When I reflect on the future of financial inclusion, I find myself returning over and over to a basic question. What is the purpose of financial inclusion? Why are so many people around the world working towards it, and why do they believe that financial inclusion will contribute to a better world? What purpose have I been pursuing as leader of the Center for Financial Inclusion for the past decade?

This year, in choosing a theme for our 5th annual <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, CFI reflected this question attitude by selecting Financial Inclusion for What? as the theme. But we are not about to let that important question go unanswered. So, after posing it, the CFI staff came up with <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-for-what">four answers</a> that will be explored during Financial Inclusion Week: financial inclusion for financial health, financial inclusion for equity, financial inclusion for sustainable development, and financial inclusion for the bottom line.

While each of these ideas is important and worthy of exploration, I’d like to talk here about just one of them: sustainable development. In my view, the time is right for the financial inclusion sector to focus smartly on this set of goals. Even more emphatically, if the financial inclusion sector does not embrace sustainable development, it will soon find that it has worked itself out of a job. That’s because the more basic financial inclusion challenges are well on their way to being solved.

In the last decade an amazing transformation has taken place in the ability of most people to move money around quickly and efficiently. Millions and millions have opened bank or mobile money accounts and gained the ability to receive income straight into an account and then use electronic means to buy things. Yes, there are gender gaps, poor country gaps and rural areas gaps. But these are rapidly closing.

When we can presume that basic financial infrastructure is available to everyone for routine payments and banking, the financial inclusion job will be done. Right? This is an accomplishment that everyone in the financial inclusion sector can be very proud of. Even if we are not quite there in 2019, the finish line is well in view. Put an enormous celebration emoji right here, and look for the next challenge.

With financial access infrastructure as a foundation, we can turn to assisting people to do what they care most about: to apply financial services toward problems in the real sector – the real world, where people earn a living, get educated, build a home, go to the doctor and much more. The Sustainable Development Goals offer a widely-accepted list of real sector challenges that financial services can help address, but I’d like to focus on a slightly narrower list that highlights the activities where financial services are critical: agriculture, small business, health, education, shelter, and environment. The financial inclusion world needs to begin developing solutions that contribute directly to these sectors.

Back in the 1970s, the World Bank, USAID and other global development organizations were highly real-sector oriented when they talked about financial services. They provided enormous lines of credit to agriculture, fisheries, small business, and the like. These lines of credit were channeled through government development banks, who pushed them out at subsidized interest rates. Because they were seen as cheap handouts from the government, they were diverted to elites, with dismal repayment records. The development banks required constant cash infusions, either from abroad or from government budgets. And meanwhile, regular banks could not develop profitable businesses in these sectors, being out-competed by the subsidized loans. Development organizations treated banks much like communist countries treated them: as the distribution arms of central planning. Their solvency wasn’t important – they were just an administrative function. This was a disaster – for the banks, for the low-income people who were intended beneficiaries, for the market economy and for the achievement of development objectives.

Fortunately, a band of rural finance enthusiasts at Ohio State University (and others with similar views) convinced the World Bank and USAID to turn off the money hydrants. How they did that is a saga unto itself. For our story, the important thing is that once the subsidized credit spigot was turned off, it left open space in the financial sector for the growth, first, of microfinance and then of financial inclusion. Starting in the 1980s, these movements focused their attention in the right place: building sound financial institutions that knew how to serve the poor and excluded. That institution- and model-building focus was exactly what was needed at the time, and, with a boost from technology innovation, the sector has been on an unbroken path for three decades that is taking us to full realization of basic financial inclusion goals.

But this focus has also meant a three-decade detour away from deep engagement with real sector challenges. We’re working on payments, not mortgages. We’re working on credit algorithms, not pensions. All are important, but our emphasis has been selective.

Now it’s time to come back to the real sector and see how individuals, with their newly acquired access to financial services, can better use those services to accomplish tasks like building a business, using clean energy, getting an education and staying healthy. We’re in a much better position do tackle these challenges today than in the 1970s, because inclusive financial systems exist. And, hopefully, because we won’t make the old mistakes.
<blockquote>It’s time to come back to the real sector and see how individuals can better use financial services to accomplish tasks like building a business, using clean energy, getting an education and staying healthy.</blockquote>
To take one example, financing for shelter is a potentially pathbreaking field of endeavor for those concerned with financial services for the poor. Everyone needs a safe and comfortable place to live. But with a few exceptions, shelter has not played a role in the financial inclusion conversation for the past decade. To seriously support the acquisition or upgrading of housing, we need innovations. We already know that the thirty-year mortgage is not the answer for most low-income people around the world, but how can we promote the spread of the two-year home improvement loan that has shown promise in many areas? What models combine new financial products with new forms of construction, or land titling?

To develop innovations that work, financial inclusion and housing experts will have to join together in a multi-disciplinary way, and they will have to draw on the advances available through technology. A handful of organizations do combine housing and financial expertise to solve shelter problems, but many more are needed. Financial inclusion experts need to learn about construction, while shelter experts need to be open to financing methods other than scaled back mortgages. Partnerships are needed to solve barriers such as out-of-date building codes and access to water and sanitation. These challenges are often far beyond the usual concerns of banks and financial institutions, and unsolved, they can impede the development of financing solutions by making it hard to lend or by making housing unaffordable.

Similarly, in order to offer financial services that support health care, financial inclusion experts must learn more about how health care works and what it costs, while the health care experts must be willing to explore models other than public sector hospitals and clinics. And I could say the same about agriculture, energy, environment and education.

Why haven’t financial inclusion specialists already moved into sustainable development in a big way? I can think of three very good reasons.

The Next CFI Challenge: Financial Inclusion for Sustainable Development

From Beth's Desk

Financial Service Providers

Partnerships

Payments

Rural Populations

Underserved Groups

Blog Post

We are convening a select group of social enterprise leaders at the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> (BLI) inaugural workshop taking place October 27-29, 2019, at the Fairview Hotel in Nairobi, Kenya.

BLI is dedicated to empowering corporate leaders in the social enterprise sector to achieve business growth and social impact. By focusing exclusively on executive leadership and reframing board effectiveness as a strategic imperative, BLI strengthens leadership and management to ensure these companies sustain business growth and drive social impact.

BLI is offered as a two-day interactive workshop where participants gather with faculty and facilitators for role play, simulations, discussions, and more. Workshops are augmented with a robust virtual portal where participants can access resources and videos, participate in discussions, and stay connected with hundreds of leaders in our global network. At this inaugural workshop, attendees will have the opportunity to engage with peers on issues critical to social enterprise growth and impact, including digital strategy and culture, data, partnerships and financial inclusion in the digital age.

Board Leadership for Impact Program Launch Workshop

Citi Foundation

Board Leadership for Impact Program

Kenya

Sub-Saharan Africa

Agricultural and Rural Finance

Banks

Consumer Credit

Credit

Delivery Channels

Digital Credit

Digital Financial Services

Education Finance

Energy Finance

Fintechs

Governance

Housing Finance

Human Touch

Microfinance

Microfinance Institutions

Nano Loans

Neobanks

Risk Management

Event

<strong>WASHINGTON, DC, August 27, 2019</strong> – The Center for Financial Inclusion at Accion (CFI) has launched an executive education program for financial service providers serving low-income communities in emerging markets. Through peer learning and exchange, the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> will empower executives and board members to foster client centricity, lead digital transformation, sustain business growth and drive social impact. In partnership with the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> and <a href="https://www.fmo.nl/">FMO</a>, the Dutch development bank, supporting program implementation and participant scholarships, the Board Leadership for Impact Program will offer multiple in-person workshops per year coupled with a robust virtual portal.

Derived from CFI’s five-year <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>, which fostered the growth and development of more than 300 executives and board members of financial service providers serving more than 10 million clients in Africa, the Board Leadership for Impact Program will now expand to include early stage to mature companies offering financial services to underserved customers that operate in emerging markets around the world.

“Our experience with leadership development through peer exchange will inform our efforts through this new program to cultivate a community of leaders who have the skills and the network to help their organizations thrive,“ said <a href="/bio/deborah-drake">Deborah Drake</a>, Vice President, Center for Financial Inclusion at Accion. “Tackling challenges like achieving sustainable growth or pursuing digital transformation, particularly as a mission-driven organization, takes strategic leadership at the board level.”

Through role play, simulations and facilitated discussion, participants will gain new perspectives, skills, and knowledge on topics critical to social enterprise growth and impact, including risk management, board dynamics, digital transformation and inclusive digital finance. They will join an active community of alumni of the Center for Financial Inclusion at Accion’s <a href="https://www.centerforfinancialinclusion.org/get-involved#fellow-exec-ed">executive education programs</a>.

“By developing and strengthening leadership skills that drive business growth and social impact, our partnership with the Center for Financial Inclusion at Accion will help accelerate financial inclusion and economic progress around the world,” said Florencia Spangaro, Director of Programs, Citi Foundation.

“FMO is a proud partner of Accion for over a decade and we realize that creating a lasting impact starts in the board room. Strengthening the management of financial service providers and enterprises will help ensure business longevity and commitment to underserved customers,” said Gerbrich Salverda, Capacity Development Officer at FMO.
<p style="text-align: center;"><strong>###</strong></p>
<strong>About the Center for Financial Inclusion at Accion</strong>

The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.
<a href="http://www.centerforfinancialinclusion.org/">www.centerforfinancialinclusion.org</a>
<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>
<p style="text-align: center;"><strong>###</strong></p>
MEDIA CONTACT

Center for Financial Inclusion at Accion
<a href="/bio/virginia-moore">Virginia Moore</a>
<a href="mailto:vmoore@accion.org">vmoore@accion.org</a>
+1 202.393.5113

The Center for Financial Inclusion at Accion Launches Executive Education Program for Financial Service Providers to Enable Business Growth and Social Impact

Customer Centricity

Informal Credit

Insurance Companies

Press Release

This year’s Financial Inclusion Week is a chance for our industry to reflect on the purpose and impacts of our work as an industry. At CFI, we're observing trends that make us believe this an important time to reflect on these issues, which is why we’ve chosen the theme “Financial Inclusion: For What?”.

As we described throughout our <a href="https://www.centerforfinancialinclusion.org/program_teams/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion</a> series, the digital revolution is fundamentally altering how traditional financial service providers and innovative fintechs interact with each other and how they recruit, onboard, serve, and retain customers. The potential opportunities are limitless, but the move to digital also exposes low-income households to new and poorly understood risks.

Simultaneously, the scope of the financial inclusion industry has widened dramatically. Attention and investment once given almost entirely to microcredit is now being shared with cash transfer, savings, and insurance services, and these products are being offered through increasingly dynamic platforms. When used well, the financial ecosystem can be staggeringly important, delivering digital payments to health workers combating Ebola, facilitating life-saving G2P and P2P cash transfers, or providing working capital to small businesses at critical moments. When it works less well, we read about Kenyans racking up unpaid gambling debts financed through mobile money-delivered nano loans.

Financial Inclusion Week is an opportunity to explore this dynamism while reflecting and refocusing our goals as an industry. Why are those of us in this space engaging in this important work? How do our goals inform our perspective on these and other trends? What does it mean if we’re working to different or competing aims? How should we think about success, and what is necessary to ensure we achieve it?
<blockquote>During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus.</blockquote>
From October 21 to 25, 2019, CFI and partner institutions will be hosting digital and in-person events to explore these questions, and we invite you to <a href="http://financialinclusionweek.org/get-involved">join the conversation</a>. During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus. We’ll ask leading voices in the industry to debate the merits of these questions and articulate why these objectives should or shouldn’t be the guiding light of the industry.

Financial Inclusion: For What?

Financial Inclusion Week 2019

Consumer Protection

Financial Health

Resilience

Social Performance

Fifty million years ago, in the Cambrian Era, the diversity of life on earth exploded, thanks to a perfect storm of microbial enablers and geologic conditions. Today, some observers think the world is witnessing a digital “<a href="https://www.economist.com/special-report/2014/01/16/a-cambrian-moment">Cambrian Moment</a>” because of a combination of highly connected people and easily accessible building blocks for digital services. The financial inclusion sector is poised to share in this Cambrian Moment, thanks to widespread mobile phones, mobile money adoption and other enablers of innovations that promote access for the underserved.

In this post, we look at one of those building blocks – a potential enabler for financial inclusion: application programming interfaces (APIs). We also discuss the different types of APIs and how financial institutions should think about their API strategies.

Building Innovation: APIs, Fintechs and Financial Institutions

CFI Research Fellows Program

Fintech investment and growth are occurring in relatively limited areas and for a handful of high-profile companies. Enabling regulatory environments and well-informed investment flows are prerequisites to realizing the potential of fintech to achieve scale and impact. On October 23<sup>rd</sup>, as part of SAM 2019, <a href="/bio/boubacar-diallo">Boubacar Diallo</a>, Senior Africa Advisor, Smart Campaign, will present on a panel entitled <em>Fueling Fintech: Regulations and Investment for Scale and Impact</em>.

Key Questions
<ul>
 	<li>What examples do we have of successful legislation and investment environments to promote fintech development, and how can other markets replicate these successes to pave the way to more diverse and durable growth of digital financial services?</li>
 	<li>How can investors better evaluate investments with regard to the SDGs?</li>
</ul>
<a href="https://www.ada-microfinance.org/en/presentation-sam-2019">African Microfinance Week</a>/Semaine Africaine de la Microfinance (SAM 2019) is a biennial conference dedicated to the development of financial inclusion in Africa. The <a href="/about/what-we-do/the-smart-campaign/">Smart Campaign</a> will participate in this year’s conference, taking place October 21-25, 2019 in Ouagadougou, Burkina Faso, on the theme “Pathways Toward Impact: African Inclusive Finance for the Sustainable Development Goals.”

More details to come. Hope you can join us.

African Microfinance Week (SAM 2019)

The Smart Campaign

Burkina Faso

Enabling Environment

Impact Investing

Policy, Regulation and Government Initiatives

As a means of reaching underserved customers at low cost, financial institutions have designated authority and responsibility to banking agents to deliver financial products and services. Agent banking is a model for delivering financial services whereby an institution — be it a financial service provider or a mobile network operator — partners with a retail agent to extend services in remote or hard-to-reach areas.
<blockquote>Innovative financial institutions are streamlining and digitizing their processes, and utilizing real-time data and analytics to increase both the efficiency and effectiveness of agent networks.</blockquote>
Despite the growing volume of agents, the agent network model is rife with utilization and operational challenges. The good news is that technology offers financial institutions an opportunity to make agent models more efficient and productive for themselves and their customers. Based on in-depth interviews with industry experts and senior bank officers, and supplemented by a review of the literature, this brief examines the role of technological innovation as a potential driver for improving the quality and maximizing the productivity of agent models.

We found it useful to study this topic across two time-horizons: the short-and long-term; and from the perspectives of the main stakeholders in the agent network triad: the financial institution, the agent, and the customer. This structure allows us to account for two key trends: 1) the diminishing role of cash as a payment form, and 2) an increasing readiness of institutions to embrace digital transformation. It also allows us to explore commonly-cited challenges with agent networks through an illustrative, hypothetical narrative lens, giving voice to each stakeholder group. The narratives are accompanied by real-world examples of how technological integration and innovation has helped to improve and streamline processes within agent networks. Finally, we anticipate that in a future financial services ecosystem that is digital and cashless or cash-lite, we will see the role of the agent evolving from transaction processors to solution providers.

Leveraging Technologies to Improve the Quality and Maximize the Productivity of Agent Models

Institute of International Finance

MetLife Foundation

Mainstreaming Financial Inclusion: Best Practices

Agent Banking

Data Analytics

Financial Technology

Telcos

Report

Today there are close to 700 million mobile money accounts registered worldwide — a number that, if it were a population, would rank as the world’s third-largest country. East Africa continues to lead in digital financial innovations as well as account usage, with two-thirds of the combined adult populations of Kenya, Rwanda, Tanzania, and Uganda actively using mobile money. With the proliferation of mobile financial services, particularly among underserved populations, it is vital that users be treated fairly and with dignity. In the momentum to define responsible digital finance and recognize providers of high-quality financial services, the industry must not forget the consumer.
<h1>Client Voices: Why We Listened</h1>
<a href="/about/what-we-do/the-smart-campaign/">The Smart Campaign</a>, a global initiative to create an environment in which financial services are delivered safely and responsibly to low-income clients, has long recognized that client perspectives are often underrepresented in consumer protection discussions. With the Client Voices Project, the Campaign questions whether the industry’s assumptions about what constitutes problematic treatment rightly reflect what clients themselves worry about.

The dual objectives of the project are to solicit input from low-income clients about what they consider good and bad treatment in their interactions with financial service providers and to assess the prevalence of consumer protection problems among these clients, using quantitative surveys. The project is designed to act as a catalyst for financial service providers, regulators, industry associations, consumer advocacy groups, and others to improve client protection in ways that are grounded in client feedback.
<h1>Major Findings</h1>
Based on a survey of over 1,200 people in three districts in Rwanda, this report delves into the experiences of individuals who use digital financial services (DFS), the main client protection issues they are concerned about, and the impact and prevalence of negative experiences. We find that mobile money enjoys a high degree of satisfaction and trust from clients in Rwanda, even though 40 percent of clients report being targeted by fraudulent schemes, which have become increasingly sophisticated.
<blockquote>Customers report wising up to scams and fraud, but with a continuous influx of new mobile money users and fraudsters who innovate quickly, the threat is real and constant. Fraud represents the greatest potential to damage customer trust and engagement with mobile money in Rwanda.</blockquote>
However, there are many ways that DFS operations and practices can be improved to better protect clients and strengthen trust. Client recourse mechanisms, for example, represent an important area for improvement: many clients shared that they feel helpless and unsure about what to do after realizing they have been duped. Additionally, for business models that rely more on the mobile interface than on human interaction, clients increasingly rely on agents for information and guidance. This presents an opportunity to provide better service, as well as a risk for poor client treatment.

We hope that providers, industry associations, support organizations, regulators, consumer protection advocates, and clients can benefit from these findings to create a stronger, more inclusive client protection ecosystem. We offer specific recommendations for many of these stakeholders.

Client Voices: Rwandans Speak on Digital Financial Services

Laterite Ltd

Mastercard Foundation

Rwanda

Keeping Clients First

Appropriate Product Design and Delivery

Client Treatment

Complaint Resolution

Credit Provision

Mobile Banking

Privacy

Picture this scene: hundreds of people cram into a financial service provider’s storefront, arriving seemingly out of nowhere, mobile phones in hand. They act excited, as if they are about to attend a dance party. Curious passersby stop to see what the buzz is about.

This technique, which organizers call a flash mob, is one innovative approach for generating sign-ups and interest in a new product aimed at underserved clients. The flash mob attracts people otherwise hard to reach to FINCA Pakistan’s mobile service, Sim Sim.

Creative approaches, powered digitally, are transforming the customer experience – hopefully for the better. Digital processes can dramatically increase convenience, speed and variety of the services available to the previously unserved. But digital products and processes succeed only with good design – and with the strategic use of human touch.

In our recent report, <a href="https://www.centerforfinancialinclusion.org/charting-the-customer-journey-in-the-digital-age">Charting the Customer Journey in the Digital Age</a> , Amin Khairy of the <a href="https://www.iif.com/">Institute of International Finance</a> and I explain how mainstream financial institutions create effective digital customer journeys for underserved clients. With support from <a href="https://www.metlife.com/corporate-responsibility/metlife-foundation/">MetLife Foundation</a> and CFI’s founding partner, <a href="https://www.credit-suisse.com/us/en.html">Credit Suisse</a>, this report explores how the three main phases of the customer journey evolve through digital transformation and provides examples of how innovative financial institutions are creatively addressing challenges for emerging customers. It’s the penultimate report from our two-year partnership, <a href="https://www.centerforfinancialinclusion.org/program_teams/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion: Best Practices</a>.

Creative Solutions to Digital Mainstreaming

This session will explore the dynamic relationship between fintech and financial institutions, and how to strike the right balance between competition and collaboration to best serve the needs of the market. What are incentives, challenges and learnings from other markets? <a href="https://www.centerforfinancialinclusion.org/bio/tess-johnson">Tess</a> will be joined by guests Shailesh Grover, Chief Digital and Innovation Officer at the <a href="https://www.hlb.com.my/en/personal-banking/about-us.html">Hong Leong Bank Group</a>, and Adrian Yap, the Founder and CEO of <a href="https://transfer.moneymatch.co/">Moneymatch</a>.

Visit <a href="https://www.myfintechweek.my/">MyFintech Week</a> for more information.

&nbsp;

A Tale of Two: Partnerships Between Fintechs and Financial Institutions

East Asia and Pacific

Malaysia

Deborah Drake

Vice President, Investing in Inclusive Finance Program

Isabelle Barrès

Vice President, Smart Campaign

Mayada El-Zoghbi'ff "Quotes"

Managing Director

Elisabeth Rhyne

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

Eric Noggle

Dan Kleinbaum

Boubacar Diallo

Jacqueline Foelster

Amin Khairy

Alexandra Rizzi

Pablo Anton-Diaz

Tess Johnson

<h1>Introduction</h1>
Financial services are going digital. Digitization will change the way financial institutions organize themselves to relate to their customers, and it will dramatically change how customers experience financial services. These changes will be especially profound for traditionally underserved customers who are the targets of financial inclusion efforts.

The good news is that digital delivery models make it possible—and profitable—for banks to serve many people who were previously excluded because their incomes were too low or their locations too remote to reach through high-touch models. The high operational costs associated with physical buildings and staffing only makes sense if the branches break even and provide a satisfactory return within an acceptable timeframe. Low-income customers with thin credit histories borrowing small amounts of money have long presented a challenge to the analog way of doing business. Thus, serving the underbanked customer segment through digital channels presents an opportunity—by lowering operational costs and increasing customer engagement—to transform financial inclusion into a sustainable business. Additionally, digitization allows thin-file customers to have their creditworthiness assessed through alternative scoring models that incorporate other types of behavioral records.

When done effectively, the returns to digital transformation can be significant. For example, DBS Bank, a financial services group in Asia named <a href="https://www.euromoney.com/article/b18k8wtzv7v23d/world39s-best-digital-bank-2018-dbs">“world’s best digital bank” by Euromoney in 2018</a>, has seen digitization contribute to rising shareholder value. DBS customers who process more than half their transactions remotely bring in more revenue than traditional customers. <a href="https://www.economist.com/finance-and-economics/2018/03/08/how-digitisation-is-paying-for-dbs">Two-thirds of DBS’s gross profit currently comes from digital customers</a>. A DBS staff member told us, “The cost-to-income ratio for digital customers is just 34 percent, compared to 55 percent for traditional customers. The return on equity from digital customers is, impressively, at 27 percent.” Numbers such as these make it attractive to reach new customer segments. But if the transition from face-to-face to digital is to succeed, financial institutions will need to understand and address the special characteristics of these segments and get the digital customer journey right—for both their own operations and the customers’ experience.
<h2>Walking vs. Flying</h2>
For customers, the difference between a traditional and a digitized customer journey can be as dramatic as the difference between walking and flying in an airplane. The traditional customer journey includes traveling to branches to talk with a customer service representative, assembling pages of paper documents to meet KYC requirements, and then waiting for days to receive decisions. With digitization, customers can discover and apply for products on their phones and receive funds into mobile wallets, all in a matter of minutes.
<blockquote>The difference between a traditional and digitized customer journey can be as dramatic as the difference between walking and flying in an airplane.</blockquote>
In order to produce such a streamlined journey, financial institutions must address technical and operational challenges and regulatory issues. And, as we discuss in this report, the journey they construct needs to work well for customers—especially when those customers are new to their services. Digitization can bring enormous gains in speed and convenience to customers, but it can also create gaps as it shifts from familiar, person-to-person interactions to interactions that take place on a digital device.

Charting the Customer Journey in the Digital Age

<em>This post was <a href="https://www.findevgateway.org/blog/2019/may/microfinance-digital-world-seven-questions-future">originally published</a> on the FinDev Gateway blog.</em>

In the early 2000s, the microfinance sector was on a roll. It was accessing capital markets for growth, securing regulatory legitimacy, developing savings and insurance products in addition to credit, demonstrating social performance, and working on institutional transformation.

Then, in 2007, M-Pesa was born, and things started to change. The attention and support of the international financial inclusion sector shifted abruptly from credit for the poor to payment and delivery channel innovation. And the low operating costs of the new models attracted new players with enormous resources, from telcos to tech platforms and beyond.

Away from the spotlight, microfinance institutions (MFIs) continued to grow, thrive and serve hundreds of millions of people, using their familiar methods and feeling little need to adjust. But as 2020 approaches, the digital juggernaut has changed the world around them in ways they cannot ignore. At the recent Microfinance Network’s 25th anniversary meeting, the CEOs of leading MFIs urgently discussed how to respond.

Looking at the next 10 years, and reflecting on conversations at the meeting, I offer my own take on seven questions MFIs face.
<h2>1  Are fintechs going to take over the microfinance market?</h2>
In the 1990s, if you wanted to be a social entrepreneur, you founded an MFI. Today, you start a fintech. Accion has become one of the world’s leading investors in “fintech for financial inclusion”, with investments in nearly 50 companies offering such products as payment networks, remittances, small and medium enterprise (SME) credit, consumer credit, PayGo applications, customer advice, insurance, and data analytics.

At first, many fintechs were out to disrupt traditional financial institutions, like MFIs, but they continue to confront two fundamental problems: customer acquisition and raising capital. This requires many fintechs to pivot towards partnering with traditional institutions, and that offers a path to the future for many MFIs:fintech partnerships can help MFIs make the leap from traditional to digital.

However, MFIs need to prepare to work with fintechs. They need IT departments that can connect seamlessly to the technology fintechs bring. They need to develop a culture of experimentation, in contrast to an organizational identity wedded to traditional methods. And they need to recognize that fintechs, with limited financial resources, need to get to market quickly, or they need financial support from prospective partners. To take advantage of what fintechs have to offer, MFIs must not only ask what they need from fintechs, but also be prepared to offer what fintechs need from them.
<h2>2  Will MFIs join the shift to digital lending?</h2>
MFIs swear by their traditional underwriting methodologies, whether they involve group guarantees or individual repayment capacity assessment. These high-touch methods often yield repayment rates that other lenders only dream of. A key to success is that the methodology not only predicts the ability of a customer to repay, it actually increases motivation to repay, through peer pressure personal contact and the promise of continued access to credit.

In contrast, the algorithms generated through big data and machine learning lack most of the motivational aspects and are designed primarily to predict repayment. As a result, much of the algorithm-based lending we see today features high default rates, which in turn requires high interest rates.

That said, once the initial set-up is in place, algorithm-based credit is so cheap to operate that its rise is inexorable. Just look at Kenya, where digital lending got an early start. There are over 6 million digital borrowers, and according to a draft study by MSC, nearly 9 out of every 10 loans in the entire system are digital. Algorithm-based lending is made possible by access to customer behavioral data, data analytic capacity and ability to reach customers digitally, all of which may be difficult for MFIs (another reason for partnering with fintechs).
<blockquote>MFIs may wish to explore hybrid models that combine tech and touch.</blockquote>
As they develop the capabilities that enable algorithm-based lending, MFIs may wish to explore hybrid models that combine tech and touch. They may find it possible to focus on market segments that are hard for digital lenders to reach. In all cases, they need to advocate for high standards of consumer protection to be enforced in their markets, to avoid being crowded out by predatory lending.
<h2>3  Can MFIs participate in the innovation happening in SME (small and medium enterprise) credit?</h2>
After decades of stagnation, SME credit is alight with innovation. This innovation is enabled by three economic structure changes that are moving previously informal businesses toward greater formality:
<ul>
 	<li><strong>Electronic invoicing</strong>: Across Latin America and other regions, governments are requiring SMEs to invoice electronically, mainly for taxation. Lenders like Konfio in Mexico use the resulting data trail as the basis for digital lending.</li>
 	<li><strong>Supply chain finance</strong>, led by the large companies that supply goods to local merchants or that purchase agricultural output, is emerging.</li>
 	<li><strong>Ecommerce</strong>, perhaps the biggest force, is connecting millions of SMEs to technology platforms.</li>
</ul>
Many MFIs have a ready advantage in connecting with these market opportunities as they already serve SME clients and are skilled at underwriting for at least the lower end of this segment. Going forward, they can develop lending methods that use electronic data trails. They can also partner with big distributors, agricultural buyers or ecommerce firms taking advantage of the fact that these platforms do not see lending as core to their business and often welcome partners with lenders.
<h2>4  Will insurance ever matter for MFI customers?</h2>
Most MFI clients who have so far received insurance coverage probably didn’t even know they had it, because the most common insurance product is credit life, integrated into their loans without them having to make a decision to purchase it. But innovation is finally coming to insurance for low income people.

For example, Accion’s Venture Lab has invested in several creative start-ups: Pula offers weather insurance together with seed purchases, thanks to a chip embedded in the seed bag; Toffee offers bite-sized insurance cover for specific, often short-term activities; and Lumkani packages fire insurance with fire prevention.

These and other insurance products upend conventional insurance wisdom in order to reach low income customers, by doing three things:
<ul>
 	<li>They reduce costs of sign-up by doing away with exclusions.</li>
 	<li>They reduce costs of claims payments by making them automatic.</li>
 	<li>Instead of insuring infrequent events, they build a culture of insurance by covering common problems.</li>
</ul>
These offers are facilitated by electronic distribution. MFIs can participate in this innovation, recognizing how important insurance can be for the financial health of their customers. Mitigating customer risks should be a good business strategy for MFIs, and at the same time, insurers still need good distribution and customer data partners.
<h2>5  Will consumers be adequately protected in a digital world?</h2>
We have to keep asking this question, as digital financial services bring new risks to consumers. Digital loans can be very easy to get, but also very expensive. In Kenya, where tiny digital loans are available via the phone, we get a good picture of the risks involved: 20 percent of customers in default, many digital loans used for sports betting, prices much higher than microfinance loans, and an enormous number of people added to the credit bureau blacklist.

Data protection is another rising risk: customers want assurance that their private data remains private, both as a fundamental right and because they are concerned about their exposure to hacking, fraud, and mistakes. As MFIs go digital, their exposure to cybersecurity risk rises.

Regulators are struggling to keep up with emerging risks, and MFIs can play an important role in ensuring that they meet high consumer protection standards and shaping high market conduct standards for other players.
<h2>6  How will payments and credit connect in 2020?</h2>
MFIs began with credit as a stand-alone product, but increasingly, digital payments are the gateway to credit because of the data payments produce, and this gives an enormous potential advantage to major payments platforms. These platforms already have massive customer bases that generate floods of data, which, properly analyzed, yield the insights needed to offer credit. The combination of payments and credit has the potential to be highly powerful. Major tech platforms could very well end up dominating lending, while smaller providers, such as MFIs, either remain very small or become dependent on the platforms.

The evolution of financial inclusion in Kenya shows how the future may unfold, with the market-dominating combination of M-Pesa payments with M-Shwari credit. Of the global big tech firms such as Amazon and Google, only Alibaba has moved into finance in a big way, but all the big techs are making moves. Ant Financial has become the lifeline for Chinese SMEs for both sales and working capital, and the model is spreading worldwide as Ant Financial invests across Asia.
<blockquote>Only Alibaba has moved into finance in a big way, but all the big techs are making moves.</blockquote>
This platform-dominated scenario is not present in most MFI markets yet, and it may not come to pass. But what is clear is the power and efficiency of payments data to inform credit decisions, suggesting that MFIs should be looking for ways to connect to and harness such data.
<h2>7  Is digital transformation feasible for traditional MFIs?</h2>
For MFIs to turn the challenges described here into opportunities, they must be willing to undergo digital transformation. In many cases, such as the MFIs that are members of the Microfinance Network, they are already moving along the digital journey, but few have completed that transformation. Many organizations have created digital tools for their loan officers, some have incorporated credit scoring tools into their underwriting processes, and many have switched to digital loan disbursements and repayments.

More fundamental digital transformation requires rethinking business models, including the role of the cadre of loan officers who constitute the backbone of the staff of most MFIs. This transformation entails difficult choices about retraining and employment, which need to be discussed more openly in the sector. Investments in data analytic capabilities are needed, and at the board level, expertise needs to be brought on to guide the transformation.

In conclusion, MFIs have the chance to use digital tools to pursue their missions in an increasingly digital world. If they haven’t started already, it’s high time to begin.

Microfinance in the Digital World: Seven Questions for the Future

Chrissy Martin Meier

According to the most recent <a href="https://globalfindex.worldbank.org/#about_focus">Global Findex data</a>, 1.7 billion people worldwide are currently underserved by the financial sector. But fintech companies from China to India to Silicon Valley aren't just challenging the status quo; they’re upending it. As a result, many of these companies are generating record levels of buzz and excitement in the <a href="http://fortune.com/2018/08/08/fintech-crypto-trend-vc-invest/">commercial</a> and <a href="https://www.dw.com/en/is-fintech-the-latest-weapon-in-the-fight-against-poverty/a-45920457">impact</a> sectors alike.

Those of us who care about financial inclusion for the poor must ask if this excitement is translating into real change for those who are, and have historically been, underserved. As Greta Bull, CEO of CGAP, wrote in a recent <a href="https://www.cgap.org/blog/great-expectations-fintech-and-poor">essay</a>: “Poor people…remain central to the story but are easy to lose sight of in the excitement around technology and innovation.”

How, then, can we channel the excitement around fintech to drive not only innovation, but inclusive innovation, which delivers real value to the poor and underserved? It’s a complex challenge.
<h2>Investment in Fintech: Highly Concentrated and Highly Uneven</h2>
Certainly at least part of the equation is understanding how capital and investment are flowing into fintech. While we know that a lot of capital is flowing there, when we look at how this happens, we see two challenges: investment is currently highly concentrated among a relatively small group of investee companies, and there is a lack of understanding of how to define and measure inclusion, even among those concerned with impact.

Digging into the first challenge, we find that fintech investment is highly concentrated in part because it can be challenging for investors new to fintech to sort through the large number investment opportunities available, especially as many fintech companies are at an early stage and are developing largely untested business models. This pushes investors to rely on pre-existing networks and contacts for sourcing their investment pipeline.
<blockquote>It can be challenging for investors to sort through a large number investment opportunities.</blockquote>
Unfortunately, this process leaves out most entrepreneurs, especially in developing countries. For instance, in East Africa, Village Capital found in 2017 that 72 percent of all venture capital in the region went to just three startups, and 90 percent of that capital went to companies with at least one expatriate founder. This does not necessarily mean that these startups aren't inclusive. However, the concentration of capital based on access to traditional networks creates a risk that investors will overlook local entrepreneurs who are creating innovative solutions to local problems, undermining the goal of financial inclusion.
<h2>Data Can Help Address this Disconnect and Drive Innovation</h2>
We at <a href="https://www.themix.org/">MIX</a> are in the process of designing a new data solution to attract capital into inclusive fintech. To understand how such a solution can be best designed to meet the needs of both fintechs and investors, we're conducting several rounds of interviews. We're finding varying degrees of awareness of the problem of high concentration of capital. While investors may be aware that a large portion of the available capital is going to specific regions and companies, with a few exceptions actively addressing the challenge, most investors don't see this concentration as their problem. Since there are so many fintechs out there, the pipeline of each investor is full. This fact – combined with the restrictions, requirements, and specific risk appetite in place at each investment firm – leaves little room or incentive for an investment officer to find fintechs outside of the small circle of known, relatively safe bets.

How can data help address this disconnect? Our hypothesis is twofold.
<ul>
 	<li>We can use data to highlight gaps in current investment flows, surfacing new, promising companies with founders who have non-traditional networks.</li>
 	<li>We can use standardized data on fintechs to create benchmarks that make it easier to define and measure inclusion.</li>
</ul>
This type of data can provide investors with the tools they need to make the case that investing in a broader range of fintechs will close industry gaps and accelerate inclusion.
<h2>About Inclusive Fintech 50</h2>
<a href="https://www.inclusivefintech50.com/">Inclusive Fintech 50</a>, a competition implemented by MIX to recognize promising early-stage fintechs driving financial inclusion, is providing insight into the broad and diverse landscape of fintech companies. The competition is funded by MetLife Foundation and Visa with support from Accion and IFC. Enthusiasm by fintechs to submit shows that even early-stage fintechs can and will share data to demonstrate financial performance and inclusion.
<blockquote>Even early-stage fintechs can and will share data to demonstrate financial performance and inclusion.</blockquote>
An early look at the applications has shown us that fintechs come from a wide range of geographies, with more than 70 countries represented and wide global distribution: nearly 30 percent of the applicants come from Sub-Saharan Africa, between 10 and 15 percent each from East Asia and the Pacific, Latin America, south Asia, Europe and Central Asia, and North America, and around 10 percent from the Middle East and North Africa.
<h2>You Can Help us Create a More Inclusive Fintech Landscape</h2>
Our next step is to combine the data and insights from Inclusive Fintech 50 with the insights from our interviews with investors and fintech companies to design a data solution that can help drive investment to create a more diverse and inclusive fintech landscape. We hope that you’ll get involved: we're looking investors and fintech companies to provide feedback on our approach and to test the standardized data categories and key performance indicators (KPIs), which we’ll use to benchmark both financial performance and inclusion. Together, we can ensure that fintech delivers on its promise to deliver affordable, accessible, and innovative financial services to everyone, everywhere.

<em>To learn how you can get involved, please email fintech@themix.org.</em>

How to Create a More Diverse – and Inclusive – Fintech Landscape

Responsible Digital Finance

<a href="http://about/what-we-do/the-smart-campaign/">The Smart Campaign</a>, in collaboration with <a href="http://www.sptf.info/">The Social Performance Task Force (SPTF)</a>, invites you to attend <strong>Inclusive Digital Future: A Summit on Responsible Finance</strong> <strong>in Action</strong> taking place in <strong>Nairobi, Kenya</strong> from <strong>June 25th to 27th, 2019</strong>.
<blockquote>How do we promote inclusion and trust in digital financial services while fostering innovation and growth?</blockquote>
Over the course of this three-day international forum—organized in partnership with <a href="https://www.microsave.net/">MSC</a> (MicroSave Consulting) and <a href="https://www.ada-microfinance.org/en/our-projects/fintech-digital-finance">ADA</a>— we will confront the most pressing financial inclusion question of the day: How do we promote inclusion and trust in digital financial services while fostering innovation and growth?

The gathering will bring together financial service providers, regulators, investors, and DFS experts for two days of trainings, panels, and interactive breakout discussions, capped off by a field visit to leading Kenyan institutions engaged in digital transformation.
<ul>
 	<li><strong>Day 1: </strong>An interactive training on how to create a digitalization strategy that includes social goals (led by MSC) and workshops introducing the fundamentals of responsible inclusive finance and regulatory approaches to consumer protection in the digital era.</li>
 	<li><strong>Day 2: </strong>A full day of plenary discussion and breakout sessions on responsible digital finance in action, identifying practical ways stakeholders can advance inclusion and foster consumer confidence in digital products.</li>
 	<li><strong>Day 3: </strong>Join us on local site visits to interact with and learn from Kenyan institutions that serve as models for inclusive digital transformation.</li>
</ul>
More information, including detailed agenda, registration and travel/logistics details are available on SPTF's <a href="https://sptf.info/annual-meetings/2019-summit-inclusive-digital-future">Inclusive Digital Future page</a>.

<em>This event is supported by Mastercard Foundation and the Government of Luxembourg.</em>

Inclusive Digital Future: A Summit on Responsible Finance in Action

ADA absi

Luxembourg Aid &amp; Development

MicoSave Consulting

Social Performance Task Force

Lizzy Bolze

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<div class="sc-bwzfXH ejJzIl"><article class="jsx-1739195141 text-block__article">Africa Board Fellowship (ABF) program participants convene in Cape Town, South Africa, to close out the program’s 9th cohort.

The ABF seminars are an interactive combination of guided discussion and peer-to-peer exchange on governance best practices and risk-management strategies, with an emphasis on fellows sharing knowledge and experience.

World-class experts and leaders in microfinance and financial inclusion will facilitate and engage participants in active dialogues. The aim of the Africa Board Fellowship program is to connect board members and CEOs through peer learning and exchange to strengthen the governance of financial institutions serving low-income clients in sub-Saharan Africa.

Research has shown that the single biggest success factor in MFIs across the world is good governance. Program activities, structure, and content have been carefully designed to create an open atmosphere that allows for frank discussion among peers. Fellows identify their objectives for the program and then work with a program advisor on achieving those goals. Additionally, Fellows have access throughout the program to a participant-led virtual collaboration space with tools, resources, content, and access to subject-matter experts. At the conclusion of the program, Fellows stay connected as alumni, providing a network of leaders confronting similar challenges.

<a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Learn more</a> about the program.

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Africa Board Fellowship Closing Seminar – Cohort 9

Africa Board Fellowship Program

<span class="ms-rteFontSize-3">Jointly organized by the Asian Development Bank Institute (ADBI) and the World Savings and Retail Banking Institute (WSBI), the </span><a href="https://www.wsbi-esbg.org/Events/WSBITokyo2019">ADBI-WSBI Conference on G20 and Locally Focused Banks</a> is centered on the theme <em>getting the policy right and unleashing the role of inclusion-o​rient​ed banks.</em>

CFI's senior director of research, Eric Noggle, will be speaking on a panel on June 5th entitled "Embracing Responsible Innovation and Empowering Consumers in the Digital Age." He will also be sharing results from CFI's <a href="/about/what-we-do/mainstreaming-financial-inclusion-best-practices/">Mainstreaming Financial Inclusion: Best Practices</a> project.

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ADBI-WSBI Conference on G20 and Locally-Focused Banks

Smart Campaign Director <a href="/bio/alexandra-rizzi">Alex Rizzi</a> will speak on a a panel entitled "Banking of the Future" that will explore how financial service providers, regulators and consumer groups work can together to ensure fintech supports inclusive access, choice and innovation, whilst raising standards and maintaining high levels of consumer protection.

Consumers International Summit 2019

Responsible Investing

<a href="/bio/deborah-drake">Deborah Drake</a> will be discussing the forthcoming “Governance Guidelines for Innovative Companies Serving the Base of the Pyramid,” a collaboration between FMO and CFI (originally published 2005, revised in 2019). We look forward to receiving input on this draft at/following this event.

13th Annual DFI Corporate Governance Conference