Viewing all posts with tag: Financial Inclusion  

Building an Inclusive Financial System

In 2009, FAI founder Jonathan Morduch was part of a group that determined “half the world is unbanked.” Ten years later, the latest Global Findex tells us that the world’s unbanked population has been nearly cut in half. A combination of focused public and private efforts, aided by technology advances, yielded massive, though uneven, progress. It’s worth celebrating the gains, but also reflecting on what is still left to do. What lessons have we learned from the last 20 years that can close the rest of the inclusion gap? Why has inclusion in wealthier countries stalled? What does the inclusion agenda leave undone? How can technology be part of building more bridges to excluded communities?

This edition of the faiVLive was based on a new report from the Aspen Institute’s Financial Security Program, Building An Inclusive Financial System, that tackles those questions and more.

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Accounting for the Gender Profit Gap

In countries across the world, women earn less than men. This is true not only for wage-paying jobs, but also for the earnings of micro and small businesses, which play a prominent role in most economies. Women-led businesses are less profitable than their male counterparts, have fewer employees, and are less likely to grow. In this webinar, we discuss what we have learned form research and experience that can help policymakers, financial service providers, and other organizations better meet the needs of women, and close gender gaps in small firms.

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Servicios Financieros Digitales y la inclusión financiera en América Latina

La pandemia ha elevado el perfil de los Servicios Financieros Digitales (SFD), los cuales han permitido una distribución sorprendentemente rápida de los fondos de apoyo social, ofreciendo un camino para brindar servicios financieros de forma segura y a escala. Sin embargo, aún quedan asuntos importantes que considerar en cuanto al despliegue e impacto final de los SFD. ¿Quiénes están siendo excluidos? ¿Cómo podemos asegurarnos de que los nuevos actores y modelos empresariales incorporen las necesidades de las comunidades y los clientes de escasos recursos? Esta edición de faiVLive reúne a profesionales e investigadores expertos para abordar estas preguntas y debatir el camino a seguir para los SFD y la inclusión financiera en América Latina.

Con la participación de: Xavier Faz, Líder de Modelos Empresariales y Líder Regional de CGAP en América Latina y el Caribe, Barbara Magnoni, Presidente de EA Consultants y Co-fundadora de MeXCo Soluciones, Timothy Ogden, Director General de la Iniciativa de Acceso Financiero de NYU, Kiki Del Valle, Vicepresidente Sénior de Alianzas Digitales de Mastercard.

Moderador: Gabriela Zapata, Consultora de Inclusión Financiera y Salud Financiera.

Digital Financial Services, Inclusion, Exclusion and the Future of Pro-Poor FSPs

The pandemic has raised the profile of digital financial services, which have enabled amazingly rapid distribution of social support funds and may provide a path forward for delivering financial services safely and at scale. But there are important questions left to consider about the roll-out and ultimate impact of DFS. This edition of faiVLive brought together expert practitioners and researchers to address these questions, ranging from the impact of DFS on MFIs to digital security.

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Week of January 31, 2020

1. Financial Inclusion/Household Financial Security: It seems strange that I so infrequently have items specifically on microfinance so I leap at the chance when it comes along, particularly when that chance involves one of my soapboxes. For instance: the product is what the users make of it, not what the institution wants it to be. For instance, most microcredit loans aren't investment loans, they're liquidity management tools. Which, of course, makes sense since liquidity management is a more pressing need and the structure of the basic microcredit loan is so ill-suited to business investment. But there are ways to make the standard microcredit loan structure more workable for investment purposes. For instance, borrowers from the largest MFI in China form bogus groups and then funnel all of the loans to a single member to make a larger investment. It's not a niche phenomena either: the authors estimate that 73% of groups are doing this.
Another of my soapboxes is the history of development of financial institutions that serve excluded populations, and where the modern microfinance movement fits in that history. There's a new paper from Marvin Suesse and Nikolaus Wolf on the development rural credit cooperatives in Prussia between 1852 and 1913 (I did say this was a pet interest). And here's a summary version in VoxEU. If that doesn't sound like the kind of thing you would normally click on, I beg you to reconsider. It's an interesting story about what drove the creation of a new kind of financial services institution in a setting that makes it a bit easier to disentangle causes and effects, and what effect these new institutions had on their communities. I won't spoil the ending but would encourage you to think about how their results would look if measured with an individual-focused impact evaluation.
I will spoil the beginning, though: the formation of credit cooperatives was driven by changes in the economy that increased the need for access to credit. Which brings me to a third soapbox, the Great Convergence (and there's more on that below). Here's a new report from the New York Fed on constrained access to credit in the United States, including a "Credit Insecurity Index." The premise is that access to credit is important for households to manage liquidity, manage investment and manage risk (those are my terms, theirs are "manage emergencies, take advantage of opportunities, or invest"), but that access varies geographically for lots of different reasons. The report tracks 5 tiers of credit access and changes in those tiers over time, by county. There are 11 states where more than 10% of the population lives in credit-insecure counties. It's another way to illustrate how much in common parts of the US, geographically and demographically, have in common with middle-income countries. Speaking of, I'd love to see a similar exercise done in other countries.
Finally, and keeping with the Great Convergence sub-theme, here's a new paper from Jonathan Fu looking at representative data from six "emerging economies" and five "developed economies" to look at "contextual-level" predictors of financial well-being. He finds that more sources of independent information, more competition, and specifically more competition from informal and semi-formal providers helps, and that simple access and financial literacy don't (hey, another soapbox!).   

2. Digital Finance: Writing about digital finance is frequently tough because the line between what is "finance" and what is "digital finance" isn't all that clear much of the time. Thirty years ago most credit card transactions were digital (the information was passed over phone lines from modem-to-modem!) but we don't tend to think of that as "digital finance." Another of my soapboxes is that often the "digital" in "digital finance" is used as a justification to pretend the rules of finance don't apply. Here's a useful review in an unusual outlet (Computer) on the "technical potential versus practical reality" of digital finance, specifically blockchain and crypto, for low-income people. It cites some examples I was unaware of and presents the arguments for the benefits pretty clearly. But the best reason to read it is the Challenges section features a heading you almost never see from pieces that emerge from the digital side of digital finance: "Low-income groups' limited power and financial/social capital." Another thing I really like is it draws a distinction between FinTechs and TechFins, the latter being tech firms dabbling in finance.
The Economist has a piece this week on that issue specifically: "how digital financial services can prey upon the poor" with a specific focus on the potential for abuse of data gathered on poor customers who have little understanding of what is being gathered by whom or the consequences (to be fair, none of us do). To the point about the blurred line between finance and digital finance, there's not much there that hasn't been true of non-digital finance for a very long time.
The Economist piece relies heavily on CGAPs long-standing attention to these issues, and Matthew Soursourian and Ariadne Plaitakis have more to add in a look at how digital finance may require changes to competition policy in financial services, specifically as TechFins play a larger role. Oh look, they specifically call out issues of political power!
In their case it's the political power that the market power of TechFins brings, but it's not just the political power of corporations that becomes worrisome in digital finance. The political power of governments is even more concerning to the extent that it enables even more channels for surveillance, oppression and exclusion. Here's a story about Kenya's digital ID initiative that is excluding many marginalized groups from getting the IDs that will soon be necessary for many aspects of life including access to the financial system. But even those people who are included may end up excluded because the government lacks the tools and expertise to protect the very sensitive data that goes into the biometric IDs.

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Week of January 24, 2020

1. SMEs: So this is kind of old, at least in faiV terms. But it's new to me, and a good illustration of one of the fundamental ideas that underpins how I look at all research/interventions related to SMEs: Reality has a surprising amount of detail. The point the author is making is quite different from what I take from it, so let me explain a bit more. Figuring out how to run a small business, in most contexts where we care about helping people running small businesses--developing countries, marginalized groups or areas in developed countries, other people markets and regulation have failed--is really, really hard because there is a surprising amount of detail at every step in the process. Product, location, competition, marketing, production, accounting, financing, investment--all of them involve a surprising amount of detail, and lots of little ways to get things wrong. But with so much detail it's hard to figure out if something is going wrong, much less what specific thing is going wrong.
At this surprising level of detail we tend to throw programs that either only address one small detail (e.g. incentives for formalization), or lots of details spread out across many tasks (e.g. business training). In both cases we see small or negligible effects for the most part (in part because most impact evaluations of training don't have nearly enough power to detect the size of change we could reasonably expect).
That's a fairly long disquisition to set up that the next faiVLive will be on the topic of SME business training specifically. On February 20th, at 10am Eastern, David McKenzie and I will discuss what we know about SME performance, management, survival and especially training. Register to join us here.
Finally, while I remain one of the holdouts against the term "financial health" (more on that another day), here's a report from my old colleague Piotr Korynski, now at The Microfinance Centre, looking at the application of financial health to SMEs. It's definitely worth a read to start peeling back layers on the surprising level of detail required to really understand what is happening inside SMEs.

2. Cash: At this point I feel like any discussion of the death of cash should come with a mandatory voiceover of Mark Twain saying "Reports of my death have been greatly exaggerated." Here's Olivier Usher from Nesta on 2020 being a tipping point in the "cash crash." There are some interesting data points here, and more importantly, some important questions about how payment mechanisms affect behavior, or allow others to control behavior.
The virtual voiceover to this particular death of cash pronouncement is from New York City, where the city council just yesterday approved a regulation requiring all businesses in the city to accept cash as payment. That means that 3 of the 15 largest cities in the US, as well as the entire state of New Jersey have banned the death of cash.
 
3. Financial Inclusion: Financial inclusion, like cash, has frequently been confined to the dustbin of history in recent years, in favor of other terms. As I mentioned I still prefer inclusion (while noting the irony of the name of the research center I manage) but the reasons that others don't are fair and reasonable. One of the main reasons "inclusion" replaced "access" was the recognition that opening lots of dormant accounts really shouldn't count for anything. But shifting terms didn't really blunt the criticism. Here's Bhavana Srivastava and co. from MSC on when financial inclusion is not inclusive for women, and how to change that. Here's IDEO.org on essentially the same topic, looking at what it will take to include women in the financial system in Tanzania, Bangladesh, Kenya, Nigeria, Pakistan and India. And here's Mayada El-Zoghbi on why measures of access and inclusion don't square up with each other.
Bobbi Gray of the Grameen Foundation also has some problems with financial inclusion (sort of)--here's her list of financial inclusion "notions that must die." Of particular note is the third: financial inclusion is always positive. Keep that one in mind while you read this piece on "financial inclusion will see mass market adoption in 2020." If you're wondering what that means, I'm not sure you'll gain much insight from reading it--it's another in a long line of proclamations that "new data" is going to solve all the problems of financial inclusion. But their is one particular sentence that meant I had to link it: "one can only hope that common-sense regulations will enable these technological advances to deliver on their promise of greater financial inclusion." There are so many ways to read that sentence! And most of them aren't encouraging, but are probably right.
To illuminate that somewhat obscure criticism, here's a piece on a highly effective, yet illegal, way to make lending fairer to women. There is no such thing as "common-sense" regulation. This stuff is really, really hard--this would be a good time to go back to the link to Mayada's piece above and read it if you haven't.

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Week of December 6, 2019

1. Trends: Futurism has always come more easily to technologists than policy wonks (probably because it’s easier). But big gatherings are a good chance to look ahead to how the whole inclusive finance ecosystem, getting more complex each year, will evolve. e-MFP’s annual survey of financial inclusion trends – the Financial Inclusion Compass 2019 – was launched during EMW2019, and tries to do just this. If there were a single theme to this paper, it’s the disconnect between, on the one hand, individual stakeholders with their own interests and objectives, and on the other a collective confusion, a ‘soul-searching’ of sorts, for financial inclusion’s purpose amidst the panoply of initiatives and indicators in a sector of now bewildering complexity.

Digital transformation of institutions ranked top, a theme that dominated last year’s European Microfinance Award (EMA) and EMW, with Graham Wright’s keynote call for MFIs to “Digitise or Die!” (and see also the FinDev webinar series on the subject). Client protection remains at the forefront, (second in the rankings, see point 4 below for more going on here) and client-side digital innovations, despite the ubiquitous hype, is only in third overall – and only 7th among practitioners, who actually have to implement FinTech for clients. Do they know something that consultants and investors do not? Among New Areas of Focus (which looks 5-10 years down the track), Agri-Finance is clearly top. The Rural and Agricultural Finance Learning Lab, Mastercard Foundation and ISF Advisors’ Pathways to Prosperity presents the current state-of-the-sector. It’s worth looking at. Finally, Social Performance and/or Impact Measurement is 5th out of 20 trends. There’s too much to choose from here. But the CGAP blog on impact and evidence digs into the subject from a whole range of angles. And check out Tim’s CDC paper [No quid pro quo!--Tim] from earlier this year on the impact of investing in financial systems. Good to see that financial regulators are also giving this the attention it needs.

Finally, finance for refugees and displaced populations generated a lot of comments in the Compass - and was the biggest jumper in the New Area of Focus rankings. It’s been a big part of EMW for the last few years; climate migration was the theme of the excellent conference opening keynote by Tim McDonnell, journalist and National Geographic Explorer, and there’s lots of recent data (here in a World Bank blog) showing refugee numbers at (modern) record levels. Migration of course is inextricably linked to labor conditions. Low paid and low quality work drives migration [maybe we should have more research on migration as a household finance strategy--Tim]. For more on the ‘World of Work’ in the coming century, see below.

2. Climate Change: There may be more evolution in climate change/climate finance than any other area of financial inclusion today. From our side, the European Microfinance Award 2019 on ‘Strengthening Climate Change Resilience’ wrapped up last month, with APA Insurance Ltd of Kenya chosen as the winner for insuring pastoralists against forage deterioration that result in livestock deaths due to droughts . Forage availability is determined by satellite data, via the Normalized Difference Vegetation Index (NDVI). A short video on the program can be seen here.

The severity of climate change and the increasing impact it has on the world’s most vulnerable hardly needs outlining here. Progress has been excruciatingly slow. But a new report by the Global Commission on Adaptation, headed by Bill Gates and former U.N. Secretary-General Ban Ki-moon, aims to change that. Released in September 2019, it mapped out a $1.8 trillion blueprint to ready the world to withstand intensifying climate impacts. The Commission launched the report in a dozen capitals, with the overarching goal of jolting governments and businesses into action.

A bunch of recent publications illustrate the overdue acceleration of responses. The Economist Intelligence Unit’s Climate Change Resilience Index is pretty stark reading. Africa will be hit the hardest by climate change according to the Index – with 4.7% real GDP loss by 2050 (well supported by the rankings in the ND-Gain index from Notre Dame Global Adaptation Initiative (ND-GAIN), which summarizes countries’ vulnerability to (and readiness for) climate change. The EIU index shows that institutional quality matters a lot in minimising the effects. The paper also presents three case studies that highlight the importance of both economic development and policy effectiveness to tackle climate change. It’s worth a (fairly frightening) read. So is AFI’s new paper “Inclusive green finance: a survey of the policy landscape”, which asks and answers why financial regulators are working on climate change, how they have been integrating climate change concerns in their national financial inclusion policies and other financial sector strategies, and how they are collaborating with national agencies or institutions. Blue Orchard has also just published "Rethinking Climate Finance" which points to a US$400 billion shortfall by 2030 in climate finance, just to keep global temperatures within the 1.5 Celsius limit. The authors advocate various blended-finance products to encourage private sector investment, which, their survey reveals, is woefully low considering how significantly those investors perceive climate change risk to their portfolios.

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Week of October 18, 2019

1. Nobel Prizes: It's a little weird writing about the Nobel going to Banerjee, Duflo and Kremer in the faiV--this is mostly stuff we cover all the time, and it's probably not news at this point to anyone who cares. So it's not entirely clear what to write. But here goes.
First, I have to point out that 1 in 5 people I interviewed for my book have gone on to win a Nobel. So any of you who aspire to future laureate status should probably make time for me (Yes, I'm talking to you Sendhil). All I'm saying is that both an event study or an RDD would show strong indications of causality. Given that my ability to predict the winner of the prize also is remarkable, wouldn't you say now is a great time to recommend subscribing to the faiV to all of your friends?
More seriously, I suppose I should link to some of the responses. From the "pro" camp here's Karthik Muralidharan and here's Pam Jakiela who notes that Esther is the first woman with an economics Ph.D. to win (Elinor Ostrom's Ph.D was in political science) while also noting the quite different family structure of this set of winners in comparison to many in the past (though not, it should be noted, the other Nobelist who won after appearing in my book, Angus Deaton). Here's Tim Harford, who unusually, quickly shifts the focus to Kremer's O-ring theory. On the more neutral side, here's Maitreesh Ghatak.
There's a critical side as well. For example, here's Duvendack, Jolly, Mader and Morvant-Roux on how the prize reveals the "poverty of economics." And here's Grieve Chelwa and Sean Muller with "the poverty of poor economics." I have serious issues with both of these. The Duvendack et al. piece seems to intimate that Esther and Abhijit were pro-microcredit and tried to rescue the sectors reputation from their unexpected results. That is just bizarre--the title of their paper "The Miracle of Microfinance" could be better described as an intemperate twisting of the knife; that's certainly how the microfinance industry felt. Chelwa and Muller accuse the randomistas of "imitating" science but not doing it--which can only mean they are paying very little attention to what happens in other domains of science. Here's a Twitter thread of response to Chelwa and Muller from Oyebola Okunogbe. As Okunogbe points out while pushing back, each of the essays make some good and reasonable points, which is part of what makes the critiques of the RCT movement so maddening: the blending of good points with silly ones blunts the impact of the critics, in my opinion.
Now if you're interested in a long and more balanced, but still critical (in the better, broader sense) take, here's Kevin Bryan's overview at A Fine Theorem.
The next big question for me is what comes next for the RCT movement and it's critics. There are several possible futures. One is that the prize permanently solidifies the value of RCT movement and allows more constructive engagement by proponents with critics since the randomistas no longer have to worry about an existential threat to their work and legacy. Another is that the critics will realize that their long rearguard campaign against the movement has been lost, and rather than devoting energy to grand sweeping critiques of the movement as a whole, will focus on more specific critiques of individual studies, designs, interpretations and findings and the application of research to policy, yielding better overall outcomes. And of course, there is the possibility that this changes nothing and we'll be still be having these same conversations about the use or uselessness of randomized trials in development economics 10 and 20 years from now.

2. Migration: It's here, at long last. Something like 7 years ago, I was talking with Michael Clemens about households, finances, migration and remittances. We got ourselves in a good dudgeon about the way most research approached remittances and agreed we should write a paper about re-conceiving migration as an investment and remittances as a cash flow return on that investment. It took us, I think, about 2 years to actually write the thing. That version turned into a couple of Lego stop motion videos--it was a weird time in the development internet back then--and we submitted it to a journal. Then, 5 years later we got a response. I'm not kidding.
But there's a happy ending. We were invited to revise and update (there was of course a lot to update after 5 years) and re-submit. And this week the finished product is finally published: Migration and Household Finances: How a Different Framing Can Improve Thinking About Migration (though I'll keep thinking of it as "Migration as a Household Finance Strategy").
And since Michael is so prolific on questions of migration, here's a thread from this week, with papers, on the old argument that physically coercing people to stay where they are is justifiable. (Spoiler: it's not).

3. US Inequality: Since the US Financial Diaries, a common refrain around here has been the hidden dimensions of inequality in the US--not just the easily quantifiable things like income or wealth, but the life and work circumstances that amplify and entrench income and wealth inequality. Things like irregular work schedules.
Kristen Harknett and Danny Schneider have been investigating the prevalence and impact of irregular work schedules for a few years. Earlier this year they had a paper about the consequences of irregular schedules on worker health and well-being. They have a new report out on how schedule irregularity "matters for workers, families and racial inequality." Here's an overview of their whole research program with links to other papers, and a very consumable summary from the Center for Equitable Growth.
I mentioned the strange times a few years ago as we all struggled with how to use the tools the internet was serving up to us to better communicate research and ideas. I have to say I'm impressed by the what is in evidence here in the partnership between Harknett and Schneider and the Center for Equitable Growth to get these ideas out through multiple channels.
On not just a US inequality note, I'll be at the Global Inclusive Growth Summit hosted by the Mastercard Center for Inclusive Growth and the Aspen Institute on Monday and a Center event on driving financial security at scale on Tuesday. If any faiV readers will be there, be sure to say hello.

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