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

Four Reasons Focusing on Financial Capability Is Good Business

MetLife Foundation

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Chile

Colombia

Dominican Republic

Latin America and The Caribbean

Mexico

Spain

Behavioral Insights

Financial Capability

Blog Post

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

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

Entrepreneurs of MSMEs

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<img class="alignright wp-image-24986" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/thumb_08961175df7c4694bc95b207ebf9a116.jpg" alt="" width="330" height="220" />

<em>The following post was <a href="https://www.cgdev.org/blog/assessing-quality-regulations-improving-financial-inclusion-eight-latin-american-countries">originally published</a> on the Center for Global Development's blog and has been republished with permission.</em>

The most recent <a href="http://www.worldbank.org/en/programs/globalfindex">World Bank</a> data on financial inclusion shows that by 2014, only 54 percent of the adult population in Latin America had an account at a financial institution. This compares to an average of 62 percent of adults worldwide and 70.5 percent for those countries with a similar level of income per capita (the region’s peers). In developed economies, 94 percent of adults have an account at a financial institution.

Many factors could be cited for the low ratios of financial inclusion in Latin America, but in a recent <a href="https://www.bbvaresearch.com/wp-content/uploads/2017/09/Regulatory-Practices-for-Financial-Inclusion-in-Latin-America-vf_mod.pdf">paper</a> published at BBVA Research, that also came as a CGD <a href="https://www.cgdev.org/sites/default/files/index-regulatory-practices-financial-inclusion-latin-america_0.pdf">working paper</a>, we focus on the potential role of financial regulation. We assessed and compared the quality of the policies and regulations that impinge on financial inclusion in eight Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay). Peru and Mexico came out on top, with what appear to be the best regulatory frameworks for promoting financial inclusion. But even in these top performers, there is room for improvement.


<h3>Identifying regulatory influences on financial inclusion</h3>
In our recent study, we identified three dimensions of regulatory practices and policies that can influence financial inclusion:
<ol>
 	<li><em>Enablers</em>: regulatory practices that determine the overall quality of the financial environment where providers of financial services operate</li>
 	<li><em>Promoters</em>: regulations that deal with specific types of market frictions and describe the rules of the game for the provision of specific financial products and services for low-income populations</li>
 	<li><em>Preventers</em>: regulations that, often unintentionally, create obstacles for expanding the supply and demand for financial products and services</li>
</ol>
In total, we identified 11 regulatory practices across these three dimensions. The assessment of these policies relies on the construction of three indices of regulatory quality (one for each dimension), and 11 sub-indices (for the 11 regulatory practices that form these dimensions). Additionally, we constructed a non-regulatory sub-index for assessing governments’ efforts to promote financial literacy.

<img class="aligncenter wp-image-24980" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/table-cgd.png" alt="" width="616" height="237" />

To form each of the sub-indices, we assessed a number of variables selected on the basis of internationally accepted standards and a vast review of the existing literature. For each variable, we assigned scores in a range from 0 to 2 (where 2 represents the highest level of quality for the variable). For obvious reasons, it is not possible to go into the specifics of each variable and each sub-index here (the detailed explanation can be found in the <a href="https://www.bbvaresearch.com/en/publicaciones/an-index-of-regulatory-practices-for-financial-inclusion-in-latin-america/">study</a>). However, there are two novelties about the construction of the sub-indices that are worth highlighting.

First, in constructing the sub-indices, we recognize that there may be interactions between variables that affect their whole impact on inclusion. Let’s take, for example, the sub-indices of simplified accounts or electronic money. Should regulatory constraints on fees and commissions charged by financial institutions to their customers for owing or using these products be assessed as detrimental or favorable for financial inclusion? The answer, as reflected in our index, is “it depends.” Setting no restrictions on fees and commissions to open and manage simplified or e-money accounts is desirable <em>if</em> the quality of competition policies for the financial sector is satisfactory. In other words, the recommendation to let financial institutions determine fees freely depends on the ability to prevent the emergence of monopoly powers through robust competition policies. In terms of our index, this means that to assess the quality of some <em>Promoter </em>components (simplified accounts and electronic money) we need to recognize their interaction with an <em>Enabler</em> component (competition policies).

A second interesting feature is that the index incorporates an interaction between some of the regulatory practices and other forms of government intervention that can increase the potential of those regulations. Continuing with the example of simplified accounts and electronic money, in the study we considered that the regulation governing the provision of these products is of a better quality if the government promotes their usage by individuals and small companies through additional efforts (such as depositing government transfers to low-income populations in these accounts) than if it stays aside. Finally, the amplifying effect of policies to enhance financial literacy on regulatory practices classified as Promoters is another example of the interactions between regulations and governmental interventions.
<h3>Which countries have the best regulatory frameworks for financial inclusion in Latin America?</h3>
The map below summarizes the results of our index of regulatory practices for financial inclusion in eight Latin American countries. The numbers represent the values of the overall index and of each of the three sub-indices (each ranging from 0 to 2, as mentioned above).

[caption id="attachment_24978" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/rojas-suarez-pacheco-regulatory-figure1.png"><img class="wp-image-24978" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/rojas-suarez-pacheco-regulatory-figure1.png" alt="" width="615" /></a> (click to enlarge)[/caption]

As shown, all the countries have strengths and weaknesses in their regulatory frameworks. Peru appears to have the best regulatory framework, followed closely by Mexico. Obviously, some areas of Peruvian regulation could be enhanced, but in broad terms, the regulatory framework is robust and conducive to financial inclusion. Mexico, on the other hand, has more room to improve the quality of its regulatory framework, especially the regulations classified as Promoters. Still, the country might soon solve some of the deficiencies we identified in our study (for instance, the absence of a dedicated regulatory framework for electronic money). In fact, Mexico’s Congress is currently discussing a draft law that seeks to leverage the possibilities of financial technology (or fintech) to advance financial inclusion.

At the opposite end of the spectrum, Argentina and Brazil have the lowest scores. Both present very low scores along the Preventers dimension as there are various elements in their regulatory framework (from financial transaction taxes to directed lending by the state) that might run counter to financial inclusion objectives. Thus, in these countries major changes to the regulatory framework are needed to achieve sustainable progress in financial inclusion.

The rest of the countries obtain modest results that also tend to be explained by very low scores in the Preventers index but more solid results in the Enablers and Promoters indices. The case of Colombia stands out in this last group: although the country is strong in the Promoters index, the existence of a financial transaction tax, the imposition of ceilings on interest rates, and directed lending practices generate multiple distortions and explain why Colombia’s overall score lags behind Peru and Mexico.
<h3>Does regulatory quality alone explain the financial inclusion gap?</h3>
The answer to this question is “no.” As discussed in the CGD report <a href="https://www.cgdev.org/sites/default/files/CGD-financial-regulation-task-force-report-2016.pdf">Financial Regulations for Improving Financial Inclusion</a>, regulation is important for two main reasons: first, because the right regulatory framework is key to enable the private sector to adopt innovations in digital finance and encourage their use by low-income populations, and second, because policies to increase financial inclusion must be compatible with the traditional objectives of financial regulators. Thus, they should not undermine the stability and integrity of the financial system, while ensuring effective consumer protection.

It should not be a surprise, though, that regulation is not the only factor that determines a country’s success in advancing inclusion. Many other factors matter, including socioeconomic constraints, the macroeconomic environment, institutional quality, and specific characteristics of the financial system. In other words, having an enabling regulatory framework is a necessary but not sufficient condition for sustainable progress in financial inclusion. This is the conclusion of an econometric study in <a href="http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=40368033">Rojas-Suarez (2016)</a> that shows that in Latin America, institutional factors matter most in explaining the financial inclusion gap.

That said, an appropriate regulatory framework is essential for financial inclusion. Thus, by signaling areas of strength and weakness in the regulatory practices of individual countries, the <a href="https://www.bbvaresearch.com/en/publicaciones/an-index-of-regulatory-practices-for-financial-inclusion-in-latin-america/">index of regulatory practices for financial inclusion</a> is meant to support the efforts of policymakers in the region with a mandate to improve financial inclusion. Therefore, beyond the specific country scores, what is truly useful from this index is the opportunity it provides in motivating discussion among market participants, policymakers, and interested researchers, as it already has at the <a href="http://www.lacea.org/portal/index.php?option=com_content&amp;view=featured&amp;Itemid=101">Latin American and Caribbean Economic Association</a> meeting in Buenos Aires last November. Hopefully, these types of conversations will serve to guide regulatory reforms.

<em>Liliana Rojas-Suarez is a senior fellow at the Center for Global Development.</em>

<em>Lucía Pacheco is an economist at BBVA Research.</em>

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/11/13/how-smart-campaign-research-is-influencing-client-protection-policy-in-peru/">How Smart Campaign Research Is Influencing Client Protection Policy in Peru</a>

<a href="https://cfi-blog.org/2017/12/08/sadc-needs-a-regionally-accepted-digital-financial-id-and-it-is-feasible-to-contemplate/">SADC Needs a Regionally-Accepted Digital Financial ID - And It Is Feasible to Contemplate</a>

<a href="https://cfi-blog.org/2017/12/15/net-neutrality-ruling-could-block-your-bank/">Net Neutrality Ruling Could Block Your Bank</a>

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Assessing the Quality of Regulations for Improving Financial Inclusion in Eight Latin American Countries

Argentina

Brazil

Uruguay

Financial Technology

Policy, Regulation and Government Initiatives

In a landmark ruling yesterday, the U.S. Federal Communications Commission (FCC), led by Chairman Ajit Pai, voted to end net neutrality — the requirement for internet service providers to treat all the content they carry equally regarding access, price, and speed/quality of delivery. This decision, overturning Obama-era internet regulations, is a big deal and may shape the way Americans experience the internet in the future.

It could have significant implications for financial inclusion, too.

Under the new ruling from the FCC, internet service providers (ISPs) may give preferential treatment to content from applications they favor — unlimited access, differential pricing, or faster/better download speeds — while slowing or even blocking other applications.

Defenders of net neutrality call it the First Amendment of the internet. They see it as protecting the open culture of the net with web access available to anyone who wants to hear or be heard. Without net neutrality, say its defenders, the internet will begin to look more like the cable TV industry of a few years ago, in which competition is limited, and consumers are offered only a few pre-packaged bundles of services. They fear that ISPs will engineer consolidation in the industry by favoring companies they own, buy, or negotiate sweetheart deals with — and these will probably only be big companies. Some consumer advocates imagine a tiered internet emerging in which high-end consumers pay for deluxe packages and lower-income people receive poor quality and limited services.
<h3>Net Neutrality Around the World</h3>
Yesterday’s ending of net neutrality ruling applies only in the United States. Europe retains the principle, though it may not always enforce it. In emerging markets, regulations vary widely, and in some areas, they are hotly debated. <a href="https://www.bnamericas.com/en/news/Lower_house_approves_internet_neutrality_law/?position=524428">Chile enacted net neutrality in 2010,</a> becoming one of the first countries to introduce rules on internet neutrality. Mexico, as well, has such legislation. Despite much discussion around net neutrality in India, there’s still no legislation in place there. At issue in India has been telcos’ interest in maintaining their core telephone revenue in the face of competition from digital telephone service providers like WhatsApp.

At this point, we can only speculate about the effects of yesterday’s decision on financial inclusion in the U.S. and around the world. But if the net neutrality advocates are right, such changes in the shape of the internet could substantially hurt financial inclusion, primarily by making it harder for smaller companies and startups to succeed.

To illustrate how ISPs and big tech are likely to team up, <a href="https://www.nytimes.com/2017/12/10/business/net-neutrality-europe-fcc.html?action=click&amp;contentCollection=Technology&amp;module=RelatedCoverage&amp;region=EndOfArticle&amp;pgtype=article">recently in Sweden</a>, Telia, a telco offering internet services, sought to provide a package of unlimited access to Facebook, Spotify, and Instagram (owned by Facebook), among other top platforms, while charging for content from other sources. The offering has been challenged under European net neutrality rules, but it marks a path toward industry consolidation.
<h3>Why Web Access Matters for Financial Services</h3>
As large internet companies increasingly enter the financial services arena, payment services offered by internet giants would likely be part of packages like the example from Sweden. Other companies — like fintech startups and smaller financial institutions — would not have the market power to negotiate their way into favored packages. If the fears of supporters of net neutrality come true and extend into financial services, that would mean less innovation, less competition, less variety, and possibly higher prices for the same (or worse) services.

In such a scenario, it would become harder for lower-income customers to use internet-enabled financial services if their end of the market is differentiated from the premium end. Reaching customers would become more expensive and difficult for fintech startups and small financial institutions aiming at a mass market if the ISPs shut both companies and customers out of the premium internet. Companies with deeper pockets may be able to afford faster (or any) access to potential customers, and it is conceivable, under the new rules, that an ISP could completely block a service that competes directly with one of its initiatives. If fintech startups are trying to nudge and disrupt the often massive, well-entrenched financial service companies, these companies will face fewer innovations challenging their business models.

In the worst case, we are worried that the “big five” tech companies, who already have the data and the access to make any other fintech startups irrelevant, just became even more powerful. Not only do they have the data they need to better understand and serve any customer on the planet, these major tech companies soon may be the only ones that can afford to access and engage with those customers, and we know they have big ambitions in the financial services arena.

The net neutrality debate raises fundamental and profound questions about freedom of speech, the role of a free and open internet in society, market concentration in the digital economy, and so forth. Its effect on financial inclusion may get lost in the more prominent debates and the titanic struggles for influence among powerful companies. When it comes to shaping the future of financial inclusion, a lot depends on decisions made without much thought about their effect on the financial sector.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Catalyst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/10/19/the-financial-lives-of-struggling-americans-the-financial-diaries-and-the-unbanking-of-america/">The Financial Lives of Struggling Americans: The Financial Diaries and The Unbanking of America</a>

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Net Neutrality Ruling Could Block Your Bank

Sweden

From Beth's Desk

Banks

Enabling Environment

Financial Service Providers

<em>&gt; Posted by Center Staff</em>

<img class="alignright wp-image-21224" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/thumb_769d558f79c24160b4c408ede6a180a2.jpg" width="315" height="210" />Remember the first time you tried to cook? Chances are you were nervous or at least apprehensive about how the food would turn out. If friends or family were in attendance, or, worse, were to eat what you were preparing, you were probably even less confident. Remember the second time you cooked? Or the third? Probably not. The more you actually got into the kitchen, the more your skills sharpened, and the more routine it became.

Using formal financial services for the first time, like cooking, can be intimidating – especially for people not used to interacting with formal institutions. Banks are big and complicated. A person of moderate means might feel that the bank will treat her as a low priority customer. And the notion of entrusting one’s livelihood to an unfamiliar entity is scary.

As part of CFI’s new <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/724">financial capability project</a>, we scanned the globe for the top innovations to help clients build their capability and make sound financial decisions. One of the <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/a-change-in-behavior-abridged-version.pdf">behaviorally-informed practices</a> we identified among these innovations as having great promise to affect changes in behavior is <strong><em>learning by doing</em></strong>, a strategy closely connected to effective, practical learning. Think of how much quicker your capability grew by <em>actually</em> cooking, than by reading a cook book.

Learning by doing, whether through technology-enabled simulations, or in real life with the supervision of front-line staff, enables customers to overcome the initial barriers to use that come with unfamiliarity and lack of confidence. Learning by doing offers customers the space to learn and get comfortable with financial products. This can be especially valuable for customer activation.

In our project we came across many organizations that promote learning by doing – some via group settings, others through interactive games or individual interventions. Here are a few of our favorites.

To promote savings, AgentPiggy, a virtual piggy bank from Chile, gets children and parents involved in creating and working toward financial goals. AgentPiggy allows parents to create a starting balance and weekly allowance amount for their child’s virtual piggy bank. The activities prompt learning by doing as children set goals and manage their money via specific challenges. For example, parents can set up a system where children earn money through completing challenges such as performing certain household chores.

Fundación Capital (FC) helps build the financial capability of recipients of government cash transfers in Colombia and 11 other countries in Latin America through its program Iniciativa LISTA. Developed in 2012 in rural Colombia, Iniciativa LISTA aims to change attitudes towards and provide knowledge about financial services. The program is currently being scaled to 100,000 households under Colombia’s Más Familias en Acción. For LISTA, FC developed a tablet loaded with financial education modules and games. The LISTA tablet serves as a decentralized, self-paced, customized learning platform that can be used in the absence of a trained facilitator. Each family in a village keeps a tablet for a few days, allowing users to practice with technology in private.

The tablet also includes an ATM simulator and other practice exercises. The ATM simulator is the most popular element on FC’s tablet, which also suggests that it is the most useful. The primary goal is to reduce fear of ATMs and increase confidence around technology. The confidence barrier is large and can lead to financial exclusion among poor women. FC found that the tablets were especially popular among youth. Similar programs are being prepared or implemented in Brazil’s Bolsa Familia, the Dominican Republic’s G2P programs, and Mexico’s PROSPERA.

[caption id="attachment_21227" align="aligncenter" width="614"]<img class="wp-image-21227" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/fundacion-capital1.jpg" width="614" height="384" /> Screenshot of Fundación Capital's tablet-based ATM simulator[/caption]

Swadhaar FinAccess, a microfinance institution in India, worked with Accion to launch a mobile money pilot with Airtel Money and Axis Bank that enables Swadhaar’s loan customers to repay loan installments using mobile money. To address slow adoption of this option, Accion and Swadhaar developed training modules to help clients gain comfort with the new service. The modules were informed by research and used engaging approaches like storytelling and videos. In addition, local peer educators were hired to demonstrate how to use the mobile money account, accompany clients to agents, and troubleshoot issues such as registering the SIM or obtaining a PIN code. An app was developed allowing trainers and peer educators to assist clients to practice mobile transactions. Early findings demonstrated that targeted customer education was important to driving uptake and use of both the loan repayment solution and other transactions such as saving, airtime recharge, and bill payment.

For youth inclusion, integrating financial capability-building into school curricula has been at the top of the list of actions in many national financial capability strategies. Banking authorities are cooperating with Ministries of Education in a substantial number of countries, including Brazil and Peru, and significant public money is channeled in this way. Compared to stand-alone financial education for adults, financial education for children may have greater long-term effect, as it reaches people when habits are being created. However, even here, it would be important to incorporate learning by doing. Learning by doing can be applied by linking education to the opening and use of youth bank accounts. Innovations for Poverty Action is testing the effectiveness of this approach in Uganda and Ghana, and it has shown short-term results.

<em>This post was adapted from ‘A Change in Behavior: Innovations in Financial Capability’. For more on learning by doing, and the other six behaviorally-informed practices,</em><em> </em><a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability"><em>click here</em></a><em>.</em>

<em>Image credits: Accion; Fundación Capital</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/04/12/a-change-in-behavior-innovations-in-financial-capability/">A Change in Behavior: Innovations in Financial Capability</a>

<a href="https://cfi-blog.org/2016/04/14/six-recommendations-on-financial-capability/">Six Recommendations on Financial Capability</a>

<a href="https://cfi-blog.org/2016/04/22/making-fun-work-for-financial-capability/">Making Fun Work for Financial Capability</a>

To Build Financial Capability – Get Your Hands Dirty

Financial Inclusion 2020

Agent Banking

Digital Financial Services

Mobile Banking

Youth

<em>&gt; Posted by Susy Cheston, Senior Advisor, CFI</em>

<a href="http://www.fi2020progressreport.org/client-protection/"><img class="aligncenter wp-image-19650" style="border: 1px solid #000000;margin-bottom: 5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/client-protection.png" alt="" width="614" height="341" /></a>Visitors to our <a href="http://www.fi2020progressreport.org/client-protection/"><em>FI2020 Progress Report on Client Protection</em></a> will have noted our poor math skills. (This is the section of the report that assesses global progress to date in advancing fair treatment for lower-income financial services clients.) We rated regulators a 6 on consumer protection and providers a 3—and somehow averaged those out to a 5. Our averaging skills make even less sense when you consider the <a href="http://cfi-blog.org/2012/12/05/the-three-legged-stool-of-client-protection/">three legs of the client protection stool</a>—providers, regulators, and consumers—and realize that consumers are not even on the radar, rightfully earning a 1 at best in terms of their capacity to advocate on their own behalf. So why the optimism?

We were certainly swayed by the impressive momentum among a range of actors at the global level—including policy and private sector initiatives—toward improved consumer protection. But it’s what happens at the national level that really counts. The World Bank’s <a href="http://responsiblefinance.worldbank.org/~/media/GIAWB/FL/Documents/Publications/CPFL-Global-Survey-114econ-Oversight-2014.pdf"><em>2014 Global Survey on Consumer Protection and Financial Literacy</em></a> reports that some form of legal framework for financial consumer protection is in place in 112 out of 114 economies surveyed. We are not so <a href="https://en.wikipedia.org/wiki/Pollyanna_principle">Pollyannaish</a> as to think that having a legal framework is equivalent to having a regulatory and supervisory system that protects consumers well, but we do think it’s a good step in the right direction.

We also looked at the <a href="http://www.centerforfinancialinclusion.org/microscope"><em>Global Microscope</em></a>, which shows a wide range of policy and practice in each of the 55 markets it surveys. The <em>Microscope</em> provides a wealth of detail, including noting the countries that have weak market-conduct rules and grievance redressal mechanisms. In general, the MENA region is struggling in these areas. On the whole, in one-third of the countries studied, the <em>Microscope</em> found that significant efforts are needed in both regulation and its implementation. Yet, there are glimmers of best practice. The Latin American region stands out, with Peru, Colombia, Chile, and Bolivia ranked in the lead on consumer protection indicators in 2014, and the Philippines (as always) is worth noting, too.

Overall, with significant recent progress by national regulators such as Indonesia, continued deepening from leaders such as Peru and the Philippines, and progress on global standard-setting, we are just encouraged enough to give regulators a cautiously optimistic 6 in progress to date.

On the provider side, which we awarded a 3 for progress to date, there are bright spots. Among them, industry codes of conduct, and individual financial service providers that recognize the linkage between consumer protection and their own success. However, there are many forces pushing against industry leadership. The challenges and costs of reaching the base of the pyramid together with the challenges and costs of implementing good consumer protection practices can be daunting. We may seem like cockeyed optimists—but we nevertheless hold fast to the vision that providers can and must incorporate consumer protection into their professional identity. Not only is it the right thing to do, it positions clients to be effective, loyal services users, contributing to long-term financial bottom-lines.

Of course, as the market evolves, consumer protection challenges evolve with it. Technology can benefit consumer protection. Among the many examples are how technology can reduce opportunities for petty staff corruption and provide new ways for consumers to share complaints. But technology also brings new risks, such as complex and confusing interfaces, connectivity interruptions, lack of pricing transparency, and new types of fraud. Consumer data in digital form is proliferating, and most countries do not have protections in place about the use of that data. We are now in a period of learning about the consumer protection implications of rapidly changing technologies, and the jury is out on whether client protection is prone to be stronger or weaker amidst those changes.

We weighed all of these considerations and scored the world’s progress toward consumer protection for the base of the pyramid. The last I checked, the “People’s Vote” was a slightly less optimistic 4. Check out the <em><a href="http://www.fi2020progressreport.org/client-protection/">FI2020 Progress Report on Client Protection</a></em> and cast your own vote.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress toward Financial Inclusion on a Scale of 1 to 10</a>

<a href="http://cfi-blog.org/2015/10/05/toward-an-agent-free-world/">Toward an "Agent-Free" World</a>

<a href="http://cfi-blog.org/2015/10/07/addressing-customer-needs-off-to-the-data-mines/">Addressing Customer Needs? Off to the Data Mines</a>

Why We Gave Consumer Protection a 5

Bolivia

Middle East and North Africa

Philippines

Alternative Data

Consumer Protection

Privacy

Trends

<h4><span style="color:#ff6600"><em>The most exciting trends and startups in inclusive finance this year</em></span></h4>
<em>&gt; Posted by Vikas Raj, Director of Investments, Accion Venture Lab</em>

[getty src="179161271?et=SaXnrWglS9Z4A-d6AKfJDA&amp;sig=KQBmEgFacOXs27RHFvRrKGt2_1QabjRCyRuQRET5oOA=" width="640" height="399"]
<p class="Normal"><span class="Normal__Char">There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a </span><a href="http://www.bloomberg.com/news/2014-12-10/lendingclub-poised-for-cash-infusion-of-its-own-to-fund-growth.html"><span class="Hyperlink__Char">high-profile IPO</span><span class="Hyperlink__Char">, </span><span class="Hyperlink__Char">several more apparently on the way</span></a><span class="Hyperlink__Char">, </span><span class="Normal__Char">and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility - just this month, Australian Wealth Index (AWI) listed the </span><a href="http://fintechinnovators.com/about-awi" target="_blank"><span class="Hyperlink__Char">50 Best FinTech Innovators</span></a><span class="Normal__Char">, and CFI’s Elisabeth Rhyne </span><a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank"><span class="Hyperlink__Char">conveniently categorized</span></a><span class="Normal__Char"> the list so it’s easy to see at a glance where the innovations are.</span></p>
<p class="Normal"><span class="Normal__Char">At <a href="https://www.accion.org/venturelab">Venture Lab</a>, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed. </span></p>
<p class="Normal"><span class="Normal__Char">It’s a particularly exciting time because the traditional bottlenecks to reaching these customers – the need for high-touch models and small value transactions, the need for cost-effective means of education and engagement – are exactly the kind of barriers that technological advances can help tackle. As Elisabeth Rhyne </span><a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank"><span class="Hyperlink__Char"><span class="Hyperlink__Char">laid out</span></span></a><span class="Normal__Char"> in her challenge recently, what about the “top 50 <span class="Normal__Char">financial inclusion</span> innovators?” What about the new business models and technologies that are impacting the underserved? </span></p>
<p class="Normal">At Venture Lab, we are focused on investing in businesses that are innovating in big ways to get consumers and small businesses a wider range of financial products and services, and therefore giving them the tools they need to manage and improve their lives. The breadth of this challenge is so large, and the ways to chip away at it so varied, that we don’t think it makes a lot of sense to try to force rank the “best” financial inclusion companies.</p>
<p class="Normal">Instead, we lay out below some of the key groundbreaking trends we see in the financial inclusion space right now, and some of the seed stage companies that are leading the charge. This is by no means an exhaustive list – of trends, and especially not of companies. However, from our seat as seed stage investors, these are some of the most exciting things happening in financial inclusion right now.</p>
<strong>Digital Remittances</strong> – Companies are figuring out new ways to send money across international borders, dramatically improving the value proposition to senders and recipients, using mobile wallets to get money directly into recipients’ pockets and cryptocurrencies to execute transactions faster and cheaper.
<ul>
	<li>Coins.ph (the Philippines) – A Bitcoin mobile wallet that cuts transaction costs for Filipinos working abroad and sending money home. Also offers direct ATM withdrawal via partnerships with banks as well as merchant integration for e-commerce.</li>
	<li class="List_0020Paragraph">SimbaPay (U.K.) – Mobile app that allows Kenyans abroad to deposit money into Kenyan bank accounts instantly.</li>
	<li class="List_0020Paragraph">Send WAVE (Kenya) – Cuts transaction costs for Kenyans via software that automates remittances, only charging a foreign exchange rate fee. Users can instantly send funds via a mobile application.</li>
	<li class="List_0020Paragraph">Hellobit (San Francisco) – Uses Bitcoin to cut transaction costs for remittances by allowing anyone with a mobile phone to act as Bitcoin exchanger or delivery agent.</li>
	<li class="List_0020Paragraph">BitPesa (Kenya) – Uses Bitcoin to cut transactions costs for Kenyans working abroad and sending money home.</li>
	<li class="List_0020Paragraph">Volabit (Mexico) - Uses a Bitcoin backend for consumers to send money, shop online, and invest in Bitcoins via peer to peer lending.</li>
</ul>
<strong>Marketplace Lending 2.0</strong> – With the Lending Club IPO starting 2015 off with a bang, we expect businesses that build online platforms that stand between borrowers and lenders to continue to be a core innovation area in 2015, particularly as new business models leverage motivated alternative capital sources to serve specific customers sets (small business, customers working through credit issues) with more relevant products.
<ul>
	<li>LendStreet (U.S.) – Using marketplace lending capital to allow distressed borrowers to refinance their debt and rebuild their lives.</li>
	<li class="List_0020Paragraph">StreetShares (U.S.) – Connecting small businesses to marketplace lending-sourced capital, with a focus on veteran-owned businesses and investors.</li>
	<li class="List_0020Paragraph">Bolstr (U.S.) – Expansion capital for small businesses with a focus on community support – revenue share-based repayments.</li>
	<li class="List_0020Paragraph">Intoo (Brazil) – Receivables financing for small and medium-sized businesses through FIDCs and other alternative financers.</li>
</ul>
<strong>New Data for Credit Scoring</strong> – We are more excited than ever about companies that identify and exploit new or never-before-used data pools to enhance lenders’ decision-making and allow them to expand their loan books downmarket.
<ul>
	<li>First Access (East Africa) – Leveraging cell phone data to more reliably gauge credit risk for borrowers in informal markets.</li>
	<li class="List_0020Paragraph">Destacame (Chile) – Uses individuals’ utilities and cell phone data to create and manage alternative credit scores and influence current credit scoring models.</li>
	<li class="List_0020Paragraph">AIRE (U.K.) - Alternative credit score for consumers who have no existing credit data.</li>
	<li class="List_0020Paragraph">Kopo Kopo (East Africa) – Using mobile money merchant data to provide financing to merchants that fits within their cash flow cycles.</li>
</ul>
<strong>eCommerce Merchant Lending</strong> – This could be seen as a sub-set of the category above, but we are particularly excited about companies that partner with existing eCommerce sites to gather crucial data and provide loans and other financial services to online merchants.
<ul>
	<li>Lendingkart (India) – Partnering with India’s eCommerce players to provide unsecured term loans to online merchants.</li>
	<li class="List_0020Paragraph">Mr Presta (South America) – Partnering with the largest eCommerce players in Mexico and Argentina to lend to small and medium-sized online businesses.</li>
	<li class="List_0020Paragraph">NeoGrowth (India) – Financing via online partners based around merchant cash advance.</li>
</ul>
<strong>Customer Engagement</strong> – Finally, we love the new breed of companies that are allowing lenders, and others, to better engage with their customers by helping them to better understand products and giving them core insights about customer behavior and risk. These companies run the gamut between financial literacy and credit enhancement tools, but they are connected by their core innovation around bringing customers into the financial system by engaging directly in new ways.
<ul>
	<li>Juntos (Global) – Mobile-based personal finance tools for cash-based households.</li>
	<li class="List_0020Paragraph">Revolution Credit (U.S.) – Online courses and videos that allow consumers to increase financial IQ and access better financial products.</li>
</ul>
<p class="Normal">This is hardly a complete inventory of all the cool stuff happening, but certainly enough to get excited about.</p>
<strong>Have</strong> <strong>you</strong> <strong>read</strong>?

<a href="http://cfi-blog.org/2014/10/30/fueling-the-economic-engine-global-experiments-in-small-enterprise-lending/" target="_blank">Fueling the Economic Engine: Global Experiments in Small Enterprise Lending</a>

<a href="http://cfi-blog.org/2014/12/05/the-role-of-peer-to-peer-lending-in-financial-inclusion/" target="_blank">The Role of Peer-to-Peer Lending in Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/11/05/accion-venture-lab-responds-to-the-great-competition-and-innovation-deficit/" target="_blank">Accion Venture Lab Responds to 'The Great Competition and Innovation Deficit'</a>

Financial Inclusion Trends and Innovators – 2015

First Access

Kopo Kopo

Accion Venture Lab

Kenya

Sub-Saharan Africa

United Kingdom

United States

Blockchain and Cryptocurrency

Data Analytics

Fintechs

Remittances

<em>&gt; Posted by Kaj Malden, Consultant, PlaNet Finance China</em>

<a href="https://www.flickr.com/photos/kongharald/11809665464"><img class="aligncenter wp-image-16933" style="margin-top: 5px;margin-bottom: 5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/01/11809665464_cfd2ea95a5_z.jpg" alt="" width="610" height="407" /></a>For China’s young microfinance sector, which could benefit from more regulatory oversight and transparency, ratings have the potential to catalyze healthy growth. Efforts to incorporate ratings throughout the country’s market, however, have so far been largely ineffectual. A new report from PlaNet Finance China and Planet Rating, <em>The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector</em>, part of PlaNet Finance and Credit Suisse’s “Microfinance Robustness Program”, outlines how ratings could provide welcome growth and strengthening for Chinese microfinance, and describes the current obstacles that stand in the way.

Mainstream ratings systems evaluate creditworthiness of debt and financial products for companies. They also contribute to setting benchmarks for the wider financial services industry. Specialized microfinance rating agencies evaluate some of the same qualities traditional rating agencies do, but they are trained in microfinance and investigate other financial inclusion-specific indicators, such as social performance. Microfinance ratings function as institutional ratings, not credit ratings, as in the case of mainstream ratings. These more nuanced ratings for the microfinance sector first emerged in Latin America, where microfinance boomed in the late 1990s.

In the Latin American region, ratings armed investors, government leaders, and other stakeholders with a clearer picture of the microfinance landscape, eventually leading to increased debt funding and growth-conducive policy. Today, Peru, Colombia, and Chile feature robust microfinance markets, as suggested by their ranking among the top five countries for financially inclusive environments in the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope" target="_blank" rel="noopener"><em>2014 Global Microscope</em></a> from the Economist Intelligence Unit (EIU). While ratings are far from the whole story of success in Latin American microfinance, they made – and continue to make – important contributions.

In China, there has been an expansion in the number and type of institutions serving the base of the pyramid. For instance, policy initiatives have encouraged traditional lenders to downscale their services in the form of Village and Township Banks, and there are also over 8,000 microcredit companies (MCCs) across the country. In spite of this encouraging growth, however, the policy environment for inclusive finance in China ranks 42<span style="font-size: 13px;line-height: 20px">nd</span> in the EIU’s <em>2014 Global Microscope</em>.

Many of the Chinese institutions engaged in inclusive lending could benefit from third-party feedback on how to scale their operations – exactly the kind of feedback ratings provide. Supervisors would also benefit from the best practices and experiences of other MFIs. If history in Latin America provides any lessons, perhaps specialized ratings for microfinance operations in China could form the next crucial step in the sustainable development of the sector.

However, as the PlaNet Finance China report clarifies, comparing the history of ratings undertaken globally to those recently done in China is a complex exercise. China faces unique developmental conditions in using ratings for microfinance:
<ul>
 	<li>MFIs in China so far have only undergone superficial credit ratings performed by mainstream domestic agencies, as mandated by central government leaders trying to make sense of a complex market. These agencies spend minimal time on site, and given their generalized approach, do not provide deep feedback or insight to the young financial institutions.</li>
 	<li>The responsibility of implementing these pilot rating projects is devolved to provincial offices of financial affairs (POFAs). While ratings should stay “local” given China’s provincial diversity, these POFAs perform ratings as mandated by central authorities and they do not share their findings with each other. Central coordination when rating and evaluating these new institutions will be key in defining national benchmarks for the industry.</li>
 	<li>Ratings have not armed Chinese MFIs and MCCs with increased access to debt funding, a concern further exacerbated by the fact that foreign investors with interest in microfinance have difficulties investing in the Chinese market. In contrast, non-banking financial institutions globally have enjoyed easier access to debt funding and preferential policy treatment as a result of ratings, making them a worthwhile value-added exercise that garners industry support and boosts capacity building. Mainstream rating pilots in China’s microfinance sector have not so far delivered these kinds of benefits.</li>
</ul>
There’s much that ratings can do for the robust growth of microfinance. However, the sector is still emerging in China, and fragmented coordination of surface rating pilots do not yet offer Chinese players the benefits needed for increased growth. The new report hopes to mediate that missing knowledge and provoke discussion on the part of stakeholders.

<em>To read the report, <a href="http://www.planetfinancechina.org/planet-finance-china-publishes-report-on-the-role-of-microfinance-ratings-in-china/" target="_blank" rel="noopener">click here</a>.</em>

<em>Image credit: <a href="https://www.flickr.com/photos/kongharald/11809665464" target="_blank" rel="noopener">Harald Groven</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/01/07/ratings-to-loosen-the-regulatory-noose-on-chinas-microcredit-companies/" target="_blank" rel="noopener">Ratings to Loosen the Regulatory Noose on China's Microcredit Companies</a>

<a href="http://cfi-blog.org/2013/02/14/how-client-protection-certification-and-ratings-work-together/" target="_blank" rel="noopener">How Client Protection and Ratings Work Together</a>

<a href="http://cfi-blog.org/2014/10/27/gender-dynamics-in-rural-china-illuminate-the-need-for-financial-education/" target="_blank" rel="noopener">Gender Dynamics in Rural China Illuminate the Need for Financial Education</a>

&nbsp;

The Role of Microfinance Ratings in the Sustainable Development of China’s Financial Inclusion Sector

Credit Suisse

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

China

Ghana

Guatemala

India

Nigeria

Paraguay

Peru

Tanzania

Zambia

Aging and Older Adults

Credit

Financial Inclusion Strategy

Housing Finance

Impact Investing

Microfinance

Persons With Disabilities

Risk Management

Saving

Social Performance

Women

<em>&gt; Posted by Jeffrey Riecke, Communications Associate, CFI</em>

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Last week the Bangko Sentral ng Pilipinas (BSP) <a href="http://www.philstar.com/business/2014/12/05/1399185/microfinance-loans-continue-rise">announced</a> substantial increases throughout the country’s microfinance market: growth in the volume of loans dispersed to microentrepreneurs, in the number of microcredit institutions offering savings services, and in the return on equity of rural banks with microfinance operations. Concerning regulation and institutional support, the recently released <em><a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/eiu_global_microscope_2014.pdf">2014 Global Microscope</a> </em>found that the Philippines has the best environment in Asia for financial inclusion.

In 2014, loans extended to microentrepreneurs in the Philippines totaled <a href="http://www.philstar.com/business/2014/12/05/1399185/microfinance-loans-continue-rise">P9.3 billion</a> (US$209 million) as of June, according to figures reported by BSP Governor Amando M. Tetangco Jr. at the recent Citi Microentrepreneurship Awards in Manila – a roughly 7 percent increase over last year’s figure. On savings, in early 2012 only 22 banks in the country offered micro-deposit accounts. Now, 69 of the Philippines’ 183 banks with microcredit operations take deposits, with a total of 1.7 million micro-deposit accounts. Beyond credit and savings, <a href="http://www.interaksyon.com/business/100511/microfinance-shows-way-for-profitable-low-risk-banking-business-says-bangko-sentral" target="_blank">86</a> of the country’s institutions offering microcredit also provide microinsurance and 26 provide electronic banking services.

During his speech, <a href="http://www.philstar.com/business/2014/12/05/1399185/microfinance-loans-continue-rise">Tetangco said</a>, “It is clear microfinance has become a viable proposition for banks. In fact, we can say that microfinance as a medium for financial inclusion has strengthened the institutional stability of banks by generating reliable business opportunities.” Over the last four years, the return on equity of rural banks with microfinance operations was on average <a href="http://www.interaksyon.com/business/100511/microfinance-shows-way-for-profitable-low-risk-banking-business-says-bangko-sentral">three percent</a> higher than that of the rural banking sector as a whole. Additionally, the ratio of non-performing loans of rural lenders offering microfinance is now very slightly below the industry average.

The <em>2014 Global Microscope</em>, the EIU’s annual examination and ranking of the inclusiveness of countries’ financial sectors, found the Philippines to be <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/eiu_global_microscope_2014.pdf">the best country in Asia</a> and the third best country in the world after Peru and Colombia. Tetangco <a href="http://www.gmanetwork.com/news/story/390866/economy/moneyandbanking/microfinance-key-to-financial-inclusion-in-phl-bangko-sentral-chief">highlighted</a> the country’s <em>Microscope </em>ranking, noting that the report singled out the Philippines’ highly capable regulator, credit regulation, and effective dispute-resolution mechanisms. Peru, Colombia, and the Philippines (with scores of 87, 85, and 79) ranked considerably higher than the next highest scoring countries, Chile, Mexico, and India (66, 61, and 61).

The Philippines’ financial inclusion efforts enjoy proactive leadership at the national government level. It was the first country in the world to establish an office dedicated to financial inclusion, the Inclusive Finance Advocacy Staff. The Philippines’ national financial inclusion strategy has specific goals and commitments, many of which have already been implemented, including financial education initiatives.

Much room for additional outreach remains, however, as only 27 percent of the adult population has a deposit account, according to the Global Findex. The archipelago country of 7,000 islands presents great physical challenges for reaching the unbanked. To date, the vast majority of financial services are concentrated in urban and semi-urban areas. New Findex figures are due out in the first half of 2015. That’s when we will be able to tell whether enabling policies are actually paying off in the form of rising inclusion.

For more on the Philippines’ financial inclusion environment, including additional challenges, read the <em><a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/eiu_global_microscope_2014.pdf">2014 Global Microscope</a></em>.

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/07/16/savings-overtakes-loans-in-the-philippines/">Savings Overtakes Loans in the Philippines</a>

<a href="http://cfi-blog.org/2012/09/10/serving-persons-with-disabilities-in-the-philippines/">Serving Persons with Disabilities in the Philippines</a>

<a href="http://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/">The 'Global Microscope 2014': Results and Surprises</a>

Asia’s Top Country on Financial Inclusion Policy, the Philippines, Strengthens Its Microfinance Market

Agricultural and Rural Finance

Insurance

<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-2013-global-microscope"><img class="alignright wp-image-16543" style="border: 2px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/microscope.png" alt="" width="280" height="353" /></a>If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope"><em>Global Microscope 2014: The Enabling Environment for Financial Inclusion</em></a>. The <em>Microscope</em> is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The <em>Microscope</em> evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?

We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the <em>Microscope</em> is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.

This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten.

<a href="http://bit.ly/1s9k6T0"><img class="aligncenter wp-image-16546" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/microscope-figure.png" alt="" width="600" height="290" /></a>

So, who leads the pack? Here’s the list of the top 10 countries and their scores (on a scale of 0 to 100).
<p style="padding-left: 30px">1) Peru -- 87</p>
<p style="padding-left: 30px">2) Colombia -- 85</p>
<p style="padding-left: 30px">3) Philippines -- 79</p>
<p style="padding-left: 30px">4) Chile -- 66</p>
<p style="padding-left: 30px">5) Mexico and India (tie) -- 61</p>
<p style="padding-left: 30px">7) Bolivia and Pakistan (tie) -- 58</p>
<p style="padding-left: 30px">9) Cambodia and Tanzania (tie) -- 56</p>
There were three very clear champions: Peru, Colombia, and the Philippines, whose scores are well above the next-ranked country, Chile. Peru and Colombia performed strongly across the board, scoring in the top five on nearly all indicators. The Philippines’ inclusion environment ranked well in part due to its capable regulator, optimal credit regulation, and effective dispute-resolution mechanisms.

The wide range of performance is notable. Top-scoring Peru secured 87 out of a possible 100 points, while lowest-ranked Haiti only managed 16, and there are countries spread rather evenly throughout the whole scoring distribution. This reveals a very wide range of attention to and progress on financial inclusion across the world. This range is borne out by the finding that a third of countries have active national financial inclusion strategies with targets, a third have strategies that remain vague or patchy, and a third have not made any formal commitment to financial inclusion.

Regionally, both Latin America and the Caribbean and East and South Asia score well. While the Middle East and North Africa region had the lowest regional average score, low scores are present among countries in several regions: Democratic Republic of the Congo, Madagascar, Egypt, Yemen, and Haiti.

East and South Asia and Sub-Saharan Africa are the leading regions in regulation for electronic payments. Kenya and Tanzania in particular stand out for their strong regulation conducive to the growth of mobile payments, and Bangladesh, Pakistan, and Sri Lanka for their effective e-pay infrastructure.

The <em>Microscope</em> found that countries that had strong institutional support – credit reporting, client protection, accounting standards – often performed very well overall, and countries that had weak institutional support performed poorly. Countries at the bottom of the rankings performed especially poorly on measures of institutional support.

The <em>Microscope</em> report, with its country profiles, provides a rich source of information for further research. It also provides a stimulus for policymakers to focus on areas for improvement and to look to the leaders for inspiration and example.

For more detail, including country breakdowns and rankings, you can download the report <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">here</a>.

<em>Graphic credits: <a href="http://bit.ly/1s9k6T0">'Global Microscope 2014'</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/12/17/defining-the-path-to-financial-inclusion-in-peru/" target="_blank" rel="noopener">Defining the Path to Financial Inclusion in Peru</a>

<a href="http://cfi-blog.org/2013/10/03/global-microscope-finds-the-world-getting-more-microfinance-friendly/" target="_blank" rel="noopener">Global Microscope Finds the World Getting More Microfinance-Friendly</a>

<a href="http://cfi-blog.org/2012/12/20/putting-a-microscope-on-client-protection-in-microfinance/" target="_blank" rel="noopener">Putting a Microscope on Client Protection in Microfinance</a>

&nbsp;

The 'Global Microscope 2014': Results and Surprises

Bangladesh

Cambodia

Congo, Dem. Rep.

Egypt, Arab Rep.

Haiti

Madagascar

Pakistan

Sri Lanka

Yemen, Rep.

Matthieu Albrieux

Senior Investment Officer, Latin America

Adelina Dasso

Maria Camila Gomez	Silva

Megan Peterson

Priya Punatar

Rachel Morpeth

Yanina Seltzer

Advisory Services

Appropriate Product Design and Delivery

Client Treatment

Customer Centricity

Financial Health

Human Centered Design

MSME/SME Finance

Partnerships

Personal Financial Management

Refugees and Migrants

Resilience

Responsible Investing

Risk and Credit Analysis

Article

Brief

<span style="font-weight: 400;">Fintech may be disrupting the formal financial sector, but often, it’s a collaborative process. Traditional institutions are increasingly working together with fintechs to disrupt old operations that weren’t working and build a more efficient and inclusive system. Accion partner </span><a href="https://www.destacame.cl/"><span style="font-weight: 400;">Destacame</span></a><span style="font-weight: 400;">, based in Chile and Mexico, is one of the fintechs that’s forming partnerships to drive financial inclusion. As a full-service digital platform for users to build their financial health, Destacame collaborates with more than 25 financial institutions to offer appropriate financial products to its users.</span>

[caption id="attachment_17180" align="alignleft" width="500"]<img class="wp-image-17180" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day2__0500-1024x682.jpg" alt="Nicolas Jaramillo sitting at a table in his office" width="500" height="333" /> <em>“Destacame has the potential to become a key player or mediator in between banks and clients,” says Nicolas Jaramillo.</em>[/caption]

<span style="font-weight: 400;">Many of these users previously lacked access to financial tools. For too long, financial service providers have disregarded large markets because they were too costly to serve and traditional methods didn’t work to assess their creditworthiness. “Because of their structure and bureaucracy, sometimes they can't offer what people need, but this is changing. Banks are realizing the competition they have with other financial entities, and clients have more information and want to have options on financial products according to their needs,” says Nicolas Jaramillo, who co-founded Banco BCI’s MACH program focused on innovation in payments. He adds that “Destacame has the potential to become a key player or mediator in between banks and clients.” </span>

<span style="font-weight: 400;">“Destacame was one the first companies that started about four years ago and implemented this new way of doing things — approaching a segment of people that I wasn't familiar with, the segment of individuals with no banking or credit history, poor access to credit, and poor relationships with banks,” says Nicolas. MACH partnered with Destacame to generate leads among the unbanked, and it’s been a successful partnership. “The clients that we received from them are good quality clients,” says Nicolas. In addition to sending good customers to MACH, Nicolas appreciates that Destacame helps customers manage their payments better. “Destacame can also be a mediator with clients to make sure they promptly pay their debts to the banks,” he says.</span>

[caption id="attachment_17170" align="alignright" width="500"]<img class="wp-image-17170" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day2__0035-1024x683.jpg" alt="Fernando Rocchi outside in front of the Fashions Park sign" width="500" height="333" /> <em>Fernando Rocchi of Fashion’s Park discusses how Destacame helps users with debt management.</em>[/caption]

<span style="font-weight: 400;">Fernando Rocchi who supervises credit risk and collections for Fashion’s Park, also emphasizes Destacame’s effectiveness at helping manage debt. Instead of traditional debt collection strategies, Fashion’s Park worked with Destacame to give borrowers a special offer to incentivize repayment. “Customers have taken this new approach really well as we are not disturbing them with calls and putting pressure on them to generate the payments, but it’s completely the opposite — we are offering them an opportunity — that I would say is an excellent opportunity — to get your record clear of debt at a discount.” It’s an approach that’s been good for Fashion’s Park and its customers. “The results have been very positive on our side. We have recovered a significant amount of capital that was essentially lost.”</span>

<span style="font-weight: 400;">Destacame’s model of working with other players in the financial system is catalyzing needed change. As Virginia Chacón, Destacame’s head of operations, puts it, “we are pushing [traditional institutions] to be more innovative and better than before. We are pushing the banks to be more humane with people and improve their service.” Destacame’s partners echo this sentiment. “This last year, I have seen how useful Destacame is as a client in the way that they are changing the financial industry in Chile,” says Nicolas from MACH. Fernando at Fashion’s Park agrees that working with Destacame will lead to a bright future. “We at Fashions Park are focusing in a market with very low banking rates and the alliance with Destacame is going to be very beneficial as it will teach customers how to maintain a healthy credit history and the benefits that will come to them from getting a positive credit record.”</span>

How Destacame is driving disruption through partnerships

Destacame

Financial Service Provider

Impact Investor

<span style="font-weight: 400;">“It's really difficult when you immigrate to another country,” says Andrea del Valle. She moved to Chile from Venezuela five years ago with a vision of the future she wanted but uncertainty about how to make it work. One day, a poster for Accion partner </span><a href="https://www.destacame.cl/"><span style="font-weight: 400;">Destacame</span></a><span style="font-weight: 400;"> caught her eye, and when she looked it up online, she was glad to see that it offered an opportunity for online financial education. Launched in 2015, Destacame provides a suite of products that allow consumers to manage their financial life and to build their financial health. </span>

[caption id="attachment_17174" align="alignleft" width="500"]<img class="wp-image-17174" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day2__0335-1024x682.jpg" alt="Andrea del Valle in conversation with Destacame co-founder Sebastián Ugarte." width="500" height="333" /> <em>Andrea del Valle in conversation with Destacame co-founder Sebastián Ugarte.</em>[/caption]

<span style="font-weight: 400;">Andrea explored Destacame’s offerings and seized the opportunity to build her credit history and applied for a microloan through the platform. She used the money from that loan to buy a food truck. Selling snacks and meals from her new truck helped supplement her expenses as Andrea studied natural therapy and planned for her long-term career. During this time, she was able to learn a lot from Destacame about keeping your expenditures proportional to your income and saving and investing money. “At the beginning, it seemed impossible — now I am able to keep my savings as Destacame suggests,” she says.</span>

<span style="font-weight: 400;">As Andrea’s income began to grow and she was building a positive credit history, new opportunities opened up for her. She was able to open a bank account and get her first credit card. This allowed her to achieve her dream of opening her own studio offering natural therapy — making the life she had been chasing since she came to Chile a reality.</span>

[caption id="attachment_19299" align="aligncenter" width="700"]<img class="wp-image-19299" src="https://content.accion.org/wp-content/uploads/2019/07/2018_Accion_Destacame_Day1__0874-1024x682.jpg" alt="Virginia Chacón sitting inside Destacame's office" width="700" height="467" /> <em>Virginia Chacón, Destacame’s head of operations, emphasizes understanding customers to serve them better.</em>[/caption]

<span style="font-weight: 400;">Chile has become a magnet for immigration in Latin America, and providing this growing population with useful financial services can help immigrants to rebuild their lives and livelihoods in their new communities. As an immigrant herself, Virginia Chacón, Destacame’s head of operations, understands the challenges displaced people face when they try to access financial services. When she moved from Venezuela to Chile, working at Destacame helped her to understand Chilean society better and to become more involved in her new country. Having employees with diverse backgrounds complements Destacame’s advanced use of data to help them better understand and serve customers. “You get to know the real problems of people and therefore give them real solutions to their needs. The more information you have, the better you can help them,” says Virginia.</span>

<span style="font-weight: 400;">As Andrea visits Destacame’s office, she recounts how she was able to overcome hurdles and build her life in Chile. “Those credit records helped me to be able to rent this space and so much more, and everything really started with that microcredit that Destacame offered me.” Andrea recently helped a friend who immigrated find a job and a place to live. She was stuck all over again by the struggle immigrants face without any financial history to help establish themselves and find a home to rent. Andrea was glad to be in a position to help her friend, and as she passes along her success, one more person benefits with new opportunities and a shot to build a new life. </span>

After immigrating to Chile, she built a new life for herself

Institutional Funder

Social Good

Accion Global Advisory Solutions

The real impact of financial inclusion

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

<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.
<p style="text-align: left;"><img class="aligncenter" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/02/CFSI-1.png" /><em><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.</em></p>
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

Financial Inclusion Practitioner

Latin America has come a long way since <a href="https://www.accion.org/about/history/">Accion began its work</a> there in the 1960s. In the past 50 years, the microfinance industry has become well-established and financial inclusion has expanded. But there’s still more to be done, and we’ve been looking for innovative digital channels and platforms to continue bringing useful financial tools to the underserved. <a href="https://www.civico.com/">CÍVICO</a>, based in Bogota with operations in Mexico City and Santiago de Chile, is a digital platform enabling access to an extensive set of services to help solve the daily needs of its users and provide citywide news and information. CÍVICO maps cities by crowdsourcing location data and connects consumers to local small businesses through its platform. Through partnerships with payment companies, banks, and brands, CÍVICO is building a digital ecosystem for both merchants and users.

CÍVICO’s inclusive platform connects small businesses and individuals to their cities and to each other. CÍVICO creates “missions” for users to find specific services within their cities and upload information on the business offering these services, including shop name, type of business, contact information, and business hours. This information enables people to find everything they need right in their neighborhoods — including minimarkets, barber shops, pharmacies, green spaces, music shows, and more. To date, they’ve mapped more than 600,000 merchants and engaged over 4 million active users.

<img class="alignleft wp-image-18082" src="https://content.accion.org/wp-content/uploads/2019/04/civicoimage3-1024x768.jpeg" alt="Produce stand" width="500" height="375" />Merchants registered on CÍVICO’s platform see more foot traffic to their stores from CIVICO´s active users, especially from local offers that users can claim and use on the platform. CÍVICO partnerships are designed to add value to small business. One example of the services they offer is CÍVICO Pay, an online and offline payment platform that uses very low-cost mobile point of sale (mPOS) devices. This helps reduce the need to transact exclusively with cash and therefore expands the potential customer base. Other offerings include CÍVICO Store, which displays all active merchants on the platform, and CÍVICO Academy, which supports merchants in using CÍVICO’s platform and provides them educational tutorials on digital marketing to help develop their business strategies.

In addition to investing funds in CÍVICO, we’re also providing advisory services to enable the company to reach more clients throughout Colombia, Mexico, and Chile. The advisory services will use our global expertise to support CÍVICO’s financial services strategy, strengthen their value proposition, and develop financial products. With this support from Accion, CÍVICO plans to leverage its wealth of data to offer financial services through its platform that fit merchants’ specific needs, while obtaining insights from users’ data to better understand city-wide needs.

Across the globe, we are seeing more and more that digital transactions are key for turning data into actionable insights. CÍVICO’s deep understanding of its merchants and user base, combined with its unique digital platform, represents the opportunity for CÍVICO to become a demonstration model for digital financial service providers, both in Latin America and elsewhere. We are excited to <a href="https://www.accion.org/accion-invests-in-civico-to-accelerate-access-to-innovative-financial-services-in-latin-america/">partner with CÍVICO</a> to bring financial services to underserved businesses and help communities thrive.

How one platform connects cities and boosts small businesses

Civico

Accion Global Investments

Five years ago, Sebastián Ugarte, Augusto Ruiz-Tagle, and Jorge Camus came together with a problem to solve. While Chile was making strides in ending financial exclusion, financial health remained a fleeting dream for most. These three entrepreneurs founded Accion partner <u><a href="https://www.destacame.cl/">Destacame</a></u> to give people access and control over their data, bring them appropriate financial tools, and make sure they had the ability to use these tools to actually improve their lives.

[caption id="attachment_17178" align="alignleft" width="500"]<img class=" wp-image-17178" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day2__0400-1024x682.jpg" alt="Augusto Ruiz-Tagle" width="500" height="333" /> <em>Destacame co-founder Augusto Ruiz-Tagle</em>[/caption]

“The vision of Destacame is to be able to help people improve their financial situation — the individuals that have had a negative record or those who have trouble getting access to credit,” says Augusto. Destacame serves low-income and middle-income clients that don’t always have resources for financial education. In some cases, they’ve used financial tools before but had a bad experience that left them with negative credit and no information about how to rebuild. “It could be that they have never had access to it or that they previously had access, but they had problems settling their accounts or they have stopped paying a bill, so the idea is to help them to start banking again,” adds Sebastián.

To ease people with a bad experience — or with no experience — into the formal financial system, Destacame uses convenient and accessible digital products. “Destacame is an online platform that allows people to take control of their data to generate financial capability. Understanding their situation, we try to offer them products that will meet their real needs,” says Sebastián.

To provide a robust credit profile, Destacame pulls from alternative data sources. Augusto explains that “the current financial system doesn't consider alternative databases, but water or electricity bills give strong information on how people behave and will perform repaying loans.” Destacame does consider all of this information. Once a comprehensive credit profile is built, Destacame gives clients advice on what services and products will help with their individual needs. They also give their users information and tips to help them manage their finances better in general. “We give them advice on how to make installments, how not to get into debt, how to structure a budget considering all the variables,” says Augusto.

[caption id="attachment_17183" align="alignright" width="500"]<img class=" wp-image-17183" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day2__0527-1024x682.jpg" alt="" width="500" height="333" /> <em>Destacame co-founders Augusto Ruiz-Tagle and Sebastián Ugarte</em>[/caption]

Along with tailored financial advice, the credit profile Destacame generates helps clients demonstrate their creditworthiness to financial institutions so they can receive the products and services they need. “They can succeed and have access to financial products that fit with their reality,” says Sebastián.

Destacame’s founders have worked hard to achieve their mission and spread financial health. They expanded their work into Mexico in 2017, and they recently <u><a href="https://www.accion.org/latin-american-personal-financial-management-platform-destacame-closes-series-a-round-to-expand-access-to-inclusive-credit">closed a Series A fundraising round</a></u> to help scale operations in Mexico, reinforce their leading position in Chile, and continue developing Destacame’s suite of financial products. With more than 1.3 million people served in Chile and Mexico today, Destacame is making a real impact in building financial health for the underserved.

Fintech founders have a formula for building financial health

Chilean banks have made critical advances to drive greater financial inclusion in recent years. From agent networks to payment platforms to the CuentaRUT account — a simplified deposit account with a debit card that the state-owned Banco Estado made available to anyone in Chile with an identity card, Chile has nearly reached universal access to financial services.

However, despite these advances, many small merchants in Chile still aren’t finding financial tools that meet their needs. Micro, small, and medium enterprises (MSMEs) make up <a href="http://www.smefinanceforum.org/data-sites/msme-country-indicators">98.5 percent of enterprises</a> in the country and are a significant driver of economic growth; however, <a href="http://www.smefinanceforum.org/data-sites/msme-finance-gap">more than a quarter</a> of these microenterprises have faced difficulty in accessing financing in times of need. Compounding this problem are high levels of financial insecurity among Chileans. <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">Nearly half of the population</a> feels unsure about how they would cover their basic needs if they lost their income. For merchants whose personal and business lives are closely intertwined, this lack of financial security in their day-to-day lives translates to lack of security in their businesses as well.

Our Customer Strategy team traveled to Santiago to talk to micro-entrepreneurs so we could better understand how they are currently using their financial services. MetLife Foundation supported this research as part of our <a href="https://www.accion.org/accion-metlife-foundation-improve-financial-inclusion-in-latam">joint effort to boost the financial capability of customers</a>. Just as we <a href="https://www.accion.org/people-saving-money-mexico/">did in Mexico,</a> we conducted interviews with a wide variety of small merchants to understand their motivations, goals, and feelings toward financial services, and to hear about the strategies they use to stay financially healthy.

Here’s what we learned:
<h3><strong>1. Significant barriers block entrepreneurs from using business accounts. </strong></h3>
Every microentrepreneur we spoke with had a CuentaRUT card, but for many, that was the extent of their relationship with formal financial services. All of them cited high fees, interest rates, and long application processes to access business accounts and credit as barriers to usage. Margarita, the owner of a travel agency and a small bookstore, told us that the most challenging part of starting her business was opening a business bank account, which required numerous documents and costly fees. Therefore, many use their CuentaRUT account for both personal and business purposes, making it difficult to manage their business and personal financial lives separately.
<h3><strong>2. Chileans perceive taking credit from banks as risky.</strong></h3>
Gianfranco, the owner of a small restaurant, wants to expand his business, but he has no interest in taking out a loan. He fears losing everything he has worked for by putting his business up as collateral. He told us, “I don’t like the idea of being indebted or dependent on anyone.” Maritza, the owner of a mini-market, shared a similar sentiment: “I don’t have confidence in financial institutions; they don’t worry or care about their smaller clients.” Many of the merchants we spoke to prefer to borrow from friends and family.
<h3><strong>3. Blacklisting deters participation in the formal financial system. </strong></h3>
Dicom, the national credit agency, records negative credit information such as payment delays and defaults. However, the agency does not offer a clear path to resolve negative reports and as a result, many small businesses avoid deepening their relationship with lenders. Many major retail stores offer <a href="https://www.america-retail.com/weekly/falabella-cencosud-y-ripley-concentran-el-86-del-negocio-de-las-multitiendas-en-chile/">consumer credit cards,</a> and in the past, they did so without proper credit assessment and did not inform customers of the <a href="https://www.nytimes.com/2011/07/24/business/global/abuses-by-credit-issuers-in-chile-and-brazil-snare-consumers.html">consequences of default</a>. As a result, many people, unable to pay or unaware of the lasting nature of default, were reported to Dicom, and remain on that blacklist. Today, nearly <a href="https://www.publimetro.cl/cl/noticias/2017/12/15/dicom-explicado-manzanitas.html">900,000 people</a> are recorded as delinquent.

[caption id="attachment_16514" align="alignleft" width="501"]<img class=" wp-image-16514" src="https://content.accion.org/wp-content/uploads/2018/12/IMG_8047-1024x768.jpg" alt="Jaime sits at a table at his restaurant" width="501" height="376" /> <em><strong>Don Jaime, the owner of a restaurant in Santiago.</strong></em>[/caption]

Jaime, a restaurant owner in Santiago, is 74 and has been an entrepreneur all his life. He was reported to Dicom over 30 years ago and has no way to resolve the black mark on his account. In fact, he doesn’t know what caused him to be listed in the first place, despite his efforts to find out. He has upgraded his business several times, but always with his savings, as he has no access to credit. Today, he hopes to buy a car so that he can purchase supplies directly for his restaurant, without paying for transport. However, he cannot make such a large purchase until he builds up enough savings. Jaime needs information to help him better understand why he was blacklisted and concrete steps to help him improve his credit score.
<h3><strong>4. Informal savings remain more comfortable and familiar for people. </strong></h3>
Findex data tells us that only 21 percent of the population in Chile saves money at formal financial institutions. Many interviewees told us that they have difficulty putting money away, often finding it overwhelming just to meet their fixed expenses. When they do set money aside, they prefer to save informally, either in inventory or through investment in assets that will produce income later. Many told us that opening a savings account seems difficult, but everyone wanted to increase their resources so that they could take more time off and work less.
<h3><strong>5. Merchants prefer to learn about financial products from people, not websites</strong>.</h3>
Several merchants mentioned that they are hesitant to make financial decisions based on digital information. Lorena de Diaz, the owner of a house cleaning business, told us that she prefers to learn about new products in person, as she can’t verify the accuracy of information provided through a website or mobile application. She likes to be able to ask questions at the branch and feels that she better understands financial products when a person can explain it.

The microentrepreneurs we spoke to need tools tailored to their needs, from working capital to finance their inventory to inexpensive business saving and checking accounts, delivered with transparent and trustworthy communication from their providers. As we continue working with fintechs and financial service providers of all sizes, we hope that better understanding customers’ pain points, aspirations, and desires will lead to better communication on how to use financial products, or even entirely new products that truly improve people’s financial health. Over the next two years, Accion will be working with financial service providers in Mexico and Chile to use customer research to design, test, and implement product innovations that will drive usage and improve financial health.

<em>This research was conducted by Accion as part of our part of our </em><em><strong><a href="http://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a></strong></em><em> project, supported by MetLife Foundation.</em>

&nbsp;

Five reasons small merchants aren’t using financial services in Chile

<div class="byline"><a href="http://www.destacame.cl/">Destácame</a>, launched in Chile in 2015, is an alternative credit scoring platform that uses alternative data to assess an individual’s payment behavior and creditworthiness. Destácame currently has more than 170,000 users and has processed more than 10,000 credit applications.</div>
Yesterday, Accion Venture Lab, Accion’s early-stage investment initiative, <a href="http://www.accion.org/fintech-start-up-destacame-closes-seed-funding-round-to-expand-access-to-credit-in-latin-america/">invested in Destácame</a>’s innovative approach to credit scoring.
<h2>Credit Scoring</h2>
In Chile and throughout many countries in Latin America, there are no formal credit bureaus that record an individual’s payment behavior or track record in utilizing credit products, such as those in markets like the U.S. or the U.K (e.g., TransUnion, Experian). In many cases, the available databases only record negative credit information or behaviors, such as delays and payment defaults. This becomes a problem as financial service providers have insufficient information when assessing a potential borrower’s application. The situation is more challenging for middle and lower socioeconomic customer segments as they generally have less interaction with formal financial services providers.

Destácame solves this problem by aggregating and analyzing data from multiple existing sources of data, principally utilities payment transactions that can serve as a proxy for their payment and credit behavior. It synthesizes the information and generates a score that an individual can use at their disposal. With users’ consent, Destácame can share these scores with financial institutions, who are looking for better, faster, and cheaper ways to extend credit and other financial products to the largely credit-invisible population. Destácame also acts as a marketplace and offers its users financial products that match their credit capacity and behavior, helping users demonstrate financial institutions that they are good payers. Destácame aims to eventually become the leading credit bureau in Latin America that leverages alternative source of information.
<h2>Clients</h2>
Destácame directly serves <a href="http://www.accion.org/what-do-you-do-if-your-credit-score-is-zero/">thin-file and no-file customers</a> looking to prove their financial behavior and build a credit history. Destácame currently operates in Chile, where <a href="http://datatopics.worldbank.org/financialinclusion/country/chile">35 percent of individuals</a> do not have a bank account and 80% do not have access to a loan at a bank.

The opportunity for expansion elsewhere in Latin America is quite large. There are over 200 million unbanked individuals in Latin America, and Destácame plans to expand to Mexico in 2017 (where <a href="http://datatopics.worldbank.org/financialinclusion/country/mexico">90 percent of the population</a> of approximately 120 million people lack access to formal credit) and Colombia (where <a href="http://datatopics.worldbank.org/financialinclusion/country/colombia">85 percent of the population</a> of approximately 48 million people lack access to formal credit), and eventually Peru (where <a href="http://microdata.worldbank.org/index.php/catalog/2476">85 percent of the population</a> of approximately 31.4 million people lack access to formal credit).
<h2>Destácame's Innovative approach</h2>
Destácame addresses a financial services industry pain point: Underwriting for thin-file clients is historically costly, time-consuming, and often subjective. Destácame’s solution reduces the cost and time burden of a detailed risk analysis and <a href="http://www.investopedia.com/terms/k/knowyourclient.asp">KYC</a> on a new applicant by providing insight into 12 months of utilities payment history and basic customer ID verification (e.g. name, address, e-mail, phone number). Financial institutions currently serving low-income segments can use Destácame to make better credit decisions and decrease customer acquisition costs. Therefore those looking to expand to serve thin-file customers can reliably incorporate the Destácame´s products, into their credit analysis process. Destácame also is testing the application of machine-learning to improve their credit scoring algorithm such that the scoring would more precisely predict which customers would default based on individuals’ historical financial behavior.

[caption id="attachment_7514" align="aligncenter" width="495"]<img class="wp-image-7514 size-full" src="http://blogs.accion.org/wp-content/uploads/2017/01/Destacame-office.jpg" alt="Destácame's office" width="495" height="371" /> Destácame's office[/caption]
<h2>Destácame and alternative data</h2>
With Destácame, there’s a potential for alternative data analysis to drive better access and quality: credit bureaus in Chile and other countries such as Mexico, Colombia, and Peru are largely based on negative reporting, which, by nature, is limiting.

The Destácame score is an inclusive opportunity for the credit-invisible to better understand the importance of their financial information and to have control over managing and sharing this information. This innovation builds into Venture Lab’s overarching theme of promoting the idea that individuals should be <a href="http://www.accion.org/financial-health-digitization/">empowered and have ownership of any and all information about their own financial history</a> in order to access financial services and products.
<h2>The team</h2>
The founders, Sebastián Ugarte, Augusto Ruiz-Tagle and Jorge Camus, started building Destácame while they were finishing their MBA at MIT. The three of them have strong entrepreneurial backgrounds and networks in Chile and across Latin America. Jorge previously co-founded two companies: NanduAir, a Chilean airline, and ZeroHotel. He also worked at Red Facil, a Chilean mobile technology company.

Sebastián is an engineer and previously worked at Arauco, a sustainable forest product company and co-founded Los Vasquitos, an investment office in Santiago. Augusto worked as a management consultant for Virtus Partners, a leading management consulting firm in Latin America, after several years at Arauco. Jorge, Augusto, and Sebastian have excellent reputations within the industry, and the Venture Lab team has been impressed with their responsiveness, willingness to collaborate, and openness to input, all vital qualities for successful entrepreneurs.
<h2>Destácame and the Catalyst Fund</h2>
Even as an early-stage investor, Venture Lab still finds some companies to be very promising, but too early for commercial investment to come in. To support companies at such an early stage, <a href="http://nextbillion.net/blueprint-for-ignition-how-the-catalyst-fund-got-started/">Venture Lab worked closely with a group of innovators in the space to form the blueprint of the Catalyst Fund</a>.

Destácame was first introduced to Venture Lab in its very early days. We liked their innovation, their business model, and the team, but we needed to see them achieve certain tractions prior to investing Venture Lab investment. Around this time, Catalyst Fund had launched and we considered Destácame a perfect fit for the initiative. Destácame went on to become Catalyst Fund’s <a href="http://catalyst-fund.org/blog/2016/4/12/catalyst-fund-announces-the-first-investment-in-destacame">very first grantee</a>, supported by Venture Lab. In addition to grant funding, Destácame received strategic support from BFA and Venture Lab.

Venture Lab’s support of Destácame through Catalyst Fund took the form of portfolio engagement, in which we helped the Destácame team assess and refine their business-to-business (B2B) sales strategy. Destácame’s path to scale heavily relies on its capacity to partner with data providers (telecommunications companies, utilities) to feed its model and with financial institutions as clients that utilize Destácame’s data.

Venture Lab’s investment in Destácame truly demonstrates the value of Catalyst Fund, since the Fund’s holistic support made Destácame a stronger investment for Venture Lab. We’re glad to see that Destácame can be a successful demonstration case of the value of an initiative like Catalyst Fund targeting pre-seed startups. The Catalyst Fund’s resources helped boost Destácame’s growth and traction and took it to a stage of certain maturity.

Destácame: Financial empowerment in Chile with alternative data