This blog post was written by Swati Mehta, independent consultant and development researcher, and Liz McGuinness, Senior Director and thematic lead for Women’s Financial Inclusion at CFI, in collaboration with Astrid de Valon who leads the World Food Programme’s (WFP) work on Digital Financial Inclusion and Women’s Economic Empowerment. This is part of a <a class="Hyperlink SCXW224207048 BCX0" href="https://www.centerforfinancialinclusion.org/series/digital-cash-transfers-for-women" target="_blank" rel="noreferrer noopener">series</a> of CFI work done in partnership with WFP, with funding from the Bill &amp; Melinda Gates Foundation, that explores how we can improve the design and delivery of digital cash transfers for low-income women.

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<h1>WFP’s New Policy Prioritizes Women to Receive Cash Transfers on Behalf of Their Households</h1>
Today, digital innovations are reshaping the way we manage money and helping to advance digital financial inclusion. Specifically, the digitization of cash transfers is helping to scale up humanitarian assistance and government-to-people (G2P) payments. However, unless these digital advances have a deliberate gender-focused approach, they risk missing the opportunity to advance women’s financial inclusion and increase their empowerment.

Recognizing the transformative power that directing cash transfers to women can have, WFP’s <a href="https://reliefweb.int/report/world/wfp-cash-policy-harnessing-power-money-help-people-survive-and-thrive" target="_blank" rel="noopener noreferrer">revamped cash policy</a> prioritizes sending money to women’s accounts on behalf of their households whenever possible. WFP is the world’s largest provider of humanitarian cash. WFP provides assistance to the people who are most at risk of going hungry. Two-thirds of these people live in conflict settings, the majority are women, and many live in hard-to-reach areas with limited access to services. In 2022, WFP sent $3.3 billion to assist 56 million people in 72 countries, with cash-based transfers constituting 35 percent of all WFP assistance. Currently, 1.3 million women receive money from WFP on their own accounts for their families. With their new policy in place, WFP’s goal is to reach 10 million women in the next few years.

This policy change was supported by a <a href="https://www.centerforfinancialinclusion.org/series/digital-cash-transfers-for-women">series of studies</a> run jointly by CFI and WFP to explore how providing women with their <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">first access</a> to digital solutions and financial accounts can lead to increased economic participation and reduce poverty in their households and communities.
<blockquote>CFI and WFP found that carefully designed cash transfer programs that send money directly to women on behalf of their households can not only enhance household well-being and increase women’s empowerment, but can often reduce the risks of intimate partner violence (IPV) as well.</blockquote>
Sending money to women on behalf of their families raises several questions about potential risks that could come from changing how cash transfers are delivered and to whom. Through a comprehensive desk study and interviews with expert stakeholders, CFI and WFP found that carefully designed cash transfer programs that send money directly to women on behalf of their households can not only enhance household well-being and increase women’s empowerment but can often reduce the risks of intimate partner violence (IPV) as well.  However, under certain conditions, cash transfers to women may still trigger instances of IPV in contexts where rigid gender norms are deeply ingrained. To understand these conditions, it is useful to examine the impact pathways and risk factors that link cash transfers and IPV.
<h1>Understanding the Link: Cash Transfers and Intimate Partner Violence</h1>
There are three pathways through which cash transfers can either reduce or exacerbate the risk factors associated with IPV. In one pathway, cash increases household income, thereby <a href="https://academic.oup.com/wbro/article-pdf/33/2/218/26000886/lky002.pdf" target="_blank" rel="noopener noreferrer">reducing conflict</a> due to economic insecurity and related emotional stress. In these cases, cash transfer programs have proven to positively impact household economic security, leading to reduced reliance on negative financial coping mechanisms, enhanced emotional well-being, and reduced IPV.

&nbsp;

 <img class="aligncenter wp-image-46471" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/10/Cash-Transfers-IPV-Three-Pathways.png" alt="" width="808" height="727" />

<img class="aligncenter size-full wp-image-46472" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/10/Screenshot-2023-10-10-at-1.32.46-PM.png" alt="" width="854" height="45" />

Comprehensive studies across diverse contexts have consistently shown a reduction in IPV. A <a href="https://academic.oup.com/wbro/article-pdf/33/2/218/26000886/lky002.pdf" target="_blank" rel="noopener noreferrer">review of 22 studies</a> spanning Latin America, Africa, and Asia found that in 16 of those studies, cash transfers resulted in reduced IPV. Another <a href="https://cdn.odi.org/media/documents/11316.pdf" target="_blank" rel="noopener noreferrer">meta-analysis</a> on the effect of cash transfers found that the bulk of the evidence pointed towards either a reduction in IPV or no change in IPV. There is an <a href="https://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/135938/filename/136149.pdf" target="_blank" rel="noopener noreferrer">expanding evidence base</a> arising from research conducted across diverse geographies and settings examining the role of complex design features and post-program impacts.

Other studies have shown that when transfers increase the amount of cash in the household, it may in fact increase intra-household conflict and IPV when there are disagreements about how to use the money, as seen in the second pathway. Similarly, programs in which cash transfers increase women’s economic empowerment through increasing their confidence or financial autonomy may shift household dynamics which can lead to either reduced or increased risk of IPV depending on whether there is a positive or negative reaction to women’s newfound status, as seen in pathway three.

The study confirmed that while directing funds to women’s accounts for their households can indeed bring additional benefits for women, they must be coupled with complementary initiatives to mitigate potential backlash resulting from the shifts in household dynamics. 
<h1>How to Best Design Cash Transfers Prioritizing Women as Recipients on Behalf of Their Households</h1>
It is evident that there can be real benefits in directing cash transfer payments to women. Yet research is limited on the differential impact of IPV based on the gender of the primary recipient. Therefore, it is important to design interventions to mitigate any unintended IPV risks when cash is directed to women on behalf of their households. Experience and evidence suggest that policymakers and program managers pay special attention to how programs are executed and the context in which they are rolled out.
<h3>Execution Matters: Ensuring Sustainable Change </h3>
<blockquote class="pullquote--right">If programs are executed well, the reductions in IPV due to cash transfers could be sustained beyond the program term.</blockquote>
If programs are executed well, the reductions in IPV due to cash transfers could be sustained beyond the program term. While the evidence is still emerging, <a href="https://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/135938/filename/136149.pdf" target="_blank" rel="noopener noreferrer">early studies</a> and operational guidelines (see World Bank’s <a href="https://openknowledge.worldbank.org/bitstream/10986/35641/5/Safety-First-How-to-Leverage-Social-Safety-Nets-to-Prevent-Gender-Based-Violence.pdf" target="_blank" rel="noopener noreferrer">Safety First</a> Toolkit and WHO’s <a href="https://apps.who.int/iris/bitstream/handle/10665/312261/WHO-RHR-18.19-eng.pdf?ua=1" target="_blank" rel="noopener noreferrer">RESPECT</a> framework) have highlighted the important role of complementary interventions to sustain reductions in IPV risk factors. These include livelihood trainings or productive asset transfers to improve income; trainings and initiatives to improve household financial management; parenting programs or discussion groups to improve relationships between the household members; and programs to improve women’s confidence, economic standing, and social capital, such as through livelihood trainings, financial planning, and other group-based activities.

A promising example of this type of long-term thinking and practical training is WFP’s cash transfer program in Jordan. There, as WFP transitions from value vouchers to mobile wallets, women in male-headed households are specifically encouraged to open the primary wallet for receiving cash assistance. To ease this shift and promote household acceptance, WFP conducts information sessions for the heads of households and spouses to educate them on wallet setup, benefits, and usage. The training materials stress the importance of multiple wallets within the household, presenting it as a family-sharing solution. While changing entrenched gender norms takes time, this intervention saw 11 percent of male-headed households outside camps and 5 percent within camps registering women to receive cash transfers via her own mobile.
<h3>Context Matters: Impact on IPV in Diverse Settings</h3>
Our research emphasizes the importance of <a href="https://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/135938/filename/136149.pdf" target="_blank" rel="noopener noreferrer">contextual factors</a> in designing effective cash transfer programs that address IPV risks. In conservative contexts characterized by rigid gender norms, there may be a higher risk of backlash when women gain control over resources. This risk worsens in countries experiencing civil war or in conflict zones and among specific sub-groups of women, such as those with low educational levels or in households with constrained budgets or larger families. However, these settings also present opportunities for change by designing targeted interventions that empower women and thereby reduce exposure to some of the factors that make women vulnerable to violence. These include low bargaining power within household decision-making and a lack of control over financial resources.
<blockquote class="pullquote--left">Conservative settings present opportunities for change by designing targeted interventions that empower women, and thereby reduce exposure to some of the factors that make women vulnerable to violence.</blockquote>
In Uganda and the Democratic Republic of Congo, WFP and its collaborating partners successfully engaged the community by identifying and training both men and women community champions. These champions were carefully chosen from households where women were designated as the primary recipients of cash transfers delivered through digital financial services. Their role was to support and educate the wider community on the numerous advantages of digital financial services, and to address any questions or concerns raised by community members. The men champions also sensitized other men in their community regarding women’s access to and use of financial services and how that benefits the entire household.
<h1>Looking Ahead</h1>
CFI and WFP’s research shows that well-designed cash transfer programs have the potential to enhance household well-being, contribute to women’s economic power, and reduce risks of IPV. But doing so successfully requires a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/09/Sending-Cash-Transfers-to-Women-infographic.pdf">nuanced approach</a> that incorporates gender-transformative elements and engages multiple stakeholders. When done well, these programs can create an environment where women’s journeys are both secure and empowering. Economic empowerment for women is not just about dollars and cents; it's about giving them the tools they need to thrive, the power to control their financial destinies, and the freedom to live without fear of violence. When cash transfer programs are designed intentionally, considering local context, they can help us move closer towards the goal of women's economic empowerment, paving the way for brighter futures, stronger families, and more resilient societies.

Prioritizing Women to Receive Cash Transfers: What Are the Implications for Program Design?

This is part of a <a class="fui-Link ___10kug0w f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh fhgqx19 f1olyrje f1p93eir f1nev41a f1h8hb77 f1lqvz6u f10aw75t fsle3fq f17ae5zn" title="https://www.centerforfinancialinclusion.org/series/digital-cash-transfers-for-women" href="https://www.centerforfinancialinclusion.org/series/digital-cash-transfers-for-women" rel="noreferrer noopener" aria-label="Link series">series</a> of work done in partnership with CFI and WFP, with funding from the Bill &amp; Melinda Gates Foundation, that explores how we can improve the design and delivery of digital cash transfers for low-income women.

Cash transfer programs have emerged as a crucial tool in the global effort to combat poverty, overcome shocks and other adversities, and achieve the Sustainable Development Goals (SDGs). Cash transfers provide financial support to vulnerable households, enabling them to meet their basic needs, access essential services, and invest in income-generating activities. However, beyond the immediate economic relief they offer, cash transfer programs also have the potential to <a href="https://cdn.odi.org/media/documents/11316.pdf" target="_blank" rel="noopener noreferrer">address deeper societal issues, including gender inequality</a>. 
<blockquote class="pullquote--right">By putting money directly into the hands of women within households, these programs challenge traditional gender norms and empower women to make decisions about finances, thereby enhancing their control over economic resources.</blockquote>
<a href="https://blogs.worldbank.org/voices/building-back-better-means-designing-cash-transfers-womens-empowerment" target="_blank" rel="noopener noreferrer">Women's economic empowerment</a> is increasingly recognized as a central objective of cash transfer programs. By <a href="https://docs.wfp.org/api/documents/WFP-0000141256/download/" target="_blank" rel="noopener noreferrer">putting money directly into the hands of women within households</a>, these programs challenge traditional gender norms and empower women to make decisions about finances, thereby enhancing their control over economic resources. This not only contributes to reducing gender inequalities but also enhances women's access to formal digital financial services and potentially brings additional benefits such as <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/12/Bridging-the-gap-1.pdf">increasing access to identification documents</a>. 

As we explore the potential benefits of directing funds to women, a critical question arises: could this approach exacerbate the risk of intimate partner violence (IPV)? This question probes the potential shifts in power dynamics within households and the increased vulnerability women might face as they gain control over financial matters. 

Is this concern rooted in perception, or does substantial evidence support these claims? To dig into this question, a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/09/Sending-Cash-Transfers-to-Women-Report.pdf">comprehensive study</a> conducted by CFI, in partnership with the World Food Programme (WFP) and funded by the Bill &amp; Melinda Gates Foundation, examined existing evidence and sought insights from experts in the field. The study's findings suggest that directing funds into the hands of women on behalf of their households can in fact reduce the risk factors associated with IPV. This positive outcome is primarily attributed to the alleviation of financial stress within households and improvements in emotional well-being. However, it is essential to acknowledge that despite the potential benefits, cash transfers to women may still trigger instances of IPV, especially in contexts where harmful gender norms are deeply ingrained.
<blockquote>Despite the potential benefits, cash transfers to women may still trigger instances of IPV, especially in contexts where harmful gender norms are deeply ingrained.  </blockquote>
Globally, <a href="https://www.who.int/publications/i/item/9789240026681" target="_blank" rel="noopener noreferrer">27 percent</a> of ever-married/partnered women, ages 15 – 49 years, have experienced physical or sexual violence by an intimate partner in their lifetime. Women living in the least developed countries and in countries facing conflicts are disproportionately affected with an even higher prevalence of IPV. Gender inequalities that restrict women’s access to basic services and rigid social norms that support masculinities based on power and control are <a href="https://www.who.int/news/item/09-03-2021-devastatingly-pervasive-1-in-3-women-globally-experience-violence" target="_blank" rel="noopener noreferrer">major risk factors leading to IPV</a>. Cash transfers directed to women on behalf of the household can challenge these norms by putting money in the hands of women. However, simply transferring cash is not enough and must be accompanied by <a href="https://apps.who.int/iris/bitstream/handle/10665/312261/WHO-RHR-18.19-eng.pdf?ua=1" target="_blank" rel="noopener noreferrer">programming to gradually transform gender norms</a>. 

In line with the "do no harm" principle, designing cash transfer programs that effectively minimize the risks of IPV is paramount, particularly in settings where such violence is prevalent. At the same time, it is crucial to consider the impact on IPV beyond the program’s duration and explore how the reduction in IPV can be sustained in the longer term.  
<h1>How to Design Cash Transfer Programs and Send Money to Women While Reducing Risk of Intimate Partner Violence  </h1>
From this research, CFI and WFP developed a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/09/Sending-Cash-Transfers-to-Women-infographic.pdf">guide</a> that details how to design cash transfer programs that enhance household well-being, increase women’s empowerment, and reduce the risks of IPV. It is important to note that effective design and implementation of cash transfer programs directed to women’s accounts should follow a comprehensive assessment of IPV risks, carefully considering contextual factors including prevailing gender norms, socioeconomic dynamics, and political conditions. 

Several key recommendations emerge from our analysis: 

<img class="wp-image-46448 size-full alignnone" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/09/Screenshot-2023-09-27-at-2.49.17-PM-e1695913799888.png" alt="" width="791" height="607" /> <img class="size-full wp-image-46449 alignnone" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/09/Screenshot-2023-09-27-at-2.49.32-PM.png" alt="" width="791" height="779" />

&nbsp;

The <a href="https://www.centerforfinancialinclusion.org/sending-cash-transfers-to-women-how-to-design-programs-that-enhance-well-being-while-safeguarding-against-intimate-partner-violence">full report</a> from the study details actionable insights backed by lessons and examples from diverse cash transfer programs.

Cash Transfers Directed to Women and the Implications for Intimate Partner Violence: Lessons for Program Design

When cash transfers are safely sent directly to women, they have the potential to address gender inequities by helping women meet basic needs, access essential services, and invest in income-generating activities. But prioritizing women as the primary recipients of cash transfer programs, and thus diverging from traditional practices where men are the heads of households, raises concerns about intimate partner violence (IPV).<span class="EOP SCXW226271306 BCX0" data-ccp-props="{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}"> This report examines existing evidence on the impact of cash transfers on IPV against women and proposes design approaches to mitigate and minimize those risks. While the report primarily focuses on evidence related to reducing the risk of IPV following cash transfers to women on behalf of households, it also underscores the potential that sending cash to women has for reducing existing IPV. The objective is to foster a constructive dialogue and encourage governments and humanitarian organizations implementing cash transfer programs to prioritize women as the recipients of cash on behalf of their households whenever feasible, while ensuring their safety and adequate support.  

This series, created in partnership with World Food Programme (WFP), the Center for Financial Inclusion (CFI), and the Bill &amp; Melinda Gates Foundation, shares how we can improve the design and delivery of digital cash transfers for low-income women.

Sending Cash Transfers to Women: How to Design Programs that Enhance Well- Being While Safeguarding Against Intimate Partner Violence

‘Responsible Finance’ is Not Responsible if it’s Not Gender-Intentional

Why is meal planning a recommended financial strategy for women but not for men with children, according to ChatGPT? And why is this important for financial services?

Natural language processing (NLP) tools can create human-like conversations. Perhaps the most well-known application of an NLP tool is ChatGPT, which <a href="https://www.theguardian.com/technology/2023/feb/02/chatgpt-100-million-users-open-ai-fastest-growing-app" target="_blank" rel="noopener noreferrer">reached over 100 million users two months after its launch</a> in November 2022. Many people have increasingly used ChatGPT as a tool for work or personal use. I wanted to test if ChatGPT showed gender bias when looking at finance-related applications, so I inputted a few prompts about financial services. The results are a reminder that while AI is a powerful tool, it is not free from problematic social norms and potential bias against women. This week CFI <a href="https://www.centerforfinancialinclusion.org/equitable-ai-for-inclusive-finance">released two new publications</a> to help strengthen industry conversations to mitigate against, monitor for, and correct harmful gender bias in inclusive finance. These publications are the result of CFI’s winning proposal to USAID’s <a href="https://www.usaid.gov/innovation/competitions/equitable-ai-challenge" target="_blank" rel="noopener noreferrer">Equitable AI Challenge</a>, implemented by DAI’s Digital Frontiers.
<blockquote class="pullquote--right">One simple prompt revealed three problematic differences. However, they reflect a complex problem requiring an urgent response.</blockquote>
When I asked ChatGPT, or GPT-3.5, to write financial advice to help men and women with children, the answers showed important differences by gender, as seen in the following screenshots. For instance, the tool recommended that men, not women, create or update their wills and designate beneficiaries for their assets. This result demonstrates an existing assumption that men with children are more likely to have assets or income than women with children. Moreover, GPT-3.5 advised only men, not women, to have a work-life balance and spend quality time with their families. Again, this shows a bias about gender roles in work and within families. Another blatant example was the recommendation GPT-3.5 gave to women, but not to men, about planning meals. The tool advised women to cook larger meals at home and plan their grocery shopping to save money.

One simple prompt revealed these three problematic differences. However, they reflect a complex problem requiring an urgent response — especially as many companies, including fintechs, incorporate AI tools, such as NLP, into their business models.

<img class="aligncenter size-full wp-image-46358" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/EqAI-ChatGPT-01.png" alt="" width="4038" height="3555" />
<h2>Growing Use Cases of AI in Inclusive Finance</h2>
AI has <a href="https://www3.weforum.org/docs/WEF_AI_in_Financial_Services_Survey.pdf" target="_blank" rel="noopener noreferrer">numerous applications in the financial sector</a>, such as revenue generation, process automation, risk management, client acquisition, and customer service. Companies are increasingly using AI to accelerate lending decisions and use alternative data — including social media, mobile phone activity, and satellite data — to measure creditworthiness. AI presents an opportunity to quickly expand access to financial services for populations without long credit histories, including women. Companies use facial patterns, voice recognition, and biometric data for know-your-customer (KYC) requirements and to verify customers’ identities. Insurance companies use AI algorithms to speed up claims processing. Companies are also using AI tools for client acquisition and customer service. Chatbots and virtual assistants help prospective and existing customers find information about financial products that meet their needs.
<blockquote>Instead of offering helpful customization, the financial advice given perpetuates outdated and unhelpful stereotypes. The resulting harm from biased AI systems used in financial services contradicts the goals of financial inclusion and has potential business and regulatory costs for fintechs and their investors.</blockquote>
However, while AI tools are making high-stakes decisions for the economic prospects and future of individuals, their businesses, and their communities, these systems are also introducing new risks, including data privacy vulnerabilities and unfair outcomes for certain consumers. Women have experienced negative effects, such as being unfairly rejected as “false negative” in credit decisions, or receiving higher pricing, lower credit limits, and more limited choices.  As the above experiment with GPT-3.5 showed, algorithms can provide different financial advice depending on a customer’s gender. When designed well, tailored solutions for different customer segments can increase usage by satisfying the specific needs of the group. However, in this case, instead of offering helpful customization, the financial advice given perpetuates outdated and unhelpful stereotypes. The resulting harm from these issues contradicts the goals of financial inclusion and has potential business and regulatory costs for fintechs and their investors.
<h2>Sources of Harmful Gender Bias</h2>
<img class="wp-image-46360 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/Screenshot-2023-08-25-at-7.40.18-AM.png" alt="" width="405" height="408" />

CFI has written extensively on the opportunities and risks of AI for inclusive finance, and in 2021, we released a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/03/The-Stories-Algorithms-Tell-CFI-publication-MAR21.pdf">framework to help understand algorithmic bias</a>. The framework included three buckets to categorize sources of harmful AI bias: 1) inputs (such as datasets and AI teams), 2) code, and 3) context.

Applying this framework to my experiment with ChatGPT illustrates a few examples of where differences in financial advice by gender may originate. However, it’s important to highlight that these possible explanations are purely theoretical, as we have not tested them empirically.

Inputs: NLP and AI algorithms are trained on data to make predictions and inform decisions. In this case, <a href="https://medium.com/@dlaytonj2/chatgpt-show-me-the-data-sources-11e9433d57e8" target="_blank" rel="noopener noreferrer">GTP-3.5 processed input data from the web, books, and WebText2</a>, which is culled from Reddit submissions. As you may imagine, in aggregate these input datasets compile a series of beliefs and social norms, such as the one that suggested that women save money through meal prepping.

Code and Context: As a model is being built, developers can use techniques to reduce biased responses by, for instance, penalizing the model for generating harmful or stereotypical content. AI developers, or other actors, can periodically review model outputs after launch and provide feedback and adjustments over time. However, if the teams testing the system are primarily men, problematic outputs — like from my experiment — may be less likely to be flagged.
<h2>A Path Forward </h2>
As with any technology that experiences exponential growth, stakeholders — like investors, donors, and regulators — must play catch-up, and many questions remain. How, amid all these changes, can concerned stakeholders understand, let alone contribute to, shaping the future of AI in a way that is responsible and equitable, particularly for achieving our target financial inclusion outcomes?

In the inclusive finance sector, many actors are increasingly interested in incorporating principles and tools that guide the responsible and equitable deployment of AI. However, although there is a proliferation of techniques and academic resources to identify, mitigate, and correct bias, our extensive review of over 120 guides and checklists showed a lack of tools appropriately designed for the financial sector.

Recognizing this gap, CFI developed and this week released a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/Equitable-AI-Guide.pdf">practical guide</a> to help impact investors identify harmful AI gender bias among their investee companies, and an <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/Equitable-AI-Brief.pdf">accompanying brief</a> that presents some of the key challenges with building accountability and transparency for AI in inclusive finance and offers opportunities to strengthen the industry conversation. Recommended practices in the guide touch on data, inputs, and model building as well as crucial business practices including governance. For instance, in the case of OpenAI, the creator of GPT-3.5, the company publicly committed that AI should benefit all of humanity and wrote <a href="https://openai.com/safety" target="_blank" rel="noopener noreferrer">principles to guide their mission</a>. This stance may explain OpenAI’s six-month effort to make the new version of ChatGPT, GPT-4, safer and with hopefully fewer problematic outputs. I’ll be sure to check back with some prompts for GPT-4!

Read more about our work around equitable AI <a href="https://www.centerforfinancialinclusion.org/equitable-ai-for-inclusive-finance">here</a>.

<img class="aligncenter size-full wp-image-46361" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/Screenshot-2023-08-25-at-7.42.00-AM.png" alt="" width="2054" height="1034" />

*Note: In this blog, gender gaps refer to the gap between women and men. However, CFI acknowledges that gender includes non-binary populations such as LGTBQ communities. It is essential to highlight that this blog does not intend to dismiss the existence of non-binary people.

Gender Bias in AI: An Experiment with ChatGPT in Financial Inclusion

Artificial intelligence (AI) enables innovations in digital finance that can boost efficiency, cut costs, and expand consumer reach. AI provides scalable ways to determine the creditworthiness of individuals and businesses that historically lacked identification, collateral, and credit history. And by automating processes, AI can enable higher volumes of low-value transactions that make harder-to-reach segments more viable customers. However, while AI presents tremendous opportunities, deploying AI also comes with significant risks – one being inequitable outcomes for marginalized consumers, especially women. When applied at scale, the harms caused by AI counter the financial inclusion goals of many impact investors and their portfolio companies. While impact investors are well positioned to take a proactive role in supporting companies in building and deploying equitable AI systems in inclusive finance services, they often do not have the tools required to assess and evaluate the fairness of algorithms. Recognizing this gap, the Center for Financial Inclusion (CFI) developed a practical guide for impact investors to help them identify harmful AI gender bias.
The Investing in Equitable AI for Inclusive Finance: A Risk Management Guide for Impact Investors gives an overview of the use cases of AI in inclusive finance and some of the drivers of harmful AI bias towards women. It also presents a snapshot of the state of practice in bias identification and mitigation and then provides a user-friendly checklist with an actionable set of questions to help impact investors understand the use of AI among their investee companies.
The accompanying brief, Prompts for Equitable Artificial Intelligence in Inclusive Finance: Strengthening the Industry Conversation, presents some of the key challenges with building accountability and transparency for AI in inclusive finance and discusses how CFI’s new guide can help raise awareness around the risks and costs of gender bias in AI. The brief also offers opportunities to strengthen the industry conversation on equitable AI, including advancing research, supporting consumer advocacy and journalism, and operationalizing data rights for consumers.
This work is the result of USAID’s <a href="https://www.usaid.gov/innovation/competitions/equitable-ai-challenge" target="_blank" rel="noopener noreferrer">Equitable AI Challenge</a>. Implemented by DAI’s Digital Frontiers, the challenge aimed to identify innovative approaches to address artificial intelligence inequitable outcomes. The Equitable AI Challenge asked for proposals that critically consider holistic and creative approaches to identify and address gender biases in AI systems within global development contexts. This work is the result of CFI’s winning proposal.

Equitable AI for Inclusive Finance

On the outskirts of sprawling Delhi, 34-year-old Maya opens her kirana, a small grocery store, for the day. Sleeves of shampoo packets and dry snacks line the walls around the counter where Maya serves up to 80 customers on a good day. She accepts payments in cash as well as digital payments on her smartphone, thanks to India’s successful <a href="https://www.forbes.com/sites/zennonkapron/2023/04/10/is-indias-upi-real-time-payments-system-ready-to-go-global/?sh=298e95e94d14" target="_blank" rel="noopener noreferrer">Unified Payments Interface (UPI) system</a>. However, while Maya’s name is registered as the business and bank account owner, she does not know much about the bank account or the business finances beyond her handwritten ledger book. Instead, her husband manages the banking relationship, and she must ask him for more cash or information about the account balance.
<blockquote>Many registered businesses are owned and managed by women only on paper; their lived realities are much different.</blockquote>
According to the Indian Ministry of Micro, Small &amp; Medium Enterprises (MSMEs), <a href="https://msme.gov.in/msme-annual-report-2022-23" target="_blank" rel="noopener noreferrer">women only own 20 percent of Indian MSMEs</a>. While this is already a small figure, ​​​​<a href="https://www.centerforfinancialinclusion.org/fight-gender-inequality-prioritizing-womens-customer-experience-in-product-design-and-complaint-resolution-processes">interviews conducted in March 2023</a> with 38 women business owners in India suggest that this number may be even lower. Many registered businesses are owned and managed by women only on paper; their lived realities are much different.

<img class="aligncenter wp-image-46289" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/Nina-Liew-blog-graphic.png" alt="" width="1009" height="235" />
<h1>Challenging Existing Norms</h1>
Providing financial services to women in low- and middle-income countries <a href="https://www.povertyactionlab.org/policy-insight/designing-financial-services-and-social-protection-programs-enhance-womens-economic" target="_blank" rel="noopener noreferrer">does not necessarily result in economic empowerment</a> if women do not or cannot make the decisions about their finances. Of the Indian women micro- and small-business (MSE) owners interviewed, over one-third relied on a man — typically a husband or brother — to manage or assist in their use of financial services, even if the woman was the registered owner of the business and bank account. When asked why, women said it was because of personal preference, a lack of confidence in operating the account, or that it was the man’s choice. This was true of interviewees with a master’s degree as well as those with lower levels of formal education, illustrating the pervasiveness of gender norms across education levels.

Managing the business’ day-to-day finances extends to resolving issues with a bank or fintech. Women who rely on their husbands or brothers to operate their bank accounts will often wait for them to contact the agent -- who is usually a man -- to resolve any complaints. This process is time-consuming and causes friction in women’s daily business activities. Consequently, these women may turn away customers if they do not have enough cash or lack information on accessing financial services for business improvement or growth.

For women in India to fully realize their economic contribution to the Indian economy, we must challenge and change existing norms. The current lack of equality represents a missed opportunity as bona fide access to formal financial services enables women to build their assets and wealth, improving their wellbeing and the wellbeing of their families.
<h1>Benefits for Women and Businesses</h1>
The burgeoning fintech sector has the pivotal opportunity to create better outcomes for women. India’s fintech sector is one of the fastest growing in the world, with approximately <a href="https://www.bain.com/insights/india-fintech-report-2022-sailing-through-turbulent-tides/" target="_blank" rel="noopener noreferrer">USD $35 billion invested</a>, more than doubling India’s share of global fintech funding since 2016. However, many fintechs are “gender-neutral” and do not design intentionally for diverse genders, reinforcing discriminatory gender norms. For example, because women tend to have <a href="https://www.centerforfinancialinclusion.org/an-equitable-rebuilding-learnings-from-women-owned-msmes">lower rates of digital transactions or formal financial assets</a>, it can be more challenging for them to meet loan eligibility requirements. When fintechs have a gender-neutral approach, the <a href="https://www.inclusivefintech50.com/2022-insights" target="_blank" rel="noopener noreferrer">gender gap is 28 percent higher</a> than the gap for bank accounts or smartphone ownership.
<blockquote class="pullquote--left">Many fintechs are “gender-neutral” and do not design intentionally for diverse genders, reinforcing discriminatory gender norms.</blockquote>
Advancing gender-intelligent changes and developing strategies to overcome women’s specific constraints can help fintechs tap into the <a href="https://financialallianceforwomen.org/download/how-fintechs-can-profit-from-the-multi-trillion-dollar-female-economy/" target="_blank" rel="noopener noreferrer">$216 trillion global market</a> controlled by women. Research by the Financial Alliance for Women shows that fintechs could see a ​​​​<a href="https://financialallianceforwomen.org/download/how-fintechs-can-capture-the-female-economy/" target="_blank" rel="noopener noreferrer">70 percent increase in revenues</a> by converting new women customers at the same rate as men. While building economic power for women on its own is a compelling reason to inspire change, this financial incentive is an additional driving force for investor-backed and profit-driven fintechs to prioritize gender-inclusive design and compete in an increasingly crowded market.
<h1>Increasing Diversity Is a Crucial Driver of Change</h1>
One fundamental way that fintechs can adapt their strategies to benefit women is by increasing their organizational diversity. From its interviews with the <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Finance 50</a> fintech winners, CFI found that women-led fintechs were <a href="https://www.inclusivefintech50.com/2021-insights" target="_blank" rel="noopener noreferrer">more likely</a> to explicitly target and serve more women customers and report gender segmentation data, which is necessary for gender-intelligent decision making. This staff diversity should extend to customer-facing roles, such as the agents and distributors interacting with women customers, and women business correspondents are critical in <a href="https://www.adb.org/publications/digital-doorstep-banking-female-banking-agents-lead-digital-financial-inclusion-through-the-pandemic-and-beyond" target="_blank" rel="noopener noreferrer">expanding financial inclusion</a>. Interfacing with women staff makes it easier for women business owners to manage financial matters as women place a higher value on building personal relationships with agents and building trust over time.
<blockquote class="pullquote--right">Women-led fintechs were more likely to explicitly target and serve more women customers and report gender segmentation data.</blockquote>
Investors and regulators can also incentivize and require fintechs to make these changes. For example, through <a href="https://www.womensworldbanking.org/what-we-do/gender-lens-investing/" target="_blank" rel="noopener noreferrer">gender lens investing</a>, Women’s World Banking works toward higher social and financial returns. Their in-depth approach uses fintech data to develop customized, strategic Gender Action Plans, and their first fund saw an <a href="https://www.womensworldbanking.org/what-we-do/gender-lens-investing/" target="_blank" rel="noopener noreferrer">83 percent increase in women reached</a> by portfolio companies. 

Although fintechs alone cannot bring about an overnight transformation in societal and gender norms, taking these steps represents a real and immediate opportunity to initiate change for the economic empowerment of women in India and beyond.



<a href="https://www.linkedin.com/in/camilla-nestor-640b70">Camilla Nestor</a>, Advisory Council Member of CFI and CEO of MCE Capital, teaches a financial inclusion course at Columbia’s <a href="https://www.sipa.columbia.edu/">School of International and Public Affairs</a> (SIPA). Each year, the course features a writing competition that gives students an opportunity to write a blog post on a topic of their choice related to inclusive finance. This piece was written by the winner of the 2023 writing competition, Nina Liew.

This work is inspired by a graduate research project conducted by students at Columbia University’s School of International and Public Affairs in consultation with CFI and with support from <a href="https://ifmrlead.org/">LEAD at Krea University</a>. Nina and the team of graduate students focused on digital financial inclusion and consumer protection for women MSE owners in India. They interviewed 38 women MSE owners, bank and fintech agents, and fintech executives in India in March 2023. 

Note: The story in this post was created as an amalgamation of interviewees.

Power in Practice – or Only on Paper? Addressing the Financial Gaps Affecting Women Business Owners in India

This blog post was generated from a research project conducted by a team of graduate students from Columbia University’s <a href="https://www.sipa.columbia.edu/" target="_blank" rel="noopener noreferrer">School of International and Public Affairs</a>, in consultation with CFI and with support from <a href="https://ifmrlead.org/" target="_blank" rel="noopener noreferrer">LEAD at Krea University</a>. The team focused on digital financial inclusion and consumer protection for women micro- and small-enterprise (MSE) owners in India and interviewed 38 women MSE owners, bank and fintech agents, and fintech executives in India in March 2023. Please note: Akanksha is a composite character based on interview anecdotes.  

It is the middle of the day in Noida in Uttar Pradesh, and an angry customer storms into Akanksha’s small mobile phone and banking agent shop. The customer demands to know why his parents have not yet received the money he transferred to them at Akanksha’s shop yesterday. To calm him down, Akanksha explains that the bank app’s server experienced an electrical outage in the morning that stalled all transactions. However, the customer continues to demand an immediate fix. 
<blockquote class="pullquote--left">As a woman, building trust with male customers has been particularly challenging, but she must do so since most customers are men. </blockquote>
In addition to running her shop, Akanksha is an agent for banks and fintechs, offering mobile money transfers and various utility services. In this scenario, she faces a tough decision. Akanksha must choose how to address the customer’s complaint – she can try to resolve the issue via the bank app, contact her area distributor — the middleman between banks or fintechs and the network of local agents serving customers, or close her shop and visit the bank. How she handles this complaint is critical, as she must maintain her customer base and the hard-earned trust of her customers. As a woman, building trust with male customers has been particularly challenging, but she must do so since most customers are men. 

Akanksha, a woman in her mid-thirties with a bachelor’s degree, is not confident in filing a formal complaint using the app, which only has instructions in English. She also does not want to file a formal complaint out of fear that staff may escalate her issue to upper management, damaging her relationship with bank staff or her distributor. She attempts to contact her distributor on WhatsApp, but he does not answer. Because her husband is busy at work, Akanksha has no choice but to close her shop early and walk to the bank to talk to a staff member in person.  
<h2 style="text-align: center;"><img class="aligncenter wp-image-46280" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/SIPA_quote1.png" alt="" width="1074" height="180" /></h2>
<h1>Minor Issues With Major Implications </h1>
While Akanksha’s story is fictional, it is not an uncommon situation for many women MSE owners in India. A team of graduate students from Columbia University interviewed 38 women in India who use digital financial services (DFS) to understand their user experiences with banking and fintech apps, especially concerning the complaints journey. The interviews revealed that a stalled transaction is just one of several common issues faced daily by women MSE owners and agents like Akanksha. Stalled transactions and outages are so common that one interviewee described this as “just a part of life.” Almost all interviewees (35 out of 38) experienced at least one minor issue like this when using banking or fintech apps. Because each instance takes valuable time to resolve and leads to lost revenue, the effects of “minor” issues can significantly impact MSE owners’ businesses. One interviewee reported closing her shop for 15-minute periods multiple times a day to walk to the bank and settle matters in person.  

Akanksha’s experience highlights some of the barriers to complaints resolution and consumer protection for women MSE owners in India, driven by low confidence in DFS and a reliance on personal relationships with distributors and staff. In an interview with one fintech CEO – whose company was also among the <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> winners – she said, “Women do not come screaming and shouting; this never happens. Local partners are more approachable. It is a business relationship; if you go to that level, it is also a social relationship.” 

An example of this type of social relationship is how many women agents rely on and highly value their personal relationships with distributors who travel to different communities to collect and disburse cash to agents. One agent even described her distributor as her “mentor and guru.” However, this relationship can also be vulnerable; distributors can exploit agents who depend on them for operational needs and resolving issues. Furthermore, if complaints are made informally to the distributor, which is often true for women, distributors are not incentivized to formally record complaints. As a result, the absence of an official record limits management’s oversight of the challenges women agents face.  
<h1>Finding Solutions That Better Serve Women </h1>
<a href="https://www.microsave.net/2018/10/24/consumer-protection-in-the-digital-age/" target="_blank" rel="noopener noreferrer">Existing literature</a> points to factors such as literacy levels, a difficult interface, and a lack of trust that prevent the adoption and use of DFS. However, there remains a gap in understanding the challenges in post-adoption utilization of services, particularly in the face of weak consumer protection provisions by low-income women users. Therefore, in our study, we aimed to explore how consumer protection policies impacted the experiences of women MSEs in using DFS, particularly with complaint redressal.

We found that, generally, women were not comfortable with the process of submitting formal complaints. Despite fintechs and DFS providers having established complaints handling processes under their consumer protection policies, they are often inadequate in supporting their women users. This results in many women abandoning platforms altogether. 
<h2 style="text-align: center;"><img class="aligncenter wp-image-46281" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/08/SIPA_quote2.png" alt="" width="1075" height="180" /></h2>
The interviews with women users in India showed that they highly value personal relationships and prefer in-person complaint resolution. However, women face higher challenges to complaint redressal because of their strong preference for resolving issues through social interactions and providers’ lack of gender-sensitive consumer protection policies. As such, to accommodate women’s user preferences, banks and fintechs need to adopt <a href="https://www.centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs">gender-intelligent</a> strategies.

Through a gender-intelligent approach, banks and fintechs can better understand how women use complaint resolution processes and ultimately design offerings that address their specific needs. This approach can help <a href="https://www.centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs">change entrenched gender inequalities</a> and <a href="https://financialallianceforwomen.org/download/how-fintechs-can-capture-the-female-economy/" target="_blank" rel="noopener noreferrer">benefit</a> companies’ bottom lines. Therefore, solutions should focus on directly addressing women’s specific needs while considering the ability to achieve scale.

Based on the research interviews, we recommend that banks and fintechs consider the following:
<h3>1. Banks and fintechs should develop support features that strengthen women agents’ ability to use their apps confidently.</h3>
This approach could include robust in-person onboarding, training, and support in learning to use the app’s features. While this element is considered “high-touch,” <a href="https://www.accion.org/the-path-forward-for-human-touch-in-a-high-tech-world" target="_blank" rel="noopener noreferrer">the tech-touch balance</a> is vital in providing inclusive financial services. Women users also reported that certain apps and resources were only available in English. Consequently, financial service products should be available in local languages and cater to varying literacy levels.
<h3>2. Banks and fintechs should formalize the full scope of the complaint process for their digital financial services.</h3>
Our research found that many women agents resolve complaints through informal mechanisms such as calling, texting (including WhatsApp), or meeting in person with distributors. Therefore, banks and fintechs should update processes and incentives to record distributor interactions and include them in formal complaint resolution processes and metrics.
<h3>3. Banks and fintechs should build user communities that enable high-touch and in-person support at scale.</h3>
Due to the travel-intensive and vulnerable cash collection nature of the role, most distributors are men. However, there is an opportunity to engage women as distributors to support women agents – one example is creating an “ambassador” program where established and high-performing women agents onboard and help new women agents. The incentive for becoming an ambassador is recognition as an expert and leader within the community. While many of our interviewees said they did not know other women agents, we saw that those who had learned from other women had higher competency levels in using the bank and fintech apps.   
<h3>4. There should be more physical meeting spaces or local offices for women customers to meet staff and raise complaints.</h3>
For example, one gender-intelligent fintech established local meeting hubs to support women using fintech services. By providing a secure environment and personalized assistance, the space motivated women customers to raise issues and embrace a broader range of digital financial services, ultimately improving customer loyalty and lifetime value to fintechs.

These recommendations are merely the beginning of the transformative potential of digital financial services in advancing financial inclusion and consumer protection for women. By taking experiences like Akanksha’s into account during the product design and complaint resolution processes, banks and fintechs can forge a more inclusive complaints-handling strategy. Such an approach would enable women MSE owners and agents to thrive, expand their businesses, and achieve greater economic prosperity. When more women feel they can use DFS and fintech successfully, financial service providers can expand their business reach, demonstrating that gender-intelligent design is a win for all.

Fight Gender Inequality: Prioritizing Women’s Customer Experience in Product Design and Complaint Resolution Processes

Sierra Leone is a highly climate-vulnerable country, meaning that most of the population does not have appropriate coping strategies or resources to deal with the unpredictable effects of climate-related shocks. The country is also heavily dependent on agriculture. In 2020, the <a href="https://www.elibrary.imf.org/view/journals/002/2022/260/article-A001-en.xml#:~:text=High%20dependence%20on%20agriculture%20and%20poor%20infrastructure%20exacerbates,sector%2C%20constitutes%2059%20percent%20of%20GDP%20in%202020." target="_blank" rel="noopener noreferrer">IMF found</a> that the agricultural sector in Sierra Leone employed 54 percent of the population, and, together with fishing and tourism, it contributed 59 percent to the country’s GDP. Today, limited access to finance or crop insurance makes it challenging for farmers to manage climate-related risks, exacerbating the link between Sierra Leone’s climate vulnerability and poverty.

In partnership with Boston University’s Fulbright Humphrey Fellowship, CFI worked closely with Humphrey Fellow <a href="https://www.bu.edu/hhh/alumni/2022-23-hubert-h-humphrey-fellows/alfred-jusu/" target="_blank" rel="noopener noreferrer">Alfred Jusu</a> to conduct 12 key informant interviews with agriculture and financial services experts in Sierra Leone to understand how low-income and vulnerable populations respond to climate change. From these conversations, we found that farmers face three major climate-related challenges in Sierra Leone: flooding, extreme heat, and irregular rainfall. We suggest ways for inclusive financial services providers (FSPs) to support low-income and vulnerable communities in Sierra Leone – and other countries – to adapt to climate-related threats.
<h1>Major Climate-Related Challenges for Farmers in Sierra Leone</h1>
Climate risk impacts vulnerable populations in many ways, including increased food insecurity, waterborne diseases, dehydration-induced fatigue, biodiversity loss, and low agricultural production. Among these many challenges, based on the 12 interviews conducted, the three greatest climate-related concerns facing farmers in Sierra Leone are flooding, extreme heat, and irregular rainfall.
<h3>Flooding</h3>
Of the total number of people affected by disasters in Sierra Leone in the last 30 years, <a href="//www.undp.org/sierra-leone/publications/national-adaptation-plan-2021%20Documents/Communications/Blog/2023%20blog%20posts/Drafts%20(In%20progress)/Archive" target="_blank" rel="noopener noreferrer">90 percent were affected by flooding</a>. In recent years, the delayed onset of the monsoon rains caused water scarcity, followed by extensive flooding once the heavy rain eventually arrived. This year alone, by the beginning of the rainy season in <a href="https://floodlist.com/africa/sierra-leone-floods-freetown-may-2023" target="_blank" rel="noopener noreferrer">May</a>, flooding reportedly caused seven deaths in Freetown and six in Koinadugu.

Flooding also heavily impacts the country in other ways, including displacing farmers and people living in water catchment areas; flooding and the subsequent rotting of crops –  especially rice fields; flooding of roads that link farms to markets, making it difficult for farmers to transport their agricultural goods; property loss; and the proliferation of <a href="https://www.acaps.org/fileadmin/Data_Product/Main_media/20203107_acaps_start_fund_anticipatory_note_sierra_leone_final_augt_4_2020.pdf" target="_blank" rel="noopener noreferrer">waterborne diseases</a>, as water from flooded sewers enters broken city pipes.
<h3>Extreme Heat</h3>
<blockquote class="pullquote--right">In a country with weak energy infrastructure, many families struggle to acquire air conditioners to combat excessive night sweats that cause dehydration.</blockquote>
Sierra Leone’s average annual temperature has increased by 33.4 degrees Fahrenheit (0.8 degrees Celsius) since 1960. By 2060, the annual temperature is <a title="https://ora.ox.ac.uk/objects/uuid:73f9204b-37db-4cf1-b204-e264a8d60f0c/download_file?file_format=application%2Fpdf&amp;safe_filename=The%2BUNDP%2BClimate%2BChange%2BCountry%2BProfiles&amp;type_of_work=Journal+article" href="https://ora.ox.ac.uk/objects/uuid:73f9204b-37db-4cf1-b204-e264a8d60f0c/download_file?file_format=application%2Fpdf&amp;safe_filename=The%2BUNDP%2BClimate%2BChange%2BCountry%2BProfiles&amp;type_of_work=Journal+article" target="_blank" rel="noopener noreferrer">projected to increase</a> by an additional 33.8 to 36.7 degrees Fahrenheit (1.0 to 2.6 degrees Celsius). Extreme heat causes excess perspiration, dehydration, fatigue, reduced stamina, and increased rest times during physical activity. Many farmers struggle to work in these conditions, resulting in a decrease in the total area of cultivated land. In a country with weak energy infrastructure, many families struggle to acquire air conditioners to combat excessive night sweats that cause dehydration; others spend a significant amount of their limited budget on generators and fuel to keep cool at night.

The consequences of extreme heat are also significant for crops. <a href="https://bafs.org.sl/wp-content/uploads/2021/02/SL-Cocoa-Value-Chain-Policy-2019-.pdf" target="_blank" rel="noopener noreferrer">Cocoa</a> – the leading agricultural export of Sierra Leone – is particularly at risk from extreme heat. Extreme heat exacerbates the spread of diseases and pests on cocoa plantations. For example, a pest called a cocoa pod borer can damage cocoa plants and affect the quality of the beans. Warmer temperatures can also <a href="https://www.nature.com/articles/s41598-021-01427-8" target="_blank" rel="noopener noreferrer">decrease</a> the flavonoids and aroma compounds of the beans, negatively affecting the taste and quality and ultimately reducing farmers’ profits.
<h3>Irregular Rainfall</h3>
Over the years, Sierra Leone has seen changes in rainfall patterns and seasonal precipitation, with average <a href="https://ora.ox.ac.uk/objects/uuid:73f9204b-37db-4cf1-b204-e264a8d60f0c/download_file?file_format=application%2Fpdf&amp;safe_filename=The%2BUNDP%2BClimate%2BChange%2BCountry%2BProfiles&amp;type_of_work=Journal+article" target="_blank" rel="noopener noreferrer">annual rainfall decreasing since 1960</a>. Because Sierra Leone’s crop production depends on rainfed agriculture, this reduction in total rainfall takes a significant toll on the agricultural sector. Farmers decide when to till the land, plant, and harvest based on historical knowledge of when the rains fall. However, because of climate change, it is now more difficult to predict seasonal rainfall. As a result, birds or rodents may eat the seeds, seeds can die in the scorching heat, or their germination rates can decline. For cocoa plantations, changes in rainfall patterns affect the growth, development, and yield of cocoa trees – too much rainfall can cause cocoa pods to rot, while too little can lead to stunted growth and reduced yields.

Considering the climate risks that Sierra Leoneans – particularly farmers – face on a daily or seasonal basis, we must examine how financial institutions are helping them <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">adapt to changing landscapes and livelihoods, mitigate risk, and build resilience.</a> While some efforts are in place to support consumers responding to climate shocks, FSPs must prioritize products and services that offer clients flexibility and access during emergencies.
<h1>How Can FSPs Help Consumers in the Face of Climate Change?</h1>
<h3>1. Offer voluntary savings.</h3>
Very few microfinance institutions in Sierra Leone offer voluntary savings accounts that clients can access when they want, regardless of any outstanding loans. However, offering this type of flexibility to consumers is important, as it allows them to access critical funds in an emergency. <a href="https://www.entrepreneursdumonde.org/en/program/munafa-social-microfinance-in-sierra-leone/">Munafa Social Microfinance</a> is one of a few MFIs offering voluntary savings for low-income clients.
<h3>2. Mainstream social safety net payments.</h3>
Currently, the National Commission for Social Action (NaCSA) in Sierra Leone provides social protection payments for low-income and vulnerable citizens. These payments help people buy food and other essential supplies during floods and help cushion shocks from poor harvests. There is an opportunity for FSPs to take over the role of disbursing social safety net payments, which would help clients build transaction and credit histories. In 2020, Rokel Commercial Bank made <a href="https://tribunetimessl.com/nacsa-signs-cash-transfers-contract-agreement-with-rcb/">cash transfer payments</a> on behalf of NaCSA, amounting to approximately USD $4 million. As practiced in other countries, vulnerable individuals could use those funds to buy food and supplies or move themselves and their livestock to temporary shelters in anticipation of impending climate-induced disasters.
<h3>3. Offer remittance services.</h3>
Remittance services can help farmers and other vulnerable populations receive foreign and local funds to help cope with severe climate-related events, including poor harvests or famines. There are also efforts to link remittances to climate-friendly investments directly. For example, <a href="https://www.thesierraleonetelegraph.com/easy-solar-launches-online-sales-platform-to-expand-access-and-affordability/">Easy Solar’s</a> digital sales platform allows friends and relatives abroad to purchase solar products – solar lanterns, home systems, appliances, and cookstoves – through a secure online payment portal on behalf of people in Sierra Leone. Another example of how innovative models can promote climate adaptation is <a href="https://theshinecampaign.org/celebrating-the-success-of-small-grants-lessons-from-two-organizations/">Smiling Through Light’s PAYG</a>o (Pay-As-You-Go) business model, which allows rural and off-grid communities to pay for solar energy in a way that lowers transaction costs, improves transparency, facilitates savings, ensures privacy, and builds women’s autonomy.
<h3>4. Mainstream the distribution of energy-efficient products like rechargeable solar lights and improved cookstoves.</h3>
Distributing energy-efficient products through FSPs, and making them part of standard credit offerings for clients, could help to increase their adoption. At the same time, purchasing these products allows first-time clients an opportunity to build a credit history, enabling them to access a range of financial services in the future.
<h3>5. Offer innovative financing products.</h3>
FSPs can provide innovative financing to help clients adapt and build resilience in the face of climate change. For example, a recent initiative in Freetown found that <a href="https://www.newscientist.com/article/2375769-city-in-sierra-leone-covers-buildings-in-mirrors-to-fight-extreme-heat/">covering homes with a cheap mirror film</a> can substantially reduce indoor temperatures. Additionally, the recurring floods can devastate livelihoods by washing away stock-in-trade and tools or submerging crop fields. FSPs could offer products that fund vocational training to support people transitioning to alternative livelihoods, such as welding, plumbing, or masonry.

Another resilience-building product is weather indexation insurance, representing a vast untapped market. This insurance system relies on established weather thresholds, such as a minimum or maximum predicted rainfall. If the actual rainfall in a given year exceeds the maximum or falls below the minimum, farmers will receive compensation, assuming that the rain – or lack thereof – has damaged their crops or reduced their yield. Typically, farmers purchase this insurance as part of a bundle when they buy their inputs.
<h3>6. Finance the introduction of clean cookstoves powered by biomass.</h3>
The World Health Organization found that in 2021, <a title="https://www.who.int/data/gho/data/indicators/indicator-details/GHO/gho-phe-primary-reliance-on-clean-fuels-and-technologies-proportion" href="https://www.who.int/data/gho/data/indicators/indicator-details/GHO/gho-phe-primary-reliance-on-clean-fuels-and-technologies-proportion" target="_blank" rel="noopener noreferrer">less than 1% of Sierra Leoneans</a> use clean fuels and technologies for cooking. Although <a href="https://www.snv.org/update/biogas-food-security-and-climate-change">bio-slurry-fed clean cooking</a> is common in many parts of the world, it could be a transformative innovation if introduced in Sierra Leone. While the number of cattle in Sierra Leone may not be large enough to provide for a high volume of stoves, the innovation could trigger an expansion of the cattle value chain. If affordable and widely distributed, these products could also help reduce logging for firewood, further lessening the environmental strain. FSPs could mainstream these innovative products and allow clients to use such transactions to build credit and transaction history.
<h3>7. Introduce climate-smart agriculture and digitize agricultural lending.</h3>
Examples may include availing funding for high-value crop or livestock diversification and value chain linkages, drought-resistant crops, and irrigation pumps (e.g., hand, foot, and solar pumps). While Sierra Leone currently lacks the value chain organization required to digitize its agricultural lending, the case of <a href="https://sautitech.com/startups/how-a-village-hero-birthed-akello-banker-that-is-benefitting-thousands-of-people/">Akellobanker</a> in Uganda demonstrates that digitization can be an effective and efficient way to bundle services and offer them on a cash or credit basis. Agricultural credit has moved beyond appraising farmers based on the 5Cs of credit – character, capacity, collateral, capital, and conditions – to a simple system of appraisal based on transaction data, emphasizing the importance of having quality transaction data. Using transaction data for the appraisal process reduces administrative costs for FSPs and gives farmers access to finance to help them adapt, mitigate, and build resilience against climate-related challenges.
<h1>Research-Driven Innovation is Key</h1>
Sierra Leone’s temperature is rising, and 2021 was the <a href="https://www.extremeweatherwatch.com/countries/sierra-leone/average-temperature-by-year">warmest</a> year in the country’s history. The average daily high temperature was 89.8 degrees Fahrenheit (32.1 degrees Celsius), and the average low was 72.1 degrees Fahrenheit (22.3 degrees Celsius), indicating a correlation between rising temperatures, extreme heat, and irregular rainfall.
<blockquote>FSPs must work to understand their customers better and focus on how extreme flooding and irregular rainfall impact the incomes and livelihoods of vulnerable populations such as smallholder farmers and microentrepreneurs.</blockquote>
While mitigating these risks falls outside the scope of financial services, FSPs can help vulnerable clients <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">transition into alternative livelihoods.</a> However, this will require a commitment to research-driven innovation. FSPs must work to understand their customers better and focus on how extreme flooding and irregular rainfall impact the incomes and livelihoods of vulnerable populations such as smallholder farmers and microentrepreneurs. This foundational approach will allow FSPs to develop client-centric and climate-responsive products.

How FSPs Can Help Low-Income Populations in Sierra Leone Respond to Climate-Related Shocks

The financial inclusion landscape has changed drastically since the Global Partnership for Financial Inclusion (GPFI) was established over a decade ago. The <a href="https://www.worldbank.org/en/publication/globalfindex">Global Findex 2021</a> revealed that the inclusive finance sector has made significant progress in access — with worldwide account ownership reaching nearly 76 percent of the global population. This uptick largely has been driven by rapid digitalization, investments in digital public infrastructure, and enabling policy environments across several countries.

We should celebrate these accomplishments and continue to focus on the benefits for low-income consumers. There are plenty of examples of how financial services have been designed to support low-income populations. <a href="https://www.worldbank.org/en/publication/globalfindex/Report" target="_blank" rel="noopener noreferrer">In Kenya</a>, mobile money users received remittances from their social networks in times of need to avoid cutting back on essential spending. In Bangladesh, we have seen a reduction in extreme poverty levels due to increased mobile money remittances from people migrating to cities to support their families.

However, there is still work to do, especially to reach the most vulnerable populations. Going forward, it is important that we consider the consumer segments that remain excluded and the underlying reasons behind this exclusion while also continuing to better understand newer risks that are emerging and becoming increasingly relevant.

We must address existing vulnerabilities that stem from poverty, low-income levels, limited financial education, and external conditions that can exacerbate these vulnerabilities, such as the availability, or lack thereof, of adequate infrastructure or consumer and data protection mechanisms. To help classify types of vulnerabilities that can arise, CFI uses a <a href="https://www.strivecommunity.org/insights/financial-services/consumer-protection" target="_blank" rel="noopener noreferrer">vulnerability framework</a>. This framework categorizes the four types of vulnerabilities specific to digital financial services as information vulnerability, supply vulnerability, redress vulnerability, and impact vulnerability.
<blockquote>It is important that we consider the consumer segments that remain excluded and the underlying reasons behind this exclusion while also continuing to better understand newer risks that are emerging and becoming increasingly relevant.</blockquote>
The GPFI has worked over the last few years to address some of these vulnerabilities. The importance of infrastructure is the object of the current Indian Presidency; consumer protection and financial education were addressed during the Italian Presidency; and a <a href="https://www.g20smecasestudies.org/case-studies" target="_blank" rel="noopener noreferrer">G20 living database</a> of best practices of MSMEs innovative financing was created during the Indonesian Presidency.

Despite much progress in addressing vulnerabilities low-income people face, new risks continue to emerge.
<h4>1. Economic recovery from the pandemic remains a priority for several nations.</h4>
The pandemic heavily impacted micro- and small- enterprises (MSEs) and women – two large consumer groups who are often excluded from formal financial services. The pandemic exposed that despite <a href="https://www.worldbank.org/en/publication/globalfindex/Report" target="_blank" rel="noopener noreferrer">recent progress in narrowing the gender gap</a>, it remains a priority focus area for the sector. GSMA’s mobile gender gap reports reveal that women’s digital inclusion is slowing across low- and middle-income countries for the second consecutive year, and several other reports have shown that we need to address the challenges women have in using financial services to see the full gains of access.
<h4>2. Geo-political risks are increasing the mass displacement of people, disproportionately affecting low-income individuals, and heightening the risk of financial exclusion.</h4>
Coping strategies require helping low-income people and vulnerable consumers adapt and transition to new livelihoods. Cash transfers, insurance, and remittances can play a crucial role, but we must first address problems with innovation, distribution, and the cost of remittances.
<h4>3. The wide adoption of new technologies in the financial sector, if not correctly governed, poses a significant risk of further excluding and exploiting vulnerable populations.</h4>
This is especially true as AI becomes more entrenched in every facet of financial products and services and distribution channels, and instances of <a href="https://www.cgap.org/research/reading-deck/evolution-of-nature-and-scale-of-dfs-consumer-risks-review-of-evidence" target="_blank" rel="noopener noreferrer">fraud and cybercrime are on the rise</a>.

&nbsp;

To deliver financial services responsibly, we must address current and emerging exclusions, anticipate possible sources of vulnerability, and consider who might be adversely affected. The inclusive finance sector has the potential to develop products and services that allow consumers, especially the most vulnerable, to become more resilient and adapt to their new realities.

In response to these challenges, <a href="https://globalrff.org/" target="_blank" rel="noopener noreferrer">RFF</a> launched three working groups: 1) Responsible Recourse, led by the Better than Cash Alliance (BTCA) and Bangko Sentral ng Pilipinas; 2) Responsible Digital Credit, led by CGAP, and 3) Responsible AI, led by the office of the UNSGSA and CFI. Each group aims to influence and build a collective effort towards a more responsible finance ecosystem and will present its findings at the upcoming event in India.

RFF convenes July 5-7, 2023, in Bengaluru, India, under the theme of Shaping a Responsible Digital Finance Ecosystem. Visit the <a href="https://globalrff.org/july-2023" target="_blank" rel="noopener noreferrer">RFF website</a> to view the full agenda.

Outlining Priorities for Responsible Finance

Swati Mehta

Elizabeth (Liz) McGuinness

Mayada El-Zoghbi

Joanna Ledgerwood

Lucciana Alvarez Ruiz

Alexandra (Alex) Rizzi

Nina Liew

Nikita Chettri

Evelina Durlind

Leonie Rauls

Ulayya Gempur Tirani

Marina Santos Piacente

Alfred Jusu

Magda Bianco

Jacob Tate

Sophia Sunderji

Howard Miller

Evelyn Stark

Nina Holle

Renee Chao-Beroff

Todd A. Watkins

India

South Asia

Sierra Leone

Sub-Saharan Africa

Digital Payments

Enabling Environment

Women

Access Usage Gap

Responsible Product Design and Delivery

Consumer Protection

Responsible Digital Finance

Alternative Data

Digital Financial Services

Fintech

Impact Investing

Underserved Groups

Fintechs

Small Business Owners

Agricultural and Rural Finance

Challenges and Crises

Financial Health

Insurance

Resilience

Smallholder Farmers

Credit

Financial Inclusion Strategy

Refugees and Migrants

Digital Transformation

Financial Capability

Policy, Regulation and Government Initiatives

Blockchain

Rural Populations

Mobile Banking

Microfinance Institutions

Youth

Blog Post

Report

Toolkits and Guides

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 Intersection of Financial Inclusion and Gender during the COVID-19 Pandemic: Insights from Impact Investing

When the temperatures in a wheat field pass a threshold of around 104 degrees Fahrenheit (40 degrees Celsius), the seed starts to break down. <a href="http://www.icar-crida.res.in/Pubs/Heat%20wave%202022%20-%20Causes%20Impacts%20and%20way%20forward%20for%20Indian%20Agriculture.pdf" target="_blank" rel="noopener noreferrer">Photosynthesis stops working</a>, and growth stops. Wheat cannot grow in these temperatures. For the farmers of that wheat, reduced production means reduced incomes. During India’s 2022 heatwave, <a href="https://www.theguardian.com/world/2022/may/21/india-wheat-farmers-40c-heat-food-security" target="_blank" rel="noopener noreferrer">farmer incomes were reduced by as much as 50%.</a>

Periods of extreme heat can have a similar impact on urban environments. When summer temperatures reach a certain level, the livelihoods of many vulnerable groups – construction workers, day laborers, waste recyclers, miners, food vendors, and market traders – are hit. Working outside in the middle of the day becomes impossible. Foot traffic falls as people stay inside. Jobs that involve working around heat sources, like cooking and welding, become increasingly dangerous.
<h1>Understanding the negative impacts of extreme heat on household finances</h1>
The health implications of working in extreme heat are well known. Prolonged exposure to extreme heat can lead to heat exhaustion, cramps, dehydration, nausea, sunburn, dermatological issues, and other heat-related illnesses that impact health and the ability to work. The macro-level financial costs are also reasonably well-understood; for example, it is estimated that extreme heat and humidity <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/will-india-get-too-hot-to-work" target="_blank" rel="noopener noreferrer">could cost India’s economy USD $150-250bn, or 4% of GDP, by 2030</a>.
<blockquote class="pullquote--left">To understand what inclusive finance can achieve, we need a better understanding of how extreme heat impacts incomes and expenditures.</blockquote>
However, we know less about the impact of extreme heat on household finances. To understand what inclusive finance can achieve, we need a better understanding of how extreme heat impacts incomes and expenditures. I was excited to talk to Mahila Housing Trust (MHT), a grassroots development organization based in Ahmedabad, Gujarat, India. MHT provides microfinance and other services to groups of low-income urban women. Ahmedabad and the surrounding area are one of the hottest places on the planet, and its population is highly vulnerable to extreme heat. In response to the 2022 heat waves, MHT conducted focus group discussions with its members and found evidence of how extreme heat periods impacted incomes and expenditures.

On the income side, extreme heat had a significant negative impact on family income. This outcome was true for both home-based and non-home-based workers, particularly women. Home-based workers -- making papad, rolling beedi, sewing clothes -- tended to avoid working in hot afternoons, thus reducing their productivity. As a result, the average loss of income was 2,650 rupees (USD $33) over the five-month period.

As another example, the Arsht-Rock Resilience Center detailed how <a href="https://onebillionresilient.org/hot-cities-chilled-economies/" target="_blank" rel="noopener noreferrer">extreme heat impacts the income-earning potential of women</a> in the informal economy in Delhi:
<h4>In the Old Ahmedabad, New Delhi textile market, female workers pack and sew bales of clothes and transport them by carrying the parcels or using pedal rickshaws or carts. They are paid by parcel delivered. This work only begins after 1:00 p.m., which leaves them no option but to work in the scorching heat. They cannot miss a day’s labor without risking forgone wages.</h4>
At the same time as extreme heat causes incomes to fall, it causes expenditures to increase. For example, women interviewed by MHT had to spend more on electricity to run fans. In addition, they bought more cold drinks for their families to stay cool and hydrated. Additionally, without adequate health insurance systems, every medical treatment caused by extreme heat has a financial cost.
<h1>Climate change is increasing the probability and severity of extreme heat</h1>
March 2022 was the hottest in India since records began <a href="https://india.mongabay.com/2022/06/heatwave-takes-a-toll-on-north-indias-wheat-yield/" target="_blank" rel="noopener noreferrer">122 years ago</a>. Temperatures are the highest in urban areas, where a concentration of heat-absorbing buildings, concrete, and limited green spaces creates a “heat island” effect. High temperatures in India and Pakistan are not new, but climate change made the 2022 heat waves <a href="https://www.bbc.com/news/science-environment-61484697" target="_blank" rel="noopener noreferrer">30 times more likely</a>. <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/will-india-get-too-hot-to-work" target="_blank" rel="noopener noreferrer">As highlighted by McKinsey</a>, the probability of a lethal heat wave in South Asia is projected to grow dramatically over the coming decades.

<img class=" wp-image-45994 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/04/Extreme-Heat_Image.png" alt="" width="1349" height="550" />

The situation has been most acute in South Asia and parts of the Gulf -- such as <a href="https://www.nytimes.com/interactive/2022/11/18/world/middleeast/extreme-heat.html" target="_blank" rel="noopener noreferrer">Kuwait and southern Iraq</a> -- but this is a global phenomenon. Extreme heat threatens lives and livelihoods across parts of <a href="https://theconversation.com/heat-stress-is-rising-in-southern-africa-climate-experts-show-where-and-when-its-worst-198455" target="_blank" rel="noopener noreferrer">Southern Africa</a>, <a href="https://onebillionresilient.org/2023/01/20/freetown-on-the-frontlines-of-climate-action-the-citys-plan-for-extreme-heat/" target="_blank" rel="noopener noreferrer">West Africa,</a> and richer countries like the <a href="https://onebillionresilient.org/extreme-heat-the-economic-and-social-consequences-for-the-united-states/" target="_blank" rel="noopener noreferrer">USA</a> and Australia. Some estimates show that by 2050, between 700 million and 1.2 billion people will live in areas with a non-zero chance of lethal heat waves -- not factoring in air conditioner penetration. Furthermore, like most aspects of climate change, extreme heat will disproportionately impact those already economically and socially marginalized: women, informal workers, refugees, and <a href="https://onebillionresilient.org/extreme-heat-the-economic-and-social-consequences-for-the-united-states/" target="_blank" rel="noopener noreferrer">people of color</a>.
<h1>Small loans can help people adapt to extreme heat</h1>
The staff at MHT have been thinking about this for some time, and in the past five years, they have begun offering their members small loans to buy <a href="https://scroll.in/article/842568/with-a-touch-of-reflective-paint-women-in-an-ahmedabad-slum-are-beating-extreme-heat" target="_blank" rel="noopener noreferrer">heat-reflecting white paint</a> or roof panels to reduce heat absorption in their homes. These low-cost innovations -- which can cost as little as USD $75 -- can reduce indoor temperatures by <a href="https://www.bbc.com/news/world-48395221" target="_blank" rel="noopener noreferrer">up to 5 degrees</a> at the peak of the day. As such, they can be the difference between normal functioning and extreme discomfort while influencing the likelihood of elevated health risks. In addition, MHT supports other passive cooling adaptations, such as potted plants and increased ventilation.

To cope with rising temperatures -- without exacerbating the situation by increasing the use of ineffective air conditioners -- it is essential to invest in sustainable cooling technologies at every level. For example, in 2019, India’s government launched the India Cooling Action Plan (ICAP) to boost investments in energy-efficient, climate-friendly cooling solutions that do not cause a spike in electricity demand. However, further investment in sustainable cooling options is necessary, and a <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099920011222212474/p15743300f4cc10380b9f6051f8e7ed1147" target="_blank" rel="noopener noreferrer">2022 report from the World Bank</a> outlines the role of concessional finance in supporting climate investment opportunities.
<blockquote class="pullquote--right">As households, businesses, and other organizations adapt to extreme heat, many financial service providers will also find the need to adapt.</blockquote>
As households, businesses, and other organizations adapt to extreme heat, many financial service providers will also find the need to adapt. For example, I recently spoke with another microfinance institution (MFI) in Ahmedabad that has experienced a spike in depositors a few minutes before closing; traders are waiting for the heat to abate before depositing their cash. As a result, the MFI extended its business hours into the evening to accommodate those unable to visit during the sweltering afternoons. Due to this extension, staff members work into the evenings, and cashing out must happen after dark. This behavior shift increases security risks and changes the nature of banking, which has historically been a daytime activity with strictly regulated business hours. Extreme heat will change how financial services are delivered, and the systems must adapt.
<h1>New forms of parametric insurance can help build resilience</h1>
Promoting adaptive behavior is important, but the residual risks are a loss of income, increased expenditures, and health costs. However, parametric insurance can help mitigate these risks. One form of parametric insurance is extreme heat index insurance, a relatively new concept that borrows from years of work on parametric insurance for another climate-related shock: <a href="https://www.climatepolicyinitiative.org/gca-africa-adaptation-finance/case_studies/agriculture-and-climate-risk-enterprise-acre-2/" target="_blank" rel="noopener noreferrer">irregular rainfall</a>. Similar to rainfall index insurance, heat index insurance is a risk transfer solution that triggers <a href="https://onebillionresilient.org/2023/03/07/fighting-extreme-heat-with-parametric-insurance/" target="_blank" rel="noopener noreferrer">an automatic payment to members’ bank accounts</a> when extreme heat thresholds are forecast or reached and it is deemed unsafe to work.

MHT developed a heat index insurance that supports low-income urban women and is piloting a new program in the summer of 2023. Market research conducted by MHT found that women would be willing to pay up to $2 per month for this insurance and designed the triggers to cover up to a few days of lost income. <a href="https://meetingorganizer.copernicus.org/EGU22/EGU22-7269.html" target="_blank" rel="noopener noreferrer">Early evidence</a> from the pilot suggests that the necessary preconditions for such a product are:
<h4>1. A clearly defined index and data sources</h4>
<h4>2. A strong local distribution channel</h4>
<h4>3. A strong capacity to deal with basis risk</h4>
As with all such innovations, it will need calibration. For example, should this cover only extreme or very high heat? How localized is the data, and how is the basis risk managed? How effectively can this work at the micro-level? Moreover, what is the role of subsidy/social protection in such schemes? The rising temperatures will soon create the conditions to test this product, answering some of these questions.
<h1>Over the long term, financial services will need to support transitions to new livelihoods</h1>
Extreme heat will render many jobs unviable, forcing people to seek new livelihoods. In 2019, the ILO estimated that <a href="https://catalogue.unccd.int/1206_wcms_711919.pdf" target="_blank" rel="noopener noreferrer">by 2030, heat stress would lead to the loss of 34 million jobs in India</a>, mostly in agriculture and construction. Those workers will need somewhere to go. Along with some regions of the Gulf -- such as Kuwait and southern Iraq -- parts of north India will be the first in the world to experience heat waves that exceed the limit of human survivability. As a result, people will migrate to new locations and livelihoods, and the number of <a href="https://www.unhcr.org/en-us/climate-change-and-disasters.html" target="_blank" rel="noopener noreferrer">climate refugees</a> will necessarily increase. Extreme heat will fundamentally alter geographies and demographics, and financial services must support these transitions.
<h1>A call to action</h1>
Temperatures are already rising across South Asia. In <a href="https://www.telegraphindia.com/my-kolkata/news/met-office-predicts-heatwave-in-kolkata-and-several-west-bengal-districts/cid/1929242" target="_blank" rel="noopener noreferrer">Kolkata</a>, they have already passed 104 degrees Fahrenheit (40 degrees Celsius) -- the temperature at which wheat seeds start to break down. Moreover, this year will likely be an El Niño year, bringing <a href="https://weather.com/en-IN/india/news/news/2023-02-28-extreme-heat-due-to-el-nino-could-hurt-india-gdp-food-and-power-sectors" target="_blank" rel="noopener noreferrer">higher late-summer temperatures and a deficient monsoon</a>.

There is little that the financial sector can do to mitigate these temperatures, but they can help people <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">build adaptive capacity, become more resilient, and transition to less vulnerable livelihoods</a>. However, this will take some ingenuity. Financial service providers will need to understand their customers better and focus on how extreme heat and other climate risks affect real micro-level financial factors, such as incomes, expenditures, and assets and risk management of different low-income and vulnerable segments. Only then can financial service providers start to build financial products -- and a financial system -- that is truly responsive to climate-related risks.

&nbsp;

The author would like to thank the Mahila Housing Trust staff for their insightful and valuable contributions to this blog post.

Inclusive Finance and Extreme Heat: How Small Loans and Parametric Insurance Can Help Vulnerable Populations Manage Through Deadly Heat Waves

FIW Recap: Women’s Financial Inclusion Remains Key Global Focus

The theme for Financial Inclusion Week (FIW) 2022 was “Inclusive Growth in a Digital Era.” For years, financial products and services have been moving digital, and the pandemic further accelerated the trend toward digitalization. As digital becomes the new norm, we must ensure that these services are safe and inclusive of all people and do not exacerbate the exclusion of marginalized and vulnerable groups. FIW 2022 explored how the global financial inclusion community can harness digital innovation to expand inclusive financial services for all people across the globe, ensuring that products meet customer needs, have appropriate safeguards in place, and contribute to inclusive economic growth.

FIW 2022 hosted 125 live and on-demand sessions, featuring nearly 400 speakers from around the world. With over 3,330 registered participants from 2,000 organizations and 146 countries, FIW 2022 was the largest event to date.

To capture the learnings and key takeaways from the many Financial Inclusion Week 2022 sessions, CFI is compiling short summaries that highlight content and ideas from FIW 2022 sessions on select topics.

FIW 2022 Recap

Financial Inclusion Week (FIW) 2022 took place in October during an important time for climate discussions. In 2022, there were deadly floods in Pakistan and Nigeria, tropical storms in Central America, and an ongoing drought in the Horn of Africa – to name only a handful of devastating climate-related disasters which have created a backdrop of urgency to address climate change. In early November, COP27 focused the world’s attention on the urgent need for climate action. In December, CFI hosted a <a href="https://globalrff.org/december-2022" target="_blank" rel="noopener noreferrer">Responsible Finance Forum (RFF) convening</a> focused on the intersection of climate risks and consumer protection. And in the last quarter of 2022, CFI was also in the process of finalizing our multi-year strategy for climate work.

While the urgency of climate change is not new, what has changed in the past year is our understanding of what financial services can – and can’t – do to help low-income and vulnerable people respond to various climatic risks.

The inclusive finance sector has stepped up to this challenge and 2022 marked an important year. The European Microfinance Platform’s Green Inclusive and Climate Smart Finance Action Group (GICSF AG) published its updated <a href="https://www.e-mfp.eu/sites/default/files/action-groups/Green_Index_3.0_conceptual_framework.pdf" target="_blank" rel="noopener noreferrer">Green Index</a>. The <a href="https://www.cifaralliance.org/" target="_blank" rel="noopener noreferrer">CIFAR Alliance</a> has continued to build an industry agenda for the role of digital finance in climate resilience (including a session at FIW on <a href="https://www.youtube.com/watch?v=IyUlwUPPY40." target="_blank" rel="noopener noreferrer">democratizing access to carbon markets</a>). CGAP integrated climate into their <a href="https://www.cgap.org/blog/era-urgent-climate-risk-does-financial-inclusion-matter" target="_blank" rel="noopener noreferrer">new strategy</a> and they ended the year by publishing a <a href="https://www.findevgateway.org/slide-deck/2022/12/cgap-strengthening-climate-resilience-adaptation-through-financial-services" target="_blank" rel="noopener noreferrer">new taxonomy</a> of climate-responsive and climate-supportive financial products. At COP27, AFI published its <a href="https://www.afi-global.org/publications/roadmap-for-inclusive-green-finance-implementation/" target="_blank" rel="noopener noreferrer">Inclusive Green Finance Roadmap</a>, and inclusive green finance is a key priority for UNSGSA Queen Máxima as well as many other development actors.

The importance and urgency of climate change was clear to attendees joining the many FIW 2022 sessions that covered climate and green issues. In <a href="https://www.youtube.com/watch?v=2qENaGgm_4k&amp;t=548s" target="_blank" rel="noopener noreferrer">CFI’s global plenary</a>, we brought together a diverse group of stakeholders to discuss how the impacts of climate change are complex and highly variable. For example, fishing populations in the Philippines, poor urban women in Gujarat, and refugees in Uganda are all negatively impacted by climate change, and panelists described how financial services need to be able to support them all.
<blockquote>Fishing populations in the Philippines, poor urban women in Gujarat, and refugees in Uganda are all negatively impacted by climate change, and FIW 2022 panelists described how financial services need to be able to support them all.</blockquote>
Among the FIW sessions related to climate, there was general agreement that the current state of financial systems is not going to be enough to meet the needs of climate-vulnerable populations, and that we need more innovation and better systems for responsible investment. Catalyst Fund chaired a fascinating panel on the <a href="https://www.youtube.com/watch?v=3XFplsvWs1I" target="_blank" rel="noopener noreferrer">business case for investing in climate resilience ventures</a>. One of my favorite sessions of the week was chaired by David Porteous, exploring whether <a href="https://www.youtube.com/watch?v=D2wQFh8SCZ4" target="_blank" rel="noopener noreferrer">ESG frameworks were for purpose</a> from the perspective of financial institutions in developing nations. And looking ahead to 2023, the organizers of <a href="https://www.ada-microfinance.org/en/sam-2023/home" target="_blank" rel="noopener noreferrer">SAM 2023</a> explored <a href="https://www.youtube.com/watch?v=1PvZtMqYlnI" target="_blank" rel="noopener noreferrer">the links between inclusive finance, agriculture, and food security in Africa</a>.
<blockquote class="pullquote--right">We are hoping that a lot of the promise of 2022 turns into action and investment where it is needed most.</blockquote>
So, what about 2023? At CFI, we have already started on our climate work and recently released our <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">latest research on green inclusive finance</a> and the ways it can impact low-income and vulnerable populations. We aim to build on this and go deeper into the role of inclusive financial services in responding to specific climate risks, like extreme heat or flooding. We are hoping that a lot of the promise of 2022, such as the commitment to funding for loss and damage at COP27, turns into action and that we can turn some of our ideas and concepts into real world action and investment where it is needed most.

FIW Recap: The Pressing Agenda of Climate Change and Financial Services

As each year comes to a close, it’s natural to reflect on the key moments and events that shaped the year. Beyond the political and economic events and trends – the war in Ukraine, the rise in inflation globally, the floods in Pakistan, and COP27 – the field of inclusive finance itself is reshaping its contours to meet the moment. We saw this very visibly in this year’s <a href="https://financialinclusionweek.org/">Financial Inclusion Week (FIW)</a>, the largest event we have hosted to date – with virtual participants from 2,000 organizations across 146 countries. The topics covered reflect the priorities of global actors in inclusive finance, pointing to the direction the field is going.

<img class="wp-image-45545 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/12/Screenshot-2022-12-12-at-11.27.19-AM.png" alt="" width="967" height="429" />

To me, the scale of this year’s FIW and the coming together of the minds of stakeholders worldwide during this difficult time signals an urgent need and momentum to accelerate our understanding of how inclusive finance must evolve to address global challenges. With over <a href="https://financialinclusionweek.org/2022" target="_blank" rel="noopener noreferrer">50 hours of live content and 70 on-demand sessions</a>, FIW has something for everyone. While it would be amazing to watch the hours of rich live and on-demand content oneself, we know few people have this luxury. We have been reflecting on this at CFI and will launch a blog series that highlights takeaways on key topics covered during FIW 2022.

<img class="wp-image-45546 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/12/4_Closing_Plenary-2-1.jpg" alt="" width="960" height="761" />

FIW 2022 left me with several reflections on the state of the inclusive finance sector and what needs to be prioritized. While FIW covered many sub-topics, the overall theme for the week was “Inclusive Growth in a Digital Era,” exploring how our community can harness digital innovation to expand inclusive financial services and contribute to inclusive economic growth.

In hindsight, as I reflect on the content, I would revise the theme and say that this year’s FIW was really about: “How we can create shared prosperity in our digital era.” Many of the sessions at FIW highlighted that, despite digital financial services’ promise to create inclusive solutions, there are serious shortfalls in how the digital economy is evolving, and new risks and gaps are emerging. We learned that while access and usage continue to rise, indicators linked to resilience have worsened. Even more concerningly, numerous examples of fraud and online harassment were spotlighted during the sessions indicating that the digital economy has yet to pan out as the equalizer that we thought it would be.

Some key messages I took away from FIW 2022 include:
<h3>The future of micro and small enterprises (MSE) on digital platforms needs attention.</h3>
In a joint <a href="https://www.youtube.com/watch?v=0FCpTM0TAac" target="_blank" rel="noopener noreferrer">session</a> hosted by CFI and Mastercard Center for Inclusive Growth, panelists discussed the status quo – where platforms retain substantial bargaining power and most MSEs lack the skills or power to benefit fully from the economies of scale offered through platforms. While alternative business models, such as platform cooperatives or open networks, may be options worth exploring, integrating elements of these emerging models into today’s established business models is likely to produce the greatest benefits to MSEs and platforms alike. Sessions by CGAP on <a href="https://www.youtube.com/watch?v=8VlU8U3DOdI" target="_blank" rel="noopener noreferrer">digital platforms</a> and <a href="https://www.youtube.com/watch?v=iGzlBKRK-PU" target="_blank" rel="noopener noreferrer">fintechs</a> surfaced regulatory fragmentation, payment rails, and e-KYC norms as pressing issues limiting workers and MSEs from fully benefitting from the digital economy. Regulators, donors, investors, and other industry stakeholders should invest more explicitly to enable a rebalancing of power to favor MSEs.
<h3>Trust needs to be earned; regulators, providers, and consumer organizations each have a role in making that happen.</h3>
A <a href="https://www.youtube.com/watch?v=yXw-r70lLXc" target="_blank" rel="noopener noreferrer">session by Consumers International</a> shared evidence on both existing and emerging consumer risks. These included significant increases in consumer complaints in Fiji and major issues around trust in digital finance in India, where 60 percent of digital finance users surveyed stated that they stopped usage because of trust issues. While several digital financial services users sought redressal through customer care channels, 20 percent of respondents in India never had their issue resolved.

Regulators can play a critical role in shaping market conduct. Another <a href="https://www.youtube.com/watch?v=CJ9_P7bGOvA" target="_blank" rel="noopener noreferrer">session hosted by SPTF</a> provided compelling evidence of fraud and abuse in markets like Kenya and discussed what provider practices could help mitigate these risks. Fair Finance’s session brought up an example of how a regulator can step in to enable greater trust in the financial system for low-income consumers and businesses: they mentioned the Central Bank of Rwanda's approach, where they are working to build trust via a consumer protection law, retaining oversight of financial consumer protection, creating tools to compare providers, and establishing instant complaints systems that allow consumers to submit complaints through email and social media.

These sessions reinforced the need for rigorous research, progressive regulation, and market conduct supervision that incentivize providers to be responsible and strong consumer organizations who can advocate on behalf of the silent majority in most developing markets. Donors and investors working to support market development must ensure that these fundamental guardrails are in place before they scale innovations.
<h3>Regulation and regulators are important in addressing gender inequity and creating trust.</h3>
Gender inequity is perhaps the gap that received the greatest attention during FIW 2022. Toronto Centre’s panel on <a href="https://www.youtube.com/watch?v=ISoRGWNdaQQ&amp;list=PL30fMMRd3G_7IGUKLWAQm_Z3zDVIu6LCB&amp;index=28" target="_blank" rel="noopener noreferrer">Advancing Cybersecurity and Financial Inclusion</a> highlighted the large gender gaps – such as access to technology – and the greater vulnerability, whether harassment, gender-based violence, or outright discrimination, and looked at what regulators are doing to counterbalance the system that is stacked against women.

<a href="https://www.youtube.com/watch?v=FFIFIvuVo0U" target="_blank" rel="noopener noreferrer">CFI’s Edoardo Totolo</a> delivered one of the four keynotes and highlighted both the opportunities and the risks posed by new embedded finance players. He emphasized the increasingly important role unregulated non-financial actors play in the design and delivery of financial services and the regulatory ambiguity around who is responsible for what. His keynote ends with a cautionary note to regulators and policymakers to clearly define the regulatory perimeters, articulate the role of third-party actors, promote interoperability and open architecture, and above all, create a level playing field.
<h3>One-size fits all solutions are insufficient; segmentation is necessary.</h3>
Several panelists emphasized that low-income customers are not a monolith and recognized that low-income consumers occupy different societal groups, each with its unique strengths, challenges, and starting points. A key takeaway from these sessions is that when we design without understanding the specific segment we are trying to reach, we will de facto design products and services for men. Instead, we must be intentional and create solutions that address specific consumer needs.

<a href="https://www.youtube.com/watch?v=-jz8tnEuAIQ" target="_blank" rel="noopener noreferrer">AXA’s session</a> on developed markets, including Japan, the US, and France, provided a unique look at excluded segments and approaches providers were taking to be inclusive in these highly competitive and highly regulated markets. For example, French provider <a href="https://nickel.eu/fr" target="_blank" rel="noopener noreferrer">Nickel</a> noted their rapid trajectory of delivering a simple product with very clear and fair terms and relying on distribution systems that leverage existing points of sale used by low-income consumers. In another <a href="https://www.youtube.com/watch?v=jC2AmET0HXI" target="_blank" rel="noopener noreferrer">session by Mastercard Strive</a>, a panelist from <a href="https://www.withboost.co/" target="_blank" rel="noopener noreferrer">Boost</a> Nigeria noted that women-owned small businesses are not a homogenous retail segment. Recognizing that women business owners had varying levels of digital and financial capabilities, Boost adopted a range of strategies that tried to meet women where they were in their journeys. A <a href="https://www.youtube.com/watch?v=Yp5yhELqTqI&amp;t=12s" target="_blank" rel="noopener noreferrer">session hosted by the Kashf Foundation</a> noted that despite the progress prompted by the pandemic, the digital divide is a nuanced issue that merits attention. Affordability to broadband is perhaps the next frontier, particularly when women don’t always have full control of household income or phone ownership.
<h3>We need to focus on climate adaptation; prioritizing mitigation is not enough.</h3>
In his keynote, USAID’s <a href="https://www.youtube.com/watch?v=_hUipQztGXs" target="_blank" rel="noopener noreferrer">Songabae Lee</a> provided a realistic and sobering view of the limitations of development finance, noting that mobilizing capital is the current priority at the global level. Recognizing that private sector capital is best geared toward mitigation, while adaptation still requires grant funding, Lee urges the audience to take advantage of what’s currently open rather than beating on a closed door. The open door is to start by leveraging capital for mitigation and then work to advocate for and shift attention to adaptation.

A <a href="https://www.youtube.com/watch?v=IyUlwUPPY40" target="_blank" rel="noopener noreferrer">session hosted by BFA Global</a> on the business case for climate resilience adopts a more optimistic lens, where investors start recognizing the need to move faster toward adaptation. The session delved into the experiences of multilateral development banks (MDBs) in financing climate initiatives that can be leveraged for earlier-stage ventures, highlighted the creation of the <a href="https://gca.org/news/collaborating-to-accelerate-investment-in-climate-adaptation-and-resilience/" target="_blank" rel="noopener noreferrer">adaptation and resilience collaboration</a> with 18 organizations, and the importance of data and measurement to help move this agenda forward. The urgency of scaling climate adaptation finance was also highlighted in a <a href="https://www.youtube.com/watch?v=2qENaGgm_4k&amp;t=1s" target="_blank" rel="noopener noreferrer">session</a> organized by CFI, where panelists from SEWA, FSD Mozambique, and UNHCR unequivocally emphasized the threats and income shocks low-income communities and refugees were exposed to in the absence of solutions tailored to support adaptation and resilience building at the community level.

My colleagues will go deeper into some of these messages in the blogs to follow in this series. If you are interested in revisiting the recordings, all sessions from FIW 2022 are available online. Check out the full playlist <a href="https://financialinclusionweek.org/2022" target="_blank" rel="noopener noreferrer">here</a>.

For curated session lists by topic, please see the links below for the playlists we’ve developed thus far.
<ul>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_7YYIjKT10xi4v5vjOKbuLl" target="_blank" rel="noopener noreferrer">Women’s financial inclusion</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_4ysbJRWLiVICDCCHEKSTMY" target="_blank" rel="noopener noreferrer">Consumer protection</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_434ImijU6wxmZro4JHG7vu" target="_blank" rel="noopener noreferrer">Climate and inclusive finance</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_5l8T1UH24TIm7H-EM7gydP" target="_blank" rel="noopener noreferrer">Micro and small enterprises</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_5Mn-Gm3O2hgxyaSo9ajB7a" target="_blank" rel="noopener noreferrer">Digital assets and digital currencies</a></li>
 	<li><a href="https://www.youtube.com/watch?v=-jz8tnEuAIQ" target="_blank" rel="noopener noreferrer">Developed markets and inclusive finance</a></li>
 	<li><a href="https://www.youtube.com/playlist?list=PL30fMMRd3G_4yq2Ugx050YBIt4wwN5rMs" target="_blank" rel="noopener noreferrer">Impact measurement</a></li>
</ul>

End-of-Year Reflections

A woman's world changes when payments are designed to suit her needs, digitized, and directed into her own account. During the pandemic, however, women were often excluded from receiving humanitarian cash transfers because of a lack of access to basic identification documents. Humanitarian organizations have become key advocates to allow functional IDS – ration cards, refugee ID cards, cards provided by cash transfer programs from organizations like World Food Programme (WFP) – to be recognized as proof of identity. The ability to register a bank or mobile money account has enabled access to humanitarian payments for millions.

This report highlights the benefits of having an ID, the barriers for women in obtaining an ID, and how we can leverage cash transfers to facilitate women's access.

&nbsp;

This resource was developed in partnership with the World Food Programme (WFP) and the Bill &amp; Melinda Gates Foundation.

Bridging the Gap: How Humanitarian Cash Transfers Can Facilitate Women’s Access to IDs

About two dozen leaders of inclusive finance organizations, impact investors, and analysts from around the world convened recently at a workshop hosted by Lehigh University’s <a href="https://business.lehigh.edu/centers/martindale-center/about" target="_blank" rel="noopener noreferrer">Martindale Center</a> to share views on how financial inclusion interacted with the socio-economic crises of the COVID-19 pandemic. The event built on the success of a previous similar workshop that resulted in the publication of <a href="https://www.brookings.edu/book/the-future-of-microfinance/" target="_blank" rel="noopener noreferrer">The Future of Microfinance</a> by Brookings Institution Press in 2020.

Participants included practitioners working, building, promoting, advocating, and leading commercial financial inclusion providers in Africa from a private sector perspective. As such, they are close to the reality of the people they are serving or invest in and their insights are anchored in the on-the-ground dynamics of the African market in the wake of COVID. Here is what they are telling us.
<h1>Impact of COVID on African MFIs, Banks, and Clients</h1>
<blockquote class="pullquote--right">Ongoing crises in Africa are not uniquely due to COVID-19, but rather are a conjunction of many crises during the last several years.</blockquote>
The CEOs of leading African inclusive financial services organizations participating at the Lehigh workshop uniformly agreed that ongoing crises in Africa are not uniquely due to COVID-19, but rather are a conjunction of many crises during the last several years. COVID, in fact, did not affect the continent much health-wise; instead, the impact came more from restrictions on domestic and cross-border mobility, which caused substantial economic downturns, especially in countries and regions dependent on imports and exports. At the same time, climate change effects such as droughts, floods, and ruined crops have created substantial <a href="https://www.fao.org/3/cb0258en/CB0258EN.pdf" target="_blank" rel="noopener noreferrer">threats to food security</a> and increased social unrest in many parts of Africa. Compounding the turmoil, security crises fueled by terrorism, refugees, and displaced populations (<a href="https://www.unrefugees.org/emergencies/sahel/" target="_blank" rel="noopener noreferrer">millions in the Sahelian countries</a>) have also significantly destabilized Sub-Saharan Africa.

Aiming to alleviate rapid <a href="https://www.ada-microfinance.org/sites/default/files/inline-files/Synthesis_Microfinance%20Clients%20Facing%20the%20COVID-19%20Crisis_EN_1.pdf" target="_blank" rel="noopener noreferrer">deterioration in household financial positions</a> during the pandemic, governments and central banks across Africa issued loan repayment moratoriums, which squeezed lenders’ liquidity, including mainstream commercial banks but especially microfinance institutions (MFIs). Nevertheless, even though the rate of late or restructured loan repayments from clients—the credit risk ratio—<a href="https://www.mf-rating.com/wp-content/uploads/2021/10/COVID-19-Impact-on-FSPs.pdf" target="_blank" rel="noopener noreferrer">increased everywhere</a>, debt write-offs among African MFIs have not been as bad as feared. Overall, the sector has shown <a href="https://www.suerf.org/suer-policy-brief/38105/africa-and-covid-19-can-the-financial-sector-stay-on-course-for-a-green-and-digital-future" target="_blank" rel="noopener noreferrer">substantial resilience in Africa</a>, although the situation remains tenuous; “seriously fragilized” is how one CEO at the workshop described it.

As for impacts on MFI clients, a stark distinction is apparent between urban and rural settings. Urban clients have suffered most due to lockdowns affecting micro and small enterprises. Many rural clients, by contrast, fell back into an agricultural self-subsistence economy during a season or two, as there were no markets to sell to. Low-income households in both settings saved as much as they could during the pandemic and reduced spending. Workshop participants at Lehigh uniformly agreed that African MFIs’ clients, especially the most vulnerable ones, were—perhaps more than ever—remarkably resilient and able to cope.
<h1>Crisis Begets Opportunities</h1>
As is often true in times of crises, opportunities appear. Workshop participants pointed out that in Africa, new opportunities for MFIs and lower-income clients came directly from constraints dictated by lockdowns. Logistical barriers <a href="https://cdn.odi.org/media/documents/Africa_trade_and_Covid19_the_supply_chain_dimension.pdf" target="_blank" rel="noopener noreferrer">hindered possibilities for exporting goods</a>, including agricultural products, and for importing things like fertilizer and animal feed. Trade in services plummeted as people stopped moving and spending, and tourism collapsed in countries like Kenya where incomes are especially dependent on spending by tourists.

However, from these difficulties, layered on top of effects from climate change, new behaviors are emerging in various parts of Africa. Some farmers have decided to shift to organic production practices like agroecology and raising chicken and pigs using only farm-produced feed and farm waste, saving on expensive imported inputs. Similarly, farmers unable to export have increased selling locally in neighboring towns, expanded direct selling along major roads, or began selling <a href="https://blogs.lse.ac.uk/africaatlse/2020/06/19/what-strategies-do-traders-use-food-survive-covid19-lockdown-kampala/" target="_blank" rel="noopener noreferrer">door-to-door</a> where possible. Others are leveraging <a href="http://www.xinhuanet.com/english/2020-05/27/c_139092514.htm" target="_blank" rel="noopener noreferrer">digital approaches</a>, including e-commerce platforms, social media, and mobile payments. In short, because of COVID restrictions, many farmers in Africa adopted organic, sustainable, and digital agriculture practices.
<blockquote>Because of COVID restrictions, many farmers in Africa adopted organic, sustainable, and digital agriculture practices.</blockquote>
Many people in Africa also changed their consumption habits, switching to local producers for vegetables, meats, and other staples. Circular economy trends <a href="https://www3.weforum.org/docs/WEF_Five_Big_Bets_for_the_Circular_Economy_in_Africa_2021.pdf" target="_blank" rel="noopener noreferrer">appeared in a wide range of sectors</a> – including agri-food, textiles, fashion, electronics – and also in packaging. Consumers are also <a href="https://www.africa.com/covid-19-increases-brand-sustainability-awareness-shifts-consumer-behaviour-in-sub-saharan-africa/" target="_blank" rel="noopener noreferrer">moving towards sustainable brands</a>, thanks both to heightened awareness of climate effects and to experiences in lockdowns. Surprisingly, the African response to COVID has been to adopt more sustainable norms and practices in agriculture and consumption – a fascinating resilience outcome.

Another substantial trend evident in these times of security crises and risks is <a href="http://cdn-odi-production.s3-website-eu-west-1.amazonaws.com/media/documents/ODI-YFLP-Youth-led_digital_innovation_and_resilience_during_Covid-19-13AugFinal.pdf" target="_blank" rel="noopener noreferrer">high rates of youth entrepreneurship</a>. This is occurring across the social spectrum –among youth from both rural and urban communities, as well as those with diplomas and those who did not finish school. Youth are choosing not to migrate and instead are staying put and creating non-traditional businesses and entering new types of apprenticeships, such as small enterprises in agriculture transforming crops or raw materials, and in <a href="https://www.forbes.com/sites/davidrvetter/2021/12/14/meet-the-african-green-entrepreneurs-showing-the-west-how-its-done/?sh=7b03d50551cb" target="_blank" rel="noopener noreferrer">green economy enterprises</a> such as renewable energy, recycling, utilizing waste, or addressing pollution. This trend is strongly supported by national and local governments, as well as by civil society and corporate social responsibility initiatives, which are promoting and funding incubators and seed capital investments, as well as—in collaboration with MFIs and banks—credit guarantee mechanisms, all aimed at fostering the startup and scaling phases of the young enterprises of Africa’s increasingly entrepreneurial youth.

Africa has the world’s largest population share of youth and the potential is enormous. Often discussed, enhancing youth entrepreneurship has unfortunately seemed a somewhat quixotic policy quest for decades in Africa. But remarkably, the consensus at the Lehigh workshop was that this time the initiatives seem to be working and helping fulfill the aspirations of many young people to be autonomous and contribute to their communities and local economies. Additionally, many African <a href="https://www.afdb.org/en/news-and-events/press-releases/lionesses-business-confidence-report-speaks-high-levels-resilience-africas-leading-women-entrepreneurs-despite-covid-19-49847" target="_blank" rel="noopener noreferrer">women entrepreneurs</a> have proven to be very resilient and are growing their businesses due to COVID.
<h1>Acceleration of Digital Inclusive Finance in Response to COVID</h1>
The <a href="https://www.centerforfinancialinclusion.org/digitally-reshaping-inclusive-financial-services-in-the-wake-of-covid-19">digital revolution in inclusive financial services</a> is unquestionably progressing quickly throughout Africa in the wake of COVID, including West and Francophone Africa and rural areas that have been neglected until recently.

While financial access in Africa remains low, mobile penetration is high, <a href="https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=ZG" target="_blank" rel="noopener noreferrer">exceeding 90 percent</a>. Due to COVID restrictions on mobility, mobile phones have been indispensable not only for communication but also for domestic and international remittances. Facing limited access to markets coupled with security risks in using cash for transactions, farmers, cooperatives, and food processing companies accelerated their embrace of <a href="https://www.brookings.edu/blog/africa-in-focus/2021/08/16/digital-technology-and-african-smallholder-agriculture-implications-for-public-policy/" target="_blank" rel="noopener noreferrer">digital marketplace platforms</a>. Survey evidence suggests that most African micro and small enterprises did too which <a href="https://fbj.springeropen.com/articles/10.1186/s43093-022-00154-4" target="_blank" rel="noopener noreferrer">improved their financial resilience</a>. Banks and MFIs throughout Africa also are going digital and embracing “<a href="https://thecalabashnewspaper.com/afrimoney-gtbank-launch-bank-to-wallet-wallet-to-bank-promotion/" target="_blank" rel="noopener noreferrer">bank to wallet, and wallet to bank</a>” transactions and agency banking. Many banks and MFIs are teaming up to deliver financial services jointly or as agents to <a href="https://www.brookings.edu/blog/africa-in-focus/2021/12/14/mobile-financial-services-can-increase-impacts-of-microfinance-organizations-but-the-story-is-more-complicated-than-we-think/" target="_blank" rel="noopener noreferrer">deepen outreach to clients and improve cost efficiency</a> – for example by reducing the need to operate separate branches everywhere. Governments have also gone more digital by ramping up <a href="https://www.worldbank.org/en/results/2021/04/13/prioritizing-the-poorest-and-most-vulnerable-in-west-africa-togo-s-novissi-platform-for-social-protection-uses-machine-l" target="_blank" rel="noopener noreferrer">mobile money transfers from social protection programs</a> during COVID.

Moving beyond financial services, agricultural value chains are rapidly leveraging the high mobile penetration by also digitizing delivery services, distribution channels, electronic learning, and messaging at scale to reach out to remote populations (e.g., for health, financial education, agricultural practices, prices, weather warnings), enhancing inclusion and informed decision making.
<h1>Financial Inclusion’s Green Future in Africa</h1>
The African MFI leaders at the workshop reflected on how their clients fared through the pandemic and other recent crises. Uniformly, they agreed clients responded with <a href="https://www.centerforfinancialinclusion.org/does-financial-inclusion-boost-borrowers-resilience-three-lessons-from-the-pandemic">resilience</a>, innovative abilities to adapt, and incredible capacities to seize opportunities to not just recover but even advance. As such, African MFIs must follow the dynamics of their clients and deliver products and services that fit customers’ new needs. Client centricity is essential to meet client needs but is also a key element of client protection in light of <a href="https://www.cgap.org/sites/default/files/publications/slidedeck/2022_02_Slide_Deck_DFS_Consumer_Risks.pdf" target="_blank" rel="noopener noreferrer">heightened risks for digital finance consumers</a>.

Financial institutions also need to better understand the market intricacies and client opportunities in the green (micro)economy and develop financial products accordingly, partnering with those who can deliver services and technical advice to assist the transformation. Working towards an ecosystem approach to deliver <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">green inclusive financial services</a> in an efficient, secured, synergetic, and sustainable manner will be the way forward.
<blockquote class="pullquote--left">Working towards an ecosystem approach to deliver green inclusive financial services in an efficient, secured, synergetic, and sustainable manner will be the way forward.</blockquote>
Green inclusive finance ecosystem platforms will surely develop in Africa. However for that to happen, the impact investing sector and climate finance will need to collaborate, which would be a giant step forward as the two sectors have largely ignored the other for the last decade. Impact investors will need to learn how to invest in the green microeconomy as a mainstream target. In parallel, climate finance—so far largely directed elsewhere—will have to understand that unless communities, especially the most vulnerable among them, benefit significantly from environmental rehabilitation, preservation, and protection of biodiversity, sustainable development is not possible.

In Africa, impact investment remains an emerging sector, focused—rightly so—on financial inclusion and agriculture. Climate finance and green inclusive finance are at infant stages. Supporting, from the funding side, post-COVID initiatives from youth and local communities in climate adaptation, will be the next challenge and opportunity for Africa. And inclusive finance stakeholders should play significant roles in close partnership with others in that ecosystem.

The African inclusive finance leaders at the Lehigh workshop collectively sent a very positive and energetic message to their peers. During these crisis times, clients in Africa have shown high levels of resilience and of capacity to overcome. They have developed innovative strategies in the green economy. Financial institutions should accompany them by being client centric in product and service development, in using digital delivery channels, and in working as a collaborative ecosystem to manage new digital risks and protect customers. Africa is a vulnerable continent in the face of climate change, but it can be the most resilient one if we act together.

&nbsp;

The authors were panelists at the Lehigh University workshop and this note is the result of workshop discussions and subsequent analysis. Participating leaders from African MFIs included Anne Marie Chidzero, Chief Investment Officer at FSD Africa Investements, Kimanthi Mutua, founder of KREP, the first microfinance institution in Africa to be transformed into a full-fledged commercial bank, now named SIDIAN Bank where Kimanthi has been CEO and remains a board member, and Pierrette Kouakou, Managing Director of FIN’ELLE in Cote D’Ivoire. Views expressed are the authors’ and not necessarily those of other participants.

Post-COVID Crisis & Opportunity in African Inclusive Finance