BEFIT International Financial Inclusion Summit took place in Thimphu, Bhutan on May 24-26

Sabahat Iqbal
26 Jun 2017

Last month, the government of Bhutan hosted the Bhutan Economic Forum for Innovative Transformation (BEFIT), which brought together a range of experts to discuss innovative solutions that can lead to the betterment of Bhutan’s 800,000 people. The challenge of improving access to finance for the underbanked in Bhutan was the inaugural topic for the biennial summit.  Co-hosted by the Royal Monetary Authority and the IFC, the summit brought together key actors from the public and private sectors to foster dialogue on improving access to finance, especially for rural micro, small and medium enterprises. The Bhutanese authorities are embarking on drafting a national financial inclusion strategy and it is hoped the discussions from this summit will aid in that effort.

 


BEFIT brings together a wide range of expertise to share best practices and discuss innovative solutions to emerging national and regional economic challenges, with the overarching objective of transforming and bettering lives.  Read more about the event including agenda and speakers >>>

Policy-makers Fostering Microinsurance Development in Asia

Munich Re Foundation
19 Jun 2017

Public-private dialogue paving the way for inclusive insurance markets

The second Inclusive Insurance Asia Public Private Dialogue (PPD) and Learning Sessions closed on 16 March 2017 in Hanoi, Vietnam. Around 70 attendees from 10 countries, including high level representatives from the insurance industry and regulatory authorities of the six MEFIN-member countries (Indonesia, Mongolia, Nepal, Pakistan, Philippines and Vietnam), discussed market development strategies to improve access to insurance.

A rapidly growing market facing old and new challenges
The volume of microinsurance in Asia has seen impressive growth – especially in some leading markets in the region. According to the Asia Insurance review, microinsurance in the Philippines grew by 16% year-on-year between 2012 and 2016. The Indonesian Financial Services Authority (OJK) reported an impressive increase from 8.8 million policies in 2014 to 21.8 million in 2016 in Indonesia as a result of multi-stakeholder engagement. At the same time, the microinsurance landscape is changing rapidly. MBAs in many countries still account for more than 50% of the total premium income. Insurance sold through mobile phones is catching up. In 2016, more than 40 million polices were sold via mobile phones in Asia according to recent figures from the World Map of Microinsurance.
The rapid change comes with new challenges. Representatives from the insurance industry have reported bottlenecks, including regulatory challenges involving the strive for efficient processes. Paperless models could be a solution to reducing costs – which remains a key challenge in the provision of microinsurance. Airtime could be used as an efficient payment method. This, however, is not allowed is some countries – an indication that regulation not always keeps pace with the new technology.
“Development of microinsurance starts with a policy framework” was one of the learnings from Indonesia. Of the MEFIN member countries, Nepal, Pakistan and the Philippines have developed microinsurance regulation. “Having no regulation for microinsurance is a constraint” said Phung Ngoc Khanh, General Director of the Vietnam Insurance Supervisory Authority. At the same time, “education and insurance knowledge remain a key challenge” said Mochamad Muchlasin, Director of the Indonesian Supervisory Authority OJK. Financial literacy programs have to be implemented along with the development of a policy framework. Providers need to understand the clients, and clients need to understand that protection and prevention are important and affordable. One-to-one education in a “language” that is tailored to the client is costly but provides promising results according to OJK. Other experts added that expertise, especially actuarial capacity and development of IT systems, are challenges that need to be addressed, such as part of a national strategy where budget is allocated for market development.
From knowledge to action
The MEFIN Organisational Meeting that took place in parallel with the conference approved the 2017 work plans of MEFIN’s four technical working groups on regulation and supervision, business models, capacity building and knowledge management. “Economic business models can only be achieved through the use of technology and proportionality* ” said Tariq Bakhtawar, Director of the Securities and Exchange Commission of Pakistan and Chairman of the MEFIN Steering Committee. Antonis Malagardis Program Director of GIZ RFPI Asia added “Results from impact assessments carried out, such as in the Philippines and Pakistan, will help us to understand the impact of regulation and to promote the right target actions.” To develop such actions, five more events are planned in 2017 and 2018 facilitated by GIZ RFPI. Furthermore, a number of authorities have announced they are to host consultative meetings with the industry to remove obstacles.
The conference concluded in a workshop contributing the results of the sessions towards the Microinsurance Roadmap in the Asia Pacific region, targeted for submission to the APEC meeting in November 2017. The work of roadmap development will continue at the 13th International Microinsurance Conference, to take place in APEC member country Peru from 7-9 November 2017.
*Proportionality refers to the correct balance between the restrictions imposed by insurance regulation and the severity of the nature of the regulated actions.
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About the Inclusive Insurance Asia Public Private Dialogue and Learning Sessions

The Mutual Exchange Forum on Inclusive Insurance (MEFIN) Network, is a network of insurance policy-makers and regulators in Asia. It currently comprises six Asian countries (Indonesia, Nepal, Mongolia, Pakistan, the Philippines and Vietnam). MEFIN serves as a platform of peer-to-peer learning among policy-makers and insurance regulators in the region, since it develops and implements programmes that provide mutual benefit to its members in advancing inclusive insurance solutions. Overall, the network aims to create impacts of regulation and supervision along the dimensions of market development, institutional development and client value for the benefit of the poor. The Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) Program of GIZ promotes MEFIN and serves as the Secretariat of the Network.

The second MEFIN PPD and Learning Sessions were held in partnership with Munich Re Foundation and Microinsurance Network. Targeted PPD sessions to facilitate dialogue between regulators and the insurance industry enabled discussion about experiences in regulation and supervision, technology and distribution and financial literacy and awareness. Additional learning sessions on Disaster Risk Insurance for SMEs and Agriculture as well as health insurance complemented the PPDs. 

This post was adapted from Munich Re Foundation website.

Start-ups Can Push Middle East Economies into the 21st Century

Andrew Raven
19 Jun 2017

When Syria native Ronaldo Mouchawar and four friends decided to launch a small auction website in 2005, the effort seemed futile. Only 10 percent of the people in the Middle East and North Africa were online. Internet shopping was almost nonexistent.

But Mouchawar, who was based in Dubai, believed the Internet could transform the region, which is home to more than 300 million people.

“There was a massive need for Arabic content on the Internet,” he recalled. “And we felt there was an important role for us to play.”

Over the next decade, Mouchawar’s small auction website would morph into Souq.com, an e-commerce giant with more than 4 million customers spread across four countries. IFC has supported Souq.com’s growth since 2015—when we and the Middle East and North Africa Fund, managed by IFC Asset Management Company, provided $27 million in financing to enable the website to beef up logistics, improve its payment infrastructure, and diversify its product range. The company, recently bought by Amazon, now has 3,000 employees and has helped support cross-border trade.

Souq.com’s success is a testament to the ability of start-ups to drive society-altering change and create new industries from scratch, said Fadi Ghandour, Executive Chairman of Wamda Capital, a leading venture-capital fund.

“Big companies aren’t innovating anymore,” said Ghandour, whose fund has invested in more than a dozen start-ups. “Innovation happens at the start-up level. [If you support entrepreneurs], they’re going to create wealth and they’re going to create jobs. Suddenly, you will have a 21st century economy.”

Ghandour was one of dozens of business and political leaders who were in Jordan last weekend for the World Economic Forum’s annual conference on the Middle East and North Africa. The event included 100 entrepreneurs from across the region, who were sponsored by IFC and WEF. Much of the focus was on how start-ups are creating jobs and driving innovation in a region hungry for opportunity.

“We need to tell the world that things are happening in the Arab World,” Ghandour said. “It’s not only about politics. It’s not only about security. It’s not only about Daesh [Islamic State]. It’s is about young people going out, building [businesses] and creating hope for the future.”

 

AN ECOSYSTEM FOR SUCCESS

Despite the importance of start-ups for the future of the region, most still struggle to get seed money, find mentors, and navigate government bureaucracy. But the tide is slowly shifting, thanks in part to government reforms, greater awareness, and the support of institutional investors such as IFC.

Since 2011, IFC has invested more than $50 million in tech start-ups, incubators, and venture-capital funds across the region. These investments are part of a larger effort to help private companies create jobs, drive innovation, and forge new markets.

“We need to create an ecosystem for entrepreneurs to give them the best chance to succeed. This means giving them access to finance, reliable electricity, and broadband so they will have high-speed Internet connections,” said IFC’s Chief Executive Officer Philippe Le Houérou. “If we create this ecosystem, start-ups in the Middle East and North Africa will thrive and build the economy of tomorrow.”

IFC’s clients in the region include Fawry, an Egyptian tech firm that developed a cutting-edge electronic payment system. Today, more than 20 million people use the service, freeing them from using cash and greasing the wheels of Egypt’s economy. IFC has also invested in incubators such as Wamda Capital, Flat6Labs, and Algebra Ventures. They have not only funded start-ups but, just as crucially, provided them with mentorship and advice.

 

KNOCKING DOWN THE WALLS

Our investments in start-up companies often have a ripple effect. In the case of Souq.com, we helped the company double its customer base and expand its supplier network to 15,000 merchants. Souq.com also went on to invest in three tech start-ups itself.

Mouchawar said those companies all had one thing in common: the desire to drive social change, something that he believes is at the core of the best start-ups.

“Local entrepreneurs tend to solve local problems,” he said. “You’re growing up in an environment where you face challenges. You see how something can be done differently, how something can be done better.”

Since Mouchawar founded Souq.com 12 years ago, the number of well-established start-ups in the Middle East and North Africa has grown rapidly. That has left him bullish about the future of entrepreneurship in the region. “The walls are being knocked down,” he said. “We still have work to do, but we’re getting there.”

Follow the conversation: #IFCmarkets

Originally published on the IFC news page.

Higher Income for Small Farmers in Africa

19 Jun 2017

Over 70 per cent of poor people in sub-Saharan Africa depend on agriculture for their livelihoods. For that reason, measures to help small farmers to achieve higher incomes are particular important for economic development in Africa.

The Farmer Business Schools (FBS) aim to teach farmers business skills. Since 2010, over 800,000 small farmers in Africa have undergone training in a broad range of business topics, including financial management, loans, saving, and the food industry. The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH developed the FBS concept on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The European Union and the Bill and Melinda Gates Foundation provide part of the financing for the training.

The FBS were originally developed for cocoa farmers in West and Central Africa. Due to their success there – it is estimated that the participating small farmers saw their income rise by 12.5 million euros – GIZ has been expanding them, both geographically and in terms of content. In addition to cocoa, curricula have now been developed for 13 other crops including rice, cashew nuts and cotton.

There are Farmer Business Schools in 15 countries across Africa. They complement a number of GIZ services designed to support small farmers, for example training on farming practices. The reasoning is that a more in-depth understanding of business decisions will increase farmers’ acceptance of better or new cultivation practices. As a result of the training, the cotton farmers who took part – around 240,000 to date – were able to boost their earnings by a third on average. One of them is Peter Sipalo Lubinda from Zambia: ‘I learnt from the Farmer Business Schools to think like a businessman, which means I am now able to earn money from farming.’

This post was adopted from GIZ

Protecting Consumers in the Digital Currency Economy

Kyle Burgess
19 Jun 2017
Image Credit- FamZoo Staff. No alterations made. CC BY-SA 2.0

Digital currencies, such as Bitcoin and its underlying blockchain protocol, introduce a technical platform for a new global payment infrastructure that has the potential to level the playing field for the 2.5 billion people across the globe who are unbanked or underbanked. The immutable and distributed nature of digital currencies and a number of the platforms built on top of blockchain protocols can provide improved security, efficiency, affordability, privacy, and transparency in financial transactions, as well as a whole host of other transfers of value or information. Furthermore, thanks to the proliferation of mobile devices, blockchain-based digital currencies can even remove the middleman, and serve as a bank in your pocket. However, fully removing a third party intermediary comes with significant risks, as there’s no one to call if you lose your private key (which functions as your password), break your hardware wallet (which acts as your digital vault), or want to dispute a payment because the goods you purchased are damaged (because digital currency transactions are irreversible). Like any other product, consumer protection must be at the forefront of the development and implementation of digital currency and blockchain-based financial services.

Over the last few years, policy makers and federal regulators have been advising the blockchain community to develop a set of best practices to address such consumer protection concerns. Several have even cautioned that government solutions may prove to be over-burdensome if the industry fails to demonstrate that it takes consumer protection seriously. This has the potential to diminish the benefits of blockchain technology and limit its ability to foster financial inclusion. Each year Consumers’ Research hosts a workshop in Bretton Woods, New Hampshire, in the spirit of the first such conference in 1944. The Bretton Woods 2016 conference brought together representatives from legislative, regulatory, and enforcement bodies, as well as a diverse array of fintech, traditional financial industry, and blockchain experts in order to tackle these consumer protection challenges collaboratively. Consumers’ Research, along with the help and expertise of its workshop participants, produced the first industry-led, self-regulatory consumer protection effort in the digital currency space.

The guiding principles document, “Consumer Protection in the Digital Economy” has four main components:

  1. The State of Consumer Protection in the Financial Services IndustryThis section identifies the assumptions from which current consumer protection models are derived – the first being that consumers must trust their money and information to third parties in order to participate in the formal economy and the second being that individual consumers are ill-equipped to assess the trustworthiness of third parties. It then describes how blockchain-based digital assets, such as bitcoin or a tokenized property title, challenge those assumptions. This section also identifies which types of digital currency entities the proposed guiding principles are meant for, and reviews the U.S. government entities that have released consumer advisories, taken enforcement actions, or developed rules regarding bitcoin, other digital currencies, and the entities utilizing digital currencies and assets.”
  2. Consumer Bill of Rights & Guiding PrinciplesA consumer bill of rights and 14 parallel guiding principles address consumer protection challenges in terms of security, privacy, usability, and disclosures and liability. The bill of rights outlines the baseline “rights” of consumers along with the minimum standards needed to protect those rights. Furthermore, it encourages companies to uphold these guiding principles by implementing processes and detailed protocols that are well-suited to their unique business models, instead of prescribing a one-size-fits all set of mechanisms that may work for some businesses but not others.
  3. Consumer Protection ChallengesThis section examines the flaws, failures, and weaknesses of existing financial industry frameworks, as well as newer digital currency and distributed ledger products and services. Using a top down approach, this section identifies the problems faced by consumers using traditional financial services and digital currency or distributed ledger financial services, as well as the source of those problems – be it regulation, corruption, or bad design.
  4. Recommended SolutionsWorking from the bottom up, this section recommended solutions to the problems posed in the previous section are offered, identifying which guiding principles address the various challenges faced by consumers.

Across the globe, policymakers and regulators that are prioritizing financial inclusion efforts, tend to achieve the most success in places where policy and regulatory environments protect consumers while fostering innovation and encouraging competition through “regulatory sandboxes.” As such, it’s urgent that the blockchain industry demonstrates that it takes consumer protection seriously in order to stave off regulation that hampers the value proposition of digital currencies and blockchain technologies. If the industry fails to take action to put consumers first, it is possible that government entities will take a reactionary and overzealous approach to solving issues as they arise.

We are already seeing U.S. regulators shoehorn some digital currency businesses into ill-fitting or inappropriate regulatory frameworks. For example, some state licensing regimes apply money transmitter laws to non-custodial blockchain businesses that do not have custody of or control the movement of digital currencies; rather, they manage and supply the infrastructure that enables other businesses or individuals to hold and move digital currencies. This harms American consumers, because these businesses cannot afford to operate in an environment that requires unnecessary licenses. Instead, these businesses seek safe harbor abroad, taking their innovations and product offerings with them.

Furthermore, no consumers are better off when the regulatory environments of states with strong institutions and effective rule of law are so cumbersome that businesses flee to states where consumer protection laws are paltry or unenforced. Thankfully, as blockchain businesses adopt consumer protection best practices, regulators may be encouraged to put down Maslow’s hammer and focus on offering light-touch regulation, only where necessary. This will give businesses the breathing room they need, and it will afford consumers greater access to these transformative technologies, along with the protections necessary to safeguard their meaningful participation.

Adopted from the Center for Financial Inclusion blog

Mobile-based Islamic Microloans: Benefits Beyond Shariah Compliance to Deepen Financial Inclusion Across Faiths

Abdigani Diriye, Jonathan Lenchner, Katherine Tryon
19 Jun 2017

Digital credit products like M-Shwari, KCB M-Pesa, Equitel’s Eazzy Loan, Tala and Branch have been extremely successful at providing access to credit for millions of people in East Africa. The convenience, reach, and efficiency of these lending products has resulted in the financial inclusion of a large percentage of people who have traditionally not had access to financial services. The products are accessed either through an app or USSD. Credit worthiness is assessed based on a user’s phone usage, mobile money usage, demographics, and other factors. Upon approval, the microloan is disbursed to the user’s mobile money wallet, and they have some specified period of time, usually one to two months, to pay it back, with some fixed interest rate (~10% per month) and escalating fees if the set repayment period is not met.

While the impact these products have had cannot be disputed, there is clearly room for further innovation, to design additional varieties of digital financial products that could fit the demands of poor households, further lower interest rates, provide more flexibility with regard to their purposes and use, provide greater freedom in terms of repayment terms and loan structure, and offer greater transparency to the customer on the loan structure.

IBM Research – Africa

For the last 3 ½ years, the Inclusive Financial Services Research Group at IBM Research – Africa has been looking at ways we can design, develop and deploy new solutions and products that further extend financial inclusion. These solutions have included credit scoring methods, alternative lending platforms, and blockchain.

Islamic Finance

One area of work that we are currently exploring is the space of Islamic Finance. Unlike other forms of financial services, it is still relatively underdeveloped. On the surface, the notion of Islamic finance seems like an oxymoron.  Under Islamic Finance, it is not permissible to charge, pay or receive interest. Moreover, Islamic law (Shariah) does not recognize the time value of money and therefore one is not allowed to make money by lending. However, what is permissible is earning a return from investing money in allowable commercial activities. A rough equivalent, in Islamic finance, to an interest bearing loan (a concept that violates its core principles) is a deferred payment sale. A third-party may buy goods or services from a retailer on behalf of a customer, and resell it to the customer at a higher, agreed upon price, following a specified payment schedule.

Such a deferred payment sale represents a fundamentally different approach to the more traditional one that is focused on interest repayment, in that it focuses on buying goods rather than giving out cash. This approach can benefit individuals who are bound by Shariah law and are in need of goods and services, but who do not have the cash in the short term. There are two additional benefits beyond conformity with Shariah law; namely that the transaction is asset based, and there is a level of transparency in the transaction that does not always exist for interest based loans. Asset based loans are advantageous as they have been shown to have a lower default rate, and the loan can be directed towards more economically advantageous assets. Transparency is a significant advantage as individuals are often not clear what fees and surcharges are levied if loan timelines are not met.

We foresee this type of asset based lending filling the large gap in credit access documented above, for both the Muslim and non-Muslim communities in poor populations with similar settings in Africa. The digital aspect of the product facilitates more rapid scaling

User Study

We set to investigate the feasibility of a digital Islamic credit product with both Muslims and non- Muslims across seven cities in Kenya. We conducted qualitative studies with consumers through focus groups, and also conducted quantitative retailer surveys with over 500 retailers and households in November 2016.

Our results indicate that 43% of consumers interviewed had borrowed money recently, with a majority using it for payment of school fees for their children, utility bills, emergencies and medical costs. M-Shwari was the lender of choice, with easier access processes in comparison to traditional banking loan requirements, better payment terms and lower interest rates of 7.5% being cited as the reason for choice.

Consumers mentioned that what they disliked about current financial products was the high interest rates loan approval waiting periods, the registration process, the need for guarantors, and the lack of transparency. 65% of respondents identified interest rates as being a barrier to adoption.

We tested a digital asset financing concept that provided participants with the opportunity for asset financing to meet their needs. The majority of consumers (71%) mentioned they would consider using it. Despite the lack of previous use of Islamic Finance by non-Muslim consumers, consideration of use of Islamic financial services was not found to be linked to religion. Interestingly Islamic Finance or Sharia compliance was seen as a lower tier benefit compared to other benefits that the product offered. 61% of interviewees cited transparency (no hidden costs or charges) as a reason for using Islamic Finance, and 56% also cited the promotion of the principle of financial justice, implying an ethical consideration beyond religious considerations.

When testing the product with consumers, both the product and process for the product were rated by nearly 50% of consumers as high in absolute likability and relative likeability to other financial products available. They were also rated by nearly 70% of consumers as being unique compared to other brand products.

What Does This Mean?

The findings from the study suggest there is a need for alternatives to cash based loans at the customer as well as the retailer level. These could be asset based and have a deferred payment structure rather than the traditional interest bearing loan format. We have seen evidence that such a product could be well received by bot the Muslim and non-Muslim communities due to transparency, as long as the interest rates are not prohibitive and the processing time is as short as current alternatives. The next step in this work for IBM Research-Africa would involve running small scale deployments to evaluate its use and impact.

Originally published on the Bill and Melissa Gates Foundation website on April 17,2017

Bridging the Gender Digital Divide in Africa

Dina Randrianasolo and Tonya Reid from The MasterCard Foundation
19 Jun 2017

With young people and technology at the heart of our work, we have observed firsthand how access to information and communications technologies (ICTs) can empower young women to drive change in their lives and communities. In recognition of International Girls in ICT Day, we are highlighting the success of five exceptional young women who are innovators and leaders in bridging the gender digital divide.

Young women leaders changing the narrative of girls in ICT in Africa

As a young woman working in tech, Regina Honu, the CEO of Soronko Solutions has faced all sorts of challenges including stereotyping, sexism, and discrimination. Despite this, she has found opportunities in the STEM space to make her dreams come true. “I am using technology to leave a legacy and empower women and girls to reach their full potential,” said Regina. Running Soronko Academy, the first coding and human-centred design school in West Africa, she has found a way to scale impact with the “Tech Needs Girls” program which has trained over 3,500 girls in Ghana and Burkina Faso.

Colette Nyinawumuntu, Research and Gender Officer at Digital Opportunity Trust champions gender equality in Rwanda. She has trained hundreds of youth and women in digital, entrepreneurship and other critical skills to help them create economic and social opportunities that will enable them to transform communities. “Engaging with, and listening to women, and designing skills programs that address their expressed needs, will go far in bridging the digital divide,” said Colette.

Aongola Musowafu, a third-year nursing student with ChildFund in Zambia, has learned basic ICT skills through ChildFund’s e-learning program. These skills have made it easier for her and other students to get and share the medical information needed for training. Armed with these in-demand skills, Aongola offers ICT services to people in her community and earns some income while she studies. “ICT in Zambia has generally been a skill largely practiced by men or boys, and so we are here to bridge that gap,” said Aongola. “I believe that there is no chance, no distance, or fate that can keep one away from achieving their set goals.”

Kawira Thambu, Learning Designer at Arifu in Kenya, believes that providing two-way, interactive SMS to learners across the agricultural, business and financial sectors is key to helping more learners access a quality education. “This is important to me because I believe that providing quality education to all is the great equalizer,” said Kawira. “Quality education gives individuals an equal chance and choice to access opportunities that would otherwise be limited.”

Peris Bosire, Co-founder of FarmDrive, grew up in a remote smallholder farming community in Kenya, experiencing first-hand the daily struggles of farmers. When she graduated from university at 22 she, and fellow graduate and former “farm girl” Rita Kimani, founded FarmDrive. Using their computer sciences skills, FarmDrive bridges the gap between financial institutions and smallholder farmers. “Our solutions use simple mobile phones, machine learning and data analytics to enable financial institutions to approve loans for underserved smallholder farmers, resulting in increased productivity,’’ said Peris. “We are using technology to drive capital to the people that need it most.”

On International Girls in ICT Day we celebrate the important role young women are playing not only in bridging the digital divide, but in innovating and scaling digital innovation to bring sustainable change and level the playing field for young women in Africa.

This post was originally published on the MasterCard Foundation website on April 27, 2017