the central role of financial institutions in the lives of customers. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing organizations.

This report was also made possible by support from the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> and <a href="https://www.citigroup.com/citi/inclusivefinance/index.html">Citi Inclusive Finance</a>.

Do read the <a href="https://www.centerforfinancialinclusion.org/storage/documents/Finance_for_All_2018_Banana_Skins_Final.pdf">banana skins report</a> when you have a moment, and join the discussion!

&nbsp;

Tech Drives Financial Inclusion, but Risks Abound: “Banana Skins” Survey Highlights Tech-Finc Marriage

New technology is delivering considerable benefits to the financial inclusion market – but is also creating new risks that service providers need to manage if they are to succeed. This is the main conclusion of a new survey of the risks (or Banana Skins) in the provision of financial services to people in emerging markets who have little or no access to these services.

Technology Risk Is High in Financial Inclusion Market

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

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

<i>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full?utm_source=CGAP+Reader+%2808.06.18%29&amp;utm_campaign=CGAP+Reader+%2808.06.18%29&amp;utm_medium=email">CGAP Blog</a> and is re-published here with permission.</i>

We can choose to see a glass as half empty or half full. And our perspective often has a lot to do with our initial assumptions.

Beth Rhyne and Sonja Kelly of the Center for Financial Inclusion (CFI) have generated discussion in the financial inclusion community with their paper exploring the latest <a href="https://globalfindex.worldbank.org/">Findex </a>data, titled “<a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2">Financial Inclusion Hype Versus Reality</a>.” In the paper, Rhyne and Kelly express concern that the rate of access to new accounts slowed between 2014 and 2017 and that the usage gap for those accounts appears to be growing. They also highlight stagnation in the growth of credit and a decline in savings, but an increase in the use of payments. While I have very little to disagree with in their paper, I think the financial inclusion community has a lot more cause for optimism than it makes out.

Let me state up front that it has never been my expectation that we would reach full financial inclusion by 2020. Or even that 79 percent of adults in developing countries would have an account by 2020, a prediction made by Rhyne and Kelly in their previous paper, “<a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>,” published after the release of the last Findex data set in 2015. The World Bank’s access goal is aspirational and meant to inspire action, which it clearly has. But as Rhyne and Kelly quite correctly point out, accounts are largely meaningless if people are not using them. The point of the Findex data is to help us measure progress against the overall access goal and to understand the levers that will take us to the next level. And there is plenty of food for thought on what the key levers might be in this year’s Findex.

Over the course of two blogs, I would like to offer a few reasons why I believe we have done better than Beth and Sonja think, starting with access.

While I would describe this year’s CFI report as overly pessimistic, I would say the 2015 paper was overly optimistic. The 2015 report assumed straight line increases in access, based on the rate of growth achieved between only two data points: the 2011 and 2014 Findex. While the report acknowledges that this was done to present a scenario for discussion, the net effect was to create an overly optimistic strawman. It seems obvious in hindsight that the pace of change achieved between 2011 and 2014 was not likely to be repeated. Why? Because progress doesn’t move in straight lines. New gains at the margin will be harder to reach than previous gains. This holds true at the country level and for important segments within countries.

At the country level, there is an implicit assumption in “By the Numbers” that all countries have equivalent regulations and providers willing to serve the poor. But all regulatory frameworks are not created equal, and not every provider has the same ability to serve the poor. One has only to look at the data for Sub-Saharan Africa to see this at work. Countries like Kenya, Ghana, Uganda, Tanzania and the West African Economic and Monetary Union (WAEMU) region put enabling regulatory frameworks in place and on average enjoyed a 2.5x increase in the rate of account access between 2011 and 2017, far outstripping the 43 percent increase for developing markets as a whole.

<img class=" size-full wp-image-25811 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/graph-greta-bull-cgap.png" alt="graph Greta Bull CGAP" width="624" height="245" />

Africa also demonstrates that providers and regulations matter. The continent is full of mobile network operators (MNOs) trying to mimic the success of M-PESA in Kenya. Although this did not happen overnight, MNOs have by now clearly demonstrated that they are making a measurable difference in multiple African markets. In the 2014 Findex, there were only 11 countries globally that had more than a 5 percentage point differential between access to any account (including mobile money) and access to a financial institution account only. And the gap between these two numbers in Sub-Saharan Africa was 5 percentage points. By this year’s Findex, this had grown to 28 markets, all but two of which were in Sub-Saharan Africa, and the gap grew to 10 percentage points. This differential is almost entirely attributable to the work of MNOs. According to GSMA's 2017 <a href="https://www.gsma.com/mobilefordevelopment/sotir/">State of the Industry Report on Mobile Money</a>, MNOs have added 338 million accounts in Sub-Saharan Africa, of which 122 million are active (this is corroborated by the Findex estimate of 124 million active mobile money accounts in the region). It is safe to say that MNOs have been responsible for adding the better part of 141 million accounts in Sub-Saharan Africa since 2011, representing 10 percent of new accounts globally. Given that Findex counts only active mobile money accounts, this quite significantly understates the level of new account addition in Africa compared to other regions.

But restrictive regulatory and competitive frameworks meant MNOs did not have the same opportunity everywhere. Nigeria, the continent’s largest market, has been a subject of great interest from MNOs for the past 10 years. But Nigeria has a regulatory framework that restricts the ability of MNOs to operate independently of banks, and this has had an impact on access. In contrast to the 2.5x growth in account access in the cohort of countries above, Nigeria experienced growth of only 33 percent in access to accounts from 2011 to 2017, and there is no appreciable difference between access to a financial institution account and access to any account. In the 10-country cohort, the average delta between any account and a financial institution account had grown from zero in 2011 to 21 percentage points in 2017. What’s more, the increasingly visible success of mobile money encouraged banks to expand their service offerings to the mass market. In these 10 countries, access to accounts in a financial institution grew by 52 percent, outperforming Nigeria, which grew financial institution accounts by only 30 percent. Providers and regulations clearly matter.

An additional challenge as we add accounts at the margin is delivering financial services to difficult segments. Women and rural households are particularly challenging, albeit for different reasons: women because of cultural and legal norms inhibiting access, and rural households because they are difficult and expensive for commercial providers to reach.

The gender gap remains stubbornly persistent at 9 percent in developing countries and is particularly challenging in the Middle East and North Africa region and parts of Sub-Saharan Africa and South Asia. The World Bank calculates that, of the remaining 1.7 billion unbanked, nearly half come from just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan. Bangladesh, Pakistan and Nigeria all have substantial gender gaps: 29, 28 and 24 percentage points, respectively. If in these three markets alone, access for women had grown at a rate equivalent to that experienced by men, the access numbers for 2017 would have increased by nearly 50 million, representing a 9.5 percent boost on the 515 million new account holders added in the three previous years.

For rural populations, the picture is a bit brighter. Access for rural households grew from 44 percent to 66 percent globally from 2011 to 2017, largely driven by rapid change in China and India. But Africa has maintained a stubborn 4 percent gap between access for the rural population and access for the population at large. If we could lift the roughly 61 percent of Africans who live in rural areas up to just the regional average, it would add another 20 million new accounts. If we brought them to the same level as urban Africans, it would add roughly 50 million new accounts.

Regulatory change that opens markets to increased competition and a sustained focus on equal inclusion for women and rural communities would do a lot to move us in the direction of full financial access.

For me, the glass is still half full. Meaningful financial inclusion is hard, involving a complex interplay of factors: regulatory change, viable business models and significant behavior change by new account holders. And for certain segments, cultural and legal norms and distance represent significant barriers. We have to be realistic about how long this will take. When I read the CFI report, it took me back to a time when everyone was disappointed that a new M-PESA had not emerged overnight. It didn’t. But we now have a whole slew of providers that are beginning to look like M-PESA did five years ago, sometimes in surprising places. Progress happens, just not according to our wishful time frames. On access, we have already harvested the low-hanging fruit — now the hard work truly begins.

<em><strong>What do you think? Do the Findex data present an overly rosy picture of the state of financial inclusion, or should we remain optimistic? Leave your comments below. </strong></em>

&nbsp;

&nbsp;

Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 1)