The working poor may get paid just once a year.

Low-income farmers are vulnerable to extreme weather conditions.

The world’s entrepreneurs face a $5 trillion financing gap.

Climate change affects the poorest households most.

We focus on global challenges

How we work

Priya Punatar

Yanina Seltzer

<div style="width: 391px" class="wp-caption alignright"><img src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/05/IMG_0825.jpg" alt="" width="381" height="508" />Azucena, a stay at home mom and former bank teller in Mexico</div>
Although Mexico and Chile are different markets, underserved consumers face similar problems improving their financial health. People and businesses rely on informal means to manage money, including storing cash in lockboxes and borrowing from family and friends. These methods are familiar and convenient, but they don’t provide the guidance, tools, and information people need to better manage their income and expenses, build reserves, and plan for the future.
In Chile, <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 for more than a month if they lost their income. Following several financial crises, consumers are hesitant to trust<a href="https://www.accion.org/five-reasons-small-merchants-arent-using-financial-services-in-chile/"> financial institutions</a>, and many see working with banks as a last resort. One business owner in Santiago expressed a sentiment that we heard from many Chileans: “I would prefer to be indebted to my family than to a bank.”
We’ve seen similar patterns in Mexico, where, over the last three years, the percentage of adults who save at financial institutions declined from 15 percent to 10 percent. In an interview, Azucena, a stay-at-home mom who previously worked as a bank teller, told us that she and her husband prefer to <a href="https://www.accion.org/people-saving-money-mexico">save cash </a>in lockboxes in order to have money at home for unexpected emergencies. When it comes to credit, many people told us that they often hear negative stories about defaults, rather than positive stories about people using credit to improve their lives.
These behaviors indicate that FSPs could do more to better understand their clients’ needs and goals, build greater trust, and deliver more valuable products and services.

<div style="width: 4938px" class="wp-caption alignleft"><img src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/05/DSC_0388.jpg" alt="" width="4928" height="3264" />FSP employees participate in a <a href="https://www.accion.org/building-and-deploying-user-centric-products">human-centered design exercise</a> in Chile</div>
For decades, Accion has worked around the world to help FSPs deliver the products that underserved clients need to access, use, and benefit from the formal financial sector. Our hybrid approach combines human-centered design, insights into emerging technologies, and effective business models to create financial services that accelerate social and economic progress.
Over the next 18 months, Accion, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">in partnership with MetLife Foundation</a>, will apply this approach with five FSPs in Mexico and Chile. We’ll work alongside these institutions to develop viable products and services that reach underserved clients and improve their financial health. This process will include building the business case for customer-centric products; managing organizational change; and designing, testing, and implementing product innovations.
We’ll begin by using human-centered design, which links product and service design to customers’ needs and lives. By first understanding the challenges that low-income clients face and the goals they want to achieve, FSPs can create products and experiences that are available at the right moments, provide visibility into users’ finances, and take into account customers’ aspirations. Such products can lead to improved financial health, better decision-making, and more informed financial management.
While considering our clients’ needs and their goals, we’ll integrate behavioral science to create products and experiences that support healthy financial behaviors and habits. For example, behavioral scientists know that people tend to prioritize the present over the future and put off tasks that feel stressful, like budgeting, saving, and long-term planning. By taking this tendency into account and creating products that balance the management of day-to-day finances with future planning, we can promote clients’ financial health.
Ultimately, our understanding of low-income clients’ needs, the application of behavioral insights, and our focus on business considerations will inform the creation and deployment of new products that improve underserved clients’ financial health and that are sustainable in the market.

To qualify for the program, FSPs developed product proposals that addressed low-income client needs using a customer-centric lens; each of their proposed solutions is tailored to improve clients’ financial health and advance the organization’s strategic business objectives. Our partners will adapt their proposals through several rounds of user research and ongoing support from Accion.
Below is a list of our five partners, their product concepts, and goals for improving the financial health of their customers.

We’ll work alongside our partners to refine their initial concepts into customer-centric, market-ready products and services that help underserved families and small businesses improve their financial health.
Over the next 18 months, Accion and our partners will be working closely with customers, and with the FSP teams responsible for interface, application, operations, marketing and customer engagement to deliver an excellent customer experience. While we will focus on client behavior change, Accion and our partners understand that institutional change management is the real starting point.
For these solutions to promote clients’ financial health over the long-term, we will work with our partners to consider the business case for each product and the organizational changes needed to implement them. It’s only by combining our unique insights into client needs and our understanding of inclusive business models that our partners will be successful. It’s critical to look at longer-term profitability and customer lifetime value to ensure that our partners’ new products advance their long-term strategic goals; we’ll test customers’ willingness to pay for new services throughout their development and adjust product design to increase value to the customer.
These products represent significant new investments that will demand structural support, so we’ll also work to ensure that our partners have the right people, processes, and systems in place to launch and sustain the new products, helping with upskilling or capacity building as needed.
To create a financially inclusive world – to provide entrepreneurs with the means of hiring more employees, parents with the ability to save for the future, and communities everywhere with the tools they need to accelerate social and economic progress – we must develop financial products that clients trust, use, and benefit from. We’ll work alongside our Mexican and Chilean partners to create new solutions and services that help underserved families and businesses improve their financial health, and that realize the vision of a financially inclusive world. Follow us here as we keep you updated on our progress and process with our partners.
<img class="alignnone" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2018/08/MetLife-Foundation.png" width="247" height="115" />This brief is a 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 project</a>, supported by MetLife Foundation.

“Financial health is achieved when an individual’s daily systems help build the financial resilience to weather shocks, and the ability to pursue financial goals.” Financial Health Network

Brief

<h2>The path to financial health</h2>
People around the world are continually aiming to improve their financial lives – they do so with whatever tools are available, whether formal or informal, and with whatever knowledge they have gathered. Every day, people work hard to grow their businesses, send their children to school, save, make ends meet, and troubleshoot during tough moments. Ultimately, they aspire for greater financial health and a better life for themselves and their families.
<img class="aligncenter" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/02/CFSI-1.png" /><a href="https://cfsinnovation.org/">The Financial Health Network</a>, the  <a href="https://www.centerforfinancialinclusion.org/">Center for Financial Inclusion at Accion</a> and <a href="http://www.dalbergdesign.com/">Dalberg's Design Impact Group</a> developed a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2017/03/FinHealthGlobal-FINAL.2017.04.11.pdf">framework of six indicators</a> for financial health in the developing world.
In order to help consumers improve their financial health, financial service providers (FSPs) can design products, tools and services that empower consumers to better understand and manage their finances and encourage them to improve financial habits. Focusing on financial health also has the potential to impact the FSP’s bottom-line: Gallup found that when customers feel that their bank <a href="https://news.gallup.com/opinion/gallup/176534/looking-customers-financial-table-stakes-banks.aspx">looks out for their financial well-being</a>, they are much more likely to be fully engaged with the bank.

However, in order for FSPs to successfully promote financial health, they first need to understand customers’ opportunities and obstacles to improving it.

Achieving financial health in Mexico and Chile

Featured brief

Justin Matheson-Turner

This agricultural insurtech company helps rural farmers to have peace of mind

Article

When asked how he feels about farming, Festus replies, “I enjoy it so much — I love it.” Farming allows Festus to be his own boss and is more stable than other forms of work. With his harvests, Festus puts food on the table, pays his children’s school fees, and incrementally improves his family’s standard of living. But, as all farmers know, a bountiful harvest is never a given. “When drought came, I would lack food and wait for the rain, farm again, and wait to get food.” Trapped in this cycle, and with no recourse from a failed harvest, Festus could never plan for the future.

Until recently, smallholder farmers have not had access to farming technologies that mitigate the risk of drought, pests, and floods. These farmers are at a higher risk of a bad harvest which can have wide-ranging consequences for their finances. When Festus learned about Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a>, he saw an opportunity to boost his resilience and security. Pula offers more than crop insurance. Farmers like Festus benefit from interactive training on farming methods and tech-enabled insights accessible through farmers’ mobile phones. 

<img class="size-large wp-image-18867 aligncenter" src="https://content.accion.org/wp-content/uploads/2019/06/Kitui_0012-1024x684.jpg" alt="Festus harvesting his crops" width="1024" height="684" />Festus has seen the benefits of working with Pula and regularly encourages other farmers to join. “I hope that Pula continues in the future and that we can continue to improve our future through its benefits,” he says. Knowing that his crop insurance provides protection from a bad harvest, Festus can take care of his family and his hopes and plans for the future can stretch beyond the next harvest.

Insurance emboldens Festus to be his own boss

Leonardo Tibaquira

Tigres de ahorro: How Mibanco developed a marketing plan to increase savings 

It’s hard to find a downside to encouraging people to save more money.  Savings can help businesses and individuals reach their long-term goals and protect them from economic shocks. Recognizing the need for better savings opportunities among underserved microentrepreneurs, many microfinance institutions in Latin America have <a href="https://www.centerforfinancialinclusion.org/mobilizing-savings-among-microfinance-institutions-in-latin-america#more-20984">launched programs and initiatives</a> to get their customers to save more. These banks often find that they also benefit by boosting savings because they can diversify their funding structure, reduce risk, and generate customer loyalty that comes with offering a comprehensive suite of services.

Despite the win-win opportunity, institutions still encounter barriers to launching a savings product. These accounts are frequently left dormant by customers and driving usage may not be a priority for an institution that’s structured around credit operations. On all sides, savings products face an extra hurdle because everyone wants immediate results. Savings products compete with other services (like credit products) that are more attractive to clients and institutions. Many people prefer getting the funds they need immediately through a loan rather than putting in the time and effort it takes to accumulate savings. For the institution, credit provides them with income as soon as it’s disbursed, whereas savings translates to more long-term yields.

An effective savings product can help customers think more long-term if it’s complemented with a marketing campaign that motivates a change in people’s behavior. And the product itself should also drive the customer to want to use it with both digital and physical channels that create a positive customer experience.  Mibanco, a leading microfinance bank in Peru, has done just that. In 2016, the bank was experiencing low growth rates in new accounts and a high dormancy with its existing savings accounts. The bank initiated a campaign to make sure clients were getting what they needed from their financial services. With the support of Accion’s <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions/">Global Advisory Solutions</a>, Mibanco used a client-centered design methodology to understand customers’ needs. The institution conducted interviews, developed financial diaries, and mapped the customer journey so that it could develop products and channels that reflected clients’ lives. Based on this research, Mibanco launched “tigres de ahorro” (or <a href="http://tigresdelahorro.pe/">tigers of saving</a>).

[caption id="attachment_18838" align="alignleft" width="500"]<img class=" wp-image-18838" src="https://content.accion.org/wp-content/uploads/2019/06/mibancosavings.jpg" alt="Example of Mibanco's myth busting" width="500" height="524" /> Many people believe that it is safer to keep their money under the mattress. The tiger busts this myth saying, “A Tiger of Savings sleeps on a mattress, but does not keep his money there. Too often are the cases where the mattress is burned, or money is lost. It is safer to keep your savings with MiBanco.”[/caption]

This initiative launched in August 2017 with a new set of products aimed at the underserved. These products include features and functionalities that motivate savings — like tying savings to the clients dreams and aspirations and reminding the user about their goals — while also providing the flexibility and convenience valued by customers. The bank added additional channels — including agents, digital solutions, and a motivational communications plan — to complement the new products and encourage greater savings. The products’ homepage even busts myths about saving.

As of March 2019, more than 280.000 new accounts have been opened and deposits have increased, showing that the product is attractive and useful to customers. Mibanco’s commitment and dedication to the project made this possible — the institution adjusted internal processes, trained its commercial force, and built in monitoring and evaluation mechanisms.

We’re glad to support the work Mibanco is doing because saving money is critical to help microentrepreneurs build a more stable future. We hope that “tigres de ahorro” continues to motivate even more people to save and fosters financial health.

&nbsp;

How do you get people to build their savings?

Lumkani offers an innovative fire detection device in South Africa

Informal settlements, in which at least 1.4 billion of the world’s poorest people live, are terribly vulnerable to fire. Homes are crowded together and often constructed of flammable materials like wood, plastic, and cloth. Residents without reliable electricity or gas line access resort to cooking on open flames. Building safety codes are not enforced. And if a home catches fire and burns down, the family living there — which already had little — has to start over without any help.

[caption id="attachment_18831" align="alignleft" width="400"]<img class="wp-image-18831" src="https://content.accion.org/wp-content/uploads/2019/06/Lumkani_0026-1024x683.jpg" alt="Lumkani community liaison officer Clive " width="400" height="267" /> Community liaison officer Clive supervises agents for Lumkani[/caption]

South African startup and Accion portfolio partner <a href="http://blogs.accion.org/features/insurtech-fire-protection-south-africa/">Lumkani</a> is offering a form of protection rarely seen in informal settlements: fire insurance. Its policyholders also receive an innovative fire detection device that sounds an alarm triggered by the heat of a nearby fire. The alarm gives residents a chance to seek safety, and the insurance payout helps them repair or replace items damaged in the blaze.

Because insurance is not commonly used by people in informal settlements, it can be hard to explain the concept and get buy-in. Lumkani has found that one effective way to achieve this is by hiring community members themselves as sales agents. Community liaison officer Clive, who supervises agents, explains that community feedback has been an important part of developing the policies and device. He says, “We asked individuals how we could design a product that would fit them and be affordable. I’ve seen where we’ve stopped fires and had an impact on people involved in the fires. It’s satisfying to know we can cover people’s homes and their goods. I believe we are a big answer to these communities.”

[caption id="attachment_17736" align="alignright" width="400"]<img class="wp-image-17736" src="https://content.accion.org/wp-content/uploads/2019/02/Lumkani_0014-e1550780398258-1024x799.jpg" alt="Zoliswa, an agent for Lumkani, in front of an informal settlement in South Africa" width="400" height="312" /> As an agent for Lumkani, Zoliswa helps people in informal settlements obtain fire insurance.[/caption]

Sales agents Kwanda and Zoliswa both spend their days making the rounds in their communities and signing people up for the service. A mobile app makes it easy to enroll new clients wherever they are. Says Zoliswa, “The reason I decided to work with Lumkani is the communication with the people in my community. It keeps me busy and updated.” Kwanda adds, “I saw an opportunity to improve my own community. It changed my life a lot. I earned respect. It helped me also see new directions and I started working around my community more.”

[caption id="attachment_18832" align="alignright" width="400"]<img class="wp-image-18832" src="https://content.accion.org/wp-content/uploads/2019/06/Lumkani_0029-1024x683.jpg" alt="Lumkani software engineer Dinesh" width="400" height="267" /> “I always wanted to do something to help people,” says Lumkani software engineer Dinesh[/caption]

Other staffers who don’t work as closely with clients on the ground have also found a sense of community at Lumkani. Dinesh, a software engineer originally from Brazil, says, “I see humans as social animals, so it’s interesting to see the idea of communities, like townships. A device like this can be used to help improve the sense of community. I always wanted to do something to help people. I want to give back to the world. Because we have this social structure it’s easy to forget how people live, but working here helps you remember and have more empathy in general.”

This insurtech startup takes pride in protecting their community

Melissa Baez

Why being intentional in using data matters for product development of inclusive financial services

In today’s digital age, everyone knows we’re creating more data than ever before, but not everyone knows what to do with that data — including financial service providers (FSPs). With improved connectivity and increasing smartphone penetration, formerly anonymous and unserved market segments now have valuable <a href="https://www.accion.org/how-alternative-data-can-promote-financial-inclusion">‘digital data’ identities</a>. For customers, this data can lead to more relevant, affordable products that better address their needs, and for financial institutions, when used <a href="https://www.centerforfinancialinclusion.org/digital-finance-and-data-security-2">responsibly</a>, it opens access to new market segments and can be used to deepen customer engagement. However, too many institutions lose out on this win-win opportunity due to information overload, inefficient processes, and legacy systems.
To address this <a href="https://www.accion.org/implementing-big-data-10-tips-fsps">data divide</a>, Accion in partnership with <a href="https://www.opml.co.uk/">Oxford Policy Management</a> and <a href="https://www.masterdata.co.za/">Master Data Management (MDM)</a>, is implementing a new data-driven approach to product development through the <a href="https://www.opml.co.uk/projects/deepening-financial-inclusion-in-sub-saharan-africa">Data Management and Analytics Capabilities (DMAC)</a> project. Initiated by <a title="https://www.fsdafrica.org/" href="https://www.fsdafrica.org/">Financial Sector Deepening (FSD Africa)</a> and <a href="https://www.idrc.ca/">International Development Research Center (IDRC)</a>, in partnership with <a href="http://www.fsdt.or.tz/">FSDT</a> and <a href="https://www.fsdzambia.org/">FSDZ</a>, DMAC (known as ‘DataDisrupt’ in Tanzania) is a two-year program that uses data-driven evidence to help FSPs in sub-Saharan Africa to design inclusive and affordable products and services that respond to the needs of unserved and underserved adults, with a particular focus on women and youth.  In this project, we are working closely with partner institutions to enhance their capabilities to manage and analyze data, develop and innovate new business models and reflect and share the lessons about what they have found works and what doesn’t. The program is operating across three different markets of varying digital maturity — Sierra Leone, Zambia, and Tanzania — and with three different types of FSPs: insurers, fintechs, and commercial banks.

<h2 class="gmail-MsoCommentText">What does it mean to take a data-driven approach to product development?</h2>
What makes the DMAC approach unique is being intentional — thinking about and taking deliberate actions — when using data in the product development process. Particularly as ‘<a href="https://www.accion.org/unlocking-the-promise-of-big-data-to-promote-financial-inclusion/">big data</a>’ is touted as a winning strategy for financial service providers, many institutions often collect data for data’s sake without a clear plan of why and how they intend to use it.  Yet there are several publicly available external data sets like the <a href="https://globalfindex.worldbank.org/">Global Findex</a>, census data, and telecom data which can provide important market insights to inform product design. For example, census data coupled with hospital incidence rates can provide insurers with a much more sophisticated and accurate picture of risk. This enables insurance companies to offer more competitive pricing—pricing that works within their target customers’ budgets, allowing them to reach a wider market.
FSPs are often sitting on a wealth of internal data generated and captured through their operations and feedback provided by customers as they engage with products.  To unleash the full potential of this data, we advise our partners to ‘look through the data lens’ at every step of the process. For example, in developing product concepts with our DMAC partners, we looked at the customer journey from a data perspective — mapping the inflows and outflows of data at each step. During this exercise, institutions identified areas where data collection and use could be improved. For one institution, this meant examining whether they were using data to ensure their radio marketing campaign was reaching their target customer segment — but they had no data collection in place for this campaign. They were missing out on the opportunity to better understand their customers and the effectiveness of their marketing.


[caption id="attachment_18809" align="aligncenter" width="700"]<img class="wp-image-18809" src="https://content.accion.org/wp-content/uploads/2019/06/19_DMACData.png" alt="Mapping data flows" width="700" height="270" /> This example illustrates one exercise where FSPs mapped the data inflows and outflows for each step in the customer journey.[/caption]
For all, the mapping of data inflows and outflows led to several ‘aha moments’ as the institutions saw hundreds of data points that could be leveraged along the customer journey. While in some ways this was a bit overwhelming, there was an excitement about the magnitude of untapped possibilities. One institution realized their call center was a “data graveyard” of customer information, and another realized they were missing opportunities to connect with customers during critical moments in their lives — like marriage or having children — when they could build customer loyalty. For all institutions, having the systems and processes to enable the seamless flow of data was essential to creating an optimal customer experience.
With our partners, we emphasize that one data set or algorithm will not be the panacea to product success, nor will ‘big data,' without a clear strategy of how to use it. Instead, they must be aware of all available data — public surveys, primary research, customer transactional data, call center logs, etc. — and they must be strategic in how they mine, analyze, and apply information to create a winning value proposition for the customer. It’s like building a new habit — by being intentional with data in the product development process, financial service providers can transform how they develop products and serve customers, supporting a more sustainable business model and driving a social impact.

Are you unleashing the full potential of your data?

A smallholder farmer shares how Pula helps boost resilience 

Anastasia Ngala has to make sure her crops can thrive with only two rains per year. “We have long rain and short rain. We plant for the short rains this November. I am happy when it rains because I sell my farm products and earn my income.” Missing one of these rains can mean ruin for Anastasia’s harvest and financial hardship for her family of nine. But farming is Anastasia’s way of life and her only source of income. When she learned about Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a>, she recognized the opportunity to further develop her agricultural skills while insulating herself from bad harvests.  

[caption id="attachment_18776" align="alignleft" width="500"]<img class=" wp-image-18776" src="https://content.accion.org/wp-content/uploads/2019/06/Kitui_0051-1024x684.jpg" alt="Pula employee Jacobeth Barno" width="500" height="334" /> Pula employee Jacobeth Barno[/caption]

Pula, a cutting-edge insurtech startup, focuses on providing crop insurance to traditionally underserved smallholder farmers. “It’s important to solve that sector because as soon as we support the smallholder farmer, we will directly be changing a lot of things in the dynamics of the economy,” says Pula employee Jacobeth Barno. As a Pula customer, Anastasia can access data-driven farming insights that boost her crop yields while also having the peace of mind that she will be compensated if the harvest fails. “When I planted without Pula, I took a risk that it was okay if I harvested or lacked yields. I was 50-50. But now, I am 99 percent assured by Pula,” she says.

The benefits of Anastasia’s relationship with Pula have been tangible. With the confidence of her Pula coverage, she has grown her farm from three to five acres and has encouraged her children to work with Pula. Anastasia has also become a vocal Pula advocate outside of her home. She urges her friends and neighbors to look into the benefits, “Some of my neighbors want to join the insurance because they have known about compensation and also want to get compensated.” Now, Anastasia has confidence that she can provide for her family and grow her farming capabilities to new levels.

&nbsp;

<img class="size-large wp-image-18779 alignnone" src="https://content.accion.org/wp-content/uploads/2019/06/Kitui_0037-1024x684.jpg" alt="Pula client Anastasia" width="1024" height="684" />

After seeing the benefits of crop insurance, Anastasia’s an advocate

Printing paper salesman branches into car sales, real estate thanks to loans from Accion Microfinance Bank

It all started with paper. Sitting in front of a tall stack of giant white sheets of printing paper, Nigerian entrepreneur Moses recounts his early struggles to launch his own business. He tried borrowing money from his boss, but it wasn’t enough to get started. Then, in 2012, a friend told him about Accion Microfinance Bank, a longtime Accion partner that specializes in lending to Nigerian entrepreneurs.

“I got my first shop by collecting money from them,” he says. “I started with 150,000 naira (just over US$400). Now they give me up to 1.7 million (approximately US$4700). I used to be squatting with someone, now I have three shops,” he adds.

He hasn’t stopped there — he’s using his profits to expand into other business opportunities. “I have a car business where I buy and sell cars. I also have a house that I lease to tenants. I have property all over, thanks to Accion Microfinance Bank,” he says.

With the growing businesses, he’s also been able to invest in his own family. He’s since married, and he and his wife are raising two children — the older of whom has now started school. He’s helped one of his brothers finance real estate purchases of his own in their home village and paid for university tuition for two others.

He’s grateful for the role his bank has played in everything he’s done so far, and he looks forward to working with Accion Microfinance Bank for years to come. “God is really with them, and I pray he continues blessing them. I won’t leave them, because of how they have impacted my life,” he says.

From one small loan to three shops: One entrepreneur’s journey

Vikas Raj

This article was <a href="https://www.forbes.com/sites/vikasraj/2019/05/15/will-facebook-make-crypto-relevant-for-the-underserved/#6425be2c257a">originally published</a> on Forbes.
Earlier this month, the <a href="https://www.wsj.com/articles/facebook-building-cryptocurrency-based-payments-system-11556837547" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.wsj.com/articles/facebook-building-cryptocurrency-based-payments-system-11556837547">WSJ reported</a> that Facebook is building a team and getting its crypto ducks in a row to launch a “cryptocurrency-based payments system on the back of its gigantic social network.” Public details on the effort are thin and may have been outshone by news that one of Facebook’s co-founders is <a href="https://www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebook-zuckerberg.html?smid=nytcore-ios-share" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebook-zuckerberg.html?smid=nytcore-ios-share">calling for the company to break up</a>. But the fintech world is predictably aflutter about the perils and opportunities of a brand new digital coin that could allow users to hold and send money safely and securely to nearly every socially networked person on the planet.
Presumably, a key driver of this effort’s success will be WhatsApp, which by the last count has 1.6 billion active users. For the markets where we invest across Asia, Africa and Latin America, WhatsApp is particularly dominant — the rails upon which much of commerce already rides. It is not hard to imagine a world in which all payments occur via WhatsApp. We have seen what this could look like in India already, where WhatsApp payments have faced <a href="https://qz.com/india/1579789/why-whatsapp-pay-is-lagging-behind-paytm-amazon-google-in-india/" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://qz.com/india/1579789/why-whatsapp-pay-is-lagging-behind-paytm-amazon-google-in-india/">initial regulatory hiccups</a> but are still poised to be a <a href="https://tech.economictimes.indiatimes.com/news/startups/whatsapp-pay-may-end-paytms-hegemony-in-india/69193368" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://tech.economictimes.indiatimes.com/news/startups/whatsapp-pay-may-end-paytms-hegemony-in-india/69193368">market-leading payments alternative</a>, building on India’s quasi-government unified payments interface. Other markets, which don’t have India’s payment infrastructure and are more open to crypto innovation, could be next.

Regardless, for those of us focused on financial inclusion, Facebook’s foray into crypto is most interesting if it is serving fundamentally excluded customers and providing them with a product they really need. For all the bombast about crypto over the last half-decade, and the many business plans we have received from eager founders with Bitcoin signs in their eyes, we have yet to find models that convincingly center on the challenges of the poor farmer or mom and pop store. And, of course, the market opportunity is massive; despite the effort of organizations like ours over decades, there are still three billion people around the globe that don’t have access to the full suite of financial services they need to live financially stable lives.  <a href="https://globalfindex.worldbank.org/" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://globalfindex.worldbank.org/">Recent World Bank data</a> shows that more and more consumers are getting formally “banked,” but also that they are <a href="https://www.accion.org/sobering-news-global-findex-financial-inclusion" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.accion.org/sobering-news-global-findex-financial-inclusion">not necessarily</a> saving more, accessing more credit, or becoming more resilient.  These consumers and small businesses are still financially excluded, and need access to a full suite of safe and affordable products – dynamic payments, credit to grow their enterprises and insurance to withstand healthcare shocks.

Facebook crypto has a massive potential to lead underserved customers to this set of core financial services. But it is critical the technology actually makes people’s lives better and doesn’t just lead to easier ways to pay for products within the Facebook ecosystem (as Facebook credits started by allowing in-game payments to Zynga).  Based on our work investing and supporting 40 inclusive fintech businesses globally — and reviewing over 2,000 business plans — we find that crypto startups keep coming back to the same handful of ideas, and it’s not altogether clear that a Facebook-backed currency solves their inherent flaws.

Crypto-based startups often focus on using cryptocurrencies as a more reliable place for the poor to put their money. In markets like Argentina and Nigeria, which have suffered from significant inflation over many years, the opportunity to move one’s money outside of that system and into a more reliable, external asset seems appealing. However, the speculative nature of most cryptocurrencies and the many challenges and costs of buying in and out of cryptocurrencies in developing markets make crypto assets a highly imperfect solution for rampant inflation.

If the rumors are true and Facebook is developing a ‘stablecoin’ that would partially solve the currency risk of their coin, but it wouldn’t solve the more fundamental issue of underserved and underbanked customers’ having limited capital to squirrel away into savings. If Facebook wants to help the enormous market of the financially underserved actually save money and keep it in their digital currency, the company needs to think more about the financial challenges of low-income individuals and the innovative ways startups are encouraging saving. We have seen, and invested in, companies that are using goals-based tools, tying savings to other financial products like lending, or offering investment products that are tailored to the poor.

Similarly, we see many companies preaching the potential of crypto to improve the cost and speed of global remittances. While we have seen some success for companies focused on the space — particularly those that are providing remittance services for small and medium businesses that are trading internationally — most of these startups ignore the reality that, for retail remittance decisions, trust matters most. Again, here Facebook should have a leg up; if I can send money to my family in India via WhatsApp, I don’t need to trust a third party entity (not to mention I don’t even need to open a new app).

However, merely having WhatsApp or Facebook involved does not solve the other core challenge of remittances for the financially excluded: that remittance recipients must find affordable and convenient ways to actually cash out and utilize capital in their local markets or, more importantly over time, to use that capital from a mobile wallet seamlessly in everyday spending. We are seeing many companies that try to solve the “keep it in the wallet” problem by adding credit products on top of wallets or allowing offline merchants to more seamlessly accept mobile money.

Facebook will have its work cut out for it to solve those higher-order challenges, though the potential of having a massive company, with this many touchpoints, heavily involved in this space is exciting, and may help engender a wave of innovative solutions. Conversely, with its well-documented monopolistic behavior in its core business, Facebook’s turn to crypto could stifle innovation in a big way if they fail to actively encourage and support early stage innovator partners, or focus only on use cases directly relevant to their current products.  That would be a huge missed opportunity for Facebook and the world’s financially excluded.

Will Facebook make crypto relevant for the underserved?

South Africa’s Lulalend uses alternative data to make credit decisions quickly

Noel Ehrenreich is CEO of New Earth Recycling, a polystyrene recycling facility based in Cape Town, South Africa. There are very few recycling plants specializing in polystyrene, and Noel is proud that his four-year-old company is able to contribute to protecting the environment. He says, “What motivates me most is that we’re making some difference in our community and environment. It’s rewarding, given the state of our planet, that we are part of the solution, not the problem.”

[caption id="attachment_18573" align="alignleft" width="499"]<img class=" wp-image-18573" src="https://content.accion.org/wp-content/uploads/2019/05/NewEarth_0005-1024x683.jpg" alt="Noel Ehrenreich" width="499" height="333" /> Noel Ehrenreich, CEO of New Earth Recycling, uses Lulalend for his business financing needs.[/caption]

The success of the business depends on Noel being able to act quickly when large stocks of recyclable material become available for him to purchase. He’s found <a href="https://www.lulalend.co.za/">Lulalend</a>, an online lending platform and <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a> portfolio company, to be the best option to turn to in such cases.

Traditional bank lenders, Noel explains, can take weeks or months to approve a loan. With Lulalend, he says, “it was quite an easy process to fill everything in, and within a day, I had access to funding. It was amazing.”

[caption id="attachment_18577" align="alignright" width="500"]<img class=" wp-image-18577" src="https://content.accion.org/wp-content/uploads/2019/05/lulalendneil_crop-1024x836.jpg" alt="Neil Welman of Lulalend" width="500" height="408" /> Neil Welman, co-founder and CTO of Lulalend[/caption]

Lulalend is able to make its decisions so rapidly because of the systems it has built. “From inception, Lulalend has taken a digitally focused and data-driven approach to solving the problem of access to funding for small business,” says Neil Welman, co-founder and CTO of Lulalend.

Small business owners come to Lulalend not only because they hope they can get a loan right away, but also because often they don’t have the kind of detailed credit history mainstream banks use to make lending decisions. “From a very early stage, we realized that the traditional process of relying on credit bureau data alone represents only one aspect of the health of a business, and many good businesses are denied funding due to this,” says Neil. “By capturing data from multiple sources, we are able to model a much richer picture of a business. And capturing all this information digitally allows us to automate this process. This allows us to fund more businesses, and do so in the fraction of the time it would traditionally take."

[caption id="attachment_18576" align="alignleft" width="500"]<img class=" wp-image-18576" src="https://content.accion.org/wp-content/uploads/2019/05/Lulalend_0007-1024x683.jpg" alt="Sapna Gihwala at Lulalend" width="500" height="334" /> Sapna Gihwala is a credit analyst at Lulalend.[/caption]

Sapna Gihwala, a Lulalend credit analyst, relies on data to guide her in her interactions with clients. The online application portal sends her information about potential new borrowers, then she follows up with a few more questions, and lets the system analyze all the data and determine whether the applicant is eligible. “We don’t even need clients to walk in, we can just pick up a phone, send an email, and have it done online. So it’s getting an answer to them so much faster,” she says.

Using Lulalend to pounce on opportunities to grow his business has allowed Noel to hire new staff. “The business is my family, so everyone here is part of a family. We look after each other, we work hard, respect each other. Since I’ve used the Lulalend facility, I have employed easily 5 or 6 people,” he says. He hopes to continue to use Lulalend’s quick-access loans along with larger bank loans to scale up his operations. “We plan to employ, over the next 2 to 3 years, probably in excess of 50 people,” he predicts, adding, “This funding is a game-changer, as it allows you to bridge that gap and move to that next stage of growth. I’m excited about the future.”

When faster is better for small business lending

Jacqueline Foelster

People choose to use euros instead of local currency to protect wealth and hedge against risks of exchange rate depreciation —  something that’s a relatively recent bad memory in Serbia. Many of our interviewees recall the <a href="https://www.nytimes.com/1996/07/09/world/isolated-and-corrupt-serbia-s-economy-stagnates.html">hyperinflation</a> that plagued the economy in the early- to mid-1990s around the dissolution of the Socialist Republic of Yugoslavia. At the peak of Yugoslavia’s hyperinflation, <a href="https://www.vice.com/sv/article/4w38wq/poorest-billionaires-serbia-876">500,000,000 dinars bought a loaf of bread</a>. Several of our interviewees recognized that some of their attitudes toward money might be rooted in the past. And while current realities suggest that the dinar is stable today, risk aversion may be the more prudent course.
<h2>Euros are for saving — dinars are for spending</h2>
Our interviews revealed several insights, particularly around operating in multiple currencies. First, people form mental constructs about the purpose and use of each currency. For the farmer, and several other of our interviewees, euros are for saving, and dinars are for spending. People perceive euros as more stable, and depositing the euros in a bank account or any other formal or informal savings instrument may remove the temptation to spend them If these constructs hold, it could mean that individuals who receive most of their cash in dinars may spend their money more quickly than their peers who rely more on euros.
Our interviews also highlighted the need to manage liquidity properly, which is more complicated in two currencies. The shop owner we spoke with uses euros to pay for her inventory, but she also needs to ensure that her till is stocked with dinars so that she is ready to accept customer payments in both currencies.
Perhaps most important, our field research also confirmed that the risks involved in using multiple currencies, such as borrowing in one currency while operating in another, are a significant consideration when it comes to building financial health. Financial institutions, which have offered loans in a hard currency to people operating primarily in a soft local currency, have often exported currency risk to clients who are not well positioned to handle it. And they have suffered along with their customers when devaluations made it too costly for customers to repay hard-currency loans.
<h2>Next steps in our financial health project </h2>
As we start to develop a digital tool that clients can use to understand their financial health better, one challenge is making sure it accounts for the particular financial behaviors and cognitive biases of a dual-currency system. In addition to brainstorming ideas for behavioral nudges, we need to consider the tool’s user interface, i.e., for our target users in Serbia, are we going to express the value of money in terms of dinars or euros — or both?
We’re excited to put the insights we gained in Serbia to the test and use a customer-centered approach to designing and developing a new solution to help customers build their financial health. Keep an eye on the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a> for an update when we’re done prototyping in a couple of months!
We’ll continue to share insights on financial capability based on research conducted by the Center for Financial Inclusion at Accion (CFI) and Accion’s Global Advisory Solutions (GLAS) 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 project</a>, supported by MetLife Foundation.
This post was originally published on <a href="https://www.centerforfinancialinclusion.org/dinars-vs-euros-financial-health-and-the-multiple-currency-dynamic">the Center for Financial Inclusion at Accion blog</a>.

Currency is one issue that will inform prototyping of a financial health digital tool for Serbia and other countries in Eastern Europe

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>Euros vs. dinars: Serbia’s dual-currency dynamic</h2>
[caption id="attachment_18520" align="alignleft" width="500"]<img class="wp-image-18520" src="https://content.accion.org/wp-content/uploads/2019/05/ECA-pic-2-1-1024x767.jpg" alt="Novi Sad taxi" width="500" height="375" /> Taxis in Novi Sad, Serbia, often quote cab fares in euros.[/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 demanded that we pay him 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 <a href="https://www.oenb.at/en/Monetary-Policy/Surveys/OeNB-Euro-Survey.html">Austrian central bank’s Euro Survey</a>, 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.

Why multiple currencies create financial health challenges in Serbia

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