The 2017 Brookings Financial and Digital Inclusion Project (FDIP) report evaluates access to and usage of affordable financial services by underserved people across 26 geographically, politically, and economically diverse countries. The report assesses these countries’ financial inclusion ecosystems based on four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital financial services. The report further examines key developments in the global financial inclusion landscape, highlights selected financial inclusion initiatives within the 26 FDIP countries over the previous year, and provides targeted recommendations aimed at advancing financial inclusion.
This paper discusses the role of microinsurance, in a broader social protection framework, as a possible instrument to mitigate risk and reduce vulnerability of poor and low-income households. The research studies microinsurance as an integral part of social protection systems in six countries: Bangladesh, India, Vietnam, Brazil, Cambodia, and Rwanda. It synthesizes the key messages of the country studies for better integration of microinsurance into social protection while considering the social protection principles of universality, solidarity, and equity. It further focuses on insurable risks suitable for microinsurance, such as sickness, old age, death, accidents and disabilities, and extreme weather events. The paper covers the following sections in detail:
- Concept of social protection and microinsurance with a focus on its relevance to the informal economy;
- Description and analysis of different social protection systems and microinsurance practices in six countries;
- Lessons learned from integrating microinsurance into social protection systems;
- Recommendations for extending coverage to the informal economy and other vulnerable groups, improving benefits, and increasing access to public social protection and microinsurance with a focus on approaches that can be replicated in other countries if adapted to fit a specific environment.
CARE Bangladesh through its microfinance project called INCOME III aims to increase access to financial services for the poor in Bangladesh. Improved access allows the poor to save and borrow money to meet their investment and consumptions needs. Access to microfinance has a strong correlation with poverty reduction. The INCOME III project operates in urban and per-urban areas of three big cities viz. Dhaka, Chittagong and Khulna with more than 30 partner MFIs, which provide financial services to the poor.The project builds capacity of these MFIs and provides them with capital to expand their operations. The impact of the project has been positive, reaching more than 250,000 clients. In addition, the project has provided training combined with technical assistance to build the capacity of the partners that include corporate governance, financial accounting, product development, framing business plan development, carrying out participatory institutional assessment and mainstreaming gender issue. As a result of this support, the efficiency of service delivery and financial sustainability of the partner MFI shave significantly increased. Despite all these things, very little could be known from the client side. It occurred to the project management that so far no research or study has been carried out to know the feedback of the clients, their likes and dislikes on the products & services that are being offered to them. There is no denying that the clients are at the focal point of the microfinance program but their reactions have indeed remained largely unknown. In order to enable the MFIs to know what the clients think about the programs, what the MFIs’ role should be in this context, the project management has decided to galvanize the MFIs on the issue by commissioning the study on Client Satisfaction. We believe that client satisfaction is the essence of market competition that will lead to providing quality products and services. The objective of the study was primarily to know the likes and dislikes of the clients using SEEP Tools and gathering institutional experiences of the partner MFIs and other best practices at the national level contributing to client satisfaction.
Four IPA studies explore how to make digital financial services more effective and affordable
Mobile money is spreading at a rapid pace throughout Asia, Africa and Latin America. There are 203 million registered mobile money accounts worldwide and 256 mobile money services in operation, an impressive 100 percent increase over 2011. The promise of digital financial services is clearly reflected in the number of registered mobile money users and in the formidable example of Kenya’s digital finance revolution. This scope and expansion of digital financial services was one of the topics discussed at last week’s World Economic Forum annual meeting in Davos.
As both public and private investment grows in this space, more rigorous research is needed to understand the full potential of this digital revolution in financial services for the poor. Usage remains low; according to 2013 data reported by GSMA, only 30 percent of the 203 million registered mobile money accounts have been used at least once in the last three months. Evaluations can help uncover effective strategies to encourage adoption and usage of digital payment channels, improve the design of financial products, and understand whether improved access translates into welfare effects for moderate and low-income households.
The limited evidence available to date suggests that mobile payments may help foster risk sharing across households. Research in Kenya found that access to M-Pesa lowered transaction costs and led to increased transfers between households, who were then better able to withstand economic shocks, an effect which was particularly marked for poorer households. Another study in Nigerindicated that distributing welfare transfers over mobile money led to substantial time-savings and increased intra-household bargaining power for women. Women were better able to conceal when the funds were available and were thus able to discuss with their husbands how the funds should be spent. As a result, households also saw an increase in the diversity of their diets and the number of meals that children consumed each day.
More work is needed to overcome some of the key barriers, to fully take advantage of these services and to understand whether digital financial inclusion can make the poor better off. To this end, Innovations for Poverty Action’s Global Financial Inclusion Initiative is partnering with researchers and financial service providers to implement several evaluations on digital financial services, with the support of the Bill & Melinda Gates Foundation and the Citi Foundation. Below, we highlight four of our ongoing studies that offer particularly relevant insights on how research can help advancements in this field. In these studies, we test hypotheses on how digital financial services can help people conduct transactions more securely, at lower cost, with different information on financial decisions and behavior, and experiencing fewer social constraints.
Digital channels for salary payments. Garment factory workers in Bangladesh receive their salaries in cash or through digital channels, as a mobile money payment or as a direct deposit into a basic bank account. This study examines to what extent digital channels lower the costs of distributing payments (payroll administration) and receiving payments (transaction costs for workers). It also looks at effects on workers’ wellbeing, financial behavior and work productivity.
Advertising a mobile commitment savings account. A mobile network operator (MNO) in Rwanda is offering its customers a mobile phone-based savings product. With this new product, customers are able to send money to themselves in the future and therefore commit to saving until a pre-specified date. The MNO and researchers are testing the impact of price and the framing of advertising delivered via text message on adoption, usage and welfare.
Default contributions to a mobile savings account. Employees at a large firm in Afghanistan, who receive their salary payments via mobile money, can automatically set aside a percentage of their salaries to be transferred to a long-term savings account on a mobile platform. We are testing various incentives and informational text messages to encourage enrollment and long-term savings.
Mobile savings account for education expenses. In Kenya, parents wanting to save for their children’s high school education are offered a new account that is designed to help them save for these expenses. The account allows clients to deposit money into a mobile money “lockbox.” If clients reach their savings goal date, they will earn an interest rate bonus on their balance. This study tests the impact of this product on savings and school enrollment.
Results from these evaluations on innovative applications of the mobile platform for financial services will help policymakers and practitioners uncover key insights to improve the design of these products. More fundamentally, our research can be used to determine how the mobile platform can effectively foster and scale affordable financial services for the poor.
This post originally appeared on the NextBillions website.