financial inclusion

Launch of global Alliance for Financial Inclusion signals movement toward access to savings, financial services

Leila Seradj — Thu, 17 Sep 2009 17:28:00 -0400

I subscribe to Charles Klingman's Unbanked News listserve, and, since I work with the Global Assets Project, one of today's emails naturally caught my eye.

It was about Monday's launch in Nairobi of the Alliance for Financial Inclusion, a coalition of financial policymakers and central banks from over 60 developing countries.

Its press release emphasizes that savings, investments, and building assets are a crucial instrument to raising national income and increasing financial stability. Yet an estimated 2.5 billion people don't have access to savings accounts and other financial services.

Based in Bangkok and launched with funding from the Gates Foundation, the network therefore aims to share and generate knowledge about methods and policies about increasing access to financial services.

As an aside, I liked what Tarisa Watanagase, governor of the Bank of Thailand, had to say about generating knowledge from inside:

"...[AFI] puts us members in the driver's seat to identify and create solutions to increase the availability and choices of financial services in our own countries. Since we understand our countries' circumstances better than outside organizations, AFI creates an exceptional forum for us to share policies that work and learn from other policymakers about solutions that work for them."

The six financial inclusion policy areas on which AFI is focusing are: agent banking, diversification of financial products and providers, state bank reforms, financial identity, consumer protection, and mobile phone banking.

Given the recent increase in interest in the realm of microfinance and financial inclusion in providing all with a save place to save and make deposits, it should be interesting to see how AFI evolves and responds to a discourse that is increasingly concerned with providing access to savings and asset-building for all.

For Africa and Asia, Headway in Branchless Banking

Leila Seradj — Fri, 13 Feb 2009 21:29:00 -0500

They may take their tea with milk and pronounce "tomato" wrong, but here's something on which we can agree with our friends across the pond.

Yesterday, the UK's International Development Secretary Douglas Alexander an no unced DFI D's ₤1.4 million, three-year project: Facilitating Access to Financial Services through Technology (FAST). Working with CGAP and GTZ, FAST's aim is to "lay the foundations for financial services to be ma de available through new and emerging technology across Africa and Asia."

As it stands now, 2 billion people in the developing world lack access to financial services, because of distance or affordability constraints. With that in mind, FAST aims to explore the possibilities and extend the reach of "branchless banking" using new technologies and innovative methods.

Its three-pronged strategy is to:

1) Test pilot projects to extend the reach of technology-based branchless banking in mass markets in countries in Asia and Africa, including government-to-people (G2P) payment services;
2) Carry out research on the use of new technologies (mobile banking, smart cards, biometric banking) in increasing access to financial services, and extending their reach;
3) Work with governments to develop a policy and regulatory framework that embraces the use of new technologies to increase access to financial services in a secure and low-cost manner.

In countries where FAST will be working, like Pakistan-- where only 25 million people have a bank account, but 75 million individuals own a mobile phone-- the potential for increasing access to remittances (fewer than 10% of remittance recipients have bank accounts), wage payments, and government social benefits is enormous. And it's cheap: there's no need to set up costly infrastructure (it uses the existing mobile phone network), and transaction costs are much lower than through traditional banking channels, which could mean over 1 billion extra dollars reaching the poor each year, according to some estimates.

DFID predicts that mobile banking could add a billion banking customers to the system in five years. If this is the case, the ramifications for poverty alleviation are significant, and FAST's work over the next three years should be interesting to follow.

Conditional Cash Transfers: Generating Buzz, But Let's Think Outside the Box

Leila Seradj — Wed, 11 Feb 2009 15:56:00 -0500

At yesterday's launch of the World Bank Policy Research Report, Conditional Cash Transfers: Reducing Present and Future Poverty, New York Times contributing writer Tina Rosenberg recounted her article pitch to her editors at the Times. Asking her why she was so intent on going to Mexico to cover Oportunidades, the conditional cash transfer program that started it all, she answered: Because it's a social policy program that actually works.

From Latin America, to Africa, to even the United States, conditional cash transfer (CCT) programs are sprouting everywhere and garnering an increasing amount of attention. As the packed auditorium demonstrated yesterday, the buzz has long since reached Washington. And as Justin Lin, Chief Economist for Development Economics, noted, the World Bank will be extending CCT projects to six additional countries this year.

In the scramble of eager participants that shot their hands up breathlessly to seize their chance to ask their multi-part queries to the pre-eminent experts on CCTs, I didn't have the chance to ask the question in the back of my mind: How can CCTs be used to incentivize and change savings and asset-building behavior?

CCT programs aren't a magic bullet, the panelists reiterated. Santiago Levy-- the brainchild behind Oportunidades-- emphasized that CCT programs don't work everywhere, and certainly, they must function within a larger network of social safety net programs provided by the government.

But I wonder how much more powerful they could be if they were used as instruments to help the poor increase savings and build assets, and served as a gateway into formal financial inclusion of the unbanked.

Rosenberg mentioned that, in the course of her time researching the impact of Oportunidades in several villages in Mexico for her New York Times Magazine article, that many women invested parts of their transfer in small businesses. These businesses were sustainable, and added to family income.

If that's the case, then certainly there's room to explore the role of CCT programs to help the poor save, accumulate assets, and increase financial inclusion.

In the U.S. and Latin America, pilot projects and formal government programs are beginning to test these waters. Proyecto Capital in Peru is working to connect, combine, and adjust CCT policies with those that encourage savings, asset building, financial inclusion, and access to financial and entrepreneurial "know-how" for the poor. New York City's Opportunity NYC program links payments to bank accounts so as to encourage savings and reduce services associated with high transaction costs. And evidence from Latin America demonstrates that households participating in CCT programs increase their savings rates and investment in productive assets. Participants of Paraguay's Tekporã program saved 20% more due to their participation in the program; evidence from Mexico likewise affirms that families invested 12% of transfers in income-generating activities, and saved more when payments were made through banks.

So on the day of the launch of this seminal study, it seems timely to start thinking about CCTs in more innovative ways that increases financial inclusion, and helps people save and build assets. This is only the beginning of the conversation-- the Global Assets Project is beginning to ask these questions, and will release a report exploring the potential between CCTs and savings in the coming weeks. In the meanwhile, let's hope that the lively discussion that was sparked at yesterday's event continues in ways that think about CCTs outside the proverbial box.

Cash-22: Social Protection Not for the Unbanked?

Jamie Zimmerman — Thu, 06 Nov 2008 20:09:00 -0500

Social policies around the world are shifting to account-based systems. Governments and corporations are using accounts to deliver a wider array of benefits. Between 1980 and 2004, the presence of defined contribution plans with public support increased from 10 to over 50 countries. But account strategies are also growing for the purposes of education, home ownership, health, and benefits directed at children.

Many of these account-based systems, however, are provided by employers and/or assume that persons have relationships with financial institutions, leaving out millions of low- and no-income people. This pattern is repeated in nearly every country.

Take, for example, the obviously frustrated account of Cape Town, South Africa resident who is desperately seeking to do right by her injured employee by helping him receive his unemployment benefits payments (from today's Cape Times, via Charles Klingman's awesome "unbanked listserv"):

"Siphendule Ndudane is our gardener. For five years we have contributed to unemployment insurance believing that he could access funds in the event of illness. Not so.In June, Siphendule was knocked off his bike, spent a month in hospital, and was put off work until November. We were told that unemployment benefits could be paid into my bank account because he does not have one. But for the past week, I have gone from one official to another who all sing the same song - without a valid bank account the UIF will not pay out. Siphendule cannot read or write, he lives in a community of RDP houses, there are no utility bills available and his ID book has been stolen. To open a bank account, we will have to get another ID document, which will take 10 weeks. He has just spent another week in hospital and is unable to work. If I pay him, it will disqualify him from getting benefits and if I don't he will starve. It is inconceivable that the UIF does not recognise that 50% of South Africans use cash only because their circumstances make opening and using a bank account a formidable task and one which offers little benefit to them. So if you are making UIF payments and your employees do not have bank accounts, you might just as well flush the money down the toilet."

And this in a country that has made great advances in financial access through its advent of the no-frills Msanzi account, innovations in branchless banking through Wizzit, and a financial sector charter aimed to encourage if not mandate financial inclusion.

In fact, the Center for Financial Services Innovation (CSFI) took a delegation of financial services experts (including out own Ellen Seidman) on an "innovation exchange" mission to South Africa just last year. By and large, the trip shored up a lot of excitement for banking products like the Msanzi account and shown a spotlight on the need to figure out Know Your Customer regulations that makes, for some, opening a bank account a quite tedious process. Yet, even with all the innovation, the relative cost of being banked in South Africa (high fees to open, use and maintain an account as well as lack of access) is high. Coupled that fact with the historic distrust of or exclusion from banks among the poor and what results is large swath of the population (about 40%) without any relationship with a bank. Many have no financial identity at all.

Siphundule's story, and the millions of others like it around the world, reveals to me that, increasingly, the lack of a financial identity (a bank account) will result is even deeper social and economic exclusion. The institutions put in place to provide economic opportunity and social protection shouldn't be leaving behind those who need both so desperately.

Child Savings Accounts: Fad or Phenomenon at the Bottom of the Pyramid?

Jamie Zimmerman — Wed, 03 Sep 2008 22:00:00 -0400

In the United States and many developed nations, banks offering savings to children as a means of social and economic inclusion and empowerment may seem tired tradition of the thrift era that has long passed. Gone are the days of widespread school banking programs once so common in the US. And in the very few developed nations where efforts to provide children social and/or economic opportunity through financial inclusion exist, they typically come in the form of social policy (UK's Child Trust Fund, Singapore's Baby Bonus, USA's ASPIRE Act). In developing nations, however, we're witnessing a wholly different phenomenon: financial institutions are, out of their own volition and with no push from the government, choosing to target the child market segment.

This week, East Africa Business Week newspaper published an interview with Stephen Mkweli, managing director of PostBank Uganda, to discuss the focus annual meeting of the Association of Savings Banks of East Africa (ABSEA) - Child Savings. Mr. Mkweli spends his interview extolling the virtues and benefits of child savings and inculcating a culture of savings among children at an early age. He states that, "The benefits of savings include the fact that the customer is assured of a brighter future since he/she can...own future by planning for it. It instills the discipline of financial planning ahead of time...and also increases the deposit base of the institutions and therefore avails the money for government to borrow for its developmental programmes." ABSEA banks plan to capture this special market segment by holding contests, offering piggybanks, and working with networks to expand the reach of the accounts.

By our account, ABSEA is not alone in its efforts to expand access to savings accounts for children. In 2007, the Global Assets Project researched dozens of financial institutions and non-profits who are offering specialized savings accounts targeted toward financially excluded and/or economically disadvantaged children (we call them Child Savings, Accounts, or CSAs). But with the likelihood of small and inconsistent deposits from such a population, the question remains: why?

In our recently released white paper, "Child Savings Accounts: Global Trends in Design and Practice," we review various reasons why different institutions are choosing to offer CSAs, as well as a variety of common features chosen in designing such products. While there is great variation in design based on the institutions purpose for offering the accounts, among the financial institutions we interviewed for this paper, there are some common threads for establishing a business case for CSAs. First, in the rush to "bank" the bottom of the pyramid, the child segment is seen as an important market niche. Not only is this a largely untapped market, but if retained, these children will likely become long-term clients of the financial institutions. Second, the financial competence they gain by early exposure to and habit of using savings services will make them more savvy users of the banks other products. The child's savings account may be a loss for the bank today, but does it mean greater market share and a more lucrative relationship with the client tomorrow?

To be sure, there are numerous other purposes beyond making a profit that institutions (though not necessarily commercial banks) give for offering such accounts, including economic opportunity, poverty reduction and social inclusion. And interestingly enough, Fred Ssewamala's research on specialized and targeted savings accounts toward poor and vulnerable children in Uganda has shown significant improvements in health and education outcomes, particularly in relation to an improved future orientation. The children with accounts have an outlook on life that children without savings don't (and likely can't) share. But this is a special kind of products, with features that most any bank could not reasonably offer without outside support or government subsidy.

So, whether this interest in child savings in developing countries is simply part of the gold rush to capture the bottom of the pyramid or is a sincere effort to provide, earlier in life, financial inclusion and opportunity to the excluded and vulnerable around the world, I watch this trend with interest and a cautious optimism. If they can get the product right, CSAs could be a new phenomenon in poverty reduction thru financial services. We need serious inquiry to find out if this is the case.

[More information on Child Savings Accounts and/or the research of Fred Ssewamala can be found on the Global Assets Project website]

The Next Big Thing in Microfinance: Savings

Jamie Zimmerman — Wed, 06 Aug 2008 16:18:00 -0400

Last month, I argued that USAID inaptly named a three-day virtual conference on savings as "The Forgotten Half of Microfinance." Instead, I posited:

"As someone working on asset building and financial inclusion for the poor (and/or their cross-fertilization in the development field), I would contend that the hosts got it wrong when chose the title for this event. Indeed, "savings" is not "forgotten" at all. Though perhaps traditionally underemphasized, I would argue that, on the contrary, savings is the in fact the "next big thing" in financial interventions."

Looks like I got this one right.

Probably to the surprise of the organizers, the USAID/Microlinks Speaker's Corner on savings was overwhelmingly active, with 324 participants from 53 countries. For those who didn't attend this virtual, email-based conversation, you missed out on the experience of 72 full hours of non-stop emails (we're talking hundreds) from both the novice and the seasoned, from non-profit, public and private sectors, all eager share their many ideas and experiences and learn from others how to expand opportunities for savings for the poor, marginalized and excluded around the globe. It was an inspiring and educational experience. You can access the entire forum at www.microlinks.org/sc/savings. Or you can download the compilation document, which contains all postings from the forum. Its 200 pages long.

Not only is savings indeed not forgotten, but a recent article in the Wall Street Journal confirms my contention this is in fact "the next big thing." On July 31, the WSJ published Robert A Guth's piece, "Giving a lot for savings a little," which announced the Bill and Melinda Gates Foundation intention to "donate hundreds of millions over the next few years to programs to spur savings in poor countries." In the article, Bob Christen, Director of the Financial Services for the Poor division of the Foundation, says the foundation intends to invest heavily to get savings back on the world agenda. So, if it's not already there (as I claimed it to be), then it will be soon-and in a big way.

The Global Assets Project is working inform this new movement towards savings and financial inclusion by promoting savings products, policies and programs that facilitate asset building and wealth creation for these populations. Indeed, the WSJ article was printed one day after the Global Asset Project's launch of its newest report: Global Savings, Assets and Financial Inclusion: Lessons, Challenges and Directions. The report addresses emerging global trends, opportunities and collaborations across the fields of asset building, microfinance, policy and financial education. It describes lessons, challenges and opportunities for thinking about how the poor, in developed and developing countries, can build their assets and wealth. Finally, it includes possible next steps that the diverse range of actors working within these fields should take to move this emerging body of work forward.

As this next big thing grows ever bigger, my hope is that the insights, challenges and recommendations in this report can help inform those policymakers, funders and practitioners in the drivers seat.