> Posted by Barbara Magnoni, President of EA Consultants
This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at Accion.
When I was first asked to reflect on the Center for Financial Inclusion’s Opportunities and Obstacles paper, I immediately began thinking of the practical implications for providers of turning the survey responses into actions.
The diverse list of opportunities and obstacles that were highlighted in the survey shows just how dynamic the process of action toward financial inclusion must be.
Different types of entities, in different locations, have different priorities. Because institutions can’t invest in everything, they need to make some choices from the list of priorities mentioned in the survey, as these priorities are not always compatible. For example, branchless banking is certainly an important trend, and in Latin America, many institutions are looking at these models. Yet those who go the route of branchless banking will likely have a hard time promoting real financial education (another important opportunity mentioned in the paper), as their organizational structure will be increasingly decentralized.
The survey results suggest to me that there could be a further polarization of different types of institutions providing financial services to the poor in Latin America. I suspect that more formal institutions, especially those with sufficient scale to justify the investment, will focus on issues of cost cutting needed to maintain shareholder value in increasingly competitive markets. In Latin America, more and more banks and MFIs are looking at the agent banking model because lines in branches are getting longer and more costly to manage. The more products they offer, the worse these lines can be. One example is the recent initiative to scale up Banco Estado’s Caja Vecina in Chile. These points of sale are typically small grocery stores that offer common debit and deposit transactions, freeing up lines at bank branches. Today, there are 9,000 points of sale in Chile and the bank expects this to grow significantly in the near future.
The pressure from larger MFIs and banks offering cheaper and more efficient financial services will keep smaller and more socially focused MFIs on their toes. They will have to compete for clients with these institutions, most likely by identifying and targeting their market niche more precisely and by offering more customized and personalized services. These institutions are more inclined to follow a less decentralized model, one that keeps them closer to their clients. As a result, these institutions are better positioned to address client demand more holistically, understanding clients better, making better products for the poor, and promoting financial as well as other types of behavior changing education.
As we work to make the financial inclusion action agenda possible, we should ensure that there is segmentation rather than fragmentation in the market. Some would call this a financial inclusion “ecosystem,” in which each of our core competencies and incentive structures are able to coexist and thrive, even in a competitive environment. Taking this bold vision of full financial inclusion from opinions to action will require engaging a diverse range of providers and allowing each to play to their own strengths.
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Ms. Magnoni is the President of EA Consultants. An international development advisor with over 15 years of international finance and development experience, she has an extensive background in financial market financing and investments, having worked on Wall Street for seven years where she worked for Goldman, Sachs, Chase and BBVA as a fixed income research strategist, covering external and local financial and currency markets in Latin America. Since 2000 she has been working in economic development programs with a strong focus in Lain America.
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Expert Exchange: Building a Movement Toward Financial Inclusion by 2020