<span data-contrast="auto">At COP27, the finance ministers from </span><a href="http://www.v-20.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">58 climate-vulnerable economies</span></a><span data-contrast="auto"> estimated that 98 percent of their nearly 1.5 billion citizens lack financial protection – a massive source of vulnerability for countries that already have lost about 20 percent of their collective GDP, or $525 billion, due to climate shocks since the year 2000. The past year alone was one of the worst in history: floods in Pakistan killed 1,700 people and left one-third of the country underwater. Persistent drought in East Africa has killed livestock and destroyed livelihoods. In Fiji, communities have been forced to relocate to escape rising sea levels. Initiatives discussed at COP27, such as the “</span><a href="https://www.v-20.org/v20-and-g7-jointly-launch-global-shield-against-climate-risks-at-cop27" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Global Shield</span></a><span data-contrast="auto">” for quickly deploying financial support during climate disasters, and a fund to cover “</span><a href="https://www.v-20.org/climate-vulnerability-monitor%3A-climate-change-causes-loss-and-damage%2C-unequally-impacts-vulnerable-nations-and-indiscriminately-creates-global-crises" target="_blank" rel="noopener noreferrer"><span data-contrast="none">loss and damage</span></a>,<span data-contrast="auto">” are designed to help vulnerable countries deal with the consequences of these shocks.</span>

<span data-contrast="auto">The role of the inclusive finance sector in this context is still up for debate. On the one hand, the role varies depending on the </span><a href="https://openknowledge.worldbank.org/handle/10986/22787" target="_blank" rel="noopener noreferrer"><span data-contrast="none">nature of climate impact</span></a><span data-contrast="auto">: Long-term gradual impact, such as sea-level rise and soil salinization, requires different coping mechanisms compared to sudden climate shocks like floods and hurricanes. On the other hand, the sector still lacks a quantitative layer to assess the role that inclusive finance can play in building resilience at the country level.  The sector has made progress in </span><a href="https://gain.nd.edu/our-work/country-index/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">measuring vulnerability</span></a><span data-contrast="auto"> and understanding the </span><a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks"><span data-contrast="none">impact pathways</span></a><span data-contrast="auto"> and </span><a href="https://www.afi-global.org/thematic-areas/inclusive-green-finance/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">policy options</span></a><span data-contrast="auto"> in </span><a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change"><span data-contrast="none">green inclusive finance.</span></a><span data-contrast="auto"> But we still have a limited quantitative understanding of how inclusive finance can help prepare for and respond to climate shocks. </span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}"> </span>

<span data-contrast="auto">Let’s examine how we can better address these gaps.
</span>

<img class="aligncenter wp-image-45751 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/02/Climate-shocks1-1-e1677015126745.png" alt="" width="1139" height="523" />
<h1>What Do We Know About Climate Shocks and Finance?</h1>
Answering the question of how households in developing economies prepare for and deal with climate shocks is not straightforward. <a href="https://www.cambridge.org/core/journals/environment-and-development-economics/article/abs/impacts-of-climate-shocks-on-household-consumption-and-inequality-in-india/EFA38EF02ED73ECDBD11D596322C285F" target="_blank" rel="noopener noreferrer">Research</a> has shown that most households affected by shocks face increased expenses. They need to secure their food supplies, make essential house repairs and replace essential tools and equipment, including mobile phones, electricity, livestock and farming equipment, that were damaged or lost. The range of immediate needs is extremely diverse and context dependent, hence virtually impossible to map comprehensively.

What we can model more accurately, however, is the role that financial services can play in the context of climate shocks. Existing literature (e.g.: <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/26511/114634-WP-P162629-PUBLIC-ForumTheRoleofFinancialServicesinHumanitarianCrises.pdf?sequence=1&amp;isAllowed=y">El-Zoghbi et al 2017</a> <a href="https://link.springer.com/article/10.1007/s10584-013-1035-6#citeas">and Linnerooth and Hochrainer 2015</a>) has created useful taxonomies that show that households have limited financial options in face of calamities. They can:

<img class=" wp-image-45753 alignright" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/02/Screenshot-2023-02-21-at-12.37.30-PM.png" alt="" width="572" height="659" />
<h4><strong>1. Tap into their own funds</strong>:</h4>
Households and small businesses often turn to their own savings as the <a href="https://www.centerforfinancialinclusion.org/preparing-msmes-for-future-crises-lessons-from-covid-19">first source of emergency funds</a> to pay for urgent needs. To be accessible in the short term, savings need to be liquid and safe.
<h4><strong>2. Access solidarity networks</strong>:</h4>
Help from social networks, via remittances, mobile payments, and other means, can be vital during emergencies. To receive this money digitally, households need accounts at financial institutions or mobile money accounts, and they need to have access to cash-in/cash-out points such as bank agents and mobile money agents. <a href="https://www.cgap.org/blog/agent-networks-vital-covid-19-response-need-support" target="_blank" rel="noopener noreferrer">Disruptions to the agents’ networks</a> can limit the effectiveness of remittances in the context of shocks.
<h4><strong>3. G2P payments and humanitarian aid</strong>:</h4>
Government payments (G2P) and various forms of humanitarian cash transfers can play a critical role in building resilience to climate shocks. In particular, “<a href="https://www.worldbank.org/en/publication/human-capital/publication/adaptive-social-protection-building-resilience-to-shocks-key-findings" target="_blank" rel="noopener noreferrer">adaptive” social protection</a> programs can be designed to address contexts of emergencies such as climate shocks.
<h4><strong>4. Leverage formal financial services</strong>:</h4>
Households may be able to access <a href="https://www.cgap.org/blog/state-of-climate-responsive-financial-product-landscape" target="_blank" rel="noopener noreferrer">traditional financial services,</a> such as <a href="https://www.sciencedirect.com/science/article/pii/S0305750X16305587" target="_blank" rel="noopener noreferrer">credit</a> and insurance, to address their increased expenses. However, payouts may be slow and access challenging for consumers with thin credit files.

Another critical dimension is the speed with which households can access financial resources. Timing can vary from days or weeks, to far longer. For example, illiquid savings such as land and cattle for a farmer may be of little use in an emergency, irrespective of how valuable these assets are. Similarly, if payouts are too slow, formal loans and insurance products may fail to improve a household’s resilience.
<h1>Which Countries Show Financial Resilience?</h1>
To answer this question, we looked at data showing which countries are most exposed to climate shocks and how easily their populations can access different forms of finance.
<h3>1. Exposure to climate shocks</h3>
Looking at climate shocks at the country level, we found that populous countries like India, China, and the Philippines were the most exposed. To measure this, we used data on natural disasters from <a href="https://www.emdat.be/">CRED</a> and calculated the number of people who were affected by or who had died from a natural disaster between 2011 and 2021. Disasters examined included droughts, extreme temperatures, floods, landslides, storms and wildfires. However, when we normalize the indicator by population size (see table below), we see that some of the world’s poorest countries, like Afghanistan and South Sudan, had some of the highest rates of exposure to climate shocks.

<img class="alignnone wp-image-45774 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/02/Climate-shocks3-1-e1677081121356.png" alt="" width="3233" height="1657" />
<h3>2. Access to emergency funds</h3>
Next, we measured whether people in countries most exposed to climate shocks could access emergency funds within 30 days.  The chart below shows that South Asian countries such as India, Afghanistan, Bangladesh, and Pakistan are the most vulnerable. Not only do they have the highest number of people affected by climate shocks in absolute terms, households also have the least ability to come up with emergency funds. India is by far the most affected. CRED estimates that almost 500 million people in that country were cumulatively affected by climate shocks in the last decade, primarily from events such as the <a href="https://reliefweb.int/report/india/drought-india-2015-16-when-coping-crumbles-rapid-assessment-impact-drought-children-and" target="_blank" rel="noopener noreferrer">drought in 2015-16</a> and the <a href="https://en.wikipedia.org/wiki/2018_Kerala_floods#:~:text=On%2016%20August%202018%2C%20severe,died%2C%20and%2015%20are%20missing." target="_blank" rel="noopener noreferrer">2018 Kerala floods</a> among others, and yet fewer than 10 percent can access emergency funds within 30 days. Other countries such as the Philippines, Brazil, Kenya and South Africa perform only slightly better, with 15-20 percent of individuals capable of accessing emergency funds; this means that four in five individuals are financially exposed to climate risks.  In contrast, the bottom right quadrant shows that Eastern European countries such as Serbia, Ukraine and Bulgaria are relatively less vulnerable, having lower exposure to climate shocks and higher capacity to come up with emergency funds.

&nbsp;

<img class="wp-image-45785 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/02/scatter_emergency.png" alt="" width="890" height="741" />
<h3>3. Access to finance</h3>
Our analysis mapped the exposure to climate risks with the levels of access to financial services. We used <a href="https://www.worldbank.org/en/publication/globalfindex/Data" target="_blank" rel="noopener noreferrer">Findex data</a> to measure access to digital payments, savings, loans and G2P payments, which our conceptual framework identified as important coping mechanisms in case of climate shocks. Due to limitations in the data, we do not include analysis on insurance and humanitarian cash transfers.

&nbsp;

&nbsp;

<img class="wp-image-45786 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/02/combined_chart.png" alt="" width="901" height="1186" />

&nbsp;

There is a lot we can unpack from the figure above. Here are some takeaways:
<h4><strong>Mapping climate risks against access to financial services can be a valuable diagnostic tool to identify vulnerable countries.</strong></h4>
The chart shows, for example, that people living in Afghanistan and South Sudan are the world’s most vulnerable to climate shocks because they are both the most affected by climate emergencies (on a per capita basis) and have the least access to financial services. Countries such as India, Burkina Faso, Mali, and Bangladesh are also at risk as their exposure to climate shocks is high and access to financial services is limited in large parts of their populations.
<h4><strong>High penetration of digital payments indicates a potentially important role for solidarity networks.</strong></h4>
Digital payments have relatively high levels of penetration in most countries. Kenya, Uganda, and Ghana, for example, have a penetration rate above 60 percent. Even Venezuela, which has extremely low access to formal savings and credit, has very high penetration of digital payments. On the other hand, countries like Pakistan, Afghanistan and South Sudan have very low penetration, hence internal remittances are likely to be slower and more expensive, making it more difficult for solidarity networks to be fast and efficient. Several studies have shown the importance of digital payments in contexts of shocks -- for example, the seminal work by <a href="https://www.aeaweb.org/articles?id=10.1257/aer.104.1.183" target="_blank" rel="noopener noreferrer">Jack and Suri</a> in Kenya on the role of MPesa, and in <a href="https://voxdev.org/topic/finance/mobile-money-changing-rural-landscape-evidence-mozambique" target="_blank" rel="noopener noreferrer">Mozambique,</a> mobile money was an essential coping mechanism during severe floods.
<h4><strong>Savings and credit have limited penetration, with a few exceptions.</strong></h4>
The data suggests that a majority of households do not have any savings in formal financial institutions. Countries such as Bangladesh, Venezuela, and Uzbekistan are particularly vulnerable, as their level of savings in formal institutions is extremely low, even lower than access to credit. Countries such as Kenya, Ukraine, and Uganda have relatively high access to both formal savings and credit, though the effectiveness of these services during shocks is not yet fully understood. Formal savings require a functioning and effective cash-in/cash-out network, which <a href="https://reliefweb.int/report/pakistan/pakistan-banks-close-64-branches-affected-areas" target="_blank" rel="noopener noreferrer">can be disrupted</a> in cases of climate shocks.
<h4><strong>G2P payments are low in most countries.</strong></h4>
With a few exceptions such as Indonesia and the Philippines, the level of government transfers is low. While Kenya has the highest levels of financial inclusion overall, it has few G2P payments, despite its high exposure to climate shocks. Countries such as Nigeria, Ghana, Tanzania, and Cameroon also have extremely low levels of G2P penetration, though the populations have been relatively less affected by climate shocks.
<h1>What next?</h1>
We have only scratched the surface in exploring the intersection of climate shocks and inclusive finance.  Much more research is needed if the inclusive finance industry is to fully understand and fulfil its role in building resilience in face of climate shocks. This analysis was based on publicly available historical data, which helps paint a general picture. But it excludes the impact of prolonged and gradual environmental stresses, which are expected to become more pronounced as climate change accelerates. Moreover, each country context is different, and the types of climate shocks they are subject to have very diverse implications. Extreme heat in India, for example, affects livelihoods very differently from floods or droughts in other countries.  And the role that financial services can play also differs from country to country.

Demand, however, for this work is accelerating. Humanitarian organizations are increasingly interested in understanding the role of financial services in responding to emergencies, especially given the frequency and scale of climate-driven shocks. Their efforts so far have largely focused on designing efficient cash transfer programs and working with local savings and loan associations to distribute the financial aid.  As humanitarian organizations focus more on building resilient market systems in the long term, the role of green inclusive finance can help them address emergencies at a market system level.

Exploring the Intersection of Climate Shocks and Financial Inclusion

A household budget, saving for a business investment, or managing an unforeseen emergency can cause stress in the most adept household, let alone those experiencing the vulnerability and volatility of poverty. Learning to navigate financial systems and products is a long-term endeavor.

Building financial capability — that is, the knowledge, skills, attitudes, and behaviors needed to make sound financial decisions to support well-being — can take time and creativity. The ultimate goal is to equip all people with the skills to navigate financial services safely and effectively and allow them to accrue their benefits. For poor and rural communities, this can mean increasing resiliency and reducing exposure to economic shocks, improving income growth and investment, and promoting more sustainable and equitable development. And for women, in particular, the accrued benefits can mean navigating financial choices with confidence, seeing themselves — and being seen — as financial clients, and accessing and using technology with ease.

While overall progress has been made in advancing financial inclusion, progress for women continues to lag. Globally, <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">male ownership is likely to be higher than female ownership of accounts</a>, with a gap of nearly 7 percent, which has persisted despite the overall rise in account ownership. The gender gap is much worse in some countries, where <a href="https://www.cgap.org/blog/how-social-norms-men-restrict-womens-financial-inclusion" target="_blank" rel="noopener noreferrer">social norms govern financial access and decision-making</a>. For instance, in Pakistan, while account ownership doubled since 2011, most of the growth was driven by accounts owned by men. Similarly, in Ethiopia, account ownership by men increased by roughly twice the size of the increase among women since 2014.

We must invest in building women’s financial capability to close this gap and make meaningful progress in women’s access to and usage of financial services. Doing so will require a deeper understanding of the economic and social constraints women face in accessing financial services. Yet existing tools for building financial capability have a mixed track record and there is scarce evidence on which approaches and delivery channels are likely to produce lasting impact.

This publication examines how best to share information, build capability, and enable lasting behavior change in a context in which women may have limited say in their own economic choices or require additional support or flexibility to overcome trust and care responsibilities. We examine the characteristics and success of existing approaches to building women’s financial capability and find a gap in programming that sufficiently accounts for women’s preferences, which are largely influenced by gendered social norms.

Readers of this report will come away with:
<ul>
 	<li>a stronger understanding of the role of gender norms that constrain women's financial capability</li>
 	<li>an overview of current women's financial capability initiatives, including classroom-based initiatives, technology-led financial education, and high-touch financial capability approaches</li>
 	<li>recommendations on how to ensure women are meaningfully and successfully engaged with financial services.</li>
</ul>

Building Women’s Financial Capability: A Path Toward Transformation

<h4>“When an institution finds itself in severe crisis, it’s normal to panic. As delinquencies mount, staff morale declines, and investors start calling and demanding answers, managers can be forgiven if they pine for the simplicity of the OMS — the Ostrich Management System. There is nothing quite so calming as sticking one’s head in the sand while the world goes crazy…”</h4>
Weathering the Storm II – conducted as part of our partnership with the Mastercard Center for Inclusive Growth and produced with the <a href="https://www.e-mfp.eu/" target="_blank" rel="noopener noreferrer">European Microfinance Platform</a> – is a follow-up to the <a href="https://centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/" target="_blank" rel="noopener noreferrer">original report and case studies</a>, published in the aftermath of the financial crisis. This updated Weathering the Storm synthesizes experiences and lessons from 16 institutions in 14 countries on four continents over 15-year period (including five new case studies from <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-partner/" target="_blank" rel="noopener noreferrer">Bosnia and Herzegovina</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-financiera-fama/" target="_blank" rel="noopener noreferrer">Nicaragua</a>, and <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-vitas-palestine/" target="_blank" rel="noopener noreferrer">Palestine</a>). Nearly every type of institution – from NGO to bank – is included.

The goal is to inform best practices for triaging the critical and the merely very important in order to survive and thrive. Content is organized by a hierarchy of needs for survival: liquidity, confidence, portfolio, and capital. Readers will come away with a better understanding of how leaders – with the support of investors and ecosystem actors -- stabilized their financial institutions and embarked on a full recovery. The hope is that no one reading this will go through a similar crisis, but if so, Weathering the Storm II will be a useful guide in addition to a history lesson.

Weathering the Storm II: Tales of Survival from Microfinance Crises Past

As countries around the world grapple with the economic impact of the COVID pandemic, governments have turned to supplemental cash transfers as a key policy instrument to offset the loss of income, mostly via digital payments.

Those countries with well-developed social protection systems, payments infrastructure, and wide access to digital financial services have fared much better in getting these payments out quickly, but even they have struggled to rapidly open accounts for their more vulnerable populations. Many of the people at risk fall outside the usual government welfare rolls and risk being overlooked -- especially informal workers, MSME owners/operators, and those working in hard-hit industries like tourism.

The COVID crisis forced policymakers to find innovative ways to deliver rapid support payments to those most in need. A critical aspect of getting this emergency aid out has been the ability to quickly identify and onboard eligible recipients who don’t already have transaction accounts and distribute the payments as soon as possible.
<blockquote class="pullquote--right">What are governments doing to enable rapid payments to those without existing accounts?</blockquote>
CFI’s latest <a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">policy brief</a>, part of our partnership with Mastercard Center for Inclusive Growth and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), explores what governments are doing to enable rapid payments to those without existing accounts. The paper reviews three types of measures being taken to speed up payment distribution. Not surprisingly, the common theme is the ability and willingness of policymakers to be nimble and innovative. Below are a few examples, organized by type of measure:
<h2>1. Rapid Identification of Eligible Recipients</h2>
To quickly determine who’s eligible for COVID support payments, governments have had to be innovative in tapping into all available existing information, whether publicly or privately owned.
<h3>Current Beneficiary and Employment Rolls</h3>
<strong>Bangladesh Bank</strong> allowed government disbursement program information to be used to open permanent accounts on behalf of customers. The central bank also permitted the creation of accounts for ready-made garment (RMG) workers based on their employment record, given the low rates of digital IDs or other means to confirm their identity among the predominantly female group.
<h3>Voter Rolls</h3>
The Government of <strong>Togo</strong> established the Novissi cash transfer scheme, to provide support during the pandemic. Because Togo does not have a strong national ID system, they took advantage of a recent voter registration campaign to verify the identity of eligible recipients. <strong>Timor-Leste</strong> was also able to take advantage of its voter registration system, which had high sign-up rates after a recent election.
<h3>Mobile SIM Data</h3>
<strong>Zimbabwe</strong> took advantage of its <a href="https://theconversation.com/zimbabwes-restrictions-on-mobile-money-transfers-are-a-blow-to-financial-inclusion-147109" target="_blank" rel="noopener noreferrer">90 percent mobile money penetration</a> to make payments directly to the e-wallets of all phone numbers mapped to areas targeted for support payments, while <strong>Nigeria</strong> partnered with mobile network operators to <a href="https://blogs.imf.org/2020/06/22/youve-got-money-mobile-payments-help-people-during-the-pandemic/" target="_blank" rel="noopener noreferrer">identify vulnerable informal workers in urban areas through airtime purchase patterns</a>.
<blockquote>Governments have had to be innovative in tapping into all available existing information, whether publicly or privately owned.</blockquote>
<h2>2. Simplified Due Diligence for Rapid Account Opening</h2>
During COVID-19, policymakers and FSPs, in cooperation with regulators, have had to apply simplified customer due diligence (SDD), to rapidly open accounts for newly vulnerable recipients. Some of the key ways they’ve done this include use of mobile SIM registration data, employment records and deferred KYC measures.
<h3>Mobile SIM as ID</h3>
The <strong>Bank of Ghana</strong> expanded its tiered KYC to allow mobile phone subscribers to reuse their SIM card registration to open the lowest tier of e-money accounts, called <a href="https://www.bog.gov.gh/wp-content/uploads/2020/03/MPC-Press-Release-March-2020-3.pdf" target="_blank" rel="noopener noreferrer">Minimum KYC Accounts</a>. In <strong>Egypt</strong>, the central bank’s eKYC program allows customers to <a href="https://www.fintechfutures.com/2020/01/central-bank-of-egypt-pilots-ekyc-solution-for-financial-inclusion/" target="_blank" rel="noopener noreferrer">open bank accounts electronically</a>, by submitting their national ID number along with their mobile phone number to the telecommunications authority, which then confirms to the bank the information match for the mobile SIM registration.
<h3>Remote and/or Deferred CDD</h3>
In <strong>Pakistan</strong>, the government suspended the need for biometric confirmation for its Ehsaas Emergency Cash transfers, opening a <a href="https://www.pass.gov.pk/Detailf90ce1f7-083a-4d85-b3e8-60f75ba0d788" target="_blank" rel="noopener noreferrer">web portal for residents to handle applications and resolve any issues</a>, while the Central Bank of West African States (BCEAO) allowed a three-month window following the COVID crisis for in-person due diligence verification for basic accounts.
<h2>3. Use of Alternative Channels for Delivering Payments</h2>
Several jurisdictions have looked to new channels to quickly onboard beneficiaries and distribute social transfers, from mobile apps and websites to postal networks and non-bank financial institutions (NBFIs).
<h3>Apps and Websites</h3>
<strong>Brazil</strong>’s social assistance program aimed at informal workers, the coronavoucher, is accessible through a free mobile app the bank created specifically for this purpose (those without a cellphone could apply via this <a href="http://auxilio.caixa.gov.br/" target="_blank" rel="noopener noreferrer">website</a>).
<h3>Post Offices</h3>
In <strong>Madagascar</strong>, the government’s COVID cash transfer program, called Tosika Fomena, is made via the Madagascar postal system’s (Paositra Malagasy) cash transfer service called Paositra Money, and <a href="http://www.mptdn.gov.mg/?p=1974" target="_blank" rel="noopener noreferrer">can be retrieved</a> at any PO upon <a href="https://fr.allafrica.com/stories/202005261023.html" target="_blank" rel="noopener noreferrer">presentation of a national ID</a>. The <strong>South African Post Office</strong> (SAPO) <a href="https://www.techfinancials.co.za/2020/05/04/south-africa-post-office-unveils-cashless-atm-for-sassa-social-grants/" target="_blank" rel="noopener noreferrer">rolled out 10,000 cashless ATMS in rural shops</a> to allow users to access payments without having to travel to urban centers.

In <strong>India</strong>, the post office enabled people to get their funds delivered to their homes during the COVID crisis, whether they have a postal bank account or not. By downloading the India Post Payment Bank app, the user is able to withdraw funds from any bank account and <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/india-post-delivers-rs-412-cr-cash-in-doorstep-banking-revolution/articleshow/75369897.cms" target="_blank" rel="noopener noreferrer">have it delivered</a> either to the post office branch or to their home.
<h3>NBFIs</h3>
In <strong>Bangladesh</strong>, BRAC turned to the use of the country’s most prominent mobile money wallet, bKash, as a means of delivering aid to their clients. They opened mobile wallet accounts for <a href="http://blog.brac.net/cash-transfers-to-support-families-during-the-covid-19-pandemic/" target="_blank" rel="noopener noreferrer">all the clients who had their own mobile numbers</a> and, for those that didn’t, especially the women, they allowed the use of a trusted family member’s wallet.

In <strong>Ecuador</strong>, the government <a href="http://pubdocs.worldbank.org/en/129771593464547099/World-Bank-G2Px-COVID19-Ecuador-Brief.pdf" target="_blank" rel="noopener noreferrer">implemented a social transfer program</a> aimed at vulnerable households, utilizing cooperatives as well as banks to distribute the funds. Unlike cooperatives in most countries, many of Ecuador’s cooperatives are connected to the national payment system.
<h2>The Path Forward</h2>
While countries have made impressive progress over the last decade in broadening the reach of digital financial services, the COVID pandemic has magnified the remaining gaps and weaknesses in helping the most vulnerable. As governments continue with national infrastructure programs, especially around ID and payments, we offer the following crucial considerations for national governments:
<h3><strong>Value of Universal Access to Basic Accounts Opened Under SDD</strong></h3>
This pandemic has demonstrated the potential value of universal access to basic accounts that can be opened under SDD (simplified customer due diligence) measures and at no initial cost to the customer. Should all members of society, as a matter of course, be able to open accounts – immediately and remotely -- for receipt of government emergency payments?
<h3>Importance of Whole of Government Communication and Policy Responses</h3>
Like many aspects of the COVID crisis, communications have been a critical aspect of program success and/or failure. In some countries, for example, unclear messaging on how to apply for or access funds has led to overcrowding at government offices or state banks, forcing those offices to close and leading to public turmoil.
<h3>Clear, Ongoing Dialogue and Interactive Decision-making</h3>
Clear, ongoing dialogue and interactive decision-making between government ministries, regulators and FSPs -- especially payment service providers -- has proven vital to ensuring quick action on rapid onboarding programs. Governments already have established emergency protocols with telecommunications and power companies. How can governments put in place formal emergency mechanisms to engage all relevant ministries and private-sector actors, especially payment service providers, for any future crisis situations?
<h3>How can countries put in place mechanisms to address identification and verification for future crises?</h3>
One approach is to loosen impediments to the sharing of various government beneficiary databases, but there is much to understand around data privacy and security and it is unclear whether this approach is the answer. Given the likelihood of future crises, it is prudent that governments begin the longer-term dialogue and investment needed to address governance of data sharing.
<h3>What are the mechanisms that governments can use to expedite digital infrastructure partnerships with the private sector?</h3>
Where government doesn’t yet have the necessary infrastructure -- including, among others, digital payments, identification, and government databases -- partnerships with industry allow them to leverage existing capabilities and information sharing. The use of mobile SIM registration is a prime example of collaboration to address shortcomings in existing ID infrastructure. Rather than treating each situation as a one-off event, one approach is for governments to institute ongoing cooperation agreements with MNOs and other private/public sector actors to react quickly to events as necessary.
<h3>Governments must consider how they reach beneficiaries that are not digitally connected and may never be.</h3>
The cases in our report highlighted usage of alternative distribution channels through institutions such as post offices and NBFIs. These players already serve low-income people, often via some combination of cash and digital means. Those beneficiaries that only want to deal in cash must continue to be accommodated. But that doesn’t mean that the institutions they use must also deal only in cash. The further that governments can push out the digitization of payments, especially to the “last mile,” the more efficient and expedient the delivery system can be made before it’s transferred back to cash for final delivery.

<a href="https://centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19/" target="_blank" rel="noopener noreferrer">Find out more</a> about these policy considerations, and about how countries have innovated and operationalized social payments for the underserved during this difficult time.

Three Ways Governments Expedited Social Payments During COVID

As countries around the world grapple with the economic impact of the COVID-19 pandemic, governments have turned to supplemental cash transfers as a key policy instrument to offset the loss of income of their citizens.

This policy brief explores what national governments are doing to enable rapid payments to those without existing accounts. The swift measures governments took to speed up payments to citizens during the pandemic include:
<ul>
 	<li>Quick identification of eligible recipients</li>
 	<li>Simplification of customer due diligence for rapid account opening</li>
 	<li>Greater use of alternative channels such as mobile apps, post offices, and non-bank financial institutions (NBFIs) such as microfinance providers.</li>
</ul>
Each section of this brief includes country-specific examples and key takeaways. Efforts by 19 countries to facilitate cash transfers, both digital and non-digital, are discussed.

This publication is the second in a <a href="https://www.centerforfinancialinclusion.org/series/policy-responses-to-covid-19-their-impacts-on-low-income-customers">series</a> of policy briefs on COVID-19 economic policy responses and their impact on low-income customers.

Rapid Response for Social Payments During COVID-19

In the 12-plus years CFI has worked on consumer protection, we’ve seen again and again the importance of sound regulation and market conduct. While it’s not the only tool in the consumer protection playbook, sound regulation is necessary because even when providers are well-intentioned, it’s extremely difficult for “responsible” players to take action in an unfavorable environment.

As readers of this blog know, working with regulators can be time and labor intensive, but when successful, the impact can be immense. This post focuses on <a href="https://centerforfinancialinclusion.org/the-smart-campaign-and-the-mastercard-foundation-team-up-to-tackle-the-next-wave-of-consumer-protection-challenges-in-financial-services/" target="_blank" rel="noopener noreferrer">CFI’s multi-year initiative</a> in several countries in the West Africa Economic and Monetary Union (WAEMU) – Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo – and draws lessons from our work in Benin, in particular, where CFI’s engagement was multi-faceted. In particular, we focus on the support provided to the national supervisory body of Benin, the <a href="https://www.anssfd.org/" target="_blank" rel="noopener noreferrer">Agence Nationale de Surveillance des Systèmes Financiers Décentralisés</a> (ANSSFD).
<h2>The Need to Strengthen Market Conduct Supervision: The Case of West Africa</h2>
WAEMU countries experience a relatively complex supervisory environment, with multiple entities sharing supervisory responsibilities. The microfinance sector is supervised by the Central Bank of the West African States (BCEAO), the Banking Commission of WAEMU (a specialized regional entity overseeing banking sector) at the regional level, and a specialized supervisory body under the ministry of finance in each WAEMU member country. The Banking Commission of WAEMU only oversees part of the microfinance sector (institutions whose total loans/deposits exceeds 2 billion CFA francs [about $3.3 million] for two consecutive years). Unlike the Banking Commission, specialized national supervisory bodies have the responsibility to supervise the whole microfinance sector in each country.

Supervision in the WAEMU region focuses on prudential regulation, ensuring the soundness and stability of the financial system. However, <a href="https://en.wikipedia.org/wiki/Prudential_regulation" target="_blank" rel="noopener noreferrer">prudential supervision</a> in itself is insufficient for detecting and addressing improper conduct of financial service providers vis-à-vis their clients. As such, market conduct supervision is an important complement to prudential regulation. Even globally, the interest for and proven practices around market conduct regulation and supervision are fairly recent, with the 2008 global financial crisis being a notable trigger. While there have been some recent efforts to incorporate aspects of market conduct supervision in the region – including the creation of local public ombudsman offices (the OQSF) in Senegal and Côte d’Ivoire and the verifications related to <a href="https://microdata.worldbank.org/index.php/catalog/2946/related-materials" target="_blank" rel="noopener noreferrer">disclosure practices and compliance with interest caps</a> – this type of supervision is relatively new to the WAEMU region.
<blockquote>Market conduct supervision is an important complement to prudential regulation.</blockquote>
Benin is no exception. The focus on prudential regulation opens the door for poor consumer protection practices and a weak culture of self-regulation among financial institutions, as evidenced by low levels of consumer protection diagnostics and implementation of codes of conduct. The context in Benin is further complicated by a high prevalence of non-regulated financial service providers (FSPs). A 2015 unpublished survey by the ANSSFD indicated that about two-thirds of microfinance institutions operating in Benin were not regulated and operating without a license. The situation is also exacerbated by <a href="https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=BJ" target="_blank" rel="noopener noreferrer">low literacy levels</a> in the country, putting microfinance customers at heightened risk for fraud and unfair practices by financial institutions.
<h2>CFI’s Approach Builds on Client Voices Research</h2>
CFI’s <a href="https://www.centerforfinancialinclusion.org/client-voices-benin-country-report" target="_blank" rel="noopener noreferrer">client voices research</a> in Benin indicated that about 17 percent of former microfinance clients surveyed were unable to withdraw part or all their savings. It also highlighted that late payers experienced a number of serious harms, such as shaming, confiscation of goods, requests for bribes, and involvement of police in debt collection as intimidation tactics. About one-third of respondents ignored how much they will pay in total for their loans and only 12 percent knew the interest rate. In addition, a vast majority of clients (86 percent) were not informed about where to complain.

Responding to these realities, the Smart Campaign, a consumer protection initiative housed at CFI, began a targeted approach in 2016 to build a more effective client protection ecosystem in five African markets. CFI engaged with ANSSFD, the supervisory body with the broadest mandate and most in need of resources. The two-year initiative in Benin was targeted at identifying and addressing gaps in market conduct supervision and mainstreaming market conduct supervision into Benin’s supervision system. The new interventions aimed at, among other things, supporting financial regulators to strengthen their frameworks and increase their capacity to conduct sound supervision.
<blockquote>The initiative in Benin was targeted at identifying and addressing gaps in market conduct supervision and mainstreaming it.</blockquote>
The campaign also engaged with regulators in Nigeria, Ghana, Uganda, Benin and Rwanda. Each of these countries presented unique contexts with different consumer protection priorities, leading to bespoke interventions, including mystery shopping in Nigeria, digitization of complaint handling systems in Ghana and Uganda, and support for developing consumer protection regulations for tier IV institutions in Uganda.
<h2>Ingredients for a Successful Intervention: Lessons Learned</h2>
Though it’s too early to see the full benefits of this support, we learned several lessons from the implementation process in Benin. Overall, the success of such support depends largely on the capacity to change the behavior of supervisors and increase their ownership of the tools and approaches developed during the course of the program. Below we outline several factors that can help positively influence the behavior change and ownership necessary for success.
<h3>Learning by Doing</h3>
CFI’s approach involved trainings and post-training technical assistance on market conduct supervision. It was designed such that inspectors led the development of tools that they could integrate into their existing work. With some support from CFI, the inspectors developed a series of inspection sheets addressing each of the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> to be used during their on-site visits. By doing so, they incorporated the new inspection sheets into their existing practices, reducing the extent of change management needed.
<h3>Leadership Engagement</h3>
Buy-in and active participation by leadership is key to gaining traction for change. In 2019, following the training and technical assistance activities, the general manager of ANSSFD issued a memorandum to make the new consumer protection inspection sheets mandatory for all inspection missions. The issuance of the memorandum addressed both resistance to change (on the part of a minority of inspectors) and inconsistent use of tools within ANSSFD (tools were partly used or not used at all in some inspection missions prior to the memorandum). The commitment of the general manager was essential to ensuring widespread use of the new inspection sheets and improving oversight of consumer protection practices.
<h3>Change Takes Time</h3>
The timeline for regulator or supervisor engagements must allow for multiple iterations. CFI’s engagements have found that behavior change and adoption of new techniques generally require multiple cycles of “test, learn, adjust.” In Benin, it took two years to see some tangible results.
<h3>Select Budget-Appropriate Supervisory Tools</h3>
Changing supervisory practices is likely to have significant budget implications, including costs associated with technical assistance or the adoption of new supervision tools, such as <a href="https://www.cgap.org/research/publication/mystery-shopping-financial-services" target="_blank" rel="noopener noreferrer">mystery shopping</a> and other survey methods. Tools and approaches should be proportionate with what fits for the supervisor, both technically and financially. Technical assistance providers should offer all necessary information on the costs and benefits of tools and make sure that the beneficiary agency makes informed decisions about the tools they choose to retain. In Benin, we did not recommend doing additional surveys or tools. Rather, we agreed to have an inspector that solely focuses on consumer protection and market conduct during routine inspection missions.
<h3>Progress, but the Journey is Not Yet Complete</h3>
As of today, all microfinance inspectors in Benin have been trained on market conduct supervision and the supervision tools are included in the inspection package of ANSSFD. All recent inspection reports include a market conduct section focused on consumer protection. This is tremendous progress and a great step forward.
<blockquote>All recent inspection reports include a market conduct section focused on consumer protection.</blockquote>
The promising results observed in Benin can serve as a model for other countries in the WAEMU region. The shared regulation among the countries should make it possible to leverage the process and tools developed for Benin to replicate this success in other countries. CFI held a workshop in October 2019 to share ANSSFD’s experience with sister supervisory agencies from Niger, Côte d’Ivoire, Guinea-Bissau, Mali, and Togo, which are facing similar gaps in market conduct supervision. Encouraging and guiding supervisory agencies to adopt market conduct supervision and the Client Protection Principles into their practices (as further outlined in CFI’s <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>) would contribute to creating market conditions that are fair, protection regimes that are enforceable, and better outcomes for vulnerable customers.

<em>We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.</em>

Improving Consumer Protection Market Conduct: Lessons Learned in Benin

Around the developing world, the use of mobile technology for financial services is skyrocketting. In Africa, the value of mobile money transactions has grown over <a href="https://qz.com/africa/1721818/africa-mobile-money-industry-is-entering-its-next-stage-of-growth/" target="_blank" rel="noopener noreferrer">890 percent since 2011</a>. App-based lenders in Kenya, Uganda, and elsewhere claim to leverage more than 10,000 data points as part of their <a href="https://www.mitpressjournals.org/doi/abs/10.1162/inov_a_00240" target="_blank" rel="noopener noreferrer">underwriting processes</a>, (though consumers are largely <a href="https://digital.hbs.edu/platform-digit/submission/tala-using-machine-learning-to-provide-access-to-credit-for-the-worlds-unbanked/" target="_blank" rel="noopener noreferrer">unaware of what data is being collected</a> from them). In Myanmar, where 20 years ago SIM cards cost $5,000, today, more than 75 percent of the population own (mostly) smartphones, and mobile money provider <a href="https://www.wavemoney.com.mm/wp-content/uploads/htd_Wave-Money-cements-mobile-money-leadership-with-stellar-2019-results-_FINAL.pdf" target="_blank" rel="noopener noreferrer">WAVE Money</a> has reached more than <a href="https://medium.com/@geoffcharles/from-zero-to-40-million-the-rise-of-digital-payments-in-myanmar-2499b488f871" target="_blank" rel="noopener noreferrer">17 million unique users</a>.

Consumers have had to adjust rapidly. For many, their first experience with financial services asks them to contend with new digital interfaces, complex products, nefariously creative forms of fraud, and detailed regulations with rights and responsibilities they <a href="https://gdpr-info.eu/" target="_blank" rel="noopener noreferrer">may not understand</a>.

This is not just a developing-world issue, of course. Carnegie Mellon researchers found that it would take the average American more than 76 working days annually to <a href="https://techland.time.com/2012/03/06/youd-need-76-work-days-to-read-all-your-privacy-policies-each-year/" target="_blank" rel="noopener noreferrer">fully read the privacy policies</a> they encountered on the internet. Underserved customers also often do not have actual people to engage with on <a href="https://customersguide.cgap.org/sites/customersguide.cgap.org/files/resource/2018/07/CGAP-Voice-of-Customer-Toolkit.pdf" target="_blank" rel="noopener noreferrer">questions, complaints, or feedback</a>.

This context served as the backdrop for CFI, in partnership with the Mastercard Foundation, to build and test a toolbox of consumer engagement channels to surface challenges clients face as financial services go digital. From <a href="https://centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa/" target="_blank" rel="noopener noreferrer">radio campaigns</a> and client surveys to digital recourse channels for regulators and industry associations, these projects provided a set of valuable lessons about the increasing complexity of the sector and steps we must take to protect the well-being of customers. As the Smart Campaign winds down, CFI is reflecting on these lessons to inform the next stage of our consumer protection agenda.
<h2>Tailor Your Tools to Clients, Then Tailor Them Again</h2>
When done well, digital interactions with customers – whether it be financial products or surveys or other forms of communication – can provide immense value to both customers and providers. We learned from clients about the critical importance of being customer-centric in the design of these interactions. Investing in design upfront leads to better outcomes for all stakeholders, but most importantly, it can protect customers from negative consequences.

In our <a href="https://centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services/" target="_blank" rel="noopener noreferrer">client survey on mobile money in Rwanda</a>, while most people reported that mobile money interfaces are easy to use, they worry that it’s also easy to make a mistake. Sixty-nine percent of clients believed it was easy to make a mistake and 17 percent have made an error. One issue is language: clients may select the wrong default language to begin with (English instead of Kinyarwanda, in our research in Rwanda, for instance), or even after selecting Kinyarwanda find that the language switches unexpectedly. Fear of making a mistake might be a disincentive for some users to engage with digital products, or worse, actually making a mistake could result in loss of funds or instances of fraud.

CFI also worked with three FSPs and the <a href="https://cma-network.org/" target="_blank" rel="noopener noreferrer">Cambodia Microfinance Association</a> to design and implement a survey, using the interactive voice response (IVR) method, with the goal of hearing directly from clients about the FSPs’ client protection practices. From the outset, we knew that precision in the survey’s language would be integral for the project’s success. But even with this expectation, we were surprised by how much it took to get it right. As my colleagues <a href="https://centerforfinancialinclusion.org/amplifying-client-voices-using-interactive-voice-response-ivr-technology-insights-from-cambodia/" target="_blank" rel="noopener noreferrer">pointed out in a CFI blog post</a>, pre-launch testing showed that while the Khmer jargon used in the survey was well-understood among microfinance staff, clients would either ask for help or skip questions altogether. Moreover, my colleagues observed that intonation and speech tempo of the voice talent behind the IVR recording made a significant difference in respondents’ successful completion of the survey. Seemingly small details such as this can easily prevent a project from achieving the intended results, further emphasizing the importance of upfront product design and testing with clients (not just MFI staff) before roll out.

In our <a href="https://www.centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa#ghana:-you-deserve-to-know-campaign" target="_blank" rel="noopener noreferrer">Ghanaian radio campaign</a>, we partnered with local designers to create posters and animated videos to promote the broadcasts. For example, for the themes of fraud and privacy, we had a cartoon in Twi, the language spoken by over 10 million Ghanaians, depicting what happens when a family is called by a scammer (the family figures it out before they lose any money, fortunately). Our approach initially was to create purely educational social media content to drive listenernship, but we found more success with an edutainment approach, with the lively cartoons amplified by paid advertisting on Twitter and Facebook. In this case, it was important for the team to quickly learn from consumers what resonated and lean into that approach rather than simply stick with the original plan.
<h2>Fraud’s Digital Inroads</h2>
Financial fraud is <a href="https://www.cbsnews.com/media/top-14-financial-frauds-of-all-time/" target="_blank" rel="noopener noreferrer">nothing new</a>, but there are characteristics unique to digital finance that give it renewed virulence. These include less face-to face interaction between consumers and providers, a larger burden on clients to conduct transactions independently, and a wider network of entry points for fraudsters to gain access to clients’ data and scale their schemes.

Indeed, fraud was top of mind among partners and consumers in all of the markets where we implemented projects. In Rwanda, 39 percent of the clients surveyed perceived mobile money fraud to be a big problem and 10 percent reported being defrauded themselves. These frauds resulted in real financial harm for individuals, and we were troubled by how few were able to report it to authorities. One victim reported that the perpetrator claimed to be part of the Girinka “One Cow Per Poor Family” program and even invoked the involvement of Jeannette Kagame, First Lady of Rwanda, to gain the client’s trust.

In Uganda we heard of schemes including PIN fraud and false text messages stating users won a competition and would need to send a fee to claim a prize. Through a mix of dramatic storytelling, local reporting, expert interviews and social media public service announcements (PSAs), our three radio campaigns tried to impart on listeners how to distinguish fraudulent institutions from real ones and how to recognize mobile money scams.

The pervasiveness of fraud (especially digital) highlights real gaps in client capability. Schemes show that clients need a greater understanding of privacy risks and continued awareness campaigns about how to protect themselves as fraudsters evolve their tactics. We also found the burden of reporting fraud needs to be reduced to meet the constraints of this lower-income segment since opportuntiy costs for this group are steep.
<blockquote>Leveraging technology for consumer protection has great potential to meet consumer protection challenges.</blockquote>
Leveraging technology for consumer protection has great potential to meet these challenges, with, for example, chatbot-powered complaints management system. In this <a href="https://www.r2accelerator.org/chatbot-prototype-1" target="_blank" rel="noopener noreferrer">use case</a>, which has already been tested in markets like the Philippines, all actors could benefit - from the central bank to financial service providers to the consumers. Access to new quantitative and qualitative information can enable regulators to better understand customer experiences and more easily detect fraud in the market. We are eager to identify, test, and document more use cases around the use of technology to improve market monitoring and consumer protection.
<h2>Empowerment Comes from Long-Term Client Engagement</h2>
While we are excited by what CFI accomplished with the radio campaigns, we know that the length of the interventions, which ranged from six to 13 weeks, were likely not enough to catalyze long-term behavior change. However, we designed the radio campaigns with partners whom we hoped could continue to distribute and air the episodes and media content. In both Uganda and Ghana, government entities expressed interest in continuing to run the content. In Benin, we used a decentralized approach of training 19 radio journalists on the key client protection market issues, then managed a competition to see who could create the best educational content. The journalist competition allowed us to multiply our outreach efforts in a cost-effective, sustainable way.

With the Client Voices research, we worked closely with the National Bank of Rwanda (BNR) research unit in the hopes of embedding data collection as a regular occurance and not a one off, which they are currently exploring, though at a smaller scale. In Cambodia, the objective for the IVR was to pilot an effective tool for MFIs and others to take the pulse of their clients on an ongoing basis. Over the course of the project, we recognized that providing such feedback can have significant (and in our case unanticipated) cost implications for low-income households. For this reason, we had to reexamine the programing of the platform so that clients would not incur any charges for airtime used when they called in to complete the survey.
<h2>Looking Ahead: CFI Strategy &amp; Impact</h2>
CFI’s experience with client engagement under the Smart Campaign yielded several valuable lessons. First, engaging clients in the design and testing of any digital tool is essential to ensuring that the product features and safeguards work for them. Client engagement also helps providers prioritize what’s most helpful and rout out anything harmful, ideally in the design stage before any harm actually occurs. Second, direct client feedback should not be considered a one-time occurance during product design. Ongoing engagement can provide valuable lessons and ensure that client needs are being met. Finally, digitization has introduced an era of rapid change, made only more extreme by the impacts of the COVID-19 pandemic. We must be poised to listen to clients, and quickly adapt as needed to fulfill our commitment to the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a>.
<blockquote>CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers.</blockquote>
CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers. For example, we launched a series of policy papers examining policy measures to mitigate the impact of COVID-19 and understanding their impact on low-income customers. We are also collecting data on the impact of COVID-19 on MSMEs to help inform providers, investors, and policymakers about the depth and breadth of the impact on low-income customers. As the world faces unprecented times in the wake of COVID-19, we will continue to listen to customers and adapt our work. The customer voice — and engaging them at every step — is crucial for advancing financial inclusion, perhaps now more than ever.

<em>We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.</em>

&nbsp;

Making Digitization Work for Clients Starts With Client Engagement

<h1>Why Consumer Rights and Responsibilities?</h1>
The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> provide a common framework for financial service providers (FSPs), policymakers, and clients to better understand and discuss consumer protection issues. While much of the Center for Financial Inclusion’s (CFI) work with the financial inclusion industry has focused on providers and regulators, there is a third crucial constituency: clients.

Client awareness and capability is a critical component of effective financial consumer protection. Clients have the right to demand fair treatment and lodge complaints with government authorities, but these rights mean little if they don’t know what constitutes lawful treatment or how to access complaints channels. Similarly, clients play a role in protecting themselves by practicing behaviors to maintain their privacy and safety. While FSPs can institute protective processes and regulators can craft policy safeguards, improving client awareness of their rights and responsibilities helps consumers play their part to support a sustainable financial system.

This report provides lessons learned from initiatives in Ghana, Uganda, and Benin to raise consumer protection awareness among clients through multimedia campaigns, digital tools and other outreach strategies. It covers country-specific consumer protection issues and the individualized campaigns to address these issues. We also offer five key takeaways to help inform future client protection and empowerment awareness building activities.

Clients Deserve to Know: Using Radio to Educate and Empower Consumers in Africa

New data protection legislation in many countries has gotten a lot of attention in recent years. But we hear less about what happens after these laws are passed. Although the substance of new data protection laws is important, implementation is where the rubber meets the road. Any new law is only as good as the implementing capabilities of regulators and providers, so it’s important to take those capabilities into consideration when developing the law’s provisions, subsequent rules and institutional structures that must be put in place to bring it to life.

This point was underscored in a recent <a href="https://www.dvara.com/research/wp-content/uploads/2019/10/Policy-Brief-Implementing-the-Personal-Data-Protection-Bill-in-India.pdf">policy brief</a> issued by the <a href="https://www.dvara.com/research/future-of-finance/">Future of Finance Initiative at Dvara Research</a> that provides a blueprint for actions that will need to be taken by India’s central government and the new Data Protection Authority (DPA) that will be created after passage of the <a href="https://prsindia.org/billtrack/personal-data-protection-bill-2019">Personal Data Protection Bill</a>. In total, the government and the DPA will need to address <a href="https://www.bloombergquint.com/opinion/a-blueprint-for-implementing-indias-personal-data-protection-law">at least 82 action points</a> to implement the new law. This observation begs the question: will regulators have the capacity needed to implement and enforce this new law?
<h2>Bridging a Gap of Understanding and Interpretation</h2>
As mentioned in the <a href="https://centerforfinancialinclusion.org/data-protection-and-financial-inclusion-why-it-matters-introduction/">introductory blog post</a> to this series, a common theme that surfaced during interviews we conducted last year with various data protection stakeholders in India, Ghana and Peru (as part of a <a href="https://www.credit-suisse.com/careers/en/articles/careers/sharing-expertise-201712.html">Credit Suisse Global Citizens volunteer project</a>) is that there is a gap that needs to be bridged between governments and providers on the issue of data protection.

For example, in Ghana, which has had a data protection law in place since 2012, any entity that handles personal data must register with the country’s Data Protection Commission as either a data controller or a data processor. However, according to Elorm Allavi, founder of<a href="https://syecomp.com/"> SyeComp</a>, an agricultural intelligence tech startup, it’s not necessarily clear which classification to register under and what the implications may be for the registration fees to be paid. He also described the data protection requirements as being “very one sided” and expressed a desire for the Bank of Ghana and data protection regulators to take steps to better comprehend the changing digital landscape and how fintechs use data. He felt that their lack of understanding limits their ability to assess the risks and can lead to unwarranted regulations.

On the government side, we’re grateful to Clarissa Kudowor at the Bank of Ghana (BoG) for providing a written response to some of the questions we had submitted regarding the overall legal and regulatory environment around data, as well as the BoG’s new <a href="https://www.bog.gov.gh/wp-content/uploads/2019/09/CYBER-AND-INFORMATION-SECURITY-DIRECTIVE.pdf">Cyber &amp; Information Security Directive</a>. In her response, she recognized the need for innovation in financial services and the role of proportionate regulations and regulatory sandboxes in helping to create an enabling regulatory environment. But despite this enabling spirit, there was also a clear undertone throughout her remarks that compliance with the provisions of the law is paramount, though there was no mention of any specific engagement with providers that would help to facilitate that compliance. Moreover, Ms. Kudowor had to refer some of our questions to the Data Protection Commission, which sits within the Ministry of Communications. This was understandable, since Ghana’s data protection law applies to all sectors and not just the financial sector, but our efforts to get a response from the commission weren’t successful. This perhaps was indicative of the kinds of concerns providers often express about having multiple regulators to answer to.

We encountered similar concerns in Peru, where Mariano Fuentes, a Legal Advisor with <a href="https://www.asbanc.com.pe/">ASBANC</a>, the association of private financial institutions in Peru, told us about five member banks that were appealing sanctions by the National Data Protection Authority (NDPA) over differences in interpretation of consent requirements, suggesting a lack of regulatory clarity. Raising a separate concern, Elias Vargas, Head of Market Conduct Supervision at SBS (the Peruvian banking superintendent), spoke about overlaps in the mandates of the SBS and the NDPA and suggested that in some cases the SBS may be better positioned than the NDPA, which resides in the Ministry of Justice, to provide oversight of the financial sector on certain data protection issues. And in India, where the new data protection bill is looming large, Tejamoy Gosh, Head of Data Science and Artificial Intelligence with Aye Finance, also emphasized the need for regulatory clarity when he said that he would like to see “a list of ‘don’ts’ rather than a list of ‘dos,’ so we can be sure of what not to do absolutely.”
<h2>Provider and Other Stakeholder Capacity Needed, Too</h2>
All of the above issues are reflective of the enormous complexity of data, which brings us full circle to the need for policymakers and regulators to take capacity into account when designing and implementing new data protection frameworks. This doesn’t mean just regulatory capacity, but also provider capacity. In order to do this, it’s important for those doing the regulating to consult with those who will be regulated throughout the policymaking process so that all data protection stakeholders can be set up for success. Based on the feedback we obtained through the interviews described above, it appears that much more deliberate action is needed to make this happen.
<blockquote>It’s important for those doing the regulating to consult with those who will be regulated.</blockquote>
As <a href="https://www.bloombergquint.com/opinion/a-blueprint-for-implementing-indias-personal-data-protection-law">noted</a> by the team at the Future of Finance Initiative at Dvara Research, “Developing robust and timeless regulation will require collaboration between regulators, entities processing data, civil society, researchers and technologists.” We couldn’t agree more. As our interviews showed, there’s a divide between regulators and providers that intentional and ongoing collaboration can help to bridge. They also suggest that governments need to do more to ensure that regulatory bodies not only have the technical expertise to deal with data issues writ large, but also the sectoral expertise to be able to effectively deal with data issues that are specific to each sector. Designing and implementing data protection frameworks is no small task, and governments should do all they can to enlist the support of external stakeholders to develop frameworks that truly set everyone up for success.

Avoiding Capacity Overload in Data Protection Frameworks

CFI has begun the new year with many developments and shifts in our agenda. We have been working hard behind the scenes to position our strategy where inclusive finance can have an important role on issues that are most pressing for the lives of the poor. As we have been undertaking this strategy refresh – looking both internally and externally to identify what is critical for the inclusive finance field – we have identified several important areas of focus. At this juncture, we would like to share how our thinking is evolving with regard to our role and future focus priorities.
<h2><strong>First, we want to use this opportunity to relay our continued commitment to improved consumer protections for people at the base of the pyramid.</strong></h2>
CFI has been supporting the Smart Campaign for more than 10 years. This initiative has had many achievements, most notably, its role in defining a set of standards, the Client Protection Principles, which guide how providers adapt their internal practices and how regulators should think about consumer protection regulation and the tools they use to monitor market conduct. We expect to continue to evolve CFI’s work on consumer protection by expanding our research and analysis of how the digital economy is presenting new risks for consumers. We also plan on expanding our work with regulators on both regulation and market conduct.
<blockquote>Consumer protection in the digital economy will be a focus area for CFI research and analysis.</blockquote>
We anticipate Smart Campaign’s role will be that of an industry initiative: it will continue to be supported by the many actors that are part of that community. CFI’s role in the Campaign will be discussed in an upcoming steering committee meeting and will align with CFI’s broader strategic shifts.
<h2><strong>Second, we want to double-down on our advocacy role in protecting and empowering customers.</strong></h2>
We believe there are few organizations in the inclusive finance field that truly prioritize the customer voice and perspectives. Our role is doing just that. Over the years we have used many tools to listen to customers and have used these listening exercises to inform our policy recommendations and our consumer protection standards, and we want to continue to do this. In 2019, we published the Client Voice Rwanda which used surveys and focus groups to better understand Rwandans experiences with mobile money, and our ongoing work in Cambodia is testing IVR technology as a means of collecting client feedback. And we have tested many ways to share information with customers to improve their ability to make informed decisions. In the past year, we ran consumer awareness campaigns in Ghana, Benin, and Uganda using different engagement techniques, such as social media videos, radio dramas and interviews, and journalist competitions, to inform consumers about their rights and responsibilities when accessing financial services.
<h2><strong>Third, we want to elevate the work that will be most impactful on the poor: financial services that help the poor deal with and adapt to climate change, gender inequality, and data opportunities and risks.</strong></h2>
This shift does not mean we stop working with providers or on important market infrastructure issues. It means that given resource limitations, each institution that is focusing on inclusive finance needs to ensure that its focus areas have a direct line of sight on how this work will lead to improved outcomes for the poor. For CFI, we have identified three key areas of focus that we will add to our agenda to help us have a more impactful influence toward improved customer outcomes. These areas are doing additional research on how financial services can both reduce risks and help customers adapt to the reality of climate change, doing additional research and experimentation on how to address the remaining policy and norms barriers that impede progress on women’s participation in the formal financial system, and better understanding the risks and opportunities that the new digital economy and the use of data pose for customers and identifying innovative solutions for managing those risks through regulation, data practices by providers, and industry wide solutions.
<h2><strong>Finally, we want to refine our influence model to improve our impact.</strong></h2>
As an independent global think tank housed at Accion, we know we must continue to partner to have leverage. We want to continue to build partnerships with like-minded organizations to test new ideas, conduct research, share and advocate. As in the past, we strongly believe that collaboration is the key to improving our impact, and we will continue to work together to scale our learnings.
<blockquote>I am excited to see the opportunities that lay ahead for CFI and inclusive finance.</blockquote>
After a few months on the job, I am excited to see the opportunities that lay ahead for CFI and for the inclusive finance field and hope that you will be a part of this journey.

New Decade, New Focus Areas: CFI's Role in an Evolving Space

Alex Qian

Senior Investment Officer, Accion Global Investments 

Adebiyi Fajemisin

Anifat Ibrahim

Raliat Sunmonu

Radhika Shroff

Alice Tang

Paul Breloff

Amee Parbhoo

Jordan Coriza

Ethiopia

Ghana

Nigeria

Sub-Saharan Africa

Benin

Rwanda

Uganda

China

Colombia

Dominican Republic

Guatemala

India

Mexico

Paraguay

Peru

Tanzania

United States

Zambia

Zimbabwe

Côte d'Ivoire

Senegal

Access Usage Gap

Advisory Services

Challenges and Crises

Client Treatment

Consumer Protection

Credit

Customer Centricity

Delivery Channels

Digital Financial Services

Enabling Environment

Entrepreneurs of MSMEs

Financial Service Providers

Financial Technology

Fintechs

MSME/SME Finance

Partnerships

Payments

Responsible Digital Finance

Social Performance

Supply Chain Finance

Underserved Groups

Policy, Regulation and Government Initiatives

Governance

Impact Investing

Microfinance

Report

Press Release

Article

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

<h1>Foreword</h1>
As the spread of COVID-19 first escalated to frightening levels, nations around the world took drastic action. Lockdowns and travel restrictions caught millions of small businesses off guard. Many shuttered their doors, while others were able to adapt to the circumstances. Globally, many are still recovering from the shock of the pandemic. Supply chain finance (SCF) is the use of financing mechanisms that can optimize the management of liquidity tied up in supply chain processes. SCF solutions have long been offered by big banks to large corporations, such as fast-moving consumer goods (FMCG) companies and manufacturers, to support trade.

Today, SCF techniques are being transformed by technology, <span style="color: #000000;">expanding the addressable market to include micro, small, and medium size enterprises (MSMEs).</span> Improved connectivity, increasingly available customer data, and new technologies lower the cost and make it possible to extend digital SCF solutions to the MSMEs at the end of global supply chains.

By tying credit to the flow of goods, SCF facilitates more efficient business operations and cash flow management for all actors along the chain — resulting in higher sales, faster turnover — and ultimately, increased profitability and growth.

A platform-based model that satisfies the interdependent needs of multiple stakeholders simultaneously using digital innovations is well suited to provide SCF solutions. Platform models consolidate digitized data produced by the flows of goods and money throughout the supply chain, building trust and facilitating coordinated decision-making. The net effect is to provide deeper insights into MSME and consumer behavior. Africa is at the forefront of many digital innovations for the underserved. We all have a lot to learn from what has been happening there.

In November 2018, the Mastercard Center for Inclusive Growth and Accion launched a partnership to transform millions of underserved MSMEs around the world and help them participate in, and benefit from, the digital economy.

Among other efforts, the partnership is reaching this goal by catalyzing the digital transformation of financial service providers and ecosystem participants. As evidenced in the Global Findex report released in June 2022, this work coincides with broad changes in customer behavior that have accelerated as a result of COVID-19.

Given the urgency of digital transformation to build an inclusive recovery, this paper provides timely insights into how to enable SCF models in three African countries and addresses key questions surrounding where to start and where to focus. Accion shares the insights gained from this work here, as part of our effort to ensure that our endeavors and accomplishments serve as demonstration models for the industry.

&nbsp;

Prateek Shrivastava

<em>Vice President, Digital, Accion Global Advisory Solutions</em>

Strategies to optimize MSME-centered supply chain finance solutions: A study of Ghana, Ethiopia, and Nigeria

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<em>Washington, D.C., November 1, 2016 </em>– The Center for Financial Inclusion (CFI) at Accion announced today a $4.4 million, three-year partnership with The MasterCard Foundation to tackle the challenges facing consumer finance in an increasingly digital world. The Smart Campaign, a recognized leader in financial consumer protection, works globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. The partnership marks a shift in strategy for the Smart Campaign, as well as a deepening of its footprint in Sub-Saharan Africa.

Since its inception in 2009, the Smart Campaign has worked to infuse client protection into the DNA of the financial inclusion industry, certifying over 68 financial institutions serving 35 million clients worldwide. This flagship certification program will continue. Now, with support from The MasterCard Foundation, the Smart Campaign will convene a broader range of players in the financial services field—including regulators, industry associations and financial technology firms—to tackle client protection issues emerging from new technologies, to elevate the voice of the clients they serve and to effect change at the national level.

“It’s important to certify the practices of individual financial institutions, but we will not create wholesale, sustainable change until we galvanize the support all of the partners involved in serving low-income people, including regulators and new, technology-based service providers. We must also make a concerted effort to champion the client’s perspective,” said Isabelle Barrès, Director of the Smart Campaign.

The Smart Campaign’s work aligns directly with The MasterCard Foundation’s focus on responsible, client-centric financial services. “Our approach is to build and leverage partnerships across the financial inclusion sector to ensure clients’ needs are met responsibly,” said Ann Miles, Director of Financial Inclusion and Youth Livelihoods at the Foundation. “The Smart Campaign’s ability to reach out directly to clients to build awareness of their rights and understand their feedback is at the very heart of this partnership. The Smart Campaign will carry out activities designed to raise clients’ voices and inform them about their rights and responsibilities as consumers.”

In much of Sub-Saharan Africa, client protection is urgently needed and sorely lacking. Predatory providers, abusive practices, weak regulations and inappropriate products can create lasting and sometimes devastating harm. At the same time, digital financial services are sweeping the continent, raising brand new client protection issues. While the Smart Campaign will continue to be a global effort, this partnership will focus work in five Sub-Saharan African countries: Benin, Ghana, Nigeria, Rwanda and Uganda. “With more than 45 million people in these five countries using financial services – often for the first time – the imperative to fully and sustainably protect clients is clear. With generous support from The MasterCard Foundation, the Smart Campaign can help ensure more people are offered high quality financial services,” said Isabelle Barrès.
<p style="text-align: center">###</p>
<strong>About the Center for Financial Inclusion at Accion
</strong>The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank working toward full global financial inclusion. Constructing a financial inclusion sector that reaches everyone with quality services will require the combined efforts of many actors. CFI contributes to full inclusion by collaborating with sector participants to tackle challenges beyond the scope of any one actor, using tools that include research, convening, capacity building and communications. To learn more about CFI, visit <a href="/Users/vmoore/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/8OSC6KV4/www.centerforfinancialinclusion.org">www.centerforfinancialinclusion.org</a>.

<strong>About The MasterCard Foundation</strong>

The MasterCard Foundation works with visionary organizations to provide greater access to education, skills training and financial services for people living in poverty, primarily in Africa. As one of the largest private foundations its work is guided by its mission to advance learning and promote financial inclusion to create an inclusive and equitable world. Based in Toronto, Canada, its independence was established by Mastercard when the Foundation was created in 2006. For more information and to sign up for the Foundation’s newsletter, please visit <a href="http://www.mastercardfdn.org/">www.mastercardfdn.org</a>. Follow the Foundation at @MastercardFdn on Twitter.

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<strong>MEDIA CONTACT</strong>

Virginia Moore
Center for Financial Inclusion
+1 202-393-1659
<a href="mailto:vmoore@accion.org">vmoore@accion.org</a>

Isabelle Bourgeault-Tassé
The MasterCard Foundation
+1­ 647­‐535.3681
<a href="mailto:ibourgeault-tasse@mastercardfdn.org">ibourgeault-tasse@mastercardfdn.org</a>

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Smart Campaign and The MasterCard Foundation in Partnership to Advance  Consumer Protection in Financial Services

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

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

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.

The microcredit industry in China today is as diverse as it is large, and yet the country’s 56 million micro, small, and medium-sized enterprises (MSMEs) remain largely under or unserved. These businesses account for approximately 90 percent of all enterprises in China and serve as the engine for the country’s growth. So why aren’t they better served by China’s financial players?

The space is made up of three key categories: microcredit companies (MCCs), which are regulated differently from one province to the next; peer-to-peer (P2P) companies which are currently unregulated; and high-profile internet finance companies associated with tech giants like Baidu, Alibaba, and Tencent.

&nbsp;

[caption id="attachment_6754" align="alignnone" width="650"]<img class="wp-image-6754 size-full" src="http://blogs.accion.org/wp-content/uploads/2016/04/liping_li_amc_2013_10.jpg" alt="Liping Li sells a line of medicinal products made from donkey hide gelatin, helps customers in Songshan district, Chifeng, Inner Mongolia, China May 10, 2013. ( Photograph by Rohanna Mertens )" width="650" height="434" /> Liping Li, a client of Accion Microcredit Company, sells a line of medicinal products.[/caption]

&nbsp;

The number of microcredit companies (MCCs) is now close to 9,000, reaching almost $150 billion in outstanding portfolio. Peer-to-peer lending (P2P) companies, continue to grow in numbers (now estimated close to 2,500) and outreach, despite some relatively high-profile cases of fraud. Internet finance companies, riding the back of a booming e-commerce business, are driving innovation in payments and products for a population increasingly mobile-savvy and active on the internet. Yet demand remains sizable.

Enter Grassland Finance.

A Hong Kong-based holding company, Grassland Finance aims to found or invest in financial service institutions in China that provide loans, credit and other financial services to China’s vast numbers of MSMEs, serving a broad range of clients across the credit spectrum. Today, the company owns three microcredit companies, or MCCs (two are wholly owned, and one is a joint venture, with Grassland holding 80%), and is pursuing a number of other innovative business models to achieve scale and outreach. The first MCC acquired by Grassland was Accion Microcredit Company (AMC), which Accion launched in 2009 as the first foreign-owned MCC in Inner Mongolia and only the second in all of China. Three years after launching AMC, Accion embarked on an expansion strategy with its new partner, Sagamore Investments, by establishing Grassland.
<h2>Regulatory challenges</h2>
The Chinese government recently released draft regulations to govern the online P2P industry, which has historically had extremely low barriers to entry. In contrast, MCCs have always been highly regulated with inherent and systemic barriers to foreign investment, growth, and scale. Key regulatory restrictions include:
<ul>
 	<li><strong>Licensing:</strong> Most MCC investors must obtain a special license from district, city and provincial governments. The licenses themselves have strict geographic limitations (often only giving the operator the ability to serve clients in one or two districts) after which additional licenses must be obtained. Each license requires protracted negotiations before an official approval can be granted, often taking multiple years. Besides operating license, MCCs’ access to the country’s central credit bureau is subject to further review and approval by the central bank, which adds to their operational difficulties.</li>
</ul>
<ul>
 	<li><strong>Capital Requirements:</strong> Most provinces in China require high upfront registered capital for MCCs ranging anywhere from US$3mm to US$32mm. The upfront capital requirement makes it difficult for a start-up MCC to use its capital efficiently, and many struggle with depressed initial returns on equity due to the quantity of idle cash.</li>
</ul>
<ul>
 	<li><strong>Leverage Limitations:</strong> Lending businesses rely on the efficient use of capital, which requires a mixture of debt and equity. Most provinces in China have strict shareholding requirements and leverage limitations, particularly for MCCs with foreign ownership. The most leverage allowed by any province is 2-3 times, which is highly conservative when compared to leverage limits of 5-6 times for similar credit-only institutions in other Asian countries. With these limitations, many MCCs are forced to fund their businesses with increasing amounts of equity. Further, local debt is difficult, if not impossible to obtain.</li>
</ul>
<ul>
 	<li><strong>Local Partners:</strong> Often, provincial governments identify and select a local partner for a foreign investor who wants to establish an MCC. This may be done without any opportunity of mutual due diligence, thus potentially creating issues in expectations for business model, negotiations, and governance.</li>
</ul>
These factors cause the microcredit industry in China to be extremely fragmented with over 8,500 MCCs across the country. Many of those simply lend to suppliers and friends with no ambition or capacity of growing overall portfolio or client numbers. Significant room for even more MCCs remains and hundreds are established every year to serve the underserved or unserved MSMEs, with their need for a wide range of financial services.

[caption id="attachment_6752" align="aligncenter" width="434"]<img class="size-full wp-image-6752" src="http://blogs.accion.org/wp-content/uploads/2016/04/yuhua_wang_amc_2013_2.jpg" alt="Yuhua Wang in her laundry shop called &quot;Self Reliance&quot; in Pingzhuang, Inner Mongolia, China May 9, 2013. ( Photograph by Rohanna Mertens )" width="434" height="650" /> AMC client Yuhua Wang in her laundry shop called "Self Reliance."[/caption]
<h2>Grassland Finance’s strategy</h2>
Grassland’s strategy is to combat some of the inefficiencies inherent to China’s microcredit industry, which make it difficult for players to scale their operations.
<h3>Establishing a shared service platform</h3>
Established as a holding company, Grassland’s structure allows a group of MCCs to unify under one “head office” so each MCC operates essentially as a branch office. A shared service platform has been developed within the structure, where the head office sets up standard operating procedures across three MCC branches and shares senior management for all operations.

This structure allows Grassland to standardize operations and increase operational efficiencies, particularly the credit review process. The head office issues operating procedures and credit policies, conducts credit reviews at the headquarter level for certain SME loans, and provides knowledge sharing more effectively.
<h3>Partnering with trusts</h3>
Grassland’s team has identified a partnership with the China Foreign Economy and Trade Trust Company (“FOTIC”), a trust subsidiary of a Chinese state-owned enterprise that has the ability to act as a channel for credit products. Trust companies in China are unique by international standards as they are primarily engaged in two businesses: 1) providing financing to relatively high-risk borrowers with investor funding, and 2) providing a conduit to banks and other financial institutions that are restricted from investing into certain asset classes. A trust license is the only financial license in China that can invest in a wide range of asset classes including money market, capital markets and unlisted assets such as loans.

By using the FOTIC channel, Grassland is able to circumvent geographic restrictions to reach MSMEs located in any part of China. Grassland remains responsible for sourcing potential clients, reviewing loan applications, and bearing all risks associated with the loans, as they are issued through FOTIC with Grassland’s own capital and will remain on Grassland’s balance sheet, but Grassland only needs to establish representative offices in new cities to expand. Additionally, Grassland can potentially obtain funding from FOTIC in the future once it has developed a proven track record and will be able to act as a loan agent for sourcing and reviewing applications for FOTIC for off-balance sheet lending.

The partnership saves the Grassland team from devoting themselves to the very time-consuming legal work of obtaining MCC licenses while still allowing Grassland to reach more clients. Without the obligation to follow the high registered capital requirements for each MCC entity, Grassland is able to allocate its financial resources elsewhere.

[caption id="attachment_6751" align="alignnone" width="650"]<img class="size-full wp-image-6751" src="http://blogs.accion.org/wp-content/uploads/2016/04/wenjie_li_amc_2013_3.jpg" alt="Wenjie Li, supermarket owner in Chifeng, Inner Mongolia, China May 8, 2013. ( Photograph by Rohanna Mertens )" width="650" height="434" /> Wenjie Li, supermarket owner in Chifeng and AMC client.[/caption]
<h3>Leveraging WeChat and Alipay</h3>
Chinese internet giants Tencent and Alibaba have leveraged their strong internet presence while expanding their businesses into financial services. Grassland incorporates services and applications developed by Tencent and Alibaba’s finance arm, Ant Financial, to increase engagement and improve user experience.

Grassland has adopted Tencent’s instant messenger application, WeChat, as another channel for communicating with existing clients as well as a marketing tool to attract potential clients, as WeChat is reported to have 650 million monthly active users in China. With WeChat, Grassland can connect and engage with potential and existing clients in a more personal way, and existing clients can stay up to date on their loan status and repayment schedule.

Through Alipay, which has over 600 million monthly active users in China, existing clients can choose to make loan repayments through their Alipay accounts, which are linked directly to their bank accounts as.
<h3>Online platform growth</h3>
As internet penetration continues to increase in China, Grassland has established an online portal, <em>Grassland Online!</em>, to solicit loan applications. Meanwhile, the platform allows existing clients to check their loan status and repayment schedule.

[caption id="attachment_6753" align="alignnone" width="650"]<img class="size-full wp-image-6753" src="http://blogs.accion.org/wp-content/uploads/2016/04/xin_wu_guang_amc_2013_15.jpg" alt="Shuhua Chen makes steamed buns and Chinese wraps at her shop in Qianjin village, Pingzhuang county, Inner Mongolia, China May 9, 2013. ( Photograph by Rohanna Mertens )" width="650" height="434" /> AMC client Shuhua Chen makes steamed buns and Chinese wraps at her shop in Qianjin village.[/caption]
<h3>Exploring M&amp;A opportunities</h3>
In most contexts, an active roll up or acquisition strategy would seem appropriate with 8,500 operating MCCs and a fragmented market. Grassland quickly realized, however, that most local players are not seeking scale, majority investment, or any change in management. Due to the small scale of their businesses, they do not lack capital. Given this, Grassland is opportunistically seeking investments in, or acquisitions of, existing and like-minded MCCs. In addition, Grassland is seeking partnerships and investments that would leverage financial technologies to expand outreach more efficiently at a larger scale. Besides operational track record and financial performance, mission alignment is also an important area that Grassland examines while evaluating potential targets, given Grassland’s vision of creating a financially inclusive ecosystem in China that provides MSMEs better access to economic opportunities.
<h2>Looking forward</h2>
The Chinese government’s recent efforts to regulate the rapidly-developing P2P companies will require those players to align themselves with regulated financial institutions to continue operating and working to close the financing gap for MSMEs in China. However, a significant financing need remains, given the economy’s size and diversity. Credit providers like Grassland are still very much needed to assess the credit profiles of “difficult” clients, who are usually underserved or unserved by both traditional banking institutions and the peer-to-peer lending industry, and lend as appropriate.

With the new and innovative channels that Grassland is exploring, we remain confident that Grassland will be able to expand its reach quickly and effectively. We are hopeful for Grassland’s future as a leading provider of credit to MSMEs in China.

Grassland: Filling a gap in China’s microcredit industry

As fintech futurists, we’re often cast in the role of cash killer and digital champion. But on our recent visit to West Africa, digital payments weren’t an option and we were forced back to old-fashioned paper.

It started when we landed in Ghana without transit visas for our connecting flight to Lagos. We cajoled the kind airport staff to walk us through customs into the departure hall to try to buy new onward tickets from Accra to Lagos, so as to avoid a seven-hour layover. Success! An airline called Aero had our tickets…but no way to accept our credit cards. Out into the Ghanaian morning air, we went, in search of an ATM. After one was out of order, we found another one and withdrew a wad of <em>cedis</em> too large to stuff in our pockets. Tickets procured, and we were off to Lagos.

In Lagos we had to buy a return flight, to get back home from Accra later that week. We were assured in Accra that Lagos would have a credit card machine, and initially, things were looking good – until we handed over our international cards and their faces changed to the “I-hate-to-give-bad-news” scrunch. Alas: while we saw point of sale (POS) terminals at many shops in Lagos, very few terminals seem to accept international cards. Back to an ATM, a wad of bills, and a good old-fashioned paper ticket.

This theme continued all week. On our last night in Lagos, we ate a fantastic meal at a hip new restaurant called Nok. The cocktails and cuisine were world class, but the payments were still stuck in the past: we tried a total of five different credit cards on at least four different POS machines, and all of them failed. They debated whether to conscript us into labor as dishwashers to work off our tab, but ultimately let us return to our hotel, and planned to send someone to our hotel the next day to pick up cash. Of course, when we got to the hotel, the ATM was of course… out of order.

Our saga finally came to an end thanks to a tech-savvy entrepreneur who offered to give us nairas in exchange for a PayPal payment in dollars. Despite our best negotiating efforts, he sensed our desperation and got away with a pretty great exchange rate.

<img class="alignnone size-large wp-image-6720" src="http://blogs.accion.org/wp-content/uploads/2016/04/cash-is-kind-accion-venture-lab-digital-finance-receipts-1024x222.jpg" alt="cash-is-kind-accion-venture-lab-digital-finance-receipts" width="1024" height="222" />

In many places we work, a digital payments infrastructure is emerging and functioning and increasingly widespread. Particularly for the neighborhoods, hotels, and restaurants we spend the most time in, we can use our credit cards and debit cards seamlessly. In Nigeria, this simply wasn’t the case: the challenge of using digital financial services was real and was clearly an issue for banked and unbanked alike.

So what did we take away from our experience?

First of all, it seems clear to us that some of the hype about Nigeria’s digital payments infrastructure is way ahead of the reality. According to <a href="http://www.kpmg.com/africa/en/issuesandinsights/articles-publications/general-industries-publications/pages/payment-developments-in-africa-2015-volume1.aspx" target="_blank" rel="noopener">KPMG</a>, there are 170,000 POS terminals deployed in major cities in Nigeria in 2014 and growth of POS terminals is a primary objective of the Central Bank’s Cashless Nigeria initiative. Yet connectivity issues remain a key barrier to their use and reliability. While our experience is probably not reflective of the market, it does make us wonder about the impact that unreliable networks can have on usage long term. How much will customers put up with before ignoring their plastic and just sticking with cash?

Second, we were fascinated by the currency situation, with the Nigeria naira trading at very different rates officially (i.e., banks) and the black market. Our hotel would exchange our US dollars at a rate of $1 to 196 naira – but they were also willing to call a contact to come to the hotel “unofficially” and exchange for us at a rate of $1 to 315 naira. <a href="http://www.economist.com/news/leaders/21689544-president-muhammadu-buhari-repeating-economic-error-he-made-dictator-30-years-ago-hope" target="_blank" rel="noopener">A lot has already been written</a> about the Nigerian government’s currency policies, but the repercussions are significant and cause some inefficient behaviors — it not only massively chills foreign direct investment but also leads to foreigners like us converting “unofficially” and paying for everything we can in cash, rather than digitally. And our challenges as visitors pale in comparison to the challenges faced by the thousands of small businesses who buy and sell goods in different currencies. This will get even worse as the naira further devalues.

For us, the challenges we faced reminded us that this stuff can actually be quite important in day to day life. It’s easy to take for granted the ability to pay for things digitally, whether through credit/debit cards or mobile money, but when it’s gone, you miss it. We are now that much more excited to find and grow businesses tackling these problems and others in the financial inclusion space in West Africa.

Cash is still king in Nigeria

Work hard, be honest, remain humble. That was the direction given to microfinance expert Masuna Chikami by his father when he graduated from high school in Masvingo Province in Zimbabwe — a hard reality for a man with great ambition. The memory of those words remains fresh almost 30 years later, as “Chikami,” as he is known to friends and colleagues, traces the arc that brought him to Accion’s Africa hub in Ghana.

Mindful of his responsibilities as the second of nine children and the need to not only support himself but also help his siblings, Chikami began applying the work ethic for which he’s now known. His first job was as a temporary teacher, and he saved money to take his agriculture qualification courses. After putting himself through school, he secured his first job as a loan officer for an NGO in Zimbabwe, where he worked with women in rural areas. “The women were so happy to see me when I would arrive,” he explains. “And it was so inspiring to see people working so hard and paying back their loans.”

He was quickly promoted and continued to rise through the ranks of microfinance, keeping three instructive principles front and center at every step: honesty, humility, and hard work. Those values were instilled in him by his late mother, who always welcomed him to his hometown of Chivasa but would soon send him on his way, saying, “You need to go back to work.”

Accion had the great fortune of getting to know Chikami when he was serving as the general manager of MicroKing, a former Accion microfinance partner in Zimbabwe. He joined Accion in 2006 to help launch <a href="http://www.accionmfb.com/" target="_blank" rel="noopener">Accion Microfinance Bank (Accion MfB)</a> in Nigeria.

When he started, Accion Microfinance Bank had no banking license, no branches, and no clients – just one small room shared by five people who were working to get the institution off the ground. The hours were long – typically until midnight – but he holds the project up today as his proudest moment. Accion Microfinance Bank is now reaching more than 120,000 savers and over 43,000 loan clients through more than 300 loan officers and 31 branches, and Chikami continues to manage teams of Accion consultants who pilot new products and technologies that stand to improve the bank’s reach, client service, and efficiency. “One thing that helps me fit in well here,” says Chikami, “is my ability to work with a diverse group of people. My work and life experiences give me perspective on different cultures, professional backgrounds, and business problems. So, I’m able to support our partners and build strong relationships with them.”

Chikami has accomplished a great deal in collaboration with his technical assistance teams and our four partner MFIs, which are currently reaching some 83,000 clients in Africa. He sees great possibility in the region, as digital finance continues to take hold and improves access and convenience. But he cautions that client protection is critical — especially for Africa, as many new players enter the market not all with the clients’ best interests at heart. He and the team at Accion are working to promote strategic leadership in the region and ensure that best practices are enforced throughout the industry through a staunch commitment to training and capacity-building.

Behind the scenes: Masuna Chikami and Accion Microfinance Bank

Over the past few years, Venture Lab has primarily focused on East African <a href="https://www.accion.org/content/venture-lab-portfolio" target="_blank" rel="noopener noreferrer">fintech investments</a>, such as <a href="http://www.kopokopo.com" target="_blank" rel="noopener noreferrer">Kopo Kopo</a> and <a href="http://umaticapital.com/" target="_blank" rel="noopener noreferrer">Umati Capital</a>, both based in Kenya, as well as <a href="http://www.firstaccessmarket.com/" target="_blank" rel="noopener noreferrer">First Access</a>, which operates in Tanzania and Kenya. But now we’re taking a more concerted look at other markets across the continent. Since October, I’ve been exploring the fintech ecosystem in four West African countries — Ghana, Nigeria, Senegal, and Cote d’Ivoire — thanks to a grant from the MasterCard Foundation. I’ve been meeting players in the financial services space to better understand opportunities in these markets and the needs of a growing cohort of startups.

One thing has become clear — there’s a lot to be excited about in this region. Africa’s most populous country, Nigeria, is an incredibly dynamic market with opportunities to disrupt financial services. Ghana and Senegal have burgeoning startup ecosystems with active tech hubs and growing interest among entrepreneurs for fintech. And Cote d’Ivoire is the world’s fastest growing mobile money market with potential for innovation.

We’re still in the midst of the work, but our early takeaways are:
<ol>
 	<li><strong>Nigeria, Nigeria, Nigeria! </strong> We’re excited to be meeting more people and learning about opportunities in the country. The fintech space is heating up — <a href="http://www.forbes.com/sites/mfonobongnsehe/2015/10/07/nigerian-money-transfer-firm-paga-raises-13-million/">Paga raised $13M</a> for its mobile money transfer platform this fall; <a href="http://www.ngrguardiannews.com/2015/08/venture-garden-nigeria-gets-20m-investment-fund-from-cpcif/">Venture Garden Nigeria raised $20M</a> for the fintech entities within its holding company; <a href="http://www.bloomberg.com/news/articles/2015-06-01/nigeria-s-interswitch-considers-selling-stock-in-london-lagos">Interswitch may IPO in 2016</a>.</li>
 	<li><strong>While the buzz around fintech is now centered around payments, we see massive opportunities across a broader array of financial services.</strong> In particular, <a href="http://www.accion.org/accion-venture-lab-invests-in-kenyan-start-up-umati-capital/">small and medium enterprise (SME) finance </a>continues to be a major gap across these markets and we’d love to see more entrepreneurs addresses challenges there.</li>
 	<li><strong>Human capital</strong> is a huge need — how can ecosystems encourage entrepreneurship and attract talent with both the experience and the ideas to succeed?</li>
</ol>
These are all topics Venture Lab will be thinking more about in the new year. Stay tuned as we explore more of the opportunities and challenges in the region. And we’re excited to continue to meet entrepreneurs across West Africa in 2016!