<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

When financial sectors are buffeted by sudden and dramatic external shocks, regulators strive to implement targeted regulatory responses to mitigate negative impacts -- and the shocks made by the pandemic were no exception.

The aim of this policy report is to examine the types of regulatory flexibility adopted in response to the pandemic and provide early evidence on the impact of these measures.
<h3>The Purpose of This Report</h3>
Based on desk research and interviews and exchanges with regulators and financial service providers (FSPs), this paper aims for the following:
<ul>
 	<li>Describe the main types of regulatory flexibility adopted in developing and emerging economies as a response to the pandemic.</li>
 	<li>Provide preliminary evidence of how regulatory flexibility has impacted low-income financial consumers and micro and small enterprises (MSEs), as well as the FSPs that serve them.</li>
 	<li>Draw some emerging lessons for regulators seeking to better prepare for the future.</li>
</ul>
This is the third in a <a href="https://www.centerforfinancialinclusion.org/series/policy-responses-to-covid-19-their-impacts-on-low-income-customers" target="_blank" rel="noopener noreferrer">series of policy papers</a> that aims to analyze policy responses to COVID-19 to assess the impact of policies, both in the short- and long-term, on low-income customers of financial services and the financial service providers that work with them.

Regulatory Flexibility During the Pandemic: Emerging Lessons

Following nearly a year of limited direct access to the lives of the vulnerable people who are the subject of his research, Prof. <a href="https://wagner.nyu.edu/community/faculty/jonathan-j-morduch" target="_blank" rel="noopener noreferrer">Jonathan Morduch</a> -- economist, co-founder of the <a href="https://www.financialaccess.org/" target="_blank" rel="noopener noreferrer">Financial Access Initiative</a> (FAI), scholar of the lives of the poor and <a href="https://centerforfinancialinclusion.org/about/advisory-council/" target="_blank" rel="noopener noreferrer">CFI Advisory Council</a> member – has been working beside a white-hot forge of projects, continuing to help shape the global body of knowledge about the lives that inclusive finance seeks to improve.

“It’s been a very busy time, even though we haven’t been able to do what we really want to do, which is being in the field: doing surveys, doing research, getting to know people and better understand problems.”

For Prof. Morduch and his <a href="https://www.financialaccess.org/about" target="_blank" rel="noopener noreferrer">team</a>, co-led by Timothy Ogden, that’s meant building partnerships and assembling teams for four different projects focusing on people from a range of backgrounds: from ultra-poor workers migrating to Dhaka from northwest Bangladesh, to families in Compton, California, struggling in a pandemic-scarred economy.
<h2>Small Firm Diaries: Applying the “Portfolios” Model</h2>
Perhaps the most visible of these so far is the <a href="https://www.smallfirmdiaries.org/" target="_blank" rel="noopener noreferrer">Small Firm Diaries</a> project. Morduch, co-author of “<a href="https://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/0691148198" target="_blank" rel="noopener noreferrer">Portfolios of the Poor</a>” and <a href="https://www.usfinancialdiaries.org/" target="_blank" rel="noopener noreferrer">U.S. Financial Diaries</a>, is part of a team that will apply the financial diaries model -- collecting data from hundreds of poor households frequently and regularly over a long period of time (at least a year) -- to firms with 1 to 20 employees, in contrast to CFI’s <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">research</a> on MSMEs, which has been focused on collecting and analyzing survey data on COVID-19's impact on the financial health of owners of a broader range of business sizes.

“There’s a lot of great research available on small firms from different angles – liquidity, gender, how they use digital services... The diaries instead present a chance to look at firms holistically, without imposing a particular agenda from the start. The diaries are a way to understand the lives of firms and whom they employ, whom they serve – and whom they are served by – and try to understand them on their own terms.”
<blockquote>The diaries present a chance to look at firms holistically, without imposing a particular agenda from the start.</blockquote>
With financial support from the Mastercard Center for Inclusive Growth, the Bill &amp; Melinda Gates Foundation, and the Argidius Foundation, the team will collect data for one year from firms in Colombia, Fiji, Indonesia, Kenya, Ethiopia, Uganda and Nigeria. In addition to following cash flows, the researchers will also complete qualitative interviews in roughly 100 households per country from a variety of sectors.
<h2>From South Asian Cities: Researching Digital Remittances Back Home</h2>
A second project Prof. Morduch is leading is digitally connected and builds on a <a href="https://www.aeaweb.org/articles?id=10.1257/app.20190067" target="_blank" rel="noopener noreferrer">pilot in Bangladesh</a> that connected ultra-poor families – whose working-aged children were employed mostly in garment factories in Dhaka and who were largely excluded from technology -- with digital networks to send money home easily. This pilot intervention revealed a 25 percent boost in money going to home villages; the team also found that consumption was smoothed during the lean season and increased overall. The project was spearheaded to fill a knowledge gap in the impact of domestic remittances. Beyond the numbers, it has also changed the way Prof. Morduch has viewed microfinance interventions, which have traditionally been about bringing resources like microcredit to grow businesses in villages.

“This project shows other ways to improve rural conditions. One is to make it easier for younger people to move to cities where they can be more productive and earn higher wages. What about the people who are left behind in rural areas? They can benefit if migrants have reliable ways to send money home.” In addition to introducing the technology to urban migrants and their rural families, the team translated the digital interfaces (which were mostly in English) and gave users hands-on experience. The initial result? Active use of the product went from 20 percent to 70 percent.

The team hypothesized that urban-to-rural remittances would become more frequent as a result of the digital ease of transacting. Surprisingly, the frequency remained largely the same, but the amounts grew.

While the financial and usage results were positive, the treatment group of migrants reported worsened physical and emotional health. The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.
<blockquote class="pullquote--left">The team suspects that migrants started working longer hours as expectations to remit were increased by the digital technology.</blockquote>
“It’s a reminder that digital financial services can disrupt social relationships. All of a sudden, migrants are available to their families all the time, both to talk and to send money. This changes how we go through life. These technologies can be powerful, but they disturb a social balance.”

With support from the Bill &amp; Melinda Gates Foundation, the team will replicate the work in six other sites in India, Pakistan and Bangladesh.
<h2>To the Homes of Compton: A Guaranteed-Income RCT</h2>
Prof. Morduch is also part of a group that’s working on a guaranteed-income randomized control trial in Compton, California, involving several hundred families whose incomes are below twice the U.S. poverty line. The purpose of this RCT is to test a premise about <a href="https://www.youtube.com/watch?v=Yw4jRO5rYf8" target="_blank" rel="noopener noreferrer">being poor and facing instability</a>: while financial services’ role in smoothing consumption via saving and borrowing is critical, the poor also need a “<a href="https://www.microsave.net/files/pdf/BN_13_Money_Managers_The_Poor_and_Their_Savings.pdf" target="_blank" rel="noopener noreferrer">usefully large sum</a>” from time to time.

As Morduch says, families need to both “smooth” and “spike” during the year.

“These are different savings problems. We tend to focus on smoothing, but both smoothing and spiking are really hard for poorer households, and they call for different solutions.” So for the duration of the experiment, some families will get a check every couple of weeks (smoothing), and another group will get a larger disbursement of funds less frequently, which Prof. Morduch and his collaborators hope will allow them to support important purchases.

Morduch points out that even though the U.S. has the Earned Income Tax Credit (a <em>de facto</em> lump sum payment in the form of a tax refund) and programs -- like SNAP -- to support food purchases for low-income families (a smoothing mechanism), “we never really step back and think about them as financial mechanisms, and that’s what the Compton project is all about.”

Indeed, thinking about stability’s role has been a common theme throughout his planning and executing of projects. “One of the great inequalities in life is that people who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”
<blockquote class="pullquote--right">"People who have better paying jobs also have more stable jobs. People who earn the least have the least protection and stability.”</blockquote>
With that instability and seasonality of employment for the poor, there needs to be more frequent measurements to understand poverty, be them quarterly, or monthly, as opposed to yearly. And the kind of instabilities we saw in "Portfolios of the Poor" are also faced by American workers as the power of labor (i.e., declining unions, <a href="https://www.investopedia.com/terms/m/monopsony.asp" target="_blank" rel="noopener noreferrer">monosponies</a>) falls away, Morduch points out. The Compton project could help inform ways to better collect data frequently.
<h2>A New Primer on Financial Inclusion</h2>
As if that weren’t enough to keep them busy, a new book is also in the works. "Financial Inclusion: What Everyone Needs to Know," by Prof. Morduch and Ogden, will be an explainer organized in Q &amp; A form, a chance for the pair to “pull together ideas and evidence that we talk about all the time, but that may be new to readers.” Prof. Morduch pointed out that while organizations like CFI implicitly explain topics by offering solutions, a book that explains the problems for a broader audience will help advance financial inclusion objectives even more. The book is slated for fall 2021 release.
<h2>CFI’s Strategic Shift</h2>
In some ways, Prof. Morduch’s strategizing and planning is similar to that undertaken by CFI, for whom he has advised for many years. And the excitement is shared.

“CFI’s strategic priorities show an organization that’s truly looking forward, while also looking back. CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”
<blockquote>"CFI is not losing sight of unfinished agendas in women’s financial inclusion and consumer protection while looking forward to challenges like climate risk, where there doesn’t yet exist a well-formulated agenda.”</blockquote>
For the latter topic, Morduch urges CFI to make it clear why climate risk is important for people concerned with financial inclusion. “If everyone worried about finance also understands why they should get excited about climate risk, then they will follow CFI, and they will push CFI to push harder, and I am excited about that possibility.”
<h2>Wanted: Closer Public Sector Involvement</h2>
Whether it’s CFI, FAI or other organizations advocating for inclusive finance, Morduch believes that public sector interventions need more prominence.

“The microfinance ethos, in some sense, got us off on the wrong foot. It seemed very anti-government in the beginning -- a private sector intervention. Politically, that was aligned with the moment, but it cut off important conversations. Instead of minimizing connections to public action, financial inclusion should be coming alongside steps by governments to support citizens. That’s one of the great omissions of the financial inclusion conversation: it has been too optimistic about the power of finance alone to address inequality.”

We at CFI agree that the conversation must go beyond private sector interventions: “How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances?” Mayada El-Zoghbi, CFI Managing Director, <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">asked</a> readers of this blog last June.

And we’re looking forward to learning and comparing what we’ve discovered.

Prof. Jonathan Morduch’s Four New Projects

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

<em>For Telenor Group, the key to fostering inclusive digital finance is collaboration and open technologies.</em>

<em>&gt; Posted by <a href="https://twitter.com/jostemb">Johanna Stemberger</a>, Telenor Financial Services</em>

The digitization of the financial services industry is in full swing. Seamless in-app payments enable smartphone users to pay for rides, tickets, food, etc. with just one click.
<img class=" size-medium wp-image-24565 alignright" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/telenor-ezytic.jpg?w=600" alt="Pay with Wave Money Ad" width="300" height="150" />In emerging markets, where most of the world’s 2 billion adults without bank accounts live, basic financial services have improved over the last decade: mobile operators and banks enable customers to store and transfer funds using their mobile phones. Still, developers and digital innovators struggle to reach users in these cash-based markets.
How can we foster innovation in financial technology for low-income consumers through products and services that promote digital financial inclusion? Telenor Group believes the answer to this question is to collaborate and open up. We’re going to discuss two examples below.

<h3><strong>Accelerating the Pace of Financial Innovation With Open APIs</strong></h3>
Telenor Group joined the mobile financial services industry in 2009, when we launched the mobile money service Easypaisa in Pakistan together with Tameer Bank (now Telenor Microfinance Bank). In 2016, <a href="https://www.wavemoney.com.mm">Wave Money</a> – a joint venture between Telenor, Yoma Bank and First Myanmar Investment – entered Myanmar as its first licensed mobile money operator. Today, Telenor serves more than 20 million mobile money customers in Pakistan, Myanmar, Bangladesh and Malaysia. And now we are giving fintechs and innovators access to our mobile financial services platforms in Pakistan and Myanmar via open APIs. “The local startup scenes in Pakistan and Myanmar bring great solutions with the potential to improve people’s lives. Many local fintechs have already experienced complex integration processes with large providers, and we were no exception. But when they use our open APIs, they can reduce their effort and cost of integrating as well as accelerate the pace of innovation,” explained Roar Bjærum, Head of Telenor Financial Services. “Everyone benefits,” he continued. “Innovators can monetize and scale their products, and our customers can access digital services they previously could not.”

APIs allow two software programs to communicate with each other. In the case of mobile money, the API defines the way a developer should write a program that successfully requests services from the mobile money platform. For example, this would allow an application like Uber or Amazon to link directly to a mobile wallet instead of a credit card or bank account.
<h3><strong>Wave Money Developer Portal –Myanmar </strong></h3>
[caption id="attachment_24571" align="alignright" width="300"]<img class="alignnone size-medium wp-image-24571" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/telenor-wave-money-developer-portal.jpg?w=600" alt="Wave Money's Developer Portal sign up screen" width="300" height="241" /> Wave Money's Developer Portal[/caption]

Wave Money, Myanmar’s leading mobile financial services provider, enables its customers to send and receive money and buy airtime via a smartphone app or at one of the 12,500 Wave shops.

In a country where more than 80 percent of the population does not have a bank account and payments are done almost exclusively with cash, the growing e-commerce and digital services scene was quickly interested in linking to Wave’s system.

As a first step, Wave launched “Pay with Wave Money,” a product enabling e-commerce players to plug in payment functionality to their websites and apps. However, the integration process was manual and therefore hard to scale. They then came up with the idea to build the Developer Portal as the <a href="http://fintechnews.sg/13434/myanmar/wave-money-first-fintech-company-myanmar-launch-open-api-linking-merchants-customers/">first fintech open API in Myanmar</a><u>.</u> Merchants can integrate themselves by entering specific information and uploading the necessary documents. By availing the open API, hundreds more merchants can access this payment functionality far more quickly and easily—a significant step towards building a cashless economy in Myanmar.
<h3><strong>First Asian Mobile Money Hackathon – Pakistan </strong></h3>
<a href="https://www.telenorbank.pk/index.html">Telenor Microfinance Bank</a>, which runs Pakistan’s leading mobile money service Easypaisa, has also opened up access to its platform, using the harmonized set of mobile money APIs designed by industry stakeholders around the globe. This October, together with the <a href="https://www.gsma.com/mobilefordevelopment/programme/mobile-money/mobile-money-hackathon-coming-karachi">GSMA</a>, JazzCash and Karandaaz, Telenor Microfinance Bank invited developers to participate at a mobile money hackathon, a weekend challenge of testing and building solutions connected to merchant and bill payments.

13 teams participated and presented their ideas, ranging from e-challan (electronic statutory payments) to pay-bots for Facebook Messenger. The winning team proposed a solution geared towards families and the educational sector: it enables parents to directly pay school fees with their mobile phones, to pay for meals at school cantinas, to monitor food consumption to ensure a healthy diet, and to communicate directly with teachers.

[caption id="attachment_24575" align="aligncenter" width="548"]<img class="alignnone size-full wp-image-24575" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/telenor-winning-team.jpg" alt="Shahid Mustafa, President and CEO, Telenor Microfinance Bank, with the winning team." width="548" height="335" /> Shahid Mustafa, President and CEO, Telenor Microfinance Bank, with the winning team. Source: Telenor[/caption]

It is too early to know the impact of such third party services on the overall levels of financial inclusion in Pakistan and Myanmar. The significant interest and motivation that both Wave Money and Telenor Microfinance Bank experienced during their first interactions with the digital community indicates that soon, consumers in emerging markets may have access to a broad set of innovative, inclusive digital services.
<p style="text-align: center">****</p>
<em>Telenor is participating in <a href="http://www.financialinclusionweek.org">Financial Inclusion Week 2017</a>, where organizations around the globe join the global conversation on the most important steps to advance financial inclusion. J</em><em>oin the discussion on Twitter using #FinclusionWeek.</em>

Telenor Opens Mobile Money APIs for Third Party Developers

This was the question that a team of us at The Fletcher School at Tufts University set out to answer in our study “<a href="http://fletcher.tufts.edu/Institute-for-Human-Security/Research/Migration-Crisis-and-State-Fragility/Financial-Mobility-of-Refugees">The Financial Journey of Refugees</a>.” We studied the routes and financial challenges of more than 100 refugees in Greece, Jordan and Turkey, between July 2016 and April 2017. The refugees we interviewed had traveled from South Asia, Central Asia, the Middle East, East Africa and West Africa.

Regardless of their country of origin, with the exception of Syria, a refugee’s biggest expense was the cost of hiring a smuggler. Smuggling expenses ran about 85 percent of the total cost of the journey. The smuggler’s fee included important services: travel by air or overland, depending on the refugee’s budget, guide services across borders, payment of bribes at border crossings, and documentation falsification expenses. Smuggling prices varied widely by country of origin (some borders being porous, others sealed tight), by how deluxe a trip was (air versus ground), by numbers of borders crossed (affecting the number of falsified IDs required). To give an example, journeying overland from Afghanistan through Pakistan, Iran, and Turkey to Greece might cost $7,500 per person, a price that went up or down based on shifting rules and border crackdowns. Traveling from Eritrea to Greece might cost the same amount. Traveling from Syria to Turkey could cost as little as $500.

The price of the journey was one factor in a traveler’s safety – the higher the cost, the better the traveling modes, and the safer the travel. While <em>what</em> refugees paid their smuggler was important, <em>how</em> they paid them was equally important. Did the refugee pre-pay the kingpin smuggler in advance of the journey? Did she post-pay him after arriving safely in Greece or Germany? Did she pay leg by leg? All these strategies were in play and we outline them in our <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Human%20Security/Final%20Journeys_Briefing%20Paper.pdf">report summary</a> and they are detailed by the refugees themselves in a <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Human%20Security/Compendium%20Financial%20Journeys%20%20Publication.pdf">Compendium of Field Notes</a>. Below we describe two of many strategies.
<h3><strong>Strategy 1: Guarantee Scheme via a Financial Third Party</strong></h3>
Money agent networks, often informal, span from Pakistan to Germany, and around the world. These networks—dubbed Eastern Union by a Jordanian regulator—do far more than transfer funds from person A to person B. They will store funds for later disbursement or, if instructed, will shunt funds directly to smugglers. For example, a journeyer traveling overland from Kabul to Athens might visit a money agent in Kabul (a saraf) who will take her deposit for $7,500. When she arrives safely to her first waypoint, which could be in Zahedan, Iran, she texts a code to her saraf. The code, incidentally, would have been randomly generated by the saraf’s app before her departure and she would have memorized it. By sending the code, the refugee signals her safe arrival at the Zahedan waypoint. The saraf then forwards a predetermined sum to the kingpin smuggler, using a network of couriers and other money agents to get him his funds. The kingpin in turn deploys a combination of banks and money agents to make sure his local smugglers get paid.

There is no single way this system of guarantee works. It is customized, improvised upon, and individually negotiated by various actors. In some instances, there is no code. In others, there are several codes. In some instances, the kingpin smuggler chooses the saraf. In others, the refugee chooses the saraf. In Syria, the third party is often a shopkeeper who charges $50 to insure the journey. In Iran, the money agent charges a percentage (often 10 percent) of transactions.
<h3><strong>Strategy 2: Crowdsourcing via Kin</strong></h3>
Typically, crowdsourcing via kin is a pre-payment strategy, but not always. We interviewed refugees who were held hostage by smugglers at various points along their routes. When relatives—sometimes a circle of relatives both forward and backward along the route—paid up, the hostage refugee was released to be smuggled farther along her route.

Often crowdsourcing came in the form of pre-payments along various points in a route. For example, traveling from Eritrea to Greece, a journeyer might signal a relative in Khartoum to fund trip expenses. The relative in Khartoum would crowdsource funds from family members in multiple countries across Europe and North America. She might use Zain, a mobile money system, to collect the funds and hold them in Khartoum. She would then secure a smuggling network to help the Eritrean refugee cross to Sudan. The kingpin smuggler would be paid via a courier upon the refugee’s safe arrival in Khartoum. If the Eritrean refugee wanted to continue north to Turkey, Greece or Northern Europe, another round of crowdsourcing would begin. Again, the relative would make payment to the smuggler after the refugee’s safe arrival. In some cases, to ensure compensation, the smuggler will stay with the refugee in a safe house until he has received his payment via Western Union or an informal money agent.

Said one refugee: “It’s a collective system. All Eritreans understand each other on this.” The understanding is that she does not have to pay her relatives back, but she is expected to pay her debt forward: when someone else in her network tries to escape Eritrea, she is expected to do her part to financially support his or her expenses.

What do these strategies mean for providers of financial services? Clearly suppliers cannot legally, knowingly pay smugglers. But, perhaps there are other forms of financial assistance that are perfectly legal.

First, licit travel is often part of a route and could be better insured. For example, a refugee may be able to obtain a visa to a transit country and would like to secure legal travel there. But, because prior legs of the journey may be cobbled together through smugglers, the refugee cannot predict when they will reach the transit country. Insurance could help offset this uncertainty. Too often providers are skeptical that people need financial education to understand sophisticated insurance products. As long as the systems are familiar and offer value, refugees both literate and illiterate, will master them quickly. Second, providers believe that people don’t like to save, but, we found that saving for a purpose—journey preparation—is valuable. Surely, there are many legal ways to assist refugees to accumulate savings for journey purposes. And just as surely, clever suppliers could find ways for refugees to easily access those licit savings along their journey. Third, the ubiquity of informal agents could lead to service expansion. Can trusted informal money agents be co-opted and certified within a legal framework in much the same way that Uber has recruited its drivers?

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/03/09/the-digital-demands-of-the-displaced-dont-track-me-dont-expose-me-dont-cut-me-off/">The Digital Demands of the Displaced: Don't Track Me, Don't Expose Me, Don't Cut Me Off</a>

<a href="https://cfi-blog.org/2016/02/09/financial-inclusion-and-immigration-in-europe-disrupting-identity-norms/">Financial Inclusion and Immigration in Europe – Disrupting Identity Norms</a>

<a href="https://cfi-blog.org/2016/08/17/a-learners-license-to-master-the-rules-of-the-credit-road/">A Learner's License, To Master the Rules of the Credit Road</a>

Migration’s Middlemen and How to Pay Them

<em>&gt; Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, Intermedia</em>

<a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/"><img class="alignright wp-image-24118" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/8119464904_79beccb1d8_z.jpg?w=490" alt="" width="324" height="225" /></a>The State Bank of Pakistan’s (SBP) <a href="http://www.afi-global.org/sites/default/files/publications/national-financial-inclusion-strategy-pakistan.pdf">National Financial Inclusion Strategy</a> (NFIS), launched in May 2015, set an ambitious goal of expanding access to financial services from 10 percent of adults to at least 50 percent by the year 2020. Intermedia’s newly-released Financial Inclusion Insights (FII) data suggests that, as of 2016, Pakistan’s progress was not yet on a trajectory to get to 50 percent. It also suggests ways Pakistan could improve the rate of progress.

FII’s new <a href="http://finclusion.org/uploads/file/Pakistan%20Wave%204%20Report%2019-July-2017.pdf">2016 Pakistan Annual Report and Survey Data</a> finds that financial access rose only incrementally, from 15 percent to 16 percent, in 2016. More than 45 million more adults would need to take up a formal financial account for the country to achieve 50 percent financial inclusion as defined by the NFIS. Further, even if access is improved, registration and regular use of accounts may lag and prove a steeper climb. The percentage of adults holding registered accounts with a full-service financial institution did not increase at all over the last year, measuring 9 percent in 2015 and 2016. Similarly, active registered users over the same period remained unchanged at 8 percent.

<strong>However, these figures could be improved if the gap between the formal products on the market and Pakistanis’ actual, day-to-day financial needs and preferences is addressed, FII data indicates</strong>.

Our data show that even though formal access and inclusion levels are low, many Pakistanis’ have active financial lives outside the formal sector. For instance, the 2016 FII survey showed that more than half of survey respondents had actively built savings at least once in their lives, and one in two adults without access to formal financial services had saved. People saved for emergency funds (62 percent), to make ends meet (57 percent), and to buttress their families against financial losses related to crime (42 percent), among other less common reasons. Similarly, 20 percent of Pakistani adults have borrowed before, either formally or informally - most often for emergency spending and daily purchases.

Clearly, Pakistanis are saving, borrowing, and transacting on a daily basis. Yet, for the most part, they are doing so in cash and via informal financial services rather than through formal institutions. In fact, 77 percent of Pakistani adults who save do so in the form of cash at home and 20 percent use Rotating Credit and Savings Associations (ROSCAs). An increasing number of people are using formal digital financial services (DFS) channels, but many do not register personal accounts, preferring over-the-counter (OTC) options instead. In 2016, while less than 1 percent of Pakistani adults had registered a mobile money account, nearly 10 percent were mobile money users, with 93 percent of mobile money use being OTC.

<strong>What will be the key levers for building momentum towards improved access and account registration and usage?</strong>

<strong>Design products and services that better reflect Pakistanis’ needs and daily lives. </strong>Despite relatively high awareness of formal financial services, survey respondents had a very low perceived need for them. In fact, 84 percent of Pakistanis who did not use any formal financial services said the main reason was they did not see a need. If your neighborhood merchants accepted only cash, ATMs were scarce, and opening a savings account required a long wait, wouldn’t you prefer to hold cash at home? Respondents’ second-most cited reason for not using a bank account was the perception that they did not have enough money to make transactions (see figure below). This common sentiment could reflect the kinds of products and services currently offered, and their costs and minimum requirements. Expanding access and usage could be aided through client-centric design, investment in infrastructure such as ATMs and other points of service, and deepening merchant acceptance of non-cash transaction tools.

[caption id="attachment_24111" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-1.png"><img class="wp-image-24111" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-1.png?w=490" alt="" width="616" height="242" /></a> (click to enlarge)[/caption]

<strong>To improve DFS use, support access to phone ownership and the development of phone skills. </strong>In 2016, while 76 percent of Pakistani adults were aware of mobile money providers and almost two in three Pakistani adults knew of a mobile money kiosk or agent within a kilometer of their homes, the conversion rate from awareness to use was a tiny 0.11 percent. This low conversion rate reflects, in part, the lack of ability to fulfill the preconditions for use of mobile money:  In Pakistan, only 52 percent of the population owns a SIM card and only 44 percent have the ability to send and receive a text. Addressing these gaps could help ensure that common transactions such as P2P and bill pay can be done through a mobile money account and without the OTC assistance of an agent.

<strong>Invest in women’s access to phones, their mobile phone skills, , and programs that address social norms. </strong>The findings speak for themselves. In 2016, the gender gap in financial inclusion in Pakistan climbed back to the 2014 level of 8 percent, after falling to 5 percent in 2015. As shown in the figure below, the gap in the country is pervasive across all stages of the customer journey and across all demographics (poverty, education, geography, age and marital status).

[caption id="attachment_24112" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-2.png"><img class="wp-image-24112" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-2.png?w=490" alt="" width="615" height="224" /></a> (click to enlarge)[/caption]

Gender continues to be a key demographic differentiator in bank account registration where the gap between women and men increased from 5 percent to 7 percent between 2015 and 2016. Among Pakistani women, urban, wealthy and highly educated women reported registering accounts most frequently. However, women within these privileged demographics reported registering less frequently than poor, rural men.  One of the biggest factors behind the gender gap in Pakistan is women’s lack of agency and decision-making power, as illustrated in the figures below.

[caption id="attachment_24114" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-3.png"><img class="wp-image-24114" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-3.png?w=490" alt="" width="615" height="231" /></a> (click to enlarge)[/caption]

[caption id="attachment_24115" align="aligncenter" width="614"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-4.png"><img class="wp-image-24115" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-4.png?w=490" alt="" width="614" height="200" /></a> (click to enlarge)[/caption]

[caption id="attachment_24116" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-5.png"><img class="wp-image-24116" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/figure-5.png?w=490" alt="" width="616" height="233" /></a> (click to enlarge)[/caption]

Only 16 percent of women in Pakistan who have an income from the formal economy have sole control over how they use their money (compared to 44 percent of men), and less than 20 percent of women have control over how to use household assets or household spending. While 88 percent of married men have access to a phone, only 65 percent of married women do. In terms of SIM card ownership, 57 percent of men own a SIM card, while only 27 percent of women do. Finally, as the State Bank of Pakistan continues to promote DFS, it is important to address the current phone skills gap across genders; 57 percent of men were able to send and receive a text versus only 30 percent of women.

Government policies and initiatives in support of financial inclusion are key for advancing access and usage of financial services. Yet, as the data show, progress can be slow when contending with historical barriers to inclusion and competing against informal services. To achieve the NFIS goals, stakeholders will need to address the lack of financial literacy, technological capabilities, and phone access, particularly among women. Additionally, given the active financial lives described by the FII Annual Report, formal products must be tailored to better meet the needs of Pakistanis who are currently using cash and relying on friends and family to save, borrow and protect themselves against risk.

What recommendations do you derive from the data? <a href="mailto:vandewallen@intermedia.org">We’d love to hear from you</a>.

<a href="http://www.finclusion.org"><em>Financial Inclusion Insights</em></a><em> is an ongoing research program funded by the Bill &amp; Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries in Africa and Asia. The 2016 Pakistan Annual Report can be found </em><a href="http://finclusion.org/uploads/file/Pakistan%20Wave%204%20Report%2019-July-2017.pdf"><em>here</em></a><em>.</em>

<em>Image credit: <a href="https://www.flickr.com/photos/worldbank/8119464904/in/album-72157603951235569/">World Bank</a></em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/04/20/g2p-and-gender-when-will-pakistani-women-be-able-to-withdraw-their-own-money/">G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?</a>

<a href="https://open.spotify.com/track/2dnoG56c2llppkz2IPtt3G">Gauging Loan Officers’ Perspectives: A Study by Pakistan Microfinance Network</a>

<a href="https://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients from Benin, Pakistan, Peru, and Georgia</a>

How to Accelerate Financial Inclusion in Pakistan: Lessons from the New Financial Inclusion Insights Data

Alex Qian

Senior Investment Officer, Accion Global Investments 

Sarah Sassoon

Portfolio and Investments Associate

Tahira Dosani

Former Managing Director, Accion Venture Lab

Matthew  Schaar

Paarul Dudeja

Virginia Moore

Pakistan

South Asia

Kenya

Sub-Saharan Africa

Tanzania

Colombia

Costa Rica

Egypt, Arab Rep.

Honduras

India

Peru

Philippines

Access Usage Gap

Credit

Delivery Channels

Digital Financial Services

Enabling Environment

Financial Service Providers

Fintechs

Human Centered Design

Impact Investing

MSME/SME Finance

Underserved Groups

Entrepreneurs of MSMEs

Financial Technology

Challenges and Crises

Consumer Protection

Digital Credit

Mobile Banking

Payments

Responsible Digital Finance

Responsible Investing

Telcos

Nano Loans

Policy, Regulation and Government Initiatives

Trends

Video

Article

[embed]https://youtu.be/sQ_4qp0PdZk[/embed]

“It enables truck drivers to be businessmen, versus the way they are now, which is daily wage laborers,” said Mishal Adamjee, Co-Founders of Trukkr, an online logistics platform aiming to revolutionize Pakistan trucking sector.

Read more about <a href="https://www.reuters.com/markets/asia/pakistani-fintech-startup-trukkr-raises-64-mln-gets-lending-licence-2023-03-07/" target="_blank" rel="noopener noreferrer">Accion Venture Lab's investment in Trukkr</a>.

Here's <a href="https://www.accion.org/digital-solutions-for-pakistans-small-trucking-businesses" target="_blank" rel="noopener noreferrer">why we invested in Trukkr</a>.

Inclusive fintech leader stories: Mishal Adamjee, Co-Founder of Trukkr

<img class="wp-image-27796 alignright" src="https://content.accion.org/wp-content/uploads/2023/03/3-Truck-1024x1024.jpeg" alt="A truck in Pakistan" width="415" height="415" />

Across Pakistan, hundreds of thousands of truck drivers are hired by corporate clients to transport goods throughout the country. The vast majority of the country’s trucking companies are family-owned small businesses that own just a few trucks and often lack the resources and financial support needed to strengthen their businesses. Now, technology is opening pathways to growth within the traditional logistics industry in Pakistan.

<a href="https://trukkr.pk/" target="_blank" rel="noopener noreferrer">Trukkr</a> is a Pakistan-based startup focused on solving the problems faced by micro, small, and medium sized (MSME) trucking companies and their corporate clients. Trukkr is our second investment in Pakistan and our first in the shipping and logistics industry worldwide. The company’s digital solutions are ready to revolutionize Pakistan’s trucking sector and open opportunities for drivers and businesses in the industry.
<h3>Speed bumps for MSME truckers and their clients</h3>
Pakistan’s trucking sector is stuck in the past. Most trucking businesses in the country are small operations that work with just two or three of their own trucks. They often have to cover operational expenses from their own pockets, as they can wait up to 90 days for clients to pay them for deliveries. This working capital crunch means that small-scale truckers cannot afford to take on new jobs, preventing them from growing their businesses in a scalable way.

Large corporations are also facing many obstacles. They cannot access technologically enabled tools that can map their end-to-end logistics processes. Trukkr found that the most significant challenges corporations face include a lack of data on the movement of goods, high incidences of pilferage, and difficulty finding trucks for spot consignments, among others.

Pakistan ranked 122 out of 160 in the <a href="https://lpi.worldbank.org/international/global" target="_blank" rel="noopener noreferrer">World Bank’s 2018 logistics performance index</a>, falling below other countries in the region, including India and Bangladesh, and achieved low scores in tracking, tracing, and timeliness. Trukkr is working hard to provide solutions to these key areas. By improving the sector across Pakistan, they’re also opening a wealth of opportunity for the company’s future and growth.
<h3>Delivering solutions for truckers in Pakistan</h3>
To solve these pain points, Trukkr has created an app that Pakistan’s trucking businesses can use to track trip-related expenses and invoices. Trukkr then uses the in-platform trucker data to underwrite financial services, beginning with working capital loans, for these MSMEs who otherwise lack access to financing. In the future, Trukkr aims to leverage platform data to design a full suite of digital financial services and products for its customers, including more sophisticated loan products, insurance products, and more.

On the other end, corporations use Trukkr’s Transport Management System (TMS) to track their shipments, post open jobs, and improve efficiency in moving their products. Both sets of stakeholders – truckers and shippers – meet in the middle on Trukkr’s platform, providing seamless and digitized communication between all parties involved.
<h3>In the driver’s seat</h3>
Accion Venture Lab first found out about Trukkr from <a href="https://www.linkedin.com/in/mishal-adamjee-77025b27/?originalSubdomain=pk" target="_blank" rel="noopener noreferrer">Mishal Adamjee</a>, one of its five co-founders. The company’s co-founder and CEO, Sheryar Bawany, has more than ten years of experience in Pakistan’s supply chain and logistics industry. His deep operational background working on the ground in the sector has allowed him to scale up the company’s customer acquisition strategy quickly.

Ali Reza Haji, co-founder and CFO, has worked across both finance and shipping and logistics globally. He previously worked at Nomura in London before returning home to Pakistan.

<a href="https://www.linkedin.com/in/kasra-zunnaiyyer-81698a112/" target="_blank" rel="noopener noreferrer">Kasra Zunnaiyyer</a>, Trukkr’s chief technology officer and another of the company’s co-founders, graduated in computer science at Karachi University, in Pakistan, before studying leadership and innovation at the Massachusetts Institute of Technology.

Trukkr’s CBO, co-founder <a href="https://www.linkedin.com/in/waqas-khatri-8aa878191/" target="_blank" rel="noopener noreferrer">Waqas Khatri</a>, has a background in engineering and biotechnology and excelled as the director of strategy and new initiatives at chemical company Ittehad Chemicals Limited before joining Trukkr.

The founders’ deep experience across their specific focus areas, which include supply chain and logistics, finance, and corporate strategy, is impressive. We appreciate their thoughtful approach, ease of communication, and honesty when admitting to challenges, and we are excited to partner with them.

Hear more about Trukkr from co-founder Mishal Adamjee:

[embed]https://youtu.be/sQ_4qp0PdZk[/embed]
<h3>Roadmap to success</h3>
With Pakistan’s trucking industry still largely analog, Trukkr sees a huge opportunity to digitize the industry and impact its stakeholders. Furthermore, as recent flooding devastated the country and displaced millions of people, efforts to rebuild will require streamlined logistics management, and Trukkr has only seen demand for its products increase in the months since the flooding began in August. With its new funding, the company plans to expand its business throughout Pakistan and grow its base of MSME truckers, and their corporate clients, in the process.

The coronavirus pandemic showed how much the world relies on global supply chains. At Accion Venture Lab, we want to bet on a company striving to tackle inefficiencies in a market filled with opportunities.

Trukkr is driving towards a bright future as the one-stop shop for Pakistan’s trucking industry, and we could not be more excited to join them on this journey.

<hr />

<em>Read more about Trukkr, the newest Accion Venture Lab portfolio company, in <a href="https://www.reuters.com/markets/asia/pakistani-fintech-startup-trukkr-raises-64-mln-gets-lending-licence-2023-03-07/" target="_blank" rel="noopener noreferrer">Reuters</a>.</em>

Digital solutions for Pakistan’s small trucking businesses

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

Around the world, especially across the African continent, people in underserved communities rely on local agents and merchants for basic financial services like cash-in-cash-out payments, airtime top-ups for mobile phones, and bill payments. Though these agents and merchants are the primary way people in these communities make essential financial transactions, up to 20 percent of these transactions fail due to a lack of electronic float (the digital money agents have available to conduct transactions). This is inconvenient for both parties: It means that agents face massive liquidity gaps, limiting their ability to extend financial services to communities, and customers are left without an immediate liquidity option.

This is where Kuunda comes in, and today, Accion Venture Lab is <a href="https://www.accion.org/kuunda-is-proud-to-announce-the-closing-of-2-25-million-in-seed-funding-in-december-2021-to-expand-access-to-liquidity-for-the-underserved" target="_blank" rel="noopener noreferrer">excited to announce our participation in their seed funding round</a>.

<a href="https://www.kuunda.com/" target="_blank" rel="noopener noreferrer">Kuunda</a>, an API-based lender, aims to provide liquidity services to agents, micro-merchants, and consumers across the world. There are currently over 300 mobile money platforms globally, half of which are active in Africa, which host approximately 6 million agents who provide financial services on behalf of larger institutions. Working as an agent can significantly impact the income of families. <a href="https://www.gsma.com/sotir/wp-content/uploads/2020/03/GSMA-State-of-the-Industry-Report-on-Mobile-Money-2019-Full-Report.pdf" target="_blank" rel="noopener noreferrer">One study from 2019</a> found that within a subset of 1.4 million agents, $1.1 billion in commissions was paid to agents, resulting in an average of $841 in additional annual income for each agent.

<span class="TextRun SCXW112690076 BCX8" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW112690076 BCX8">In addition to</span><span class="NormalTextRun SCXW112690076 BCX8"> supporting mobile money </span><span class="NormalTextRun SCXW112690076 BCX8">agents, </span><span class="NormalTextRun SpellingErrorV2Themed SCXW112690076 BCX8">Kuunda’s</span><span class="NormalTextRun SCXW112690076 BCX8"> lending model also supports </span><span class="NormalTextRun SCXW112690076 BCX8">micro, small, and medium-sized enterprises (</span><span class="NormalTextRun SCXW112690076 BCX8">MSMEs</span><span class="NormalTextRun SCXW112690076 BCX8">)</span><span class="NormalTextRun SCXW112690076 BCX8">,</span> <span class="NormalTextRun SCXW112690076 BCX8">primarily</span> <span class="NormalTextRun SCXW112690076 BCX8">focusing on reaching </span><span class="NormalTextRun SCXW112690076 BCX8">micro</span><span class="NormalTextRun SCXW112690076 BCX8">-</span><span class="NormalTextRun SCXW112690076 BCX8">merchants. </span><span class="NormalTextRun SCXW112690076 BCX8">MSMEs in emerging economies, especially microbusiness owners, struggle to get the financing they need to operate and grow their businesses. </span><span class="NormalTextRun SpellingErrorV2Themed SCXW112690076 BCX8">Kuunda</span> <span class="NormalTextRun SCXW112690076 BCX8">aim</span><span class="NormalTextRun SCXW112690076 BCX8">s</span><span class="NormalTextRun SCXW112690076 BCX8"> to </span><span class="NormalTextRun SCXW112690076 BCX8">help close </span><span class="NormalTextRun SCXW112690076 BCX8">the</span><span class="NormalTextRun SCXW112690076 BCX8"> gap in funding</span><span class="NormalTextRun SCXW112690076 BCX8"> for MSMEs</span><span class="NormalTextRun SCXW112690076 BCX8"> — </span></span><a class="Hyperlink SCXW112690076 BCX8" href="https://www.smefinanceforum.org/data-sites/msme-finance-gap" target="_blank" rel="noreferrer noopener"><span class="FieldRange SCXW112690076 BCX8"><span class="TextRun Underlined SCXW112690076 BCX8" lang="EN-US" xml:lang="EN-US" data-contrast="none"><span class="NormalTextRun SCXW112690076 BCX8" data-ccp-charstyle="Hyperlink">an estimated $5 trillion in unmet financing needs</span></span></span></a><span class="TextRun SCXW112690076 BCX8" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW112690076 BCX8"> — by providing financial services to </span><span class="NormalTextRun SCXW112690076 BCX8">underserved </span><span class="NormalTextRun SCXW112690076 BCX8">microbusinesses</span><span class="NormalTextRun SCXW112690076 BCX8">.</span> </span><span class="EOP SCXW112690076 BCX8" data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}"> </span>

Finally, Kuunda’s flexibility and ease of implementation has been applied at an individual customer level: In perhaps its greatest testament to this aspiration, Kuunda’s consumer overdraft product now serves over one million individual customers on the M-Pesa Tanzania network.

Andrew Milne, Sam Brawerman, and Morne van der Westhuizen — all veterans of the African mobile money sector — founded Kuunda in 2018 to reimagine liquidity management for underserved agents and micro-merchants. Kuunda’s solutions, including overdraft for airtime, mobile money, bill payment float, and credit products, address a critical pain point. Kuunda’s APIs simplify access to capital by allowing agents to top up their e-float with exact amounts needed for specific transactions, all seamlessly done at the push of a button within apps they already use to manage their businesses. Kuunda’s technology can also predict when an agent or merchant will need additional liquidity and can pre-determine their ability to repay or transact based on the agent’s credit score.

After initially launching in Tanzania, Kuunda has since expanded into Pakistan and plans to launch in Malawi, Zambia, Uganda, Kenya, DRC, Mozambique, Nigeria, and Egypt in the next 18 months. Kuunda’s model is well-positioned to succeed as the global economy pushes toward digitization and financial inclusion while leveraging the existing networks of mobile money agents and MSMEs in their communities. Accion Venture Lab is excited to invest in Kuunda for several reasons:
<h3>Partnerships that reach agents and MSMEs with critical financing at scale</h3>
Through their partnership model, Kuunda connects to large platforms that reach hundreds of thousands of agents and merchants. Kuunda’s seamless integration allows these MSMEs to gain access to credit and thus better serve their community. These corporate partners are trusted entities that agents interact with daily, so using a white-labeled lending service that sits on their own platform allows Kuunda to leverage preexisting tools that agents already use in a meaningful way. The ability for Kuunda to serve both telco-based agents as well as MSMEs is a key aspect of their growth in Pakistan. While the telecom sector is deeply fragmented in the country, Kuunda is building partnerships with several MSME service providers to build seamless and accessible financial services.
<h3>Superior technology that opens access to financing</h3>
We’ve seen several telcos and platforms attempt to launch their own lending product for agents or merchants and fail due to poor product design, ultimately leading to agent churn and a large loss of capital. With Kuunda’s deep experience in this space and nimble API plug-ins, they can help partners quickly and efficiently embed financing, cutting out the need for new product development on the partner’s side. This approach has helped reduce the time to launch a lending product from years down to a few months, and hopefully soon, it will be done in weeks. Through Kuunda, we’re excited to see embedded financial products managed at scale that ultimately increase retention of MSMEs on partner platforms. So far, we’ve seen that by increasing the number of transactions agents can process (and therefore, increasing the commissions they make), Kuunda increases agent retention and usage on partner platforms, offering a clear value proposition to all stakeholders in its ecosystem.
<h3>Unique, data-driven approach to design, price, and distribution</h3>
Kuunda sits between these B2B corporate partners and lending partners, allowing them to request, capture, and interpret unique data to better design, price, and distribute lending offerings. During the contracting phase, Kuunda works closely with their B2B partners to ensure they are gathering the right kind of data from that client’s platform to design credit offerings for either agents or merchants. From there, Kuunda liaises with the lending partners to ensure that portfolio quality will remain high. Once the product launches, Kuunda feeds data and insights back to their B2B and lending partners for ongoing project management and any future enhancements to the products.

In many communities around the world, MSMEs are the primary way for people to purchase food and essentials, withdraw cash, pay their bills, and purchase airtime for their phones. Solving MSMEs’ liquidity challenges means that more community members can reliably access to these critical financial products and services. We’re proud to support Kuunda’s journey as they leverage technology — and existing, robust networks of mobile money agents and partners — to help agents and MSMEs become more resilient, earn more income, and grow their businesses.

Embedded liquidity solutions unlock growth for microbusinesses

Pakistan is home to the third-largest population of unbanked adults in the world. More than half of the country’s population — 100 million adults — lack access to the fundamental financial tools they need to manage their daily lives, grow their businesses, and seize opportunities. Recognizing the vast opportunity to advance financial inclusion in the country, Accion Venture Lab has decided to make our first investment in Pakistan in <a href="https://www.tezfinancialservices.pk/">Tez Financial</a>. Tez aims to be an all-digital bank — the first of its kind in Pakistan. It will provide a full suite of banking services within one mobile application to the vast underbanked population of the country.

While financial services are still out of reach for too many in Pakistan, mobile connectivity is on the rise. GSMA estimates that by 2025 over 70 percent of the world’s population will have mobile phones, driven by developing countries like Pakistan, creating a vast potential for digital banking.

Tez intends to expand financial inclusion in Pakistan by leveraging this mobile infrastructure. It will initially offer its nano-credit product (short-term, small ticket loans), followed by three other products: nano-savings, nano-insurance, and nano-investments. Tez’s mobile application will collect phone and social media data to underwrite and disburse the loans instantly, via a digital wallet. By using these digital and mobile rails, coupled with its proprietary technology, Tez can make financial products feasible for the underserved at a large scale.

At Venture Lab, we’re most excited about a few core areas of traditional banking that Tez is poised to disrupt:

<strong>Making financial products for the underserved viable at scale: </strong>Tez is committed to helping those who haven’t been served by traditional financial products or even microfinance, where costly brick and mortar business structures make loans below a few hundred dollars unviable. By using an all-digital platform for acquisition and underwriting, Tez may be able to significantly lower costs and open up underwriting in a way that drastically expands financial access. It will be the first financial institution in Pakistan to use primarily digital means to acquire customers and purely digital means to underwrite and disburse loans. This digital-first loan process should allow Tez to bring increased transparency, affordability, access, and convenience to low-income Pakistanis.

<strong>Offering a comprehensive suite of financial products</strong>: The power of Tez lies in the potential of its quick, on-tap credit product to serve as a gateway to a full suite of financial products, including savings, insurance, and money management. With financial health in mind, Tez will also offer affordable life and health insurance bundled with its nano-credit product, eventually expanding to make these discrete and separate products. Elsewhere, neobanks such as <a href="https://moven.com/">Moven</a> and <a href="https://www.simple.com/">Simple</a> are leveraging similar all-mobile platforms to provide a full suite of lower-cost banking services. We are excited about this model’s potential to help users reach and maintain financial health in an incredibly underserved market.

<strong>Financial inclusion in a country that has a high need: </strong>As noted above, Tez will be Accion Venture Lab’s first investment in Pakistan, a country where inclusive financial innovation is sorely needed. In Pakistan, only about one in seven people have formal credit histories, and this valuable data is particularly scarce among the vulnerable population Tez hopes to serve. Given the low penetration of banking services, this population segment ends up relying on informal sources for financial help, which are often expensive and reliant on subjective lenders. Given Tez’s all-digital platform, it will help remove discrimination based on interpersonal subjectivity and make accessing affordable financial services less dependent on formal credit scores.

At Venture Lab, we’re glad to be working with the Tez team on their mission to provide banking services and financial products to low-income customers across Pakistan. Founder Nadeem Hussain is a veteran in the inclusion space, having founded and acted as CEO of Pakistan’s first and largest microfinance bank, Tameer Bank. Other founders, Naureen Hyat and Humza Hussain, bring both startup and impact experiences to the team.

<strong>There is a massive market opportunity to support Pakistan’s vast underbanked and underserved population, and we’re excited to support Tez’s effort to transform this space. </strong>We believe in their forward-thinking model and inclusive vision, and we look forward to supporting Tez as they provide products that can enable financial security for those who need it most.

Pakistan’s population is severely financially underserved. Tez hopes to change that.

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.

For the last 10 years, the <a href="http://www.centerforfinancialinclusion.org/microscope"><i>Global Microscope on Financial Inclusion</i></a> has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest <i>Global Microscope</i> takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.
<h2>The leaderboard</h2>
Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, Philippines, India, and Pakistan are longtime financial inclusion institutional and regulatory leaders.

With this much consistency in the leaderboard, the more fascinating stories may lie with this year’s “most improved players”: India, Costa Rica, Honduras, and Egypt. Each country has made notable progress on financial inclusion, but none more than India. With a national biometric identification system in place, continued progress on access and usage of bank accounts, an improved institutional framework and commitment to digital payments, India—already among the top countries—is increasingly seen as a model for ongoing progress.
<h2>Keys to success</h2>
<h3><b>Commitment and consistency matter. </b></h3>
An enabling environment for financial inclusion does not happen overnight. Colombia’s and India’s financial inclusion policy efforts predate even the first <i>Global Microscope</i>. Peru and Philippines signed on to the Maya Declaration, the first global platform for commitment to financial inclusion, back in 2011, with a small group of only 15 other countries. In short, it has taken years of concerted effort and political will for the top countries to earn and keep their spots in the <i>Global Microscope</i> index.
<h3><b>Broad-based policy pays off.</b></h3>
The <i>Global Microscope</i> measures 12 components of the financial sector, ranging from the level of government support to strength of dispute resolution mechanisms. None of the leading countries scored below 50 percent in any of the 12 components, and all but India achieved 100 percent in at least four components. (Colombia achieved perfect scores in a whopping eight components.) The leading countries demonstrate that you have to proceed on multiple fronts simultaneously to make meaningful progress in financial inclusion.
<h3>Consumer protection is a winning strategy.</h3>
Treating consumers right is an essential part of successful financial inclusion, but when it comes to fair treatment, especially mechanisms for airing and resolving customer complaints, most countries are underperforming. By contrast, leading countries prioritize consumer protection, and their scores show it. Colombia and Peru receive perfect scores in the consumer protection-focused components, and the rest of the leading countries rank in the top eight. Prioritizing consumer protection, as the leading countries have done, is a key to expanding financial inclusion.
<h2>Remaining challenges</h2>
<h3>Enforcement is limited.</h3>
Rules don’t mean much if you can’t enforce them, and that’s the story for many countries’ financial sectors. The average score for regulatory and supervisory capacity for financial inclusion, which spans credit portfolios, deposit-taking activities, insurance for low-income people and branch/agent models, is only 48 out of 100.
<h3>Consumer protection is especially weak.</h3>
Again, consumer protection is an area of particular weakness, constituting some of the lowest average scores in the index. For example, monitoring of consumer protection for insurance for low-income people netted an average score of just 15 out of 100. Most countries are grappling with widespread lack of market transparency and predatory sales and collection practices.
<h3>Usage still lags policy.</h3>
Countries like India and Philippines have successfully enacted policies to increase access to formal banking, but are still exploring how to get people to actually use the accounts they open. Those countries are pursuing tactics like government-to-person (G2P) transfers to build familiarity and instill the habit of using accounts. On the other hand, countries like China that are experiencing the fallout from unregulated peer-to-peer (P2P) lending are now exploring how to protect investors without prohibiting the flow of capital.

As the financial sector expands thanks to digital advances and new product offerings, the policy environment will also need to evolve accordingly. The <i>Global Microscope</i> continues to report what the policy environment for financial inclusion should entail.

<em>This post originally appeared on <a href="http://partners.wsj.com/metlife/multipliers/articles/financial-inclusions-best-in-class/">Multipliers of Prosperity</a>. </em>