Publication Archives - Responsible Finance Forum

How Financial Institutions and Fintechs Are Partnering for Inclusion

01 Aug 2017

This report—produced as a partnership with the Institute of International Finance (IIF) and the Center for Financial Inclusion at Accion (CFI)—examines how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It incorporates insights from 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion. Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.

Electronic Transfers in Humanitarian Assistance and Uptake of Financial Services

02 May 2017

The Electronic Cash Transfer Learning Action Network (ELAN) undertook case studies on humanitarian electronic transfer (‘e-transfer’) projects in Ethiopia, Zimbabwe and Bangladesh. The case studies examine the extent to which:

recipients used digital financial services (e.g. money transfers, savings, credit, purchases) through mobile money;
the factors that affected recipients’ uptake of these financial services; and
considerations for future humanitarian programmes aiming to increase the use of digital financial services among recipients.

The case studies show that receiving humanitarian cash transfers through mobile money can increase the use of certain services but does not automatically lead to widespread or sustained uptake. People may prefer to continue using informal financial systems that are more familiar, accessible and profitable. The provision of humanitarian e-transfers, even when combined with training, was not sufficient to enable the vast majority of participants to conduct mobile money transactions independently.

Encouraging uptake of digital financial services requires resources. A disaster or crisis may not be the most suitable moment to invest in and oblige recipients to attend extensive training, and other delivery channels may be more appropriate. Aid agencies still need to be capable of delivering cash transfers digitally when that is the best way to get money to people. Humanitarian organisations that do not have relevant internal capacity may consider partnering with development organisations that do.

Originally published by Sarah Bailey from ODI. Cover photo credit: ODI

Digital Financial Services and Risk Management Handbook

28 Sep 2016

The last decade has seen a wave of innovative financial services aimed at serving the unbanked populations in emerging markets. Low-income individuals, microentrepreneurs and rural populations that were previously left out of the market due to the high costs of physical expansion are now accessing financial services through mobile phones and networks of agents acting as representatives of financial service providers. This has resulted in a remarkably rapid increase in financial inclusion in some countries. In other markets adoption has been slower and the results are less catalytic, but all markets are growing and are expected to continue to do so as services and products develop. It is expected that the expansion of digital financial services will make an important contribution towards the goal of reaching universal financial access by 2020.

However, with the many opportunities provided by ground-breaking technology and innovative business operations also come new risks. The risks related to implementing digital financial services extend far beyond operational and technical risks. In order for the financial inclusion industry to be able to capitalize fully on the benefits of digital financial services, it is important that the accompanying risks are understood and adequately addressed. In this fast evolving field, it has become apparent that what matters to one provider matters to all as large cases of fraud, for example, affect not just consumer trust in one provider but in the market and promise of digital financial inclusion as a whole.

The Partnership for Financial Inclusion is a joint initiative of IFC and the MasterCard Foundation to expand microfinance and advance digital financial services in Sub-Saharan Africa. Through the interactions with clients of the program as well as the broader industry in the region and beyond, we identified a need for a handbook on how best to handle risk management for digital financial services. <Read the Handbook>

Financing SMEs — Giving Credit Where it is Due: A Spotlight on the G20

14 Sep 2016

Katie Koch of Goldman Sachs Asset Management provides an update to a 2014 Goldman Sachs report outlining the barriers to financial access facing female-owned SMEs around the world and why these business owners represent a substantial economic opportunity.

Introduction:
A decade ago, ten G20 countries; Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey, boasted some of the fastest growing economies in the world. Today, growth rates in many of these countries have fallen, hurt by factors including lower commodity prices and anemic global growth. One route to stimulate economic growth in these countries is to bolster the growth potential of female-owned small and medium sized enterprises (SMEs).

Globally, SMEs contribute significantly to employment as well as innovation and productivity and, particularly in developing economies, SMEs are the biggest contributors to job creation. While SMEs face many challenges, a significant hurdle is often access to finance, especially for female-owned SMEs due to gender-related factors. We estimate the total amount of formal financing needed but not available, the credit gap, amounts to more than $160bn for female-owned SMEs in these ten G20 countries. Applying findings from our research paper “Giving Credit Where It Is Due”, we estimate that if these focus countries were to close the credit gap for female-owned SMEs, real income per capita growth rates could be boosted by close to 90bps on average. If the credit gap is closed by 2025, incomes per capita could be on average nearly 15% higher by 2035 across this subset of countries, relative to our previous baseline scenario.

G20 High-Level Principles for Digital Financial Inclusion

14 Sep 2016

The G20 and Global Partnership for Financial Inclusion stand at an unprecedented time when our leadership has the potential to drive the growth of inclusive economies by promoting digital financial inclusion. Two billion adults globally do not have access to formal financial services and are excluded from opportunities to improve their lives. While tremendous gains in financial inclusion have already been achieved, digital financial services, together with effective supervision (which may be digitally enabled), are essential to close the remaining gaps in financial inclusion.

Digital technologies offer affordable ways for the financially excluded—the majority of whom are women— to save for school, make a payment, get a small business loan, send a remittance, or buy insurance. The 2010 G20 Principles for Innovative Financial Inclusion spurred initial efforts and policy actions. These 2016 High Level Principles for Digital Financial Inclusion build on that success by providing a basis for country action plans reflecting country context and national circumstances to leverage the huge potential offered by digital technologies

Promote a Digital Approach to Financial Inclusion
Balance Innovation and Risk to Achieve Digital Financial Inclusion
Provide an Enabling and Proportionate Legal and Regulatory Framework for Digital Financial Inclusion
Expand the Digital Financial Services Infrastructure Ecosystem
Establish Responsible Digital Financial Practices to Protect Consumers
Strengthen Digital and Financial Literacy and Awareness
Facilitate Customer Identification for Digital Financial Services
Track Digital Financial Inclusion Progress

These eight principles are based on the rich experience reflected in G20 and international standard-setting bodies’ standards and guidance. They also recognize the need to support innovation while managing risk and encouraging development of digital financial products and services.

A Change in Behavior: Innovations in Financial Capability

22 Aug 2016

Financial Capability: the combination of knowledge, skills, attitudes, and behaviors a person needs to make sound financial decisions that support well-being.

This report — funded by JPMorgan Chase & Co and produced by the Center for Financial Inclusion — assesses the global landscape of financial capability innovations, with special focus on India and Mexico. Highlighting a trend in its early stages, it explores how organizations are tying financial capability interventions more closely to customer behavior, especially at critical decision-making moments, such as when signing up for and using financial products. Expansion of this approach, which is growing, will require creative ideas beyond the traditional financial education that still dominates the scene, and greater involvement by providers, who are uniquely placed to meet clients at critical decision moments.

The financial capability approach takes knowledge transfer out of a classroom and pairs it with well-designed products. Behavioral economists argue that human biases often inhibit our ability to make good decisions. They point to the important gap between knowing and doing. People tend to value the present over the future; need frequent reminders to apply what they have learned or resolved; and follow habitual routines to navigate day-to-day life. These biases can shape financial behavior, often resulting in the failure to act despite knowledge. In addition, attitudes and practices learned from parents and peers strongly shape a customer’s financial habits.

These insights point to the need to design capability interventions that address the knowing-doing gap and take psychological and cultural factors into account. We advocate the application of behaviorally informed practices that have the potential to make financial capability interventions more effective. We are pleased to see an arsenal of tools emerging that employ them.

However, these efforts require the combined efforts of many stakeholders. To make a shift of this magnitude, we need to leverage all the tools, including technological innovations, peer networks, behaviorally informed strategies, and product design approaches that place the customer at the center. There are still many unanswered questions such as how to build a sustainable business case or the true impact of many of these interventions. However, we see some easy targets for providers to quickly incorporate, from reminder messages, to opportunities for clients to practice using a service with a staff person, to building up the financial capability of staff.

We urge providers to learn from their customers and find ways to pair products and information to help clients establish behaviors to meet their goals. Financially capable people, particularly those with low, irregular incomes, have to fight a lot of battles to maintain financial discipline. The least we could do is to work together with all stakeholders to develop products, policies, and strategies to make it easier to be financially capable.

The 2016 Brookings Financial and Digital Inclusion Project Report – Advancing Equitable Financial Ecosystems

21 Aug 2016

The Brookings Financial and Digital Inclusion Project (FDIP), launched in summer 2014, examines access to and usage of secure, affordable formal financial services among underserved populations. The objective of FDIP is to provide policymakers, the private sector, representatives of non-governmental organizations, and the general public with information that can help improve financial inclusion in their respective countries and beyond. As part of this aim, the FDIP team produces an annual report and scorecard evaluating commitment to and progress toward financial inclusion across a set of geographically, economically, and diverse countries.

Executive Summary: The 2016 FDIP Report analyzes key changes in the global financial inclusion landscape over the previous year and broadens its scope by adding five new countries to the study: the Dominican Republic, El Salvador, Egypt, Haiti, and Vietnam. The report’s findings show continuing progress across the global financial inclusion landscape. This assessment is driven in part by the recent launch of comprehensive financial inclusion strategies in several countries and, more broadly, by substantial progress in enhancing the digital financial services ecosystem. In the past year, for example, we have seen significant progress in advancing platform interoperability, as well as in the expansion of nontraditional financial access points, including banking agent outlets and mobile money agent outlets. These and other advancements in the digital financial services landscape have helped underserved populations in emerging economies gain access to formal financial services.

The Business of Financial Inclusion: Insights from Banks in Emerging Markets

26 Jul 2016

This study examines the underreported role of banks in driving financial inclusion. Of the 3.2 billion people in the world with financial transaction accounts, 97 percent hold an account at a financial institution. According to the World Bank’s Global Findex database, over 90 percent of the 721 million new accounts opened between 2011 and 2014 were opened at financial institutions—the vast majority banks, but this figure also includes credit unions, cooperatives, microfinance institutions, and postal banks. Thanks to advances in technology, banks are increasingly designing viable business models to serve unbanked and underbanked populations, which Accenture has estimated as a $380 billion market opportunity.

To better understand the strategies enabling this growth, and to help banks, their partners, and the public sector work together to reach the next 2 billion, the Institute of International Finance (IIF) and the Center for Financial Inclusion (CFI) interviewed executives from 24 leading banks working in emerging markets to understand their business strategies, how technology and partnerships can enable inclusion, and where they see obstacles going forward.

Responsible Digital Payments Guidelines

21 Jul 2016

The Better Than Cash Alliance ‘Responsible Digital Payments Guidelines’ identify eight good practices for engaging with clients who are sending or receiving digital payments and who have previously been financially excluded or underserved.

The focus of the Guidelines is on the common types of digital payments services provided to the financially underserved such as electronic money transaction accounts. For clients to adopt and use digital payments, they need to feel protected from risks such as loss of privacy, exposure to fraud, and unauthorized fees. This means that service providers need to proactively take steps to protect their clients and that regulators should ensure a sound consumer protection regulatory framework.

This is especially true for financially excluded and underserved clients and those with low financial and technological capability who are participating in a world of rapid innovation involving new types of financial services, providers, partnerships, and distribution channels. In an inclusive digital payments ecosystem, it is important for all the stakeholders to do their part to ensure that digital payments are made responsibly.

The Guidelines’ aim is to provide a helpful tool for all stakeholders supporting responsible practices in the move from cash to digital payments in order to reduce poverty and drive inclusive growth.

Enabling Mobile Money Policies in Tanzania

29 Jun 2016

The National Payment System directorate (nPSd) at the Bank of Tanzania (Bot) began its mobile money regulatory journey i 2008, when a visit from one of the country’s mobile network operators (mnos) introduced the idea that a simple mobile handset could do much more than make calls. From this first meeting, the Bot was keen to engage with the mobile industry to learn more about the potential of digital financial inclusion – a new and unfamiliar topic to the Bank.

Seeking to enable digital financial inclusion, but lacking national payment systems legislation to issue regulations, the Bot elected to take an interim step. it issued ‘letters of no objection’ 1 to the partner banks of vodacom’s m-PeSa and Zantel’s Z-Pesa (relaunched in 2012 as “ezy Pesa”), allowing them to launch in 2008. two more deployments followed: Zain’s Zap in 2009 and tigo Pesa in 2010. as the market has continued to develop, the Bot has made concerted efforts to find a legal and regulatory framework that would provide sufficient legal certainty and consistency to support a stable mobile money market, promote financial inclusion, and protect customer draft regulation that allows both banks and non-banks to provide mobile payment services has gone through two iterations and will be adopted. meanwhile, the Bot has taken the lead in developing a national Financial inclusion Framework (nFiF) that articulates the role of mobile money as a key enabler of financial inclusion.