As I walked through Alaba International and Idumota markets on a recent trip to Lagos, I was in awe of the bustling scene. Not even the rainy season’s torrential downpours could silence the Afrobeat music thumping in the background as buyers and sellers jockeyed for a better deal. Alaba International and Idumota markets reign supreme in Lagos, offering all the goods one can imagine. Alaba International, on the southeastern edge of the city, bursts at the seams with satellite dishes imported from China, secondhand PlayStations shipped in from the UK, and other electronics. Idumota buzzes on Lagos Island, just south of the city center, and is a shopper’s delight replete with wax print hauled over from Ghana, locally produced Nollywood movies, and so much more.

Amidst the action in the markets, I interviewed 22 small business owners who are clients of <a href="https://www.accionmfb.com/">Accion Microfinance Bank</a> (AMfB) to learn more about their financial health and capability. This research will guide us as we develop a framework to help micro, small, and medium enterprises (MSMEs) better understand and achieve financial health. The framework is part of a project we’re undertaking with the support of the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the <a href="https://www.centerforfinancialinclusion.org/what-financial-health-means-for-small-business-owners">financial health and resilience of individuals and businesses</a> around the globe.

Through my conversations with business owners, I learned about what owners viewed as determinants of their success. We hypothesized that MSME financial health rests on three pillars — earning a profit, having access to capital to seize opportunities, and being resilient to economic shocks. The interviews suggest that our framework is on the right track. For instance, limited and slow access to working capital was commonly cited as a barrier to taking advantage of fleeting business opportunities. We also learned that resilience is not as much about cash-on-hand as it is about being able to quickly shift to other income-generating activities to fill an immediate need.

But arguably, the most eye-opening thing I learned from these interviews had to do with financial capability and the path to entrepreneurship, specifically how owners were able to get the know-how and capital to start their businesses. I had assumed that a commercial bank or <a href="http://www.iosrjournals.org/iosr-jbm/papers/Vol17-issue6/Version-2/J017626267.pdf"><em>esusu</em></a> — a rotating savings and credit association common in Nigeria — were the first two places that a budding entrepreneur would turn to raise seed funding. However, nearly all the merchants and traders I spoke with started their business with a lump sum they earned after spending several years as apprentices in their trade. This practice is part of the centuries-old Igbo apprenticeship model, <a href="https://pdfs.semanticscholar.org/c77a/7e79ec3fb7ce5c9eccdc72d181205251dfb2.pdf"><em>Imu-Ahia</em></a>.

The roots of Imu-Ahia date back to the European colonial era when the Igbo ethnic group native to southeastern Nigeria started to gain a reputation as highly-skilled traders and merchants. Today, the apprenticeship model has been widely adopted across the country. Most apprentices-to-be meet their “boss” — someone who is already well-established in a trade — through a family member or close contact. Reasons abound for why one might become an apprentice. Several entrepreneurs I spoke with decided at a young age that they wanted to be masters of a trade, so becoming an apprentice was always part of their plan. Others became an apprentice as a last resort, often after financial constraints forced them to put off academic or other pursuits.

During their tenure, which can range anywhere between three and seven years, apprentices observe and take notes on the tricks of the trade. They are assigned a variety of responsibilities, and eventually, they’re charged with promoting sales and store management. Although most apprentices aren’t paid, they are afforded accommodation, transportation costs, food, and clothing. Once the agreement — which can be either informal or formal — has been fulfilled, the newly anointed entrepreneurs are provided a lump sum to help them start their shop. One interviewee — a vendor of computer and phone accessories — was compensated with N800,000, the equivalent of approximately US$2,200, after spending five years as an apprentice. This is a decent payout considering he currently spends N350,000 (US $970) a year to rent his shop.

So what exactly does <em>Imu-Ahia</em> tell us about how these entrepreneurs perceive the determinants of their success? Many interviewees captured it perfectly when they shared advice for aspiring entrepreneurs: one must meticulously study and practice the skills needed to run a business before diving into it.

This advice resonates with our team at CFI because it positions financial capability — the knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions — as <a href="https://www.centerforfinancialinclusion.org/four-reasons-focusing-on-financial-capability-is-good-business">an essential contributor to business success</a>. The apprenticeship model serves as a learning and testing ground for those who are set on eventually running their own shop, much in the <a href="https://guardian.ng/technology/apprenticeship-and-mentorship-the-key-to-technology-talent-development/">same way</a> that the modern-day business incubator serves as a testing ground for startups. By the time individuals “graduate” from the apprenticeship model, they will have developed the knowledge and skills to manage business revenues and expenses. They also have plans to take advantage of investment opportunities and experience observing how businesses respond to the ups and downs of the market.

I only interviewed former apprentices who found success in the business world, so there’s still more to learn. We need to do more to understand the relationship between financial capability and business outcomes, especially business failures. Nevertheless, these qualitative findings echo the findings of other research. The <a href="https://www.nber.org/chapters/c8222.pdf">National Bureau of Economic Research</a> conducted a fascinating study that showed the differences in the psychological profile of wage workers, own-account workers, and small and medium enterprise (SME) owners. It found that “ability, motivation, and a competitive attitude are very important in differentiating SME and microenterprise owners.” The World Bank launched a project to measure <a href="http://documents.worldbank.org/curated/en/884291527663849364/pdf/126687-18-6-2018-9-32-12-InvestigatingSMEFinancialCapabilitiesFINALWEB.pdf">financial capability of SMEs</a>. Their analysis showed a positive correlation between financial capability and a firm’s size and level of sales.

The striking thing about what we learned in Lagos is not so much that financial capability contributes to business success, it is how, in the Nigerian system such capability is learned: over a period of years, through experience, and under the watchful eye of a knowledgeable mentor.

Keep reading the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a>, where we’ll share future findings as we conduct surveys around the world on MSME financial health!

What an Apprenticeship System May Reveal About the Financial Health of Small Business Owners in Nigeria

Mastercard Center for Inclusive Growth

Nigeria

Sub-Saharan Africa

Credit

Financial Capability

Financial Health

MSME/SME Finance

Resilience

Blog Post

What counts as financial inclusion? Reporting the number of active accounts in a country is a common way to measure progress in financial inclusion. But as access to, and uptake of, accounts increases, we need more powerful indicators to help us understand the dynamics of how people use financial services, and digital financial services in particular.

At <a href="https://i2ifacility.org/">insight2impact</a>, we’ve spent the last four years exploring these questions and have tested our measurement frameworks and emergent indicators on both demand-side survey data and transactional data in Mexico and Nigeria. We also went further by linking the data sets for the same person to analyze a more complete picture of people’s financial lives, both within and outside of formal financial services. What we found was both curious and transformative for our thinking on how we measure financial inclusion.
<h2>Frequency as a Means to Track Digitization</h2>
The first step to financial inclusion is <a href="http://www.worldbank.org/en/topic/financialinclusion/overview">having access to a transactional account</a>. If I choose to take up an account, I’m able to store money or send and receive payments, but if I use my account very rarely, am I still financially included? Maybe I receive a payment and immediately withdraw it all at an ATM. What if all the transactions I need to do can only be done in cash?

Analyzing frequency of usage gives us an indication of how populations are (or aren’t) switching to digital channels for transacting. We analyzed bank transaction data in Mexico to better understand financial service usage patterns. Debit-card usage by customers was relatively high, with 78 percent using their cards weekly, but 60 percent of monthly card usage occurred at ATMs to withdraw cash, not for purchases via POS or online. The frequency of ATM vs non-ATM card usage paints a more realistic picture of digitization in Mexico. It’s a picture of incomplete digitization, with cash remaining central for most people.

Secondly, we linked the transaction data to survey responses to compare people’s online vs offline transaction behavior. This revealed that most people still use cash for their regular expenses, even if they have a bank account. The graph below shows both banked and unbanked people’s cash usage for regular expenses such as rent and bills, and daily expenses such as groceries and transport. Cash was ubiquitous, regardless of gender, socio-economic segment or account ownership. By only counting the accounts, we would miss the scale of non-digital financial lives.

Counting More than Accounts: What Can Frequency of Transactions Tell Us About Financial Inclusion?

Latin America and The Caribbean

Mexico

Access Usage Gap

Data Analytics

Enabling Environment

Financial Technology

Payments

Personal Financial Management

The current focus on client outcomes – as demonstrated by the proliferation of frameworks describing financial health, well-being, or similar all-encompassing concepts – has renewed attention on how we achieve positive impact for clients. Currently, the behaviorists – those who believe an understanding of cognitive biases and deft application of behavioral insights in intervention design can lead to superior outcomes – rule the day. Meanwhile, financial education, traditionally seen as an enabler of better client outcomes, has become debatable, as research has shown that traditionally delivered education programs provide mixed results at best. Collectively, these trends are giving way to the narratives that client outcomes are achievable through behavioral interventions and that financial education is an ineffective relic of the past.
<blockquote>Current trends are giving way to narratives that client outcomes are achievable through behavioral interventions, and that financial education is an ineffective relic of the past.</blockquote>
This is a dangerous story. It positions the concept of education as an antagonist to behavioral insights rather than as a collaborator, and it presumes that behavioral interventions are superior to educational ones. This post aims to re-balance that narrative.

A quick point of order: financial education and financial literacy are often used interchangeably – in colloquial conversation this makes sense (“educated” and “literate” are synonyms, after all) but using them interchangeably confuses the delivery of education with its intended outcome (literate clients). I use the term financial education to refer to the process of teaching knowledge and skills and financial literacy as the state in which one possesses financial knowledge and skills.

A Fourth Era: Balancing Behavioral Interventions with Quality Education

Behavioral Insights

After months studying the drivers of financial health and mobile and internet usage in Eastern Europe, I was excited when our team finally landed in Serbia. During the hour-long taxi ride from Belgrade’s Nikola Tesla Airport to Novi Sad, we finalized our work plan for the coming days while catching glimpses of the countryside.

We came to Serbia to join our colleagues at the <a href="http://mfc.org.pl/">Microfinance Centre</a> (MFC) in conducting in-depth interviews with current and prospective customers of <a href="http://www.obs.rs/eng/">Opportunity Bank Serbia</a> and <a href="http://fiiw.pl/">Fundacja Innowacja i Wiedza</a> (Foundation for Innovation and Knowledge). We wanted to learn everything we could about the interviewees’ ambitions, challenges, attitudes, and technology use, so we can use these insights to design and develop a digital tool that will help clients understand and improve their financial health. This research is part of the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities &amp; Strengthening Institutions through Customer-Centered Innovations</a> project, supported by <a href="https://www.metlife.com/corporate-responsibility/metlife-foundation/">MetLife Foundation</a>.
<h2>Observations on Currency Usage</h2>
[caption id="attachment_35062" align="alignright" width="300"]<img class="size-medium wp-image-35062" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/05/novi-sad-taxi-300x218.jpg" alt="" width="300" height="218" /> <em>Taxis in Novi Sad, Serbia, often quote cab fares in euros.</em>[/caption]

As we pulled up to the hotel, I was perplexed when our driver, Božidar, quoted the cab fare in euros. Last time I checked, the dinar was the currency of Serbia, since it remains an EU candidate country. Yet Božidar wished to be paid in euros, as did many other local vendors. We discovered that our interviewees commonly use euros alongside dinars. One farmer said that she quickly deposits any payments made in euros, but she tends to use her dinars for everyday purchases or stash them at home for emergencies. A shop owner said the majority of her suppliers pay her in euros while she accepts payments from customers in both currencies.

The trend of “euroization” or “dollarization” — a foreign currency substituting or complementing the domestic one — is well studied. The graph below, from the Austrian central bank’s Euro Survey, shows that among its neighbors in central, eastern, and southeastern Europe, Serbia is the most euroized, with the highest proportion of all its cash and deposits held in the form of euros.

&nbsp;

Dinars vs. Euros: Financial Health and the Multiple Currency Dynamic

MetLife Foundation

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Europe and Central Asia

Serbia

<em>This post originally appeared on the <a href="https://www.accion.org/four-reasons-focusing-on-financial-capability-is-good-business">Accion</a> website.</em>

If you’ve never used financial services in the past, you’re going to encounter a significant learning curve when you finally get access. That’s why more institutions are rolling out products to support first-time clients and equip them with actionable tips and tools to simplify their experience. These new services aren’t just good for customers, they’re good for business. By helping consumers attain the <a href="https://www.centerforfinancialinclusion.org/a-change-in-behavior-catalogue-of-innovations-in-financial-capability">knowledge, skills, attitudes, and behaviors</a> necessary to make sound financial decisions — what we call financial capability — customers can become more informed and engaged. In other words, they become better customers.

For any financial institution interested in increasing customer loyalty, building better financial capability is crucial.

<a href="https://www.centerforfinancialinclusion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion">As we work with MetLife Foundation</a> to expand financial capability through customer-centered innovations, we’re excited about the potential benefits for both customers and institutions. Here are four reasons why helping clients build their financial capability is a win-win:
<h2>1. Financial Capability Drives Active Use of Financial Products</h2>
Products that help increase financial capability, <a href="https://www.centerforfinancialinclusion.org/financial-capability-building-practices-in-mexico">drawing insight from behavioral science</a>, can encourage customers to use products more often, which translates to higher profitability for providers and greater usefulness to customers.

Take the case of <a href="https://www.grupobancolombia.com/wps/portal/personas/productos-servicios/cuentas/ahorro/transaccional/ahorro-a-la-mano">Ahorro a la Mano</a>, a mobile savings product and e-wallet from Bancolombia, the largest bank in Colombia. The bank discovered that if a customer does not make a transaction within the first month of opening the account, she is unlikely to make a transaction at all. It decided to use <a href="https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/">nudges</a> to remind users to put money into their savings.

Bancolombia worked with <a href="https://www.forbes.com/sites/petercohan/2011/06/01/juntos-finanzas-helps-latinos-save-plan/#3c0a808d5db3">Juntos</a>, a fintech company that specializes in data science and behavioral insights. Juntos developed a chatbot named “<a href="https://www.centerforfinancialinclusion.org/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines-2">Emilia</a>,” that could point out opportunities to use the product and makes special offers to encourage transactions within the first month. Because they provide individually tailored messages in a friendly, personal voice, Emilia’s nudges and reminders build trust with clients, and they become more likely to act on her suggestions.
<h2>2. Customer Loyalty Increases</h2>
As customers use their products more frequently, they are likely to become more loyal. Most financial service providers’ balance sheets and product viability calculations do not figure long-term customer loyalty into their calculations, but customers that stick with a provider over time are important to business success.

In September 2017, BBVA launched <a href="https://www.bbva.com/en/bbva-opens-its-banking-app-in-spain-to-accounts-and-products-from-other-providers/">Bconomy</a>, a digital platform meant to add value to the customer experience by giving them a full picture of their financial health. Fueled by data analytics, the platform uses behavioral insights to encourage positive behavior. Clients can see an overall snapshot of their finances, turning their bank accounts into financial management hubs. The tool ensures that customers continue returning to the platform and rely on BBVA as their primary financial provider. To date, the platform has had over <a href="https://www.centerforfinancialinclusion.org/banking-sector-approaches-to-customer-engagement-and-capability">2 million users per month</a>.
<h2>3. Capable Customers Use More Products</h2>
Part of the accepted definition of financial capability is a person’s confidence in using a wide range of products to meet their financial needs. Savvy institutions that promote financial capability also build appropriate follow-on products for customers. Institutions that ignore this strategy may see their first-time customers move on to other providers as they become more comfortable with formal finance.

<a href="https://acreimex.com.mx/">Acreimex</a>, a savings and credit cooperative in Mexico, has incorporated savings into payroll loan repayments so that customers who opt in can save painlessly while they repay their loans. Savings discipline is a key attribute of financially capable people, and automated savings is a tool that assists people to stick to their best intentions. Acreimex built this option by combining its two most popular products. It merged its payroll loan and savings services by rounding up repayment installment amounts and automatically depositing the excess amount into clients’ savings.

The combination of products resulted in significant increases in savings activity and balances. An evaluation showed that participants made about <a href="https://optixproject.org/acreimex/">twice as many deposits and saved 30 percent more</a> than those who didn’t participate. Additionally, <a href="https://nextbillion.net/stealthy-saving-building-on-payroll-credit-to-automate-savings/">96 percent of savers chose not to withdraw the balances</a> from their accounts throughout a 12-month pilot.
<h2>4. Investing in Financial Capability is More Effective — and Less Expensive</h2>
Traditional, classroom-based financial instruction is costly. Features that build financial capability are often cheaper and more effective because they generate direct and longer lasting behavior change.

When researchers analyzed more than 200 individual impact studies on financial education, they found that <a href="https://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/CU%20Final%20Report.pdf">only 0.1 percent of the observed positive changes</a> in people that had attended classroom-based financial education programs could be attributed to the programs themselves.

On the other hand, impact evaluations of financial products that incorporate behavioral insights to nudge client behavior consistently find statistically significant positive impacts. For example, in a study with <a href="http://www.bancoadopem.com.do/app/do/frontpage.aspx">Banco ADOPEM</a>, researchers tracked customers who attended either a traditional accounting-based financial education class or a class that, in keeping with behavioral insights, offered simple rules of thumb in accounting. Both classes aimed to assist customers to separate business and personal accounts. In the end, the <a href="https://www.povertyactionlab.org/sites/default/files/publications/124_303%20Rules%20of%20Thumb%20AEJ%20Apr2014.pdf">customers who received the simplified rules of thumb displayed more positive business outcomes</a> — they saw a 30 percent increase on average in the level of sales during weeks with typically low sales and saved an average of 6 percent more in personal savings.

More and more institutions are thoughtfully designing products and experiences that not only match their customers’ experiences and lives, but also consider their attitudes, skills, and behaviors. Financial institutions that invest in building up financial capability are likely ensuring they will have customers that are more active users of their products, that are loyal for longer, and that will use a wider variety of products.

<em>We’ll continue to share insights on financial capability based on research conducted by Accion’s Global Advisory Services team and the Center for Financial Inclusion as part of our project on <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.</em>

Four Reasons Focusing on Financial Capability Is Good Business

Chile

Colombia

Dominican Republic

Spain

What would you do with an extra $500 a month?

Mayor Michael Tubbs of Stockton, California, posed this question to his constituents last year. In February, the city began its 18-month universal basic income (UBI) pilot. Through a privately-funded program, Stockton’s government will distribute <a href="https://www.huffpost.com/entry/stockton-california-universal-basic-income_n_5c697700e4b05c889d20203a">$500 on a monthly basis</a> (the first $500, pre-paid debit cards have been sent), no strings attached, to 130 of its low-income residents. <a href="https://www.ycombinator.com/about/">Y Combinator</a>, a California-based startup accelerator, plans to launch a similar trial this year in Oakland.

Tubbs knew there would be obstacles in getting this pilot off the ground; he would have to convince people across the political spectrum that it was a good idea. However, there was one segment he did not expect push back from: the people the program intended to help.

“There were conversations I had with folks who are one paycheck away from deprivation saying, ‘We don’t deserve anything,’ so really the challenge has been reshaping the conversation. This is not a handout. This is part of what you get as a citizen of Stockton. You are eligible for this not because you need anything, but because you are a citizen of this city, ” Tubbs explained in an <a href="https://iop.harvard.edu/forum/stockton%E2%80%99s-economic-empowerment-demonstration-guaranteed-income-initiative">interview</a> last year. He hopes that this program will empower people to have more agency.
<h2>Differences Between Stockton's UBI Pilot and Others</h2>
A UBI pilot like this has never been done in the U.S. before, so it’s difficult to hypothesize how the Stockton trial will turn out. While most pilots focus on the quantitative data – how funds are spent, whether employment rates changed, and the like – the Stockton pilot aims to <a href="https://basicincomepodcast.com/podcast/updates-stockton-basic-income-trial-feat-mayor-michael-tubbs-lori-ospina/">humanize the results</a>. Through surveys, qualitative interviews, and local artists, the city intends to engage participants more deeply and stimulate discussion more broadly.
<blockquote>Humanizing the results: Stockton's universal basic income pilot participants will be engaged deeply and stimulated by discussion.</blockquote>
Finland recently ended a <a href="https://www.nytimes.com/2018/05/02/opinion/universal-basic-income-finland.html">two-year trial</a> that awarded 2,000 Finns roughly $630 per month, but that was targeted exclusively at the unemployed.

The fact that it targeted exclusively the unemployed is important for a couple of reasons. First, it didn’t teach us how people who have a source of income, especially on the low or irregular end, would treat this extra funding. Second, the Finnish government changed its unemployment laws concurrently with the pilot such that if you could not prove you were actively seeking a job, you lost your government benefits. In the first three months, <a href="https://yle.fi/uutiset/osasto/news/finlands_activation_model_brings_benefit_cuts_for_94000_people/10145894">94,000 Finns saw their benefits cut</a>.

UBI is not meant to be contingent, and cutting other benefits shifts the financial liability for things like health care back to the individual. In many ways it’s similar to Clinton’s <a href="https://aspe.hhs.gov/report/personal-responsibility-and-work-opportunity-reconciliation-act-1996">Personal Responsibility and Work Opportunity Reconciliation Act</a>: among other things, it forces the unemployed to accept gig work, and businesses can lower wages because people have to accept a job or risk losing benefits.

The closest thing we’ve seen to a large-scale UBI is the Alaska Permanent Fund, which has been active since 1982. The fund receives most of its capital from the revenue of oil companies operating within the state; each year, payments of equal amounts are distributed to all Alaskan residents (generally between $1,000 and $3,000). A 2018 report found that this cash transfer program <a href="https://www.nber.org/papers/w24312.pdf">did not significantly decrease employment</a>. However, as climate change issues surge, there are growing concerns regarding the source of revenue of the fund. While some board members <a href="https://www.juneauempire.com/news/what-does-the-alaska-permanent-fund-have-to-do-with-climate-change-this-group-will-tell-you/">attempt to downplay</a> the percent of the portfolio invested in fossil fuels, its former Chair William Moran <a href="https://www.adn.com/opinions/2018/05/24/how-alaska-permanent-fund-investment-policies-fail-to-consider-the-changing-world/">noted</a> last year that “every last cent of the $65 billion initiative is a financial derivative of fossil fuel interests. ” This sends a message that if the price is right, oil companies can buy their way into operation.

The United States already has an antipoverty cash distribution program called the Earned Income Tax Credit (EITC), which is designed to support low-income Americans. The program differs from the UBI concept in several important ways, however. It primarily supports people with children, rather than focusing on individuals. The disbursal amount varies each year, and it is only distributed once a year. This means that recipients never know how much they will receive, and often spend it on overdue expenses. <a href="https://www.nytimes.com/2012/04/17/us/antipoverty-tax-program-offers-relief-though-temporary.html?hp">Critics argue</a> the lump sum would be more effective if dispensed in installments.

Given that less than 10 percent of the EITC payout goes into savings account, this points to the critical problem that people still can't survive on working wages alone. Research by economist Alan Krueger shows that <a href="https://qz.com/851066/almost-all-the-10-million-jobs-created-since-2005-are-temporary/">nearly all jobs created since the recession have been contract, part time, or contingent</a>. These types of jobs don’t provide the same benefits as a 40-hour per week role, and it is increasingly <a href="https://scholar.harvard.edu/files/lkatz/files/katz_krueger_cws_v3.pdf">less likely that your job will provide the security</a> that it did 20 years ago. Some of the most successful companies in the past decade,<a href="https://slate.com/business/2018/12/google-walkout-protests-contract-workers.html"> including Google</a>, contract more than half of their staff. In combination with the rising concern of job loss to automation, UBI could be an insurance policy for future downturns that require workers to accept less stable short-term or gig positions, especially for those who have dependents, less varied skillsets, or otherwise require a degree of employment stability.
<h2>Beyond Income: Work Isn’t Just Monetarily Rewarding</h2>
Some scoff at the idea of UBI, deeming it welfare for those too lazy to work and believing it would lead to workforce gaps. However, according to the Economic Policy Institute, nearly <a href="https://www.epi.org/publication/poor-people-work-a-majority-of-poor-people-who-can-work-do/">63 percent of poor people in the U.S. who are eligible to work are currently employed</a> full or part time, and many of those who aren’t – about 3.3 million – are actively seeking employment. Furthermore, work is generally not just about a paycheck; unemployment is enormously traumatic, and studies have shown that people <a href="https://harris.uchicago.edu/news-events/news/universal-basic-income-policies-dont-cause-people-leave-workforce-study-finds">find purpose in work</a>. When it comes to poverty, a willingness to work is not the problem, but rather that work itself is no longer the solution. The next big economic idea will have to consider a myriad of factors – from increasing digitization to the ever-expanding wealth gap – to push for a more economically-inclusive society.

The idea of universal basic income isn't just about social justice – it's about stimulating economic growth. The United States <a href="http://inequalityforall.com/wp-content/uploads/2014/12/A_Visual_StoryPDF.pdf">prospers most</a> when it has a healthy middle class; in 1940, it was almost guaranteed that a child would grow up to have a higher income than his or her parents. By the mid-1980s, that probability was <a href="https://www.brookings.edu/blog/up-front/2018/07/25/fewer-americans-are-making-more-than-their-parents-did-especially-if-they-grew-up-in-the-middle-class/">down by about half</a>. When those who have less do better, <a href="https://www.americanprogressaction.org/issues/poverty/news/2011/12/06/10771/10-reasons-why-cutting-poverty-is-good-for-our-nation/">everyone benefits</a>: health costs go down, innovation goes up, and social mobility improves.
<blockquote>Universal basic income isn't just about social justice – it's about stimulating economic growth.</blockquote>
While UBI alone is not a panacea for economic inequality, its time has come as a force for serious and meaningful economic prosperity, and a counter to the ballooning inequality from which the U.S. suffers.

Work Isn’t Just About Money: Universal Basic Income and Potential Benefits for U.S. Working Poor

North America

United States

Financial Inclusion Strategy

In this session, we spoke with our incoming CFI Research Fellows, Dan Kleinbaum and Larry Reed, who will be exploring research questions over the coming months that we think are especially important to the financial inclusion space today.
<ul>
 	<li>How do financial institutions use mass APIs, open APIs, custom APIs and bespoke partnerships to partner effectively with fintechs to reach the underserved?</li>
 	<li>How can banks and other financial institutions provide a set of accounts and services for G2P recipients in a profitable way?</li>
</ul>

Webinar: Meet the 2019 CFI Research Fellows

CFI Research Fellows Program

Digital Financial Services

Financial Service Providers

Fintechs

P2P Lending

Telcos

Webinar

<em>This post originally appeared on the <a href="http://www.accion.org">Accion</a> website.</em>

Too often we hear questions from some of our financial service provider clients such as, “How can we gain market share and beat out our competition?” This isn’t inherently a bad question — it’s important to think strategically about competitors. But this question focuses only on the supply side. To get the full picture, an institution should also ask, “How can we better understand the challenges that our customers face, and how can we help them tackle these issues through our services?” While many financial service providers have made considerable strides in developing customer-centric products, most could be doing more to better understand their customers’ wants, needs, behaviors, and habits.

For these institutions that lag behind in customer centricity, it is not that they are unconcerned for their customers and only worried about the bottom line, but they often perceive this to be expensive and can be reluctant to invest in market research. Instead, they rely on anecdotal customer stories from their sales force. Unfortunately, this approach to the collection of customer information often leads these institutions to misunderstand the real problems their customers face. For instance, they may miss how technology is changing customers’ preferences for accessing information and the social groups they are part of.

[caption id="attachment_34130" align="alignright" width="550"]<img class="wp-image-34130 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.01-AM.png" alt="" width="550" height="448" /> <strong>A workshop participant shares her prototype travel debit card with a potential user. This product would include a digital application geared to address millennials’ need for saving as well as financial and business coaching. </strong>[/caption]

Conventional market research methods rely on focus groups and expensive customer surveys, which don’t always deliver relevant insights. In contrast, a customer-centric design methodology focuses on listening to and observing people in their daily lives and works within market and technological constraints. One particular area of focus is product touch-points. A customer-centric approach regards each touch-point as an opportunity to surprise, delight, and deliver benefits to users. When done well, this approach provides experiences that resonate with the intended customers — driving their engagement and, ultimately, growth for the institution. With a customer-centric design methodology, rapid prototyping and real-world tests with customers are used to validate (or invalidate) early designs and improve the solution.

With the aim of teaching financial service providers how to apply Accion’s user-centric design methodology, we hosted a workshop in Queretaro, Mexico, with the support of MetLife Foundation. This 2-day workshop brought together ten financial institutions, including microfinance organizations, cooperatives, and fintechs, to learn our methodology for designing and developing user-centric products, based on a deep understanding of customers’ behavior, with a high potential for adoption. Participants learned how to reframe their business challenges from a customer-perspective, conduct efficient and useful user research, and use their understanding of their customers’ financial behaviors, capabilities, needs, and desires to conceive and prototype a new product.

After designing prototypes, the participants shared their ideas with potential users and engaged in a conversation about their lives, desires, and fears. By walking the users through each touch point in the proposed customer journey, the participants empathized with the customers’ thoughts, feelings and experiences at each moment. These conversations brought up questions about the usefulness and complexity of many of the products and forced participating institutions to adjust their concepts to make their prototype more customer-centric — ultimately promoting greater adoption and supporting the <a href="https://content.centerforfinancialinclusion.org/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">financial health</a> of the customer. When financial service providers watched potential users struggle with digital tools or have trouble navigating through non-intuitive wireframe mock-ups, they gained insight in designing user-centered products. The providers told us this was the most influential part of the workshop.

[caption id="attachment_34131" align="alignleft" width="488"]<img class="size-full wp-image-34131" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.21-AM.png" alt="" width="488" height="346" /> <strong>One bank conceptualized a flexible product that will address customer distress in paying their hospital bills. This bank visualizes the customer experience at every touch point with the bank. The visualized product allows the customer to customize their experience by choosing where to open their account, pick the date and portion of the bill they want to pay.</strong>[/caption]

Both traditional institutions and fintechs found the user-centric design methodology useful. While many fintechs claim to be more customer-centric than incumbent financial providers, several of the fintech participants admitted that they do not have a process to ensure that their existing products evolve to match the dynamic needs of their clients. Upon reflection, many found that their services were disconnected from client realities.

The workshop participants were eager to return to their institutions to share their new product prototypes. As one attendee put it, they were looking forward to using this methodology to, “not only help us to improve our products and services, but to create a more enriching experience for our customers.”

However, participants know that the path from prototyping customer-centric products to product deployment is not an easy one. Within an organization, a willingness to embrace change and focus on customers requires a shift in mindset. As one participant said, “it will be difficult to convince others to center their focus on our clients.”

Over the next two years, with the support of MetLife Foundation, Accion will continue working with select financial service providers to ensure that they are asking more strategic questions as they apply this user-centric design methodology to develop a product, service, or experience. And we will help the institutions tackle the challenge of internal alignment and cultural change, while ensuring that designs resonate with customers, use innovations in technology, and contribute to the financial health of the low-income population in Mexico.

To Help Customers, Ask the Right Questions

Customer Centricity

Human Centered Design

<em>This post originally appeared on the <a href="http://www.accion.org">Accion</a> website.</em>

Chilean banks have made critical advances to drive greater financial inclusion in recent years. From agent networks to payment platforms to the CuentaRUT account — a simplified deposit account with a debit card that the state-owned Banco Estado made available to anyone in Chile with an identity card, Chile has nearly reached universal access to financial services.

However, despite these advances, many small merchants in Chile still aren’t finding financial tools that meet their needs. Micro, small, and medium enterprises (MSMEs) make up <a href="http://www.smefinanceforum.org/data-sites/msme-country-indicators">98.5 percent</a> of enterprises in the country and are a significant driver of economic growth; however, <a href="http://www.smefinanceforum.org/data-sites/msme-finance-gap">more than a quarter</a> of these microenterprises have faced difficulty in accessing financing in times of need. Compounding this problem are high levels of financial insecurity among Chileans. <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">Nearly half of the population</a> feels unsure about how they would cover their basic needs if they lost their income. For merchants whose personal and business lives are closely intertwined, this lack of financial security in their day-to-day lives translates to lack of security in their businesses as well.

Accion's Customer Strategy team traveled to Santiago to talk to micro-entrepreneurs so we could better understand how they are currently using their financial services. MetLife Foundation supported this research as part of our <a href="https://www.accion.org/accion-metlife-foundation-improve-financial-inclusion-in-latam">joint effort to boost the financial capability of customers</a>. Just as <a href="https://www.centerforfinancialinclusion.org/why-arent-people-saving-money-in-mexico">CFI did in Mexico</a>, we conducted interviews with a wide variety of small merchants to understand their motivations, goals, and feelings toward financial services, and to hear about the strategies they use to stay financially healthy.

Here’s what we learned:
<h3>1. Significant barriers block entrepreneurs from using business accounts.</h3>
Every microentrepreneur we spoke with had a CuentaRUT card, but for many, that was the extent of their relationship with formal financial services. All of them cited high fees, interest rates, and long application processes to access business accounts and credit as barriers to usage. Margarita, the owner of a travel agency and a small bookstore, told us that the most challenging part of starting her business was opening a business bank account, which required numerous documents and costly fees. Therefore, many use their CuentaRUT account for both personal and business purposes, making it difficult to manage their business and personal financial lives separately.
<h3>2. Chileans perceive taking credit from banks as risky.</h3>
Gianfranco, the owner of a small restaurant, wants to expand his business, but he has no interest in taking out a loan. He fears losing everything he has worked for by putting his business up as collateral. He told us, “I don’t like the idea of being indebted or dependent on anyone.” Maritza, the owner of a mini-market, shared a similar sentiment: “I don’t have confidence in financial institutions; they don’t worry or care about their smaller clients.” Many of the merchants we spoke to prefer to borrow from friends and family.
<h3>3. Blacklisting deters participation in the formal financial system.</h3>
[caption id="attachment_34006" align="alignright" width="234"]<img class="wp-image-34006" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-08-at-3.32.07-PM.png" alt="A Chilean restaurant owner sits at a table" width="234" height="204" /> <strong>Jamie, a restaurant owner in Santiago</strong>[/caption]

Dicom, the national credit agency, records negative credit information such as payment delays and defaults. However, the agency does not offer a clear path to resolve negative reports and as a result, many small businesses avoid deepening their relationship with lenders. Many major retail stores offer consumer credit cards, and in the past, they did so without proper credit assessment and did not inform customers of the <a href="https://www.nytimes.com/2011/07/24/business/global/abuses-by-credit-issuers-in-chile-and-brazil-snare-consumers.html">consequences of default</a>. As a result, many people, unable to pay or unaware of the lasting nature of default, were reported to Dicom, and remain on that blacklist. Today, nearly 900,000 people are recorded as delinquent.

Jaime, a restaurant owner in Santiago, is 74 and has been an entrepreneur all his life. He was reported to Dicom over 30 years ago and has no way to resolve the black mark on his account. In fact, he doesn’t know what caused him to be listed in the first place, despite his efforts to find out. He has upgraded his business several times, but always with his savings, as he has no access to credit. Today, he hopes to buy a car so that he can purchase supplies directly for his restaurant, without paying for transport. However, he cannot make such a large purchase until he builds up enough savings. Jaime needs information to help him better understand why he was blacklisted and concrete steps to help him improve his credit score.
<h3>4. Informal savings remain more comfortable and familiar for people.</h3>
Findex data tells us that only 21 percent of the population in Chile saves money at formal financial institutions. Many interviewees told us that they have difficulty putting money away, often finding it overwhelming just to meet their fixed expenses. When they do set money aside, they prefer to save informally, either in inventory or through investment in assets that will produce income later. Many told us that opening a savings account seems difficult, but everyone wanted to increase their resources so that they could take more time off and work less.
<h3>5. Merchants prefer to learn about financial products from people, not websites.</h3>
Several merchants mentioned that they are hesitant to make financial decisions based on digital information. Lorena de Diaz, the owner of a house cleaning business, told us that she prefers to learn about new products in person, as she can’t verify the accuracy of information provided through a website or mobile application. She likes to be able to ask questions at the branch and feels that she better understands financial products when a person can explain it.

The microentrepreneurs we spoke to need tools tailored to their needs, from working capital to finance their inventory to inexpensive business saving and checking accounts, delivered with transparent and trustworthy communication from their providers. As we continue working with fintechs and financial service providers of all sizes, we hope that better understanding customers’ pain points, aspirations, and desires will lead to better communication on how to use financial products, or even entirely new products that truly improve people’s financial health. Over the next two years, Accion will be working with financial service providers in Mexico and Chile to use customer research to design, test, and implement product innovations that will drive usage and improve financial health.

<em>This research was conducted by Accion as part of our part of our <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.</em>

5 Reasons Small Merchants Aren’t Using Financial Services in Chile

Entrepreneurs of MSMEs

Remember back when taking photos was a little indulgence, before the camera was with you all the time, and before it became essentially free to take photos?

Our behaviors and ethics around photography have changed because of the smart phone. We used to look left and right for passersby before taking a photograph, but now few bother with that nicety; you´ll just take another one if someone walks in front. That´s a simple response to shifted incentives.

Another thing you'd expect to happen with the new ease of taking photos is that interest in them would tend to fade. We´d find it too easy, we'd have too many of them. But that didn't happen, in fact quite the opposite: the cheaper and more plentiful, the more photos people seemed to take. People now take selfies in suburban trains.

Scarcity principles do not seem to apply here. Why is that?

Personal photography has always been about manufacturing memories. When you take photographs on a trip, that´s what you are choosing to remember your holiday by. In the same way that the blockchain represents the construction of an indelible transaction history, with photos you are fixing an image-chain of memories.

But where does the image-chain reside?

Not in a hard drive or a memory stick. Memories are experiences you relive in the telling, not in the storing. Stretching the analogy a bit, your image-chain lives in your social network of friends, just as the blockchain lives in a peer network of computer nodes. Others must validate the history you are creating – with money and with memories.

And that is why the business of personal digital photography has exploded, despite the abolition of scarcity. At the same time as digital has allowed us to take pictures more easily, it has also allowed us to spread our social networks more broadly. And that’s what motivates us to take selfies.

The phenomenal success of digital photography is because it is connected with our other digital experiences, and in particular social networking.

Now let´s draw the analogy with digital money (of the traditional, non-crypto kind).

We want to lead people into a form of money that we tell them is better than cash. But it is often hard to make that case on a head-to-head <a href="https://www.centerforfinancialinclusion.org/making-payments-better">feature comparison</a>. From the perspective of someone who has always managed his business in cash, how do you trade off digital money´s benefits in terms of security, traceability, immediacy and distance invariance, against cash´s benefits in terms of familiarity, ease of use, cost, reliability, probability of acceptance, privacy, and electricity independence?

The answer is by linking digital money to broader benefits.

Think again about the runaway success of digital photography. Few got into selfies because digital cameras produce better pictures. In fact, the new digital cameras people took to so readily were often worse than the analog cameras they displaced. It was the ease of sharing photos through social networks that drove the interest in taking selfies anytime, anywhere, in a ready digital format.

It´s the same story with the Kindle e-book reader. I too prefer the printed book to the same book on a Kindle. But I prefer having instant access to any book on my Kindle, to having that one printed book. Oh, and by the way, there’s a reading light and an adjustable magnifying glass thrown in as well.

It will be the same thing with money. Few will get into digital money because they find it to be a better way to pay for half a kilo of rice at the corner shop. But they would get into digital money if you convinced them that it is a better way to, for instance, control their finances.

And by getting into digital money, I really mean into and not out. Wanting to keep money in digital form once you receive it, as opposed to the widespread current practice of cashing out upon receiving digital money, immediately and in full. In the same way that digital photos may once have been printed out, but no longer: they mostly remain in their pure digital state. So I´m talking about digitizing money, not just the odd remote payment.

Digital photography is powerful because it captures the stories you tell yourself and others about your past – your past holiday, for instance. It´s a tool to control your past. Saint Augustine referred to this as the present of the past: your <a href="https://www.psychologicalscience.org/observer/memory-vs-experience-happiness-is-relative">present idea of what the past</a> was.

Digital money ought to capture the stories you tell yourself and others about your future. In so doing, it would give you a sense of influence over your future. The immediate future of how you will get by the next round of bills, the further out future of how you will get out of your current economic strictures, and maybe also the longer-term future of how your children will have a better life that you did. It is the present of the future, in Saint Augustine´s terms: your present idea of what the future holds, and how much influence you will have in determining that.

You might find this esoteric and far afield from financial inclusion. It is not. Just put two thoughts together. First, people frequently manage their money by separating it out and ascribing a different story to each type of money depending on its source, destination, time horizon, moral import, savings vehicle, etc. Is that not what budgeting is all about? Second, digital technologies have a proven track record in creating not only virtual realities, but hyper-realities. Do people not feel that the hyperactive, hyper-happy, hyper-virtuous image they project on Facebook and Pinterest is more real than their real, limited self?

The question is of course how we build such a digital money system. Much research and experimentation will need to go in this direction.

Just to leave you with a kernel of a suggestion of how this might be at all possible, and to link back to the topic of digital photography where we began: how about if, within your mobile wallet application, you could set some money aside by taking a picture of your kids, or your house, or some friends, or whatever motivated your thought of creating a new type of money? Your money app is then a collection of pictures, which tug at emotions, which invite stories, which trigger actions, which pull money, which reinforce emotions… When you look at the app you should see reflected what is in your head, not what others think you should be doing with your money.

Reflections on Digital Photos and Digital Money (With a Little Blockchain Thrown In)

Delivery Channels

Elisabeth Rhyne

Managing Director

Eric Noggle

Senior Research Director 

Jacqueline Foelster

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

Isabelle Carboni

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Pablo Anton-Diaz

Yanina Seltzer

Rachel Morpeth

Larry Reed

Dan Kleinbaum

Priya  Punatar

Ignacio Mas

Banks

Microfinance Institutions

<span lang="ES-MX">Este webinar, presentado en conjunto por el CAF - Banco de Desarrollo de América Latina y el Centro para La Inclusión Financiera de Acción, expone los resultados del proyecto conjunto realizado por ambas instituciones (el primero de su tipo en la región) que buscó introducir a los actores que lideran el tema de educación financiera en Colombia, tanto de los sectores público, privado y no gubernamental, a metodologías de diseño de intervenciones más efectivas que incorporan conocimientos de la ciencia del comportamiento humano, y buscan no sólo transferir información financiera útil a las personas si no también mejorar sus comportamientos y hábitos financieros. Durante esta sesión virtual, Gabriela Zapata, Experta en temas de Inclusión Financiera, Diana Mejía, Especialista Senior en Desarrollo Productivo y Financiero de CAF (Banco de Desarrollo de América Latina) y Pablo Antón-Díaz, Gerente de Investigación del Centro Para la Inclusión Financiera de Acción, presentaron el reporte final de este proyecto que incluyó los resultados obtenidos y los principales obstáculos enfrentados. El panel concluyó con una presentación de recomendaciones y lecciones aprendidas para esfuerzos futuros de este tipo en Colombia, al igual que para otros países de la región interesados en realizar trabajos similares.</span>

Webinar: Expandiendo Capacidades Financieras en Colombia

Latin American Development Bank (CAF)

Report

In July 2017, Colombia launched its National Economic and Financial Education Strategy, which established an action plan for promoting financial education in the country. The Intersectoral Commission for Economic and Financial Education, in charge of implementing the strategy, partnered with the Latin American Development Bank (CAF) and the Center for Financial Inclusion at Accion (CFI) to develop a training program to impart the latest financial education programming insights and best practices to those who would be implementing the national strategy.

This report describes our efforts to communicate behavioral economics best practices to policymakers and practitioners in Colombia, including case studies from Fundación Capital and Banco de la República. We also evaluate the success of our efforts, and make recommendations for further embedding behavioral insights into financial education programming.
<h1>Major Findings</h1>
<h5>WHAT DOES IT TAKE TO BUILD FINANCIA CAPABILITY?</h5>
<h2>Shifting the financial education paradigm in Colombia begins with understanding how to design behaviorally-focused interventions.</h2>
Financial education programs are delivered by financial service providers, government agencies, public schools and universities, research institutions, institutional donors and non-profit organizations throughout Colombia. The majority of these programs are delivered in classroom-based settings, town hall-style lectures, seminars or workshops and employ printed materials and videos to communicate information. These kinds of traditional financial education models are difficult to scale, expensive to implement and often struggle with low attendance and participation.
<blockquote>Traditional financial education models are difficult to scale, expensive to implement and often struggle with low engagement.</blockquote>
Information transfer alone does not adequately engage people in the type of active learning and practice that prompts
behavior change. There is a growing body of evidence showing that financial education interventions that incorporate behavioral economics principles are more likely to improve client’s money management skills than traditional interventions.
By hosting six two-day workshops between for a mix of stakeholders from the public, private, and non-profit sectors in Bogotá, we gave practitioners a holistic understanding of what is necessary to design behaviorally focused interventions. We also asked participants to think deeply about cognitive biases that impact the success of behavior change programs, including procrastination, social norms, limited attention span, predisposition to the present, loss aversion, and default options. We asked participants to identify how these biases affect their lives, underscoring the fact that cognitive biases are present in all of us, not just beneficiaries of social programs or financial product users.

This project gave us a valuable opportunity to put our own behaviorally-informed principles into practice in the development of the workshops. We aimed to make the workshops fun, social and customized to the target audience. We developed simple, memorable rules of thumb for making financial education workshops more effective. Additionally, we were able to leverage what seemed to be somewhat of a national "teachable moment" right at the start of the implementation phase of the National Financial Education Strategy of Colombia. Overall, we are satisfied with the high level of information retention that we found in our follow-up surveys, and we are convinced that this constitutes a very important step in the right direction.

Expanding Financial Capability in Colombia

Event

Lo invitamos a participar en esta sesión abierta a preguntas en donde Gabriela Zapata, Experta en temas de Inclusión Financiera, Diana Mejía, Especialista Senior en Desarrollo Productivo y Financiero de CAF (Banco de Desarrollo de América Latina) y Pablo Antón-Díaz, Gerente de Investigación del Centro Para la Inclusión Financiera de Acción, presentarán el reporte final del proyecto “Expandiendo Capacidades Financieras en Colombia”. Acompáñenos en esta discusión en donde se presentarán en detalle los resultados y los principales obstáculos enfrentados de este proyecto que buscó brindar recomendaciones simples y accionables de la economía del comportamiento a los diversos actores público y privados involucrados en la implementación de la Estrategia Nacional de Educación Económica y Financiera de Colombia. Adicionalmente, el panel terminará con una presentación de recomendaciones y lecciones aprendidas para esfuerzos futuros en Colombia, y para otros países interesados en realizar trabajos similares.
<p style="text-align: center">------</p>
Please join us for a Q&amp;A session with Gabriela Zapata, Financial Inclusion Expert, Diana Mejia, Senior Specialist in Productive and Financial Development from CAF (Latin American Development Bank) and Pablo Anton-Diaz, Research Manager at CFI Accion, and the presentation of the new report on “Expanding Financial Capabilities in Colombia”. We will be discussing at length both the main results and the main challenges we faced during our year-long project in which we provided simple and actionable recommendations for policymakers and practitioners in the field of Financial Education on how to incorporate behavioral insights into the implementation efforts for the new National Financial and Economic Education Strategy in Colombia. Additionally, the panelists will also delve into concrete recommendations and lessons learned for stakeholders interested in conducting similar efforts in the future, both in Colombia and other countries. <strong>This webinar will be conducted in Spanish.</strong>

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Saving

According to the <a href="https://globalfindex.worldbank.org/">Global Findex</a>, the percentage of adults in Mexico who are saving money at a formal institution plunged from 15 percent to 10 percent in just the past three years—despite financial inclusion strategies <a href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/">enacted by the government</a>. This steep decline in usage of savings accounts came as a surprise, and hit close to home for me as a Mexican. This <a href="https://cfi-blog.org/2018/06/18/is-financial-inclusion-stalling-the-2017-findex-results-raise-several-red-flags/">trend is a cause for concern</a>, and it’s also a call to action. At Accion, we took this as an opportunity to listen to the people we’d like to see benefit from financial services. With support of <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, we wanted to understand why fewer people were saving in banks, what products and services people were using, and who was providing those services if it wasn’t formal institutions.

To get answers about what people in Mexico want from their financial service providers, I recently traveled home to Mexico City as part of a team of researchers. We listened to small merchants map out their entire financial lives—their motivations, goals and

[caption id="attachment_25738" align="alignright" width="286"]<img class="alignnone size-full wp-image-25738" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-fish-market-accion.jpg" alt="Man sells fish at a stall in an outdoor market" width="286" height="215" /> Fish market on San Gregario Street in Xochimilco, a southeastern municipality of Mexico City, one of the places we visited for our user research.[/caption]

aspirations, how they feel about various types of financial services, the strategies they use to stay financially healthy, and more.

Our biggest surprise? The individuals we talked with know about and can access a lot of financial products—they just aren’t using them. Lack of alignment between what low-income customers want and what financial products offer is a factor preventing further financial inclusion in Mexico.

All of the individuals we spoke to reported having access to microloans, consumer store credit, credit cards, and savings accounts. Financial access didn’t seem to be an issue for them — not even in the more rural areas we visited two hours outside the city. Even though our small, qualitative study may not be rigorous enough to extrapolate to the broader population, this finding seems to be consistent with national data. In Mexico, <a href="https://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf">86 percent of banking branches are located in urban areas</a>, so people close to the city are unlikely to deal with a shortage of services. What our interviews revealed is that a different issue is preventing further inclusion: lack of alignment between what low-income customers want and what current financial products offer. Most people we talked to dislike dealing with large commercial banks, and they continuously decline the offers for financial services they regularly receive, at their doorstep or in public places.

[caption id="attachment_25737" align="alignleft" width="275"]<img class="alignnone size-full wp-image-25737" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-azucena-mother-holding-baby.png" alt="Mother holding bay" width="275" height="366" /> Azucena is a former bank teller, however she prefers to save money at home. Alpuyeca, Morelos, Mexico, 2018.[/caption]

Many of the people we interviewed still prioritize saving cash at home, even if they also have a formal savings account.  For example, Azucena, a former teller at a large commercial bank branch, told us that despite her relationship with a bank, she and her husband still prefer to store cash informally. “We save at home, but we do so separately, using different lock boxes for different purposes,” she says.

Through our conversations with clients like Azucena, we discovered that informal alternatives like lock boxes continue to be more convenient for clients and preferable to formal options. Keeping cash at home is, after all, indispensable for unexpected emergencies. If your money is in a bank, you’d have the hassle of getting there and waiting. Plus, it may not be available 24/7, and you can run into issues if the ATM is offline or the pharmacist, mechanic, or whomever you’re turning to for help doesn’t take a debit card.

In many cases, the interviewees’ savings accounts had been opened for them by former employers to serve as payroll accounts or by the government for disbursement of benefits. These accounts were less “savings accounts” and more “distribution accounts” that were immediately turned into cash and saved at home. Because the savings aspect wasn’t used—in fact, was never emphasized—once they switched jobs or stopped receiving benefits, they let the accounts lapse.

Convenience may be a key issue, but it is not the only one. Feeling unsafe withdrawing money from a bank branch is also an issue because thieves wait where the money is—outside bank branches and near ATMs. The lack of trust our interviewees placed in financial institutions was often less about security and more about the unclear, high (real or perceived) maintenance fees banks charge on savings accounts.

Despite this perceived aversion to formal accounts, we found that people still continue to save and set high financial goals for themselves. In all the interviews we conducted, the number one financial goal was saving to access better opportunities: education of their children, a home for their family, or the chance of opening their own business. The demand is clearly there, and most of the people we talked to were indeed saving.

We heard from customers, and now we’re working with a mix of fintechs and financial service providers of all sizes to use those insights to create financial products that customers will want to use as key tools for their financial lives.  Stay tuned!

<em>This research was conducted by <a href="http://www.accion.org/">Accion</a>, the Center for Financial Inclusion at Accion, and <a href="http://www.dalbergdesign.com/">Dalberg Design</a> as part of our part of our <a href="/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.</em>

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Why Aren’t People Saving Money in Mexico?

Allyse McGrath

Sonja Kelly

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

India

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

South Africa

<em>Banking Sector Approaches to Customer Engagement and Capability</em> explores how financial institutions are leveraging innovation, new technology, social networks, and other tools that inform and engage customers. This brief builds on the belief that good product design builds the financial capability of customers. The research captures a number of successful models, including:
<ul>
 	<li>RBL offering unsecured loans that allow customers to build up a credit score for the first time in India</li>
 	<li>Standard Bank leveraging existing informal group savings culture combined with a lottery to incentivize and reward savings activity in South Africa,</li>
 	<li>A small cooperative bank “rounding up” loan repayments to create an auto-saving mechanism among credit recipients in Mexico<em>.</em></li>
</ul>
This brief is part of the Mainstreaming Financial Inclusion: Best Practices initiative which aims to facilitate learning and action on how mainstream financial institutions around the world can reach underserved populations with quality financial services. The project is completed in partnership with the Institute of International Finance (IIF), with support from MetLife Foundation.

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Banking Sector Approaches to Customer Engagement and Capability

Institute of International Finance

Mainstreaming Financial Inclusion: Best Practices

CFI and the Microfinance Centre (MFC) are working together to build a financial health tool to assist customers with gauging and improving their financial health, and to assist financial institutions to help them do so as well.

This Brief, <em>Toward a Financial Health Tool for Consumers—Test Results from Eastern Europe and Central Asia</em>, describes the findings from the first iteration of the tool—a financial health quiz—which was tested in late 2017 with six financial institutions, two national associations, and three financial education organizations and trainers in Eastern Europe and Central Asia.

In administering the quiz, we observed that customers’ motivation to improve their financial health begins with the catalytic “aha moment” the quiz generates. However, more is needed to generate actual behavior change and adoption of the tool, including incorporating feedback loops, introducing modules for certain types of consumers (self-employed vs. employee) and specific challenges (e.g., financial crises, debt management, etc), and careful consideration of functionality, delivery and marketing channels, and the customer's relationship to the financial institution.

This Brief is part of the Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations project, supported by MetLife Foundation.

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Toward a Financial Health Tool for Consumers

Microfinance Centre

How can an app help improve financial health? Spoiler alert: offering users sound financial advice isn’t enough!

CFI and the Microfinance Centre (MFC) in Warsaw are working together to build a smartphone-based tool to assist customers with gauging and improving their financial health.

As part of the project, we developed a simple financial health quiz that will serve as the foundation of the application, helping users not only assess their financial health, but also understand and decide on specific actions to improve it.

Last year MFC tested the quiz among the clients and staff of organizations partnering with its Borrow Wisely Campaign in Eastern Europe and Central Asia. Our lessons learned from this testing phase are informing our next steps as we continue to design and build the application.

We released a new brief, “<a href="http://bit.ly/TowardFinHealthTool">Toward a Financial Health Tool for Consumers</a>” that distills the results of the tests and shares our lessons learned up to this stage in the project. Here’s a quick overview of our findings.
<h2>Results: How People Responded to the Financial Health Quiz</h2>
We were pleased to learn that customers responded favorably to the test. They enjoyed taking it, considering it to be fun and easy. At the same time, they commented that it was eye-opening and helped them reflect on their financial situation. The value customers found in taking the quiz was perhaps all the greater because, as many reported, they have few sources of financial management advice (beyond friends and family) and few or no tools.
<ul>
 	<li>Customers appreciated concrete, practical advice, particularly with regard to short-term money management. The tip to save the cost of five loaves of bread each month was especially popular.</li>
 	<li>Instead of simply hearing what they “should” do in general terms, consumers want advice on “how” to do it.</li>
 	<li>They also want help to prioritize among the many possible actions they could take. Too many tips can leave people overwhelmed and paralyzed, especially if their financial health is poor.</li>
 	<li>It is important to provide positive feedback that encourages people to continue with what they are doing well.</li>
 	<li>The quiz questions and content should be customized and refined to fit users’ financial literacy levels and local market contexts. In this case, test takers were confused by questions involving percentages.</li>
 	<li>Users indicated that games, other quizzes, and memorable stories would help guide behavior and motivate ongoing engagement.</li>
 	<li>The ability to print out tips, tools, advice, and a calendar for budgeting was suggested.</li>
</ul>
<h2>The Business Case for Providers</h2>
Providers see the development of a digital tool as an opportunity to improve two-way communication with clients and a chance to learn more about clients’ needs and financial behavior. With this information they may be able to offer better services and help customers improve their financial health. Providers would also be interested in having the app provide information to customers, such as account status, that could reduce the number of inquiries to which they would otherwise have to respond.

This project is part of a larger initiative implemented by Accion with support from the <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, <em>Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</em>. With regional efforts in Latin America, Eastern Europe, and Asia, the initiative includes designing digital tools and services informed by human-centered design, incorporating behavioral principles that spur product usage and empower clients, and enabling financial service providers to effectively leverage and utilize client data for continuous improvement.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/06/01/seeking-happiness-and-financial-health-in-bhutan/">Seeking Happiness and Financial Health in Bhutan</a>

<a href="https://cfi-blog.org/2017/03/29/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

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Lessons Learned in Designing an App to Build Financial Health

Mobile Banking

Trends

The World Bank is just days from releasing the next version of its <a href="http://www.worldbank.org/en/programs/globalfindex">Global Financial Inclusion Index (Findex</a>), the authoritative data source on global progress toward financial inclusion. The dataset, which tracks financial inclusion in 150 countries, is released once every three years, and we have been waiting eagerly to see how things have changed since 2014. We are confident that the numbers will show enormous progress on the World Bank’s goal of universal access to financial accounts. But we wonder whether the news will also indicate that people are actually using those accounts and whether financial services are helping them achieve financial health, gain resilience and pursue opportunity – the ultimate goals of financial inclusion.

After we high-five the World Bank team for a job well-done, here are a few things that we will be looking for when we examine the new Findex numbers:
<h3>Increased access in smaller and less prominent markets</h3>
We’re sure that the Findex will show dramatic gains on access, and we predict that these gains will be driven by the major advances we already know about in India, China and East Africa. The big success stories result from unique characteristics in each location – the leapfrogging potential of mobile money in East Africa, the political support for building inclusion infrastructure in India and the rise of technology super-platforms in China. But what about countries like Mexico, Ghana, or the Philippines? These countries have all been making significant efforts to implement digital financial services. We hope to see success stories emerging in some of these lower-profile markets. We are also eager to see what is happening in the smaller countries that are often ignored in the excitement over big players, and that do not offer the economies of scale that attract digital financial infrastructure providers. We hope the data does not show a growing big-country/small-country digital divide.  We would also like to see regional imbalances closing. Accion works throughout Latin America, which is often forgotten in the financial inclusion story.
<h3>A shrinking access-usage gap</h3>
When we first saw the 2014 Findex data, we <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">pointed out</a> the huge numbers of accounts that sat unused or were used only as a pass-through – i.e., as a means to receive a payment and immediately cash out. This gap is a strong indicator of whether a financial service meets important client needs. This year, we hope to see progress in reducing that access-usage gap. We’ll be looking especially at India, where the government has aggressively pursued its goal of an account in every household, but where we have seen significant account dormancy. One driver of active use is the ecosystem of value-added products that build on simple account or payment mechanisms. Progress in this area will signal that financial services are addressing real life needs, and that more people are becoming comfortable using phones and other digital means for financial transactions – as we documented last year in <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/782">research in Kenya</a>. We’d like to see people in countries beyond Kenya showing greater willingness to transact digitally.

<img class="aligncenter wp-image-25359" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/03/amc_may-2013_shaoyun-wang_restaurant_4.jpg" alt="" width="616" height="411" />
<h3>Greater resilience among families</h3>
Our favorite question in the 2014 Findex asked whether a family could come up with a substantial sum of money (1/20 GNI per capita) in case of an emergency. This question – the “resilience question” – is the single indicator that best shows whether families are improving their <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/807-beyond-financial-inclusion-financial-health-as-a-global-framework">financial health</a>. Of course, a natural product to mention in connection with resilience is insurance. CFI released a <a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/973-inclusive-insurance-closing-the-protection-gap-for-emerging-customers">new report</a> on inclusive insurance earlier this year. New ways of assessing and anticipating economic shocks—and covering them for lower income populations—might move the numbers on vulnerability. Soon we will have two data points on resilience (2014 and 2017) and this trend line will allow us to make our first statements about whether financial inclusion is actually increasing financial security for clients. This question will give us insight into whether all the work toward financial inclusion is paying off.
<h3>A smaller gender gap</h3>
One of our disappointments in the past ten years is that while overall access to financial services has increased, the gender gap has hardly budged. As of 2015, women were about 10 percentage points behind in access to an account, despite great funder and industry focus on women. While we do not have robust evidence yet, we hope to see progress here. We have done some thinking on <a href="https://cfi-blog.org/?s=gender">gender equality and financial inclusion</a>, as have many others. It is time that these collective industry efforts begin to result in a smaller gender gap!
<h4><span style="color: #ff6600"><img class="aligncenter wp-image-25357" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/03/pedro_macariotol_gen_2014-18.jpg" alt="" width="615" height="410" /></span></h4>
<h3>Financial inclusion enabling the Sustainable Development Goals</h3>
We love it when we see financial inclusion acknowledged for the role it plays in creating positive change in economic and social development—including many of the Sustainable Development Goals. The Findex reports whether people have paid electronically for things like school fees or bills, and indicators like this provide some clues about what financial inclusion improvements can enable for people new to the formal financial system. Building on the recognition that financial services are fundamentally about supporting people to do more with their resources, we see the ultimate goal of financial inclusion as improving lives.<em> </em>
<h3>Commentary on the post-2020 future of financial inclusion</h3>
The World Bank has set the ambitious, but achievable, goal of reaching <a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020">universal financial access by 2020</a>. This goal and this date has been a rallying cry among a set of prominent stakeholders who are key to making the achievement a reality. Now that 2020 is rapidly approaching, we want to know what comes next—and we have a strong view that access to an account is only the first step. If financial inclusion is to be more than a buzzword, we must continue to work until the newly “included” can use a full suite of quality services to make lasting improvements in their financial lives.

Join us in waiting eagerly, clicking the “refresh” button on our browser windows over the next few weeks as we await the answers to these questions. Whatever the data show, we are eager to engage in conversation and action with the financial inclusion community to continue charting a path toward meaningful financial inclusion.

<em>Image credits: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/06/04/by-the-numbers-benchmarking-progress-toward-financial-inclusion/">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion - Beyond Account Access</a>

<a href="https://cfi-blog.org/2015/04/28/global-findex-offers-next-steps-for-how-to-give-people-bank-accounts/" target="_blank" rel="noopener">Global Findex Offers Next Steps for How to Give People Bank Accounts</a>

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Financial Capability

Meet the Experts

Elisabeth Rhyne

Eric Noggle

Filter

Filter

What an Apprenticeship System May Reveal About the Financial Health of Small Business Owners in Nigeria

Counting More than Accounts: What Can Frequency of Transactions Tell Us About Financial Inclusion?

A Fourth Era: Balancing Behavioral Interventions with Quality Education

Dinars vs. Euros: Financial Health and the Multiple Currency Dynamic

Four Reasons Focusing on Financial Capability Is Good Business

Work Isn’t Just About Money: Universal Basic Income and Potential Benefits for U.S. Working Poor

Webinar: Meet the 2019 CFI Research Fellows

To Help Customers, Ask the Right Questions

5 Reasons Small Merchants Aren’t Using Financial Services in Chile

Reflections on Digital Photos and Digital Money (With a Little Blockchain Thrown In)

Webinar: Expandiendo Capacidades Financieras en Colombia

Expanding Financial Capability in Colombia

Webinar: Expandiendo Capacidades Financieras en Colombia

Why Aren’t People Saving Money in Mexico?

Banking Sector Approaches to Customer Engagement and Capability

Toward a Financial Health Tool for Consumers

Lessons Learned in Designing an App to Build Financial Health

Anticipating the Global Findex 2017: Our Wish List for Financial Inclusion Progress