Financial Inclusion – A Peek Ahead

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“You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.” Alvin Toffler, author, futurist, entrepreneur

At SoFI2017 in Accra, this panel discussed the role of social media and super-platforms in advancing financial inclusion.

Rapid advances in digital connectivity have fueled innovation in financial inclusion and inspired governments and development agencies to integrate financial services into their projects. We’ve seen how taking a client-centric approach to creating and delivering services can help poor people to save, borrow, and transfer money, manage risk, and improve their lives. With a collaborative effort across borders, regulatory silos, and organizations, there’s hope that financial inclusion could help to achieve broader development goals.

As we enter 2018, just two years away from the global community’s ambitious target of achieving universal financial access by 2020, here’s a look at what is needed in three broad areas to advance to the next stage of financial inclusion for poor people.

The Drivers: Partnerships, Policies, Interoperability

Collaborative partnerships, policies, and programs must continue to create an environment that enables people at the bottom of the economic pyramid to connect to a wider digital marketplace.

For example, Hello Paisa, winner of our 2016 Clients at the Centre Prize, forged strategic partnerships across the world with banks, retailers, post offices, and mobile network operators to make it possible, legal, and less costly for individuals to send money to other countries.

Recent changes in regulations enable the company to grow by supporting its ability to create its own customers and interact with these operators and merchants directly and independently.

Other examples of relationships that push financial inclusion forward are in various states of evolution today, for example:

  • Among its projects, CGAP is helping design architecture to enable governments to digitize all their payments; examining the marketplace for payments across different network operators and banks in East Africa; helping Pakistan’s central bank with its work on bank ownership structures and licensing rules to allow greater competition in mobile financial services; and helping Ghana to examine the regulatory environment for branchless banking and identify barriers to mobile network operators (MNOs).
  • At the 2017 annual retreat of the Committee of E-Business Industry Heads in Nigeria, “Repositioning Digital Payments to Achieve the Financial Inclusion Goals of Financial System Strategy,” the goal was to evaluate that country’s payments system developments from inception to date to determine if policy has achieved its objectives as well as look ahead to 2018 – 2020 to identify areas in need of focus. The Deputy Governor of the Central Bank of Nigeria, Abebayo Adelabu, emphasized that payments services are the channel for extending other financial services to users. He called for a synergy between banks and emerging fintech companies in efforts to accelerate the progress of financial inclusion projects in Nigeria.
  • Last year, G20 finance ministers put forth a basis for country action plans with eight G20 high-level principles for digital financial inclusion.

Anticipating and Facilitating Digital Innovation

Infrastructure providers such as banks or mobile network operators can facilitate financial inclusion by enabling service providers to connect with their systems.  Clients need to be able to send money across services and across borders without additional fees or devices for multiple service providers.

Industry and government will continue to play a critical role with programs and policies that enable interoperability between innovators and infrastructure. Recent examples include:

  • Interoperability was a prominent theme at the 2016 Mobile World Congress annual roundtable. Industry leaders discussed the need for payment products, ATM, and POS networks to understand each other to foster the type of innovative ideas that enable financial inclusion.
  • India launched its ambitious program to develop its digital infrastructure by issuing national identity cards based on biometrics, instituting digital government payments, and integrating service providers into a unified payment system.

As next generation fintech service infrastructures incorporate distributed ledger technology, or blockchain, with existing or emerging technologies, such as digital identity platforms and digital currencies, relevant regulatory bodies, policies, and programs must keep pace to oversee and monitor transactions.

Policies and Regulatory Practices Must Keep Pace

Looking ahead, traditional standards-setting bodies and regulators will need to adapt and work across financial product type and industry silos to foster and monitor innovation. For example:

  • In Kenya, to make a new service, M-Shwari, possible, the Commercial Bank of Africa cooperates with cellular network operator Safaricom to provide clients instant access to savings and, over time, credit to M-Pesa mobile money users. In two years, M-Shwari became that country’s largest retail bank account.
  • Pakistan and Mexico “Know Your Customer” rules employ tiered-regulation and customer-due-diligence approaches to make client-centric products available that promote financial inclusion while conforming to anti-money laundering/terrorism-combatting financing requirements.

Regulatory technology (“regtech”) innovators will need to find new ways to use technology to accelerate oversight of key financial services.

Technology is changing so rapidly, it remains to be seen what form access to a transaction account to store money, send, and receive payments will take. Will social media become a significant force for financial inclusion? Perhaps the best indicator of the future of financial inclusion will continue to come from digital data collected from clients themselves. As professor Eldar Shafir, co-author of the book Scarcity: Why Having Too Little Means So Much, explained at SoFI 2016:

“Big data is going to help you understand better and divide the world in more nuanced categories into what matters to people’s behaviors in ways that are relevant [to financial inclusion]. A lot of the findings are not intuitive.”

Data analytics is key, too, to informing product development and ensuring that new solutions are formulated based on client wants and needs. Indeed, as we look ahead, client centricity must continue to play a central role in financial inclusion services, policies, and programs. Without this, there is no guarantee that the rapid advancements in financial technology will drive financial inclusion.

Third Annual Clients at the Centre Prize Inspires Focus on Clients in Need

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Ann Miles, Director of Financial Inclusion at the Mastercard foundation (left) with Buhle Goslar, Director of Customer Intelligence at Jumo, winner of the 2017 Mastercard Foundation Clients at the Centre Prize.

Jumo wins the $150,000 award for its large-scale, low-cost financial services marketplace

 Since the first Symposium on Financial Inclusion (SoFI) in 2013, our focus has been on client centricity, a business approach that places clients at the heart of a company’s philosophy, products, and services.

Three years ago at SoFI, the Foundation awarded the first annual $150,000 Clients at the Centre Prize to recognize companies with high-impact financial products and services designed specifically for poor people in emerging markets.

This year, some 400 SoFI attendees voted to select the third annual Clients at the Centre Prize winner on November 8th in Accra, Ghana. The audience heard pitches from three finalists selected by an international panel of judges from a pool of 88 entrants.

The 2017 Clients at the Centre Prize winner is Jumo, a large-scale, low-cost financial services marketplace based in South Africa.

A New Way to Determine Creditworthiness

Jumo’s multi-sided mobile platform obtains and analyzes behavioral data from local mobile service providers in Sub-Saharan Africa and parts of Asia. It then provides customers with a “Jumo Score,” a replacement for the traditional credit score, which many poor clients do not have.

A Jumo Score rates credit worthiness based on client smartphone or feature phone usage patterns, such as how much they spend to buy airtime and, particularly, how they use their mobile money wallet.

The mobile platform lets banks compete to provide poor individuals and MSMEs (Micro, Small and Medium Enterprises) with real-time mobile financial services, such as loans and savings products. The data can also help target users with products they are likely to need.

Andrew Watkins-Ball, Jumo’s chief executive, explains: “A $20 loan that can be accessed without collateral in the middle of the night in a rural village can mean the difference between getting a sick person to hospital and going without medical care. For a micro-entrepreneur who deals in single-digit dollar amounts, a similar amount can have a major impact on the ability to buy stock effectively at greater volumes and lower prices.”

That bodes well for clients and financial service providers: the bigger the marketplace, the lower the costs for clients.

Particularly valuable in rural areas, mobile-only technology has been the key to overcoming barriers of traditional banking systems. According to the 2015 World Bank FINDEX report, mobile services help to fill a tremendous gap for individuals who do not have access to a bank account. For example, in Sub-Saharan Africa, 12 percent of adults, or 64 million adults, have mobile money accounts; 45 percent of them have only a mobile money account.

Worthy Competitors

The other two Prize finalists at SoFI 2017 were also recognized for sustainable, high-impact client-centric models.

Award-winning ftcash is a fast-growing mobile payments platform that empowers India’s 60+ million underserved micro-merchants to accept mobile payments, advertise, make loans, and engage customers using only a bank account and a feature phone. The open platform aggregates all payment methods, including credit/debit cards, net banking, various mobile wallets, UPI, and PayPal.

Destacame, a free online platform in Latin America, gives users control over their personal data to build their financial capabilities and to access financial products. Destacame empowers people to demonstrate to financial institutions that they are good payers based on their payment behavior with utilities. It also enables consumers to download their individual financial report and see how the financial system views them.

Continuing a Strong Tradition

Jumo is third in a line of exceptional organizations that have been awarded the Clients at the Centre Prize for putting clients and their needs at the heart of their business models.

The first Prize was awarded in 2015 to BIMA, for providing client-centered, mobile-delivered microinsurance and health services in emerging markets, where 93% of its customers live on less than $10/day.

Today, just four years after its founding, the Swedish company has raised $75 million in capital and is recognized as a leading provider of mobile-delivered microinsurance. It serves 24 million customers in 14 emerging markets and reports that it is adding 575,000 new customers per month, 75 percent of whom are accessing insurance for the first time.

BIMA’s mobile phone app was designed for a five-minute registration process, with five brief questions and no paperwork. BIMA uses live agents to educate prospective clients on its services. Clients can make pay-as-you-go payments via mobile or use pre-paid tele-doctor services.

Hello Paisa was the winner in 2016, and was recognized for its innovative work in South Africa to facilitate international money transfers from foreign workers. The mobile phone-based platform enables users to deposit, withdraw, or transfer money easily and inexpensively. Its platform provides the technology different banks need to perform transactions with each other. It also enables users to send, receive, or deposit funds by visiting local agents.

It was originally designed in 2009 as a mobile phone wallet where clients can perform transactions via the internet, dedicated internet voice system, or SMS technology.

Hello Paisa’s growth is expected to continue as recent changes in regulations support the company’s ability to interact with network operators and merchants directly and independently.

Ann Miles, Director of Financial Inclusion at the Mastercard Foundation, summarized the importance of client centricity to universal financial inclusion: “The benefits of access to finance for individuals, having the ability to save, borrow, and transfer money, and also to insure themselves, are well understood. We’ve seen significant progress recently but the world can only achieve universal financial inclusion if financial service providers truly understand the unique context and needs of poor people.”

Shining a light on those focusing on the needs and expectations of people living in poverty encourages an open exchange of ideas, and helps increase awareness and acceptance that financial inclusion through tech-enabled financial services benefits us all.

Learn more about our investment in greater financial inclusion. 

Banking on the Unbanked

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Nov 10, 2017, by Reeta Roy. This article first appeared on Project Syndicate

In a sea of gloomy news, one bright headline appears on the horizon. The World Bank’s latest figures on individuals’ bank accounts, to be released next spring, are expected to show that the number of people holding accounts at banks or other formal financial institutions has grown.

The last time the World Bank published its Global Findex report, in April 2015, an estimated 700 million adults, mainly in developing countries, had obtained access to financial services during the previous three years. That amounted to an increase of more than 21% in the global number of “banked” individuals. Because broader access to financial services helps to create a path out of poverty, any increase in this metric is a positive sign for human development.

But my organization won’t be declaring victory when the new report comes out. No matter what the World Bank data show, universal financial inclusion for the world’s poorest remains a distant goal.

At the moment, some two billion adults remain excluded from formal financial services. Excessive documentation requirements, high account fees, limited access to bank branches, and the perception that financial institutions are “only for the rich” are among the most persistent obstacles to overcome.

At the Mastercard Foundation, we are committed to helping to remove these barriers for the world’s poorest. This month in Accra, Ghana, we convened the fifth annual Symposium on Financial Inclusion, bringing together hundreds of financial services providers, policymakers, academics, and development experts to examine how to broaden and deepen financial inclusion.

We have been hosting this global conference since 2013, and each year, a familiar concern emerges: financial institutions could do more to focus on the needs of their poorest clients. Because banks often do not consider the behaviors and aspirations of poor customers, they do not always offer the products and services the poor need. If the industry’s priorities changed, barriers to inclusion would fall.

Reversing this trend should be easier than it is. After all, when people prosper, so do banks. Poor people tend to save more money when they can access bank accounts or make mobile payments. With savings comes increased overall prosperity. Children do better in school when parents can easily pay fees. Women become more empowered to start businesses. Poor households can better cope with adverse shocks like crop failure, illness, or natural disaster.

The positive economic knock-on effects are obvious. With bank accounts, budding entrepreneurs can establish their creditworthiness and tap responsible, formal lenders. And with capital, small enterprises can grow into larger businesses, employing others, especially young people.

Technology has helped close the gap in recent years. The success of digital payment platforms, such as the M-Pesa mobile app in Kenya, demonstrates how quickly vulnerable clients will take up and use inexpensive products and services if they are designed with users’ needs in mind.

Moreover, financial technology firms in Africa and Asia are finding innovative ways to analyze data generated by poor people’s activities, and using that data to design and deliver better banking services. Non-traditional approaches are also emerging, such as reaching the unbanked poor via small, independent businesses that they already use and trust.

But much of the onus for inclusion will remain on financial institutions. One argument I often hear is that the financial services sector is risk-averse. Given banks’ fiduciary obligations to their customers, this is not an entirely bad trait. Yet banks and other financial institutions should realize that risk protection is perfectly compatible with service to poor customers.

By ignoring poor people’s needs, financial institutions are overlooking a massive potential market. To reach hundreds of millions of new clients, the world’s financial institutions need only walk a metaphorical mile in the shoes of a poor person. They would then see that no one should be excluded because of inaccurate, outdated, or unfair assumptions.

Today, more people than ever are benefiting from access to modern and responsible financial services. No doubt, next year’s World Bank data will indicate even greater gains. But to achieve a world where no one is excluded, the industry must place the needs of poor clients at the center of its business strategies. Only then will the good news about financial inclusion become great.

Embracing Client Centricity To Close The Inclusion Gap

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Five Years of SoFI in One Infographic

Each year since 2013 the Foundation has convened hundreds of industry professionals to focus on barriers to greater financial inclusion around the world. This year we reflect on progress made over the past five years, explore challenges that still lie ahead, and plan how to expand and deepen financial inclusion for the world’s most underserved people.

 

Finding the Firms Putting Clients at the Centre of Financial Inclusion

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Three years ago, the Mastercard Foundation organized the first Clients at the Centre Prize. The intent was simple: to celebrate organizations across the globe that fundamentally base the success of their businesses, products, and services on the depth to which they understand and meet the financial services needs of poor people. These organizations embed client value and protection into everything they do, and we wanted to recognize them.

Each year since then, the Prize has been awarded during our Symposium on Financial Inclusion (SoFI). Three finalists come before the audience and are given six minutes to “pitch” why they should win the Prize. They outline how they operationalize client centricity for the purposes of positively impacting the lives of people with low incomes.

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SoFI2016 Videos and Transcripts

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sofi2016-for-nov-24-blog-postThe Foundation’s 2016 Symposium on Financial Inclusion that took place in Kigali (Rwanda) October 20-21 saw more than 325 attendees being presented with two over-arching messages:

1) The need to use all tools at their disposal, such as insights from behavioural psychology, to understand more deeply the needs, wants and expectations of people currently excluded from formal financial products and services; and

2) The potential for innovative partnerships between financial service providers and others (i.e. fintech firms or mobile network operators) to reach new groups of disadvantaged people, offering the financial products and services most appropriate to their life situations.

With four keynote speeches, the awarding of The MasterCard Foundation’s ‘Clients at the Centre Prize,’ a vigorous formal debate on the merits of digital financial services, and a deep dive into the financial inclusion progress that Rwanda has made, the Symposium offered attendees (and those following it on social media) a far-reaching, state-of-the-sector analysis.

To see videos of all sessions, as well as accompanying transcripts and a list of those who attended, please go here.

“Inclusion is Not an End in Itself”: Takeaways from SoFI2016

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(This blog post originally appeared on the Next Billion Financial Innovation web site on November 15, 2016).

For the past four years, The MasterCard Foundation has convened its Symposium on Financial Inclusion, and every year we have helped to move the needle toward greater inclusion for Africa’s poorest people. As many know, the event brings together the most thoughtful individuals working on behalf of financial service providers (FSPs) or other organizations to accelerate access to the products and services that will increase economic activity and create livelihoods in Africa.
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CNBC Africa Live Debate at #SoFI2016

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A highlight of Day 1 at SoFI2016 was the live panel discussion on CNBC Africa, hosted by news anchor Nozipho Mbanjwa, moderating Herman Smit, Centfri; Rose Goslinga, Pula-Advisors; and Paul Kweheria, KCB Group. Watch the full panel discussion on YouTube.